How NOT To Write A China Contract

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.

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