Dealing with business issues: Domestic vs a China-based lawyer (2)

Many of us are lucky enough to have engaged great lawyers back home who have successfully guided our domestic businesses over the years. But now that you are going global, are you sure your domestic lawyer has the China chops to guide your international business as well? 

Obviously, doing business in China is radically different from conducting business in your home country. To illustrate that point, in this blog post we’ll offer an inside look at some “China issues” that hometown lawyers often get wrong.  A professional, experienced China-based lawyer will understand in great detail each of the points below.  But the typical hometown lawyer, and maybe a few readers, will be left with your head’s spinning after reading this blog post. You have been warned….

Last week, we explained the real reasons “Why Chinese suppliers keep shipping defective merchandise?”

This time around, let’s look at another important issue:

Issue 2 – Q: My Chinese supplier say’s they have me covered if the product I am buying from them hurts somebody. Am I safe?

Domestic lawyer’s (wrong) answer:  “It says in the contract with the supplier that they will cover you, I guess we are safe, plus the jurisdiction of the contact is in our home country so we can easily take them to court if needed. And it’s in English which is good for us.”  Wrong, Wrong, Wrong.

Experienced China lawyer’s explanation:

Regarding Liability

Unfortunately, it is very rare for a Chinese supplier to actually have coverage for liability in the USA or EU for example.

Even if the factory finds a way to get liability insurance, if God forbid a child in the US gets hurt on your product or there is a recall situation, the US lawyers aren’t going after an overseas supplier. They will come knocking on your door as you are the importer of record and it is your responsibility to ensure the product is safe and compliant with US standards. And it will be another fight all together for you to deal with the factory and their insurer to try to get compensation out of them.

To be safe, consider: 

• Arrange your own US based coverage. Perhaps you can pass on this cost to the seller if you have buying power.
• Make sure the designs are fully compliant and you don’t have a safety issue. The major labs can do the testing and give you piece of mind. Contact the author if you need an introduction to a design firm.
• It’s not enough to complete the lab testing and product certs.  You also need to make sure actual production matches the sample which passed the safety tests. So ongoing production inspection is essential.

Learn more about the key steps of product certification and compliance here! 

Regarding Jurisdiction

Lawyers back home like to see the jurisdiction close to home for the following reasons:

• The assumption that a local court will be sympathetic.
• They can conduct the case in native language.
• A familiar legal environment.
• Most important: the local lawyer gets to charge the client fees. If the case is overseas, the local lawyer isn’t involved and doesn’t make any money!

Sadly, these 4 reasons above are often the wrong reasons for selecting the jurisdiction of your contract with a Chinese entity for the following reasons:

• Your Chinese defendant most likely doesn’t have any assets in USA.
• How are you going to get the overseas defendant to voluntarily come to USA for a court case? Most likely they will just ignore the court order to show up!
• Even if you win in a USA court of law, there is no treaty between the USA and China which would enforce the US court’s decision in China.

In my experience, for most cases, putting the jurisdiction in China, where the assets are found is the best option IF the contract is well written!

Do you have any legal issues in China that you need help navigating? Find affordable legal help here!

Regarding the official language of the contract

For the record: regardless if you are selling to China or buying from the PRC, bilingual contracts are essential!

A bilingual contract makes it a lot easier for the Chinese courts to rule in your favor. Here is why:

Many Chinese companies have various English names for marketing purposes, but their legal name is in Chinese and found on the business license.

The only language allowed to use in any Chinese court is Chinese.

So the English name, or whatever they call themselves for marketing, is not an official name.

You can’t sue some company named “Best Good Star Mfg.” in China. But you can sue “最好星有限公司”. 

You are probably saying “But can’t I get the Chinese side to agree to use English only contracts?”

If your key documents are in English, it complicates things a lot.

For example, before the courts can make a decision, the English documents/ supporting evidence will need to be translated into Chinese by a court approved translator for the court’s review. This can be expensive and very time consuming. Plus the defense can employ a stall tactic of fighting over the wording of the translation itself. It’s much better to have your attorney structure the wording in advance in Chinese rather than hope the court’s translation will be accurate.

That’s it for this post. Stay tuned to our China Law Blog for regular updates on navigating legal issues in China, and avoiding them before it’s too late!