Good Lawyers and Businesspeople Think They Know How to Draft China Business Contracts. They Don’t.

I have never handled a DUI, a divorce, or any type of litigation, not even for friends or family. I have never negotiated with a union, navigated customs, immigration, or import/export duties, drafted a pension plan, or handled a bankruptcy. I could go on for pages listing out the legal matters I have never handled and will never handle.

And there is a reason for that. In some areas of the law, I am either wholly unqualified to do so or there are so many other lawyers far more qualified (and efficient) than me at such matters, that my handling them would be a disservice to my clients.

I wish more lawyers and businesspeople thought like I do when it comes to international contracts because I end up cleaning up their messes. I don’t mind cleaning up messes, but I do not like seeing clients pay twice for legal work. Even worse, I do not like seeing clients pay 10 or 1000 times more to clean up a mess in litigation than they would have paid a competent international lawyer to draft a strong international contract.

It is not efficient or cost-effective for a non-China expert to try to figure out the nuances of a China contract. It does not matter whether you are reviewing a contract provided by the Chinese side, whether you are trying to come up with something from scratch, or whether you are scraping a contract off the internet. Anyone can find a halfway decent China contract online or use a great domestic contract. But that is only half of the work. The other half of the work is customizing the contract to your exact situation, taking into account your business reality, setting up the contract to capture your best and worst case scenarios.

We have seen the following all too common scenarios:

1.  An employment contract between a United States company and its ex-Chinese employees. The United States company brought us this contract after its Chinese subsidiary was sued by its ex-employees. The United States company wanted to argue in China that the ex-employees could not sue the subsidiary both because they were not employees of the subsidiary and because the contract made very clear that any disputes needed to be resolved in a U.S. court. They had actually paid a U.S. lawyer to draft this document. We told them to ask for their money back from the U.S. lawyer and try to settle with the ex-employees as quickly as possible. Their employment agreements were illegal on multiple counts. Even if their attorney knew virtually nothing about China, the attorney should have known that in China, employees often reign supreme, especially against foreign companies. Chinese employment contracts are no place for armchair international attorneys. See China Employment Contracts: It’s not Too Late to Check Yours and China Employment Contracts and Double Wage Claims.

2.  A company wanted us to draft a supplier agreement with their new Chinese manufacturer on terms “somewhat similar” to those in the distribution agreement they provided us. Upon further questioning, we learned that they had been using this distribution agreement with their other Chinese suppliers, but they were having doubts about its efficacy. Not only was this distribution agreement written all wrong for China, it was the complete wrong agreement. It set out a relationship whereby the U.S. company was acting as a distributor of the Chinese company’s product, when in reality, all the U.S. company was doing was buying OEM product from Chinese manufacturers. Very strange.  We also told this client to ask for their money back. See NDAs Do Not Work for China but NNN Agreements Do and International Manufacturing Contracts: The Basics.

3. A company purchased PPE equipment from China on a handshake deal, and they got junk, junk, and more junk. The junk came without proper certificates of analysis (COAs), in bad packaging, and it failed later analysis tests. And then the company got ignored because they had paid 100% of the order plus astronomical shipping costs up front because they were the only terms available during the initial PPE market insanity. The company had no leverage and no contract to rely on. We had to cobble together the contract terms from weeks’ worth of emails and WeChat messages. It was not pretty or cheap to deal with. See Fighting Fake and Bad Quality PPE with QC Inspections and China Manufacturing: Don’t Be Too Eager to Make a Deal.

And here’s the kicker. There are many law firms that do great domestic legal work, but international contracting is not easy, even for seasoned lawyers. I am not sure if domestic lawyers are so hard up for work that they are willfully deciding to cross into legal arenas in which they do not belong, or if they simply do not know any better. Or maybe they are just trying to do their client a good service by keeping everything in-house. Whatever their reasoning, it never works out well for their clients. It’s hard for lawyers to admit what they don’t know. And it’s hard for businesses who have “never had a business deal go bad” think that international contract lawyers are worth the price. It only takes one deal to make them believers – as long as their companies survive the mistake.