Supreme People's Court of PRC

Civil Judgment

(2019) ZuiGaoFaShangChu No. 1

Plaintiff: Guangdong Bencao Medicine Group Co., Ltd..

Domicile: Floor 2&3&4, Building 2, No. 1146, Sanyuanli Avenue, Baiyun District, Guangzhou, Guangdong Province, People's Republic of China.

Legal representative: Wu Chusheng, Chairman of the board of directors.

Attorney: Huang Huijin, Guangdong Fair Strategy Law Firm.

Attorney: Wu Linyin, Guangdong Fair Strategy Law Firm.

Defendant: Bruschettini S.R.L..Domicile:ViaIsonzo, 6-16100 Genova, Italy.

Legal representative: Augusto Bruschettini, Chairman of the board of directors of Bruschettini S.R.L..

Attorney: Li Qing, Junhe LLP (Beijing).

Attorney: Zou Delong, Junhe LLP (Beijing).

This case of product liability dispute between the plaintiff Guangdong Bencao Medicine Group Co., Ltd. (hereinafter as "Bencao") and the defendant Bruschettini S.R.L. (hereinafter as "Bruschettini"), was first accepted by Guangzhou Intermediate People's Court of Guangdong Province on October 11, 2018, with case number (2018) Yue01MinChu No.1068. In accordance with Paragraph 1 of Article 38 of the Civil Procedure Law of the People's Republic of China and Paragraph 5 of Article 2 of the Provisions of the Supreme People's Court on Several Issues concerning the Establishment of International Commercial Court, this court on December 28, 2018 with ruling(2018) ZuiGaoFaMinXia No.183 ruled that this case shall be heard by the First International Commercial Court. After the case was accepted on February 19, 2019, this court applied the ordinary procedure according to law and held public hearing afterwards. Huang Huijin and Wu Linying, attorneys entrusted by Bencao, the plaintiff, and Li Qing and Zou Delong, attorneys entrusted by Bruschettini, the defendant participated the court hearing. Neither party challenged the jurisdiction of the First International Commercial Court over this case.

Both Bencao and Bruschettini agreed at the hearing to apply the laws of the People’s Republic of China to this case. Article 3 of the Law of the People's Republic of China on the Law Applicable to Foreign-Related Civil Relationships provides that: "The parties may explicitly choose the laws applicable to foreign-related civil relations in accordance with the provisions of law."Paragraph 1 of Article 8 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the “Law of the People's Republic of China on the Law Applicable to Foreign-Related Civil Relationships” stipulates that: "Where the parties agree to choose or change the choice of applicable law before the ending of the court debate in the first instance, the people's court shall permit it." Therefore, this court shall hear this case by applying the laws of the People's Republic of China. The trial of this case has now been concluded.

Bencao brought the following claims against Bruschettini: 1. To rule that Bruschettini compensate for the losses of its inventory of bacterial lysate “Lantigen” (hereinafter as “Lantigen”) totaling RMB 21,124,710 (234,719 bottles × RMB 90/bottle) andits interest amounting to RMB712,481.48 as of August 31, 2018 (taking RMB 21,124,710 as the base amount according to the basic loan interest rate of the same kind as that of the People's Bank of China for the same period from November 22, 2017 to the date of actual payment of compensation). 2. To rule that Bruschettini compensate for the loss of RMB 4,012,076.80, including RMB 700,156.80 resulting from the sample spot-check of the imported “Lantigen” (10,080 bottles × average import price of RMB 69.46/bottle) and RMB 3,311,920 resulting from testing expenses. 3. To rule that Bruschettini compensate in the total RMB 88,000, including the notary fee of RMB 8,000 and the attorney fee of RMB 80,000 incurred from this litigation for compensation against Bruschettini; 4. To rule that Bruschettini immediately dispose of the stocks of expired “Lantigen” held at Bencao and bear all expenses arising from their disposal; 5. To rule that Bruschettini compensate Bencao for its loss of RMB 52,298,347.06 resulting from the liability of the Civil Judgment (2017) YueMinZhong No. 3184 rendered by Guangdong High People's Court. 6. To rule that Bruschettini compensate Bencao for the expense of RMB1,085,637 resulting from Bencao's dispute with Shanghai Mainland Pharmaceutical Co. Ltd. (hereinafter as "Mainland Company"), including the case acceptance fees of the first and second instances of RMB 645,071, the preservative measures fee of RMB 5,000 and the attorney fee of RMB 435,566. 7. To rule that Bruschettini indemnify Bencao for the notary fee of RMB8,000 arising from its claim for compensation against Bruschettini. 8. To rule that Bruschettini to bear the entire litigation cost of this case.

Alleged facts and Grounds: On June 13, 2008, Bruschettini issued a power of attorney to Aprontech Co. Ltd. (hereinafteras “Aprontech”) to sell the “Lantigen” produced by Bruschettini in China. On September 30, 2009, the China Food and Drug Administration (hereinafter as "CFDA") issued the Registration Certificate for Imported Drugs and the Drug Registration Permit for "Lantigen". The registration was valid until September 29, 2014. On July 30, 2014, the CFDA renewed the corresponding Registration Certificate for Imported Drugs and Drug Registration Permit for “Lantigen”, the validity term of the registration was from July 30, 2014 to July 29, 2019. On December 15, 2009, Guangdong Food and Drug Administration issued Pharmaceutical Supply Certificate to Bencao approving it to engage in the pharmaceutical wholesale business, valid from December 15, 2009 until December 14, 2014. On August 18, 2014, Guangdong Food and Drug Administration renewed the Pharmaceutical Supply Certificate to Bencao, valid from August 18, 2014 to August 17, 2019. On November 6, 2013, Bencao and Aprontech signed the Exclusive Distribution Agreement, agreeing that Bencao would be exclusive in importing "Lantigen" produced by Bruschettini from Aprontech and would be exclusive in importing, promoting, selling and distributing such "Lantigen" in mainland China. On December 10, 2013, Bruschettini issued the General Agency Authorization Letter, pursuant to which Bencao was authorized to act as the general agent of "Lantigen" in China to be responsible for all bidding and distribution matters. The term of authorization was from December 10, 2013 to July 29, 2018. Between November 28, 2013 and March 15, 2015, Bencao and Aprontech entered into purchase contracts in succession at the price of USD 10 or Euro 7.3 per bottle for a total of 1,566,632 bottles of "Lantigen". Between 2014 and 2015, Bencao sold “Lantigen” mentioned above at the price of RMB 90/bottle. On January 18, 2016, the CFDA issued the Announcement on Cessation of Importation of Four Drugs including Cerebroprotein Hydrolysis Injection etc. [No.13 (2016)], which ordered to cease the import and to recall drugs with potential safety risks since first, the actual production process of "Lantigen" produced by Bruschettini was inconsistent with the registered process; second, laboratory data had integrity problems, and; third, there were risks of cross-contamination during the production. On July 19, 2016, the CFDA convened a working meeting on the recall of "Lantigen" participated by Guangdong Food and Drug Administration, Bencao and other entities, requiring Bencao to stop selling "Lantigen" and Bruschettini to actively recall "Lantigen". From then, Bencao notified Bruschettini of the decision of the aforesaid meeting and sent notices to Bruschettini for many times demanding its voluntary recall, but Bruschettininever published or implemented any recall plans or measures. Due to Bruschettini's delayed to exercise its statutory recall obligation, the CFDA issued to Bruschettini the Notice on Ordering the Recall and Rectification on November 22, 2017, specifying that the products of “Lantigen”produced by Bruschettini had safety risks, demanding that their imports be stopped and ordering Bruschettini to recall them. On July 13, 2018, Bencao entrusted a lawyer to send a letter to urge Bruschettini to fulfill its recall obligation. However, Bruschettini has not fulfilled its obligation to carry out the recall to date. Bencao believes that Bruschettini's failure to recall "Lantigen" with potential safety hazards, violated the relevant provisions of the Regulated Measures for Drug Recalls and infringed Bencao's legitimate rights and interests.

