Can a buyer who purchased defective food or drugs, knowing that such defects existed, claim a full refund of the purchase price and compensation? According to the Judicial Interpretation on Issues concerning the Application of Laws relating to Food and Drug Disputes (the “Interpretation 2013”) promulgated by the Supreme People's Court (“SPC”) on 23 December 2013, consumers will indeed be entitled to do so.
The Interpretation 2013 will become effective on 15 March 2014, the same date a new PRC Consumer Protection Law enters into effect. The Interpretation 2013 applies to disputes about food, drugs, cosmetics and health care products (“Products”). The most important content of the Interpretation 2013 is set out below.
- Intentional purchase of defective Products is protected
Article 3 of the Interpretation 2013 provides that in the event of any dispute with respect to the Products, the court shall not support a manufacturer’s or seller’s defence that the consumer purchased defective Products intentionally. This means that even if a consumer was fully aware of the Products’ defects when they bought them, their later claim for a refund or compensation will be supported by the court. The SPC also published a case which further illustrates this rationale. A consumer in Nanjing bought some sausages in a supermarket knowing that the sausages had already passed their use-by-date. The court judgment supported the consumer’s claim to return the food and granted compensation of ten times the sausages’ purchase price.
This result is contradictory to Article 33 of the SPC’s Interpretation on the Application of Law in Disputed Sales Contract Cases which has been in effect since 1 July 2012 (the “Interpretation 2012”). According to the Interpretation 2012, if a buyer knows or should have known at the time of the purchase that a product is defective, the buyer’s claims for warranty are excluded. However, it is to be expected that the Interpretation 2013, offering more protection to consumers, prevails over the Interpretation 2012 concerning B-to-C sales of food, drugs, cosmetics or health care products. The reason is that the Interpretation 2013 is the later and more special law than the Interpretation 2012.
- Less preconditions for punitive compensation
Article 96 of the PRC Food Safety Law issued on 28 February 2009 imposes a liability for punitive damages on food manufactures and sellers where food does not comply with the relevant safety standard. This compensation amounts to ten times the purchase price. However, such provision is ambiguous in relation to damages and punitive compensation. To date, it has been argued by scholars and law practitioners that consumers can only request punitive compensation if harm was caused to them by the purchased food. Article 15 of the Interpretation 2013 makes it clear that harm to the consumer is not a precondition for punitive compensation. Even if no harm at all is caused to the consumer by the defective food, the consumer can still claim punitive compensation of ten times the purchase price.
- Liability for gifts
Manufacturers and sellers often give free gifts to consumers as part of promotional activities. The Interpretation 2013 stipulates that where Products are offered as promotional gifts, manufacturers and sellers shall also be liable for the quality of such gifts. Consumers are entitled to claim compensation if the gifts have caused them damage.
- Liability of celebrities for advertising endorsement
Article 11 of the Interpretation 2013 provides that any organisation or individual who endorses Products in an advertisement by stating wrong facts or allegations shall bear joint and several liability along with the manufacturers and sellers of the Products. This provision is drafted in line with Article 45 of the new CPL. The latter introduces for the first time such liability for all kinds of products or services provided by business operators to consumers.
- Liability of online platform service providers
Online platform service providers bear joint and several liability where they knew or should have known that manufacturers or sellers were using their platform for the sale of defective Products, yet they did not adopt measures to prevent or stop them. Such provision is also modelled on the new CPL, i.e. Article 44.
- Burden of proof
According to the Interpretation, in the case of tort claims against manufacturers or sellers, consumers only need to provide prima facie evidence to prove the link between damage and use of the Products. Manufacturers or sellers can only be exempted from liability if they are able to prove that the damage was not caused by non-compliance of Products with the applicable quality standards.
- Joint and several liability
According to the Interpretation 2013, where there is a dispute regarding the Products consumers can choose to direct their claims against the seller or the manufacturer, either jointly or separately. Thus, sellers and manufacturers bear joint and several liability, regardless of which of them is responsible for the defect. Only after they have compensated the consumer can they take recourse against each other, depending on which of them is responsible for the defect. This complies with the concept of the PRC Tort Law and the PRC Product Quality Law.
The Interpretation 2013 will have high practical relevance for business operators in China, especially given the steady increase in food and drug related disputes in China. The main provisions of the Interpretation 2013 are in line with the new CPL, but it also introduces new features. In particular, the protection by the courts of consumers’ intentional purchase of defective Products is contradictory to the SPC’s earlier rules set out in the Interpretation 2012. Such right seems to be open to misuse by certain consumers and will certainly result in a higher risk exposure for business operators manufacturing or selling Products in China. I will certainly be good advice for them to further strengthen their quality management systems and to completely ban the sale of defective food, drugs, cosmetics or health care products to consumers in order to avoid the risk of litigation.