Under article 43 of the Product Quality Law, “if a defect in a product causes personal injury or damage to property of [the] other party, the party which was injured or incurred damage may claim compensation against the manufacturer or the seller”. As to what constitutes the property of the other party, the law’s article 41 makes it clear that it is property other than the defective product itself.
In this way, the party who was injured or incurred damage may initiate product liability litigation. However, if the damage was limited to the defective product itself, one cannot claim product liability but will be entitled to claim against the seller under contract law.
The Product Quality Law provision is now a common practice in most countries. Product liability constitutes a special form of tort liability and is not constrained by privity of contract. In product liability disputes, potential defendants include sellers, manufacturers and third parties such as transporters and warehousers. As a result, the scope of product liability disputes is expanding and needs to be regulated by setting strict access conditions.
Current judicial practice
Accident cases. Among automotive product liability disputes heard by Chinese courts, the highest percentage of cases are vehicle fires. In many cases, the fire damages only the vehicles and not other property. Nevertheless, even when defendant automotive manufacturers explicitly invoke article 43 as a defence, very few cases have been upheld by Chinese courts.
Non-accident cases. In certain disputes, alleged product quality issues have not caused safety accidents to vehicles. In such circumstances, some consumers chose to pursue product liability litigations and seek compensation from manufacturers and sellers for losses incurred in replacing the problematic components.
As long as the quality issues raised by consumers relate to vehicle safety, the people’s court will tend to treat them as product liability disputes. For instance, in a product liability dispute represented by the author, a consumer claimed their vehicle headlights were fogging and chose product liability disputes as the course of action against the vehicle’s importer and seller as co-defendants. Ultimately, the court heard the case as a product liability dispute.
Basis of adjudication. The underlying reason for the above-mentioned situation primarily stems from the consumer protectionism of Chinese courts.
The Interpretation of the Tort Law, compiled by the Legislative Affairs Commission of the Standing Committee of the National People’s Congress, explicitly states that “property damage mainly refers to the loss of property other than the defective product, and there is an ongoing debate in legislative circles regarding whether it encompasses the loss of the defective product itself. We believe that the property damage in this article encompasses both damage to property other than the defective product and damage to the defective product itself since this will facilitate the timely and convenient safeguarding of the legitimate rights and interests of users and consumers.”
Adverse impact of case expansion
Automotive lawsuits increase. As previously mentioned, product liability disputes fall within the scope of tort claims, granting affected parties a right to directly sue manufacturers. In essence, this situation eases the entry criteria for product liability disputes, resulting in an increase of such cases involving automotive manufacturers in China.
Warranty system undermined. The Provisions on the Liability for Repair, Replacement and Return of Household Automotive Products (3R provisions) establish a comprehensive warranty system. Typically, household automotive products come with a three-year warranty period. If a vehicle exceeds this warranty period, all potential breakdowns, even if caused by product quality issues, are repaired at the consumers’ own costs.
However, when a buyer claims product liability, it is not bound by the 3R three-year warranty limit. The current judicial practice in Chinese courts blurs the precondition of the damage to property of the other party.
In such cases, even for vehicles well beyond their warranty periods, buyers can potentially seek compensation from both the seller and the manufacturer through product liability litigation. This undermines the vehicle warranty system and drives up the after-sale costs for automotive manufacturers.
Advice for handling disputes
Actively engage, meticulously defend. As previously mentioned, even in cases where no damage to property of the other party is incurred, Chinese courts are presently inclined to hear them as product liability disputes, despite this not aligning with the explicit provisions of the Product Quality Law.
Foreign companies (or their subsidiaries acting as importers in China) who may be held directly liable for product liability should proactively respond to lawsuits and prepare comprehensive defences.
Invoke defence of no damage to property. The Supreme People’s Court has once again clarified, on page 313 of the Understanding and Application of the Liability for Tort of the Civil Code, that “property damage refers to damage to property other than the defective product itself, rather than damage to the defective product itself”.
The author suggests that the defence of no damage to property of the other party be consistently invoked in individual cases, which will contribute to rectifying the judicial practices and ultimately steer them back onto the correct path as provided by the law.
Sun Rongbei is a partner at Hui Zhong Law Firm