Many moons ago, a company contacted us wanting to sue its Chinese joint venture partner for having “clearly” violated their joint venture agreement. We looked at their case and advised them not to bother pursuing it.
It had nearly every hallmark of the China deal gone bad, due almost entirely to the fault of the American company. Here were just some of its shortcomings:
- The contracts between the Chinese and the American company were drafted by one lawyer. A local lawyer in the small town in which the joint venture is located? Who do you think this lawyer favored.
- The joint venture was supposed to fulfill all sorts of obligations to the American company. In fact, it was these obligations that made the joint venture so tempting to the American company. But, the contracts were written so that these obligations were attached to the Chinese company that was entering into the joint venture, not to the joint venture itself. The Chinese company that had these obligations was (unlike the joint venture) utterly incapable of fulfilling them and, since it had no real assets, it was also a terrible candidate to sue.
- There were three contracts in two languages each, Chinese and English. The relationship between the three contracts was murky at best.
- The English language contracts were horribly written and in some places incomprehensible. In the end though, we decided that was irrelevant. The English language contracts seemed to say that they would have the same force as the Chinese language contracts. But the Chinese language contracts (no surprise) said that the Chinese language contracts would control. This would mean that they would. Of course the Chinese language contract had all sorts of things in it that were very bad for the American company and that were quite different
Needless to say, this was a disaster in every way. But the two items most deserving of scrutiny are how the American company “just assumed” that the Chinese lawyer would equally represent the two sides and that the Chinese translation either didn’t matter or fairly transcribed the English.
Bottom Line: The lessons to be learned from this badly botched joint venture apply to virtually any China contract or relationship.