In addition, on April 20, 2015, Mainland Company and Bencao entered into the Distribution Contract, by which Mainland Company became the distributor of "Lantigen" in mainland China. In 2015, Mainland Company paid RMB 47,966,080 to Bencao from April to October to purchase 599,576 bottles of "Lantigen". As a result of the safety problems of “Lantigen”, Mainland Company ceased selling "Lantigen" and returned the unsold 592,456 bottles of “Lantigen” to Bencao and simultaneously filed a lawsuit against Bencao for compensation. On September 12, 2017, the Guangzhou Intermediate People's Court of Guangdong Province made the Civil Judgment (2017) Yue01MinChu No.58, deciding: I. The Distribution Contract between Mainland Company and Bencao on April 20,2015 shall be rescinded. II. Bencao shall repay Mainland Company RMB 47,408,800 plus interest within 10 days of the effective date of the Judgment(interest is to be paid taking RMB 47,408,800 as the base amount according to the basic loan interest rate of the People's Bank of China for the same period starting from 23 September 2016 to the date of entry into force of the Judgment). III. Bencao shall pay Mainland Company RMB 79,200 for the freight of the returned goods within 10 days of the effective date of the Judgment. IV. Reject other claims of Mainland Company. The case acceptance fees for the first instance were RMB 373,176, of which RMB 101,281 were to be borne by Mainland Company and the rest RMB 271,895 were to be borne by Bencao. The preservation fee of RMB 5,000was to be borne by Bencao. On October 12, 2018, Guangdong High People’s Court rendered the Civil Judgment (2017) YueMinZhong No. 3184 for this case dismissing Bencao's appeal and upheld the judgment of the first instance, deciding Bencao should bear the case acceptance fee of second instance of RMB 373,176. Bencao claims that in accordance with Article 3 of the Regulatory Measures for Drug Recalls and Articles 15 and 46 of the Tort Law of the People's Republic of China (hereinafter referred to as the "Tort Law"), Bruschettini should compensate for all the property losses and the costs paid by Bencao arising from its failure to fulfill the recall obligations.

Bruschettini argued that (Ⅰ) Bencao had breached its commitments on the claim for compensation. The General Agency Authorization Letter submitted by Bencao was forged and only had a seal but no signature on it; Bruschettini never issued to Bencao any General Agency Authorization Letter. Bencao has concealed the fact that it signed with Aprontech the Exclusive Distribution Agreement on December 5, 2013 and the Schedule to the Exclusive Distribution Agreement dated December 5, 2013 on March 21, 2014, in which Bencao waives its right of claim against Bruschettini in the 18th (d) (e) of the Schedule. (II) Under the current Chinese law, Bencao, rather than Bruschettini, was responsible for the recall of "Lantigen". First of all, only the drugs with potential safety hazards need to be recalled, and the evidence presented by Bencao can hardly prove that "Lantigen" falls under the circumstance of "endangering human health and life" prescribed in Article 4 of the Regulatory Measures for Drug Recalls. Secondly, the responsible party for the recall is not specified in Article 3 of the Regulatory Measures for Drug Recalls. Thirdly, according to Paragraph 2 of Article 15 of the Regulatory Measures for Drug Recallsthat "if the recall is carried out within the territory, the importer shall be responsible for the implementation in accordance with the provisions of the Measures", therefore, the person responsible for the recall shall be Bencao, the importer. (III) The losses claimed by Bencaoare commercial losses rather than losses from product liability, as Bencao and Bruschettini have no contractual relationship and it has no right toclaim for commercial damages towards Bruschettini. First, the losses claimed by Bencaoare commercial losses, rather than losses from product liability. Bencao initiated this case to claim damages due to the product defect in accordance with Article 46 of the Tort Law. In accordance with the provisions of Articles 41 and 44 of the Product Quality Law of the People's Republic of China (hereinafter referred to as the "Product Quality Law"), the first claim of Bencao on the losses resulting from the inventory "Lantigen" are in fact the total purchase price plus the expected resale profits, which should be classified as commercial losses rather than losses from product liability. The rest of Bencao's claims are based on the first claim, and none of them is valid. Second, Bencao and Bruschettini have no contractual relationship, and therefore, Bencao is not entitled to claims for commercial losses against Bruschettini. Bencao shall file a commercial claim against Aprontech with whom it has contractual relationship. Thirdly, there is a boundary between the Tort Law and the Contract Law of the People's Republic of China (hereinafter referred to as the "Contract Law"), so commercial claims shall not be made under the Tort Law. Under the Tort Law and the Product Quality Law, "propertydamage caused by product defects" is defined as the property damage other than the defective products themselves and does not include the damage or destruction of such products. However, Bencao's claim is not "damage caused by product defects". The main purpose of the Tort Law is to protect the consumer in a weaker position, not the buyer of goods in commercial transactions. In normal commercial transactions, decrease or loss of profits of commercial transactions and other problems due to product quality shall be regarded as the situation in which the buyer fails to achieve the expected purpose of the contract. It falls within the scope of the Contract Law. In conclusion, Bruschettini requested that this court shall reject all the claims by Bencao.

The parties submitted to this court evidence concerning the claims according to the law, and this court organized the parties to conduct evidence exchange and cross-examination. This court confirmed the evidence to which the parties raised no objection, and kept the evidence on record. In respect of the evidence and facts in dispute, the court finds that:

1.The first set of evidence submitted by Bencao includes the Pharmaceutical Supply Certificate (No. Yue AA0200747) and the Pharmaceutical Supply Certificate (No. Yue AA0200747), intended to prove that Guangdong Food and Drug Administration licensed Bencao to engage in the wholesale of drugs. Bruschettini recognizes its legitimacy and relevance, and requests this court to determine its authenticity ex officio. Based on the above situation, this court admits this set of evidence.

2. The second set of evidence submitted by Bencao includes the Registration Certificate for Imported Drugs (No. S20090088), the Drug Registration Permit (No. S03364), the Registration Certificate for Imported Drugs (No.S20140066) and the Drug Registration Permit (No.S00706), intended to prove that the import of the drug "Lantigen" manufactured by Bruschettini has been approved by the CFDA, valid from September 30, 2009 to September 29, 2014,and July 30, 2014 to July 29, 2019. Bruschettini recognizes the legitimacy, relevance and authenticity of this set of evidence. The court admits this set of evidence.

3. The third set of evidence submitted by Bencao includes the General Agency Authorization Letter (December 10, 2013), intended to prove Bruschettini's authorization of Bencao to be the exclusive distributor in mainland China for “Lantigen” produced by Bruschettini for a period from December 10, 2013 to July 29, 2018. Bruschettini doesn't recognize the legitimacy, relevance and authenticity of this set of evidence. It argues that General Agency Authorization Letter is forged, bearing only the company seal in Bruschettini's name without any signature, which is not the normal manner for Bruschettini to issue documents. Besides, the date of such authorization letter is December 10, 2013, when Aprontech was still discussing with Bruschettini by mail on whether to issue an Authorization Letter to Bencao or not until January 23, 2014. The court finds that Bruschettini does not accept the authenticity of the evidence and there is no evidence indicating that Bruschettini and Bencao had consulted on the establishment of the agency relationship. The General Agency Authorization Letter, as a sole evidence, is insufficient to prove the existence of a contractual relationship between Bencao and Bruschettini. This court doesn't admit this set of evidence.

