China’s Civil Code: What businesses should know
The Civil Code of the People’s Republic of China was adopted at the third session of the 13th National People’s Congress on May 28th, 2020, and goes into effect on January 1st 2021. These are the articles of China’s new Civil Code that are relevant to business insurance. The italicized paragraphs are direct translations of China’s Civil Code, followed by our explanation of what businesses need to know.
China’s Civil Code explained
Section 1, article 62, original translation: If a legal representative causes damage to another person as a result of the execution of his/her duties, the legal person shall bear civil liability. After a legal person has assumed civil liability, they may recover the compensation from the legal representative who has made a mistake, in accordance with the provisions of the law or the articles of association of the legal person.
Under the provision of the article 61, chapter 3, section 3 of the Civil Code, the legal representative of a legal person is appointed, to take care of the civil activities of a legal person. She is usually named on the business license, has management responsibility in accordance with the provisions of the articles of association of the legal person. Like any other person, the legal representative has the duty to indemnify the prejudice caused to a third party, following any occurrence of an event created by him/her.
For instance, harassment that may have a negative impact on an employee’s mental health, which can be a pricey compensation if he/she successfully sues. However, directors and officer’s liability insurance will provide, in China, adequate cover the awards granted by courts.
China’s Civil Code regarding the breach of contracts
Article 577: If a party fails to perform its contractual obligations or the performance of the contractual obligations is not in accordance with the agreement, it shall bear the liability for breach of contract, such as continuing to perform the contractual obligations, taking remedial measures or compensation for losses.
In today’s world, contracts and agreements are governing economical relationships. Unintentional errors and omissions may lead to breach of contractual obligation with a financial impact to the others. It is paramount to make sure commitments, pledges we are making when conducting business are fully protected.
China’s Civil Code for personality rights
Chapter 1 General Provisions
The right to personality includes the right to life, health, name, portrait, reputation, honor and privacy enjoyed by civil subjects. If a business infringes upon someone’s right to personality, they are liable to compensate the infringed or their family. In China, the right to personality is extended to deceased persons.
Article 994: If the name, likeness, reputation, honor, privacy, the body of the deceased is infringed upon, his spouse, children and parents shall have the right to request the perpetrator to bear civil liability in accordance with the law. If the deceased has no spouse, children and his parents, other close relatives shall have the right to request the perpetrator to bear civil liability in accordance with the law.
If someone damages the reputation or body of a deceased person, their family can press charges against the perpetrator.
Article 995: If the right to personality is infringed, the victim shall have the right to request the perpetrator to bear civil liability in accordance with the provisions of this law and other laws. The victim’s right to stop the infringement, eliminate the obstruction, danger and impact, restore the reputation and apologize for the damage shall not apply the provisions of the statute of limitations.
If the right to personality is damaged, the victim has the right to press charges, but these provisions are not applied to those who have limited civil rights such as criminals, offenders, etc.
General provisions of liability law
Part VII Tort Liability, Chapter 1 General Provisions
Article 1, 165: If the perpetrator causes damage to the civil rights and interests of others through his fault, he shall bear tort liability. If the person is presumed to be at fault in accordance with the law and cannot prove that he is not at fault, he shall bear tort liability.
The perpetrator of civil rights infringements bears liability. In contrast to the west, in China the person presumed to be at fault is guilty until proven innocent. Therefore, if businesses find themselves in a sticky situation, they should be prepared to bear liability unless they prove that they are not guilty. This proves that liability insurance is even more necessary in China than in countries protected by the UN’s Presumption of Innocence policy.
Article 1, 166: If the actor causes damage to the civil rights and interests of others, regardless of whether the actor is at fault or not, the law stipulates that he shall bear tort liability, in accordance with its provisions.
This is non-fault responsibility or strict liability, such as the liability of an employer against its employees. If the latter gets injured in the course of employment, the employer is liable to the employee, regardless of any fault.
Article 1, 167: If an infringement endangers the safety of another person’s body or property, the infringed person shall have the right to request the infringer to bear tort liability such as stopping the infringement, eliminating obstruction or the danger.
If an infringement endangers the safety of another person’s body or property, the infringed person has the right to request the perpetrator to bear liability by eliminating the danger or obstruction.
Liability insurance can help when facing litigation based on these articles. In an unfamiliar legal environment, it is possible to make unintentional mistakes or harm to others. For example, unfamiliarity with the Food Safety Law of the People’s Republic of China increases the possibility of a food product recall. However, if consulting with an experienced insurance broker in China before operating business, you will have more faith in an unacquainted business environment.
China’s Civil Code on damages
Article 1,179: Whoever causes personal injury to another person shall compensate for the reasonable expenses of medical expenses, nursing expenses, transportation expenses, nutrition expenses, hospital food subsidies, etc. for treatment and rehabilitation expenses, as well as the income reduced as a result of his or her missed work. If disability is caused, compensation shall also be made for expenses for auxiliary appliances and compensation for disability; If death is caused, compensation shall also be made for funeral expenses and compensation for death.
Article 1,182: If the infringement of the personal rights and interests of another person results in property damage, compensation shall be paid in accordance with the loss suffered by the infringed person or the benefits obtained by the infringer as a result. If the loss suffered by the infringed person and the benefits obtained by the infringer as a result is difficult to determine and the infringer and the infringer cannot agree on the amount of compensation, the parties may seek remedies from the court. The people’s court shall determine the amount of compensation in accordance with the actual situation.
