Posts

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!

Dealing with business issues: Domestic vs a China-based lawyer (1)

 

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 two-part 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….

Issue 1 – Q: Why does my Chinese supplier keep shipping me defective merchandise?

what a china-based lawyer will tell you about defective merchandise

Domestic lawyer’s (wrong) answer: Chinese suppliers are bad, they don’t care about quality, find a new supplier.”

Experienced China lawyer’s explanation:

Because the margins are tight, the seller wants to lock in the buyer for multiple orders. But the buyer won’t promise to place additional orders until the first order arrives. Sadly, too many buyers forgot to have clear terms in the PO/Contract about how defects will be handled. Sellers can exploit this to their advantage in the following way:

When the seller ships out the order, the seller “makes an error” and under-ships the number of units and/or they make sure a certain percentage are defects (on purpose).

Since the novice buyer didn’t have a contract that would clarify what happens in the event of defects or under-shipment, the seller is now in the driver’s seat. Mr. Li will say “sorry for the defects, it was a mistake, won’t happen again, we’ll give you replacement products on the next order”. Just like that, Mr. Li has his buyer locked in for the next order!

It’s easy to avoid this kind of drama. Here is how:

  • Have a well written,bi-lingual contract, under official chop. A custom contract can be done up by an English speaking Chinese lawyer for just a few 100 USD.

So in my opinion, a buyer is just plain crazy to skip this important step.

  • Apply a level of independent QC at the factory or consider having the product inspected 100% at an assembly/inspection facility.

More on contracts, payments and purchase orders here!

That clears up the first issue! Next week we will take a look at another (wrong) answer that a domestic lawyer may give about coverage for liability in China.

3 legal services foreign companies in China should not overlook!

 

Foreign companies in China take note

During my 20 years living in Asia, I’ve owned a number of different business entities in greater China, ranging from China manufacturing WFOE’s to service companies. I’ve had my share of success as well as failure in the China courts, and in this blog post I’d like to share the 3 areas of China law where I wish I had  been more careful.

Assumptions about readers of this blog post who are interested in China law

The concepts discussed in this blog post may be of interest to anyone that wishes to do business in China, regardless if you are on the buy or sell side of the transaction with China. Readers who are thinking about setting up their own offices or factories in China will find the article  particularly useful. 

The concepts explained in this blog post also apply to personal law, so it’s not just business people that may find the blog post of interest.

This article will give foreign companies in China insights into what mistakes they need to avoid. Some of you may be making the same mistakes right now and I hope you find this blog post of value. 

1) Bilingual Contracts in China

Regardless if you are selling to China or buying from the PRC, bilingual contracts are essential.

First off, a well-prepared contract gives out the signal that say “I care”. Other people will think before acting against you. Having a well-worded contract that is bilingual, says to the China side that you “really care” and are a professional not easily taken advantage of.

Second, a good bilingual contract makes it a lot easier for the courts to enforce. This will save time and money.

hiring in china pro tips to save you time money and legal issues

2 Technical reasons why it’s best to have a bilingual contract in China

  •  You have to list the Chinese name of the supplier for the contract to be valid. The name should be the same as what you see in their business license.  Many Chinese companies have various English names for marketing purposes, but their legal name is in Chinese and found on the license.
  • The most important reason is because to conduct litigation outside China, in US for example , against a Chinese supplier is meaningless.  You need to go after them in China and that means a Chinese court. 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”.

But my contract says that the Chinese party accepts the English contract term, am I safe?

Keep in mind that to litigate outside of China is for the most part meaningless. The vast majority of Chinese companies do not have any assets outside of China and a court in China does not enforce foreign judgments, so it means that you actually get nothing (except a bill for wasted legal fees) even if you prevail in a court back home. So if litigation is the only option to solve the dispute, a lawsuit should be filed in a Chinese court. And if you want to win in a Chinese court, your document better be in Chinese.

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. Be safe. Use bi-lingual contracts.

2) Are your Human Resources (HR) policies and contract up to date?

If you don’t have operations in China, you don’t need to worry about this one. But if you legally employee staff on the ground in China, it’s essential that you stay up to date on the rapidly changing HR policies. For example, the minimum wages, rules for dismissal & severance, tax policy and workplace safety legislation are constantly being adjusted by the federal, provincial and local governments. 

