-
中国
意大利法院或中国法院？午夜条款
15 1 月 2017
- 分销协议
Chinese outbound M&A was one of the main topics of interest at the 2017 Hong Kong IFLR Forum on M&A in Asia, a great event with an outstanding level of speakers and very interesting discussions on various themes related to international investments.
All the attendants shared the view that momentum for Chinese overseas investments is still strong, despite the recent policy aiming at curbing the outflow of capitals from China.
A particularly interesting session was that on “best practices to overcome credibility and experience gaps increasingly faced by “off the radar” Chinese bidders”.
Opening a one-to-one negotiation or letting a Chinese company bid at an auction involves often great deal of uncertainty, as most participants to the session shared the experience of having seeing their Chinese counterpart walk away from the negotiation without any explanation (the so-called “Random Investors”).
I have scribbled down the take-aways of the discussion as follows.
Main clues to spot early on the Random investor:
- the Company pops out from nowhere and has no track record of overseas investments;
- the Company has no legal or financial advisors, or if they do, their advisors are not experienced in overseas transactions;
- the Company has excellent advisors… but has not paid their fees (yes, that happens)
- the target does not belong to the Company’s core business (and there is no explanation for their interest for the deal);
What should you do to be on the safe side?
- request a written declaration of interest, expressing the reasons why the Company wants to invest in the target and what is their mid term strategy, signed and stamped by the legal representative (if they are not ready to hand over this letter the game can stop here).
- If the Company represents a group of investors, require full disclosure and letters of confirmation from all parties, from day one (AC Milan’s case is a good example of what happens later on if there is no disclosure of all players, and their stakes in the deal);
- request proof that the Company has filed the application for the authorisation to invest overseas (due to the recent tightening of controls on capital outflow, this step is fundamental);
- request proof that they have the finance needed for the deal (either onshore or, better, off-shore);
- make clear that you will require a “break fee” (which can vary from 5 to 10%) in case they walk away from the negotiation (we have heard of US companies expecting 30 to 50% break fee on the value of the deal…)
用于约束解决双方争议的方式、规定相关适用法律的契约条款通常被称为“午夜条款”。在许多契约案例中，此条款通常被书写在契约的最末几段，以至于在谈判即将结束时才被讨论，通常此时已是深夜，双方都已精疲力竭，决定在契约上签字。
以上情况通常有两种：第一，在仓促、不谨慎的情况下作出决定。双方相信已在契约重要的问题上达成协议，所以对如何解决争议不够重视。
第二种情况则是相反：双方就管辖权所属法院及适用法律产生矛盾。双方都坚决地要求在自己的国家实施管辖权并适用该国法律。但是，此情况大多因为原则问题和国内外的标准差别问题，而不是因为双方了解问题的实际重要性。
上述两种情况都是棘手的，因为双方都将自己置于风险中：可导致做出错误的决定或无奈地妥协，并且可能会使将来采取的法律行动无效。
所以，必须足够重视并慎重地考虑该条款：通过阅读以下几点思考，牢记在慎重选择契约的司法管辖权和适用法律的同时，保留对另外一篇主题与本文主题同样重要的文章——对仲裁结果进行预知的讨论。
1）中国法官不再是禁忌
在过去很长一段时间，外国人害怕与中国法官接触，因为中国法官曾大多是来自其他公共管理部门的国家公务员。在他们眼中，中国法官被政治化，公正性受到质疑而且一般相当无能。但是今天，至少在被国际投资覆盖多年的城市，情况已经发生变化：司法水平有了明显提高，可独立计算诉讼成本，初审耗时很短（约6个月），并且很大程度上判决公正，特别是在得到合格律师辩护的情况下。因此，考虑到未来可能发生的情况及争议，在起草契约时提出中国司法管辖权是非常必要的。
2）资产在何处？
判决执行的地点是决定司法管辖权最重要的因素。在起草契约时预见在商业关系中可能产生的纠纷，以及将在哪里执行判决（中国或是意大利），都是十分必要的。
在大多数情况下，中国缔约方（以下简称中方）的资产（商品和应收账款合计）仅在中国境内。如果判决有利于外方，那么几乎可以肯定，该判决将不会被积极执行。因此，在中国执行强制执行程序是必要的。出于此原因，若在契约中规定意大利司法管辖权将会适得其反：首先需要在意大利进行耗时很长的诉讼，之后意大利法院做出的判决需要在中华人民共和国得到承认：虽然两国在1991年签订了民事司法互助条约，但是此过程非常官僚，需要判决书等所有文件的中文翻译及公正、认证。并且在承认的过程中，中方会尽全力拖延判决的承认并使其复杂化。
若耗时若干个月的裁定结果为“不可在中国执行判决”，那么外方将会上诉至中国法院。若如此，则会耗时若干年，并将承担更高的成本和苦涩的惊喜：在程序结束时，中方消失或破产，或没有资产可供执行。很不幸，上述情况是普遍存在的。
3）证人、鉴定报告及文件
另一个重要的因素涉及到契约的性质和缔约双方的行为地点。若合约义务在中国执行（例如商店的管理、代理商或经销商进行促销活动或供应/组装产品），则在中国法院进行诉讼的调查、证人的听证会以及相关专家以举证为目的，对产品的核证以及必要文件的分析相对简单许多。若在上述情况下由意大利法庭进行上述操作，将及其困难，并且显然是反经济的。反之亦然。
4）同样的法院，同样的法律
当在不可依据第三国法院及第四国法律的情况下，打破谈判僵局的折中方法通常是选择缔约方中一方国家的法院及另一方国家的法律。
此类的“创意”方案必须尽量避免，特别是避免选择中国司法管辖权。此做法的好处是，受理的法院是缔约双方所属国家的其中一个（理想情况下可以执行判决，如上所述），可以在法律的框架内，选择熟悉的法院及律师进行诉讼。但是，必须依据双方指定的外国法律（很少达成一致），或者任命一名专门针对该问题的法律专家顾问。最终导致诉讼程序更加复杂，耗时更久，成本显著增加。
5）预防措施
还有一种无法等待普通上诉程序，而是迫切需要法院立刻进行保护的紧急情况：最典型的案例是被授权人或加盟商与授权人或制造商进行不正当竞争，销售仿冒品或者在契约结束之后拒不向生产商或授权人归还商店或材料。
在此情况下，利益被侵害方向中国法院申请旨在结束非法行为的保护程序及执行紧急措施至关重要：若契约规定由中国司法管辖或仲裁，而契约中却存在关于意大利司法管辖（即防止在中国进行预防性保护上诉）的条款，则后果非常严重——无法及时有效地在中国采取限制严重损坏商誉和形象行为的行动。
