ABC Company is situated in South Africa and plans to distribute products from a specific company in China to a defined territory. They have tentatively agreed with their Chinese supplier on sole distribution rights, product warranty, and payment terms.
The current objective is to establish a fair and binding contract that protects both ABC and the supplier against breaches of the distribution agreement. To achieve this, ABC has enlisted the services of a local lawyer. The strategy involves the local lawyer providing ABC with the initially drafted agreement, and a Chinese lawyer will subsequently review it, making necessary amendments to ensure its compatibility in China without causing concern to the supplier.
From the client’s request, it is evident that, on one hand, they have engaged a local lawyer to draft the distribution agreement. On the other hand, they intend to involve a Chinese lawyer to review the agreement, ensuring compliance with Chinese laws and regulations that govern the agreement. The Chinese lawyer will also offer suggestions or amendments as needed and undertake the translation of the agreement from English to Chinese.
Certainly, opting for a local lawyer to draft the agreement has its advantages. Firstly, it facilitates detailed communication of the terms. Secondly, local lawyers generally possess higher English skills. However, what potential downsides might arise from this arrangement?
We sum up as follows:
1. Cultural and Legal Differences:
– Cultural Nuances: A local lawyer may be well-versed in the legal practices of South Africa but may not fully understand the cultural nuances and specific business practices in China. This could result in clauses that may be misinterpreted or not align with Chinese business customs.
– Legal Systems: South African and Chinese legal systems may differ significantly. A local lawyer may unintentionally include terms that are not in compliance with Chinese law, leading to potential legal issues.
2. Communication Challenges:
– Language Barrier: Despite local lawyers having higher English skills, nuances in legal language and interpretation may still be lost in translation. This could lead to misunderstandings or ambiguities in the contract that might affect its enforceability.
3. Supplier Relations:
– Potential Mistrust: Involving a Chinese lawyer in the review process may unintentionally signal distrust to the supplier. The supplier may feel uneasy if they perceive that their negotiated terms are being heavily scrutinized, possibly impacting the working relationship.
4. Time and Cost Implications:
– Time Delays: Coordinating between the local and Chinese lawyers may introduce delays in finalizing the agreement. This could affect the overall timeline for product distribution and potentially impact ABC’s business operations.
– Additional Costs:Engaging two separate legal entities may result in higher legal fees. ABC may need to consider whether the potential benefits of this dual review process outweigh the additional costs.
5. Consistency in Legal Language:
– Ensuring Consistency: Maintaining consistency in legal language and terminology between the locally drafted agreement and the translated version is challenging. Inconsistencies could lead to misunderstandings or disputes between the parties.
To mitigate these downsides, ABC should consider that with the increasing English skills of Chinese lawyers and their better understanding of both cultural and legal backgrounds, it may be more appropriate to entrust the entire legal process, including drafting and reviewing, to a Chinese lawyer. This approach could ensure a more seamless alignment with Chinese legal requirements and business practices, promoting effective communication and understanding between all parties involved. It may also contribute to building trust with the supplier and streamline the overall process, potentially reducing time delays and costs associated with engaging multiple legal entities.