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Do You Know What Your China Contract Says?

Posted in Legal News

A potential client recently sent me a contract written in both Chinese and in English. The English portions were silent about the controlling language but the Chinese portion made crystal clear that the Chinese language portion would control.  And guess what? The Chinese language portion was very different from the English language portion. So different, in fact, that the American company that sent me the contract had no claim under the Chinese language portion, yet it would have had a claim under the English language portion.  My firm always rejects this sort of case because we just assume that the Chinese court will look only to the Chinese language portion of the contract.

This taking advantage of what looks like a dual language contract is a very old trick, and one I have seen at least a dozen times, and not just with China/Chinese.  But for the trick to work, the non-English speaking party has to assume that the foreign language in its contract (in this particular case, Chinese) is the same as the English and never even bother to get it translated.  The foreign party is betting on ignorance/laziness/cheapness/naiveté.  Unfortunately, that is too often a good bet.

I also have on two recent occasions received poorly drafted “Non Disclosure Agreements” (NDAs) from potential clients who want to use those agreements to sue their manufacturer for copying their product and stealing their customers. In both cases, I have had to write the following email:

Near as I can tell, your “NDA” does not help you one bit. It says that your Chinese manufacturer cannot disclose confidential information to any third party, but it does not say a thing about it stealing your designs or competing with you.  In fact, it makes clear that it is free to do whatever it wants with whatever is in the public domain and it will no doubt argue that your __________[product] is in the public domain. I also note that the manufacturer did not chop/seal this document so there is also a good chance that it may not even be binding on it and an even better chance that it will at least make that claim.

It is possible that you can bring a trade secret/unfair competition (or some other non-contractual) claim against your manufacturer, but in many ways, your existing contract may hurt you in pursuing even those claims. If you want to sue this company I suggest you seek to retain Chinese counsel to do so, but I suspect that you will have difficulty finding a good firm that will take this case on a contingency basis.
Whatever you do in terms of your present problem, you should get a new contract in place for any new China orders. That new contract should, among other things, state clearly that your manufacturer cannot use your designs or copy your products or solicit your customers.
Sorry I cannot be more encouraging on this.
Before anyone accuses me of writing this post to try to convince those who are doing business with China to retain a qualified and Mandarin-fluent lawyer to assist them with their China contracts, let me say that I plead guilty. I have said it before and I will say it again. Nearly all of the contracts we see that were drafted without such assistance are of little to no value to the foreign party.  I know that is strong language, but it is also the truth.
What are you seeing out there?
  • Mark

    It is amazing to me that supposedly educated and senior western executives would execute a contract in a language they know nothing about without review by a competent professional that does know the language. That’s just incompetence and frankly, in my opinion the executive should be fired and deserves whatever they get if things go bad. We recommend the same course as you to our western clients. Sometimes I guess you just have to try and protect people from themselves. It is a little frustrating when you have to treat a $500K/year executive like a 4 year old. I suppose this is why we are in business.

  • Jon

    Couldn’t agree more with the comments and advice. As you point out, it is not an issue specific to China contracts. I am advising a Canadian client on the low chances of success in pursuing an Indian manufacturer that began selling direct to the Canadian company’s New York-based customers because the English language NDA did not include specific non-compete or non-solicitation provisions. Companies seem to want to learn the hard way. Unfortunately, their legal advisors are not always helping them as they should.

  • From the Secret File

    Here at Peking University School of Transnational Law in Shenzhen, we have a class going right now on drafting bilingual contracts. Preston Torbert, who had a China based practice at Baker & McKenzie for many years, teaches the same class at Chicago (one major difference is that here the class is much larger and all the students in it bilingual). As Preston explains it, it’s not just that a clause is missing or rampant bad faith. It’s that languages differ, and a clause can be ambiguous in one language and not ambiguous in the other. My sense is it takes a lot of work to get it right.

  • raycam

    We (actually, retired Baker McKenzie partner Preston Torbert) teaches a course in bilingual contract drafting here at Peking University School of Transnational Law. (He teaches the same class at Chicago, but it’s oversubscribed here since all the students are bilingual). The issue, as I understand it from Preston, isn’t just someone trying to cheat you. It’s that it is very hard to have bilingual contracts end up saying the same thing – a clause that is clear in Mandarin may be fatally ambiguous in English, for example. I can’t imagine entering into a dual language contract and not having someone really good vett it. Preston was mentioning today that it would be interesting to get some bilingual contracts and have the students review them for such issues.