A contract made in China and in writing is an effective tool for doing business in the country. The first step in creating this effective tool is to carefully follow the rules of execution. Chinese courts are bureaucratic and formalistic. A casual approach to execution is neither suitable nor effective for China. Failure to comply with contractual formalities in China could lead to a Chinese court ignoring the terms of your contract.
The basic rules for enforcement by the Chinese side are as follows:
The execution date must be specified for each legal entity. Don't rely on a single date at the top;
The entity's legal name, signature and legal address must be stated, in Chinese, on the document. Many Chinese companies will only provide their English common name or a business address, rather than the registered address;
The person signing on behalf of the Chinese entity must have the authority to sign that contract. If the individual is the legal representative of the Chinese entity, his authority is clear. Authority must be demonstrated by the title given to the individual by the Chinese entity;
The contract must be stamped with the official stamp and registered seal of the company. Chinese entities have often denied other types of unofficial stamps. For example, many companies have seals specifically designated for the performance of contracts. These seals are acceptable as long as they are registered and as long as they are individually numbered if the Chinese company has more than one seal, which is common. The first thing Chinese courts usually do in any contractual action is to determine the authenticity of the contract. When the contract has an official seal, the contract is prima facie valid. Signatures are also acceptable, however Chinese courts have a lot of experience in determining the authenticity of seals. They have virtually no experience in determining the authenticity of signatures. For this reason, it is virtually certain that if a Chinese defendant questions the validity of a contract that is signed but not sealed, the court will deem the contract invalid. So avoid your “email contract,” PO/invoice contract or your oral contract;
China's Contract Law provides that contracts can be in oral or written form. Contracts in written form bring more legal security to foreigners.
Any contract that lacks any of the above five elements can be challenged for authenticity. While you can prevail over the challenge, doing so will lead to considerable delay that can stretch over many years in Chinese courts. You may also not prevail in the process.
Chinese courts are highly technical when it comes to written documents. If there is any flaw, one of the parties will object to the authenticity of the document and then force the other party to prove its authenticity. Chinese lawyers will look for all these minor surface defects and then object to authenticity even if that objection is clearly derisory. But if you follow the above rules, Chinese courts will not have arguments against the authenticity of your contract and you will have the advantage against the Chinese counterparty if any negative situation occurs. More importantly, in most cases you will avoid an argument against authenticity entirely.
Our team of legal advisors is ready to help you with all contractual issues in China, offering security for your business. For more information contact us at info@brasia.hk