Recently People’s Republic of China central government has unveiled and adopted a wide range of initiative to reduce the regulatory burden on daily business operations and provide greater autonomy in investment decision-making.
The reforms aim to give both domestic and foreign investors more autonomy and should make investments in the private sector much easier by reducing bureaucracy and increasing transparency. Investors will have more flexibility to determine the form, amount and timing of their business contributions. In addition, a system of publicly-available, electronic information (including annual filings and a corporate blacklist) will replace the old annual inspection system. Thanks to these reforms China’s requirements will become one step closer to international standards.
In this post I will analyze which are the enterprises affected by the reform; the Negative-list – setting out the industries that still need the approval to be established – and the new application process for company establishment.
Foreign invested enterprises
Generally speaking, foreign invested enterprises are the vehicle through which foreign investors may establish a presence to do business in China, choosing among one of the several different statutory forms recognized by the existing regulatory regime (such as: Wholly Foreign Owned Enterprise – WFOE; Equity Joint Venture – EJV; Contractual Joint Venture – CJV; Foreign Invested Company Limited by Shares; Foreign Invested Partnership Enterprise; or Holding companies). These entities are regulated under stricter laws than domestic companies, and are also subject to the same generally-applicable regulations.
The establishment of FIEs in Mainland China up is currently subject to a rather lengthy and bureaucratic examination and approval process by different Authorities. The same stringent requirements and burdensome procedure apply also to any major change related to FIEs structure, such as: increase or decrease of total investment/registered capital; change of business scope; shares or equity transfer; merger, division or dissolution; etc.
Nowadays, the set-up procedure of a WFOE undergoes through the following steps, having an average time frame of at least 3-4 months for the whole process:
Pre-issuance Business License
- Collection of the basic information from Investor’s side (7 working days)
- Company name pre-approval (5-7 working days)
- Lease agreement (it depends on Investor/Landlord)
- Legalized documents prepare by the Investor for the incorporation (few weeks)
- Certificate of Approval issued by MOFCOM (4 weeks)
- Business license issued by AIC (at least 10 working days)
Post-issuance Business License
- Carve company chops (1-2 working days)
- Foreign exchange registration certificate (around 10 working days)
- Open a CNY bank account (depends on the bank)
- Open a Foreign capital account (at least one week)
- Capital injection, in compliance with company Article of Association
- Capital verification report (it depends on accounting firm)
- Foreign trade operator filing before MOFCOM (at least 5 working days)
- Basic Customs Registration Certificate – if any (at least 5 working days)
- Advance Customs Registration (at least 30 working days)
- SAFE Preliminary Foreign Trader filing (2-3 working days)
- VAT general taxpayer application (1-2 working days)
- VAT general taxpayer invoice quota (30-60 working days)
On September 3rd 2016, the China National People Congress (NPC) Standing Committee adopted a resolution introducing several amendments related to the establishment of foreign-invested enterprises (FIEs) in China, which has taken effect starting from October 1st 2016. The resolution is going to produce its effect for some of the FIEs statutory forms only (WFOE, EJV, CJV).
These amendments repeal the current examination and approval regime to set-up legal entities, shifting to a different system where a FIE may be established following a streamline procedure of filing requirements before the competent authority, as long as the industry in which it engages is not subject to any national market access restrictions.
Negative List
Within October 2016 a Negative List will be issued, setting out the industries in which FIE establishment must still be examined and approved under the existing laws and regulations: a complicated and time consuming process, involving verification, approval and registration with several Authorities. The current list includes:
- Agriculture and fishery (crop seed, animal husbandry, etc.)