4. The fourth set of evidence submitted by Bencao includes the Exclusive Distribution Agreement (November 6, 2013), the Supplementary Agreement (May 4, 2014) and TO WHOM IT MAY CONCERN and the translation thereof and the Declaration Letter (August 1, 2014), intended to prove that Aprontech signed the Exclusive Distribution Agreement with Bencao with the authorization of Bruschettini, agreeing that Bencao would be the exclusive distributor of "Lantigen" in mainland China. Bruschettini cross-examined this evidence and did not recognize the authenticity of the Exclusive Distribution Agreement (November 6, 2013), Supplementary Agreement (May 4, 2014) and the Declaration Letter (August 1, 2014). But it recognized the authenticity of the TO WHOM IT MAY CONCERN and the translation thereof without acknowledging the relevance and the evidentiary purposes. It argues that Bencao has only contractual relationship with Aprontech, and has no contractual relationship with Bruschettini. Hence, the losses claimed by Bencao should be regarded as commercial ones rather than losses from product liability, and Bencao shall have no right to claim against Bruschettini. This court believes that this set of evidence submitted by Bencao can prove that "Lantigen" sold by it was produced by Bruschettini and admits this set of evidence.

5. The fifth set of evidence submitted by Bencao includes the batch of EXCLUSIVE DISTRIBUTION AGREEMENT (signed on November 28, 2013, May 4, 2014, June 3, 2014, July 7, 2014, July 9, 2014, July 15, 2014, December 1, 2014, January 15, 2015, March 15, 2015), Payment Application and Payment Notice to Corporate Customer (dated December 6, 2013, Amount: USD 3,000,000), Payment Application and International Remittance Debit Advice and Payment Notice to Corporate Customer (dated May 7, 2014, Amount: USD 525,000), Payment Application and Payment Notice to Corporate Customer (dated May 22, 2014, Amount: USD 975,000), Payment Applicationand International Remittance Debit Advice (dated June 19, 2014, payment: USD 750,000), Payment Application and Customer Receipt for Debit (dated July 22, 2014, Amount: EUR 730,000),Approval Paper for Cheque Requisition and International Remittance Debit Advice (dated October 8, 2014, Amount: EUR 365,000), Approval Paper for Cheque Requisition and International Remittance Debit Advice (dated November 3, 2014, Amount: EUR 1,095,000),Approval Paper for Cheque Requisition and International Remittance Debit Advice (dated November 20, 2014, Amount: EUR 1,095,000), Approval Paper for Cheque Requisition and Letter to Inform Change of Account Number and International Settlement Debit Advice (dated December 22, 2014, Amount: EUR 1,049,134.10), Approval Paper for Cheque Requisition and International Settlement Debit Advice and Payment Notice to Corporate Customer (dated 3 February 2015, Amount: EUR 1,089,298.70), Approval Paper for Cheque Requisition and International Settlement Debit Advice and Payment Notice to Corporate Customer(dated March 9, 2015, Amount: EUR 1,089,564.50), Approval Paper for Cheque Requisition and International Settlement Debit Advice (dated May 7, 2015, Amount: EUR 1,090,919.30),Guangzhou Customs Bills of Payment for Import Duties and Guangzhou Customs Bills of Payment for Import VAT and the transfer voucher (Payment date: April 28, 2014, May 8, 2014,June 23, 2014, August 26, 2014, September 23, 2014, February 2, 2015, March 17, 2015 and July 22, 2015), Purchase Acceptance Records and Statistical Table of Purchase Acceptance Records of “Lantigen” (Guangdong Bencao Medicine Group Co., Ltd.), intended  to prove that Bencao, during the period 2013 to 2015, purchased 1,566,632 bottles of “Lantigen” of 126 Batch numbers from Aprontech and paid USD 5,250,000, EUR 7,603,913.6 (equivalent to RMB 89,010,364.41) for goods, RMB 3,653,666.64 for import duties and RMB 16,149,206.55 for import value-added tax. Bruschettini argues that the authenticity of this set of evidence could not be verified, and doesn’t acknowledge its relevance and evidenciary purpose. Therefore, Bencao and Bruschettini have no contractual relationship and Bencao should make a claim against Aprontech. This court admits this set of evidence, which proves the quantity of "Lantigen" purchased by Bencao and the amount of payment, the customs duties and the value-added taxes.

6. The sixth set of evidence submitted by Bencao includes the Notice on Drug Inspection Fee(August 14, 2014), Remittance Voucher, General Payment Certificate of Non-tax Income (Receipt)(August 14, 2014, Amount: RMB 315,840), Notice on Drug Inspection Fee(November 28, 2014), Bank Transaction Details and General Payment Certificate of Non-tax Income (Receipt)(December 12, 2014, Amount: RMB 947,520),Notice on Drug Inspection Fee (November 28, 2014), Bank Transaction Details and General Payment Certificate of Non-tax Income (Receipt)(December 12, 2014), Amount:RMB 789,600), Notice on Drug Inspection Fee (March 11, 2016), Acknowledgement of Payment and General Payment Certificate of Non-tax Income (Receipt) (March 22, 2016, Amount:RMB1,258,960), intended to prove that Bencao paid inspection fee of RMB 3,311,920 for importing "Lantigen". Bruschettini argues that the authenticity of this set of evidence cannot be ascertained, and its relevance and proving purposes cannot be acknowledged. There is no contractual relationship between Bencao and Bruschettini, and Bencao should claim against Aprontech. Based on the above situation, this court admits this set of evidence, which proves the inspection fee paid by Bencao for the importing of "Lantigen".

7. The seventh set of evidence submitted by Bencao includes 21 pieces of Sample Record of Imported Drugs and 17 set of appendix (Batch ID of samples: 098-103, 104-109, 110-115, 116-121, 128-133, 126-127, 134-137, 138-143, 144-149, 150-155, 156-161,162-168, 169-174, 175-180, 181-186, 187-192, 193-198, 199-204,205-210, 211-216, 217-222, 2223-228), intended to prove that Bencao has loss of 10,080 bottles of Lantigen sample for import inspection.  Bruschettini argues that the authenticity of this set of evidence cannot be confirmed, and its relevance and proving purposes cannot be acknowledged. Bencao and Bruschettini have no contractual relationship and Bencao should make a claim against Aprontech. Based on the above situation, this court admits this set of evidence, which proves the quantity of sample consumption incurred for the importing of "Lantigen".

8. The eighth set of evidence submitted by Bencao includes the Distribution Contract and Remittance Income Voucher (Receipt) and Value-added Tax Special Invoice and Sales Order (downstream distributor: Fujian Tianrui Pharmaceutical Co., Ltd.), the Distribution Contract and Credit Notice to Client and Value-added Tax Special Invoice and Sales Order (downstream distributor: HebeiGuotai Pharmaceutical Co., Ltd.), Distribution Contract and Notice of Payment Receipt and Value-added Tax Special Invoice and Sales Order (Downstream Distributor: Hubei Qichentuokang Bio- Pharmaceutical Co., Ltd.), Distribution Contractand Notice of Payment Receipt and Value-added Tax Special Invoice and Sales Order (Downstream Distributor: Shanxi Weidakangtai Biological Products Co., Ltd.), Distribution Contract and Notice of Payment Receipt and Value-added Tax Special Invoice and Sales Order (Downstream Distributor: Anhui BaiKang Bio-Pharmaceutical Co., Ltd), Distribution Contract and Notice of Payment Receipt and Value-added Tax Special Invoice and Sales Order (Downstream Distributor: Beijing Yangshengtang Pharmaceutical Co., Ltd.), Distribution Contract and Remittance Income Voucher (Receipt) and Notice of Payment Receipt and Value-added Tax Special Invoice and Sales Order (Downstream Distributor: Guangzhou Runrong Pharmaceutical Co., Ltd.), Distribution Contract,Notice of Payment Receipt and Value-added Tax Special Invoice and Sales Order (Downstream Distributor: Wuhan Guokang Pharmaceutical Co., Ltd.), Distribution Contract and Remittance Income Voucher (Receipt) andNotice of Payment Receipt and Value-added Tax Special Invoice and Sales Order (Downstream Distributor: Sichuan Duokang Pharmaceutical Trade Co., Ltd.), Distribution Contract and Notice of Payment Receipt and Value-added Tax Invoice and Sales Order (Downstream Distributor: HebeiSanqi Pharmaceutical Co., Ltd.), Distribution Contract and Remittance Income Voucher (Receipt) and Value-added Tax Invoice andSales Order (Downstream Distributor: Henan Tongle Pharmaceutical Co., Ltd.), Distribution Contract andCredit Notice to Client and Value-added Tax Special Invoice and Sales Order (downstream Distributor: Guangdong Guosheng Biological Products Co., Ltd.), intended to prove that Bencao sold "Lantigen" at the price of RMB 90/bottle in mainland China, including Xinjiang, Shanxi, Hebei and other provinces and regions. Bruschettini neither confirms the authenticity of such evidence set forth above nor recognizes its relevance nor purpose. There is no contractual relationship between Bencao and Bruschettini, and Bencao should file a claim against Aprontech. Based on the above situation, this court admits this set of evidence, which proves the sales price of "Lantigen" by Bencao in mainland China.

