Contaminated milk creates new liability regime

On January 22 2009, five courts across China handed out a series of verdicts in respect of the melamine contaminated milk case involving the Sanlu Group – the biggest food safety scandal in Chinese history. It has been reported that contaminated milk products have claimed the lives of at least six babies and left 296,000 others with various urinary tract ailments, including kidney stones. The verdicts handed down by the courts were unprecedented in their scale, with capital punishment for two of the accused, a suspended death penalty for one, and life imprisonment for three of the accused, including Tian Wenhua, the former chairman of the Sanlu Group. Tian was also fined approximately Rmb25 million (about US$3.7 million). The Sanlu case and the severity of the punishments handed out is likely to mark the beginning of China's concerted efforts to tackle food safety violations and should set a precedent for other China courts in their handling of product liability claims generally, especially those that result in serious injury or death to PRC citizens.

There are several existing and proposed key Chinese law provisions that may impact companies with investments or business operations in China, as well as affecting their directors and senior management working locally, particularly for those in the food, pharmaceuticals, chemicals, electrical appliances and toy industries.

Criminal liability for product liability violations
The PRC Criminal Law imposes criminal sanctions in relation to producing and/or knowingly selling fake, counterfeit or defective products (see Articles 140 to 150). The categories of products targeted by the Criminal Law include:

• fake medicine or medicine of inferior quality that causes serious harm to health;