What to do before you file — the critical pre-action phase where disputes are often won or lost before a single pleading is submitted.
The decisions made in the days, weeks, and months before filing a claim — the choice of forum, the preservation of evidence, the freezing of assets, and the strategic sequencing of actions — often determine the outcome more than any argument advanced in the hearing room.
In China-related disputes, the pre-action phase carries heightened significance. Unlike common-law jurisdictions where extensive pre-trial discovery allows parties to develop their factual case after filing, Chinese civil procedure generally places the burden on each party to present its complete evidence at or shortly after the filing stage. There is no depositions process, no interrogatories, and no broad document discovery. What you can prove is limited to what you can document before you file, and the evidence you submit with your complaint largely defines the scope of the case. The window between the emergence of a dispute and the filing of a claim is therefore not a waiting period — it is the most active and consequential phase of the entire dispute lifecycle.
This page provides a structured framework for the pre-action phase: initial case assessment, forum selection, evidence preservation, asset tracing and freezing, demand letter strategy, statute of limitations analysis, and internal preparation. Each step builds on the last. Skipping steps — filing prematurely without preserved evidence, or delaying until key assets have been dissipated — is the most common and costly mistake we see foreign enterprises make.
Key Insight: The single most important piece of advice we give foreign clients facing a potential China dispute: call us before you notify the counterparty. Once the counterparty knows a dispute is coming, evidence may be destroyed, assets may be moved, and your strategic leverage may evaporate. The sequence of actions — preserve first, freeze second, notify third, file fourth — is not paranoia; it is the discipline that separates successful recoveries from hollow judgments.
The first step is a systematic mapping of the dispute landscape. Before any tactical decision, you need clarity on the legal terrain.
Identify all courts and arbitral institutions that could potentially hear the dispute. This requires analysis of: (a) the contract's dispute resolution clause — is there an arbitration agreement, and if so, is it valid, clear, and enforceable? (b) statutory jurisdiction rules — where is the counterparty domiciled, where was the contract performed, where are assets located? (c) any exclusive jurisdiction rules that override contractual choice — e.g., disputes over Chinese real property or Sino-foreign JV validity are subject to exclusive Chinese court jurisdiction; (d) the defendant's connections to multiple jurisdictions — can jurisdiction be established in more than one forum, creating a choice? Map all options. More options mean more leverage.
Once the universe of available forums is mapped, evaluate each option against a structured set of criteria: (a) enforceability — where are the counterparty's assets, and will a judgment or award from this forum be enforceable there? (b) procedural efficiency — how long will it take, and what interim measures are available? (c) cost — what are the filing fees, institutional costs, and expected legal costs? (d) substantive law — what law will the tribunal apply, and does it favor your legal theory? (e) tribunal quality — are the decision-makers likely to have relevant commercial and industry expertise? (f) language — what language will the proceedings be conducted in, and what translation costs will be incurred? The "best" forum is not an abstract concept — it is the forum that maximizes your net recoverable outcome.
For a typical foreign enterprise with a dispute against a Chinese counterparty where assets are primarily in China: CIETAC arbitration (best balance of enforceability, speed, party autonomy, and familiarity for Chinese counterparties); HKIAC arbitration (best neutrality and procedural sophistication; higher cost); Chinese court litigation (lowest cost, fastest domestic enforcement, but limited cross-border enforceability and lower party control over decision-maker); SIAC/ICC arbitration (best for large, complex disputes where cost is less of a concern and maximum neutrality is needed). The right answer depends on the specific facts — and sometimes the best strategy is to file in multiple forums simultaneously where permitted.
In Chinese legal practice, documentary evidence is overwhelmingly the most important category. Getting your evidence right — authentic, complete, properly preserved, and admissible — is the single biggest determinant of case outcome.
Preserve a comprehensive documentary record from the inception of the business relationship. This includes: the signed contract and all amendments, addenda, and appendices; all correspondence — emails, WeChat messages (including voice messages with transcripts), WhatsApp, and formal letters; meeting minutes and notes; delivery documents (bills of lading, airway bills, packing lists, delivery receipts); quality inspection reports and certificates; payment records (bank transfer confirmations, letters of credit documentation); and internal communications discussing performance issues. WeChat is particularly important — in Chinese business practice, many substantive commercial discussions and even contractual modifications occur over WeChat. These messages are admissible as electronic evidence in Chinese courts and arbitral tribunals, but they must be properly preserved (screenshots with visible date/time stamps, account names, and complete message threads; ideally notarized).
