Don’t trust the translation
Can’t believe this is still happening, but it is, and in numbers that would likely surprise many. The “this” to which I am referring is foreign companies signing dual language contracts without knowing exactly what the Chinese language portion of their contract says. This is really dangerous and I explain why below.
Many dual language Chinese-English contracts are silent on which language controls and foreign companies far too often just assume the English language portion controls or that it does not matter because the meaning of both the English and the Chinese portions is exactly the same. Wrong, wrong, wrong.
What language controls when you have a dual-language Chinese-English contract? If both the English language and the Chinese language portions say the Chinese language portion controls, the Chinese language portion will control. Similarly, if both the Chinese language and the English language portions say the English language portion controls, the English language portion will control. These are the easy and safe examples.
It is everything else that so often causes problems.
If both your English language and your Chinese language portions are silent as to which portion controls, the Chinese language portion will control in Chinese courts and in China arbitrations. In real life this means if the English language portion of your joint venture contract says you get 10 percent of the joint venture’s revenue but the Chinese portion says you get 10 percent of the profits (which will of course be way less than revenues) you will have no legal basis for claiming anything more than 10 percent of the profits. Not surprisingly it is joint venture contracts and licensing agreements where our China lawyers most often see this sort of meaningful dichotomy between the English and the Chinese portions of the contract.
Of the hundreds of dual language contracts proposed by Chinese companies and reviewed by one of my law firm’s China attorneys, we’ve never seen a single one where the Chinese portion was less favorable to the Chinese company than the English portion. But we’ve seen plenty where the Chinese portion was better for the Chinese company than the English portion. Chinese companies love using a contract with an English portion that is more favorable to the foreign company than the Chinese portion and then relying on the foreign company to just assume the English language portion will control.
But what if the English language portion explicitly states that it controls? This works right? Not necessarily. If the Chinese language portion also explicitly states that it will control, the Chinese language portion will control under Chinese law. If the Chinese language portion is silent or says the English language portion controls, the English language portion will control.
As we noted in China Contracts: Make Them Enforceable Or Don’t Bother, it usually makes sense to draft contracts with Chinese companies in Chinese with an English language translation. But this also requires that if the contract is going to be enforced in China (as should usually be the case), you must be certain you know exactly what the Chinese language portion of that contract actually says. No matter what the English language portion of your contract says, it behooves you to know exactly what the Chinese language portion says as well.