- Infrastructure (airports, railroads, postal service, telecom and internet, etc.)
- Wholesale and retail (newspaper and magazine, tobacco, lottery, etc.)
- Finance (investment in banks or other financial companies, etc.)
- Professional services (accounting, legal advisors, market research, etc.)
- Education (establishment of schools, management of educational institution, etc.)
- Healthcare (EJV or CJV are required to set-up medical institution, etc.)
The publication of this list is a fundamental step, in order to better understand how the new regime will operate, as it will determine which sectors and matters are covered by the new filing requirements and, on the other hand, which items continue to undergo through a pre-approval process (basically all the sectors indicated in the Negative List).
The Negative List approach towards foreign investment was originally introduced by the Shanghai Free Trade Zone and subsequently extended to other Free Trade Zones in Mainland China (FTZs): according to the Negative List foreign investors were granted “national treatment” and were allowed to invest in several different business activities, with the exception of those listed in the Negative List form.
Essentially established as testing ground for new reforms, the FTZs were also established to drive regional growth by encouraging selected industries to cluster in specific geographical areas and, at the same time, served as a mean to promote experimental economic reforms and facilitate foreign direct investments.
New application process
In order to simplify bureaucracy cutting down time and costs, FTZs introduced a new application process for company establishment, the so called “one stop application procedure”. The applicant (foreign investor) may submit an online application through the relevant FTZs website, and then the business will be checked in order to verify whether it falls into the Negative List or not.
In case the requested business does not fall under the Negative list, all the application materials can be submitted and handled through one Authority (AIC – Administration for Industry and Commerce) within the Zone. All the relevant license and certificates (included but not limited to the business license, enterprise code certificate and tax registration certificate) will be issued altogether by AIC. In this way, the applicant can obtain all the relevant documents for company establishment in one place, contrasting with the outside Zone process where applicants must move between different authorities for the issuance of the different varieties of documents.
Thanks to the adopted amendments under the latest resolution (September 3rd 2016), this pilot scheme will apply also nationwide. The simplified filing requirement process will replaces the burdensome examination and approval procedure for the formation and change of key elements of FIEs, starting from October 1st 2016.
In the next post I will examine the main essential features of the new filing regime and the future perspectives following the reform.
When considering pre-contractual negotiations in China some words need to said about culture differences, skills to use in the negotiation process, and, drafting techniques.
All of those points are relevant in any negotiation with a foreign counterpart, but they are even more valid and important when dealing with China.
First of all, it is fundamental to get acquainted with Chinese culture before starting a negotiation, especially if the counterpart (as is often the case) is not well versed in international trade and has had very few occasions to deal with foreign businessmen and counsels.
Keep in mind that actual down-to-the-table business only comes into the picture once a personal relationship has been established and the fundamental elements of trust and respect have been set.
Those who believe that an important contract can be closed with a 2 day rush visit to China or, even worse, at a distance without a personal introduction, are very far away from the real picture of things.
It generally takes several lunches, dinners and quite a few drinks together to break the ice and prepare the ground for real business talks, and it may take several trips back and forth from China before a contract can be closed: so when applying for the visa, you should consider a multi-entry.
Of course now we are in the era of internet and it very common that agreements are entered into digitally, by means of an exchange of proposal and acceptance on the web: it is not by chance that, more often than not, such long distance contacts lead to fraud and contractual breaches.
Expect long negotiations, and if a contract is eventually signed, don’t relax and don’t overestimate its value.
In western countries we tend to see the signed document as the final phase of contractual negotiations, as the bible of the future relationship.
In China contracts are often considered as nothing but the first milestone, very far from rules carved into stone: the warning is that in most cases the contract will be regarded more like a letter of intent than like a binding agreement.
So expect the Chinese side to use a great deal of flexibility, and be ready to re-negotiate or, better yet, have in place from the start in your contract appropriate rules and mechanisms to adapt to the frequent changes that may happen.
When you finally make it to the meeting room, first of all, be sure that there is a good translator around: quite often your counterpart will not speak English and will rely on a translator and it can seriously harm the flow of discussion if the person appointed for this task is not familiar with the needed terminology.
Secondly, it goes without saying that it is important to be patient and not lose your temper, especially taking into consideration that the way in which negotiations unfold may be very different from your experience.
While we are used to a linear flow of discussion, so that the parties move from one clause to the next and so on and so forth, the Chinese attitude, in most cases, is holistic.
They tend consider the agreement as a whole: it is not uncommon to re-discuss in the morning clauses that had been agreed upon the day before, without any explanation whatsoever.
A yes may mean no, and a no may mean yes: you will never know, and that is something to be always kept in mind.
The bottom line is not very different from what should be expected in all negotiations: the aim is to find a balanced agreement, that all parties find beneficial.
To start negotiating with a draft contract that is clearly unbalanced in favor of your client will not only complicate your negotiations, but may jeopardize them from the start.
A crucial clause in international contracts is the one which deals with litigation.
My advice, since we have seen that negotiation can be pretty long, complicated, and, exhausting, is that such clauses should not be the last to be dealt with, often times late at night when parties are exhausted, but the among the first.
