Southern Perspective Shenzhen

On June 18th, I had the pleasure of attending a hosted event by the French and German Chamber of Commerce with Henry Liao , a managing partner from Schinders law, Guangzhou.　He talked about Chinese contract law, specifically, and take a big breath here, Interpretations of the Supreme People’s Court on Certain Issues concerning the Application of Contract Law of the People’s Republic of China (Part Two).

To explain a little about what that large title means,”Interpretations” by the Supreme Court in China are ways to clarify and give direction to the court. This interpretation is the second version and clarification from the last interpretation 10 years ago. The new interpretation covers a lot of issues but I am only going to cover a couple text bites. If you are interested in reading the Interpretation, I should have it up soon.

Let me give you a taste of what Henry Liao presented:

The necessary terms of a contract:

-          Names of the parties

-          Subject matter

-          Quantity

*unless law prescribes otherwise.*

These are the bare bones of a binding contract. I would not recommend going this simple. It is a guide line for people who need to prove they have a contract, not a guide for setting one up. The more details the better.

Forms of contracts:

-          Written

-          Oral

-          Other forms

The interpretation gives more clarification on the term “other forms”. This is to say if there is no written or oral contract, both parties’ conduct/actions can be translated as performing a contract. For example, if one parties action is a benefit to the other and the other party in turn, let’s say, gives a payment. This is considered a contract, even though there has been no formal contract.

Drawing attention to important clauses:

-          Highlighting

-          Changing color of font

-          Modifying of font

-          Using symbols

You know when you get a credit card application and all that small text on the bottom of the sheet, so you cant read it and confuses you about why rates will jump sky high without notice or the explanation of roll over balance billing?

Those forms never draw attention to the stuff you want to know or might not even understand, but this interpretation has made it clear on highlighting important information. This could be a certain condition that makes or breaks continuing a contract, fees or responsibilities of a party. Matters that are particularly important to you and the other party in the contract should be more ! noticable !

Protectionism ?

As a practicing lawyer, Henry Liao gave a lot of good examples of real situation outcomes for contract disputes. One of his most interesting comments was on the question of pursing in court or going with dispute resolution. He commented on the Economic Crisis and how the squeeze has been put on local economies. He has suggested local protectionism has come into play. One piece of advice he has given to his foreign clients, in this climate, is to settle outside of court (if possible). His reasoning was not only tied to protectionism but this option works better for a small business getting the much needed funds and decisions sooner than later. He also noted that sometimes this works out to be more economical for the filing party. Instead of taking on years of fees and possibly a lower settlement, you can gain time and faster settlement. In the same breath, he explained that not all companies can / wish to operate this way, especially when the financial stakes are much higher.

From the outside looking in, it sounds pretty unfair. Like it or not, courts are tied to local government via payroll and future career success. What is not good for local economy is not good for the courts. Understanding the situation above may save you some headache and frustration. (I only said some) In China, learning to play the game is more “fun” , rather than fighting against it.

Any thoughts or experiences on the above?