There are three reasons why it makes sense to have a good contract with your Chinese counter-party even if what you say is true.

The first reason is to achieve clarity. Having a well-written contract in Chinese will ensure that the Chinese company with which you are doing business truly understands what you want of it. In other words, it will help make sure that the two of you are on the same page. For example, if you ask your Chinese supplier if it can get you your product to your US facility in 20 days, it will almost invariably say that it can. But if you put a contract in front of it that states that you get a 2% reduction in your future purchases for every day it is late or, alternatively, that it is required to pay you 1% of the value of your order as a liquidated damage for each day it is late, it likely (yes likely), will then tell you that it will need 30 days, not 20. You just achieved clarity and realism on shipment dates and that is always a good thing , especially in a cross-cultural context. Now add in all of the other provisions where something similar will happen and you can see how getting clear upfront with your Chinese counter-party can be so important.

The second reason for having a well-written Chinese language contract with your Chinese counter-party is to convince it that it will be better off complying with your contract than violating it. Having a well-written contract — even if your chances of enforcing it in a Chinese court are not great — means the Chinese company knows exactly what it must do to comply and knows that its failure to comply could subject it to a lawsuit that will cost it money to defend against and that it might lose. Let’s use the 20-day shipment time as the example again. If your Chinese manufacturer makes widgets for twenty foreign companies and five of those have very clear time deadlines with very clear contract damages provision, and the Chinese company starts falling behind on production, which of its foreign buyers will get production priority? The five companies with a good contract, of course. There is no reason why it would be otherwise. You need to make sure your company is one of those five. For more on the importance of putting a contract damage provision in your China contract, check out On the Importance of Contract Damages in China Contracts.

Enforceability is the third reason for having a good China contract. My firm has written hundreds of China contracts, and yet we have never once been called on to litigate any of them, nor am I aware of any of them having been litigated. This is largely because of reasons #1 and #2 set forth above. This means I cannot tell you that having a really good contract tailored specifically for China will get you a court victory in China. And, yes, I will concede that your chances of such a court victory today are likely less than they were two years ago. But this does mean I have a lot of evidence to argue that having a good contract is great for preventing problems. And isn’t it better to prevent problems and thereby avoid litigation than to have a problem that requires large outlays of time and money to litigate and then you prevail, or not?

If your Chinese counter-party believes your contract will be enforced, or even if it just believes it may be enforced, it is likely to act according to the contract.

Print:
EmailTweetLikeLinkedIn
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. 

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 AVVO.com (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.