This country-specific Q&A provides an overview to product liability laws and regulations that may occur in China.
This Q&A is part of the global guide to product liability. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/product-liability/
Please summarise the main legal bases for product liability
Under PRC law, in the event that a person suffers damages as a result of product defects, it is entitled to bring actions either on the basis of tort or on the basis of contractual breach.
The tort basis for product liability claims is provided under the Tort Liability Law and the Product Quality Law. Article 41 of the Tort Liability Law provides that the producer or seller of a defective product shall be liable for damages caused by the product’s defects, and the Product Quality Law expands it with detailed rules. While the general principle of PRC tort law requires plaintiff to prove that defendant is at fault, product liability follows the principle of strict liability. Under the Tort Law and the Product Quality Law, the producer and/or seller of a defective product should compensate the infringed party regardless of whether they are at fault.
The contractual basis for product liability claims is provided under the Contract Law. Article 111 of the Contract Law provides that the seller of a product has an obligation to guarantee its quality. Failure to do so would constitute breach of the contract, for which the seller should be liable for reparation, replacement, refund, and/or monetary compensation.
If both causes of action are available, the plaintiff may choose on what basis it brings the action.
What are the main elements which a claimant must prove to succeed in a strict liability type claim for damage caused by a defective product?
As mentioned, under PRC law, product liability follows the principle of strict liability. In order to prevail in a tort liability claim for damage caused by a defective product, the claimant should prove the following three elements:
- The disputed product is defective (an act of tort);
- The claimant is injured or suffers losses (damage);
- The defect of the product causes the injury or loss (causality).
With whom does liability sit? If there is more than one entity liable, is liability joint and several?
Most product liability disputes involve both the producer and the seller of a product. The Tort Law and Product Quality Law allow an infringed party to bring action against either or both of them. As mentioned under Question 1, the principle of strict liability applies in either scenario, and the liability between the producer and the seller is joint and several.
Although the Tort Liability Law and the Product Quality Law both explicitly provide that a seller is liable only if at fault, the relevant provisions have been interpreted by the court as dealing with only the internal relationship between the producer and the seller, while the seller’s liability to the infringed party is regardless of whether it was at fault. That is, only after the infringed party is fully compensated can a non-faulty seller recover from the producer the compensation it paid to the infringed party.
If multiple producers or sellers collectively contribute to the product defect, then they shall bear joint and several liability for the damage or loss incurred by the infringed party.
In and of itself the concept of ‘contribution proceeding’ does not appear in PRC legislation. However, the Tort Liability Law and the Product Quality Law do provide for mechanisms of similar effects. In the event that the producer or seller assumes strict liability and has compensated the infringer, if the product defect was not the result of their own wrongdoing, the laws allow them to commence an action against the party that is ultimately responsible.
Are any defences available? If so, please summarise them.
Article 41 of the Product Quality Law provides for three statutory grounds that exempt product liability:
- The product has not been put in circulation;
- At the time when the product was put in circulation, the defect which caused the damage did not exist; and
- The existence of the defect could not have been detected due to the science and technology level at the time when the product was put in circulation.
In addition, the defendant may also rely on the general defenses of tort law:
- In the event that there is no causal link between the defect and the damage suffered by the defendant, the producer or seller of the product need not assume liability. For instance, if the injury or property loss is caused by the plaintiff’s gross negligence, such as failure to properly follow the instructions in the product manual; and
- If the statutory limitation of the plaintiff’s claim has expired, then plaintiff would be time-barred from bringing claims against the producer or seller. This is explained in more detail in Question 6 below.
What is the limitation period for bringing a claim?
The General Provisions of the Civil Law, which came into effect in 2017, changed the statutory limitation of all civil claims from two years to three years, starting from the day on which the plaintiff becomes or should become aware that damage has been incurred. However, the Product Quality Law, which came into effect before the General Provisions of Civil Law, still provides that the statutory limitation for product liability claims is two years. This brings the question of which statutory limitation period should apply to product liability claims that took place after 2017. The law itself is not clear on which should prevail. In practice, most PRC courts take the view that the three-years statutory limitation should be applied.
Under PRC laws, the statutory limitation of civil claims is extended for an additional three years every time the obligee requests the obligor to perform its obligation or assume responsibility. The same applies to product liability claims. The law further provides that the maximum length of the limitation period for product liability claims is ten years, starting from the date when the defective product was delivered to the infringed party, unless the producer promises a longer safe period of use.
To what extent can liability be excluded (if at all)?
Other than the defenses set out under Question 5, producers and sellers of products cannot exclude their product liability. As long as the elements under Question 2 are present, they will be held liable for compensation.
