The language used for a China contract is very important

The language used for a China contract is very important. Cross border contracts in general raise many issues beyond those in purely domestic contracts, including those of governing language. China related contracts need special consideration if they are going to be both technically sound and practical in use. The language used for a China contract is particularly important if dispute resolution, arbitration or court, is to take place in China, but that is not the only consideration.

Common approaches to the language used for a China contract

The four common approaches to the language used for a China contract are (for simplicity, here we assume here that the foreign language is English):

  1. Chinese or English only (English only is now relatively uncommon, but still seen);
  2. Chinese only with a “reference” translation to English;
  3. English only  with a “reference” translation to Chinese; and
  4. Both Chinese and English versions of the same contract as a single document or set of documents.

We need to think about contracts in principle. A practical definition of a contract is an agreement enforceable at law. A key part of what lawyers do is to ensure that an agreement becomes a contract by being technically and practically  enforceable at law.

The language used for a China contract is not just about enforcement

If the trappings of enforceability are there, but there is no true agreement there may not be a contract at law: even if there is a contract at law, without full understanding of the content, there are likely to be issues with performance. You might wonder how a party can agree to the detailed content of a contract where they lack the language skills to read and understand it. At best, they are relying on an assurance of what it contains, at worst, they do not know the detailed content. Understanding the content of a contract is integral to its performance, and performance issues are usually raised well after signing and in the absence of advisers. At that point, there is just the contract itself.

“Reference” translations

Any suggestion of using either language with a “reference only” translation, whether in writing or delivered orally should be considered carefully and skeptically. “Reference” in this context usually means that the translation is not complete.  At best, “reference” may means something like “we think this is accurate but we are not prepared to include it in the contract itself, just in case it is not completely accurate”.

Of course, there is a chance that the “reference translation” is both complete and accurate, but if it is, why is it not contractual?

In some ways the use of “reference” translations is understandable.  As previously commented, it is not easy to get good contract translation.  It has a cost and requires highly skilled people. Not every law firm can or wants to provide this. Sometimes a party, without fully understanding the risks they are taking, accepts the “reference” approach for economy. It is false economy in most cases.

A rarely discussed issue with translations that are not incorporated in the contract document set is that they lack authority and acceptance and may also be lost. Oral translations are ephemeral and of little practical use.

Our policy is that the only really sensible approach to the language for a China contract is that the contract should be accurately set out in the languages of both parties: ie Chinese and English.

Issues with using more than one language for a China contract

Once the bilingual approach is accepted, it immediately raises the question of what is to happen if there are differences between the language versions.  In most bilingual contracts a “governing language” provision is used to deal with this. Typically, one or the other of the languages is stated to prevail in the case of conflict between versions.  If dispute resolution is to be in China, making the English govern can raise as many problems as it solves, as mentioned below.

Arbitration can be conducted in a foreign language in China, but if the arbitrator(s) are Chinese they will be most comfortable and fluent in Chinese.  Human nature being what it is, and irrespective of the “governing” clause, they are likely to refer to the Chinese language version, at least for guidance;

If a Chinese court is the chosen dispute resolution venue, all evidence, including the English governing version,  will have to be translated into Chinese by a court designated translator. In a bilingual contract this is unnecessary, unproductive, and also a needless cost.

A compromise position, frequently used when the parties are unable to agree on a prevailing language,  is a provision that states that both language versions are equally authentic.  The consequence of this is that the tribunal or court can decide which language version they will use – in China, it will most probably be the Chinese version.

Of course, the contract can provide that the Chinese version governs. Properly explained, a foreign party will usually agree to this.

Overall, if a bilingual approach is to be adopted, accurate translation will be important. Unfortunately it cannot be assumed that all translators will be competent for a legal document. They are not. Legal translation, like legal drafting itself, is a special skill. Never be embarrassed about inquiring who will do the translation and how it will be checked for accuracy.

Practical benefits of bilingual contracts

The most important benefit of using a bilingual contract is that the parties will each have adopted the details of the terms it contains during the negotiations and ultimately by signing. It is the most certain way of ensuring that both parties understand and have agreed to its content, including:

  1. their rights and obligations – who will do what and when;
  2. the processes to be adopted if something unforeseen arises – consultation, notices, etc etc;
  3. the method for the resolution of disputes that the parties are unable to resolve themselves.

Hard to imagine how a contract can function otherwise. Practically, the signing a contract in a language that a party cannot read and understand is likely to lack the personal adoption and commitment that very often is the key to successful performance.

Another often underestimated benefit is that the translation is an inherent part of the contract document.  It cannot be separately misplaced. It is there when, as often happens, the people originally involved in the contracting process have moved on, taking with them their corporate memory including details of the reference translation.

The Language used for a China contract is important because it is the only tool that the parties and the tribunal or court have to work with.  A contract is too important for any party to rely on anything less than a contract that they can read in their own language.

Take away points

  • China related contracts are likely to be most effective if they are bilingual because it is important that both parties understand what is required of them.
  • A bilingual contract requires accurate legal translation, but this is not always easy to get. Why should you accept anything less than accurate translation in a bilingual contract?
  • The consequences of specifying a governing language in a bilingual contract need to be thought through.
  • Overall, any additional costs involved in preparing a quality bilingual contract are likely to be far outweighed by the increased confidence in the contracting process.

© 2016 Graham Brown. All rights reserved.

 

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