Before notifying the counterparty of the dispute, consider notarizing key evidence — particularly electronic evidence that the counterparty might delete or alter once on notice. Chinese notary offices (公证处) can notarize: screenshots of WeChat conversations (the notary witnesses the retrieval of the messages on your device and certifies their authenticity); email chains (the notary witnesses the login to your email server and the retrieval of specific emails); website content (the notary captures and certifies the content of specific web pages at a specific point in time); and physical evidence (the notary inspects and certifies the condition of goods, documents, or other physical items). Notarized evidence carries enhanced evidentiary weight under Chinese law. If you cannot notarize in China, foreign notarization is possible but adds an additional authentication step (legalization or apostille) for use in Chinese proceedings.
Where critical evidence is in the possession of the counterparty or a third party and is at risk of destruction, apply to the competent court for a pre-filing evidence preservation order. Under the PRC Civil Procedure Law, a party may apply before filing a lawsuit for the court to: seize or take custody of documents and records; inspect and photograph premises, products, or equipment; extract electronic data from servers or devices; or preserve perishable or alterable physical evidence. The applicant must demonstrate urgency — that the evidence is at risk of being lost or becoming difficult to obtain — and must file the lawsuit within 30 days of the preservation order. The applicant may be required to provide security. This mechanism is especially useful in IP and trade secret cases, where infringing products or misappropriated data may be deleted or destroyed once the counterparty learns of the dispute.
A judgment is only as good as the assets behind it. The most important pre-action step — and the one most often overlooked — is identifying and freezing the counterparty's assets before they can be dissipated.
Beyond freezing assets, the court may order conduct preservation — restraining a party from doing or requiring a party to do a specific act pending the outcome of the case. Common applications in China-related disputes: restraining the counterparty from transferring disputed IP, restraining the counterparty from operating a competing business, ordering cessation of alleged infringement pending trial, and restraining the counterparty from removing or destroying evidence. Conduct preservation is more difficult to obtain than property preservation — the applicant must show irreparable harm and a likelihood of success on the merits — but it can be case-dispositive when granted. The 2019 SPC judicial interpretation on conduct preservation in IP cases significantly strengthened this remedy, making it a front-line tool in trade secret, patent, and trademark disputes.
The demand letter serves multiple strategic functions: it signals seriousness, satisfies pre-action notice requirements (where applicable), interrupts or suspends the statute of limitations, and initiates a negotiation dynamic. But it also alerts the counterparty — and a poorly drafted demand letter can cause more harm than good.
A well-drafted demand letter should: (a) state the factual basis of the claim clearly and specifically — not in legal conclusions, but in factual assertions that lay the foundation for a later complaint; (b) identify the legal basis — breach of contract, tort, unjust enrichment — with reference to specific contractual provisions and/or statutory provisions; (c) specify the relief sought — payment of a specific amount, performance of a specific act, cessation of a specific activity; (d) set a clear, reasonable deadline for compliance; (e) state the consequences of non-compliance — without making empty threats (never say "we will sue" unless you are prepared to file immediately); and (f) reserve all rights. The demand letter is both a negotiation document and a potential piece of evidence — everything in it may later be presented to a judge or tribunal.
In Chinese commercial practice, many pre-dispute communications — including demands for payment or performance — occur over WeChat. A WeChat demand message has the same legal effect as a formal letter for purposes of interrupting the statute of limitations, provided it can be authenticated. However, a formal lawyer's letter (律师函) sent by registered mail with return receipt carries greater gravitas and creates an unambiguous documentary record. For significant disputes, we recommend a formal lawyer's letter — bilingual if the counterparty's decision-makers operate in Chinese — followed by WeChat or email follow-up to ensure receipt. The combination covers both the legal and practical communication channels.
