International Product Liability
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Jurist Publishing's 2012 release 1 of 'International Product Liability' provides comprehensive updates to product liability laws in multiple countries, including new chapters on Malaysia, Poland, and Romania. It covers essential topics such as liability theories, defective products, and remedies across various jurisdictions. The publication serves as a resource for legal practitioners and includes contact information for further inquiries.
![Canada
William McNamara, Emmanuelle Demers, and Ilana Schrager
Norton Rose OR LLP
Toronto, Ontario, Canada
Introduction
Manufacturers, distributors, suppliers, and sellers of products in Canada1 are all
vulnerable to product liability claims.2 Such claims are typically grounded in tort
or, in Québec, delict, but principles of contract law (the law of obligations in
Québec), as well as federal and provincial statutory enactments such as
consumer protection legislation, also are highly relevant.
Common Law
Tort
In General
Under general principles of tort law, manufacturers who place a product in the
stream of commerce owe a duty of care to the consumers of the product. In order
to succeed in a product liability claim, a consumer of the product must prove
that the product was defective, that the manufacturer’s negligence caused the
defect, and that the defect caused the plaintiff’s injury.3
However, it does not follow that every injury caused by a defective product will
result in a compensable product liability claim, as the general tort rules of
foreseeability and remoteness may impose limits on recovery.4 In other words, a
manufacturer’s liability extends only to a person whose injury was reasonably
foreseeable, whether or not the person injured was a consumer or user of the
defective product.5 Reliance, in a specific sense, is not a requirement for
recovery.
1 Referred to collectively as ‘manufacturers’ or ‘sellers’ in this chapter.
2 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 14.
3 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at pp. 63 and 67;
Rothwell v Raes, [1990] OJ Number 2298, at para 3 (CA).
4 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 28.
5 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 27; Walford
(Litigation guardian of) v Jacuzzi Canada Inc., [2007] OJ Number 4053, at para 29
(CA), citing with approval Bow Valley Husky v Saint John Shipbuilding, [1997] 3 SCR
1210, at para 19.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-67-320.jpg)
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Bases for Liability
There are a number of ways in which a product can be shown to be defective.
The most common is to establish a design defect by providing proof that the
product either contained something it should not have contained or that the
product lacked something it should have contained.6
Liability will be easiest to prove when the product was not produced in
accordance with the manufacturer’s design, perhaps due to an employee’s
negligence or a faulty system of production.7
The more difficult claim to establish is when the product was manufactured in
accordance with the manufacturer’s design but the plaintiff argues that the
design itself was inadequate.8 In order to succeed with such a claim, the plaintiff
must establish that the design of the product fails to meet a reasonable standard.9
Another important basis for liability is the manufacturer’s duty to warn, or
adequately warn, consumers about the inherent risks associated with the
‘reasonably foreseeable use’ of the products.10 The duty to warn extends to risks
associated with unintended uses or misuses of the product, when such
unintended use is foreseeable.11 However, the duty does not extend to obvious
dangers.12 Manufacturers ‘do not have the duty to warn the entire world about
every danger that can result from improper use of their product’.13
A manufacturer can fulfill its duty to warn consumers by placing the warning on
the product’s label or packaging, in the product’s instructions or brochure, or in
6 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 45.
7 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 45.
8 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 45.
9 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 46;
Gallant v Beitz, [1983] OJ Number 3054, at paras 6−9 (HC); Mayburry v Ontario
(Liquor Control Board), [2001] OJ Number 1494, at paras 119−131 (SCJ), aff’d
[2002] OJ Number 1177 (CA).
10 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice, looseleaf (Ontario, Canada Law Book, 2010), at L3:10;
S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at pp. 47, 52,
and 57−61.
11 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.20; S.M.
Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at pp. 53−54.
12 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.30; Walford
(Litigation guardian of) v Jacuzzi Canada Inc., [2007] OJ Number 4053, at paras
30−31.
13 Bow Valley Husky v Saint John Shipbuilding, [1997] 3 SCR 1210, at para 19.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-68-320.jpg)
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a letter to the consumer advising of the possible danger and outlining any
protective measures to be taken.14
The Supreme Court of Canada’s decision in Lambert v Lastoplex Chemicals
Co.15 provides guidance as to what is required of manufacturers in order to meet
their duty to warn consumers.16
In Lambert, the manufacturer’s lacquer product contained general warnings
about the product’s flammability, but no specific warning about the danger of
using the product near a pilot light (which was what led to the plaintiff’s
injury).17
The court held that the manufacturer’s general warnings were inadequate in that
they failed to warn against specific dangers. In its decision, the Court set out the
two principles regarding the duty to warn when selling dangerous products to
the general public: first, the manufacturer must specify the danger; second, the
requisite explicitness of the warning should be proportional to the danger likely
to be encountered in the product’s ordinary use.18
The Supreme Court has since confirmed the notion that general warnings will
not suffice when the ordinary use of the product entails specific risks or
dangers.19
The Ontario Court of Appeal has further expanded on the duty to warn by
outlining the following criteria for what will constitute adequate warning: it
should be clearly and understandably communicated; it must inform the user of
the nature of the risk and the extent of the danger; it must be in terms
commensurate with the gravity of the potential hazard; and it should not be
neutralized or negated by collateral efforts on the part of the manufacturer.20
The duty to warn may arise even if the manufacturer is not convinced of the
evidence supporting the potential danger.21 For example, in Hollis v Dow
Corning Corp.,22 the Supreme Court of Canada rejected the manufacturer’s
14 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10; S.M.
Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 47. Also of
relevance is Murphy v St. Catharine’s Gen. Hospital, [1963] OJ Number 822 (HC).
15 Lambert v Lastoplex Chemicals Co., [1972] SCR 569.
16 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.10.
17 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.10.
18 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.10.
19 Hollis v Dow Corning Corp., [1995] 4 SCR 634, at para 22.
20 Buchan v Ortho Pharmaceutical (Canada) Ltd., [1986] OJ Number 2331, at para 18
(CA).
21 Hollis v Dow Corning Corp., [1995] 4 SCR 634, at paras 40−41.
22 Hollis v Dow Corning Corp., [1995] 4 SCR 634, at para 41.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-69-320.jpg)
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argument that it did not have an obligation to warn of reports of unexplained
ruptures in its breast implants before it had reached its own conclusions as to the
cause and effect of the ruptures.
Further, the courts have refused to accept a manufacturer’s plea that it was
unaware of the dangerous characteristics of a product, on the basis that the
manufacturer must be treated as an expert in the field.23
The duty to warn is ongoing: manufacturers must warn of dangers known at the
time of sale, as well as dangers discovered after the product has been sold and
delivered.24
Further, this continuous duty to warn applies not only to potential defects or
dangers which become known to the manufacturer, but also to suspected dangers
where the evidence of the danger may be inconclusive.25
Causation
In order to succeed, a plaintiff also must establish that the defects in question
caused the plaintiff’s injury.26 Canadian courts have not recognized the
application of strict liability principles to tort claims27 and have consistently
confirmed that strict liability is not the law in Canada.28
In practice, the existence of a product defect raises a rebuttable inference of
negligence,29 and a claim will typically succeed when the plaintiff establishes,
23 Ruegger v Shell Oil Co. of Canada Ltd., [1963] OJ Number 798, at para 29 (HCJ).
24 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:50; S.M.
Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 51. Also
relevant is Rivtow Marine Ltd. v Washington Iron Works Ltd., [1974] SCR 1189.
25 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:50; Buchan v
Ortho Pharmaceutical (Canada) Ltd., [1986] OJ Number 2331, at para 54; Hollis v
Dow Corning Corp., [1995] 4 SCR 634, at paras 40−41.
26 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at pp. 63 and
67; Rothwell v Raes, [1990] OJ Number 2298, at para 3.
27 Phillips v Ford Motor Co. of Canada Ltd., [1971] 2 OR 637, at para 49 (CA); applied
in Horti-Pak Inc. v Nikko Materials U.S.A. Inc. (c.o.b. Gould Electronics), [2009] OJ
Number 3404, at para 443 (SCJ).
28 Andersen v St. Jude Medical Inc., [2002] OJ Number 260, at para 27 (SCJ). Also
relevant are Farro v Nutone Electric Ltd., [1988] OJ Number 143 (Ct J (Gen Div)),
rev’d on other grounds (1990), 68 DLR (4th) 268 (CA); Hunt v Federal Pioneer Ltd.,
[1993] OJ Number 2455, at para 10 (Ct J (Gen Div)); Mayburry v Ontario (Liquor
Control Board), [2001] OJ Number 1494, at para 131; Meisel v Tolko Industries Ltd.,
[1991] BCJ Number 105; Baker v Suzuki Motor Co., [1993] AJ Number 605, at para
77 (QB).
29 Cohen v Coca-Cola, [1967] SCR 469.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-70-320.jpg)
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on a balance of probabilities basis, that the manufacturer breached its duty of
care and that a causal link exists between that breach and the plaintiff’s injury.30
Defenses
Lack of Negligence
The manufacturer can avoid liability by proving that it was not negligent.31 It is
a complete defense to prove that all reasonable care was taken, based on the
knowledge in existence at the time the product was manufactured.32
One way in which a manufacturer can establish reasonable care is by adducing
evidence that it complied with regulatory standards.33 The Supreme Court of
Canada has held that statutory requirements may provide a useful standard of
what constitutes reasonable conduct.34
State-of-the-Art Defense
A manufacturer can argue that in addition to complying with the applicable
regulatory or industry standards, its product represented the state of the art at the
time it was manufactured. Thus, the product should not be held to the standard
of subsequent technological advances.35 However, this defense only applies in
situations where the product’s ‘social utility’ outweighed its risks: a product
with high risk and low social utility will trump a defendant’s ability to invoke
the state-of-the-art defense.36
For example, in Brunski v Dominion Stores Ltd.,37 a case involving an exploding
soft drink bottle, the bottle manufacturer was deemed liable despite the absence
of evidence of a safer alternative design. Although the manufacturer’s testing
and inspection procedure complied with quality control advice it received, the
Court was not satisfied that the procedure was reasonable, considering the
danger the product posed.
30 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 67; Cohen
v Coca-Cola, [1967] SCR; cited with approval in Mayburry v Ontario (Liquor
Control Board), [2001] OJ Number 1494 (SCJ), aff’d in Mayburry v Ontario (Liquor
Control Board), [2001] OJ Number 1494.
31 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 71.
32 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 71.
33 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:70.
34 Canada v Saskatchewan Wheat Pool, [1983] 1 SCR 205, 227.
35 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:80.
36 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:80.
37 Brunski v Dominion Stores Ltd., [1981] OJ Number 287 (HCJ).](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-71-320.jpg)
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Learned Intermediary Defense
When it is alleged that the manufacturer failed to warn against certain risks, the
manufacturer may escape liability by demonstrating that it delivered an adequate
warning to a skilled person or learned intermediary, who was in turn responsible
for relaying this information to the consumer.38
The duty to warn can only be fulfilled through an intermediary when the
intermediary is an expert whose knowledge approximates that of the
manufacturer.39 Furthermore, the Canadian courts have proven unwilling to
accept the learned intermediary defense outside of the medical realm, and even
then the manufacturer may still have a duty to directly warn the intermediary as
well as the consumer.40
Indeed, this was the decision reached by the Ontario Court of Appeal with
respect to the manufacturer’s duty to warn of the risks associated with the use of
oral contraceptives.41
Volunti Defense
In a situation in which a plaintiff continues to use a product after he knows of a
defect or risk, a defendant can argue that the plaintiff assumed the risk of
injury.42 If successful, this will operate as a complete defense.43 However, the
Supreme Court of Canada has set a high bar for this defense, in that voluntary
assumption of risk requires a conscious awareness and acceptance of the risk by
the plaintiff:
‘The volenti defense acts as a complete bar to recovery. Although it has
not been the subject of legislation, it has been very severely limited in
its application. Perhaps the judicial limitation was well merited in light
of the harsh academic criticism of the defense. [. . . ] Before it can
operate as a defense, the plaintiff must not only consent to accept the
risk of harm but also must bargain away his or her right to sue for
injuries that may result from the dangerous activity. The doctrine will
only be applied where it can truly be said that there is an understanding
38 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:60.
39 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:60; Hollis v
Dow Corning Corp., [1995] 4 SCR 634.
40 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:60
41 Buchan v Ortho Pharmaceutical (Canada) Ltd., [1986] OJ Number 2331, at para 85.
42 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:20.
43 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:20; Hall v
Hebert, [1993] SCJ Number 51, at para 102 (SCC).](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-72-320.jpg)
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on the part of both parties that the defendant assumed no responsibility
to take care for the safety of the plaintiff and the plaintiff did not expect
him or her to do so. Clearly, the volenti defense will only be applicable
in a narrow range of cases.’44
As noted above, the manufacturer’s duty to warn does not extend to obvious
dangers. In a product liability claim, the argument that a danger was obvious and
apparent will operate as a complete defense when the court accepts that the
danger was indeed obvious and apparent.45 For example, the Court
acknowledged in one case that a meat manufacturer was not required to warn
against the dangers of eating uncooked meat, which is commonly accepted to be
an obvious danger.46
Product Misuse
Manufacturers may be liable for misuses of their products. However, the scope
of this liability will be limited to those misuses of the product that are
reasonably foreseeable. Accordingly, when a manufacturer can establish that it
could not have foreseen the plaintiff’s unintended use of the product or the
injury which could result from that unintended use, this will operate as a
complete defense.47
Furthermore, if the manufacturer can demonstrate that it subjected the product to
reasonable testing and created a product that is safe for its intended use and
foreseeable misuse, a finding of liability is less likely.48
The court also will consider the intended or reasonably foreseeable user of the
product and, specifically, the user’s sophistication or skill level. So, for example,
in a case where a product had been designed to be used by skilled repairmen, the
Court found no liability when the plaintiff repairman was injured while using the
product at excessive speeds.49
44 Hall v Hebert, [1993] SCJ Number 51, para 102.
45 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:50.
46 Yachetti v John Duff & Sons Ltd., [1942] OR 682 (HCJ).
47 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:30.10; Rae v T.
Eaton Co. (Maritimes) Ltd., [1961] NSJ Number 10 (SC).
48 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:30.10; Rae v T.
Eaton Co. (Maritimes) Ltd., [1961] NSJ Number 10 (SC), note 72.
49 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:30.10; Austin v
3M Canada Ltd. (1975), 7 OR (2d) 200 (Co Ct).](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-73-320.jpg)
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Alteration Defense
An extension of the misuse defense is when the plaintiff has gone so far as to
alter the product from its original intended design. When the altered product
causes the plaintiff’s injury, the manufacturer can argue that it was the alteration
that caused or contributed to the injury.50 As with the defense of misuse, the
success of an alteration defense hinges on whether the alteration in question was
reasonably foreseeable.51
Contributory Defense
Although the argument does not represent a complete bar to recovery, a
defendant can contend that a plaintiff negligently contributed to his injury, such
as by failing to read the instructions for use52 or by misusing the product.53
Another possible ground for argument is that the plaintiff did not observe
defects in the product that ought to have been observed.54
If the court accepts that the plaintiff’s own negligence contributed to his injury,
it will apportion liability between the plaintiff and defendant pursuant to the
Ontario Negligence Act,55 which states:
‘In any action for damages that is founded upon the fault or
negligence of the defendant if fault or negligence is found on the
part of the plaintiff that contributed to the damages, the court shall
apportion the damages in proportion to the degree of fault or
negligence found against the parties respectively.’56
Contract
Legislative Framework for Sale of Goods
A manufacturer of products also may be liable to a buyer for providing goods
which breach express or implied contractual terms governing (for example) their
fitness for an intended purpose. This area of the law is generally treated under
50 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:40.
51 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:40; Deshane v
Deere & Co., [1993] OJ Number 2233 (CA), leave to appeal to SCC refused [1993]
SCCA Number 494.
52 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 74; Lem v
Barotto Sports Ltd., [1976] AJ Number 442, at para 25 (SC).
53 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 74; Hobbs
Manufacturing Co. v Shields Estate, [1962] SCR 716.
54 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 74;
Saddlemire v Coca-Cola Co. of Canada, [1941] OJ Number 240 (HC).
55 Ontario Negligence Act, RSO 1990, c N.1.
56 Ontario Negligence Act, RSO 1990, c N.1., s 3.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-74-320.jpg)
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the heading of sale of goods, and is conceptually distinct from product liability
claims undertaken against a manufacturer by an end user of the product in
question.
Such breach of contract claims are restricted by the doctrine of privity of
contract: manufacturers are only liable in contract to their co-contracting party
— that is, those who purchased the defective products directly from them. The
contractual recourse of third-party consumers, if any, lies against their vendors
only. Contract damages also are somewhat restrictive, because the governing
principle is that they are intended to put the buyer in the monetary position it
would have been in had the contract been properly fulfilled.57
In order to overcome some of these shortcomings, England in the mid-
nineteenth century, and many other common law jurisdictions subsequently,
adopted sale of goods legislation. This remedial legislation was intended to
supplement common law contractual principles by incorporating certain
warranties (known as implied warranties) into every contract for the sale of
goods.58
The theory behind the legislation is that a buyer should be entitled to assume
certain basic warranties of fitness and quality when dealing with a professional
seller acting in the normal course of business.59
However, the framework of rules offered by sale of goods legislation is not
designed to be comprehensive or obligatory, as it explicitly does not oust the
common law60 and is subject to exclusion by contractual exclusion clauses.61
Two of the most important warranties under the Ontario Sale of Goods Act62
(the Ontario SGA) are the warranty that the product sold must be ‘fit for its
57 M.J.B. Enterprises v Defense Construction, [1999] 1 SCR 619, at para 55.
58 Each of the common law provinces have enacted sale of goods legislation extending
similar protection to buyers of goods: Manitoba SGA, RSM 1987, c S-10, s 16;
Alberta SGA, RSA 2000, c S-2, s 16; Saskatchewan SGA, RSS 1978, c S-1, s 16;
British Columbia SGA, RSBC 1996, c 410, s 18; New Brunswick SGA, RSNB 1973,
c S-1, s 15; Nova Scotia SGA, RSNS 1989, c 408, s 17; Newfoundland and Labrador
SGA, RSNL 1990, c S-6, s 16; Prince Edward Island SGA, RSPEI 1974, c S-1, s 16;
Yukon SGA, RSY 2002, c 198, s 15; and Northwest Territories SGA, RSNWT 1988,
c S-2, s 18. Québec’s sale of goods legislation is discussed in detail in the section
‘Québec Civil Law’, below.
59 S.M. Waddams, The Law of Contracts, 5th ed (Toronto, Canada Law Book, 2005), at
para 411.
60 Ontario SGA, s 57(1); Manitoba SGA, s 60(1); Alberta SGA, s 58(1); Saskatchewan
SGA, s 58(1); British Columbia SGA, s 73(1); New Brunswick SGA, s 56(1); Nova
Scotia SGA, s 60(1); Newfoundland and Labrador SGA, s 60(2); Prince Edward
Island SGA, s 59(1); Yukon SGA, s 57(1); and Northwest Territories SGA, s 2(1).
61 Ontario SGA, s 53; Manitoba SGA, s 56; Alberta SGA, s 54; Saskatchewan SGA, s
54; British Columbia SGA, s 69; New Brunswick SGA, s 52; Nova Scotia SGA, s 56;
Newfoundland and Labrador SGA, s 56; Prince Edward Island SGA, s 55; Yukon
SGA, s 52; and Northwest Territories SGA, s 3.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-75-320.jpg)
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intended purpose’, and the warranty that the goods must be of ‘merchantable
quality’.
Implied Warranties
The fitness for purpose warranty applies when the buyer makes its intended
purpose known to the seller, such that the buyer is relying on the seller’s
expertise, and the seller is in the business of goods of such description, unless
the sale is of a specified article under its patent or other trade name.63
The warranty that the goods are of merchantable quality does not extend to
defects which could reasonably have been revealed by an examination of the
goods prior to the sale.64
The parties are, of course, free to include express contractual warranties
regarding the goods which are the subject of the sale. However, the implied
warranties of quality and fitness for purpose provided for under the SGA will
apply unless specifically excluded, pursuant to Section 53 of the Ontario SGA:
‘Where any right, duty, or liability would arise under a contract of sale
by implication of law, it may be negatived or varied by express
agreement or by the course of dealing between the parties, or by usage,
if the usage is such as to bind both parties to the contract.’65
In its decision in Syncrude Canada Ltd. v Hunter Engineering Co., the Supreme
Court of Canada confirmed that when the implied warranties have been properly
excluded, express warranties will exclusively govern.66
When the implied warranties are not excluded, strict liability for breach will be
applied. Once a product is shown to have been defective, it is no defense for the
manufacturer to show that he exercised reasonable care or that the defect was
undiscoverable.67
62 Ontario SGA, s 53.
63 Ontario SGA, c S-1, s 15(1); Manitoba SGA, s 16(a); Alberta SGA, s 16(2);
Saskatchewan SGA, s 16(1); British Columbia SGA, s 18(a); New Brunswick SGA, s
15(a); Nova Scotia SGA, s 17(a); Newfoundland and Labrador SGA, s 16(a); Prince
Edward Island SGA, s 15(a); Yukon SGA, s 15(a); and Northwest Territories SGA, s
18(1)(a).
64 Ontario SGA, s 15(2); Manitoba SGA, s 16(b); Alberta SGA, s 16(4); Saskatchewan
SGA, s 16(2); British Columbia SGA, s 18(b); New Brunswick SGA, s 15(b); Nova
Scotia SGA, s 17(b); Newfoundland and Labrador SGA, s 16(c); Prince Edward
Island SGA, s 15(b); Yukon SGA, s 15(b); and Northwest Territories SGA, s
18(1)(b).
65 Ontario SGA, s 53. Also established in the sale of goods legislation in the other
provinces and territories.
66 Syncrude Canada Ltd. v Hunter Engineering Co., [1989] 1 SCR 426, at para 30.
67 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 94; L.G.
Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-76-320.jpg)
![CANADA CDN-11
The SGA defines a sale of goods as a ‘contract whereby the seller transfers or
agrees to transfer the property in goods to the buyer for a money consideration,
called the price’.68 Accordingly, when imposing liability pursuant to the SGA,
the courts have interpreted its implied warranties contractually and have limited
recoverable claims pursuant to the doctrine of privity of contract.69 The
manufacturer (or seller) is answerable only to the buyer for breaches of the
implied warranties, and not to third parties who may be the owner or user of the
product in question.70
For example, in a case in which a 15-year-old boy was injured when riding a
defective bicycle purchased for him by his stepfather, the Court concluded that
the boy did not qualify as a ‘buyer’ under the Ontario SGA, even though he had
paid part of the price and was the sole user of the bicycle.71
The courts also have imposed liability on manufacturers in the situation where,
although there was no obvious contract between the manufacturer and buyer, the
manufacturer was involved in inducing the buyer to purchase the product.72
In one instance, a buyer purchased the defective product from a dealer, but
argued that the manufacturer also should be liable for breach of implied
warranties.73 The buyer’s argument was that the manufacturer’s product
brochures, in conjunction with the dealer’s oral representations, induced the
buyer to purchase the product. The Court held that the manufacturer’s
representations in the product brochure formed a ‘collateral warranty’ between
the buyer and the manufacturer,74 and that the manufacturer should not be
shielded from liability simply because it had no direct contact with the buyer.75
Other Statutory Enactments
Consumer Protection Act
A number of provinces have enacted consumer protection legislation76 in order
to expand the protective reach of various product warranties to consumers. The
law and practice (Ontario, Canada Law Book, 2010), at L4:10:20.2. Also of
relevance is McMorran v Dominion Stores Ltd. et al. (1977), 14 OR (2d) 559 (HCJ).
68 Ontario SGA, s 2(1).
69 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L4:10:10.
70 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability:
Canadian law and practice (Ontario, Canada Law Book, 2010), at L4:10:20.1.
71 Resch v Canadian Tire Corp., [2006] OJ Number 1505 (SCJ).
72 Murray v Sperry Rand Corporation et al., [1979] OJ Number 4088, at para 58 (HCJ).
73 Murray v Sperry Rand Corporation et al., [1979] OJ Number 4088, at para 58 (HCJ).
74 Murray v Sperry Rand Corporation et al., [1979] OJ Number 4088, at paras 48−49.
75 Murray v Sperry Rand Corporation et al., [1979] OJ Number 4088, at paras 53−64.
76 Ontario CPA, RSO 2002, c 30, Schedule A, s 9; Manitoba CPA, CCSM 1987, c C-
200, s 58(1); Saskatchewan CPA, RSS 1996, c C-30.1, s 48; Nova Scotia CPA, RSNS
1989, c 92, s 26; New Brunswick Consumer Product Warranty and Liability Act,](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-77-320.jpg)
![CDN-14 INTERNATIONAL PRODUCT LIABILITY
individual consumers, instead endowing specified government actors with the
responsibility for the enforcement of the legislation and the prosecution of
breaches of its provisions.
Notably, the Supreme Court of Canada recently affirmed its decision in Canada
v Saskatchewan Wheat Pool,94 in which it held that breach of statute is neither
necessary nor sufficient to ground a private cause of action,95 such as
negligence. However, the court did state that although proof of statutory breach
in and of itself does not automatically result in a finding of negligence nor in a
right to recovery, proof of such a breach may constitute evidence of negligence,
and the statutory formulation of the duty may afford a ‘specific and useful
standard of reasonable conduct’.96
Québec Civil Law
Delictual Liability
The principles of delictual (ie, non-contractual) liability under Québec civil law
are set out in Articles 1457 et seq of the Civil Code of Québec (the CCQ). The
general principle is stated at Article 1457, as follows:
‘Every person has a duty to abide by the rules of conduct which lie
upon him, according to the circumstances, usage, or law, so as not
to cause injury to another.
‘Where he is endowed with reason and fails in this duty, he is
responsible for any injury he causes to another person by such fault
and is liable to reparation for the injury, whether it be bodily,
moral, or material in nature.
‘He is also liable, in certain cases, to reparation for injury caused to
another by the act or fault of another person or by the act of things
in his custody.’
The liability of the manufacturer is provided for in Article 1468 of
the CCQ:
‘A manufacturer of a movable property is liable to reparation for
injury caused to a third person by reason of a safety defect in the
thing, even if it is incorporated with or placed in an immovable for
the service or operation of the immovable.
‘The same rule applies to a person who distributes the thing under
his name or as his own and to any supplier of the thing, whether a
wholesaler or a retailer and whether or not he imported the thing.’
94 Canada v Saskatchewan Wheat Pool, [1983] 1 SCR 205.
95 Canada (Attorney General) v Telezone Inc., [2010] SCJ Number 62 (SCR), at para
28.
96 Canada v Saskatchewan Wheat Pool, [1983] 1 SCR 205.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-80-320.jpg)
![CDN-16 INTERNATIONAL PRODUCT LIABILITY
to gross fault.98 Under this line of reasoning, it necessarily follows that a
limitation of liability clause would be of no use in a product liability claim.
Article 1475 of the CCQ also provides that limitation of liability clauses may
not be enforced if the manufacturer cannot show that the other party was aware
of the clause’s existence at the time of contract formation:
‘A notice, whether posted or not, stipulating the exclusion or
limitation of the obligation to make reparation for injury resulting
from the nonperformance of a contractual obligation has effect, in
respect of the creditor, only if the party who invokes the notice
proves that the other party was aware of its existence at the time
the contract was formed.’99
Duty to Inform
As is the case in Canada’s common law jurisdictions, the obligation of a seller to
inform a buyer of the risks of using the product sold is well established under
Québec law. In Bank of Montreal v Bail,100 the Supreme Court of Canada
articulated an implicit contractual duty to inform. This duty is founded upon the
duty of good faith, which is codified in Article 1375 of the CCQ:
‘The parties shall conduct themselves in good faith both at the time the
obligation is created and at the time it is performed or extinguished.’
In Bank of Montreal v Bail,101 the Supreme Court of Canada outlined three
elements giving rise to the obligation to inform: knowledge of the information,
whether actual or presumed, by the party owing the obligation; the decisive
importance of the information in question; and a situation in which it is
impossible for the party to whom the duty is owed to inform itself.
The duty to inform comprises two separate components: the duty to provide
information regarding proper use of the product; and the duty to provide
information about the safety hazards and dangers related to the product.
The duty to provide information regarding proper use of the product requires
that the seller communicate to the buyer all necessary information for optimal
use of the product. This will require the seller to provide information relating to
the use, maintenance, and conservation of the product. This duty may be
98 Mabaie Inc. v Petro-Canada Inc., [2000] RJQ 2959 (CS); appeal granted, Petro-
Canada Inc. v Mabaie Construction Inc., JE 2003-437 (CA). However, the Court of
Appeal does not discuss this issue; 1965587 Ontario Inc. v Équipement fédéral
Québec ltée, JE 2005-629 (CS). Contra: Promutuel Lac St-Pierre, société mutuelle
d’assurance générale v Chastenay, JE 2000-1037 (CS).
99 Also relevant is the ruling in Accessoires d'auto Vipa Inc. v Therrien, J.E. 2003-
1653, at paras 37 and 42.
100 Bank of Montreal v Bail Ltée, [1992] 2 SCR 554.
101 Bank of Montreal v Bail Ltée, [1992] 2 SCR 554, 586, 587; ABB Inc. v Domtar Inc.,
2007 CSC 50, at para 108.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-82-320.jpg)
![CANADA CDN-17
fulfilled by providing the buyer with a user guide. The more technical the
product, the more onerous the duty to inform.
The duty to provide information regarding the safety hazards of the product
requires the seller to provide the buyer with all necessary information regarding
the risks and safety precautions related to the normal use of the product. This
duty may be fulfilled by providing safety warnings. The more dangerous the
product, the more stringent the duty to inform.
Defenses
The manufacturer’s liability under Québec civil law is not absolute. For
example, pursuant to Article 1470 of the CCQ, a manufacturer may free himself
from liability ‘by proving that the injury results from superior force’, ‘superior
force’ being defined as ‘an unforeseeable and irresistible event’.
The manufacturer also can avoid liability for injuries caused by a safety defect
in the product if he proves that ‘the victim knew or could have known of the
defect, or could have foreseen the injury’.102
More important, the manufacturer may be exonerated if he proves that the
existence of the defect could not have been known given the state of knowledge
at the time the product was manufactured or sold, and that it did not breach its
duty to provide updated safety information when it became aware of the defect.
Unless the buyer specifies that he intends to use the product in a particular
manner, the seller’s duty to inform is limited to the foreseeable uses of the
product. Accordingly, a seller may escape liability by demonstrating that a
claimant’s damages did not result from a foreseeable use of the product.
The duty to inform is predicated on presumed inequalities or disparities with
respect to access to information. This duty does not come into play when both
parties have equal access to information. As such, a seller is not obligated to
communicate information that a reasonable person should normally be aware of.
When the buyer is a professional in a particular field or a sophisticated buyer,
his duty to seek out information will be more exacting.103 In this case, the seller
will only be bound to disclose information that would not be reasonably
accessible to a professional or sophisticated purchaser.
Distinctions between Duty to Inform and Duty to Disclose Latent Defects
Although the duty to inform and the duty to disclose latent defects may overlap,
they are not identical. The duty to inform encompasses the duty to disclose
latent defects, but it is much broader and also covers all other information that
may objectively be of decisive importance for the purchaser.
102 Civil Code of Québec, art 1473.
103 Bank of Montreal v Bail Ltée, [1992] 2 SCR 554.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-83-320.jpg)
![CDN-22 INTERNATIONAL PRODUCT LIABILITY
Defenses
As stated above, there is a presumption in favor of buyers whereby
manufacturers are presumed to know of the defects in their products.120 This
presumption is based on the notion that since manufacturers have control over
the labor and material used to manufacture their products, they should be
deemed to be experts with regard to those products.
In principle, sellers can rebut this presumption by demonstrating that they could
not have discovered the defect even if they had taken every precaution that a
reasonable manufacturer would have taken in the same circumstances.
However, the rebuttal of this presumption is extremely difficult in practice. In
ABB v Domtar, the Supreme Court noted that, as of 2007, there were no known
cases in which a manufacturer had successfully rebutted the presumption.121
Furthermore, only two possible sources of rebuttal have been recognized thus
far: that the damage was the fault of the buyer or of a ‘superior force’ (defined
as ‘an unforeseeable and irresistible event’); or the ‘risk development’
defense.122
With regard to the first line of defense, a manufacturer may exonerate himself
by proving that the damage resulted from the buyer’s improper use or
maintenance of the product. This type of argument necessarily implies the
argument that the defect did not exist at the time of the sale. This defense is
codified under Article 1470 of the CCQ, which provides:
‘A person may free himself from his liability for injury caused to
another by proving that the injury results from superior force,
unless he has undertaken to make reparation for it.
‘A superior force is an unforeseeable and irresistible event,
including external causes with the same characteristics.’
Under the second defense, the manufacturer may argue that it would have been
impossible to detect the defect given the state of scientific and technical
knowledge at the time the product was released into the market.123 This defense
is now codified under Article 1473 of the CCQ:
‘The manufacturer, distributor, or supplier of a movable property
is not liable to reparation for injury caused by a safety defect in the
120 General Motors Products of Canada v Kravitz, [1979] 1 SCR 790, 797; ABB Inc. v
Domtar Inc., 2007 CSC 50, at para 41.
121 ABB Inc. v Domtar Inc., 2007 CSC 50, at para 66.
122 ABB Inc. v Domtar Inc., 2007 CSC 50, at para 72.
123 London & Lancashire Guarantee & Accident Co. of Canada v Cie F.X. Drolet,
[1944] RCS 82, 85-87. Also of relevance is Berthiaume v Réno-dépôt Inc., [1995]
RJQ 2796 (CA).](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-88-320.jpg)
![CANADA CDN-23
property if he proves that the victim knew or could have known of
the defect, or could have foreseen the injury.’
Some authorities have held that Article 1473 of the CCQ is only applicable to
extra-contractual matters (ie, when the plaintiff is a third party rather than a
contractual buyer). Others take the position that the risk development defense is
available to manufacturers in all instances, including contractual matters.124
Buyers of defective goods have several options for recovery. Article 1590 of the
CCQ provides that buyers may, without prejudice to the right to claim damages,
either ask for the specific performance of the obligation, obtain the termination
or annulment of the contract, or take any other measure provided by law to
enforce their right to the performance of the obligation.
Articles 1727 and 1728 of the CCQ provide for specific rules when the product
is no longer usable by reason of a latent defect. Under these provisions, the
seller is bound to pay the buyer an amount equal to the actual value of the
product. However, if the seller was aware of or could not have been unaware of
the defect, the seller is required to restore the actual price of the product and to
compensate all damage suffered by the buyer:
‘If the property perishes by reason of a latent defect that existed at
the time of the sale, the loss is borne by the seller, who is bound to
restore the price; if the loss results from superior force or is due to
the fault of the buyer, the buyer shall deduct from his claim the
value of the property in the state it was in at the time of the loss.’
As noted previously, the manufacturer is presumed to be aware of the defect,
and this presumption is very difficult to rebut. Consequently, the manufacturer
will generally be bound to compensate all damage suffered by the buyer.
In addition, Article 1613 of the CCQ provides that in contractual matters,
liability is limited to foreseeable damage. This provision states:
‘In contractual matters, the debtor is liable only for damages that were
foreseen or foreseeable at the time the obligation was contracted, where
the failure to perform the obligation does not proceed from intentional or
gross fault on his part; even then, the damages include only what is an
immediate and direct consequence of the nonperformance.’
124 P.-G. Jobin, La vente, 3rd ed (Cowansville, Yvon Blais, 2007), at p. 217;
Accessoires d'auto Vipa Inc. v Therrien, J.E. 2003-1653, at para 36 (CA) ; Services
techniques Claude Drouin Inc. v Ventilateurs TLT Co-Vent Inc. (Ventilateurs Co-
Vent Inc.), 2008 QCCA 951, at paras 34−35 (Qué CA); Manac Inc./Nortex v Boiler
Inspection and Insur. Co. of Canada, [2006] RRA 879, at para 138 (CA); and ABB
Inc. v Domtar Inc., 2007 CSC 50, at para 72.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-89-320.jpg)
![CDN-24 INTERNATIONAL PRODUCT LIABILITY
In light of the above, sellers and manufacturers will generally be liable for the
damage that was foreseeable at the time of the sale.
Some decisions have suggested that, given that manufacturers are presumed to
have known about the defects, their failure to disclose the defects amounts to a
gross fault. Following this line of jurisprudence, manufacturers must pay for all
the damage suffered, even if it was unforeseeable. 125
Limitation of Liability Clauses
Article 1733(1) of the CCQ provides that a seller may not rely on a limitation of
liability clause if he was aware, or could not have been unaware, of the latent
defect affecting the quality of the product, namely its fitness for its intended
purpose:
‘A seller may not exclude or limit his liability unless he has
disclosed the defects of which he was aware or could not have
been unaware and which affect the right of ownership or the
quality of the property.’
Article 1733(2) of the CCQ provides an exception to this rule in situations
where a buyer buys property at his own risk from a seller who is not a
professional seller.
As discussed above, manufacturers are presumed to have been aware of defects
in their products, and this presumption is extremely difficult to rebut. Therefore,
on a practical level, a manufacturer may not rely on a limitation of liability
clause to limit or exclude its liability with respect to a latent defect.126
Finally, Article 1732 of the CCQ provides that a seller may not rely upon a
limitation of liability clause to exempt himself from personal fault:
‘The parties may, in their contract, add to the obligations of legal
warranty, diminish its effects, or exclude it altogether, but in no
case may the seller exempt himself from his personal fault.’
125 Mabaie Inc. v Petro-Canada Inc., [2000] RJQ 2959 (CS), appeal granted Petro-
Canada Inc. v Mabaie Construction Inc., JE 2003-437 (CA). However, the Court of
Appeal does not discuss this issue. Also relevant is 1965587 Ontario Inc. v
Équipement fédéral Québec ltée, JE 2005-629 (CS). Contra: Promutuel Lac St-
Pierre, société mutuelle d’assurance générale v Chastenay, JE 2000-1037 (CS),
appeal granted with respect to expert fees only.
126 ABB Inc. v Domtar Inc., 2007 CSC 50, at paras 56, 66, and 71.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-90-320.jpg)
![England and Wales
Peter Burbidge, Barrister
Senior Lecturer, University of Westminster
London, United Kingdom
Introduction
It should be stressed initially that the United Kingdom is made up of three
separate legal systems: those applying in England and Wales (a single
jurisdiction), in Scotland, and in Northern Ireland.
Although the liability for defective products is subject to essentially the same
rules in each jurisdiction, the procedures in the courts may be different. For this
reason, this chapter is confined to the law as applied in England and Wales.
Basis of Manufacturer’s Liability
In General
Except in relation to his direct purchaser, a manufacturer’s liability rests on tort.
There are three possible sources of tort liability for producers.
These are liability for negligence under common law, strict liability under Part I
of the Consumer Protection Act 1987, and liability for breach of statutory duty
imposed by criminal legislation, such as the product safety rules issued under
Part II of the Consumer Protection Act 1987.
Negligence
Product liability under English law is classified as a tort, as there is usually no
contract between the manufacturer and the end user or person injured. Under
common law, liability was based on negligence under the case of Donoghue v
Stevenson,1 which imposed a duty on manufacturers to take reasonable care in
the production of products whenever they could foresee harm from the product.
This duty is owed to those suffering foreseeable damage even if they are not the
end user or ultimate purchaser. Until the introduction of strict liability for
products in 1987, the end purchaser would normally prefer to sue the seller in
contract, as liability in this area is strict (further discussed in the subsection
‘Strict Liability in Tort’). The liability of the producer for negligence at common
1 Donoghue v Stevenson [1932] AC 502.
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![ENG-2 INTERNATIONAL PRODUCT LIABILITY
law is, however, confined to physical damage to other property or injury to
persons and the financial losses that result from them. It thus does not cover
foreseeable purely financial loss to a consumer who has to repair the product or
suffers expenses when the product breaks down.2
Fraud or Misrepresentation
Although it is possible for a manufacturer to be liable for fraud or
misrepresentation (eg, by inducing purchasers to buy the product by making
false claims about its properties), this is not considered the basis on which
product liability is imposed on those who suffer damage or injury.
Such statements, as they relate to the expected level of safety, will be an element
in determining whether the product is defective under Section 3 of the Consumer
Protection Act 1987 (further discussed in the section ‘Concept of Defect’);
however, they are not the basis for imposing liability.
Warranty
Express Warranty
In some cases, the manufacturer will issue an express warranty (guarantee) with
the product, which will amount to a contract with the end user. It is generally
recognized that the English requirement of consideration for contractual
promises is satisfied by the buyer’s decision to buy the product and thus obtain
the guarantee.
The extent of the guarantee is likely to be restricted and will usually only cover
the cost of repairs to the product. It will be interpreted according to its terms and
will not in itself give rise to liability if the product causes damage.
It cannot, however, reduce the consumer’s own rights against the seller in
contract or the manufacturer in tort (further discussed in the subsection
‘Contractual Liability for Warranty’).
Implied Contract
English law does not recognize any implied contract between the manufacturer
and the ultimate consumer of the product (assuming, of course, that the
consumer did not buy directly from the manufacturer).
Implied Satisfactory Purpose or Fitness for Purpose
The vendor of a defective product may, of course, be liable in contract to his
purchaser for breach of certain implied contractual terms imposed by the Sale of
Goods Act 1979.
2 Anns v Merton [1970] AC 728.
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![ENGLAND AND WALES ENG-3
These terms strictly guarantee satisfactory quality3 and fitness for purpose,4 but
this liability is only to the other contracting party (further discussed in the
section ‘Contractual Liability of Distributors Down the Chain’).
Impact on Third Parties
In general, these implied terms only benefit the other contracting party. The
Contracts (Rights of Third Parties) Act 1999 does allow third parties to sue on
contracts to which they are not a party, but only when they are identified as the
beneficiary under the contract.
This means that consumers generally may not be able to sue the manufacturer
for breaches of satisfactory quality in its contract of sale to a retailer, as they will
not be named in that contract as beneficiary, either individually or as a class. For
example, in the case of Avraamides v Colwell (BTC), 5 the Court of Appeal
refused to allow a claim by a subsequent purchaser of a house for defective
building work carried out under a contract with the previous owner.
However, a third party who is injured by the product or suffers damage to his
property can, in any case, rely on the strict product liability in tort under the
Consumer Protection Act 1987 enacting the European Union (EU) Product
Liability Directive 1985.6
Strict Liability in Tort
Since the enactment of the EU Product Liability Directive in 1987, it is no
longer necessary to show negligence by the producer.7 Provided that the product
has been shown to be defective and the defect caused injury or damage to
private property (not to the product itself), the producer is strictly liable to the
victim and should have insurance to cover this.8
Section 1 of the Consumer Protection Act 1987 defines the ‘producer’ as the
person who manufactured the product or, in the case of raw materials, the person
who won or abstracted it.
3 Sale of Goods Act 1979, s 14(2). The original terminology in the Sale of Goods Act
1893, s 14, of ‘merchantable quality’ was replaced by ‘satisfactory quality’ in the 1979
Act by virtue of amendments introduced by the Sale and Supply of Goods Act 1994. It
was thought the new term would be more easily understood by consumers.
4 Sale of Goods Act 1979, s 14(3).
5 Avraamides v Colwell (BTC) [2006] EWCA Civ 1533.
6 Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws,
regulations, and administrative provisions of the Member States concerning liability
for defective products, OJ 1985 L 210/29.
7 Consumer Protection Act 1987, s 2.
8 Damage must be to private property, not business property. Under the Consumer
Protection Act 1987, s 5(4), there is a threshold of £275 before strict liability is
imposed for property damage.
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![ENGLAND AND WALES ENG-7
equipment that would have reduced injury (eg, a helmet for a motorcyclist or a
safety belt for a car passenger).
The claimant in these situations will suffer a reduction in damages according to
what the court considers just and equitable having regard to the claimant’s share
in the responsibility for the damage.17 If the claimant is considered wholly to
blame, the reduction may be as much as 100 per cent, which is tantamount to
saying that the defect did not cause the injuries. There is, in any case, a defense
of volenti non fit injuria (voluntary assumption of risk), but this is
indistinguishable from the argument that the claimant was 100 per cent to blame.
Notably, the notion of a ‘defect’ under the Consumer Protection Act 1987 takes
account of what might reasonably be expected to be done by the user, and a
product which is safe when properly used may not actually be ‘defective’.
English law also requires claimants to take reasonable steps to mitigate any loss
they have suffered; therefore, unreasonable failures to seek treatment or
employment may result in reductions in the damages that are recoverable.
Accordingly, in principle, medical developments caused by the failure to
undertake reasonable treatment or lost earnings caused by the failure to take
reasonable employment are not recoverable.
Causation
The issue is whether the claimant has proved, on the balance of probabilities,
that the defective product caused the injury or damage. Damage does not have to
be due to the proximate cause, so long as, on the balance of probabilities, the
claimant can show that he would not have suffered the damage or injury but for
the defective product.
Examples of Strict Liability for Products
The following examples will suffice to illustrate the application of the rules
about strict liability for products in England. In Abouzaid v Mothercare,18 the
English Court of Appeal ruled that a fleecy-lined sleeping bag for a child’s
pushchair sold in 1990 was ‘defective’ under the Consumer Protection Act and
thus gave rise to strict liability, despite the fact that there was no negligence at
common law. The claimant, aged 12 years, was injured by an elastic strap which
flew out of her hand and caught her in the eye as she was fastening it around her
younger brother.
The defendant did not know of the defect and argued the ‘development risks’
defense (previously discussed in the subsection ‘State-of-the-Art Defense’), but
the court ruled that the safety tests existing in 1990 were exactly the same as
17 Under the Law Reform Contributory Negligence Act 1945. Before this Act, any
contributory negligence by the claimant would have fully defeated his claim.
18 Abouzaid v Mothercare (UK) Ltd [2000] All ER (D) 2436.
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![ENG-8 INTERNATIONAL PRODUCT LIABILITY
those in 2000, so the failure to use the available tests at the time meant the
defense was inapplicable.
In Bogle v McDonalds,19 a group of claimants who had been burnt by hot drinks
argued that the defendants were negligent or liable under the Consumer
Protection Act for the state of the thermal cups in which they were served their
drinks. The claims were rejected, as the cups were adequately designed and
made and the users would be expected to know that the drinks were hot.
The safety of the cups met the public’s legitimate expectations as to general
safety, as the public would expect scalding to result from a spillage and should
take care in relation to this. Mr. Justice Field rejected all arguments that the
coffee or tea could be served at safe temperatures, as serving drinks at 70
degrees (as the claimants suggested) would have impaired the flavor and would
not have made users safe from burns. There was thus neither negligence nor
strict liability under the Consumer Protection Act.
Many cases will hinge on the issue of whether the product was defective and
whether the defect caused the damage. This is a matter for evidence, with the
judge having to determine on the balance of probabilities whether the defect
existed at the time of supply and whether it caused the damage. Very often, this
will be a matter for expert evidence.
Although English civil procedure rules encourage the parties to agree on a single
expert, it is still normal for each party to call their own expert witnesses, each
party’s expert putting forward his own competing explanation of how the event
occurred.
In Ide v ATB Sales,20 the Court of Appeal had to deal with an appeal from a
producer (an importer into the EU) who had been held strictly liable for a defect.
Ide had been injured when he fell off his mountain bike. The alternative
explanations (supported by experts) were that the handlebar had fractured
because of a defect, causing him to fall (according to the plaintiff’s witness) or
that he had lost control and the handlebar had fractured on hitting the ground
(according to the defendant’s witness).
Once the judge had rejected the possibility that the handlebar had fractured in
the fall as unlikely, he was entitled to infer that it was probably defective, as it
had failed whilst being put to its normal use as a mountain bike. As the Court
ruled in this case, the Act merely requires the judge to determine that the
product was defective; it is unnecessary to ascertain the exact cause of the defect.
In this case, the suggestion by the claimant’s expert that there had been a
hairline fracture was a secondary issue regarding the cause of the defect; the
primary issue was that a defect existed, for which the manufacturer was liable.
19 Bogle v McDonalds Restaurants Ltd [2002] EWHC 490 (QB), Field J.
20 Alan Peter Ide v ATB Sales Ltd [2007] EWHC 1667 (QB).
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The case of Toyota v Russell,21 although concerned with contractual liability,
raised similar issues. The car concerned had caught fire while being serviced in
a garage, and three possible explanations were put forward: that it was due to an
arson attack, or that it was due to a defect either in the car’s electrics or in the
wiring inserted by the garage. Having eliminated arson, the judge had to decide
between the other explanations, neither of which was improbable. On the basis
of the evidence, including eye-witness evidence, the judge decided (as the Court
of Appeal concluded he was entitled to) that the defect was more likely to have
been in the car’s electrics.
By contrast, in Piper v JRI,22 a claimant failed in his appeal against a ruling that
the prosthesis used in his hip replacement was not defective. The prosthesis had
sheared in two and had to be removed and replaced, resulting in significant loss
of mobility. In this case, the judge accepted evidence that any imperfections
during machining or polishing of the prosthesis would have been detected in the
final inspection process. Hence, the product was not defective when it left the
defendant’s factory and the defendant had proved, on the balance of
probabilities, the defense under Section 4 of the Consumer Protection Act.
Contractual Liability of Distributors
Fraud or Misrepresentation
Usually, liability for misrepresentation arises only in relation to contracts. Thus,
if the manufacturer makes representations (even without fault), which influenced
the party that purchased from him (eg, a wholesaler, retailer, or distributor) to
purchase the goods, that purchaser may rescind the contract once he discovers
the truth of the matter. Assuming the purchaser has not lost this right by
unreasonable delay, or the inability to restore the previous position (make
restitutio in integrum), the court can award damages in lieu of rescission if it
thinks this is more equitable.
Rescission is a right which exists in the rules of equity derived from case law. If
the statement is negligent or fraudulent, the purchaser will be entitled to
damages for any losses; this measure is intended to put the purchaser back in the
position he was in before the contract.23
When claiming for negligent misrepresentation, the burden is on the seller to
show he had reasonable grounds for believing the truth of his statement.24 When
the person claiming has no direct contract with the manufacturer, he should still
be able to claim for fraudulent statements in the literature about the product and
21 Lexus Financial Services (T/A Toyota Financial Services (UK) PLC) v Sandra
Russell [2008] EWCA Civ 424.
22 Terence Piper v JRI (Manufacturing) Ltd [2006] EWCA Civ 1344.
23 Common law only recognized damages for deceit. The Misrepresentation Act 1967, s
2(1), provides that negligent misrepresentation will give rise to damages assessed as
if they were for deceit.
24 Misrepresentation Act 1967, s 2(1).
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defects which could not have been discovered for some time, the buyer may be
able to reject the goods several months after the actual purchase.
In Rogers v Parish,28 a Range Rover vehicle had serious faults from the point of
delivery, although it was driven for more than 5,500 miles. Despite having a
manufacturer’s warranty providing for repair, the Court nevertheless ruled that
the buyer was entitled to reject the vehicle after two months’ use.
In Clegg v Andersson, 29 a yacht had been supplied with a keel that was
substantially heavier than the manufacturer’s specifications. Following delivery,
the parties corresponded on the overweight keel and the possibility of repairs,
over a period of seven months. Early in that correspondence, the buyers sought
certain information, but they did not receive it until close to the end of the period.
Three weeks later, they rejected the yacht.
It was held that the rejection was within time, and they were thus entitled to
recover their full price of £90,000. Section 35(6)(a) of the Sale of Goods Act
makes it clear that time taken merely in requesting or agreeing to repairs and
carrying them out is not to be counted as an unreasonable delay.
Thus, the several months it took to find out what would be required for
modification or repair (in this case, to the keel) had to be ignored, and the
subsequent three weeks it took to write a clear letter of rejection did not exceed
a reasonable time for the purposes of the Act. In other words, the buyer must
have enough time and information to make a properly informed choice.
As well as the recovery of his price, the buyer also may obtain damages for
losses which were reasonably foreseeable, such as the extra cost of buying
replacement goods. In the case of business purchasers, the foreseeable losses
may include the lost profits that result from lost sales to customers or damage to
reputation.
If the buyer fails to clearly indicate his rejection to the seller within a reasonable
time, he is still entitled to damages for any foreseeable loss he suffers, such as
damages for cost of repairs or lost profits or even for injury to himself or
damage to his other property.
Consumer buyers also may have the right to insist on repairs or a reduction in
the price or replacement of the product, if they prefer this to rejection.
These provisions are set out in Section 48A to F of the Sale of Goods Act, but
are rarely used in practice, as the consumer will usually insist on his right to get
a full refund, having rejected the goods.30 The recent claims for faulty PIP breast
28 Rogers v Parish (Scarborough) Ltd, [1987] 1 QB 933.
29 Clegg v Andersson, [2003] 1 All ER 721.
30 The additional remedies were introduced to comply with the EU Consumer Sales
Directive (Directive 1999/44/EC of 25 May 1999 on certain aspects of the sale of
consumer goods and associated guarantees); SI 2002/3045, Regulation 5, introduces a
new Part 5A into the Sale of Goods Act in order to give effect to the new rights for
consumers set out in the Consumer Sales Directive, art 3.
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implants have, however, highlighted the use of these remedies as providing a
possible advantage in contracts involving goods and services.
It is argued by Hertzell and Moore31 that the right to a replacement necessarily
involves the costs of the surgical operation to implant the safe substitute product,
giving a more secure remedy than for product liability under the Consumer
Protection Act 1987. There is some support for this in the ECJ’s ruling in Weber
v. Wittmer.32
Even if the goods are of satisfactory quality, the buyer will still have recourse to
these remedies if the goods are not fit for the purpose he bought them for. He
must, however, have made this known, expressly or implicitly, before the
contract.
If he has not done so, the purpose will be taken to be the normal purpose for
which goods of that kind are used, in which case the fitness of the goods will
overlap with their satisfactory quality.
The consumer will always be able to claim for any losses (including purely
economic losses, such as for repairs or lost profits) resulting from the defective
product, against the seller (contract) and for damage to property or injury to
persons against the manufacturer (tort).
In both cases, the liability is strict and cannot be limited by contract. The terms
of the manufacturer’s contract with the retailer may pass this liability on to the
retailer, but only if it was reasonable to do so at the time of the contract.33
Producers of component parts (as previously discussed in the subsection ‘Defect
Attributed to Design of Final Product’) can escape strict liability for injury
caused by the finished product if any resulting defect was wholly attributable to
the design of the final product or compliance with instructions from that
producer.34 In this situation, the final producer is liable, but the parts producer is
not.
When the producer of the part is at least partly to blame, both producers may
each be considered jointly liable for the whole amount of the claimant’s damage,
but with a right to a just and equitable contribution from the other.
The supplier of a defective part will, however, be liable to the manufacturer for
breach of satisfactory quality, and the contract of sale for the part may thus
provide the final producer with a complete indemnity for the losses resulting,
including loss of profits.
31 Implanting Doubts (2012) NLJ, 27 January, at p. 115
32 Weber v. Wittmer [2011] 3 CMLR 27.
33 See Unfair Contract Terms Act 1977, s 3, which prevents the enforcement of
unreasonable clauses in standard form contracts excluding or restricting liability
between businesses.
34 Consumer Protection Act 1987, ss 2 and 4(1)(f).
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administrator of the intestacy) will be entitled to claim for losses up to death,
including any pain and suffering.
The personal representatives also will be entitled to claim a lump sum (£11,800)
for the bereavement caused to a spouse of the deceased or, if the deceased was a
minor, to a parent. The claim also will include loss of dependency on the
deceased’s income by dependants such as children or a spouse. Damages for a
death are usually notably less than if the victim is left in a seriously disabled
state.
Punitive Damages
In general, punitive damages are not available, as the rules under English law
normally limit these damages to cases where the defendant deliberately commits
a tort thinking he will make a profit. The purpose of punitive damages is
generally to teach the tortfeasor that tort does not pay.37
A manufacturer who deliberately cuts back on safety precautions in order to earn
higher profits may be subject to punitive damages but, in this event, there would
be criminal sanctions in any case, including the possibility of corporate
manslaughter charges (further discussed in the section ‘Product Safety
Legislation’).
Emotional Distress
A victim suffering injuries will be entitled to damages that cover his own
emotional distress. These will be included in the element for pain and suffering
in personal injury damages. Even if the victim escapes injury but suffers
emotional injury (nervous shock) through fearing for his own safety, he will be
entitled to claim for this.
However, it is essential that he establish a recognizable psychiatric injury, such
as post-traumatic stress disorder (PTSD) or another illness recognized by the
World Health Organization (WHO) in the International Classification of Mental
and Behavioral Disorders, Tenth Edition (ICD-10).
The cases draw a distinction between primary victims (those at risk of physical
injury) and secondary victims (those who are merely witnesses). Provided some
form of psychiatric injury is foreseeable, the primary victim is entitled to
recover damages even if he is predisposed to this type of injury (the ‘eggshell
skull rule’ or ‘take your victim as you find him’).
An illustrative example is the case of an accident caused by a defective car. In
Page v Smith,38 the claimant was involved in a minor car accident where nobody
suffered physical injury (although such an injury was foreseeable). The
experience brought back a previous tendency to chronic fatigue syndrome, for
which the victim recovered full compensation.
37 Cassell v Broome [1972] 1 All ER 801 House of Lords.
38 Page v Smith [1996] AC 155 House of Lords.
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This is because of the long-standing principle in tort: the eggshell skull rule that
you take your victim as you find him. Thus, as long as some form of injury from
the defect in the product is foreseeable, the victim will recover damages even if
the extent of his particular injury is considerably more extensive than could have
been envisaged.
Damages are recoverable for bystanders who suffer nervous shock (eg, PTSD)
through witnessing the accident, provided there is a sufficiently close family
relationship with the victim at risk (eg, a wife who sees her husband burning to
death in a defective car); however, they must have witnessed the event or its
aftermath. There is thus no direct claim for those who suffer bereavement on
learning of a loved one’s death without actually witnessing it; however, a close
relative who sees the dead and mangled body of the victim in the immediate
aftermath of the accident can recover damages.39
Economic Loss and Cost of Repair
In general, the cost of repairing a faulty product or recovering the resulting
losses (ie, pure economic loss) is only recoverable in contract against the seller
(discussed in the subsection ‘Contractual Liability for Warranty’). They are not
recoverable in tort from the manufacturer. However, very often, the repairs may
be covered by a manufacturer’s guarantee, which must give better rights than
those provided under the Sale of Goods Act.
Once the product has caused injury to the claimant or damage to his property,
the claimant can certainly recover all the resulting losses, such as resulting lost
earnings or lost profits; however, in the case of damage to property, liability is
only strict if the property is private property. Thus, when claiming in tort for
damage to commercial property (eg, a defective product setting fire to the
claimant’s shop) and resulting lost profits, the claimant is obliged to show that
the defendant manufacturer was negligent.
Return or Repair
In most cases, the consumer has a right (assuming he has not delayed
unreasonably) to insist on the return of his price, and contractual terms in his
sale that restrict his remedies to only replacement or repair will therefore be
void. 40 However, the consumer has an alternative right, if he prefers this, to
insist on repair or replacement of the product.
These remedies are provided for under Part 5A of the Sale of Goods Act 1979,
headed ‘Additional Rights of Buyer in Consumer Cases’, which was
incorporated to meet the requirements of the EU Consumer Sales Directive 1999.
There were some further proposals from the Commission for a directive to
harmonize consumer remedies across the EU (October 2008). The United
39 Galli-Atkinson v Seghal [2003] EWCA Civ. 697.
40 Unfair Contract Terms Act 1977, s 6.
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Manufacturers selling to commercial buyers are subject to exactly the same
terms regarding satisfactory quality or fitness for purpose. However, for purely
technical defects where it would be unreasonable to reject the defective product,
the commercial buyer will not be entitled to do so.45 The manufacturer also can
limit or exclude liability to commercial purchasers for defects, provided it is
reasonable.46
Thus, the validity of the clause here may depend on the bargaining power of the
commercial buyer, which of the two is best placed to take out insurance against
defects, and on prevailing trade practices.47 An example of the way the court
assesses these factors is found in St Albans District Council v International
Computers, a case involving defective software. 48 Generally, however, a
manufacturer who has produced an unsafe product will not be able to exclude
liability.
The Unfair Contract Terms Act 1977 does not apply to international sales of
goods, as defined in Section 26. Thus, when an English manufacturer is selling
goods to purchasers in other countries, an exclusion of liability may not be
controlled by the English courts even if English law is the chosen law. As
English purchasers benefit from the protection of the Unfair Contract Terms Act
but other EU purchasers (eg, retailers in France) do not, it is arguable that
Section 26 amounts to discrimination against other EU nationals and would have
to be set aside by English courts as a breach of the EU Treaty.49
Statute of Limitations
The statute of limitations is governed by the Limitations Act 1980. The period
for claiming in tort for personal injuries — for example, against the
manufacturer for injury caused by defective products — is three years,
beginning from the time that the victim had knowledge of his injury and right to
claim.50 If the victim has died, his personal representatives have a similar period
to claim.
45 Sale of Goods Act 1979, s 15A.
46 Unfair Contract Terms Act 1977, s 6. This control applies even if the parties negotiate
the contract. When the manufacturer uses written standard terms, all clauses
excluding or restricting liability for breach of contract would have to satisfy the
reasonableness test under the Unfair Contract Terms Act, s 3.
47 The Unfair Contract Terms Act, s 11, sets out the test and the Unfair Contract Terms
Act, Schedule 2, lists a number of relevant factors.
48 St Albans District Council v International Computers [1996] 4 All ER 481 (Court of
Appeal) and Black Holes at the Heart of European Contract Law? Exclusion Clauses
in International Supply Contracts under s.26 and s.27 Unfair Contract Terms Act,
1977 [2012] ICCLR 105.
49 Treaty on the Functioning of the European Union, art 18 (formerly EC Treaty, art 12).
This argument may be found in Burbidge, ‘Selling in the Single Market – The
Control of Exemption Clauses under EC Law’ [2000] NLJ 1544.
50 Limitation Act 1980, ss 11−14.
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When claiming for damage to property or other losses caused by negligence, the
limitation period is six years, but this can be extended beyond three years, if
necessary, to three years from the date of knowledge of the claim. Potentially,
the producer may therefore be faced with claims arising many years after the
product was put into circulation. There is thus a ‘long-stop’ in non-personal
injury claims of 15 years from the date of knowledge of the claim for
negligence.51
In claims for strict product liability under the Consumer Protection Act, the
claim must be brought within three years of the injury or damage (or knowledge
of the injury or damage, if later), but there is a 10-year maximum limitation
period fixed by the EU Directive.52
The Supreme Court of the United Kingdom 53 has held, 54 relying on the ECJ
ruling in Aventis Pasteur v OB, 55 that when proceedings have been started
against a subsidiary company which acted as distributor of products, the courts
will not allow the substitution of the manufacturing parent company outside the
10-year limit.
Notably, when the claim is for negligence under common law, there is no ‘long-
stop’ that would apply in an injury claim. Thus, for example, in the case of a
product containing asbestos that causes lung disease 30 years later, the victim
will still be allowed to claim for his injuries, provided he brings his claim within
three years of his knowledge of the damage. Section 13 of the Limitation Act
1980 defines this as knowledge that the injury was significant and that it was at
least partly attributable to alleged negligence by the defendant. The Supreme
Court has ruled by a bare majority (4 of 7) that the Claimant’s reasonable belief
that his injury was capable of being attributed to the act or omission of the
defendant was sufficient to constitute knowledge of the claim for purposes of the
Act. Hence, victims of radiation fall-out from nuclear bomb testing a half
century earlier could not claim.56
Corporate Successor Liability
Article 3 of the Product Liability Directive57 defines ‘producer’ to include those
who hold themselves out as producer, so it is possible that a corporate successor
will come under this definition and attract strict liability in tort. Otherwise, there
51 Limitation Act 1980, s 14B.
52 Limitation Act 1980, s 11A.
53 The UK Supreme Court replaced the House of Lords as the ultimate Appeal Court in
the UK in October 2008. Apart from the statue of Abraham Lincoln, which
coincidentally sits outside its doors, it has nothing in common with the US Supreme
Court.
54 In O’Brien v Aventis Pasteur [2010] UKSC 23.
55 Aventis Pasteur v OB [2010] 1 WLR 1375.
56 AB and Others v. Ministry of Defence [2012], The Times, March 27.
57 Enacted in the UK by the Consumer Protection Act 1987, s 1.
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In Eastern Mining Contractors v Premier Automobiles11 (decided more than 20
years before the enactment of the COPRA), where the complainant bought a car
from a dealer and which turned out to be defective, one of the principal issues
was the liability of the manufacturer, there being no privity of contract.
Approving the decision in Grant v Australian Knitting Mills,12 the Bombay High
Court held that the complainant is not required to lay his finger on the exact
person in the chain who was responsible, nor is he required to specify the wrong
committed by such person. Negligence is found as a matter of inference from the
existence of the defect, taken in connection with all the known circumstances.
In this particular case, the Court stated that had all the manufactured cars
suffered from the same defect, the claim of negligence could have been
disproved. But this was not the case. In negligence, liability is predicated on the
breach of a duty of care. Therefore, the conduct of the manufacturer, rather than
the condition of his product, is scrutinized by the courts.
Fraud or Misrepresentation
The principal difference between fraud and misrepresentation is that, in the case
of fraud, the person making the suggestion does not believe it to be true while,
in the case of misrepresentation, he believes it to be true.13 In both cases, it is a
misstatement of facts that misleads the consumer.
In India, an action for a manufacturers’ liability can be divided into two
categories: tort of deceit or negligent misrepresentation and unfair trade
practices under the COPRA or the MRTP Act.
As stated previously, tort actions for manufacturer’s liability are uncommon in
India, although actions for unfair trade practices are fairly common. Under
Section 2(1)(r) of the COPRA, unfair trade practices include making false
representations; misleading representations regarding warranty or guarantee of a
product; misleading advertisements regarding the price, sale, or supply of sub-
standard goods; and similar conduct.
A trade practice cannot be branded an ‘unfair trade practice’ in the absence of a
comprehensive report reflecting an overall picture of the trade in the country.14
Trade practices are usually in a state of flux, and the generally accepted practice
has to be taken into account.
Additionally, in Lakhanpal National Ltd. v MRTP Commission,15 the Supreme
Court held that the question of whether the representation contains the element
of misleading the buyer has to be answered first. The Supreme Court further
11 Eastern Mining Contractors v Premier Automobiles (1963) 65 BOM LR 183.
12 RT Grant v Australian Knitting Mills [1936] A.C. 85.
13 Rattan Lal Ahluwalia v Jai Janinder Parshad, AIR 1976 P&H 200, at para 5.
14 Director General (Investigation and Registration) v Ambika Jewellers,
MANU/MR/0051/2001, at para 10.
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However, as a matter of note, the term used in the provision is ‘merchantable
quality’ and not ‘merchantable’.
The term ‘merchantable quality’ has been explained in S.H. Joshi and Co. v
V.M. Ismail.24 Essentially, the Madras High Court quoted with approval the
definition of ‘merchantable quality’ given in Bristol Tramway Co. v Fiat Motors
Ltd.25
In that case, it was provided that goods are of merchantable quality if they are of
such a quality and in such condition that a reasonable man, acting reasonably,
would, after a full examination, accept them under the circumstances of the case
in performance of the offer to buy them, whether he buys for his own use or to
sell again.
The Calcutta High Court concluded that ‘merchantable quality’ is a far more
restrictive term than ‘merchantable’.26 Goods cease to be merchantable due to
defects rendering them unfit for the purpose for which they are usually sold, or
merchantability is fulfilled when the goods do not differ from the normal quality
of the described goods, including under the term ‘quality’, the state or condition
as required by the contract. The goods should be immediately saleable under the
description by which they are known in the market.27
Fitness for a Particular Purpose
Section 16(1) of the SGA provides:
‘Where the buyer, expressly or by implication, makes known to the
seller the particular purpose for which the goods are required, so as
to show that the buyer relies on the seller’s skill or judgment, and
the goods are of a description which it is in the course of the
seller’s business to supply (whether he is the manufacturer or
producer or not), there is an implied condition that the goods shall
be reasonably fit for such purpose.
‘Provided that, in the case of a contract for the sale of a specified
article under its patent or other trade name, there [are] no implied
conditions to its fitness for any particular purpose.’
While Section 16(2) of the SGA refers to merchantable quality, Section 16(1)
refers to the reasonable fitness of the goods for the purpose made known,
expressly or implicitly, by the buyer to the seller. Therefore, in Section 16(1),
reliance on the judgment of the seller is important. In RT Grant v Australian
Knitting Mills Ltd., the Privy Council opined that the reliance will seldom be
express and will usually arise by implication from the circumstances:
24 S.H. Joshi and Co. v V.M. Ismail, AIR 1960 Mad 520, 524, 525.
25 Bristol Tramway Co. v Fiat Motors Ltd (1910) 2 KB 831, 841.
26 S.H. Joshi and Co. v V.M. Ismail, AIR 1960 Mad 520, 524, 525.
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![INDIA IND-7
‘The reliance will seldom be express; it will usually arise by
implication from the circumstances: thus to take a case like that, in
question of a purchase from a retailer, the reliance will be in
general inferred from the fact that a buyer goes to the shop in the
confidence that the tradesman has selected his stock with skill and
judgment: the retailer need know nothing about the process of
manufacture: it is immaterial whether he be manufacturer or not:
the main inducement to deal with a good retail shop is the
expectation that the tradesman will have bought the right goods of
a good make: the goods sold must be, as they were in the present
case, goods of a description which it is in the course of the seller’s
business to supply.’28
In Bengal Corporation Private Ltd. v The Commissioner for the Port of
Calcutta,29 the Calcutta High Court observed that fitness for a particular purpose
under Section 16(1) of the SGA requires the satisfaction of three conditions:
first, that the buyer, expressly or by implication, makes known to the seller, the
particular purpose for which the goods are required; second, that this ‘making
known’ to the seller of the purpose would show that the buyer relies on the
seller’s skill or judgment; and, third, that the goods are of a description which it
is in the course of the seller's business to supply. If these three conditions are
satisfied, the court can draw the conclusion that it amounts to an ‘implied
warranty’ in law.30
In addition, this provision also implies that if the goods are suited for a number
of purposes and the seller has not been informed of the purpose for which the
goods are wanted, there is no condition of fitness for the purpose.
Impact on Third Parties
Complaints under the COPRA can only be made by a ‘complainant’. Section
2(1)(b) of the COPRA defines a ‘complainant’ as:
‘(i) a consumer; or
‘(ii) any voluntary consumer association registered under the
Companies Act, 1956 or under any other law for the time being in
force; or
‘(iii) the Central Government or any State Government; or
‘(iv) one or more consumers, where there are numerous consumers
having the same interest;
28 RT Grant v Australian Knitting Mills Ltd [1936] AC 85, 99.
29 Bengal Corporation Private Ltd. v The Commissioner for the Port of Calcutta, AIR
1971 Cal 357.
30 Bengal Corporation Private Ltd. v The Commissioner for the Port of Calcutta, AIR
1971 Cal 357, at para 35.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-193-320.jpg)
![IND-8 INTERNATIONAL PRODUCT LIABILITY
‘(v) in case of death of a consumer, his legal heir or representative;
‘who or which makes a complaint.’
