I INTRODUCTION TO THE PRODUCT LIABILITY FRAMEWORK

In China, a combination of laws, regulations and rules issued by administrative departments together form a complicated legal framework for product liability with civil, administrative and criminal dimensions.

Product liability in a civil context concerns situations where defective products cause loss or harm to another, and the manufacturers or sellers, or both, bear responsibility for infringement of the victim’s rights. The key laws on product liability include:

  • a the General Principles of Civil Law;
  • b the Tort Liability Law (TL);2
  • c the Product Quality Law (PQL);3 and
  • d the Laws on the Protection of Consumer Rights and Interests (PCRI).4

These laws set up a legal framework governing issues such as how to determine whether a product is defective, how to commence product liability litigation and who bears responsibility for product liability.

Additionally, the Supreme People’s Court has issued a series of judicial interpretations in relation to specific issues that have arisen in product liability cases. One such example is the Interpretation of the Supreme People’s Court of Some Issues concerning the Application of Law for the Trial of Cases on Compensation for Personal Injury,5 which sets out the levels of compensation for a personal injury incurred by a defective product.

In addition to civil liability, the PQL and the PCRI also set out the approaches and powers of the administrative authorities to supervise product liability and to issue administrative penalties. Furthermore, the PRC legislative institution has issued laws and regulations regarding the manufacturing and circulation of certain products to ensure their safety and quality, such as the Food Safety Law6and the Pharmaceutical Administration Law.7

In China, product liability may also give rise to criminal liabilities. Chapter 3 of the PRC Criminal Law8 contains a section titled ‘Crimes of Manufacturing and Selling Fake and Shoddy Goods’. This specifically provides strict criminal penalties in respect of manufacturing and selling fake or defective products that severely infringe the consumers’ interests. These provisions in the Criminal Law seek to safeguard and reinforce product safety in China.

As China is a civil law country, the principle of stare decisis does not apply in product liability litigation proceedings. However, judges may still be guided by precedent cases previously decided by courts, particularly if there are judgments of the Supreme People’s Court or other superior courts addressing similar facts or legal issues, or if the area of law is unsettled.

II REGULATORY OVERSIGHT

The General Administration of Quality Supervision Inspection and Quarantine (GAQSIQ) and its attached agency, the Defective Product Administration Centre, oversee product safety and product recalls in China. The Standardisation Administration Committee is in charge of the promulgation of mandatory standards of product safety and sanitation. The State Administration for Industry and Commerce, together with the China Consumers’ Association, supervise product quality and protection of consumer rights after products have entered into circulation.

In relation to certain specific categories of products (including automobile, children’s toys, medical appliances and food, etc.), there are specific regulatory authorities that are responsible for the supervision and management of their safety. For example, the General Administration of Food and Drugs supervises the safety of food and drugs in all stages, such as manufacturing, circulation and consumption.

Under the current regulatory system in China, manufacturers and sellers of products bear the obligation to continuously pay attention to possible defective products. If the product is discovered to be defective after it has entered into circulation, the manufacturer and the seller are obliged to take proper remedies, such as issuing warnings or recalling the product. If they fail to take appropriate remedies in a timely manner or to take insufficient remedies, thereby causing damage, the manufacturer and seller will be liable to tort liabilities. Since the formal implementation of the Provisions on the Administration of Recall of Defective Auto Products (ARDAP) on 1 October 2004, legislators and regulators have gradually established an effective product recall system. Since then, the product recall system has played an increasingly important role in protecting consumers’ rights. In 2016, the GAQSIQ had published 169 auto product recall notices and recalled 11,794,850 defective auto products. Over 200 models of vehicles in 45 automobile brands were involved in those recalls, including Honda, Chevrolet, Buick, Volkswagen, Volvo, etc.

