Law Times

Law Times • February 14, 2011 FOCUS Jury still out on China's new tort law But companies advised to review policies to address liability BY JULIUS MELNITZER For Law Times critics will be hard-pressed to argue the government was hasty in introducing it. Passed on Dec. 26, 2009, by the standing committee of the National Peo- ple's Congress after nine years of consultation, debate, and re- vision, the law that took effect on July 1, 2010, is a milestone in a country that already hosts more than one million tort ac- tions annually. While Chapter 6 of the gen- W eral principles of civil law, en- acted in 1986, provided some guidance on tort liability, a con- voluted patchwork of discon- nected and haphazard laws and administrative measures has driven the litigation to date. "In China, finding the law is half the battle," says Rich- ard Goetz of Dykema Gossett PLLC's international practice group in Detroit. In large measure, the tort liability law ameliorates the problem. It covers a wide range of subject matter, including product liability, environmental pollution, hazardous activity, motor vehicle accidents, and medical malpractice. The law also promulgates general rules on causation, burden of proof, damage calculations, and joint and several liability. In addition to damages, the law provides for specific per- formance remedies including orders to halt acts of infringe- ment, remove unlawful obsta- cles, eliminate dangers, return property, restore property to its original condition, apologize or take other actions. "The tort liability law is a sig- nificant step to the creation of a comprehensive Chinese civil code in the future," says Rob- ert Kwauk, who manages Blake Cassels & Graydon LLP's of- fice in Beijing. "It significantly expands protection for victims of tortious acts beyond what is found in the 1986 law." By way of example, the law is the first statute to ensure com- pensation for mental distress; provides methods for calculat- ing damages for physical inju- ries; clarifies principles of causa- tion; sets up a recall system that attracts punitive damages in product liability cases; and ad- dresses torts committed online. "By adopting a basic tort law, the [people's congress] is sending a message to the courts to take these issues seri- ously," says James Zimmerman of Squire Sanders & Dempsey LLP's Beijing office. Fortunately, and unlike some other Chinese actions, the tort liability law isn't target- ing foreign corporations. "It's definitely not subversive on its face," Goetz says. That's not to say, of course, that there's no uptick in risk to Looseleaf • $229 Subscription updates invoiced as issued (2/yr) P/C 0975032000 ISBN 978-0-88804-451-8 Prices subject to change without notice, to applicable taxes and shipping & handling. hatever the failings of China's new tort liability law, even Canadian and other foreign com- panies. "The law will in all likeli- hood make China an even more litigious jurisdiction," Kwauk says. "And while it doesn't treat foreign companies differently from domestic concerns, tortious acts committed by foreigners that victimize local citizens may well resonate more negatively and en- gender greater outrage." Goetz, who as associate gen- eral counsel was instrumental in establishing Ford Motor Co.'s operations in China, is of similar mind. "My general impression is that Chinese suits are much more frequently aimed at premi- um foreign brands as opposed to domestic brands or run-of-the- mill imports," he says. Of particular concern to U.S. companies is the broad scope of specifically protected civil rights, including the right to life, health, reputation, hon- our, self-image, marriage, pri- vacy, ownership, security inter- ests, and intellectual property. These combine with a catch-all clause for tortious acts in gen- eral to give claimants almost unlimited causes of action. "The law covers all personal and property rights," Kwauk says. Also of note are the provisions that make employers vicariously liable for damage caused by em- ployees in the course of their duties; impose strict liability on polluters even where a third party has actually caused the en- vironmental damage; and man- date liability for manufacturers or sellers of defective products regardless of whether they're at But some Chinese laws, like labour and foreign investment legislation, are at least the prov- ince of a regulatory authority. There's no authority regulating the tort liability law. "There is, therefore, no op- portunity for consultation with any government authority be- fore the fact," Kwauk says. Indeed, in some respects, 'In China, finding the law is half the battle,' says Richard Goetz. fault. The law also expressly ar- ticulates a right to punitive dam- ages when a defendant know- ingly produces or sells defective products that cause injury. Yet despite its broad ambit, the tort liability law makes no mention of business-related torts such as interference with contracts or economic relation- ships, fraud, misrepresentation or unfair competition. "While some of these princi- ples are generally mentioned in other laws such as the contract law, the unfair competition law, and the anti-monopoly law, they are not defined as compensable torts," Zimmerman says. However that may be, con- siderable uncertainty remains as to the tort liability law's applica- tion. As in most Chinese enact- ments, the devil is in the details, which in this case are lacking. the law lags behind existing judicial precedent. In 2003, for example, the top court cre- ated a set of detailed rules for determining compensation for bodily injury. "Those rules are much more practical than the very general rules in the tort liability law, which will be difficult to apply in practice without guidance or interpre- tation," Kwauk says. Otherwise, the law doesn't set out a procedural scheme for invoking the various remedies available; provides no guidance for calculating damages for mental distress or punitive dam- ages; makes no references to po- tential defences such as consent; and omits detailed definitions of key terms including negligence, gross negligence, intentional acts, fraud, misrepresentation, and reasonable care. "The lack of detail and the absence of key statutory defi- nitions means that the various courts and agencies involved could refuse to apply or misap- ply the law," Zimmerman says. Experience with other general statutes suggests that eventually guidelines and in- terpretations will emerge. "The supreme court, for example, will almost certainly issue guid- ance on various issues from time to time," Kwauk says. "In the past, however, the supreme court has taken up to two years from the time legislation comes into effect to issue such guid- ance." What's certain is that the guidance won't issue until gov- ernment policy emerges. "The difficulty is that the authorities have not reached a consensus regarding a variety of issues, so it is difficult to tell what de- tailed rules will be introduced," says Xi Liao, an attorney at Ho- gan Lovells International LLP's Beijing office. So in the final analysis, risk management is the order of the day. "A well-developed risk-man- agement system should include, among other things, product quality standards, workplace health and safety compliance programs, environmental pro- tection compliance programs, and procuring sufficient prod- uct, property, and general liabil- ity insurance coverage from an international insurer," Zimmer- man says. Close attention to the emer- gence of implementing guidance is also critical, followed by an audit of internal regulations and management policies to mini- mize the risk of contravention. Where appropriate, companies should revisit their consumer or professional labelling practices, product use instructions and warnings, and crisis manage- ment policies in the event of un- toward developments. LT PAGE 13 NORTH AMERICAN RELOCATION LAW Benjamin A. 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