The answer “English” might be tempting, but this is not always correct. Complex strategic considerations affecting a prudent lawyer’s choice of contract language in a cross-border contract include the likelihood of claims arising, venues for conflict resolution, and that of the collectability and enforceability of judgments obtained.
Chinese law allows for a foreign-language text of a contract, and if signed by the parties the foreign language text has equal legal effect of the Chinese text, according to Article 152 of the Contract Law of PRC. The Article details that in the case of a contract concluded in two or more languages on which it is agreed that all versions are equally authentic, in case of discrepancy it shall be interpreted in light of the purpose of the contract. However, in practice, Chinese language contracts mostly take precedence over any other language.
Chinese law requires that particular contracts be approved by governmental authorities, for example those involving joint-ventures, Mergers & Acquisitions, property and any contract required to be notarized by a public notary office. According to the Article 44 of the Contract Law, such contracts become effective only after the approval or registration (by Chinese Authorities) and therefore, the contract should be written in Chinese. In the case of labour contracts, Article 10 of the Regulation of Jiangsu Province on Labor Contract states that, “Labor contracts shall be concluded in the Chinese language. In case discrepancy exists between the Chinese and foreign language versions of the labor contract, the Chinese version shall prevail”, therefore suggesting that any foreign language version is created for reference purposes.
Last but not least, in the case of litigation in a Court of Law in China, the accepted language of contract would be the Chinese one rather than its foreign language equal.
When entering into contractual agreements, the parties have opportunity to add into the contract an arbitration clause in which, other than the place of arbitration, they may also choose the language that takes precedence in the contract. From a foreign entity’s perspective, it is strongly suggested to add this clause.
Foreigners doing business in China should pay attention to verify which language controls the contract, and avoid leaving the question unaddressed. The Chinese version generally prevails while its foreign language counterpart may only be for reference. Therefore, it is necessary to obtain high quality translations of contracts since a poor translation leads to a loss of precise language. The only way to ensure an accurate translation is to review it point by point and clause by clause, while avoiding the use of terms which may give rise to multiple interpretations.
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness. For more information please visit dandreapartners.com or WeChat: dandreapartners.
