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.
There’s a reason for this. In some areas of the law, I am either wholly unqualified 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 in the first place.
Common International Contract Mistakes
It is neither efficient nor 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, trying to come draft a contract from scratch, or scraping a contract off the internet. Anyone can find a halfway decent China contract online or use a great domestic contract for China. But that is only half of the work. The other half of the work involves customizing the contract to fit your specific situation, based on your situation and business realities, and then ensuring that your contract covers both best and worst-case scenarios.
We have seen the following all too common scenarios:
Using U.S. Terms for China
1. A U.S. company approached us with a contract between it and its former Chinese employees after those employees had sued this company in China. The U.S. company was planning on claiming that its ex-employees had no grounds to sue in China because contract provided for all disputes to be resolved in a U.S. court. They had paid a U.S. lawyer to draft this document.
Our advice to them was straightforward: request a refund from their U.S. lawyer and aim for a swift settlement with their ex-employees. The reason behind this was that their employment agreements violated multiple Chinese employment laws. 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 Employee Lawsuits for Late Payments.
Using the Wrong Agreement
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, but it was also the completely 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. 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.
No Written Contract
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.
Conclusion: Ensuring Your Business’s Success in International Contracts
Clarity, constraint, and enforceability are the pillars upon which successful China contracts are built. The stories of mistakes and mishaps detailed here should serve as a stark reminder that poorly drafted contracts can lead to legal quagmires and substantial financial losses.
So, if you’re tempted to cut corners or believe that you can save by avoiding legal expertise, think again. The future of your business could depend on the fine print of a contract. Investing in a qualified international contract lawyer is not just a wise choice; it’s often the only choice if you want to ensure your business thrives in the global arena.
Don’t wait until you’re dealing with a contract disaster to act. Seek professional counsel, tailor your contracts to your specific needs, and safeguard your business from costly errors. In international commerce, knowledge equals power, and having the right legal partner can ensure your business thrives without succumbing to preventable problems.
