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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?

dealing with business issues domestic vs a china-based lawyer -part 2

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!

Work with your China-based lawyer to sue your supplier!

Work with your China-based lawyer to sue your supplier

Sometimes miring through a lawsuit, whether against a supplier or an ex-business partner, can be more painful than the events that gave rise to the dispute. Although favorable results can never be guaranteed, foreign clients can take comfort in the fact that retaining a Chinese-based lawyer is less taxing than one might imagine. A client’s physical presence in resolving a dispute is limited, practically in absentia in most cases. The bottom line is that you don’t actually always have to fly to China to sue somebody. But your communication with your attorney is key. Here are some tips to keep in mind:

Always answer your emails within twenty-four hours.

Let’s face it: both you and your attorney have limited time. If you get an email, particularly one asking for additional information, don’t put it off for later—time can be of the essence in some cases. That may seem like a no-brainer, but it is awfully easy to let messages slip through the cracks and remain unanswered. (And don’t be shy in reminding your attorney and his or her staff that the standard goes both ways.)

Disclose as much information as possible.
More is always better. That means every email, invoice, receipt, and note you have. Even if you think it is irrelevant, experienced attorneys are quite skilled when it comes to drawing inferences, which can be more powerful than textual evidence. The best part is, everything can be sent electronically—very rarely will you need to send any hard copies.

Don’t be afraid to ask questions.
Law school is demanding. There is no possible way to learn every aspect of the law in a classroom. If you, the client, are not sure about a particular aspect of your case, do not be shy when it comes to asking questions. In all honesty, lawyers learn an awful lot from their clients’ curiosities. Each case is a learning experience. Lawyers charge clients not just for their achieved wealth of knowledge, but for their ability to obtain new knowledge—researching skills. Of course this may sound like defensive hand wringing, but don’t be dismayed your obscure, off-the-cuff question cannot be immediately answered. The best attorneys will check their facts before giving you a confident answer.

Be honest
Honesty is the best policy. The surefire way of losing your case is to disclose false information. This includes omissions. It is dishonest to leave out small little details because you think their revelation will harm you. Help your attorney help you. Remember, you are hiring an expert to help you with your problem. The lawyer is bound by a confidentiality covenant; there is nothing to fear. Just like when you were a kid, and your parents found that broken cookie jar in the kitchen, with the crumb trail leading to your hideout—someone will find out.

Why should I retain a China-based lawyer?

Why should I retain a China-based lawyer

There are many benefits to hiring a China-based lawyer. Often times having boots on the ground is indispensable. Whether you are operating within Asia or abroad, it is always reassuring having someone on-site and ready to respond at first notice. Additionally, there are many procedures and functions that a foreign attorney, even with an international firm, simply cannot do.

You need competence in the drafting of documents and transactions—specificity is key. Although it may seem beneficial and expeditious to simply pull a template from the internet, even the most expansive generally-termed contract cannot herald what you have in mind. Every situation is different.

But beneath the obvious needs for a Chinese attorney (e.g., drafting bilingual contracts, advising on Chinese law, locally registering intellectual property) the benefits are legion. The rule of law is a burgeoning concept in China. There has never been a more commanding need for competent legal counsel.

Keep in mind, your presence may be required in China for business. During these times, whether you are looking for, or managing vendors, legal consultation is likely to be needed. For example, product safety is incredibly important. At home in the U.S., or in Europe, there is a distributor who is the importer of record and if anything goes wrong, the distributor absorbs liability (or at most shares liability).

Why should I retain a China-based lawyer Doing business in China

However, in China you are likely to be the importer of record. Even if you are completely unaware or detached of any wrong doing on the behalf of a supplier (e.g., labor disputes, product hazards) the local government may come after you. Do not rest easy when a factory manager tells you that they are “globally insured.” Consider for a moment, would a U.S. lawyer go after a Chinese-based supplier when there is a stateside defendant to go after? Generally, if you are a U.S. citizen (or even a non-citizen, but with “minimum contacts” in the U.S.) you are always amenable to U.S. jurisdiction. As the importer of record, YOU are directly liable. As such, liability comes with the duty to stay informed of the relevant laws of both the U.S. and mainland China.

Consider another case illustration: when dealing with electronics, whether in U.S. or Europe, you will be responsible for safety certifications. Even if the factory deems a product as CE or UL certified, you are responsible for staying abreast of the developments and changes with regulations (rubber stamps do not equal compliance). You may have had a great relationship with a genuine supplier for years, but regulations always change. In other words, no matter what, even if you have found a good apple supplier, they may, because of slight error, be out of compliance.

International shipping is replete with slight hurdles that can lead to costly delays. For example, your new product’s customs clearance might require additional paperwork and duties. A quick phone call to your Chinese-based counsel at the border can avoid lengthy and unnecessary delays.

For a moment, think back to Philosophy 101, in which you may remember Jeremy Bentham’s school of thought “Utilitarianism.” Among the many principles he espoused, the most relevant here is deterrence. Put yourself in the shoes of a supplier. If a supplier knows that you have retained local counsel, it is more likely than not that he or she will exercise more diligence and care throughout production as your response to any wrongdoing will be much more swift and efficient. Part of avoiding the most common mistakes in China is making yourself a hard target. This also includes educating yourself about both the remarkable benefits and the unfortunate realities of doing business in China. As mentioned before, even a great supplier might be mistaken. Thus you and your counsel’s fastidiousness may be mutually beneficial.

At times it may seem more convenient to hire a domestic, U.S.-based law firm. But consider this: even for the most basic tasks a U.S. firm might consider it more efficient to outsource its in-house responsibilities to a Chinese firm! With this in mind, it is logical to cut out the middle man and connect directly with the firm handling the matter. Another reason clients may hesitant to hire Chinese attorneys is that—well let’s face it—because it can be a daunting task connecting with a good Chinese supplier, it reasons that it may be just as difficult to find an effective Chinese legal firm. But keep in mind, the key is finding a firm that can communicate with not only you, but also with your associates.

With all the practical considerations, it is always nice to know that you have local support in such a great land for opportunity as China.