what we think

The Tort Law of the People’s Republic of China became effective on 1 July 2010. We summarize some of the areas on which the new law will create the biggest impact.

Product Liability

A manufacturer is liable for a defective product that causes damages. If the defects are the responsibility of a third party such as a supplier, shipper or retailer, the manufacturer is entitled to seek compensation from such third party after having compensated the victims.

The law also provides specific rules on the responsibility of recall. If a product is found to be defective after it has been put into circulation, the manufacturer and sellers shall timely issue warnings, recall the defective products or take other appropriate remedial measures. If remedial measures are delayed or ineffective, the manufacturer and seller are liable for the resulting damages.

Finally, the law also introduces punitive damages – for the manufacturer or seller that sells products which it knows are defective. The calculation of punitive damages will be subject of future legislation.

Environment

A company shall bear strict (no-fault) liability for damages caused by environment tort, even if the company is not in breach of Chinese (environmental) law. Unlike in general tort litigation, the burden of proving causation is shifted from the plaintiff to the defendant, which means that the defendant will have to prove that it has not caused the damages suffered by the plaintiff. This move is obviously designed to lower the barriers for environment tort claims, and to make it more difficult and costly for companies to defend against such claims.

Intellectual Property

The law impacts intellectual property enforcement in China by strengthening the grounds for enforcement particularly in two areas. First, the law allows joint and several liability for all acts of contributory infringement, which means that parties can be held directly accountable for assisting another party in manufacturing or selling counterfeits. Second, a “notice and remove” rule is introduced for network users and internet service providers, under which these may be held jointly and severally liable for an IP infringement if, upon being notified, they fail to remove infringing materials from their networks.

Employment

An employer will assume tort liability for damages caused by an employee in the execution of his or her work duties – one reason why it is important to be as specific as possible on the duties of an employee. It is important to note that employees include not only full-time employees, but also staff that have been dispatched by an employment agent (like Fesco or CIIC). Thus hiring staff through a third-party service provider does not minimize a company’s responsibility for their actions.