Historical Issue of Fire Protection and Legal Position Analysis
|January 19, 2017||Posted by admin under English, Investment in Emerging Economies, Startups|
“Historical Issue” is a frequently used terminology in the context of PRC operation. However, what does it mean remains to be very foreign to most foreign managers in multinational companies. In a nutshell, the rapid economic development over the 3 decades has given rise to wide spread non-compliance with various prevailing government regulations that failed to sit well with the said economic development. When such non-compliance, which as a matter of fact had its own economic rationale, became too common for the local government to enforce, it will stay there for generations and generations of administration and then became a “historical issue”.
Take one of our client’s recent experience in the area of fire protection for illustration, even though such situation is very common in other areas such as construction, environmental protection, land planning, etc. After a successful or even glorious merger and acquisition transaction to buy out the Chinese partner a couple of years ago, our client, a world renowned international company, continue to lease the factory buildings from the previously Chinese partner. However, it came to the our client recently that such factory buildings were mostly built 30 years ago and did not have the necessary fire protection approval as required under the current regulation promulgated in around the year of 1998. When our client decides to take mitigation action, they were verbally advised by local fire protection that it had become impossible to issue new approval to such old buildings.
As you can imagine, the management would be anxious about what potential liabilities would be incurred in case a fire takes place and there are casualties. It may even be worse if the fire protection authorities conducted investigation and the official report found that the fire was caused by the company, either by the act of company’s employees or malfunction of the company’s assets, etc.
Prior to any mitigation action can be taken, a legal analysis of the foregoing inquiry is prerequisite. We hope the following analysis can also help you to have a sense about the legal position in the context of the so-called “historical issue” taking fire protection as an example.
- Criminal Liabilities: criminal liabilities (jail time up to 7 years) against personnel directly responsible for fire protection may be incurred in case of: (1) violation of fire protection regulation; (2) refusal to act despite fire protection authorities’ notification for rectification; (3) serious consequences have incurred (1 casualty is sufficient for such requirement); and (4) there is causation between the consequences and the foregoing violation. If fire protection authorities has never challenged the absence of fire protection approval due to historical reason, the foregoing requirements for criminal liabilities are not met and such risks should be relatively low. There is another count of crimes against the specific individual that caused the fire (such as the employee) but such crime may not be relevant.
- Administrative Liabilities: The fire may invite the fire protection authorities to impose administrative penalties including fines (range of RMB 30,000 to RMB 300,000) and operation suspension due to the absence of fire protection authorities. However, 2 arguments are plausible: (1) the current requirement for fire protection approval is not applicable to the old buildings build before such requirements even came into effect; (2) the penalties should be time barred as such historical issue has been in place for a very long time. However, whether such arguments can succeed will eventually be subject to the discretion of the fire protection authorities.
- Civil Liabilities: In case the fire is found to be caused by the company, the injured personnel, relatives of the casualties, and even the landlord (the previously Chinese partner) may raise tort claims against the company in court to recover various losses suffered, such as medical fees, loss of salary, losses of properties, etc. Similar to most other jurisdictions, to establish a prima facie case for tort claim under PRC laws, the following requirements, among other things, shall be met: (1) subjective requirement, i.e., fault (mostly negligence) of the company; (2) objective requirement. i.e., company’s act that lead to the fire; and (3) causation between the act and the consequences. The company would be in a disadvantageous position if a formal inspection report issued by fire protection authorities has found that the fire is caused by the company and the fire protection approval is missing. However, subsequent robust mitigation measures may help to prove that the company is not at fault and to some extent weaken the causation linkage, but it would be eventually subject to the discretion of the judges in civil cases. In terms of magnitude of damages, it would depends on the severity of the fire and to what extent the claimant can provide sufficient evidence to satisfy their burden of proof. It would be quite impossible to quantify the amount at such early stage as such issue is highly factually intense.
Please note that this article is not contemplated to exhaustive or be relied upon as formal legal advice. Should you wish to know more about the details of this particular area of law, please send an email to email@example.com we would be more than happy to hear from you.