FAQs on China’s Revised Tort Law Significantly Increases Environmental Liability Risks
Q: What are the current provisions of the Law?
A: The Tort Law contains four major articles with respect to environment-related liabilities.
Article 65 enunciates the general principle that polluters are strictly liable for any damage caused to the environment by their actions. Compliance with environmental laws is not, in itself, a defense to liability. No showing of negligence or a higher degree of scienter is necessary. However, it is unclear who can qualify as a “polluter,” and whether a company that, for example, merely disposes of hazardous waste has the same liability as the company who creates the waste.
Article 66 provides that where any dispute arises over environmental pollution, the polluter shall assume the burden of proving
(1) that it should not be liable under certain circumstances as provided for by law, (2) that its liability should be mitigated under certain circumstances as provided for by law, or (3) that there is no causal relationship between its actions and the environmental damaged caused. There is no clarification as to what such “circumstances as provided for by law” will be considered, and how they will impact the determination of liability. If interpreted literally, this burden of proof shifting would set a very high bar for defendants to meet—higher than even Superfund, where the burden of proof remains with the plaintiff—since in many circumstances it may be difficult if not impossible to prove a negative.
Article 67 states that where environmental damage is caused by two or more parties, the scope of each party’s liability shall be determined according to the type of pollutant, the volume of emissions, and other enumerated factors. There is no clarification as to what such “other enumerated factors” will be considered, and how they will impact the determination of liability.
Article 68 provides that where more than one party is at fault for any harm caused by environmental pollution, an injured party may demand full compensation from any party. The party compensating the injured plaintiff then has the right to seek contribution from other responsible parties. It is unclear what third parties this provision refers to and what level of responsibility triggers liability, thus blurring the line between polluters and third parties. The net effect of these provisions is to make liability not only strict, but joint and several, though the provision lacks formal “joint and several” language. There is also no discussion of such issues as vicarious liability, successor liability, parent liability and supplier liability. These issues are heavily litigated in Superfund jurisprudence and will assuredly arise under China’s Tort Law.
The Tort Law does not provide for punitive damages, although it does allow a court to order injunctive relief. The relationship between damages and compensation is unclear, and damages could potentially include such items as lost value, cleanup costs, personal injury and business interruption.
Another primary concern with the Tort Law is the lack of procedural and enforcement guidance for the new provisions. Because the law provides for private rights of action and does not designate a regulating government authority, companies will not be able to obtain guidance from a government agency before acting, thus potentially creating major risks and uncertainties for companies producing, handling, transporting and/or disposing of hazardous substances. Clarity will need to be provided via judicial interpretation.
Q: What is the tort law’s impact on foreign investors and corporations?
A: The Tort Law is not specifically directed at foreign investors or corporations, as its provisions apply equally to both indigenous and foreign companies. All companies will face the same increased risk of liability and the likely expansion of environmental tort litigation in Chinese courts. Companies used to expansive liabilities like those under Superfund may be reasonably well positioned to adapt to this new regime. But even for them, the concepts of not having a defense based on compliance with applicable law, and of potentially having the burden of proving their non-liability, will be problematical. And, as with any regime where great discretion resides in courts, there is always the chance of more zealous application of the law against foreign corporations than local companies.