We are always writing on how important contracts are in China and the other day we got an email question in response to that:
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.)
The link on fairness was to one of our posts, 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 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 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 if 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 1) a strong contract that does not favor you, 2) a weak contract that does not favor you, 3) a weak contract that does favor you, or 4)no contract at all.
It really is that simple.