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How NOT To Write A China Contract

Just say no to bad China contracts

Many moons ago, an American company contacted us wanting to sue its Chinese joint venture partner for having “clearly” violated their joint venture agreement. We looked at their case and advised them not to bother with it.

It had nearly every hallmark of a China deal gone bad, due almost entirely to the fault of the American company. Here were just some of its shortcomings:

  • The contracts were between a good-sized Chinese company and the American company were drafted by one lawyer: a local Chinese lawyer in the small town in which the joint venture is located. Do you think this lawyer favored the large local company that very well might come back with repeat business or the American company with which it could not even communicate?
  • The joint venture was supposed to fulfill all sorts of obligations to the American company that made the joint venture so tempting to the American company. But, the contracts were written so that these obligations were attached to the Chinese company that was entering into the joint venture, not to the joint venture itself. The Chinese company that had these obligations was (unlike the joint venture) utterly incapable of fulfilling them and, since it had had been formed solely to enter into this joint venture, it had virtually no assets, making it a terrible candidate to sue. Note: The first thing our international dispute resolution lawyers usually do when reviewing a potential lawsuit is to determine whether the potential defendant is worth suing. Our clients often want to know first whether they “have a case or not,” but even the greatest case in the world is not worth pursuing if there is no money to be had at the end of it.
  • There were three contracts in two languages each, Chinese and English. The relationship between the three contracts was murky at best.
  • The English language contracts were horribly written and in many places incomprehensible. In the end though, we decided that was irrelevant. The English language contracts seemed to say that they would have the same force as the Chinese language contracts, but the Chinese language contracts (no surprise) said that the Chinese language contracts would control. Under Chinese law, this would mean that the Chinese language contracts would control. Of course the Chinese language contract had all sorts of things in it that were very bad for the American company and that were quite different from what was in the English language contracts. Not only were the Chinese language portions drafted by the one local Chinese lawyer, but the English language portions were drafted by “some” local translator. Our client confessed to “not being certain whether anyone on their side who was fluent in Chinese had ever looked at the Chinese language portions.
  • Needless to say, this was a disaster in every way. But the two items most deserving of scrutiny are how the American company “just assumed” the Chinese lawyer would equally represent the two sides and that the Chinese translation either didn’t matter and/or fairly transcribed/translated the English.

Bottom Line: The lessons to be learned from this badly botched joint venture apply to virtually any China contract or relationship.

11 responses to “How NOT To Write A China Contract”

  1. Any chance you could sue the Chinese lawyer for malpractice? Given that it was a local lawyer in a small town probably not the best example, but what if the lawyer or law firm has substantial assets?
    Disregarding the “fault of the American company” and assuming that the lawyer intentionally misrepresented to the foreign company that the English contract would have the same force of law as the Chinese contract when they clearly knew that the Chinese contract would control, would it be possible to bring any type of recovery action against the lawyer of law firm.

  2. Seriously, in what country can any company get away with THAT little due diligence and business acumen?
    Sorry to say, that guy was a sucker and easy prey.

  3. JV’s, partnerships, marriages: Only between equally strong parties and for a fixed very limited period of time. These arrangments were dreamt up when our life-expectancy was 30 or 40 years – not 70 or 80 or more.

  4. yes. I have translated the contracts with the end that Chinses version controls all. I know this is not fair. But in order to avoid mis-translation, I have to do this.

  5. Ah, the joint venture. Is’nt it true that even with a good contract, this US company would have been screwed?

  6. “The lessons to be learned from this badly botched joint venture apply to virtually any China contract or relationship.”
    Cross out China and your statement is still true. The potential client was just an idiot, unfortunately. Hopefully for his sake “many moons” means before 2000, when being a sucker in China was still somewhat justifiable. Reminds me of the protagonist in “Chinglish,” who at least learned from his mistakes.
    Also re: sqandrews, forget about malpractice – it’s not even clear who the China lawyer’s client was, and lawyer conflict of interest rules in China are very liberal, to say the least.

  7. Fantastic post. What always amazes me is that now matter how much you and others write about these things, they just keep on happening.

  8. Great piece. Very helpful. I actually came here for more info on China joint ventures after reading Steve’s AmCham article on joint ventures.

  9. They may have a case aganst the lawyer in china as the two
    contract was suppose to be the same (this depends on who paid them and who did the translation).
    Why three contracts?
    Should have though about what happens if things go wrong. This is a must when in another country.

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