On 25 September 2024, the Supreme People's Court (the "SPC") of the People’s Republic of China (the “PRC”) promulgated the Interpretation on the Application of the Part on Tort Liability in the Civil Code of the People's Republic of China (I) (the "Interpretation"), which entered into effect on 27 September 2024.
1. Overview
The Interpretation consists of 26 articles in total. In summary, the Interpretation deals with the following topics:
(1) Articles 1 to 14 deal with tort liability in relation to guardianship and persons with no or limited capacity for performing civil juristic acts.
These Articles clarify, inter alia, the tort liability for the unlawful removal of a person under guardianship from their guardian. They define the responsibilities of guardians, the liability for instigating or aiding and abetting torts, and substantive and procedural rules for the liability of educational institutions.
(2) Articles 15 to 18 deal with the tort liability of employers and in labor dispatch relationships and contractor relationships.
(3) Article 19 clarifies that if a buyer suffers property damage as a result of a product defect, and the buyer seeks compensation from the producer or seller of the product for damage to the defective product itself and to other property, this shall fall under the scope of statutory product liability compensation.
(4) Articles 20 to 22 deal with tort liability in relation to motor vehicle accidents.
(5) Article 23 clarifies that no exemption from liability shall apply in cases where a person is harmed by prohibited dangerous animals, such as ferocious dogs.
(6) Articles 24 and 25 specify the substantive and procedural rules governing liability in cases where harm is caused by objects thrown or falling from buildings.
(7) Finally, Article 26 of the Interpretation determines the date of entry into effect and clarifies the temporal scope of application of the Interpretation.
The Interpretation directly refers to and deals with relevant stipulations of the Tort Liability Part of the PRC Civil Code. The Interpretation provides more detailed guidance and interpretation on the above matters.
2. Key Aspects of the Interpretation
The following are some of the key aspects of the Interpretation which may be encountered in daily practice and which may be relevant with regard to potential tort liabilities of companies operating in the PRC.
a) Employers' Liability and Tort Liability in Labor Dispatch Relationships and Contractor Relationships
(1) Article 1191 of PRC Civil Code provides for vicarious liability in employment and labor dispatch relationships:
“Where an employee causes damage to another person in connection with the performance of his/her work, his/her employer shall assume tort liability. The employer may, after assuming the tort liability, claim indemnification from the employee who acted intentionally or with gross negligence.
Where, during the period of labor dispatch, a dispatched employee causes damage to another person in connection with the performance of his/her work, the entity receiving the dispatched employee shall assume tort liability. The employer dispatching the employee who is at fault shall assume corresponding liability.”
The Interpretation further clarifies the rules of tort liability in non-employment relationships.
For labor dispatch, Article 16 of the Interpretation clarifies the tort liability assumed between the employer dispatching the employee and the entity receiving the dispatched employee. According to Article 16, if, during the period of labor dispatch, a dispatched employee causes damage to another person in connection with the performance of his/her task, and the infringed person claims in combination that the employer dispatching the employee and the entity receiving the dispatched employee should assume tort liability, the entity receiving the dispatched employee shall assume all the liability that the tortfeasor shall assume in accordance with paragraph 2 of Article 1191 of the PRC Civil Code. The employer dispatching the employee shall be liable together with the entity receiving the dispatched employee to the extent of improper dispatching of the employee, failure to fulfill the training obligation prescribed by law, and other fault, provided that the total amount of compensation paid by the parties who are held liable shall not exceed the amount of loss for which the infringed person shall be compensated.
Where the employer dispatching the employee pays compensation and claims recovery of the excess over its share of liability from the entity that has received the dispatched employee, the People's Court shall uphold the claim, unless otherwise agreed by both the employers.
(2) Article 17 of the Interpretation clarifies that if an employee commits a crime while performing a task, the assumption of criminal liability by the employee shall not affect the assumption of civil liability by the employer according to law.
Where the employer is required to assume tort liability, the completed recovery and restitution in the criminal case may either be specified and deducted in the civil judgment or be deducted in the enforcement proceedings.
(3) Article 1193 of the PRC Civil Code provides that where a contractor causes damage to a third party or to itself while performing the contracted work, the principal shall be relieved of tort liability. However, if the principal is at fault in making the order, instruction or selection, it shall bear the corresponding liability.