9. The ninthset of evidence submitted by Bencao includes the Announcement on Cessation of Importation of Four Drugs including Cerebroprotein Hydrolysis Injection etc. [No.13 (2016)], intended to prove that "Lantigen" failed to comply with the Good Manufacturing Practice Requirements for Pharmaceutical Products and other regulations. The actual production process of "Lantigen" was inconsistent with the registered process. The laboratory data were found of incompletion; there were risks of cross-contamination during the production process. Bruschettini recognizes the authenticity and legitimacy of this set of evidence, but doesn’t acknowledge the relevance nor purpose, arguing that this set of evidence cannot prove that "Lantigen" has the potential safety hazards as stipulated in Article 4 of the Regulatory Measures for Drug Recalls, and Bruschettini is not a subject party for drug recall. Based on the above situation, this court admits this set of evidence which proves that "Lantigen" does not comply with the Good Manufacturing PracticeRequirements for Pharmaceutical Products and other regulations as determined by the CFDA upon inspection.

10. The tenth set of evidence submitted by Bencao includesthe Circular on Convening a Work Conference on the Recall of Bacterial Lysate (July 19, 2016), intended to prove that the CFDAheld a meeting for the recall of "Lantigen" with Bencao and other entities. Bruschettini recognizes the authenticity and legitimacy of this set of evidence, but doesn't recognize the relevancy nor purpose. This court finds that this set of evidence can prove that the CFDA had convened a recall meeting for "Lantigen" and admits this set of evidence.

11. The eleventh set of evidence submitted by Bencao includes the power of attorney, visa, air ticket booking information, etc, Notice (August 11, 2016) and courier waybill,NOTIFICATION (November 18, 2016), Notification Letter (January 3, 2017) and courier waybill, letter from Bencao to Bruschettini. On March 6, 2017 and courier waybill, Letter from Bencao to Bruschettini on 17 April 2017 and courier waybill, intended to prove that Bencao had dispatched its representative to the domicile of Bruschettini and requested the recall of "Lantigen". Bruschettini recognizes the authenticity and legitimacy of this set of evidence, but doesn't recognizes its relevance and demonstration purpose, and argues that this set of evidence cannot prove that Bruschettini is a qualified subject for recall. Based on the above situation, this court admits this set of evidence, which proves that Bruschettini was informed by Bencao of the fact that the CFDA determined that "Lantigen" is of potential safety hazards and required it to be recalled.

12. The twelfth set of evidence submitted by Bencao includes the English letters sent by Bruschettini on February 21, 2017 and on March 29, 2017, and their translations, intended to prove that Bruschettini expressly refused to recall "Lantigen". Bruschettini acknowledges the authenticity and legality of this set of evidence, but does not acknowledge its relevance or its purpose, and argues thatthis set of evidence can only prove that Bruschettini has repeatedly expressed to Bencao that it was not a qualified subject to recall, and that there is no contractual relationship between the parties, "Lantigen" was legally imported and sold by Bencao in China. Based on the above situation, this court admits this set of evidence, which proves that Bencao has notified Bruschettini of the relevant information on many occasions.

13. The thirteenth set of evidence submitted by Bencao includes the Notice Ordering Recalls and Rectification[ShiYaoJianYaoHuaJianBianHan No. 354 (2017)] and the Notification on Disclosure of Government Information [ShiYaoJianZhengXinHan No. 41 (2018)],intended to prove that the CFDA had issued a notice to Bruschettini, expressing that "Lantigen" had potential safety hazards and ordered Bruschettini to recall the product. Bruschettini recognizes the authenticity and legitimacy of this set of evidence but does not recognize the relevance or the proving purpose, arguing that Bencao and Bruschettini have no contractual relationship and Bencao is not entitled to claim damages against Bruschettini. Based on the above situation, this court admits this set of evidence, which proves that the CFDA had ordered Bruschettini to recall "Lantigen" with potential safety hazards.

14. The fourteenth set of evidence submitted by Bencao includes the Reminder Letter (January 25, 2018), Notarial Certificate YueGuangNanFang (2018) No. 007249 and Lawyer’s Letter (July 13, 2018) and Notarial Certificate YueGuangNanFang (2018) No.044352 , intended to prove that Bencao had repeatedly urged Bruschettini to earnestly assume the responsibility for the recall. Bruschettini recognizes the authenticity and legitimacy of this set of evidence, but it does not recognize its relevance or the provingpurpose, arguing that thisset of evidence only indicates that Bencao unilaterally urged Bruschettini to recall "Lantigen", but it cannot prove that Bruschettiniis a qualified subject of the recall. Based on the above situation, this court admits this set of evidence, which proves that Bencao urged Bruschettini to recall "Lantigen" several times after the CFDA ordered Bruschettini to recall.

15. The fifteenth set of evidence submitted by Bencao includes Notarial Certificate YueGuangNanFang (2018) No. 140562, intended to prove Bencao's current stock of 38 batches of 234,719 bottles of "Lantigen". Bruschettini argues that the authenticity of this set of evidence is uncertain but acknowledges its legitimacy and denies its relevance and proving purpose, that Bencao and Bruschettini have no contractual relationship and that Bencao shall not be entitled to claim damages against Bruschettini. Based on the above situation, this court admits this set of evidence, which proves the quantity of "Lantigen" in stock at present that Bencao claimed that Bruschettini should compensate.

16. The sixteenth set of evidence submitted by Bencao includes Application Form to Guangzhou Notary Public Office, Notification of Acceptance of Notarization of the Guangzhou Notary Public Office, Notarization Fee Pricing Note, Guangdong Value-Added Tax Special Invoice (NO. 37842373), Online Banking Electronic Receipt (No: 0021-3967-1405-1100), Contract on Civil Legal Affairs, Guangdong Value-Added Tax Special Invoice (NO. 12991434) and Online Banking Electronic Receipt (No: 0021-3967-1421-1100), intended to prove that Bencao's claim for recovery incurred the notary fee of RMB 8,000 and the attorney fees of RMB 80,000, totaling RMB 88,000. Bruschettini believes that it is impossible to confirm the authenticity, but recognizes the legitimacy, denies the relevance and proving purpose of this set of evidence, arguing that Bencao and Bruschettini have no contractual relationship and Bencao shall have no right to claim damages against Bruschettini. Based on the above situation,this court admits this set of evidence, which proves the amount of notary fees and attorney fees of Bencao in relation to the dispute.

17. The seventeenth set of evidence submitted by Bencao includes the CERTIFICATE OF GMP COMPLIANCE OF A MANUFACTURER and its translation and the Lawyer's Letter (July 24, 2018), intended to prove that Bruschettini is an existing entity and the address provided by Bencao for service of documents is authentic and definite, Bruschettini has authorized a Chinese lawyer as its agent and has clearly refused to fulfill the obligation of recall. Bruschettini recognizes the authenticity and legitimacy of the evidence, but denies the relevance and proving purpose, arguing that this set of evidence can only show that Bruschettini had entrusted its agents. Based on the above situation,this court admits this set of evidence, which proves Bruschettini's address and its authorized agents.