Under the SGA, the warranties of merchantable quality or fitness for purpose are
for the benefit of a ‘buyer’. Section 2(1) of the SGA defines a ‘buyer’ as ‘a
person who buys or agrees to buy goods’.
Strict Liability
The courts in India have not pronounced clearly on whether liability under the
COPRA is strict or fault-based. However, the failure of the manufacturer to
comply with the standards required under the relevant statutory law could invite
liability.
Under the COPRA, the requirement of proving negligence is required only if the
complainant is claiming compensation for loss or injury.31 There is no such
requirement in case the complaint requests repair, replacement, or even return of
the price. For example, in Abhaya Kumar Panda v Bajaj Auto,32 the complainant
had purchased an auto trailer which turned out to have certain defective parts.
The NCDRC, holding that the vehicle should be replaced, observed:
‘The Consumer Protection Act, 1986, fixes liability in a species of
torts in which intent is not relevant. This Commission finds [it]
necessary to emphasis this because the gravity of defects in any
goods or deficiency in any service should not be minimized by
considering whether or not the defects/deficiencies are intentional.’
It cannot be emphasized enough that strict liability could come at the cost of
social efficiency. This efficiency can reach an optimal level when courts pick
and choose the ‘due care’ level.33 Typically, Indian courts will impose a higher
standard of care for products which are ‘hazardous substances’. These are
defined as any substance or preparation which, by reason of its chemical or
physicochemical properties or handling, is liable to cause harm to human beings,
other living creatures, plant, microorganisms, property, or the environment, as
provided in the Environment (Protection) Act, 1986.34
Concept of Defect
Patent Defects and Latent Defects
The COPRA defines ‘defect’ as any fault, imperfection, or shortcoming in the
quality, quantity, potency, purity, or standard which is required to be maintained
31 Consumer Protection Act, 1986, s 14(1)(d).
32 Abhaya Kumar Panda v Bajaj Auto, I (1992) CPJ 88 (NC).
33 J. Kim, ‘Strict liability versus negligence when the injurer’s activity involves positive
externalities’, European Journal of Law & Economics (2006), at p. 102.
34 Environment (Protection) Act (Act Number 29 of 1986), s 2(e).](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-194-320.jpg)
![IND-12 INTERNATIONAL PRODUCT LIABILITY
distributed is not in compliance with the Act or the applicable rules or
regulations.51
In relation to this is the provision that if any unsafe food product is part of a
batch, lot, or consignment of food of the same class or description, it will be
presumed that all the food in that batch, lot, or consignment also is unsafe.
However, to counter this provision, the operator may submit a detailed
assessment within a specified time, showing that there is no evidence that the
rest of the batch, lot, or consignment is unsafe. Again, even despite conformity
with provisions, if the competent authority suspects that the food is unsafe (for
reasons to be recorded in writing), it could impose restrictions on that food being
placed in the market or require its withdrawal from the market.52
Additionally, under Section 78(i) of the Drugs and Cosmetics Rules, 1945, a
license for a drug is subject to the condition that upon being informed by the
licensing authority or controlling authority that ‘any part of any batch’ has been
found not to conform with the standards of strength, quality, or purity specified,
the manufacturer must, on being directed to do so, withdraw the remainder of
that batch from sale. In addition, guidelines for product recall are provided under
Schedule-M Part 1(27), which essentially state that that there should be an
established procedure and arrangement to deal with product recall.
Causation
In India, causation is usually determined on the basis of the ‘but-for’ test. The
‘but-for’ test means that the plaintiff must prove that ‘but for’ the defendant’s
tortious conduct, the plaintiff would not have sustained damage (or injury). In
Cork v Kirby MacLean Ltd.,53 Lord Denning stated:
‘If you can say that the damage would not have happened but for a
particular fault, then that fault is in fact a cause of the damage; but
if you can say that the damage would have happened just the same,
fault or no fault, then the fault is not a cause of the damage.’
Indian courts do generally follow the ‘but-for’ test,54 but have expressed
reservation over some aspects. In Jaipur Golden Gas Victims Association v
Union of India,55 the Delhi High Court stated that the ‘but-for’ test remains the
starting point in tort. In case of a single cause, it is likely to determine the factual
aspect of causation; however, in case of multiple causes, it should satisfy the
factual test. The case law reflects the approach that the courts have not used
technical barriers to dismiss meritorious claims. For instance, in Jaipur Golden
Gas Victims Association v Union of India, the Court used the ‘eggshell skull’
51 Food Safety and Standards Act, s 28.
52 Food Safety and Standards Act, s 26(5).
53 Cork v Kirby MacLean Ltd. [1952] 2 All ER 402, 406, 407.
54 E.S.I Corporation v Leela 2009 (3) KLT 531, at para 12.
55 Jaipur Golden Gas Victims Association v Union of India, 164 (2009) DLT 346.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-198-320.jpg)
![ITA-2 INTERNATIONAL PRODUCT LIABILITY
Product Liability under Contract Law
The main remedies for product liability under contract law are those under the
Civil Code relating to sale contracts,4 particularly: (a) sale of defective goods;5
(b) sale of goods lacking the qualities promised by the vendor or otherwise
essential for the purpose for which the goods are intended to be used;6 and (c)
sale of goods where the goods received are completely different from those that
had been contracted for (aliud pro alio).7
In case of sale of defective goods, the Civil Code allows the purchaser to either
terminate the contract or request for a reduction of the purchase price.8 In case of
termination of a contract, the seller should refund the purchase price and
reimburse the purchaser for his expenses and payments reasonably incurred in
connection with the sale, while the purchaser should return the goods to the
extent that they have not perished as a result of the defects.9
The seller also is liable for any damages incurred by the purchaser unless the
former is able to prove that he was unaware, without fault, of the claimed
defect.10
Where the goods lack promised or essential qualities, the Civil Code only
entitles the purchaser to terminate the contract when the lack of qualities
exceeds the limits of tolerance generally allowed by common practice.
In the case of aliud pro alio, the purchaser is entitled to terminate the contract
according to the general principles of law applicable in the case of a breach of
contract.
4 Civil Code, arts 1470 et seq.
5 In this respect, Article 1490 of the Civil Code states: “1. The seller is obliged to
guarantee that the good sold is immune from defects that make the good itself
incapable of being used for the purpose to which the good is destined, or otherwise
diminish its value in a significant manner. 2. Ineffective is the agreement to exclude
or limit the warranty above, if the seller has willfully omitted to disclose the defects to
the purchaser.”
6 The case is governed by Article 1497 of the Civil Code, which states: “1. If the good
purchased lacks the qualities that had been promised or those qualities essential for
the purpose for which the good is intended to be used, the purchaser is entitled to
terminate the contract according to the general provisions regarding the termination of
contracts for breach, provided that the defects of qualities exceed the degree of
tolerance normally allowed under common practice. 2. However, the right to
terminate the contract is subject to the forfeiture term and the statute of limitation set
forth under Civil Code, art 1495.”
7 This case is not specifically covered by the Civil Code but has been created and
developed over the years by scholars and prevailing case law.
8 However, Article 1491 of the Civil Code provides that “[n]o warranty is owed by the
seller if, at the time of the contract, the purchaser was aware of the defects or if such
defects were clearly recognizable, provided however, in this latter case that the seller
has not expressly declared that the good was exempt from defects.”
9 Civil Code, art 1493.
10 Civil Code, art 1494.
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![MEX-2 INTERNATIONAL PRODUCT LIABILITY
fulfill, for oneself or through another person, a consequence of an offense, guilt,
or other legal cause’.3 From a legal standpoint, liability means:
‘. . . the obligation that a person has with respect to another to repair the
damage and compensate lost profits that were caused as a consequence of [his]
own or someone else’s act or due to the effects of the things or inanimate
objects or from animals.’4
Considering the meanings of both ‘product’ and ‘liability’, respectively, a
notable reference is the definition of product liability proposed by a
distinguished scholar: ‘the power that the consumer of a defective product has to
claim from the manufacturer as well as from the distributor the payment of
damages and lost profits that such defect caused’.5
In general terms, this definition of product liability sets the scope of product
liability in Mexico, where liability is mostly limited to defective products, as
opposed to other countries, where product liability may cover product-derived
injuries caused to people, regardless of whether the product is defective or not.
In order to analyze the legal implications of product liability under the Mexican
legal framework, it is important to know about the principal legal statutes
governing the product liability regime. Product liability pertains to the branch of
civil liability and consumer protection law.
In Mexico, product liability is regulated by the Federal Consumer Protection
Law (Ley Federal de Protección al Consumidor, FCPL), the Federal Law of
Metrology and Standardization (Ley Federal sobre Metrología y Normalización,
FMSL), the Federal Civil Code (Código Civil Federal, FCC), and by the civil
codes of individual states.
The FCPL has undergone several amendments in the last decade, those officially
published on 4 February 2004 being the most relevant to product liability, as
they introduced the concept of product liability in a clearer manner. These
amendments directly favor the protection of consumers in product liability
cases.
Prior to the amendments to the FCPL, the actions arising from a defective
product were solely based on the general principles contemplated by the FCC
and other applicable state civil codes. The general principle under the state civil
codes applicable to product liability is that anyone who acts against the law or
good principles and as a result causes injuries or damage to another is bound to
indemnify the victim, unless it is proved that the harmful result was due to the
victim’s inexcusable fault or negligence.
3 Translated definition of ‘Responsabilidad’ (liability) in Diccionario de la Lengua
Española – vigésima segunda edición online, at http://buscon.rae.es/draeI/Srvlt
Consulta?TIPO_BUS=3&LEMA=producto.
4 R. De Pina, Derecho Civil Mexicano (Porrúa, 1993).
5 J. Barrera, ‘La responsabilidad del producto en el derecho mexicano’, Revista de
Derecho Comercial y de las Obligaciones (Buenos Aires, 1978).
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![PHI-8 INTERNATIONAL PRODUCT LIABILITY
‘Art. 110. False, Deceptive, and Misleading Advertisement – it
shall be unlawful for any person to disseminate or to cause the
dissemination of any false, deceptive, or misleading advertisement
by Philippine mail or in commerce by print, radio, television,
outdoor advertisement, or other medium for the purpose of
inducing or which is likely to induce directly or indirectly the
purchase of consumer products or services.’
As to what is false, deceptive, or misleading advertisement, the Consumer
Protection defines it as advertisement ‘that is not in conformity with the
provisions of [the Consumer Act] or if it is misleading in a material respect’.26
In determining whether an advertisement is false, deceptive, or misleading, the
factors that are taken into account, aside from the representation made, are the
extent to which the advertisement fails to reveal material facts in the light of
such representations and material on the consequences which may result from
the use or application of consumer products to which the advertisement relates,
under the conditions prescribed in the advertisement or under customary
conditions.
The Consumer Act specifically prohibits the advertisement of foods, drugs,
cosmetics, devices, or hazardous substances in a manner that is false,
misleading, or deceptive or is likely to create an erroneous impression regarding
its character, value, quantity, composition, merit, or safety.27
Warranty
In General
In Philippine law and jurisprudence, breach of warranty, rather than liability for
negligence, has played a role in the realm of products liability.
Express Warranty
Under the Consumer Act, the provisions of the Civil Code on conditions and
warranties will govern all contracts of sale with conditions and warranties.28
Article 1546 of the Civil Code defines express liability as ‘any affirmation of
fact or any promise by a seller relating to the thing’, the natural tendency of
which is to ‘induce the buyer to purchase the same and if the buyer purchases
the thing relying thereon’.
However, affirmation of the value of the thing or an affirmation that purports to
be a statement of the seller’s opinion will not be construed as a warranty unless
the seller made such affirmation or statement as an expert and the buyer relied
26 Consumer Act, art 110.
27 Consumer Act, art 112(b).
28 Consumer Act, art 67.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-290-320.jpg)
![PHI-18 INTERNATIONAL PRODUCT LIABILITY
products liability: that damage or injury was caused by a defect in the product.
Under the Consumer Act, product misuse may be availed of as a defense,
particularly based on Article 97 of the Act, which provides:
‘The manufacturer, builder, producer, or importer shall not be held
liable when it evidences:
‘. . .
‘(b) that the consumer or third party is solely at fault.’
Product misuse also may be a defense in the enforcement of a warranty. While
the Consumer Act requires a warrantor to comply with minimum standards in
honoring a warranty, it may be excused from doing so if it can show that ‘the
defect, malfunction, or failure [of the product] to conform to a written warranty
was caused by damage due to unreasonable use thereof’.77 Philippine courts
have yet to interpret and apply provisions of the Consumer Act related to
product misuse.
State-of-the-Art Defense
The state-of-the-art defense has not yet been applied and recognized by
Philippine courts.
‘Proximate Cause’ Limits
Generally, any negligence or fault can only result in liability when there is a
causal connection between the resulting injury and the violation of a statutory
prohibition or mandate. As previously discussed in the subsection ‘Contributory
Fault or Comparative Fault’, even a finding of negligence on the part of the
plaintiff will only serve to mitigate recoverable damages when it is shown that
the proximate cause for his loss is still the conduct of the defendant.78
‘Proximate cause’ is jurisprudentially defined as that cause, which,
in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the
result would not have occurred. It is determined from the facts of
each case, on combined considerations of logic, common sense,
policy, and precedent.79
In a product liability suit founded on a breach of implied warranty, the Supreme
Court followed the common law rule that places on the buyer of the product the
burden of proving that the seller breached the implied warranty and that the
77 Consumer Act, art 68(d).
78 Civil Code, art 2179.
79 Solidbank Corporation v Spouses Arrieta, G.R. Number 152720.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-300-320.jpg)
![POR-4 INTERNATIONAL PRODUCT LIABILITY
The case law on product liability has been enhanced in recent years. There are
currently several rulings from the STJ,10 as well as from the regional courts of
appeal.11 The general rules on civil liability that may be applied to matters of
product liability are beyond the scope of this chapter.
Strict Liability for Manufacturers
The Product Liability Act was published in the Official Gazette (Dirio da
Republica) on 6 November 1989, and its legal provisions came into force five
days after its publication in the mainland and another five days later (ie, 10 days
after its publication) in both the autonomous regions of Azores and Madeira. It
was later amended by Decree-Law Number 131/2001 of 24 April, which
implemented the amendments to the Product Liability Directive into the
Portuguese legal framework.
In the Portuguese jurisdiction, manufacturers’ liability is based on strict liability.
According to Article 1 of the Product Liability Act, which states the basic
principle applicable to this matter, ‘[t]he manufacturer is liable, irrespective of
any fault on his part, for damage caused by defects in the products he has put
into circulation’.
Examining this provision, the relevant aspects are that the manufacturer’s
product must have been put into circulation; that there must be a defect in the
product; that there must have been damage; and that this damage must have
been caused by the defect in the product. In such cases, the manufacturer will be
liable, even if there is no fault on his part, which is clearly an exception in
Portuguese private law. Article 483(1) of the Civil Code states the general
principle on liability in tort:
‘Any person who, either deceitfully or negligently, unlawfully
violates somebody else’s right or any legal provision aimed at
the protection of the interests of others, shall be bound to
indemnify the injured person in respect of the damage caused
by the violation.’
Article 483(2) of the Civil Code states that ‘only where specifically provided for
by the law shall there be an obligation to indemnify beyond fault’.
10 Recent examples are the STJ rulings of 25 March 2010, 6 August 2003, 27 May 2008,
19 February 2004, 6 June 2003, 11 March 2003, and 16 December 1999. They are
available on the website of the Ministry of Justice at http://www.dgsi.pt/.
11 Recent examples are the Oporto Court of Appeal rulings of 7 March 2005, 20
November 2007, 6 March 2001, and 13 July 2000; the Lisbon Court of Appeal rulings
of 1 March 2007, 20 October 2009, 14 October 2008, 27 February 2007, 9 January
2007, and 18 March 1999; the Coimbra Court of Appeal rulings of 27 April 2004 and
2 October 2001; the Guimarães Court of Appeal ruling of 27 June 2007; and the
Évora Court of Appeal rulings of 13 September 2007 and 13 September 2007. All the
rulings are available at http://www.dgsi.pt.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-336-320.jpg)
![PORTUGAL POR-13
any other form of distribution, such as franchising. If a product was not
imported with the aim of subsequently being distributed, then the importer will
not be presumed a manufacturer for the purposes of the Product Liability Act,
even if he uses the product in his business.
The second case where a person is presumed to be a product’s manufacturer
involves supplying a product which was manufactured or imported into the EC
by an unidentified person. In this case, the supplier will himself be held liable as
if he were the effective manufacturer, unless he informs the injured person
within three months about the identity of either the manufacturer or the
importer, or of a preceding supplier, after having been notified to do so. It is,
however, immaterial whether or not the injured person succeeds in claiming
damages from the person so identified by the supplier.
In order to be held liable, the supplier must have been notified in writing by the
injured person to provide information on the identity of the anonymous
manufacturer, or the importer, or of a previous supplier, and he must have failed
to provide such information within three months from the date of receipt of the
notification.
The law does not specify the contents of the notification to the supplier, which
should, however, include all relevant items so as to enable the supplier to know
which product is at stake, including the identification of the product and the
place and time of its acquisition.
In addition, in the case of a product manufactured outside the EC, if the effective
manufacturer is indicated but its importer into the EC is not, the supplier of the
product may be notified to provide the identity of the importer and he will be
held liable for the damage suffered if he fails to do so.
The supplier may, in any event, choose to indicate the identity of any preceding
supplier (not necessarily his own direct supplier) instead of that of the
manufacturer or the importer. Should this be the case, then the injured person
will be required to notify that other supplier in order to get the required
information, and so on, down the chain.
Damages and Remedies
Only damage which has been caused by defects in products is covered by the
Product Liability Act, not the matter of causation. The provisions in the general
law are applicable to causation, particularly Article 563 of the Civil Code, which
states that ‘[t]he obligation to indemnify shall only exist in respect of those
damages that the injured party would probably not have suffered should the
injury not have taken place’.
The injured person bears the burden to prove the damage, the defect in the
product, and that the defect was the relevant cause of the damage. This must be
done according to the general rules on onus probandi contained in Article 342 of
the Civil Code.](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-345-320.jpg)
![SA-2 INTERNATIONAL PRODUCT LIABILITY
To the extent that the definition of a ‘consumer’ contemplates a person, such a
person includes both a natural person and a juristic person. To the extent that a
consumer includes a juristic person, it excludes juristic persons whose asset
value or annual turnover equals or exceeds the value of ZAR 2,000,000.5
Theories of Manufacturers’ Liability
Negligence and Wrongfulness
The Supreme Court of Appeal has stressed that the basic point of departure in
the law of delict is that ‘everyone has to bear the loss he or she suffers’.6 The
principles of Aquilian liability (loss wrongfully inflicted), however, provide an
exception to this ‘first principle’.7 Negligent conduct that is manifested in the
form of a positive act causing physical damage to the property or person of
another is prima facie wrongful.8
In cases of liability for negligent omissions and for negligently caused pure
economic loss, wrongfulness depends on the existence of a legal duty not to act
negligently.9 The question whether or not such a legal duty is to be imposed is,
given the existence of negligence, ‘a matter for judicial determination involving
criteria of public or legal policy consistent with constitutional norms’.10
Aquilian liability distinguishes between liability on the basis of intent and
liability on the basis of negligence. With regard to negligence, a distinction is
made between negligence and gross negligence. Liability for negligence arises
‘if it is foreseen that there is a reasonable possibility of conduct causing harm to
an innocent third party, and where there is an omission or failure to take
reasonable steps to guard against such occurrence’.11 ‘Gross negligence’ means
5 GN No 294, GG No 34181 of 1 April 2011, whereby the monetary threshold
applicable to the size of the juristic person in terms of s 5(2)(b) is determined as
ZAR2,000,000.00.
6 Telimatrix (Pty) Ltd t/a Matrix Tracking v Advertising Standards Authority SA,
[2006] 1 All SA 6 (SCA).
7 Telimatrix (Pty) Ltd t/a Matrix Tracking v Advertising Standards Authority SA,
[2006] 1 All SA 6 (SCA).
8 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240
(SCA) 244.
9 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240
(SCA) 244; Telimatrix (Pty) Ltd t/a Matrix Tracking v Advertising Standards
Authority SA, [2006] 1 All SA 6 (SCA) 12; 2006 (1) SA 461 (SCA) 465; Hawekwa
Youth Camp v Byrne, 2010 (6) SA 83 (SCA) 91.
10 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240
(SCA) 244.
11 Checkers Supermarket v Esme Lindsay, [2009] 3 All SA 487 (SCA), citing the
standard test for negligence in Kruger v Coetzee, 1966 (2) SA 428 (A) 430E−G. For
an illustration of a successful claim against a manufacturer based on negligence, see
Ciba-Geigy (Edms) Bpk v Lushof Plase (Edms) Bpk en ‘n ander [2002] 2 All SA 525
(A) 540.
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![SOUTH AFRICA SA-3
conduct which, although falling short of dolus eventualis,12 involves a departure
from the standard of a reasonable person to such an extent that it may properly
be categorized as extreme.13
In a situation of conscious risk-taking, there must be a complete obtuseness of
mind.14 In a situation where there is no conscious risk-taking, there must be a
total failure to take care.15 If the risk of harm is foreseen and the person in
question acts recklessly or indifferently as to whether or not harm ensues, the
conduct will amount to recklessness in the narrow sense (ie, dolus eventualis).16
It is now settled that the negligent manufacture of a defective product which
causes physical damage and loss to another is wrongful.17
An employer is vicariously liable for delicts of its employee if three
requirements are satisfied: first, there must be an employer-employee
relationship at the time when the delict is committed; second, the employee must
commit the delict; and, third, the employee must act within the scope of his
employment when the delict is committed.18
The liability of an employer for negligence of a subcontractor (independent
contractor) is personal and not vicarious.19 In Langley Fox Building Partnership
(Pty) Ltd v Brown and others, the Court (per Goldstone AJA, as he then was)
12 Meaning that the wrongdoer, while not desiring a particular result, foresees the
possibility that he may cause the result and reconciles himself to this fact; J.
Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis,
Durban, 2010), at p. 127.
13 Transnet Ltd t/a Portnet v The owners of the Mv ‘Stella Tingas’ and another, [2003]
1 All SA 286 (SCA) 291.
14 Transnet Ltd t/a Portnet v The owners of the Mv ‘Stella Tingas’ and another, [2003]
1 All SA 286 (SCA) 291.
15 Transnet Ltd t/a Portnet v The owners of the Mv ‘Stella Tingas’ and another, [2003]
1 All SA 286 (SCA) 291.
16 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240
(SCA) 290.
17 See Betko Products CC v Grasso (Pty) Ltd [2010] JOL 25246 (WCC), para 23. See
also Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA)
at 297, citing with approval the following statement by Van der Merwe S and De
Jager F; “Products Liability: A Recent Unreported Case” SALJ 83: “…it is submitted
that a manufacturer has a general duty to take reasonable steps to ensure that
defective products do not reach the market or, if they do, to withdraw them from the
market or to take other steps to ensure that no harm ensues from the presence of the
product on the market.” In AB Ventures Ltd v Siemens Ltd [2011] JOL 27136 (SCA),
the Supreme Court of Appeal conferred an oblique imprimatur on arguments
justifying the modern development of “products liability”.
18 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis,
Durban, 2010), at pp. 366–371; K v Minister of Safety and Security, 2005 (9) BCLR
835 (CC); Minister of Safety and Security v F (592/09) [2011] ZASCA 3 (22
February 2011) (Saflii).
19 Langley Fox Building Partnership (Pty) Ltd v De Valence, [1991] 3 All SA 736, 740-
744; Pienaar v Brown, 2010 (6) SA 365 (SCA) 371.
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![SA-4 INTERNATIONAL PRODUCT LIABILITY
held that in determining whether the employer has incurred a ‘duty of care’, the
following questions should be considered: would a reasonable man have
foreseen the risk of danger in consequence of the work he employed the
contractor to perform? If so, would a reasonable man have taken steps to guard
against the danger? If so, were such steps duly taken in the case in question?20
Fraud or Misrepresentation
In terms of the common law and provided that the parties have not agreed
otherwise, a person who has suffered loss as a result of another’s fraud has an
action for damages.21
A purchaser has an action to set aside a contract and to claim restitution or to
claim a reduction in the price paid22 if the goods do not comply with
representations23 made regarding the goods.24
The representations concerned are confined to material statements made by the
seller to the buyer during the negotiations, bearing on the quality of the goods
and going beyond mere praise and commendation.
In Bayer South Africa (Pty) Ltd v Frost, it was held that, in principle, a negligent
misstatement may (depending on the circumstances) found a delictual claim for
damages by the person to whom the negligent misstatement was made, when the
misstatement had induced such person to enter into a contract with the party
who made it.25
Warranty
In General
In the context of the common law, a defect has been described as an abnormal
quality or attribute which destroys or substantially impairs the utility or
effectiveness of the goods for the purpose for which the goods have been sold or
for which the goods are commonly used.26
In terms of Sections 55 and 56 of the Consumer Protection Act, there is an
implied provision in any transaction for the supply of goods to a consumer that
20 Langley Fox Building Partnershjip (Pty) Ltd v De Valence, [1991] 3 All SA 736
(AD) 746. Also relevant is Skead and others v Melco Elevator (South Africa) (Pty)
Ltd and another, [2010] 3 All SA 445 (GSJ).
21 Davidson v Bonafide, [1981] 2 All SA 19 (C).
22 R.H. Zulman and G. Kairinos, Norman’s Law of Purchase and Sale in South Africa,
5th ed (LexisNexis, 2005).
23 Statements regarding the presence of good qualities and the absence of specific
characteristics; A.J. Kerr, The Law of Sale and Lease, 3rd ed (LexisNexis, 2004), at p.
126.
24 A.J. Kerr, The Law of Sale and Lease, 3rd ed (LexisNexis, 2004), at p. 126.
25 Bayer South Africa (Pty) Ltd v Frost, [1991] 2 All SA 444 (A) 451.
26 Kroonstad Westelike Boere Ko-op Vereniging v Botha, 1964 (3) SA 561 (AD) 571;
Holmdene Brickworks v Roberts Construction, 1977 (3) SA 670 (A) 683.
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the supplier warrants that the goods are reasonably suitable for the purpose for
which they are generally intended, are of good quality, in good working order
and free of any defects, will be useable and durable for a reasonable period of
time (having regard to the use to which the goods would normally be put), and
will comply with prescribed standards.
Express Warranty
Subject to certain restrictions in the Consumer Protection Act (discussed further
in the section ‘Contractual Disclaimers or Limitations’), breach of an express
warranty may afford a basis for manufacturers’ liability, depending on the
wording of the warranty.
Implied Warranty of Merchantability
In terms of the law of sale, a purchaser has an action to set aside a contract and
to claim restitution or to claim a reduction in the price paid,27 if the goods
suffered from any disease or defect.28
A ‘merchant’ who sells goods either of his own manufacture or in relation to
which he publicly professes to have attributes of skill and expert knowledge
may, in terms of the common law, be liable to the purchaser for consequential
damage caused to the purchaser by reason of any latent defect in the goods.29
Once it is established that he falls into one of the specified categories, the law
irrebutably attaches this liability to a merchant, unless he has expressly or
impliedly contracted out of it. In terms of the Consumer Protection Act, a
consumer has a right to receive goods that are of good quality, in good working
order, and free of any defects.30
Implied Warranty of Fitness for Purpose
In terms of the Consumer Protection Act, a consumer has a right to receive
goods that are reasonably suitable for the purposes for which they are generally
intended.31
27 A.J. Kerr, The Law of Sale and Lease, 3rd ed (LexisNexis, 2004), at p. 114.
28 A.J. Kerr, The Law of Sale and Lease, 3rd ed (LexisNexis, 2004), at p. 114. In
Holmdene Brickworks v Roberts Construction, 1977 (3) SA 670 (A) 683H, a defect in
the context of sale is defined as ‘an abnormal quality or attribute which destroys or
substantially impairs the utility or effectiveness of the res vendita, for the purpose for
which it has been sold or for which it is commonly used’.
29 Holmdene Brickworks v Roberts Construction, 1977 (3) SA 670 (A) 683; Ciba-Geigy
(Edms) Bpk v Lushof Plase (Edms) Bpk en ‘n ander, [2002] 2 All SA 525 (A) 540. D
& H Piping Systems (Pty) Ltd v Trans Hex Group Ltd and another 2006 (3) SA 593
(SCA); Langeberg Voedsel Bpk v Sarculum 1996 (2) SA 565 (AD).
30 Consumer Protection Act, s 55(2)(b).
31 Consumer Protection Act, s 55(2)(a).
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caused wholly or partly as a consequence of inadequate instructions or warnings
provided to the consumer pertaining to any hazard arising from or associated
with the use of the goods, irrespective of whether the harm resulted from any
negligence on the part of the producer, importer, distributor, or retailer, as the
case may be.45
Section 61(1)(c) imposes strict liability on producers, importers, distributors,
and retailers in that such person may be held liable absent any proof of
negligence. A person who packages any hazardous or unsafe goods for supply to
consumers must display on or within that packaging a notice that meets the
requirements of Section 22 of the Consumer Protection Act46 (and any other
applicable standards), providing the consumer with adequate instructions for the
safe handling and use of those goods.47
Obligations to Warn Consumers or Recall Defective Products
In view of the fact that liability for negligence arises ‘if it is foreseen that there
is a reasonable possibility of conduct causing harm to an innocent third party,
and where there is an omission or failure to take reasonable steps to guard
against such occurrence’,48 the question also arises whether there may be a duty
on a manufacturer who acquires information as to a defective product which
poses danger to consumers to implement a recall or to undertake a campaign to
notify purchasers of the product defect. It is suggested that if a manufacturer has
information about defects in a product that create a reasonable possibility of
causing harm to users of its products, this may create an obligation on the
manufacturer to take steps to inform such users of the danger and to correct the
defect.
An obligation to warn of or recall defective products also may be grounded in
the strict liability provisions of Section 61(1) of the Consumer Protection Act.
According to Section 61(1), the producer, importer, distributor, or retailer of any
goods is liable, irrespective of negligence, for any harm caused wholly or partly
as a consequence of supplying unsafe goods, a product failure, defect or hazard
in any goods, or inadequate instructions or warnings provided to the consumer
pertaining to any hazard arising from or associated with the use of the goods.49
It is suggested that, in the first place, the duty imposed by Section 61(1)(c)
contemplates an obligation on the manufacturer to furnish, as part of the supply
of goods, appropriate instructions or warnings pertaining to any hazard arising
from or associated with the use of any goods. Should the manufacturer be
45 Consumer Protection Act, s 61(1).
46 The Consumer Protection Act, s 22, requires that certain documents must be in plain
language and capable of being understood by an ordinary consumer of the class of
persons for whom the document is intended.
47 Consumer Protection Act, s 58(2).
48 Checkers Supermarket v Esme Lindsay, [2009] 3 All SA 487 (SCA).
49 Consumer Protection Act, s 61(1).
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Proximate Cause
Although the defendant’s wrongful conduct may have been the sine qua non for
the plaintiff’s loss, it does not necessarily follow that the defendant is legally
answerable for the loss that his wrongful act has caused. The criterion of ‘legal
causation’ is distinguished from ‘factual causation’.
‘Factual causation is described as the determination, by means of an
hypothetical enquiry as to whether the defendant’s act was the cause of the
plaintiff’s loss. If the loss would have occurred regardless of the defendant’s act,
the wrongful (unlawful) conduct was not a (factual) cause of the plaintiff’s loss.
If the wrongful act was not a sine qua non of the loss, no legal liability can
arise.’66
The criterion of legal causation is applied to determine whether the wrongful act
is, in law, sufficiently closely or directly linked to the loss in order for legal
liability to arise.67
The criterion of legal causation is used as an instrument of legal policy to curb
the consequences of an act from extending to infinity, particularly with regard to
a potentially limitless cause of action, such as is comprised by liability for
negligent misstatement.68
In Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd,69 a toll
company instituted an action against a hauler whose negligence had resulted in a
spillage of asbestos on a highway, causing the closure of the highway for 24
hours. It was alleged that the closure of the highway had resulted in a loss of
revenue for the toll company, which loss it sought to claim from the hauler.
The Court noted that the application of the criteria of wrongfulness with regard
to liability for omissions and pure economic loss, as well as with regard to
remoteness, served as measures of control, enabling judges to avoid the
imposition of liability where such imposition in a particular case would be
untenable on policy grounds:
‘Even where negligent conduct resulting in pure economic loss is for reasons of
policy found to be wrongful, the loss may therefore, for other reasons of policy,
be found to be too remote and therefore not recoverable.’70
The test for determining remoteness cannot be comprised of vague
considerations of reasonableness, fairness, and justice, as these considerations
are subjective.71 What is required is a flexible application of the norms of other
66 International Shipping Co (Pty) Ltd v Bentley, [1990] 1 All SA 498 (A) 516-517.
67 International Shipping Co (Pty) Ltd v Bentley, [1990] 1 All SA 498 (A) 516-517.
68 S v Mokgethi and others, [1990] 1 All SA 320 (A); International Shipping Co (Pty)
Ltd v Bentley [1990] 1 All SA 498 (A) 516-517.
69 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 150
(SCA).
70 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 164.
71 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 165.
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tests, such as foreseeability, proximity, or direct consequences. Applying such
tests to the case in hand, the Court found that the loss suffered by the toll
company was not too remote. The loss had followed directly from the
negligence of the driver of the truck; it also had been reasonably foreseeable that
a collision could cause spillage and that, because of the dangerous nature of the
cargo, spillage could result in a closure of the road, leading to a revenue loss.72
The International Shipping73 case involved a claim for negligent misstatement
by an accountant concerning the affairs of a debtor company. The Court, in
reaching a decision that the misstatement involved was not the legal cause of the
plaintiff’s loss, took into account the broad factual matrix of the circumstances
surrounding the plaintiff’s reliance on the negligent misstatement.
This included factors such as the lapse of time between the defendant’s
negligent reporting on the financial statements, the decisions taken by the
plaintiff that permitted the defendant’s indebtedness to escalate, and the fact that
the plaintiff had had additional information at its disposal, yet continued to make
further advances after its initial reliance on the negligent misstatement.
Liability in Chain of Commerce
Retailers
A ‘retailer’, in relation to any particular goods, means a person who, in the
ordinary course of business, supplies goods to a customer.74 To date, the
exposure of retailers to product liability litigation has been limited. Product
liability for retailers has generally been subject to proof of negligence.
With the introduction of Section 61 of the Consumer Protection Act on 1 April
2011, this situation changed dramatically, and retailers may now be held liable,
jointly and severally with the producer, importer, or distributor, for the harm
specified in Section 61(5) of the Consumer Protection Act, irrespective of
whether the harm resulted from any negligence on the part of the producer,
importer, distributor, or retailer, as the case may be.
The liability of a retailer as envisaged by Section 61(1) does not arise if it is
unreasonable to expect the retailer to have discovered the unsafe product
characteristic, failure, defect, or hazard, having regard to the retailer’s role in
marketing the goods to consumers.75
Distributors
A ‘distributor’, in relation to any particular goods, means:
‘. . . a person who, in the ordinary course of business
72 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 165.
73 International Shipping Co (Pty) Ltd v Bentley, [1990] 1 All SA 498 (A).
74 Consumer Protection Act, s 1.
75 Consumer Protection Act, s 61(4)(c).
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‘(a) is supplied with those goods by a producer, importer, or other
distributor; and
‘(b) in turn, supplies those goods to either another distributor or to a
retailer.’76
The liability of importers, wholesalers, and distributors is likewise strict and
joint and several with the other parties in the supply chain. However, among
these parties, the retailer and the distributor qualify for the relief offered by
Section 61(4)(c).
The strict liability imposed by Section 61(1) does not arise if it is unreasonable
to expect the distributor to have discovered the unsafe product characteristic,
failure, defect, or hazard, having regard to the distributor’s role in marketing the
goods to consumers.77
Producers and Makers of Component Parts, Importers, and Wholesalers
The liability of producers and makers of component parts, importers, and
wholesalers for product defects is primarily based on theories of negligence and
wrongfulness, such as illustrated in Ciba Geigy78 and now also in terms of the
strict liability regime in terms of Section 61(1) of the Consumer Protection Act.
Franchisors and Franchisees, Licensors and Licensees
Manufacturers’ liability in relation to franchisors and franchisees, and licensors
and licensees must be determined on the basis of delictual liability involving
wrongfulness, together with the provisions of Section 61 of the Consumer
Protection Act.
In terms of the Consumer Protection Act, it must be determined whether any
franchisor, franchisee, licensor, or licensee is a producer, importer, distributor,
wholesaler, or retailer as defined in Section 1 of the Act.
Remedies
Personal Injury and Death
The damages recoverable for personal injury and death include damages for pain
and suffering (non-pecuniary loss), loss of the amenities of life, disfigurement,
and shortened life expectation, incurred and future medical expenses, loss of
past income and earning capacity, and damages for loss of support (in the case
of dependants).79
76 Consumer Protection Act, s 1.
77 Consumer Protection Act, s 61(4)(c).
78 Ciba-Geigy (Edms) Bpk v Lushof Plase (Edms) Bpk en ‘n ander, [2002] 2 All SA 525
(A).
79 See P.J. Visser, J.M. Potgieter, L. Steynberg, and T.B. Floyd, Law of Damages, 3rd
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Punitive Damages
No provision is made for punitive damages.
Emotional Distress
Damages may be awarded for shock (psychiatric injury), as well as for
emotional shock (ie, a sudden painful emotion or fright) which causes further
forms of shock.80 The emotional shock must not be of a negligible nature and of
short duration.81
Pure Economic Loss
‘Pure economic loss’ is understood as ‘loss that does not arise directly from
damage to the plaintiff’s person or property, but rather in consequence of the
negligent act itself, such as a loss of profit, being put to extra expenses, or the
diminution in the value of property’.82
In contrast to the position of negligent conduct, which manifests itself in the
form of a positive act causing physical damage to the property or person of
another and which is prima facie wrongful, the wrongfulness of negligent
causation of pure economic loss does not follow prima facie and is regarded as
depending on the existence of a legal duty that is a matter for judicial
determination. This judicial determination involves weighing up and applying
criteria of public or legal policy consistent with constitutional norms.83
The Supreme Court of Appeal in Delphisure Insurance Brokers v Dippenaar
identified a set of factors to be considered in determining the wrongfulness of
the negligent causation of pure economic loss.84
The first of these factors is the fear of so-called ‘boundless liability’ and an
appreciation that the law will recognize liability more readily when there is not a
limitless number of claimants likely to bring a multiplicity of actions.
Another factor to be considered is whether the plaintiff was vulnerable to the
risk (which would favor a finding of liability) or whether he could have avoided
ed (Juta, 2012).
80 P.J. Visser, J.M. Potgieter, L. Steynberg, and T.B. Floyd, Law of Damages, 2nd ed
(Juta, 2003), at pp. 444–445.
81 P.J. Visser, J.M. Potgieter, L. Steynberg, and T.B. Floyd, Law of Damages, 2nd ed
(Juta, 2003), at pp. 444–445.
82 Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority
SA, 2006 (1) SA 461 (SCA); [2006] 1 All SA (6).
83 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 150
(SCA) 156; Coronation Brick (Pty) Ltd v Strachan Construction Co (Pty) Ltd, [1982]
All SA 330 (D) (where the defendant’s bulldozer engaged in road-making activities
disrupted electrical cables carrying power to the plaintiff’s manufacturing business,
causing loss of production and income).
84 Delphi Insurance Brokers v Dippenaar, 2010 (5) SA 499 (SCA) 508, 508-509.
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it by contractual means, such as a disclaimer (which would operate against
liability).85
It also must be considered whether the extension of liability would impose an
unwarranted burden on the defendant or, conversely, whether it would not
unreasonably interfere with the defendant’s commercial activities, as the
defendant was already under a duty to take reasonable care in respect of third
parties.
The nature of the relationship between the parties, contractual or otherwise, also
must be considered, as well as whether the relationship between the parties was
one of ‘proximity’, or closeness.
Other important considerations are the professional standing of the maker of the
statement, the extent to which the plaintiff was dependant upon the defendant
for information and advice, and the reasonableness of the plaintiff relying on the
accuracy of the statement.
A plaintiff who claims pure economic loss must therefore allege wrongfulness
and must plead the facts relied upon to support that contention.86
Return or Repair
In terms of Sections 55 and 56 of the Consumer Protection Act, the consumer is
entitled to return the goods to the supplier within six months after their delivery
to the consumer if the goods fail to satisfy the requirements of Section 55.87
The supplier must, at the direction of the consumer, repair or replace the goods
or refund the consumer the price paid by the consumer.88 If the failure, defect, or
unsafe feature has not been remedied within a further period of three months, or
within such further period of three months another failure, defect, or hazard is
discovered, the supplier must replace the goods or refund the price paid.89
85 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240
(SCA) 248-249 (vulnerability to risk). The Two Oceans Court also indicated that it
could see no reason why the Aquilian remedy should be extended to a plaintiff who
was in a position to avoid the risk of harm by contractual means, but who failed to do
so. See also AB Ventures Ltd v Siemens Ltd [2011] JOL 27136 (SCA).
86 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 150
(SCA) 157; Delphi Insurance Brokers v Dippenaar, 2010 (5) SA 499 (SCA) 508.
87 In terms of section 55(2)(a)−(d), the goods must be reasonably suitable for the
purposes for which they are generally intended; of good quality, in good working
order and free of defects; usable and durable for a reasonable period of time (having
regard to the use to which they would normally be put and to all the surrounding
circumstances of their supply); and of applicable statutory standards.
88 Consumer Protection Act, s 56(2).
89 Consumer Protection Act, s 56(3).
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Contractual Disclaimers or Limitations
Common Law
Exemption clauses have not only been common in both commercial and
consumer agreements, but also have been widespread enough to have become
the rule rather than the exception.90
‘Entire agreement’ or ‘entrenchment’ clauses typically stipulate that no
alteration, variation, or cancellation of any term or condition of a contract will
have any force or effect unless the change or cancellation is recorded in writing
and signed by the parties to the contract.91
Clauses typically encountered are ‘owner’s risk’ clauses92 or clauses that limit
liability for negligence,93 consequential damage, or loss suffered as a result of
defective workmanship or materials,94 and clauses that limit liability imposed by
the implied warranty against latent defects95 and damages for defective
construction.96 Parties have enjoyed wide latitude to impose limitations on
liability in both consumer and non-consumer agreements.97
The courts have in the past adhered to a strict freedom-of-contract approach,98
although there have been indications of a more flexible approach in recent
years.99 Although the Supreme Court of Appeal had in 2002 indicated that
disparity of bargaining power could be a factor that might play a role in
determining the public interest,100 the courts have not subsequently developed
the implications of this principle.
The fundamental point of departure of the courts has been that ‘public policy
generally favored the utmost freedom of contract and required that commercial
transactions should not be unduly trammeled by restrictions on that freedom’.101
90 Afrox Healthcare Bpk v Strydom, 2002 (6) SA 21, 42.
91 Brisley v Drotsky, 2002 (4) SA 1; SA Sentrale Ko-op Graanmaatskappy Bpk v
Shifren en Andere, [1964] 4 All SA 520 (A); De Villiers v McKay NO and another,
2008 (4) SA 155 (SCA).
92 Mercurius Motors v Lopez, 2008 (3) SA 572 (SCA).
93 Masstores (Pty) Ltd v Murray & Roberts Construction (Pty) Ltd and another, [2009]
1 All SA 146 (SCA).
94 Adel Builders (Pty) Ltd v Thomson, [1998] 2 All SA 534 (SE); Strijdom Park
Extension 6 (Pty) Ltd v Abcon (Pty) Ltd, [1998] 4 All SA 117 (A).
95 Consol Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd and another, [2004] 1
All SA (SCA).
96 Strijdom Park Extension 6 (Pty) Ltd v Abcon (Pty) Ltd, [1998] 4 All SA 117 (A).
97 Restrictions on liabilities that might otherwise be implied by law are included here.
98 Afrox Healthcare Bpk v Strydom, 2002 (6) SA 21; Brisley v Drotsky, 2002 (4) SA 1
(SCA) 15; Magna Alloys and Research (SA) Pty) Ltd v Ellis, 1984 (4) SA 874, 893-
894.
99 Barkhuizen v Napier, 2007 (5) SA 323 (CC), minority judgment of Sachs J;
Swinburne v Newbee Investments (Pty) Ltd, 2010 (5) SA 296 (KZD).
100 Afrox Healthcare Bpk v Strydom, 2002 (6) SA 21, 42.
101 Afrox Healthcare Bpk v Strydom, 2002 (6) SA 21, 33-34, citing Sasfin (Pty) Ltd v
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or on the part of the supplier arising out of the sale or distribution of the goods
whether or not defective or not for any reason whatsoever. As regards clause
4.4, the Court observed that the clause included reference to statutory law. If the
exclusion were to be enforced, it would necessarily result in a contravention or
tend to induce a contravention of statutory law: “the relevant statute here not
only prohibits the delivery of foodstuff that contains a prohibited substance, but
also makes it an offence for one to do so.”106
This statement has profound implications for commercial contracts of South
African suppliers, over and above the regime in relation to consumer contracts.
There are undoubtedly countless commercial contracts currently in use in South
Africa containing similar language. Not only would suppliers be prudent to steer
clear of employing language which might limit liability under statute, but it may
also be problematical for such language to be retained in existing contracts. As
regards clause 4.6, the court held that this clause was “so gratuitously harsh and
oppressive that public policy would not tolerate it”, and “clearly inimical to the
interests of the community… or run[ning] counter to social or economic
expedience”.107
Issues that have arisen with regard to disclaimers and disclaimer notices have
been whether the disclaimer has been incorporated in the agreement and the
interpretation of the disclaimer.108 Subject to the comments above regarding the
Hirsch case, the courts have not been concerned with the ‘fairness’ of
disclaimers.
As regards disclaimers contained in transactional documentation, the Supreme
Court of Appeal noted in Mercurius Motors v Lopez that, in order for a clause
that undermines the very essence of the contract in question to be effective, such
a clause should be clearly and pertinently brought to the attention of a customer
who signs a standard form109 and should not be by way of an inconspicuous and
barely legible clause that refers to the conditions on the reverse side of the page
in question.110 However, when a disclaiming notice has been conspicuously and
prominently displayed and located so that it would not escape notice, it will be
effective,111 provided that it is clear and unambiguous.
106 Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA) 286.
107 Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA) 286.
108 Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA) 286.
109 The courts also have started to generally indicate a growing awareness of the nature
and implications of the fact that when contracts amount to standard form contracts,
additional considerations may play a role; for example, Barkhuizen v Napier 2007
(5) SA 323 (CC), minority judgment of Sachs J; Swinburne v Newbee Investments
(Pty) Ltd 2010 (5) SA 296 (KZD).
110 Mercurius Motors v Lopez, 2008 (3) SA 572 (SCA) 578.
111 Jacobs v Imperial Group (Pty) Ltd, [2010] 2 All SA 540 (SCA) 543-544; Durban’s
Water Wonderland (Pty) Ltd v Botha and another, 1997 (3) SA 245 (NPD); D & H
Piping Systems (Pty) Ltd v Trans Hex Group Ltd and another, 2006 (3) SA 593
(SCA) 600.
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In general, exemption clauses are treated no differently from any other
contractual clauses: ‘They are simply contractual provisions that must be
construed by examining the words used, the structure of the provision itself, and
the context of the contract as a whole’.112
However, as regards the interpretation of disclaimers, the application of the
contra proferentem rule is only relevant if the provision is ambiguous.113 There
are now increasing indications that when a disclaimer exempts a party from
liability that would otherwise attach or, as noted in Mercurius Motors v Lopez,
undermines the very nature of the type of contract in question,114 the fact of the
attempted exemption itself may cause the court to look closely at how a
reasonable person would understand the provision in question115 or whether the
person relying on the disclaimer acted sufficiently reasonably in bringing the
notice to the customer’s attention.116
A disclaimer in terms of which the breadwinner undertakes not to institute a
claim against another party is not enforceable against the breadwinner’s
dependants.117
Statute
In terms of the Consumer Protection Act, a supplier may not make a transaction
or agreement subject to any term or condition if it purports to limit or exempt a
supplier of goods or services from liability for any loss directly or indirectly
attributable to the gross negligence of the supplier or any person acting for or
controlled by the supplier.118
In the context of Regulation 44 of the Consumer Protection Act Regulations
(CPA Regulations) issued by the Minister of Trade and Industry,119 a term listed
in the Regulation is presumed to be an unfair contract term, subject to the
112 Swinburne v Newbee Investments (Pty) Ltd, 2010 (5) SA 296 308, relying on
Masstores (Pty) Ltd v Murray & Roberts Construction (Pty) Ltd and another, [2009]
1 All SA 146 (SCA). Also relevant is KPMG Chartered Accountants v Securefin Ltd
and another, [2009] 2 All SA 523 (SCA).
113 ER24 Holdings v Smith NO and another, [2007] 4 All SA 679 (SCA).
114 Mercurius Motors v Lopez, 2008 (3) SA 572 (SCA) 578.
115 Swinburne v Newbee Investments (Pty) Ltd, 2010 (5) SA 296.
116 Jacobs v Imperial Group (Pty) Ltd, [2010] 2 All SA 540, 544.
117 Jameson’s Minors v CSAR, 1908 TS 575. Discussed in J. Neethling, J.M. Potgieter,
P.J. Visser, and J.C. Knobel, Law of Delict, 5th ed (LexisNexis, 2006).
118 Consumer Protection Act, s 51(1)(c)(i).
119 Government Gazette (GG) No. 34180, Regulation Gazette (RG) No. 9515,
Government Notice (GN) No. R 293. Under the Consumer Protection Act, s
120(1)(d), the Minister is authorized to make regulations relating to unreasonable,
unjust, or unfair terms. A general discussion is provided in T. Naudé, ‘Consumer
Protection Act Clarified’, Moneyweb (22 March 2011), at http://www.moneyweb
.co.za/mw/view/mw/en/page292681?oid=533804&sn=2009+Detail&pid=295023.
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![SOUTH AFRICA SA-23
any economic loss arising from any such death, injury, illness, loss, or
damage.141
Corporate Successor Liability
Liability for damage caused by defective products is not differentiated from
other kinds of liability as regards corporate successors, and there is no special
provision for extending liability for damage caused by defective products to
corporate successors. A company that is unable to pay its debts is liable to be
wound up in terms of Section 345 of the Companies Act.142
Product Liability Insurance
Availability and Use of Insurance
Insurance is widely accessible and widely used. South Africa has an active and
thriving insurance industry with extensive links to the international insurance
underwriting industry, particularly to the insurance industry in the United
Kingdom.
Nature of General Liability Policies
As a form of indemnity insurance, short-term insurance (also referred to as
business insurance, commercial insurance, product liability insurance, and
liability insurance) covers a wide array of risks for both businesses and
consumers.143
Usual Extent of Cover
Comprehensive and limited cover is available.
Usual Exclusions
In view of the courts’ emphasis on the doctrine of freedom of contract, a wide
range of exclusions has been used. Such exclusions include indemnities,
exclusions of implied warranties of quality, exclusions of liability for damage
due to negligence, and various limitations of risk.144
The ordinary rules relating to the interpretation of contracts are applied in
construing policies of insurance. However, any provision purporting to place a
141 Consumer Protection Act, s 61(3)(d)(iv).
142 Act Number 71 of 2008.
143 Additional information available at Life Annuities, ‘Theories and Forms of Product
Liability Insurance’ on the Annuity & Insurance website at http://annuity.
webarticles.co.za/theories-and-forms-of-product-liability-insurance.html.
144 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd, [2010] 4
All SA 366 (SCA).
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![SA-24 INTERNATIONAL PRODUCT LIABILITY
limitation on a clearly expressed obligation to indemnify is restrictively
interpreted.145
In Raqa v Hofman, the Court denied an insurance claim on the basis that the
insured lacked locus standi where the insured had made an application for
consumer credit on behalf of a third party who did not qualify for credit in terms
of the National Credit Act,146 and the goods were damaged while in possession
of the third party.147
Duties of Insured
The insured has a duty of good faith to the insurer. The insured must not only
avoid misrepresenting material facts, but also must not fail to disclose material
facts.148
In Papagapiou v Santam Ltd., the insurer successfully relied on an exemption
clause excluding liability when any claim under the policy was fraudulent or if
any fraudulent means or devices were used by the insured to obtain any undue
benefit under the policy.149
Product Liability Litigation
Frequency of Litigation
It is difficult to assess the actual incidence of product liability litigation
accurately, as some product liability cases may not be reported in the various
court reporting systems, and some cases are settled. The requirement of
negligence, coupled with the courts’ relative tolerance of disclaimers150 and the
prevalence of such clauses, along with the high cost of litigation, have probably
discouraged product liability litigation to some extent.
With the removal of negligence as a necessary element of product liability and
the stricter approach toward disclaimers introduced by the Consumer Protection
Act, it may be expected that the number of product liability cases will steadily
increase.
145 Papagapiou v Santam Ltd (58/2005) [2005] ZASCA 140, at para 6. The ruling is
available at http://www.saflii.org/za/ cases/ZASCA/2005/140.pdf.
146 Act No. 34 of 2005.
147 Raqa v Hofman (A38/2009) [2009] ZAWCHC 90; 2010 (1) SA 302 (WCC) (29
May 2009), available at http://www.saflii.org/za/cases/ZAWCHC/2009/90.html.
148 W.S. Getz, D.M. Davis, and G. Gordon, The South African Law of Insurance, 3rd ed
(1983), at p. 106.
149 Papagapiou v Santam Ltd (58/2005) [2005] ZASCA 140, available at
http://www.saflii.org/za/cases/ZASCA/2005/140.html.
150 C.-J. Pretorius, ‘Exemption Clauses And Mistake’, 73/3 THRHR (2010), at p. 491,
providing an analysis of the courts’ indirect methods of restraining exemption
clauses; Mercurius Motors v Lopez, 2008 3 SA 572 (SCA).
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![SOUTH AFRICA SA-25
Attitude of Courts
While English courts are perceived as adopting a liberal approach to the
extension of the duty of care, South African courts tend to adopt a cautious
approach,151 not being inclined to ‘extend the scope of the Aquilian action to
new situations unless there are positive policy considerations which favor such
an extension’.152
In Wagener v Pharmacare Ltd, Cuttings v Pharmacare Ltd,153 the Supreme
Court of Appeal was invited to adopt a regime of strict liability in product
liability cases and to discard liability based on negligence as the test for liability
in product liability cases.
Noting that in other countries it was legislatures which had imposed strict
liability, the Court held that while there might be valid arguments for the
introduction of strict liability in respect of product liability claims, this was a
matter for the legislature to undertake.
Typical Extent of Damages Awards
When plaintiffs are successful in product liability cases, the quantum of liability
may be the subject of confidential settlement. Generally, however, damages
awards tend to be on the conservative side.
Lawyers’ Compensation
The structure of the legal profession in South Africa is similar to that in the
United Kingdom. Advocates (barristers) typically practice in association as
members of bar associations. Attorneys constitute the so-called side-bar.
Advocates have right of appearance in the magistrates courts (the lower courts)
as well as the high courts, while attorneys, who have right of appearance in the
lower courts, may acquire the right of appearance in the high courts.
Attorneys’ remuneration for litigious work is subject to supervision by the
relevant professional bodies. The remuneration of advocates is subject to
approval by the respective bar committees. Contingency fees for attorneys are
governed by the Contingency Fees Act,154 which allows for a success fee to be
up to more than 100 per cent of the normal fees, but subject to a maximum of 25
per cent of the award obtained.155
151 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240
(SCA).
152 Lillicrap, Wassenaar and partners v Pilkington Brothers SA (Pty) Ltd, [1985] 1 All
SA 347 (A) 355.
153 Wagner v Pharmacare Ltd, Cuttings v Pharmacare Ltd, 2003 (4) SA 285 300
(SCA).
154 Act No. 66 of 1997.
155 A general discussion is provided in A.J. Reinecke, The Legal Practitioner’s
Handbook on Costs (2011), at pp. 99–100.
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![SA-26 INTERNATIONAL PRODUCT LIABILITY
Choice and Application of Law
In Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd,
the Supreme Court of Appeal applied the general rule that the choice by parties
to a contract of the governing law (the proper law of the contract) is valid.156
This did not, however, mean that party autonomy can prevail over the
peremptory provisions of an applicable statute, especially when the action is
brought in terms of such a statute.157
Legality is determined by the lex fori, and the ius cogens (peremptory law) of
the lex fori cannot be excluded.158 Applying the peremptory law, the Court
stated that, when considering the question whether parties may exclude the
operation of statutory provisions by choice of another system of law, the
question that must be asked is whether they can waive the application of those
provisions.159 Provided that public policy and interest are not prejudiced by a
waiver, a party falling in a class for whose benefit the provision was enacted
may waive the application of such provisions.160
The dispute in Representative of Lloyds concerned provisions that were subject
to provisions of the Short-Term Insurance Act161 dealing with the effect of non-
disclosures and misrepresentations162 and the effect of a contravention of the
law163 on a policy. These provisions were enacted for the protection of insured
parties who are ignorant, careless, or uneducated from unscrupulous insurers
who attempt to escape liability.164
Terms in consumer agreements providing that a law other than that of the
Republic applies to a consumer agreement concluded and implemented in the
Republic, when the consumer was residing in the Republic at the time when the
agreement was concluded, are presumed to be unfair.165
156 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4
All SA 366 (SCA) 373.
157 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4
All SA 366 (SCA) 373.
158 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4
All SA 366 (SCA) 373.
159 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4
All SA 366 (SCA) 374.
160 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4
All SA 366 (SCA) 374.
161 Act Number 53 of 1998.
162 Short-Term Insurance Act, s 53.
163 Short-Term Insurance Act, s 54.
164 A.J. Reinecke, The Legal Practitioner’s Handbook on Costs (2011), at p. 374, para
24. The Court also relied on the provisions of the Admiralty Jurisdiction Regulation
Act (Act No. 105 of 1983), s 6(2). See also Bafana Finance Mabopane v Makwakwa
and another [2006] 4 All SA 1 (SCA) with regard to the waiver of legislative
protective provisions.
165 CPA Regulation 44(3)(bb).
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![SPA-6 INTERNATIONAL PRODUCT LIABILITY
manufacturer), as the producer is located in a non-EU state. In such specific
cases, the TR allows consumers to make direct claims against the importer (who
introduced the defective product into Spain) instead of the manufacturer. The
Provincial Court of the Balearic Islands7 categorically identified this liability,
stating:
‘Without prejudice to the liability of the producer, any person
importing into the European Union a product for sale, hire,
leasing, or any other form of distribution in the course of its
business activities shall be deemed to be a producer for the
purposes of [the Product Liability] Directive and shall face the
same liability as the producer.’
Supplier
At the final level in the hierarchy of liable parties set by law, there is the
supplier. According to Article 138(2) of the TR, the supplier will only be liable
in cases where the producer (who is the manufacturer or importer) cannot be
identified or, if identified, the supplier ‘has supplied the product in the
knowledge of the defect’s existence’, as stipulated in article 146 of the TR.
The TR therefore includes two particular cases in which the supplier will be
liable. According to Article 138(2) of the TR, the supplier will be considered the
producer and will be held liable as such when it is not possible to identify the
producer or, if applicable, the importer.
Based on Article 146 of the TR, the supplier also will be held liable when it has
supplied a product to consumers while aware of the existence of a defect. The
law thereby establishes the ‘subsidiary’ liability of the supplier in cases where it
seems impossible for the producer to be held responsible, as the producer is
unknown. Furthermore, even if the producer is known, a supplier who was
aware of defects in a product but allowed it to be sold will be liable for damage
caused by that product, thereby providing further protection to consumers.
As well as the two cases in which, according to the law, responsibility can be
found to lie with the supplier, other specific criteria also must be met for a party
to be considered a supplier. The supplier is understood to mean an entity
operating as a business, which means that any distribution of goods by a party
not involved in a business activity will be exempt from defective product
liability.
As well as operating as a business, to be considered a supplier under the TR, the
party must provide goods or services. Finally, regarding the supplier’s liability,
7 Balearic Islands Provincial Court Judgment of 28 December 2006 (Aranzadi
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![SPA-20 INTERNATIONAL PRODUCT LIABILITY
compensation for death, permanent injuries, and temporary incapacity sustained
in traffic accidents.
Obviously, this standard is non-binding and courts are not obliged to follow it
when assessing damages for injuries caused by defective products; however,
courts have found the standard useful for reference purposes on numerous
occasions, in order to safeguard the principles of equality and legal certainty and
to avoid ordering compensation in a purely arbitrary manner.
For this kind of personal damage, the TR, specifically Article 141(b), sets a
maximum payable compensation, stipulating that ‘the producer’s total civil
liability for death and personal injuries caused by identical products showing the
same defect will be limited to a sum of 63,106,270.96 euros’.
This limit is applicable to each manufacturer of the product in question, not to
the entire sector or group of companies selling the identical products referred to
in the precept. The aim is to establish a maximum sum that the producer will
have to pay as compensation to the entire group of parties affected by a
defective product.
However, does this mean the producer will only have to pay this maximum
figure even when the combined compensation payable to injured parties is
higher? Obviously, the answer must be in the negative, as the maximum amount
included in the TR is not exclusive. This means that if accredited damage
exceeds the stipulated maximum sum, then injured parties may resort to other
means to obtain compensation for accredited damage, and this is precisely how
the Spanish Supreme Court has understood the matter. In terms of Spanish
regional case law, a ruling from the Castellón Provincial Court31 stands out for
its clarity and forceful wording, stating that the established maximum
compensation:
‘. . . is indeed a limit. But bear in mind that it refers to the
liability system stipulated by the Law, which is objective by
nature, as expressly attested in its statement of purpose. It can
therefore be understood that if damages exceed this
compensation limit, then claims can be made via the general
extra-contractual civil liability system [. . .] of the Civil Code).
[. . .] Therefore, compensation not covered by this specific law
may be awarded via general regulations.’
Moral Damage
Official legal doctrine understands that moral damage must be excluded from
the protection provided by the TR, due to the stipulation of Article 128(2),
referring expressly to the possibility of the injured party obtaining compensation
31 Castellón Provincial Court Judgment of 29 March 1999 (ARP 1990/722).](https://image.slidesharecdn.com/intlproductliability2012-130312103406-phpapp02/85/International-Product-Liability-418-320.jpg)
International Product Liability
- 1. PUBLICATION UPDATE INTERNATIONAL PRODUCT LIABILITY RELEASE 1 • 2012 HIGHLIGHTS Juris Publishing is pleased to present Release 1 of International Product Liability. This release contains comprehensive revisions to the chapters on: • Colombia • Denmark • England and Wales • Italy • Mexico • South Africa • Ukraine This release also contains new chapters on: • Malaysia • Poland • Romania Juris Publishing and the authors welcome your questions, suggestions and comments. Please contact us at Juris Publishing, Inc, 71 New Street, Huntington, N.Y. 11743 USA.
