Tiêu đề 5. Global M&A_ Know the differences btw PRC & foreign law contracts _ China Law Insight.pdf ✅

21/04/2023, 15:15 Global M&A: Know the differences btw PRC & foreign law contracts | China Law Insight https://www.chinalawinsight.com/2018/08/articles/pe/global-ma-know-the-differences-btw-prc-foreign-law-contracts/ 1/8 Global M&A: Know the differences btw PRC & foreign law contracts By King & Wood Mallesons on August 8, 2018 by: Yong Kaichang Jackie(Jiahe) Yu King & Wood Mallesons International Partner of Securities Group In cross border transactions, there is sometimes a misconception amongst both PRC and foreign parties that all contracts are by and large the same, whether governed by PRC law or foreign law, and that the key to a good contract is just proper drafting. Whilst it is true that the key to a good contract is good drafting backed by proper experience and expertise, different legal systems have inherent conceptual differences and as such, there are fundamental differences between PRC law-governed contracts and foreign law-governed contracts. These

21/04/2023, 15:15 Global M&A: Know the differences btw PRC & foreign law contracts | China Law Insight https://www.chinalawinsight.com/2018/08/articles/pe/global-ma-know-the-differences-btw-prc-foreign-law-contracts/ 3/8 party does not ordinarily owe a general duty to disclose to the other party – each party should take care of its own interest by making necessary inquiries. This difference can be illustrated by a simple example of the sale of a second-hand car: Under PRC law, the seller is obliged to inform the buyer of any major defects or any other condition that may materially affect the price of the car that he knows or ought to have known. If the seller fails to so disclose, the buyer may claim damages for the loss he suffers as a result of such failure. Whereas under common law, the buyer has the responsibility to inspect the car and make the necessary inquires as to the condition and fitness of the car, and the seller responds to the buyer’s questions (i.e. via representations). Under common law, if a party to a contract (representor) makes a false representation with regards to a fact to the other party (representee), and the representee relies on and is misled by the representation, then the representee may claim “misrepresentation” and seek damages and/or rescission. It is generally easier to establish “misrepresentation” under common law than “breach of pre-contractual obligations” under PRC law. This is because a representor who has made a misrepresentation negligently or innocently could still be liable for misrepresentation under common law; whereas under PRC law, culpability on the part of the representor is needed to establish breach of pre-contractual obligations (i.e. there has to be an element of fraud/dishonesty or a breach of the principle of good faith).[4]Say, in the same example of the sale of the second-hand car, the buyer inquires about the condition of the car engine, and the seller, having neglected to serve and inspect the engine, makes an untrue statement that the engine is in good condition. Under PRC law, the buyer will need to prove that the seller kept quiet about the engine defect while having knowledge, or intentionally gave incorrect information. In contrast, under common law, if it cannot be established that the seller made a fraudulent misrepresentation, the buyer can still claim negligent misrepresentation (i.e. the seller breached its duty of care to provide accurate information), or innocent misrepresentation (i.e. no intention to misrepresent, but note that the existence or absence of culpability will affect the availability of damages). One point to note is that “representation” is different from a “warranty” in common law. The difference is especially relevant in a common law-governed M&A contract, as the choice of term will affect the remedies available in the event of breach. A comparison table briefly outlining the key differences of the two concepts is enclosed:
21/04/2023, 15:15 Global M&A: Know the differences btw PRC & foreign law contracts | China Law Insight https://www.chinalawinsight.com/2018/08/articles/pe/global-ma-know-the-differences-btw-prc-foreign-law-contracts/ 4/8 Liquidated Damages and Penalties