18. The eighteenth set of evidence submitted by Bencao includes Civil Judgments (2017) Yue01MinChu No. 58 and YueMinZhong(2017) No.3184, intended to prove Bencao's compensation to Mainland Company for 592,456 bottles of "Lantigen" as Bruschettini did not recall the product. Bruschettini acknowledges the authenticity and legitimacyof this set of evidence, but does not recognize the relevance and the proving purpose, arguing that there is no contractual relationship between Bencao and Bruschettini and Bencao has no right to claim any commercial damages against Bruschettini. Based on the above situation, this court admits this set of evidence. This set of evidence is the basis for Bencao's claim against Bruschettini for the amount of compensation owed by Bencao to Mainland Company.

19. The ninteenth set of evidence submitted by Bencao includes Notarial Certificate YueGuangGuangzhou (2018) No. 140568, intended to prove that being notarized by the Notary Office in Guangzhou City in Guangdong Province, Mainland Company returned to Bencao 592,456 bottles of "Lantigen". Bruschettini acknowledges the authenticity and legitimacy of this set of evidence, but it does not recognize the relevance and the proving purpose, arguing that there is no contractual relationship between Bencao and Bruschettini and Bencao has no right to claim any commercial damages against Bruschettini. Based on the above situation, this court admits this set of evidence, which proves the quantity of "Lantigen" that Mainland Company returned to Bencao.

20. The twentiethset of evidence submitted by Bencao includes the Notice of Guangdong High People's court on Advance Payment of court Hearing Fee of the Second Instance and the Receipt of Non-tax Income (Electronic) of Guangdong Province(CF14431241), Contract on Civil Legal Affairs, Letter regarding Entrustment of GuangdongshengShengWeiDevelop. Co., Ltd. to Pay Attorneys’ Fees, and business receipt (No. 17160000002), Electronic Receipt of Online Banking of Construction Bank of China, Guangdong Value-Added Tax Special Invoice (NO. 30616251, NO. 08155630-NO.08155633), intended to prove that Bencao paid acceptance fee RMB373,176 for the second instance due to dispute with Mainland Company and attorneys' fee RMB435,566. Bruschettini acknowledges the legitimacy of this set of evidence, but does not recognize the authenticity, relevance and the proving purpose, arguing that there is no contractual relationship between Bencao and Bruschettini and Bencao has no right to claim any commercial damages against Bruschettini. Based on the above situation, this court admits this set of evidence, which proves the amount of the attorneys' fee and litigation cost claimed by Bencao for the dispute between Bencao and Mainland Company.

21. The twenty-first set of evidence submitted by Bencao includes Application Form to Guangzhou Notary Public Officeand Notification of Acceptance of Notarization of the Guangzhou Notary Public Office, Notarization Fee Pricing Note, Guangdong Value-Added Tax Special Invoice (NO. 37842374), and the Online Banking Electronic Receipt (No: 0021-3967-1411-1100), intended to prove that Bencao paid RMB8,000 for the notary fee for claiming compensation from Bruschettini. Bruschettini acknowledges the legitimacy of this set of evidence, but it does not recognize the authenticity, relevance and theproving purpose, arguing that there is no contractual relationship between Bencao and Bruschettini and Bencao has no right to claim any commercial damages against Bruschettini. Based on the above situation, this court admits this set of evidence, which proves the amount of the notary fee for claiming compensation from Bruschettini.

22. The twenty-second set of evidence submitted by Bencao includes Enforcement Ruling (2018) Yue01ZhiNo.6463and Enforcement Notice (2018) Yue01ZhiNo. 6463, intended to prove that Bencao shall pay compensation to Mainland Company of RMB52,541,944.4 (temporarily up to December 5, 2018) caused by the fact that Bruschettini has not recalled "Lantigen". Bruschettini recognizes the authenticity and legitimacy of this set of evidence, but does not recognize its relevance. Based on the above situation, this court admits this set of evidence, which proves part of the amount claimed by Bencao against Bruschettini due to Bencao's compensation to Mainland Company.

23. The twenty-third set of evidence submitted by Bencao includes the National Directory of Hazardous Wastes, intended to prove that "Lantigen" is a hazardous waste and should be disposed of by an entity with specific business license according to the law. Bruschettini argues that the evidence is insufficient to prove that "Lantigen" is a hazardous waste. Based on the above situation, this courtadmits this set of evidence as it is a document issued by the government.

24. The twenty-fourth set of evidence submitted by Bencao includes Quotation for Hazardous Wastes Disposal and Explanatory Notes on Costs of Disposal of Expired Drugs, intended to prove that the amount of expenses for the disposal of Bencao's inventory of "Lantigen" ranges approximately from RMB1.3 million to RMB1.6 million. Bruschettini gives no comment on this set of evidence and expresses that it will make its own inquiries, if necessary. Based on the above situation, this court considers that the Quotation for Hazardous Wastes Disposal is issued by Guangdong Xinlongsheng Environmental Science & Technology Co., Ltd. for the disposal of Bencao’s inventory of "Lantigen" and admits it; Explanatory Notes on Costs of Disposal of Expired Drugs is unilaterally issued by Bencao and shall not be admitted.

25. The twenty-fifth set of evidence submitted by Bencao includes the Roster of the Employees of Guangdong Bencao Medicine Group Co., Ltd. (from November 2013 to April 2014), the Certificate of Social Insurance of Guangdong Province (For Entity) (November 2013 to April 2014), the Human Resources Dispatching Service Agreement and the Social Insurance Details of Guangdong Bencao Medicine Group Co., Ltd. (from November 2013 to April 2014), intended to prove that Wu Meng was not an employee with Bencao. Bruschettini doesn't recognize its authenticity. This court believes that this set of evidence can be mutually verified and so admits it.

26. The first set of evidence submitted by Bruschettini includes the Letter of Request for Interview and the courier waybill, intended to prove that Bruschettini has already sent a letter to the CFDA stating that it was not a qualified subject for recall. Bencao does not recognize the legitimacy, authenticity and relevance since the evidence is a document produced by Bruschettini itself which does not serve its proving purpose. Based on the above situation, this court finds that this set of evidence can prove that Bruschettini has requested the CFDA for an interview, and admits it.

27. The second set of evidence submitted by Bruschettini includes DISTRIBUTION AGREEMENT, intended to prove the exclusive distribution agreement between Bruschettini and Aprontech. Bencao recognizes the legitimacy, authenticity and relevance of this set of evidence. Based on the above situation, this court holds that this set of evidence is an agreement between Bruschettini and Aprontech. Although it is a photocopy, according to the evidence submitted by Bencao, the "Lantigen" imported by it was purchased from Aprontech and thus the authenticity of this set of evidence should be recognized and this set of evidence can be admitted.

28. The third set of evidence submitted by Bruschettini includes the email exchange between Bruschettini and Aprontech dated January 23, 2014, intended to prove that until January 23, 2014, Aprontech was still discussing by mail with Bruschettini whether to issue a General Agency Authorization Letter to Bencao. Bencao does not recognize the legitimacy, authenticity and relevance of this set of evidence, arguing that the email discussed the pricing of "Lantigen" rather than licensing, and it is only discussion between employees and cannot represent the company's intention. This court considers that the correspondence is a photocopy, and there is no relevant evidence supporting the authenticity of the contents of the mail. Therefore, this set of evidence is not admitted.

29. The fourth set of evidence submitted by Bruschettini includes the Exclusive Distribution Agreement (December 5, 2013) and the Appendix thereto, intended to prove that Bencao has in fact waived its claim against Bruschettini. Bencao does not recognize the legitimacy, authenticity and relevance of this set of evidence, arguing that Bencao did not sign the agreement, which is without an across-page sealand the undersigned "Wu Meng" is not an employee with Bencao. This court finds that the Exclusive Distribution Agreement (December 5, 2013) and the Appendix thereto submitted by Bruschettini have been altered in several places, and Bruschettini failed to provide the corresponding originals. This set of evidence is dismissed.