In China, the China Consumers’ Association and other consumer associations play important roles in protection of consumer rights. The consumer associations are social organisations with Chinese characteristics, which are established across the country and pursuant to the laws and regulations in order to conduct public supervision over products and protect consumer rights and interests. The consumer associations can perform many community duties such as: (1) providing consumption information and advisory services to consumers; (2) participating in formulation of laws, regulations, rules and mandatory standards relating to consumer rights and interests; (3) participating in supervision and inspection of goods and services by the relevant administrative authorities; (4) accepting consumer complaints, and carrying out investigation and mediation into the complaint matters; (5) for acts that harm the legitimate consumer rights and interests, supporting aggrieved consumers to file lawsuits or filing lawsuits by itself pursuant to the law; and (6) publicly advocacy regarding acts that may harm the legitimate consumer rights and interests.

III CAUSES OF ACTION

Under PRC law, a manufacturer or seller, or both, will be liable under tort if they have manufactured or sold a product that has caused harm to a person’s life or property. ‘Product’ refers to property that is manufactured for sale. Real estate does not fall within the scope of product. In general, product liability contains three elements: (1) the issue of whether the product is defective; (2) the damage or loss suffered; and (3) the causal relationship between the defective product and the damage.

The most important element is whether a product is defective. Product defects are categorised as design defects, manufacturing defects and inadequate warning or instructions. According to Article 46 of the PQL, there are two tests to determine product defects, namely, the statutory standard and the unreasonable danger standard. Under the statutory standard, a product will be defective if it fails to meet the applicable national or industrial standards in respect of the safety and sanitation of that product. However, meeting statutory standards does not necessarily mean that the product is without defects. PRC courts will still apply the unreasonable danger standard to determine whether the product unreasonably endangered the life or property of the consumer, or both. Hence, even if a product meets the relevant national or industrial standards, it still may be considered defective if it does not meet a reasonable person’s expectations regarding product safety.

Apart from the tort liability, a consumer can also bring a warranty claim in respect of product flaws. Under PRC laws9, a product must conform to the quality standards or specifications as presented by the manufacture and seller. If a product fails to conform to such warranties, the consumer can sue the seller for breach of warranty even if the product might not constitute a defective product under the product liability law.

In addition to the tort liability discussed above, administrative penalties might also be imposed on manufacturers and sellers of defective products. For example, if the product manufactured or sold is not in conformity with the national and industrial standards regarding the safety or sanitation, the regulatory authorities can stop the manufacture and sale of defective products, confiscate the defective products, impose fines on the manufacturer and seller and even revoke their business licences. In addition, the manufacturer and seller might also be administratively penalised if they do not perform their obligations to recall the defective products. For instance, where an automobile manufacturer breaches the ARDAP, for example, for failing to stop manufacturing the products, selling or importing defective auto products, withholding information of the defects or refusing to implement a recall as ordered, the regulatory authorities will order it to make correction, impose a fine between 1 per cent to 10 per cent of the monetary value of defective auto products and confiscate any illegal income of the manufacturer. Furthermore, the regulatory authorities may revoke the manufacturing licences of the manufacturer if the circumstances of violation are serious.10

Lastly, the Criminal Law contains nine crimes relating to the manufacture and sale of defective products. As a result, the manufacturers and sellers will face criminal penalties in severe cases.

IV LITIGATION

i Forum

In accordance with Article 47 of the PQL, when there is a civil dispute regarding product quality, the parties may resolve their dispute by negotiation, mediation, arbitration or litigation. In practice, the most common forum is litigation.

In the PRC civil system, there is a two-tiered trial system under which a party has the right to appeal a decision at first instance to an appellate court. In general, the second instance judgment is final and binding. However, under special circumstances, a party may also apply for a retrial. However, the standards to initiate the retrial are very strict, and it is within the court’s discretion whether to grant a request for a retrial. In practice, it is very rare for a court to grant a retrial.

If a product liability dispute is relatively simple and with a small amount in dispute, a summary procedure or small claims procedure may apply to the litigation. These two types of procedures are more flexible and quick, and the small claims procedure does not allow the parties to appeal.

In civil litigation proceedings, a party may also resolve the dispute by negotiation or settlement. A settlement judgment issued by the court has the same effect as a civil judgment. If one party fails to perform its obligations under the settlement judgment, the other can apply to court for enforcement.