- 3. RECORD OF RELEASES FILED INTERNATIONAL PRODUCT LIABILITY is filed with all previously issued releases and is current through: Release 1 • 2012 Questions About This Publication ____________________ For editorial assistance or customer service: please call…………………………………………….1-631-350-2100 or fax…………………………………………….……1-631-351-5712 JURIS
- 5. INTERNATIONAL PRODUCT LIABILITY Second Edition DENNIS CAMPBELL General Editor CHRISTIAN CAMPBELL Editor JURIS
- 6. Questions About This Publication For assistance with shipments, billing or other customer service matters, please call our Customer Services Department at 1-631-350-2100. To obtain a copy of this book, call our Sales Department: Fax: 1-631-351-5712 Toll Free Order Line: 1-800-887-4064 (United States & Canada) See our website: www.jurispub.com Copyright © 2012 Juris Publishing, Inc. _________________ All Rights Reserved. Printed in the United States of America. ISBN: 978-1-57823-286-4 _________________ Juris Publishing, Inc. 71 New Street Huntington, NY 11743 USA www.jurispub.com
- 7. Table of Contents Argentina Introduction ............................................................................................ ARG-1 Legal Regime ......................................................................................... ARG-1 Consumers’ Claims ................................................................................ ARG-4 Concept of Defect .................................................................................. ARG-7 Information to Consumers ..................................................................... ARG-7 Remedies ................................................................................................ ARG-8 Provisions in Consumer Contracts ......................................................... ARG-8 Product Liability Insurance .................................................................... ARG-11 Product Liability Litigation .................................................................... ARG-12 Conclusion ............................................................................................. ARG-13 Austria Introduction ............................................................................................ AUT-1 Historical Evolution ............................................................................... AUT-2 Purpose of the PHG................................................................................ AUT-4 Product and Defective Product............................................................... AUT-5 Warning and Recall Obligations ............................................................ AUT-8 Defenses Contributory Fault .................................................................. AUT-8 Defect as ‘Proximate Cause’ .................................................................. AUT-10 Liable Persons General .......................................................................... AUT-11 Joint and Several Liability ..................................................................... AUT-14 Burden of Proof...................................................................................... AUT-15 Remedies ................................................................................................ AUT-16 Disclaimer Clauses................................................................................. AUT-16 Statutes of Limitation ............................................................................. AUT-17 Liability of Corporate Successors .......................................................... AUT-18 (Release 1 – 2012)
- 8. iv INTERNATIONAL PRODUCT LIABILITY Insurance ................................................................................................ AUT-18 Role of the Courts .................................................................................. AUT-19 Applicability of Austrian Law ............................................................... AUT-19 Disclaimer .............................................................................................. AUT-20 Canada Introduction ............................................................................................ CDN-1 Common Law......................................................................................... CDN-1 Contract ................................................................................................. CDN-8 Other Statutory Enactments ................................................................... CDN-11 Québec Civil Law .................................................................................. CDN-14 Conclusion ............................................................................................. CDN-25 Colombia Introduction ............................................................................................ COL-1 Specific Normative Grounds .................................................................. COL-1 Civil Liability Regime for Defective Products....................................... COL-3 Civil Code Regulation of Extra-Contractual Responsibility .................. COL-9 Collective Actions Provided under Constitution .................................... COL-10 Conclusion ............................................................................................. COL-11 Denmark Introduction ............................................................................................ DEN-1 Theories of Liability............................................................................... DEN-2 Negligence ............................................................................................. DEN-3 Fraud or Misrepresentation .................................................................... DEN-6 Warranty ................................................................................................ DEN-6 Strict Liability ........................................................................................ DEN-7 Concept of Defect .................................................................................. DEN-8 Defenses Available to Manufacturer ...................................................... DEN-15 Liability in Chain of Commerce ............................................................ DEN-17 Remedies ................................................................................................ DEN-18 (Release 1 – 2012)
- 9. TABLE OF CONTENTS v Limitations ............................................................................................. DEN-20 Successor Liability ................................................................................. DEN-21 Insurance ................................................................................................ DEN-21 Product Liability Litigation .................................................................... DEN-25 Conclusion ............................................................................................. DEN-27 England and Wales Introduction ............................................................................................ ENG-1 Basis of Manufacturer’s Liability .......................................................... ENG-1 Concept of Defect .................................................................................. ENG-4 Defenses Available to the Manufacturer ................................................ ENG-5 Examples of Strict Liability for Products ............................................... ENG-7 Contractual Liability of Distributors ...................................................... ENG-9 Remedies ................................................................................................ ENG-13 Exclusion or Limitation of Liability ...................................................... ENG-16 Statute of Limitations ............................................................................. ENG-17 Corporate Successor Liability ................................................................ ENG-18 Product Liability Insurance ................................................................... ENG-19 Product Liability Litigation .................................................................... ENG-20 Product Safety Legislation and Prosecutions by Trading Standards Officers .................................................................................. ENG-22 Conclusion ............................................................................................. ENG-23 European Community Introduction ............................................................................................ EU-1 Theory of Products Liability .................................................................. EU-2 Affected ‘Products’ ................................................................................ EU-2 Definition and Types of ‘Defect’ ........................................................... EU-4 Liable Parties ......................................................................................... EU-5 Parties Entitled to Recovery ................................................................... EU-6 Types of Remedies and Extent of Recovery .......................................... EU-7 Questions of Evidence ........................................................................... EU-8 (Release 1 – 2012)
- 10. vi INTERNATIONAL PRODUCT LIABILITY Limits of Liability .................................................................................. EU-9 Other Remedies ...................................................................................... EU-10 Disclaimer .............................................................................................. EU-11 Transformation of the EC Directive ....................................................... EU-11 Further Developments in the European Community .............................. EU-14 Appendix ................................................................................................ EU-16 India Introduction ............................................................................................ IND-1 Theories of Liability............................................................................... IND-2 Concept of Defect .................................................................................. IND-8 Defenses ................................................................................................. IND-13 Other Parties Impacted by Product Liability Considerations ................. IND-14 Remedies ................................................................................................ IND-15 Disclaimers/Limitation on Remedies by Contract ................................. IND-16 Corporate Successor Liability ................................................................ IND-17 Product Liability Insurance .................................................................... IND-18 Product Liability Litigation .................................................................... IND-20 Conclusion ............................................................................................. IND-22 Italy Introduction ............................................................................................ ITA-1 Product Liability under Contract Law .................................................... ITA-2 Product Liability under Tort Law .......................................................... ITA-3 General Principle of Producer’s Liability without Fault ........................ ITA-7 Statute of Limitation and Forfeiture Term ............................................. ITA-19 Mandatory Regime of Liability .............................................................. ITA-20 Malaysia Basis of Manufacturers’ Liability ........................................................ MAY-1 Obligations to Warn or Recall Defective Products .............................. MAY-8 Defenses Available to Manufacturer .................................................... MAY-9 (Release 1 – 2012)
- 11. TABLE OF CONTENTS vii Limitation of Liability by Proximate Cause ......................................... MAY-11 Impact of Product Liability Considerations ......................................... MAY-12 Remedies .............................................................................................. MAY-14 Limitations on Remedies by Contract .................................................. MAY-17 Claims Affected by Statute of Limitation ............................................ MAY-17 Extension of Liability for Defective Products to Corporate Successors ............................................................................................ MAY-18 Role of Insurance in Product Liability Matters .................................... MAY-18 Role of Courts and Lawyers in Product Liability Litigation ................ MAY-18 Mexico Introduction ............................................................................................ MEX-1 General Aspects of Liability in Mexico ................................................. MEX-3 Theories of Liability............................................................................... MEX-6 Concept of Defect .................................................................................. MEX-11 Obligation to Recall Defective Products ................................................ MEX-11 Obligation to Warn Consumers about Defective Products..................... MEX-11 Defenses Available to the Manufacturer ................................................ MEX-12 Proximate Cause .................................................................................... MEX-14 Liability of Others in the Supply Chain ................................................. MEX-14 Remedies ................................................................................................ MEX-15 Contractual Disclaimers or Limitations ................................................. MEX-17 Statute of Limitations ............................................................................. MEX-17 Corporate Successor Liability ................................................................ MEX-18 Product Liability Insurance .................................................................... MEX-18 Product Liability Litigation .................................................................... MEX-19 Conclusion ............................................................................................. MEX-23 The Philippines Introduction ............................................................................................ PHI-1 Theories on Manufacturers’ Liability .................................................... PHI-1 Concept of Defect .................................................................................. PHI-11 (Release 1 – 2012)
- 12. viii INTERNATIONAL PRODUCT LIABILITY Obligation to Warn Consumers or Recall Defective Products ............... PHI-15 Defenses Available to the Manufacturer ................................................ PHI-16 ‘Proximate Cause’ Limits ...................................................................... PHI-18 Others Affected by Product Liability Considerations ............................ PHI-20 Remedies ................................................................................................ PHI-22 Exclusion or Limitation of Contractual Liability ................................... PHI-25 Statutes of Limitation ............................................................................. PHI-26 Corporate Successor Liability ................................................................ PHI-27 Product Liability Litigation .................................................................... PHI-27 Conclusion ............................................................................................. PHI-30 Poland Introduction ............................................................................................ POL-1 Risk-Based Ex Delicto Liability for Dangerous Product ....................... POL-1 Concept of Defect .................................................................................. POL-5 Obligation to Warn or Recall Defective Products .................................. POL-6 Defenses Available to Product Manufacturers ....................................... POL-7 Proximate Cause and Limitation of Scope of Liability .......................... POL-9 Impact of Product Liability Considerations ........................................... POL-9 Remedies ................................................................................................ POL-10 Disclaimers or Limitations on Remedies by Contract ............................ POL-11 Claims and Statute of Limitation ........................................................... POL-12 Liability of Corporate Successors for Defective Products ..................... POL-13 Role of Insurance in Product Liability Matters ...................................... POL-13 Role of the Courts and Lawyers in Product Liability Litigation ............ POL-14 Portugal Introduction ............................................................................................ POR-1 Legislative Framework ......................................................................... POR-1 Strict Liability for Manufacturers .......................................................... POR-4 Concept of Defect .................................................................................. POR-5 Duty of Information ............................................................................... POR-8 (Release 1 – 2012)
- 13. TABLE OF CONTENTS ix Defenses Available to the Manufacturer ................................................ POR-9 Concept of Manufacturer ....................................................................... POR-11 Damages and Remedies ......................................................................... POR-13 Limitation Period and Lapse of Rights .................................................. POR-15 Conclusion ............................................................................................. POR-15 Romania Introduction .......................................................................................... ROM-1 Traditional Sources of Product Liability .............................................. ROM-1 Product Liability under Consumer Law ............................................... ROM-3 Transfer of Product Liability to Corporate Successors ........................ ROM-13 Insurance Policies and Product Liability .............................................. ROM-13 Court Proceedings in Product Liability Litigation ............................... ROM-14 Conclusion ........................................................................................... ROM-15 South Africa Introduction ............................................................................................ SA-1 Theories of Manufacturers’ Liability ..................................................... SA-2 Concept of Defect .................................................................................. SA-7 Obligations to Warn Consumers or Recall Defective Products ............. SA-8 Defenses Available to the Manufacturer ................................................ SA-9 Proximate Cause .................................................................................... SA-12 Liability in the Chain of Commerce....................................................... SA-13 Remedies ................................................................................................ SA-14 Contractual Disclaimers or Limitations ................................................. SA-17 Statute of Limitation .............................................................................. SA-22 Corporate Successor Liability ................................................................ SA-23 Product Liability Insurance .................................................................... SA-23 Product Liability Litigation .................................................................... SA-24 Conclusion ............................................................................................. SA-27 (Release 1 – 2012)
- 14. x INTERNATIONAL PRODUCT LIABILITY Spain Introduction ............................................................................................ SPA-1 Nature and Characteristics of Product Liability ..................................... SPA-2 Liability in the Chain of Commerce....................................................... SPA-3 Concept of Defect .................................................................................. SPA-8 Defenses Available to the Producer ....................................................... SPA-12 Compensable Damage............................................................................ SPA-19 Statutes of Limitation ............................................................................. SPA-22 Product Liability Insurance .................................................................... SPA-25 Conclusion ............................................................................................. SPA-28 Sweden Introduction ............................................................................................ SWE-1 Product Liability .................................................................................... SWE-1 Contractual Liability .............................................................................. SWE-4 Non-Contractual Liability ...................................................................... SWE-6 Concept of Defect .................................................................................. SWE-7 Obligation to Ward or Recall ................................................................. SWE-8 Defenses ................................................................................................. SWE-9 Who Can Be Liable? .............................................................................. SWE-10 Remedies ................................................................................................ SWE-11 Disclaimers and Limitations .................................................................. SWE-13 Statutes of Limitation ............................................................................. SWE-13 Corporate Successors ............................................................................. SWE-14 Product Liability Insurance .................................................................... SWE-14 Courts and Lawyers in Liability Litigation ............................................ SWE-16 Ukraine Introduction ............................................................................................ UKR-1 Legislative Framework for Product Liability ......................................... UKR-1 Theories of Liability............................................................................... UKR-2 Concept of Defect .................................................................................. UKR-6 (Release 1 – 2012)
- 15. TABLE OF CONTENTS xi Obligation to Warn Consumers or Recall Defective Products ............... UKR-10 Defenses Available to the Manufacturer ................................................ UKR-14 Proximate Cause .................................................................................... UKR-16 Liability of Others in the Chain of Distribution ..................................... UKR-17 Remedies ................................................................................................ UKR-19 Contractual Disclaimers and Limitations ............................................... UKR-23 Statutes of Limitations ........................................................................... UKR-25 Corporate Successor Liability ................................................................ UKR-28 Product Liability Insurance .................................................................... UKR-28 Product Liability Litigation .................................................................... UKR-30 Conclusion ............................................................................................. UKR-32 United States Introduction ............................................................................................ US-1 Theories of Liability............................................................................... US-4 Concept of Defect .................................................................................. US-12 Obligations to Warn or Recall................................................................ US-14 Defenses ................................................................................................. US-16 Proximate Cause .................................................................................... US-23 Liability of Others in the Chain of Distribution ..................................... US-25 Remedies ................................................................................................ US-26 Class Actions and Multidistrict Litigation ............................................. US-32 Disclaimers and Limitations on Remedies ............................................. US-34 Statutes of Limitation ............................................................................. US-35 Corporate Successor Liability ................................................................ US-36 Product Liability Insurance .................................................................... US-38 Product Liability Litigation .................................................................... US-40 Conclusion ............................................................................................. US-41 (Release 1 – 2012)
- 17. Authors List Argentina Javier Canosa Canosa Abogados Montevideo 711 Piso 4 C1019ABO Buenos Aires Argentina Tel: (54 11) 52522462 Fax: (54 11) 52522463 Email: jc@canosa.com.ar Austria Benedikt Spiegelfeld CHSH Cerha Hempel Spiegelfeld Hlawati Parkring 2 1010 Vienna Austria Tel: (43 1) 514350 Fax: (43 1) 5143535 Email: benedikt.spiegelfeld@chsh.at and Christine Wallner CHSH Cerha Hempel Spiegelfeld Hlawati Parkring 2 1010 Vienna Austria Tel: (43 1) 514350 Fax: (43 1) 5143535 Email: christine.wallner@chsh.at Canada Ilana Schrager Ogilvy Renault LLP Suite 3800 Royal Bank Plaza, South Tower 200 Bay Street, PO Box 84 Toronto, Ontario Canada M5J 2Z4 Tel: (1 416) 2164000 Fax: (1 416) (Release 1 – 2012)
- 18. xiv INTERNATIONAL PRODUCT LIABILITY and Emmanuelle Demers Ogilvy Renault LLP Suite 3800 Royal Bank Plaza, South Tower 200 Bay Street, PO Box 84 Toronto, Ontario Canada M5J 2Z4 Tel: (1 416) 2164000 Fax: (1 416) and Bill McNamara Ogilvy Renault LLP Suite 3800 Royal Bank Plaza, South Tower 200 Bay Street, PO Box 84 Toronto, Ontario Canada M5J 2Z4 Tel: (1 416) 2164000 Fax: (1 416) 2163930 Email: wmcnamara@ogilvyrenault.com Colombia Natalia Tobón Cavelier Abogados Edificio Siski Carrera 4 No. 72 - 35 8 Bogotá Colombia Tel: (57 1) 3473611 Fax: (57 1) 2118650 Email: nataliatobon@cavelier.com and Adriana Durán Fernández Cavelier Abogados Edificio Siski Carrera 4 No. 72 - 35 8 Bogotá Colombia Tel: (57 1) 3473611 Fax: (57 1) 2118650 Email: AdrianaDuran@cavelier.com and (Release 1 – 2012)
- 19. AUTHORS LIST xv Eduardo Varela Pezzano Cavelier Abogados Edificio Siski Carrera 4 No. 72 - 35 8 Bogotá Colombia Tel: (57 1) 3473611 Fax: (57 1) 2118650 Email: eduardovarela@cavelier.com Denmark Klaus Ewald Madsen Bech-Bruun Langelinie Allé 35 2100 Copenhagen Denmark Tel: (45 ) 72270000 Fax: (45 ) 72270027 Email: kem@bechbruun.com and Jes Anker Mikkelsen Bech-Bruun Langelinie Allé 35 2100 Copenhagen Denmark Tel: (45 ) 72273490 Fax: (45 ) 89310101 Email: jam@bechbruun.com England and Wales Peter Burbidge Senior Lecturer University of Westminster 309 Regent Street London W1B 2UW England Tel: (44 207) 9115000 Fax: (44 207) 79115844 Email: burbidp@wmin.ac.uk (Release 1 – 2012)
- 20. xvi INTERNATIONAL PRODUCT LIABILITY European Community Susanne Wesch Wesch & Buchenroth Kernerstraße 43 Am Schützenplatz 70182 Stuttgart Germany Tel: (49 711) 2200940 Fax: (49 711) 22009410 India Kiran Prakash M.V.Kini & Co 1st Floor, Bilquees Mansion Opp Standard Chartered Bank D.N.Road, Fort 4001 001 Mumbai India Tel: (91 22) 612527 Fax: (91 22) 612530 Email: kiran.jaiprakash@gmail.com and Ravi Kini M.V.Kini & Co 1st Floor, Bilquees Mansion Opp Standard Chartered Bank D.N.Road, Fort 4001 001 Mumbai India Tel: (91 22) 612527 Fax: (91 22) 612530 Email: ravikini@mvkini.com and Dushyant Deep M.V.Kini & Co 1st Floor, Bilquees Mansion Opp Standard Chartered Bank D.N.Road, Fort 4001 001 Mumbai India Tel: (91 22) 612527 Fax: (91 22) 612530 Email: dushyant@mvkini.com (Release 1 – 2012)
- 21. AUTHORS LIST xvii Italy Antonello Corrado CFMP - Studio Legale Associato Via di Ripetta 141 00186 Rome Italy Tel: (39 06) 6876917 Fax: (39 06) 68192116 Email: acorrado@cfmplegal.com Malaysia Dhinesh Bhaskaran Shearn Delamore & Co 7th Floor Wisma Hamzah-Kwong Hing No 1 Leboh Ampang 50100 Kuala Lumpur Malaysia Tel: (60 3) 20272727 Fax: (60 3) 20785625 Email: dhinesh@shearndelamore.com Mexico Mónica Noriega R. Barrera, Siqueiros y Torres Landa, S.C. Paseo de los Tamarindos #150-PB Bosques de las Lomas 05120 Mexico, D.F. Mexico Tel: (52 55) 50910000 Fax: (52 55) 50910123 and Juan Francisco Torres Landa R. Barrera, Siqueiros y Torres Landa, S.C. Paseo de los Tamarindos #150-PB Bosques de las Lomas 05120 Mexico, D.F. Mexico Tel: (52 55) 50910000 Fax: (52 55) 50910123 Email: jftl@bstl.com.mx and (Release 1 – 2012)
- 22. xviii INTERNATIONAL PRODUCT LIABILITY Ernesto F. Algaba R. Barrera, Siqueiros y Torres Landa, S.C. Paseo de los Tamarindos #150-PB Bosques de las Lomas 05120 Mexico, D.F. Mexico Tel: (52 55) 50910000 Fax: (52 55) 50910123 Email: ear@bstl.com.mx and Omar Cuéllar Gamboa Barrera, Siqueiros y Torres Landa, S.C. Paseo de los Tamarindos #150-PB Bosques de las Lomas 05120 Mexico, D.F. Mexico Tel: (52 55) 50910000 Fax: (52 55) 50910123 Email: ocg@bstl.com.mx and Michelle Farah M. Barrera, Siqueiros y Torres Landa, S.C. Paseo de los Tamarindos #150-PB Bosques de las Lomas 05120 Mexico, D.F. Mexico Tel: (52 55) 50910000 Fax: (52 55) 50910123 The Philippines Lovely Concepcion C. Matillano Angara Abello Concepcion Regala & Cruz Law Offices 22/F ACCRALAW Tower Second Avenue corner 30th Street Crescent Park West Bonifacio Global City, 0399 Taguig Metro Manila Philippines Tel: (63 2) 8308000 Fax: (63 2) 4037007 and (Release 1 – 2012)
- 23. AUTHORS LIST xix Ma Patricia B. Paz Angara Abello Concepcion Regala & Cruz Law Offices 22/F ACCRALAW Tower Second Avenue corner 30th Street Crescent Park West Bonifacio Global City, 0399 Taguig Metro Manila Philippines Tel: (63 2) 8308000 Fax: (63 2) 4037007 and Salvador L. Peña Angara Abello Concepcion Regala & Cruz Law Offices 22/F ACCRALAW Tower Second Avenue corner 30th Street Crescent Park West Bonifacio Global City, 0399 Taguig Metro Manila Philippines Tel: (63 2) 8308000 Fax: (63 2) 4037007 Poland Marek Oleksyn Sołtysiński Kawecki & Szlęzak Ul. Wawelska 15B 02-034 Warsaw Poland Tel: (48 22) 6087000 Fax: (48 22) 6087070 Email: marek.oleksyn@skslegal.pl Portugal Jacinto Moniz de Bettencourt Uría Menéndez - Proenca de Carvalho Edifício Rodrigo Uría Rua Duque de Palmela, 23 1250-097 Lisbon Portugal Tel: (351 210) 308600 Fax: (351 210) 308601 Email: jbt@uria.com (Release 1 – 2012)
- 24. xx INTERNATIONAL PRODUCT LIABILITY and João de Sousa Assis Uría Menéndez - Proenca de Carvalho Edifício Rodrigo Uría Rua Duque de Palmela, 23 1250-097 Lisbon Portugal Tel: (351 210) 308600 Fax: (351 210) 308601 Email: jpz@uria.com and Filipe Fraústo da Silva Uría Menéndez - Proenca de Carvalho Edifício Rodrigo Uría Rua Duque de Palmela, 23 1250-097 Lisbon Portugal Tel: (351 210) 308600 Fax: (351 210) 308601 Email: fsi@uria.com Romania Horia Ispas Tuca Zbarcea & Asociatii Victoriei Square 4-8 Nicolae Titulescu Ave. America House West Wing, 8th Floor, Sector 1 011141 Bucharest Romania Tel: (40 21) 2048890 Fax: (40 21) 2048899 Email: horia.ispas@tuca.ro South Africa Per E van Eeden Van Eeden Attorneys POBox 33624 0010 Pretoria / Tshwane South Africa Tel: (27 86) 1111357 Fax: (27 86) 5106782 Email: vaneedenlaw@global.co.za (Release 1 – 2012)
- 25. AUTHORS LIST xxi Spain Patricia Gualde Broseta Abogados C/.Pascual y Genís, 5 46002 Valencia Spain Tel: (34 96) 3921006 Fax: (34 96) 3921088 Email: pgualde@broseta.com Sweden Magnus Dahlén Setterwalls Kungstorget 2 Box 112 35 404 25 Gothenburg Sweden Tel: (46 31) 7011700 Fax: (46 31) 7011701 Email: magnus.dahlen@setterwalls.se Ukraine Yaroslav Shkvorets RULG Ukrainian Legal Group, LLC Olimpiysky Center Suite 14, 11th floor 72 Velyka Vasylkivska Street 03150 Kiev Ukraine Tel: (38 044) 2071060 Fax: (38 044) 2071064 Email: yaroslav.shkvorets@ulg.kiev.ua and Iryna Ostapenko RULG Ukrainian Legal Group, LLC Olimpiysky Center Suite 14, 11th floor 72 Velyka Vasylkivska Street 03150 Kiev Ukraine Tel: (38 044) 2071060 Fax: (38 044) 2071064 Email: Iryna.Ostapenko@ulg.kiev.ua (Release 1 – 2012)
- 26. xxii INTERNATIONAL PRODUCT LIABILITY United States James Yuanxin Li StarRaft.com Oakland, California United States Email: JamesYuanxinLi@gmail.com and David DeBusschere Sedgwick, Detert, Moran & Arnold LLP One Market Plaza Steuart Tower, 8th Floor San Francisco, California United States 94105 Tel: (1 415) 7817900 Fax: (1 415) 7812635 Email: David.DeBusschere@sdma.com (Release 1 – 2012)
- 27. Argentina Introduction ............................................................................................ ARG-1 Legal Regime ......................................................................................... ARG-1 Civil Code System ................................................................... ARG-1 Consumer Protection Law System ........................................... ARG-3 System Related to Hidden Defects .......................................... ARG-4 Consumers’ Claims ................................................................................ ARG-4 Development of the Legal Regime .......................................... ARG-4 Strict Liability .......................................................................... ARG-5 Statue of Limitations................................................................ ARG-6 Successor Liability................................................................... ARG-6 Causation and Burden of Proof ................................................ ARG-6 Defenses................................................................................... ARG-7 Judicial and Administrative Proceedings ................................. ARG-7 Concept of Defect .................................................................................. ARG-7 Information to Consumers ..................................................................... ARG-7 Remedies ................................................................................................ ARG-8 Provisions in Consumer Contracts ......................................................... ARG-8 Abusive Clauses....................................................................... ARG-8 Prohibited Contractual Provisions ........................................... ARG-9 Product Liability Insurance .................................................................... ARG-11 Product Liability Litigation .................................................................... ARG-12 Frequency of Litigation ........................................................... ARG-12 Material Damages .................................................................... ARG-12 Lawyers’ Fees .......................................................................... ARG-13 Conclusion ............................................................................................. ARG-13
- 29. Argentina Javier Canosa Canosa Abogados Buenos Aires, Argentina Introduction Product liability is the area of law in which producers and manufacturers of products, as well as distributors, suppliers, retailers, and others who make products available to the public, are liable for the injuries caused by defective or harmful products. Individuals who are harmed by an unsafe product may have a cause for action against the persons who designed, manufactured, sold, or supplied that product. Today, the law on product liability has changed from caveat emptor (‘let the buyer beware’) to strict liability for manufacturing defects that make a product unsafe, harmful, or dangerous. Strict liability claims focus on the product rather than on the behavior of the manufacturer. Under strict liability, the manufacturer is liable if the product is defective, even if the manufacturer was not negligent in making that product defective. The legal regime for product liability in Argentina is based on a strict liability system that distinguishes between contractual and non-contractual consumer relationships. Legal Regime In Argentina, there are three different systems of product liability: the system established by the Argentine Civil Code, the system set down by Law Number 24240 on Consumer Protection, as amended (the Consumer Protection Law), and the system that relates to hidden defects, with some specific rules on commercial matters, which are governed by the Civil Code. Civil Code System In General Product liability under the Argentine Civil Code system may be contractual (when there is a contract between the buyer and the trader or manufacturer) or non-contractual (when there is no contractual relation between the injured party and the trader or manufacturer).
- 30. ARG-2 INTERNATIONAL PRODUCT LIABILITY Contractual Liability According to the provisions of the Civil Code,1 contractual relationships are governed by the principle of good contractual faith. Consequently, the existence of a defect of any origin implies, in the first place, the failure to fulfill the primary obligation assumed by the seller or manufacturer, which consists of delivering a product free of defects. Failure to fulfill this obligation triggers the mechanisms that enable the consumer to obtain the specific performance of the obligation by the seller or manufacturer, with the eventual application of the corresponding remedies. In the case of products, remedies consist of the delivery of another defect-free product in an appropriate condition; the fulfillment of the obligation by a third party; or the monetary value of the product. Optionally, the consumer may request the resolution of the contract after returning the product, claiming the refund of the price paid. In any case (execution or resolution of the contract), the consumer will be able to claim for the damages derived from the seller or the manufacturer’s failure to perform the obligation or the resolution of the contract. Non-Contractual Liability When there is no contractual relation between the injured party and the trader, manufacturer, or any party in the marketing chain that generated the defect, the rules of non-contractual liability based on the concept of ‘created risk’ apply. Created risk refers to the contingency or possibility of damage resulting from introducing defective products in the market, when the defects turn a product that was not dangerous by its nature or use into a dangerous product or increase the extent of danger posed by a product that is dangerous by its nature or use. The passive legal standing is objective, and includes not only the owner and the guardian of the product as established in the Civil Code,2 but also any party who obtains a profit or benefit from the product, as considered in the latest jurisprudence. Nevertheless, the injured party will be able to claim against a member of the marketing chain or against all of them jointly. As in the case of contractual liability, the accused party will be able to claim a refund from the party that caused the defect. As the liability is objective, the defendant can only be excused if the victim or a third party is at fault. After enactment of the Consumer Protection Law, the system of the Argentine Civil Code is, in principle, restricted to those cases where the subject acquires 1 Civil Code, s 1198. 2 Civil Code, s 1103.
- 31. ARGENTINA ARG-3 the product in order to introduce it into a production or trade process or when the subject is not a consumer. Consumer Protection Law System Under the Consumer Protection Law, the seller is responsible on a contractual basis as the person who engages with the consumer. The Consumer Protection Law protects consumers throughout the different contractual phases, from negotiation to the delivery and performance of goods (including used goods) and services. Traders must provide consumers with true, detailed, and accurate information about the goods or services offered. Consumers are vested with the right to commence individual actions in the event their rights under the Consumer Protection Law are threatened. The Consumer Protection Law also includes the right to initiate collective proceedings (class actions), which may include patrimonial claims through consumer associations and specific proceedings aimed at resolving disputes affecting consumers. Claims initiated by consumers and consumer associations may include punitive damages. The new Argentine Consumer Protection Law (the new Consumer Protection Law)3 amended the Consumer Protection Law, extending and improving consumer protection for both local and foreign individuals and companies. The new Consumer Protection Law extends the definition of ‘consumer’, making the term applicable to those individuals or entities obtaining cost-free goods or services as final recipients, either for their own or for their family group’s benefit. Additionally, the concept of ‘supplier’ includes ‘every physical person or public or private entity carrying out in a professional way, even occasionally, activities related to goods and services production, creation, construction, transformation, importation, distribution, and commercialization to consumers or users’. The new Consumer Protection Law establishes that ‘consumer relationships shall be ruled by the provisions of the Law and its regulations, notwithstanding the laws that may apply by reason of the supplier’s activities’, hence setting forth the priority of the Consumer Protection Law over any other specific laws. Additionally, the Consumer Protection Law provides that ‘suppliers should guarantee equitable treatment to consumers and users, and they should refrain from displaying behaviors that put consumers in embarrassing, humiliating, or intimidating situations’. Infringements of these rules will be subject to fines. 3 Law Number 26361 of 3 April 2008.
- 32. ARG-4 INTERNATIONAL PRODUCT LIABILITY Under the new Consumer Protection Law, foreign consumers are considered equal to national consumers in relation to prices or other commercial terms and conditions. Exceptions could be allowed with the prior authorization of the administrative authority, taking the general interest into consideration. Finally, the new Consumer Protection Law establishes the priority of the Consumers’ Protection Law over the regulations applicable to the provision of public services. Before the amendment, the provisions of the Consumer Protection Law were subject to the specific regulations for public services. System Related to Hidden Defects The contractual liability provided by the Argentine Civil Code also includes the obligation to cure hidden defects in the sale contract. The obligation of curing the defects emerges when the hidden defects of the product sold make the product unsuitable for its purpose or diminish it in such a way that a buyer who had been aware of the defects would not have bought the product or would have paid less for the product. The defects must be hidden, because the regime does not apply to manifest defects that were visible or to those defects that the buyer should have known about, given his occupation or profession. In these cases, the buyer has the option of terminating the contract and receiving a refund of the price paid or a proportional discount on the price. If the seller knew about the defect and hid it from the buyer, the buyer will have the same options. In addition, the buyer will be entitled to compensation for the damages suffered in case he decides to terminate the contract. Consumers’ Claims Development of the Legal Regime The recognition of consumers’ claims in Argentina has been a slow and arduous process. The initial stage recognized consumer relationships and identified the consumer as the weaker party in the trading relationship, due to the massive market, real inequalities, and lack of information, among other factors. The legal regime did not give precise answers to these issues. There were only some traditional warranties, such as the one provided for hidden defects, which protected the consumer to a certain extent. At this first stage, the liability of manufacturers and providers could only be based on the concept of guilt; the validity of the free will of the parties was virtually unlimited, impeding the revision of non-equitable contracts and unfair practices that were not precisely expressed in the legal regime. The second stage began with the reforms of the Civil Code and the enactment of special regulatory laws for the market. The legal regime began to create a
- 33. ARGENTINA ARG-5 consumer protection system through solutions that, although generic and not specifically meant to address consumer protection, nonetheless represented significant progress toward equity in consumer relations. The reform of the Argentine Civil Code in 1968 included the rules on good faith4 and abuse of rights,5 which enable judicial control of abusive practices and unfair clauses in consumer contracts. The introduction of the liability regime for manufactured products implicitly emerged in Sections 1198 of the Civil Code for the contractual sphere and in Section 1113 of the Civil Code for the non-contractual sphere. The prohibition of fraud in the identification of products and advertisements, the control of offers with awards, and the regime of warranties was provided by several court precedents. The control of prices and commercialization of goods and services was regulated by the Supply Law.6 The punishment of unfair practices was governed by the Competition Law.7 The control of the systems and contracts on pre-saving for determined purposes was another measure aimed at consumer protection. Finally, the third stage was initiated with the enactment of the Consumer Protection Law, which completes the consolidation of a system of juridical protection that previously was only founded on general rules that were not directly or specifically aimed at the protection of consumers. The consolidation of the Consumer Protection Law did not come about until the constitutional reform in 1994, which introduced consumers’ rights in the National Constitution. The enactment of the law amending the Consumer Protection Law8 and the new Consumer Protection Law of 2008 completed the consumer protection regime by adding the concept of ‘user’, which included users’ claims against service providers, public or otherwise. On December 2008, the legislature of the City of Buenos Aires created the Consumers Arbitration Court, which aimed to solve consumers’ and users’ claims within the scope of the City of Buenos Aires, with the same authority as a judicial ruling. Strict Liability The principle of strict liability applies to consumer claims. To be admitted by the court, damage caused must have a direct relation to the defect in the product. The plaintiff will recover for the damage that was proved in the proceeding. 4 Civil Code, s 1198. 5 Civil Code, s 1071. 6 Law Number 20680 of 1974. 7 Law Number 22262 of 1980. 8 Law Number 24999 of 1998.
- 34. ARG-6 INTERNATIONAL PRODUCT LIABILITY Statute of Limitations The statute of limitations for any claim against any party is generally three years if the case falls within the scope of the Consumer Protection Law. In cases ruled by the Civil Code, the time limit for claiming damages is three months for a claim based on a hidden defect. The time limit for a claim based on a hidden defect is six months if the relationship is ruled by the Commercial Code. In both cases, the term commences at the time of delivery of the product. For an action brought by the purchaser against the non-seller manufacturer, the claim is statute-barred in is two years. For an action brought against the seller (regardless of whether the seller also is the manufacturer), the time limit is 10 years. Successor Liability If a consumer suffers damage as a result of defective goods or services, the producer, manufacturer, distributor, trader, or the person who provides the product or service will be jointly liable for such damage, unless they can show that the damage is not attributable to the relevant party. In this sense, all the subjects involved in the marketing chain may be liable toward consumers under the Consumer Protection Law, including corporate successors. This rule was included in the legal regime with the aim of guaranteeing that consumers will be able to obtain compensation for damage suffered from any of the parties to the consumer relation, regardless of the party that is ultimately responsible. Causation and Burden of Proof In relation to causation, the general principle established in the Procedural Code is that the plaintiff bears the burden of proof. Nonetheless, in claims related to the damage generated by defects in products, the courts take into consideration that the manufacturer is in a better position than the consumer to produce technical evidence; accordingly, the manufacturer has the onus of proving that the product was not defective. The seller is deemed to hold a final obligation on the security of the product sold; therefore, if the product exhibits a defect, there is a presumption of the fault of the seller. The plaintiff bears the burden of proving the existence of the defect and the relation between the defect and the alleged damage. It is not necessary to prove that the damage would not have arisen without such exposure to the product. The mere exposure to potential damage does not produce any responsibility.
- 35. ARGENTINA ARG-7 Defenses In addition to procedural defenses (e.g., a time-bar defense), substantive law authorizes the following defenses: • Product is not defective or hazardous; • No relationship between the alleged damage and the defect, even when a defect existed; • Existence of a third party for whom neither the manufacturer nor the seller are liable; • Occurrence of a force majeure event; and • Fault of the victim himself. The manufacturer’s defense showing that he complied with regulatory and/or statutory requirements relating to the development, manufacture, licensing, marketing, and supply of the product is not eligible, as the regulatory requirements are deemed to be granted under the condition that the product is harmless to consumers. Judicial and Administrative Proceedings Related to the procedure for claims, the trial is before a judge, as there are no trials by jury in Argentina. The Consumer Protection Law also regulates an administrative proceeding and allows for the imposition of fines under such procedures. Concept of Defect In Argentina, the concept of defect is defined as ‘defective manufacture’, as the manufacturer is liable for the defects of movable things. Additionally, the Consumer Protection Law introduced the liability of service providers. Although a defect is defined as defective manufacture, the Consumer Protection Law provides certain liability on the basis of advertising of products, in the event that the advertising violates the obligation of providing accurate information on the products or services offered. Information to Consumers The new Consumer Protection Law establishes the minimum content of the purchase and sale document, which should also state ‘any additional costs, specifying the final price payable by the buyer’. The new Consumer Protection Law also sets forth that ‘the document should be written in Spanish, in a complete, clear, and easily understandable manner’.
- 36. ARG-8 INTERNATIONAL PRODUCT LIABILITY Remedies Regarding remedies, the new Consumer Protection Law includes the compensation of direct damages, which is ‘any monetary damage to the user’s or consumer’s right as a consequence of an action or omission of the supplier’. In order to compensate the direct damage, the authorities could force the supplier to pay a compensation of up to five times the value of the total consumer basket, according to the value reported by the National Institute of Statistics and Census. On this basis, on 27 May 2009 the Civil and Commercial Court of Appeals of the City of Mar del Plata confirmed the lower court’s decision that condemned the defendant to pay ARS 30,000 (approximately US $11,000 at the current exchange rate) for moral material damages and ARS 30,000 for punitive damages. The claim was filed by a disabled person who needed a wheelchair for mobility. The plaintiff argued and was able to prove that he had tried to file several claims before the offices of a mobile telephone company of which he was a client, but he had not received proper attention because the company’s building did not have a wheelchair ramp. The innovation of this judicial decision is the confirmation of the award of punitive damages according to Section 52 bis of the Consumer Protection Law, introduced by the new Consumer Protection Law. The Court of Appeals stated that the defendant abused its powerful position, acting with grave disrespect to the individual rights of the plaintiff, as it did not give him decent treatment. Provisions in Consumer Contracts Abusive Clauses Regarding the provisions contained in consumer contracts, abusive clauses deserve special attention in relation to the protection of consumers’ and users’ rights. An abusive clause is one by which the rights of the manufacturer/seller are expanded and the rights of the consumer/user are intentionally restricted. An abusive clause is a provision that goes against the requirements of good faith and results in a significant and unjustified imbalance of the contractual obligations to the detriment of the consumer or user. An abusive clause may or may not be a general condition, as it may be present in particular contracts in which actual negotiation of the provisions does not exist, particularly in adhesion contracts.
- 37. ARGENTINA ARG-9 At times, it is more difficult to detect abusive clauses, because a significant number of consumer contracts are not written agreements. This does not mean that the protection does not apply to contracts that are not in writing, but it requires greater effort to prove the existence of an abusive clause. Resolution Number 53/03 of 2003 (the Resolution) sets forth specific provisions that are prohibited in consumer contracts. The Resolution not only establishes the nullity of future provisions, but also sets forth that provisions in violation of the Consumer Protection Law that are included in an existing contract will be expunged and this exclusion also will be notified to the consumer. The purpose of the Resolution was to establish objective parameters for the parties to learn, in advance, which contractual provisions would be considered void. Section 37 of the Consumer Protection Law states that contractual provisions which distort the duties of the parties, limit the liability for damages, or restrict the rights of consumers will be considered null and void. Therefore, in the case of any claim or judicial action brought by any consumer against a company, the competent authority or the competent judge has to analyze each particular provision in order to determine whether it violates (or does not violate) the general prohibition of the Consumer Protection Law. The interpretation of the provisions was subject to the discretion of the authorities or the courts, according to the circumstances of the case. Under the new Resolution, if a provision falls within the description established in its text, it will automatically be considered null and void. Prohibited Contractual Provisions Without prejudice to other practices that could be considered in violation of the general principles established by Section 37 of the Consumer Protection Law, specific contractual provisions are prohibited. The Consumer Protection Law prohibits contractual provisions that grant the supplier of goods or services the exclusive right to construe the meaning, extension, and compliance of a provision. Contractual provisions that grant the supplier of goods or services the right to unilaterally amend any provision of a contract are prohibited, unless the balance between the rights and obligations of the parties in the contractual relationship is not disturbed by means of such amendments and provided that the right to amend the contract and its parameters is expressly agreed upon in the contract. Likewise, the right of the consumer to terminate the contract as a result of such an amendment must have been previously established. Prohibited contractual provisions include those that, despite the due compliance by the consumer of all its obligations undertaken in the contract, authorize the supplier of goods or services to terminate the contract without cause.
- 38. ARG-10 INTERNATIONAL PRODUCT LIABILITY The termination of the contract by the supplier without cause will only be legal if an obligation of prior notification to the consumer is provided in the contract and if, in the case of fixed-term contracts, the right of the consumer to terminate the contract also has been previously agreed. The Consumer Protection Law prohibits contractual provisions that establish the commencement of the contract will be at the sole discretion of the supplier of goods or services, while the consumer’s acceptance of the terms and conditions of the contract is irrevocably established in the text of the contract. Provisions that impose limitations on the consumer’s judicial rights also are prohibited. This is particularly the case when provisions establish a different venue than the one corresponding to the domicile of the consumer at the time of the execution of the contract (except in those cases where the judicial claim is filed at the venue of the real domicile of the consumer at the time of the filing); provisions that establish limitations on the production of evidence or impose on the consumer the burden of producing specific evidence in disregard of the provisions of the Procedural Code in this respect; and provisions that establish certain limitations for the filing of defenses and remedies. Contractual provisions that establish the right of the supplier of goods or services to set off a credit against a consumer already in arrears with another credit of the consumer against the provider, which originated in another contract or service rendered by the consumer to the provider, are prohibited, unless this compensation is admitted by the applicable law and the provider duly notifies the consumer of this circumstance in the contract. The prohibition applies to contractual provisions that exclude or limit the responsibility of the supplier of goods or services regarding any indemnification admitted by the applicable law in case of damage caused by the product or service provided to the consumer. In fixed-term consumer contracts that grant the parties the right to terminate the contract before the specified term and in consumer contracts that have no specified term, any provisions that make the consumer’s right of termination of the contract conditional on the consumer’s prior payment of all pending obligations in favor of the other party are prohibited. Contractual provisions that establish the right of the provider to provide a different product or service than that agreed on in the contract without the prior consent of the consumer and/or which impose a term for the consumer to accept the different product or service are prohibited. Also prohibited are contractual provisions that impose on the consumer a representative in order to exercise the rights provided in the contract or to carry on any other legal act on his behalf. Contractual provisions that violate environmental regulations or allow such violations are prohibited.
- 39. ARGENTINA ARG-11 Product Liability Insurance Insurance policies available for product liability in Argentina are those that protect the insured against civil claims. In general, these policies include comprehensive general protection against liability claims derived from contractual or extra-contractual relationships, including claims related to products and services. According to the Insurance Law,9 insurance policies do not cover cases in which the insured acted intentionally or was guilty of serious misconduct. Additionally, insurance policies include a restriction on the insurance company’s protection toward the insured in case of liability, known as a ‘deductible’. If the insured incurs liability, the deductible is an amount, usually established by the insurance company, that the insured is obligated to pay before the insurance company responds to the claim. In connection with the deductible and according to the Consumer Protection Law, in the case Saldivar, Federico Reynaldo v Metrovías S.A., Tribunal M of the Civil Court of Appeals ruled that the deductible in liability insurance could not be asserted against the aggrieved party, despite the Supreme Court of Justice’s precedents that found to the contrary. The ruling provided that Metrovías S.A. and its insurance company (La Meridional Compañía Argentina de Seguros S.A.) must pay the plaintiff 80 per cent of the sums claimed. In addition, the Court ruled that the deductible of the liability insurance taken out by the insured could not be asserted against the plaintiff, in spite of several previous rulings of the Supreme Court of Justice to the contrary. Notably, the Supreme Court of Justice has repeatedly affirmed the validity and assertion of this deductible. One of the basis for the Supreme Court’s decisions is that the aggrieved party is not privy to the insurance contract entered into between the insured and the insurer. Thus the ‘third party’ who invokes this insurance contract must confine its rights to the terms and conditions agreed on between the insured and the insurer. However, the Court of Appeals understood that in the specific case of Saldivar, it was not bound to follow the Supreme Court’s rulings. Although, in principle, national courts ought to follow the Supreme Court’s doctrine, they can derogate from them if new arguments should arise that have not been taken into account by the Supreme Court. The Civil Court of Appeals maintained that the Consumer Protection Law was amended by the Argentine Congress after the Supreme Court’s contrary rulings, 9 Law Number 17418 of 1967.
- 40. ARG-12 INTERNATIONAL PRODUCT LIABILITY that the new text of the new Consumer Protection Law was in line with the ruling in a previous leading case, and that the Supreme Court had not issued any other ruling subsequent to the amendments to the Consumer Protection Law. According to the court, these amendments had widened the concept of ‘consumer’ to cover those who, without being a party to a consumer relationship, use a service as end consumers and are exposed to a consumer relationship (as in the case of the aggrieved party in Saldivar). In addition, the amendments had extended the benefits of the Consumer Protection Law to these consumers. Tribunal M held that a consumer relationship existed in the case, and therefore the limited legal effects concept based on privity of contracts (ie, the Supreme Court’s line of reasoning) should not be applied. It also held that the provisions of Article 37 of the Consumer Protection Law should be applied, which sets forth that stipulations which distort the nature of the obligations or that limit liability for damage will be null and void. Product Liability Litigation Frequency of Litigation Judicial claims on product liability issues in Argentina started before the enactment of the Consumer Protection Law and its amendments. Numerous court decisions protecting the rights of consumers built the foundations of the principles later reflected in the Consumer Protection Law. The rate of judicial claims on product liability issues in Argentina has increased since the Consumer Protection Law came into force. This rate was significantly increased by class actions filed by consumer organizations, based on the inclusion of collective rights in the Argentine legal regime. Analysts claim that, currently, consumers’ claims in Argentine courts are as common as other judicial claims. The Argentine legal regime contemplates two categories of damages that can be indemnified: material damages and non-patrimonial damages. Material Damages In General Material damages include direct damages (the direct financial loss suffered), compensation for lost profits (the profits lost by the injured party), compensation for lost chances (the loss of a potential opportunity), and litigation costs. Non-Patrimonial Damages Non-patrimonial damages are subject to compensation. The compensation relates to the pain and suffering of the victim, including physical pain and suffering, and generally to any type of suffering not related to financial losses.
- 41. ARGENTINA ARG-13 Non-patrimonial damages are for aesthetic injury (including anatomic and functional anomalies, permanent or temporary, that are externally visible) and disease (including the recovery of medical expenses and related costs). Lawyers’ Fees Lawyers’ fees are generally established based on the work done by the lawyer. Law Number 21839 on professional fees provides minimum rates that range from 11 per cent to 20 per cent of the amount claimed by the plaintiff in patrimonial claims. In addition, lawyers generally agree to a percentage to be paid by the client on winning the case, based on the amount of damages awarded by the court. Conclusion This analysis of the legal regime on consumers’ and users’ protection in Argentina leads to the conclusion that the regime has evolved during recent years, so as to favor the rights of consumers and users and increase the tools for claims. Together with these developments in the legal regime, consumers and users are now better informed about their rights, and the rate of claims on consumer relations has seen a corresponding increase. Surveys indicate that two out of 10 Argentines claim to have lodged a complaint against sellers of products or providers of services. This number increases in people of high socio-economic status (30 per cent) and within the City of Buenos Aires (28 per cent). In general, consumers and users believe that their rights are not being respected by the sellers of products or providers of services, which is a discouraging scenario that should demand the attention of the commercial sector.
- 43. Austria Introduction ............................................................................................ AUT-1 Historical Evolution ............................................................................... AUT-2 Purpose of the PHG................................................................................ AUT-4 Product and Defective Product............................................................... AUT-5 Product ..................................................................................... AUT-5 Defect....................................................................................... AUT-6 Warning and Recall Obligations ............................................................ AUT-8 Defenses Contributory Fault .................................................................. AUT-8 Assumption of Risk ................................................................. AUT-9 Product Misuse ........................................................................ AUT-9 State-of-the-Art Defense .......................................................... AUT-10 Binding, Regulations, Directions and Orders .......................... AUT-10 Defect as ‘Proximate Cause’ .................................................................. AUT-10 Liable Persons General .......................................................................... AUT-11 Manufacturer ........................................................................... AUT-11 Importer ................................................................................... AUT-12 Merchants ................................................................................ AUT-13 Licensor and Licensee ............................................................. AUT-14 Joint and Several Liability ..................................................................... AUT-14 Burden of Proof...................................................................................... AUT-15 Remedies ................................................................................................ AUT-16 Disclaimer Clauses................................................................................. AUT-16 Statutes of Limitation ............................................................................. AUT-17 Liability of Corporate Successors .......................................................... AUT-18 Insurance ................................................................................................ AUT-18 Role of the Courts .................................................................................. AUT-19 Frequency of Litigation ........................................................... AUT-19 Applicability of Austrian Law ............................................................... AUT-19 Disclaimer .............................................................................................. AUT-20
- 45. Austria Benedikt Spiegelfeld and Christine Wallner CHSH Cerha Hempel Spiegelfeld Hlawati Vienna, Austria Introduction Before examining Austrian product liability, what is understood by product1 liability in this chapter should be made clear from the outset and, consequently, to what subject mat- ter the exposition will be limited. In a broader sense, product liability in general is thought to comprise the laws and rules providing for recovery of damage or injury to human life, health or someone’s property suffered as a result of (or caused by) a defective product. These rules must be clearly distinguished from those dealing with and enforcing a seller’s obligation to fulfill a contract he has entered into by transferring property (the product) in the quality he has agreed upon (and therefore generally without a defect) to the purchaser. In this field of the law, delivery of a defective product amounts to breach of contract enabling the buyer to sue for complete fulfillment of the contract without regard to whether such non-performance was negligent or not.2 Within the broader sense of product liability as described above, we may distinguish between a violation of either a (general) law, on the one hand, or an agreement (contract), on the other, triggering the malfeasor’s liability for damage to another individual’s life or health or to his goods (apart from the product purchased). The general liability principles and rules contained largely in the Austrian Civil Code3 of 1811, as amended, cover the obligations under both of these categories. Nonetheless, we shall deal with and expose these general rules only to the extent as we deem necessary to outline the historical evolution leading very recently to the adoption of a specific Product Liability Act and whenever this latter Act refers to the general rules. The specific set of rules contained in this above-mentioned Product Liability Act will be our main interest and other related issues, such as compensation awarded due to negligence in general or due to violation of contractual obligations, will receive merely scarce consideration. 1 Scholarly treatises and court opinions in Common Law countries seem to prefer the term ‘products liability’ to ‘product liability’; as the Austrian equivalent term is Produkthaftung (with Produkt in its singular form), we shall only use the term in its respective translation, thus ‘product liability’. 2 This remedy is referred to as Gewährleistung under Austrian law. 3 Allgemeines biirgerliches Gesetzbuch (ABGB).
- 46. AUT-2 INTERNATIONAL PRODUCT LIABILITY In general, the PHG helps to increase the level of protection against defective products for two reasons: first, it encourage producers to do their best to produce safe products by com- plementing the regulatory measures of a given product group like Food Safety and Consumer Protection Act4 (LMSVG) and the Product Safety Act5 (PSG) and, second, once these preventive measures have failed and accidents have happened, it allows to obtain redress of the producer. Historical Evolution In this chapter, the development in Austrian product liability law the equivalent of which in common law is known and referred to as, the breakdown of the privity requirement, will be described.6 Until 1988, product liability in Austria was mainly governed by the general principles and rules contained in the Civil Code of 1811. These entitled those who suffered damage to demand reparation of such damage from the originator or author of the conduct causing the damage, and in essence required a certain fault or wrongdoing (general liability prin- ciples). The Austrian Parliament adopted the Federal Act on the Liability for a Defective Product on 21 January 19887 (according to its German title referred to as the PHG). Under these general principles, the fault or wrongdoing consisted of a breach of a duty imposed by law or by contract. Being consigned to these general remedies against injuries to his person or property, a plaintiff could succeed in only a very few cases. Usually the manufacturer of a product does not himself violate any duty imposed by law and could moreover almost never be held liable for any misconduct of his employees. Section 1315 of the Austrian Civil Code imposes liability on employers towards third parties only in the two cases that the employer either employs persons incapable of or unfit for the kind of work to be executed or that the employer in fact knew that the employee’s conduct was dangerous to other per- sons’ life, health and property with regard to the execution of his work. Under a contractual relationship, that is, between the two or more parties to an agreement, of course section 1313(a) of the Civil Code would provide for an overall and extensive responsibility of a producer or manufacturer for negligence of all persons assisting in the production or manufacturing process. Most of the typical product liability (related) cases, though, lack such an agreement between the producer and the person injured, as such agreement has generally only been entered into between the customer and the retailer. The retailer himself very rarely could be charged with a violation of any duty as many or almost all defects are latent and cannot 4 Lebensmittelsicherheit und Verbraucherschutzgesetz, Federal Law Gazette No 13 of 2006 (Bundesgesetzblatt 13/2006). 5 Produktsicherheitsgesetz 2004, Federal Law Gazette No 16 of 2005 (Bundesgesetzblatt 16/2005). 6 Allgemeines biirgerliches Gesetzbuch (ABGB). 7 Bundesgesetz vom 21. Janner 1988 über die Haftung für ein fehlerhaftes Produkt (Produkthaftungsgesetz); Federal Law Gazette No 99 of 1988 (Bundesgesetzblatt 99/1988).
- 47. AUSTRIA AUT-3 be detected in the ordinary and due course of business. In general, the law does not impose on wholesalers or retailers the duty to loosely examine the goods purchased for mere resale. Most of the time, wholesalers and retailers would lack both technical knowledge as well as equipment to do so. As a consequence — in the case of absence of a respective duty — a plaintiff cannot prove negligence against such a middleman merely serving as conduit. Legal scholars8 and the courts9 tried to solve these difficulties implicit in the approach and linked to a wrong or fault by developing an interpretative concept that would protect third parties beyond the contract between the producer and the first wholesaler so long as a series of contracts lead to the person ultimately suffering the damage.10 It was argued that obligations of the manufacturer should not extend to wholesalers’ or retailers’ (with whom a contract actually was entered into) claims for the protection of individuals against harm to life, health and property, because these never would use the product purchased for its intended purpose but rather for mere resale. Therefore, the purpose of any obligation arising from the contract between the producer and the first wholesaler guaranteeing a certain standard of quality and freedom from defect should be to entitle the final customer or user to claim compensation. This extension of the producer’s contractual obligations allowed the applicability of the above-mentioned section 1313(a) of the Civil Code between original producer and final purchaser of goods. Therefore, the producer could be held responsible for the breach of duty by his assistants and, pursuant to section 1298 of the Civil Code, he had to prove the absence of such negligence. Since not all damage can be recovered under the new PHG, such as damage to property up to a minimal amount of EUR 500,11 this theory retains some of its importance. Nevertheless, this contract-based liability could and can be impaired or even avoided by deliberate drafting of the contract between the producer and the first wholesaler. The Aus- trian Supreme Court (Oberster Gerichtshof) has held such an exclusion of third-party claims as lawful.12 By maintaining that these claims arose by operation of law and not contract, some Austrian scholars remain opposed to this holding. Still another drawback of the theory should be mentioned: as stated above, only persons with a certain contractual linkage to the producer would have benefited. One requirement was that the defective product was either used as a result of a chain of contracts leading to possession of the product by the person injured or that this person belonged to those 8 Bydlinski, ‘Vertragliche Sorgfaltspflichten zugunsten Dritter’, JB1 1960, 359; Bydlinski, in: Klang-Gschnitzer, Kommentar zum Allgemeinen biirgerlichen Gesetzbuch 1V2 (1978), 180. 9 SZ 51/169, SZ 54/152. 10 Known in German als Vertrag mit Schutzwirkung zugunsten Dritter. 11 Pursuant to s 2 of the PHG, damage to property shall only be indemnified with such amount exceeding the threshold of EUR 500. Relief sought on the grounds of the PHG accordingly will leave the customer with a loss up to EUR 500. On the other hand, it should be stated in this context that the law has not placed any cap on the possible and imaginable amount of recovery under the PHG. 12 SZ 51/169.
- 48. AUT-4 INTERNATIONAL PRODUCT LIABILITY individuals of which the producer reasonably must have expected that they might have contact with the product (such as the family members of the ultimate purchaser). The innocent bystander therefore still remained unprotected. Motivated by these considerations, along with the adoption of the Directive on product liability of the European Community on 25 July 1985 obliging all Member States of the Community to take every necessary step to implement this Directive by 30 July 1988, Austria, though not yet a Member State, but in an effort to establish equal and fair trading conditions and avoid any bias in competition, enacted the new law (PHG) on 21 January 1988 and ultimately entered into force on 1 July 1988.13 In 1994 in virtue of the Agree- ment on the European Economic Area14 an extensive adjustment of the PHG was necessary regarding: • The lower not in accordance with the council directive threshold was increased from ATS 5,000 up to ATS 7,900; • The removal of the equal treatment of private and commercial used items; and • The adjustment of the limitation period in accordance with the council directive. Furthermore, in 1999, pursuant to the Directive on the approximation of the laws, regula- tions and administrative provisions of the Member States concerning liability for defective products of the European Parliament and of the Council, on 10 May 1999, the restriction regarding the exception of primary agriculture products and games was removed with effect from 1 January 2000. In connection with the Austrian product liability law, it is mentionable that in 1983 the Aus- trian Product Safety Act15 entered into force and was amended in 199516 and in 200417 in accordance with the council directives on general product safety. It is to be noted that the Product Safety Act and the Product Liability Act have a complementary function: the first instrument ensures that only safe products are put on the market (preventive function), and the second instrument establishes the rules under which personal injury and damage to property caused by a defective product are compensated (compensational function). Purpose of the PHG Section 1 of the PHG sets forth the fundamental rule that certain groups of persons shall be liable for the defect of a product whenever such defect has caused damage in the form of: • The death of an individual; 13 Bundesgesetz vom 21. Janner 1988 über die Haftung für ein fehlerhaftes Produkt (Produkthaftungsgesetz); Federal Law Gazette No 99 of 1988 (BGBl 1988/99). 14 Kundmachung des Bundeskanzlers betreffend die Rechtsvorschriften, die gleichzeitig mit dem Abkommen über den Europäischen Wirtschaftsraum, Federal Law Gazette No 917 of 1993 (BGBl 1993/917). 15 Produktsicherheitsgesetz 1983 — PSG 1983, Federal Law Gazette No 171 of 1983 (BGBl 1983/171). 16 Produktsicherheitsgesetz 1994 — PSG 1994, Federal Law Gazette No 63 of 1995 (BGBl 1995/63). 17 Produktsicherheitsgesetz 2004 — PSG 2004, Federal Law Gazette No 16 of 2005 (BGBl 2005/16).
- 49. AUSTRIA AUT-5 • An injury of a person or harm to his health; and • An injury to his tangible property.18 It excludes damage to the defective product itself. Therefore, liability under the PHG does not require negligence or fault of a particular person nor does it require a contractual link between the original producer and the indi- vidual who has finally suffered the loss. Thus, the innocent bystander is also protected under the PHG. Division of labor in the industrial production process with all its inherent risks and dan- gers (sometimes causing defective products) as well as the expectations of wholesalers, retailers and consumers relying on the suitability of products for their intended use when offered for purchase are commonly quoted as the justifying rationale for the extended responsibility. Moreover, nobody else is in a better position to reduce risks caused by defective products than the manufacturer. Furthermore, the persons potentially liable under the rules of the PHG would tend to and now must19 react by insuring these liabilities and distribute the price of the insurance ultimately among those who benefit from the improved safety: consumers.20 As already mentioned, section 15(1) of the PHG explicitly states that any provision of the Civil Code or other laws imposing liability for losses to a greater extent or with regard to further originators of such losses than under the PHG shall remain unaffected. Section 15(2) of the PHG expresses that the PHG does not provide for compensation in respect of dam- age occasioned as a result of a nuclear incident covered by an international convention ratified by EFTA states and EC Member States. Under Austrian law, this field is covered by the Federal Act on the Liability for Nuclear Damages of 29 April 1964.21 Product and Defective Product Product Pursuant to section 4 of the PHG, a product for the purpose of this Act is defined as mov- able and tangible property22 notwithstanding that it is part of other movable property or has been annexed to realty, and shall moreover include energy. Under Austrian law, the term ‘Sache’, property, comprises everything different from the person and serving the use of humanity.23 Property will be regarded as movable if it can be 18 In German, körperliche Sache. 19 See below, Role of Insurance. 20 Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 31; Welser, Produkthaftungsgesetz 1988, 28. 21 Bundesgesetz vom 29. April 1964 über die Haftung nuklearer Schäden; see Federal Law Gazette No 117 of 1964 (Bundesgesetzblatt 117/1964), commonly referred to as the Atomhaftpflichtgesetz. 22 In German, bewegliche, körperliche Sache. 23 Civil Code, s 285.
- 50. AUT-6 INTERNATIONAL PRODUCT LIABILITY removed from one place to another without inevitable damage to its substance.24 Finally, property is thought of as tangible if it appeals to the senses,25 a quality that is commonly attributed to property that can be touched and seen. Accordingly, services and rights will not be regarded as tangible and therefore cannot result in liability under the PHG. It is, for example, impossible to establish responsibility of lawyers or tax advisors for any sort of malpractice on the grounds of product liability. Legal advice is not a product under the PHG. For the same reason, the PHG cannot be applied to any sort of information of a false or misleading character contained in books, articles (like this), magazines, newspapers and the like. An in various ways discussed query is whether computer software can be regarded as a product for the purpose of this provision or not. In this case, you have to distinguish between operating system-related software and hardware-related software as well as standard software and individual software. Whereas mass-produced operating system-related software and hardware-related software fall under the definition of this provision, and exist controversial opinions in respect to standard software. Individual software pro- grams, however, cannot be viewed as products under the PHG.26 For any reader from a common law country it should be noted that Austrian courts — in view of such exact wording in recent legislation — will almost certainly not extend the applicability of the PHG for teleological reasons of whatever nature in cases where one might otherwise see fit to do so. Defect Pursuant to section 5(1) of the PHG, a product shall be regarded as defective if it does not provide for safety which, with regard to all circumstances, one may expect of the product, particularly in view of: • The presentation of the product; • The use of the product to be equitably expected; and • The point of time the product has been placed in the stream of commerce. It is evident that this definition creates a broad field of possible judicial interpretation, though the wording ‘which one may expect’ tries to introduce an objective standard of common and ordinary consumer expectations. The personal attitude or view of a particu- lar customer will not be taken into consideration, whether it be a customer with extraordinarily high or low expectations. A product falling within the realm of this standard set by the expectations of an ordinary consumer or user will not be regarded as defective and will therefore not trigger liability under the PHG. 24 Civil Code, s 293. 25 Civil Code, s 292. 26 Posch in Schwimann, ABGB, s 4 PHG; 10.
- 51. AUSTRIA AUT-7 Hinged on the concept of safety expectations, the concept of the PHG allows certain consideration of inevitable defectiveness as a result of the production process and state of technology. This will certainly apply to products that — due to production techniques — are incapable of being made absolutely safe at a certain and given point of available human knowledge. The term ‘presentation of the product’ means any activity of a person subject to liability that introduces the product to the public or the individual user,27 such as advertisement, contractual guarantees, operating instructions, user’s manuals and other descriptive materials such as plans and brochures. Up to a certain point, a risk unavoidably threatening a consumer’s safety would not amount to defectiveness of a product and therefore would not trigger liability if the pro- ducer, wholesaler, retailer or sales personnel in presenting the product draws the consumer’s attention to the inherent dangers. The greater, less obvious and less detectable these inherent dangers and risks are, the more explicit and thorough the warning has to be. Nonetheless, it should be stressed that products the danger of which exceeds a certain limit (to be set ultimately by courts) must not be released into the stream of commerce at all, even if the defectiveness may be unavoidable at a certain point of time and technical knowledge, notwithstanding warning and instructions. Such products must be recon- structed and improved, until at least the occurrence of serious damage (such as harm to an individual’s life and health) is avoided. Number 2 of section 5(1), with its reference to the use of the product that can be equita- bly expected, seeks a balance between the use as defined by the producer and the actual use of the product by the customer. Therefore, a certain misapplication and misuse (especially where children might have access) has to be expected and taken into consid- eration.28 Number 3 of section 5(1), on the one hand, guarantees that technical knowledge which was not available at the time of the release of the product into the stream of commerce, but rather was accomplished and acquired by scientific progress and research afterwards, shall not render a previously marketed product defective and, thus, on the other, seeks to avoid any restraints on technical improvement and innovative efforts.29 The concept of ‘defect’ under the PHG comprises defective design, production or man- ufacturing defects and erroneous, misleading or insufficient warning and instruction (presentation of the product). As there are no different legal consequences imposed on the various types of defectiveness, it is not necessary to further distinguish between them.30 27 Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 64; Welser, Produkthaftungsgesetz, 1988, 65. 28 Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produklhaftung, 1988, 68; Welser, Produkthaftungsgesetz, 1988, 67. 29 Welser, Produkthaftungsgesetz, 1988,68. 30 Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 81; Welser, Produkthaftungsgesetz, 1988, 72.
- 52. AUT-8 INTERNATIONAL PRODUCT LIABILITY Warning and Recall Obligations A long time before the PHG was enacted in 1988, Austrian case law had already established (arguing on the basis of accessory contractual obligations) that a seller has to warn his customers of any possibility of damage with regard to a certain application or use of the product sold. Under general liability principles, this responsibility of a seller depends on fault or negligence of the persons involved. As described above, the PHG has changed this situation merely insofar as omission of instruction and warning (at the time of the release of the product into the stream of com- merce) would amount to a defect pursuant to section 5 of the PHG, but did not go further and did not introduce strict liability for damage suffered due to the failure to issue postal warnings. Almost the same is true with regard to a duty of manufacturers to monitor the reliability and safety of their products when actually in use in the market: the PHG does not regulate this issue and we are once again referred to the general principles of Austrian liability law requiring fault or negligence in order to recover any loss suffered. The Austrian Supreme Court nonetheless has ruled — on the grounds of the general liabil- ity principles — that a manufacturer is obliged to warn users and customers of any potential hazard possibly caused by the usage of his product (the manufacturer must not wait until actual damage has occurred) and has to exchange defective and dangerous products by others. He must do this from the point of time he has actual knowledge of the dangers and risks. In Austria, however, inter alia, the Food Safety and Consumer Protection Act (LMSVG) and the Product Safety Act (PSG) regulate under which circumstances a product shall be recalled. According to the Product Safety Act, a product must be recalled if: • The product under normal and reasonably foreseen conditions of usage presents a risk; or • The product does not provide the minimum risk compatible with the product’s use con- sidered to be acceptable and consistent with a high level of protection for the safety and health of a person. Defenses Contributory Fault Pursuant to section 11 of the PHG, section 1304 of the Civil Code shall apply accordingly if the conduct of the user or consumer who has suffered the loss, or of any other person whose conduct they are responsible for, was negligent with regard to the injury. If successful, such defense of contributory negligence leads to only partial reimburse- ment to the plaintiff for the losses incurred.31 Section 11 of the PHG requires the product liability-related cause(s) for the loss, such as the gravity of the defect or the difficulty to detect it, on the one hand, to be compared with 31 This is referred to as Schadensteilung.
- 53. AUSTRIA AUT-9 the negligence of the plaintiff in protecting himself and his property from injury and for which negligence he is responsible in as much as it contributes to his loss, on the other. As these factors are difficult to weigh against each other, this evaluation opens wide dis- cretionary power for the judges in charge of rendering such assessment.32 Assumption of Risk The concept of defect under the PHG is determined by the expectations of the public, the typical, well-informed average customer with regard to the safety of the product. Since ‘defective’ products occur inevitably (with a frequency highly dependent on the type of product itself as well as on their qualification as a high or low quality product), this legal interpretation of what the public may expect does not create an obligation of technical perfection. Nonetheless, no average purchaser would assume any high risk that endangers substantial elements of his personal property, his health or even his life. Products exposing these sub- stantial and crucial values to serious damage will therefore be thought of as defective under section 5 of the PHG, even if the one particular customer actually having suffered the loss at the time of purchase was aware of assuming such high risk. Product Misuse In order to avoid any misunderstanding, it should be clearly stated that, under the PHG, liability will only be imposed if and so far as the defect itself led to or, more specifically, was causal of, the damage suffered. Therefore, a loss suffered solely as a result of a misuse by the customer or the user would not trigger any liability under the PHG or any other Austrian law.33 Nonetheless, number 2 of section 5(1) of the PHG stresses the importance of customer expectations with regard to the use of a product and extends ‘use’under the PHG from the original (maybe restrictive) intention of the manufacturer to the use that may equitably be expected by the average, well-informed customer. Therefore, the manufacturer cannot arbitrarily constrain the use of his product to any spe- cific and narrow purpose against everyday life’s experience. The Austrian Supreme Court judges rather tolerantly in favor for consumers.34 Accordingly, if the actual use was equitably to be expected, a defect causing damage would result in liability under the PHG; as pointed out above, this liability may be limited in scope by applicability of section 11 of the PHG35 and, therefore, on a basis of propor- tional negligence attributable to the person for whose death, injury or damage to property recovery is sought. 32 Welser, Produkthaftungsgesetz, 1988,100. 33 Fitz Purtscheller, in: Fitz Purtschellcr Reindl, Produkthaftung, 1988, 29; Welser, 37. 34 SZ 70/61. 35 See above, ‘Contributory Fault’.
- 54. AUT-10 INTERNATIONAL PRODUCT LIABILITY State-of-the-Art Defense Section 8, number 2 of the PHG enables the manufacturer to escape his liabilities by proving that at the time at which the product was placed into the stream of commerce and by application of all pertinent scientific and technical knowledge then existing, the char- acteristics of the product in question could not be detected as a defect likely to cause injury. Unfortunately, the law does not define what may be understood by the ‘state of sci- ence and technology’ serving as a measure. Scholars have described it as the tenor of commonly accepted knowledge being available in science and technology.36 Under this concept, a manufacturer must not rely upon a single opinion or result but must use his best efforts to apply the highest possible standards and methods available and should not implement scientific theory which has not yet proved its practical applicability in tests and experiments.37 Binding Regulations, Directions and Orders Pursuant to section 8, number 1 of the PHG, a manufacturer may prove that the defect resulting in damage was caused by adherence to binding regulations, directives or orders such as Austrian federal or state laws, general directives issued by administrative authori- ties or individual administrative or court orders and could — if such proof is successful — avoid liability. Nonetheless, it has to be stressed that those norms must be of a binding nature forcing the manufacturer by the means of impending compulsion to comply with them. These regulations requiring a particular conduct must be clearly distinguished from regula- tions merely imposing certain minimal standards for manufacturers such as certain trade regulations that regulate the equipment on industrial premises. Mere compliance with these latter minimal standards would certainly not avoid liability for defectiveness of a product occurring despite these having been met. Interpretation of the relevant laws, directives and orders must show whether compliance with the standards set therein exempts a manufac- turer from liability as a matter of law or merely meets state minimal standards. Defect as ‘Proximate Cause’ The PHG merely requires a defect to be causal for the damage suffered in order to trigger liability. Neither must the defect be the nearest in order of responsible causes, nor the pri- mary or moving cause. Only for the purpose of determining the extent of liability for consequential damage has Austrian doctrine claimed that the loss in question need be an ‘adequate’38 result of the defect.39 Inadequate causation under this concept allows the 36 Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 98. 37 Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 98; Welser, Produkthaftungsgesetz, 1988, 93. 38 Referred to as the Adäquanztheorie. 39 Welser, Produkthaftungsgesetz, 1988,37.
- 55. AUSTRIA AUT-11 exclusion of damage merely suffered as a result of the coincidence of an extraordinary chain of causes and events. Therefore, defects that under ordinary circumstances are not apt to cause the damage as suffered would remain out of consideration in determining the amount of consequential damage to be recoverable. Liable Persons General Section 1(1) of the PHG sets forth a liability of: • The contractor who has manufactured the product and placed it into the stream of com- merce; and • The party who has imported the product for the purpose of further distribution (to wholesalers as well as retailers) and placed it in the stream of commerce in the Euro- pean Economic Area (EEA). If a consumer suffering damage cannot determine the manufacturer or importer, then each party taking title to the product in the stream of commerce and who fails to name its manu- facturer, or the person from whom the product was received, shall be liable pursuant to section 1(2) of the PHG for damages. Manufacturer From the group of potentially liable persons under the PHG, the liability of the manufac- turer40 understandably is the one most related to the nature of product liability and deserves primary consideration and attention. In order to avoid substantial doubts and problems of interpretation, section 3 of the PHG undertakes to define the term ‘manufacturer’.41 A manufacturer accordingly is thought to be a person who has manufactured the final product, components of it or a raw material and, furthermore, any person who appears to be a manufacturer by the means of attaching a (trade) name, trade mark or other corporate sign to the product. Section 1 of the PHG clarifies that only business entities (Untenehmer) as defined in the Austrian Act on the Protection of Consumers of 8 March 1979,42 as amended (according to its German title: KSchG), are to be regarded as manufacturers and are therefore liable under the PHG. From section 1(2) of the KSchG, we learn that ‘business entity’ requires an organization designed and established to serve the permanent purpose of pursuing any independent business whether this is aimed at generating profit or not. Therefore, occasional manufac- turing, for example, a product resulting from a hobby, will not trigger liability under the 40 In the Act: ‘der Unternehmer, der es hergestellt und in den Verkehr gebracht hat’. 41 In the Act: ‘Hersteller’. 42 Federal Law Gazette No 140 of 1979: Bundesgesetz vom 8. März 1979, mit welchem die Bestimmungen zum Schutz der Verbraucher getroffen werden (Konsumentenschutzgesetz KSchG), BGBI 140/1979.
- 56. AUT-12 INTERNATIONAL PRODUCT LIABILITY PHG. It shall be of no significance whether the manufacturer has applied for and obtained the appropriate trade license or concession as required by applicable laws.43 The manufacturer of the final product can be held liable for any defect of his product caus- ing a loss, in contrast to the suppliers of component parts or raw materials with the latter’s liability depending on the proof that a defect in their product caused the damage or, in other words, that the part in question has left the premises of the manufacturer of this part in a defective state. Entities attaching their trade name, trade mark or any other corporate sign of their own to the product hold out that they have been involved in the production process and therefore foster certain expectations of customers who rely on the reputation and the reliability of certain producers. This influence on the customer’s purchase decision justifies extending liability to such quasi-manufacturers. The wording of section 3 of the PHG suggests that such liability depends on the attach- ment by the person to be held liable himself. In cases where such trade names or marks have been attached under a corresponding license agreement by the licensee, the licensor cannot held liable for any damages, because he the licensor is not the person who places the product into the stream of commerce.44 Nonetheless, it should be stated that all current understandings of section 3 of the PHG require a certain minimal knowledge and will of the person whose trade name or trade mark is used concerning their use (attachment) in order to trigger his liability.45 Importer Section 1(1) of the PHG provides for the concurrent liability of the entrepreneur who has imported the product into the European Economic Area for the purpose of further distri- bution and has placed the same in the stream of commerce.46 Imports are defined as imports from third countries into the European Economic Area; an import to Austria is not required. Thus, every importer from another member state of the European Economic Area is regarded as a merchant pursuant to section 1(2) of the PHG (see below). The actual import is decisive. The attention of the reader should be drawn to the fact that under certain circumstances, the liability of the importer may exceed the liability of the manufacturer. Pursuant to sec- tions 5 and 6 of the PHG, it shall be determined at the point of time at which the product is released into the stream of commerce whether such product shall be thought of as defec- tive or not. 43 Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 24; Welser, Produkthaftungsgesetz, 1988, 33. 44 Posch, in Schwimann, ABGB, s 3 PHG, 12. 45 Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 49; Welser, Produkthaftungsgesetz, 1988, 50. 46 In the Act: ‘der inländische Unternehmer, der es zum Vertrieb in den Europäischen Wirtschaftsraum eingeführt und hier in den Verkehr gebracht hat’.
