China Law Blog

China Rep Offices, Bankruptcies And The Perils Of Being Chief Representative

Dan — Thu, 26 Jan 2012 05:55:15 -0800

I know I keep reading how China's economy is just fine, but my firm just keeps getting more inquiries and more work relating to shutting down offices and companies in China.

Of those, the most heartbreaking are coming from Chief Representatives of China Representative Offices who are concerned about their own liabilities when their China Rep Office closes.

Typically, the Chief Representative tells the Rep Office employees that the Rep Office is going to be shutting down. Naturally enough, the employees ask about their getting paid. The Chief Representative usually tells them not to worry, which causes them to worry more and go to their local government. A local government official then comes by and informs the Chief Representative that he or she is PERSONALLY responsible for paying the Rep Office's employee salaries AND all outstanding taxes.

The Chief Representative then contacts my firm and we tell him or her that he or she does indeed run a very real risk of being on the hook for any and all Representative Office debts and so they had better make sure their home office pays. What can happen to a Chief Representative if the home office refuses to pay? We've heard of all sorts of things, ranging from the Chief Representative being held at a hotel for weeks until all debts are paid, to Chief Representatives sneaking out of town and then out of China, under fear of being put on a list that will prevent them from ever returning.

But what happens when the head office/owner of the China Representative Office files for bankruptcy in the United States?

In those situations, we recommend that the Chief Representative hire a US-based bankruptcy lawyer to file a claim against the bankruptcy estate on his or her own behalf. The Chief Representative could claim that the US company owes him or her the amount owed to the Chinese employees and the Chinese tax authorities because the Chief Representative assumed that debt on the home office's behalf. Will this work? We don't know. Yet.

Will the bankruptcy court hold that the Chief Representative is owed anything by the home office in bankruptcy? And even if the bankruptcy court does hold that the bankruptcy estate owes the Chief Representatve the amount the Chief Representative (and the estate) owes in China, is there any basis for the Chief Representative to claim entitlement to any higher percentage on his debt than any of the other unsecured creditors? In other words, will the Chief Representative get anything more than the usual pennies on the dollar creditors usually get? I rather doubt either the employees or the tax authorities in China will cut the Chief Representative much slack simply because his or her home office has filed for bankruptcy in the United States.

Quite the ugly situation. Bankruptcy lawyers (and others), what do you know?

China Product Quality Problem? Here's My Template Answer.

Dan — Tue, 24 Jan 2012 09:18:31 -0800

Because I receive countless emails every day and because so many of them involve the same questions, I have developed various templates to respond.

Here's the template I use when a US company writes me with a China product quality problem and the contract they have provided me is not good at all. Much of the time the US has no contract at all, but usually when they do have one, it is usualy so bad as to work against them. Here's my "stock" answer in that situation.

This is our template response when the contract calls for arbitration in a US city but is pretty much silent on everything else (a far too common scenario when non-lawyers draft a contract).

It's a tough case and your contract does not help matters at all.

What you probably will need to do is begin arbitration in [US City] and serve [the Chinese company] via the Hague Convention. This will require translating the complaint into Chinese and serving it through the Chinese court system, which takes months. We write our arbitration contracts to say that service can be done by email/fax/personal delivery so as to avoid this sort of situation.

Your contract is silent regarding the arbitration panel to be used and the choice of law. I hate to tell you this, but we had a case with a similar arbitration provision and it cost our client $50,000 to get the case into arbitration in the first place because the other side used the vagueness of the provision to stall. And that was just the arbitration panel alone. It could cost $10,000 easy to figure out what law should apply here and in the end, I am very worried it will be Chinese law. I'm worried about that because under Chinese law, terms like "highest quality" and "best workmanship" can be very different from the US. Very different.

In the end, the arbitrator will probably use US standards (without saying so explicitly) but you've opened yourself up for a whole lot of argument in the meantime. If your complaints are based on the Chinese company's failure to build your product according to ____ standard or to meet _________ certification, your case becomes a bit simpler because there is at least something clear cut against we can measure the product you received. You may need an expert to testify regarding the quality problems and that is more cost.

