For those seeking redress through litigation, obtaining a favorable judgment is often only the initial step in what can be a time-consuming process. While legal proceedings help settle disputes, such result may still be a long way off from the ultimate objective of full recovery of losses and associated costs. In practice, not every judgment is successfully enforced with recovery, particularly when the debtors are insolvent or incapable of fulfilling the judgment or award. There are also instances where ineffective enforcement results from claimants' failure to take adequate safeguards in the litigation process. This article highlights some key measures that can significantly enhance the prospects of successful recovery.

Preservation Measures

Preservation measures refer to interim remedies ordered by Chinese courts either during or prior to formal litigation. These generally fall into three categories: (1) evidence preservation, (2) asset preservation, and (3) conduct preservation. This article focuses on the latter two, which are grounded in Article 103 of the Civil Procedure Law of the People's Republic of China (in Chinese: 中华人民共和国民事诉讼法).

With respect to asset preservation, Chinese courts are generally more inclined to grant such orders compared to their counterparts in many other jurisdictions. That said, in certain types of disputes, such as those over intellectual property infringement, courts have shown, over time, a tendency toward stricter scrutiny of preservation applications. It is therefore crucial to submit solid reasoning and evidence to demonstrate the necessity of such measure, together with a proper guarantee to secure the measure.

Notably, asset preservation is worth consideration even if the opposing party seems financially sound. This is not only because the opposing party's financial condition may deteriorate over what can be lengthy proceedings, but also because asset freezing can exert significant pressure on the opponent, potentially facilitating a negotiated settlement between the disputed parties.

Conduct preservation orders, on the other hand, compel a respondent to perform, or refrain from, certain acts. While asset preservation aims to secure future monetary compensation, conduct preservation mainly seeks to halt ongoing or escalating harm, such as further infringement or dissipation of disputed property. Although Chinese courts apply relatively strict criteria in approving conduct preservation applications, this measure sees increasing use in commercial disputes, examples including deregistering companies to prevent respondents from evading liabilities or securing custody of company seals and disputed assets.

Inclusion of Additional Respondents

In some cases, a named respondent may lack the ability to satisfy a judgment, if, for example, it is a shell company with profits diverted to a parent entity. This is common in international trade disputes, where trading affiliates may hold few substantial assets.

When this occurs, to secure compensations resources, it is critical to name joint respondents at the outset. Common strategies include asserting joint liability against sole shareholders, affiliated entities, or successor entities following a corporate division. In tort-based claims, it may also be possible to allege joint liability among multiple parties involved. By expanding the scope of liable parties, claimants can broaden the asset pool to recover from, thereby improving the prospects of full recovery.

While including additional parties may also be possible during enforcement proceedings, it is subject to a few specific circumstances outlined under the Provisions of the Supreme People's Court on Several Issues Concerning the Modification and Addition of Parties in Civil Enforcement (in Chinese: 最高人民法院关于民事执行中变更、追加当事人若干问题的规定). In commercial cases, the common scenarios include, but are not limited to:

(1) Where the party subject to enforcement is terminated due to merger or consolidation, the surviving or newly established entity may be added;

(2) Where the party has undergone division, the entities resulting from the division may be added, unless a pre-division debt repayment agreement exists between the enforcement applicant and the party subject to enforcement;

(3) Where a for-profit legal person is unable to satisfy a debt with its own assets, shareholders or investors who have failed to make or fully make capital contributions, or promoters who bear joint contribution liability under the Company Law, may be added to the extent of the unpaid capital;

(4) Where a for-profit legal person is unable to pay its debts, shareholders or investors who have fraudulently withdrawn capital contributions may be added to the extent of the amounts withdrawn;

(5) Where a company cannot satisfy a judgment and its shareholders have failed to fulfill their equity contribution obligations, the original shareholders or promoters bearing joint contribution liability under the Company Law may be added;

(6) Where a company has been deregistered without liquidation, making liquidation impossible, shareholders of a limited liability company, or directors and controlling shareholders of a joint stock company, may be added; and

(7) Where a legal person or unincorporated organization is deregistered without lawful liquidation, and a third party has provided a written undertaking to pay its debts, that third party may be added and bear liabilities within the scope of its undertaking.

Although the law allows for the direct addition of such parties during enforcement, applications for adding parties during enforcement are treated as enforcement objection cases, which are scrutinized separately, and may be subject to reconsideration if challenged, potentially prolonging the process. Therefore, wherever feasible, including additional respondents during the trial phase is generally the preferable approach.

Key Takeaways

In conclusion, securing a favorable judgment is merely the first step toward achieving a meaningful legal victory. The ultimate goal (i.e., full recovery of losses and costs) often depends on the strategic and timely application of measures throughout the litigation process. As outlined, preservation measures and the inclusion of additional respondents are powerful tools that can significantly enhance the enforceability of a judgment. Whether through preemptive asset freezing, restraining certain behaviors, or expanding the scope of liable entities, these approaches not only mitigate the risk of non-performance but also strengthen the claimants' negotiating position.

In practice, the efficacy of these measures can be further amplified when deployed in conjunction with strategic negotiation, informed selection of forum, and other tailored litigation tactics. In an evolving judicial landscape, disputing parties should consider integrating these strategies early in the dispute resolution process. Proactive strategizing, supported by a thorough understanding of available enforcement options, remains essential to transforming a legal win on paper into actual recovery.