- 57. AUSTRIA AUT-13 Therefore, the importer bears both the risk of factual impairment of the quality of products kept in stock by him as well as the risk of improved quality standards at the time the importer places the product in the stream of commerce as compared to the applicable standards at the point of time the manufacturer released the same products47 by sending them to the importer. Under such improved quality standards, a product may appear defective when released by the importer though it complied with every standard when shipped by the manufacturer. Merchants As already pointed out, section 1(2) of the PHG establishes a third category of liable per- sons: given the case that the manufacturer or the importer of a defective product cannot be determined, after a customer or any other person has suffered loss due to such product, each contractor transferring the product in the stream of commerce shall be liable for the losses suffered.48 This effectively means merchants. However, a merchant can avoid this liability if he is able to specify the person who either manufactured the product or, with regard to imported products, who imported it or from whom he received the product, that is, who has delivered it to him. Therefore, merchants in principle are not intended to be genuinely responsible for dam- ages suffered due to defective products: the liability imposed by law is to force them to name those persons the law intrinsically regards as responsible for compensating any losses suffered. As the law demands no specific form for the information to be given regarding the identity of the manufacturer or importer, an oral response to a request within a reasonable time, which may be determined by such factors as the type of the product or the length of time elapsed since the product was purchased, and that enables the customer or any other per- son having suffered the damage to bring a lawsuit against the producer or the importer, should meet the law’s requirements for a merchant to avoid liability. In sum, the merchant is able to prevent his liability by such described specification. In the case that he is not able to do so, does not want to, or for other reasons simply fails to name his suppliers, his liability will be certain,49 though some Austrian scholars as well as the Austrian Supreme Court have argued that even a delayed specification may suffice if such delay does not cause further detriment to the injured person.50 This legal opinion is con- troversial in legal literature.51 Of course, false or misleading information as to the identity of the producer or the importer will not relieve the merchant from his liability. 47 Welser, Produkthaftungsgesetz, 1988, 40 und 68. 48 In the Act: ‘jeder Unternehmer, der das Produkt in den Verkehr gebracht hat’. 49 Fitz Purtscheller, in: Filz Purlscheller Reindl, Produkthaftung, 1988, 37. 50 Welser, Produkthaftungsgesetz, 1988, 44. 51 Posch, in Schwimann, ABGB, s 1 PHG, 28.
- 58. AUT-14 INTERNATIONAL PRODUCT LIABILITY On the contrary, false information could even trigger further liability for any costs incurred by the consumer relying on the contents of the reply to his inquiry.52 As a consequence of this subsidiary liability to which merchants are exposed, they are strongly recommended to keep sufficient records of their purchases in order to enable them — sometimes even after years — to trace back each individual product and its ori- gin. In view of different suppliers for the same type of product or a great variety of products offered, this may cause an effort of data processing and storage not to be underestimated. Licensor and Licensee As a license agreement only contains provisions relating to the transfer of intangible assets, most of the time patented information, the licensor in principle will not be regarded as a manufacturer of component parts under the PHG. As pointed out above,53 the licensor nonetheless could incur liability if he lets somebody attach the licensor’s trade name, trade mark or other corporate signs to the product cov- ered by the license causing consumer expectations that the product was manufactured by the licensor either entirely or in part or that the licensor at least guaranteed the licensed design or technology’s freedom of defects. Joint and Several Liability Section 10 of the PHG sets forth that under any circumstances where there is more than one liable person, these shall be liable jointly and severally and the liability of these per- sons shall not be diminished by any liability of others arising from different grounds and from different laws. Therefore, a customer who has suffered loss may at his own discretion either decide to demand payment from or sue one or more of those liable separately, or all of them jointly. In such cases, where several tortfeasors exist and only one of them has discharged the claims of the injured customer, section 12 of the PHG contains the rule as to where ulti- mate responsibility for the damage should rest and how other parties should be indemnified for their settlement ‘in advance’. If a person is liable for a defect under the principles of the PHG, though neither he nor the negligence of one of his employees has caused such defect, but nonetheless has restored the injured party’s position by paying damages, then he shall be entitled to full recovery and compensation from the manufacturer of the defective final product, component part or raw material. If there are two or more persons liable for such reimbursement of the mere middleman, then their liability towards the middleman is again joint and several. 52 Welser, Produkthaftungsgesetz, 1988, 45. 53 See above, ‘Manufacturer’.
- 59. AUSTRIA AUT-15 If more than one of those persons subject to liability has caused the product to be defective, then the extent of recovery of the person who effected payment of the whole amount of damages shall be determined by the circumstances, with particular regard to the degree to which each of these persons contributed to the occurrence of the defect and therefore to the ensuing damage. According to the Austrian Civil Code, the right of recourse prescribes within 30 years, however, the PHG states a statute for limitation of 10 years. The Austrian courts, unless there is raised criticism of Austrian scholars,54 still apply the rules of statutes of limitation under there is the Civil Code. The Austrian, scholars, however, argue that, in accordance with interpretation in respect to the purpose of the provision, the decennial period shall be decisive.55 Burden of Proof Article 4 of the Directive on Product Liability provides that the injured party must prove: • The damage; • The defect; and • The causal relationship between the defect and the damage. This explicit provision on the injured party’s burden of proof on the existence of a defec- tive product was not transformed into the Austrian PHG. Such a transformation was omitted since, according to the principle of Austrian procedural law, the party enforcing a claim by a legal action has to prove the facts on which the claim is based on.56 In general, the injured party, on the one hand, and the producer, on the other hand, have to submit evidence of their claims, the prevailing opinion among legal scholars and case law requiring unanimously that, first of all, the injured party must succeed in proving the exis- tence of a defect causing the damage. The producer may submit counter-evidence relieving himself from product liability only if the injured party was able to prove the existence of a product’s defect. Section 7(2) of the PHG provides a shifting of the burden of proof if a defendant who is confronted with an action for product liability may claim that the defect causing the dam- age did not rest with the product when it was put on the marked. In doing so, he has to make this probable under the circumstances of the case. As it is sufficient for the producer to bring forward only probability with regard to the defectiveness at the point of time when the product was placed in the stream of commerce, this provision contains a lower- ing of the level of proof. In other words, the duty to submit evidence is lowered qualitatively; in the establishment of the truth the judge is solely obliged to balance proba- bilities, thereby taking into account the circumstances of the case.57 54 Huber, JBl 1985, 396. 55 Posch in Schwimann, ABGB, s 12 PHG, 9. 56 Posch in Schwimann, ABGB, s 7 PHG, 1. 57 Posch in Schwimann, ABGB, s 7 PHG, 5.
- 60. AUT-16 INTERNATIONAL PRODUCT LIABILITY Remedies Section 1 of the PHG imposes liability for damage caused by a defective product leading to the death of an individual, the injury of a person or the injury to his health or his tangible property excluding damage to the product itself. The wording of section 1 of the PHG lim- its compensation for damage as to one’s property to tangible58 assets. No further regulation is contained in the PHG as to how compensation should be assessed or calcu- lated. Insofar as section 14 of the PHG refers to the General Civil Code in stating that the latter shall be applicable, the PHG itself does not contain specific provisions. Therefore, an injured person may seek compensation not only for the costs of hospitaliza- tion and other medical treatment, but may also demand pecuniary compensation for any pain or emotional distress suffered and for any income that was not earned or could not be earned as a result of the injury; the law also provides for claims of dependants. According to the limitation of damages to tangible assets, a loss due to a fall in production is not indemnifiable, though Austrian doctrine has considered whether such ‘mere dam- age to one’s wealth’59 shall be compensated if it occurs as a further consequence of the damage of a tangible asset.60 Austrian civil law in general and the general liability principles in particular are based entirely on the principle of compensation as a response to injury sustained. So far, as a result, Austrian laws have not introduced the concept of punitive or exemplary damages by awarding additional damages exceeding and in addition to compensatory damages. Thus, it is consistent with Austrian general principles that the PHG does not establish a basis for the (additional) remedy of punitive or exemplary damages. Disclaimer Clauses Any person potentially liable under the PHG might seek to reduce eventual responsibili- ties by selling his products or, more generally, releasing his products into the stream of commerce, solely on the basis of contracts that exclude or at least reduce any obligations arising on the grounds of product liability. A producer could also be tempted to attach dis- claimer clauses to the products or to think of other means of drawing such disclaimer clauses to the consumer’s attention. Such cleverness undoubtedly would frustrate the primary purpose and objective of prod- uct liability in general and the PHG in particular, which seek to provide liability not conditioned upon any sort of contractual relationship between the author of a defect (or a person regarded by law to be held liable as such) and the person actually having suffered loss. Motivated by these considerations, the liability arising from the PHG may not be limited or excluded by a provision in advance. It is permissible, ho wever, that 58 See above, ‘Product’. 59 In German, ‘reiner Vermögensschaden’. 60 Welser, Produkthaftungsgesetz, 1988, 36; Fitz Purtscheller, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 26.
- 61. AUSTRIA AUT-17 manufactures, importers or merchants may issue declarations of commodity or instructions for use to ‘control’ their liability.61 Any waivers agreed upon notwithstanding and contrary to section 9 of the PHG shall be null and void, a consequence which is not in the wording of the law but either may be inferred from the purpose of it or from the general rule contained in section 879 of the Civil Code pursuant to which each unlawful provision in a contract shall have no binding character but shall be void and ineffective. Any lawful disclaimer moreover shall only extinguish claims and rights of the person who has agreed to relinquish these and shall not bind any other party.62 According to the wording of section 9 of the PHG, any waivers agreed upon after the damage has occurred are legally allowed. Statutes of Limitation In general, Austrian law sets a period of either three or 30 years (depending on the sort of claim in question) as the maximum time frame within which a right can be enforced by legal action. Contrary to this, section 13 of the PHG sets forth that the liability of a producer extin- guishes 10 years from the date on which the product was put into circulation, unless there are any claims or proceedings pending (liability period). A person who wants to bring a claim against a producer for damages due to a defective product must bring his claim within three years after the date on which he became aware, or should reasonably have become aware, of the damage, the defect and the identity of the producer (prescription period). This limitation of liability is mainly justified by the fact that strict liability puts a higher burden on products than liability under the traditional system of contractual or extra-contractual liability. Therefore, the liability period is limited in order to discourage technical innovation and to allow insurance cover.63 In examining the general rules setting forth that a claim for liability will be time-barred after a period of three years has elapsed from when the person injured has reason to know of such damage as well as of the author of the damage,64 the reader’s attention should be drawn to the meaning of that said rule in the case law of Austrian courts, according to which this period already commences to run (date of accrual) when damage can be fore- seen and inferred from the knowledge of the action causing the damage. Even if the amount of damage cannot yet be determined, this will not hinder commencement of the said period as the plaintiff may already seek declaratory relief.65 61 Posch in Schwimann, ABGB, s 9 PHG, 5. 62 Reindl, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 107; Welser, Produkthaftungsgesetz, 1988, 97. 63 Posch in Schwimann, ABGB, s 13 PHG, 5. 64 Civil Code, s 1489. 65 Reindl, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 124; Welser, Produkthaftungsgesetz, 1988, 109.
- 62. AUT-18 INTERNATIONAL PRODUCT LIABILITY Liability of Corporate Successors As the PHG does not contain specific rules on this matter of extension of liability to corporate successors, the general rules shall apply,66 which can be outlined in a brief manner. Under section 1409 of the Civil Code, an entity shall be regarded as liable for debts and obligations belonging to a certain substantial property or a business, if that entity acquires by the means of a contract the whole or large parts of such substantial property or such business. The liability of the original debtor nonetheless remains unaffected. This additional liability (incurred by the purchaser as a matter of law) cannot be excluded by agreement but is, first, limited to debts and obligations the successor-in-property or the successor-in-business either knew of or should have known of and, second, limited to an amount equivalent to the worth of the assets acquired. Section 38 of the Austrian Commercial Code67 imposes that the successor by the way of a single legal succession assumes liability for all debts belonging to a business automati- cally, provided that the successor will continue to run this business. This liability is not limited in any respect but may be excluded by agreement between seller and purchaser of the business and registration of such agreement in the commercial register.68 Neither rule applies if the acquisitions were made in the course of certain bankruptcy proceedings. Insurance Section 16 of the PHG creates an obligation for manufacturers and importers to provide for insurance or any other suitable means enabling them to discharge any claims against them arising under the PHG. With regard to manufacturers Austrian insurance companies report that section 16 of the PHG did not cause any substantial increase in the number of product liability insurance contracts as the underlying risk has already been covered by general operation and busi- ness insurances. On the contrary, the risk of liability in connection with importers and merchants who supply anonymous products has increased disproportionately high.69 The most substantial change of all since the enactment of the PHG was a certain increase of the maximum amounts of damages to be covered by an insurance policy. These increased between 100 and 200 percent. 66 As mentioned above, section 14 of the PHG refers to the Civil Code and not to other laws; nonetheless this referral must not prevent applying such other laws if necessary in a broader context and under circumstances and with regard to questions not intrinsically related to the grounds of product liabilty. 67 Unternehmensgesetzbuch. 68 In German: ‘Firmenbuch’. 69 Posch in Schwimann, ABGB, s 16 PHG, 11.
- 63. AUSTRIA AUT-19 An entrepreneur seeking coverage of product liability risks originating as a result of sales to the United States of America might encounter difficulties in obtaining an adequate pol- icy, as Austrian insurance companies are generally not able to reinsure such commitments. As Austrian manufacturers and importers, under section 16 of the PHG, may find other means enabling them to dissolve product liability claims arising against them, insurance of product liability risks is not mandatory. Respective guarantee statements of a parent company or sufficient funds available may serve as such ‘other means’. Austrian doctrine has discussed the consequences of a failure of manufacturers or import- ers to comply with section 16 of the PHG and considers liability of executives and responsible officers as the most relevant ones.70 Role of the Courts Frequency of Litigation In Austria, nearly all product liability cases are solved on the sole basis of the PHG. Plaintiffs use other liability systems (contractual or tort law) mainly because they pro- vide for compensation, which is more protective. It covers damages under EUR 500, non-material damages, damages to the defective product itself and to property indented for professional use or in virtue of the longer prescription period pursuant to the General Civil Code. Moreover, the Austrian civil procedural rules allow victims to assign their liability claim to a consumers’ association. Applicability of Austrian Law The PHG does not contain any rules as to the question of under which circumstances Aus- trian law shall govern a particular case. Thus, the general rules of Austrian international private law apply. From a judgment of the Austrian Supreme Court71 rendered before the PHG entered into force, one might infer72 that the Austrian PHG shall be applicable if the product in dispute was determined to have been sold on the Austrian market or was actually purchased there. As far as an innocent bystander is concerned, Austrian scholars refer to the laws of the place where the damage was actually incurred as the governing law.73 70 Reindl, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 129; Welser, Produkthaftungsgesetz, 1988, 116. 71 29 October 1987, 7 Ob 623/87. 72 Reindl, in: Fitz Purtscheller Reindl, Produkthaftung, 1988, 129; Welser, Produkthaftungsgesetz, 1988, 116. 73 Welser, Produkthaftungsgesetz, 1988,30.
- 64. AUT-20 INTERNATIONAL PRODUCT LIABILITY Disclaimer This chapter shall represent an overview of the legal situation regarding product liability in Austria. It does not substitute the necessity of an individual advice of a legal expert in each particular case. Therefore, CHSH reserves the right not to be responsible for the topi- cality, correctness, completeness or quality of the article provided. Liability claims regarding damage caused by the use of the information provided, including any kind of information which is incomplete, will therefore be rejected.
- 65. Canada Introduction ............................................................................................ CDN-1 Common Law......................................................................................... CDN-1 Tort .......................................................................................... CDN-1 Causation ................................................................................. CDN-4 Defenses................................................................................... CDN-5 Contract ................................................................................................. CDN-8 Legislative Framework for Sale of Goods ............................... CDN-8 Implied Warranties .................................................................. CDN-10 Other Statutory Enactments ................................................................... CDN-11 Consumer Protection Act ......................................................... CDN-11 Food and Drugs Act ................................................................. CDN-12 Hazardous Products Act........................................................... CDN-12 Canada Consumer Product Safety Act ..................................... CDN-13 Québec Civil Law .................................................................................. CDN-14 Delictual Liability .................................................................... CDN-14 Defenses................................................................................... CDN-15 Duty to Inform ......................................................................... CDN-16 Defenses................................................................................... CDN-17 Distinctions between Duty to Inform and Duty to Disclose Latent Defects .......................................................................... CDN-17 Distinctions between the Duty to Inform and the Duty to Advise ................................................................................. CDN-18 Consumer Protection Act ......................................................... CDN-18 Contractual Liability ................................................................ CDN-19 Defenses................................................................................... CDN-22 Limitation of Liability Clauses ................................................ CDN-24 Conclusion ............................................................................................. CDN-25
- 67. Canada William McNamara, Emmanuelle Demers, and Ilana Schrager Norton Rose OR LLP Toronto, Ontario, Canada Introduction Manufacturers, distributors, suppliers, and sellers of products in Canada1 are all vulnerable to product liability claims.2 Such claims are typically grounded in tort or, in Québec, delict, but principles of contract law (the law of obligations in Québec), as well as federal and provincial statutory enactments such as consumer protection legislation, also are highly relevant. Common Law Tort In General Under general principles of tort law, manufacturers who place a product in the stream of commerce owe a duty of care to the consumers of the product. In order to succeed in a product liability claim, a consumer of the product must prove that the product was defective, that the manufacturer’s negligence caused the defect, and that the defect caused the plaintiff’s injury.3 However, it does not follow that every injury caused by a defective product will result in a compensable product liability claim, as the general tort rules of foreseeability and remoteness may impose limits on recovery.4 In other words, a manufacturer’s liability extends only to a person whose injury was reasonably foreseeable, whether or not the person injured was a consumer or user of the defective product.5 Reliance, in a specific sense, is not a requirement for recovery. 1 Referred to collectively as ‘manufacturers’ or ‘sellers’ in this chapter. 2 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 14. 3 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at pp. 63 and 67; Rothwell v Raes, [1990] OJ Number 2298, at para 3 (CA). 4 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 28. 5 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 27; Walford (Litigation guardian of) v Jacuzzi Canada Inc., [2007] OJ Number 4053, at para 29 (CA), citing with approval Bow Valley Husky v Saint John Shipbuilding, [1997] 3 SCR 1210, at para 19.
- 68. CDN-2 INTERNATIONAL PRODUCT LIABILITY Bases for Liability There are a number of ways in which a product can be shown to be defective. The most common is to establish a design defect by providing proof that the product either contained something it should not have contained or that the product lacked something it should have contained.6 Liability will be easiest to prove when the product was not produced in accordance with the manufacturer’s design, perhaps due to an employee’s negligence or a faulty system of production.7 The more difficult claim to establish is when the product was manufactured in accordance with the manufacturer’s design but the plaintiff argues that the design itself was inadequate.8 In order to succeed with such a claim, the plaintiff must establish that the design of the product fails to meet a reasonable standard.9 Another important basis for liability is the manufacturer’s duty to warn, or adequately warn, consumers about the inherent risks associated with the ‘reasonably foreseeable use’ of the products.10 The duty to warn extends to risks associated with unintended uses or misuses of the product, when such unintended use is foreseeable.11 However, the duty does not extend to obvious dangers.12 Manufacturers ‘do not have the duty to warn the entire world about every danger that can result from improper use of their product’.13 A manufacturer can fulfill its duty to warn consumers by placing the warning on the product’s label or packaging, in the product’s instructions or brochure, or in 6 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 45. 7 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 45. 8 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 45. 9 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 46; Gallant v Beitz, [1983] OJ Number 3054, at paras 6−9 (HC); Mayburry v Ontario (Liquor Control Board), [2001] OJ Number 1494, at paras 119−131 (SCJ), aff’d [2002] OJ Number 1177 (CA). 10 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice, looseleaf (Ontario, Canada Law Book, 2010), at L3:10; S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at pp. 47, 52, and 57−61. 11 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.20; S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at pp. 53−54. 12 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.30; Walford (Litigation guardian of) v Jacuzzi Canada Inc., [2007] OJ Number 4053, at paras 30−31. 13 Bow Valley Husky v Saint John Shipbuilding, [1997] 3 SCR 1210, at para 19.
- 69. CANADA CDN-3 a letter to the consumer advising of the possible danger and outlining any protective measures to be taken.14 The Supreme Court of Canada’s decision in Lambert v Lastoplex Chemicals Co.15 provides guidance as to what is required of manufacturers in order to meet their duty to warn consumers.16 In Lambert, the manufacturer’s lacquer product contained general warnings about the product’s flammability, but no specific warning about the danger of using the product near a pilot light (which was what led to the plaintiff’s injury).17 The court held that the manufacturer’s general warnings were inadequate in that they failed to warn against specific dangers. In its decision, the Court set out the two principles regarding the duty to warn when selling dangerous products to the general public: first, the manufacturer must specify the danger; second, the requisite explicitness of the warning should be proportional to the danger likely to be encountered in the product’s ordinary use.18 The Supreme Court has since confirmed the notion that general warnings will not suffice when the ordinary use of the product entails specific risks or dangers.19 The Ontario Court of Appeal has further expanded on the duty to warn by outlining the following criteria for what will constitute adequate warning: it should be clearly and understandably communicated; it must inform the user of the nature of the risk and the extent of the danger; it must be in terms commensurate with the gravity of the potential hazard; and it should not be neutralized or negated by collateral efforts on the part of the manufacturer.20 The duty to warn may arise even if the manufacturer is not convinced of the evidence supporting the potential danger.21 For example, in Hollis v Dow Corning Corp.,22 the Supreme Court of Canada rejected the manufacturer’s 14 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10; S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 47. Also of relevance is Murphy v St. Catharine’s Gen. Hospital, [1963] OJ Number 822 (HC). 15 Lambert v Lastoplex Chemicals Co., [1972] SCR 569. 16 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.10. 17 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.10. 18 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:10.10. 19 Hollis v Dow Corning Corp., [1995] 4 SCR 634, at para 22. 20 Buchan v Ortho Pharmaceutical (Canada) Ltd., [1986] OJ Number 2331, at para 18 (CA). 21 Hollis v Dow Corning Corp., [1995] 4 SCR 634, at paras 40−41. 22 Hollis v Dow Corning Corp., [1995] 4 SCR 634, at para 41.
- 70. CDN-4 INTERNATIONAL PRODUCT LIABILITY argument that it did not have an obligation to warn of reports of unexplained ruptures in its breast implants before it had reached its own conclusions as to the cause and effect of the ruptures. Further, the courts have refused to accept a manufacturer’s plea that it was unaware of the dangerous characteristics of a product, on the basis that the manufacturer must be treated as an expert in the field.23 The duty to warn is ongoing: manufacturers must warn of dangers known at the time of sale, as well as dangers discovered after the product has been sold and delivered.24 Further, this continuous duty to warn applies not only to potential defects or dangers which become known to the manufacturer, but also to suspected dangers where the evidence of the danger may be inconclusive.25 Causation In order to succeed, a plaintiff also must establish that the defects in question caused the plaintiff’s injury.26 Canadian courts have not recognized the application of strict liability principles to tort claims27 and have consistently confirmed that strict liability is not the law in Canada.28 In practice, the existence of a product defect raises a rebuttable inference of negligence,29 and a claim will typically succeed when the plaintiff establishes, 23 Ruegger v Shell Oil Co. of Canada Ltd., [1963] OJ Number 798, at para 29 (HCJ). 24 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:50; S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 51. Also relevant is Rivtow Marine Ltd. v Washington Iron Works Ltd., [1974] SCR 1189. 25 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L3:50; Buchan v Ortho Pharmaceutical (Canada) Ltd., [1986] OJ Number 2331, at para 54; Hollis v Dow Corning Corp., [1995] 4 SCR 634, at paras 40−41. 26 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at pp. 63 and 67; Rothwell v Raes, [1990] OJ Number 2298, at para 3. 27 Phillips v Ford Motor Co. of Canada Ltd., [1971] 2 OR 637, at para 49 (CA); applied in Horti-Pak Inc. v Nikko Materials U.S.A. Inc. (c.o.b. Gould Electronics), [2009] OJ Number 3404, at para 443 (SCJ). 28 Andersen v St. Jude Medical Inc., [2002] OJ Number 260, at para 27 (SCJ). Also relevant are Farro v Nutone Electric Ltd., [1988] OJ Number 143 (Ct J (Gen Div)), rev’d on other grounds (1990), 68 DLR (4th) 268 (CA); Hunt v Federal Pioneer Ltd., [1993] OJ Number 2455, at para 10 (Ct J (Gen Div)); Mayburry v Ontario (Liquor Control Board), [2001] OJ Number 1494, at para 131; Meisel v Tolko Industries Ltd., [1991] BCJ Number 105; Baker v Suzuki Motor Co., [1993] AJ Number 605, at para 77 (QB). 29 Cohen v Coca-Cola, [1967] SCR 469.
- 71. CANADA CDN-5 on a balance of probabilities basis, that the manufacturer breached its duty of care and that a causal link exists between that breach and the plaintiff’s injury.30 Defenses Lack of Negligence The manufacturer can avoid liability by proving that it was not negligent.31 It is a complete defense to prove that all reasonable care was taken, based on the knowledge in existence at the time the product was manufactured.32 One way in which a manufacturer can establish reasonable care is by adducing evidence that it complied with regulatory standards.33 The Supreme Court of Canada has held that statutory requirements may provide a useful standard of what constitutes reasonable conduct.34 State-of-the-Art Defense A manufacturer can argue that in addition to complying with the applicable regulatory or industry standards, its product represented the state of the art at the time it was manufactured. Thus, the product should not be held to the standard of subsequent technological advances.35 However, this defense only applies in situations where the product’s ‘social utility’ outweighed its risks: a product with high risk and low social utility will trump a defendant’s ability to invoke the state-of-the-art defense.36 For example, in Brunski v Dominion Stores Ltd.,37 a case involving an exploding soft drink bottle, the bottle manufacturer was deemed liable despite the absence of evidence of a safer alternative design. Although the manufacturer’s testing and inspection procedure complied with quality control advice it received, the Court was not satisfied that the procedure was reasonable, considering the danger the product posed. 30 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 67; Cohen v Coca-Cola, [1967] SCR; cited with approval in Mayburry v Ontario (Liquor Control Board), [2001] OJ Number 1494 (SCJ), aff’d in Mayburry v Ontario (Liquor Control Board), [2001] OJ Number 1494. 31 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 71. 32 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 71. 33 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:70. 34 Canada v Saskatchewan Wheat Pool, [1983] 1 SCR 205, 227. 35 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:80. 36 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:80. 37 Brunski v Dominion Stores Ltd., [1981] OJ Number 287 (HCJ).
- 72. CDN-6 INTERNATIONAL PRODUCT LIABILITY Learned Intermediary Defense When it is alleged that the manufacturer failed to warn against certain risks, the manufacturer may escape liability by demonstrating that it delivered an adequate warning to a skilled person or learned intermediary, who was in turn responsible for relaying this information to the consumer.38 The duty to warn can only be fulfilled through an intermediary when the intermediary is an expert whose knowledge approximates that of the manufacturer.39 Furthermore, the Canadian courts have proven unwilling to accept the learned intermediary defense outside of the medical realm, and even then the manufacturer may still have a duty to directly warn the intermediary as well as the consumer.40 Indeed, this was the decision reached by the Ontario Court of Appeal with respect to the manufacturer’s duty to warn of the risks associated with the use of oral contraceptives.41 Volunti Defense In a situation in which a plaintiff continues to use a product after he knows of a defect or risk, a defendant can argue that the plaintiff assumed the risk of injury.42 If successful, this will operate as a complete defense.43 However, the Supreme Court of Canada has set a high bar for this defense, in that voluntary assumption of risk requires a conscious awareness and acceptance of the risk by the plaintiff: ‘The volenti defense acts as a complete bar to recovery. Although it has not been the subject of legislation, it has been very severely limited in its application. Perhaps the judicial limitation was well merited in light of the harsh academic criticism of the defense. [. . . ] Before it can operate as a defense, the plaintiff must not only consent to accept the risk of harm but also must bargain away his or her right to sue for injuries that may result from the dangerous activity. The doctrine will only be applied where it can truly be said that there is an understanding 38 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:60. 39 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:60; Hollis v Dow Corning Corp., [1995] 4 SCR 634. 40 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:60 41 Buchan v Ortho Pharmaceutical (Canada) Ltd., [1986] OJ Number 2331, at para 85. 42 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:20. 43 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:20; Hall v Hebert, [1993] SCJ Number 51, at para 102 (SCC).
- 73. CANADA CDN-7 on the part of both parties that the defendant assumed no responsibility to take care for the safety of the plaintiff and the plaintiff did not expect him or her to do so. Clearly, the volenti defense will only be applicable in a narrow range of cases.’44 As noted above, the manufacturer’s duty to warn does not extend to obvious dangers. In a product liability claim, the argument that a danger was obvious and apparent will operate as a complete defense when the court accepts that the danger was indeed obvious and apparent.45 For example, the Court acknowledged in one case that a meat manufacturer was not required to warn against the dangers of eating uncooked meat, which is commonly accepted to be an obvious danger.46 Product Misuse Manufacturers may be liable for misuses of their products. However, the scope of this liability will be limited to those misuses of the product that are reasonably foreseeable. Accordingly, when a manufacturer can establish that it could not have foreseen the plaintiff’s unintended use of the product or the injury which could result from that unintended use, this will operate as a complete defense.47 Furthermore, if the manufacturer can demonstrate that it subjected the product to reasonable testing and created a product that is safe for its intended use and foreseeable misuse, a finding of liability is less likely.48 The court also will consider the intended or reasonably foreseeable user of the product and, specifically, the user’s sophistication or skill level. So, for example, in a case where a product had been designed to be used by skilled repairmen, the Court found no liability when the plaintiff repairman was injured while using the product at excessive speeds.49 44 Hall v Hebert, [1993] SCJ Number 51, para 102. 45 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:50. 46 Yachetti v John Duff & Sons Ltd., [1942] OR 682 (HCJ). 47 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:30.10; Rae v T. Eaton Co. (Maritimes) Ltd., [1961] NSJ Number 10 (SC). 48 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:30.10; Rae v T. Eaton Co. (Maritimes) Ltd., [1961] NSJ Number 10 (SC), note 72. 49 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:30.10; Austin v 3M Canada Ltd. (1975), 7 OR (2d) 200 (Co Ct).
- 74. CDN-8 INTERNATIONAL PRODUCT LIABILITY Alteration Defense An extension of the misuse defense is when the plaintiff has gone so far as to alter the product from its original intended design. When the altered product causes the plaintiff’s injury, the manufacturer can argue that it was the alteration that caused or contributed to the injury.50 As with the defense of misuse, the success of an alteration defense hinges on whether the alteration in question was reasonably foreseeable.51 Contributory Defense Although the argument does not represent a complete bar to recovery, a defendant can contend that a plaintiff negligently contributed to his injury, such as by failing to read the instructions for use52 or by misusing the product.53 Another possible ground for argument is that the plaintiff did not observe defects in the product that ought to have been observed.54 If the court accepts that the plaintiff’s own negligence contributed to his injury, it will apportion liability between the plaintiff and defendant pursuant to the Ontario Negligence Act,55 which states: ‘In any action for damages that is founded upon the fault or negligence of the defendant if fault or negligence is found on the part of the plaintiff that contributed to the damages, the court shall apportion the damages in proportion to the degree of fault or negligence found against the parties respectively.’56 Contract Legislative Framework for Sale of Goods A manufacturer of products also may be liable to a buyer for providing goods which breach express or implied contractual terms governing (for example) their fitness for an intended purpose. This area of the law is generally treated under 50 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:40. 51 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L6:40; Deshane v Deere & Co., [1993] OJ Number 2233 (CA), leave to appeal to SCC refused [1993] SCCA Number 494. 52 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 74; Lem v Barotto Sports Ltd., [1976] AJ Number 442, at para 25 (SC). 53 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 74; Hobbs Manufacturing Co. v Shields Estate, [1962] SCR 716. 54 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 74; Saddlemire v Coca-Cola Co. of Canada, [1941] OJ Number 240 (HC). 55 Ontario Negligence Act, RSO 1990, c N.1. 56 Ontario Negligence Act, RSO 1990, c N.1., s 3.
- 75. CANADA CDN-9 the heading of sale of goods, and is conceptually distinct from product liability claims undertaken against a manufacturer by an end user of the product in question. Such breach of contract claims are restricted by the doctrine of privity of contract: manufacturers are only liable in contract to their co-contracting party — that is, those who purchased the defective products directly from them. The contractual recourse of third-party consumers, if any, lies against their vendors only. Contract damages also are somewhat restrictive, because the governing principle is that they are intended to put the buyer in the monetary position it would have been in had the contract been properly fulfilled.57 In order to overcome some of these shortcomings, England in the mid- nineteenth century, and many other common law jurisdictions subsequently, adopted sale of goods legislation. This remedial legislation was intended to supplement common law contractual principles by incorporating certain warranties (known as implied warranties) into every contract for the sale of goods.58 The theory behind the legislation is that a buyer should be entitled to assume certain basic warranties of fitness and quality when dealing with a professional seller acting in the normal course of business.59 However, the framework of rules offered by sale of goods legislation is not designed to be comprehensive or obligatory, as it explicitly does not oust the common law60 and is subject to exclusion by contractual exclusion clauses.61 Two of the most important warranties under the Ontario Sale of Goods Act62 (the Ontario SGA) are the warranty that the product sold must be ‘fit for its 57 M.J.B. Enterprises v Defense Construction, [1999] 1 SCR 619, at para 55. 58 Each of the common law provinces have enacted sale of goods legislation extending similar protection to buyers of goods: Manitoba SGA, RSM 1987, c S-10, s 16; Alberta SGA, RSA 2000, c S-2, s 16; Saskatchewan SGA, RSS 1978, c S-1, s 16; British Columbia SGA, RSBC 1996, c 410, s 18; New Brunswick SGA, RSNB 1973, c S-1, s 15; Nova Scotia SGA, RSNS 1989, c 408, s 17; Newfoundland and Labrador SGA, RSNL 1990, c S-6, s 16; Prince Edward Island SGA, RSPEI 1974, c S-1, s 16; Yukon SGA, RSY 2002, c 198, s 15; and Northwest Territories SGA, RSNWT 1988, c S-2, s 18. Québec’s sale of goods legislation is discussed in detail in the section ‘Québec Civil Law’, below. 59 S.M. Waddams, The Law of Contracts, 5th ed (Toronto, Canada Law Book, 2005), at para 411. 60 Ontario SGA, s 57(1); Manitoba SGA, s 60(1); Alberta SGA, s 58(1); Saskatchewan SGA, s 58(1); British Columbia SGA, s 73(1); New Brunswick SGA, s 56(1); Nova Scotia SGA, s 60(1); Newfoundland and Labrador SGA, s 60(2); Prince Edward Island SGA, s 59(1); Yukon SGA, s 57(1); and Northwest Territories SGA, s 2(1). 61 Ontario SGA, s 53; Manitoba SGA, s 56; Alberta SGA, s 54; Saskatchewan SGA, s 54; British Columbia SGA, s 69; New Brunswick SGA, s 52; Nova Scotia SGA, s 56; Newfoundland and Labrador SGA, s 56; Prince Edward Island SGA, s 55; Yukon SGA, s 52; and Northwest Territories SGA, s 3.
- 76. CDN-10 INTERNATIONAL PRODUCT LIABILITY intended purpose’, and the warranty that the goods must be of ‘merchantable quality’. Implied Warranties The fitness for purpose warranty applies when the buyer makes its intended purpose known to the seller, such that the buyer is relying on the seller’s expertise, and the seller is in the business of goods of such description, unless the sale is of a specified article under its patent or other trade name.63 The warranty that the goods are of merchantable quality does not extend to defects which could reasonably have been revealed by an examination of the goods prior to the sale.64 The parties are, of course, free to include express contractual warranties regarding the goods which are the subject of the sale. However, the implied warranties of quality and fitness for purpose provided for under the SGA will apply unless specifically excluded, pursuant to Section 53 of the Ontario SGA: ‘Where any right, duty, or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.’65 In its decision in Syncrude Canada Ltd. v Hunter Engineering Co., the Supreme Court of Canada confirmed that when the implied warranties have been properly excluded, express warranties will exclusively govern.66 When the implied warranties are not excluded, strict liability for breach will be applied. Once a product is shown to have been defective, it is no defense for the manufacturer to show that he exercised reasonable care or that the defect was undiscoverable.67 62 Ontario SGA, s 53. 63 Ontario SGA, c S-1, s 15(1); Manitoba SGA, s 16(a); Alberta SGA, s 16(2); Saskatchewan SGA, s 16(1); British Columbia SGA, s 18(a); New Brunswick SGA, s 15(a); Nova Scotia SGA, s 17(a); Newfoundland and Labrador SGA, s 16(a); Prince Edward Island SGA, s 15(a); Yukon SGA, s 15(a); and Northwest Territories SGA, s 18(1)(a). 64 Ontario SGA, s 15(2); Manitoba SGA, s 16(b); Alberta SGA, s 16(4); Saskatchewan SGA, s 16(2); British Columbia SGA, s 18(b); New Brunswick SGA, s 15(b); Nova Scotia SGA, s 17(b); Newfoundland and Labrador SGA, s 16(c); Prince Edward Island SGA, s 15(b); Yukon SGA, s 15(b); and Northwest Territories SGA, s 18(1)(b). 65 Ontario SGA, s 53. Also established in the sale of goods legislation in the other provinces and territories. 66 Syncrude Canada Ltd. v Hunter Engineering Co., [1989] 1 SCR 426, at para 30. 67 S.M. Waddams, Products Liability, 4th ed (Toronto, Carswell, 2002), at p. 94; L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian
- 77. CANADA CDN-11 The SGA defines a sale of goods as a ‘contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price’.68 Accordingly, when imposing liability pursuant to the SGA, the courts have interpreted its implied warranties contractually and have limited recoverable claims pursuant to the doctrine of privity of contract.69 The manufacturer (or seller) is answerable only to the buyer for breaches of the implied warranties, and not to third parties who may be the owner or user of the product in question.70 For example, in a case in which a 15-year-old boy was injured when riding a defective bicycle purchased for him by his stepfather, the Court concluded that the boy did not qualify as a ‘buyer’ under the Ontario SGA, even though he had paid part of the price and was the sole user of the bicycle.71 The courts also have imposed liability on manufacturers in the situation where, although there was no obvious contract between the manufacturer and buyer, the manufacturer was involved in inducing the buyer to purchase the product.72 In one instance, a buyer purchased the defective product from a dealer, but argued that the manufacturer also should be liable for breach of implied warranties.73 The buyer’s argument was that the manufacturer’s product brochures, in conjunction with the dealer’s oral representations, induced the buyer to purchase the product. The Court held that the manufacturer’s representations in the product brochure formed a ‘collateral warranty’ between the buyer and the manufacturer,74 and that the manufacturer should not be shielded from liability simply because it had no direct contact with the buyer.75 Other Statutory Enactments Consumer Protection Act A number of provinces have enacted consumer protection legislation76 in order to expand the protective reach of various product warranties to consumers. The law and practice (Ontario, Canada Law Book, 2010), at L4:10:20.2. Also of relevance is McMorran v Dominion Stores Ltd. et al. (1977), 14 OR (2d) 559 (HCJ). 68 Ontario SGA, s 2(1). 69 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L4:10:10. 70 L.G. Theall, J.S. Maidment, T.M. Dufort, and J.A. Brown, Product Liability: Canadian law and practice (Ontario, Canada Law Book, 2010), at L4:10:20.1. 71 Resch v Canadian Tire Corp., [2006] OJ Number 1505 (SCJ). 72 Murray v Sperry Rand Corporation et al., [1979] OJ Number 4088, at para 58 (HCJ). 73 Murray v Sperry Rand Corporation et al., [1979] OJ Number 4088, at para 58 (HCJ). 74 Murray v Sperry Rand Corporation et al., [1979] OJ Number 4088, at paras 48−49. 75 Murray v Sperry Rand Corporation et al., [1979] OJ Number 4088, at paras 53−64. 76 Ontario CPA, RSO 2002, c 30, Schedule A, s 9; Manitoba CPA, CCSM 1987, c C- 200, s 58(1); Saskatchewan CPA, RSS 1996, c C-30.1, s 48; Nova Scotia CPA, RSNS 1989, c 92, s 26; New Brunswick Consumer Product Warranty and Liability Act,
- 78. CDN-12 INTERNATIONAL PRODUCT LIABILITY Ontario Consumer Protection Act (the Ontario CPA)77 defines a ‘consumer’ as ‘an individual acting for personal, family, or household purposes and does not include a person who is acting for business purposes’.78 Unlike the SGA, the CPA does not allow suppliers of goods to contract out of these implied warranties to consumers.79 The manufacturer’s duty to warn consumers about risks associated with using specific types of products (discussed in further detail in the following subsections) may be supplemented by specific requirements under particular statutes and regulations. Significant examples in this regard are the federal Food and Drugs Act (the FDA),80 the federal Hazardous Products Act (the HPA),81 and the Canada Consumer Product Safety Act (the CCPSA).82 Food and Drugs Act The FDA and its accompanying regulations83 impose a number of stringent requirements for the packaging, advertisement, and sale of foods, drugs, cosmetics, and therapeutic devices. The regulations pertain to labeling, packaging, selling, and advertising of drugs, cosmetics, and devices with a view to preventing the purchasers or consumers of these products ‘from being deceived or misled in respect of the design, construction, performance, intended use, quantity, character, value, composition, merit, or safety thereof, or to prevent injury to the health of the purchaser or consumer’.84 Contravention of the FDA or the regulations is a criminal offense and may result in a fine or a term of imprisonment.85 Hazardous Products Act The HPA and its accompanying regulations govern the packaging, advertisement, and sale of controlled products such as compressed gas, as well as materials which are flammable, combustible, corrosive, oxidizing, poisonous, RSNB 1978, c C-18.1, s 10(1); Yukon CPA, RSY 2002, c 40, s 58(1); and Northwest Territories CPA, RSNWT 1988, c C-17, s 70(1). 77 Ontario CPA, c 30, Schedule A. 78 Ontario CPA, s 1. 79 Ontario CPA, s 9(3). Also established in the Manitoba CPA, s 58(1); Saskatchewan CPA, s 77.16; Nova Scotia CPA, s 28(1); New Brunswick Consumer Product Warranty and Liability Act, s 24; Yukon CPA, s 58(1); and Northwest Territories CPA, s 70(1). 80 Food and Drugs Act, 1985, RSC 1985, c F-27. 81 Hazardous Products Act, 1985, RSC 1985, c H-3. 82 Bill C-36, An Act respecting the safety of consumer products, 3rd Sess, 40th Parl, 2010 (assented to on 15 December 2010). 83 Food and Drug Regulations, CRC, c 870. 84 Food and Drugs Act, s 30(1). 85 Food and Drugs Act, s 31.
- 79. CANADA CDN-13 infectious, and ‘dangerously reactive’. The HPA requires manufacturers to place warning labels with the applicable prescribed hazard labels on controlled products or their containers.86 Failure to comply with the HPA or its regulations may result in fines of up to CA$1,000,000 as well as imprisonment of up to two years.87 Canada Consumer Product Safety Act More recently, the Canadian government enacted the CCPSA, which prohibits manufacturers from manufacturing and selling any consumer product88 which constitutes a ‘danger to human health or safety’, is subject to a recall order, or is subject to an order to take certain measures with respect to the product.89 When the Minister of Health ‘has reasonable grounds to believe’ that a consumer product presents a danger to human health and safety, the Minister may order that the manufacturer recall the product or take any measure the Minister deems necessary to remedy the manufacturer’s non-compliance with the CCPSA.90 The CCPSA also imposes strict requirements upon manufacturers, requiring them to inform the Minister of any ‘incidents’ relating to the use of their products within two days of becoming aware of such incidents and further requires a written report on this within 10 days.91 The definition of ‘incidents’ includes occurrences in Canada or elsewhere which resulted or may reasonably have been expected to result in an individual’s death, serious injury, or serious adverse effects on their health, as well as defects in the product or issues with the product’s labeling which could reasonably have resulted in death, injury, or adverse health effects.92 Violations of the CCPSA can result in fines of up to CA$5,000,000 as well as a maximum prison term of two years.93 The CCPSA’s effect on the product liability landscape has yet to be seen, but there is no doubt that its strict requirements and potentially significant penalties impose an additional incentive on manufacturers to take every caution with respect to the manufacture and sale of consumer-bound products. Unlike the SGA and CPA, which provide consumers with a private right of action for breaches of their provisions, the CCPSA does not afford such rights to 86 Hazardous Products Act, s 13. 87 Hazardous Products Act, s 28. 88 The Canada Consumer Product Safety Act applies to all consumer products except those covered by the FDA, as well as certain other products (such as explosives) covered by specific legislation. Whether the Canada Consumer Product Safety Act will amend or repeal the Hazardous Products Act is yet to be seen. 89 Canada Consumer Product Safety Act, s 7. 90 Canada Consumer Product Safety Act, ss 31 and 32. 91 Canada Consumer Product Safety Act, s 14(2)−(3). 92 Canada Consumer Product Safety Act, s 14(1). 93 Canada Consumer Product Safety Act, s 41(1).
- 80. CDN-14 INTERNATIONAL PRODUCT LIABILITY individual consumers, instead endowing specified government actors with the responsibility for the enforcement of the legislation and the prosecution of breaches of its provisions. Notably, the Supreme Court of Canada recently affirmed its decision in Canada v Saskatchewan Wheat Pool,94 in which it held that breach of statute is neither necessary nor sufficient to ground a private cause of action,95 such as negligence. However, the court did state that although proof of statutory breach in and of itself does not automatically result in a finding of negligence nor in a right to recovery, proof of such a breach may constitute evidence of negligence, and the statutory formulation of the duty may afford a ‘specific and useful standard of reasonable conduct’.96 Québec Civil Law Delictual Liability The principles of delictual (ie, non-contractual) liability under Québec civil law are set out in Articles 1457 et seq of the Civil Code of Québec (the CCQ). The general principle is stated at Article 1457, as follows: ‘Every person has a duty to abide by the rules of conduct which lie upon him, according to the circumstances, usage, or law, so as not to cause injury to another. ‘Where he is endowed with reason and fails in this duty, he is responsible for any injury he causes to another person by such fault and is liable to reparation for the injury, whether it be bodily, moral, or material in nature. ‘He is also liable, in certain cases, to reparation for injury caused to another by the act or fault of another person or by the act of things in his custody.’ The liability of the manufacturer is provided for in Article 1468 of the CCQ: ‘A manufacturer of a movable property is liable to reparation for injury caused to a third person by reason of a safety defect in the thing, even if it is incorporated with or placed in an immovable for the service or operation of the immovable. ‘The same rule applies to a person who distributes the thing under his name or as his own and to any supplier of the thing, whether a wholesaler or a retailer and whether or not he imported the thing.’ 94 Canada v Saskatchewan Wheat Pool, [1983] 1 SCR 205. 95 Canada (Attorney General) v Telezone Inc., [2010] SCJ Number 62 (SCR), at para 28. 96 Canada v Saskatchewan Wheat Pool, [1983] 1 SCR 205.
- 81. CANADA CDN-15 Interestingly, if a product is affected with a ‘safety defect’ and causes injury to a third party, the injured party has a right of action against the manufacturer under Article 1468 of the CCQ. This right of action exists against the distributor and the supplier of the product as well, whether they be wholesalers or retailers and whether or not they imported the product in question. Under Article 1469 of the CCQ, a product with a safety defect is one that does not afford the safety that a person is normally entitled to expect: ‘A thing has a safety defect where, having regard to all the circumstances, it does not afford the safety which a person is normally entitled to expect, particularly by reason of a defect in the design or manufacture of the thing, poor preservation or presentation of the thing, or the lack of sufficient indications as to the risks and dangers it involves or as to safety precautions.’ The injured party need not demonstrate the faulty design or faulty manufacture of the product. Rather, he need only demonstrate that the product does not afford the safety which a person is normally entitled to expect.97 Defenses Under Article 1473 of the CCQ, manufacturers have two lines of defense to product liability claims brought against them by third parties: that the victim knew or could have known of the defect or could have foreseen the injury; or that the state of knowledge at the time of manufacture was such that the existence of the defect could not have been known, and the manufacturer did not neglect its duty to provide information upon becoming aware of the defect. Article 1474 of the CCQ provides that a limitation of liability clause is of no effect when the injury is bodily or moral or when it results from an intentional or gross fault: ‘A person may not exclude or limit his liability for material injury caused to another through an intentional or gross fault; a gross fault is a fault which shows gross recklessness, gross carelessness, or gross negligence. ‘He may not in any way exclude or limit his liability for bodily or moral injury caused to another.’ Some decisions suggest that given the presumption that manufacturers knew about the defects affecting their products, their failure to disclose them amounts 97 Ministre de la justice, Commentaires du Ministre de la justice, Tome I (Québec, Les publications du Québec, 1993), at p. 898.
- 82. CDN-16 INTERNATIONAL PRODUCT LIABILITY to gross fault.98 Under this line of reasoning, it necessarily follows that a limitation of liability clause would be of no use in a product liability claim. Article 1475 of the CCQ also provides that limitation of liability clauses may not be enforced if the manufacturer cannot show that the other party was aware of the clause’s existence at the time of contract formation: ‘A notice, whether posted or not, stipulating the exclusion or limitation of the obligation to make reparation for injury resulting from the nonperformance of a contractual obligation has effect, in respect of the creditor, only if the party who invokes the notice proves that the other party was aware of its existence at the time the contract was formed.’99 Duty to Inform As is the case in Canada’s common law jurisdictions, the obligation of a seller to inform a buyer of the risks of using the product sold is well established under Québec law. In Bank of Montreal v Bail,100 the Supreme Court of Canada articulated an implicit contractual duty to inform. This duty is founded upon the duty of good faith, which is codified in Article 1375 of the CCQ: ‘The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished.’ In Bank of Montreal v Bail,101 the Supreme Court of Canada outlined three elements giving rise to the obligation to inform: knowledge of the information, whether actual or presumed, by the party owing the obligation; the decisive importance of the information in question; and a situation in which it is impossible for the party to whom the duty is owed to inform itself. The duty to inform comprises two separate components: the duty to provide information regarding proper use of the product; and the duty to provide information about the safety hazards and dangers related to the product. The duty to provide information regarding proper use of the product requires that the seller communicate to the buyer all necessary information for optimal use of the product. This will require the seller to provide information relating to the use, maintenance, and conservation of the product. This duty may be 98 Mabaie Inc. v Petro-Canada Inc., [2000] RJQ 2959 (CS); appeal granted, Petro- Canada Inc. v Mabaie Construction Inc., JE 2003-437 (CA). However, the Court of Appeal does not discuss this issue; 1965587 Ontario Inc. v Équipement fédéral Québec ltée, JE 2005-629 (CS). Contra: Promutuel Lac St-Pierre, société mutuelle d’assurance générale v Chastenay, JE 2000-1037 (CS). 99 Also relevant is the ruling in Accessoires d'auto Vipa Inc. v Therrien, J.E. 2003- 1653, at paras 37 and 42. 100 Bank of Montreal v Bail Ltée, [1992] 2 SCR 554. 101 Bank of Montreal v Bail Ltée, [1992] 2 SCR 554, 586, 587; ABB Inc. v Domtar Inc., 2007 CSC 50, at para 108.
- 83. CANADA CDN-17 fulfilled by providing the buyer with a user guide. The more technical the product, the more onerous the duty to inform. The duty to provide information regarding the safety hazards of the product requires the seller to provide the buyer with all necessary information regarding the risks and safety precautions related to the normal use of the product. This duty may be fulfilled by providing safety warnings. The more dangerous the product, the more stringent the duty to inform. Defenses The manufacturer’s liability under Québec civil law is not absolute. For example, pursuant to Article 1470 of the CCQ, a manufacturer may free himself from liability ‘by proving that the injury results from superior force’, ‘superior force’ being defined as ‘an unforeseeable and irresistible event’. The manufacturer also can avoid liability for injuries caused by a safety defect in the product if he proves that ‘the victim knew or could have known of the defect, or could have foreseen the injury’.102 More important, the manufacturer may be exonerated if he proves that the existence of the defect could not have been known given the state of knowledge at the time the product was manufactured or sold, and that it did not breach its duty to provide updated safety information when it became aware of the defect. Unless the buyer specifies that he intends to use the product in a particular manner, the seller’s duty to inform is limited to the foreseeable uses of the product. Accordingly, a seller may escape liability by demonstrating that a claimant’s damages did not result from a foreseeable use of the product. The duty to inform is predicated on presumed inequalities or disparities with respect to access to information. This duty does not come into play when both parties have equal access to information. As such, a seller is not obligated to communicate information that a reasonable person should normally be aware of. When the buyer is a professional in a particular field or a sophisticated buyer, his duty to seek out information will be more exacting.103 In this case, the seller will only be bound to disclose information that would not be reasonably accessible to a professional or sophisticated purchaser. Distinctions between Duty to Inform and Duty to Disclose Latent Defects Although the duty to inform and the duty to disclose latent defects may overlap, they are not identical. The duty to inform encompasses the duty to disclose latent defects, but it is much broader and also covers all other information that may objectively be of decisive importance for the purchaser. 102 Civil Code of Québec, art 1473. 103 Bank of Montreal v Bail Ltée, [1992] 2 SCR 554.
- 84. CDN-18 INTERNATIONAL PRODUCT LIABILITY When a seller fails to disclose a defect, it is likely that the seller also will have breached the general duty to inform the buyer of a factor of decisive importance in respect of the product, namely the existence of a latent defect.104 Distinctions between the Duty to Inform and the Duty to Advise The duty to inform also must be distinguished from the duty to advise. The duty to advise is more demanding, in that it requires the seller to present the information in an objective manner, to evaluate the different options of the buyer and, in some situations, to express an opinion as to whether the buyer should purchase the product.105 A seller is generally not bound to advise a buyer unless the buyer requests it.106 Consumer Protection Act The Québec CPA107 is similar to common law consumer protection legislation, in that it extends the possibility for recourse against sellers of defective products to the average consumer. Article 1(e) of the Québec CPA defines a consumer as a ‘natural person, except a merchant who obtains goods or services for the purposes of his business’. The Québec CPA provides warranties of fitness and quality in order to protect consumers. Article 37 of the Québec CPA provides that ‘goods forming the object of a contract must be fit for the purposes for which goods of that kind are ordinarily used’. Article 38 of the Québec CPA states that ‘goods forming the object of a contract must be durable in normal use for a reasonable length of time, having regard to their price, the terms of the contract, and the conditions of their use’. The recourse available to consumers against sellers or manufacturers is set out in Article 53 of the Québec CPA: ‘A consumer who has entered into a contract with a merchant is entitled to exercise directly against the merchant or the manufacturer a recourse based on a latent defect in the goods forming the object of the contract, unless the consumer could have discovered the defect by an ordinary examination. 104 ABB Inc. v Domtar Inc., 2007 CSC 50, at paras 108 and 109; P.-G. Jobin, La vente, 2nd ed (Cowansville, Yvon Blais, 2001), at p. 204. 105 J.-L. Baudouin & P.-G. Jobin, Les obligations (Cowansville, Yvon Blais, 2005), at p. 360. 106 P.-G. Jobin, La vente, 3rd ed (Cowansville, Yvon Blais, 2007), at p. 141. 107 Québec CPA, RSQ, c P-40.1.
- 85. CANADA CDN-19 ‘Recourse by consumer ‘The same rule applies where there is a lack of instructions necessary for the protection of the user against a risk or danger of which he would otherwise be unaware. ‘Ignorance of defect ‘The merchant or the manufacturer shall not plead that he was unaware of the defect or lack of instructions. ‘Subsequent purchaser ‘The rights of action against the manufacturer may be exercised by any consumer who is a subsequent purchaser of the goods.’ Contractual Liability In terms of contractual liability, the legal framework under Québec law is set out in Articles 1726−1733 of the CCQ. Article 1726 of the CCQ provides that manufacturers and distributors of products (here referred to generally as ‘sellers’) must warrant to buyers that the property sold is, at the time of the sale, free of latent defects which either render the product unfit for its intended use or which diminish the product’s usefulness to the extent that the buyer, had he been aware of the defects, would not have bought it or paid so high a price for it. Article 1730 of the CCQ imposes an identical duty on manufacturers and distributors, and also may be interpreted as a specific application of the general rule provided by Article 1442 of the CCQ: ‘The rights of the parties to a contract pass to their successors by particular title if they are accessory to property which passes to them or are directly related to it.’ In the absence of contractual provisions to the contrary, courts will imply the obligations set out Articles 1468 and 1469 of the CCQ into a contract for the sale of goods.108 The legal regime of the CCQ relating to the warranty of quality creates two distinct presumptions in favor of buyers: a presumption of existence of the defect109 and a presumption of knowledge of the defect by the seller.110 Both are simple legal presumptions which can be rebutted by sellers, depending on the circumstances of the case.111 108 Accessoires d'auto Vipa Inc. v Therrien, J.E. 2003-1653, at paras 36−38. 109 Civil Code of Québec, art 1729. 110 Civil Code of Québec, art 1728.
- 86. CDN-20 INTERNATIONAL PRODUCT LIABILITY However, as noted by the Supreme Court of Canada in ABB v Domtar,112 a seminal decision on the subject of sellers’ and manufacturers’ liability in Québec, the strength of the presumption of knowledge will vary depending on the seller’s expertise.113 The provisions of the CCQ relating to latent defects only apply when the defect either renders the product unfit for its intended use or diminishes the product’s usefulness such that the buyer would not have bought it or paid such a high price had he been aware of the defect. In ABB v Domtar, the Court outlined three principal categories of latent defects: material defects, whereby the product was initially fit for its intended purpose but then became unfit due to damage occurring post-manufacture; functional defects, whereby the product does not function as intended (includes faulty design or manufacturing); and conventional defects, whereby the parties agreed that the product would serve a particular purpose, but it does not.114 The product’s latent defect must exist at the time of sale. Article 1729 of the CCQ provides that a defect is presumed to have existed at the time of the sale if the product malfunctions or deteriorates prematurely: ‘A defect is presumed to have existed at the time of a sale by a professional seller if the property malfunctions or deteriorates prematurely in comparison with identical items of property or items of the same type; such a presumption is not made, however, where the defect is due to improper use of the property by the buyer.’ The courts do not require that the defect manifest itself at the time of the sale. Rather, it is sufficient that the defect was potential, that it existed in an embryonic state.115 The requirement that the defect existed at the time of the sale ensures that sellers will not be held liable for a ‘defect’ caused by abnormal use of the product by the buyer post-sale.116 In order for a buyer to succeed in a product liability claim, the defect must be hidden. Sellers are not required to warrant against defects known to the buyer or apparent defects (ie, defects that the buyer could have detected).117 111 Services techniques Claude Drouin Inc. v Ventilateurs TLT Co-Vent Inc. (Ventilateurs Co-Vent Inc.), 2008 QCCA 951, at para 19 (Qué CA). 112 ABB Inc. v Domtar Inc., 2007 CSC 50. 113 ABB Inc. v Domtar Inc., 2007 CSC 50, at paras 41, 67, and 72. 114 ABB Inc. v Domtar Inc., 2007 CSC 50, at paras 47 and 48. 115 P.-G. Jobin, La vente, 3rd ed (Cowansville, Yvon Blais, 2007), at p. 210. 116 ABB Inc. v Domtar Inc., 2007 CSC 50, at para 53. 117 The CCQ, art 1726(2), states: ‘The seller is not bound, however, to warrant against any latent defect known to the buyer or any apparent defect; an apparent defect is a
- 87. CANADA CDN-21 The latency of the defect is assessed objectively. Courts will examine whether a prudent and diligent buyer of identical expertise would have detected the defect. The more knowledgeable a buyer is, the more likely that a defect will be considered apparent. All buyers have an obligation to inform themselves by carrying out a reasonable inspection of the goods they purchase.118 Pursuant to Article 1739 of the CCQ, a buyer who discovers a latent defect must give notice to the seller within a reasonable time after discovering the defect: ‘A buyer who ascertains that the property is defective may give notice in writing of the defect to the seller only within a reasonable time after discovering it. The time begins to run, where the defect appears gradually, on the day that the buyer could have suspected the seriousness and extent of the defect. ‘The seller may not invoke tardy notice from the buyer if he was aware of the defect or could not have been unaware of it.’ The buyer may commence an action at any time within the general three-year prescription period applicable to all actions. This contrasts with Article 1530 under the former Civil Code of Lower Canada, which required buyers to commence an action for latent defects within a reasonable time after discovering the defect. Failure to do so would result in a dismissal of the buyer’s action. The buyer’s obligation to give notice of the defect may be interpreted as an implication that the seller has a right to cure the defect once given notice of it, by either repairing or replacing the defective product. However, the choice of recourse lies with the buyer, and the seller will not be allowed to cure the defect when the buyer has chosen to seek an annulment of the sale.119 Under Article 1739(2) of the CCQ, the seller may not rely on the tardiness of a buyer’s notice as a defense if the seller was aware or could not have been unaware of the defect. In addition, Article 1739(2) of the CCQ expressly dictates that manufacturers may not rely on the lateness of a buyer’s notice as a defense, as manufacturers are presumed to be aware of the defects of the products they create (as discussed next). defect that can be perceived by a prudent and diligent buyer without any need of expert assistance’. 118 ABB Inc. v Domtar Inc., 2007 CSC 50, at paras 42, 51, and 54; P.-G. Jobin, La vente, 3rd ed (Cowansville, Yvon Blais, 2007), at p. 11. 119 P.-G. Jobin, La vente, 3rd ed (Cowansville, Yvon Blais, 2007), at p. 221.
- 88. CDN-22 INTERNATIONAL PRODUCT LIABILITY Defenses As stated above, there is a presumption in favor of buyers whereby manufacturers are presumed to know of the defects in their products.120 This presumption is based on the notion that since manufacturers have control over the labor and material used to manufacture their products, they should be deemed to be experts with regard to those products. In principle, sellers can rebut this presumption by demonstrating that they could not have discovered the defect even if they had taken every precaution that a reasonable manufacturer would have taken in the same circumstances. However, the rebuttal of this presumption is extremely difficult in practice. In ABB v Domtar, the Supreme Court noted that, as of 2007, there were no known cases in which a manufacturer had successfully rebutted the presumption.121 Furthermore, only two possible sources of rebuttal have been recognized thus far: that the damage was the fault of the buyer or of a ‘superior force’ (defined as ‘an unforeseeable and irresistible event’); or the ‘risk development’ defense.122 With regard to the first line of defense, a manufacturer may exonerate himself by proving that the damage resulted from the buyer’s improper use or maintenance of the product. This type of argument necessarily implies the argument that the defect did not exist at the time of the sale. This defense is codified under Article 1470 of the CCQ, which provides: ‘A person may free himself from his liability for injury caused to another by proving that the injury results from superior force, unless he has undertaken to make reparation for it. ‘A superior force is an unforeseeable and irresistible event, including external causes with the same characteristics.’ Under the second defense, the manufacturer may argue that it would have been impossible to detect the defect given the state of scientific and technical knowledge at the time the product was released into the market.123 This defense is now codified under Article 1473 of the CCQ: ‘The manufacturer, distributor, or supplier of a movable property is not liable to reparation for injury caused by a safety defect in the 120 General Motors Products of Canada v Kravitz, [1979] 1 SCR 790, 797; ABB Inc. v Domtar Inc., 2007 CSC 50, at para 41. 121 ABB Inc. v Domtar Inc., 2007 CSC 50, at para 66. 122 ABB Inc. v Domtar Inc., 2007 CSC 50, at para 72. 123 London & Lancashire Guarantee & Accident Co. of Canada v Cie F.X. Drolet, [1944] RCS 82, 85-87. Also of relevance is Berthiaume v Réno-dépôt Inc., [1995] RJQ 2796 (CA).
- 89. CANADA CDN-23 property if he proves that the victim knew or could have known of the defect, or could have foreseen the injury.’ Some authorities have held that Article 1473 of the CCQ is only applicable to extra-contractual matters (ie, when the plaintiff is a third party rather than a contractual buyer). Others take the position that the risk development defense is available to manufacturers in all instances, including contractual matters.124 Buyers of defective goods have several options for recovery. Article 1590 of the CCQ provides that buyers may, without prejudice to the right to claim damages, either ask for the specific performance of the obligation, obtain the termination or annulment of the contract, or take any other measure provided by law to enforce their right to the performance of the obligation. Articles 1727 and 1728 of the CCQ provide for specific rules when the product is no longer usable by reason of a latent defect. Under these provisions, the seller is bound to pay the buyer an amount equal to the actual value of the product. However, if the seller was aware of or could not have been unaware of the defect, the seller is required to restore the actual price of the product and to compensate all damage suffered by the buyer: ‘If the property perishes by reason of a latent defect that existed at the time of the sale, the loss is borne by the seller, who is bound to restore the price; if the loss results from superior force or is due to the fault of the buyer, the buyer shall deduct from his claim the value of the property in the state it was in at the time of the loss.’ As noted previously, the manufacturer is presumed to be aware of the defect, and this presumption is very difficult to rebut. Consequently, the manufacturer will generally be bound to compensate all damage suffered by the buyer. In addition, Article 1613 of the CCQ provides that in contractual matters, liability is limited to foreseeable damage. This provision states: ‘In contractual matters, the debtor is liable only for damages that were foreseen or foreseeable at the time the obligation was contracted, where the failure to perform the obligation does not proceed from intentional or gross fault on his part; even then, the damages include only what is an immediate and direct consequence of the nonperformance.’ 124 P.-G. Jobin, La vente, 3rd ed (Cowansville, Yvon Blais, 2007), at p. 217; Accessoires d'auto Vipa Inc. v Therrien, J.E. 2003-1653, at para 36 (CA) ; Services techniques Claude Drouin Inc. v Ventilateurs TLT Co-Vent Inc. (Ventilateurs Co- Vent Inc.), 2008 QCCA 951, at paras 34−35 (Qué CA); Manac Inc./Nortex v Boiler Inspection and Insur. Co. of Canada, [2006] RRA 879, at para 138 (CA); and ABB Inc. v Domtar Inc., 2007 CSC 50, at para 72.
- 90. CDN-24 INTERNATIONAL PRODUCT LIABILITY In light of the above, sellers and manufacturers will generally be liable for the damage that was foreseeable at the time of the sale. Some decisions have suggested that, given that manufacturers are presumed to have known about the defects, their failure to disclose the defects amounts to a gross fault. Following this line of jurisprudence, manufacturers must pay for all the damage suffered, even if it was unforeseeable. 125 Limitation of Liability Clauses Article 1733(1) of the CCQ provides that a seller may not rely on a limitation of liability clause if he was aware, or could not have been unaware, of the latent defect affecting the quality of the product, namely its fitness for its intended purpose: ‘A seller may not exclude or limit his liability unless he has disclosed the defects of which he was aware or could not have been unaware and which affect the right of ownership or the quality of the property.’ Article 1733(2) of the CCQ provides an exception to this rule in situations where a buyer buys property at his own risk from a seller who is not a professional seller. As discussed above, manufacturers are presumed to have been aware of defects in their products, and this presumption is extremely difficult to rebut. Therefore, on a practical level, a manufacturer may not rely on a limitation of liability clause to limit or exclude its liability with respect to a latent defect.126 Finally, Article 1732 of the CCQ provides that a seller may not rely upon a limitation of liability clause to exempt himself from personal fault: ‘The parties may, in their contract, add to the obligations of legal warranty, diminish its effects, or exclude it altogether, but in no case may the seller exempt himself from his personal fault.’ 125 Mabaie Inc. v Petro-Canada Inc., [2000] RJQ 2959 (CS), appeal granted Petro- Canada Inc. v Mabaie Construction Inc., JE 2003-437 (CA). However, the Court of Appeal does not discuss this issue. Also relevant is 1965587 Ontario Inc. v Équipement fédéral Québec ltée, JE 2005-629 (CS). Contra: Promutuel Lac St- Pierre, société mutuelle d’assurance générale v Chastenay, JE 2000-1037 (CS), appeal granted with respect to expert fees only. 126 ABB Inc. v Domtar Inc., 2007 CSC 50, at paras 56, 66, and 71.
- 91. CANADA CDN-25 Conclusion Canadian jurisdictions ⎯ both federal and provincial ⎯ require that manufacturers inform and warn consumers of the foreseeable dangers associated with the intended and unintended uses of their products. Requirements of fitness for purpose and quality also have been codified and apply to situations in which the buyers have a direct contractual relationship with the manufacturer. Consumer protection legislation also has been adopted to protect third-party consumers. When Canada’s liberal approach to class actions and active plaintiffs’ bar are taken into account, the Canadian legal framework in the product liability area ensures that buyers and consumers who wish to advance such claims against manufacturers are given a very fair hearing. Manufacturers beware!