So now that I've told you the many issues that you may need to confront just to get the case into arbitration and then to win in arbitration, I'm going to tell you that even if you win in arbitration, you are only about 60% of the way there. Because after you win in the US, you will need to take your US arbitration award over to China and then convert it into a Chinese court judgment and that is going to take a while and will likely involve its own set of fights. Once you have a Chinese court judgment, trying to collect on it will be the next difficult and expensive task.

Here is how I suggest you proceed:

1. If you are ever going to buy product from China again, you should hire us or some other law firm experienced in writing Chinese OEM Agreements. We typically write the official contract in Chinese (with a Chinese court dispute clause) and the translation in English. A good contract scares Chinese companies and your threat of a lawsuit thus has a lot more force. Most importantly, a good contract is much more likely to make it worth your Chinese manufacturer's while to do things right from the get go.

2. I am very skeptical that it will be worth your while to pursue arbitration in the United States, but that seems to be the only litigation/arbitration route you have.

3. One other option you have is to have us write a demand letter to [Chinese company] in Chinese to stating that if it does not resolve and pay for the product quality issues, we will pursue arbitration in [US City] pursuant to the contract and then take that arbitration award to China and turn it into a court judgment. We would act like all of that will be easy. We have a decent (but not great) success rate with these letters in that we do sometimes get real money back for our clients by writing them, even when the litigation/arbitration option is gloomy.

If you have any questions, please feel free to write or call.

What do you think? Part II of this will be the letter we write when the contract calls for litigation in a US city (which is even worse than arbitration, BTW).

China Grammar Wiki. What A Great Idea!

Dan — Sun, 22 Jan 2012 14:08:04 -0800

I think (and hope) this is the first time we have used an exclamation point in a blog post title and I assure you that this will not become common. I just am so impressed by the idea and the ingenuity and the hard work and the sheer helpfullness of the AllSet Chinese Grammar Wiki. I first learned of the Wiki from Ryan over at Lost Laowai, who in his post, "Chinese Grammar Wiki: Learning Chinese grammar just got easier," had this to say about it:

AllSet Learning, the Shanghai-based language learning consultancy founded by long-time China blogger John Pasden, has just released what is surely a boon for mandarin learners who aspire to achieve better Chinese grammar — the Chinese Grammar Wiki....

As an on-again, off-again Chinese learner, I’m pretty excited for the resource. Few people I’ve met have spent as much time as John thinking about language learning, particularly as to how it relates to Chinese. His blog and various resources at Sinosplice have been extremely helpful over the years, and I have to imagine that with his ambition and love for the language behind the wiki, it’s sure to be fantastic.

I second that emotion. What do you think?

UPDATE: A reader sent me an email regarding a "wiki-ish" site he likes called Wordbuddy:

It is wiki-ish because it is a dictionary that anybody can add to (slang, etc). Other sites can do this, but this one is interesting because people can also add 'memory tricks' for learning words which everybody can share. For example:

书 (shū): The librarian will 'shoot' you if the <book> is not returned on time.

东西 (dōng xi): In old times, a "donkey" was one of a person's most basic <things>.

讨 (tao3): The purpose of a <discussion>(讠) is to slowly inch(寸) toward an agreement.

独 (du2): A dog(犭) with flees(虫) will be shunned by humans and other dogs. He'll become a <lonely> "dude".

These are just off the cuff examples that users have entered. The site also integrates flashcards, radicals, translation, study lists, forums, etc, and makes a very good training tool for learning vocabulary.

Having spent part of last night helping my youngest daughter memorize Latin American capitals, I can vouch for the value of using memory tricks. Does anyone have a good way to remember that the capital of Uraguay is Montevideo, the capital of Paraguay is Asuncion, and the capital of Ecuador is Quito?