According to the statements of the parties and the evidence confirmed upon examination, this court ascertains the facts as follows:

On September 30, 2009, the CFDA issued the Registration Certificate for Imported Drugs for "Lantigen": drug name - Bacterial Lysate, product name - Lantigen, manufacturer -Bruschettini, the Certificate is valid until September 29, 2014 for the permission of importation. On July 30, 2014, the CFDA re-issued the Registration Certificate for Imported Drugs for "Lantigen" which remains valid until July 29, 2019 for the permission of importation.

Aprontech is the exclusive distributor designated by Bruschettini to sell "Lantigen" in China. On November 6, 2013, Bencao and Aprontech signed the Exclusive Distribution Agreement, agreeing that Bencao would import "Lantigen" from Aprontech and exclusively sold and distributed the drug in mainland China. From November 28, 2013 to March 15, 2015, Bencao entered into purchase contracts with Aprontech for a total of  1,566,632 Bottles of "Lantigen" of 126 batches at the price of USD 10 or EUR 7.3 per bottle, making payment for goods of USD 5,250,000, EUR 7,059,472.1 (equivalent to RMB 89,010,364.41) and for import duties of RMB 3,653,666.64, for import value-added tax of RMB 16,149,206.55 and for import inspection fee of RMB 3,311,920, average import price equivalent to RMB 69.46 per bottle. Totally 10,080 bottles of samples were used for import inspection. During this period, Bencao distributed "Lantigen" in mainland China at an average price of about RMB 90/bottle.

On 18 January 2016, the CFDA promulgated Announcement on Cessation of Importation of Four Drugs including Cerebroprotein Hydrolysis Injection etc. [No.13 (2016)],  "... III. The actual production process of "Lantigen" produced by Bruschettini was inconsistent with that of the registration process. The laboratory data were found incomplete and there were cross-contamination risks in the production process. The requirements of Articles 184 and 163 of the Good Manufacturing Practices Requirements for Pharmaceutical Products and Article 22 of the Appendix Biological Products are not met, and Article 9 of the Drug Regulation Law of the People's Republic of China and Paragraph 2 of Article 84 of the Measures for the Administration of Drug Registration were violated. V. The import of "Lantigen" produced by Bruschettini shall be stopped. VI. Stop the registration related to "Lantigen" produced by Bruschettini before the examination on the production site according to Good Manufacturing Practices Requirements for Pharmaceutical Products is passed. VII. The relevant enterprises should recall the productswith potential safety hazards."

On July 19, 2016, the Department of Drug and Cosmetics Supervision of the CFDA issued the Circular on Convening a Work Meeting on the Recall of Bacterial Lysate, holding a work meeting on the recall of "Lantigen" and convened the Guangdong Food and Drug Administration, Bencao and other entities to attend the meeting. Since then, Bencao has repeatedly sent letters asking Bruschettini to voluntarily recall "Lantigen", but Bruschettini did not respond. On November 22, 2017, the Department of Drug and Cosmetics Supervision of the CFDA issued the Circular on Ordering the Recall and Rectification [ShiYaoJianYaoHuaJianBianHan (2017) No.354] to Bruschettini, "Your factory shall investigate and rectify the problems and actual risks uncovered during the on-site inspection, organize the production in strict accordance with the Drug GMP standards, thoroughly eliminate hidden risks, assume the relevant quality responsibilities for the products of your factory, and effectively fulfill the responsibilities for recalling the relevant products."

Because Bruschettini did not recall "Lantigen" with safety hazards, the "Lantigen" in Bencao's inventory could not be disposed of. On September 29, 2018, the Guangzhou Notary Public Office, as entrusted by Bencao, checked and counted the "Lantigen" in stock at Bencao, totaling 234,719 bottles, which incurred notarization fees of RMB 8,000.

On April 20, 2015, Mainland Company entered into the Distribution Contract with Bencao to become distributor of "Lantigen" in mainland China. From April 2015 to October 2015, Mainland Company purchased from Bencao 599,576 bottles of "Lantigen" at RMB 80/bottle and paid a total amount of RMB 47,966,080 to Bencao. Due to the safety hazards of "Lantigen", Mainland Company stopped selling "Lantigen" and returned 592,610 bottles to Bencao, among which 154 bottles were returned by customers directly to Bencao. And then it filed a lawsuit against Bencao for damages.

On September 12, 2017, the Guangzhou Intermediate People's Court of Guangdong Province issued Civil Judgment (2017) Yue01MinChu No. 58, ruling:I. The Distribution Contract between Mainland Company and Bencao on April 20,2015 shall be rescinded; II. Bencao must repay Mainland Company RMB 47,408,800 plus interest within 10 days of the effective date of the Judgment (interest is to be paid with RMB 47,408,800 as the base amount according to the basic loan interest rate issued by the People's Bank of China for the same period starting from September 23, 2016 to the date of entry into force of the judgment); III. Bencao must pay Mainland Company RMB 79,200 yuan for the freight for the returned goods within 10 days from the date that the judgment comes into force; IV. Rejected other claims by Mainland Company.It was also ruled that the case acceptance fee for the first instance was RMB 373,176, of which RMB 101,281 shall be borne by Mainland Company,and the rest RMB 271,895 shall be borne by Bencao, and the fee for preservation measuresof RMB 5,000 shall be borne by Bencao. Bencao disagreed with the judgment and filed an appeal.

On October 12, 2018, Guangdong High People’s Court rendered the Civil Judgment (2017) YueMinZhong No. 3184 for this case, which dismissed the appeal and upheld the original judgment, and ruled that Bencao shall bear the case acceptance fees of the second instance of RMB 373, 176. Due to Bencao's failure to perform the judgment, on January 14, 2019, the Guangzhou Intermediate People's Court of Guangdong Province made the Enforcement Ruling (2018) Yue01Zhi No. 6463, which ruled to seize, freeze, deduct, retain and detain assets valuing RMB 52,661,886.34 that belong to Bencao. In addition, on September 29, 2018, Bencao entrusted Guangzhou Notary Public Office to count the returned 592,456 bottles of "Lantigen" from Mainland Company, which incurred a notary fee of RMB 8,000. This court also finds that on September 3, 2019 Guangdong Xinlongsheng Environmental Science & Technology Co., Ltd. provided to Bencao a Quotation for Hazardous Wastes Disposal, and quoted RMB 40,000/ton for disposal of the 40 tons of "Lantigen" held by Bencao, totaling RMB 1,600,000.

This court opines that, in combination with Bencao's cause of action and Bruschettini's defense, the issues in dispute in this case are as follows: 1. Whether Bruschettini is legally obligated to recall "Lantigen". 2.Whether Bruschettini shall bear the liability to Bencao for compensation and how to determine the scope of compensation.

1. Whether Bruschettini is legally obligated to recall "Lantigen".

Broadly speaking, product recall refers to the activities conducted by product suppliers by means of withdrawal, return, replacement, repair or destruction of defective products in accordance with prescribed procedures and requirements to effectively prevent, control and eliminate the damage that may be caused by defective products. Product recall in a narrow sense means that a product supplier withdraws the defective products that have been put into the market according to the prescribed procedures and requirements. The significance of a product recall system is to protect the legitimate rights and interests of consumers and ensure that consumers' interests will not be harmed due to product defects. As profit-making organizations, the main purpose of companies and manufacturers' business activities is to make profits, however, as market players, they should also undertake such social responsibilities as operating with integrity, observing market rules, respecting the rights of other market players and safeguarding the legitimate rights and interests of consumers. Therefore, from the point of view of companies and manufacturers, it is a natural requirement from their social responsibilities to fulfill the obligation under the product recall system.

