23rd January 2019

Enforcement problems in China? Cancel your opponent’s foreign holiday…

China Industry Analysis

Enforcement problems in China? Cancel your opponent’s foreign holiday …

Enforcement of awards against companies and individuals is a perennial problem, all over the world. The legal sector is ill-served by the lack of meaningful research into what percentage of judgments remain unsettled, either in terms of numbers of cases or quantum of judgements.

However, we have found a recent Judgment Enforcement Survey by legal finance provider Burford Capital that has made some effort to address this situation. The survey found that enforcing awards remains very difficult, whether it involved domestic law only or fought through cross-border entities and multiple jurisdictions. 86% of responding lawyers admitted that at least one client was not paid the full-face value of a judgment or award. 62% reported that the total recovery was often around 70% whilst 19% respondents reported that recovery rates were less than 50% in value. On top of that, there was a significant drop off in collections if defendants were incorporated in certain countries or regions.

BUT… LSR Services is always looking for new ways that are found to assist and we were recently told of one novel way to apply pressure in China – “take away” their passport!   Upon further inspection it seems that it is indeed possible to restrict the travel of the legal representative of the Chinese company that has failed to comply with an award as per Article 255 of the Civil Procedure Law of China.

Subject to conditions being met, the claimant can file an application to register the debtors/ legal representative of the Chinese companies onto the “Violation Blacklist”. For which, their details will be sent to immigration, customs, tax, public transportation authorities and banks etc. Hence, the persons will be restricted from overseas travelling, buying flight tickets, buying high-speed train tickets, spending with credit cards etc. Our correspondents in China advise that this is indeed the case and they have seen it performed. In reality it is not so dramatic as having a passport confiscated, but the miscreant is turned back at the border.

This could be classed as a mere inconvenience, rather than a hammer blow. But, from our experience, it’s often the case that enforcement against a company only starts working when it gets personally uncomfortable for decision makers.