Bridging the Divide: Drafting and
Negotiating Contracts in CrossBorder Transactions
The Risk Doctor
5 June 2012
Andrew Godwin
Melbourne Law School
www.law.unimelb.edu.au
Today’s seminar
• Objectives:
 to consider the challenges that arise when
lawyers draft and negotiate cross-border
contracts
 to identify tips and techniques for overcoming
those challenges
 Point of reference/comparison is China and
Chinese counterparties
www.law.unimelb.edu.au
Topics
• Impact of Law on the drafting
o Clauses that appear odd to a Chinese lawyer
o Clauses that appear odd to an Australian lawyer
• Impact of language
o Choosing the right terminology
o The impact of language clauses
o Plain language and the benefits for translation
• Impact of culture
o Attitudes towards contracts
o Negotiations and the impact on drafting
• Strategies and techniques
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Key factors in the drafting process
LAW
LANGUAGE
ATTITUDES TOWARDS
CONTRACT
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Impact of Law on the drafting
• Common law approach to contracts:
–Entire agreement
–Parol evidence
–Literal approach to interpretation
–A deal is a deal (pacta sunt servanda)
• Civil law approach to contracts:
–Civil and commercial codes
–Principle of “good faith”
–Change in circumstances (rebus sic stantibus)
www.law.unimelb.edu.au
What appears odd to Chinese lawyers
– an entire agreement clause
This Agreement is the entire agreement of the
parties on the subject matter and replaces all
representations, communications and prior
agreements in relation to the subject matter. The
only enforceable obligations and liabilities of the
parties in relation to the subject matter are those
that arise out of the provisions contained in this
Agreement. All representations, communications
and prior agreements in relation to the subject
matter are merged in and superseded by this
Agreement.
www.law.unimelb.edu.au
PRC Contract Law
•
The Parties, adhering to the principles of equality and mutual benefit and
after friendly consultations, have agreed to enter into this Agreement.
– PRC Contract Law
• Article 5
The parties shall observe the principle of fairness in defining each other‘s rights and obligations.
– 第五条 当事人应当遵循公平原则确定各方的权利和义务。
• Article 6
The parties shall observe the principle of good faith in exercising their rights and fulfilling their
obligations.
– 第六条 当事人行使权利、履行义务应当遵循诚实信用原则。
• Article 3
The parties to the contract have equal legal status, and neither party may impose its will on the
other.
– 第三条 合同当事人的法律地位平等，一方不得将自己的意志强加给另一方.
www.law.unimelb.edu.au
PRC Contract Law
•
Supreme People’s Court: "Interpretation on Several Issues Concerning the
Application of the PRC Contract Law" (No. 2)”
Article 26: After the conclusion of a contract, if:
(1) objective circumstances result in a substantial change that the parties could not have foreseen when
the contract was signed, that is not caused by force majeure and that does not belong to a commercial
risk;
(2) the continued performance of the contract would be obviously unfair to one party or would not be
capable of achieving the purpose of the contract; and
(3) the parties request a People’s Court to amend or terminate the contract,
The People’s Court shall determine whether or not to amend or terminate the contract in accordance
with the principle of fairness and after having regard to the actual circumstances of the case.
•
最高人民法院关于适用《中华人民共和国合同法》若干问题的解释（二）
第二十六条 合同成立以后客观情况发生了当事人在订立合同时无法预见的、非不可抗力造成的不属于
商业风险的重大变化，继续履行合同对于一方当事人明显不公平或者不能实现合同目的，当事人请求人
民法院变更或者解除合同的，人民法院应当根据公平原则，并结合案件的实际情况确定是否变更或者解
除。
www.law.unimelb.edu.au
What appears odd to Australian
lawyers - common PRC clauses
•
The Parties shall strive to settle any dispute arising from or in connection with
this Agreement through friendly consultations. In case no settlement can be
reached through friendly consultations within 60 days of the date of notification
of the dispute by one Party to the other Parties, then such dispute, including a
dispute as to the validity or existence of this Agreement, shall be resolved by
arbitration in Singapore conducted in Chinese and English by three arbitrators
pursuant to the Rules of the International Chamber of Commerce.
•
Any matters arising in the future that have not been specified by this Agreement
will be agreed separately by the parties.
www.law.unimelb.edu.au
Impact of language
•
Necessary to choose the correct legal terminology, e.g.
– terminate/rescind
– representations and warranties: ‘Warranties and misrepresentations’
– deeds: “Contract” or “agreement”
•
Necessary to choose the correct general terminology
•
The impact of language clauses
www.law.unimelb.edu.au
“Plain language” and the benefits for
translation
•
•
•
•
•
Use short sentences and paragraphs
Use ordinary words in their ordinary meaning
Avoid technical language to the extent possible
Use the active voice instead of the passive voice
Avoid double negatives
www.law.unimelb.edu.au
Impact of attitudes towards contract
• Is a contract the conclusion of a business
deal or is it instead the start of a business
relationship?
• Is a contract a conclusive statement of a
static relationship or a tentative reflection of
an evolving relationship?
–What impact does this have on drafting and
negotiation?
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Negotiating and its impact on drafting
• Obligation to negotiate in good faith – is it
enforceable?
• The emergence of renegotiation clauses
“Each party agrees to meet with the other party
every five years with a view to considering in good
faith whether this Agreement is continuing to
operate fairly to each of the parties and with a view
to discussing in good faith any problems arising
from the practical operation of this Agreement.”
• The role of lawyers
www.law.unimelb.edu.au
Negotiating – different styles
• Sequential decision-making vs holistic
decision-making
• Results-oriented vs process-oriented
• Top-down decision-making vs bottom-up
decision-making
• Straight-talking vs circumlocution
• Absolute positions vs relative positions
www.law.unimelb.edu.au
Negotiation stages
• Pre-negotiation (relationship-building)
• Negotiation
• exploratory process of identifying the basic principles on which the final
agreement will be based
• lawyers often overlook the importance of conceptualization, particularly in
terms of defining interests and exploring options, and focus exclusively on
the drafting.
• Post-negotiation: working out the details and
implications of the agreement.
www.law.unimelb.edu.au
Language and cultural factors
• Communicate effectively through interpreters
(where necessary)
• Prepare for cross-cultural communications
• Act as a bridge for cross-cultural
understanding and communications
• Think about the “how” and “when” of
communications, not just “what”
www.law.unimelb.edu.au
Strategies and techniques
•
•
•
•
•
•
•
•
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choose words carefully
apply plain language principles
define terms clearly
think about expression as well as content
be aware of different negotiation styles
make sure that the drafting is not too far ahead of the negotiations
put aside the draft to discuss principles (don’t get caught up in the draft
wording)
make the most of the pre-negotiation stage to explore options and
discuss principles
be aware of the importance of relationship to the client and the extent to
which this might be affected by the drafting (particularly one-sided drafts)
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Questions & Discussion
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