Punitive damages in consumer public interest litigation in China: an empirical study

The imbalance of power between businesses and consumers in the era of complex commodities necessitates a mechanism to address mass torts and deter harmful business practices. Individual consumer lawsuits often prove insufficient due to low compensation, high litigation costs, and difficulty in proving damages. Punitive damages, focusing on the defendant's illegal behavior rather than individual consumer harm, offer a potential solution, aiming to both punish the offender and deter future wrongdoing. However, the disproportionate and unpredictable nature of punitive damages has raised concerns about fairness and proportionality. The potential for plaintiff windfalls and excessive burden on defendants has led to legal challenges and calls for reform. China's consumer public interest litigation system, implemented in 2013, presents a unique context to study these issues, as it strictly adheres to a "public-private dichotomy", preventing individual consumers from directly claiming punitive damages. This study examines three key aspects of punitive damages within this system: (1) the ability of procuratorates or consumer associations to claim punitive damages; (2) how courts determine the appropriate amount of punitive damages; and (3) the management and use of awarded funds.

Existing literature highlights the dual purposes of punitive damages: punishment and deterrence. Scholars like Polinsky and Shavell (1998) and Hylton (2007) emphasize the need for punitive damages to make illegal behavior unprofitable. Conversely, concerns over the windfall effect for plaintiffs and the excessive burden on defendants are also extensively documented (Quayle, 1992; Gardner, 2011). The 'private attorneys general' model (Coffee, 1986) and the 'public-private dichotomy' (Redish and Mathews, 2004) are discussed in the context of different legal systems. Existing literature also grapples with determining appropriate punitive damage amounts (Mesulam, 2004; Perry and Kantorowicz-Rezinchenko, 2018) and explores various approaches such as split-recovery schemes (Sharkey, 2003) and complete prohibitions (Encarnacion, 2022). The application of punitive damages in consumer contexts has been debated by scholars such as Liu (2019), Huang (2020), and Yang (2021), with varying perspectives on their effectiveness and appropriateness within China's legal framework.

This empirical study utilizes data from China Judgements Online ([https://wenshu.court.gov.cn](https://wenshu.court.gov.cn)), an open-access database of Chinese court judgments. The researchers selected judgments from January 1, 2013, to December 31, 2021, retrieving documents using keywords such as "public interest litigation" and "punitive damages." The initial search yielded 954 and 2749 documents, respectively. After manual screening to remove duplicates and irrelevant cases, the final dataset included 670 valid judgments on consumer public interest litigation, with 501 cases involving punitive damages. The researchers analyzed various aspects of these cases, including the plaintiff type (procuratorate or consumer association), the type of consumption involved (food and medicinal products or general consumption), the amount of punitive damages claimed and awarded, the judges' rationale for supporting or rejecting punitive damages, the methods used to calculate punitive damages, and the handling of awarded funds. The data were then analyzed to identify trends and patterns in judicial practice.

The study reveals a significant increase in consumer public interest litigation cases involving punitive damages since 2017, particularly after the promulgation of key government notices and initiatives. The majority of cases (approximately 75%) involved the procuratorate as plaintiff, and most cases concerned food and medicinal product safety. Judges demonstrated a strong tendency to support punitive damage claims (98%), irrespective of plaintiff type, consumption type, or claim scale. The calculation of punitive damages frequently referenced the standards for private interest punitive damages: ten times the sales amount in food and medicinal product cases and three times in general consumption cases. However, in a smaller percentage of cases (5%), judges exercised discretion in determining the punitive damage amount, considering factors like the defendant's behavior, financial capacity, and existing administrative or criminal penalties. Most judges (95%) treated punitive damages as distinct from administrative or criminal fines, refusing to offset them. Regarding the ownership and management of awarded funds, judges showed diversity. While some directed funds to the state treasury, others increasingly favored allocation to special accounts managed by relevant government bodies or consumer associations, reflecting a trend promoted by government guidance in 2021. The study found only one instance where punitive damages were directly awarded to individual consumers.

The findings indicate a growing acceptance of punitive damages in China's consumer public interest litigation system, serving as a critical tool for punishment and deterrence. However, the lack of clear legal guidelines has led to inconsistency in calculation and management. The frequent reliance on standards designed for private interest cases suggests a need to develop specific guidelines for public interest litigation to avoid disproportionate punishments and ensure fairness. The emerging trend of allocating punitive damages to special accounts, guided by recent policy changes, enhances transparency and aligns with the intended public welfare purpose of this system. The findings suggest a need for legislative clarification on several points, including the legal basis for public interest claims for punitive damages, the appropriate calculation standards, and clearer guidelines for the management and use of awarded funds. Further research could investigate the impact of this system on consumer behavior and business practices.

This study highlights the evolving role of punitive damages in China's consumer public interest litigation system. The increased use and generally positive judicial reception underscore the significance of this mechanism in protecting public interests and deterring harmful business practices. The lack of clear legal frameworks, however, necessitates legislative intervention to standardize calculation methods, ensure proportionality, and establish transparent management procedures for awarded funds. Future research should focus on developing comprehensive legal frameworks and evaluating the long-term effectiveness of this evolving system.

This study is based on a sample of judgments from China Judgements Online, which might not represent the entirety of cases due to potential reporting biases or delays in data updates. The analysis relies on the information provided within the judgments and may not capture all factors considered by judges in their decision-making process. Further research using a broader data set or incorporating interviews with judges could provide more in-depth understanding.