Contracts with Chinese manufacturers, distributors, Chinese suppliers and other commercial agreements you use in China are more likely to be effective if written in English and Chinese. Why you might you say? The reason is that it is important that you and the Chinese parties must understand the contract scope in order for the contract to be effective in the Chinese court.
However, we have witnessed many foreign companies in China signing bilingual contracts only understanding the foreign language, and not fully understanding the Chinese words of the contract.
While you might have a contract in place in China, there are likely issues with the contract you are using if there is a language barrier and you do not fully comprehend the terms defined in the contract when Chinese is used. We believe it is of the greatest importance that you ask from the beginning why you would agree to the content of a contract if you do not understand the details of the contract yourself.
It is essential to understand the scope of the contract in both the English and Chinese versions of the agreement to avoid problems raised after the contract has been signed.
Contract negotiation: Careful consideration when choosing the governing language version is crucial
It is clear that a bilingual contract as a legal document used in Mainland China necessitates an accurate legal translation. While you might lack Chinese language skills, there should be no reason why you should settle for anything less than perfect translation in a bilingual contract.
There must be careful consideration given to the implications of specifying one governing language in a bilingual contract.
We often see that many bilingual contracts are silent on which language governs which portion of the agreement in China. Often, foreign companies assume A. that it makes no difference which language governs because the meaning of both language versions in the contract portions is the same or B. that the English text of the contract controls the contract.
If the contract is in both English and simplified Chinese, and it is stressed in both versions that the English version prevails, the English version shall prevail. Unless you specify which language version shall prevail, the Chinese language version will prevail in Chinese courts.
Preferred language: What if both language versions state that they shall prevail in a bilingual contract?
When foreign parties are using bilingual contracts in China, they should answer the following questions: What if both language versions state that they shall prevail in a bilingual contract? What does the use of different languages in a bilingual contract mean in China?
It is only in a situation where A. the Chinese text defines that the English text prevails (over the Chinese text) or B. the Chinese text does not say anything about it while the English text points out that it is the English text that controls the contract, that the English text actually prevails. If both the contract’s written language is Chinese and English, and both languages state that they shall prevail, the Chinese language prevails in China.
Through our work in the Chinese market, we have witnessed numerous examples of extensive contradictions between the English and Chinese texts in bilingual contracts. Often, the Chinese text of the prevailing language clause may contain an opposite regulation, which states that in the event of any discrepancies between the English and Chinese texts, one should apply the Chinese text and not the English text.
At the same time, while the clauses about which version should prevail in both English and Chinese may be identical, the Chinese contract text might explicitly state that it is the Chinese text that shall prevail in the event of a conflict between the two languages.
Unfortunately, in many contracts used in China, the Chinese text contains rights or obligations that are not mentioned in the English text.
This is a considerable risk for foreign companies in China, as the Chinese language portion could benefit the Chinese company more than the English section. You might end up with contracts containing an English portion that is “falsely” favourable to you as the foreign company and a Chinese company that seeks to put you in a trap as you assume that the English version will prevail.
China contract: The importance of having a high-quality bilingual contract in China
In conclusion, we would like to emphasize that while there might be costs associated with preparing a high-quality bilingual contract in China, it is a worthwhile investment to ensure confidence that your agreement is enforceable the way you want it.
Our recommendation is clear: you must fully understand both the Chinese and the English text if you use a bilingual contract in China. You should ensure that not even one Chinese character is wrong so that your contract is fully enforceable.
When we translate the contracts ourselves instead of outsourcing this job, this is a choice we have made because we see the need to protect the information we handle and the importance of having a high-quality translation of contracts in China.
When negotiating contracts with Chinese companies and the Chinese party, we recommend that you draft the contracts in Chinese and then have them translated into English. You must be sure that you understand exactly what is written in the Chinese language portion of the contract. No matter what the English language portion of your agreement says, to ensure that your contract can be enforced in China, it is your responsibility to understand all the details in the Chinese text used in the contract.
Do you need any legal help in China?
If you need help with drafting your China contracts, translation of your contracts, protecting your trademarks, verification of NDAs and contracts, background checks of Chinese companies and other legal help in China, please contact us here or send an email to firstname.lastname@example.org.