In China, any contractual or other disputes over property rights and interests between citizens, legal persons and other organisations can be submitted to arbitration. Since arbitration procedure relies on the parties’ agreement, it may be more applicable to a seller’s contractual disputes arising from defective products, rather than product liability disputes.

ii Burden of proof

In product liability proceedings, the plaintiff has the burden of proving: (1) the product is defective; (2) damage or loss owing to the defective products; and (3) a causal relationship between the defect and the damage suffered.

However, in practice, the plaintiff, as an individual, usually has limited technical knowledge about the product in dispute. As a result, courts do not generally impose too stringent a burden of proof on the plaintiff. As long as the plaintiff has prima facie evidence (such as the inspection report from a professional inspection institution) that the product has problems, the burden of proof will be shifted to the manufacturer or seller. The manufacturer or seller will then have to prove that the product does not have any defects. It will thus have to prove that the product meets the national and industrial standards (if any), and does not have any reasonably foreseeable danger that may threaten a person’s health or damage a person’s property.

In practice, the inspection procedure plays an important role in determining whether the product is defective. A party may apply to a court for inspection in order to determine whether a product is defective (in particular, whether there is a design defect or manufacturing defect). The inspection will be conducted by inspection institutions with appropriate qualification or by judicial inspection institutions. The parties may agree to appoint a specific inspection institution; if not, the court can appoint one. Furthermore, even if the parties do not apply for inspection, if necessary, the court may itself decide to appoint an inspection institution to determine whether the product is defective.11 The inspection fees are relatively high and the process is time-consuming, and there may be technical issues that are beyond the expertise of certain inspection institutions, which may present some obstacles for the plaintiff.

Furthermore, it may be difficult to prove that there is a causal relationship between the defect and the damage incurred. In general, a court would not require the victim to prove that the injury or damage was in fact caused by the defective product. The victim only needs to prove that there is connection between the injury or damage and the defective product. Lastly, courts usually take a ‘presumptive approach’ when determining whether there is a causal relationship. This means that, if a product is defective and other possible causes of injury have been ruled out, the causal relationship is therefore presumed to be established.

iii Defences

Under PRC law, the defences include procedural defences and substantive defences.

Relying on a statute of limitations is a procedural defence. The statute of limitations for product liability claims is two years from the date when the party concerned is notified or should have become aware that his or her rights have been infringed. Under no circumstances may a case be brought more than 10 years from the time a defective product was first delivered to the user or consumer. However, as an exception, if the product expressly specifies a safe use period, a tort claim can still be brought as long as the safe use period has not been exceeded.12

In relation to substantive defences, there are three statutory defences under which a manufacturer may avoid liability.13 First, a manufacturer may avoid liability if the products have not been put into circulation. For example, this defence may be available if a manufacturer is about to destroy some defective televisions stored in the warehouse; however, a thief steals one and then sells it to a person who is subsequently injured when using it. Notwithstanding the person’s injury, the person could not claim compensation from the television manufacturer. Secondly, a manufacturer may avoid liability where the defects do not exist when the products are put into circulation. In other words, the manufacturer could demonstrate that the defect was caused by the victim. Thirdly, the scientific and technological standard at the time the product was put in circulation has not reached a level to enable the manufacturer to discover the defect in the product. The manufacturer will bear the burden of proving the above three statutory defences.

As outlined above, the plaintiff has to meet its burden of proving three elements in a product liability claim (i.e., defects, injuries or damage and causal relationship). If a defendant successfully challenges the plaintiff’s proof in respect of any of these three elements, the defendant will not be found liable. Of these three elements, the defendant usually challenges the ‘defects’ and ‘causal relationship’. For example, in a case where the explosion of a microwave oven caused injuries, if the plaintiff wants his or her claims for compensation to be supported, the plaintiff shall prove that the microwave oven was defective resulting in the explosion; the plaintiff was injured owing to the explosion; and there was causal relationship between the injury and the defects. In this case, the defendant might challenge the existence of the defects on the basis that the microwave oven’s design and manufacture satisfy the relevant compulsory national or industrial standards. The defendant might deny the causal relationship by proving that the plaintiff improperly used the products.

iv Personal jurisdiction

The PQL applies to all manufacturing and marketing activities within the territory of China.14 Accordingly, the PQL regulates both manufacturers and sellers with businesses operating within China, including a seller who imports products manufactured outside China and sells such products within China. Any violation of provisions in this law may lead to aforementioned civil, administrative and even criminal liabilities.