- 93. Colombia Introduction ............................................................................................ COL-1 Specific Normative Grounds .................................................................. COL-1 Political Constitution ............................................................... COL-1 Commercial Code .................................................................... COL-1 Civil Code ................................................................................ COL-2 New Consumer Statute (Law Number 1480 of 2011) ............. COL-3 Contractual Liability and Extra-Contractual Liability ............. COL-3 Civil Liability Regime for Defective Products....................................... COL-3 In General ................................................................................ COL-3 Regulation of the Seller’s Contractual Liability ...................... COL-3 Special Regulation under Consumer Statute ............................ COL-5 Actions against Producers ........................................................ COL-7 Sanctions for Breaching Consumer Statute Rules ................... COL-7 Consumer’s Retract Right........................................................ COL-7 Relative Effect of Contracts under Consumer Statute ............. COL-8 Necessary Existence of Consumer Relationship ...................... COL-9 Civil Code Regulation of Extra-Contractual Responsibility .................. COL-9 Collective Actions Provided under Constitution .................................... COL-10 Consumer’s Constitutional Rights ........................................... COL-10 Popular Action ......................................................................... COL-10 Group Action ........................................................................... COL-11 Conclusion ............................................................................................. COL-11 (Release 1 – 2012)
- 95. Colombia Natalia Tobón Franco, Adriana Durán Fernández and Eduardo Varela Pezzano Cavelier Abogados Bogotá, Colombia Introduction The regulations on product liability in Colombia are provided under the general norms on liability in the Civil Code, by some norms in the Commercial Code, and by the New Consumer Statute found in Law 1480 of 2011 in force since 12 April 2012.1 Specific Normative Grounds Political Constitution Article 78 of the Colombian Constitution establishes the general clause for liability of producers and traders of goods and services regarding for infringement of consumer rights: ‘The law shall regulate quality control in connection with goods and services offered and provided to the community as well as the information to be supplied to the public in connection with the marketing thereof. Those who, in the process of producing and marketing goods and services, cause harm to health and safety or fail to provide suitable supplies to consumers and users shall be liable for their actions as provided under the law. ‘The State shall guarantee the participation of consumer and user organizations in examining the provisions which concern them. To enjoy this right, the organizations in question must be representative and observe democratic internal procedures.’ The legal regulations that develop these constitutional norms or refer to the same subject matter are the Commercial Code, the Civil Code, and the New Consumer Statute. Commercial Code Articles 932 and 933 of the Commercial Code standardize purchase-sale agreements and provide a warranty for the proper operation of products when 1 Issued on 12 October 2011, but in force from 12 April 2012. (Release 1 – 2012)
- 96. COL-2 INTERNATIONAL PRODUCT LIABILITY they refer to the presumption of a sale with warranty, but Article 934 of the same Statute provides the general commercial regulation for product liability: ‘If, upon delivery, the good sold shows hidden defects or vices caused prior to the contract, which the purchaser, in innocence, was not aware of, making the object unsuitable for its natural use or for the use intended under the contract, the purchaser may claim resolution of the contract or a reduction of price by fair appraisal. If the purchaser chooses resolution, the good will be returned to the seller. In either case, damages will be recovered from the seller if the same was or should have been aware of the vice or defect of the good sold at the time of the contract.’ Civil Code Article 1914 of the Civil Code states: ‘A redhibitory action is that which is taken by a purchaser to rescind a sale or to obtain a proportional reduction in price due to hidden vices in the good sold, whether real or movable; these vices are called “redhibitory vices”.’ Redhibitory vices that the seller is liable for are those that satisfy three specific conditions. First, the seller is liable for redhibitory vices that exist at the time of sale. Second, the seller is liable when the redhibitory vices are such that the product sold may not be used for its intended purpose or can only be used in such an imperfect manner that it must be supposed that, had the purchaser been aware of this, he would not have purchased the product or he would have purchased it at a lower price. Third, the seller is liable when he did not disclose the redhibitory vices and the vices are such that the purchaser may have failed to notice them without gross negligence on his part, or the vices are such that the purchaser could not have easily perceived them due to his profession or occupation. Article 1917 of the Civil Code also establishes that ‘Redhibitory vices entitle the purchaser to demand rescission of the sale or reduction of price, at his discretion’. Article 1918 of the Civil Code furthermore regulates the event where indeminity of damages apply due to non-disclosed vices on the goods: ‘If the seller was aware of the vices and did not disclose them, or if the vices were such that the seller should been aware of them due to his profession or occupation, the seller will be obliged not only to return or reduce the price, but to provide indemnity for damages; but if the seller was not aware of the vices, and the vices were not such that he should have known of the same due to his profession or occupation, he would only be obliged to return or reduce the price.’ (Release 1 – 2012)
- 97. COLOMBIA COL-3 New Consumer Statute (Law Number 1480 of 2011) The New Consumer Statute generally establishes a presumed minimum general warranty that is understood to be agreed upon in all sale-purchase and service provision agreements. The Statute also establishes the liability of producers for the suitability and quality of their goods and services, including the exoneration mechanisms and means of defense for the producer, as well as the regulation on the inapplicability of the exoneration exemptions. It may be stated that, in a way, this warranty is grounded on the implied warranties regulated under the Uniform Commercial Code in English law. Contractual Liability and Extra-Contractual Liability Regarding the specific legislation affording protection to consumers when a product causes damages to goods or persons due to safety defects, the provisions in the Civil Code concerning civil contractual and extra-contractual liability, as applicable, may be resorted to. In regard to fault, Article 2341 of the Civil Code establishes a general principle of civil responsibility based on fault that serves to substantiate these matters, when the negligence of the party causing indemnifiable damage is clear. However, there also exists a strict liability based on the ‘defenselessness’ of the consumer due to the need to obtain the goods tendered in the market (theory of risk in contracts) and the responsibility for hazardous activities contained in Article 2356 of the Civil Code. Civil Liability Regime for Defective Products In General In Columbia, the regime of civil liability for defective products is provided under several regulations. These include regulations which govern the seller’s contractual liability in the purchase-sale agreement, the special regulation contained in the Consumer Statute, the relative effect of contracts under the scope of this Statute, and the application of the regime provided under the Statute that requires the existence of a consumer relationship. Regulation of the Seller’s Contractual Liability Regarding the contractual liability of the seller under the purchase-sale agreement, regardless of whether or not the seller is the actual manufacturer of the products whose defect is reported, under the provisions of the Civil Code and Commercial Code, the seller will be held accountable for any vices or hidden defects and for the defects in the efficiency and quality of the product. Regarding vices or hidden defects, Articles 934 et seq of the Commercial Code as well as Articles 1914 et seq of the Civil Code regulate the purchaser’s actions (Release 1 – 2012)
- 98. COL-4 INTERNATIONAL PRODUCT LIABILITY against the seller of a product that had a hidden defect or a redhibitory defect at the time of purchase. Both in commercial and civil matters, in sales and barters, the hidden defects or vices of the subject matter of the contract may give rise to a remedial action either for an action intended to rescind the agreement entered into or for an action to discount the price in accordance with a just assessment. Both actions include the possibility of demanding indemnification for the damage caused. As stated by the Supreme Court of Justice, for hidden or redhibitory vices to produce effects: ‘. . . they should have been unintentionally ignored by the purchaser, as provided under Article 934 of the Commercial Code or be such, as required under Article 1915-3 of the Civil Code, that the purchaser may have ignored the same without gross negligence on his side, or be such that he may not have readily noted the same due to his profession. For a vice to be considered redhibitory in civil matters, the specific requirements defined in the aforesaid Article 1915 should necessarily be met. And in order to hold it as a hidden defect under commercial law, it is indispensable for the vice to have a cause predating the execution of the agreement which remains after the delivery of the thing, thus making it unsuitable for its intended use or for the purpose provided in the contract and which may have been inadvertently ignored by the purchaser.’ 2 In commercial matters, it is presumed that the seller, who is a professional, is aware of the existence of the vice in the product. Despite this assumption, the seller may demonstrate unawareness of the vice if it was not possible for the seller to have been aware of it. Articles 932 and 933 of the Commercial Code regulate warranties in connection with both products that carry an express warranty and products in which the warranty is presumed due to their customary manner of sale. In this respect, warranties in contractual matters fall under the scope of strict liability when they are considered reinforced obligations of result (absolute obligations), as stated under the doctrine. There is only one possibility of defense for the debtor (in this case, the seller), which is derived from the exclusive fact of the creditor (in this case, the purchaser) being responsible for the failure to perform the obligation under the contract. Such a scheme of responsibility — which, in principle, seems beneficial for the affected party — should be counterbalanced by the short periods entailed by the terms of the warranties. More often than not, warranty terms are established by means of adhesion contracts, under which, in connection with a warranty for proper operation or efficiency, a norm exists that supplements the will of the 2 Colombia Supreme Court of Justice, Court of Civil Cassation, Ruling of 11 October 1977, R. J. Germán Giraldo Zuluaga. (Release 1 – 2012)
- 99. COLOMBIA COL-5 parties,3 which establishes a maximum term of two years when no express contractual agreement exists. There is a notable difference between the warranty period and the statute of limitations for liability actions. This means that once damage has arisen within the warranty period, the statute of limitations starts to run. In addition, the regulation of warranties and their relation to product liability requires a doctrinarian distinction that is important and might shed some light on the concepts. Hence, as stated by the Supreme Court: ‘. . .the provisions relating to redhibitory vices and the performance warranty provided under the Commercial Code and the Statute of Consumers are intended to protect the consumer in the event the thing sold does not meet the expected qualities or does not fulfill the purpose it was purchased for. Conversely, the so-called product liability for defective products is directed at protecting the victims of a product that due to a safety defect injures or kills a person or destroys or damages the property of the same.’ Accordingly, the seller of a product has a safety obligation toward the purchaser. Under this obligation, the product that is sold must not threaten the purchaser’s personal safety or property. Likewise, the proof of the seller’s fault relates to a contractual obligation of result, which may be exempted only by means of evidence of a remote cause. Special Regulation under the New Consumer Statute The new Consumer Statute issued by means of Law 1480 of 2011 applies to Colombian and foreign products/services, and its provisions govern the rights and obligations arising between producers, suppliers, and consumers and the responsibility of producers and suppliers who are liable for the quality, suitability, safety, and the condition and operation of products. Article 5 (item 17) of Law 1480 of 2011 establishes that a defective product is any product that in consideration of a mistake in its design, manufacture, construction, packaging, or information does not provide reasonable assurance to which every consumer is entitled. Moreover, Article 6 of this law states that a producer must ensure the adequacy and safety of goods and services offered or placed on the market and the quality offered. Under no circumstances may the quality of goods and services be lower, nor can the quality contravene the provisions of technical regulations and sanitary or phitosanitary (SPS) measures. Failure to comply with the above will result in: • Liability of the producer and supplier warranty to consumers; 3 Commercial Code, art 932, final clause. (Release 1 – 2012)
- 100. COL-6 INTERNATIONAL PRODUCT LIABILITY • Individual administrative responsibility to the supervisory authority and control in terms of this law; and • Liability for damages for a defective product under the terms of this law. Under this regulation, the product liability covers that: • Information for the offered products must be in Spanish, and be clear, accurate, sufficient, timely, verifiable, understandable, accurate, suitable, and subject to the above for defective products will be responsible for all damages resulting from inadequate or insufficient information. • Damages caused by the advertising of the offered products also binds the announcer. • The producer and retailer are jointly and severally liable for damages caused by defects in their products without prejudice to actions for recovery that may take place. If it is not stated who the producer is, it will be presumed to be who put his name, trade mark, or other sign or marking on the product. Damage refers to the following: • Death or personal injury caused by the defective product; and • Any damage caused to a different good other than the damaged product itself. Suppliers and retailers located in Colombia offering products by electronic media, among other obligations, shall: • Provide information at all times that is true, accurate, sufficient, clear, accessible, and updated in its identity by specifying its name or business name and Tax Identification Number (NIT), judicial notice address, telephone, and email. • Provide information at all times that is true, accurate, sufficient, clear, and updated for the products offered. • Indicate the period of bid or offer of validity and product availability. • Report on e-commerce environment used, the means available to make payments, the time of delivery of the goods or the provision of the service, the right of withdrawal which assists the consumer, and the procedure for exercising it. • Report the total product price, including all taxes, costs, and expenses payable by the consumer to purchase. • Verify the consumer's age. In case the product is to be acquired by a minor, the provider must record the express permission of the parent for the transaction. (Release 1 – 2012)
- 101. COLOMBIA COL-7 Actions against Producers Consumers may initiate a judiciary or administrative action against the producer, supplier, distributor, or even the middleman involved in the acquisition of the defective product. These actions are: • Class actions governed by Law 472 of 1998 when there is a plural number of consumers with the same defective product; • Civil liability actions for damages of the defective product, which are filed before ordinary courts; and • Consumer protection actions for the violation of consumer rights, which arise from the application of contractual protection rules contained in the Consumer Statute and special regulations to protect consumers and users, especially those aimed at obtaining a guarantee. Sanctions for Breaching Consumer Statute Rules The Superintendence of Industry and Commerce may impose an administrative investigation and penalties for non-compliance of the rules contained in Law 1480 of 2011, technical regulations, legal metrology standards, and instructions issued by the Superintendence in the exercise of powers entrusted to it by Law 1480 and the Colombian President, or for failure to meet the obligation to submit information on the occasion of one of the price control regimes: • Fines of up to 2,000 current legal monthly minimum wages at the time of imposition of the sanction (about US $620,000 in year 2012); • Temporary closure of the producer’s commercial establishment, for up to 180 days; • Temporary or permanent prohibition to produce, distribute, or provide the public with certain products; • Ordering the destruction of a product that is harmful to health and safety of consumers; and • Successive fines of up to 1,000 legal monthly minimum wages for non- compliance with orders or instructions while in rebellion. Consumer’s Retract Right Within the next five days after buying a product, consumers may retract from the transaction and return the product, as long as the product is not consumable (e.g., food, drinks, soaps) or for domestic use. The producer or supplier must refund to the consumer all sums paid without making deductions or withholdings in any way within (30) calendar days after the consumer’s retraction. Consumers must return the product to the producer or supplier by the same means and in the same condition it was received. Transportation and other costs involved to return the goods shall be covered by the consumer. (Release 1 – 2012)
- 102. COL-8 INTERNATIONAL PRODUCT LIABILITY Relative Effect of Contracts under Consumer Statute There have been many discussions on the possibility or impossibility of the producer being the object of legal actions and directly redressing the affected consumer, as the producer is not a party to the purchase-sale agreement between the seller and the purchaser. In Colombia, as in most other countries, there is a rule under which a contract is binding only on the parties to the contract. However, most doctrine and case law have accepted the possibility of the consumer bringing action directly against the producer, based on the theory of chain of commerce liability and Article 78 of the Political Constitution (cited in the earlier subsection ‘The Political Constitution’). In this regard, the Constitutional Court has ruled: ‘The responsibility of the producer and distributor arises ex constitutione and due to the above it may therefore be deduced by the consumer or user of the product, regardless of whether or not there is a direct contractual relation with the former. In this sense, warranties relating to quality or appropriateness of the goods and services are not offered exclusively to the first buyer; these are provided to the group of consumers and users. The professional producer produces for the market, profits from the marker, and must be held accountable before the market. In this case, the market is comprised of consumers and users. The non-contractual market responsibility — substantiated under the Constitution and the law — reflects the equalitarian claim the Constitution has attempted to introduce under the concept of consumer or user.’4 The Supreme Court of Justice also has acknowledged the possibility of bringing actions directly against the producer, based mainly on Article 78 of the Constitution, as this is the only means of effectively defending the interests of consumers and users, given the inferior or frail position they usually hold in the business trade.5 In the same finding, the Supreme Court of Justice states that the responsibility of distributors and manufacturers may not be restricted or limited by the principle of privity of contract (ie, that the contract is binding only between the parties: the purchaser and seller in consumer contracts). This is because, regardless of the immediate legal relation the consumer may have with the subject that conveyed or supplied a given product or service, the protective measures relating to his own condition must be extended to the sphere of the producer or manufacturer, insofar as the producer or manufacturer is the one that has managed, controlled, or directed the design and manufacture of the product, among other aspects. The producer or manufacturer is also the one who decided to make the product available or launch it in the market, finally compromising the quality and suitability of the product. 4 Constitutional Court of Colombia, Ruling C–1141 of 2000, R.J. Eduardo Cifuentes Muñóz. 5 Colombia Supreme Court of Justice, Court of Civil Cassation, Ruling of 7 February 2007, Case 23162, R.J. César Julio Valencia Copete. (Release 1 – 2012)
- 103. COLOMBIA COL-9 Consequently, the producer or manufacturer may not be oblivious or indifferent to the eventual defects or anomalies in the product or the dangers or risks these may generate; nor may the producer or manufacturer be oblivious to the financial losses that the product may cause the final receiver (either end consumers or end users) or third parties. As such, the producer or manufacturer has a clearly established ex contitutione ‘special responsibility’ toward end users, which entitles them to bring action directly against the manufacturer in order to claim any applicable warranty or collect damages for the harm caused. This entitlement may not be restricted by the mere non-existence of a contractual-type relation. Such a construction would not be in line with the guidelines unequivocally set by the Constitution because — as provided in the ruling that substantiated the constitutionality of Articles 11 and 29 of the Consumer Statute — the existence of the possibility of a direct action by the consumer against the manufacturer arises from the fact that ‘the professional producer produces for the market, profits from the market, and must be held accountable before the market’.6 Necessary Existence of Consumer Relationship Finally, the application of the regime provided under the Consumer Statute requires the existence of a consumer relationship. This relationship is comprised of two essential elements: that the consumer is the end receiver or purchaser of the product or service and that the purchase or utilization of the goods or services is not intended to be within the scope of a profession or business. The Supreme Court of Justice has explained the consumer relationship: ‘Accordingly, to this end the Court submits that, stringently, it will always be compulsory to inquire about the concrete end purpose that the person — either natural or artificial — seeks with the purchase, utilization, or enjoyment of a given product or service, in order to be held as a consumer only in those cases in which, contextually, he/she intends to meet a private, familial, domestic, or business need — insofar as it is not intrinsically related to its economic activity, strictly speaking, even though it may be somehow be related to its corporate purpose — which is what constitutes a characteristic feature of an actual consumer relationship. . . .’7 Civil Code Regulation of Extra-Contractual Responsibility Regarding third parties affected by damages caused by a defective product, its manufacturer will be held accountable extra-contractually based on the 6 Constitutional Court of Colombia, Ruling C–1141 of 2000, R.J. Eduardo Cifuentes Muñóz. 7 Colombia Supreme Court of Justice, Court of Civil Cassation, Ruling of 3 May 2005, Case 04421, R.J. César Julio Valencia Copete. (Release 1 – 2012)
- 104. COL-10 INTERNATIONAL PRODUCT LIABILITY following hypothesis: responsibility from the fact per se and responsibility from the goods or responsibility for hazardous activities. In the case of responsibility from the fact per se, if the manufacturer’s fault has been proved in connection with the manufacture, distribution, or design of a product, it will be subject to extra-contractual liability as established under Article 2341 of the Civil Code. In these cases, the manufacturer’s negligence must be proved, together with the other elements of civil liability — that is, the damage and the cause-effect relationship between the negligence and the guilty conduct. Similarly, in regard to building matters, Article 2351 of the Civil Code establishes a particular regime of extra-contractual responsibility of a builder in the event of collapse of a construction, backed by a warranty of good quality work for a term of 10 years, establishing the proof of remote cause as the only mechanism of defense to be released from any responsibility. In the case of responsibility from the goods or responsibility for hazardous activities, Article 2356 of the Civil Code, which deals with responsibility for hazardous activities, contains a presumption of responsibility. This presumption generally implies the possibility of objectively holding liable the manufacturer of a defective product. This is because, as the producer of a defective product (such as an automobile), the manufacturer continues to be the custodian of the structure of the product given that, although deprived of the physical possession of the product in all forms, he has been responsible for arranging all the activities during manufacture or assembly of the defective product. In this context, if a third party is injured due to a defect in the manufacture of the product, the manufacturer will be held responsible for hazardous activities and may only be exempted from this responsibility by proving the existence of a remote cause. Collective Actions Provided under Constitution Consumer’s Constitutional Rights The right to quality control and to obtain suitable and proper products — not only in connection with economic activities, but also with products that are safe and suitable for use by the consumer — is a constitutional right that is part of the consumer’s social, economic, and cultural rights. This is a constitutional right as it may be protected by means of collective actions (Popular and Group Actions) as provided under Article 88 of the Political Constitution. Popular Action A popular action is filed with the intention of protecting collective interests or for cessation of contingent damage and to put an end to a danger, infringement, or threat to consumer rights. (Release 1 – 2012)
- 105. COLOMBIA COL-11 The interested party may not request damage indemnification or redress; the action will take precedence over any other cases being heard by the competent judge and may be filed at any time, as long as the danger remains against the collective rights of consumers. Group Action This action is intended to obtain indemnification arising from damages caused to consumers as a collective whole. It has a statute of limitations of two years from the date on which the damage was caused. The law requires group actions to be filed by a group of persons in similar conditions, all of whom have been affected by the same cause that resulted in damage to each of them. A group action may be filed by anyone having sustained damage in the name of the others similarly affected, even without powers of attorney, or by the representatives of the people or an ombudsman. Conclusion In civil and commercial matters, the seller has the obligation of delivering an adequate and suitable product that fulfills the purposes for which it was acquired by the purchaser. This is an absolute obligation and its breach gives the consumer the right to collect damages. To be exempted from the duty of indemnification, the burden of proof for the producer/seller relates only to proving a remote cause. There are procedural differences in product liability actions, depending on whether a claim is based on an implied or an express warranty or whether it is based on the obligation of repair due to hidden vices. If the claim is made through civil channels, the judge having competence will be a municipal or circuit civil judge, depending on the monetary amount of the claim, who will conduct the hearing as a regular proceeding. If the purchase-sale is regulated under the consumer relationship — understanding ‘consumer’ as the final receiver of the goods or services — the obligation of delivering merchandise of good quality remains with the seller, regardless of whether the merchandise is covered under an express or a minimum implied warranty. These are rights set forth in the Constitution and, consequently, may be protected under popular or group actions. (Release 1 – 2012)
- 107. Denmark Introduction ............................................................................................ DEN-1 Theories of Liability............................................................................... DEN-2 Negligence ............................................................................................. DEN-3 Contractual Liability and Tortious Liability ............................ DEN-3 Culpa Standard......................................................................... DEN-3 Burden of Proof ....................................................................... DEN-5 Reversed Burden of Proof........................................................ DEN-5 Fraud or Misrepresentation .................................................................... DEN-6 Warranty ................................................................................................ DEN-6 Strict Liability ........................................................................................ DEN-7 Concept of Defect .................................................................................. DEN-8 Defective Manufacture ............................................................ DEN-9 Defective Marketing ................................................................ DEN-11 Defective Design ..................................................................... DEN-12 Manufacturer’s Obligation to Warn Consumers or Recall Defective Products ................................................................... DEN-14 Defenses Available to Manufacturer ...................................................... DEN-15 Contributory Fault ................................................................... DEN-15 Comparative Fault ................................................................... DEN-15 Assumption of Risk ................................................................. DEN-15 Product Misuse ........................................................................ DEN-16 State-of-the-Art Defense .......................................................... DEN-16 Disclaimers .............................................................................. DEN-16 Liability in Chain of Commerce ............................................................ DEN-17 Producers of Component Parts ................................................ DEN-17 Middlemen ............................................................................... DEN-17 Wholesalers and Distributors ................................................... DEN-18 Remedies ................................................................................................ DEN-18 Damages for Personal Injury ................................................... DEN-18 Damages for Property Loss...................................................... DEN-19 Limitations ............................................................................................. DEN-20 Contractual Limitations ........................................................... DEN-20 Statute of Limitations .............................................................. DEN-20 Successor Liability ................................................................................. DEN-21 (Release 1 – 2012)
- 108. Insurance ................................................................................................ DEN-21 In General ................................................................................ DEN-21 Usual Extent of Cover ............................................................. DEN-22 Usual Exclusions ..................................................................... DEN-24 Duties of Insured...................................................................... DEN-25 Product Liability Litigation .................................................................... DEN-25 Frequency of Litigation ........................................................... DEN-25 Attitude of Courts .................................................................... DEN-25 Lawyers’ Compensation .......................................................... DEN-26 Choice and Application of Law ............................................... DEN-26 Conclusion ............................................................................................. DEN-27 (Release 1 – 2012)
- 109. Denmark Jes Anker Mikkelsen and Klaus Ewald Madsen Bech-Bruun Copenhagen, Denmark Introduction In an industrial country, manufacturing, trade, and consumption of products form the basic economic grounds for the development and welfare of society. During manufacturing and distribution, mistakes occur that may result in defective products which, when consumed, may injure persons, such as the consumer or a third party, or cause damage to assets. Damages awarded in connection with a defective product have been well known for many years. The draft Danish Sale of Goods Act 1904 specifically stated that the rules of liability for defects in goods sold were not applicable to cases of product-related damage. As no other statutory law provided rules of liability for product-related losses in general, the courts have found liability for product- related damage based on the culpa standard according to general Danish law. Even though cases concerning product damages have been brought to the Danish courts since the beginning of the twentieth century, the number of cases is relatively small. In the beginning, most cases brought to the courts dealt with defective machinery, defective gas or soda water bottles that exploded in the consumers’ hands, or poisoned feed for animals. Due to these sorts of cases, liability for product-related damage was once called ‘liability for dangerous products’ — in other words, products with dangerous and harmful characteristics. Today, however, the term ‘produktansvar’, a direct translation of the term ‘product liability’, is generally used. The change of term may express the fact that problems related to product-related damage and product liability are now evaluated from a wider point of view and that legal issues on product-related damage have become more complex. No statutory law had provided rules of liability for product-related damage until the European Community Council Directive on product liability (the Product Liability Directive)1 was implemented in Danish law by Act Number 371 of 7 June 1989, referred to as the Product Liability Act. The rules on product liability, 1 Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations, and administrative provisions of Member States concerning liability for defective products, OJ 1985 L 210/29. (Release 1 – 2012)
- 110. DEN-2 INTERNATIONAL PRODUCT LIABILITY as they had been applied until then, remained applicable after its implementation.2 These include the statutory rules applied in specific fields of law3 and the general rules on liability developed by case law. Theories of Liability The effect and consequences of a defect in goods sold subject to the Sale of Goods Act4 and a defective product causing product-related damage are often alike. However, it is important to distinguish between liability for defective products under the Sale of Goods Act and product liability under the rules of liability for product-related damage developed by the courts.5 The distinction is marked in the case of personal injuries, as the provisions of the Sale of Goods Act will not be applicable in such cases. Liability for personal injuries is to be assessed under the rules of product liability only according to the case law. The distinction is more complex in terms of damage to assets. The basic question is whether the defective product sold has caused physical damage to the product itself or whether the product has caused physical damage to other assets. The problem of distinction arises when a product deteriorates due to a defect in the raw material. For example, a component part sold is incorporated as an ingredient in a product manufactured and sold; because of the defective ingredient, the final product deteriorates. In the case of a defective ingredient, the provisions of the Sale of Goods Act are applicable only if the deterioration of the final product is not defined as product- related loss. Component damage occurs when a spare part fails, such as when spare parts inserted for the brakes of a car fail and the car is damaged. In this situation, the damage to the car will be assessed as product-related damage. Component 2 Product Liability Act, s 13. This Act does not restrict the claimant’s entitlement to damages under the general rules of indemnity, regardless of whether or not a contractual relationship exists, or in pursuance of rules laid down in other rules of law. 3 For example, Consolidated Act Number 1116 of 8 November 2006 on Natural Gas Supply; Consolidated Act Number 990 of 8 December 2003 on Power Plants and Electrical Equipment. 4 Consolidation Act Number 237 of 28 March 2003. 5 Discussed in Kruse, Erstatningsretten, 5th ed (1989); Dahl, Produktansvar (1973); Rønnow and Hansen, Produktansvaret i Danmark — efter lovens ikrafttræden i 1989 (1989); Hansen, Produktansvarets begrundelser og udvikling. Fællesmarkedets direktiv om produktansvar (1985); Arndorff, Håndbog om Produktansvar, 1st ed (1982); Nørager-Nielsen, Theilgaard, Købeloven (1979); Gomard and Rechnagel, International Købelov (1990); Ulfbeck, Erstatningsretlige grænseområder (2010); Gomard, Obligationsret, 2 del (1995); Andersen and Lookofsky, Lærebog i Obligationsret I (2005). (Release 1 – 2012)
- 111. DENMARK DEN-3 damage only occurs during use. This is not necessarily the case when dealing with ingredient damage. Ingredient damage may occur while the product is in storage. The distinction between liability for defective products under the Sale of Goods Act and liability for product-related loss according to case law is illustrated by the following example: a seller sells a crane with the information that the crane can be loaded with a maximum of 30 tons. While loaded with 20 tons, the crane topples, injures the crane driver, and causes damage to a car parked nearby. The buyer is entitled to full compensation for losses directly and naturally resulting from defects in the crane sold, except for personal injuries, according to the Sale of Goods Act.6 Compensation for personal injuries and damage to property (damage to the car) must be claimed under the principles of liability for product- related damage according to case law. Negligence Contractual Liability and Tortious Liability Scholars have discussed whether the liability for product-related damage should be assessed under the rules of contractual liability or under the rules of tortious liability. Liability for product-related damage occurs in the case of a contractual relationship between the manufacturer (or the seller) and the consumer (claimant) and in the case of a non-contractual relationship between the manufacturer and the consumer (claimant).7 One could say that the resemblance to liability in tort is more marked than the resemblance to liability under a contract. Recent theories seem to accept that liability for product-related damage is based on tortious liability. Culpa Standard The culpa standard is the basic norm in Danish law establishing liability for damage of any kind. It is not codified by statutory law, but has been developed through case law. The culpa standard is generally understood to be part of general Danish law of tort. Under this standard, a person is liable for the foreseeable damage caused by an unlawful act, which can be considered as an intentional or negligent act, provided the damage occurred has affected a subject protected by the rules of liability for damage and provided no subjective excuses, such as youth or insanity, exist. The key factor in the culpa standard is negligence, and its essential element is a breach of the duty of care that causes damage that is not too remote. If it had been possible, or if it should have been possible, to avoid the defect in the product and/or 6 Sale of Goods Act, s 43, which concerns generic goods, imposes a strict liability, which implies that only in exceptional circumstances can the seller avoid liability. 7 Gomard, Obligationsret, 2 del (1995), at pp. 207 et seq. (Release 1 – 2012)
- 112. DEN-4 INTERNATIONAL PRODUCT LIABILITY to avoid the damage caused by the defective product, then the manufacturer and/or seller will be held liable for damages. Negligence under the culpa standard has historically been defined on the basis of what a meticulous and reasonable man (bonus pater familias) would deem to be proper behavior in a particular situation.8 This establishes the general concept of a lack of reasonable foresight as the criterion for negligence: what the defendant (tortfeasor) ought to have known or foreseen as a meticulous and reasonable man. A person will be liable for the natural and probable consequences of his act, but not for the possible (unforeseeable) consequences. Therefore, the fundamental requirement imposed on the manufacturer/seller is that products manufactured and/or marketed and sold by him must be harmless. Any dangerous elements inherent in a product should, as far as possible, be eliminated by the manufacturer and/or the seller. In the process of developing and designing the product and in the process of deciding whether the product should be accompanied by an instruction manual, warnings, and the like, the manufacturer has to consider the situation in which the product is expected to be placed and used, considering, among other things, its nature and designation. The manufacturer has a duty of care, and his failure to observe reasonable preparations and steps in order to eliminate any danger inherent in a product will generally give rise to liability. The manufacturer owes a duty of care toward the ultimate consumer and toward third parties with whom he is not linked contractually. In alleging liability in accordance with the culpa standard, the determining question is whether the harmfulness of the product is attributable to a fault by the manufacturer/seller, and not whether the harmfulness is attributable to a defect in the product. While it is usually easy to establish the existence of a duty of care imposed on the manufacturer in a case of product liability, it is not always easy to prove a breach of duty and causation/fault. The standard of care applicable is that of reasonable care; in other words, the level of foresight of a meticulous and reasonable man. The standard is flexible, depending on the specific circumstances. Considerations include, among others, the likelihood of injury and the kind of injury, the gravity of the consequences that must be weighed, and the cost and practicability of overcoming the risks. Both commercial factors and the importance and utility of the product have to be considered in this connection. Regarding the likelihood of injury and the kind of injury, the risk and the extent of care are connected proportionally. Both a greater risk of injury and a risk of greater injury are relevant, as also is the kind of injury. Only reasonable probabilities (and not every possibility) have to be foreseen. The manufacturer’s duty of care has to be directed to the average consumer and to normal circumstances of consumption. During the normal course of use, a product may 8 von Eyben, Isager, Lærebog i erstatningsret (2011), pp 86 et seq. (Release 1 – 2012)
- 113. DENMARK DEN-5 cause damage because of some specific circumstances affecting the individual consumer; these circumstances are to be taken into consideration. The manufacturer will, however, seldom be liable for damages caused by any abnormal use. Conduct by the manufacturer in accordance with a general and approved practice by other manufacturers in similar situations, as well as compliance with statutory requirements or specific technical standards within the field, is strong evidence of what constitutes the reasonable standards of care in a given situation, but it is not necessarily conclusive. To the extent that an activity requires special skills or competence, the relevant standard is that of the ordinary skilled man working within that specific field. Burden of Proof In cases of negligence, as in every type of civil law action, unless otherwise specifically provided by statutory or case law, the burden of proof falls on the claimant, who has to establish each factor necessary for liability based on the culpa standard. The Danish courts have accepted no general principle of strict liability in tort, although they have come close in cases concerning manufacturing errors,9 nor are there any general rules on strict liability for product-related damage. However, the courts have, on occasion, reversed the burden of proof. It is then up to the manufacturer to prove to the court’s satisfaction either that he has not committed any negligent act or that the damage does not originate from the defective product. The fact that the burden of proof lies with the claimant constitutes the principle of direct burden of proof. According to the principle of direct burden of proof, the claimant must prove that three conditions are met. First, the claimant must prove that the damage which occurred was caused by the defective product manufactured or distributed by the manufacturer or the distributor. Second, the claimant must prove that the manufacturer or distributor is liable for the defect in the product, either due to a positive negligent act or due to an omission. Third, the claimant must prove that damage to assets has an economic expression or has caused personal injuries. Reversed Burden of Proof Although it has not yet been recognized as a general principle, the burden of proof has been changed in recent case law dealing with product liability. Instead of a liability based on the culpa standard with a direct burden of proof, the liability is based on the culpa standard with a reversed burden of proof. 9 Ulfbeck, Erstatningsretlige grænseområder (2010), at pp 194 et seq. (Release 1 – 2012)
- 114. DEN-6 INTERNATIONAL PRODUCT LIABILITY This implies that the manufacturer or distributor is assumed liable if the claimant has proved that the damage is caused by a defect in the product. In order to avoid liability, the manufacturer or distributor must prove that the defect is not due to a failure or omission of his duty of care. This burden of proof placed on the manufacturer may be difficult to bear. The reversed burden of proof increases the liability of the manufacturer and/or distributor by allowing negligence-based liability to simulate a form of strict liability. In connection with the principle of a reversed burden of proof, another important and essential principle is that the courts are free to consider evidence. The courts decide what are to be considered the facts of the actual case on the basis of an assessment of all evidence produced during the proceedings and taking all relevant circumstances into account. Fraud or Misrepresentation According to general Danish law, fraud and misrepresentation are strong grounds for liability. The grounds for liability may be set out so that fraud is an intentional disposition to harm or deceive, while misrepresentation is an intentional disposition that causes harm, but the person misrepresenting a fact is not clear in his mind as to what the consequences of his misrepresentation will be. When fraud or misrepresentation has caused a product-related loss, the manufacturer will be held liable for any product-related loss incurred. Warranty In contractual dealings, the manufacturer may express a warranty that creates strict liability for product-related damage. However, according to Danish law, the basis of liability for product-related damage may only be pleaded by the other contracting party and cannot be pleaded by a third party, who will have to prove liability based on the culpa standard. Even if there is no privity of contract between the manufacturer and the claimant in the form of a contract such as a sales contract or a hire contract, a contractual relationship may, in certain circumstances, be established between the manufacturer and the claimant. The establishing of a contractual relationship can result from an advertisement published by the manufacturer or the labeling on the product. However, an express warranty that clearly covers compensation for product-related damage is required. In rare situations, a manufacturer may have given an express warranty or express statements definitely assuming liability on the safety of his product. Such published product information may constitute a promise to the public that the manufacturer will compensate any potential consumer for product-related damage. (Release 1 – 2012)
- 115. DENMARK DEN-7 For example, after a pressure cooker exploded, a consumer was seriously burnt. The accident was commented on in the newspapers and, with reference to this, a manufacturer of a competing pressure cooker had an advertisement published, saying: ‘Can a Trumf cooker explode? Reward DKK 5,000. We will pay DKK 5,000 to the first person to make a Trumf cooker explode’. Shortly afterward, a Trumf cooker exploded. The court stated that the consumer was entitled to the reward of DKK 5,000 according to the advertisement. 10 Notably, statements made in advertisements are not normally sufficient to establish a contractual relationship, as advertisements are usually only ordinary praises of the product or goods sold. A statement concerning the merchantability of the product or its fitness for a purpose does not establish an implied warranty or condition creating liability for product-related damage. An implied condition or warranty about quality or fitness for a purpose cannot itself give rise to liability for product-related damage, but it may create liability for defects under the Sale of Goods Act.11 Strict Liability Strict liability will only occur in cases of a contractual commitment to compensate product-related damage. However, statutory rules regulating the manufacturer’s liability for product-related damage are found in special statutes. These rules differ in various ways from the general principle of liability for product-related damage based on the culpa standard developed by court practice and the rules of the Product Liability Act. Examples of special statutes are Consolidated Act No. 996 of 13 October 2011 on Natural Gas Supply and Consolidated Act No. 990 of 8 December 2003 on Power Plants and Electrical Equipment. Under the Act on Natural Gas Supply, the liability of the licensee is based on strict liability.12 Under the Act on Power Plants and Electrical Equipment, product liability is based on the culpa standard, with a reversed burden of proof. The courts have imposed this reversed burden quite heavily, which leads to virtual strict liability. 10 Ugeskrift for Retsvæsen (UfR) 1954.8 18. UfR is a weekly publication of decisions from the Supreme Court and High Courts. In some cases, the decisions from the city courts (lower courts) also are published. 11 Sale of Goods Act, ss 42 and 43. 12 Strict liability differs from the liability defined in the Product Liability Act, because the claimant only has to prove that the damage that occurred was caused by the operation of the licensee. The victim does not have to prove fault in the operation of the plant (as required under the general rules on product liability) or a defect (as required under the Product Liability Act). (Release 1 – 2012)
- 116. DEN-8 INTERNATIONAL PRODUCT LIABILITY Concept of Defect The price, age, intended use, and general condition of the product as well as other relevant facts, such as inadequate labeling or instructions for use, will have an impact on the establishment of a defect. If the buyer expressly or by implication has made known to the seller any particular purpose for which the product is being bought, it is an implied condition that the product supplied is reasonably fit for that purpose, regardless of whether or not such products are normally used for that purpose. Implied conditions or warranties about quality or performance may appear by usage or standard requirements within a certain field. In the case of a sale by sample, it is an implied condition that the batch will conform to the sample in terms of quality. In case of substantial defects, the seller will be liable for losses resulting from the defects based on the culpa standard. Liability arising under a contract of sale of goods may be rejected or varied by express agreement between the parties. The provisions of the Sale of Goods Act and the Convention on the International Sale of Goods (CISG), which Denmark has ratified, on liability for defective products are not applicable with respect to product-related damage, although the CISG might be applicable to product-related loss of property belonging to the buyer. Industrial production is characterized by mass production of uniform products. The aim is 100 per cent uniform production, and the only way to achieve this is through extensive control of raw materials, component parts, the final product, and its marketing and distribution. However, various errors occur in manufacturing and cause defective products. The concept of a defective product under the rules of product liability has developed through case law as a dangerous product that may cause damage during normal and well-known use. The dangerousness of a product may be due to an unexpected harmful characteristic inherent in the product or due to an expected characteristic that, for some unknown reason, is not present in the product. The harmfulness of a product depends on the actual situation in which the product is placed or used. A knife is safe and harmless placed in a drawer, but dangerous in the hands of a killer. The fact that a knife is intended for cutting does not make the knife a dangerous or defective product. Any consumer will be aware of the fact that incorrect use of a knife may cause damage and, therefore, the average consumer will handle a knife with due attention and care. In general, products are not dangerous in and of themselves, but only under certain circumstances. Only the unknown risks connected with the normal use of a product make the product dangerous. In other words, a product is defective if it can cause harm in the normal course of use. (Release 1 – 2012)
- 117. DENMARK DEN-9 Case law quickly developed a general principle of liability for product-related damage. When liability is alleged in accordance with the culpa standard, the significant question is whether the harmfulness of the product is attributable to someone’s fault, not whether the harmfulness is attributable to a defect or a dangerous characteristic. According to case law, defective products may be divided into different categories that form a concept of product liability. The different categories are defined and illustrated by case law in the following subsections. Defective Manufacture In General Even though extensive controls are carried out in the manufacturing process, flawed products may result. A flawed product is characterized as a product not conforming to design, nor to the overall production batch manufactured according to the design when the product is brought into circulation.13 A flawed product may come about, first, if the raw material or components used do not bear the characteristics expected, such as stones in meal.14 Second, mistakes may occur during the manufacturer’s production process. These mistakes may include inadequate subsequent production control or faulty maintenance of the production machinery. In a case reported in 1955,15 a gas bottle turned over and exploded on hitting the floor, injuring a worker. The court stated that the explosion was due to bad welding — a defective product caused by faulty manufacturing. Liability for defects arising in the manufacturing process is judged strictly by the courts; in certain cases, a tendency toward strict liability is seen. From case law, it seems evident that the courts apply the assumption that if a product has been industrially processed and if flawed products emerge from this process, the liability lies with the manufacturer.16 The reason for this strict practice of the Danish courts seems to be based on the fact that the manufacturer has a duty to organize production in such a way that the manufacturing process is executed correctly and no defects occur. It is of no relevance to the manufacturer’s liability for product-related damage whether the defect is localized as a specific fault in the production process or, 13 A manufacturer is not liable for defects arising after the product has been brought into circulation. 14 UfR 1986.205. 15 UfR 1955.922H. 16 UfR 1923.6780 and UfR 1957.109; UfR 1999.255 H. Also relevant is the Danish High Court (Eastern Division) judgment of 1 July 1999 referred to in Forsikringog Erstatningsretlig Domssamling (FED) 1999.1598. FED is the collection of law reports on insurance and tort. (Release 1 – 2012)
- 118. DEN-10 INTERNATIONAL PRODUCT LIABILITY from a statistical viewpoint, a defect attributable to the class of unavoidably divergent and flawed products. System Damage Basically, the courts have stated that a manufacturer is not liable for product- related loss arising from what is called ‘system damage’. System damage is product-related loss caused by a known but unavoidable danger inherent in the product. In other words, the danger is known, but cannot be avoided by reasonable change in design or purpose. Cases of system damage include various sorts of damage. One example is cases in which the manufacturer is well aware that the product will cause damage to a limited group of allergic persons, irrespective of the fact that the product is considered a proper and non-defective product and the fact that no faults are detectable. 17 Another instance of system damage includes cases in which damage concerned with normal use of the product is accepted by any consumer because the usefulness of the product is considered of a greater value. Examples include alcohol, tobacco, or drugs, all of which may cause unwanted side effects. A typical situation of defective services or defective workmanship is the execution of an individually produced and designed product in contrast to a mass-produced product. The essential issue is whether the service and/or the workmanship has been performed correctly and in accordance with the normal professional standard applicable for that type of service or workmanship. If the product is installed in a faulty manner by a technician, he will be liable for any product-related loss that occurs due to his faulty installation. In one case, a plumber had installed a cistern, which fell down two years later when a guest pulled the rope. The guest was injured. The plumber was held liable, as the cistern had not been installed safely.18 Even when a technician has made no errors during installation, he may be held liable for product-related loss if he has failed to give correct and normal directions for use or failed to provide information on the risks involved in using the product. Contaminated Products Case law concerning contaminated products has usually dealt with product- related loss caused by tainted food or animal feed and chemicals.19 The issues 17 UfR 1947.656. In this case, the Court stated that the manufacturer was not liable for personal injury due to the consumer’s specific hypersensitivity. A similar decision is found in UfR 1931.1118. 18 UfR 1919.557; also relevant are UfR 1985.460; UfR 1942.984; UfR 1939.1061; and UfR 1924.902. 19 UfR 1964.450; UfR 1953.157; UfR 1939.16; UfR 1932.144. (Release 1 – 2012)
- 119. DENMARK DEN-11 related to contaminated products are very similar to those of defective manufacturing, because the basic problem is a defective component or a component with unexpected and unwanted characteristics. Generally, the manufacturer will be held liable for the product-related loss that occurs due to contaminated products. The problem of contaminated products can be illustrated by a case in which a consumer, while eating a slice of bread, suffered a dental injury caused by a stone hidden in the bread. The manufacturer was held liable. 20 Defective Marketing The manufacturer has a duty to ensure a safe product. He also is required to give relevant information about the product. The marketing performed by the manufacturer also should follow certain standards. In a number of cases, the courts have dealt with defective marketing of various sorts. Defective marketing can be divided into two broad categories, which are not exhaustive: a product may be confused with another product because of incorrect labeling or because the product has been placed in the wrong wrapping; and a manufacturer may incorrectly state that a specific product is identical to another previously sold or marketed product. In distribution, a product may be confused with another that has been proved safe for its specific purpose. This was the issue in a case where a waiter gave a guest in the restaurant a powder that he thought was soda, but which turned out to be a highly poisonous insecticide, and the guest died shortly afterward.21 In some circumstances, the manufacturer has a duty to observe special precautions. This is often the case when delivering products that could easily be confused with other products — for instance, when dealing with chemicals that are very alike in appearance. In these cases, confusion may cause severe damage in the course of use. The risk is easily avoidable by correct labeling or warnings on the packages. If a manufacturer states incorrectly that a specific product is identical to another previously marketed or sold product, he is held liable for damages caused by the new product due to its different characteristics.22 In case of defective marketing, the manufacturer is liable according to the culpa standard. The development of new materials and combinations of new and well-known materials, the proliferation of new products, and product differentiations and variations all involve a considerable risk that their consumption by the individual takes place subject to his more profound ignorance. 20 UfR 1986.205. 21 Similar decisions are reported in UfR 1975.406; UfR 1934.707; UfR 193 1.927; and UfR I 923.678. 22 UfR 1989.96 1; UfR 1974.936. (Release 1 – 2012)
- 120. DEN-12 INTERNATIONAL PRODUCT LIABILITY This increases the duty of the manufacturer to provide comprehensive instructions and directions for the proper use of the product under normal circumstances. The directions and warnings must be directed to the average consumer so as to inform him on how to make the most out of the product and how to avoid loss and injury.23 It might be that a warning does not prevent all sorts of injury or damage. There is always a marginal group of persons who may suffer personal injuries due to individual conditions such as allergies. The essential issue is that this marginal group is given the opportunity to avoid risks by being informed before using the product. 24 The manufacturer is not obliged to give information in the realm of common knowledge about the product, but misleading, incorrect, or insufficient directions for use of the product or insufficient warnings will imply liability for product- related damage according to the culpa standard. In a case reported in 1974, a consumer had bought a wall bar. The wall bar was mounted on the door case according to the enclosed directions. The wall bar could not safely be used without some safety fittings that the buyer had not mounted. As the directions did not expressly state that the wall bar was not to be used without the safety fittings, the manufacturer was held liable for personal injuries suffered by the consumer.25 Defective Design Defective design is not related to individual samples of the product, but usually to a batch of the product. Defective design occurs when the design or construction of the product is not in accordance with the current state of technological and scientific development. In assessing the liability of the manufacturer, due attention must be given to all circumstances, and especially to whether the product might or ought to have been designed or constructed in a different and better way. A manufacturer’s liability under the culpa standard is illustrated by the following situation. A camping gas bottle exploded after being refilled at a shop. The explosion was due to overfilling of the bottle, which was possible due to the design of the bottle and the safety valve. The manufacturer was held liable, because he ought to have foreseen that the refilling of the bottle would take place under 23 Danish High Court (Western Division), judgment of 14 November 1996, FED 1996.1396. 24 Judgment rendered by the Court of Hvidovre, BS 678/1999; judgment of the Eastern Division of the High Court, BS 0464-93. 25 Similar decisions are reported in UfR 1989.961 (incorrect directions) and UfR 1966.794. (Release 1 – 2012)
- 121. DENMARK DEN-13 primitive circumstances, which made it important that the safety valves were designed and built in a way that made overfilling impossible.26 According to case law, material demands are made known to a manufacturer when designing and developing new products. The manufacturer has an obligation to utilize prevailing scientific and technological knowledge in the field and to construct the product in accordance with this knowledge. After the commencement of production and marketing, the manufacturer has a continuous duty to obtain information about the current state of technical and scientific knowledge and development in the field and to act accordingly. Therefore, it appears that the manufacturer has a duty to consider the usual circumstances under which the product is to be used and the dangers connected with its use under these circumstances. The manufacturer must prevent such dangers by improvements in design or by instructions or by any other adequate means. The liability for defective designs is based on the culpa standard, with a tendency toward strict liability.27 Regarding what is called ‘developmental damage’, the courts have stated that liability for product-related damage is assessed according to the culpa standard. After a certain time of use, new products may appear to contain harmful side effects, such as the pesticide DDT in food, certain contraceptive pills, new designs, and new building materials or construction methods. Developmental damage also is found within the chemical and drug industry. Often, a producer is requested to test products and designs and to obtain any discoverable scientific and technical knowledge of the product before the product is marketed or sold. Even though a product has been tested carefully, it might appear to be defective at a later stage. If a product-related loss is attributable to a hitherto unknown and undiscoverable danger that could not have been reasonably known or foreseen, the manufacturer is not liable for the product- related loss caused, according to the state-of-the-art defense theory.28 Industrial development has increased the need for governmental regulations. To a large extent, the authorities lay down standards for the design and manufacture of a product or the form of instructions and directions for use that are to accompany a product. Failing to comply with such governmental requirements leads to the manufacturer’s liability. The manufacturer’s compliance with governmental requirements will normally create the assumption that the manufacturer is not liable for the incurrence of a product-related loss. However, the central issue is not whether governmental 26 UfR 1965.319. 27 UfR 1960.576; and UfR 1957.109. 28 UfR 1960.576, where the manufacturer was not found liable; a similar decision is reported in UfR 1960.215. In UfR 1973.675, the manufacturer was found liable for product-related loss, as he had not paid proper attention to the knowledge available; also relevant is UfR 1994.53. (Release 1 – 2012)
- 122. DEN-14 INTERNATIONAL PRODUCT LIABILITY requirements and standards have been observed, but whether the manufacturer has exercised the proper care, which could be expected of a manufacturer of similar products. This is due to the fact that safety standards do not always keep up with technological developments. The manufacturer must consider, on his own initiative, the conditions under which the product will be used and he must keep on improving the product by means of design or instruction. Manufacturer’s Obligation to Warn Consumers or Recall Defective Products Following a certain time of safe use, a distributed product may develop a defect or the advance of technology may reveal a defect in the product which was unknown and could not reasonably have been foreseen at the time of distribution. As the circumstances and technological environment are not static, the manufacturer has a duty to test his products continuously. In order to maintain or gain market share, the manufacturer will, on his own initiative, develop and improve his products. During this process, if the manufacturer discovers hitherto unknown dangers or defects in the original product, or the manufacturer is informed that a number of incidents of various sorts of damage have occurred, he is obliged to do what is necessary and possible to avoid further damage. The manufacturer’s duty could be to warn the consumers individually or by public advertisements and/or to recall the defective products. The manufacturer is not required to warn consumers with respect to products or components in products which are only dangerous or potentially dangerous when consumed in excessive quantities or over a long period, or if the danger or potential danger is generally known and recognized, as with alcoholic beverages or tobacco. No published court decision has established such a duty for the manufacturer to warn or recall products, but a duty to warn or recall is in accordance with the general principle of the culpa standard in Danish law, under which a person also is liable for omissions leading to damage. Establishing a duty to warn or recall is conditioned upon whether the warning or recalling will prevent further damage. It is not possible to precisely define the responsibility of the manufacturer to warn consumers or recall defective products, as it depends on the actual circumstances, such as the sort of product, the gravity of risk or danger, and the severity of the damage foreseen, among other factors. Although it is difficult to specifically define the manufacturer’s obligation in this regard, the Product Safety Act, which came into force on 1 March 2010, (Release 1 – 2012)
- 123. DENMARK DEN-15 establishes such a duty for the manufacturer to warn customers about dangerous consumer products or recall the products in order to prevent damage.29 Defenses Available to Manufacturer Contributory Fault In certain exceptional circumstances, the manufacturer’s liability may be partly or fully exempted.30 Liability may be exempted if it is unreasonably and exorbitantly burdensome for the manufacturer or when extraordinary circumstances in other respects make it fair and reasonable to limit or exempt the liability of the manufacturer. In some cases, negligence of a third party may affect the liability of the manufacturer or the seller. Depending on the circumstances, the third party may be exclusively liable for the damage or part of the damage incurred and, in other situations, the manufacturer or seller and the third party may be jointly liable. The burden of proving the consumer’s or a third party’s (contributory) fault and its causation is on the defendant (manufacturer/seller). Comparative Fault When product-related loss is caused partly by the manufacturer and partly by the claimant (consumer) himself, the court will reduce the damages recoverable to a fair and reasonable amount, based on the consumer’s share of responsibility. According to case law, minimal comparative negligence displayed by the consumer is not considered sufficient to lead to damages being reduced by the courts. Assumption of Risk While comparative negligence often involves a distribution of liability between the parties, depending on the degree of negligence displayed by either party, an assumption of risk implies no recovery of damages. Consequently, it is important to distinguish between comparative negligence, contributory negligence, and assumption of risk; however, this is often quite difficult. Generally, it is assumed that an assumption of risk is present only when the claimant knows, without reasonable doubt, that the continued use of the product is dangerous but disregards such an obvious danger and continues using the product. An assumption of risk is equivalent to an acceptance of the risks involved when using the product. An acceptance of risk displayed by the claimant exempts the manufacturer and/or seller from his negligence (liability). 29 Product Safety Act, ss 1 and 9. 30 Act on Liability for Damages (Act Number 885 of 20 September 2005), s 24(1). (Release 1 – 2012)
- 124. DEN-16 INTERNATIONAL PRODUCT LIABILITY Product Misuse The claimant’s misuse of a product will not create liability for the manufacturer when the misuse of the product could not have been foreseen by a meticulous and responsible manufacturer. If the claimant’s misuse or mishandling of the product is due to the lack of informative directions for use, the manufacturer will be held liable for product- related damage.31 State-of-the-Art Defense Regarding the state-of-the-art defense, the major problem is not only whether the danger could have been discovered, but also whether it ought to have been foreseen. Conduct by the manufacturer in accordance with general and approved practices by other manufacturers in a similar situation will often constitute the reasonable standard of care that is required in a given situation. In general terms, if there was a reasonable indication that a risk might be present and a thorough investigation could have disclosed the risk, it is likely that the manufacturer will be held liable. Under certain circumstances, the period of time maybe argued to be a defense for the manufacturer, but it will never in itself be a complete defense. If the product-related loss occurs several years after the product was distributed, it may be difficult for the claimant to prove that the damage is due to a fault committed by the manufacturer. It is more likely that the damage suffered is due to wear and tear; in other words, the assumption is that if a product had an existing or latent defect, it would have appeared within a reasonable period of consumption. According to the general law, the claimant has an obligation to minimize any losses. This rule on avoidable consequences implies a defense similar to the defense of comparative negligence. The difference is that instead of a distribution of the liability displayed by either party, the claimant simply is not granted any compensation for that part of the damage that could have been avoided if reasonable steps had been taken to prevent further damage. Disclaimers Subject only to certain exemptions, liability for negligence may be contractually excluded. Such disclaimers must be explicitly worded in order to be accepted by the courts. In principle, it is possible to exclude liability for death, personal injury, and damage to property; in practice, however, the courts only seem to accept such disclaimers to the extent that they are considered reasonable in the specific circumstances taken into consideration. Disclaimers are only effective between contractual parties and will never affect the liability toward any third person. 31 UfR 1923.678. (Release 1 – 2012)
- 125. DENMARK DEN-17 In cases where the parties are in unequal positions regarding the ability to bargain — for example, in the case of a professional dealer and a consumer — the courts have set aside disclaimers. Case law shows a restricted interpretation of disclaimers, which implies that they are only a limited defense. A related issue is whether the manufacturer warned against the specific danger or risk of harm. If the claimant has been made aware of a particular danger, the assessment of the expected safety of the product is modified in the manufacturer's favor32. However, it must be noted that the manufacturer is not able to disguise a disclaimer, which would be invalid under the Product Liability Act, as a general warning. Liability in Chain of Commerce Producers of Component Parts Producers of components are liable under the culpa standard developed by case law. A fault may occur in the course of manufacture of the component parts or spare parts or during control or handling of the component parts. The liability of the producer of component parts corresponds to the liability of a manufacturer. In relation to the consumer, the producer of component parts and the manufacturer will be held jointly liable for any product-related damage that occurs in this context.33 Middlemen Danish law also imposes liability for defective products on so-called ‘middlemen’. A middleman is a person who, in the course of his business, resells products, hires out products, or distributes products in any other way. Consequently, licensors and franchisors will be held liable either as manufacturers or as middlemen. The liability for product-related loss placed on the middleman falls into two categories: liability based on the act or omission of the middleman and liability based on faults committed in previous links of the chain of manufacturing and distribution. A middleman is liable for product-related loss if his handling of the product has resulted in a defective product. As a starting point, a middleman will be liable for product-related loss according to the culpa standard. According to case law, the liability of the middleman is rather strict, especially when the product demands special care or treatment, such as in case of the sale of medicines. However, in relation to the consumer, the middleman also is liable for product- related loss caused by faults committed in previous links in the chain of 32 Ulfbeck, Erstatningsretlige grænseområder (2010), at pp 213 et seq. 33 Kruse, Erstatningsretten (1989), at pp 307 et seq. (Release 1 – 2012)
- 126. DEN-18 INTERNATIONAL PRODUCT LIABILITY manufacturing and distribution. In this situation, even though the middleman has not committed any fault, he is nevertheless held liable for the product-related loss which occurs. The middleman’s liability for product-related damages in this situation is considered to be based on principles of strict liability. One could say that the middleman serves as a guarantor for the manufacturer. Wholesalers and Distributors Wholesalers and distributors are liable for product-related damage under the culpa standard. This implies that the wholesaler and the distributor are liable for negligence committed in their own organization while handling the products. However, according to Danish case law, a professional or commercial wholesaler or distributor in the capacity of a middleman also is held liable for any errors committed in a previous link in the chain of manufacturing or distribution. Remedies Damages are awarded on the basis of the actual loss suffered. The aim is solely to compensate the injured person for the damage, loss, or injuries that have been suffered or incurred. Accordingly, compensation is not awarded in order to punish the responsible party. In case of a criminal offense, such cases are dealt with separately and do not influence the damages awarded in a civil case. In assessing the damages, it is necessary to distinguish between personal injury and damage to property. Personal injury is regulated by statutory law, which is not the case with damage to property. Damages for Personal Injury Assessment of damages for personal injury is regulated by the Liability for Damages Act,34 which fixes the level of damages to be awarded in respect of four relevant elements: the injured person’s pain and suffering; acquired permanent disability; the injured person’s actual losses (medical expenses, health care, and loss of earnings, among others); and future losses (including expected future medical expenses and loss of earnings). Compensation for pain and suffering is awarded for the period that the injured person is ill. The injured person is compensated with an amount of DKK 180 for each day of illness; the maximum compensation is DKK 69,000.35 The award for disabilities is calculated on the basis of a medical statement as to the level of disability. If the injured person has been completely (100 per cent) 34 Consolidation Act Number 885 of 20 September 2005, as amended by Act Number 1545 of 20 December 2006 and Act Number 523 of 6 June 2007. 35 Figures for 2012. (Release 1 – 2012)
- 127. DENMARK DEN-19 disabled, the award will amount to approximately DKK 790,500.36 This amount is reduced proportionally, depending of the level of disability; no damages are awarded to persons with less than 5 per cent disability. For persons 39 years of age or older, the damages are further reduced by 1 per cent; they are further reduced if the person is more than 59 years of age. The injured person’s loss of working ability is compensated if reduced by more than 15 per cent. The calculation is normally based on the injured person’s annual salary multiplied by 10 and with a percentage deduction based on his lost working ability. If, for instance, the injured person’s annual salary amounts to DKK 300,000 and the injured person has lost 25 per cent of his working ability, the compensation can be calculated as follows: 300,000 x 10 x 25 per cent = DKK 750,000 Finally, the injured person’s actual costs (such as medical costs, health care costs, costs for rehabilitation, and similar costs) are fully compensated. Damages for pain and suffering are normally minimal, whereas damages for disability and reduced working ability normally represent the largest portion of the total award. Thus, it is not possible to give a more precise estimate on the likely amount of damages to be awarded, as damages awarded in previous cases have all been based on the individual circumstances. This assessment of damages for personal injury is a simplification of how an award is calculated. A number of other factors will be taken into consideration in assessing the damages arising from a particular accident as a result of the use of a particular product, including whether the injured person is married and/or has dependants, whether he can participate fully in his family life, and emotional or psychiatric disturbance. Damages for Property Loss As regards damages for property loss, case law has shown that direct and indirect losses naturally deriving from the product are fully compensated. When property is damaged or lost, the compensation is fixed at the current purchase price for identical property, but is reduced on the basis of use and age. If the property is only partly damaged, compensation is fixed at the actual expenses for repair. Furthermore, the injured is entitled to compensation for loss of profits and other indirect losses. Compensation for indirect damage is seldom awarded. The reason is that the more indirect the damage becomes, the greater the tendency of the courts to raise the burden of proof with respect to indirect loss. Consequently, it is unlikely that damages will be awarded for losses indirectly deriving from a defective product. 36 Figures for 2012. (Release 1 – 2012)
- 128. DEN-20 INTERNATIONAL PRODUCT LIABILITY The total loss is compensated unless specific circumstances are present, such as contributory liability and assumption of risk. Damages are assessed discretionary by the court and awarded as a lump sum. Due to the principle of free evidence and the fact that the courts consider all relevant circumstances, it is difficult to give a precise calculation of the likely amount of damages that might be awarded, as previous cases are seldom used as precedents. Limitations Contractual Limitations The principle of party autonomy is highly accepted and express agreements on limitation of claims are valid. Such limitations, however, will not affect the claims by any third person having suffered a product-related loss. In certain circumstances, a court will set aside the parties’ agreement on limitation, especially if the parties have been in unequal bargaining positions. Statute of Limitations According to the Act on Limitations,37 the general statutory time bar is three years, calculated from the date on which the claim fell due, which is from the day of the incident causing the damage or from the day the injured person had or ought to have had knowledge of the incident. Along with the three-year time bar, a 10-year limitation period for damages for property loss and a 30-year limitation period for damages for personal injury runs from the time at which the claim was founded, which is the time at which the damage occurred. A three-year time bar also applies in product liability cases, calculated from the date the injured knew or ought to have known that a product-related loss had occurred,38 although the three-year time bar can be suspended. The three-year time limitation applies equally to liability under the Product Liability Act as to liability for product-related damage not covered by the Act.39 Along with the time bar of three years, a limitation period of 10 years runs from the time when the manufacturer placed the product into the stream of commerce.40 This 10-year limitation period does not apply to liability outside the scope of the Act. 37 Act Number 522 of 6 June 2007. 38 Product Liability Act, s 14(1). 39 Judgment of the Eastern Division of the High Court, B-1098-04. 40 Product Liability Act, s 14(2). (Release 1 – 2012)
- 129. DENMARK DEN-21 Successor Liability When dealing with the subject of extension of liability for defective products to corporate successors, the following substantial issue that should be considered is ‘who has manufactured the defective product, and is the corporate successor the same legal entity or has a new legal entity been founded?’ If the manufacturing company and the corporate successor are the same legal entity, the liability for defective products is extended to the corporate successor. The purchase of shares in a company does not change the legal status of the entity. Consequently, there is no question of extension of liability, as the manufacturing company alone is liable. In the case of a merger between a manufacturing company and another continuing company, the continuing company will be liable for defective products manufactured by the manufacturing company. The acquisition of assets from a company does not extend the liability for defective products to the corporate successor as regards products marketed and sold before the date of the acquisition, unless specifically provided for. Insurance In General In recent years, product liability has become of growing relevance, although the concept has been known for several decades. As a direct and natural consequence, the importance of insurance in product liability matters has increased accordingly. In Denmark, most insurance companies offer a combined public and product liability insurance, the conditions of which are based on the general conditions of combined commercial and product liability insurances prepared by Skafor (the Association of Danish Non-Life Insurance Companies) and Industrirådet (the Federation of Danish Industries) in 1987. Insurance companies are not legally obliged to use these general conditions as the basis of their insurance but, in practice, all major insurance companies do so. Ten years ago, only the largest industrial companies were aware of product liability matters. This has changed, however, during the last five to ten years; today, most companies and/or private enterprises have effected insurances covering product-related damage. The usual extent of cover will be discussed in the next subsection. Public and product liability insurance is usually effective for a period of one year. The insurance may be canceled by either party, giving one month’s written notice, to expire on the principal due date. In the absence of any such notice of cancellation, the insurance will automatically be renewed for a period of one year. (Release 1 – 2012)
- 130. DEN-22 INTERNATIONAL PRODUCT LIABILITY Furthermore, it is a general condition that any dispute concerning the contract of insurance will be settled according to Danish law and by Danish courts. The most common public and product liability insurance alternatives and standardized exclusion alternatives are: • Combined public and product liability insurance, including product liability cover for objects which have been treated, processed, or prepared by the insured and including cover for loss or damage to ingredients and components; • Combined public and product liability insurance, excluding product liability cover for objects which have been treated, processed, or prepared by the insured but including cover for loss of or damage to ingredients and components; • Combined public and product liability insurance, excluding product liability cover for objects which have been treated, processed, or prepared by the insured and excluding cover for loss of damage to ingredients and components; and • The alternatives mentioned under the first two items may, furthermore, exclude cover for loss of property (contrary to damage to property) with respect to ingredient and component damage. Some insurance companies combine public and product liability insurance with other insurances, such as professional liability insurance. Various standardized or specific exclusion alternatives may be agreed upon under the specific insurance. Furthermore, the coverage may be extended and/or individualized in accordance with the specific risks and the specific demands of the insured. Such individual conditions will not be further discussed in this chapter. Usual Extent of Cover According to the general conditions of the combined public and product liability insurance, the insurance covers the insured and any person engaged in the service of the insured. The insurance covers the liability of the insured in respect of personal injury or damage caused by or arising out of the product or services of the insured after they have been distributed or performed. Cover will be provided only if such personal injury or property damage is caused in the course of the business described in the policy by products or services specified in the policy. However, certain liabilities are excluded from the coverage of the insurance, the most important of which are: • Loss of or damage to the product or service in question; • Loss or damage caused by products or services which are used in the operation of any aircraft or in offshore installations; • Loss of or damage to property belonging to the insured; (Release 1 – 2012)
- 131. DENMARK DEN-23 • Loss of or damage to property being in the care, custody, or control of the insured, such as borrowed or hired property; • Loss of or damage to property which the insured is treating, processing, or preparing, if such loss or damage occurs during the performance of the task; 41 • Loss of or damage to property caused by or resulting from any earth, water, or demolition work undertaken by the insured; or • Loss of or damage to property caused by or resulting from the insured’s use of explosives. Furthermore, the insurance does not cover liability for any pecuniary or financial loss not being a result of personal injury or property damage covered under the insurance. The insurance also does not cover certain types of pecuniary or financial losses (fines or the like, including punitive damages), even if such losses are a result of personal injury or property damage covered under the insurance. Consequential losses, loss of time, loss of profits, or similar types of indirect losses are only covered under certain specified conditions. In addition, the insurance covers the insured’s liability for loss of or damage to: • Property which the insured’s product or service has been made a part of, mixed with or worked into, joined with, used as packing for, or has otherwise been connected with; • Property which the insured’s product or service has been worked up for, used for the working up of, or as feed for; and • Property which the insured’s product or service is used to manufacture, process, or otherwise treat. These three items are collectively referred to as ‘ingredients and components liabilities’. Although damage to ingredients is not defined as a product-related loss, such damage is thus covered by the general conditions of the product liability insurance. With respect to ingredient and component damage, the coverage is limited to include the insured’s liability for any direct loss incurred as a result of the insured’s product or service. Cover will be provided only in respect of the decrease in value of the manufactured or processed object, any further manufacturing or processing costs, or the actual costs of repairs. Other costs or losses will not be covered. In addition, product liability policies contain special provisions regarding liability for serial loss. The insurance is geographically limited as stated in the policy. However, under certain circumstances, injury or damage occurring outside the geographic territory will be covered by the policy. This exception is particularly aimed at 41 Compare with the duties of the insured listed in the subsection ‘Duties of the Insured’, below. (Release 1 – 2012)