China. The Full On Harvard Course.

Dan — Sun, 22 Jan 2012 06:48:42 -0800

Malcolm Riddell at China Debate just did a post noting how Harvard University has posted online (for free!) a 37 class course on China.

The 37 lectures were filmed as they were given as part of a course entitled, China: Traditions and Transformations. The course was/is taught by William C. Kirby and Peter K. Bol.

Here is the course description:

Modern China presents a dual image: a society transforming itself through economic development and social revolution; and the world’s largest and oldest bureaucratic state, coping with longstanding problems of economic and political management. Both images bear the indelible imprint of China’s historical experience, of its patterns of philosophy and religion, and of its social and political thought. These themes are discussed in order to understand China in the modern world and as a great world civilization that developed along lines different from those of the Mediterranean.

This course is part of Harvard's open learning initiative so you can view (again, note that it is free) via either streaming video or audio.

I know of very few people who would not benefit from a course like this and my goal is to complete it within the year. Would love to hear back from anyone who watches at least a few of the lectures.

The End of Cheap China. Part II.

Dan — Sat, 21 Jan 2012 13:28:18 -0800

Last week, we did a post enttitled, "The End of Cheap China, With A Giant Caveat." The point of that post was to pick up on the widespread discussion regarding the end of cheap China, but to highlight how this "end" has, and will continue to, impact foreign companies very differently. Our initial "end of cheap China" post was based mostly on a "Made in America, Again: Why Manufacturing Will Return to the United States, a Boston Consulting Group study that jump-started the end of cheap China discussion.

Yesterday, i was alerted to two very recent and very good articles addressing the end of cheap China issue. The first is a post by Michael Zakkour over at the China Business Blog and Podcast, entitled, "The End of Cheap China. But Not China Manufacturing."

Michael starts by positing that "the cheap China era is over, but China manufacturing isn't." He goes on to note the following, all of which he contends portend just fine for Chinese manufacturing:

China is not going to be able to build a service and consumer driven economy within the next five years.

China’s interior provinces are still a viable alternative for manufacturing, as compared to the more expensive and saturated coastal cities. China's 12th Five Year Plan "makes clear that more equal development and sharing of wealth is a priority." This equalizing of wealth will mean a continued and increased push to move manufacturing inland.

"America will not win back the "low value-add, commodity based manufacturing jobs it once had." These jobs are going to SE Asia and South America.

"China is working toward moving commodity based manufacturing inland, but is also developing higher value-add and higher technology manufacturing in the coastal areas. It is NOT abandoning manufacturing and it has the money to support and subsidize it where needed. In other words China will move from selling toothpicks to the machines that make them (formerly bought from Germany)."

China's has "stellar" manufacturing infrastructure, which makes it very difficult for other countries to compete.

Western companies are shifting manufacturing to China to create and manufacture products for China.

Chinese manufacturers are improving in terms of efficiency and quality and this will provide a new advantage for China.

I think Michael is right and his explanation above provides support for the fact that we have not really seen much of a slowdown in terms of our clients' manufacturing in China, other than on the very low end.

The other article is an Economist article, entitled, "The End of Cheap Goods?" This article focuses on what Bruce Rockowitz, CEO of Li & Fung, calls the phases of Asian manufacturing:

He [Rockowitz] argues that Asian manufacturing has gone through a number of phases, each lasting about 30 years. When China was isolated under Mao Zedong, companies in Hong Kong, Taiwan and South Korea grew expert at making things. When China reopened in the late 1970s, after Mao’s death, these experienced Asian operators converged on southern China. With almost free access to land and labour, plus an efficient port and logistics hub in nearby Hong Kong, they started to make things ever more cheaply and sell them to the whole world.

