If You Could Have Only Two Clauses in Your China Contract, Which Would You Choose?

Got the idea for this post from contract law expert, Brian Rogers of the Contract Drafting Blog. Brian’s post is entitled If You Could Have Only Two Clauses in Your Contract, Which Would You Choose? Brian analogized the choice of two contract provisions to choosing two tools for a deserted island stay.

Brian says that when representing buyers his principal concern is that they get what they are paying for and so he focuses on making sure that the product or service is adequately described and warranted.  That makes sense.

And when representing sellers, Brian wants to make sure that his clients get paid. That too make sense.

When it comes to writing a good China contract, the overarching concerns are the same, but these contracts have their own complications stemming from the fact that they are international.

But if I were forced to choose two contract provisions that are critical for a China contract, as opposed to a domestic business contract, I would focus on the language of the contract and the venue for any disputes.

In today’s post I will discuss why the language is so important.  In tomorrow’s post, I will talk about why the venue is so critical.

I hate dual language contracts and none of the China lawyers at my firm will write them.

If you have a contract in both English and in Chinese, which language controls? If both of the languages say that one language controls, that one language will control. So for example, if both the English language and the Chinese language versions say that the Chinese language version controls, the Chinese language version will in fact control. Similarly, if both versions say that the English language version controls, the English language version will control. These are the easy and safe examples.

It is everything else that so often gets American and British and Canadian and Australian companies in huge trouble.

If you have an English language contract and a Chinese language contract that are both silent as to which version controls, the Chinese language version will control in a Chinese court and in a Chinese arbitration. So what this means is that if your English language contract says that a product must be strong enough to withstand 1000 pounds of pressure and your Chinese language contract says that the product need only be strong enough to withstand 500 pounds of pressure and neither contract version says which language controls, the Chinese version will control and the product need only be strong enough to withstand 500 pounds of pressure.

And trust me when I tell you that our China lawyers often see dual language contracts with very different provisions in the two languages. In fact, Chinese companies just love using a contract with an English version that is more favorable to the foreign company than the Chinese version and then relying on the English speaking company to assume that the English language version will control.

But what if the English language version explicitly states that it will control? You should be okay with that, right? Not necessarily.  If the Chinese language version also explicitly states that it will control, the Chinese language version will control.  If the Chinese language version is silent, then the English language contract controls.

In China OEM Agreements. Why Ours Are In Chinese. Flat Out we talked of how our China attorneys almost always draft our clients’ contracts in Chinese, with an English language translation.That way at least our clients know what they are really signing.

In tomorrow’s post, I will explain why (surprisingly enough), it usually makes sense to have your disputes against Chinese companies heard in a Chinese court or arbitration forum, rather than in your home country.