Permission denied: The curious case of exit restrictions in Chinese commercial litigation

Foreign investors often find themselves embroiled in Chinese litigation today – from product liability cases to letter of credit disputes. And while there are many peculiarities with Chinese litigation worth noting, one feature often grabs headlines with the General Counsel's office.

This is the problem of Chinese exit restrictions in commercial cases whereby a foreigner affiliated with a company involved in a Chinese litigation can be prevented from leaving China if he or she is determined to be a so-called “responsible person” at the foreign or foreign-invested company that is involved in the dispute. This feature of the Chinese legal system can be employed against the foreign investor as a form of psychological warfare. The Chinese party to the dispute might petition the court to issue an exit restriction order against a recently arrived Chief Executive Officer, for example, to gain leverage in settlement discussions, and the court may well agree to issue the order thereby putting the General Counsel or Assistant General Counsel in a rather unfortunate predicament.