For the next 30 years manufacturers in China helped to keep global inflation in check. But that era is now over, says Mr Rockowitz. Chinese wages are rising fast. A wave of new demand, especially from China itself, is feeding a surge in commodity prices. Manufacturers can find some relief by moving production to new areas, such as western China, Vietnam, Bangladesh, Malaysia, India and Indonesia. But none of these new places will curb inflation the way southern China once did, he predicts. All rely on the same increasingly expensive pool of commodities. Many have rising wages or poor logistics. None can provide the scale and efficiency that was created when manufacturers converged on southern China.

Rockowitz, like Zakkour, does not see manufacturing leaving China. He just sees it getting more expensive:

Nothing can replace the Chinese miracle. “There is no next,” says Mr Rockowitz. Prices will now start to rise by 5% or more each year, with no end in sight. And that may be optimistic. So far this year, Mr Rockowitz says, Li & Fung’s sourcing operation has seen price increases of 15% on average. Other sourcers of Asian toys, clothes and basic household products tell similarly ominous tales.

At the same time, according to the Economist, China is "shifting to more sophisticated products, such as electronics:"

Some of the more striking offerings at the [Computex] fair were ultra-cheap versions of global hits. A company named BananaU advertised tablet computers with Google’s Android operating system for $100. Another pushed Windows-based thin computers looking much like MacBooks for under $250. E-Readers were everywhere and available for a song.

Whether these products can be produced or sold in developed markets is unclear. The quality may be “B” for Banana rather than “A” for Apple. The intellectual property embedded in some devices may not, ahem, have been paid for. But still, the booths were packed.

Amazingly enough, prices for these electronics goods are "falling sharply" and this is attributed to Chinese manufacturers "learning how to get more from fewer hands." The article concludes by saying that "Li & Fung may be sounding the closing bell on one era of production, but the Taipei [Computex] computer fair suggests that another is emerging."

What are you seeing out there? What exactly does "the end of cheap China" really mean for manufacturing and overall?

China Joint Ventures Tips. You Have Been Warned.

Dan — Thu, 19 Jan 2012 11:28:27 -0800

The Foreign Entrepreneurs in China blog is in the midst of a very worthwhile three part series, entitled, "A China Joint Venture Survival Guide. 22 Facts and 22 Practical Tips." The series is now at tips 9 through 15 and I like all of them. Not only are they good tips for those contemplating doing a China Joint Venture, most are are good tips for those contemplating or doing business in or with China as well.

Here is a summary of each tip, followed by my own analysis of it in italic font.

9. Your Potential Partner is Well Connected … Maybe Good, Maybe Bad. "Do not be dazzled by your partner’s connections …They will not necessarily be used for your benefit. The fact that your partner is well connected is good (you obviously don’t want to end up with a nobody), but it is also a fact that at times those connections are only used for their own benefit." Absolutely true. Whatever "power" your China joint venture partner has to help the joint venture, it likely has equal power to shut you out and keep you out should the tide turn. And trust me when i say that I have seen that happen far too many times.

10. Financial Reports: “I can’t live with or without you.” "Be aware that reports can easily be falsified, and a lot of relevant information may be missing." Absolutely true. Check out "Buying A Chinese Company? Why China Deals DON'T Get Done," for more on this.

11. Tax Planning: “Tax Breaks. Do not believe all you hear.” "Tax breaks are a common tool to lure you into a location that needs to be developed....We were promised tax exemptions on all those tools and parts required for our product manufacturing. It did not happen. Not even once....Your investment should make sense regardless of the tax exemptions or other promised benefits." Again, absolutely true. Unlike even five years ago, legitimate tax breaks in China are actually few and far between. You will be promised tax breaks that do not exist. You will be promised tax breaks that are not legal. You will be promised long term tax breaks that disappear. If the deal does not make economic sense without the tax breaks, do not do the deal. It really is that simple.

12. Let me guess: your Chinese partner wants to contribute the land to the joint venture.
"The Chinese partner always wants to contribute his own properties to the joint venture." But it will usually be worth a lot less than claimed. it not only may end up being worth a lot less than claimed, it may not even be owned by your potential JV partner. Verify, verify, verify.

