Our China lawyers often stress to our clients the importance of a well-crafted contract damages provision that contains a “just-right” amount of damages should there be a breach. We are often asked what the just right amount should and our answer is that depends on the specific facts and to what the Chinese side will agree.

The other day, one of our China attorneys wrote the following to a client regarding a contract damages provision in an NNN Agreement we had drafted. We had recommended one figure for the contract damages, but against our advice, our client had insisted on a much higher figure. The Chinese supplier rejected the higher figure and out of a desire to get going quickly, our client suggested that we just dispense entirely with the provision. The below email is our response to that:

With regard to our proposed language about minimum damages, I can understand why this supplier is balking at our $350,000 figure. As we discussed when drafting the initial NNN agreement, that is a relatively high amount, and considerably more than the $100,000 to $150,000 figure we recommended be used. This amount is more art than science. It is not supposed to be a penalty, but rather a realistic assessment of the damages that you would incur if the Chinese side were to breach this NNN agreement, say by selling a container full of your products directly to a third party. I would strongly advise against deleting this language entirely, though as specified contract damages are what helps to give this agreement real teeth, not least because they allow the Chinese court to impose a pre-judgment seizure of assets. That is a big advantage for you, and not one that you should give up willingly.

In a subsequent discussion among our China law group regarding this situation, one of our China attorneys wrote the following email to the rest of our group:

This shows yet again the importance of NOT making the contract damages an unreasonably high amount. It seems that whenever our clients push for a higher amount then what we are recommending, the Chinese side resists and then all sorts of problems begin. It is far better to come in with an entirely reasonable amount right off the bat. If the Chinese side resists that, we then know that our client has a problem with its Chinese counterpart. But when we come in at the start with an unreasonable amount for contract damages, the Chinese side quite correctly concludes that 1) our client has little to no experience in China and is basically an unreasonable company that will be difficult to deal with in the future. It is just a bad idea all around. And the thing is that most of the time the clients who insist on numbers much higher than we are recommending are disproportionally inexperienced and difficult to deal with.

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Dan Harris

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

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My 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.

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

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). 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 me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus 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.