Exit control in China civil litigation

Exit control, or restriction on departure from China, can be imposed on individual debtors to urge them to fulfill their obligations in civil litigation. It can be applied before or during a civil proceeding, as well as during the enforcement procedure. This article summarises the application of exit control measures in civil litigation.

LEGAL BASIS

Application of exit control in enforcement procedure is mainly based in article 262 of the Civil Procedure Law, which provides that if a person subjected to enforcement fails to fulfill obligations provided in legal documents, the court may impose exit control measures on him/her.

In the absence of express legal basis, courts may choose from two approaches to imposing exit control measures before or during a litigation proceeding. One option is to make a preservation ruling pursuant to articles 103 and 104 of the Civil Procedure Law regarding act preservation. The other option is to make a ruling or decision on the ground of “pending civil cases” according to articles 12(3) and 28(2) of the Exit and Entry Administration Law.

RESTRICTED PERSONS

During the enforcement procedure, according to article 24 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Enforcement Procedure of the Civil Procedure Law, persons subject to exit control measures include, in the case of a natural person, the judgment debtor or statutory custodian – or in the case of an entity, the legal representative, person in charge or persons directly responsible for performance of debt of the judgment debtor. Among them, the “persons directly responsible for performance of debt” may include major shareholders, actual controllers and handlers of subject matter of the case.

Before and during the litigation proceeding, persons subject to exit control may include parties to the case (in the case of a natural person) or the parties’ legal representative or person in charge (in the case of an entity).

CONDITIONS

Exit control measures can be applied before and during the litigation proceeding, as well as during the enforcement procedure, regardless of whether the case is foreign-related. In foreign-related commercial litigation, the conditions for application of exit control measures are rather straightforward.

According to article 93 of the Minutes of the Second National Working Conference on the Trial of Foreign-Related Commercial and Maritime Cases in 2005, and article 50 of the Minutes of the Symposium on the Trial of Foreign-Related Commercial and Maritime Cases by National Courts in 2021, both of which were promulgated by the Supreme People’s Court, the conditions are that: (1) there is a pending foreign-related commercial case; (2) the applicant is more likely than not a winner in the case, and there are chances that the respondent exits China to evade participating in the litigation and fulfilling legal obligations; and (3) the respondent’s exit may present difficulties in reviewing or enforcing the case.

However, if the respondent has sufficient property available for seizure in China, the exit control measures will not apply.

INITIATION

According to article 23 of the SPC interpretation, there are two approaches to initiating exit control measures in the enforcement procedure. One is by court decision upon the application of a party; and the other is by ex officio court decisions. In judicial practice, courts mainly impose exit control measures in the form of decisions; and in some cases, in the form of rulings on enforcement.

As for exit control before and during civil proceedings, in the absence of clear legal instruments, the judicial practice endorses two approaches of initiation. One approach is that a party requests the court to impose preservation measures that include, among others, the exit control measure, according to articles 103 and 104 of the Civil Procedure Law – and the court makes a preservation ruling on exit control. The other approach is that the court makes a decision or ruling on exit control according to articles 12(3) or 28(2) of the Exit and Entry Administration Law. In some cases, both approaches are adopted concurrently. For example, in Taizhou Huatai Industrial Holding Co v Wang Xinghua (2021), the court made both a preservation ruling and a decision on exit control to prohibit the respondent from exiting China. Either way, the court may require the applicant to provide security in the form of cash, letter of guarantee, real estate or others for its application.

RESTRICTION PERIOD

There is no clear legal provision on the period of exit control. In practice, when a court imposes exit control measures, it may specify a period, mostly one to six months, which can be extended, or it may generally decide to prohibit exit before the case is concluded.

ASSISTANCE FOR ENFORCEMENT

After a court imposes exit control measures, it will usually notify and request the public security authorities to prohibit the restricted persons from travelling abroad. In addition, the court may also ask the employer of the restricted person for assistance.

RELEASE AND RECONSIDERATION

In the enforcement procedure, according to article 25 of the SPC interpretation, if the judgment debtor performs all debts determined by legal documents, the court of enforcement shall lift the exit control. If security or applicant’s consent is provided, the court may also lift the exit control.

During the litigation proceeding, according to article 50 of the 2021 minutes, if the respondent subject to exit control – or legal representative or person in charge – provides security or performs legal obligations, the court shall immediately lift the exit control. During the litigation proceeding, a respondent dissatisfied with a ruling on exit control may apply to the same court for reconsideration of such ruling within five days of receiving it. But the enforcement will not be suspended during the reconsideration.

However, for exit control measures adopted in the form of court decisions pursuant to the Exit and Entry Administration Law, courts have revealed disagreements in practice as to the reconsideration authority and the reconsideration period due to the lack of clear legal provisions – an issue that is yet to be resolved.

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