Two important things to remember about Chinese labor law

One: At the end of the day, China’s is a communist country.  It’s not always an exaggeration to say that the labor bureau and courts tend to protect the worker and the business owner (especially if they are foreign!) is the exploiter of the worker.

Foreign business owners can get a fair shake in the courts, but we have to go out of our way to show that we are following the Chinese laws to the letter, and that brings us to the next point:

Two: Labor laws are updated almost every year and there is no “grandfather clause” build in. So just because you were fully compliant last year, doesn’t mean you aren’t sitting on a power keg this year. A good labor attorney will keep you updated on changes to the law and work with you to make adjustments in your HR systems/document/procedures in advance.

3) Demand letters work in China!

If contracts were broken or you were taken advantage of by a Chinese entity, don’t turn the other cheek. Fight back with a demand letter and threat of legal action! Too many buyers just accept the loss because they don’t know how effective a demand letter or even litigation can be in China.

The following flow chart (compliments of AsiaBridge Law) will help you determine if you should walk away, issue a demand letter or go right to court.

due diligence flowchart for foreign companies in china

Unfortunately there is no Better Business Bureau in most parts of Asia where you can take your grievances. Unless your loss is very large, you will find very little support from government agencies and local police. A carefully crafted message and/or demand letter from a reputable local law firm in the local language may be the solution.

How to effectively communicate with a China-based lawyer

 

Getting the most out of your China-based lawyer

I’ve communicated with lawyers in English as well as in Chinese. While my Chinese is pretty good after 20 years in Asia, I still feel much more comfortable when the lawyer is fluent in English. For the sake of this article, I assume the reader doesn’t read and write Chinese at a level suitable for complex legal issues.

The concepts discussed in this blog post may be of interest to anyone that wishes to do business in China, regardless if you are on the buy or sell side of the transaction with China. Readers who are thinking about setting up their own offices or factories in China will find the whitepaper (available for download at the bottom of this post) particularly useful.

The concepts explained in this blog post also apply to personal law, so it’s not just business people that may find the blog post of interest.

The problem is that China-based lawyers who are truly fluent in English (or other foreign language) will command a very high salary.  Same is true if you are hiring a Chinese speaker in your home country to handle communications with the China based legal team.

The team at AsiaBridge Law solved this problem by having American & Europeans based in the China office perform the account management/ paralegal role to help the overseas clients and local lawyers communicate effectively.

In this article, we’ll give you a behind-the-scenes look at the tools & techniques used to ensure smooth project management and communication between the Chinese lawyers, paralegals and western based clients.

How to ensure smooth communications and project management for China legal cases?

George Bernard Shaw said it best: “the single biggest problem in communication is the illusion that it has taken place. ” It’s very dangerous to send an email to your lawyer in China and assume they understand your exact meaning.  Unless your law firm truly has bi-lingual and bi-cultural staff based in China, you will end up having to play the role of project manager/communications specialist if you wish to ensure your project stays on track and your agenda for your legal issue is advanced the way you want it to be advanced. Here are some tips if you find yourself in that situation:

1) Get it down on paper

Because of the education system in China, many Chinese have strong written/reading skills but lack verbal skills. So writing down what everyone said and agreed to and then sharing it with the other person, will help avoid miscommunication.

By taking the lead and providing the summary, you can control the presentation of information, how it is presented, what it says, and of course share with your counterpart how YOU see the world – what you understood. Additionally, this will help avoid any intentional ambiguities the other party may have planted.

2) Establish communication protocols with your Chinese legal staff

establish communication protocols with your china-based lawyer

If you communicate globally via email with co-workers, lawyers or service providers in China, you probably have at some point become frustrated by the amount of time it takes to get an answer to what you consider a simple question. Part of the reason is language and culture, but dealing in multiple time zones plays a big role too.

For example, if you are in N. America and sending e-mails to a China lawyer, it is essential to have clear and effective communications because there is very little overlap of working hours in the two places. Should you get an unclear response to your question, you have to wait another 24 hours to ask and hear back.  This cycle can go on for days and somehow a simple question like “did the notarized document get delivered to the court” takes 2 weeks to answer.

Monday: Did the notarized document get delivered to the court?

