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A legally binding contract should underpin all business transactions. They are especially important when you are dealing with a party overseas. A contract will give you peace of mind that you can protect your rights, as a contract is legally enforceable. However, there may be issues with forming a contract with an overseas partner. This is because there are uncertainties around enforceability and whether you can enforce your contract in another jurisdiction. Regardless, one of the most common types of overseas contracts is a Chinese manufacturing agreement. This article will outline how to structure it and what the rules are around its enforceability.

What Is a Chinese Manufacturing Agreement?

China is renowned for its cheap labour and highly productive manufacturing sector. Because of this, many New Zealand companies will take their manufacturing to China. However, there has to be some sort of agreement when they do this. A manufacturing agreement will outline what and how a manufacturer must supply a good. It will also determine the quantity of the good being produced and when it needs to be in New Zealand. It is not necessarily finished products manufactured in China, as they may be goods you will put into other goods in New Zealand. Or something could be sourced in New Zealand but then assembled in China. Therefore, your manufacturing agreement should be drafted by a lawyer and presented to your manufacturing partner for signing.

Enforceability of the Contract

The biggest question that New Zealand companies have is whether a Chinese manufacturing agreement is enforceable. Usually, if either party breaches an agreement, the other party can seek compensation in court. This usually happens if one party incurs some sort of loss. However, the enforceability of a Chinese manufacturing agreement depends on what law the agreement is signed on. If the agreement is signed in New Zealand and clearly states that the agreement is bound to New Zealand law, then the agreement is legally enforceable in New Zealand. 

However, it can still be hard to enforce if your manufacturer does not have a company based in New Zealand. This is because, in a practical sense, your manufacturer does not have to come to New Zealand and appear in court if there is a dispute that requires a legal process.

However, one thing that will happen is that no companies will want to deal with that Chinese manufacturer in the future. This could then be detrimental to their business.

Other Approaches

Another way that you can resolve a dispute internationally is by going through a dispute resolution process. This could mean you travel to China to try and solve the problem at hand. Of course, this could not reach a solution, but if you want to continue working with your manufacturer, this may be your best option. 

A further option is to go through an international arbitration process. This is contingent on your manufacturing partner agreeing to do this. During this process, an arbitrator will hear both sides of the argument and decide what he thinks is fair. However, there is still a chance that your manufacturer will not abide by the decision declared by the arbitrator. 

Structuring the Agreement

Enforceability can be challenging on an international scale, but it is still crucial that you structure your agreement in a foolproof way. Therefore, ensure you include terms and a termination clause. 

Terms of the Contract

The main issue with most contracts is that the terms are not specific enough. The terms of your contract include the contracting parties and what the objective of the contract is. In this case, it should also include what jurisdiction the contract is binding on. This is to avoid any disputes about the enforceability of the contract.

Termination

You should always include an option to terminate the contract as you may be in a situation where the contract is no longer feasible. Another situation where you may need to terminate the contract is if your contracting party breaches it. However, a termination clause can be activated by either party. Hence, it is always prudent to ensure that you are not doing anything to give your manufacturer a reason to terminate the contract. 

Again, as enforceability can be an issue with overseas contracts, your manufacturer could cancel the contract without warning. As they are in China, it can be impossible to get any compensation for the loss you may incur. Therefore, it is always good to have a contingency plan in case this happens.

Key Takeaways

You will likely use a Chinese manufacturing agreement when working with Chinese manufacturers. However, the difficulty of enforcing such contracts can cause issues for New Zealand companies. Therefore, it is essential to state that the contract is based on New Zealand law and always include clear terms and a termination clause. 

If you need any legal assistance with Chinese manufacturing agreements, LegalVision’s experienced contract lawyers can help. Call us today on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Is there any way to force a Chinese manufacturer to come to court?

No, the only way this can happen is if the Chinese manufacturer has a New Zealand business. In this case, you could get a director to appear on behalf of the business.

Can I terminate the contract at any time?

You can only terminate a contract if it meets the conditions stated in the contract. If you do this too early, you could be found to be in repudiation of the contact, which is a breach.

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