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General Overview of Product Liability in China
- Janet Yong, Lehman, Lee & Xu (Beijing)

China does not have a specific law or statute on product liability. Whenever an issue arises in respect of product liability, various laws, rules and regulations may be relied upon. The main laws on liability for defective products in China are the Product Quality Law and the General Principles of the Civil Law of the People’s Republic of China. Other laws where provisions on product liability are found include the Law of the People’s Republic of China on Protection of the Rights and Interests of the Consumers, the Criminal Law and specific industry regulations such as the Food Hygiene Act.

Product Quality Law

The Product Quality Law of the People’s Republic of China first came into effect on September 1, 1993. On July 8, 2000, China amended its product quality law, which became effective on September 1, 2000. The amendments have 4 goals, namely, (i) to further improve the quality of products, (ii) reduce illegal activities currently found in manufacturing operations, (iii) prevent the marketing of fake or shoddy/poor quality products, and (iv) increase the strength of the supervising authorities so they may more effectively monitor products and impose severe sanctions where serious offences occur.

In essence, this law has broad application and applies to all products sold or manufactured in China, and covers both product quality and product liability issues.

“Product” under this law means “the product which is processed or manufactured for sale. Under this law, products should:


• comply with national and industry standards;
• be free from “unreasonable danger” to people or property;
• possess the properties and functions for use that they ought to have, except where the defects in the functions of the products are stated; and
• conform with standards marked on the product or its packaging and with the quality indicated by way of product directions and sample.

Producers are also subject to a number of labeling and packaging requirements. The identification on the product or on the product package must contain:


• the product quality inspection certification;
• the product name, manufacturer name and address (in Chinese);
• the primary ingredients;
• the date of production and period of safe use or validity date;
• the warnings in Chinese if the product may be potentially dangerous if used improperly.

Under the Chinese law, injured consumers can recover medical expenses, lost income and cost of living if they are unable to return to work. In case of death, the liable party must pay funeral expenses as well as pensions and living expenses of the dependents of the deceased. If the defect of a product causes damage to the property of the injured person, the liable party shall restore the damaged property to its original state or pay compensation in accordance with the market price. The law also contains a potentially broad provision that requires the liable party to compensate the injured person for “other substantial damages”.

In addition to damage payments, stiff penalties may be imposed for failure to comply with national or industry standards. Authorities will order manufacturers or sellers not in compliance to stop production or sale and will seize illegal products and income derived from their sale. Moreover, the offender will be fined and his business license revoked. In serious cases, it may constitute a criminal liability.

Manufacturers are strictly liable for non-compliance with national and industry standards, while sellers may have leniency if they have sufficient evidence proving that they have no knowledge of the illegal product and could name the source of the product.

This law provides defenses. A manufacturer will not be held liable if it can establish that: (i) it did not put the product on the commercial market, (ii) the alleged defect causing the damage did not exist at the time the product was put on the market, or (iii) the level of scientific or technological knowledge at the time the product was put on the market could not detect the existence of the alleged defect. However, the law does not further explain what is meant by “level of science and technology”. This exemption from liability is open to interpretation by the testimony of expert witnesses.

In respect of a seller or distributor, the defense would be to show that another party, for example the manufacturer, was responsible for the defect. However, if the seller or distributor cannot locate the manufacturer, the seller is legally liable for the injured consumer. If the manufacturer can be identified, the product distributor has a recovery right against that manufacturer.

The Chinese law also has a statue of limitations. Under the Product Quality Law, a claim may be brought within two years of the date the defect was or should have been discovered.

As it may take time for the damage caused by the defects in the product to be revealed and to give the consumer/victim sufficient time to observe the extent and consequences of his suffering, the Product Quality Law also specifies the time when the right of claim for compensation for loss of the victim expires. A consumer may not bring a claim more than ten years after the product was delivered to the first consumer unless, except where it is clearly indicated that the ten-year “period of safe use” has not yet expired.

Therefore, the time when the product is in the hands of the producer or the seller is excluded from the period of limitation of action. This is favorable for consumer/end user protection than if the period started from the date of production of the product or from the time when the product was placed on the market.

Civil Law

Under the General Principles of the Civil Law of the People’s Republic of China, the manufacturer or seller has civil liability in a case where a substandard product causes property damage or physical injury to others. The manufacturer or seller will however have the right to demand compensation for losses if he can successfully argue that the transporter or storekeeper is responsible for the damage or injury.

However, the limitation period set forth in the Civil Law is inconsistent with the two-year limitation period in the Product Quality Law. Pursuant to the General Principles of the Civil Law, the limitation of action shall be one year in cases concerning claims for compensation for bodily injuries and sale of substandard goods without proper notice to that effect. The Product Quality Law, on the other hand, provides that "the limitation of action shall be two years in cases of claims for compensation for damages arising from defects in products, starting from the time when the party concerned knows or should know that his rights are prejudiced". Applying the principle of the prevalence of special law over general law, where the provisions of special laws are different from those of the civil law, the provisions of the special laws shall prevail.

Summary

Producers or manufacturers are liable for personal injury or property damage caused by a defective product. The problem lies in the proof that the product had a defect. If there is some kind of standard for compliance, then there is a defect if the product does not comply with the standard. But what if there are no set standards?

While the law defines “defect” as an “unreasonable danger” that “threatens personal safety or another’s property”, we do not know the definition of the phrase “unreasonable danger”.

The issue of causation is the principal factor in determining liability under the Chinese law because both the seller and the manufacturer have specific statutory obligations. As a defendant, a manufacturer may disclaim liability if he can prove that the product was not defective when he put it on the market, which means the liability lies with the retailer or the consumer. The more a manufacturer is able to prove the quality of his process (for example by showing that he has complied with all the requisite requirements of production and quality), the better his chances of success.

A manufacturer may also face criminal liability, for instance, if a manufacturer produces goods that do not comply with required standards. However, unlike in countries such as the United States, Chinese law does not provide for punitive damages (damages intended to punish the manufacturer), instead it would provide for spiritual or hardship damages.

The principle of liability without fault (i.e. strict liability) can only be applied in a restricted sense due to the limited development in the Chinese economic, technological and legal systems. As a result, the principle of liability without fault cannot be as comprehensively applied to product liability as it is in developed countries and can only be applied in a restricted sense.

 

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