Article 18 of the Interpretation further clarifies that if the infringed party claims in the combination that principal and the contractor shall assume the tort liability, the contractor causing such damage shall assume all the tort liability that a tortfeasor shall assume in accordance with Articles 1165 and 1193 of the PRC Civil Code. However, the principal shall assume liability together with the contractor to the extent of its fault in making the order, instruction, or selection and dispatching, provided that the total amount of compensation paid by the parties who are held liable shall not exceed the amount of loss for which the infringed person shall be compensated.
Where the principal pays compensation and claims recovery of the excess over its share of liability from the contractor, the People's Court shall uphold the claim, unless otherwise agreed by the contractor and the principal.
Accordingly, under PRC law, companies may be vicariously liable for damages caused by another party. When dispatching employees or contracting with independent contractors, companies may be liable for their own negligence to the extent of their fault in selecting or supervising their own employees or independent contractors, unless otherwise agreed by the relevant parties. Companies may consider reaching respective agreements to allocate such potential tort liabilities when dispatching employees or contracting with independent contractors.
b) Scope of Product Liability Compensation
With respect to statutory product liability, Articles 1202 and 1203 of the PRC Civil Code provide that where a defective product causes any damage to another person, the producer shall assume tort liability, and where any damage is caused to another person, the infringed person may claim compensation from the producer or the seller of the product.
Such damage to another person can consist of personal injury and property damages. It is commonly understood that the scope of property damages in case of statutory product liability generally refers to damages to products other than the defective product itself. There have been different opinions in the judicial practice to whether the scope of property damages in product liability cases also includes damage to the defective product itself.
One view is that property damage in statutory product liability, as in most countries, refers only to damage to property other than the defective product itself, and that damage to the defective product itself is not covered by statutory product liability, but only by contractual liability. For example, Article 41 of the PRC Product Quality Law reflects this view by expressly stating that producers shall be liable to compensate for injury to a person or damage to property other than the defective products themselves caused by of product defects. The rationale behind this view is that damage to a defective product itself should be resolved through a contractual claim, rather than a tort claim.
The opposite view is now supported by the new Interpretation. According to Article 19 of the Interpretation, where a buyer suffers property damage due to a product defect and the buyer claims compensation from the producer or seller of the product for the damage to the defective product itself and to other property, the People's Court shall uphold such claim. This view has been further confirmed by the SPC in its Reply by Principal of the No.1 Civil Tribunal of the Supreme People's Court to Questions from Journalists on the Judicial Interpretations of the Civil Code Part I on Tort Liability. Reason for this is likely that harmed persons should be able to assert all their claims in a single tort liability dispute, rather than claiming according to tort liability on the one hand and according to contractual liability on the other hand. I.e., it is clarified that it is possible to bring a claim for compensation for property damage other than the defective product as well as for the defective product itself in a single action in tort. This facilitates the timely and more convenient protection of the legitimate rights and interests of buyers.
However, we understand that if there is only damage with regard to the defective product itself (i.e. if there is no additional injury to a person or damage to property other than the defective product itself), still only contractual claims can be made.
3. Tort Liability in Motor Vehicle Traffic Accidents
With regard to tort liability in connection with motor vehicle traffic accidents, we would like to refer only to Article 20 of the Interpretation which clarifies that in case of damage resulting from a traffic accident involving a motor vehicle that has been illegally assembled or has reached the end-of-life standard which is transferred by sale or otherwise, if the transferor or transferee claims that he or she shall be exempted from tort liability on the grounds that he or she neither knows nor should have known that the motor vehicle is an assembled motor vehicle or has reached the end-of-life standard, the People's Court shall not uphold the claim.
4. Date of Effectiveness and Temporal Scope of Application
Finally, Article 26 of the Interpretation determines 27 September 2024 as the date of entry into effect and clarifies the temporal scope of application of the Interpretation. As to the latter, it is clarified that the Interpretation, after coming into effect, will apply to cases pending before People's Courts of first and second instance. If a final judgment has been rendered before the effective date of the Interpretation and a party concerned applies for a retrial or a retrial is decided in accordance with the procedure for judicial supervision, the laws and judicial interpretations in force at that time shall apply.
5. Conclusion
In summary, the Interpretation provides guidance and greater clarity on several issues related to tort liability.
In our opinion, the most important and practically relevant provisions of the Interpretation are the above-mentioned provisions, and especially the ones relating to tort liability in the context of non-employment relationships and the extension of the scope of compensation in statutory product liability cases. Other provisions of the Interpretation, e.g. on tort liability related to guardianship, persons with no or limited capacity for civil conduct, etc., have no or only marginal relevance for companies and business activities in the PRC.
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