Concerns of International dealmakers
Under a remote signing arrangement, the signing places and the governing law of the transaction documents may be in or of different jurisdictions. Therefore, the legal effect of the signing activities may be subject to both the local laws of the signing places and the conflict of law rules under the governing law of the transaction documents.
For example, we assisted on a deal between a German seller and a Chinese buyer recently, where German law is the governing law. We understand from our German colleagues that, German law, especially in cases where no notarization and other formal requirements have to be fulfilled, recognizes the legal effect of remotely signed documents, but this is also subject to the local law of the signing place. However, German law is not crystal clear about the determination of the signing place in an event of a remote signing arrangement.
Accordingly, to avoid any flaws in the binding effects of transaction documents, the position of the PRC1 law on remote signing also needs to be considered.
Position of and practices under the PRC law
In this situation, we do not see obstacles for a remote signing arrangement from a PRC law perspective:
Under Article 32 of the PRC Contract Law, where a contract takes written form, such contract is concluded when the parties have signed it or fixed their chops on it, and there is no specific requirement on the way of signing a contract.
In PRC judicial practice, having a contract signed remotely by parties located at different places is acceptable. Under the Interpretation on Certain Issues Concerning the Application of the Contract Law of the People's Republic of China (II) issued by the Supreme People's Court, "Where the contract is concluded in written form and the place of signing stipulated in the contract is different from the place where the contract is actually signed or sealed, the people's court shall recognize the stipulated place as the place of signing of the contract; where the place of signing is not stipulated in the contract and the two parties concerned sign or seal the contract in different places, the people's court shall determine the place where the contract is most recently signed or sealed as the place of signing".
We also did not identify any case where the validity of a contract was questioned solely because the parties have signed the contract remotely.
Given the above, if the Chinese party's signatory is duly authorized and the Chinese party's company chop will be properly fixed on the transaction documents, there should be no issues to have a remote signing arrangement with a Chinese party. While there is often a preference for a physical signing with both parties presence, this is more of a tradition than a legal requirement, and actually, remote signing arrangements were not rare in China before the coronavirus outbreak, with typical counterparts clauses used in transaction documents. Sometimes the parties may also remotely sign the transaction documents during a video conference which may help provide additional protection.
Of course, the governing law in different deals may differ and the position of the governing laws will need to be further checked accordingly. Subject to the relevant governing laws, where to adopt a remote signing arrangement with a Chinese party, the international dealmakers may also consider expressly providing the signing place in the transaction documents or properly arrange the sequence of signing to provide more certainty (e.g. in the German deal we advised on, it is recommended that the Chinese party sign the transaction documents first so there is a better chance the signing place be determined as in Germany).
Please contact us if you need any of your help in this end. To learn more impacts of the COVID-19 outbreak on M&A and JV deals with a Chinese party, please click here.
1. The People's Republic of China, which for the purpose of this article excludes Hong Kong, Macau and Taiwan.
Authored by Liang Xu, and Dr Franz-Josef Schoene