Pretty much every month, one of the China lawyers at my firm will get contacted regarding an American being “held hostage” in China. The people contacting us are usually the spouse or sibling of the person being held. I have a friend who works for the China office of a large international risk advisory company and he says that his one office typically gets a half dozen such contacts a month.
What does it mean to be held hostage in China, and why is this so common? More importantly, what can you do as a businessperson involved with China so that this does not happen to you?
Most of the hostage cases my firm has handled have involved American businesspeople whose company allegedly owes money to a Chinese company. The American businessperson is being held hostage in an effort by the Chinese company to get paid. Around half the time the American company admits to owing the money, but (quite believably) claims not to have the money to pay off its debt all at once. The other half of the time, the American company insists that it does not owe the Chinese company anything near the amount claimed by the Chinese company. The disputed amount usually stems from the Chinese company having provided the American company with bad product for which the American company is not willing to pay full price.
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The American held hostage usually has had his or her passport taken by the company to whom a debt is allegedly owed and is then kept under fairly loose security in a mid- to lower-tier Chinese hotel, usually in the second- or third-tier city in which the Chinese company is located. After a week or so, the hostage usually comes to realize that he or she is not going to be physically mistreated but by the third or fourth month, they become pretty desperate to get out.
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, so long as the following conditions are met:
(1) There is pending court case against a foreign company;
(2) the restricted person 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 (i.e., the court award of damages against it); and
(4) if the restricted person were to leave China, the court might have difficulty conducting the trial or enforcing the judgment if levied against the party with whom the person is affiliated.
Who constitutes a “responsible person” is left to the discretion of the Chinese courts and generally is anyone with a high enough or important enough position in the debtor company to be able to have some impact on the case or on decisions whether to pay.
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The above is the law, but in our experience, the Chinese courts can and will permit someone to be held in China if they believe doing so will speed up resolution or settlement of the pending case. 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 American in China whose company might owe a debt.
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.
There is a very easy way to avoid being held hostage in China. Do not go there if a Chinese company claims that your company owes it money. Well over half the time, the American being held hostage in our cases has gone to China to “explain” why their company owes less than the amount claimed by the Chinese company or to try to work out a payment plan. 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 not go to China until that issue is resolved.
Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at [email protected].