Drafting International Contracts That Work
Got the following email from a reader curious as to how my law firm’s China lawyers draft contracts for China:
Can I ask about the wording of your law firm’s agreements in Chinese. I am a translator helping a U.S. company on its contracts and — to put it mildly — things are not going well. The deal I’m translating for has been running into a lot of trouble because the American law firm that wrote the contracts has written them in highly complex legalese. In the second tier Chinese city where the U.S. company is looking to do business, our partner and potential collaborators are having real trouble just reading and understanding the documents. The American lawyers keep saying the contracts are good and that they need to be this complex. They total 78 pages. I’m reasonably sure both sides are right on this — the contracts are correct, but they really are very difficult to read.
How does your firm walk the line between the conventions of English (American) legal drafting and Chinese drafting?
Great question, and the below is my answer.
We write our China contracts the modern way. We do this to simplify, to reduce negotiation time (and failures) and to reduce costs. This means we eschew legalese (and using strange words like “eschew”) and we strive to avoid unnecessary boilerplate. This is true of the contracts we draft in both English and in Chinese and in whatever other language we are using. Most importantly though, we do not need to “walk the line between the conventions of English (American) legal drafting and Chinese because of how we draw “the connection” between our English version of a contract and its Chinese version.
When we draft a contract for a client, we first draft it in English. We do this for the benefit of the client and we work with the client using the English language contract. Once we have finished the contract in English, we then move on to re-writing it in the foreign language Notice how I did not say “we then translate it into Chinese.” We use lawyers and only lawyers to take the English and re-write it into the foreign language and the re-write is not a direct translation. So for China it is a Chinese language China-style contract. In fact, because it is the Chinese side of the contract that is almost always the official version, we view that as THE contract and the English portion as the translation. See Dual Language China Contracts Double Your Chance Of Disaster, in which we wrote about how we do not write dual-language contracts. The contracts we write have one official language and that language is nearly always Chinese.
Just the other day, in an effort to save a few bucks, a potential client asked if we would reduce our flat fee on a contract if he had his “own people” translate our English version into Chinese. My response was that we will not do a China contract unless we do both the English and the Chinese. It is just too risky otherwise.
Ken Adams: What proportion of contracts between Chinese companies (or government agencies) and non-Chinese companies are in English? If the contracts are in English, is it mandatory that the parties enter into a Chinese-language version too? If so, which controls?
Steve Dickinson: Chinese law provides that the parties are free to choose the language of their contract. If the contract is in two languages, the parties are free to choose which language will control. If the contract is in Chinese and in English and the parties do not specifically choose a governing language, a Chinese court or arbitration panel will take the Chinese version as controlling. If the contract is in English, then the court or arbitration panel will appoint a translator to do the translation. These translators are often not very good, which causes many problems in litigation/arbitration, since the case gets sidetracked in disputes about translation.
Contracts involving a foreign party in China are almost always done in a dual-language format, with English almost always the other language. For example, every contract between Russian and Chinese parties I have ever seen is dual-language, Chinese and English.
Ken Adams: How do Chinese lawyers and businesspeople respond to the traditional (in other words, dysfunctional) prose you find it most English-language contracts? Have they adopted it by osmosis?
Steve Dickinson: Chinese lawyers and businesspeople usually reject traditional U.S. contract language outright. The Chinese use simple contract language. Often, U.S. companies insist on using U.S.-style common-law contracts. The Chinese side never reads the English; they have the document translated into Chinese and they work with the Chinese. When litigation occurs in China, the Chinese court will often say, “This contract is just a translation of a standard U.S. contract. Obviously, the Chinese side did not understand any of it. Therefore, we are going to ignore the key provisions on which you are relying and we are not going to enforce them.” Many banks and investment funds have learned this to their detriment. For example, many foreign-drafted futures contracts have been thrown out in China because the courts concluded that the Chinese party simply did not understand the contract. The result is that the Chinese companies got a free ride, which is not a trivial issue.
It is a much deeper issue than language. Chinese courts, Chinese lawyers, and Chinese business people are not going to agree to legal provisions that have no meaning under Chinese law. If you expect to litigate in China, your document must be in accord with Chinese law. If you expect to be able to enforce your contract in China, you must have a contract that is in accord with Chinese law. Much bad U.S. contract writing involves using ten words to express one concept and drafting provisions so as to address every single possible contingency. For China, only the concept is important. Another motivation for bad U.S. contract writing is to try to draft around case law or statute. China does not care about cases or U.S. statutes. Chinese courts and arbitrators do not allow drafting around the provisions of black letter Chinese law and they do not allow for results that they think are either unfair or in bad faith. Thus, the real issue is not so much bad U.S. drafting methods. The real issue is how the Chinese court views the motivation behind the contract.
I should also add that Chinese lawyers have major problems interpreting U.S. and British common law contracts. Their standard approach is to guess at the meaning and then mistranslate and then work with the mistranslation, leading to disaster on all counts.
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: https://www.chinalawblog.com/2020/10/drafting-international-contracts-that-work.html
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