China in focus e-briefing: new China tort liability law

09-03-2010

 26 December 2009 marks a watershed in the development of China's environmental liabilities regulations. On that day, the Standing Committee of China's National People's Congress issued the landmark Tort Liability Law (the "Tort Law"), which will come into effect on 1 July 2010.

The law does not focus just on environmental liabilities but covers matters including product defects, collapsing buildings and even unruly animals.

In this alert, Eversheds and ERM examine how the Tort Law impacts the way that one should view environmental risks in China.

Overview

Provisions for environmental liability have been embedded in China's legislation for many years, but these have been scattered across a wide range of regulations. They can be found amongst the General Principles of Civil Law, the Environmental Protection Law and the Law on the Prevention and Control of Water Pollution. Decisions made by the State Council, replies issued by the Ministry of Environmental Protection (MEP), and judicial interpretations issued by the Supreme Court and its local counterparts have also addressed environmental liability. As a 25 page document, the new Tort Law does not seek to replace existing laws, which will continue to apply, but rather serves as a codification of basic principles. Most significantly, the Tort Law clarifies the nature of some liabilities faced by polluting sources.

Compliant but still liable

Under Article 124 of the General Principles of the Civil Law, polluters were liable for environmental damages only if their emissions were not compliant with regulatory provisions on environmental protection and pollution prevention. However, in practice, MEP's position has been that even if pollutants discharged by a person or company do not exceed the statutory standard or they are not directly responsible for pollution caused by their discharges, they are still liable for the payment of compensation relating to any damage their pollutants may have caused. This view is reflected in the Reply on Issues in Determining the Liabilities to Compensate for Damage caused by Environmental Pollution issued by the forerunner of MEP in 1991, derived from Article 41 of the 1989 Environmental Protection Law. This law does not require violation or fault as a precondition for ascribing environment liabilities. However, it has remained uncertain whether the courts would take the same view. The new Tort Law provides more certainty in this regard.

The Tort Law clarifies that polluters will be liable for any damage caused by environmental pollution, even if polluters were compliant with relevant pollution standards.

In China, as in many other jurisdictions, a claimant generally has to prove that the damages he suffered were caused by the defendant. But this principle does not apply to environmental liability cases. Under Article 66 of the Tort Law, it is up to the polluter to prove that there are circumstances that can release the polluter, fully or partially, from liability. If the polluter fails to provide such proof, he is liable.

Compensation

Often, pollution damages may result from the actions of two or more parties. The Tort Law clarifies that if the losses arising from pollution are due to the fault of any third party, the victim may choose to claim compensation from either the party discharging the pollutants or a third party. When pollution damages arise from the actions of two or more parties, and one party has compensated the victims in excess of the amount to which it should be liable, it is entitled to compensation from any other parties for the excess amount.

Priority

Under the Tort Law, where a polluter's assets are not sufficient to satisfy tort, administrative and criminal liabilities, the tort liabilities take priority.

Grey areas

The Tort Law consolidates and integrates the myriad of tort-related requirements that exist under China's law and regulatory practice in China, especially relating to environmental liabilities. But while the provisions of the Tort Law cover various aspects of liability for environmental pollution, they are not sophisticated enough to address detailed issues such as whether or not a passive holder, such as a user of previously polluted land that has not actively contributed to the pollution (but did not clean it up either), should be regarded as the polluter. This may be clarified in the future but currently local court interpretations are the only form of
limited guidance.

How to respond

Although not only focused on environmental liabilities, the Tort Law is another indication that Chinese authorities are prioritising the environment and are making those responsible for pollution pay for the damage caused. Companies engaged in the manufacturing, processing, storage, distribution or transportation of any products which could cause pollution are at risk and need to implement measures to minimise their exposure. This should include undertaking adequate due diligence prior to purchase and prior to sale of any manufacturing or storage facility, raising environmental awareness among workers, implementing a site specific environmental management plan, undertaking regular environmental compliance checks, maintaining dialogue with stakeholders and remedying any environmental issues before they develop into serious problems.

For further information or advice, please contact Peter Corne, Cathy Tang or Dr Shaun Xie.

Peter Corne
Managing Director
Eversheds, Shanghai
Tel: +86 21 6137 1001
petercorne@eversheds.com

Cathy Tang
Senior Associate
Eversheds, Shanghai
Tel: +86 21 6137 1007
cathytang@eversheds.com

Dr Shaun Xie
Managing Partner
ERM, Shanghai
Tel: +86 21 5385 3050
shaun.xie@erm.com

© Eversheds LLP, 2010

Eversheds LLP is a foreign law firm registered with the Ministry of Justice of the People's Republic of China. Under current Chinese regulations, we are allowed to provide information concerning the effects of the Chinese legal environment, but, like all international law firms with offices in the PRC, we are not authorised to issue opinions, determinations, or certifications in respect of, the application of PRC law. We work in cooperation with a number of Chinese law firms. Should you require a legal opinion in respect of any Chinese law matter, we would be happy to assist you in obtaining one from a Chinese firm.