What types of damage/loss can be compensated and what is the measure of damages? Are punitive damages available?
The types and scope of compensation recoverable through product liability suits depend on the nature of damage suffered by the infringed party.
In the event that a defective product causes personal injury, the tortfeasor is liable for a variety of compensations, including the medical expenses and nursing expenses of medical treatment, and lost income caused by absence from work. If the injury results in disability, the tortfeasor would also be responsible for other expenses including the cost of self-supporting equipment, subsistence allowances, and the living expenses of the disabled person’s dependants. If the infringed party deceases, the tortfeasor would further be responsible for funeral expenses, an additional compensation, and additional living expenses of the deceased’s dependants. An infringed party is also entitled to compensation for mental distress in most personal injury cases.
In the event that a defective product causes property loss (including damage to the product itself), the tortfeasor is responsible for restoration of the damaged property or compensation for its lost value.
Punitive damages are available only under special circumstances, such as when the tortfeasor acts in malice. For instance, according to the Consumer Rights and Interests Protection Law, in the event that a producer or seller knowingly sells defective products and causes death or serious damage to personal health, purchaser is entitled to punitive damages not exceeding twice the amount of its actual loss. If under the Food Safety Law, similar conduct is subject to punitive damages ten times the amount of actual loss.
Does the law imply any terms into B2B or B2C contracts which could impose liability in a situation where a product has caused damage? If so, please summarise.
The Contract Law provides for a producer/seller’s general obligation to guarantee the product sold under the contract is free of defects and conforms to the agreed quality standard. In the event that the parties’ agreement is ambiguous, the Contract Law provides that the national standards and industrial standards should be applied to determine the products’ quality.
On top of the general principles provided in the Contract Law, some special laws provide for heightened obligations in their specific fields of application. For instance, the Consumer Rights and Interests Protection Law provides that the seller has an obligation to notify consumers of the correct ways of using the product, and failing such obligation would generally result in product liability even if the damage is caused by the consumer’s misusing the product..
What types of damage/loss can be compensated and what is the measure of damages?
In the event that a party breaches its contractual obligation, the Contract Law allows the non-breaching party to recover expectation damage. The principle of expectation damage is to compensate the non-breaching party, to the extent that the non-breaching party is restored to the economic position that it would have reached as if the contractual breach had not taken place. This covers the expense the non-breaching party incurred in the process of performing the contract, the damages that it paid to downstream purchasers, and the profit that it would have realized by, for instance, reselling the otherwise non-defective products.
Expectation damage is subject to expectability rule, meaning the loss suffered by the non-breaching party is not recoverable if it could not have been reasonably foreseen by the breaching party.
To what extent can liability be excluded (if at all)?
The Contract Law allows parties to agree on limitation of liability clauses in their agreements, by which they are free to exclude or set limits on their liability for breaching contractual duties. However, the Contract Law also provides for two exceptions: if a limitation of liability clause limits liability resulting from personal injury, or to limit property loss arising out of wilful misconduct or gross negligence, then the limitation of liability clause shall be null and void.
Are there any recent key court judgements which have had a significant impact on the approach to product liability?
The Interpretation of the Civil Procedure Law, enacted and announced by the Supreme People’s Court in 2015, introduced public interest litigation, which allows public interest organizations such as the Consumer Protection Association to bring litigation against a tortfeasor in product liability suits on behalf of massive undetermined number of infringed parties. The public interest organizations may seek such remedies from the court as an order requiring the tortfeasor to stop its act of infringement and a judgment on compensation for damages. In 2017, a latest amendment to the Civil Procedure Law expanded this practice to allow state prosecutors to bring public interest litigation as well.
The case of Yantai People’s Procuratorate v Zeng Zhonghua, et al., which took place shortly after the 2017 amendment came into effect, was one of the first public interest litigation brought by a state prosecutor. The Yantai People’s Procuratorate, acting on behalf of the victims of a fake medicine, filed and prevailed in a lawsuit against the producers of the medicine.
What are the initial litigation related steps you should take if you are facing a product liability claim or threatened claim?
When the possibility of a potential product liability suit emerges, the producers/sellers should first and foremost ensure that they are well-prepared in evidence gathering.
In determining whether a product is free of defect and whether there is causal link between the defect and the ensuing damage, PRC courts rely heavily on reports issued by court-appointed appraisal institutions. The absence of such reports would significantly expand the courts’ discretion in fact finding, and PRC courts are generally more inclined to favor the infringed party, rather than the producer/seller, in product liability suits.
