China contract lawyerOne of our China lawyers got an email the other day from a US company saying the following:

I read one of your blog posts saying that it almost always makes sense to draft a contract with a Chinese company in the Chinese language and to say that Chinese law applies and the dispute will be resolved in a Chinese court. Here is my contract which I will be translating into Chinese. As you can see, it says Chinese law will apply. I also have chosen the Shanghai People’s Court as the Court because I understand that is the best court in China. Can you quickly tell me if you agree with what I have done here.

I was “nominated” to respond to this email and I did so as follows:

Sorry, but there is no way we can give you any legal advice without knowing a lot more about your goals with this contract, your fears with this contract (preferably ranked) and more about you and your Chinese counter-party. What I can tell you from five minutes skimming your contract is that translating a contract into Chinese and saying Chinese law applies does not make the contract appropriate for China. This contract has many provisions that do not make sense for China and will never be enforced and other provisions that are probably harmful to you. Your listing of a specific court in China is probably not a good idea, nor is your provision calling for a cooling off period before you can sue.

Let me break down and briefly explain the concerns I quickly noted in my email because the problems (and even the number of problems) in this contract are incredibly typical of what our China attorneys often see in contracts drafted by people — including lawyers — without substantial real world China contract drafting experience.

  1. Translating a contract into Chinese does not make the contract appropriate for China. It just doesn’t. Just as is true of every language and of every country, there are certain words and phrases that courts just know and if you nail the phrase exactly you will likely have no problem and if you do not come close to nailing the phrase at all you may or may not have a problem. But if you come close to nailing the phrase, but don’t, you are likely to have a major problem because the court will think the contract is specifically intended not to nail the phrase and specifically intended to call for something different than the usual. Then of course there are all the times where people put in provisions that simply will not work under Chinese law.
  2. Listing a specific Chinese court for your dispute is usually a mistake. Chinese courts tend to ignore any attempt by contracting parties to dictate where a matter will be litigated. Chinese courts usually determine jurisdiction based on the nature of the claim, the amount of the claim, the location of the parties, and the location of the witnesses to the dispute. If your choice of Chinese court jurisdiction is wrong (and it probably will be because China has speciality courts and complicated jurisdictional rules) your mistake could raise questions about the validity of Chinese Court jurisdiction or create other confusions.  The reason for crafting a dispute resolution clause is to avoid the expense, time, and  uncertainty of where and how your disputes will be resolved. Trying to get too specific about the Chinese court will likely only delay resolution and increase uncertainty and expense.
  3. Cooling off periods usually do not make sense. Suppose your Chinese manufacturer has started making and selling your product all around the world. Do you really want to be unable to bring a lawsuit to stop that as quickly as possible? Do you really think if this happens it will make sense for your company to have to spend 60 days “amicably” trying to resolve your dispute with this company and then have to spend another few months choosing a mediator and then an additional 4-10 months trying to reach agreement via mediation? Of course not.

What are you seeing out there?

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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.