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An aerial view shows Shanghai's new financial district skyline along the Huang Pu river.Reuters

At one point, Jim Tyrer thought he wouldn't be home for Christmas.

On Nov. 30, the president of Vancouver-based Trans-Pacific Trading Ltd. arrived at the Pudong Airport across the river from Shanghai. The 47-year-old was catching a flight home to Canada having just wrapped up a routine business trip to China, one of several he makes each year.

This trip, however, would turn out to be anything but routine.

Alarm bells went off when Mr. Tyrer handed over his Canadian passport to customs officials. He was escorted to a holding room, and told he was prohibited from leaving China until a legal dispute with a customer who had purchased lumber from Mr. Tyrer's company was properly settled.

The ordeal that followed saw Mr. Tyrer stranded in China for 10 days at a cost of more than $10,000 in legal and living expenses. He was only permitted to leave China after he paid 2.2 million yuan ($350,000) to settle the legal claim, which Mr. Tyrer alleges was without merit and based on fraudulent documents.

The world's second-largest and fastest-growing major economy, China has become a magnet for Canadian business in search of new markets. The federal government has made expanding trade and business with China a key pillar of its economic agenda.

But Mr. Tyrer's harrowing experience stands as a cautionary tale, exposing a woeful legal system where the rule of law is trumped by the power of government officials and ministries. "Don't assume the laws and business practices that you are accustomed to here in Canada are going to apply over there. They've got their own set of rules," he said in an interview from Vancouver.

Pitman Potter, a law professor at the University of British Columbia, said it is not uncommon for foreign business executives to be detained in China because of commercial disputes. Chinese courts, he said, "face the challenge of politicization where local officials who have a very strong interest in protecting either contract performance or the performance of local companies have a lot of influence over how courts behave and that can work to the disadvantage of foreign business."

Mr. Tyrer is no neophyte in China: Trans-Pacific has been exporting lumber there for more than a decade, and sales topped $100-million. His problems stemmed from a $2-million sale to a customer called Nanjing Overseas Wood Co. Ltd. in July, 2011. When the firm complained about the grade of wood produced at a mill in northern B.C., Mr. Tyrer flew to China to inspect it himself.

He told the customer he agreed that the lumber was below the grade promised. He then offered a cash settlement, or to have the wood inspected by the Council of Forest Industries (COFI), the B.C. organization that grades and certifies lumber produced in the province.

Nanjing Overseas would not agree to a settlement and insisted that the wood be examined by the China Inspection and Quarantine administration (CIQ), the federal agency that regulates imports into China. Mr. Tyrer said he then objected because CIQ is not qualified to grade lumber.

Despite that opposition, Mr. Tyrer said, Nanjing Overseas said it had the wood examined by a CIQ inspector from Shanghai, who ruled it was below grade. Nanjing Overseas did not respond to requests for comment. The Chinese consulate in Vancouver did not respond to an e-mail requesting comment. The Department of Foreign Affairs and International Trade said it could not comment on a specific case.

In February, 2012, Mr. Tyrer received a court order notifying him that his customer was suing Trans-Pacific. At a court hearing in Nanjing, Mr. Tyrer's lawyers argued that the CIQ had neither the authority nor expertise to grade lumber, and that it would have been impossible for the inspector to assess the wood in one day, as claimed. The nearly 200,000 pieces of lumber were located in two cites – Shanghai and Taicang – more than 50 kilometres apart. Mr. Tyrer alleges the inspector produced fraudulent documents.

But the court process did not allow for the CIQ inspector to be questioned by Mr. Tyrer's lawyer. Mr. Tyrer said the only evidence from the inspector submitted in court was a short note to the judge.

The court ruled against Trans-Pacific in May. "The bottom line is that a provincial court is unwilling to go up against a Central Government Bureau," Mr. Tyrer said.

After the judgment, Mr. Tyrer's lawyer told him not to worry because Trans-Pacific did not have any assets in China, so any ruling would be unenforceable. So he was shocked when he was detained in November. In court the next week, his lawyer's arguments were unsuccessful, and the Canadian began to wonder when and how he would ever be able to leave. "I told my lawyer, 'I got to get out of here. I can't stay here forever. Christmas is coming, my family is totally freaking out.'"

After nearly a week of negotiations, Mr. Tyrer transferred the 2.2 million yuan to the Chinese court on Dec. 10. His travel restriction was lifted that afternoon. He left China the next day.

Mr. Tyrer said he doesn't know what the court did with the money but he assumes it was awarded to Nanjing Overseas. He expects to travel to China in the new year, a necessary part of doing business with a country that has become his company's largest customer.

"This is the last thing we wanted to happen," he said. "We just wanted it cleaned up. We had every intention of that. This was literally using me as a hostage to pay up a ransom."

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