- 132. DEN-24 INTERNATIONAL PRODUCT LIABILITY products or services that have been taken outside the geographic limits for non- commercial, private reasons. The insurance covers claims advanced against the insured during the period of insurance. Any claims advanced must be notified to the insurer immediately and no later than three months after expiry of the insurance policy. The insurance does not cover losses ascertained before the inception date stated in the policy. Usually, the insurance contains exceptions regarding liabilities covered by other insurances. The insurance does not cover liability caused by the insured with malicious intent or as a result of incompetence or gross negligence. The liability is always limited as stated separately in the policy, the maximum limit for the insurer’s liability being the liability in respect of claims advanced in any one insurance year. The limits of liability in insurances effected by small and medium-sized companies are usually between DKK 10,000,000 and DKK 20,000,000. The limits of liability in insurances effected by larger companies vary from DKK 10,000,000 to several hundred million Danish kroners. Usual Exclusions The commonly known exclusion alternatives are exclusion of cover for loss of or damage to ingredients and components; exclusion of cover for objects which have been treated, processed, or prepared by the insured; and exclusion of cover for loss of (contrary to damage to) ingredients and components. Each of the exclusion alternatives may be effected either by inserting a provision in the policy, stating that the relevant section of the general conditions will not apply and that the liability in question will not be covered by the insurance, or simply by redrafting the relevant section in the general conditions. Exclusion of cover for loss of or damage to ingredients or components is commonly effected by companies which are not manufacturing, marketing, and/or selling products or services which are likely to be made part of, mixed with, used as packing for, or otherwise connected with other property, used as feed, or used in the manufacturing, processing, or other kinds of treatment of property. Exclusion of cover for product liability for loss of or damage to processed or prepared property is typically effected by companies not offering such services within their main field of business. Moreover, it is often seen that companies want to exclude coverage for loss of (contrary to damage to) property, as such coverage is often quite expensive. The distinction between loss of and damage to can be illustrated as follows: if, for instance, an ingredient (flour) of bread does not have the right consistency, the bread may become too heavy, which causes the bread to be sold at a reduced price. In such cases, the final product has not been damaged, as it can actually be sold. The baker, however, has suffered a loss, as the bread cannot be sold at the full price and this loss will not be covered by the insurance, if this exclusion alternative has been effected. On the other hand, if it was not possible to sell the bread (for instance, because the flour was poisoned), then the bread was damaged (Release 1 – 2012)
- 133. DENMARK DEN-25 and such damage would be covered by the insurance, despite the exclusion. According to information received from some of the major insurance companies, approximately 50 per cent of all product liability insurances exclude cover for such loss. Duties of Insured Various duties are incumbent on the insured. If, for instance, a change occurs which alters the risks specified in the policy, the insured must give immediate notice to the insurer of such change. Furthermore, the insured must give immediate notice to the insurer of any claim advanced against the insured or in case there is reason to expect any claim to be advanced. Finally, the insured is not entitled to make any admission, offer, promise, or indemnity without the consent of the insurer. Product Liability Litigation Frequency of Litigation Only a few court decisions concerning product-related loss have been published. Most cases dealing with the subject of product-related damage have either been settled before an action has been issued or before the court has been able to evaluate the evidence and circumstances of the particular case. Another reason for the small number of published court decisions may be that contracting parties in commerce very often agree on arbitration. Arbitral tribunals' awards are usually not published and the results are therefore not known to anyone except the parties involved. Attitude of Courts Case law seems to express a tendency to recognize liability for product-related loss based on the culpa standard, often with a reversed burden of proof, which implies a liability close to a strict liability. In one case, the Supreme Court stated that a Danish company was liable for industrial injuries, including personal injuries to former workers that are caused by asbestos fiber in the production process. The liability for product-related damage was clearly based on strict liability.42 At the moment, it is still too early to say that liability for product-related damage under the case law is based on strict liability, as it is not yet known if this decision will be used as a precedent in later cases outside the area of industrial injuries. The tendency to establish responsibility based on strict liability may be expected to be more marked in the future, partly because of the influence of the case referred to above and partly because the provisions of the Product Liability Act 42 UfR 1989.1108. (Release 1 – 2012)
- 134. DEN-26 INTERNATIONAL PRODUCT LIABILITY that stipulate strict liability for product-related loss within the private consumers’ area also are expected to influence the assessment of liability for product-related damage in the fields of law outside the Act. Lawyers’ Compensation In general, lawyers are compensated regardless of the result of the case brought before the court. Usually, lawyers’ fees are assessed in accordance with the guiding tariffs stipulated by the Danish Lawyers Association (Det Danske Advokatsamfund), unless the fees have been agreed between the lawyer and the client. The Danish Lawyers’ Association is an association of which all Danish lawyers are compulsory members. In cases concerning claims of an amount between DKK 50,000 and DKK 200,000, the fee will range between approximately DKK 10,000 and DKK 50,000; for claims between DKK 200,000 and DKK 500,000, the fee will range between approximately DKK 20,000 and DKK 70,000; for claims between DKK 500,000 and DKK 1,000,000, the fee will range between approximately DKK 40,000 and DKK 100,000; for claims between DKK 1,000,000 and DKK 2,000,000, the fee will range between approximately DKK 60,000 and DKK 150,000; and for claims between DKK 2,000,000 and DKK 5,000,000, the fee will range between approximately DKK 100,000 and DKK 300,000. For claims exceeding DKK 5,000,000, the fee will be decided based on an overall assessment of the circumstances of the case. However, as a general rule, the fee will be approximately 3 per cent to 4 per cent of the claimed amount. However, it is very common that the lawyer and his client agree on hourly-based fees. Fees based on a lump sum also are possible, but are usually not seen in product liability litigation. In principle, Danish lawyers may not agree to a salary based on a contingency fee. However, fees that are inequitable are reduced accordingly. Agreements on contingency fees are very seldom seen in Danish litigation. In general, the unsuccessful party must compensate the other party for his costs, including lawyers’ fees and any other expenses necessary for the proper conduct of the case. In practice, the legal costs are seldom compensated in full. Choice and Application of Law There are no statutory rules in Danish law regulating the choice of law when dealing with product liability. According to Danish private international law, the principal choice-of-law rule regarding claims for economic compensation is, in general, assumed to be the law of the site of the wrongful act. Presumably, the Danish courts will evaluate all elements in the overall situation, such as the residence of the claimant, lex delicti, or the site of purchase, as means of determining the applicable law. (Release 1 – 2012)
- 135. DENMARK DEN-27 In a typical situation, the consideration will lead to an application of the law of the claimant’s residence, provided the defective product is marketed and sold there. This implies that in the case of an injury arising in Denmark caused by a product marketed and sold in Denmark, the choice of law will be Danish law.43 Conclusion Under Danish law, product liability is defined as the producer’s liability for product-related damage caused to a customer by a defective product he has produced or manufactured. Until the enactment of the Product Liability Act, which implemented the Product Liability Directive, the basis for this liability was the law governing torts, which is not codified in a single statute but has developed from case law. The Product Liability Act is not intended to replace the law on torts and the existing laws on product liability, but to complement these statutes. To seek remedies against product liability actions, the claimant must prove that the defect in the product is due to the producer’s negligence. The obligations between a purchaser and seller in sales of goods are governed by the Danish Sale of Goods Act, as amended. The Act only governs damage to the ingredients of product that are sold; as such damages are not considered product-related, the Act does not contain any provisions on product liability. However, the existence of a contract between the purchaser and seller is relevant, because a contractual relationship may limit or eliminate product liability. Product liability may not be limited or eliminated under the Product Liability Act. In terms of causation, the basic rule of law is that the claimant has to prove that the product is defective, that the producer or manufacturer has demonstrated negligence, that a loss has been incurred, and that there is causation between the defective product and the loss incurred. As there are no rules to establish the standard of proof that a claimant or defendant must meet to prove his case, the courts have freedom to evaluate the evidence on a case-by-case basis to determine whether the burden of proof has been met. 43 Philip, Dansk international privat og procesret, 2nd ed (1976). (Release 1 – 2012)
- 137. England and Wales Introduction ............................................................................................ ENG-1 Basis of Manufacturer’s Liability .......................................................... ENG-1 In General ................................................................................ ENG-1 Negligence ............................................................................... ENG-1 Fraud or Misrepresentation ...................................................... ENG-2 Warranty .................................................................................. ENG-2 Strict Liability in Tort .............................................................. ENG-3 Concept of Defect .................................................................................. ENG-4 In General ................................................................................ ENG-4 Manufacturer’s Obligations to Warn Consumers or Recall Defective Products ................................................................... ENG-5 Defenses Available to the Manufacturer ................................................ ENG-5 Defenses under the Consumer Protection Act ......................... ENG-5 Product Misuse ........................................................................ ENG-5 State-of-the-Art Defense .......................................................... ENG-6 Producers of Component Parts ................................................ ENG-6 Contributory Fault ................................................................... ENG-6 Causation ................................................................................. ENG-7 Examples of Strict Liability for Products ............................................... ENG-7 Contractual Liability of Distributors ...................................................... ENG-9 Fraud or Misrepresentation ...................................................... ENG-9 Contractual Liability for Warranty .......................................... ENG-10 Implied Satisfactory Quality or Fitness for Purpose ................ ENG-10 Remedies ................................................................................................ ENG-13 Personal Injury Damages ......................................................... ENG-13 Punitive Damages .................................................................... ENG-14 Emotional Distress ................................................................... ENG-14 Economic Loss and Cost of Repair .......................................... ENG-15 Return or Repair ...................................................................... ENG-15 Enforcement of Remedies ........................................................ ENG-16 Exclusion or Limitation of Liability ...................................................... ENG-16 Statute of Limitations ............................................................................. ENG-17 Corporate Successor Liability ................................................................ ENG-18 Product Liability Insurance ................................................................... ENG-19 Availability of Insurance ......................................................... ENG-19 (Release 1 – 2012)
- 138. Nature of Policy and Usual Extent of Cover............................ ENG-19 Usual Exclusions ..................................................................... ENG-20 Product Liability Litigation .................................................................... ENG-20 Role of Courts and Lawyers .................................................... ENG-20 Where to Sue and Which Law to Apply .................................. ENG-21 Product Safety Legislation and Prosecutions by Trading Standards Officers .................................................................................. ENG-22 Conclusion ............................................................................................. ENG-23 (Release 1 – 2012)
- 139. England and Wales Peter Burbidge, Barrister Senior Lecturer, University of Westminster London, United Kingdom Introduction It should be stressed initially that the United Kingdom is made up of three separate legal systems: those applying in England and Wales (a single jurisdiction), in Scotland, and in Northern Ireland. Although the liability for defective products is subject to essentially the same rules in each jurisdiction, the procedures in the courts may be different. For this reason, this chapter is confined to the law as applied in England and Wales. Basis of Manufacturer’s Liability In General Except in relation to his direct purchaser, a manufacturer’s liability rests on tort. There are three possible sources of tort liability for producers. These are liability for negligence under common law, strict liability under Part I of the Consumer Protection Act 1987, and liability for breach of statutory duty imposed by criminal legislation, such as the product safety rules issued under Part II of the Consumer Protection Act 1987. Negligence Product liability under English law is classified as a tort, as there is usually no contract between the manufacturer and the end user or person injured. Under common law, liability was based on negligence under the case of Donoghue v Stevenson,1 which imposed a duty on manufacturers to take reasonable care in the production of products whenever they could foresee harm from the product. This duty is owed to those suffering foreseeable damage even if they are not the end user or ultimate purchaser. Until the introduction of strict liability for products in 1987, the end purchaser would normally prefer to sue the seller in contract, as liability in this area is strict (further discussed in the subsection ‘Strict Liability in Tort’). The liability of the producer for negligence at common 1 Donoghue v Stevenson [1932] AC 502. (Release 1 – 2012)
- 140. ENG-2 INTERNATIONAL PRODUCT LIABILITY law is, however, confined to physical damage to other property or injury to persons and the financial losses that result from them. It thus does not cover foreseeable purely financial loss to a consumer who has to repair the product or suffers expenses when the product breaks down.2 Fraud or Misrepresentation Although it is possible for a manufacturer to be liable for fraud or misrepresentation (eg, by inducing purchasers to buy the product by making false claims about its properties), this is not considered the basis on which product liability is imposed on those who suffer damage or injury. Such statements, as they relate to the expected level of safety, will be an element in determining whether the product is defective under Section 3 of the Consumer Protection Act 1987 (further discussed in the section ‘Concept of Defect’); however, they are not the basis for imposing liability. Warranty Express Warranty In some cases, the manufacturer will issue an express warranty (guarantee) with the product, which will amount to a contract with the end user. It is generally recognized that the English requirement of consideration for contractual promises is satisfied by the buyer’s decision to buy the product and thus obtain the guarantee. The extent of the guarantee is likely to be restricted and will usually only cover the cost of repairs to the product. It will be interpreted according to its terms and will not in itself give rise to liability if the product causes damage. It cannot, however, reduce the consumer’s own rights against the seller in contract or the manufacturer in tort (further discussed in the subsection ‘Contractual Liability for Warranty’). Implied Contract English law does not recognize any implied contract between the manufacturer and the ultimate consumer of the product (assuming, of course, that the consumer did not buy directly from the manufacturer). Implied Satisfactory Purpose or Fitness for Purpose The vendor of a defective product may, of course, be liable in contract to his purchaser for breach of certain implied contractual terms imposed by the Sale of Goods Act 1979. 2 Anns v Merton [1970] AC 728. (Release 1 – 2012)
- 141. ENGLAND AND WALES ENG-3 These terms strictly guarantee satisfactory quality3 and fitness for purpose,4 but this liability is only to the other contracting party (further discussed in the section ‘Contractual Liability of Distributors Down the Chain’). Impact on Third Parties In general, these implied terms only benefit the other contracting party. The Contracts (Rights of Third Parties) Act 1999 does allow third parties to sue on contracts to which they are not a party, but only when they are identified as the beneficiary under the contract. This means that consumers generally may not be able to sue the manufacturer for breaches of satisfactory quality in its contract of sale to a retailer, as they will not be named in that contract as beneficiary, either individually or as a class. For example, in the case of Avraamides v Colwell (BTC), 5 the Court of Appeal refused to allow a claim by a subsequent purchaser of a house for defective building work carried out under a contract with the previous owner. However, a third party who is injured by the product or suffers damage to his property can, in any case, rely on the strict product liability in tort under the Consumer Protection Act 1987 enacting the European Union (EU) Product Liability Directive 1985.6 Strict Liability in Tort Since the enactment of the EU Product Liability Directive in 1987, it is no longer necessary to show negligence by the producer.7 Provided that the product has been shown to be defective and the defect caused injury or damage to private property (not to the product itself), the producer is strictly liable to the victim and should have insurance to cover this.8 Section 1 of the Consumer Protection Act 1987 defines the ‘producer’ as the person who manufactured the product or, in the case of raw materials, the person who won or abstracted it. 3 Sale of Goods Act 1979, s 14(2). The original terminology in the Sale of Goods Act 1893, s 14, of ‘merchantable quality’ was replaced by ‘satisfactory quality’ in the 1979 Act by virtue of amendments introduced by the Sale and Supply of Goods Act 1994. It was thought the new term would be more easily understood by consumers. 4 Sale of Goods Act 1979, s 14(3). 5 Avraamides v Colwell (BTC) [2006] EWCA Civ 1533. 6 Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations, and administrative provisions of the Member States concerning liability for defective products, OJ 1985 L 210/29. 7 Consumer Protection Act 1987, s 2. 8 Damage must be to private property, not business property. Under the Consumer Protection Act 1987, s 5(4), there is a threshold of £275 before strict liability is imposed for property damage. (Release 1 – 2012)
- 142. ENG-4 INTERNATIONAL PRODUCT LIABILITY For agricultural products, the Consumer Protection Act 1987 imposed strict liability only on those who put the produce through an ‘industrial process’. However, regulations in 2000 extended liability to cover farmers growing or rearing food produce.9 As well as the producer, strict liability also may attach to those who hold themselves out as producers.10 Thus, for example, a supermarket with its ‘own brand’ of products should be liable under the Act, as the real producer’s name is not mentioned. By the same token, liability may attach to the owner of intellectual property rights who licenses another to produce the goods in his name. The licensor here will be liable to the victim under Section 2(2)(b) of the Consumer Protection Act 1987, but will usually be able to recover an indemnity from the licensee for breach of contract. When the product is produced outside the EU or European Economic Area (EEA), the importer is strictly liable in accordance with the EU Product Liability Directive.11 Suppliers also may be liable if they fail to identify the producer or the supplier up the chain. Concept of Defect In General For liability under the Consumer Protection Act 1987, the product must be defective in that the product’s safety is not such as persons generally are entitled to expect.12 If it does not meet this standard, it will be considered defective. Safety is judged in terms of risks to property as much as risks of injury, and includes the safety of products or parts comprised in the product. Section 3(2) of the Consumer Protection Act 1987 makes it clear that persons would generally take into account all the circumstances when determining the safety they are entitled to expect, but these factors include the manner and purposes of marketing and the use of marks, instructions, and warnings with respect to doing things in relation to the product. Thus, determining whether a product is defective and will therefore attract strict liability under the Consumer Protection Act 1987 will include elements of defective manufacturing, defective marketing, and defective design. What might reasonably be expected to be done to the product is clearly relevant, as also is the time when the product was supplied by the producer, as the general level of product safety may improve with time. 9 Consumer Protection Act 1987 (Product Liability) (Modification) Order 2000 (SI 2000/2771), giving effect to Directive 1999/34/EC extending product liability to primary agricultural products and game. This extension is permitted by the 1985 Product Liability Directive. 10 Consumer Protection Act 1987, s 2(2)(b). 11 Consumer Protection Act 1987, s 2(2)(c). 12 Consumer Protection Act 1987, s 3. (Release 1 – 2012)
- 143. ENGLAND AND WALES ENG-5 Manufacturer’s Obligations to Warn Consumers or Recall Defective Products As the manufacturer will be liable for damage caused by defects, he clearly has a duty to recall a defective product before it causes injury. As stated previously, warnings are part of the concept of defect, as the product must meet the level of safety that the public generally is entitled to expect. This does not mean, however, that the producer needs to warn a consumer about risks which should be obvious to him (eg, that he might be scalded by hot coffee, as further discussed in the Bogle v McDonalds case in the section ‘Examples of Strict Liability for Products’). Recalls need to be effectively communicated to all users as quickly as possible. Since October 2005, Local Authority trading standards departments have had power to order the complete recall of dangerous products under Regulation 14 General Product Safety Regulations 2005 (S.I. 1803/2005), enacting EU Directive 2001/95/EC (further discussed in the section ‘Product Safety Legislation’). All product recalls are published on a daily basis on the website of the Trading Standards Institute.13 Defenses Available to Manufacturer Defenses under the Consumer Protection Act The manufacturer is primarily concerned with strict liability under the Consumer Protection Act 1987. Certain defenses are allowed under Section 4 of the Act. These include compliance with legislation or that the defect did not exist in the product at the time the product was supplied. ‘Supply’ here has to be in the course of business. The manufacturer will usually argue (as the defendant successfully did in Piper v JRI, which is further discussed in the section ‘Examples of Strict Liability for Products’) that the defect did not exist in the product at the time the product was supplied. This will rest entirely on the judge’s interpretation of the expert evidence. Product Misuse In some cases, the manufacturer may argue that the defect was caused by product misuse (as, for example, in Ide v ATB Sales, discussed in the section ‘Examples of Strict Liability for Products’), but he has to prove this on the balance of probabilities. If he cannot, it will be assumed, as in the case of Ide, that the defect was there when the product left the factory. It is not up to the victim to show that a product 13 At http://www.tradingstandards.gov.uk/advice/advice-recall-list.cfm. (Release 1 – 2012)
- 144. ENG-6 INTERNATIONAL PRODUCT LIABILITY was defective when it left the factory, still nor he establish what actually caused the defect. State-of-the-Art Defense The defendant also can argue the ‘development risks’ or ‘state-of-the-art’ defense, which is: ‘that the state of scientific and technical knowledge at the relevant time was not such that a producer of products of the same description might be expected to have discovered the defect if it had existed in his products while they were under his control.’14 Clearly, the tests for defects may improve over time. However if, as in Abouzaid (further discussed in the section ‘Examples of Strict Liability for Products’), the court accepts that the tests used by the defendant for detecting defects in the particular product had not been improved upon by subsequent developments, this defense is unlikely to work. Producers of Component Parts Producers of parts can escape liability if any resulting defect was wholly attributable to the design of the final product or compliance with instructions from that producer.15 If the entire cause of the defect is not down to the final producer, the producer of the part will be at least partly liable. In this situation, the producers may each be considered jointly liable for the whole amount of the claimant’s damage, but under the Civil Liability (Contribution) Act 1978, the person paying can recover a contribution from the other. The amount of the contribution is determined by what is just and equitable having regard to that person’s responsibility for the claimant’s losses.16 If only one producer is sued, he can join the other to the action as a third party in order to recover the appropriate contribution or indemnity. For those supplying defective spare parts, there may, in any case, be a contractual duty to indemnify the final producer. Contributory Fault When the claimant is at least partly to blame for the injuries he suffers, the defendant to any claim in tort, whether for strict liability or negligence, can use the defense of contributory negligence. Examples might be the way the consumer misused the product, his failure to heed recalls or warnings, or his unreasonable failure to have the defect repaired, or his failure to wear protective 14 Consumer Protection Act 1987, s 4(1)(e). 15 Consumer Protection Act 1987, s 4(1)(f). 16 Civil Liability (Contribution) Act 1978, s 2. (Release 1 – 2012)
- 145. ENGLAND AND WALES ENG-7 equipment that would have reduced injury (eg, a helmet for a motorcyclist or a safety belt for a car passenger). The claimant in these situations will suffer a reduction in damages according to what the court considers just and equitable having regard to the claimant’s share in the responsibility for the damage.17 If the claimant is considered wholly to blame, the reduction may be as much as 100 per cent, which is tantamount to saying that the defect did not cause the injuries. There is, in any case, a defense of volenti non fit injuria (voluntary assumption of risk), but this is indistinguishable from the argument that the claimant was 100 per cent to blame. Notably, the notion of a ‘defect’ under the Consumer Protection Act 1987 takes account of what might reasonably be expected to be done by the user, and a product which is safe when properly used may not actually be ‘defective’. English law also requires claimants to take reasonable steps to mitigate any loss they have suffered; therefore, unreasonable failures to seek treatment or employment may result in reductions in the damages that are recoverable. Accordingly, in principle, medical developments caused by the failure to undertake reasonable treatment or lost earnings caused by the failure to take reasonable employment are not recoverable. Causation The issue is whether the claimant has proved, on the balance of probabilities, that the defective product caused the injury or damage. Damage does not have to be due to the proximate cause, so long as, on the balance of probabilities, the claimant can show that he would not have suffered the damage or injury but for the defective product. Examples of Strict Liability for Products The following examples will suffice to illustrate the application of the rules about strict liability for products in England. In Abouzaid v Mothercare,18 the English Court of Appeal ruled that a fleecy-lined sleeping bag for a child’s pushchair sold in 1990 was ‘defective’ under the Consumer Protection Act and thus gave rise to strict liability, despite the fact that there was no negligence at common law. The claimant, aged 12 years, was injured by an elastic strap which flew out of her hand and caught her in the eye as she was fastening it around her younger brother. The defendant did not know of the defect and argued the ‘development risks’ defense (previously discussed in the subsection ‘State-of-the-Art Defense’), but the court ruled that the safety tests existing in 1990 were exactly the same as 17 Under the Law Reform Contributory Negligence Act 1945. Before this Act, any contributory negligence by the claimant would have fully defeated his claim. 18 Abouzaid v Mothercare (UK) Ltd [2000] All ER (D) 2436. (Release 1 – 2012)
- 146. ENG-8 INTERNATIONAL PRODUCT LIABILITY those in 2000, so the failure to use the available tests at the time meant the defense was inapplicable. In Bogle v McDonalds,19 a group of claimants who had been burnt by hot drinks argued that the defendants were negligent or liable under the Consumer Protection Act for the state of the thermal cups in which they were served their drinks. The claims were rejected, as the cups were adequately designed and made and the users would be expected to know that the drinks were hot. The safety of the cups met the public’s legitimate expectations as to general safety, as the public would expect scalding to result from a spillage and should take care in relation to this. Mr. Justice Field rejected all arguments that the coffee or tea could be served at safe temperatures, as serving drinks at 70 degrees (as the claimants suggested) would have impaired the flavor and would not have made users safe from burns. There was thus neither negligence nor strict liability under the Consumer Protection Act. Many cases will hinge on the issue of whether the product was defective and whether the defect caused the damage. This is a matter for evidence, with the judge having to determine on the balance of probabilities whether the defect existed at the time of supply and whether it caused the damage. Very often, this will be a matter for expert evidence. Although English civil procedure rules encourage the parties to agree on a single expert, it is still normal for each party to call their own expert witnesses, each party’s expert putting forward his own competing explanation of how the event occurred. In Ide v ATB Sales,20 the Court of Appeal had to deal with an appeal from a producer (an importer into the EU) who had been held strictly liable for a defect. Ide had been injured when he fell off his mountain bike. The alternative explanations (supported by experts) were that the handlebar had fractured because of a defect, causing him to fall (according to the plaintiff’s witness) or that he had lost control and the handlebar had fractured on hitting the ground (according to the defendant’s witness). Once the judge had rejected the possibility that the handlebar had fractured in the fall as unlikely, he was entitled to infer that it was probably defective, as it had failed whilst being put to its normal use as a mountain bike. As the Court ruled in this case, the Act merely requires the judge to determine that the product was defective; it is unnecessary to ascertain the exact cause of the defect. In this case, the suggestion by the claimant’s expert that there had been a hairline fracture was a secondary issue regarding the cause of the defect; the primary issue was that a defect existed, for which the manufacturer was liable. 19 Bogle v McDonalds Restaurants Ltd [2002] EWHC 490 (QB), Field J. 20 Alan Peter Ide v ATB Sales Ltd [2007] EWHC 1667 (QB). (Release 1 – 2012)
- 147. ENGLAND AND WALES ENG-9 The case of Toyota v Russell,21 although concerned with contractual liability, raised similar issues. The car concerned had caught fire while being serviced in a garage, and three possible explanations were put forward: that it was due to an arson attack, or that it was due to a defect either in the car’s electrics or in the wiring inserted by the garage. Having eliminated arson, the judge had to decide between the other explanations, neither of which was improbable. On the basis of the evidence, including eye-witness evidence, the judge decided (as the Court of Appeal concluded he was entitled to) that the defect was more likely to have been in the car’s electrics. By contrast, in Piper v JRI,22 a claimant failed in his appeal against a ruling that the prosthesis used in his hip replacement was not defective. The prosthesis had sheared in two and had to be removed and replaced, resulting in significant loss of mobility. In this case, the judge accepted evidence that any imperfections during machining or polishing of the prosthesis would have been detected in the final inspection process. Hence, the product was not defective when it left the defendant’s factory and the defendant had proved, on the balance of probabilities, the defense under Section 4 of the Consumer Protection Act. Contractual Liability of Distributors Fraud or Misrepresentation Usually, liability for misrepresentation arises only in relation to contracts. Thus, if the manufacturer makes representations (even without fault), which influenced the party that purchased from him (eg, a wholesaler, retailer, or distributor) to purchase the goods, that purchaser may rescind the contract once he discovers the truth of the matter. Assuming the purchaser has not lost this right by unreasonable delay, or the inability to restore the previous position (make restitutio in integrum), the court can award damages in lieu of rescission if it thinks this is more equitable. Rescission is a right which exists in the rules of equity derived from case law. If the statement is negligent or fraudulent, the purchaser will be entitled to damages for any losses; this measure is intended to put the purchaser back in the position he was in before the contract.23 When claiming for negligent misrepresentation, the burden is on the seller to show he had reasonable grounds for believing the truth of his statement.24 When the person claiming has no direct contract with the manufacturer, he should still be able to claim for fraudulent statements in the literature about the product and 21 Lexus Financial Services (T/A Toyota Financial Services (UK) PLC) v Sandra Russell [2008] EWCA Civ 424. 22 Terence Piper v JRI (Manufacturing) Ltd [2006] EWCA Civ 1344. 23 Common law only recognized damages for deceit. The Misrepresentation Act 1967, s 2(1), provides that negligent misrepresentation will give rise to damages assessed as if they were for deceit. 24 Misrepresentation Act 1967, s 2(1). (Release 1 – 2012)
- 148. ENG-10 INTERNATIONAL PRODUCT LIABILITY perhaps even for negligent statements, although, because the contract is not with the manufacturer, succeeding in the claim on the basis of case law is less likely. Contractual Liability for Warranty If the manufacturer gives an express warranty with the product, this will usually amount to a contract with the end user who buys in reliance on the warranty. The warranty, however, is often limited to repairs covering the costs of spare parts and perhaps labor and thus may not cover the full losses that result from the defect. The consumer may well have better rights against the seller under the Sale of Goods Act, as discussed in the following subsection. Any warranty or guarantee given by the manufacturer can only add to these rights for consumers but cannot reduce them. When the claimant is a consumer, restrictions on rights under the Sale of Goods Act will be void by virtue of Section 6 and Section 4 of the Unfair Contract Terms Act 1977. Implied Satisfactory Quality or Fitness for Purpose The Sale of Goods Act provides for implied conditions of satisfactory quality25 and fitness for purpose.26 Every sale of goods by businesses contains an implied term that the goods are of satisfactory quality ⎯ the standard being that which one would reasonably expect, taking into account the relevant circumstances. The quality of the goods is specifically stated to include their state and condition and the aspects (amongst others) of satisfactory quality, fitness for purpose, appearance and finish, freedom from minor defects, and safety and durability. The concept is thus wide enough to include elements of faulty design or exaggerated expectations in the marketing literature, as well as defects in manufacture. Liability under the Sale of Goods Act is a strict term, which is not dependent on whether the seller should have been aware of the defect. Hence, if a consumer is injured by a defective product, he can always recover full damages from the retailer by relying on the strict contractual liability under the Sale of Goods Act and leave it to the retailer to sue his supplier for breach of contract. As a condition, the buyer has the right to terminate the contract and recover his price, provided he has not accepted the goods.27 The buyer will be treated as accepting the goods if he fails to take action within a reasonable time from the point when he should have discovered the defect. Thus, in the case of latent 25 Sale of Goods Act, s 14(2). 26 Sale of Goods Act, s 14(3). 27 Sale of Goods Act, s 11(4). A “condition” is essentially a fundamental term of the contract as opposed to a “warranty”, which is only minor or ancillary to its main purpose. (Release 1 – 2012)
- 149. ENGLAND AND WALES ENG-11 defects which could not have been discovered for some time, the buyer may be able to reject the goods several months after the actual purchase. In Rogers v Parish,28 a Range Rover vehicle had serious faults from the point of delivery, although it was driven for more than 5,500 miles. Despite having a manufacturer’s warranty providing for repair, the Court nevertheless ruled that the buyer was entitled to reject the vehicle after two months’ use. In Clegg v Andersson, 29 a yacht had been supplied with a keel that was substantially heavier than the manufacturer’s specifications. Following delivery, the parties corresponded on the overweight keel and the possibility of repairs, over a period of seven months. Early in that correspondence, the buyers sought certain information, but they did not receive it until close to the end of the period. Three weeks later, they rejected the yacht. It was held that the rejection was within time, and they were thus entitled to recover their full price of £90,000. Section 35(6)(a) of the Sale of Goods Act makes it clear that time taken merely in requesting or agreeing to repairs and carrying them out is not to be counted as an unreasonable delay. Thus, the several months it took to find out what would be required for modification or repair (in this case, to the keel) had to be ignored, and the subsequent three weeks it took to write a clear letter of rejection did not exceed a reasonable time for the purposes of the Act. In other words, the buyer must have enough time and information to make a properly informed choice. As well as the recovery of his price, the buyer also may obtain damages for losses which were reasonably foreseeable, such as the extra cost of buying replacement goods. In the case of business purchasers, the foreseeable losses may include the lost profits that result from lost sales to customers or damage to reputation. If the buyer fails to clearly indicate his rejection to the seller within a reasonable time, he is still entitled to damages for any foreseeable loss he suffers, such as damages for cost of repairs or lost profits or even for injury to himself or damage to his other property. Consumer buyers also may have the right to insist on repairs or a reduction in the price or replacement of the product, if they prefer this to rejection. These provisions are set out in Section 48A to F of the Sale of Goods Act, but are rarely used in practice, as the consumer will usually insist on his right to get a full refund, having rejected the goods.30 The recent claims for faulty PIP breast 28 Rogers v Parish (Scarborough) Ltd, [1987] 1 QB 933. 29 Clegg v Andersson, [2003] 1 All ER 721. 30 The additional remedies were introduced to comply with the EU Consumer Sales Directive (Directive 1999/44/EC of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees); SI 2002/3045, Regulation 5, introduces a new Part 5A into the Sale of Goods Act in order to give effect to the new rights for consumers set out in the Consumer Sales Directive, art 3. (Release 1 – 2012)
- 150. ENG-12 INTERNATIONAL PRODUCT LIABILITY implants have, however, highlighted the use of these remedies as providing a possible advantage in contracts involving goods and services. It is argued by Hertzell and Moore31 that the right to a replacement necessarily involves the costs of the surgical operation to implant the safe substitute product, giving a more secure remedy than for product liability under the Consumer Protection Act 1987. There is some support for this in the ECJ’s ruling in Weber v. Wittmer.32 Even if the goods are of satisfactory quality, the buyer will still have recourse to these remedies if the goods are not fit for the purpose he bought them for. He must, however, have made this known, expressly or implicitly, before the contract. If he has not done so, the purpose will be taken to be the normal purpose for which goods of that kind are used, in which case the fitness of the goods will overlap with their satisfactory quality. The consumer will always be able to claim for any losses (including purely economic losses, such as for repairs or lost profits) resulting from the defective product, against the seller (contract) and for damage to property or injury to persons against the manufacturer (tort). In both cases, the liability is strict and cannot be limited by contract. The terms of the manufacturer’s contract with the retailer may pass this liability on to the retailer, but only if it was reasonable to do so at the time of the contract.33 Producers of component parts (as previously discussed in the subsection ‘Defect Attributed to Design of Final Product’) can escape strict liability for injury caused by the finished product if any resulting defect was wholly attributable to the design of the final product or compliance with instructions from that producer.34 In this situation, the final producer is liable, but the parts producer is not. When the producer of the part is at least partly to blame, both producers may each be considered jointly liable for the whole amount of the claimant’s damage, but with a right to a just and equitable contribution from the other. The supplier of a defective part will, however, be liable to the manufacturer for breach of satisfactory quality, and the contract of sale for the part may thus provide the final producer with a complete indemnity for the losses resulting, including loss of profits. 31 Implanting Doubts (2012) NLJ, 27 January, at p. 115 32 Weber v. Wittmer [2011] 3 CMLR 27. 33 See Unfair Contract Terms Act 1977, s 3, which prevents the enforcement of unreasonable clauses in standard form contracts excluding or restricting liability between businesses. 34 Consumer Protection Act 1987, ss 2 and 4(1)(f). (Release 1 – 2012)
- 151. ENGLAND AND WALES ENG-13 Remedies Personal Injury Damages In General The manufacturer or seller will be liable for injuries or death resulting from a defective product. The level of general damages (ie, damage not related to specific monetary loss) depends on the scale of the injury (loss of amenity), although enhanced by personal factors and elements for pain and suffering. As a result of the recording of awards over many years (particularly in Kemp & Kemp: The Quantum of Damages, an encyclopedia kept up to date by Sweet & Maxwell), there is now detailed guidance on the level of damages one can expect for particular types of injury. Lawyers also may refer to specialist practitioners’ reports of awards, such as Butterworth’s Personal Injury Service and Sweet & Maxwell’s Personal Injuries and Quantum Reports. Injury However, the victim also will be entitled to damages to cover his medical bill and any other expenses he might incur as a result of the injury. In addition, the victim will be entitled to any ongoing loss of earnings, calculated as a net figure, net of tax and national insurance contributions which would have been paid on those earnings. The calculation of future lost earnings or future medical expenses is complex and is usually done using government actuarial tables, known as the Ogden Tables. When there is ongoing need for medical support, the defendant (usually an insurance company) may be required to pay a capital sum into a trust fund for the victim’s upkeep. Detailed examples of damages calculations are available in Kemp & Kemp: The Quantum of Damages. However, tables on personal injury awards would suggest that English awards are among the highest in the EU,35 especially for serious injuries. Thus, for example, awards for total blindness for a professional person in England are likely to exceed £1,000,000, the highest in the EU, while damages awarded for partial blindness may be only £70,000, perhaps the average in the EU. There has also been criticism by the parliamentary Transport Select Committee of the rising number of whiplash claims which are also considerably greater than in other countries. About 70% of UK motor insurance personal-injury claims involve whiplash.36 Death When the victim is killed by the defective product, the deceased’s estate, represented by his personal representatives (ie, the executor under his will or the 35 Holmes and Mcintosh (eds), Personal Injuries Awards in EU and EFTA Countries (Kluwer Law, 2002). 36 MPs Crack the Whip (2012) NLJ 20 January, at p.77. (Release 1 – 2012)
- 152. ENG-14 INTERNATIONAL PRODUCT LIABILITY administrator of the intestacy) will be entitled to claim for losses up to death, including any pain and suffering. The personal representatives also will be entitled to claim a lump sum (£11,800) for the bereavement caused to a spouse of the deceased or, if the deceased was a minor, to a parent. The claim also will include loss of dependency on the deceased’s income by dependants such as children or a spouse. Damages for a death are usually notably less than if the victim is left in a seriously disabled state. Punitive Damages In general, punitive damages are not available, as the rules under English law normally limit these damages to cases where the defendant deliberately commits a tort thinking he will make a profit. The purpose of punitive damages is generally to teach the tortfeasor that tort does not pay.37 A manufacturer who deliberately cuts back on safety precautions in order to earn higher profits may be subject to punitive damages but, in this event, there would be criminal sanctions in any case, including the possibility of corporate manslaughter charges (further discussed in the section ‘Product Safety Legislation’). Emotional Distress A victim suffering injuries will be entitled to damages that cover his own emotional distress. These will be included in the element for pain and suffering in personal injury damages. Even if the victim escapes injury but suffers emotional injury (nervous shock) through fearing for his own safety, he will be entitled to claim for this. However, it is essential that he establish a recognizable psychiatric injury, such as post-traumatic stress disorder (PTSD) or another illness recognized by the World Health Organization (WHO) in the International Classification of Mental and Behavioral Disorders, Tenth Edition (ICD-10). The cases draw a distinction between primary victims (those at risk of physical injury) and secondary victims (those who are merely witnesses). Provided some form of psychiatric injury is foreseeable, the primary victim is entitled to recover damages even if he is predisposed to this type of injury (the ‘eggshell skull rule’ or ‘take your victim as you find him’). An illustrative example is the case of an accident caused by a defective car. In Page v Smith,38 the claimant was involved in a minor car accident where nobody suffered physical injury (although such an injury was foreseeable). The experience brought back a previous tendency to chronic fatigue syndrome, for which the victim recovered full compensation. 37 Cassell v Broome [1972] 1 All ER 801 House of Lords. 38 Page v Smith [1996] AC 155 House of Lords. (Release 1 – 2012)
- 153. ENGLAND AND WALES ENG-15 This is because of the long-standing principle in tort: the eggshell skull rule that you take your victim as you find him. Thus, as long as some form of injury from the defect in the product is foreseeable, the victim will recover damages even if the extent of his particular injury is considerably more extensive than could have been envisaged. Damages are recoverable for bystanders who suffer nervous shock (eg, PTSD) through witnessing the accident, provided there is a sufficiently close family relationship with the victim at risk (eg, a wife who sees her husband burning to death in a defective car); however, they must have witnessed the event or its aftermath. There is thus no direct claim for those who suffer bereavement on learning of a loved one’s death without actually witnessing it; however, a close relative who sees the dead and mangled body of the victim in the immediate aftermath of the accident can recover damages.39 Economic Loss and Cost of Repair In general, the cost of repairing a faulty product or recovering the resulting losses (ie, pure economic loss) is only recoverable in contract against the seller (discussed in the subsection ‘Contractual Liability for Warranty’). They are not recoverable in tort from the manufacturer. However, very often, the repairs may be covered by a manufacturer’s guarantee, which must give better rights than those provided under the Sale of Goods Act. Once the product has caused injury to the claimant or damage to his property, the claimant can certainly recover all the resulting losses, such as resulting lost earnings or lost profits; however, in the case of damage to property, liability is only strict if the property is private property. Thus, when claiming in tort for damage to commercial property (eg, a defective product setting fire to the claimant’s shop) and resulting lost profits, the claimant is obliged to show that the defendant manufacturer was negligent. Return or Repair In most cases, the consumer has a right (assuming he has not delayed unreasonably) to insist on the return of his price, and contractual terms in his sale that restrict his remedies to only replacement or repair will therefore be void. 40 However, the consumer has an alternative right, if he prefers this, to insist on repair or replacement of the product. These remedies are provided for under Part 5A of the Sale of Goods Act 1979, headed ‘Additional Rights of Buyer in Consumer Cases’, which was incorporated to meet the requirements of the EU Consumer Sales Directive 1999. There were some further proposals from the Commission for a directive to harmonize consumer remedies across the EU (October 2008). The United 39 Galli-Atkinson v Seghal [2003] EWCA Civ. 697. 40 Unfair Contract Terms Act 1977, s 6. (Release 1 – 2012)
- 154. ENG-16 INTERNATIONAL PRODUCT LIABILITY Kingdom’s Law Commission has recommended that this should not lead to the removal of the consumer’s basic right to reject faulty goods, as this is a simple remedy which the consumer can exercise unilaterally, without having to go to court. They have, however, recommended that the period for rejection be limited to 30 days. 41 Consumer Rights Directive 2011/83/EU is much less ambitious than originally envisaged and is confined to harmonizing consumer rights on issues like distance selling. It does not provide a single set of remedies for faulty goods as originally envisaged.42 Enforcement of Remedies When consumers have problems with defective products and cannot resolve them amicably with the retailer, they can enforce their remedies quite cheaply through the courts. Claims of up to £5,000 can be resolved for only a small fee in small claims arbitration in the County Court. This will involve a hearing, but both sides pay their own separate costs, so the rule that the loser has to pay the winner’s costs does not apply. Hence, consumers will invariably represent themselves and receive considerable assistance from the judge, who has more of an inquisitorial role. Many manufacturers and retailers belong to trade associations which also offer cheap arbitration, but this is usually a purely written procedure, without a hearing. The consumer must voluntarily agree to submit to such arbitration, as clauses excluding his right to go to court will be considered void.43 Exclusion or Limitation of Liability The seller will not be able to exclude or limit his liability to consumers for any defects in the goods. Thus, all attempts by retailers to limit liability for unsatisfactory quality, fitness, and the like will be void and will usually involve a criminal offense.44 Examples of the seller attempting to exclude or limit liability would include terms stating that there is no right to reject the product and recover the price but only a right to replacement, limiting damages to the price of the goods, making liability contingent on losses being reported within a period of time, and similar limitations. 41 Law Commission Report No. 317 on Consumer Remedies for Faulty Goods (November 2009), available on the UK Law Commission’s website at http://www.law com.gov.uk. 42 Ec.europa.eu/justice/consumer-marketing/rights-contracts/directive/index_en.htm. 43 Arbitration Act 1996, section 89, which extended the application of the Unfair Terms in Consumer Contract Regulations 1994 (S.I. 1994/3159) to cover consumer arbitration agreements. 44 Unfair Contract Terms Act 1977, s 6, and Consumer Transactions (Restrictions on Statements) Order 1976, S.I. 1976, No. 1813. (Release 1 – 2012)
- 155. ENGLAND AND WALES ENG-17 Manufacturers selling to commercial buyers are subject to exactly the same terms regarding satisfactory quality or fitness for purpose. However, for purely technical defects where it would be unreasonable to reject the defective product, the commercial buyer will not be entitled to do so.45 The manufacturer also can limit or exclude liability to commercial purchasers for defects, provided it is reasonable.46 Thus, the validity of the clause here may depend on the bargaining power of the commercial buyer, which of the two is best placed to take out insurance against defects, and on prevailing trade practices.47 An example of the way the court assesses these factors is found in St Albans District Council v International Computers, a case involving defective software. 48 Generally, however, a manufacturer who has produced an unsafe product will not be able to exclude liability. The Unfair Contract Terms Act 1977 does not apply to international sales of goods, as defined in Section 26. Thus, when an English manufacturer is selling goods to purchasers in other countries, an exclusion of liability may not be controlled by the English courts even if English law is the chosen law. As English purchasers benefit from the protection of the Unfair Contract Terms Act but other EU purchasers (eg, retailers in France) do not, it is arguable that Section 26 amounts to discrimination against other EU nationals and would have to be set aside by English courts as a breach of the EU Treaty.49 Statute of Limitations The statute of limitations is governed by the Limitations Act 1980. The period for claiming in tort for personal injuries — for example, against the manufacturer for injury caused by defective products — is three years, beginning from the time that the victim had knowledge of his injury and right to claim.50 If the victim has died, his personal representatives have a similar period to claim. 45 Sale of Goods Act 1979, s 15A. 46 Unfair Contract Terms Act 1977, s 6. This control applies even if the parties negotiate the contract. When the manufacturer uses written standard terms, all clauses excluding or restricting liability for breach of contract would have to satisfy the reasonableness test under the Unfair Contract Terms Act, s 3. 47 The Unfair Contract Terms Act, s 11, sets out the test and the Unfair Contract Terms Act, Schedule 2, lists a number of relevant factors. 48 St Albans District Council v International Computers [1996] 4 All ER 481 (Court of Appeal) and Black Holes at the Heart of European Contract Law? Exclusion Clauses in International Supply Contracts under s.26 and s.27 Unfair Contract Terms Act, 1977 [2012] ICCLR 105. 49 Treaty on the Functioning of the European Union, art 18 (formerly EC Treaty, art 12). This argument may be found in Burbidge, ‘Selling in the Single Market – The Control of Exemption Clauses under EC Law’ [2000] NLJ 1544. 50 Limitation Act 1980, ss 11−14. (Release 1 – 2012)
- 156. ENG-18 INTERNATIONAL PRODUCT LIABILITY When claiming for damage to property or other losses caused by negligence, the limitation period is six years, but this can be extended beyond three years, if necessary, to three years from the date of knowledge of the claim. Potentially, the producer may therefore be faced with claims arising many years after the product was put into circulation. There is thus a ‘long-stop’ in non-personal injury claims of 15 years from the date of knowledge of the claim for negligence.51 In claims for strict product liability under the Consumer Protection Act, the claim must be brought within three years of the injury or damage (or knowledge of the injury or damage, if later), but there is a 10-year maximum limitation period fixed by the EU Directive.52 The Supreme Court of the United Kingdom 53 has held, 54 relying on the ECJ ruling in Aventis Pasteur v OB, 55 that when proceedings have been started against a subsidiary company which acted as distributor of products, the courts will not allow the substitution of the manufacturing parent company outside the 10-year limit. Notably, when the claim is for negligence under common law, there is no ‘long- stop’ that would apply in an injury claim. Thus, for example, in the case of a product containing asbestos that causes lung disease 30 years later, the victim will still be allowed to claim for his injuries, provided he brings his claim within three years of his knowledge of the damage. Section 13 of the Limitation Act 1980 defines this as knowledge that the injury was significant and that it was at least partly attributable to alleged negligence by the defendant. The Supreme Court has ruled by a bare majority (4 of 7) that the Claimant’s reasonable belief that his injury was capable of being attributed to the act or omission of the defendant was sufficient to constitute knowledge of the claim for purposes of the Act. Hence, victims of radiation fall-out from nuclear bomb testing a half century earlier could not claim.56 Corporate Successor Liability Article 3 of the Product Liability Directive57 defines ‘producer’ to include those who hold themselves out as producer, so it is possible that a corporate successor will come under this definition and attract strict liability in tort. Otherwise, there 51 Limitation Act 1980, s 14B. 52 Limitation Act 1980, s 11A. 53 The UK Supreme Court replaced the House of Lords as the ultimate Appeal Court in the UK in October 2008. Apart from the statue of Abraham Lincoln, which coincidentally sits outside its doors, it has nothing in common with the US Supreme Court. 54 In O’Brien v Aventis Pasteur [2010] UKSC 23. 55 Aventis Pasteur v OB [2010] 1 WLR 1375. 56 AB and Others v. Ministry of Defence [2012], The Times, March 27. 57 Enacted in the UK by the Consumer Protection Act 1987, s 1. (Release 1 – 2012)
- 157. ENGLAND AND WALES ENG-19 is no general recognition in English law of the concept of corporate successors being liable when they have merely bought the business through an asset sale rather than having bought shares in a continuing company, which continues to be liable as a legal person. In the case of an asset sale by a company which has subsequently gone into liquidation, it is possible that these assets can be clawed back under insolvency law. If they have been deliberately put beyond the reach of claimants or have been transferred at an undervalue within two years before the petition for liquidation, the liquidator can apply to the court to set the sale aside.58 When claiming on the producer’s insurance cover, it is possible to have defunct companies restored to the register of companies so that proceedings can be brought against them to claim the benefit of any insurance cover. Product Liability Insurance Availability of Insurance Insurance is widely available, but the policy should cover the legal liabilities established in the Consumer Protection Act 1987, where liability is strict, without having to prove the producer negligent. For the producer to be liable, the claimant merely has to prove that the product was defective and the defect in the product caused the injury. Individual policy terms will vary, however, and the producer should ensure he has the terms that suit him. Nature of Policy and Usual Extent of Cover The insurance should cover claims for faulty goods up to a maximum amount each year (typically £10,000,000). This cover should include damages for death or injury, or damage in respect of injury to any person, or loss of or damage to material property caused by the products supplied. The insurance also should cover legal costs of solicitors, barristers, and witnesses; court costs and expenses; claimant’s costs (in English litigation, the loser has to pay the winner’s costs, within reason); the cost of having to recall a product; and compensation to the insured for each day that attendance in court is required. If the product is imported, the importer should have cover to include the risk that the manufacturer will go into liquidation. The cover should include products produced under license by others but with the licensor’s brand name (ie, when the licensor is held out as producer), and products which the company maintains, restores, or alters for others, as liability also may arise from defects in such products. 58 Insolvency Act 1986, s 238. (Release 1 – 2012)
- 158. ENG-20 INTERNATIONAL PRODUCT LIABILITY Usual Exclusions Individual policy terms vary, but basic insurance terms may exclude liability arising because the product or service the producer supplies is substandard (the insurance company may therefore have the right to approve quality) or when the producers fail to comply with safety standards, fail to provide safety information to the customer, or store products in an unsafe manner. Also excluded may be defects caused by gradual pollution damage and pollution damage caused by sudden and unforeseen events. Policies also may be endorsed to exclude the ‘efficacy risk’ (ie, when damage is inevitable if the product fails to perform its intended function, such as rust inhibitors and fire alarms). Product Liability Litigation Role of Courts and Lawyers Depending on the complexity of the case and the amount being claimed, the case may be referred to either the County Court (courts situated locally in districts around the country) or the High Court (centered in London, but with regional registries). All courts sit with just a single judge. Essentially, claims for personal injury should start in the County Court (where costs are much lower), unless the claim is for more than £50,000 or has complex or important issues. If the claim turns out to be more complex, it can be moved to the High Court. As lawyers are usually paid by the hour, all litigation in England and Wales is expensive. It also should be remembered that unlike many other countries, litigation which does not involve a small claim (less than £5,000) is subject to the rule that the loser has to pay the winning party’s costs (assuming they have been reasonably incurred). Thus, in a number of claims, the costs that a litigant may potentially pay (his own and those of the other side) may be greater than the value of the claim. In personal injury cases such as product liability, the claim can be brought on a ‘no win, no fee’ basis through a conditional fee agreement (CFA). This allows the solicitor to charge up to 100 per cent of his normal fee as a success fee. It has to be agreed in writing and signed by the client and the lawyer — there is a model form of agreement available from the Law Society Conditional Fees Committee. If the client loses the case, he pays nothing to the lawyer, but may have to pay the other side’s costs. Hence, a CFA will usually be combined with After the Event Insurance (AEI), where the insurance company covers the risk of losing and paying these costs. As most cases settle, the AEI premiums are usually staged, increasing in amount if the case is not settled at the pre-trial stage. Contingent fees (eg, when the lawyers take 40 per cent of any winnings) are not allowed in England.59 The 59 There is an exception for employment tribunal work, where a contingency fee agreement can fix fees at up to 35 per cent of the amount recovered. Additional (Release 1 – 2012)
- 159. ENGLAND AND WALES ENG-21 Legal Aid, Sentencing and Punishment of Offenders Act 2012 includes in Part 2 extensive changes to the treatment of civil costs in line with the recommendations of the Jackson Review.60 In summary, the new regime (i) limits success fees to 25% of damages (ii) Limits recoverable costs from the losing party by prohibiting the recoverability of success fees and after-the-event insurance premiums; and (iii) introduces contingency fees (damage-based agreements) for contentious business, i.e., not just for employment cases. The changes which are controversial (see comments of the Law Society of 15 March 2012) are set to come into force in April 2013. It is intended to increase the awards for general damages by 10% to ensure that the claimant does not lose out through these changes, but at the time of writing the legislation for this has not yet appeared. As product liability cases are likely to involve a large number of claimants, these can be grouped together under a group litigation order. 61 This will assign management of the group to one particular judge, who will acquire specialist knowledge about the claims. There has to be a group register of the names of all the different claimants. English procedure does not accept United States-style class actions — that is, where all victims are part of the claim (and thus share in any settlement) unless they expressly opted out of it. There are, however, a number of proposals at the United Kingdom and EU level that may lead to legislation permitting this in consumer cases in the future.62 Where to Sue and Which Law to Apply The rules on the issues of forum and applicable law have been harmonized across the EU by Regulations: Brussels I63 and Rome II.64 Claimants injured in the United Kingdom by products produced elsewhere in the world can sue the producer (or the importer into the EU) in their local English court. information is provided in the Damages-Based Agreement Regulations of May 2010, available at http://www.lawsociety.org.uk/productsandservices/practicenotes/damages basedagreement.page. 60 Review of Civil Litigation Costs by Lord Justice Jackson. Final Report December 2009, at www.judiciary.gov.uk. 61 Civil Procedure Rules 1998, Part 19. The CJC’s latest response to the EU proposals (April 2011) is available on its website. They have criticized the delays in coming to firm proposals. 62 Report of the Civil Justice Council: Improving Access to Justice through Collective Actions (July 2008), available at http://www.civiljusticecouncil.gov.uk/files/ Improving_Access_to_Justice_through_Collective_Actions.pdf. The EU Commission has published a Consultative Green Paper on similar lines, which is available at http://ec.europa.eu/consumers/redress_cons /greenpaper_en.pdf. 63 Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. 64 Regulation (EC) No. 864/2007 of 11 July 2007 on the law applicable to non- contractual obligations. (Release 1 – 2012)
- 160. ENG-22 INTERNATIONAL PRODUCT LIABILITY Under Article 5(3) of Brussels I, a claim can be brought in the courts of the EU country where the harmful event occurred. This is interpreted as meaning either the place of manufacture or the place where the defective product caused the injury. The victim can, in any case, always sue the defendant in the courts of the defendant’s own country.65 The applicable law is determined by Article 5 of Rome II. Usually, this will be the law of the victim’s habitual residence, but, very exceptionally, if the defendant could not foresee marketing in the country where the victim acquired the product, the law of the manufacturer’s location may apply. Product Safety Legislation and Prosecutions by Trading Standards Officers Product safety is subject to considerable legislation fixing product standards, much of which is harmonized across the EU. Most of the legislation is enacted by Regulations issued under the Consumer Protection Act 1987.66 In England and Wales, product safety is policed by the local government trading standards inspectors (TSOs) and the Office of Fair Trading. 67 However, this product safety law has developed piecemeal and it is not entirely clear exactly how many cases are brought, as there is as yet no readily accessible database of product safety prosecutions or, indeed, of civil product liability cases.68 As the enforcement takes place locally, there is no consistency in the level of enforcement of fair trading laws throughout the United Kingdom. Thus, although unsafe products are likely to be uniformly distributed throughout the country, there is no real uniformity in the level of official action that will be taken. Since October 2005, there has been a General Safety of Products requirement under the General Product Safety Regulations 2005 (S.I. 1803/2005) enacting the EU Directive of 2001 (2001/95/EC). Breach of this requirement in relation to a dangerous product carries a potential penalty of 12 months’ prison or a £20,000 fine. The Trading Standards Department can issue a statutory notice to the producer concerned, including a requirement to warn consumers or withdraw the product (Regulation 13) or have it recalled (Regulation 14). TSOs plead inadequate resources and often have to let larger, better resourced authorities take action. Official action has thus been criticized as more ad hoc than risk-based. 69 In a report for the Royal Society for the Prevention of 65 Brussels Regulation 44/2001, art 2. 66 For example, Furniture and Furnishings (Fire)(Safety) Regulations 1988, SI No. 1324. 67 The Consumer Protection Act, s 27, imposes a statutory duty on the TSO to enforce safety regulations within his area. 68 Minister’s answer to Parliamentary Question No. 981572, 24 March 1999. 69 Royal Society for the Prevention of Accidents Report by David Jenkins, available on the ROSPA website at http:// www.rospa.com. (Release 1 – 2012)
- 161. ENGLAND AND WALES ENG-23 Accidents, Jenkins, the author of this criticism, suggests that the number of prosecutions by TSOs fell during the 1990s, contributing to a rise in accidents in the home (2,800,000 in 1999). During this period, the 3,000 TSOs and supporting staff working in the 200 local authorities in Great Britain brought just 4,793 cases ‘representing a rate per 100 officers for safety prosecutions is just 16 p.a.’. The author suggests, however, that there may be as many as 750,000 injuries each year which are due to breaches of safety regulations. In addition to prosecutions by TSOs under product safety regulations, a company whose defective product causes death may now be prosecuted for corporate manslaughter. This was introduced in 2008 by the Corporate Manslaughter and Corporate Homicide Act 2007. It may, however, be some years before one sees a manufacturer prosecuted for homicide caused by its products. To date, the only such prosecution has involved a breach of legislation on health and safety at work. Conclusion The EU Product Liability Directive establishes common rules governing liability for defective products in the EU, by imposing strict liability on the producer of a defective product for damage caused by the defect. A product is considered defective if it fails to provide the safety that consumers are entitled to expect. The Consumer Protection Act 1987, which implements the Product Liability Directive in the United Kingdom, follows the provisions of the Directive by imposing strict liability on the producer of defective products for damage caused by the defect. The claimant need not prove that the manufacturer was at fault in causing the defect, but need only prove that there is a defect and that there is a causal relationship between the defect and the damage caused. For the claimant to establish negligence, it is necessary to prove that the manufacturer has breached the duty of care by failing to take reasonable care and that the breach caused the resulting damage. Although claims of negligence are usually brought against the manufacturer, they also may be brought against suppliers, retailers, wholesalers, and other parties in the supply chain, provided that fault can be established. Claims for breach of contract by the injured person may only be brought against the immediate supplier of the defective product. Breach of contract carries strict liability that depends on the explicit and implicit terms of the contract. (Release 1 – 2012)
- 163. European Community Introduction ............................................................................................ EU-1 Historical Background of the Directive ................................... EU-1 Concept of the Directive .......................................................... EU-2 Theory of Products Liability .................................................................. EU-2 Affected ‘Products’ ................................................................................ EU-2 Definition ................................................................................. EU-2 Raw Materials .......................................................................... EU-3 Agricultural Products ............................................................... EU-3 Immovable and Intellectual Works .......................................... EU-3 Computer Software .................................................................. EU-4 Definition and Types of ‘Defect’ ........................................................... EU-4 Liable Parties ......................................................................................... EU-5 Parties Entitled to Recovery ................................................................... EU-6 Types of Remedies and Extent of Recovery .......................................... EU-7 Personal Injury, Death ............................................................. EU-7 Property ................................................................................... EU-7 Questions of Evidence ........................................................................... EU-8 Limits of Liability .................................................................................. EU-9 Wrongful Behavior of Injured Person...................................... EU-9 Amount of Damages Awarded ................................................ EU-9 Time Limits ............................................................................. EU-10 Other Remedies ...................................................................................... EU-10 Disclaimer .............................................................................................. EU-11 Transformation of the EC Directive ....................................................... EU-11 Member States ......................................................................... EU-12 Non-member States ................................................................. EU-14 Further Developments in the European Community .............................. EU-14 Appendix ................................................................................................ EU-16 Article 1 ................................................................................... EU-16 Article 2 ................................................................................... EU-16 Article 3 ................................................................................... EU-16 Article 4 ................................................................................... EU-16 Article 5 ................................................................................... EU-16
- 164. Article 6 ................................................................................... EU-17 Article 7 ................................................................................... EU-17 Article 8 ................................................................................... EU-17 Article 9 ................................................................................... EU-17 Article 10 ................................................................................. EU-18 Article 11 ................................................................................. EU-18 Article 12 ................................................................................. EU-18 Article 13 ................................................................................. EU-18 Article 14 ................................................................................. EU-18 Article 15 ................................................................................. EU-19 Article 16 ................................................................................. EU-19 Article 17 ................................................................................. EU-19 Article 18 ................................................................................. EU-20 Article 19 ................................................................................. EU-20 Article 20 ................................................................................. EU-20 Article 21 ................................................................................. EU-20 Article 22 ................................................................................. EU-20
- 165. European Community Susanne Wesch Wesch & Buchenroth Stuttgart, Germany Introduction Due to the concept of the common market, there is a need to harmonize laws regarding products liability. European Community (EC) Member States must eliminate distortions in competition to promote the free movement of goods and to provide equal and adequate protection to the consumer.1 Historical Background of the Directive In 1970, the Council of Europe established a panel of experts to elaborate proposals for the harmonization of the laws in the field of products liability. Initial work regarding the elaboration of a convention concerning products liability began in 1972. On 27 January 1977, the draft of the European Convention on Products Liability in Regard to Personal Injury and Death2 — the so-called Strasbourg Convention — was presented. The prepara- tory work of the EC ran parallel to this and was based on a specific EC consumer policy, establishing basic rights of the consumer to the protection of health and safety, the safe- guarding of economic interest and the guaranty of a right to compensation.3 After the first draft of a working paper by the EC was presented in 1974 and modified in 1975, the EC Directive was proposed in 1976.4 It then was debated in the Economic and Social Council and in the European Parliaments, finally amended, and published on 19 September 1979.5 After negotiations and discussions lasting many years, the EC Directive on the Approxi- mation of the Laws, Regulations and Administrative Provisions of the Member States Concerning Liability for Defective Products6 was finally adopted on 25 July 1985. 1 See the three reasons set forth in the Amendment of the Proposal for a Council Directive Relating to the Approximation of the Laws, Regulations and Administrative Provisions of the Member States Concerning Liability for Defective Products, OJ Number C 271, 1979, p 3. 2 See Kullmann and Pfister, ‘Produzentenhaftung’, European Treaty Series, vol 91, 1984, number 1100, at p 1. 3 First Consumer Programme of the EC of 14 April 1975 (OJ Number C 92, 24 April 1975); Second Consumer Programme of the EC of 19 May 1981 (OJ Number 133, 3 June 1981). 4 OJ Number C 241/1, 14 October 1976. 5 OJ Number C 271, 26 October 1979, at p 3. 6 OJ Number L 210, 7 August 1985, at p 29; see also Appendix.
- 166. EU-2 INTERNATIONAL PRODUCT LIABILITY Concept of the Directive The harmonization of national laws is the underlying goal of the EC Directive, both to the benefit of the consumer and to the benefit of the producer. According to article 1 of the Directive, the producer is liable for damage caused by a defect in his product. On the one hand, this means that a person is entitled to expect and rely upon a certain standard of safety of a product.7 On the other hand, the notion of defect also limits the liability of the producer and makes the risks calculable for him8 and, furthermore, competition distortion and hindrances to free trade are avoided under a uniform system.9 Despite the aforementioned advantages of the Directive, it was still a long road to trans- formation for most of the Member States.10 The main problem was that both Civil Law and Common Law countries have needed to integrate the new products liability laws in order to transform the EC Directive into the system of liability already existing in the various countries. Theory of Products Liability The EC Directive establishes a remedy for typical products liability cases in which there is no contractual link between the manufacturer and the consumer injured by the product. Thus, liability under the EC Directive is not based on contract, but on tort remedy. Never- theless, it is not strict liability in tort in the sense of an absolute liability.11 Rather it is liability in tort based on a defect in the product, according to article 1 of the Directive.12 Affected ‘Products’ Definition Article 2 of the Directive defines product as ‘all movables with the exception of primary agricultural products and game even though incorporated into another movable or into an immovable’. ‘Primary agricultural products’means ‘products of the soil, of stock farming and of fisheries, excluding products which have undergone initial processing’. 7 See Reich, ‘Product Safety and Product Liability — An Analysis of the EEC Council Directive of 25 July 1985 on the Approximation of the Laws, Regulations, and Administrative Provisions of the Member States Concerning Liability for Defective Products’, (1986) Journal of Consumer Policy, at pp 133, 137. 8 See Nilles, ‘Defining the Limits of Liability: A Legal and Political Analysis of the European Community Products Liability Directive’, (1987) 25 Virginia Journal of International Law, at pp 729, 774. 9 Leibman, ‘The European Community’s Products Liability Directive: Is the US Experience Applicable?’, (1986) 18 Law and Policy in International Business, at pp 795, 798. 10 See Schmidt-Salzer, 7th International Congress on Products Liability, 29–30 May 1989, Munich, PHI 1989, at p 136. 11 See Lorenz, ‘Some Comparative Aspects of the European Unification of the Law of Products Liability’, (1975) 60 Cornell Law Review, at pp 1005, 1012. 12 See Schmidt-Salzer, 7th International Congress on Products Liability, 29–30 May 1989, Munich, PHI 1989, at p 136.
- 167. EUROPEAN COMMUNITY EU-3 Furthermore, according to article 2 (last sentence) of the Directive, the term ‘product’also includes electricity. Products in the sense set forth above are affected by the Directive regardless of how they were made (ie, in an industrial, hand-made, artistic manner or oth- erwise).13 Raw Materials Due to the aforementioned basis of liability, eg, wrongful behavior of the liable person, the producer must have done something wrong, that is, he must have produced a defective product. Thus, raw materials, such as crude oil or also game not produced by a human being do not fall within the scope of the term ‘product’. Raw materials nevertheless become products if they are processed (eg, crude oil into gas- oline) because the raw materials were transformed into a product by the producer. In addition, blood, parts of the human body and organs are raw materials and therefore not products. Thus, an HIV-infected person aware of an infection who donates blood is not liable to the person receiving the blood on the basis of the EC Directive on Products Liability. Agricultural Products Agricultural products are close to being raw materials because production depends on nature. Agricultural products were thus explicitly excluded from the term ‘products’ in the EC Directive. Nevertheless, article 15(1)(a) of the Directive originally left an option to each Member State to disapprove article 2 of the Directive and provide in its legislation that, within the meaning of article 1 of the Directive, ‘product’ also means primary agri- cultural products and game.14 However, with the Directive 1999/34 EC15 amending the Directive 85/374 EEC this privileges for frames was canceled. Immovables and Intellectual Works Article 2 of the Directive defines products as ‘movables’. Immovables and intellectual works are thus not included. The latter is very important as, otherwise, one would have restrictions on free speech and the freedom of the press. Immovables include real estate and land. Furthermore, immovables cannot be goods put into the stream of commerce like movables; thus, the above-mentioned goals of the Direc- tive16 do not really apply. 13 Taschner, Produkthaftung, Richtlinie des Rates vom 25. Juli 1985 zur Angleichung der Rechts- und Verwaltungsvorschriften der Mitgliedstaaten über die Haftung für fehlerhafte Produkte (85/374/EWG), at p 29. 14 Note Directive, art 15(1)(a). 15 OJ L 283, 6.11.1999, at p 20. 16 See the three reasons set forth in the Amendment of the Proposal for a Council Directive Relating to the Approximation of the Laws, Regulations and Administrative Provisions of the Member States Concerning Liability for Defective Products, OJ Number C 271, 1979, at p 3.
- 168. EU-4 INTERNATIONAL PRODUCT LIABILITY Computer Software Another main issue regarding the term ‘product’ is whether computer software falls within the definition of article 2 of the Directive. With the exception of standardized com- puter software (a good manufactured by the producer and afterwards offered to the customer by a vendor), computer software often involves the rendering of services. The consumers order special kinds of software fitting special purposes and needs. Software consequently may be intellectual work, rather than a product manufactured from raw materials or components. Meanwhile, an EC draft proposal regarding liability for services has been issued.17 Thus, it can be argued that the EC Directive regarding products liability was not meant to regulate liability of persons rendering services (as distinguished from manufacturing products). Definition and Types of ‘Defect’ The definition of ‘defect’ in the Directive is rather broad. According to article 6 of the Directive, a product is: . . . defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including presentation of the product; the use to which it could reasonably be expected that the product would be put and the time when the product was put into circulation. Thus, the prevailing questions concern what the consumer is entitled to expect regarding the standard of the safety of a product. This can be compared to the so-called consumer expectation test18 under United States law.19 Accordingly, the producer will not be liable under the EC Directive if he proves that the state of scientific and technical knowledge at the time when he put the product into circu- lation was not such as to enable the existence of the defect to be discovered.20 The consumer cannot reasonably expect the product to be safer than the state of scientific and technical knowledge at the time it is first sold. This is the state-of-the-art defense, a manufacturer not being liable for such ‘development risks’. Furthermore, ‘a product shall not be considered defective for the sole reason that a better product is subsequently put into circulation’.21 Liability for such development risks would be inadequate and unfair. The consumer cannot and will not rely on a future standard of safety of the goods purchased and used by him. Moreover, there is also no possibility for the 17 See text below relating to ‘Further developments in the European Community’. 18 Griffiths, ‘Defectiveness in EEC Product Liability’, (1987) Journal of Business Law, at pp 222, 223. 19 Cf Second Restatement of Torts, s 402A — Strict Liability in Tort; see also Noel and Phillips, Products Liability, 2nd ed, 1981, at p 3. 20 Directive, art 7(e). 21 Directive, art 6(2).
- 169. EUROPEAN COMMUNITY EU-5 producer to avoid such defects nor to calculate the risks or adequately to insure against these risks. Nevertheless, each Member State can disapprove article 7(e) of the Directive and legislate that the producer shall be liable even if he proves that the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of a defect to be discovered.22 Despite the above definition of ‘defect’, it is nevertheless difficult to determine exactly what a defect is under the EC Directive. As a judge of the California Supreme Court, Jus- tice J Traynor, explained in 1965: ‘A defect may be variously defined, as yet no definition has been formulated that would resolve all cases.’23 Thus, certain categories of defects have evolved in order to permit a more precise defini- tion of ‘defect’: • Design defects which occur during the design phase — These defects typically affect all the products produced according to a single design. • Manufacturing (or fabrication, production) defects which arise due to a human or machinery failure during the production phase — Usually, only single products are affected by such defects. These are also often called ‘escapees’or ‘run-away products’. • Instruction defects or failures to warn — This kind of defect can, theoretically, refer to a product or certain products at the time they are being brought into the marketplace due to a failure to warn consumers of a potential danger regarding the product. It can also refer to products already on the market if there is a duty of product observation, such as cases of post-sale warnings and recalls. The EC Directive, however, does not contain any regulations regarding the duty of product observation. These cases will neverthe- less be affected by the EC Directive regarding general standard of product safety.24 Liable Parties According to the definition under article 3(1) of the Directive, ‘producer’ means ‘the manufacturer of a finished product, the producer of any raw material or the manufacturer of a component part and any person who, by putting his name, trademark or other distin- guishing feature on the product presents himself as its producer’. Thus, not only the actual manufacturer but also the ‘quasi-manufacturer’ is liable. This includes individuals or entities in the commercial chain of distribution having or appear- ing to have some kind of responsibility for manufacturing a defective product. In addition, the manufacturer of a component part is regarded as a producer within the meaning of the Directive and is liable for damage due to a defect of the component part. Pursuant to the definition in article 3(1) of the Directive, all persons who are involved in the process of producing goods are liable. According to article 5 of the Directive, two or 22 Directive, art 15(1)(b). 23 Traynor, ‘The Ways and Means of Defective Products and Strict Liability’, (1965) 32 Tennessee Law Review, at pp 363, 367. 24 See text below relating to ‘Further developments in the European Community’.
- 170. EU-6 INTERNATIONAL PRODUCT LIABILITY more persons liable for the same damage under this Directive shall be liable jointly and severally (without prejudice to the provisions of national law concerning the rights of contribution or recourse). This is to ensure that the injured person has the highest chance of being reimbursed for the damage suffered. The aforementioned persons are not liable, however, if the product was neither manu- factured by them for sale or any form of distribution for economic purposes, nor manufactured or distributed by them in the course of their business.25 Thus, products lia- bility under the EC Directive was only meant to hold ‘professionals’ liable. Once more, this regulation can be well understood by looking at the goals of the EC Directive accord- ing to which competition distortions and hindrances to free trade in the Common Market shall be excluded.26 As products liability is liability for manufacturing of defective products, pure dealers, retailers, middlemen and wholesalers do not fall within the scope of the Directive. The same is true for franchisors-franchisees and licensors-licensees. Nevertheless, each sup- plier of the product is treated as its producer where the producer or product cannot be identified, unless the supplier informs the injured person within a reasonable time of the identity of the producer or the person who supplied him with the product. The same applies in the case of an imported product if this product does not indicate the identity of the importer even if the name of the producer is indicated.27 Nevertheless, according to article 3(2) of the Directive, any person who imports into the Community a product for sale, hire, leasing or any form of distribution in the course of his business shall be deemed to be a producer within the meaning of this Directive and shall be responsible as a producer (without prejudice to the liability of the producer). This regulation is meant to make sure that consumers who are injured by products from non-Member States are equally protected like consumers injured by products from Member States. This is very important as it is, or at least can be, very difficult for an EC citizen to pursue rights against a non-EC citizen in a non-Member State (the latter is often required because there are less treaties outside the EC regarding rules as to competent courts ensuring that the person seeking his right is not worse off compared to suing in his own country). Parties Entitled to Recovery Throughout the Directive, the person entitled to recovery is called the ‘injured person’.28 Thus, it is only required that the person entitled to recovery has suffered an injury or dam- age. This can be the consumer or user himself, or any kind of (innocent) bystander. However, there are limits to the producer’s liability as to type of damages and extent of injury.29 25 Directive, art 7(c). 26 See text above relating to ‘Introduction’. 27 Directive, art 3(3). 28 Directive, arts 4, 8(2), 11, 12 and 13. 29 See text below relating to ‘Types of remedies and extent of recovery’.
