China: Tort Law Reform in the People's Republic of China

Last Updated: 8 July 2010
Article by Peter Coles

The Tort Liability Law ("the Law") of the People's Republic of China (PRC) 2009 takes effect on 1 July 2010. Those doing business in China will need to understand the potential for increased liability and the associated need to expand insurance coverage.

Existing provisions for tort-related liabilities were covered in more than 40 different pieces of legislation, across a fairly wide spectrum of social and business regulation. The new Law was drafted, in part, to integrate these different rules and to provide a more solid basis for the development of tort law and practice in China.

Aircraft operators' liability

Article 71 of the Law states that operators of aircraft are liable in tort for damage caused to others unless the operator can prove that the damage was caused by the victim acting with intent. It is presumed that the Law will only apply to circumstances where the Civil Aviation Law does not apply.

Product liability

In so far as product liability is concerned, the Law restates the general rule established under the Product Quality Law that the manufacturer is strictly liable for personal or property damages caused by a defective product. Article 42 provides for the seller's strict liability in cases where the seller is unable to identify the manufacturer or the supplier of the defective product.

The Law does not provide for any defences for manufacturers or sellers; however, the Product Quality Law does and is expected to still apply: manufacturers are not to be liable if (i) the products have not been put into circulation; (ii) the product defects do not exist at the time of circulation; or (iii) the defects cannot be found at the time of circulation due to scientific and technological limitations.

When a product is discovered to be defective after it has been put into circulation, the manufacturer and the seller must promptly issue warnings and recall the product, as necessary. If the manufacturer or the seller fails to undertake such actions in a timely manner, or the remedies are insufficient and damages occur, the manufacturer and the seller will be found liable. The Law also allows consumers to bring actions to require corrective actions before any real harm has occurred. In situations where product defects endanger consumer personal or property safety, consumers are entitled to require that manufacturers and sellers eliminate the risk of harm. Consumers do not have to demonstrate that they have already suffered actual harm as a result of product defects.

Punitive damages

Punitive damages are payable when two conditions are satisfied: (i) where the manufacturer or seller knew that a product was defective; and (ii) the defective product caused death or serious injury. The Law, however, does not set forth the standard or methodology used to calculate punitive damages. Damages are not capped or based on the price of the defective product. This issue is expected to be clarified in a future Supreme People's Court judicial interpretation.

The Law becomes of increasing significance to China's aerospace manufacturing industry. Chinese companies already provide parts for Airbus and Boeing aircraft; and the domestic airframe manufacturing industry is ramping up the design and production of various aircraft. The Commercial Aircraft Corporation of China (Comac) has been busy constructing an assembly plant in Shanghai for its C919 (168-190 seat narrow-body airliner) and ARJ21 regional jet aircraft; and awarding contracts to various original equipment manufacturers (OEMs) and suppliers. It aims to have the C919's first test flight in 2014 and entry into service in 2016, while the first ARJ21 is due to be delivered in late 2010 to China's Kunpeng Airlines.

Environmental pollution

The Law also provides for enhanced liabilities for environmental pollution. Article 66 provides that, where any dispute arises over environmental pollution, the polluter shall assume the burden to prove that it should not be liable, or its liability could be mitigated under certain circumstances as provided by law, or to prove that there is no causality between its conduct and the harm. Article 68 of the Tort Liability Law further states that plaintiffs can claim compensation from polluters or a third party if the environmental damage was caused by a third party. This article certainly imposes more liabilities on the polluters in that polluters may still be liable for damages even if the pollution was not caused by their own actions.

Damages for death/personal injury

The basis upon which compensation for consumers (and their dependents) is to be calculated and awarded is set to change. Currently, claimants can recover:

  1. funeral/condolence expenses (which is based on the average monthly income of a resident of the place where the claim is brought);
  2. compensation for death or personal injury (= 20 years (being the maximum working life expectancy) x average disposable income of a resident of the place where the claim is brought x percentage disability (fixed by law, 100 per cent if dead));
  3. dependency costs which are payable only to those who are genuine dependents (based on average income of a resident of the place where the claim was brought x percentage disability x number of years entitled to support);
  4. loss of income (period of unemployment x average disposable income of a resident of the place where the claim is brought); and
  5. reimbursement of various special damages like medical and transportation expenses.

Under the new regime, dependency damages will be abolished (compensation for dependents will be subsumed under compensation for death/disability); different general statistics will be used when assessing compensation, rather than the current one based on the average disposable income - further guidance from Supreme Court or National People's Congress (NPC) expected; and the pool of possible claimants will be widened to include grandparents, siblings, uncles, aunts, nieces and nephews in addition to immediate family and parents. In addition, a new head of damage is being introduced: damage to personal property (clothing/shoes/lost wallet). Also, the courts will adopt a system whereby similar amounts of compensation are made to claimants whose claims arise out of a similar incident. The changes continue to ignore the peculiar circumstances of the individual, and are aimed at bringing uniformity to claims.

Conclusion

While no one knows yet how Chinese courts will interpret the new tort liability laws, there are likely to be significant financial and legal ramifications for companies doing business in China. Companies will experience increased liability exposure and higher defence costs regardless of their compliance

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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