Under the PRC Civil Code (effective January 1, 2021), the general statute of limitations for civil claims is 3 years (Article 188), running from the date the claimant knew or should have known of the breach and the identity of the obligor. The limitation period can be interrupted (中断) — resetting the clock to zero — by: (a) the obligor's acknowledgment of the debt or partial performance; (b) the obligee's demand for performance; or (c) the filing of a lawsuit or arbitration. It can also be suspended (中止) — pausing the clock — during the last 6 months if force majeure or other obstacles prevent the obligee from exercising its rights. The maximum limitation period is 20 years from the date of the breach. In practice, the 3-year period provides ample time to prepare a case, but foreign enterprises sometimes lose track of the clock — especially in long-running supply relationships where multiple breaches accumulate over time. A regular audit of outstanding claims against their limitation dates should be part of every company's China compliance calendar.
The cost of pursuing a China-related dispute is a critical pre-action consideration. Understanding the cost structure — and the funding options — enables informed go/no-go decisions.
A rough guide to total costs for a typical cross-border commercial dispute (RMB 10 million claim): CIETAC arbitration: institutional fees approximately RMB 200,000-350,000; legal fees (Chinese counsel) approximately RMB 500,000-1,500,000 depending on complexity and duration; total RMB 700,000-1,850,000. HKIAC arbitration: institutional and arbitrator fees higher — total costs typically 20-40% more than CIETAC. Chinese court litigation: court fees approximately RMB 80,000-120,000 (lower than arbitration); legal fees RMB 300,000-800,000; total RMB 380,000-920,000. These are estimates — complex, multi-party, or multi-jurisdictional cases can cost significantly more. The cost must be weighed against the expected recovery, accounting for enforceability risk.
Third-party litigation funding — where a commercial funder pays the costs of the dispute in exchange for a share of the recovery — is increasingly available for China-related arbitrations, particularly those seated in Hong Kong or Singapore (where funding is expressly permitted). Funders typically seek claims with a minimum value of USD 5-10 million, strong merits (assessed independently by their underwriting team), and collectible assets. The funder's return is typically 20-40% of the recovery (or a multiple of the invested amount). Hong Kong's Arbitration Ordinance (Cap. 609) was amended in 2019 to permit third-party funding, and CIETAC's 2024 Rules require disclosure of funding arrangements. Funding is generally not available for Chinese court litigation due to regulatory barriers and champerty concerns.
Chinese law tightly regulates contingent fee arrangements. Under the PRC Lawyers Law and the Ministry of Justice's fee regulations, pure contingency fees (no win, no fee) are generally prohibited in litigation and arbitration. However, hybrid arrangements — a reduced hourly or fixed fee plus a success fee — are permissible within certain parameters. The success fee component must be reasonable and is typically capped by local bar association guidelines (often 15-30% of the amount in dispute or the amount recovered). We are transparent about our fee structures and will discuss the available options — hourly, fixed-fee, staged payment, and hybrid arrangements — at the outset of the engagement, tailored to the specific case and the client's preferences.
Before filing, the internal preparation is as important as the external legal work. A disorganized client team, incomplete document collection, or poorly prepared witness can undermine the strongest legal case.
The pre-action phase culminates in a binary decision: negotiate or file. The right answer is not always obvious, and it changes as circumstances evolve. The following framework guides the analysis:
If not, do this first — before any communication with the counterparty. Evidence preservation and asset freezing are not hostile acts; they are protective measures. You can negotiate after they are in place. You cannot retroactively freeze assets that have been dissipated.
If the counterparty is a going concern with assets and has signaled willingness to discuss — perhaps acknowledging the issue and requesting time — negotiation may yield faster, cheaper resolution. Send a lawyer's letter, set a reasonable deadline, and engage. If the counterparty is insolvent, unresponsive, or evasive, file immediately — delay only benefits a counterparty that is using it to dissipate assets.
If the counterparty is a key supplier, distributor, or partner that you need to continue working with, negotiation is strongly preferred — a litigated victory that destroys the relationship may be a Pyrrhic one. Use the pre-action phase to explore commercial resolutions: price adjustments, phased payments, or restructured terms that address the dispute while preserving the business. If the relationship has no ongoing value — e.g., a one-off transaction with no future dealings — you have less to lose by filing.