13. Does your land have a license to have a factory built on it? "You need to watch out for this one. Chinese companies often ignore this step. You may find sizeable companies operating (100 employees, tax bureau number, social security …) without the license to legally operate a factory/company on their land. So true. For more on this, check out "Cracking Down On Illegal Land Use In China. Do You Really Still Feel Lucky, Foreign Punk?" and "Eight Big Mistakes To Avoid In China."

14. Building the Factory- Oh Nightmare. This is another potential source of conflict. You will probably trust your partner to lead the factory construction works. You will need to monitor this closely and have good contracts in place. Indeed.

15. Check Company Operational Manuals. Very often there is nothing written on how operations should function. When you land there and try to organise things you do not even know where to start. And what is worse, your Chinese partner is not interested in changing anything as he feels it has been working for him for years before you arrived. Just assume you are going to have to start over on this front.

I urge all of you to read the full post here.

Shanghai Rego International School. One-Off Or Sign Of Things To Come?

Dan — Thu, 19 Jan 2012 07:28:15 -0800

At least once a month, I get an email from an English teacher in China wanting to start a language consulting business or school in China. I have a form response that summarizes what it will likely take and likely cost for them to do so legally. Virtually none of them had any idea of the difficulties and costs in starting such businesses.

My law firm represents a good number of existing international schools in China and we are right now working on at least double the number of legal issues as usual for them. Today I saw a Shanghaiist post on "issues" being faced by Shanghai Rego International School. The post entitled, "Shanghai Rego International School now facing forced relocation," details how the school is being forced to move as its facility is being taken over for a public school:

However an official surnamed Hua with the district's Education Bureau said there were no safety issues but said the school probably will have to relocate because the bureau has decided not to lease land and facilities to it anymore.

Hua said the bureau signed a 10-year contract with the school in 2003 for its renting of the facilities, which will expire in January 2013. He said the facilities were built at that time to be a public school, but the area was not sufficiently populated to need such a school. The bureau instead leased the facility to the international school.

"But now a growing number of local residents living in the area are having trouble finding a school for their children, so we have decided that the facilities will be taken back when the contract ends and will be used as a public school," said Hua.

He said the decision was made and announced with no possible alternatives, and the Shanghai Education Commission is now talking with the school over relocation issues.

Because we are right now in the midst of so much work for international schools in China, I hesitate to discuss even broadly the sorts of issues these schools face. But suffice it to say that international schools in China are more subject to the whim of governmental authorities than most foreign businesses and I am starting to think that the whims are shifting. I am hearing all sorts of explanations for this shift, ranging from the value of land to a concerted desire to make it tougher on foreigners staying in China.

What are you seeing out there with respect to the international schools in your area? Are Shanghai Rego's issues a one-off or just one more sign of a broader trend?

The End Of Cheap China, With A Giant Caveat.

Dan — Wed, 18 Jan 2012 09:48:36 -0800

The Boston Consulting Group came out with an excellent piece last year, entitled, "Made in America, Again: Why Manufacturing Will Return to the United States." An excellent summary of that article can be found here, from which I pull the following:

Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world, according to a new analysis by The Boston Consulting Group (BCG).

With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.

“All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,” said Harold L. Sirkin, a BCG senior partner. “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely, Sirkin said.

All well and good, but what does all of this mean now for YOUR manufacturing and what will it mean five years from now and what should you do about it?

I have always been fascinated by economics and the differences between the macro and micro sides of it. When we read that sales of cars are expected to increase 3% next year, I think our first cursory presumption is that this likely will mean that VW, Honda, GM and Ford will all likely see their sales increase about 3% next year. But of course, nothing could be further from the truth.

I remember during the Asian crisis of 1997 hearing a news report of how exports from the United States to Korea were down about 20% (I admit I am guessing on this number) but that exports of quinces (I think it was quinces) had fallen from $20 million a year to zero. In other words, Korea's tough economic situation had completely ended their buying of quinces.