- 171. EUROPEAN COMMUNITY EU-7 Types of Remedies and Extent of Recovery Personal Injury, Death According to article 9 of the Directive, ‘damage’ means that caused by death or by personal injury. The question of whether there is full compensation, meaning that damages due in case of death or personal injury also include pain and suffering, punitive damages and compensa- tion for emotional distress, is left to the decision or discretion of each Member State. According to article 9 (last sentence) of the Directive, the definition of damage under the EC Directive is without prejudice to national provisions relating to non-material damage. This regulation is very important. Otherwise, liability under the EC Directive would not fit into the scheme of damage compensation of the national laws and could thus cause not only insecurity, but also unjust results. Possible ceilings on damages are set forth in article 16 of the Directive. Any Member State may provide that a producer’s total liability for damage resulting from death or per- sonal injury and caused by identical items with the same defect shall be limited to an amount not less than ECU 70 million. The ceiling should be high enough to allow for full compensation in most cases.30 Property The Directive also includes damage to property,31 eg, damage to or destruction of any item of property other than the defective product itself. Property damage has a lower threshold of ECU 500, provided that the item of property is of a type ordinarily intended for private use or consumption and was used by the injured person mainly for his private use or consumption. Accordingly, there will be no recovery for damages to the defective product itself. This kind of damage is regulated by the law of sales or law of torts. The Directive does not affect any such rights which an injured person may have under the law of contractual or non-contractual liability or under a special liability system existing at the moment when the Directive was notified.32 The EC Directive is also not intended to protect legal rights between two or more business people. Rather, the Directive is intended to protect consumers against business people. One reason is that business entities are far more engaged in mass production than individ- ual consumers and likely to be in a position to afford and obtain liability insurance for defective products. The manufacturer can simply incorporate the cost of insurance in the 30 See Reich, ‘Product Safety and Product Liability — An Analysis of the EEC Council Directive of 25 July 1985 on the Approximation of the Laws, Regulations, and Administrative Provisions of the Member States Concerning Liability for Defective Products’, (1986) Journal of Consumer Policy, at pp 133, 147. 31 Directive, art 9(b). 32 Directive, art 13.
- 172. EU-8 INTERNATIONAL PRODUCT LIABILITY price charged for the product. In addition, in this case, there is no fear of distortion of competition or hindrances to free trade.33 There is thus no need for the EC Directive to regulate these cases. Questions of Evidence In order to be reimbursed for damages suffered, the injured person must prove the dam- age, the defect and the causal relationship between defect and damage.34 On the other hand: . . . the producer shall not be liable as a result of this Directive if he proves that he did not put the product into circulation; or that, having regard to the circumstances it is probable that the defect which caused the damage did not exist at the time when the product was put into circulation by him or that this defect came into being afterwards. He is also not liable if he proves that: . . . the product was neither manufactured by him for sale or any form of distribution for economic purposes nor manufactured or distributed by him in the course of his business; or that the defect is due to compliance of the product with mandatory reg- ulations issued by the public authorities. Furthermore, this is also true if the manufacturer proves that: . . . the state of scientific and technical, knowledge at the time when he put the prod- uct into circulation was not such as to enable the existence of the defect to be discovered; or in the case of a manufacturer of a component, that the defect is attrib- utable to the design of the product in which the component has been fitted or to the instructions given by the manufacturer of the product.35 This clause contains a list of manufacturer defenses. Thus, the producer has the burden to prove the requirements set forth therein. Article 4 of the Directive does not explicitly mention that the injured person also must prove who the producer is within the meaning of article 3, but this is dealt with elsewhere in the EC Directive because otherwise the injured person would not know who to turn to or whom to sue. The EC Directive does not provide for a market-share liability like in the United States.36 This is also logical as liability under the EC Directive depends on some- body’s wrongful behavior (production of a defective product). The EC Directive does not discuss the extent of required evidence under the Directive’s burden of proof. Thus, this depends on the relevant applicable law of civil procedure, the so-called lex fori, to be distinguished from the applicable law according to international 33 See text above relating to ‘Introduction’. 34 Directive, art 4. 35 Directive, art 7. 36 See Sindell v Abbott Laboratories et al, 26 Cal3d 588; 163 Cal Rptr 132; 607 P2d 924 (1980).
- 173. EUROPEAN COMMUNITY EU-9 private law/conflict of laws. Therefore, the question whether prima facie evidence is sufficient or the rules of res ipsa loquitur apply is decided under the national law of civil procedure of the Member State in question. There is one case, however, in which the EC Directive provides for prima facie evidence. This is found in article 7(b) of the Directive, providing that the producer need only prove that ‘it is probable’ that, having regard to the circumstances, the defect causing the dam- age did not exist at the time the producer originally sold the products. Limits of Liability Wrongful Behavior of Injured Person There are several restrictions as to liability of the producer due to the behavior of the injured person. For example, the injured person is under a duty to take all reasonable steps to mitigate the loss caused by the liable person’s wrong. An injured consumer cannot recover compensation for any damage due to the consumer’s neglect to take such steps as set forth in article 8(2) of the Directive. The liability of the producer may be reduced or disallowed when, with regard to all the circumstances, the damage is caused both by a defect in the product and by the fault of the injured person or any person for whom the injured person is responsible. These are the defenses of comparative negligence or assumption of risk lead- ing to a reduction or elimination of the manufacturer’s liability in proportion to the consumer’s contributory negligence or assumption of risk. Product misuse or abnormal use of the product, where the consumer uses the product in a way the producer did not intend and could not have foreseen, may result in the partial or total defenses of comparative fault or assumption of risk.37 Amount of Damages Awarded There are ceilings to the amount of damages being awarded. These are set forth in arti- cle 9(b) of the Directive (an amount of up to ECU 500 must be borne by the injured person in case of damage to any item of property other than the defective product itself) and in article 16(1) of the Directive (an option is left to each Member State to provide that a pro- ducer’s total liability for damage resulting from a death or personal injury and caused by identical items with the same defect is limited to an amount not less than ECU 70 million). Such a limitation of liability can only be justified because products liability, according to the EC Directive, is not based on fault. Otherwise, it would not he comprehensible, ade- quate or fair for a negligent person or a fraudulently acting person to avoid compensation fully for a damage caused by him. Another reason for such a limitation of damages is to permit the manufacturer to accurately assess and insure the risk. 37 Atiyah, Accidents, Compensation and the Law, 3rd ed, London, 1980, at pp 140, 150, 152.
- 174. EU-10 INTERNATIONAL PRODUCT LIABILITY Time Limits There are time limits as to the liability of the producer. According to article 10 of the Directive: Member States shall provide in their legislation that a limitation period of three years shall apply to proceedings for the recovery of damages as provided for in this Directive. The limitation period shall begin to run from the day on which the plain- tiff became aware, or should reasonably have become aware, of the damage, the defect and the identity of the producer. The laws of Member States regulating sus- pension or interruption of the limitation period shall not be affected by this Directive. Regardless of this, Member States shall provide in their legislation that the rights con- firmed upon the injured person pursuant to the EC Directive shall be extinguished upon the expiry of a period of ten years from the date on which the producer put into circulation the actual product which caused the damage, unless the injured person has in the mean- time instituted proceedings against the producer. Such time limits are essential to compel the injured person to pursue rights against the producer within a reasonable time so that the producer has a reasonable chance to estab- lish possible defenses and to furnish supporting evidence.38 The risks also must be somewhat calculable to be insurable. Otherwise, the free market would collapse or the prices could be so high that no consumer could afford to buy the products. Other Remedies According to article 13 of the Directive, other rights of the injured person, based on con- tractual or non-contractual liability or a special liability system, are not affected by the Directive. This type of regulation is very important. The underlying goal of the EC Directive is not to restrict any existing rights of the consumer according to national laws of the Member States. Rather, the purpose is to protect adequately the consumer and ensure recovery when a consumer has paid good money for a product. that nevertheless did not meet the standard of safety the consumer could expect and thus caused injuries. One could never- theless argue that the main underlying goal of the EC Directive is also the prevention of competition distortion. This goal can, however, still be met if the different remedies regarding products liability are not exactly the same under the national laws of the Mem- ber States. The exclusion of other remedies by the EC Directive would not mean a harmonization, but a total equalization of the national laws. This is probably impossible. No Member States would want to give up its national liability laws, including the remedies based thereon. Furthermore, total equalization would also mean the absolute end of any national liability system. Not only are there certain remedies in every country, but the remedies are 38 See also Directive, art 7.
- 175. EUROPEAN COMMUNITY EU-11 usually based on specific liability systems that are quite different in every Member State. Equalization would thus mean the elimination of all liability systems and national laws. This is not and cannot be the goal of the EC Directive. This is even more striking consider- ing that the EC has Member States with Civil Law systems on the one side and Member States with Common Law systems on the other side. The EC Directive is intended to give more rights to consumers, not take rights from them by giving them only the one right provided under the EC Directive. Thus, the regulation under article 13 of the Directive provides for harmonization of the national laws of the Member States and does not obstruct it. Disclaimer The absence of a contractual link between the liable producer and the injured consumer is typical of products liability cases. The consumer buys the defective product from the ven- dor who has not manufactured the good himself but has bought it from a wholesaler who himself has bought it from another retailer and so on and so forth. Thus, there can be quite a long chain of vendors and purchasers where the only contractual relationship is between the two consecutive parties in the chain of sale. Thus, hold harmless or release agreements are basically only possible between these two people who have entered into a contractual relationship. Hold harmless agreements can- not exist between the manufacturer and the final consumer because there is no direct contractual relationship between them. Their only connection is the product itself, so the only possibility of any kind of disclaimer is that the manufacturer excludes or limits his liability by explicitly saying so by a label attached to the product or some comparable device. However, according to article 12 of the Directive, the manufacturer cannot limit or exclude liability to the injured consumer with a provision limiting the liability of the producer or exempting him from liability. This regulation is material for the EC Directive. Otherwise, all the producers would exclude or at least limit their liability and thus the whole EC Directive would be worthless. Transformation of the EC Directive The EC Directive on products liability was notified to the Member States on 30 July 1985. According to article 19 of the EC Directive, the Member States were obliged to bring into force the conforming national laws within three years, that is, no later than 30 July 1988. However, it took much longer for some of the Member States to pass the required laws and regulations. The nine Member States that did not meet the deadline (Belgium, Denmark, France, Germany, Ireland, Luxembourg, The Netherlands, Portugal and Spain) were con- fronted with a procedure regarding breach of contract, according to article 169 of the European Economic Community (EEC) Treaty by the Commission. In addition, in a deci- sion dated 19 November 1991,39 the European Court held that a Member State is liable for 39 European Court of Justice, C-6/90 and C-9/90.
- 176. EU-12 INTERNATIONAL PRODUCT LIABILITY damages suffered by all EC citizens due to untimely compliance with an EC Directive. France was sentenced by the European Court in January 1994. The status of transformation within the Member States is the following: Member States Austria Law on Products Liability of 21 January 1988 (BGBl 99/1988). Belgium Law on Products Liability (Moniteur Belge — 22 March 1991 — Belgisch Staatsblad). Czech Republic Law on Products Liability, 5 March 1998 (Law Number 59/1998 Slg.). Denmark Law on Products Liability of 7 June 1989 (Lovtidende A Number 371). Finland Law on Products Liability, No. 694 of 17 August 1990. France Law on Products Liability of 19 May 1998. Germany Law on Products Liability of 15 November 1989 (BGBl I, at p 2198). Greece Article 6 of Law 2251/1994 (Ministerial Decree A 191 of 16 November 1994). Hungary Product Liability Act, Law No. X/1993 (Magyar Közlöny 1993/24). Ireland Liability for Defective Products, LDPB 1991, Number 11a of 16 December 1991 (An Bille om Dhliteanas e Leigth Tairgi Fabhtacha 1991).
- 177. EUROPEAN COMMUNITY EU-13 Italy Decree of the President of 24 May 1988 (Supplemento Ordinaria alla Gazetta Ufficiale, no 146, DDE, 23 June 1988 — Serie generale). Latvia Law on Safety of Products and Services as well as Liability of Producers and Service Pro- viders of 26 September 1996. Luxembourg Law on Products Liability of 21 April 1989 (Memorial Journal Officiel du Grand-Duche de Luxembourg of 28 April 1991, A-Number 25, at p 522). The Netherlands Law on Products Liability of 13 September 1990 (Staatsblad 1990, Number 487). Portugal Law on Products Liability, No. 383/89 of 6 November 1989 (Decreto-Lei Number 383/89, Diario da República — I Série Number 255 of 6 November 1989, 4880). Spain Law regarding Products Liability, in force since 8 July 1994. Sweden Law on Products Liability of 23 January 1992, in force since 1 January 1993 (Svensk författeningssamling SFS 1992:18 of 4 February 1992). Slovakia Law No. 294/1999 of 2 November 1999. Slovenia Consumer Protection Act, article 4(11), in force since 28 March 1998 (Uradni List Republike Slovenije 20/1998, U.I.R.S. 83/2001) and Liability Act, article 155 of 2001. United Kingdom Consumer Protection Act 1987 of 15 May 1987 (Chapter 43).
- 178. EU-14 INTERNATIONAL PRODUCT LIABILITY Non-Member States Iceland Law on Products Liability of 20 March 1991. Liechtenstein Law on Products Liability of 12 November 1992 (LGBl 1993/13). Norway Law on Products Liability, in force since 1 January 1993, amending the Law on Products Liability of 23 December 1988 (Nors Lovtidende 1988, 1025). Romania Governmental Decree Number 58/2000 (M. of Number 43/31.01.2000). Switzerland Law on Products Liability, in force since 1 January 1994. Turkey Consumer Protection Act (Tüketicinin korunmasi hakkinda kanun), Article 172 of 1995. Further Developments in the European Community A draft proposal for an EC Directive on general safety of products had been in existence since 27 April 1989.40 The new law was passed on 29 June 1992.41 According to the Directive, there are statutory regulations regarding recalls, and public authorities super- vising it. Furthermore, according to article 6 of the Directive, manufacturers, suppliers and importers to the EC are obliged to take adequate steps to assure constant control over the safety of the products. Regarding special kinds of products, there is the EC Directive on the approximation of the laws, regulations and administrative provisions of the Member States concerning the safety of toys.42 There is also the EC Directive on the approximation of the laws, regula- tions and administrative provisions of the Member States concerning labeling of tobacco products. Another two EC Directives exist regarding advertisement for tobacco prod- ucts,43 and regarding diminishing the amount of tar contained in cigarettes.44 40 OJ Number C 193, 31 July 1989, at p 1. 41 Number 92/59/EC. 42 OJ Number L 187, 16 July 1988. 43 OJ Number C 129, 21 May 1992, at p 5. 44 OJ Number L 137, 30 May 1990, at p 36.
- 179. EUROPEAN COMMUNITY EU-15 In addition, on 24 October 1990, the EC Commission approved a draft proposal for a Directive regarding liability for services.45 The main feature is the shift of the burden of proof to benefit the injured consumer. As long as the consumer proves causation between the service and damage, the service provider must prove he, she or it is without fault. This draft was withdrawn in June 1994. On 12 September 1991, the EC Commission sent a notification regarding environmental liability to the European Parliaments and the Council of Ministers. The main goal is the EC-wide harmonization of environmental liability, the most important field of liability for industrial activities. Environmental liability shall be based on strict liability and, if the liable party causing environmental damages cannot be found, the injured parties shall be entitled to recovery from a certain fund that is to be established. A corresponding EC Directive was passed on 21 April 2004.46 45 OJ Number C 012, 18 January 1991, at p 8. 46 OJ Number L 143, 30 April 2004, at p 56.
- 180. EU-16 INTERNATIONAL PRODUCT LIABILITY Appendix English Text of the Council Directive of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products47 including the amendments according to the Council Directives of 10 May 1999.48 Article 1 The producer shall be liable for damage caused by a defect in his product. Article 2 For the purpose of this Directive ‘product’ means all movables even if incorporated into another movable or into an immovable. ‘Product’ includes electricity. Article 3 1. ‘Producer’means the manufacturer of a finished product, the producer of any raw mate- rial or the manufacturer of a component part and any person who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer. 2. Without prejudice to the liability of the producer, any person who imports into the Com- munity a product for sale, hire, leasing or any form of distribution in the course of his business, shall be deemed to be a producer within the meaning of this Directive and shall be responsible as a producer. 3. Where the producer of a product cannot be identified, each supplier of the product shall be treated as its producer unless he informs the injured person, within a reasonable time, of the identity of the producer or the person who supplied him with the product. The same shall apply, in the case of an imported product, if this product does not indicate the identity of the importer referred to in paragraph 2, even if the name of the producer is indicated. Article 4 The injured person shall be required to prove the damage, the defect and the causal rela- tionship between defect and damage. Article 5 Where, as a result of the provisions of this Directive, two or more persons are liable for the same damage, they shall be liable jointly and severally, without prejudice to the provi- sions of national law concerning the rights of contribution or recourse. 47 OJ Number L 210, 7 August 1985, at p 29. 48 OJ Number L141, 4 June 1999, at p 20.
- 181. EUROPEAN COMMUNITY EU-17 Article 6 1. A product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including: (a) The presentation of the product; (b) The use to which it could reasonably be expected that the product would be put; (c) The time when the product was put into circulation. 2. A product shall not be considered defective for the sole reason that a better product is subsequently put into circulation. Article 7 The producer shall not be liable as a result of this Directive if he proves: (a) That he did not put the product into circulation; or (b) That, having regard to the circumstances, it is probable that the defect which caused the damage did not exist at the time when the product was put into circulation by him or that this defect came into being afterwards; or (c) That the product was neither manufactured by him for sale or any form of distribution for economic purpose nor manufactured or distributed by him in the course of his business; or (d) That the defect is due to compliance of the product with mandatory regulations issued by the public authorities; or (e) That the state of scientific and technical knowledge at the time when he put the prod- uct into circulation was not such as to enable the existence of the defect to be discovered; or (f) In the case of a manufacturer of a component, that the defect is attributable to the design of the product in which the component has been fitted or to the instructions given by the manufacturer of the product. Article 8 1. Without prejudice to the provisions of national law concerning the right of contribution or recourse, the liability of the producer shall not be reduced when the damage is caused both by a defect in product and by the act or omission of a third party. 2. The liability of the producer may be reduced or disallowed when, having regard to all the circumstances, a damage is caused both by a defect in the product and by the fault of the injured person or any person for whom the injured person is responsible. Article 9 For the purpose of article 1, ‘damage’ means: (a) Damage caused by death or by personal injuries;
- 182. EU-18 INTERNATIONAL PRODUCT LIABILITY (b) Damage to, or destruction of, any item of property other than the defective product itself, with a lower threshold of 500 ECU, provided that the item of property: (i) Is of a type ordinarily intended for private use or consumption, and (ii) Was used by the injured person mainly for his own private use or consumption. This article shall be without prejudice to national provisions relating to non-material damage. Article 10 1. Member States shall provide in their legislation that a limitation period of three years shall apply to proceedings for the recovery of damages as provided for in this Directive. The limitation period shall begin to run from the day on which the plaintiff became aware, or should reasonably have become aware, of the damage, the defect and the identity of the producer. 2. The laws of Member States regulating suspension or interruption of the limitation period shall not be affected by this Directive. Article 11 Member States shall provide in their legislation that the rights conferred upon the injured person pursuant to this Directive shall be extinguished upon the expiry of a period of 10 years from the date on which the producer put into circulation the actual product which caused the damage, unless the injured person has in the meantime instituted proceedings against the producer. Article 12 The liability of the producer arising from this Directive may not, in relation to the injured person, be limited or excluded by a provision limiting his liability or exempting him from liability. Article 13 This Directive shall not affect any rights which an injured person may have according to the rules of the law of contractual or non-contractual liability or a special liability system existing at the moment when this Directive is notified. Article 14 This Directive shall not apply to injury or damage arising from nuclear accidents and cov- ered by international conventions ratified by the Member States.
- 183. EUROPEAN COMMUNITY EU-19 Article 15 1. Each Member State may by way of derogation from article 7(e), maintain or, subject to the procedure set out in paragraph 2 of this article, provide in this legislation that the pro- ducer shall be liable even if he proves that the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of a defect to be discovered. 2. A Member State wishing to introduce the measure specified in paragraph 1(b) shall communicate the text of the proposed measure to the Commission. The Commission shall inform the other Member States thereof. The Member State concerned shall hold the proposed measure in abeyance for nine months after the Commission is informed and provided that in the meantime the Commis- sion has not submitted to the Council a proposal amending this Directive on the relevant matter. However, if within three months of receiving the said information, the Commis- sion does not advise the Member State concerned that it intends submitting such a proposal to the Council, the Member State may take the proposed measure immediately. If the Commission does submit to the Council such a proposal amending this Directive within the aforementioned nine months, the Member State concerned shall hold the pro- posed measure in abeyance for a further period of 18 months from the date on which the proposal is submitted. 3. Ten years after the date of notification of this Directive, the Commission shall submit to the Council a report on the effect that rulings by the courts as to the application of arti- cle 7(e) and of paragraph 1(b) of this article have on consumer protection and the functioning of the common market. In the light of this report the Council, acting on a pro- posal from the Commission and pursuant to the terms of article 100 of the Treaty, shall decide whether to repeal article 7(e). Article 16 1. Any Member State may provide that a producer’s total liability for damage resulting from a death or personal injury and caused by identical items with the same defect shall be limited to an amount which may not be less than ECU 70 million. 2. Ten years after the date of notification of this Directive, the Commission shall submit to the Council a report on the effect on consumer protection and the functioning of the com- mon market of the implementation of the financial limit on liability by those Member States which have used the option provided for in paragraph 1. In the light of this report the Council, acting on a proposal from the Commission and pursuant to the terms of arti- cle 100 of the Treaty, shall decide whether to repeal paragraph 1. Article 17 This Directive shall not apply to products put into circulation before the date on which the provisions referred to in article 19 enter into force.
- 184. EU-20 INTERNATIONAL PRODUCT LIABILITY Article 18 For the purposes of this Directive, the ECU shall be that defined by Regulation (EEC) Number 3180/78 (OJ Number L 379, 30.12.1978, p 1), as amended by Regulation (EEC) Number 2626/84 (OJ Number L 247, 16.9.1984, p 1). The equivalent in national currency shall initially be calculated at the rate obtaining on the date of adoption of this Directive. Every five years the Council, acting on a proposal from the Commission, shall examine and, if need be, revise the amounts in this Directive, in the light of economic and monetary trends in the Community. Article 19 1. Member States shall bring into force, not later than three years from the date of notifica- tion of this Directive, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith inform the Commission thereof. 2. The procedure set out in article 15(2) shall apply from the date of notification of this Directive. Article 20 Member States shall communicate to the Commission the texts of the main provisions of national law which they subsequently adopt in the field governed by this Directive. Article 21 Every five years the Commission shall present a report to the Council on the application of this Directive and, if necessary, shall submit appropriate proposals to it. Article 22 This Directive is addressed to the Member States.
- 185. India Introduction ............................................................................................ IND-1 Theories of Liability............................................................................... IND-2 Negligence ............................................................................... IND-2 Fraud or Misrepresentation ...................................................... IND-3 Warranties ................................................................................ IND-4 Strict Liability .......................................................................... IND-8 Concept of Defect .................................................................................. IND-8 Patent Defects and Latent Defects ........................................... IND-8 Defective Manufacture ............................................................ IND-9 Defective Marketing ................................................................ IND-10 Defective Design ..................................................................... IND-11 Obligation to Warn Consumers and Recall Defective Products ................................................................................... IND-11 Causation ................................................................................. IND-12 Burden of Proof ....................................................................... IND-13 Defenses ................................................................................................. IND-13 Other Parties Impacted by Product Liability Considerations ................. IND-14 Remedies ................................................................................................ IND-15 Disclaimers/Limitation on Remedies by Contract ................................. IND-16 In General ................................................................................ IND-16 Limitation ................................................................................ IND-16 Corporate Successor Liability ................................................................ IND-17 Product Liability Insurance .................................................................... IND-18 In General ................................................................................ IND-18 Nature of General Liability Policies ........................................ IND-19 Usual Extent of Cover ............................................................. IND-19 Usual Exclusions ..................................................................... IND-20 Duties of the Insured ................................................................ IND-20 Product Liability Litigation .................................................................... IND-20 Frequency of Litigation ........................................................... IND-20 Attitude of the Courts .............................................................. IND-21 Extent of Damages ................................................................... IND-22 Choice and Application of Law ............................................... IND-22 Conclusion ............................................................................................. IND-22
- 187. India Adv. Ravi Kini, Adv. Dushyant Deep, and Adv. Kiran Prakash M.V. Kini & Co. Mumbai, India Introduction In India, the term ‘product liability’ has not been defined in any statute.1 However, the concept of consumer protection through product liability has been embodied in the Constitution of India and in the law of torts. An example of consumer protection being embodied in the Indian Constitution can be observed under Article 19(6). This provision allows the government to impose reasonable restrictions on the practice of any trade or business in the interest of the general public. Thus, if a particular food item or drug has been tested by experts and found to be harmful for consumption, the government has the authority to prohibit the manufacture and sale of such an item.2 Among statutes related to product liability, of particular importance is the Consumer Protection Act, 1986 (COPRA),3 intended by the legislature to promote and protect the rights of consumers, along with setting up the machinery for consumer grievance redressal. COPRA provided for the establishment of the Central Consumer Protection Council by the central government and the State Consumer Protection Councils by the state governments. The redressal system is three-tiered, comprising of the District Consumer Disputes Redressal Forum (District Forum), the State Consumer Disputes Redressal Commission (the State Commission), and the National Consumer Disputes Redressal Commission (NCDRC).4 1 ‘Product’ itself has been defined by the Supreme Court in Collector of Central Excise v Protein Products of India, AIR 1989 SC 627, as ‘anything produced or obtained as a result of some operation or work’. 2 Dr. Shivarao Shantaram Wagle v Union of India and Ors., AIR 1988 SC 952; also relevant is Vincent v Union of India, AIR 1987 SC 990. 3 Act Number 68 of 1986. 4 A discussion on the redressal mechanism is provided in Common Cause v Union of India, AIR 1993 SC 1403; State of Karnataka v Vishwabharati House Building Co-op Socy., AIR 2003 SC 1043, 1054, where the Supreme Court stated that the COPRA was
- 188. IND-2 INTERNATIONAL PRODUCT LIABILITY Other important statutes include the Sale of Goods Act, 1930 (the SGA)5 and the Monopolies and Restrictive Trade Practices Act, 1969 (the MRTP Act).6 The MRTP Act is particularly relevant in the context of defective marketing — that is, false representation about the nature of goods, as provided under the Act, would constitute an ‘unfair trade practice’. In addition to these legislative measures, there also are special statutes pertaining to different kinds of goods and specific irregularities. For example spurious drugs are covered by the Drug and Cosmetics Act, 1940.7 Actions also can arise from tort liability for negligence, provided that there was a duty of care, a breach of that duty, and resultant damage. Tort actions are fairly uncommon in cases involving product liability. Finally, in cases involving a contract, liability would be dependent on the terms of the contract. Certain defective products also could invite criminal liability. Sections 272 to 276 of the Indian Penal Code, 1860 (IPC) make adulteration of food and drugs and their sale and the sale of a drug with the label of a different drug punishable offenses sanctioned with a few months’ imprisonment and/or a fine. Sections 479−489 penalize the usage of false property marks; a manufacturer who sells his product using another person’s property mark is liable to be punished under Sections 479−489 of the IPC. Theories of Liability Negligence An action in tort for manufacturer’s liability is fairly uncommon in India, especially after the enactment of the COPRA.8 The basis for product liability in tort actions is founded on twentieth-century English jurisprudence. Most notably, product liability follows the foundation of negligence in the Commonwealth, the well-known M’Alister (or Donoghue) v Stevenson.9 In Jay Laxmi Salt Works v State of Gujarat,10 the ingredients of negligence were determined to be a duty to exercise care, breach of that duty, and consequential damage. For purposes of establishing causation, courts usually use the ‘but-for’ test. ‘enacted keeping in view the long-felt necessity of protecting the common man from wrongs’. 5 Act Number 3 of 1930. 6 Act Number 54 of 1969. 7 Act Number 23 of 1940. 8 Tort litigation is still fairly undeveloped in India. In the past, most cases have revolved around intentional torts. Very few cases involve negligence; Marc Gallanter, ‘India’s Tort Deficit: Sketch for a Historical Portrait’, in Engel and McCann (eds.), Fault Lines: Tort Law as Cultural Practice (Stanford University Press, 2009). 9 M’Alister (or Donoghue) v Stevenson (1932) AC 562 (HC). 10 Jay Laxmi Salt Works v State of Gujarat (1994) 4 SCC 1.
- 189. INDIA IND-3 In Eastern Mining Contractors v Premier Automobiles11 (decided more than 20 years before the enactment of the COPRA), where the complainant bought a car from a dealer and which turned out to be defective, one of the principal issues was the liability of the manufacturer, there being no privity of contract. Approving the decision in Grant v Australian Knitting Mills,12 the Bombay High Court held that the complainant is not required to lay his finger on the exact person in the chain who was responsible, nor is he required to specify the wrong committed by such person. Negligence is found as a matter of inference from the existence of the defect, taken in connection with all the known circumstances. In this particular case, the Court stated that had all the manufactured cars suffered from the same defect, the claim of negligence could have been disproved. But this was not the case. In negligence, liability is predicated on the breach of a duty of care. Therefore, the conduct of the manufacturer, rather than the condition of his product, is scrutinized by the courts. Fraud or Misrepresentation The principal difference between fraud and misrepresentation is that, in the case of fraud, the person making the suggestion does not believe it to be true while, in the case of misrepresentation, he believes it to be true.13 In both cases, it is a misstatement of facts that misleads the consumer. In India, an action for a manufacturers’ liability can be divided into two categories: tort of deceit or negligent misrepresentation and unfair trade practices under the COPRA or the MRTP Act. As stated previously, tort actions for manufacturer’s liability are uncommon in India, although actions for unfair trade practices are fairly common. Under Section 2(1)(r) of the COPRA, unfair trade practices include making false representations; misleading representations regarding warranty or guarantee of a product; misleading advertisements regarding the price, sale, or supply of sub- standard goods; and similar conduct. A trade practice cannot be branded an ‘unfair trade practice’ in the absence of a comprehensive report reflecting an overall picture of the trade in the country.14 Trade practices are usually in a state of flux, and the generally accepted practice has to be taken into account. Additionally, in Lakhanpal National Ltd. v MRTP Commission,15 the Supreme Court held that the question of whether the representation contains the element of misleading the buyer has to be answered first. The Supreme Court further 11 Eastern Mining Contractors v Premier Automobiles (1963) 65 BOM LR 183. 12 RT Grant v Australian Knitting Mills [1936] A.C. 85. 13 Rattan Lal Ahluwalia v Jai Janinder Parshad, AIR 1976 P&H 200, at para 5. 14 Director General (Investigation and Registration) v Ambika Jewellers, MANU/MR/0051/2001, at para 10. 15 Lakhanpal National Ltd. v MRTP Commission, AIR 1989 SC 1692.
- 190. IND-4 INTERNATIONAL PRODUCT LIABILITY held that the question of what a reasonable man would think of the misrepresentation has to be answered with objectivity, in a reasonable manner.16 Warranties In General Under the SGA, a warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated.17 This is as opposed to a condition, which gives a right to repudiate the contract.18 In effect, both terms refer to a guarantee made by a manufacturer or retailer that the product (or service) will conform to a certain standard. Whether a stipulation is a condition or a warranty depends upon the construction of the contract. The scope of the warranty also would depend on the warranty clauses. For example, in Maruti Udyog v Susheel Kumar,19 it was observed that the warranty clause in the user manual did not contain any agreement to replace the car, but merely to replace or repair the engine. Overruling the Jammu and Kashmir High Court decision, the Supreme Court held that the warranty clause specially stated the repair of the engine and not replacement of the car itself. Express Warranty Parties can specify whether a particular stipulation will be a warranty or a condition. The fact whether such a stipulation is a warranty or a condition will depend on the surrounding circumstances of the case. Notably, under Section 16(4) of the SGA, an express warranty does not negate an implied warranty under the Act, unless the latter is inconsistent with it. A simple commendation does not amount to an express warranty.20 Merchantability The Indian courts broadly follow the common law rule of caveat emptor but, in this era of consumerism, the decisions reflect a tendency to dilute this rule. For 16 Lakhanpal National Ltd. v MRTP Commission, AIR 1989 SC 1692. At para 7, the Supreme Court stated: ‘It is, therefore necessary to examine whether the representation complained of contains the element of misleading the buyer. Does a reasonable man on reading the advertisement form a belief different from what the truth is? The position will have to be viewed with objectivity, in an impersonal manner.’ 17 Sale of Goods Act 1930, s 12(3). 18 Sale of Goods Act 1930, s 12(2). Note also that a condition is a stipulation ‘essential’ to the main purpose of the contract, while a warranty is a stipulation ‘collateral’ to the main purpose of the contract. 19 Maruti Udyog v Susheel Kumar (2006) 4 SCC 644. 20 Colgate Palmolive (India) Ltd v Hindustan Lever Ltd., AIR 1999 SC 3105, at para 37.
- 191. INDIA IND-5 example, in Director-General of Investigation and Registration v Inter- Shoppe,21 the defendant was a dealer of textile goods, who issued an advertisement announcing a sale offering ‘up to 50% off’. In reality, the sale was an ‘off-season clearance sale’ and the maximum discount was available on very few items. Holding that the advertisement suppressed material information, the Monopolies and Restrictive Trade Practices Commission (MRTP Commission) observed: ‘The business gimmicks which a decade or two ago were slurred over as normal business practices under the notion “caveat emptor” are latterly becoming intolerable for their potentially exploitative character. The consumer wants not only quality, durability, and due service of the goods he purchases, but also straightforwardness and outspokenness in dealings and fairness in price, divorced from attempts at concealment; and where it is found to be lacking, it hurts him, apart from occasioning monetary loss.’ The caveat emptor rule is contained in Section 16 of the SGA and subject to certain conditions: ‘Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. . . .’ Section 16 (2) of the SGA provides: ‘Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality. ‘Provided that, if the buyer has examined the goods, there shall be no implied conditions as regards defects which such examination ought to have revealed.’ This exception is particularly relevant for latent defects which cannot be found out on inspection of the goods. For example, in Watson v Buckley, Osborne, Garrett & Co. Ltd.,22 the plaintiff had his hair dyed at an establishment run by the defendant. The hair dye was recommended by the defendant as a good hair dye. However, upon its use, the plaintiff contracted dermatitis. The defendant was held liable by the King’s Bench. The term ‘merchantable’ has been defined by the Calcutta High Court as ‘commercially saleable’ in Trustees, Port of Calcutta v Bengal Corporation.23 21 Unfair Trade Practices Enquiry Number 14 of 1984, MANU/MR/0012/1987. 22 Watson v Buckley, Osborne, Garrett & Co. Ltd. (1940) 1 All ER 174. 23 Trustees, Port of Calcutta v Bengal Corporation, AIR 1979 Cal 142, 146.
- 192. IND-6 INTERNATIONAL PRODUCT LIABILITY However, as a matter of note, the term used in the provision is ‘merchantable quality’ and not ‘merchantable’. The term ‘merchantable quality’ has been explained in S.H. Joshi and Co. v V.M. Ismail.24 Essentially, the Madras High Court quoted with approval the definition of ‘merchantable quality’ given in Bristol Tramway Co. v Fiat Motors Ltd.25 In that case, it was provided that goods are of merchantable quality if they are of such a quality and in such condition that a reasonable man, acting reasonably, would, after a full examination, accept them under the circumstances of the case in performance of the offer to buy them, whether he buys for his own use or to sell again. The Calcutta High Court concluded that ‘merchantable quality’ is a far more restrictive term than ‘merchantable’.26 Goods cease to be merchantable due to defects rendering them unfit for the purpose for which they are usually sold, or merchantability is fulfilled when the goods do not differ from the normal quality of the described goods, including under the term ‘quality’, the state or condition as required by the contract. The goods should be immediately saleable under the description by which they are known in the market.27 Fitness for a Particular Purpose Section 16(1) of the SGA provides: ‘Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fit for such purpose. ‘Provided that, in the case of a contract for the sale of a specified article under its patent or other trade name, there [are] no implied conditions to its fitness for any particular purpose.’ While Section 16(2) of the SGA refers to merchantable quality, Section 16(1) refers to the reasonable fitness of the goods for the purpose made known, expressly or implicitly, by the buyer to the seller. Therefore, in Section 16(1), reliance on the judgment of the seller is important. In RT Grant v Australian Knitting Mills Ltd., the Privy Council opined that the reliance will seldom be express and will usually arise by implication from the circumstances: 24 S.H. Joshi and Co. v V.M. Ismail, AIR 1960 Mad 520, 524, 525. 25 Bristol Tramway Co. v Fiat Motors Ltd (1910) 2 KB 831, 841. 26 S.H. Joshi and Co. v V.M. Ismail, AIR 1960 Mad 520, 524, 525. 27 RT Grant v Australian Knitting Mills Limited [1936] AC 85, 100.
- 193. INDIA IND-7 ‘The reliance will seldom be express; it will usually arise by implication from the circumstances: thus to take a case like that, in question of a purchase from a retailer, the reliance will be in general inferred from the fact that a buyer goes to the shop in the confidence that the tradesman has selected his stock with skill and judgment: the retailer need know nothing about the process of manufacture: it is immaterial whether he be manufacturer or not: the main inducement to deal with a good retail shop is the expectation that the tradesman will have bought the right goods of a good make: the goods sold must be, as they were in the present case, goods of a description which it is in the course of the seller’s business to supply.’28 In Bengal Corporation Private Ltd. v The Commissioner for the Port of Calcutta,29 the Calcutta High Court observed that fitness for a particular purpose under Section 16(1) of the SGA requires the satisfaction of three conditions: first, that the buyer, expressly or by implication, makes known to the seller, the particular purpose for which the goods are required; second, that this ‘making known’ to the seller of the purpose would show that the buyer relies on the seller’s skill or judgment; and, third, that the goods are of a description which it is in the course of the seller's business to supply. If these three conditions are satisfied, the court can draw the conclusion that it amounts to an ‘implied warranty’ in law.30 In addition, this provision also implies that if the goods are suited for a number of purposes and the seller has not been informed of the purpose for which the goods are wanted, there is no condition of fitness for the purpose. Impact on Third Parties Complaints under the COPRA can only be made by a ‘complainant’. Section 2(1)(b) of the COPRA defines a ‘complainant’ as: ‘(i) a consumer; or ‘(ii) any voluntary consumer association registered under the Companies Act, 1956 or under any other law for the time being in force; or ‘(iii) the Central Government or any State Government; or ‘(iv) one or more consumers, where there are numerous consumers having the same interest; 28 RT Grant v Australian Knitting Mills Ltd [1936] AC 85, 99. 29 Bengal Corporation Private Ltd. v The Commissioner for the Port of Calcutta, AIR 1971 Cal 357. 30 Bengal Corporation Private Ltd. v The Commissioner for the Port of Calcutta, AIR 1971 Cal 357, at para 35.
- 194. IND-8 INTERNATIONAL PRODUCT LIABILITY ‘(v) in case of death of a consumer, his legal heir or representative; ‘who or which makes a complaint.’ Under the SGA, the warranties of merchantable quality or fitness for purpose are for the benefit of a ‘buyer’. Section 2(1) of the SGA defines a ‘buyer’ as ‘a person who buys or agrees to buy goods’. Strict Liability The courts in India have not pronounced clearly on whether liability under the COPRA is strict or fault-based. However, the failure of the manufacturer to comply with the standards required under the relevant statutory law could invite liability. Under the COPRA, the requirement of proving negligence is required only if the complainant is claiming compensation for loss or injury.31 There is no such requirement in case the complaint requests repair, replacement, or even return of the price. For example, in Abhaya Kumar Panda v Bajaj Auto,32 the complainant had purchased an auto trailer which turned out to have certain defective parts. The NCDRC, holding that the vehicle should be replaced, observed: ‘The Consumer Protection Act, 1986, fixes liability in a species of torts in which intent is not relevant. This Commission finds [it] necessary to emphasis this because the gravity of defects in any goods or deficiency in any service should not be minimized by considering whether or not the defects/deficiencies are intentional.’ It cannot be emphasized enough that strict liability could come at the cost of social efficiency. This efficiency can reach an optimal level when courts pick and choose the ‘due care’ level.33 Typically, Indian courts will impose a higher standard of care for products which are ‘hazardous substances’. These are defined as any substance or preparation which, by reason of its chemical or physicochemical properties or handling, is liable to cause harm to human beings, other living creatures, plant, microorganisms, property, or the environment, as provided in the Environment (Protection) Act, 1986.34 Concept of Defect Patent Defects and Latent Defects The COPRA defines ‘defect’ as any fault, imperfection, or shortcoming in the quality, quantity, potency, purity, or standard which is required to be maintained 31 Consumer Protection Act, 1986, s 14(1)(d). 32 Abhaya Kumar Panda v Bajaj Auto, I (1992) CPJ 88 (NC). 33 J. Kim, ‘Strict liability versus negligence when the injurer’s activity involves positive externalities’, European Journal of Law & Economics (2006), at p. 102. 34 Environment (Protection) Act (Act Number 29 of 1986), s 2(e).
- 195. INDIA IND-9 by or under any law in force for the time being, under any contract, express or implied, or as is claimed by the trader in any manner whatsoever in relation to any goods.35 In S.H. Joshi and Co. v V.M. Ismail,36 it was laid down that the proviso to Section 16 of the SGA divides defects into two kinds: patent defects and latent defects. Patent defects are those that can be found on examination by a person of ordinary prudence with the exercise of due care and attention. Latent defects are those that cannot be discovered on such an examination. Whether a defect is a latent or a patent defect will depend on the nature of the goods, the nature of the defect, and the extent of examination needed for its discovery. It is a question of the facts in each case. Defective Manufacture Under Indian law, defective manufacture refers to defect arising during production. It is a defect that arises in the manufacture, assembling, and similar processing of a product. A complaint can be filed under Section 2(1)(c)(ii) (to be read with Section 12) of the COPRA against a manufacturer, seller, or licensor in case a product consumed or purchased for consumption turns out to be defective. The NCDRC held that if the purchaser of a vehicle is forced to hand over the vehicle to the dealer/manufacturer on the ground that it is required to be repaired every now and then within a few days of its purchase, the vehicle is defective and the amount paid by the consumer must be refunded, the liability of the dealer and manufacturer being joint and several.37 Similarly, a tractor was considered defective because it had been repaired nine times in the warranty period (ie, within one year of purchase) and the owner had wasted lot of time and money on the tractor. The dealer and manufacturer of the tractor were held to be jointly and severally liable to compensate the owner for the losses incurred.38 In Hyundai Motors v Affiliated East West Press,39 the NCDRC took the car manufacturer to task for protracting litigation instead of admitting the defects. The NCDRC stated that in other countries defective vehicles are easily replaced but, in India, replacement is rarely done without contesting it in a forum. 35 Consumer Protection Act, 1986, s. 2(1)(f); Under the Sale of Goods Act, 1930, s 2(7), ‘goods’ means every kind of movable property other than actionable claims and money and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. 36 S.H. Joshi and Co. v V.M. Ismail, AIR 1960 Mad 520, 524, 525. 37 R. Raja Rao v Mysore Auto Agencies and Anr., II (2006) CPJ 64 (NC). 38 Punjab Tractors Ltd. v Hamam Singh and Anr., IV (2005) CPJ 74 (NC). 39 Hyundai Motors v Affiliated East West Press, I (2008) CPJ 19 (NC).
- 196. IND-10 INTERNATIONAL PRODUCT LIABILITY Defective Marketing Defective marketing refers to a defect in promoting goods or services. In India, defective marketing comes under the ambit of several legislations: the provisions on unfair trade practices, the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954,40 and the Standards of Weights and Measures Act, 1976.41 A section on unfair trade practices was added by an amendment to the MRTP Act in August 1984, prior to the enactment of the COPRA. In 2002, the MRTP Act was replaced by the Competition Act. In September 2009, Section 66 of the Competition Act was notified, essentially repealing the MRTP Act, implying that the MRTP Commission will function for two years to clear pending cases. Subsequently, all powers of the MRTP Commission regarding unfair trade practices would be wielded by consumer courts, under the COPRA. Section 2(1)(r) of the COPRA defines unfair trade practices as trade practices that adopt any unfair method or unfair or deceptive practice for the purpose of promoting the sale, use, or supply of any goods or for the provision of any service. The provision essentially deals with false representation regarding the quality, quantity, grade, and similar attributes of the goods; misleading the public with respect to the price; and offering gifts, prizes, and similar inducements with the intention of not providing them, among other such practices. For example, failing to mention the purity or standard of gold in jewelry in the bill and collecting the price as if it were 22-carat gold is an unfair trade practice.42 The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954, banned the advertisement of certain categories of drugs, such as drugs promising pregnancy, abortion, claiming to solve ailments through black magic, and similar quack medication.43 The Standards of Weights and Measures Act, 1976, imposes a liability on the manufacturer of any commodity in packaged form to mention the identity, exact weight/measure, sale price, unit sale price, the name and address of the manufacturer, and similar details. This information should be displayed on the package itself or on a label securely attached to it.44 In addition to these statutes, manufacturers also will have to consider certain other acts, rules, and regulations, including the Indecent Representation of 40 Act Number 21 of 1954. 41 Act Number 60 of 1976. 42 Hanuma v Meena Jewellers I (1992) CPJ 269. 43 Drugs and Magic Remedies (Objectionable Advertisements) Act 1954, s 3. 44 Standards of Weights and Measures Act, s 39.
- 197. INDIA IND-11 Women Act, 1986,45 and the regulations on tobacco and alcoholic products, among other legislative measures. Defective Design The concept of liability for defective design was first enunciated by Viscount Simonds in Davie v New Merton Board Mills Ltd,46 where he stated that a manufacturer is liable if the fault lays in the design and was due to lack of reasonable care or skill on the part of the manufacturer. There is no rigid dichotomy between design defect and manufacturing defect in India. There are very few cases brought before the consumer forums that involve faulty product design. Most cases involve negligence in manufacturing a specific product. Usually, in cases involving defective design, manufacturers recall their faulty products. For example, in 1994, Maruti Udyog recalled their cars due to problems in axle components that endangered consumer safety.47 In Godrej G.E. Appliances Ltd v Moti Dharani,48 the respondent had purchased a refrigerator from the appellant. The back wall of the refrigerator was made of polyurethane foam (PUF) insulation material, protected by aluminum foil. A portion of the back wall was destroyed by rats entering the fridge to consume the eatables. The appellants contended that it was a new design and many fridges had been sold with no complaints. The NCDRC, however, concluded that there was no indication that the back wall was not of a hard material, when it was common knowledge that fridges should be made from a hard material. The Commission called the design faulty and wondered why the ‘technology’ was not used in other designs. Obligation to Warn Consumers and Recall Defective Products There is no duty to warn consumers or to recall defective products under the COPRA or the MRTP Act. However, there are certain precautions to be taken by the manufacturers of food and drug products. Under the Food Safety and Standards Act, 2006,49 there is a duty imposed on a food business50 operator to initiate procedures to withdraw food products from the market if he considers or has reason to believe that the food he has processed, manufactured, or 45 Act Number 60 of 1986. 46 Davie v New Merton Board Mills Ltd (1959) AC 604. 47 R. K. Gupta, ‘Product Recalls: Marketing Failure and Implications’, available on the website of the Consumer Association of India (CAI) at http://cai- india.org/index.php?option=com_docman&task=doc_download&Itemid=&gid=369. 48 Godrej G.E. Appliances Ltd v Moti Dharani, MANU/CF/0145/2001. 49 Act Number 34 of 2006. 50 Under the Food Safety and Standards Act, s 3(1)(n), ‘food business’ means any undertaking, whether for profit or not and whether public or private, carrying out any of the activities related to any stage of manufacture, processing, packaging, storage, transportation, distribution, and import of food, and includes food services, catering services, and sale of food or food ingredients.
- 198. IND-12 INTERNATIONAL PRODUCT LIABILITY distributed is not in compliance with the Act or the applicable rules or regulations.51 In relation to this is the provision that if any unsafe food product is part of a batch, lot, or consignment of food of the same class or description, it will be presumed that all the food in that batch, lot, or consignment also is unsafe. However, to counter this provision, the operator may submit a detailed assessment within a specified time, showing that there is no evidence that the rest of the batch, lot, or consignment is unsafe. Again, even despite conformity with provisions, if the competent authority suspects that the food is unsafe (for reasons to be recorded in writing), it could impose restrictions on that food being placed in the market or require its withdrawal from the market.52 Additionally, under Section 78(i) of the Drugs and Cosmetics Rules, 1945, a license for a drug is subject to the condition that upon being informed by the licensing authority or controlling authority that ‘any part of any batch’ has been found not to conform with the standards of strength, quality, or purity specified, the manufacturer must, on being directed to do so, withdraw the remainder of that batch from sale. In addition, guidelines for product recall are provided under Schedule-M Part 1(27), which essentially state that that there should be an established procedure and arrangement to deal with product recall. Causation In India, causation is usually determined on the basis of the ‘but-for’ test. The ‘but-for’ test means that the plaintiff must prove that ‘but for’ the defendant’s tortious conduct, the plaintiff would not have sustained damage (or injury). In Cork v Kirby MacLean Ltd.,53 Lord Denning stated: ‘If you can say that the damage would not have happened but for a particular fault, then that fault is in fact a cause of the damage; but if you can say that the damage would have happened just the same, fault or no fault, then the fault is not a cause of the damage.’ Indian courts do generally follow the ‘but-for’ test,54 but have expressed reservation over some aspects. In Jaipur Golden Gas Victims Association v Union of India,55 the Delhi High Court stated that the ‘but-for’ test remains the starting point in tort. In case of a single cause, it is likely to determine the factual aspect of causation; however, in case of multiple causes, it should satisfy the factual test. The case law reflects the approach that the courts have not used technical barriers to dismiss meritorious claims. For instance, in Jaipur Golden Gas Victims Association v Union of India, the Court used the ‘eggshell skull’ 51 Food Safety and Standards Act, s 28. 52 Food Safety and Standards Act, s 26(5). 53 Cork v Kirby MacLean Ltd. [1952] 2 All ER 402, 406, 407. 54 E.S.I Corporation v Leela 2009 (3) KLT 531, at para 12. 55 Jaipur Golden Gas Victims Association v Union of India, 164 (2009) DLT 346.
- 199. INDIA IND-13 rule.56 The Court quoted Lord Justice Mackinnon in Owens v Liverpool Corporation,57 who said: ‘One who is guilty of negligence to another must put up with idiosyncrasies of his victim that increase the likelihood or extent of damage to him: it is no answer to a claim for a fractured skull that its owner had an unusually fragile one.’ Burden of Proof The burden of proof is on the defendant; under Section 14 of COPRA, the complainant has to prove his allegation of defect in the goods to obtain a favorable verdict.58 However, this principle has to be understood in the context of the decision in Vinoo Bhagat v General Motors (India) Ltd. and Regent Automobiles Ltd.59 The NCDRC stated that each case before the forum has to be analyzed from the angle of a reasonable man of ordinary prudence. When the consumer who buys a brand new car alleges that that it is not functioning properly, his statement is to be taken as adequate to meet the requirement of burden of proof when it is supported by his affidavit. Moreover, the COPRA itself contains machinery to help the complainant in discharging his burden of proving a defect. Under Section 13(1)(c) of the COPRA, the District Forum can send the allegedly defective goods for analysis to a proper laboratory to determine the fact of defect. The results given by the laboratory also can be challenged under Section 13(f) of the COPRA, and both parties are given reasonable opportunity to be heard on the validity of the laboratory results under Section 13(g) of the COPRA, the burden of proof being on the person alleging that the laboratory test results are not correct. Defenses Under Section 2(1)(d) of the COPRA, a person who purchases goods for a ‘commercial purpose’ (self-employment being excluded) is excluded from the scope of the COPRA.60 It must be understood, however, that ‘commercial’ means that there is an intention to profit. In Abhaya Kumar Panda v Bajaj Auto 56 Jaipur Golden Gas Victims Association v Union of India, 164 (2009) DLT 346, at para 76, where the Court observed: ‘It is further an established principle of law that a party in breach has to take his victim talem qualem, which means that if it was reasonable to foresee some injury, however slight, to the claimant, assuming him to be a normal person, then the infringing party is answerable for the full extent of the injury which the claimant had sustained owing to some peculiar susceptibility.’ 57 Owens v Liverpool Corporation (1939) 1 KB 394, 400, 401. 58 Superintendent, Telegraph Traffic, Bikaner v District Forum, Bikaner 1991 CPC 609 (Raj.). 59 Vinoo Bhagat v General Motors (India) Ltd. and Regent Automobiles Ltd., MANU/CF/0005/2003. 60 Consumer Protection Act, 1986, s 2(1)(d).
- 200. IND-14 INTERNATIONAL PRODUCT LIABILITY Ltd.,61 it was observed that earning a livelihood by hard toil cannot be called commerce. For example, if a woodcutter purchases an axe to earn his livelihood, it is not purchased for a commercial purpose. However, if a person purchases a vehicle for carrying on a transportation business and engages a driver, it may be called a commercial purpose. The key terms involved here are ‘management’ and ‘earning a livelihood’. When management is the main purpose, the activity is commercial.62 The COPRA and the MRTP do not refer to any specific defenses. In case there is no inference of strict liability, the defenses applicable include absence of a duty of care, voluntary assumption of risk,63 contributory negligence, and similar defenses. For example, in K.G. Sathyanarayan v Bharat Petroleum Corporation Ltd,64 the complainant was sound asleep late one night when he thought he heard an LPG gas cylinder exploding. Startled awake, he switched on the light, at which point the entire room was engulfed in flames. The complainant suffered burn injuries as well as extensive damage to his apartment. The accident occurred mainly on the account of a defective regulator. The NCDRC held that both the manufacturer of the gas cylinder and the distributor were jointly and severally liable. However, since the complainant turned on the light when there was gas leakage in the surrounding area, he was guilty of contributory negligence.65 Other Parties Impacted by Product Liability Considerations In Raheja Automobiles v Krishan Kumar,66 the dealer of a motorcycle attempted to escape liability for providing a new motorcycle in place of a defective one which had previously been bought by the consumer. The dealer claimed that since it was a manufacturing defect, it was the manufacturer who was responsible for providing the consumer with a new motorcycle. The NCDRC held the liability of the dealer and manufacturer to be joint and several and ordered the manufacturer to provide the consumer with a new motorcycle or refund the entire cost of the motorcycle. 61 Abhaya Kumar Panda v Bajaj Auto Ltd. (1991) 2 CPR 7, at p. 10. 62 Abhaya Kumar Panda v Bajaj Auto Ltd. (1991) 2 CPR 7. 63 A detailed discussion on the topic is provided in Rajkot Municipal Corporation v Manjulben Jayantilal Nakum (1997) 9 SCC 552. 64 K.G. Sathyanarayan v Bharat Petroleum Corporation Ltd, 3 (2006) CPJ 8 (NC). 65 The NCDRC ruled that the complainant deserved to be compensated only to the extent of 50 per cent of the damage sustained, in view of his contributory negligence. Therefore, the complainant was entitled to 50 per cent of INR 1,48,027,65 (INR 74,000) with interest at 9 per cent per annum from the date of the complaint. 66 Raheja Automobiles v Krishan Kumar, MANU/CF/0075/2002.
- 201. INDIA IND-15 Again, in K.G. Sathyanarayan v Bharat Petroleum Corporation Ltd,67 the NCDRC held that both the manufacturer of the defective gas cylinder and distributor were jointly and severally liable. Remedies Under Section 14(1)(d) of the COPRA, the District Forum has the power to order the opposite party to pay compensation as may be determined by it, for loss or injury suffered by the consumer due to the negligence of the opposite party. There are two important points involved here: the definition of ‘compensation’ and how the complainant’s conduct could have an impact on damages. In Lucknow Development Authority v M.K. Gupta,68 the Supreme Court judged that the word ‘compensation’ has a very wide connotation. Furthermore, the Court observed: ‘The provision enables a consumer to claim and empowers the Commission to redress any injustice done to him. Any other construction would defeat the very purpose of the Consumer Protection Act.’ In its original form, the COPRA did not have any provision dealing with punitive damages. However, Section 14 of the COPRA was amended in 2002, empowering the forum to award punitive damages.69 Punitive damages are rarely, if ever awarded. Damages awarded in India have traditionally been compensatory, although the common law remedy of exemplary damages does exist. It was only in 1996, in Common Cause v Union of India,70 that the Supreme Court awarded exemplary damages. This case established that punitive damages were appropriate for deplorable conduct such as fraud and malicious, reckless, abusive, and oppressive behavior.71 The damages awarded could be affected by certain factors, such as the complainant’s conduct. In Tata Engineering & Locomotive Co. Ltd. v Gajanan 67 K.G. Sathyanarayan v Bharat Petroleum Corporation Ltd, 3 (2006) CPJ 8 NC. 68 Lucknow Development Authority v M.K. Gupta, AIR 1994 SC 787, at para 8. 69 Consumer Protection (Amendment) Act, 2002 (Act Number 62 of 2002). 70 Common Cause v Union of India, AIR 1997 SC 1886. The case involved a Minister allotting petrol pumps in an unfair and unconstitutional manner. 71 J. Melnitzer, ‘Punitive Power: Indian courts finally begin awarding punitive damages in intellectual property cases’, Inside Counsel, at http://www.insidecounsel.com/ Issues/2009/August-2009/Pages/Punitive-Power.aspx.
- 202. IND-16 INTERNATIONAL PRODUCT LIABILITY Y. Mandrekar,72 the complainant had purchased a truck and used it for a period of eight months and traveled a distance of 9,000 kilometers. At that point, the complainant noticed certain defects and returned the truck for repairs. The problems continued despite the repairs. The Supreme Court, while holding that compensation was to be paid, decided to deduct one-third of the compensation for the period when the car was used by the complainant. On the other hand, in Chilu Ram v Escorts Ltd.,73 the Commission held that the complainant was entitled to compensation in addition to the replacement of the defective part, in lieu of the tractor being inoperative for a number of years. Disclaimers/Limitation on Remedies by Contract In General Section 62 of the SGA deals with the exclusion of implied rights, duties, or liabilities by way of express agreement between the parties. In the absence of a written contract, limitation can be achieved in two ways. The first is by a course of dealing between the parties, where previous transactions would be looked into. The second is by usage, if the usage is such as to bind the parties to the contract. Usage is to be understood as ‘custom’, as provided in A.K. Srinivasa Naidu v S. Jayarama Reddiar.74 Limitation Originally, the COPRA did not provide for a limitation period. The limitation period was derived from the Indian Limitation Act, 1963. The District Forum, the State Commission, and the NCDRC had adopted a period of three years as the prescribed period of limitation in consumer disputes, starting from the date of cause of action. This rule of limitation devised by the Consumer Courts was approved by the Supreme Court in Corporation Bank v Navin Shah.75 The reason was that this was the period under the Limitation Act for bringing a monetary claim. Subsequently, on 18 June 1993, the Consumer Protection (Amendment) Act introduced Section 24-A. According to Section 24-A of the COPRA, claims must be brought before the appropriate forum within two years from the date on which the cause of action arises. Section 24-A of the COPRA states: 72 Tata Engineering & Locomotive Co. Ltd. v Gajanan Y. Mandrekar, AIR 1997 SC 2774. 73 Chilu Ram v Escorts Ltd., IV (2003) CPJ 38 (NC). 74 A.K. Srinivasa Naidu v S. Jayarama Reddiar (1976) 2 MLJ 166, at para 7. 75 Corporation Bank v Navin Shah, AIR 2000 SC 761, at para 12.
- 203. INDIA IND-17 ‘Limitation period- ‘(1) The District Forum, the State Commission, or the National Commission shall not admit a complaint unless it is filed within two years from the date on which the cause of action has arisen. ‘(2) Notwithstanding anything contained in sub-section (1), a complaint may be entertained after the period specified in sub- section (1) if the complainant satisfies the District Forum, the State Commission, or the National Commission, as the case may be, that he had sufficient cause for not filing the complaint within such period: ‘Provided that no such complaint shall be entertained unless the National Commission, the State Commission, or the District Forum, as the case may be, records its reasons for condoning such delay.’ It must, however, be remembered that a claim cannot be dismissed on the ground of limitation when the cause of action is continuing.76 The delay may be condoned if the complainant satisfies the forum that he had sufficient cause. In State of West Bengal v Howrah Municipality,77 the Supreme Court held that the words ‘sufficient cause’ should receive a liberal construction so as to advance substantial justice when no negligence, inaction, or want of bona fide is imputable to the party.78 Under the MRTP Act, claims for negligence and breach of contract must be brought within a period of three years. This period was approved by the Supreme Court in Corporation Bank v Navin Shah,79 which, although rendered in the context of the COPRA, is equally applicable to the MRTP Act.80 The MRTP Commission has observed that even in the absence of an express provision of limitation, the principle of laches and delays cannot be forgotten.81 Corporate Successor Liability In India, the liability of a corporate successor is usually determined by the arrangement under which the succession has taken place. In Saraswati Industrial Syndicate Ltd. v CIT,82 it was observed: 76 Bank of India v H.C.L. Ltd. 1994 (1) CPC 146 (NC). 77 State of West Bengal v Howrah Municipality, AIR 1972 SC 749. 78 Quoted with approval in Tehri Hydro Development Corporation Ltd. v New India Assurance Co. Ltd., MANU/CF/0402/2002. 79 Corporation Bank v Navin Shah, AIR 2000 SC 761. 80 M.S. Shoes East Ltd. v Indian Bank I (2003) CPJ 131 (MRTP), at para 24; also relevant is Triveni Borewells v Ingersoll Rand (I) Ltd., MANU/MR/0022/2002. 81 M.S. Shoes East Ltd. v Indian Bank I (2003) CPJ 131 (MRTP), at para 24. 82 Saraswati Industrial Syndicate Ltd. v CIT (1991) 70 Com Cases 184, 189.
- 204. IND-18 INTERNATIONAL PRODUCT LIABILITY ‘. . . when two companies amalgamate and merge into one, the transferor-company loses its entity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation . . . ’ In cases where action had been brought against a company that had merged into another company, the opposite party was allowed to amend its position so as to implead the company emerging from the merger which had taken over the liabilities of the earlier company.83 There is no authority in India regarding the product liability of a successor corporation.84 However, it has been held in a case involving the evasion of excise that any liability for penalties remains the liability of those who committed the offense as a manufacturer and cannot be transferred in law to a successor.85 Product Liability Insurance In General In India, there is no statutory provision to encourage manufacturers to seek insurance coverage, with one exception. The Public Liability Insurance Act86 was enacted in 1991, in accordance with Principle 13 of the Rio Declaration on Environment and Development. Principle 13 states: ‘States shall develop national law regarding liability and compensation for the victims of pollution and other environmental damage. States shall also cooperate in an expeditious and more determined manner to develop further international law regarding liability and compensation for adverse effects of environmental damage caused by activities within their jurisdiction or control to areas beyond their jurisdiction.’ The enactment of the Public Liability Insurance Act came in the aftermath of the Bhopal Gas tragedy in 1984, which was marked by a flurry of legislative activity. Some examples are the Environmental Protection Act, 1986, and the Factories Act, 1987. The real impetus for liability insurance in the marketplace came after the decision in Vellore Citizens Welfare Forum v Union of India,87 where the tanneries in the vicinity of the Palar River were penalized for causing 83 State of U.P. v Jaya Shree Textile & Industries AIR 1985 All 212. 84 In India, the issue is tempered by the purchase of Union Carbide Corporation (responsible for one of the world’s most lethal industrial catastrophes) by Dow Chemical Company in 2001. The Government is still undecided on the issue of the liability of Dow Chemical Company. 85 Duncan Agro Industries Ltd. v Union of India 1988 (18) ECC 358. 86 Act Number 6 of 1991. 87 Vellore Citizens Welfare Forum v Union of India, AIR 1996 SC 2715.
- 205. INDIA IND-19 pollution. The total compensation amount amounted to approximately INR 304,800,000.88 The Public Liability Insurance Act provides for compulsory public liability insurance payments to persons affected by accidents that occur while hazardous substances are handled. Under Section 4(1) of the Public Liability Insurance Act, it will be the duty of an ‘owner’ (meaning a person who owns or has control over handling any hazardous substance at the time of an accident) to take out, before handling the substance, one or more insurance policies. Under Section 4(2A) of the Public Liability Insurance Act, such policies must be for an amount not less than the amount of paid-up capital of the undertaking and not more than INR 150,000,000. Product liability insurance is widely available in India and is offered by all the major general insurance companies. However, there is no data available on the actual number of manufacturers who utilize such policies. In India, as things stand, most companies opt for product liability insurance that insures for liability against accidental death, bodily injury, and/or disease or accidental damage to property.89 A more recent development in the Indian scenario has been the introduction of product recall policies.90 Nature of General Liability Policies A standard policy available in India would indemnify the insured against liability for accidental death and/or bodily injury or disease caused to any third party and against accidental damage to the property belonging to a third party. Certain insurance policies also cover pollution/contamination of the atmosphere, water, land, and other tangible properties. The policy would cover products manufactured by the insured after the product has left his premises. Usual Extent of Cover The coverage is afforded to claims related to injury or damage caused as a consequence of a defect in the product. Most policies also provide legal costs and related expenses incurred by the insured manufacturer. In addition, many insurance policies include the option of an ‘add-on cover’, which extends the coverage to limited vendors’ (distributors’) liability; liability arising out of judgments or settlements in countries which operate under United States or Canadian laws (‘North American’ jurisdiction is usually excluded 88 A. Krishnakumar, ‘An Award and Despair’, Frontline, Volume 19, Issue 16 (August 2002). 89 A. Dhall, ‘Total Recall: Product Liability in India’, The Economic Times (2010), at http://articles.economictimes.indiatimes.com/2010-04-25/news/27631605_1_product- insurance-brokers-insurance-plan. 90 A. Dhall, ‘Total Recall: Product Liability in India’, The Economic Times (2010).
- 206. IND-20 INTERNATIONAL PRODUCT LIABILITY under a standard policy); and liability of technical collaborators arising out of the agreement between the collaborator and the insured. Usual Exclusions The usual exclusions in product liability insurance policies in India include: • Cost incurred for repairing, modifying, or replacing the defective product or component; • Loss of goodwill and loss of market; • Risks of war and terrorism; • Risks from asbestos; • Nuclear risks; • Deliberate or willful non-compliance with statutory provisions; • Fines, penalties, exemplary damages, and similar economic penalties; and • Damage to the insured’s property, also known as first-party loss. The list is by no means exhaustive. Usually, there are significant differences in the list of exclusions in policies offered by different companies. Duties of the Insured The insured party is duty-bound to notify the insurer about every relevant matter and factor that could influence the insurer’s decision to accept the risk. After the policy comes into effect, the insured party must ensure compliance with statutory provisions. Willful or deliberate non-compliance with statutory provisions invites an exclusion of coverage. Upon the happening of an event likely to result in a claim, the insured must notify the insurer immediately. After the notification, the insured must submit the relevant documents, including the completed claim form; the original letter from the third party claiming compensation; the First Information Report by the police, where necessary; the medical certificate/medical bill/postmortem report, where necessary; and the survey/investigation report.91 Product Liability Litigation Frequency of Litigation In India, most product liability claims are not settled out of court prior to the judgment. The primary reason for this situation is that, in most cases, the compensation offered by the manufacturer tends to be below the expectation of 91 N. Ramachandran, ‘Products Liability, a Sword of Damocles’, The Hindu (30 August 2001), at http://www.hindu.com/thehindu/2001/08/30/stories/0630000h.htm.
- 207. INDIA IND-21 the complainant. The volume of litigation in India is reasonable, largely because of the ubiquity and the simple procedures of the consumer forums. Second, the litigant can approach such forums without engaging the services of a lawyer, although such cases are not very common and there is no requirement of court fees. Third, legal technicalities are not strictly followed in consumer forums. This ensures that the forum’s decisions are primarily influenced by the circumstances of each individual case. Finally, under Section 11 of the COPRA, if the value of product is below INR 2,000,000, the complaint is to be filed before the District Forum. Most claims fall into this category. Given the ubiquity of the district forums, this aspect adds to the ease of procedure before consumer forums vis-à-vis civil courts. However, it is not possible to judge the efficacy of consumer forums based on this information. It merely suggests that complainants prefer filing a complaint under the COPRA to a civil suit. There are already plans being laid down for a new court called the National Consumer Protection Court Authority, on the lines of the United States Federal Trade Commission (FTC).92 Attitude of the Courts Generally, the consumer forums have a pro-consumer approach. In Laxmi Engineering Works v P.S.G. Industrial Institute,93 the Supreme Court held: ‘The idea was to help the consumers get justice and fair treatment in the matter of goods and services purchased and availed by them in a market dominated by large trading and manufacturing bodies.’ In consumer forums, legal technicalities are not as rigidly followed as they would be in a civil suit. An analysis of consumer forum judgments reveals the down-to-earth manner in which the evidence is analyzed and the decision rendered. The Supreme Court observed that the COPRA is a ‘social benefit legislation’.94 The courts must therefore adopt a constructive approach to do full justice to the objectives of the legislation.95 92 R. Guha, ‘Stricter Law to let Consumers take Manufacturers to Court’, The Financial Express, at http://www.financialexpress.com/news/stricter-law-to-let-consumers-take- manufacturers-to-court/698812/. 93 Laxmi Engineering Works v P.S.G. Industrial Institute AIR 1995 SC 1428, at para 11. 94 Lucknow Development Authority v M.K. Gupta, AIR 1994 SC 787, at para 2. 95 Lucknow Development Authority v M.K. Gupta, AIR 1994 SC 787, at para 2.
- 208. IND-22 INTERNATIONAL PRODUCT LIABILITY Extent of Damages There is no specific limit on the extent of recoverable damages in India. Punitive damages are possible, although rare. In fact, under Section 14(1)(d) of the COPRA, compensation to the complainant is awarded only with due regard to the circumstances of the case. Orders for repair/replacement are much more common. Choice and Application of Law An analysis of the product liability claims in the country reveals a gargantuan amount of complaints filed before consumer forums. As previously discussed, civil suits are not as popular, owing to various factors, including the highly technical and complicated procedure, the need of paying court fees and various other legal expenses, and the comparatively slower speed of redressal. Although the consumer forums in the country are more popular, it does not mean that this redressal system is perfect. There are several problems with the system, including but not restricted to the fact that consumer forums are not empowered to take up cases on a suo moto basis; a consumer cannot file a complaint if a remedy is available under another law; and consumer forums cannot grant interim relief, or ad interim relief.96 Conclusion While there is no specific legislation in India which deals with product liability claims, several legislative measures govern the liability of manufacturers, wholesalers, distributors, and other members in the chain of commerce. The purpose of these laws is to protect consumers from unsafe or harmful products, while holding any person who trades in defective or harmful products liable. An analysis of the product liability claims in India shows that the consumer forums in the country are responsible for handling most of the claims. While the forums have consistently focused on a pro-consumer approach and are vastly preferred to civil courts, there is a need for a watchful guardian of consumer interests, along the lines of the FTC in the United States. 96 Morgan Stanley Mutual Fund v Kartick Das (1994) SCC (4) 225, at para 9.
