One of my favorite “trix” employed against American companies doing business in China is the dual language contract, where the English language version is silent on which language controls. We often see this from companies that come to us for the first time with a contractual problem.
Dual language contracts can be incredibly dangerous. If you have a contract in both English and in Chinese, which language controls? Well, 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, then the Chinese language version will in fact control. Similarly, if both versions say that the English language version controls, then 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 500 pounds of pressure and your Chinese language contract says that the product need only be strong enough to withstand 300 pounds of pressure and neither contract version says which controls, the Chinese version will control and the product need only be strong enough to withstand 300 pounds of pressure.
And here’s the thing: 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. I mean, English is the world’s language for business, right?
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.
As we noted in China OEM Agreements. Why Ours Are In Chinese. Flat Out, our China lawyers usually draft our clients’ contracts in Chinese, with an English language translation. That way at least our clients know what they are really signing.
Bottom Line: No matter what your English language contract says, it behooves you to know exactly what your Chinese language contract says as well.