If your litigation or arbitration BATNA is strong — clear contract, strong evidence, collectible assets, good forum — you negotiate from a position of strength and can afford to set firm deadlines and walk away if not met. If your BATNA is weak — ambiguous contract, contested facts, uncertain enforceability — a reasonable settlement, even at a discount, may be the better commercial outcome. Be honest about your case weaknesses; the counterparty's counsel will certainly identify them.
We have developed a structured pre-action audit methodology that we deploy at the outset of every significant China-related dispute. The audit covers four dimensions: legal analysis (contractual rights, statutory claims, available remedies, jurisdiction, governing law, statute of limitations); evidentiary assessment (documentary record completeness, authentication requirements, translation needs, witness availability, expert requirements); enforcement mapping (counterparty asset identification, jurisdiction-by-jurisdiction enforceability assessment, freezing strategy, recovery probability analysis); and cost-benefit analysis (projected legal costs, expected timeline, probability-weighted recovery range, go/no-go recommendation).
The output is a strategic options memorandum that enables the client's senior management to make an informed decision — not just about whether to pursue the claim, but about the optimal forum, timing, and settlement parameters. We present this analysis in clear, business-oriented terms, with quantified risk assessments rather than legal abstractions. Our goal is to give the client the information it needs to decide — and then to execute that decision with precision.
Under the PRC Civil Procedure Law, the court must rule on a pre-filing property preservation application within 48 hours of acceptance of the application (Article 104). In practice, careful preparation is required to meet this timeline — the application must be accompanied by a detailed statement of the claim, evidence of urgency, a specific identification of the assets to be preserved, and security in the required form and amount. The application is submitted through a local Chinese court (typically where the assets or the counterparty is located), which requires local counsel. Once granted, the preservation order is executed by the court's enforcement officers, who will visit the bank, real estate registry, or company registry to effect the freeze. In well-prepared cases, we have obtained and executed preservation orders within 3-5 business days. The key is advance preparation — the application package should be ready to file the moment the decision to proceed is made.
Limited pre-filing discovery mechanisms exist, but we can deploy several investigative tools. Bank account information can often be inferred from payment records — the account from which the counterparty paid you (or to which you paid it) is typically the primary operating account. Corporate registration searches reveal the counterparty's registered address (often the location of its principal assets). Commercial databases and credit reports may identify real property and equity holdings. For significant cases, investigative firms can conduct discreet inquiries. In some cases, we file the lawsuit with a simultaneous asset tracing application to the court — once the case is filed, the court's enforcement division has broader powers to investigate the debtor's assets. If all else fails, the "dishonest persons" list and travel restrictions provide strong post-judgment leverage to pressure disclosure of assets.
The answer depends on the circumstances, but the default sequence is: preserve first, then consider a demand letter, then file. Sending a demand letter before preservation is risky — it alerts the counterparty, which may then dissipate assets or destroy evidence. If asset preservation has been obtained, a demand letter serves useful functions: it demonstrates good faith (which Chinese courts and tribunals appreciate), it may trigger the counterparty's insurance coverage or internal escalation, and it can open a negotiation channel. However, if the counterparty is known to be dissipating assets or if urgency is extreme, skip the demand letter and file immediately with a simultaneous preservation application. There is no legal requirement in China to send a pre-action demand letter before filing a lawsuit or arbitration (unlike, for example, the UK's pre-action protocol regime).
This raises the critical issue of privilege and disclosure. In Chinese civil litigation and CIETAC arbitration, there is no broad discovery obligation — each party presents the evidence that supports its case, and the other party may challenge it. There is no obligation to disclose adverse documents. However, in HKIAC or SIAC arbitrations where the IBA Rules on Evidence are adopted, the tribunal may order document production, and the scope can be broader. The key is to conduct the pre-action internal investigation under the direction of counsel, with a clear understanding of what may and may not be privileged or protected in the relevant forum. We advise clients to separate the factual investigation (which will likely be disclosed) from the strategic assessment (which should be protected as work product), and to communicate sensitive assessments orally rather than in written memoranda where possible. This is delicate terrain that requires early and candid discussion with counsel.
Contact us before you notify the counterparty. Early strategic intervention — evidence preservation, asset freezing, forum selection — can make the difference between recovery and a hollow claim.
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