Generally parties argue at length on such clauses, because neither party is willing to give up on its national jurisdiction for different reasons, foremost of all the fear that foreign judges would not be impartial and treat with favor the local part.
This deadlock often leads to bad compromises, like choosing the judge of a third state or combining the jurisdiction of one state with the application of the law of the other, which is definitely not recommended.
There is no one-fits-all solution to offer here: the advice is that such clauses should be tailor made on a case by case basis, and that the choice of a state court or arbitration should be expressed taking into account where the final decision shall be enforced.
If we foresee that our client may seek payment of a price or claim damages for breach of contract, ‘where is the money’ or ‘where are the assets’ should be the driving factor, and the choice of jurisdiction should be made accordingly.
If there is no such concern, and litigation may be foreseen only or mostly in a defensive scenario, then the proximity to the money or assets is no more a priority, and other options can be evaluated: in that case, the choice of a Judge in a far away country can be the best option, as it is a strong deterrent for litigation.
When battling for a clause with domestic jurisdiction, however, one should keep in mind that the process of recognition of a foreign decision is generally a rather complicated and lengthy process, even if (as is the case of Italy and China), there is a bilateral treaty for mutual recognition of judicial decisions (but very few cases have been recognized and enforced in China thereafter); it should also be kept in mind that all documents filed with the application for recognition of the foreign decision need to be translated into mandarin, notarized and legalized, which in complex litigations can represent an unforeseen additional high cost.
In other cases, like in the USA, where there is no bilateral treaty in this field, to litigate abroad often means that the foreign decision will be almost useless, with the necessity to sue again in China to seek enforcement of the decision.
Arbitration can be a valid alternative, as China is a member of the New York Convention of 1958 and enforcement of an arbitral award is in most cases easier and faster than the process of recognition of a foreign court decision.
I am frequently asked by my clients to revise sales contracts prepared by their actual or prospective Chinese counterparts.
I normally advise that it is much easier (and cheaper) to throw away the one they have received, which in most cases is a frankestein copy-pasted from different sources, drafted in poor English and with a Chinese version widely different from the English text, and to replace it with a good, new text, drafted by our law firm.
The first point which is important to know is that contracts can be drafted in a foreign language: they are perfectly valid in China even without a Chinese version, but a bilingual text is often expected and is definitely recommended.
Keeping in mind that the Contract one day can end up in a Chinese Court, where only Chinese is read and spoken, to foresee from the start that the Contract has a Chinese version, corresponding to the English one and using the right legal terminology, is a guarantee against misunderstandings, especially from the Judge himself.
That said, a common piece of advice is to keep the agreements simple and concise: we have seen how negotiations are usually long a can be a painful experience: you don’t want to start to discuss a contract with 15 pages of definitions, unless it is strictly necessary.
The best way to proceed is to prepare your own standard contract, have it translated into Chinese and have it reviewed by a Chinese lawyer, and then to propose it to the Chinese counterparts and work on that text.
The other way around, to work on a document prepared by the Chinese side, unless you are dealing with lawyers who have a good expertise of international trade and contracts, may be a bad idea, as it can usually be a frustrating and time consuming experience.
Last but not least: it is not sufficient to sign the contracts (possibly in every page): keep in mind that in order to be valid the contract needs to be stamped with the chop of the company, which is a uniquely carved piece of wood made by the local authorities.
To be on the safe side, it is better to have the contracts stamped: moreover, it is not a good sign if the person who signs the contract is not in possession of the chop, as this may mean that he is not the legal representative and has no power to bind the company.
CISG: it is applicable and you should not opt out.
The People’s Republic of China has ratified the Vienna Convention on the international sale of goods of 1980 (CISG) in the year 1986, with the result that the uniform law is an integral part of Chinese laws.
It is important to underline that China has made two reservations, under art. 1 (1) b and 11 of the CISG.
Under the first article, China refuses to apply the uniform law in cases where one of the parties is not resident in a contracting state, so indirect application is ruled out.
The second reservation is less substantial: China requires the written form for the validity of a contract of international sale of goods, while this is not required under domestic law (as Chinese Contract law of 1999 provides that contracts ‘may be made in written or in oral or any other form’).
It is never a good idea to enter into on oral agreement of international sale: in the specific case of China, this is even more true as the agreement could be voided.
We all know why it is important to apply the CISG and the reasons why it should not be ruled out, if possible: it is a common regulation of the parties’ obligations, which covers most of the important points of a sale contract and avoids the difficult task of choosing which law should apply to the sale agreement.
Another issue which is important mentioning when talking about international sales with China and CISG, is that, even though CISG is part of Chinese law, courts tend to apply it in a singular way.
Art. 142 of the General Principles of Civil Law of 1986 states that ‘the provisions of international treaties concluded or acceded by the PRC apply when they differ from the provisions of civil laws of the PRC’.
In most cases this leads to the application of Chinese law, because its provisions are often similar to the ones of CISG, or because national judges are not familiar with CISG.
In order to avoid this, parties have to indicate in the contract that they wish to apply ‘exclusively’ the CISG, otherwise the application of the uniform law might not be guaranteed.