I am seeing the same sort of disparate impact when it comes to manufacturing costs. It is all well and good to say that China's wage increases are reducing or eliminating its cost advantage as compared to the United States, but that means almost nothing for each individual business. I am always asking our clients about their costs and about their decisions on where to manufacture and here is some of what I have been hearing:

Company that makes a high end but fairly simple wood pet product wanted to manufacture in the US, but the cost to do so was four times higher than in China. His explanation was that the manufacturing was very labor intensive and so China had a clear edge.
Company that makes a very complicated, very large, and very expensive piece of equipment told me that its costs to make this equipment are "about the same in the US as in China." The reason is that so many American engineers need to be in China to oversee things and to check quality. The company wants to retain its dual-country manufacturing capacity but unless it can raise productivity in China it expects to shut it down within the next five years.
Company that makes environmental equipment is moving "some" of its manufacturing to China. It expects production costs to be "a lot" higher there during the first few years but is doing it anyway because of the "psychological and political importance of being able to say they manufacture in China." They believe that their manufacturing in China will greatly increase their sales in China.
Clothing company that was making 100% of its items in China is in the process of moving about half of its production to Vietnam and to Cambodia. It is doing so because its labor costs will be considerably less in those two countries, even accounting for any productivity differences.

I could go on and on, but the point here is that the macro numbers are just the starting point for an individual business.

What are you seeing/hearing/doing out there by way of manufacturing? Is this really the end of cheap China?

For more on the end of cheap China and where else to go for manufacturing, check out the following:

Why Hiring China-Based "Employees" Without A Company Is Bad Business

Dan — Tue, 17 Jan 2012 22:28:10 -0800

Today I had a long conversation with a couple of out of town lawyers who had called me regarding whether their client should shut down its China Representative Office and form a WFOE. My advise was that there was no need to do so from a legal perspective (because the company was that rare and dying beast: a truly legal China Rep Office), but it should ask itself whether it still made sense from a strictly business perspective. I then talked of how WFOEs are able to do so much more in China than Rep Offices, not least of which is get paid in RMB. I concluded by saying that the decision would be strictly business.

After I got off the phone, I though of how one of the things I love about what I do is the mix of law and business. My firm supplies the legal acumen and we mostly rely on our clients to supply the business acumen. I am always stressing to my clients that though I will do my utmost to understand their business, I will never know it as well as they do. I help with their business decisions by providing them with the legal tools they need to make the right decision.

So I always love it when I see a good business argument for what we tell our clients they must do from a legal perspective. We are always telling our clients never to hire anyone illegally in China. If you are going to have someone work for you in China, you should hire them as an employee of an existing China company, such as a WFOE. China pretty much does not have independent contractors and so someone who works for you is probably your employee and you want that relationship to be legal. I then tell them of all the legal headaches they will likely eventually face if they try to hire someone "off the grid."

I was delighted to see a post, entitled, "Don't hire a Chinese citizen illegally," at the always excellent China Inspection Tips discussing how the "business risks" of hiring "off the grid" are even greater than the legal risks. According to the post, hiring a Chinese citizen illegally will subject you to the following:

That individual [whom you hire] will know all about your supply chain: your suppliers, your prices, your products, your main customers. After talking to your suppliers, and doing a few internet searches, she will also know your main competitors.

Do you see how much can go wrong? Imagine she starts proposing your products to your competitors, and sets up a trading company (which might be owned by a relative of hers). Imagine if she contacts your customers directly with lower prices. This kind of things takes place every day in China.

If you hired that person illegally, you will not be able to sue her. Again, a Chinese court of law will not give any weight to your demands (even if you got a contract). You will have no way to pressure/punish that rogue employee.

