Silly Rabbit, the Chinese Language Contract is What Matters
One of my favorite trix” employed against American companies doing business in China is the dual language contract, where the English language version is silent on which language controls. We often see this from companies that come to us for the first time with a contractual problem.
The Pitfalls of Dual Language Contracts
Dual language contracts can be incredibly dangerous. If you have a contract in both English and Chinese, which language controls? If both the English language and the Chinese language versions say the Chinese language version controls, the Chinese language version will control. Similarly, if both versions say the English language version controls, the English language version will control. These are the easy and safe examples.
The Risks When the Controlling Language is Unclear
It is everything else that so often gets foreign companies in trouble.
If you have an English language contract and a Chinese language contract that are both silent as to which version controls, the Chinese language version will control in a Chinese court and in a Chinese arbitration. This means that if your English language contract says a product must be strong enough to withstand 500 pounds of pressure and your Chinese language contract says the product need only be strong enough to withstand 300 pounds of pressure and neither contract version says which version controls, the Chinese version will control and the product need only be strong enough to withstand 300 pounds of pressure.
Chinese Company Dual Language Tricks
Chinese companies LOVE using a contract with an English version that is more favorable to the foreign company than the Chinese version and then relying on the English-speaking company to assume the English language version will control.
Conflicting Language Problems
But what if the English language version explicitly states it will control? You should be okay with that, right? Not necessarily. If the Chinese language version also explicitly states it will control, the Chinese language version will control. If the Chinese language version is silent, then the English language contract controls.
The Usual Solution
Our China lawyers usually draft our clients’ contracts with Chinese as the official language, and with an English language translation. That way at least our clients know what they are really signing. This makes sense most of the time, but definitely not all of the time. The exact choice of language depends on the specific client, industry, counterparty, and dispute resolution strategies, among other things.
Bottom Line: No matter what the English language portion of your contract says, it behooves you to know exactly what the Chinese language portion of that contract says as well. And whatever you do, do not trust your Chinese counterparty or its lawyer to explain the Chinese version to you; only use someone you trust for that.