Tuesday: China Answers: Many FedEx documents arrived, we have a bunch of documents, which one are you talking about?

Wednesday: Did the document in FedEx tracking # 123ABC arrive and get delivered to the court?

Thursday: China Answers: I’m out of the office today on business; my assistant at the office is sending the confirmation of all the documents we sent to the various courts involved in your case.

Friday: The confirmation slips were in Chinese, can’t understand.

Monday: China Answer: No answer

Tuesday: China Answer: Sorry, my assistant confused “notarized” with “authorized” and we still have the notarized document sitting in our office. Please advise.

Wednesday: F*%$ it, we don’t have time left to get the document to the court.

Thursday: China Answer: Which documents are you talking about?

Time: 2 weeks/ 10 days/ 0 Progress

Read more on how to find an affordable lawyer in China that speaks English here!

Even simple communications get mucked up over email, so to help improve things around my office; about 10 years ago I created the following protocol for all my China side staff.  It proved so effective, now all staff regardless of nationality have a laminated copy of it attached to every monitor in my organization.

Before sending an e-mail, I will check the following:

  • Are the right attachments attached?
  • Are the attachments formatted with correct page breaks and look nice?
  • Has the attachment been spell checked?
  • Has the e-mail been spell checked?
  • Is my point clear?
  • Does my email avoid sarcasm and phrases that could be misinterpreted by the reader?
  • Do I need any other people in the organization to give a 2nd option before I send the email?
  • If I am assigning a task, can this task be assigned using our project management software rather than via email?

IF the task must be sent be email:

a) Is the person I want to do something listed in the “to” line? Don’t expect somebody in CC to know they have been assigned a task.

b) Is the task clearly stated in the email?  Who, what, when, why!

  • Review who is in the “to”, “cc” and “bcc” to confirm your email is not sending sensitive information to the wrong people.
  • If the people who will view your email don’t speak your language, make sure a translation or at least a summary is provided for them.

Couple of notes:

  • Send me an email and I’ll be happy to forward you the bi-lingual version of this document so you can cut and paste and share among your team.
  • It is not an understatement to say that moving from a spreadsheet based system to proper project management software has changed my life as a manager.  We made this change when we had about 50 staff. Today we have 200 and I know I would have hung myself had I not had this software in place.
  • Make sure your Chinese partners install English spell check on their computers. Some China computers don’t have this out of the box, but installing it is easy.

In short, is sad but true- in China, even simple communication is not easy. I hope the above tips help you communicate better with your Chinese business associates.

Discover the fees behind legal services for foreign companies in China

 

During my 20 years living in Asia, I’ve owned a number of different business entities in greater China, ranging from China manufacturing WFOEs to service companies.  Along the way I have dealt with lawyers based in China, back home and in HK. I’ve engaged (and dismissed) both foreign and local lawyers.

China’s legal system is constantly in a state of flux. National laws promulgated in Beijing can be interpreted very differently among local and provincial courts, governments and businesses.  So I don’t claim to be an expert on all aspects of China law; and anybody that claims to know “everything about China” should not be taken seriously!

I’ve had my share of success as well as failure in the China courts, and I’d like to share some of the key lessons, pitfalls and best practices that I learned the hard way when answering the deceptively simple question of “how to find a good lawyer in China?”

An insider’s look at fees for legal services in China

I have taken the liberty of creating a new whitepaper “An insider’s look at fees for legal services” that introduces the available legal services for foreign companies in China, and takes a look at the various types of lawyers one can hire and their associated costs.

After reading this whitepaper you will have the answers to the following questions:

  • Are the Chinese courts biased against foreigners?
  • When does it make sense to engage a lawyer when doing business in Asia?
  • In what areas can a Chinese lawyer support me?
  • Where should my lawyer be based if I am dealing with China?
  • What are the different types of lawyers in China & how much do they charge?

If you live in China or work with China in some way, this is the resource for you. To download “An insider’s look at fees for legal services in China” at no charge, please click the button below.

How to find an affordable lawyer in China that speaks English!

My experience answering the question “how to find an affordable lawyer in China?”

During my 20 years living in Asia, I’ve owned a number of different business entities in greater China, ranging from China manufacturing WFOE’s to service companies.  Along the way I have dealt with lawyers based in China, back home and in HK. I’ve engaged (and dismissed) both foreign and local lawyers.

