Liuming International China Business Lawyers

Translation of a China Contract

June 29th, 2014

Translation of a China contract is very important.  I was reminded of this recently when I was reading an article written by another lawyer.  His basic point was that language in contract is very important, and where two languages are involved, it was important that the “language” provision in each version should correctly state the same governing language. To be frank, anything else is just incompetence.

Good translation is difficult to get

Unfortunately the article said nothing relevant about the really key point in China contracts – translation of a China contract. Good translation of a China contract is important, but it is difficult to get. That is one of the reasons why we do all translation of a China contract in-house – to ensure accuracy.  The other reasons is confidentiality, but that topic is for another time.

Why is it so difficult to get good translation of a China contract?  There are a number of reasons:

  • Legal translation requires particular skills – of course a high level proficiency in both languages is necessary, but so is an excellent understanding of legal terms in both the base language and the target language.  Both are required for good translation of a China contract.  Language alone is not enough – it is quite a different skill set from that required to translate poetry or a novel where the reader is sympathetic to the writer and trying to find the intended meaning.
  • When the language of a contract comes under scrutiny, it is likely to be in an aggressive context where one party is trying to establish a particular meaning from the words used and the other is trying to deny it.  Very often in a court or at arbitration. That is quite a different test for translation and the one that is really relevant for a China contract.
  • Translation is a skill that is generally not highly regarded in China.  There is a view that anyone can do it, which is another way of saying that it is unimportant work.  A glance at the instruction book supplied with a Chinese made appliance, or local signs, will, confirm this.  Very often translation is contracted out to language students at the nearest university for a pittance.  The result is what you would expect.
  • Good translation of a China contract is hard to do. It takes the skills previously mentioned, a lot of experience, and great attention to detail if an accurate translation is to result.  Some expressions in English (or Chinese) are very difficult to accurately translate into the other language.  Sometimes we have to amend the English (or Chinese) to facilitate accurate translation.  Good translation of a China contract is not something that comes at bargain rates, but the price is well worth paying if it helps get a successful outcome.

Questions you might ask about translation of a China contract.

  1. What is the process followed for translation?
  2. Who does the translation?
  3. What legal experience and training does he/she have?
  4. Who checks the translation?

Each of these questions is important, but those regarding who does the translation and checking are particularly so.  If translation is being contracted out, or being done by the other party, it is something to be concerned about. Translation should be done by someone able to talk directly with the person that drafted the contract so any ambiguities can be resolved and accurate translation obtained.

Checking is actually very important for good China contract translation because translators sometimes make mistakes that they cannot “see” because they created it. It requires fresh eyes.  Checking translation is a bit like proof reading a document, but goes further because a good checker will pick up ambiguities in the translation itself.  Perhaps needless to say, the person checking a translation should have superior skills to the original translator.

It is quite common in law firms operating in China for the person that drafts a contract, although a very competent lawyer,  to have very limited language skills in another language.  In these circumstances the drafter cannot check the translation so there must either be total reliance on the translator, or there has to be a competent checker.

Responses to the questions like “our translator is very experienced” or  “we have been doing this for many years and never had a problem”, or “all of our lawyers are bilingual” simply do not cut it.

Your contractual rights and obligations deserve more than a “trust me” response and there should be a proper process for legal translation.

Some advocate that one language should prevail.  Technically this is quite sound, but some practical realities need to be considered.  Very few people are equally fluent in more than one language. A  Chinese person  will typically be more comfortable with Chinese, an English speaker, with English.

If the governing law and dispute resolution is Chinese law and courts,  it is safe to assume that the Chinese language version is important, and will prevail.  But that is not the end of it.  Contracts have to be performed and it is important that both parties have accurate and authentic versions of the contract to guide their behaviour.

The only really sensible approach is to have good translation of a China contract so that both versions are equally authentic.  The contract can state that one prevails, but that is not a substitute for good translation, and both versions actually being the same.

Take away points

Good translation of a China contract is essential if it is to be legally and practically effective.

  • Good translation is not easy to get, and not every law firm can deliver it, but it is essential.
  • Be prepared to ask questions about the process: who will translate your China contract, who will check it for accuracy, and their qualifications and experience.
  • If you are not satisfied with the answers received it is probably time to seek an alternative source of contract expertise.

WX

© 2014 Graham Brown and Wei Xin. All rights reserved.

 

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“Our China contract must be used”

June 5th, 2014

In a previous post I wrote about the dangers of using contracts drafted for another purpose as China contracts. This is particularly risky with China contracts and I had yet another real life example of a defective China contract this week.

Simple China contracts can be good

A good friend, a small businessman, provides services to large companies in China. He has a simple two and a half page China contract that is governed by Chinese law and provides for Chinese courts as the means of resolving disputes. It is appropriate for the type of work that he does and the sums of money involved.

