China laws and business are very different from the West, of this there should be no dispute.
And yet, our China lawyers oftentimes get emails from potential clients telling us that they have drafted a contract for China and asking us whether we would revise that contract to “make it work for China.” Our initial response to this is to say yes but to warn them that our fees for doing so will almost always be the same as our fees for our drafting the contract from scratch. The reason for this is because, with very few exceptions, the contract we are given is so different than what is required for China that its only benefit is that we can pull some (never all) of the terms we need for drafting the contract.
But guess what, that benefit almost never outweighs the harm. Let me explain.
Much of the time when we are given a draft contract that contract is a result of weeks of negotiations between the Western company and the Chinese company. If our China attorneys then substantially revise the contract and our Western company client then sends the substantially revised contract to the Chinese company, the Chinese company is rightly irritated because it believed it had a deal or was on the verge of a deal with the Western company, even though it really wasn’t.
But most of the time, the draft contract we are given is so far afield from what is needed that instead of our China lawyers being able to draft a new contract, our China lawyers instead have to tell our client that it really needs to start back at square one. Most of the time the draft contract we are given is so internally contradictory and so rife with provisions that literally do not work at all under China’s laws, that the first thing we need to do with our client is figure out exactly what it is trying to accomplish with the deal.
And then, once we have that figured out, the next step is usually to draft (in English and in Chinese) a term sheet to send to the Chinese company to determine whether drafting a contract will ever be warranted. Oftentimes, there is a critical provision that the Western company and the Chinese company never previously discussed and on which they are at clear loggerheads. The term sheet quickly reveals this and the parties then choose to go their separate ways. Oftentimes, there is a critical provision that simply cannot legally work and without that provision one or both sides do not want to go forward with the transaction and the parties then choose to go their separate ways.
We see these sorts of looming problems so often with draft agreements that I have drafted the following “template” explanation, which I then modify to fit the particular situation: