jinyiyi 201010

Crossing the East-West Bridge Representing Chinese Clients in Europe Yiyi JIN Chinese Lawyer

27 October 2010

Practice in China

www.hoganlovells.com 2

Some questions about Chinese clients

• "1. Their lawyers earn less in one week than our lawyers charge for one hour."

• "2. They expect us to have ready answers to virtually all of their legal questions without any research."

• "3. They wait until they are facing a significant problem before they ask for our assistance."

• "4. Many Chinese companies say they want to hire us for one thing (let's say, to form a U.S. company), but they really have another goal in mind (like getting visas for their families)."


Chinese courts and legal system

Chinese legal education

culture differences and similarities

basics of company and contract law


Chinese legal educationRequired courses for LL.B. program (4 years) are generally as

follows: (1) Jurisprudence(2) Constitution(3) Administrative Law and Administrative Procedure(4) Chinese History of Legal System(5) Civil Law(6) Civil Procedure(7) Criminal Law(8) Criminal Procedure(9) Commercial Law(10) Law of Intellectual Property(11) Economic Law(12) Public International Law(13) Private International Law(14) International Economic Law(15) Environmental Law(16) Contract Law(17) Company Law(18) Finance Law(19) Tax Law(20) Guarantee Law(21) Law of Negotiable Instruments(22) Foreign History of Legal System

Selected courses are mainly as follows: (1) International Trade Law(2) Judicial Systems and Legal Practice(3) International Investment Law(4) International Finance Law(5) Maritime Law(6) Resolution of International Civil and Commercial Disputes(7) Foreign Criminal Law (8) Foreign History of Legal Thoughts(9) Law of Science and Technology(10) Legislative Science(11) Foreign Constitutions(12) Chinese History of Legal Thoughts(13) Foreign Civil and Commercial Law(14) Roman Law(15) Basic Theory of Economic Law(16) Insurance Law(17) Legal Medicine (Forensic Medicine)(18) International Criminal Law(19) Arbitration Law(20) International Human Right Law(21) Law of Natural Resources(22) Labor Law(23) International Relations(24) Law of the Europe Union(25) Inter-regional Conflicts Law(26) International Environmental Law(27) Criminal Policy(28) Clinical Program(29) Legal Focuses and Jurisprudence Frontiers


• National Judicial Exam• The qualification exam for judge, procurator and

lawyer.

• 2 days in the middle of every September, four papers:

• Paper 1: Comprehensive knowledge, including Jurisprudence, Constitution, Economic Law, International Law, International Economic Law, Legal Ethics and Professional Responsibility.

• Paper 2: Criminal and administrative justice system, including Criminal Law, Criminal Procedural Law, Administrative Law and Administrative Procedural Law

• Paper 3: Legal System of Civil and Commercial, including Civil Law, Commercial Law and Civil Procedural Law (arbitration system).

• Paper 4: Analysis of cases, including all subjects listed above.


Chinese Lawyer

• Intern in a law firm for one year• Employed by a Chinese Law Firm • Allowed to practice in all the regions and courts • Foreign law firm representative office in China• Shanghai with 27 million population

has 10 thousand Lawyers• USA: 1 lawyer per 265 Americans

• Germany: 1 lawyer per 593 Germans

• Shanghai: 1 lawyer per 2700 Chinese


Chinese Courts and Legal System

Supreme Court in

Beijing

High Court in

Direct MunicipalityProvincial Capital

Intermediate Court

District Court

Maritime CourtRailway

Transportation Intermediate Court

Lower Railway Transportation Court


Legislation

• Written laws, regulations, directives and local laws, laws of Special Administrative Regions and laws resulting from international treaties entered into by the PRC government.

• Court case verdicts do not constitute binding precedents. However, they are used for the purposes of judicial reference and guidance.

Constitution

Law

Administrative

rules and regulations

Local rules and regulations


Constitution and Laws

The National People's Congress （ ''NPC'' ） • amend the Constitution

• enact and amend basic laws governing State agencies and civil and criminal matters.

The Standing Committee of the NPC

• enact and amend all laws except for the laws that are required to be enacted and amended by the NPC.


Administrative and local rules and regulations

The State Council

• enact administrative rules and regulations

The provincial and municipal congresses and their respective standing committees

• enact local rules and regulations


Interpretation of Law

• The PRC Constitution vests the power to interpret laws in the Standing Committee of the NPC.

• The Supreme People's Court, in addition to its power to give general interpretation on the application of laws in judicial proceedings, also has the power to interpret specific cases.


Laws

• Criminal Code

• Civil laws: General Rules of Civil Law, Property Right Law, Tort Liability Law, Contract Law, Guarantee Law, Copyright Law, Patent Law, Trademark Law, Marriage Law, Succession Law, Adoption Law...

• Administrative Law

• Procedure laws: Criminal Procedure Law, Civil Procedure Law, Administrative Procedure Law, Arbitration Law and other special procedure laws...

• Commercial laws: Company Law, Partner Enterprises Law, Sole Proprietorship Law, Chinese-Foreign Equity Joint Ventures Law, Chinese-Foreign Co-operative Joint Ventures Law, Wholly Foreign Owned Enterprises Law, Enterprise Bankruptcy law, Maritime Law, Negotiable Instruments Law, Insurance Law, Securities Law...

• Economic laws: Antitrust Law, Anti-unfair Competition Law, Protection of Rights and Interests of Consumers, Product Quality Law, Food Safety Law, Commercial Bank Law, Banking Supervision Law, Tax Law, Audit Law, Labour Law, Labour Contract Law, Land Management Law, Environment Protection Law...


Company Law

Company

Limited Liability Company

Joint Stock Limited Company

CommonLimited Liability

Company

Wholly State-OwnedCompany

Single ShareholderLimited Liability

Company

Listed Company Unlisted Company


Governance Structure of a Limited Liability Company

shareholder meeting(organ of authority)

board of directors or exclusive director

(elected by shareholder meeting)

General manager

board of supervisorsor supervisor(elected by

shareholder meeting)

Other managers e.g. Legal Manager

• Business license (registered capital, legal representative)

• Article of association filed on Administration of Industry and Commercial Bureau (AIC)

• Company seal


Governance Structure of a Wholly State-Owned Company

state owned assetssupervision and administration

commission (SASAC)

board of directors(appointed by SASAC

except employee representatives )

board of supervision(appointed by SASAC

except employee representatives )

General managers

Other managerse.g. Legal Manager

• The articles of association of a wholly state-owned company shall be formulated by the state-owned assets supervision and administration institution


Governance Structure of a Joint Stock Limited Company

• Joint Stock Limited company has the similar governance structure as Limited Liability company, except Listed company has independent directors and secretary to ´the board of directors

shareholder meeting(organ of authority)

board of directors (elected by


General manager

board of supervisors(elected by


Other managers e.g. Legal Manager

independent directors

(only in listed company)

secretary to the board of directors

(only in listed company)


Contract Law

• GENERAL PROVISIONSCHAPTER 1 GENERAL PROVISIONSCHAPTER 2 CONCLUSION OF CONTRACTSCHAPTER 3 EFFECTIVENESS OF CONTRACTSCHAPTER 4 PERFORMANCE OF CONTRACTSCHAPTER 5 MODIFICATION AND ASSIGNMENT OF CONTRACTSCHAPTER 6 TERMINATION OF THE RIGHTS AND OBLIGATIONS OF CONTRACTSCHAPTER 7 LIABILITY FOR BREACH OF CONTRACTCHAPTER 8 MISCELLANEOUS PROVISIONS

• SPECIFIC PROVISIONSCHAPTER 9 SALES CONTRACTSCHAPTER 10 CONTRACTS FOR SUPPLY AND USE OF ELECTRICITY, WATER, GAS OR HEATINGCHAPTER 11 DONATION CONTRACTSCHAPTER 12 LOANS CONTRACTSCHAPTER 13 LEASE CONTRACTSCHAPTER 14 LEASE-FINANCE CONTRACTSCHAPTER 15 CONTRACTS FOR WORKCHAPTER 16 CONSTRUCTION PROJECTS CONTRACTSCHAPTER 17 CONTRACTS FOR TRANSPORTATIONCHAPTER 18 TECHNOLOGY CONTRACTSCHAPTER 19 DEPOSIT CONTRACTSCHAPTER 20 WAREHOUSING CONTRACTSCHAPTER 21 CONTRACTS FOR COMMISSIONCHAPTER 22 CONTRACTS FOR BROKERAGECHAPTER 23 INTERMEDIATION CONTRACTSSUPPLEMENTARY PROVISIONS


Contract Forming

• Contract in writing• Article 10 The parties may conclude a contract in writing, orally or in other forms.

Where the laws or administrative regulations require a contract to be concluded in writing, the contract shall be in writing. If the parties agree it to be in writing, it shall be in writing.

• Offer and acceptance • Article 25 A contract is established when the acceptance becomes effective.

• Article 32 Where the parties conclude a contract in a written form, the contract is established when both parties sign or affix seals on it.


Effectiveness

• full civil capacity of conduct - 18 years old.

• Article 44 The contract established according to law becomes effective when it is established.

With regard to contracts which are subject to approval or registration as provided for by the laws or administrative regulations, the provisions thereof shall be followed.

• Article 52 A contract shall be void under any of the following circumstances:(1) A contract is concluded through the use of fraud or coercion by one party, therefore damages the interests of the State; (2) Malicious collusion is conducted to damage the interests of the State, a collective or a third party; (3) An illegitimate purpose is concealed under the guise of legitimate acts; (4) Damage the public interests; (5) Violating the mandatory provisions of the laws and administrative regulations.

