Jul 26, 2010 4:15 AM AWST

Liability Games in China

When something goes wrong with a product and it's your company logo at stake, their needs to be a clear structure set up to tell who is liable for damages and blame. When setting up partnerships with suppliers in China, professionals know that this action should be one of their number one priorities. It is also one of the most difficult contracts to ensure, as was clear by the multitudes of questions at a recent "Product Liabilities breakfast held by the Global Supply Chain Council at MI Thai. "You can never be too careful, said Willi Vett, Partner and Head of Shanghai office at the Beiten Burkhardt international Law Firm. "Don't ever forget how a company got sued after they put a cat in the microwave and it died…the customer said no one told them they shouldn't put live animals inside the microwave.

Less extreme examples have to do with the costs of recalls, insurance coverage and direct product quality claims. Manufacturers have strict liability in terms of end products, and they are liable for defects and loss of cause for the defects regardless of how it arose. Vett says that there has been a change of burden of proof of the cut of the manufacturer. However, sellers and importers have a less clear role in terms of liability in China as they are only liable if it can be proved that they did something wrong themselves. This means that it must be proven that the buyer/seller know that the product was defective, which falls under a component of negligence. Most dangerous for buyers is if they cannot show directly where a product came from.

Vett also mentions that in terms of counterfeit products, the burden of proof is changing. Vett cited a BMW case that was published by the higher courts. The plaintiff bought a BMW that was completely counterfeit, and when the car broke down it caused damaged. The buyer went back to their BMW dealer, and tried to sue. "If BMW didn't have a very extensive responsibility contract in place they would have been liable, continued Vett. "If you allow someone else to use your brand, then you also have to check that the quality is in order, or else you might become liable yourself - in terms of OEM manufacturing, if you put your label on it, you are liable for the product.

Wilhelm Baumeister, QA Management, Sandvik Mining & Construction, says that one of his biggest challenges in ensuring proper liability understanding and management is that his company implements standards according to the iSO-9001 booklet which means that he is able to string all of the standards together and make them traceable, which means Sanvik can prove "this worker has done this task to this procedure on this day with this machine. Because this is a global contract, the language is in English. "Our Chinese suppliers do not necessarily speak English, Baumeister continued. "They often say right away - okay, where do I sign - this makes my hair go up because i have to enforce the contract once it has been signed.

Another participant voiced the fact that Chinese manufacturers are also a challenge in

terms of liability because you need to ensure that the workforce has been trained to the correct standards and afterwards stay updated and in a position to qualify and improve their work. "I want to know how you handle this in your company, the participant addressed the audience. "There are certain procedures we give, we want to see them followed and we need to see their documentation but it's hard to get it.

"You offload responsibility to your supplier as much as possible, Baumeister answered. "But in the end we are still liable - if one of our machines stands still for one day it costs 5 million dollars in loss of income and what follows are multiple damages and a long triangle of claims; so we are trying to do our best to offload this as far as we can.

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