The aim of the product recall system is to protect consumers' legal rights and interests from being harmed by product defects. The initiation of the product recall procedure is due to defects in products that may harm consumers, and definitelythe manufacturers are liable for the existence of such defects. Therefore, it is reasonable that the law stipulates that the manufacturers should bear the responsibility for product recall. The law also states that consumers may claim against the seller for a recall of products for the convenience of consumers. In other words, the distributors in the product recall system are designed only to be an intermediate link between the consumers and the manufacturers, and the manufacturers assume ultimate responsibility for product recall. The reasons are as follows. First of all, the manufacturers are the producers of the defective products that may cause harm to consumers. The recall of defective products is time-consuming, laborious and costly. Since the manufacturers are the ones who cause the recall, they should be the ones who bear such adverse consequences. Secondly, product recall generally involves repair or reuse of defective products, which is also an important part of the product recall system, in order to minimize the loss of social wealth caused by product recall. For this end, the manufacturers have the most favorable conditions and convenience. Thirdly, after the sellers fulfill the obligation to recall products from customers, if they could not claim against the manufacturers for recall of products due to the lack of contractual relationship with the manufacturers and if the prior-seller could not be held liable for some reasons, all the losses arising therefrom would be borne by the sellers who are not responsible for producing defective products, which hardly anyone should regard as fair.

In light of the facts of this case, Bencao and Bruschettini have not established any contractual relationship. Hence, Bencao cannot assert any contractual rights against Bruschettini. However, as a seller who has fulfilled its obligation to recall "Lantigen", it is entitled to seek remedies in accordance with relevant regulations concerning product recall. According to Paragraph 2 of Article 43 of the Tort Law, where the manufacturer causes the product defect, the seller may, after paying compensation to customers, claim compensation from the manufacturer. Article 3 of the Regulatory Measures for Drug Recalls provides that "drug recalls refer to the withdrawal,in accordance with the prescribed procedures,by the drug manufacturers (including overseas drug manufacturers producing imported drugs, the same below) of the drugs that have been sold on the market with potential safety hazards ", explicitly specifying that the subject of the drug recall is the drug manufacturer, with no exception to overseas drug manufacturers. Paragraph 2 of Article 15 of the Regulatory Measures for Drug Recalls provides that "if a drug is recalled within the territory of China, the importer shall be responsible for the specific implementation thereof in accordance with the provisions of the Measures", precisely reflecting the role of importers (sellers) designed as an intermediary in the product recall system for the convenience of domestic consumers. As for domestic consumers or downstream distributors, Bencao the importer, shall be responsible for the recall of "Lantigen" within the territory of China. However, this provision does not deny that the drug manufacturers shall be held ultimately responsible for the recall of drugs. In fact, the Department of Drug and Cosmetics Supervision of the CFDA has issued on November, 2017,the Circular on Ordering the Recall and Rectification to Bruschettini, requiring it to "investigate and rectify the problems and actual risks found during on-site inspection" and "fulfill its responsibilities as a subject of the recall".

To sum up, as the importer of "Lantigen", Bencao has the right to choose remedial measures to recover losses after it has performed the obligation to recall products within the territory of China. There are sufficient legal grounds for Bencao to request the manufacturer Bruschettini to perform its obligation to recall "Lantigen" products withsafety hazards determined by the administrative authority. Bruschettini argues that under the current Chinese law, Bencao, not Bruschettini, is responsible for the recall of "Lantigen". This is a misreading of Chinese law. Moreover, Bruschettini argues that Bencao failed to prove that "Lantigen" is "endangering human health and safety" under Article 4 of the Regulatory Measures for Drug Recalls. It is an excessive requirement for Bencao's burden of proof, for Bencao has provided sufficient evidence establishing the fact that "Lantigen" should be recalled in the event of a clear request of product recall made by the administrative authority.

(II) Whether Bruschettini shall bear the liability to Bencao for compensation and how to determine the scope of compensation.

As previously stated, Bruschettini is the subject of the mandatory of "Lantigen" and shall bear the ultimate liability for that. While Bencao sent several letters demanding that Bruschettini recall "Lantigen", Bruschettini's failure to do so has led to Bencao's losses due to it's inability to dispose of "Lantigen" in its inventory and those from its recovery from its downstream distributors. Bruschettini's delay in fulfilling its statutory obligation to recall products constitutes an act of omission and negligence. According to Paragraph 1 of Article 6 of the Tort Law, Bruschettini shall bear the liability to compensate for Bencao's losses caused thereby.

As for the determination of the scope of compensation, it depends on Bencao's choice of remedies. As an importer, Bencao has recalled "Lantigen" products within the territory of China in accordance with the law. Bencao therefore has two remedies to choose. The first one is to claim damages for breach of contract against Aprontech under its distribution contract with Aprontech. The second one is to claim against Bruschettini, the manufacturer, for compensation for infringement of rights under relevant regulations on product recall and tort liability. If Bencao chooses the first remedy to assert its contractual rights, in accordance with Article 113 of the Contract Law, the scope of compensation it can claim should be equivalent to the losses caused to Bencao by Aprontech's breach, including the benefits obtainable by Bencao if the contract can be performed in accordance with the terms thereof. That is to say, if Bencao claims for compensation for damages against Aprontech for breach of contract, the scope of compensation may include direct losses and those of commercial benefits caused by failure to perform the contract in accordance with the terms thereof. Bencao chose the second remedy. In this case, the most basic factual basis for Bencao to assert rights is that Bruschettini has the statutory obligation of product recall but delayed in fulfilling it. According to Item 6, Paragraph 1 of Article 15 of the Tort Law, the scope of compensation that can be claimed by Bencao may include direct losses caused by the act of omission of Bruschettini to fulfill its statutory obligation. In other words, Bruschettini shall pay to Bencao the loss of its stock of "Lantigen" products and that of the products recalled within the territory of China, as well as the expenses paid by Bencao for implementing the product recall. Considering that "Lantigen" products that should be recalled have expired as a result of Bruschettini's failure to timely recall them, the disposal expenses arising therefrom shall also be included in the scope of compensation. Furthermore, Bruschettini does not have a contractual relationship with Bencao. The losses of the acquirable benefits from the sale of "Lantigen" products to its distributors are commercial risks and not compensable in this case that Bencao brought against Bruschettini based on tort. In view of the above, this court reviews the various claims for compensation by Bencao as follows:

The first claim of Bencao is: to compensate its inventory of 234,719 bottles of "Lantigen" for the total loss of RMB 21,124,710 (RMB 90/bottle) and interest accrued thereon (taking RMB 21,124,710 as the base amount according to the basic loan interest rate of the same kind as issued by the People's Bank of China for the same period from November 22, 2017 to the date of actual payment of compensation, which is RMB 712,481.48 temporarily until August 31, 2018). This court opines that Bencao's claim for the losses of the products to be recovered at the price of RMB 90/bottle is lack of grounds and should not be supported. Based on the facts ascertained in the case, Bencao's average purchase price of “Lantigen” from Aprontech is RMB69.46/bottle, while RMB 90/bottle is the average distribution price in mainland China, which includes the profits from Bencao's sales of "Lantigen". As opined above, Bencao has no right to claim for compensation for the loss of commercial profits in the action of tort. Its claim for the loss of inventory "Lantigen" calculated at the price of RMB 90/bottle should not be supported. The losses of the 234,719 bottles of "Lantigen" from Bencao's inventory shall be equal to the consideration paid by Bencao for the purchase of such part of "Lantigen" from Aprontech, the average price of which is RMB 69.46/bottle. Therefore, the amount of compensation for such inventory shall be calculated at the price of RMB 69.46/bottle. Bruschettini shall compensate Bencao for RMB 16,303,581.74 (RMB 69.46/bottle × 234,719 bottles). In terms of the interest, the Department of Drug and Cosmetics Supervision of the CFDA issued to Bruschettini the Circular on Ordering the Recall and Rectification, on November 22, 2017, requiring Bruschettini to recall "Lantigen". Bruschettini should have performed its obligation to recall products within a reasonable period (three months as the case may be) but has so far failed to take any recall measures. Therefore, it shall also pay interest to Bencao taking RMB 16,303,581.74 as the base amount according to the basic loan interest rate of the same kind as issued by the People's Bank of China for the same period starting from February 22, 2018 to the date of actual payment.