• Article 54 A party shall have the right to request the people's court or an arbitration institution to modify or revoke the following contracts: (1) those concluded as a result of serious misunderstanding; (2) those that are obviously unfair at the time when concluding the contract.If a contract is concluded by one party against the other party's true intentions through the use of fraud, coercion or exploitation of the other party's unfavourable position, the injured party shall have the right to request the people's court or an arbitration institution to modify or revoke the contract.


Breach Responsibility

• Continue to perform its obligations, take remedial measures, or compensate for losses.

• Termination Article 94 The parties to a contract may rescind the contract under any of the following

circumstances:(1) The purpose of the contract is not able to be realized because of force majeure; (2) One party to the contract expresses explicitly or indicates through his acts, before the expiry of the performance period, that it will not perform the principal debt obligations; (3) One party to the contract delays in performing the principal debt obligations and fails, after being urged, to perform them within a reasonable time period; (4) One party to the contract delays in performing the debt obligations or commits other acts in breach of the contract so that the purpose of the contract is not able to be realized; or (5) Other circumstances as stipulated by law.


Some misunderstandings about contracts in China• Here following is some misunderstanding about Chinese contract :

• "1) The contract must have Chinese VersionThe Chinese Government will not help you to translate your contract from French or Spanish to Chinese when they read it. Only the contract with Chinese Version can be acceptable and looked as the valid document in China. "

• "2) Sending money to your vendor’s appointed bank account means nothing in ChinaThere is a different concept between western country and China about what legal force it can represent when sending money to another party. In China, it could not certify there existing any trading relationship between the funds receiver and sender if you don’t have a contract. The money you send to the vendor will disappear in the air without any reason if there is not a legal contract can protect you."

• "3) Parent company and subsidiary companyParent company will take any legal responsibility of his subsidiary company. They are two separate independently company. If the title of one contract is the name of the parent company and the seal at the end is his subsidiary company, the contract is illegal."


Some opinions about contracts in China• "1) How to find out the status of a company in China in one minute

You can go to a searching website first and then type in the name of local Industry And Commercial Bureau. In the website of local ICB, you can type in the full name of the company you want to know if it is still in good status. The searching result can tell you if it is still open, if it does not exist at all, who is the legal person, the registered capital, the registered address etc."

• "2) The legal force of company seal and signature of legal personThe company seal and the signature of legal person has equal legal force. Either of them can represent the company."

• "3) One letter’s difference in the company’s name means they are two different companyIn one contract, the name of the parties in title, in content and in the seal should be exactly same. They represent different companies although there is only one small difference in the company’s name."

• "4) The legal force of original document and copyPlease don’t hesitate to ask for the original contract no matter how complicated to get it. Whoever in your vendor’s company can make a fake contract and fax to you. Also, the legal force of copy contract is much lower than an original contract."

• "5) ChopA legal formed company in China should have at least three chops. They are called Company Chop, Finance Chop and Private Chop of Legal Person. The shape of company chop and finance chop of foreign company is ellipse. The shape of company chop and finance chop of Chinese company is round. All the private chop of legal person should be square."

• "6) The basic structure of a contractThere should have Parties, Date, Location of signing, Production, Quantity, Quality, Unit Price, Shipping Terms, Rights and Obligation of all parties."


Government Guidance Standards of Lawyers’ Fees of Shanghai Municipality

　　 Claim Amount

€ ( €:RMB=1:10)

Charge Scale

10,000 below 8%-12%

at least 300

10,000-100,000 5%-7%

100,000-1,000,000 3%-5%

1,000,000-10,000,000 1%-3%

Above 10,000,000 0.5%-1%


Some questions about the current state of Chinese Clients

• "1. Their lawyers earn less in one week than our lawyers charge for one hour."• "2. They expect us to have ready answers to virtually all of their legal questions

without any research."• "3. They wait until they are facing a significant problem before they ask for our

assistance."• "4. Many Chinese companies say they want to hire us for one thing (let's say, to

form a U.S. company), but they really have another goal in mind (like getting visas for their families)."


Some questions about the current state of Chinese Clients

• "5. Whereas European/US parties usually sit together for weeks and months negotiating detailed agreements which are then strictly performed, Chinese parties tend to just sign some short agreement (more like the idea of an MoU) and try to negotiate their way around afterwards. "

• "6. Once they hire us, they want to tell us exactly how we should do our jobs. For example, we were retained by a Chinese company to sue a U.S. company that owed the Chinese company millions of dollars. We sent our Chinese client a memorandum explaining our proposed course of action and we took a few of the initial steps. We soon received a memorandum back from our non-lawyer client setting forth the steps we should follow--steps that made absolutely no sense at all in the U.S. We told our client they had to trust our competency as lawyers or let us go and we would return what they had already paid us. They let us go."


It is all about the ability to deal with the differences.


• Thank you very much for your attention.

• [email protected]

mailto:[email protected]

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jinyiyi 201010

Business

elected byshareholder

principal

international

peoples court

administrative

guarantee

economic law

private chop