越南 
Egypt 
西班牙 
Netherlands 
法国 
波兰 
意大利 
写信给 China – Know your investor
China – WOFE set up process
10 10 月 2016
-
中国
- 公司法
Chinese outbound M&A was one of the main topics of interest at the 2017 Hong Kong IFLR Forum on M&A in Asia, a great event with an outstanding level of speakers and very interesting discussions on various themes related to international investments.
All the attendants shared the view that momentum for Chinese overseas investments is still strong, despite the recent policy aiming at curbing the outflow of capitals from China.
A particularly interesting session was that on “best practices to overcome credibility and experience gaps increasingly faced by “off the radar” Chinese bidders”.
Opening a one-to-one negotiation or letting a Chinese company bid at an auction involves often great deal of uncertainty, as most participants to the session shared the experience of having seeing their Chinese counterpart walk away from the negotiation without any explanation (the so-called “Random Investors”).
I have scribbled down the take-aways of the discussion as follows.
Main clues to spot early on the Random investor:
- the Company pops out from nowhere and has no track record of overseas investments;
- the Company has no legal or financial advisors, or if they do, their advisors are not experienced in overseas transactions;
- the Company has excellent advisors… but has not paid their fees (yes, that happens)
- the target does not belong to the Company’s core business (and there is no explanation for their interest for the deal);
What should you do to be on the safe side?
- request a written declaration of interest, expressing the reasons why the Company wants to invest in the target and what is their mid term strategy, signed and stamped by the legal representative (if they are not ready to hand over this letter the game can stop here).
- If the Company represents a group of investors, require full disclosure and letters of confirmation from all parties, from day one (AC Milan’s case is a good example of what happens later on if there is no disclosure of all players, and their stakes in the deal);
- request proof that the Company has filed the application for the authorisation to invest overseas (due to the recent tightening of controls on capital outflow, this step is fundamental);
- request proof that they have the finance needed for the deal (either onshore or, better, off-shore);
- make clear that you will require a “break fee” (which can vary from 5 to 10%) in case they walk away from the negotiation (we have heard of US companies expecting 30 to 50% break fee on the value of the deal…)
用于约束解决双方争议的方式、规定相关适用法律的契约条款通常被称为“午夜条款”。在许多契约案例中，此条款通常被书写在契约的最末几段，以至于在谈判即将结束时才被讨论，通常此时已是深夜，双方都已精疲力竭，决定在契约上签字。
以上情况通常有两种：第一，在仓促、不谨慎的情况下作出决定。双方相信已在契约重要的问题上达成协议，所以对如何解决争议不够重视。
第二种情况则是相反：双方就管辖权所属法院及适用法律产生矛盾。双方都坚决地要求在自己的国家实施管辖权并适用该国法律。但是，此情况大多因为原则问题和国内外的标准差别问题，而不是因为双方了解问题的实际重要性。
上述两种情况都是棘手的，因为双方都将自己置于风险中：可导致做出错误的决定或无奈地妥协，并且可能会使将来采取的法律行动无效。
所以，必须足够重视并慎重地考虑该条款：通过阅读以下几点思考，牢记在慎重选择契约的司法管辖权和适用法律的同时，保留对另外一篇主题与本文主题同样重要的文章——对仲裁结果进行预知的讨论。
1）中国法官不再是禁忌
在过去很长一段时间，外国人害怕与中国法官接触，因为中国法官曾大多是来自其他公共管理部门的国家公务员。在他们眼中，中国法官被政治化，公正性受到质疑而且一般相当无能。但是今天，至少在被国际投资覆盖多年的城市，情况已经发生变化：司法水平有了明显提高，可独立计算诉讼成本，初审耗时很短（约6个月），并且很大程度上判决公正，特别是在得到合格律师辩护的情况下。因此，考虑到未来可能发生的情况及争议，在起草契约时提出中国司法管辖权是非常必要的。
2）资产在何处？
判决执行的地点是决定司法管辖权最重要的因素。在起草契约时预见在商业关系中可能产生的纠纷，以及将在哪里执行判决（中国或是意大利），都是十分必要的。
在大多数情况下，中国缔约方（以下简称中方）的资产（商品和应收账款合计）仅在中国境内。如果判决有利于外方，那么几乎可以肯定，该判决将不会被积极执行。因此，在中国执行强制执行程序是必要的。出于此原因，若在契约中规定意大利司法管辖权将会适得其反：首先需要在意大利进行耗时很长的诉讼，之后意大利法院做出的判决需要在中华人民共和国得到承认：虽然两国在1991年签订了民事司法互助条约，但是此过程非常官僚，需要判决书等所有文件的中文翻译及公正、认证。并且在承认的过程中，中方会尽全力拖延判决的承认并使其复杂化。
若耗时若干个月的裁定结果为“不可在中国执行判决”，那么外方将会上诉至中国法院。若如此，则会耗时若干年，并将承担更高的成本和苦涩的惊喜：在程序结束时，中方消失或破产，或没有资产可供执行。很不幸，上述情况是普遍存在的。
3）证人、鉴定报告及文件
另一个重要的因素涉及到契约的性质和缔约双方的行为地点。若合约义务在中国执行（例如商店的管理、代理商或经销商进行促销活动或供应/组装产品），则在中国法院进行诉讼的调查、证人的听证会以及相关专家以举证为目的，对产品的核证以及必要文件的分析相对简单许多。若在上述情况下由意大利法庭进行上述操作，将及其困难，并且显然是反经济的。反之亦然。
4）同样的法院，同样的法律
当在不可依据第三国法院及第四国法律的情况下，打破谈判僵局的折中方法通常是选择缔约方中一方国家的法院及另一方国家的法律。
此类的“创意”方案必须尽量避免，特别是避免选择中国司法管辖权。此做法的好处是，受理的法院是缔约双方所属国家的其中一个（理想情况下可以执行判决，如上所述），可以在法律的框架内，选择熟悉的法院及律师进行诉讼。但是，必须依据双方指定的外国法律（很少达成一致），或者任命一名专门针对该问题的法律专家顾问。最终导致诉讼程序更加复杂，耗时更久，成本显著增加。
5）预防措施
还有一种无法等待普通上诉程序，而是迫切需要法院立刻进行保护的紧急情况：最典型的案例是被授权人或加盟商与授权人或制造商进行不正当竞争，销售仿冒品或者在契约结束之后拒不向生产商或授权人归还商店或材料。
在此情况下，利益被侵害方向中国法院申请旨在结束非法行为的保护程序及执行紧急措施至关重要：若契约规定由中国司法管辖或仲裁，而契约中却存在关于意大利司法管辖（即防止在中国进行预防性保护上诉）的条款，则后果非常严重——无法及时有效地在中国采取限制严重损坏商誉和形象行为的行动。