Very good points. In fact, more than once, my firm has been contacted by software and gaming companies who set up their own coding/software development offices in China and did so completely illegally. These companies are calling us because those offices ran off with the software or game that they had been paid to develop. These companies are calling us for our help in suing the Chinese offices. Our response is that we cannot sue the Chinese office because there is no real office to sue and suing the individuals who worked at the office probably will be a waste of time as well. Since the individuals were neither employees nor under a formal contract, the Chinese courts would almost certainly find they owed no contractual duty nor any other duty not to take the software/game.

Bottom Line: Hire your employees in China the right way or don't even bother.

Dueling Translations. You Got That Right. Why Chinese Is Our Favorite Contract Language.

Dan — Mon, 16 Jan 2012 22:28:37 -0800

Blog post at Letters Blogatory, entitled, "Dueling Translations," expresses surprise/concern over how both parties in an ultra-high stakes international litigation matter "actually submitted dueling certified translations of the Ecuadoran appellate court’s decision (Chevron’s is here, the Lago Agrio plainitffs’ is here)." The post questions this as a waste of time/money:

Really? Dueling translations? I know that Randy Mastro and James Tyrrell are top lawyers at major law firms, and that this is extremely high-stakes litigation, but I would like humbly to suggest that the two of them sit down for a beer summit and see if they can find some way to reduce what has got to be the awe-inspiring litigation budget.

I disagree. He/she who controls the language can control the case. The following spring to mind:

1. Whenever the other side in a case submits a translated document, I almost always move to strike it unless the translator has attached a declaration/affidavit regarding the translation. Even with that, I virtually always have someone on my side confirm that the translation is accurate. About 85% of the time the translation is "accurate" but about 99% of the time, it has been translated in a way that favors the side doing the translation. This needs to be pointed out to the court. Just by way of example, there are languages where the same word can be translated either as "shall" or as "should." Those are two very different meanings.

2. Finding a good translator for depositions is very difficult. In Seattle, there is a Russian translator who everyone knows is fantastic and it is pretty common for both sides in a case to agree that she will be the only interpreter for the entire case. I know of no such translator in any other language here. I once had a case where the French translator was so bad that I was pretty much able to nullify anything at all harmful my Swiss client said at her deposition, simply by pointing out how bad this translator had done overall. It was not so much that the translator's English was so bad (he was French) it was that it was his first job translating at a deposition and he simply did not know what his role was supposed to be. He did not realize that legal translation means translate, not help with the questions or the answers.

3. I had another case which involved depositions of around 8-10 witnesses from the PRC. The other side was taking these depositions and they flew all of the witnesses to Hong Kong for deposition. The other side also flew in a court reporter all the way from New Zealand. But their big mistake was using a Hong Kong based interpreter whose first language is Cantonese, not Mandarin. She was terrible.

As I always do for depositions where the deponent speaks a language other than English, I brought along someone both completely fluent in the deponent's language and someone I completely trust to watch over the translating. In this case, it was my co-blogger Steve Dickinson. The other side brought along a Chinese speaking attorney as well. What ended up happening is that both parties essentially reached an agreement that whenever either side had a dispute regarding the translator's interpreting, they could object, at which point Steve and the Chinese lawyer would seek to reach an agreement. If an agreement could be reached, the correct/better translation would go on the record. if no agreement could be reached (which was surprisingly seldom) we would defer the argument for the court. All this meant that each deposition took probably twice as long as it would have taken had the other side brought in a decent interpreter.

I could go on and on, but you probably already have gotten my drift. Bottom line, the translation matters.

What do you think?

For more on the impact of the language/translation chosen, and for why we draft most of the contracts in Chinese for our American clients doing business in China, I urge you to read "China OEM Agreements. Why Ours Are In Chinese. Flat Out." To grossly summarize that post, we figure that if you are going to end up before a Chinese judge you are going to want to give him or her a contract that he or she can understand. If your contract is in English, the Chinese court will use its own translator to translate it into Chinese. This means you are not going to have any influence on what it is going to say nor will you even know what it is going to say until you have sued.