These two articles define that the person who caused an injury is liable for all costs involved in recovery and lost wages. If it is difficult to assess the loss suffered by the infringed person or to determine the profit made by the infringer, which means that both parties cannot agree on the amount of compensation, then they can bring the case to court. The court should fix the indemnity to the actual situation.
Article 1,183: If serious mental damage is caused by an infringement of the personal rights and interests of a natural person, the infringed person shall have the right to claim compensation for mental damages. If serious mental damage is caused by intentional or gross negligence infringement upon a specific object of personal significance to a natural person, the infringed person shall have the right to request compensation for mental damage.
The infringement mentioned in above articles also includes mental damage which includes mental distress or an intangible injury.
An example of when China’s Civil Code may come into play is when a business faces litigation from a third party, who gets hurt at their construction site. According to this article, the business is required to pay the medical expenses. With the service of an insurance agency in China, you can insure your business with liability insurance to mitigate this financial burden.
Product liability law in China
Chapter Four Product Responsibility
Article 1, 202: If the damage is caused to others, due to defects in the product, the producer shall bear tort liability.
Article 1, 203: If another person’s damage is caused by a defect in the product, the infringed person may request compensation from the producer or the seller of the product. If the defect of the product is caused by the producer, the seller shall have the right to recover it from the producer after compensation. If the product is defective due to the fault of the seller, the producer shall have the right to recover it from the seller after compensation.
If a product causes damage, then the damaged party has the right to sue the product seller or the manufacturer. If the manufacturer is at fault for producing a defective product, the seller can sue the manufacturer. If the seller is at fault, then the manufacturer can sue the seller.
Article 1,204: If the product is defective due to the fault of the transporter, warehouser, etc. and causes damage to others, the producer or seller of the product shall have the right to recover compensation from the third party.
If those working in the logistics chain is at fault, then the sellers can sue them for compensation.
Article 1,205: If a product defect endangers the safety of another person or person’s property, the infringer shall have the right to request the producer or seller to bear tort liability such as stopping the infringement, eliminating obstruction or eliminating the danger.
If a faulty product endangers someone’s body or property, then victims have the right to press charges against the seller or producer and to require them to stop the infringement and eliminate the danger.
Article 1,206: If a defect is found after the product has been put into circulation, the producer or seller shall take timely remedial measures such as stopping the sale, warning or recall. If no remedial measures are taken in a timely manner or the remedial measures are not effective, causing the damage to expand, the producer or seller shall also bear tort liability for the widening damage. If the recall measures are taken in accordance with the provisions of the previous paragraph, the producer or seller shall bear the necessary expenses of the infringed person as a result.
If a product is found defective after it’s already put into circulation, the producer or seller is responsible to stop the sale and do a recall/warning. If they don’t do this, or if their efforts are not effective in stopping the damage, the producer or seller shall also be liable for the widening damage. The manufacture and seller must take up the expenses incurred by the infringed person to recall the product.
Even with strict measures to ensure products’ quality, a manufacturer may receive a lawsuit because of a defective product. According to these articles related to the product, not only the manufacturer or producer is responsible for the claim, but also sellers or staff in the logistics chain will face charges and are required to bear related expenses. Therefore, having general insurance, like liability insurance, against product recall is necessary.
Environmental protection liability law in China
Chapter VII Responsibility for Environmental Pollution and Ecological Destruction
Article 1,229: If the damage caused to others is caused by pollution of the environment or destruction of ecology, the infringer shall bear tort liability.
Under increasing pressure to be environmental-friendly, governments enact tighter environmental legislation. Environmental impairment liability insurance assists businesses in managing environmental issues, by covering indemnity from natural resource damage and more.
High-risk responsibility in China
Chapter 8 High-risk Responsibility
Article 1, 236: Whoever engages in highly dangerous operations, causing damage to others shall bear tort liability.
If someone engages in dangerous operations that damage others, they are liable.
Article 1, 239: If the possession or use of highly dangerous substances such as flammable, explosive, highly toxic, highly radioactive, strong corrosive, highly pathogenic, etc. causes damage to others, the possessor or user shall bear tort liability; If the infringed person has gross negligence in the occurrence of the damage, the liability of the possessor or the user may be reduced.
If the infringed person has gross negligence in the occurrence of the damage, the liability of the possessor or user might be reduced.
Article 1, 240: If an operator engages in high-altitude, high-pressure or underground excavation activities or uses high-speed rail means of transport to cause damage to others, the operator shall bear tort liability; however, it shall not be liable if it can prove that the damage was caused by the victim’s intentional or force majeure. If the infringed person has gross negligence in the occurrence of the damage, the liability of the operator may be reduced.
If an operator causes damage to others by using high-altitude, high-pressure, or underground activities or the high-speed rail, the operator is liable. However, if they can prove the damage was caused by the victims’ intentional or force major (what we call “act of god”, which is an event out of control), then they are not liable. If the infringed person acts with gross negligence, then the liability of the operator may be reduced.
Article 1, 241: If the loss or abandonment of a highly dangerous object causes damage to another person, the owner shall bear tort liability. If the owner places a high degree of danger under the management of another person, the manager shall bear tort liability.
If someone loses or abandons a dangerous object, which causes damage to another person, the owner is liable. If the owner entrusts another party to manage such good, this party shall bear tort liability
Being an employer bears a lot of pressure while doing business in China. According to chapter 8 high-risk responsibility, an employer sometimes should be responsible for an employee’s mistake. If an employee accidentally loses a dangerous product that is owned by an employer, the employer is also liable. Fortunately, liability insurance is available in China, which is designed to mitigate employers’ financial burden.
To have a better understanding of the legal environment in China before starting your business, contact Asian Risks.