The second claim of Bencao is: to compensate for the loss of RMB 4,012,076.80, including RMB 700,156.80 resulting from the sample spot-check of the imported "Lantigen" (10,080 bottles × average import price of RMB 69.46) and the loss of RMB 3,311,920 resulting from testing expenses. This court believes that whether "Lantigen" is a defective drug or not does not affect the spot-check being a necessary step in the import process which is a part of Bencao's business activities of purchase and import of "Lantigen" from Aprontech. The losses resulting from the sample spot-check and testing expenses caused thereby are neither other property losses due to the defect in "Lantigen" nor necessary expenses paid by Bencao for the recall of "Lantigen". Therefore, this court does not support this claim by Bencao for compensation.

The third claim of Bencao is: to compensate a total of RMB 88,000, including the notary fee of RMB 8,000 and the attorney fee of RMB 80,000 incurred from its claim for compensation against Bruschettini. This court considers that the notary fee of RMB 8,000 and the attorney fee of RMB 80,000 are necessary expenses paid by Bencao in urging Bruschettini to recall "Lantigen" and in claiming compensation from Bruschettini. Therefore, this court supports this claim.

The fourth claim of Bencao is: to compensate Bencao for its losses of RMB 52,298,347.06 resulting from the liability of the Civil Judgment (2017) YueMinZhong No. 3184 rendered by Guangdong High People’s Court. This court considers that, as stated above, the amount of compensation payable by Bruschettini to Bencao's inventory of "Lantigen" shall be calculated at the price of RMB69.46/bottle, which is the average import price from Aprontech.  Mainland Company returned 592,610 bottles of "Lantigen" to Bencao, therefore Bruschettini shall compensate accordingly for the total loss of RMB 41,162,690.60 (592,610 bottles × RMB 69.46/bottle). The freight of RMB 79,200 incurred from the return of the products by Mainland Company to Bencao is necessary expenses paid by Bencao for the recall of "Lantigen" and should be borne by Bruschettini as well. This court supports this claim. The total loss is RMB 41,241,890.60. Similarly, Bruschettini shall also pay interest to Bencao, taking RMB 41,241,890.60 as the base amount according to the basic loan interest rate of the same kind as issued by the People's Bank of China for the same period starting from February 22, 2018 to the date of actual payment.

The fifth claim of Bencao is: to compensate for the expense of RMB1,085,637 resulting from Bencao's dispute withMainland Company, including case acceptance fees of the first and second instances of RMB 645,071, the preservative measures fee of RMB 5,000 the and attorney fee of RMB 435,566. This court believes that Bencao should have implemented the recall of "Lantigen" in the PRC and accepted the return of the products and refunded the price of the products to Mainland Company as required by the competent administrative authority. The above costs and expenses are incurred by Bencao due to its failure to voluntarily refund the purchase price of "Lantigen" to Mainland Company. Therefore, these expenses are not necessary expenses for the recall of "Lantigen" and shall not be borne by Bruschettini. This court does not support this claim.

The sixth claim of Bencao is: to compensate for the notary fee of RMB8,000 arising from its claim for compensation to Bruschettini. This court holds that, as stated above, the notary fee ofRMB 8,000 is necessary expenses paid by Bencao in urging Bruschettini to recall "Lantigen" and in claiming for compensation from Bruschettini. This court supports this claim.

The seventh claim of Bencao is that Bruschettini should immediately dispose of the inventory of expired "Lantigen" at Bencao and bear all expenses arising therefrom. This court holds that Item 4 of Article 88 of the Law of the People's Republic of China on the Prevention and Control of Environmental Pollution by Solid Wastes stipulates that: "Hazardous wastes refer to the solid wastes included in the National Catalogue of Hazardous Wastes or those determined as hazardous wastes under the national standards on the identification standards and methods."The waste categories of "HW03 waste medicines and drugs" in the National Catalogue of Hazardous Wastes indicates that "medicines and drugs ineffective, deteriorated, unqualified, obsolete or fake in the process of production, sales and use (excluding HW01, HW02, and 900-999-49 categories)" belong to the class of hazardous wastes. Bruschettini refused to perform its obligation to recall products, resulting in the expiration of "Lantigen" stored with Bencao. Therefore, these of "Lantigen" are hazardous wastes. The corresponding disposal expenses borne by Bencao shall be deemed as necessary expenses for the recall of "Lantigen", and shall therefore be borne by Bruschettini in accordance with the law. On September 3, 2019, Guangdong Xinlongsheng Environmental Science & Technology Co., Ltd. provided Quotation for Hazardous Wastes Disposal, quoting the disposal of the 40 tons of Bencao's inventory of "Lantigen" forRMB40,000/ton, in a total amount of RMB1.6 million. Accordingly, this court determines Bruschettini to pay RMB1.6 million to Bencao for the disposal of the inventory of "Lantigen". In addition, Bruschettini contends that Bencao's claim against it was in contradiction to the Exclusive Distribution Agreement and the Schedule to the Exclusive Distribution Agreement dated December 5, 2013, in which Bencao waives its right of claim against Bruschettini. As stated above, the court doesn't admit the Exclusive Distribution Agreement and the Schedule to the Exclusive Distribution Agreement dated December 5, 2013. Bruschettini's defense lacks factual ground, and the court does not support it.

In summary, Bruschettini as the manufacturer of “Lantigen” has the obligation to recall the defective products and having delayed taking recall measures causing losses to Bencao. Thus, it should bear liability for the infringement and compensate Bencao for its losses. This court supports the claims of Bencao that are reasonable and rejects those unreasonable. In accordance with Paragraph 1 of Article 6, Paragraph 1(6) of Article 15, and Article 46 of the Tort Law of the People's Republic of China, this court rules as follows:

I. Bruschettini S.R.L. shall, within ten days as of the date of entry into force of this judgment, compensate Guangdong Bencao Medicine Group Co., Ltd. for the loss of RMB 16,303,581.74 for its "Lantigen" inventory and pay the corresponding interest (taking RMB 16,303,581.74 as the base amount according to the basic loan interest rate of the same kind as issued by the People's Bank of China for the same period starting from February 22, 2018 to the date of actual payment);

II. Bruschettini S.R.L. shall, within ten days as of the date of entry into force of this judgment, compensate Guangdong Bencao Medicine Group Co., Ltd. for the loss related to the "Lantigen" returned by Shanghai Mainland Pharmaceutical Co., Ltd. ofRMB 41,241,890.60 with interest thereon (taking RMB41,241,890.60 as the base amount according to the basic loan interest rate of the same kind as issued by the People's Bank of China for the same period starting from February 22, 2018 to the date of actual payment);

III. Bruschettini S.R.L. shall, within ten days as of the date of entry into force of this judgment, pay to Guangdong Bencao Medicine Group Co., Ltd. the disposal fee for its "Lantigen" inventory of RMB 1.6 million; and

IV. Bruschettini S.R.L., shall compensate Guangdong Bencao Medicine Group Co., Ltd. RMB96,000 including the notary fee of RMB16,000 and the lawyer's fee of RMB80,000, within 10 days as of the date of entry into force of this judgment;

V. Other claims of Guangdong Bencao Medicine Group Co., Ltd. are rejected.

If the party fails to perform its pecuniary obligations within the period specified in this judgment it shall, pursuant to Article 253 of the Civil Procedure Law of the People's Republic of China, pay double interest on the debt during the deferred performance period.

The case acceptance fee is RMB 482,718.82, of which Guangdong Bencao Medicine Group Co., Ltd. is responsible for RMB 130,766.47and Bruschettini S.R.L is responsible for RMB 351,952.35.

This judgment is final.

                       Presiding Judge: Zhang Yongjian

                               Judge: Xi Xiangyang

                               Judge: Sun Xiangzhuang

                               Judge: Ding Guangyu

                               Judge: Shen Hongyu

        October 25, 2019

                             Judge Assistant: Wang Zhifeng

                           Judge Assistant: Yang Qinghui

                                 Clerk: Pan Hairong

Related Links:

【（2019）最高法商初1号】广东本草药业集团有限公司与贝斯迪大药厂产品责任纠纷一审民事判决书

*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.