Choosing Your China Contract Jurisidiction

A new client recently sent our international manufacturing team a contract with one of their China suppliers. They wanted us to review that contract (which had been drafted by a Chinese lawyer based in Shenzhen). Our client had heard about how Chinese lawyers sometimes work in cahoots with the Chinese company on the other side of the deal, and not with their foreign (in this case American) client. See China Contract Drafting Scams: From Bad to Much Worse. I am posting our interaction to emphasize how there is no one-size-fits-all solution when drafting a dispute resolution clause for a China manufacturing contract.

In particular, the client was having doubts about their contract because it called for disputes to be resolved by arbitration in Shenzhen and they knew of of other “experienced, major companies that write into their contracts that all disputes must come to courts in the United States.”

Our response to them was as follows:

The last thing you want in 99 percent of all situations when contracting with a Chinese company is to have your disputes resolved by litigation in the United States. If we see that in a contract, we immediately think the lawyer who wrote it does not know what they are doing. We American lawyers are trained to want our home court for a dispute so if our client is in Los Angeles and the company on the other side of the deal is in New York, we would want disputes to be resolved in Los Angeles. But that rule is wrong for American companies dealing with China because China does not enforce US court rulings. See China Enforces United States Judgment: This Changes Pretty Much Nothing. This article is from 2017, but nothing much has changed since then.

Your contract is written with English as the main language and arbitration in Shenzhen in English. That is fine, though we generally prefer litigation in China (faster, cheaper and more powerful) in Chinese. But if we switch this contract to that, we would need to review and revise the entire Chinese portion of the contract and we would then likely change it quite a bit and we doubt it would be worth it to you for this one contract. We do, however, suggest the next time you starting manufacturing with a new Chinese factory you have us revise your China manufacturing agreements to be in Chinese with disputes to be resolved in China’s courts. We say this because it will probably make sense at that time to start all over and do a more China-centric contract, with Chinese as the main language, etc. That contract would be shorter than this one because a lot of what is in this contract is not needed because it is automatically a part of Chinese law. It’s your call. Please understand though that if we thought there was something really wrong with this contract we would be saying that you NEED to pay us to re-do it, but we are just not seeing that.

What are you seeing out there?