Recently People’s Republic of China central government has unveiled and adopted a wide range of initiative to reduce the regulatory burden on daily business operations and provide greater autonomy in investment decision-making.
The reforms aim to give both domestic and foreign investors more autonomy and should make investments in the private sector much easier by reducing bureaucracy and increasing transparency. Investors will have more flexibility to determine the form, amount and timing of their business contributions. In addition, a system of publicly-available, electronic information (including annual filings and a corporate blacklist) will replace the old annual inspection system. Thanks to these reforms China’s requirements will become one step closer to international standards.
In this post I will analyze which are the enterprises affected by the reform; the Negative-list – setting out the industries that still need the approval to be established – and the new application process for company establishment.
Foreign invested enterprises
Generally speaking, foreign invested enterprises are the vehicle through which foreign investors may establish a presence to do business in China, choosing among one of the several different statutory forms recognized by the existing regulatory regime (such as: Wholly Foreign Owned Enterprise – WFOE; Equity Joint Venture – EJV; Contractual Joint Venture – CJV; Foreign Invested Company Limited by Shares; Foreign Invested Partnership Enterprise; or Holding companies). These entities are regulated under stricter laws than domestic companies, and are also subject to the same generally-applicable regulations.
The establishment of FIEs in Mainland China up is currently subject to a rather lengthy and bureaucratic examination and approval process by different Authorities. The same stringent requirements and burdensome procedure apply also to any major change related to FIEs structure, such as: increase or decrease of total investment/registered capital; change of business scope; shares or equity transfer; merger, division or dissolution; etc.
Nowadays, the set-up procedure of a WFOE undergoes through the following steps, having an average time frame of at least 3-4 months for the whole process:
Pre-issuance Business License
- Collection of the basic information from Investor’s side (7 working days)
- Company name pre-approval (5-7 working days)
- Lease agreement (it depends on Investor/Landlord)
- Legalized documents prepare by the Investor for the incorporation (few weeks)
- Certificate of Approval issued by MOFCOM (4 weeks)
- Business license issued by AIC (at least 10 working days)
Post-issuance Business License
- Carve company chops (1-2 working days)
- Foreign exchange registration certificate (around 10 working days)
- Open a CNY bank account (depends on the bank)
- Open a Foreign capital account (at least one week)
- Capital injection, in compliance with company Article of Association
- Capital verification report (it depends on accounting firm)
- Foreign trade operator filing before MOFCOM (at least 5 working days)
- Basic Customs Registration Certificate – if any (at least 5 working days)
- Advance Customs Registration (at least 30 working days)
- SAFE Preliminary Foreign Trader filing (2-3 working days)
- VAT general taxpayer application (1-2 working days)
- VAT general taxpayer invoice quota (30-60 working days)
On September 3rd 2016, the China National People Congress (NPC) Standing Committee adopted a resolution introducing several amendments related to the establishment of foreign-invested enterprises (FIEs) in China, which has taken effect starting from October 1st 2016. The resolution is going to produce its effect for some of the FIEs statutory forms only (WFOE, EJV, CJV).
These amendments repeal the current examination and approval regime to set-up legal entities, shifting to a different system where a FIE may be established following a streamline procedure of filing requirements before the competent authority, as long as the industry in which it engages is not subject to any national market access restrictions.
Negative List
Within October 2016 a Negative List will be issued, setting out the industries in which FIE establishment must still be examined and approved under the existing laws and regulations: a complicated and time consuming process, involving verification, approval and registration with several Authorities. The current list includes:
- Agriculture and fishery (crop seed, animal husbandry, etc.)
