Back in 2011, Richard Wagner, a Chicago-based Baker & McKenzie international arbitration and litigation lawyer, wrote an article entitled, “Permission denied: The curious case of exit restrictions in Chinese commercial litigation” [link no longer exists]. The article explains why personnel of foreign companies involved in Chinese litigation are often denied permission to leave China. Most importantly, that article details why denying a foreigner permission to leave can be completely legal.

Wagner’s article details how China’s Supreme People’s Court has made clear that foreigners who work for a foreign company involved in a China commercial case may be blocked from leaving China, by stating the following:

When foreign-related commercial disputes are handled by people’s courts, the courts may adopt exit restriction measures if all of the following conditions are met:

(1) the foreign-related commercial case has not yet been concluded;

(2) the person against whom the restriction would be levied is a party to the case, the legal representative of a party to the case or a responsible person with a party to the case;

(3) there exists the possibility that the party with whom the person is affiliated would evade the litigation or the performance of a statutory obligation;

(4) if the person in question left China the court might have difficulty conducting the trial or enforcing the judgment if levied against the party with whom the person was affiliated.

Richard goes on to explain how the term “Legal Representative” is a “term of art under Chinese law and easily determined from a company’s business license,” but the meaning of the term “responsible person” is “far more elusive” and “ultimately subject to court discretion.” According to the article, a foreigner need not be a senior executive to be stopped from leaving China; they need merely “be perceived by the court to have a high enough or important enough position in the company to be able to have some impact on the case (for example, some knowledge about the case or some influence on decisions concerning settlement.”

I completely agree with Richard’s assessment but raise him one. In our experience, the courts can and will hold someone hostage in China if they believe that doing so will speed up resolution/settlement. And since most American companies will settle cases rather quickly when any of their employees are being prevented from leaving a particular Chinese city, China’s courts are willing to hold just about any foreigner in China.

On top of that, it is not at all uncommon for foreigners to be held in China over a debt without a court order. Our China lawyers have handled a number of instances where foreigners were being held over a debt and there was no court order. These people were being held by private parties, usually with local government and/or local police acquiescence. In other words, though it can be legal to prohibit a foreigner to leave China over a debt, much of the time, the alleged creditors (the Chinese parties claiming to be owed money) take the law into their own hands.

Bottom Line: If you or your company are being sued in China or if a Chinese company or individual is threatening to sue you or your company in China or if someone in China is merely claiming that you or your company owe money, you should think long and hard about whether to go to China until that issue is resolved.

For more on China hostage taking, check out the following:

 

 

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.