Trade Disputes in China Can Lead to Exit Bans?

From time to time, we receive inquiries on Exit Bans from foreign companies, and recently there has been an increase in the number of such inquiries.

Question: In case of arrears of payments to Chinese companies (even if there is an dispute), will our company's executive going to China be detained or restrained from leaving China?

We have noticed there are some articles on the Internet with respect to Exit Bans. Of course, some of them exaggerate the risk of Exit Bans. As a matter of fact, the legal representative/responsible person of a Chinese domestic company also faces the risk of Exit Bans from leaving China and the scope is broader than that of a foreign company, in particular when the Chinese company fails to perform its obligation of payment of an effective judgment.

In this article, we only discuss the situation in which the executive of a foreign company is restrained from leaving and returning to China after his trip to China in a commercial litigation, but we won't discuss other circumstances (such as being suspected of a criminal offence). Generally speaking, the application of the restraining measures for leaving China shall be based on the application made by the Chinese company (the plaintiff) in principle, and may only be imposed by the court ex officio in some cases.

Legal Basis for Exit Bans.

Exit Bans measures are usually imposed on "deadbeat" people, i.e., those who refuse to perform a debt determined by an effective judgment. Therefore, Exit Bans measures are mainly implemented in time after the judgment becomes effective.

Exit Bans measures for parties to civil or commercial cases, especially foreign-related civil or commercial cases, may also occur before or during the trial of such cases.

With respect to foreign-related cases, the Supreme People's Court specifies in Article 93 of the Minutes of the Second National Working Conference on Foreign-related Commercial and Maritime Trial that four(4) conditions shall be met before Exit Bans measures can be imposed on parties to foreign-related commercial cases: (1) there is indeed a foreign-related commercial dispute case pending in China; (2) the party who is restrained from leaving China is a party to the pending case or the legal representative or responsible person of the party; (3) there is possibility of evasion of litigation or evasion of statutory obligations; and (4) allowing the party to leave China may make the case difficult to be tried or impossible to be enforced. In accordance with Article 50 of the Minutes of the National Working Conference on Foreign-related Commercial and Maritime Trial issued by the Supreme People's Court, the "possibility of evasion of litigation or of evasion of statutory obligations" stipulated in Article 93 of the Minutes of the Second National Working Conference on Foreign-related Commercial and Maritime Trial means that, in civil litigation, the applicant has a relatively high possibility of winning the case and the respondent has a high possibility of evading litigation or evading performance of statutory obligations by leaving China.

Currently, Chinese laws and regulations do not specify the duration of Exit Bans. In judicial practice, the court may specify the duration of departure restraining measures in the ruling or decision, or generally impose a prohibition on departure before conclusion of the case or enforcement of the judgment.

In general, Chinese courts should be strict when taking measures to restrict foreigners from leaving China.

Lift of Exit Bans

If a person who has been restrained from leaving China is of the opinion that the restriction is imposed on him is wrong, he may apply to the immediate superior people's court for reconsideration of the decision. The people's court at the next higher level shall make a decision within 15 days upon receipt of the application for reconsideration.

Where the persons who are restrained from leaving China provide effective guarantee or perform legal obligations, the court shall immediately make the decision to lift the restriction and inform the public security authorities.

Suggestion of Exit Bans.

1. In order to mitigate the risk of Exit Bans after you travel to it, it is advised that you engage professionals to conduct due diligence and necessary assessment of potential risks of Exit Bans before you travel to China.

2. In case of any potential disputes or disputes arising out of the transactions between you and Chinese companies, it is wise that you retain Chinese lawyers to handle the trade disputes as soon as possible, try to reach amicable settlement through negotiation and avoid litigation. Why a Chinese lawyer instead of a foreign lawyer to be retained? There are two main reasons: one is language and time difference, and the other is geography, which makes the lawyer's letter from foreign law firms little deterrent to Chinese enterprises.

Please feel free to contact us if you have any questions or need our legal assistance.

 Disclaimer

This article has been prepared for general reference purposes only and should not be relied on as legal advice or regarded as a substitute for detailed advice in individual cases.