On January 9, 2014, the Supreme People’s Court of China (“Supreme Court”) published a judicial interpretation (“Judicial Interpretation”) of the application of laws in consumer dispute cases relating to food, drug, and cosmetic products. It addresses a number of substantive and procedural issues that have not been entirely clear before now. The highlights are:
- Consumers may bring product liability lawsuits against manufacturers and sellers simultaneously or respectively. If a lawsuit is brought only against the manufacturer or the seller, the court has the discretion to join the other party to the litigation.
- Consumers who purchase defective products with full knowledge of their quality problems may still claim compensation against manufacturers and sellers. Manufacturers and sellers cannot use consumers’ prior knowledge as a defense.
- Consumers may claim damages against manufacturers and sellers even if they have obtained the products as promotional gifts.
- To establish a tort claim against manufacturers and sellers, consumers only need to “preliminarily” prove the causation between damages and use of products. Manufacturers or sellers must be able to prove that the damages are not caused by non-compliance with relevant quality standards in order to be exempted from liability.
- To the extent the products are found defective, manufacturers and sellers cannot be exempted from liability by arguing that they are within their shelf life and have passed relevant inspections before being placed on the market. Inspection or certification bodies may be held liable for damages if they negligently or deliberately issued false or untrue inspection or certification reports.
- For food products that are not in compliance with relevant safety standards, consumers can claim punitive damages against manufacturers and sellers at 10 times the product purchase price, regardless of whether or not the products have caused injury.
- If case manufacturers or sellers are subject to criminal, civil and administrative liabilities and their assets are insufficient to satisfy all of their liabilities, the local courts may, at the consumer’s request, decide to use such assets to satisfy civil liabilities first.
In the last few years, food and drug related consumer disputes have been continuously increasing. From 2010 to 2012, courts across China handled 13,216 civil cases related to food and drug products, accounting for 6% of all consumer dispute cases. Food and drug manufacturers operating in China should now take a hard look at their licensing and quality strategies to avoid significant litigation exposure.