Though most of the contracts my law firm writes for our China clients are in Chinese, the first draft is virtually always in English (though sometimes they are in Spanish, Russian, German or Korean). We draft the contract in English and provide that draft to the client for their review. Once the client has given their assent to the English language version, one of our lawyers fluent in Mandarin translates it into Mandarin. Then a new lawyer makes sure the English and the Chinese completely match up. Our firm has always favored clear language for our contracts, as opposed to legalese. Just by way of a quick example, let’s say you are selling an item of personal property for $500. We would write the contract to say “Bill will sell x personal property to Robert for $500.” The old way of writing this might be something like the following: Robert agrees to forever convey, sell, assign and demise said item of personal property to Bill for the amount of $500, with Robert paying said amount to Bill….
So why does this matter for China contracts that end up being in Chinese anyway? Three reasons. First off, do you want your lawyers charging you to draft and translate a fifteen-page contract when a five-page contract will do just as well? A fifteen-page contract will not cost three times more than the five page one, but it is likely to cost more, especially when it needs to be translated. Many years ago, a company came to us with questions regarding complicated international IP issues, involving mostly Russia, but China and Korea as well. The company provided us with a 25-page memorandum their Russian law firm had given them on the IP issues. I asked the client if they understood the memorandum and they said no. I then told them that I did not understand it either. I then told them that if they retained my law firm, I would make two guarantees. One, that our memorandum would be five pages or less and, two, that they would understand it. We got the project and we gave them a five-page memorandum that they understood.
Which gets us to reason number two. There is a lot to be said about a clear contract. If we give our clients an easy to understand contract we are increasing their ability to provide us with constructive feedback, especially as relating to the aspects of their business that they know far better than us. The better the client feedback, the better the contract. It is that simple.
Reason number three. Chinese contracts are generally not nearly as long-winded and legalistic as American or British contracts. So if we start with a clear language English language contract and put that into Chinese, the Chinese language contract will match what Chinese companies expect and this likely means faster and thus cheaper negotiations. Our new clients often ask us to try to keep their contracts with their Chinese counter-parties short so as not to scare them away. We see this as a perfectly reasonable request and we tell them that we always seek to keep our contracts short.
This is all my rather long-winded and less than clear language way of leading into a review of a great book that I recently received. The book is called A Manual of Style for Contract Drafting, and it is written by Kenneth A. Adams. I have known Ken for many years and he is the real deal. The guy just flat out knows contract drafting and does an amazing job writing about it. I am going to pull a small portion from a chapter on the term “reasonable efforts,” a term which by the way, should pretty much never be used at all in any contract that is going to be enforced in China:
8.67 Ensuring that reasonable efforts provisions are clear and effective requires that you pay attention not only to how the term reasonable efforts is defined — if you do define it — but also to how you word any provisions that use the phrase reasonable efforts.
8.68 Have a party undertake to use reasonable efforts, as opposed to use its reasonable efforts or use all reasonable efforts.
8.69 Because it’s the simplest and clearest option, have a party use reasonable efforts as opposed to making, exerting, or exercising reasonable efforts. If contracts filed with the U.S. Securities and Exchange Commission are at all representative, use is also the most popular option.
8.70 In efforts provisions, effort is generally used in the plural rather than the singular, although some contracts require a party to use every reasonable effort or make a reasonable effort. Use the plural, if only for consistency.
8.71 It’s commonplace for a contract to require a party to use efforts to accomplish something “to the extent possible” (or words to that effect). That notion is redundant, as it’s implicit in an efforts provision that the party under the obligation might be unable to perform it, even after making the required effort.
8.72 Using best efforts instead of reasonable efforts is bad enough — don’t make matters worse by using two or more different efforts standards in one contract. Doing so only invites a court to ascribe a different meaning to each.
8.73 Don’t refer to good faith or diligence in a reasonable efforts provision, as in Each party shall use reasonable efforts, undertaken diligently and in good faith, to obtain all Consents before Closing. Mixing different standards would only muddy the waters.
Which brings me to a fourth reason why clear contracts matter for China, just as they matter for anywhere else. As you can see from the above, one of the main reasons for clarity in a contract is to avoid a lack of clarity later. If you have a clear, understandable contract (in any language), the likelihood of a dispute decreases and the cost of any dispute will decrease as well. The fewer things on which lawyers can argue at trial or arbitration, the less you will need to pay your lawyers. For more on this, check out Chinese Contracts. Because They Really Do Make A Huge Difference.
I know it’s geeky, but we lawyers live for this stuff and I even had to grab back my copy of the book from another attorney who is already addicted. We need to order multiple copies.
Adams book is simply the best. The best. And it works for drafting China contracts too.