What Happens When Clauses in English and Chinese Contract Versions Conflict?

Introduction

Contracts are the cornerstone of global business interactions, outlining the responsibilities and terms agreed upon by the parties involved. In international business, these contracts are often drafted in multiple languages to cater to all parties. English and Chinese are among the most commonly used due to their global prevalence. However, the complexity of legal terms and the nature of language translation can lead to inconsistencies between a contract’s English and Chinese versions. This article delves into the process of resolving such conflicts.

 

The Challenge of Translation and Interpretation

The primary hurdle to bilingual contracts is the translation process. English and Chinese hail from distinct linguistic families, each embodying grammatical structures and subtleties. English bases its meaning on the order of words and the tense of verbs, while Chinese employs a tonal system and context-dependent grammar. This divergence can result in misinterpretations or vagueness in the translation of contract clauses, particularly those involving intricate legal concepts.

 

Mechanisms for Conflict Resolution

In the event of a discrepancy between the English and Chinese versions of a contract, the contract’s governing law and jurisdiction clause typically provide guidance. This clause often incorporates a language supremacy clause.

Language Supremacy Clause

A language supremacy clause states which version of the contract will be given precedence if a disagreement arises between translations. It might, for instance, state, “In case of a discrepancy between the English and Chinese versions of this contract, the English version shall prevail.”

It is worth noting, however, that many Chinese companies have been known to include more favorable terms in the Chinese version of the contract or stipulate that the Chinese version is authoritative. This method emphasizes the significance of comprehending what is written in the Chinese version of a contract.

It is not unusual for both the English and Chinese versions to claim precedence. In such cases, courts frequently favor the Chinese version, reflecting the principle of contractual fairness and the growing international influence of Chinese businesses.

If the contract lacks a language supremacy clause or if the clause is ambiguous, the issue can escalate in complexity and may necessitate a legal interpretation.

Legal Interpretation

Legal interpretation involves the courts or arbitration bodies considering the intent of the parties, the context, and the principle of good faith. This process may also entail examining the contract’s negotiation history and correspondences between the parties or enlisting expert translators to decipher the meaning of the conflicting clauses.

Courts tend to shun interpretations in many jurisdictions that lead to unreasonable or inequitable outcomes. For instance, if one version of the contract would result in a significant loss to one party while the other would not, the courts may lean towards the latter interpretation.

 

Precautionary Measures

To circumvent potential conflicts and litigation, parties should consider several precautionary measures:

  1. Inclusion of a clear language supremacy clause: A lucid clause stating which language version will supersede in case of a conflict can preempt disputes. Check that the Chinese version do not include an additional language supremacy clause.
  2. Employment of professional legal translators: Engaging translators who are well-versed in both the languages and the legal concepts can significantly reduce translation errors and ambiguities.
  3. Comprehensive review: Both versions of the contract should be carefully reviewed before signing to ensure that they accurately mirror the agreed terms.
  4. Addition of an ambiguity clause: This clause can direct the interpretation of the contract in case of ambiguities. It might, for instance, state that the contract should be interpreted in a manner that validates and enforces all clauses.

In summary, differences between English and Chinese versions of contracts can pose complex challenges. Nevertheless, such conflicts can be mitigated through careful planning, professional translation, and comprehensive review. Should a conflict arise, its resolution typically hinges on the contract’s language supremacy clause and the principles of fairness and reasonable interpretation.

 

The Chinese Context

Unless the contract’s Chinese language portion specifies otherwise, the local language often takes precedence over any other in China. If both the English and Chinese versions claim to be correct, Chinese courts will usually rule in favor of the Chinese version. This is due to the contractual fairness principle and the recognition that Chinese entities may have a more comprehensive command of the nuances of their native language.

As previously stated, there have been instances where Chinese companies have taken advantage of this linguistic advantage. They may include more favorable terms in the Chinese version of the contract or emphasize that the Chinese version governs while stating that English governs in the English version. As a result, international parties must be fully aware of what is written in the contract’s Chinese version.

Furthermore, contracts stating that both languages govern equally may increase the room for interpretation and delay, potentially leading to extensive litigation. This only emphasizes the importance of specifying the governing language carefully and ensuring a thorough understanding of all contractual clauses in both languages. leading to extensive litigation.

 

Conclusion

The complexities of bilingual contracts, especially those between English and Chinese, highlight the importance of professional legal translation, meticulous review, and a thorough understanding of the contract terms in both languages. Investing time and resources in ensuring clarity before signing a contract is often more prudent and cost-effective than battling over discrepancies later.

Foreign companies operating in China must be aware of the potential for discrepancies as well as the Chinese legal preference for their native language. Making sure your company understands the Chinese version of the contract isn’t just a suggestion—doing business in China successfully requires it.

 

FAQs

1. What is a language supremacy clause? A language supremacy clause is a provision in a bilingual contract that specifies which language version will take precedence if there is a discrepancy or conflict between the translations.

2. What happens when a contract’s English and Chinese versions conflict? The resolution of such a conflict typically depends on the contract’s language supremacy clause. However, if both versions claim precedence or the clause is ambiguous, Chinese courts usually favor the Chinese version. It’s also important to note that some Chinese companies might insert more favorable conditions in the Chinese version of the contract.

3. Why is it important to understand the Chinese version of a contract when doing business in China? In China, the local language often takes precedence in contractual disputes unless specified otherwise in the contract. Furthermore, there have been instances where Chinese companies take advantage of this by inserting more favorable conditions in the Chinese version of the contract. Therefore, it’s crucial to fully understand the terms outlined in the Chinese version fully.

4. What can be done to avoid conflicts between English and Chinese versions of a contract? Precautionary measures that can be taken are the inclusion of a clear language supremacy clause, employing professional legal translators, conducting a comprehensive review of both versions before signing, and understanding all the terms in the Chinese version of the contract.

5. What are the risks of a contract stating that both languages govern equally? Contracts stating that both languages govern equally could increase the room for interpretation and delay, leading to extensive litigation. This situation can be like litigating over three contracts—each language version and the contract as a whole.

 

Contact us if you need legal help in China, help with background investigation of Chinese companies, protecting patents, trademarks, and verification of contracts to the law in China, etc.

If you require our assistance or have further questions about our services, please do not hesitate to contact our Customer Relationship Manager, Jan Erik Christensen, at janerik@ncbhub.com. We look forward to hearing from you and helping your business succeed in China.

Contact us if you need help with drafting of contracts that follows Chinese laws and are enforceable in China, background investigation of Chinese companiesprotecting patents, trademarks, verification of contracts to the law in China, or help with other legal challenges that you have in China.

If you require our assistance or have further questions about our services, please do not hesitate to contact our Customer Relationship Managers Jan Erik Christensen, at janerik@ncbhub.com  or Milla Chen, at huimin.chen@ncbhub.com. We look forward to hearing from you and helping your business succeed in China.