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.

 

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.

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.

Plan for China – your trademark is important

Many businesses operate without registering a trademark in their home territory. While this is not a good idea, it is possible in many jurisdictions because at least some legal rights may accrue through use.

Home trademark rights do not extend to China

China is quite a different story. Your accumulated “at home” use of trade names, logos, and the like may accrue the rights previously referred to even without trademark registration.

Those rights are of no practical use in China, because trademarks are territorial. Rights outside China are not applicable inside China, the exception being where a local registered trademark is formally extended to China through the Madrid protocol.  China trademark registration is very important for China success.

China is first to register – why wait?

There is another complication: China is a “first to register” trademark jurisdiction, not “first to use”. Put another way – you do not have to show any prior use at all to register a trademark in China. China is a developing country with lots of budding entrepreneurs looking for ways to get ahead. Some of them have taken to registering foreign trademarks in China, either to use as the name for their own business, or to sell to the rightful user outside China, In some cases it is just a tactic to prevent the rightful user from using its trademark in China. Irrespective of motivation, there is a real chance that someone in China will register your “brand” as a trademark in China.

China trademark registration protects you

There is an easy and relatively inexpensive way to prevent this – register your own trademark in China before others do. Chinese can register directly, but others must use an agent in China for this. It takes a little time, but it is the surest way to protect your brand in China. China trademark registration is therefore  very important.

As with everything else, “cheap” is not usually the best value, so it is best to ensure that you get a complete service, not some bargain basement deal. It is your business future that is a stake here.

You could lose your China opportunity if you do not register your trademark in China.

An example might make the picture clearer. Imagine you are a well known wine producer, (say) “Alpinia Wines”. Every bottle you produce proudly bears the “Alpinia” mark at the top of the label, the masthead brand if you like. In the usual way the label then identifies the particular vineyard, the variety etc etc. Even the corks have the Alpinia brand on them.

Alpinia Wines decides that it wants to sell into China, one of the fastest growing markets for quality wines. The first shipment of wines is dispatched to their importer. Unfortunately, there is a problem. The importer advises that the shipment has been detained by China Customs because the labels infringe trademarks held by others. Alpinia has already been registered as a trademark for wine in China! China Customs warehousing charges are mounting and the wines will probably have to be destroyed. There could also be fines.

The owner of the Alpinia trademark in China for wines can request the China Customs to detain infringing goods . If products get past the China Customs undetected, as might happen, the trademark owner can still take action further down the line.

In the short term Alpinia Wines has no real options if China Customs has detained the goods. They might be able to quickly negotiate a licence with the trademark owner, but that is probably not very likely.

In the medium term, Alpinia Wines has limited options: it can re-brand for the China market, an expensive and unwanted course of action; it can try to obtain a licence or buy the China trademark from the China trademark owner; or it can try to find a legal ground that would permit them to have the China trademark cancelled or invalidated, allowing Alpinia Wines to apply for it.

Each of these options has common factors – they are inconvenient, expensive, uncertain, and time consuming. The time and cost invested in registering a trademark in China is trivial by comparison.

The example above has been drawn from our experience in this area. It is just an example on these pages, but for the business people involved it is devastating. The cost is not just the actual money costs, but the secondary cost of being diverted from developing the business and lost business opportunities that may be taken up by others. All preventable by timely trademark registration in China, which is what we have been recommending for a long time.

Take away point: China trademark registration is very important

  • To answer our own question, on any rational analysis, having registered China trademarks is very important for anyone that may do business with China, even if doing business in or with China looks a long way off now.
  • At the very latest, China trademarks should be registered as one of the very first steps in actually engaging with China.
  • The likely cost of failing to register far outweighs the cost of registration.

GB

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

Welcome to our articles!

I first went to China in 1984, commuted every six weeks or so from 1995 – 1997, and have lived and worked in Beijing for just  a tad less than 17 years.  Wei Xin is a Beijing native with extensive offshore experience.  We have been working together on Chinese legal and business issues for more than 20 years.

Change, usually rapid, is the norm in China.  It creates opportunities and challenges at all levels of society but even living in the midst of it it is sometimes hard to keep up. The pace of change is particularly difficult for foreign business because much of the available China information is out of date, at least to some extent. Some of it, of course is just wrong.  In the legal area, many of the changes are predictable if a longer view is taken of the developing system, more or less natural evolutions to match the changes that have, are or will take place.

China is going to continue to develop as it sees best for itself.  Any engagement with China has to be on the basis that China must be accepted as it is, not as you would like it to be.  If that is done, and done carefully with good advice and support, China has many opportunities.

We will use this area to post on changes that we see that affect foreign business or just find interesting.  We hope that you will find the information posted here useful.

Graham Brown, Beijing