In 2009, China tried the biggest product liability scandal in its history – melamine – contaminated milk involving Sanlu Group that claimed the lives of six babies and left almost 300,000 people with lingering health problems. And the verdicts handed down by the courts were unprecedented in their scale – two capital punishments, one suspended penalty and three life imprisonments.
Yet while the Sanlu case is one of the most talked-about, it’s one out of a very long list of tort-related cases in China. The country has experienced a significant increase in the number of tort-related cases in recent years, with the courts reportedly hearing 980,000 new tort cases in 2007 and more than 1 million in 2008.
China’s increasing tort-related litigations and the government’s desire to dispel negative perceptions, undoubtedly spurred the Standing Committee of the National People’s Congress to move to effect passage of the new Tort Liability Law (Tort Law) in December 2009. While the final version, due to come into effect from 1 July this year, was approved just three weeks after the period for public comment closed, one would be wrong to assume that the legislation was hastily conceived. The final approval comes more than seven years after the release of the first draft of a comprehensive tort law, in 2002.
The Tort Law sets out to unify tort related liabilities which were previously scattered across more than 40 different pieces of legislation. “In the past, there was a gap with respect to tort. We used to base our tort advice on the principles of the civil law and other legislation.
Now the new rules are codified, it has the force of law and carry a lot more weight than what we used to work with,” says Zou Weining, a partner at Jun He.
Consisting of 12 chapters and 92 separate provisions, the new law covers a wide range of subject matters including product liability, environmental pollution, automobile accidents and medical malpractice.
The new Tort Law also promulgates general rules regarding causation, burden of proof, damage calculations, and joint liability. In addition to damages, the law provides for specific performance remedies including injunction orders, removal of unlawful obstacles, property restoration and public apologies.
Innovative civil protection
With a better foundation for private actions where one has suffered damage and wants to seek redress against another, many legal professionals have commended the new law’s innovative facets. The Tort Law takes on new grounds, encompassing clauses and terms which have never been recognised in Chinese legislation before. For the first time in legislative history, civil protection recognises the independent right to privacy; a previously elusive luxury that now extends to many other sites like the Internet and medical institutions where an individual shares personal information.
For example, medical institutions are required to treat patients’ personal information with extreme confidence, as the law prohibits any disclosure of such information without the authorisation of the patient. Contents posted on the Internet can also be held against ISPs where a website operator acknowledges that a party’s rights are being infringed, and fails to take the necessary corrective measures.
Offenders are subjected to tort liabilities including paying damages for actual losses and compensation for emotional harm, if applicable. The incurrence of tort liabilities by an ISP is good news for companies like banker DBS (China). According to Janet Lin, the in-house legal head of DBS in Shanghai, the new rules give the bank the roots and channels to better protect their IP rights and business identity.
“In the past, pursuing a suit against a counterfeiter on the Internet was very complex, because it is often very difficult to locate the true owner of a website,” she says. “But now via ISP channels, the mere URL of a website is sufficient for a suit to stand for infringement. And bearing in mind the punitive damages an offender might incur, the number of potential counterfeiters will also decrease.”
Apart from ISPs, parties involved in environmental businesses are also facing the heat of increasing liability. While the plaintiff in a tort litigation case originating in the US bears the burden of proving that the defendant’s action caused the damage suffered by the plaintiff, China’s new law shifts this burden to the defendant. This makes it easier and less costly for a plaintiff to bring a tort claim and increases the difficulty and cost for defendants.
What will be the main driving force for more legal work under the new law? Most would attribute that to the “most prominent clause” of the Code – punitive damages. This notion could potentially be the fuel for China becoming one of the world’s most litigious countries. In the past, damages used to be awarded based on how much a product was worth, the model seems to have changed under the new legislation. While the Tort Law has yet to set forth the standard or methodology to calculate punitive damages, lawyers imply the monetary range of compensation will most likely start off reticent.
“My guess is that punitive damages would start off relatively modest,” says John Grobowski, managing partner of the Shanghai office at Faegre & Benson. “There is an apparatus for trying to make sure there are common policies formed by the court. One of the things that often happen in China is that the Supreme People’s Court, which is very much under the control of the Communist Party, might decide at some point that it wants punitives to be handled in a certain way, or with limitations of some sort, and will hence start to issue some guidance rules for the courts.”
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