When Calamity Strikes, Who Should Pay?
Liability and victim compensation rules are under scrutiny in the wake of China’s tainted milk case and similar incidents.
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Liability and victim compensation rules are under scrutiny in the wake of China’s tainted milk case and similar incidents.
By Ye Doudou - Caijing Magazine
9 October 2008
September was a month of indiscriminate calamities in China, ranging from a deadly landslide to a poisoned milk scandal. But two common threads tied all the cases together: Companies violated the law, and government supervision faltered.
Now, these common features have raised questions in China about how victims of large-scale but preventable tragedies – and survivors of victims who die – should be compensated for their losses. In addition, legal experts are sorting through China’s law books for answers to complex questions surrounding compensation limits, company liability, insurance and government responsibility.
Caijing learned that the central government has drafted a new measure called the Tort Liability Act, which is aimed at resolving some of these tough legal issues. Authorities plan to finish the first phase of deliberations for the new measure by the end of the year.
Meanwhile, in a related twist, lawyers appear to be at odds with courts in the tainted milk case. Dozens of lawyers volunteered to provide free legal advice concerning compensation for stricken families. But some lawyers apparently have been pressured by judicial authorities who want them to consider threats to social stability – and back off the case.
Government Pays
To date, most victim compensation costs tied to recent preventable calamities have fallen into government laps.
For example, after the Xiangfen landslide killed at least 268 people, the Shanxi provincial government decided to pay 200,000 yuan to the family of each victim. Additional payments went to those injured and disabled. Funds were filtered through county and town governments to the victims.
In another response to major calamity, the government agreed to pay each of the 44 victims of a Shenzhen club fire 250,000 yuan. The funds came from Longgang District government.
Responding to the tainted milk powder scandal, which surfaced in early September, China’s Ministry of Health pledged free care and screening for all babies sickened or affected by the contaminated formula, with the costs covered by the government. Local government agencies were to guarantee funds for treatment equipment, while the central government said it would provide support in special cases. Eventually, the governments will recoup its costs from dairy enterprises found liable for the poisoning.
According to ministry data, some 14,000 babies had been hospitalized nationwide as of September 21, while more than 30,000 received outpatient treatment. Zhang Wei, chief urologist at the No. 1 Hospital of the People’s Liberation Army, told Caijing that health care received by each baby in the milk case was worth between 3,000 and 7,000 yuan.
Legal experts note the government is responsible for people’s lives and health and should assume economic responsibility in such cases. But many wonder whether the government, with taxpayer money, should foot the bill for damages caused by companies that break the law, or when government officials act irresponsibly.
Government Vs. Corporate Liability
Ma Huaide, vice president of the China University of Political Science and Law, told Caijing the government is not a guarantor of enterprises but should provide supervision. The government should bear some responsibility for liability and damages if supervisory oversight occurs or mistakes are made, Ma said. However, government duty should not be confused with corporate liability.
Not all damages should be covered by the government which, Ma said, should provide compensation only when enterprises fail to cover victim losses. Moreover, compensation limits should be based on losses that go uncompensated, not total losses.
What about the government’s latest promise for free treatment and screening for tainted milk victims? In Ma’s view, it is a government duty to provide social assistance to certain victims. So in this instance, the government should cover these healthcare costs. However, he said, the government should not directly compensate for civil damage. And after the government pays compensation, the money should be recouped from any enterprises blamed for the problem.
At the same time, the government does, in fact, bear a certain degrees of supervisory liability in the milk case and other incidents. Investigators found officials in Shijiazhuang, Hebei Province, failed to report the milk contamination in a timely fashion, and national quality control officials failed to fulfil their supervision duties. In the Xiangfen incident, investigators similarly uncovered oversight failures in some supervisory departments, and found some officials guilty of breach of duty.
According to China’s State Compensation Law, the government may recover what it paid in victim compensation from those parties responsible for a problem, such as officials who failed to do their jobs. However, in practice, only in a few cases has the government recovered such costs from guilty enterprises. Examples of collecting from malfeasant officials are even rarer.
