Companies concluding contracts in China shall formulate robust contractual terms for protection during a contractual dispute.
At Horizons, we often find contracts missing mandatory clauses which can increase legal risks. It is crucial for companies doing business in China to construct robust contracts. In the below, we outline a checklist for companies concluding contracts in China.
Note Contract Forms
A contract may be concluded, in writing or in any form as agreed to by the two parties. A written contract may be in the form of contractual agreements, letters and electronic data contents, such as telegrams, telexes, faxes, electronic data exchanges and e-mails.
However, a contract must be in writing where the contractual parties or the laws or administrative regulations so require.
Practical Note: electronic data
Electronic data must be received by the receiver’s server and it is clear the sender has no access to such server. Where, electronic data is filed as evidence in court, prior to the filing, a public notary is required to notarise the electronic data received by the receiver on the receiver’s server. Electronic data is required to be in Chinese and other languages shall be translated by a government-designated translation company.
Include Mandatory Clauses
Parties to a contract may decide the general content of a contract though basic clauses shall include:
- Titles or names and domiciles of the contract parties;
- Subject matter of the contract clearly defined
- Quantity requirements;
- Quality requirements;
- Price terms or payment;
- Time limit, place and method of performance;
- Liabilities for violation of the contract; and
- Methods of settlement of disputes
Various contract models may also be applied by contractual parties.
Define the Place of the Contract
In general, the place where the acceptance takes effect is the place where the contract is concluded. Such a place may be:
- The receiver’s main business place where the contract is made by way of electronic messages;
- The receiver’s domicile where it has no main business place; or
- The place where the contracting parties sign or seal the contract where a contract is made in a written form.
If the place of conclusion in the contract is inconsistent with the place that the contract was signed or sealed. Then the place of conclusion as defined in the contract will be deemed the place of conclusion.
If no place is specified in the contract and the relevant parties have signed or sealed the contract in a different place. Then the place where the contract was finally signed or sealed will be deemed the place of conclusion.
Clarify Standard Clauses
Standard clauses refer to the clauses that have been drawn up by one party in advance for purposes of repeated use. And that has been concluded without negotiating with the counterparty.
Where a contract is to be concluded with standard clauses, the party which provides such standard clauses shall determine the parties’ rights and obligations in accordance with the principle of fairness. And use reasonable means to draw the counterparty’s attention to the clauses concerning the other party’s major interests and concerns.
Where the party providing the standard clauses fails to perform the aforementioned obligation of calling attention or giving explanations. And results in the other party’s failure to pay attention to or understand the clause concerning its major interests and concerns.
Then the other party may claim that such clause does not become part of the contract.
Standard clauses are void under any of the following circumstances:
- where there is any circumstance that constitutes voidness of a civil juristic act;
- where it causes physical injury to the other party or causes losses to the other party’s property intentionally or due to gross negligence;
- the party providing the standard clauses unreasonably exempts or alleviates itself from the liability, imposes heavier liability on the other party, or restricts the main rights of the other party; or
- the party providing the standard clause deprives the other party of its main rights.
Define Acceptance
If there is no formal contract concluded, then the contract is formed under the time of acceptance under the following circumstances:
- If a party has already performed the principal obligation and the other party has accepted the performance.
- Where a contract is required to be concluded in writing in accordance with laws or administrative regulations or agreed by the parties and the parties fail to make the contract in writing. And one of the parties has already performed the principal obligation and the other party has accepted the performance.
- Where the parties conclude a contract in the form of a letter, data message, or the like, and a confirmation letter is required to be signed.
If you would like more information about concluding contracts in China or other related corporate matters, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.
