Introduction

The People’s Republic of China (PRC) Tort Liability Law (the “Tort Law”) was first proposed in 2002 and finally passed on December 26, 2009, after four revisions. The stated purpose of the law is “protecting the lawful rights and interests of civil law parties, explicitly defining tort liability, preventing and punishing torts, and promoting social harmony and stability.”1

The Tort Law contains 12 chapters covering subject matter that increasingly captures domestic headlines in China: product liability, environmental pollution, medical liability, motor vehicle accidents, highly hazardous work, liability for harm caused by animals and damage caused by objects.

One important function of the Tort Law is to enhance the unification of tort related provisions, which are currently found in laws such as the PRC Civil Law, the PRC Law on Protection of Consumer Rights and Interests, the PRC Product Quality Law and the PRC Environmental Protection Law. The Tort Law also contains similarities to Western tort law in that it outlines rules for fault and non-fault based tort liability, provides for joint and several liability where multiple parties are at fault, allows for the legal presumption of fault (similar to the Western burden shifting doctrine of res ipsa loquitur), and comparative negligence as a means of mitigating the liability of a defendant, to name a few.

Product Liability Clarified — a Groundbreaking Cause of Action for Punitive Damages

Of particular interest is the apparent expansion of protection against defective products, and notably, the introduction of punitive damages. This in large part appears to be a reaction to various product scare,s such as the Sanlu tainted milk incident, which left at least six infants dead and approximately 300,000 others suffering from kidney and other health ailments. The Tort Law makes clear that plaintiffs may seek damages from either the producer or seller of a product containing an existing defect, regardless of whether either party is at fault.2 In cases where a seller is able to show that the defect was preexisting, the seller has the right to seek contribution from the producer, assuming that the producer is identifiable.3 Third parties in the product distribution chain are also affected, as the Tort Law explicitly provides that if injury to other persons is caused by defects resulting from parties such as transportation or storage services providers, the producer and seller of the defective product have the right to seek contribution from the responsible third party. 4 The Tort Law, at Article 45, provides that plaintiffs have the right to request the producer or the seller to eliminate the danger or remove obstacles where defects in the product endanger the safety of persons or property, which may open the door to mandatory product recalls, additional warning labels and other ameliorative measures. Article 47 of the Tort Law provides that where a defendant knowingly produced or sold defective products causing injury to life or health, the injured party has the right to claim punitive damages, the first time this right has been clearly articulated in Chinese law.

Environmental Protection Broadened

With respect to environmental hazards, the Tort Law provides that where pollution causes injury, the defendant shall bear tort liability.5 Notably, the burden of proof is placed on the defendant in such cases to provide evidence showing that it is not legally liable, or evidence mitigating its liability, and also to show that its acts or omissions did not cause the alleged consequences.6 This represents a broadening of previous environmental regulations under Chinese law where liability was primarily based on violation of environmental laws. Under the Tort Law, a defendant may presumably be found liable in tort even while complying with environmental law requirements, such as emissions standards.

Conclusion

Given the general nature of the Tort Law and the breadth of issues that it covers, it is expected that further guidance will be issued to fill in the necessary details and supply principles to guide calculation of damage awards. With the Tort Law scheduled to formally take effect on July 1, 2010,7 it is likely that such guidance will be introduced in the first half of 2010. While the Tort Law helps fill a significant gap in the PRC legal framework, the real test will come in the future with issuance of actual damage awards and whether courts will allow individual tort cases at odds with larger social and political agendas to proceed. Meanwhile, companies active in the China market and their insurers should revisit insurance policies and other risk management measures in light of this important development.