Enterprise Liability
Chinese statutes such as the Product Quality Law stipulate that product manufacturers and marketers assume civil liabilities for defective products that cause bodily injury. Liable enterprises should compensate for medical care, lost earnings, nursing, travel, hotel and rehabilitation. If a victim dies, additional compensation should cover funeral costs, basic support and pension payments for dependents of the deceased, as well as expenses connected to travel, hotel and wage losses.
Wang Liming, a legal scholar and dean of Renmin University’s China Law School, told Caijing that enterprises blamed for bodily injury or death should assume what’s called “strict liability,” which is also known as liability without fault. This type of liability allows a party to be technically liable for damages without shouldering legal responsibility for negligence or direct fault. This situation arises, not from any wrongdoing, but from the fact that the party’s activity or product is inherently hazardous or defective.
What about the case of the milk tainted with melamine, the industrial chemical added by dairy workers that sickened thousands of babies and killed four? Whether or not the addition of melamine was deliberate, the law says any enterprise that put it into milk should assume liability for damages.
A major criterion for tort liability in China is “fault liability,” which applies to parties that intentionally or delinquently infringe on the rights of others and, thus, should assume responsibility for damages. Liability outside this category only applies to certain areas, such as high-risk operations, environmental activities, construction projects and product quality issues.
To better address major public tort incidents – such as the tainted milk incident, a nationwide fake medicine scandal several years ago, and the 2005 case of a toxic chemical spill in northeast China’s Songhua River – Wang recommends improving Chinese law. He favours adjusting the tort liability criteria to focus on fault liability, and strengthening the realm of strict liability.
The proposed Tort Liability Act, now in the deliberation phase, apparently may address Wang’s concerns.
Judicial Plight
Legal experts say that to ease the government’s burden and force law-violating enterprises to assume more liability, legal remedies are needed to improve the compensation system.
In an interview with Caijing, a judge with the No. 1 Civil Tribunal at the Supreme People’s Court said that, legally speaking, victims have a right to file lawsuits for damages even after receiving government compensation. But these cases are often handled through direct government intervention rather than court settlements. And Beijing lawyer Li Fangping said it’s difficult to file a damage suit tied to public incidents, since courts are allowed to reject such suits based on factors such as social stability.
In the river pollution case, for example, the Jilin High Court rejected a suit filed by victims against the Jilin Petrochemical Dual-benzene Plant that spilled toxins. In the tainted milk case, lawyers hoping to help the families of sickened babies have been discouraged by judicial authorities.
Wang, however, thinks that in the long run the government should not be expected to shoulder liability burdens connected to preventable calamities. Particularly in cases involving the infringement of rights, compensation levels should vary according to actual damage. If the government unifies standards for compensation in these kinds of cases, however, victims may be deprived of some compensation rights.
Typically some victims in these cases incur short-term damage, while others experience long-term or latent damage. So if the government issues one-time compensation, some victims may find it difficult to get help later. Lawyers in the milk case discovered that a substantial number of affected babies suffer from stunted growth or physical weakness due to nutritional deficiencies or kidney stones from melamine poisoning. Yet health problems for some children may not surface for years.
Zhu Yan, an associate professor at China Law School, said if the compensation of tainted milk victims could be solved through court settlement, it will set a good precedent for handling future cases. But Zhu also sees the value of an insurance system that covers damages.
Product liability insurance should be combined with social insurance to provide liability coverage when fault has not been determined, Zhu said. This system would ensure effective compensation for all victims. But what happens if an enterprise is overwhelmed by compensation claims and faces bankruptcy? As a stopgap, Zhu proposes enterprises set up special compensation funds that can be tapped if calamity strikes.
In a vaguely worded statement, the dairy products company Mengniu – once of several firms embroiled in the tainted milk affair – said it would be responsible for all consumers who fall ill within five years of consuming its milk products. But Zhu said Mengniu’s promise does comply with the law since, according to China’s General Principles of the Civil Law, damage liability can extend for up to 20 years. In other words, tainted milk victims may have up to 20 years to file a lawsuit, not five.
And China’s liability law may get tougher. Zhu suggested that the proposed Tort Liability Act now under consideration in Beijing should stretch liability coverage for human health damage to at least 30 years.
Staff reporters Qin Xudong and Wang Shanshan also contributed to this report.