In accordance with the Civil Procedure Law, as a tort case, product liability claims are under the jurisdiction of the court at the place where the tort occurs or at the place of domicile of the defendant.15 The place where the tort occurs includes the place where a tortious conduct is committed and the place where the consequence of a tortious conduct occurs.16 If the manufacturer and seller are domiciled in China, the PRC courts will without doubt have jurisdiction over the proceedings. Even if the manufacturing and selling were committed outside of China, if the damage occurs within China, the manufacturer and seller outside China may still fall under the jurisdiction of the PRC courts.

v Expert witnesses

The Chinese legal system recognises the role of expert witness in disputes. Any party can apply to a PRC court for an expert to testify at court on certain issues of fact that are within his or her expertise. Where an application of a party is permitted by a PRC court, the party making the application will bear the costs of the expert witness’ attendance. The judge hearing the proceedings or any party may cross-examine the expert. Where permitted by the court, experts may address each other during proceedings in relation to issues arising in the proceedings.17

vi Discovery

Contrary to the common law jurisdictions, there is no general process of discovery in Chinese civil litigation. Except where the burden of proof has shifted (as outlined above), each party has the evidentiary burden of proving its claims.18 However, if there is evidence that a party and its representative are unable to collect, the party may apply to the court for investigation and collection.19 For example, if a vital inspection report regarding product defects was kept by the product manufacturer, and the consumer is unable to obtain it, the consumer could apply to the court to collect this evidence from this manufacturer. In addition, there may be a situation in which there is evidence demonstrating that a party possesses certain evidence, but that party refuses to provide it without any proper justification. In such case, if the other party claims that the evidence is unfavourable to the party that possesses it, a court may infer that the claim is established.20

vii Apportionment

Where any harm is caused by a defective product, the victim may seek compensation from the manufacturer or the seller. That is, for the victim, both the manufacturer and the seller assume liability. Between the manufacturer and the seller, after any party assumes liability, this party may be entitled to be reimbursed by the other. However, when a manufacturer seeks reimbursement from a seller, it will have to provide evidence that the product’s defect was caused owing to the fault of the seller.21

viii Mass tort actions

To date, the Chinese legal system does not provide for class actions as they exist, particularly in the United States. However, where the subject matter of action is same or is of the same kind, courts may allow the parties to hear the case concurrently.22 However, ‘collective action’ is uncommon in product liability cases. In addition, where the subject matter of a claim is of the same kind in nature, but the number of potential plaintiffs is unclear when the claim is initiated, courts may publish a notice to describe the case and claims and notify right holders to register with the court within a certain period of time. The parties that have registered with the people’s court may recommend a representative or representatives to participate in the litigation. The judgment or ruling issued by the court will bind all right holders that have registered with the court. Such a judgment or ruling will also apply to actions instituted during the statute of limitation by rights holders that have not registered with the court.23

ix Damages

Under PRC law, where a defective product causes any harm to another person, the manufacturer or seller, or both, will assume tortious liability.24 Where a person suffers personal injury owing to a defective product, damages will often include: medical treatment expenses; funeral service fees; compensation for mental distress (if applicable); and other economic compensation. Where a person suffers damage to his or her property owing to a defective product, a court will often order the tortfeasor to remedy the damage or pay compensation in an amount equal to the remediation costs.25 Where the defect of a product endangers the personal or property safety of another person, the victim shall be entitled to require the manufacturer or seller to assume tortious liability by removing the obstruction or eliminating the danger.26

