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Recalls may become more common under Chinas new Tort Law.

Chinas New Tort Law:

Dawn of the Product Liability Era
Chinas new Tort Law expands company liabilities and adds
punitive damages for unsafe and defective products.
Peter Neumann and Calvin Ding

he new PRC Tort Liability Law, which finally passed

in December 2009 after four revisions, covers a range
of topics that have increasingly captured Chinese and
international headlines, including product and medical liability, environmental pollution, motor vehicle accidents, and
hazardous work. In fact, several recent safety scandals, such as
the 2008 melamine-tainted milk scandal, may have hurried
28 MarchApril 2010 chinabusinessreview.com

the passage of the law, which was first proposed in 2002 and
is slated to take effect July 1, 2010.
Prior to the Tort Law, legal rules that addressed and provided for civil remedies in rights infringement cases were
spread among several PRC laws, including the General
Principles of the Civil Law, the Law on Protection of
Consumer Rights and Interests (Consumer Rights

l e g a l a n a ly s i s
Protection Law), the Product Quality Law, and the Food
Safety Law. As pressure to provide more effective means of
redress through civil courts grew, the need for a unified
tort-law framework that clearly defined tort-based causes of
action became increasingly urgent. Though the new Tort
Law does not supersede tort-related provisions contained in
other laws, it consolidates and integrates the basic legal
concepts into a single piece of legislation.

by a product defect. Under the new law, a plaintiff may

seek damages from either the producer or seller of a product that contains a defect, regardless of who caused the
defect. In cases where a seller can show that the product
contained a preexisting defect, the seller has the right to
seek contribution from the producer, assuming that the
producer can be identified. (Contribution refers to what
the defendant has a right to collect from others who are
responsible for the harm caused.) Third parties in the prodProduct liability clarified
uct distribution chain may also be held liable: The Tort
The apparent expanded protection against defective
Law states that if injury to other persons is caused by
products and the introduction of punitive
defects resulting from third-party transpordamages are key features of the new Tort
tation or storage services, the producer and
Quick Glance
Law. Their inclusion may in large part be
seller of the defective product have the
Chinas new Tort Law, which
viewed as a response to product scares in
right to seek contribution from the
takes effect July 1, integrates the
recent years. For example, the Sanlu taintresponsible third party.
basic legal concepts of torted-milk incidentwhich reportedly left at
related provisions in other PRC
least six infants dead, roughly 300,000
Punitive damages
laws into a single piece of
others suffering from lingering health
Punitive damages were generally unavaillegislation.
problems, and a wave of discontent in its
able under PRC law prior to the passage of
The new law also appears to
wakeprompted government officials and
the Tort Law. The Consumer Rights
expand protection against
the public to openly demand stronger govProtection and Food Safety laws contain
defective products and authorizes
ernmental oversight, harsher punishment
provisions regarding payment of compensainjured parties to seek punitive
for wrongdoers, and swifter, more effective
tion equal to specified multiples of the
damages.
mechanisms to limit the potential harm
value paid by the consumer in cases of
Companies should monitor
caused by dangerous products (see the
fraud. The Product Quality Law uses a simlegislative and judicial
CBR, MayJune 2009, p.38).
ilar approach when dangerous products are
developments for hints about how
manufactured or sold in violation of applithe new lawand punitive
New liabilities for producers
cable national or industry standards, but
damages, in particularwill be
and sellers of defective products
without any need to establish fraud. Article
applied.
Until the Tort Law takes effect, the
47 of the Tort Law, however, provides that
Product Quality Law remains the main
where a party knowingly produced or sold
source of principles to be applied in cases
defective products that caused injury to life
involving defective products. The Product Quality Law recor health, the injured party has the right to claim punitive
ognizes two types of product deficiencies, flaws and
damages. Unlike previous laws that restricted compensation,
defects, which are subject to different liability rules. The
recovery of punitive damages is not stated as a fixed multiple
term product flaws (xia ci) generally refers to minor nonof the amount paid for the defective product, nor does the
conformities, such as a products failure to function as it
Tort Law place a limit on damages.
should or when a products quality does not conform to the
Given that the Tort Law has not yet taken effect and
standards specified on the product or its packaging. Where
that China does not follow case precedent, it will be particproduct flaws cause injury to the consumer, the seller is liable
ularly important to monitor legislative and judicial developfor compensating the consumers losses. If the flaw is the
ments, especially PRC Supreme Peoples Court Judicial
fault of the manufacturer, the seller is entitled to recover its
Interpretations. Of particular concern are guidelines for
losses from the manufacturer after compensating the conpunitive damage awards and whetherfor purposes of
sumer. A product contains a defect (que xian) if there is an
granting punitive damagesconstructive knowledge can be
unreasonable danger inherent in the product that threatens
imputed to a manufacturer or seller based on press reports,
the health or safety of persons or property, or if the product
searchable information available on the Internet, or other
does not conform to applicable national or industry health
public sources.
and safety standards. In cases involving product defects that
cause personal injury, death, or property damage (other than
Mandatory product recalls in private tort actions?
to the product itself), the Product Quality Law requires the
Before the introduction of the Tort Law, product recall
manufacturer to assume compensation obligations.
rules and regulations were generally confined to industryThough the new Tort Law does not use the term flaw,
or sector-specific enactments such as the Food Safety Law
it appears to expand the scope of parties from whom a
and the Administrative Measures on Defective Autoplaintiff may seek damages in cases where injury is caused
Product Recalls. The Food Safety Law requires recalls when
chinabusinessreview.com MarchApril 2010 29

