Lawyers love to jab at each other, especially when we are friends and operate in different jurisdictions or different practice areas. Recently a litigator friend said to me, “Don’t transactional lawyers just cut and paste? It looks really easy.” I replied, “Don’t litigators just argue about pointless things?” This willful misreading of each other’s skills and value is not unique to the practice of law, but it definitely has ramifications in international business contracts.
For international transaction lawyers, the science in getting an international contract right involves choosing the right provisions while employing the art of past experience in getting the deal done. Ideally, this will involve including the right business terms in the contract while tilting as much as possible in our client’s favor without jeopardizing the deal or the underlying business relationship.
We received the following email from a reader curious as to how our firm’s China lawyers draft contracts for China, all of which is relevant in other international jurisdictions where legal systems, business expectations, and financial systems collide:
Can I ask about the wording of your law firm’s agreements in Chinese? I am a translator helping a U.S. company on its contracts and — to put it mildly — things are not going well. The deal I’m translating for has been running into a lot of trouble because the American law firm that wrote the contracts has written them in highly complex legalese.
In the second tier Chinese city where the U.S. company is looking to do business, our partner and potential collaborators are having real trouble just reading and understanding the documents. The American lawyers keep saying the contracts are good and that they need to be this complex. They total more than 75 pages. I’m reasonably sure both sides are right on this — the contracts are correct, but they really are very difficult to read.
1. How do you draw the line between the conventions of English (American) legal drafting and Chinese drafting?
We write our China contracts the modern way that is preferred by both our clients and their Chinese business partners. We do this to simplify, reduce negotiation time (and failures), and reduce costs. This means we eschew legalese (and using antiquated words like “eschew”), and we strive to avoid unnecessary boilerplate. This is true of the contracts we draft in both English and in Chinese and in whatever other language we are using.
Most importantly, we do not need to “walk the line” between the conventions of English (American) legal drafting and Chinese because of how we draw “the connection” between our English version of a contract and its Chinese version.
When we draft a contract for a client, we first draft it in English. We do this for the benefit of the client and we work with the client using the English language contract. Once we have finished the contract in English, we then move on to re-writing it in the foreign language. Notice how I did not say “we then translate it into Chinese.” We take the English and re-write it into the foreign language so that the re-write is not a direct translation but encompasses the nuances required for the deal and future fact finders (judges and arbitrators).
So for China it is a Chinese language China-style contract. In fact, because it is the Chinese side of the contract that is almost always the official version, we view that as the definitive contract and the English portion as the translation. In Dual Language Contract Dangers, we wrote about how we do not write dual-language contracts; the contracts we write virtually always have one official language, and that language is nearly always Chinese.
Recently, in an effort to save a few dollars on legal fees, a potential client asked if we would reduce our flat fee on a contract if he had his “own people” translate our English version into Chinese. Our response was that we will not do a China contract unless we do both the English and the Chinese. It is just too risky otherwise.
Here are some additional questions regarding Chinese contracts that apply equally well to other foreign language jurisdictions:
2. What proportion of contracts between Chinese companies (or government agencies) and foreign companies are in English? Must the parties enter into a Chinese-language version too? If so, which controls?
Chinese law provides that the parties are free to choose the language of their contract. If the contract is in two languages, the parties should choose which language will control. If the contract is in Chinese and in English and the parties do not specifically choose a governing language, Chinese courts and arbitration panels will take the Chinese version as controlling.
If the contract is in English, then the court or arbitration panel will appoint a translator to do the translation. These translators are often not very good because they do not know the nuances of both the Chinese and the foreign legal system, which causes many problems in litigation/arbitration, since the case gets sidetracked in disputes about translation. For one of the most famous examples of this issue, see here, which issue continues to today (see here).
Contracts involving a foreign party in China are almost always done in a dual-language format, with English almost always the other language because English is the global language of international business, even in China. Sometimes we also use three language versions of contracts if the situation warrants it.
How do Chinese lawyers and businesspeople respond to the traditional (in other words, overly complicated) prose in most English-language contracts? Have they adopted it?
Chinese lawyers and businesspeople usually reject traditional U.S. contract language outright, especially if they have at least equal clout in the negotiation process. Chinese contracts typically use simple contract language. Often, U.S. companies insist on using U.S.-style common-law contracts. The Chinese side never reads the English; they have the document translated into Chinese, and they work with the Chinese version.
When litigation occurs in China, the Chinese court will often say, “This contract is just a translation of a standard U.S. contract. Obviously, the Chinese side did not understand any of it. Therefore, we are going to ignore the key provisions on which you are relying and we are not going to enforce them.”
Many banks and investment funds have learned this to their detriment. For example, many foreign-drafted futures contracts have been thrown out in China because the courts concluded that the Chinese party simply did not understand the contract. The result is that the Chinese companies got a free ride, which is not a trivial issue.
It is a much deeper issue than language. Chinese courts, Chinese lawyers, and Chinese businesspeople are not going to agree to legal provisions that have no meaning under Chinese law. If you expect to litigate in China, your document should be in accord with Chinese law. If you expect to be able to enforce your contract in China, you should have a contract that accords with Chinese law.
Much bad U.S. contract writing (and the U.K. but especially Canada) involves using ten words to express one concept and drafting provisions so as to address every single possible contingency. For China, only the concept is important.
Another motivation for bad U.S. contract writing is to try to draft around case law or statutes. China does not care about cases or U.S. statutes. Chinese courts and arbitrators do not allow drafting around the provisions of black letter Chinese law, and they do not allow for results they think are either unfair or in bad faith. Thus, the real issue is not so much bad U.S. drafting methods. The real issue is how the Chinese court views the motivation behind the contract. This is why we default to contracts that are written fairly and succinctly.
We should also add that Chinese lawyers have major problems interpreting U.S. and British common law contracts. Their standard approach is to guess at the meaning and then mistranslate and then work with the mistranslation, leading to disaster on all counts.
We estimate that 90+ percent of our contracts for any foreign market are less than 15 pages, and that usually includes both English and the foreign language.
In other words, keep it simple. For more readings on international contract drafting, see:
Three Rules for China Contracts
Arbitration in Your International Contracts: Adult Supervision Required