- Infrastructure (airports, railroads, postal service, telecom and internet, etc.)
- Wholesale and retail (newspaper and magazine, tobacco, lottery, etc.)
- Finance (investment in banks or other financial companies, etc.)
- Professional services (accounting, legal advisors, market research, etc.)
- Education (establishment of schools, management of educational institution, etc.)
- Healthcare (EJV or CJV are required to set-up medical institution, etc.)
The publication of this list is a fundamental step, in order to better understand how the new regime will operate, as it will determine which sectors and matters are covered by the new filing requirements and, on the other hand, which items continue to undergo through a pre-approval process (basically all the sectors indicated in the Negative List).
The Negative List approach towards foreign investment was originally introduced by the Shanghai Free Trade Zone and subsequently extended to other Free Trade Zones in Mainland China (FTZs): according to the Negative List foreign investors were granted “national treatment” and were allowed to invest in several different business activities, with the exception of those listed in the Negative List form.
Essentially established as testing ground for new reforms, the FTZs were also established to drive regional growth by encouraging selected industries to cluster in specific geographical areas and, at the same time, served as a mean to promote experimental economic reforms and facilitate foreign direct investments.
New application process
In order to simplify bureaucracy cutting down time and costs, FTZs introduced a new application process for company establishment, the so called “one stop application procedure”. The applicant (foreign investor) may submit an online application through the relevant FTZs website, and then the business will be checked in order to verify whether it falls into the Negative List or not.
In case the requested business does not fall under the Negative list, all the application materials can be submitted and handled through one Authority (AIC – Administration for Industry and Commerce) within the Zone. All the relevant license and certificates (included but not limited to the business license, enterprise code certificate and tax registration certificate) will be issued altogether by AIC. In this way, the applicant can obtain all the relevant documents for company establishment in one place, contrasting with the outside Zone process where applicants must move between different authorities for the issuance of the different varieties of documents.
Thanks to the adopted amendments under the latest resolution (September 3rd 2016), this pilot scheme will apply also nationwide. The simplified filing requirement process will replaces the burdensome examination and approval procedure for the formation and change of key elements of FIEs, starting from October 1st 2016.
In the next post I will examine the main essential features of the new filing regime and the future perspectives following the reform.
When considering pre-contractual negotiations in China some words need to said about culture differences, skills to use in the negotiation process, and, drafting techniques.
All of those points are relevant in any negotiation with a foreign counterpart, but they are even more valid and important when dealing with China.
First of all, it is fundamental to get acquainted with Chinese culture before starting a negotiation, especially if the counterpart (as is often the case) is not well versed in international trade and has had very few occasions to deal with foreign businessmen and counsels.
Keep in mind that actual down-to-the-table business only comes into the picture once a personal relationship has been established and the fundamental elements of trust and respect have been set.
Those who believe that an important contract can be closed with a 2 day rush visit to China or, even worse, at a distance without a personal introduction, are very far away from the real picture of things.
It generally takes several lunches, dinners and quite a few drinks together to break the ice and prepare the ground for real business talks, and it may take several trips back and forth from China before a contract can be closed: so when applying for the visa, you should consider a multi-entry.
Of course now we are in the era of internet and it very common that agreements are entered into digitally, by means of an exchange of proposal and acceptance on the web: it is not by chance that, more often than not, such long distance contacts lead to fraud and contractual breaches.
Expect long negotiations, and if a contract is eventually signed, don’t relax and don’t overestimate its value.
In western countries we tend to see the signed document as the final phase of contractual negotiations, as the bible of the future relationship.
In China contracts are often considered as nothing but the first milestone, very far from rules carved into stone: the warning is that in most cases the contract will be regarded more like a letter of intent than like a binding agreement.
So expect the Chinese side to use a great deal of flexibility, and be ready to re-negotiate or, better yet, have in place from the start in your contract appropriate rules and mechanisms to adapt to the frequent changes that may happen.
When you finally make it to the meeting room, first of all, be sure that there is a good translator around: quite often your counterpart will not speak English and will rely on a translator and it can seriously harm the flow of discussion if the person appointed for this task is not familiar with the needed terminology.
Secondly, it goes without saying that it is important to be patient and not lose your temper, especially taking into consideration that the way in which negotiations unfold may be very different from your experience.
While we are used to a linear flow of discussion, so that the parties move from one clause to the next and so on and so forth, the Chinese attitude, in most cases, is holistic.
They tend consider the agreement as a whole: it is not uncommon to re-discuss in the morning clauses that had been agreed upon the day before, without any explanation whatsoever.
A yes may mean no, and a no may mean yes: you will never know, and that is something to be always kept in mind.
The bottom line is not very different from what should be expected in all negotiations: the aim is to find a balanced agreement, that all parties find beneficial.
To start negotiating with a draft contract that is clearly unbalanced in favor of your client will not only complicate your negotiations, but may jeopardize them from the start.
A crucial clause in international contracts is the one which deals with litigation.
My advice, since we have seen that negotiation can be pretty long, complicated, and, exhausting, is that such clauses should not be the last to be dealt with, often times late at night when parties are exhausted, but the among the first.