l e g a l a n a ly s i s
the product in question fails to meet food-safety standardsfor example, when it exceeds permissible limits on
pathogenic microorganisms or fails to meet requirements
on the types, scope of use, and amount of food additives.
Unlike these previous rules and regulations, the Tort Law
is phrased in an open-ended fashion and therefore applies to a
wide range of products. Under Article 45, injured parties have

revisit their contract-based waivers and liability-shifting

mechanisms. Companies may find it prudent to incorporate
into their contracts provisions on emergency recall measures
and information management processes that allow for open
communication channels with all parties in the product distribution chain. Companies, particularly those that may not
have product liability insurance, should pay special attention

The Tort Law makes it more important than ever for companies to
not only maintain effective quality-control systems, but also
ensure that upstream and downstream business
partners have equally effective systems.
the right to require the producer or seller to eliminate the
danger or remove impediments where defects in the product
endanger the safety of persons or property. The wording of
Article 45 also suggests that any party whose rights have been
infringedregardless of the injury actually sustainedmay
demand that a manufacturer or seller eliminate the hazard.
The plaintiff could therefore ask the court to mandate a product recall that is much more expensive than the compensation
payable to the plaintiff. Even if courts, without further judicial guidance, are reluctant to order product recalls instead of
less expensive remedies such as safety warnings, the threat of
punitive damages under Article 47 may provide sufficient
motivation to recall defective products.

What companies can do

Provisions in the Tort Law that relate to product liability
will likely benefit consumers. They will also likely increase
the costs of conducting business, especially for multinational
companies, which tend to be scrutinized more closely when a
product defect is identified. By clarifying that an injured
party may seek damages from either the producer or seller of
a defective product, the Tort Law makes it more important
than ever for companies to not only maintain effective quality-control systems, but also ensure that upstream and downstream business partners have equally effective systems in
place. At the most basic level, manufacturers should aim to
establish an effective quality-control system and a productrecall plan. These measures should enable manufacturers to
identify potential issues before they become liabilities and
take appropriate preemptive action when necessary.
Though the PRC Contract Law generally permits
contracting parties to allocate risk among themselves, mandatory provisions in laws and administrative regulations
invalidate contract provisions that violate those mandatory
provisions. Thus, general liability waivers may offer
inadequate protection if they are at odds with mandatory
provisions of the Tort Law. Companies should therefore
30 MarchApril 2010 chinabusinessreview.com

to their insurance coverage, which may need to be expanded

to protect against new liabilities under the Tort Law.

More details on the way

The Tort Law is a significant step forward for Chinas
product liability legal framework in that it clearly articulates basic legal concepts that would be considered fundamental in mature legal jurisdictions, such as the United
States, but which may be poorly understood by PRC
courts. Among these are rules that govern punitive damages
and product recalls. In addition, propelled by great changes
and tensions in Chinese society brought about by rapid
economic development, the Tort Law may reflect a significant expansion of the scope of individual rights protected
under PRC law. But the effectiveness of the law will remain
subject to the realities of access to the courts, procedural
rights, and implementation of remedies through the PRC
legal system, which remains a work in progress. Key tests
for the new law and the integrity of the courts include cases
in which private individuals without financial resources or
government connections take action against powerful stateowned enterprises or in which a large award could bankrupt a defendant company that is a significant employer.
Given the general nature of the Tort Law and the breadth
of issues that it covers, China will likely issue further guidance to fill in the details and guide calculations of damages
awards before the law takes effect July 1. Meanwhile, companies active in the China market should implement effective quality-control systems, develop product-recall plans,
review their current contracts and relationships with business partners, and revisit insurance policies and other riskmanagement measures.

Peter Neumann (neumannp@gtlaw.com) is shareholder at Greenberg

Traurig, LLP in Shanghai. Calvin Ding (dingc@gtlaw.com) is associate
in Greenberg Traurigs Shanghai and Houston, Texas, offices.

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