Prc Civil Procedure Law Article 103

Preservation Procedure

The execution of a preservation action under this article begins when the applicant files a formal application with the court, accompanied by prima facie evidence of the claim and a financial guarantee. This guarantee, or security, is mandatory and must be equal to the value of the assets to be frozen, which can be provided in cash, property, or a litigation bond from a Chinese insurance company. The court reviews the application and must issue a ruling within forty-eight hours in urgent cases.

If the court grants the order, the execution officers immediately execute the freeze or seizure, often without prior notice to the defendant. This swift action prevents the defendant from transferring their funds or concealing the evidence. The frozen assets remain under court control until the lawsuit is resolved, providing the applicant with secure collateral for their claims.

Procedural Limit

The power of the court under this article is constrained by strict statutory limits and the applicant’s liability for wrongful preservation. If the court later finds that the applicant’s claim was groundless and the preservation caused financial losses to the defendant, the applicant must compensate the defendant for those losses, which are paid out of the provided security. Furthermore, the court can only seize assets up to the value of the claimant’s claim, and any over-seizure is unlawful.

The preservation order is also limited in duration, with bank account freezes typically lasting for one year and property seizures for up to three years, requiring the applicant to apply for renewals if the litigation is protracted. These limits protect the defendant from abusive filings and ensure a balanced legal process.

Litigation Strategy

Incorporating this preservation mechanism into a litigation plan provides the claimant with immense leverage to force a quick settlement with a defaulting Chinese supplier. Freezing a factory’s bank accounts or seizing its production equipment disrupts its daily operations and puts immediate pressure on its management to resolve the dispute. This disruption is often more effective than the threat of a future judgment, which may take months or years to obtain.

The foreign buyer must weigh the cost of the mandatory security bond against the likelihood of recovery before filing the application. This strategic decision requires a thorough assessment of the supplier’s financial health and the location of their assets. The long-term benefit of a successful preservation action is a secure path to executing the final judgment and recovering the losses.