Realistic clauses help you to get support from Chinese courts
Learn how realistic clauses helps you to get support from the Chinese court.
When your Chinese attorney drafts a bilingual contract for sourcing products in China, it is important to include how to address the imperative terms in the agreement when there’s a breach of contract happening. Here’s an example situation of how the clear contract will protect you.
A lot of us are thinking we've got this great contract and let's put a clause in there that if the supplier breaks the terms of the quality or lead time or intellectual property they got to pay a heavy penalty. I did that at first, and the lesson I learned was that if your penalty isn't realistic the judge in Asia will rule it out, so you can't say I'm buying ten thousand dollars’ worth of earrings and if the supplier gets the quality right they'd have to refund me two hundred thousand dollars.
The judge is going to say that's not realistic, so the good news is that penalty clauses work if they're reasonable, so if you're buying ten thousand dollars’ worth of earrings your contract might say you get a two percent discount for every 48 hours that the product is late on delivery and you have a clear delivery date the supplier chopped it or six signed at the Asian way.
The court system actually loves those cases because they don't have to debate it and the penalty is pre-agreed so the judge looks at it and you win an award getting the money out of the supplier.
That's another question, hopefully, they're still in business and have real assets but that's another talk so having the clear contract the clear penalty terms believe me it will protect you. I'm not a lawyer and I hope there aren't any local lawyers outside China reading this that would disagree. When you go to a local lawyer in Australia, America, and Europe often they have a partner behind the scenes that is either an Asian person that emigrated or a relationship with a Chinese law firm and the local lawyer as it gives some value-added suggestions, maybe editing the English but they tend to double or triple the cost. In my experience, I've saved so much money just by working with English speaking Asian law firms to get things like contracts done, purchase orders, and demand letters so there's really thanks to the internet it's easy to find local lawyers in China that speaks English. So there's no excuse for not having your documents reviewed by a local lawyer whether it's India, Taiwan, Thailand or any countries.
In the last article of the Hallmarks of a Good Contract series, let’s discuss the significance of chops in the contract.
Video tutorial on China Supplier Contracts & Negotiation is found here.
ABL Blog: Sr. Editor and Primary Content Creator: Michael J. Bellamy
Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses. Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.
A featured presenter on China issues at seminars, trade shows and corporate events across the globe.
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