Vital Elements in NNN Agreement- Turning Chinese Law Loopholes into Practical Solutions

As discussed in the last post that there are 3 basic elements to a proper NNN contract, now we are going to take it forward by discussing few things about making the contract enforceable in the Chinese context. Chinese law does not have any provision to enforce IP contract unlike common law. A common lawyer has 2 major issues to be concerned with- 1) a rule which does not favor liquidated damage provisions, 2) the law distinction that facilitates injunctive assistance in case of unavailability of a law.

Usually under common law, any kind of infringement of IP rights is remedied by injunctive relief as lawyers maintain that it is difficult to remedy it in terms of money. This is an effective system once the infringement has been proven in court under common law. Common law lawyers in fact think that this would work in the Chinese context as well; but that is a mistake. In fact, all that is not allowed under common law is actually allowed under Chinese law. The Chinese law does not follow common law rules. In fact, liquidated damages are favored under Chinese law. Moreover, using contract damages is properly established under Chinese law and legalized by statute.

Chinese law does not follow law equity distinction either. The judges of Chinese courts are not confined by common law distinctions. Hence, there is actually no need to justify injunctive relief in China. Common law lawyers should quit wasting time over this. If you thought that this is a relief, then you must understand the powers of Chinese judges in a little more detail. They have unlimited coercive power to seize assets for compensating any kind of monetary damage. It is vital for anyone doing business in China to know about the power of judges. To balance this unlimited power, the judges there are not allowed to enforce any party to take any kind of action by order. The irony therefore is that, they have the power to issue injunctive orders but do not have any authority to implement them. Keeping this in mind, Chinese judges seek to convert any decision into a monetary sum that can be paid against damages.

Since, the Chinese legal system works in a way that is contrary to the other parts of the world. Common law lawyers have to think out of the box to prepare contracts that are enforceable in the relevant context. The lawyer must keep one thing in mind, not to leave scope for any injunctive relief in the Chinese context. They understand a specific monetary value in terms of compensation for any kind of infringement or violation of NNN agreement. This extends to each and every act of breach. Avoiding injunctive relief is the goal and including monetary relief is the aim.

This is the most substantial part of an NNN contract prepared by any lawyer for China. Including a specific sum of money as penalty is enforceable by Chinese court through order of seizure of defendant’s assets. Otherwise you will waste time trying to include injunctive relief. Punitive damages and extensive consequential damages are not allowed by the Chinese legal system. Hence, it is extremely important to include an amount that makes up for the loss to seek as penalty by the other party at the court. By following this approach, the prosecuting party can still continue to do business with the Chinese manufacturer only by incorporating a particular amount of money as compensation. This makes it easy for the court to make a decision and enforce it helping the party that has sued the company. In this way you will not require ending the contract with the company also.

This is a practical solution to the problem with regard to Chinese law which follows certain rules that fully contrast with other common laws around the world. The Chinese law in theory is difficult but in practicality it can come into play with its loopholes being tapped into by the lawyer. There is no need to cry over the difficulties; instead use them to your best interest with the help of an expert Chinese business lawyer.

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