CHINA Law and Practice Contributed by: Yue Dai, Zhenghao Li and Xiaokun Yuan, King & Wood Mallesons
Flaws that cause harm Secondly, a manufacturer or seller, or both, will be held liable in tort if they have manufactured or sold a product that poses a safety hazard and causes harm to a person’s life or property. In addition to damage caused to property and physical health, the injured party may also claim compensation for mental distress if the defec - tive product causes “severe mental damage” , as provided by the Civil Code. In general, the finding of product liability depends on three elements: • the product being defective; • the damage or loss suffered; and • the causal relationship between the defective product and the damage. Among these elements, the most important con - dition is whether a product is defective. In this regard, product defects have been categorised into three classes: design defects, manufactur - ing defects, and inadequate warnings or instruc - tions. As noted in the Civil Code, even if the safety defect has not yet resulted in actual dam - age, the infringed party has the right to request the elimination of the hazard, which may take the form of suspension of manufacturing/sales, product repair, or product recall. According to Article 46 of the Product Quality Law, there are two tests to determine the exist - ence of product defect: (i) a statutory standard, which considers a product to be defective if it fails to meet one of the applicable national or industry standards on personal or property safety; and (ii) an “unreasonable danger” stand- ard, which considers a product to be defective if it unreasonably endangers the life or property of the consumer. In practice, even if a product meets the relevant national or industry standard,
the court will still proceed to examine whether it meets a reasonable person’s expectations regarding product safety. Therefore, compliance with the statutory standard alone does not nec - essarily exempt a product from liability. In cases of product defects, aside from tort claims, the buyer may also file a contractual claim against the seller for selling defective prod - ucts that do not comply with the terms of the agreement. Administrative penalties Thirdly, manufacturers and sellers of defective products may also be subject to administrative penalties. For example, if the product manufac - tured or sold is not in conformity with the nation - al and industry standards regarding human life and health, personal safety or property safety, the regulatory authorities can stop the manu - facture and sale of defective products, confis - cate the defective products, impose fines on the manufacturer and seller, and even revoke their Finally, the Criminal Law of the People’s Repub - lic of China (effective as of 1 October 1997, with 12 amendments so far) contains product-related crimes relating to the manufacturing and sale of fake and shoddy products in various sectors including food, cosmetics and pharmaceuticals. Manufacturers and sellers will face criminal pen - alties in cases of severe product liability conse - quences triggering one of these crimes. Sources of Law In the context of civil disputes, the following key legal instruments governing product liabil - ity allow the victim to raise claims against the manufacturer or the seller of products for losses business licence(s). Criminal penalties
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