Recently he approached me with a ten page contract for comment. He had submitted his usual China contract to the local China office of very large multinational company but had been told that “the legal department” had a rule that their China contract had to be used for all transactions. My friend thought that their China contract was overly complicated, but it was an important new client and just wanted me to check it before he signed.

Not all “standard” China contracts are good

I had a quick  look, suggested a couple of minor changes, and smiling to myself, said it was OK for him to sign. I explained that I was smiling because the China contract was unenforceable against my friend, but he could take action and have a judgment enforced against the other party, if it came to that.

How could it be that a large multinational company was insisting on using a China contract that provided them with no real protection?  Standard documents is the simple answer.  Their China contract was created for a different legal environment.  In particular it provided for home country law, and the exclusive jurisdiction of home country courts.  Unfortunately, sovereignty made that provision  practically useless

Sovereignty sounds old fashioned, but it is at the core of international transactions, and cannot be ignored.  Practically, sovereignty just means that each country has the power to do what it likes within its borders. A necessary consequence of this is that a judgment of a court in one country has no effect in another country unless that country agrees to it.  Agreements of this type are typically called treaties – judicial assistance treaties.  Without a treaty in place, or an agreement on a case by case basis, a judgment made in one country will not be enforceable in another country.

If not correctly drafted, China contracts may be unenforceable

To return to the China contract imposed on my friend.  It provided for home country law, and the exclusive jurisdiction of home country courts. In signing, that is what the parties were agreeing to.  But the country concerned has no agreement in place that would permit a judgment against my friend to be enforced in China.  He has no assets in their home country so any judgment there would be empty.  The multinational could not take action in China, because by their own “standard” China contract, they had ruled that out.

My friend however has no such problems.  He can take action in the home country courts and that is where at lest some of the multinational’s assets are located.  His judgment will not be empty.

So how is it that a company with virtually unlimited resources can end up in this position?  A kind response is lack of attention to detail (other responses might be less generous).  The relationships between the parties are such that there is really very little likelihood that either party would resort to litigation if there was a dispute. However the danger with misapplied “standard “ contracts is that they lead to a baseless sense of security – no-one sets out to have unenforceable ten page China contracts, but it happens, as this case illustrates.

Filing cabinets full of unenforceable contracts?

I imagine that the multinational company concerned must have filing cabinets in China full of these signed China contracts, all of them with one thing in common – they are unenforceable against the other party.  At least some are likely to be for matters where failure to perform will have serious consequences.

China, as a sovereign country has its own rules and requirements and ignoring them has consequences.  China contracts drafted without due regard to the laws of China are almost certainly going to be defective, at best and may be totally unenforceable.  This real life example, setting out the most common form of defective contract, confirms that.

Take away points

Here are a few:

  • The legal department does not always get it right with standard China contracts.
  • Attention to detail is important for effective China contracts.
  •  Contracts that are sound elsewhere may be unenforceable in China.
  • There is no substitute for on the ground China contract experience.

GB

© 2014 Graham Brown. All rights reserved.

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China contract necessary for a China deal – contracts do not travel well.

May 23rd, 2014

The China contract

Use a specific China contract for China deals! A useful definition of a contract is an agreement enforceable at law.  If it is not enforceable, it may be an agreement, a memorandum, a note, or a minute, but it is not a contract.

At least 30% of the foreign created China contracts I see in China are technically defective to the point that they are legally or practically unenforceable.  Think about that for a moment.  “Contracts” are being created and signed that are not contracts at all!

How does it happen?

Usually it is because a document that was created for one purpose has been used for a different purpose.  Sometimes it is an attorney lacking in international experience taking on work that he/she should pass on to someone more experienced.  Both of these are not China specific so presumably defective contracts are found whenever there are international transactions. China’s legal system imposes its own requirements and these cannot just be ignored in a contract.

Why does it happen?

Many reasons – here are a few:

  • Inappropriate use of precedents or templates by law firms;
  • Large companies and their in-house legal departments want to have “standard” documents for use throughout the world. Unfortunately there are no “standard” legal systems;
  • companies or individuals want to save on legal costs so they take a contract that was originally created for a transaction in one country and use it as a China contract; and
  • counsel that would otherwise be quite competent, take on a China contract without the China specific background and experience to do so.

The unfortunate aspect of all of this is that the parties involved believe that they have contract and usually find out the truth only when they are facing a loss and want to rely on the “contract”.

Take away points

  • “Standard” documents are likely create more problems than they solve when they are applied to China transactions. There is only one sure path to contract certainty for China – documents competently drafted for use in China. Recycling legal documents for a China transaction without taking China specific advice is just an accident waiting to happen.
  • The cost of having a China contract reviewed by competent counsel is very reasonable, even more so when compared with the costs that can result from a defective contract. Taking a chance on enforceability and effectiveness in China makes no sense at all.

GB

© 2014 Graham Brown all rights reserved.

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