Yesterday, I wrote a post on how important contracts are in China. The post was about a China Daily article on what has been described as China’s first foreign nail house. The China Daily article included an interview with CLB’s own Steve Dickinson, who said the case really hinged on the lease agreement (i.e., the contract) between the landlord and the tenant. According to Steve, the lease itself would control whatever compensation the landlord would be required to pay the tenant for the tenant’s eviction due to the building being demolished.
The thrust of my post, entitled, “China’s First Foreign Nail House. Dude, Where’s Your Contract?” was that contracts are usually determinative in China. In response to this post, “Sean” asked this great question in the form of a comment:
“So when is the contract everything, and when do you have to be worried about a judge ruling against you in the interest of “fairness” to the Chinese counterpart? (“Fairness” in terms of your previous post here.)
Sean was referring to a post we did, entitled, “China Sex, Mistresses, And Improper Payments, And What They Mean For Your China Business Litigation ” where we talked about how Chinese courts tend to look much more at the equities of a situation than at the literal meaning of the contract or of the written laws.
Despite it being a great question, I am pretty much not going to answer it directly. I am not going to answer it directly both because I do not have enough empirical evidence (who really knows why a court or an arbitrator rules the way they do) and because it does not really need a firm answer. The answer is that Chinese courts and arbitrators generally do look at equities much more than courts in the West. It is also true that you are a foreigner involved in a lawsuit in China against a Chinese company, you are already behind on the equities count. A contract is not always going to be the only decisive factor in your case, but you are always going to be better off having a strong contract that favors you than having a strong contract that does not favor you, a weak contract that does not favor you, a weak contract that does favor you, or no contract at all.
So we can discuss how much having a strong and favorable contract, but I think that time would be better spent drafting the next strong and favorable contract because even though I cannot measure with specificity the value of such a contract, I know it is far more valuable than not having one.
What do you think?

Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.