I’ve had my share of success as well as failure in the China courts, and in this blog post I’d like to share some of the key lessons that I learned the hard way when answering the deceptively simple question of “how to find a good lawyer in China?”

The concepts discussed in this blog post may be of interest to anyone that wishes to do business in China, regardless if you are on the buy or sell side of the transaction with China. Readers who are thinking about setting up their own offices or factories in China will find the whitepaper (available for download at the bottom of this post) particularly useful. 

The concepts explained in this blog post also apply to personal law, so it’s not just business people that may find the blog post of interest.

How to find, contract and pay an affordable lawyer in China- that’s professional and speaks English too!”

how to find an affordable lawyer in china that speaks english

Step One: Look in the right place: China, not back home

There are essentially 3 types of law firms operating in China

Type 1: Large multinational firms with offices in your home country and partners in China.  They target large clients with large bank accounts. They usually offer excellent service, have dedicated account managers and are set up to tackle legal issues for clients that involve 3 or more national jurisdictions. But if your particular legal issue is in China, you may not need global expertise.

Type 2: At the other end of the spectrum, there are lots of local lawyers in Asia with variable degrees of professional and affordability, yet they often lack the foreign language, project management and customer service skills to successfully engage overseas clients. But they are low cost.

Type 3: In the middle you will find China-based, foreign-operated law firms and legal service providers. They offer excellent service at reasonable prices. For example, here is the firm I used. Their rate sheet can be downloaded off their website.

Keep in mind that foreign lawyers are generally not allowed to practice in China. So most of those non-China-based law firms have structured partnership arrangements with local law firms. Going direct cuts out the “middleman” and can reduce your fees, assuming you found the right local lawyer. 

Step Two:  Due diligence on your China lawyer: 5 key questions to ask

  • Check out references: If the lawyer can’t give you a few references to happy clients, run away. 
  • Find out what is outsourced? If outsourced, to who exactly? Your legal issues are sensitive and you deserve to know the parties involved.
  • How many years have they been in business?  Be very concerned if it’s a start up and you are their first customer!
  • Who will be your account manager? How many projects do they handle at any given time? How are their communication skills?  You want to avoid getting drawn in by the polished English skills of the sales team, only to learn that the firm’s local staff will handle your projects and they don’t speak fluent English.  Attention to detail is critical for legal projects, is the firm up to the task?
  • How many lawyers in the firm?  How many clients?  Ensure they are large enough to have experience in your areas of concern, but small enough that they take your project serious. Avoid being a big client of a small firm or a small client of a large firm.

Step Three:  Clear service agreement in place with your China lawyer

It’s not a good sign if the service agreement, quotation or invoice from the local lawyer is poorly written. You are hiring them to represent you in your business dealings, and if their business dealings with you are sloppy, you should expect the same on your project.

Make sure your agreement is very clear in terms of who is doing what, when for how much money.  It also helps to have the contract list legal fees separate from government fees. No surprises later. 

Are you paying by the hour or by the project? Make sure in advance.

List out the project gates in your contract and state what happens should these gates not be achieved? Link your payments to the lawyer’s performance.

IMPORTANT:  Are you paying your fees to the company with whom you have the service agreement for legal support?  Sometimes local lawyers will ask you to pay a personal account, HK account or an overseas account so they can avoid local taxes.  While it’s not a good idea to be supportive of tax fraud, it a really bad idea to have a contract with one entity then make payment to another entity. If the lawyer lets you down and you need to take them to court, your case will be a lot stronger if you can directly link proof of payment to the lawyer in question.   

Step Four: Don’t overpay or underpay your China lawyer

In our whitepaper on legal services in China, we offer an inside look at the typical rates of the above mentioned “option 3” law firms. If you are paying less than these rates, you are probably dealing with a “local local” law firm and you may end up “getting what you paid for”. If you are paying more than these rates, you may be dealing with a lawyer who has built in a margin but outsourced the work to a local law firm.

About the author:

In the interest of transparency, know that the author of the above article, Mike Bellamy, is an American serving on the board of advisors at AsiaBridge Law.  If you have questions about legal services in China, feel free to contact him directly via www.AsiaBridgeLaw.com