Generally parties argue at length on such clauses, because neither party is willing to give up on its national jurisdiction for different reasons, foremost of all the fear that foreign judges would not be impartial and treat with favor the local part.
This deadlock often leads to bad compromises, like choosing the judge of a third state or combining the jurisdiction of one state with the application of the law of the other, which is definitely not recommended.
There is no one-fits-all solution to offer here: the advice is that such clauses should be tailor made on a case by case basis, and that the choice of a state court or arbitration should be expressed taking into account where the final decision shall be enforced.
If we foresee that our client may seek payment of a price or claim damages for breach of contract, ‘where is the money’ or ‘where are the assets’ should be the driving factor, and the choice of jurisdiction should be made accordingly.
If there is no such concern, and litigation may be foreseen only or mostly in a defensive scenario, then the proximity to the money or assets is no more a priority, and other options can be evaluated: in that case, the choice of a Judge in a far away country can be the best option, as it is a strong deterrent for litigation.
When battling for a clause with domestic jurisdiction, however, one should keep in mind that the process of recognition of a foreign decision is generally a rather complicated and lengthy process, even if (as is the case of Italy and China), there is a bilateral treaty for mutual recognition of judicial decisions (but very few cases have been recognized and enforced in China thereafter); it should also be kept in mind that all documents filed with the application for recognition of the foreign decision need to be translated into mandarin, notarized and legalized, which in complex litigations can represent an unforeseen additional high cost.
In other cases, like in the USA, where there is no bilateral treaty in this field, to litigate abroad often means that the foreign decision will be almost useless, with the necessity to sue again in China to seek enforcement of the decision.
Arbitration can be a valid alternative, as China is a member of the New York Convention of 1958 and enforcement of an arbitral award is in most cases easier and faster than the process of recognition of a foreign court decision.
I am frequently asked by my clients to revise sales contracts prepared by their actual or prospective Chinese counterparts.
I normally advise that it is much easier (and cheaper) to throw away the one they have received, which in most cases is a frankestein copy-pasted from different sources, drafted in poor English and with a Chinese version widely different from the English text, and to replace it with a good, new text, drafted by our law firm.
The first point which is important to know is that contracts can be drafted in a foreign language: they are perfectly valid in China even without a Chinese version, but a bilingual text is often expected and is definitely recommended.
Keeping in mind that the Contract one day can end up in a Chinese Court, where only Chinese is read and spoken, to foresee from the start that the Contract has a Chinese version, corresponding to the English one and using the right legal terminology, is a guarantee against misunderstandings, especially from the Judge himself.
That said, a common piece of advice is to keep the agreements simple and concise: we have seen how negotiations are usually long a can be a painful experience: you don’t want to start to discuss a contract with 15 pages of definitions, unless it is strictly necessary.
The best way to proceed is to prepare your own standard contract, have it translated into Chinese and have it reviewed by a Chinese lawyer, and then to propose it to the Chinese counterparts and work on that text.
The other way around, to work on a document prepared by the Chinese side, unless you are dealing with lawyers who have a good expertise of international trade and contracts, may be a bad idea, as it can usually be a frustrating and time consuming experience.
Last but not least: it is not sufficient to sign the contracts (possibly in every page): keep in mind that in order to be valid the contract needs to be stamped with the chop of the company, which is a uniquely carved piece of wood made by the local authorities.
To be on the safe side, it is better to have the contracts stamped: moreover, it is not a good sign if the person who signs the contract is not in possession of the chop, as this may mean that he is not the legal representative and has no power to bind the company.
CISG: it is applicable and you should not opt out.
The People’s Republic of China has ratified the Vienna Convention on the international sale of goods of 1980 (CISG) in the year 1986, with the result that the uniform law is an integral part of Chinese laws.
It is important to underline that China has made two reservations, under art. 1 (1) b and 11 of the CISG.
Under the first article, China refuses to apply the uniform law in cases where one of the parties is not resident in a contracting state, so indirect application is ruled out.
The second reservation is less substantial: China requires the written form for the validity of a contract of international sale of goods, while this is not required under domestic law (as Chinese Contract law of 1999 provides that contracts ‘may be made in written or in oral or any other form’).
It is never a good idea to enter into on oral agreement of international sale: in the specific case of China, this is even more true as the agreement could be voided.
We all know why it is important to apply the CISG and the reasons why it should not be ruled out, if possible: it is a common regulation of the parties’ obligations, which covers most of the important points of a sale contract and avoids the difficult task of choosing which law should apply to the sale agreement.
Another issue which is important mentioning when talking about international sales with China and CISG, is that, even though CISG is part of Chinese law, courts tend to apply it in a singular way.
Art. 142 of the General Principles of Civil Law of 1986 states that ‘the provisions of international treaties concluded or acceded by the PRC apply when they differ from the provisions of civil laws of the PRC’.
In most cases this leads to the application of Chinese law, because its provisions are often similar to the ones of CISG, or because national judges are not familiar with CISG.
In order to avoid this, parties have to indicate in the contract that they wish to apply ‘exclusively’ the CISG, otherwise the application of the uniform law might not be guaranteed.