Many moons ago, an American company contacted my law firm wanting to sue its Chinese joint venture partner for having “clearly” violated their joint venture agreement. We looked at their case and advised them that we would not be willing to take on the case because we believed they did not have a good case.
It had nearly every hallmark of a China deal gone bad. Here were just some of its shortcomings:
1. The contracts were between a good-sized Chinese company and a mid-sized American company (about 600 employees). The contracts were drafted by one lawyer: a local Chinese lawyer in the small town in which the joint venture is located. Do you think this lawyer favored the large local company that very well might come back with repeat business or the American company with which it could not even communicate? I asked the American company why they had shared a local Chinese lawyer with their future joint venture partner and I was told that the Chinese company had recommended that they use the same lawyer to save everyone money and to move things along faster. The American company went along with this because they didn’t want to “start off on the wrong foot” with their future partner.
2. The joint venture was supposed to fulfill all sorts of obligations to the American company that made the joint venture tempting to the American company. But, the contracts were written so that these obligations were attached to the Chinese company that was entering into the joint venture, not to the joint venture itself. The Chinese company that had these obligations was (unlike the joint venture) utterly incapable of fulfilling them and, since it had had been formed solely to enter into this joint venture, it had virtually no assets, making it a terrible candidate to sue. Note that one of the first things our international dispute resolution lawyers do when reviewing a potential lawsuit against a Chinese company is to determine whether the Chinese company is worth suing. Our clients often want to know first whether they “have a case or not,” but even the greatest case in the world is not worth pursuing if there is no money to be had at the end of it. In this case, there was likely no money to be had at the end of it.
3. There were three contracts in two languages each, Chinese and English. The relationship between the three contracts was murky at best. You would not believe how often we see cases where there are multiple contracts and none of the contracts are clear whether one contract was to supercede the rest or whether the multiple contracts all remain valid.
4. The English language contracts were horribly written and in many places incomprehensible. The English language contracts seemed to say that they would have the same force as the Chinese language contracts, but the Chinese language contracts (no surprise) said that the Chinese language contracts would control. Under Chinese law, this would mean that the Chinese language contracts would control. Of course the Chinese language contract had all sorts of things in it that were very bad for the American company and that were quite different from what was in the English language contracts. Not only were the Chinese language portions drafted by the one local Chinese lawyer, but the English language portions were drafted by “some” local translator. Our client confessed to “not being certain whether anyone on their side who was fluent in Chinese had ever looked at the Chinese language portions. See Dual Language China Contracts: Don’t Get Fooled.
This contract was a disaster in every way, and that is without even going into the mu But the two items most deserving of scrutiny are how the American company “just assumed” the Chinese lawyer would equally represent the two sides and that the Chinese translation either didn’t matter and/or fairly transcribed/translated the English.
Bottom Line: The lessons to be learned from this badly botched joint venture apply to virtually any China contract or relationship.