This is because conflicting clauses in the different versions will be deemed to have no effect. Therefore, you should review each clause of the Chinese contract carefully.
This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection. We will explain how debt collection works in China below.
In practice, many Chinese companies will sign a bilingual contract with you in both Chinese and English so that it is easier for you to read.
The contents of this contract in Chinese and English shall be fully consistent, and you shall agree that one of the two versions shall prevail in case of any conflict.
However, some Chinese suppliers may provide you with an English contract that does not match the Chinese version. In this way, they may write some favorable clauses in the Chinese version which they don’t want you to know.
An extreme example is that the English version says the English version prevails in the event of a conflict, while the Chinese version says the Chinese version prevails.
That does happen in real life.
The New York State Department of Health (NYSDOH) encountered such a problem when purchasing masks from a Chinese company during the pandemic. NYSDOH signed a bilingual contract in Chinese and English with a Chinese company.
In the English contract:
(1) All disputes shall be settled amicably by mutual consultation.
(2) In case of any discrepancy between the Chinese and English versions, the English version shall prevail.
In the English order (no Chinese version available):
(1) All disputes shall be settled by binding arbitration conducted by the International Chamber of Commerce in New York.
(2) The contract shall be subject to the jurisdiction of and construed in accordance with the laws of the State of New York, USA, except to the extent governed by federal preemption provisions.
In the Chinese Contract:
(1) Any dispute not settled amicably shall be settled by binding arbitration administered by the China International Economic and Trade Arbitration Commission (CIETAC);
(2) In case of any discrepancy between the Chinese and English versions, the Chinese version shall prevail.
(3) Chinese law shall apply to the contract and CISG shall not apply.
Obviously, the English contract and order are totally inconsistent with the Chinese contract in terms of the application of law and dispute resolution.
So, which should prevail?
The Chinese company argued that the Chinese version of the contract should prevail and took the dispute to CIETAC.
NYSDOH filed a lawsuit with the Supreme Court of New York, asking the Court to grant an order to stay the arbitration. See In re N.Y. State Dep’t of Health, No. 2022-50041 (N.Y. Sup. Ct. Jan. 25, 2022)
The Supreme Court of New York held that the parties had not agreed on the application of law, in this case, CISG shall apply to the contract.
The Supreme Court of New York also held that NYSDOH did not intend to enter into an arbitration agreement with the Chinese company for dispute resolution by CIETAC and thus such arbitration agreement did not exist. Accordingly, the Supreme Court of New York granted an order to permanently stay the CIETAC arbitration.
The case shows that if there is a conflict between the English and Chinese versions of a trade contract you have with a Chinese supplier, the conflicting clause will be deemed to be non-existent or not agreed upon between the parties.
If the clause in the Chinese contract does not exist, the corresponding clause in the English contract will not exist. They set off each other.
So, if you don’t want the clauses in your English contract to “disappear”, you need to review every sentence in the Chinese contract carefully.
If needed, we can provide contract review service for you.
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Photo by Michael Discenza on Unsplash
Contributors: Meng Yu 余萌
