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In the News

Chinese Drywall Class Action Product Liability Suit Results in Substantial Settlement

The hurricanes of 2004 and 2005 account for an unprecedented increase in the construction of new homes between 2006 and 2007 in 43 states, the District of Columbia, American Samoa and Puerto Rico. Since that time, the Consumer Products Safety Commission received nearly 4,000 reports of illness related to defective drywall from China. These reports initiated a federal investigation of the problem drywall involving the U.S. Department of Housing and Urban Development, the U.S. Centers for Disease Control and Prevention and the U.S. Environmental Protection Agency.

While the federal agency findings revealed relatively low health effects and corrosion of only certain items caused by the drywall, the Herald-Tribune reported a 2011 settlement that can result in up to a billion dollars for affected homeowners. The deal requires Knauf Plasterboard Tianjin Co. to set up a fund to pay the full costs to repair about 4,500 properties in Florida, Louisiana, Mississippi and Alabama. The agreement also requires the company to set up a fund for no more than $30 million to address other issues, such as respiratory problems reported by many homeowners.

Unfortunately, the settlement does not include the thousands of homeowners experiencing similar issues with their homes because Knauf is only one of several companies connected with the defective materials. While many owners obtained local property tax relief, they do not benefit from the Knauf settlement.

While it can take years to decide or settle product liability cases like the Chinese drywall suit, victims injured by defective products can ultimately receive substantial benefits for their efforts.


China’s new recall law presents huge risks for foreign car importers

A new law covering automotive recalls in China comes into force on 1 January 2013, as part of the Chinese government’s moves to increase consumer protection. Whilst the regulations increase the obligations for manufacturers in terms of quality control and documentation, the new rules are also likely to create unanticipated disputes within the Chinese market.

In addition to re-defining ‘manufacturers’ and ‘defects’, the new automotive recall law broadens the definition of ‘complainants’ to include any organisation or individual, not just the owner or driver of an automobile. Under the new law, any organisation or individual will be able to complain about possible defects in automotive products to AQSIQ (State Administration of Quality Supervision, Inspection and Quarantine). There is no requirement for the complainant to prove that he or she is the vehicle owner, as under the current provisions.

“Under the new law, any organisation or individual will be able to complain about possible defects in automotive products… There is no requirement for the complainant to prove that he or she is the vehicle owner”

Risks of abuse are evident, especially in China where the government at all levels tends to interfere in private business. Manufacturers could expect to see a range of complaints from bodies without a genuine liability problem, who are motivated to disrupt competition in the market and protect local brands.

Automotive manufacturers and suppliers need to understand their obligations under the regulations and adjust their operations in China accordingly, especially the focus on quality control. Considering the possibility that the new complainant rights may be abused, foreign vehicle manufacturers should consider co-operating to promote a revision of the regulations in this matter.

From 2013, manufacturers will be defined as being only Chinese automotive manufacturers and importers of foreign cars into China. Foreign manufacturers will now be excluded from recall liability in China. The intention here is to ensure that importers of foreign vehicles will not be able to shift the recall responsibility back onto foreign manufacturers in the future.

Although foreign manufacturers will welcome the fact that they are now legally excluded from the recall obligations, this does not mean that they can forget about recalls in China. In practice, the foreign mother company will still need to provide full support to their own importers and their localised manufacturing companies.

The new definition of ‘defect’ includes the design, manufacture, marks or other reasons where automotive products of the same batch, model or category have universally unreasonable hazards which endanger personal or property safety. Previously, cars meeting relevant national and industrial standards have not been considered as ‘defective’, even if they may pose a hazard to personal safety and property. The new recall law has expanded the scope of the definition of a defect to include those cases in which standards are met but where the product may still present unreasonable hazards. This will have implications for quality control procedures.

“Although foreign manufacturers will welcome the fact that they are now legally excluded from the recall obligations, this does not mean that they can forget about recalls in China”

The new obligations extend the amount of information that shall be preserved for no less than ten years. The Chinese manufacturer or the importer must also submit essential information, technical statistics of auto products and any recall history outside China to AQSIQ. Foreign vehicles with a recall history in or out of China are very likely to be recalled upon the order of AQSIQ.

Demonstrating the seriousness of the Chinese government’s intentions, new and more severe punishments will be introduced for violations of the recall law. Among others, severe penalties of up to US$1.6m are foreseen for any ‘manufacturer’ which fails to conduct a recall according to the regulations or refuses to conduct a recall.



Edward Lehman 雷曼法学博士
Managing Director 董事长

LEHMAN, LEE & XU China Lawyers
Founder of LehmanBrown

Lehman, Lee & Xu is a top-tier Chinese law firm specializing in corporate, commercial, intellectual property, and labor and employment matters. For further information on any issue discussed in this edition of China Product Liability Defense In The News or for all other enquiries, please e-mail us at mail@lehmanlaw.com or visit our website at www.lehmanlaw.com.

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