Professional consumers: new approach by Chongqing court

On March 25, 2016，Chongqing High People’s Court issued the “Answers to Several Questions on the Trial of Consumer Interest Protection Dispute Case” (“Answers”).

The second Q&A within this Answers stating as following, have drawn extensive attention and are likely to bring about tremendous controversy: “People’s Courts shall not support consumers’ punitive damage claim, provided such consumers purchase goods or services with full awareness of their quality issues and ask for punitive damage against the principle of honesty and credibility, except as otherwise stipulated by laws, administrative regulations and judicial explanations.”

There as some noteworthy issues to consider.

Legal force of these Answers

It is not rare that high-level courts issue documents of this kind, which are aimed at clarifying how – in their opinion – specific issues (frequently brought up to the Courts’ attention but whose legal regulation remain unclear) should be handled.

In theory, these Answers only provide interpretation guidance to lower-courts under Chongqing Higher People’s Court, i.e. all courts in Chongqing only. However, while they have not official binding force towards such Courts, in practice it is very likely that they greatly influence those.

It shall be reminded that however, according to the an official and binding document jointly issued by the PRC Supreme Court and Supreme Procuratorate, local people’s courts and local people’s procuratorates are clearly forbidden – for the sake of uniform implementation and interpretation of the Law – from issuing any documents having the nature of judicial interpretation of the law (and are clearly requested to pro-actively clearing up any such already-existing documents). The key-function to provide official judicial interpretation to other courts is reserved to the PRC Supreme Court and Supreme Procuratorate, and local people’s courts and procuratorates shall request those two institutions to make judicial explanation or to provide instructions on law application through high people’s court and people’s procuratorate at the provincial level.

Whether this potentially might undermine – to some extent – the influence of these Answers remains unclear.

Compliance with existing laws

The content of these Answers might conflict with other legally-binding documents. In particular we refer to:

(1)    Article 3 of “Supreme People’s Court’s regulation regarding law application issues in the trial of food and drug dispute case” implemented in March 2014, whereby “the People’s Court shall not uphold producers’ and sellers’ defense against purchasers’ claim arising from the dispute of food and drug quality issue, provided that the producers and sellers defend on the ground that purchasers purchased food and drug with full awareness of their quality issues.”

(2)    Article 148 of the “Food Safety Law” whereby “….consumers may demand the producers or the traders to pay compensation in the amount of 10 times of the food price or 3 times of the loss, provided the producers produce food not in compliance with food safety standard or traders trade food knowing that the food is not in compliance with food safety standard…”

(3)    Article 55.2 of “Consumer Interest Protection Law” whereby “the consumer is entitled to demand trader for compensation according to Article 49, Article 51 etc. of this law and punitive damage less than twice of the loss, provided the trader offered consumers goods and services with full awareness of their defects, causing consumers’ or other victims’ death or serious health damage.”

Those provisions have been issued due to the great concern by PRC authorities over the large amount of sub-standard products on the market. PRC authorities have usually defended the applicability of punitive damages even to professional consumers (i.e. consumers targeting on purpose non-compliant products with the only aim of getting profit out of those (punitive damages, whistle-blowing awards or, in practice…blackmail) based on the grounds that these provisions ultimately push food companies to improve their standards.

In other words, removing such punitive damages for professional consumers might significantly decrease the cost of producing and trading fake and inferior goods and services in violation of law, and the risk of being complained and reported by consumers would drop down remarkably as well.

Now, these Answers have been clearly drafted out of concern for the professional consumer issue. Chongqing’s Answers appear addressed at limiting consumers behaviors counter to honesty and credibility principles.

This indeed appears also in line with the latest modification (in 2015) of article 148 of the Food Safety Law – which excludes from the scope of punitive damages those label flaws which have no impact on the safety of the product – and thus confirms that PRC legislator is well aware and concerned of abuses by professional consumers in this regard.

The issue of punitive damages and professional consumers is indeed a hot topic in China – for several years already. Legal provisions and judicial interpretation are evolving and trying to find new approaches.

What influence will have those Chongqing’s Answers on the Chinese legal system? Will other courts in other provinces follow this example? For sure, Chongqing appears (at least for now) to be a little-safer harbor for food companies.