Producers/sellers are therefore advised to conduct on-site investigation and preserve evidence as soon as it becomes aware that an accident has taken place. The days immediately following an accident is often critical in setting the stage for a successful product liability case. The producers/sellers should make their best attempt to maintain control of the product in question and gather any evidence concerning the manner in which the product was used by the infringed party and the nature and scope of the resulting damage. This would be helpful to ensure that the subsequent appraisal would be conducted on a well-informed basis.
Are the courts adept at handling complex product liability claims? Are cases heard by a judge or jury?
Most PRC courts in major cities, such as Beijing, Shanghai, Guangzhou and Shenzhen, have extensive experience in handling product liability claims. Statistics shows that the average product liability cases accepted by a district court in a single year can reach as many as 240 cases.
Most PRC courts also have a tendency to concentrate similar cases in the hands of a few judges. For instance, if multiple parties bring lawsuit against the same producer of product before the same regional court, though class actions are rarely available, the cases would generally be assigned to the same judges. The accumulated experience allows the judges to form a more thorough and uniformed understanding of the products’ technical details and mechanisms.
In response to the development of technology and emergence of new business models, China has also established specialized courts to adjudicate specific types of cases. For instance, in 2018, China established internet courts in Beijing, Guangzhou and Hangzhou. Disputes arising out of and in connection with transactions conducted through the internet, which otherwise would have been submitted to the various district courts, would instead be uniformly adjudicated by the internet courts. This includes product liability disputes arising out of products purchased online. The idea is again that specialization and collective experience would help improve the courts’ adeptness in handling complex cases.
Is it possible to bring a product liability related group action? If so, please summarise the types of procedure(s) available
Group action is available in PRC as a matter of law, but in practice parties can rarely bring group action against a common defendant.
The Civil Procedure Law of the People’s Republic of China allows combination of civil proceedings where the subject matters are the same or of the same type. However, the law also provides that courts have discretion in deciding whether the cases is to be combined or separated, and the courts are generally reluctant to grant such consent.
How are cases typically funded? Can lawyers charge success fees? Is third party funding permissible?
Although PRC law does not explicitly prohibit third party funding, cases are typically funded by the parties themselves.
Lawyers are allowed to charge success fees. However, the relevant laws mandate that success fees shall not exceed 30% of the monetary value of the case, and attorneys are forbidden from charging success fees in group action cases.
How common are product liability claims and what factors influence their frequency?
Product liability disputes take place frequently. This is especially the case for disputes in connection with food safety and household products. According to a statistic announced by the Supreme People’s Court in 2015, PRC courts accepted 21,826 product liability suits in that year. The report observed a “drastic increase” in the number of product liability cases.
A variety of aspects contribute to the rise of product liability cases. The steady economic growth witnessed by China in the past decades has brought countless products into the market. It is only natural that more disputes would come along with them. However, the most important factor is the enactment and amendment of statutes that put consumers and purchasers in comparatively more advantageous position in product liability cases.
For instance, the “drastic increase” of product liability cases in and around 2015 was preceded by an amendment to the Consumer Protection Law in late 2013. A notable addition from the amendment was that, in the first six months after a consumer purchases a durable product such as television, air-conditioner and computer, the burden of proving the existence of product defect is reversed. This means, in the first six months after purchase, it falls upon the producer/seller to prove that the product is free of defect.
As another example, the amendment also provided that, if a consumer suffers damage from a defective product that it purchased on an E-commerce platform, such as Taobao, the E-commerce platform has an obligation to disclose the seller’s information so as to facilitate the infringed party to bring lawsuit against the seller, otherwise the amendment requires the E-commerce platform be held jointly and severally liable for the buyer’s damage.
These rules have made it substantially easier for consumers to bring actions against producers/sellers of defective products, and have no doubt contributed to the increase of the amount of cases.
What are the likely future developments in product liability law and practice? To what extent is the suitability of the law being challenged by advances in technology?
The rapid development of technology in the 21st Century brings high-tech products and more advanced business models. This in turn calls for a judiciary of more expertise and familiarity in the industry. As mentioned, China has responded to this challenge by establishing courts that specialize in specific fields of business. It is likely that this trend would continue in the upcoming future.
Similarly, on the legislative end, we expect to see the distribution of rights and obligations among producer/seller and purchasers to change along with advances in technology. As mentioned under Question 16, the legislators explained that the purpose of reversing burden of proof in the first six months after purchase was that they found it unreasonable to demand consumers to understand the complexity of products of advanced technology. In the future, one could only expect this gap would become wider, and product liability law would have to evolve correspondingly to catch up with the changing reality.