In addition, there is punitive compensation under PRC law. Under the TL, where a manufacturer or seller is aware that a product is defective and continues to manufacture or sell the product, and the defect causes death or serious damage to the health of another person, the victim may be entitled to obtain punitive compensation.27 Under the PCRI, business operators that fraudulently provide commodities or services will, as required by consumers, increase the compensation for consumers’ losses. The increase in compensation will be three times the payment made by a consumer for the commodity purchased or the service received or it will be 500 yuan if the increase calculated above is less than 500 yuan. Where business operators knowingly provide consumers with defective commodities or services that cause death or serious damage to the heath of consumers, the victims have the right to claim punitive compensation of no more than two times the amount of losses incurred.28 Under the Food Safety Law, in addition to claiming damages, a consumer may require a manufacturer of a food produect that fails to meet food safety standards or a trader knowingly dealing in such food to pay an indemnity of 10 times the price paid or three times the loss. If the amount of the additional compensation is less than 1,000 yuan, it will be 1,000 yuan, except for a defect in the labels or instructions on the food that does not impair food safety or mislead consumers.29

V YEAR IN REVIEW

In 2016, there were two main developments in product liability law. One was to enhance the recall system of defective products. The other was the further development of consumer-related public interest litigation.

The product recall system began from the issuance of the ARDAPon 12 March 2004. Subsequently, several supervision authorities issued certain specific recall provisions, such as the Administrative Provisions on the Recall of Children’s Toys (effective as of 27 August 2007), the Administrative Measures for Drug Recalls (effective as of 10 December 2007) and the Provisions on the Administration of Food Recall (effective as of 27 August 2007). However, other than recall provisions for these specific products, no recall provisions were provided for general consumer goods, which meant that consumers buying general products could not be effectively protected.

On 21 October 2015, the GAQSIQ issued the Measures for the Administration of the Recall of Defective Consumer Goods (the Measures), which became effective as of 1 January 2016. The Measures addressed the gap in the law mentioned above, and completed the establishment of an effective recall system for defective consumer goods. The Measures have the following key features.

First, the Measures specially define the concepts of ‘consumer goods’, ‘defect’, ‘recall’ and ‘manufacturer’. In accordance with the Measures,30 ‘consumer goods’ means the products purchased and used by consumers for living needs. ‘Defect’ means non-compliance with state or industrial standards regarding protection of personal or property safety or any other unreasonable risks to personal or property safety caused by design, manufacturing or warning labelling that generally exist in the same batch, model or type of consumer goods. ‘Recall’ means the measures taken by consumer goods manufacturers concerning defective consumer goods to eliminate defects or reduce or remove safety risks. ‘Manufacturer’ means an enterprise legally formed within the territory of China that manufactures consumer goods and in whose name a certificate of product inspection is issued. Enterprises that import consumer goods from outside the territory of China and sell such products within the territory of China or authorised institutions formed by overseas enterprises within the territory of China are also deemed as manufacturers in the Measures.

Secondly, the Measures define the parties responsible for recall and their associated liabilities. The Measures clearly provide that manufacturers are the parties responsible for the recall of defective consumer goods and assume the primary liabilities for recall. Furthermore, the Measures also clearly provide for the obligations and procedures in recall proceedings, such as the manufacturer’s obligations for collection and analysis of information, reporting of defect investigations, accepting supervision from authorities, challenges and appeals, recording of the recall plans and reporting of recall measures.

