I touched on this topic during my recent webinar for the China-Britain Business Council about China Film Intellectual Property. Most of my comments apply equally to all industries, not just the film industry.
Chinese contracts are usually simpler and shorter than contracts used in the West. The specialized vocabulary taken for granted in Western film contracts is still emerging in China contracts, so commonly used expressions or concepts may be misunderstood or simply inapplicable. A Chinese businessperson is less likely to view a contract as a complete statement of a commercial relationship and more likely to see it as a starting point for further negotiations that may become necessary if andwhen circumstances change. The Chinese approach to negotiations is more personal. Western contracting parties may not always trust each other, but they tend to trust the legal systems in which they operate and this allows them to make reasonably accurate predictions about the consequences of contractual breaches. For Chinese contracting parties the reverse often applies — interpersonal trust is more important.
The main thing to remember is that if you want your contracts with Chinese nationals to be enforceable against them they usually need to be written in Chinese and subject to Chinese law and jurisdiction. This is equally true for China entertainment contracts, especially those involving licensing deals.
Chinese law and jurisdiction are often more appropriate than foreign law and jurisdiction, especially since Chinese courts do not enforce foreign judgments. Blind insistence on the law and jurisdiction of your home country can render your contracts unenforceable against Chinese parties. In the event of a dispute, Chinese courts may well be preferable to an international arbitration commission especially given that, unlike arbitration commissions, Chinese courts can issue asset-freezing orders and arbitral awards require enforcement through courts in any event. Moreover, Chinese courts in the big cities are increasingly capable of fairly resolving disputes involving foreigners — especially when the parties are "symmetrical", i.e. private companies of approximately the same size. The point is that the Chinese system is not perfect but there will be many times when you will need to be able to access it to have any hope of settling a dispute with a Chinese national who has no assets in your jurisdiction. Oftentimes the key to a good relationship with your Chinese counter-party is picking the right jurisdiction for disputes.
Finally, bear in mind that the enforceability of contracts in China ranks high by world standards. According to the World Bank's rankings of countries by enforceability of contracts, China is number 35. The UK is number 36. The US comes in at 41 with Singapore at no. 1. Sure, much of this ranking stems from the rapidity by which Chinese courts rule on their cases, but it is out there and it does at least show that contract enforceability in Chinese courts is not nearly as bad as it is so often portrayed.
Previously published on June 30th, 2015
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.