Lastly, the Measures establish a catalogue administration system for consumer goods. Consumer goods recalled in accordance with the Measures are to be subject to cataloguing according to the degree of risk of the damage or potential safety hazards in the relevant consumer goods. The catalogue is developed and administered by the GAQSIQ.31 Children’s products and electronic appliances were the first to be subject to catalogue administration, including 11 types of children’s products and nine electronic appliances. The Measures also provide that, where any other consumer goods that have not been listed in the catalogue need to be recalled, the Measures may apply.32

In addition, consumer-related civil public interest litigation has been further developed in 2016. In relation to consumers, the PCRI provides that, for infringement of the lawful rights and interests of widespread consumers, the China Consumers’ Association has standing to file lawsuits in the people’s courts.33 The Interpretation of the Supreme People’s Court on Several Issues Concerning Application of Laws in the Hearing of Consumer-related Civil Public Interest Litigation issued in April 2016 by the Supreme People’s Court details five circumstances under which consumer-related civil public interest litigation can be initiated:

  • a where there are defects in the goods or services provided, damaging the lawful rights and interests of numerous non-specific consumers;
  • b when the goods or services provided may endanger consumers’ personal or property safety without giving clear warnings or marking the correct methods to use the goods or accept the services, as well as the methods for preventing the relevant hazards; or false or misleading statements about the quality, performance, purpose and validity period of the goods or services provided;
  • c where there are risks in business locations such as hotels, shops, restaurants, banks, airports, transport stations, ports, theatres, scenic areas or entertainment venues that endanger consumers’ personal or property safety;
  • d where unfair and unreasonable provisions for consumers are established that exclude or restrict consumers’ rights, reduce or exempt the liability of business operators and increase consumers’ liability by means of standard clauses, or circulars, statements or salesroom bulletins; and
  • e in relation to other practices that damage the lawful rights and interests of numerous non-specific consumers, endanger consumers’ personal or property safety, or harm the public interest. In addition to consumer associations, this interpretation also expands the scope of parties with standing to commence public interest litigation to ‘agencies and social organisations authorised by laws or by the National People’s Congress and its standing committee.’34

Footnotes

1 Ariel Ye is a senior partner, Yue Dai is a partner and Xinyu Li is an associate at King & Wood Mallesons. The authors want to acknowledge other associates at King & Wood Mallesons, Tianren Li, Dong Feng, Stephen Johnson and Songyuan Li, who also contributed to this chapter.

2 Effective as of 1 July 2010.

3 Effective as of 1 September 1993, amended on 27 August 2009.

4 Effective as of 1 January 1994, amended on 25 October 2013.

5 Effective as of 1 May 2004.

6 Effective as of 1 June 2009, amended on 1 October 2015.

7 Effective as of 1 December 2001, amended on 24 April 2015.

8 Effective as of 1 October 1997.

9 See Article 148 of the Contract Law (effective as of 1 October 1999), Article 40 of the PQL, Articles 40(1) and 48 of the PCRI.

10 See Article 24 of the Regulation on the Administration of Recall of Defective Auto Products (effective as of 1 January 2013).

11 See Article 76 of the Civil Procedure Law (effective as of 9 April 1991, amended on 31 August 2012).

12 See Article 45 of the PQL.

13 See Article 41(2) of the PQL.

14 See Article 2 of the PQL.

15 See Article 28 of the Civil Procedure Law.

16 See Article 24 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China (effective as of 4 February 2015).

17 See Articles 122 and 123 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China.

18 See Article 64 of the Civil Procedure Law.

19 See Article 94 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China.

20 See Article 75 of the Some Provisions of the Supreme People’s Court on Evidence in Civil Procedures (effective as of 1 April 2002).

21 See Article 43 of the TL, Article 43 of the PQL.

22 See Article 52 of the Civil Procedure Law.

23 See Article 54 of the Civil Procedure Law.

24 See Articles 41, 42 of the TL.

25 See Article 16 of the TL; Article 44 of the PQL; Article 49 of the PCRI.

26 See Article 45 of the TL.

27 See Article 47 of the TL.

28 See Article 55 of the PCRI.

29 See Article 148 of the PRC Food Safety Law.

30 See Article 3 of the Measures.

31 See Article 5 of the Measures.

32 See Article 5 of the Measures.

33 See Article 47 of the PCRI.

34 See Articles 1, 2 of the Interpretation of the Supreme People’s Court on Several Issues Concerning Application of Laws in the Hearing of Consumer-related Civil Public Interest Litigation (effective as of 1 May 2016).