- 209. Italy Introduction ............................................................................................ ITA-1 Product Liability under Contract Law .................................................... ITA-2 Product Liability under Tort Law .......................................................... ITA-3 In General ................................................................................ ITA-3 General Provisions of Civil Code ............................................ ITA-4 Specific Laws on Liability for Defective Products .................. ITA-6 General Principle of Producer’s Liability without Fault ........................ ITA-7 In General ................................................................................ ITA-7 Definition of Product ............................................................... ITA-7 Definition of Producer ............................................................. ITA-8 Definition of Consumer ........................................................... ITA-9 Definition of Defective Product ............................................... ITA-9 Burden of Proof on Part of Injured Person .............................. ITA-11 Burden of Proof on Part of Producer ....................................... ITA-12 Contributory Negligence on Part of the Consumer .................. ITA-16 Contributory Negligence on Part of Other Producers or Professionals Involved in Supply Chain .................................. ITA-17 Damages .................................................................................. ITA-18 Statute of Limitation and Forfeiture Term ............................................. ITA-19 Mandatory Regime of Liability .............................................................. ITA-20 (Release 1 – 2012)
- 211. Italy Antonello Corrado CFMP – Studio Legale Associato Rome and Milan, Italy Introduction Since 1998, the legislature has introduced a specific set of rules governing product liability.1 Presidential Decree Number 224 dated 24 May 1988 (“Presidential Decree Number 224/1988”) implements Directive 85/374/ECC on the approximation of the laws, regulations, and administrative provisions of Member States concerning liability for defective products. The entry into force of Presidential Decree Number 224/1988 is a milestone in the area of product liability in Italy mostly because, before its implementation, the lack of clear and specific rules on the matter made it difficult for consumers to obtain compensation for damages incurred in the use of defective products. In fact, consumers only had the general remedies under contract law or tort law set forth by the Civil Code. Since then, several other statutes have been approved by the legislature to amend Presidential Decree Number 224/19882 or to regulate other related aspects.3 Nowadays, the matter of liability for defective products is mainly governed by Title II of Legislative Decree Number 206 dated 6 September 2005 (“Consumer Code”), which has essentially codified the rules contained in several statutes approved over the years. This area of law is certainly one of the most remarkable examples of how European legislation has significantly contributed to the rapid evolution of domestic legislation, thus avoiding the need for consumers to have recourse to general legal remedies not tailored for this purpose, and reducing the risk of having to rely on fluctuating and uncertain interpretations made of such remedies in case law. 1 The author would like to thank Maria Zinno, Roberta Lo Giudice, and Joseph Matthews for the valuable support provided in updating this chapter. 2 For example, Legislative Decree Number 25 dated 2 February 2001, implementing Directive 1999/34/EC, amending Council Directive 85/374/EEC. 3 For example, Legislative Decree Number 24 dated 2 February 2002, implementing Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees. (Release 1 – 2012)
- 212. ITA-2 INTERNATIONAL PRODUCT LIABILITY Product Liability under Contract Law The main remedies for product liability under contract law are those under the Civil Code relating to sale contracts,4 particularly: (a) sale of defective goods;5 (b) sale of goods lacking the qualities promised by the vendor or otherwise essential for the purpose for which the goods are intended to be used;6 and (c) sale of goods where the goods received are completely different from those that had been contracted for (aliud pro alio).7 In case of sale of defective goods, the Civil Code allows the purchaser to either terminate the contract or request for a reduction of the purchase price.8 In case of termination of a contract, the seller should refund the purchase price and reimburse the purchaser for his expenses and payments reasonably incurred in connection with the sale, while the purchaser should return the goods to the extent that they have not perished as a result of the defects.9 The seller also is liable for any damages incurred by the purchaser unless the former is able to prove that he was unaware, without fault, of the claimed defect.10 Where the goods lack promised or essential qualities, the Civil Code only entitles the purchaser to terminate the contract when the lack of qualities exceeds the limits of tolerance generally allowed by common practice. In the case of aliud pro alio, the purchaser is entitled to terminate the contract according to the general principles of law applicable in the case of a breach of contract. 4 Civil Code, arts 1470 et seq. 5 In this respect, Article 1490 of the Civil Code states: “1. The seller is obliged to guarantee that the good sold is immune from defects that make the good itself incapable of being used for the purpose to which the good is destined, or otherwise diminish its value in a significant manner. 2. Ineffective is the agreement to exclude or limit the warranty above, if the seller has willfully omitted to disclose the defects to the purchaser.” 6 The case is governed by Article 1497 of the Civil Code, which states: “1. If the good purchased lacks the qualities that had been promised or those qualities essential for the purpose for which the good is intended to be used, the purchaser is entitled to terminate the contract according to the general provisions regarding the termination of contracts for breach, provided that the defects of qualities exceed the degree of tolerance normally allowed under common practice. 2. However, the right to terminate the contract is subject to the forfeiture term and the statute of limitation set forth under Civil Code, art 1495.” 7 This case is not specifically covered by the Civil Code but has been created and developed over the years by scholars and prevailing case law. 8 However, Article 1491 of the Civil Code provides that “[n]o warranty is owed by the seller if, at the time of the contract, the purchaser was aware of the defects or if such defects were clearly recognizable, provided however, in this latter case that the seller has not expressly declared that the good was exempt from defects.” 9 Civil Code, art 1493. 10 Civil Code, art 1494. (Release 1 – 2012)
- 213. ITALY ITA-3 All these remedies may only be employed against parties to the contract. A consumer may not sue the producer under contract law unless the defective product was sold directly by the producer, which is very unlikely for most mass market goods. As such, these remedies may not guarantee a sufficient degree of protection for the purchaser. The seller also can be held accountable for damages caused, but only if the purchaser is able to prove that the former was aware of the defects, lack of qualities, or differences among the goods. This burden of proof is very frequently hard to meet, especially when the seller is at the end of the distribution chain.11 The purchaser may validly utilize the relevant remedies solely upon the occurrence of the following conditions: • The seller has been notified of the defect or lack of qualities within the forfeiture term of eight days after the discovery of such defect or lack of qualities; and • The action is brought within one year after delivery of the goods. The one-year period applies regardless of when the defect or lack of qualities has been actually discovered. As such, even if the defect or lack of qualities has been discovered after the expiry of such term, any action against the seller would be time-barred. The forfeiture term and the statute of limitation do not apply in the case of aliud pro alio. The general rules on breach of contract are applicable, such that no forfeiture term is to be complied with, and the general 10-year statute of limitation period should be observed in order to bring an action. The scenario of the aliud pro alio has precisely been developed to create a more flexible remedy for the purchaser in very serious cases of breach of contract that do not justify the use of the strict regime. Thus, the remedies under contract law have proven to afford purchasers of defective goods a very limited degree of protection. Product Liability under Tort Law In General One of the main limits of the remedies under contract law is the fact that the purchaser may not sue persons or entities that are not parties to the sale contract. Case law has focused its attention on tort law under Articles 2043 et seq of the 11 A judgment of the Supreme Court regarding the issue of product liability (25 May 1964, Number 1270) excluded the reseller’s liability for damages caused to a consumer by rotten cookies, on the consideration that the cookies were sealed and the reseller could not be aware of the product’s defect. On the contrary, the producer was found solely liable for the manufacturing defect, although on a different ground of tort law. (Release 1 – 2012)
- 214. ITA-4 INTERNATIONAL PRODUCT LIABILITY Civil Code as the main body of law used in previous years to hold producers, distributors, or suppliers accountable for damages incurred through the use of defective products, at least until the entry into force of Presidential Decree Number 224/1988. Until then, case law had tried to extend the application of tort law provisions to the area of product liability, acknowledging that technological progress had increased the need to guarantee a higher degree of protection for general consumers. There also exists asymmetrical information between producers and consumers which often results in the impossibility for consumers to adequately evaluate the risks connected to the use of certain products, and to adequately prove the producers’ fault in case of defective products. General Provisions under Civil Code General Provision under Article 2043 Under Article 2043 of the Civil Code, which is usually referred to in most product liability cases, anyone who causes unfair damage to a third person as a result of a willful or negligent act is obliged to hold such person harmless and to indemnify such person from the damages caused by the act. Each tort case brought under Article 2043 of the Civil Code requires the claimant to prove (a) the defendant’s fault or willful act, (b) the damages incurred, and (c) causation. While the last two items are generally easy to demonstrate, the first item may be more difficult to prove due to the lack of technical expertise and knowledge on the part of the consumer. Case law has acknowledged this objective difficulty and has gradually tried to reduce the burden of proof to be borne by consumers. Certain case law has held that producers are required to use an enhanced duty of care when designing and producing their goods because general consumers may use the goods in a manner different than those suggested by the producer or that could reasonably be expected to be used. This principle is usually relevant in products destined to be used by children or those that are inherently hazardous.12 Thus, the producer also may be held liable for damages caused by defective products when the consumer has contributed to the occurrence of such damages through his negligent conduct. In other instances, courts have found that the specific circumstances of the case led to an affirmation of the producer’s fault on the basis of mere factual presumptions. This has resulted in the consumer being released from the burden 12 Supreme Court (10 October 1957), Number 4004; Supreme Court (10 November 1970), Number 2337. (Release 1 – 2012)
- 215. ITALY ITA-5 of proving the producer’s fault. Instead, the producer was left with the burden of proving the absence of any negligence on his part.13 Liability of Principal under Article 2049 Under Article 2049 of the Civil Code, a principal is liable for the damages caused by his employees in the performance of their duties. This general principle has sometimes been applied by case law to remedy liability for defective products, especially in cases of manufacturing defects. In contrast to cases of design or warning defects, manufacturing defects are generally attributable to employees. Article 2049 provides for an objective liability scheme that does not allow any exemptions or the submission of contrary proof in favor of the principal. The only way for the principal to escape liability is to prove the absence of any manufacturing defect or the absence of causation between the product and the alleged damage incurred by the injured person. Liability for Hazardous Activities under Article 2050 Article 2050 of the Civil Code states that anyone who carries out hazardous activities is liable for the damages caused to third parties in the performance of such activities, unless he is able to prove that he has adopted any and all safety measures necessary to avoid the damage. The hazardous nature of the product or its manufacturing process requires the producer to adopt all necessary safety measures required under the circumstances. From a procedural standpoint, this implies that, in the case of damages caused by hazardous products, the consumer has a reduced burden of proof, while the producer’s burden of proof is correspondingly enhanced. Thus, one of the most debated questions in product liability cases brought under Article 2050 is whether the activity qualifies as hazardous as expressly provided by law or based on factual indexes. A significant trend in case law has been to qualify the manufacture of pharmaceutical products as hazardous. As to derivative products, the courts have held that the manufacturer should verify the complete absence of any potential risk of transmitting diseases by adopting every possible analysis and control method at their most advanced level as required by biological and medical science at the time of production, regardless of the cost of such methods. As such, case law on the manufacture of hemoderivatives has contributed to the development of the question of product liability caused by factors unknown at the time of production. Many manufacturers are exempted from liability if they 13 Supreme Court (25 May 1964), Number 1270; Supreme Court (28 October 1980), Number 5795; Supreme Court (13 January 1981), Number 294; and Supreme Court (20 April 1995), Number 4473. (Release 1 – 2012)
- 216. ITA-6 INTERNATIONAL PRODUCT LIABILITY can prove that they used every state-of-the-art test and the most sophisticated controls available at the time of production. Thus, if new diseases are discovered that were unknown at the time of the commercialization of the product and the hemoderivative product transmits such disease, the manufacturer will be exempt from liability.14 Specific Laws on Liability for Defective Products The Consumer Code has introduced a clearer and more effective set of remedies and warranties in favor of consumers compared to those in contract law or tort law. The current age of increasing technology has incited the introduction of the principle of liability without fault on the part of the producer as the sole means of guaranteeing adequate protection for consumers against damages caused by defective products, and for solving the problem of fair apportionment of the risks inherent in modern technological production. The principle of liability without fault also implies that, in order for the consumer to obtain compensation for damages, he will be required to prove the product defects and the actual damages incurred, while the producer is left with the burden of proving the existence of certain exonerating circumstances. Thus, the new system currently adopted by the Consumer Code has not only had the benefit of thoroughly disciplining the matter of product liability in Italy, but has introduced a much higher degree of protection in favor of consumers by establishing a more certain, complete, and reliable legal framework. The set of remedies and warranties introduced by Presidential Decree Number 224/1988 is not intended to supersede the general remedies under the Civil Code.15 Thus, in case of damages for defective products, the consumer may decide to utilize any of these remedies either alone or concurrently.16 14 Case law on this matter has extended the duty to adopt safety measures and controls to each operator involved in the production chain, starting from the producer of the raw material to the producer of the pharmaceutical producers who put the product into circulation. 15 Directive 85/374/EEC states: “Whereas under the legal systems of the Member States an injured party may have a claim for damages based on grounds of contractual liability or on grounds of non-contractual liability other than that provided for in this Directive; insofar as these provisions also serve to attain the objective of effective protection of consumers, they should remain unaffected by this Directive; whereas, insofar as effective protection of consumers in the sector of pharmaceutical products is already also attained in a Member State under a special liability system, claims based on this system should similarly remain possible.” Accordingly, Article 13 of the Directive states that it will not affect any rights that an injured person may have according to the rules of the law of contractual or non-contractual liability or a special liability system existing at the moment when the Directive has been notified. 16 Some recent case law has clearly specified that the remedies under the Consumer Code concur with the general remedies in tort law: Supreme Court (23 July 2008), (Release 1 – 2012)
- 217. ITALY ITA-7 General Principle of Producer’s Liability without Fault In General Article 114 of the Consumer Code sets forth the general principle according to which “the producer is liable for the damages caused by the defects of its products”. Scholars have variably interpreted this principle, either as a case of strict liability without fault or mere presumption of fault subject to contrary proof, or otherwise as a fair model transferring to producers the burden of proving the absence of fault due to the position of asymmetrical information relating to the manufacturing technology. Definition of Product Article 115 of the Consumer Code specifies that, for the purpose of product liability, “product” is to be construed as any movable asset, even if it is incorporated into another movable or immovable asset. This definition places specific emphasis on movable assets industrially produced and industrial fragmentation in the manufacturing process. By referring to the concept of incorporation, the Consumer Code extends the regime of liability for defective products to any producer that has contributed to the manufacture of the finished product or has participated in the supply chain.17 On the other hand, the Consumer Code excludes from its scope of application any defect of immovable assets and intangible assets.18 A highly debated question among courts and scholars is whether or not the supply of services also should be included.19 Number 30818; Supreme Court (31 May 2005), Number 11612; Supreme Court (29 April 2005), Number 8981; Judgments of the Tribunal of Rome dated 4 December 2003 and 14 November 2003; and Judgment of the Tribunal of Cesena-Forlì dated 25 November 2003. Article 127 of the Consumer Code also specifies that its provisions do not exclude or limit the rights to which the injured person is entitled to under other provisions of law. 17 In an opinion dated 23 March 1995, the Tribunal of Milan held the seller of a piece of furniture jointly and severally liable with the manufacturer because the seller had been requested to set up and assemble the piece of furniture and, in doing so, he failed to use certain safety standards which he was required to use despite the fact that the manufacturer had failed to warn him of the safety measures to be adopted in certain cases. 18 Some scholars also include software in the definition of “product”, although opinions differ regarding the exact qualification of defects for this kind of product. 19 As to whether the supply of services should be included in the scope of Directive 85/374/EEC, the Court of Justice of the European Communities (Judgment of 10 May 2001, Case 203/99) ruled that a defective product is put into circulation when it is used during the provision of a specific medical service that consists of preparing a human organ for transplant, and the damage caused to the organ results from that (Release 1 – 2012)
- 218. ITA-8 INTERNATIONAL PRODUCT LIABILITY Article 115 of the Consumer Code also includes electricity in its scope of application. The generic reference to “electricity” implies that the liability might be extended not only to the producer but to all other operators involved in the supply grid. Definition of Producer Pursuant to Article 3, Paragraph 1(d) of the Consumer Code, a producer is any manufacturer of goods or supplier of services or any agent thereof, as well as any importer of goods or services into the territory of the European Union, or any other natural or legal person purporting to be a producer by placing his name, trade mark, or other distinctive sign on the good or service. Legislative Decree Number 221 of 23 October 2007 added Article 115, Paragraph 2bis, which defines a producer as “any manufacturer of a finished product or its component, as well as the manufacturer of raw materials and, for agricultural products and for those deriving from farming and hunting, the producer is respectively the farmer, the cattle farmer, the fisherman and the hunter”. This definition completes the previous general definition under Article 3, Paragraph 1(d), which still remains in force on a residual basis. Thus, product liability attaches firstly to manufacturers of consumer goods. Given the actual definition of “product” under the Consumer Code, manufacturers are considered to be manufacturers of raw materials, of parts of the finished product, or otherwise of the finished product. Any agent of such manufacturers also might be held liable. Product liability also attaches to importers of products coming from outside the European Union (although the importer will have recourse against the manufacturer for contribution). Product liability also attaches to all those persons who appear to consumers as being the actual manufacturers of the goods or the actual suppliers of services by applying a distinctive sign to either the goods or the services supplied. This is aimed at enhancing protection for consumers who may not be aware of the distinction between a “trade mark” and a “brand or merchandise mark”. In this case, liability will not only be limited to the actual manufacturer of the defective product, but will be extended to any person who markets the product. Obviously, if the name of the manufacturer is known to consumers, the former will be liable to the latter. Pursuant to Article 116, Paragraph 1, of the Consumer Code, when the manufacturer of the defective product is not identified, a supplier distributing the product in the exercise of its business has a subsidiary liability for such defects, which may be attributed only if it fails to provide the consumer with the name preparatory treatment. This judgment also includes human blood after its removal from the body in the definition of “product”. (Release 1 – 2012)
- 219. ITALY ITA-9 and address of the manufacturer (or the supplier who sold the products to him) within three months from receipt of a written request from the consumer. The supplier also may be held liable under the general remedies of contract law or tort law.20 Definition of Consumer Under Article 3 of the Consumer Code, the term “consumer” is applied only to one who acts for purposes unrelated to his profession. The possibility of also including legal entities within the definition has long been discussed in both doctrine and jurisprudence. The Court of Justice has clarified that the term “consumer” includes only natural persons and not companies that conclude agreements with other companies for the purchase of goods or services for the exclusive benefit of their employees. The notion of consumer depends on the particular activity of the individual and not on his permanent condition. Thus, a person may take, from time to time, a consumer or professional status, depending on whether or not the agreement presents a functional connection to the professional or business activities to be performed. The Supreme Court has stated that the natural person who carries out business or professional activities may be considered as a consumer only when he enters into a contract for the satisfaction of needs of daily life not connected with these activities, and should be considered a professional when he concludes an agreement relating to his professional activity. Some scholars are of the opinion that a person should be qualified as a professional at all times when there is a professional purpose, even where the latter is a qualitative or quantitative minority with respect to personal use. However, some writers are of the opinion that a quantitative and qualitative judgment of preference should be conducted between the two activities, so that the contractor will be considered a consumer whenever personal purposes prevail. On this point, the Court of Justice has clarified that in a mixed agreement (contratti misti), the contractor will not be considered a consumer unless the business purposes are so limited as to be negligible in the general context of the operation. Definition of Defective Product Article 117 of the Consumer Code substantially reproduces the definition and reference model of a defective product under Directive 85/374/EC. As specified 20 Supreme Court (1 June 2010), Number 13432 has specified that, pursuant to Article 116 of the Consumer Code, the supplier has a duty to provide all the information he has available, regardless of a consumer’s previous request, when the manufacturer is not identified. (Release 1 – 2012)
- 220. ITA-10 INTERNATIONAL PRODUCT LIABILITY in the Directive, in order “to protect the physical well-being and property of the consumer, the defectiveness of the product should be determined by reference not to its fitness for use but to the lack of the safety which the public at large is entitled to expect; whereas the safety is assessed by excluding any misuse of the product not reasonable under the circumstances”. Thus, the definition of “defective product” is completely different from the general principles on warranties applicable to sales contracts, which emphasize the inherent defect or lack of promised quality. To activate the regime of contractual warranties, the product is required to have an actual and objective defect or lack of quality. The definition under Article 117 of the Consumer Code emphasizes the concept of safety and the legitimate expectations of the general public under the circumstances,21 thus: • A product is defective when it does not provide the safety that a person is entitled to expect, taking into account all the circumstances of the case, including: (a) the way the product has been put into circulation, its presentation, exterior features, and the instructions and warnings provided by the producer; (b) the use to which the product could reasonably be expected to be put, and the conduct that is reasonably expected to occur with respect to the product; and (c) the time when the product was put into circulation. • A product will not be considered defective for the sole reason that a better product has been put into circulation at any time. • A product is defective if it does not offer the same degree of safety normally offered by other products of the same series. The key principle is that the producer will be held liable every time the level of attention and caution which the general public has come to expect has been reduced by the specific circumstances of the case, ie, those listed under Article 117, Paragraphs 1(a) to (c), of the Consumer Code. Article 117 also refers to the 3 main categories of product defects generally accepted by the modern theories of product liability, ie, manufacturing defects, design defects, and warning or information defects, which have been discussed in case law but had never been transposed into a legislative measure before Presidential Decree Number 224/1988. More precisely, Article 117 clarifies certain issues that often arise in connection with such theories. In particular: • Paragraph 3 specifies one of the main criteria that might be used to prove a manufacturing defect, ie, by referring to the degree of safety normally offered by other products of the same series. 21 The Tribunal of Vercelli (7 April 2003) held that, rather than proving that the product shows a manufacturing defect, the injured person should prove that the product does not provide the safety requirements that a person is entitled to expect from such a product. (Release 1 – 2012)
- 221. ITALY ITA-11 • Paragraph 2 clarifies that a design defect cannot be determined for the sole reason that a better product is in circulation. Thus, the consumer would have to prove the existence of the defect on the general grounds and factors set forth by Paragraph 1 to validly claim a design defect. • Under Paragraph 1(a), a warning or information defect is one of the factors that should be considered in assessing the reasonable expectation of safety on the part of the consumer. The failure to warn or inform, or otherwise inadequate or improper warning or information regarding the product, may result in reducing the consumer’s level of attention or caution or may otherwise mislead him in the use he makes of the product. As such, the producer may be found liable for a defect in information. On the other hand, the higher the degree of detail and completeness of the information and warning given, the higher the degree of safety for the consumer, resulting in a reduction of the likelihood for the producer to be found liable for a defective product.22 Under Article 117, Paragraph 1(b) of the Consumer Code, the reasonable expectation of safety should be evaluated mainly on the basis of the use of the product that is reasonably expected and on the basis of the consumer’s conduct. The producer should reasonably predict the uses that might be made of the product and prevent any conduct on the part of the consumer which might increase the level of risk, within the bounds of reasonableness, so that the producer will not be found liable for uses of the product that exceed these bounds and could not be reasonably predicted.23 This principle is not absolute and may vary depending on the nature of the product or of the consumer. The standard of reasonableness for products to be used by children will be much higher in comparison to products to be used by adults, and the same goes for products that have an inherent risk of affecting human health in comparison to products that do not present such a risk. Burden of Proof on Part of Injured Person Under Article 120 of the Consumer Code, the injured person will be required to prove the defect, the damage, and the causal relationship between the two. This provision is a significant derogation from the general principles of Italian tort law, which normally require the injured person to prove the injurer’s fault or willfulness. The consumer’s protection is enhanced by limiting his burden of proof to very objective and factual pieces of evidence. This implies that the consumer will be exempt from having to prove the nature of the defect or that such defect is ascribable to the producer’s fault, the burden being left to the latter to prove the occurrence of any of the exemptions provided by law. 22 Supreme Court (13 February 2007), Number 3086. 23 Supreme Court (29 September 1995), Number 10274. (Release 1 – 2012)
- 222. ITA-12 INTERNATIONAL PRODUCT LIABILITY With regard to proof of the defect, specific reference should be made to Article 117 of the Consumer Code. The extent of the evidentiary burden is variable depending on the nature of the defect claimed and on the factual circumstances of the claimant’s situation.24 Proof of causation will follow the ordinary rules regarding proof of causation in tort law. Burden of Proof on Part of Producer In General Articles 118 and 120 of the Consumer Code contain the procedural rules to be applied to exempt a producer from claimed liability for a defective product. He should prove any of the circumstances described in Article 118 of the Consumer Code, namely that: • He did not put the defective product into circulation; • The defect causing the damage did not exist at the time when the product was put into circulation; • The product was not manufactured for sale or any other form of distribution for economic purposes, nor was it manufactured or distributed in the course of the producer’s business; • The defect is due to the product’s compliance with mandatory provisions or binding regulations; • The state of scientific and technical knowledge at the time when the producer put the product into circulation was not sophisticated enough to determine it as defective; and • In the case of a manufacturer or supplier of a component of the product or of raw materials, the defect is entirely attributable to the design of the product in which the component or raw material has been fitted or to compliance with the instructions given by the manufacturer of the product that utilized them. Product Not Put into Circulation by Producer When the defective product has been circulated against the will and intention of the producer (eg, when the product has been stolen from the producer and subsequently put into circulation), it would not be fair to hold him responsible as the damages caused by the defective product are not directly attributable to him. 24 Supreme Court (15 March 2007), Number 6007 has specified that the proof of causation and damages incurred by the claimant does not automatically prove the defect of the product and thus the producer’s liability. On the contrary, the defect “is not to be identified with an objective condition of harmlessness, but only with the lack of those safety standards generally required by the general public”. Supreme Court (8 October 2007), Number 20985; Tribunal of Milan (23 September 2008), Number 11162; Tribunal of Monza (18 October 2007), Number 2973. (Release 1 – 2012)
- 223. ITALY ITA-13 Article 119 of the Consumer Code construes the time when the product is put into circulation as the time when: • The product is delivered to the purchaser, the user, or an agent thereof, even if the product is delivered on trial or for examination purposes only; or • The product is tendered to a carrier or forwarding agent to have it delivered to the purchaser or user. The moment the product is put into circulation corresponds with the moment that the product is actually introduced in the market and exits from the sphere of control and disposability of the producer. Some scholars have debated whether the product should be considered put into circulation if, once a contract for the sale of goods has been concluded, the products purchased have not yet been delivered and are still stored in the producer’s warehouse. A strict interpretation of Article 119 would exclude the possibility of considering the products put into circulation until they are actually delivered to the purchaser or to a carrier or forwarding agent. Nonetheless, some scholars have held that importance should be placed on the producer’s actual intention of putting the products into circulation, which is unquestionable once the sale contract has been concluded. Thus, according to this interpretation, the time when the product is put into circulation is the time of execution of the sale contract. Nevertheless, pursuant to Article 119, the time the product is put into circulation will not necessarily correspond to the time when the product is sold. In fact, the producer will be held liable even when the product is tendered to a carrier or forwarding agent where a sale contract with the purchaser or user may not have been executed yet. By considering the case of delivery to a carrier or forwarding agent, part of the academic opinion has held that the Consumer Code has basically extended the regime of product liability to include damages caused to “bystanders”, ie, third parties different from the purchaser or user who nonetheless have been damaged by the defective product on a merely occasional basis. However, arguments against this theory postulate that the bystander may not benefit from the regime of product liability as he is not the purchaser or user to which the Consumer Code makes reference. If the defective product accidentally causes damages, then the bystander would only have recourse to the general remedies in tort law. The concept of the time a product is put into circulation is crucial for the regime of product liability because the Consumer Code attributes several legal effects to this concept, such as the following: (Release 1 – 2012)
- 224. ITA-14 INTERNATIONAL PRODUCT LIABILITY • Under Article 117, the degree of safety reasonably expected from the product should be evaluated when taking into account the manner in which and the actual time when it has been put into circulation; • Articles 118(b) and (e) refer to the time when the product has been put into circulation to assess whether or not the defect existed or if the state- of-the-art scientific and technical knowledge was not able to detect the actual defect of the product; • Article 120 states that, for the purpose of Article 118(b), it will be sufficient to prove that, under the circumstances, it is probable that the defect did not exist at the time when the product was put into circulation in order for the producer to be exempt from liability; and • Under Article 126, the right to indemnification of the injured person will be extinguished upon expiry of a period of 10 years from the time when the product was put into circulation. The Court of Justice of the European Communities made a significant clarification when it held that “Article 11 of Directive 85/374/EEC is to be interpreted as meaning that a product is put into circulation when it is taken out of the manufacturing process operated by the producer and enters a marketing process in the form in which it is offered to the public to be used or consumed”.25 Defect Not Existing at Time When Product Was Put into Circulation The Consumer Code exempts the producer from liability every time he is able to prove that the defect is dependent on exogenous factors that occurred after the product was put into circulation. Such factors should not be attributable to the producer and should be able to exclude the possibility that the defect actually existed at the time of the circulation but that it was not readily apparent at the time or that its potential detriment developed at a later point. It might not be easy to meet this burden of proof with absolute certainty given the fact that, from the time of circulation of the product until the moment in which the evidentiary process is carried out, a significant period of time may have elapsed. Thus, and to guarantee the effectiveness of this excluding factor, Article 120 of the Consumer Code has expressly reduced the extent of the burden of proof by requiring the producer to prove that, under the circumstances, it is likely that the defect did not exist at the time when the product was put into circulation. 25 Court of Justice of the European Communities, Case C-127/04, Judgment of 9 February 2006. (Release 1 – 2012)
- 225. ITALY ITA-15 Product Not Manufactured for Sale or Distribution or within Ordinary Course of Business The producer also is exempt from liability where the product has not been produced within his course of business, ie, professionally. This exclusion relies on the fact that the whole regime of product liability is directed to mass- marketed products manufactured by professional producers, on the main assumption of a significant contractual imbalance existing between such professionals and the mass of consumers. In the absence of the professional nature of the producer, such imbalance may not automatically occur, thus any damage caused by defective products should be remedied on the grounds of the general principles of tort law or contract law. Defect Depending on Compliance with Mandatory Provisions The producer also may not be held liable for defects arising from him having to comply with mandatory provisions of law or binding regulations. However, this exemption should not be extended so as to exclude liability if the producer is able to prove that he complied with all applicable laws and binding regulations while producing the product. The same should apply to compliance with minimum safety standards required for certain types of products or where the producer has obtained certification from public certification bodies. Impossibility to Detect Defect at Time Product Was Put into Circulation Under Italian law, the producer may not be held liable if he could not ascertain or be aware of the product defects even by using the most advanced and updated techniques offered by scientific knowledge at the time when the product was put into circulation (the so-called “development risk”), whereas Directive 85/374/EC allows the possibility of considering him so liable. A different question is whether the producer should be held liable if he becomes aware of the defect or a deficiency in the product’s safety after the time of circulation. Although some scholars have affirmed the producer’s liability, a strict interpretation of Article 118 of the Consumer Code should lead to the opposite result. Nonetheless, the consumer may still claim the producer’s liability under the general principles of tort law as the producer has become aware of the defect and has not carried out any measures to remedy such defect. Other provisions of the Consumer Code also could apply, especially those that have been introduced with the implementation of Directive 44/1999/EC regarding certain aspects of the sale of consumer goods and associated guarantees. (Release 1 – 2012)
- 226. ITA-16 INTERNATIONAL PRODUCT LIABILITY Defect Attributable to Design or Instruction of Manufacturer Producers or suppliers of components or raw materials are exempt from liability if the defect of the assembled product is a result of the design of the product in which the component or raw material has been fitted or of a failure on the part of the manufacturer of the product which used them to comply with the instructions given. For products that contain different components or raw materials, the purpose of the rule is to avoid the situation where every producer or supplier is held jointly liable towards the consumer, at least in circumstances where the liability is exclusively attributable to the design of the product or to the instructions given by the assembler. Contributory Negligence on Part of the Consumer Article 122 of the Civil Code provides that Article 1227 will apply in cases where the consumer, through his negligent conduct, has contributed to the causation of the damage in addition to the defective product. The producer will still be considered liable for the damages caused by his defective product, although the indemnification of the injured person will be reduced depending on the seriousness and the relevance of the injured person’s fault and the extent of the effects arising from his contributory conduct. The producer is not required to indemnify the injured person if the latter was aware of the product’s defect and the danger that might have arisen from such defect, and nevertheless willfully undertook the risk of using the product. The producer also is exempt from liability in this situation. In case of damages to material assets, the conduct of the person who was actually using the damaged asset will be considered in addition to the contributory negligence of the injured person.26 Case law has recognized the application of Article 1227 of the Civil Code where the producer was able to prove that the consumer’s conduct had been negligent and had contributed to the causation of damage. In evaluating the possible negligence of the consumer, case law has required a factual analysis to be conducted on a case-by-case basis, and a standard of evaluation to be applied to ascertain the nature of the product involved and the ordinary type of consumer by whom the product is generally intended to be used. In several cases, the Supreme Court has excluded the consumer’s contribution as a result of negligent conduct whenever, with regard to the nature of the product and the type of consumer to which the product was destined to be used, the producer was required to predict the consequences of an abnormal use of the product. 26 Civil Code, art 122, Paragraph 3. (Release 1 – 2012)
- 227. ITALY ITA-17 Hence, the prevailing case law has held that the contributory negligence of the consumer can be found only when he has engaged in conduct that went beyond the area of predictability within which the producer is obliged to create and provide safety measures. With respect to inherently hazardous products which require a license to be used, the Supreme Court has held that the use of such products by a person lacking a license may not itself be considered contributory conduct that may reduce the producer’s liability. On the contrary, to claim a consumer’s contributory negligence, the producer should prove not only that the consumer lacked the required license to use the product but also that his conduct was actually negligent. Otherwise, the producer would be solely liable for the damages caused by his defective product.27 Contributory Negligence on Part of Other Producers or Professionals Involved in Supply Chain Pursuant to Article 121 of the Consumer Code, if more than one person is responsible for the damage caused by the defective product, all of them are jointly and severally liable to the injured party. The ones who have indemnified the injured party will have recourse against the others who have not made any such payment for the difference based on proportion to the degree of fault and to the extent of the damages caused by such person’s conduct as judicially ascertained. Where it is impossible to prove the respective degrees of fault and the extent of the contribution to the damage incurred by the injured party, each person who caused the damage will be held equally liable. These provisions are aimed at avoiding the situation where a consumer has to prove the amount of fault and contribution of each person causing the damage. As a result, once both the contribution to the defective product and the damage have been found, the consumer may request the whole indemnification from any of the persons found liable, and such persons have the burden of obtaining compensation from the others for the portion of indemnification paid in excess of his proportional liability.28 The principle of joint and several liability is clearly aimed at protecting consumers, especially when the product is composed of many parts produced by several manufacturers. The principle should be coordinated with the exclusion set forth by Article 118(f). 27 Supreme Court (14 June 2005), Number 12750. 28 Article 121 has confirmed some previous judgments issued by various courts, such as Supreme Court (9 June 1986), Number 3816; Supreme Court (13 May 1980), Number 1460; Court of Appeal of Milan (10 October 1978); and Tribunal of Rome (27 June 1987). (Release 1 – 2012)
- 228. ITA-18 INTERNATIONAL PRODUCT LIABILITY Another derogation to the general principle of joint and several liability is provided for by Article 116, Paragraph 1, which limits the liability of the distributor only where he has failed to communicate to the injured person the identity of the producer within three months after the injured person has specifically requested such information. Damages Under Article 123 of the Consumer Code, the following types of damage will be subject to compensation when caused by a defective product: • Damages caused by death or personal injuries; and • Destruction or damage to any property other than the defective product itself, provided that the property (a) is of a type ordinarily intended for private use or consumption29 and was used by the injured person mainly for his own private use or consumption, and (b) has incurred damages not less than EUR 387. The Consumer Code thus limits the potential claim for damages only to personal damages and material damages, thus excluding punitive damages. It has thus not derogated from the general principle of tort law which limits recourse for damages to those only actually incurred by the injured party. The general principles applicable under tort as to the liquidation of personal damages and material damages will apply to actions brought on grounds of specific product liability rules. Personal damages include material damages30 and so-called “biological” damage.31 On the basis of a very recent trend in case law,32 an injured person 29 Court of Justice (4 June 2009), Case C-285/08 has specified that the harmonization provided by the Directive does not include damages of property intended for professional use. Nevertheless, the Directive allows each Member State to also extend the general discipline of product liability to such cases, either through national legislation or case law. 30 Material damages can be construed as the costs and expenses incurred by the injured person as a result of the damage, and the loss of revenues arising from the impossibility for the injured person to carry out activities due to the damage occurred until full recovery from the damage is received. 31 Biological damage is a creation of case law and is defined as the “impairment of the psychological and physical integrity and the health condition of the injured person”, which can be medically ascertained and is independent regardless of whether the injured person has suffered material damages. 32 Supreme Court (31 May 2003), Numbers 8827 and 8828; Supreme Court (3 October 2003), Number 14767; Supreme Court (20 February 2004), Number 3399; Supreme Court (1 June 2004), Number 10482; Supreme Court (27 October 2004), Number 20814; Supreme Court (12 May 2006), Number 11039; Supreme Court (11 January (Release 1 – 2012)
- 229. ITALY ITA-19 may be awarded “existential” damages as well as moral damages33 despite the fact that the damages have not been caused by criminal conduct.34 Under Article 123, it is not possible to claim compensation for the loss of the defective product itself and for damages whose value does not exceed EUR 387.35 Statute of Limitation and Forfeiture Term In accordance with Directive 85/374/ECC, Article 125 of the Consumer Code provides for a limitation period of three years to commence proceedings for the recovery of damages for defective products. The limitation period will begin to run from the day on which the plaintiff became aware, or ought to have become aware, of the damage, of the defect, and of the identity of the producer. Where the damage has subsequently become more serious, the limitation period will begin to run from the day on which the injured person became aware, or ought to have become aware, of damage whose seriousness justified the commencement of a judicial proceeding. 2007), Number 394; and Opinion of the Constitutional Court (11 July 2003), Number 233. 33 Moral damages are generally defined as those arising from the psychological distress, anxiety, and moral pain suffered by the injured person. They are generally awarded in connection with damages caused by criminal conduct. 34 Existential damage is the damage arising from the injured person’s inability to carry out leisure activities that are sources of well-being and pleasure and, more generally, from the injured person suffering a reduction in the quality of life he had before the accident. At the time of the writing of this chapter, this particular area of law is extremely fluid and the case law is still debating whether or not to recognize this type of damage as an autonomous item of compensation in addition to moral damages. An important turning point in this debate is currently represented by a recent judgment of the Supreme Court dated 16 February 2009, Number 3677. In this opinion, existential damage was recognized as a part of the wider concept of the so-called non-economic damage and not as an autonomous item of compensation. Reference also should be made to Supreme Court (11 November 2008), Numbers 26972 to 26975; Supreme Court (20 April 2007), Number 9514; Supreme Court (15 February 2007), Number 3462; Supreme Court (6 February 2007), Number 2546; Supreme Court (2 February 2007), Number 2311; Supreme Court (12 June 2006), Number 13546; Supreme Court (24 March 2006), Number 6572; and Supreme Court (15 July 2005), Number 15022. With regard to the matter of product liability, reference can be made to the opinion of the Tribunal of Rome dated 14 September 2003, awarding existential damages in favor of the injured person in a case of product liability. 35 The damage arising from loss of the defective product or the damage below EUR 387 may be claimed by the injured person under the general remedy in tort law under Article 2043 of the Civil Code. (Release 1 – 2012)
- 230. ITA-20 INTERNATIONAL PRODUCT LIABILITY Under Article 126 of the Consumer Code, the rights conferred on the injured person under the Consumer Code will be extinguished upon the expiry of a period of 10 years from the date on which the producer or importer into the European Union put into circulation the actual product which caused the damage, unless the injured person has instituted proceedings against the producer within that timeframe. Where an action is taken by the injured person that results in the interruption of the 10-year period against any of the persons liable for damages, such interruption may not be invoked against any person other than those against whom the action is taken, even if they are jointly liable pursuant to the provisions of the Consumer Code. This does not impair the possibility for the injured person to benefit from the general remedies available in contract law or tort law if they are more convenient. However, the contractual remedy may not be beneficial as the Civil Code sets forth a very strict forfeiture term to claim the existence of the defect (eight days) and a time limit of one year to bring the judicial action. On the other hand, no forfeiture term is provided for under tort law, while a general time limit of five years is set under Article 2947 of the Civil Code. In this respect, the absence of a forfeiture term may allow the injured person to bring an action in tort law despite the lapse of the three-year period set forth by the Consumer Code, provided that the 5-year term is complied with. Mandatory Regime of Liability Under Article 124 of the Consumer Code, any agreement or contractual clause that excludes or limits in advance liability for the defective product as set forth by the Consumer Code is null and void. This confirms the mandatory regime of the liability for defective products under the Consumer Code, which may not be subject to contractual derogation among the parties.36 A related legal issue to be considered is whether, where a similar clause is agreed to by the parties, the nullity of the clause will void the entire contract or whether the contractual clause alone will be considered void. In the latter case, the clause considered void would be automatically replaced with the mandatory provisions of the Consumer Code. 36 Pursuant to Article 127, Paragraph 3, the provisions of the Consumer Code will not apply to products distributed prior to 30 July 1988. Nevertheless, the Supreme Court, while affirming this rule, also has allowed the application of this discipline to cases of a similar nature because of the logical and systematic consistency with traditional product liability under tort law. Supreme Court (10 September 2004), Number 19134. (Release 1 – 2012)
- 231. ITALY ITA-21 In consideration of the specific purpose of the Consumer Code (which is to protect the interests of consumers against producers) and the application of the general principles of contract law,37 the second theory seems to be the proper and correct result. 37 In this respect, Article 1229 of the Civil Code states: “1. The partial nullity of a contract or the nullity of single clauses entails the nullity of the entire contract if it results that the parties would have not entered into the contract in the absence of that part of the contract affected by nullity. 2. The nullity of single clauses does not entail the nullity of the contract, when such clauses are replaced by operation of law with mandatory provisions.” (Release 1 – 2012)
- 233. Malaysia Basis of Manufacturers’ Liability ........................................................ MAY-1 Negligence ............................................................................. MAY-1 Fraud and Misrepresentation ................................................. MAY-1 Warranty ................................................................................ MAY-1 Strict Liability ........................................................................ MAY-4 Concept of Defect .................................................................. MAY-5 Obligations to Warn or Recall Defective Products .............................. MAY-8 Obligation to Warn ................................................................ MAY-8 Obligation to Recall ............................................................... MAY-8 Defenses Available to Manufacturer .................................................... MAY-9 Contributing or Comparative Fault ........................................ MAY-9 Assumption of Risk ............................................................... MAY-10 Product Misuse ...................................................................... MAY-10 State-of-the-Art Defense ........................................................ MAY-10 Limitation of Liability by Proximate Cause ......................................... MAY-11 Consumer Protection Act ....................................................... MAY-11 Tort ........................................................................................ MAY-11 Contract ................................................................................. MAY-12 Impact of Product Liability Considerations ......................................... MAY-12 Retailers ................................................................................. MAY-12 Wholesalers, Distributors, Franchisors, Franchisees, Licensors, and Licensees ....................................................... MAY-13 Makers of Component Parts .................................................. MAY-13 Remedies .............................................................................................. MAY-14 For Personal Injury and Death ............................................... MAY-14 Punitive Damages .................................................................. MAY-15 For Emotional Distress .......................................................... MAY-16 Economic Loss....................................................................... MAY-16 Return or Repair .................................................................... MAY-17 Limitations on Remedies by Contract .................................................. MAY-17 Consumer Protection Act ....................................................... MAY-17 Tort ........................................................................................ MAY-17 Contract ................................................................................. MAY-17 Claims Affected by Statute of Limitation ............................................ MAY-17 Extension of Liability for Defective Products to Corporate Successors ............................................................................................ MAY-18 (Release 1 – 2012)
- 234. Role of Insurance in Product Liability Matters .................................... MAY-18 Role of Courts and Lawyers in Product Liability Litigation ................ MAY-18 Frequency of Litigation ......................................................... MAY-18 Attitude of Courts toward Product Liability Claims .............. MAY-19 Extent of Damage Awards ..................................................... MAY-19 Nature of Lawyers’ Compensation ........................................ MAY-19 Choice and Application of Law ............................................. MAY-19 (Release 1 – 2012)
- 235. Malaysia Dhinesh Bhaskaran Shearn Delamore & Co. Kuala Lumpur, Malaysia Basis of Manufacturers’ Liability Negligence The buyer will usually sue the manufacturer for negligence in case of defective products. This is in view of the fact that the manufacturer owes a duty to the buyer to take reasonable care in manufacturing and designing the product or any components used in its assembly. The buyer can establish liability on the part of the manufacturer if he can prove that the manufacturer has breached this duty, and that the damage or injury suffered by the buyer in consequence of the breach was reasonably foreseeable. Fraud and Misrepresentation The buyer may sue the manufacturer for fraud or misrepresentation. However, such suits are not common, as it is not often the case that the manufacturer has perpetrated a fraud upon or has misrepresented the position to the buyer. In an action for fraud, the buyer has the burden of proving fraud on a higher standard of beyond reasonable doubt.1 Warranty Express Warranty The buyer of a defective product may sue the seller for breach of an express warranty as to the safety of the product in the contract of sale, and recover any loss or damage suffered upon establishing that the seller has breached the contract. However, the immediate seller of the product will usually not be the manufacturer. Since the doctrine of privity of contract dictates that a suit can only be brought against the actual party to the contract,2 manufacturers are seldom sued in contract as there is usually no contractual nexus between the 1 Yong Tim vs. Hoo Kok Chong & Anor (2005), 3 CLJ 229. 2 Kepong Prospecting Ltd & Ors vs. Schmidt (1968), 1 MLJ 170. (Release 1 – 2012)
- 236. MAY-2 INTERNATIONAL PRODUCT LIABILITY manufacturer and the buyer. Still, the manufacturer may independently incur contractual liability to the buyer, such as through a separate warranty document. Implied Warranty or Merchantability Sale of Goods Act. Under Section 16(1)(b) of the Sale of Goods Act of 1957 (SOGA), where goods are bought by description from a seller who deals in goods of that description (whether or not he is the manufacturer or producer), there is an implied condition that the goods will be of merchantable quality. However, if the buyer has examined the goods, there will be no implied condition as regards defects which such examination ought to have revealed.3 Still, the terms implied by the SOGA can be and are often expressly excluded by the terms of the contract of sale.4 Consumer Protection Act. A buyer also may avail himself of the provisions of the Consumer Protection Act 1999 (CPA). The CPA is designed to protect “consumers”, who are persons who acquire or use goods of a kind ordinarily acquired for personal, domestic, or household purposes, use, or consumption, and do not acquire or use the goods primarily for purposes of trade.5 Thus, the “goods” covered by the CPA are limited to those that are primarily purchased, used, or consumed for personal, domestic, or household purposes. The CPA generally does not apply to contracts made before 15 November 1999, securities, futures contracts, and land or interests in land.6 Under Section 32(1) of the CPA, there is an implied guarantee that goods supplied to a consumer are of acceptable quality. Goods will be deemed to be of acceptable quality if they are fit for all the purposes for which goods of the type in question are commonly supplied, acceptable in appearance and finish, free from minor defects, and safe and durable.7 Section 32(2)(b) of the CPA also requires that a reasonable consumer fully acquainted with the state and condition of the goods, including any hidden defects, would regard the goods as acceptable, having regard to the nature of the goods, the price, any statements made about the goods on any packaging or label on them, any representation made about the goods by the supplier or the manufacturer, and all other relevant circumstances of their supply. Where any defects in the goods (ie, any failure to comply with the implied guarantee as to acceptable quality) have been specifically drawn to the consumer’s attention before he agrees to the supply, the goods will not be 3 SOGA, proviso to s 16(1)(b). 4 SOGA, s 62. 5 CPA, s 3(1). 6 CPA, s 2(2). 7 CPA, s 32(2)(a). (Release 1 – 2012)
- 237. MALAYSIA MAY-3 deemed to have failed to comply with the implied guarantee as to acceptable quality by reason only of those defects.8 Where goods are displayed for sale or hire, the defects that are to be treated as having been specifically drawn to the consumer's attention will be those disclosed on a written notice displayed with the goods.9 Goods will not be deemed to have failed to comply with the implied guarantee as to acceptable quality if they have been used in a manner or to an extent inconsistent with that which a reasonable consumer would expect to obtain from them, and the goods would have complied with the implied guarantee as to acceptable quality if they had not been used in that manner or to that extent.10 Apart from the fact that liability under the CPA cannot be excluded,11 a “manufacturer” under the CPA is broadly defined as a person who carries on a business of assembling, producing, or processing goods, and includes any person who holds himself out to the public as a manufacturer of the goods, any person who affixes his brand or mark or causes or permits his brand or mark to be affixed to the goods and, where the goods are manufactured outside Malaysia and the foreign manufacturer of the goods does not have an ordinary place of business in Malaysia, a person who imports or distributes those goods.12 Under Section 3(1) of the CPA, a “supplier” is broadly defined as including a person who, in trade, supplies goods to a consumer by transferring the ownership or the possession of the goods under a contract of sale, exchange, lease, hire, or hire-purchase to which that person is a party. Implied Warranty of Fitness for Purpose Sale of Goods Act. Where the buyer expressly or impliedly makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which is in the course of the seller’s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods will be reasonably fit for such purpose.13 However, in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose.14 8 CPA, s 32(3). 9 CPA, s 32(4). 10 CPA, s 32(5). 11 CPA, s 6(1). 12 CPA, s 3(1). 13 SOGA, s 16(1)(a). 14 SOGA, proviso to s 16(1). (Release 1 – 2012)
- 238. MAY-4 INTERNATIONAL PRODUCT LIABILITY Consumer Protection Act. According to Section 33(1) of the CPA, the following guarantees will be implied where goods are supplied to a consumer: • The goods are reasonably fit for any particular purpose that the consumer makes known (expressly or impliedly) to the supplier as the purpose for which the goods are being acquired; and • The goods are reasonably fit for any particular purpose for which the supplier represents that they are or will be fit. This is regardless of whether or not the purpose is one for which the goods are commonly supplied.15 However, the implied guarantees will not apply where the circumstances show that the consumer does not rely on the supplier’s skill or judgment, or it is unreasonable for the consumer to do so.16 Impact on Third Party Where someone other than the buyer has been affected by a defective product, he will not normally have a contractual relationship with the manufacturer, and will not have remedies against the manufacturer under the contract of sale or under the SOGA for breach of any warranty. However, if he falls within the definition of a “consumer” as a user of the product, he may seek recourse under the CPA, which dispenses with the requirement of privity of contract. Alternatively, he may sue the manufacturer for negligence, provided that he can establish that the manufacturer stood in a sufficiently proximate relationship with him so as to give rise to a duty of care. Strict Liability Manufacturers are subject to strict liability for defective products under the CPA. While the consumer claiming under the CPA does not have to establish fault, he still has to prove that the product was in fact defective, and that the defect caused him injury or loss. The CPA also overcomes issues of privity that would normally arise in contract. In practical terms, it is the manufacturer and supplier of a defective product who face increased potential liability under the CPA. A consumer can choose to bring his claim before the civil courts or the Tribunal for Consumer Claims. Most claims of significance will be brought in the civil courts, given that the Tribunal’s jurisdiction to award compensation is limited to MYR 25,000 unless the parties agree otherwise.17 15 CPA, s 33(3). 16 CPA, s 33(2). 17 CPA, s 98. (Release 1 – 2012)
- 239. MALAYSIA MAY-5 Concept of Defect Consumer Protection Act. Part X (particularly Section 66(1)) of the CPA broadly defines a “product” as any goods covered by the CPA, including a product which is comprised in another product, whether by virtue of being a component part, raw material, or otherwise. Under Section 67(1) of the CPA, there is a “defect” in the product if its safety is not such as a person is generally entitled to expect. The “safety” of a product will include safety with respect to products comprised therein, safety in the context of risk of damage to property, and safety in the context of risk of death or personal injury.18 In determining what a person is generally entitled to expect in relation to a product, all relevant circumstances should be taken into account, including the manner in and purposes for which the product has been marketed, the get-up of the product, the use of any mark in relation to the product, instructions for or warnings with respect to doing or refraining from doing anything with or in relation to the product, what may reasonably be expected to be done with or in relation to the product, and the time when the product was supplied by its producer to another person.19 Under Section 67(3) of the CPA, a defect will not be inferred from the mere fact that the safety of a product which is subsequently supplied is greater than the safety of the product in question. Tort. There is no defined concept of a “defect” in common law. However, a court will generally consider the factors that have already been discussed in deciding whether the product was defective. Defective Manufacture Consumer Protection Act. As liability under the CPA is strict, a manufacturer will be liable for a defect in a product caused by defective manufacture if the consumer can prove that he has suffered injury or loss as a result of the defect. It does not matter whether the defect was caused by a mistake in the manufacturing process or other reasons. Where the defect wholly or partly causes death, personal injury, or loss of or damage to property,20 the following persons are automatically liable for the same, unless they can establish the statutory defenses: • Under Sections 66(1) and 68(1)(a) of the CPA, the producer of the product, namely: (a) the person who manufactured it; (b) in the case of a substance which is not manufactured but is won or abstracted, the person 18 CPA, s 67(4). 19 CPA, s 67(2). 20 CPA, s 66(1). (Release 1 – 2012)
- 240. MAY-6 INTERNATIONAL PRODUCT LIABILITY who won or abstracted it; and (c) in the case of a product which is not manufactured, won, or abstracted but the essential characteristics of which are attributable to an industrial or other process having been carried out, the person who carried out that process. • Under Section 68(1)(b) of the CPA, the person who, by putting his name on the product or using a trade mark or other distinguishing mark in relation to the product, has held himself out to be the producer of the product. • Under Section 68(1)(c) of the CPA, the person who has, in the course of his business, imported the product into Malaysia in order to supply it to another person. If the consumer is unaware of the identity of any of these persons, he may request the supplier to identify any or all of them within a reasonable period after the damage occurs, whether or not he is or they are still in existence.21 If the supplier fails to comply with the request within a reasonable time, having regard to all the circumstances, he will be held liable for the loss or damage.22 It is immaterial whether the supplier supplied the defective product to the person who suffered the damage, the producer of a product in which the defective product is comprised therein, or any other person.23 The liability of a person under Part X cannot be contractually limited or excluded.24 Section 19(4) of the CPA also provides that the supplier should adopt and observe a reasonable standard of safety to be expected by a reasonable consumer, with due regard to the nature of the product, while Section 20 prohibits any person from importing, supplying, or offering to or advertising for supply goods which do not meet such a standard of safety. Under Section 21 of the CPA, no person should supply, or offer to or advertise for supply, a product which is not reasonably safe, having regard to all the circumstances, including the manner in and the purposes for which the product is being or will be marketed, the get-up of the product, the use of any mark in relation to the product, and instructions or warnings in respect of its keeping, use, or consumption. However, all these obligations do not apply to health care goods and food.25 Any person violating these provisions will be liable to fines and/or imprisonment upon conviction.26 In the case of a body corporate, any person who at the time of the commission of the offense was a director, manager, secretary, or other similar officer of the body corporate or who was purporting to 21 CPA, s 68(2). 22 CPA, s 68(4). 23 CPA, s 68(3). 24 CPA, s 71. 25 CPA, s 19(6). 26 CPA, s 25. (Release 1 – 2012)
- 241. MALAYSIA MAY-7 act in any such capacity also will be deemed to have committed the offense, unless he proves that the offense was committed without his knowledge, consent, or connivance and that he took reasonable precautions and had exercised due diligence to prevent its commission.27 Section 29 of the CPA empowers the courts to grant various reliefs, including declaratory relief and damages, against a person violating these provisions. The end result of the provisions of the CPA is to potentially hold all parties in the distribution chain of a product liable for its defects. Tort. In principle, there is no restriction on the liability of the parties in the chain of distribution for the tort of negligence. In practice, it is often the manufacturer who is found to be at fault, being the creator of the defect, and the other parties in the chain of distribution may not necessarily have the means of or responsibility for discovering the defect. Contract. Ordinarily, a buyer is more likely to have purchased the defective product directly from a retailer rather than a manufacturer. The contract is thus between the buyer and the retailer. As such contract is one for the sale of goods, there are implied terms of merchantability and fitness for purpose under the SOGA, and it is likely that a defect in the product as a result of defective manufacture is a breach of these implied terms. Defective Marketing Consumer Protection Act. Section 67(2)(a) of the CPA provides that, in considering whether a product is “defective”, the manner in and the purposes for which the product has been marketed are relevant. The existence of instructions for or warnings with respect to doing or refraining from doing anything with or in relation to the product also is a relevant factor.28 Thus, it is entirely possible that defective marketing may give rise to liability. Tort. The absence of adequate warning on risks of harm and the absence of adequate instructions may give rise to liability for negligence in certain circumstances. If risk of harm is foreseeable, then the manufacturer may be required to give adequate warning and instructions to the buyer. Conversely, if the risk of harm is not foreseeable or is so obvious to the consumer, then a failure to warn the consumer may not be negligent. Contract. These issues do not generally arise in contractual claims. 27 CPA, s 143. 28 CPA, s 67(2)(d). (Release 1 – 2012)
- 242. MAY-8 INTERNATIONAL PRODUCT LIABILITY Defective Design A design defect is inevitably the manufacturer’s responsibility, and would attract liability. Obligations to Warn or Recall Defective Products Obligation to Warn Depending on the circumstances, there could be an obligation on the manufacturer to warn the buyer of risks. For example, if a product exposes a buyer to a high degree of danger, a failure to warn him of such danger may be negligent. However, if the danger is obvious to the buyer, then a failure to warn him may not be negligent. Naturally, a prudent manufacturer should warn the buyer of the dangers of his product whenever possible. The content of the warning will vary with the product and circumstances, and the information furnished may be basic or detailed, depending on the person to whom the warning is directed. In certain circumstances, warnings to a professional intermediary instead of the buyer may suffice (eg, if the product is complex and the buyer is unlikely to be adequately qualified to understand the warning). However, the mere fact that the product can only be obtained through an intermediary who also has an obligation to assess the suitability of the product for the buyer does not absolve the manufacturer of the need to warn the intermediary and/or the buyer of the dangers of the product. Nevertheless, it may be argued that, in the circumstances of the case, the information furnished by the manufacturer to the intermediary constitutes an adequate warning of the dangers of the product. Even if the manufacturer has failed to adequately warn the buyer or intermediary of the dangers of the product and/or disclose information pertaining to such dangers, the buyer still has to prove that the absence of the warning and/or information did in fact cause his injury. These issues do not generally arise in contractual claims. Obligation to Recall Consumer Protection Act Section 23(1) of the CPA allows the Minister to declare any goods or class of goods to be prohibited, by order published in the Government Gazette, where the goods or goods of that class have caused or are likely to cause injury to any person or property or are otherwise unsafe. Such an order may require the supplier, in the manner and within the period specified in the order, and at the supplier’s own expense, to: • Recall the prohibited goods; (Release 1 – 2012)
- 243. MALAYSIA MAY-9 • Stop the supply of or the offer to supply the prohibited goods; • Stop the advertisement of the prohibited goods; • Disclose to the public any information relating to the characteristics of the prohibited goods which render them unsafe, the circumstances in which their use is unsafe, and any other matter relating to the prohibited goods or their use as may be specified; • Repair or replace the prohibited goods; and • Refund to any person to whom the prohibited goods were supplied the price paid or the value of the consideration given or any lesser amount as may be reasonable, having regard to the use that that person has had of the prohibited goods.29 Failure by the supplier to comply with the order may subject him to fines and/or imprisonment.30 In addition, where such an order is in effect: • No person should supply, or offer to or advertise for supply, any prohibited goods; and • No supplier should (a) where the notice identifies a defect in or a dangerous characteristic of the prohibited goods, supply goods of a kind to which the order relates which contain such defect or characteristic; or (b) in any other case, supply goods of a kind to which the order relates.31 Tort The failure to recall a defective product once the defect is discovered may in itself amount to negligence, particularly if the risk is serious. In addition, such a failure could lead to a claim for aggravated or exemplary damages in certain circumstances. Contract The failure to recall a defective product once the defect is discovered will generally be of no consequence in a contractual claim. Defenses Available to Manufacturer Contributing or Comparative Fault Where a person suffers damage partly through his own fault and partly through the fault of any other person, a negligence claim in respect of that damage will not be defeated by reason of the fault of the person suffering the damage. 29 CPA, s 23(2). 30 CPA, s 25. 31 CPA, s 23(6). (Release 1 – 2012)
- 244. MAY-10 INTERNATIONAL PRODUCT LIABILITY However, the damages recoverable as a result of the injury will be reduced to such extent as the courts think just and equitable, having regard to the claimant’s share in the responsibility for the damage.32 Section 70(3) of the CPA preserves the application of contributory negligence to liability arising under Part X. These issues do not generally arise in contract. Assumption of Risk In tort, if the buyer voluntarily places himself in a position of risk and harm, the manufacturer may successfully plead the defense of volenti non fit injuria by establishing that the buyer freely and voluntarily, with full knowledge of the nature and extent of the risk, agreed either expressly or impliedly to take such risk.33 Product Misuse Under Section 67(2) of the CPA, a relevant factor to be considered in determining whether there is a defect in a product is what may reasonably be expected to be done with or in relation to the product. Thus, product misuse may assist in absolving the manufacturer of liability. In tort, a buyer who has suffered loss or injury as a result of product misuse may have his damages limited by reason of contributory negligence. This issue does not generally arise in contract. State-of-the-Art Defense Consumer Protection Act In civil proceedings under Part X (which deals with product liability), the manufacturer may avail himself of the state-of-the-art defense by showing that the state of scientific and technical knowledge at the relevant time was not such that a producer of products of the same description as the product in question may reasonably have been expected to discover the defect if it had existed in his product while it was under his control.34 The manufacturer also may avail of other defenses, namely that: • The defect is attributable to compliance with any requirement imposed under any written law; • He did not supply the defective product to another person at any time; • The defect did not exist in the product at the relevant time; and • The defect (a) is a defect in a product in which the product in question is comprised therein (the “subsequent product”); and (b) is wholly 32 Civil Law Act of 1956 (CLA), s 12(1). 33 Pang Soo vs. Tong Ah Company Sdn Bhd (2010), 8 CLJ 482. 34 CPA, s 72(1)(d). (Release 1 – 2012)
- 245. MALAYSIA MAY-11 attributable to the design of the subsequent product or compliance by the producer of the product in question with instructions given by the producer of the subsequent product.35 In the case of a failure to comply with safety standards under Part III, the manufacturer may show that the alleged failure is attributable to compliance with a requirement imposed under any written law, or that the alleged failure is a failure to do more than is required by Sections 20 and 21 of the CPA.36 Tort Although the defense is not directly available in tort, the fact that the defect was not discoverable in light of the state of scientific and technical knowledge at the time may be strong evidence to show that the manufacturer was not negligent. Once again, it is for the manufacturer to prove this fact. Contract The defense is inapplicable. Limitation of Liability by Proximate Cause Consumer Protection Act The manufacturer of a defective product is liable for any damage caused wholly or partly by a defect in the product. The buyer bears the burden of proving that the product is defective and that he has suffered injury, loss, or damage as a consequence of the defect. Once this burden is discharged, the manufacturer will be liable unless he can establish any of the statutory defenses. While the CPA does not expressly set out the test for causation, it is likely that the causation principles applicable to negligence claims will be applicable. Tort The onus is on the buyer to prove the defect, fault, and damage. The buyer should not merely show that the manufacturer exposed him to an increased risk of a known injury, but also that such exposure did not cause or materially contribute to the injury. The normal test to prove causation is the “but for” test, where the buyer will have to prove that the injury would not have occurred but for the manufacturer’s negligence. However, where several acts (including the manufacturer’s), events, or factors cause harm to the buyer, it should be determined which of those acts, events, or factors materially contributed to the buyer’s injury. 35 CPA, s 72(1). 36 CPA, s 22(1). (Release 1 – 2012)
- 246. MAY-12 INTERNATIONAL PRODUCT LIABILITY What is a material contribution is a question of degree for the court to decide upon. However, trifling contributions or contributions which come within the exception of de minimis non curat lex are not material. 37 In exceptional circumstances, the buyer may rely on the doctrine of res ipsa loquitur (“the thing speaks for itself”), in which event the onus of disproving negligence will fall on the defendant. However, this doctrine can only be relied upon where an event which, in the ordinary course of things, was more likely to have been caused by negligence is by itself evidence of negligence, and depends on the absence of explanation for the event.38 Contract The onus is on the buyer to prove the breach of the contract and the damage suffered. In contractual claims, the buyer will be entitled to compensation for any loss or damage which naturally arose as a consequence of the breach, or was within the contemplation of the parties when they made the contract.39 Impact of Product Liability Considerations Retailers Consumer Protection Act Under the CPA, a retailer who has imported a defective product into Malaysia for the purpose of supply may be held liable. The retailer may be deemed to be a “manufacturer” of the product if he holds himself out to the public as such, affixes his brand or mark, or causes or permits his brand or mark to be affixed, to the product, and, where the product is manufactured outside Malaysia and the foreign manufacturer of the product does not have an ordinary place of business in Malaysia, the retailer imports or distributes the product.40 Under Part X of the CPA, the retailer may be liable if, by putting his name on the product or using a trade mark or other distinguishing mark in relation to the product, he has held himself out to be the producer of the product,41 or he has imported the product into Malaysia in the course of his business to supply it to another person.42 37 Wu Siew Ying vs. Gunung Tunggal Quarry & Construction Sdn Bhd & Anor (2011), 1 CLJ 409. 38 Wong Choon Mei & Anor vs. Dr Kuldeep Singh & Anor (1985), 2 CLJ 126. 39 Contracts Act 1950 (“Contracts Act”), s 74. 40 CPA, s 3(1). 41 CPA, s 68(1)(b). 42 CPA, s 68(1)(c). (Release 1 – 2012)
- 247. MALAYSIA MAY-13 A retailer also may be considered a “supplier” by being a person who supplies goods to a consumer by transferring the ownership or possession of the goods under a contract of sale, exchange, lease, hire, or hire-purchase to which that person is a party.43 A retailer may be liable to a consumer for product liability claims by virtue of statutory implied terms for sale of goods contracts under the SOGA if the consumer has purchased the defective product directly from the retailer. Tort The buyer may sue the retailer for negligence, provided that he can establish that the retailer stood in a sufficiently proximate relationship with him, so as to give rise to a duty of care. Contract The buyer may sue the retailer in contract, provided that he bought the product from the retailer. Wholesalers, Distributors, Franchisors, Franchisees, Licensors, and Licensees The same principles applicable to retailers apply to wholesalers, distributors, franchisors, franchisees, licensors, and licensees. Makers of Component Parts As a “product” includes a product which is comprised in another product (whether by virtue of being a component part in raw material or otherwise)44, it follows that the maker of a component part may attract liability under Part X if the defect in the product complained of was in respect of the component part. However, a person who supplies any product in which other products are comprised therein, will not be treated as supplying any of the products so comprised therein by reason only of his supply of that product.45 The maker of a component part also will not be liable if he can show that the defect is a defect in the subsequent product, and is wholly attributable to the design of the subsequent product or compliance by the maker of the component part with instructions given by the producer of the subsequent product.46 43 CPA, s 3(1). 44 CPA, s 66(1). 45 CPA, s 66(2). 46 CPA, s 72(1). (Release 1 – 2012)
- 248. MAY-14 INTERNATIONAL PRODUCT LIABILITY Remedies For Personal Injury and Death Consumer Protection Act Under Section 66(1) of the CPA, “damage” is defined as death or personal injury, or any loss of or damage to property (including land). The consumer cannot recover loss of or damage to: • The defective product; • The whole or any part of the product which comprises the defective product; or • Any property which at the time it is lost or damaged is not (a) of a description of property ordinarily intended for private use, occupation, or consumption, and (b) intended by the person suffering the loss or damage mainly for his own private use, occupation, or consumption. In the case of a violation of Part III, Section 29(2)(c) of the CPA allows the courts to award the consumer inter alia the refund of the money paid and the amount of loss or damage incurred. Tort Damages in negligence are intended to place the injured party in the position as if the negligent act had not occurred. Damages can accordingly be awarded for death, personal injury, mental damage, and property damage, provided that the damage is shown to be reasonably foreseeable and not too remote. In respect of death, the courts will assess damages in accordance with the provisions of the Civil Law Act 1956 (CLA). Such damages would primarily consist of the loss of support suffered by the dependents, a relative factor being the amount the deceased was earning prior to the accident would be relevant. The formula for calculating the total loss of support is derived by having the annual multiplicand multiplied by the statutory multiplier.47 In respect of damages for personal injury, the responsible party would be liable for the injury caused, the medical expenses, and loss of future earnings, for which particular considerations will be taken into account48 and the statutory multiplier will be used.49 Damages for pain and suffering and actual losses also would be granted in a personal injury claim. 47 CLA, s 7(3)(iv)(d). 48 CLA, s 28A(2)(c). 49 CLA, s 28A(2)(d). (Release 1 – 2012)
- 249. MALAYSIA MAY-15 Contract Damages in contract are intended to put the parties in the position as if the contract had been performed. The buyer will be entitled to compensation for any loss or damage caused to him by the manufacturer’s breach which naturally arose from the breach in the usual course of things, or which the parties knew (when they made the contract) to be likely to result from the breach of the contract, although compensation will not be awarded for any remote and indirect loss or damage sustained due to the breach.50 As such, compensation for damage to the product itself, for bodily injury, mental damage, and property damage, can be recovered as long as such damage or injury naturally arose as a consequence of the breach or was within the contemplation of the parties when they made the contract. Where the contract stipulates a specified amount to be payable upon termination, this would be the maximum sum payable.51 However, in such a case, damages should still be proven, and ultimately the court will have to decide the sum payable.52 It is only in very rare circumstances that damages would be allowed for death or personal injury pursuant to a breach of contract. Punitive Damages Consumer Protection Act The CPA does not expressly prevent the courts from awarding exemplary (or punitive) damages to punish the manufacturer. Thus, exemplary damages may be awarded in proceedings brought under the CPA if the manufacturer’s conduct was calculated by him to make a profit for himself which may exceed the compensation payable to the buyer.53 Tort Exemplary damages may be awarded in tort.54 However, if the cause of action is brought by the estate of a deceased, damages recoverable will not include exemplary damages.55 Aggravated damages also are claimable in tort to compensate the buyer for injuries affecting his feelings arising out of the wrongful acts of the 50 Contracts Act, s 74. 51 Contracts Act, s 75. 52 Selva Kumar Murugiah vs. Thiagarajah Retnasamy (1995), 2 CLJ 374. 53 Bumiputra-Commerce Bank Bhd vs. Top-A Plastic Sdn Bhd (2008), 5 CLJ 737. 54 Malie Jolhi vs. Pengarah Jabatan Alam Sekitar (Negeri Sarawak) Kementerian Sains, Teknologi & Alam Sekitar & Ors (2011), 5 CLJ 83. 55 CLA, s 8(2)(a). (Release 1 – 2012)
- 250. MAY-16 INTERNATIONAL PRODUCT LIABILITY manufacturer.56 Aggravated damages are awarded as a form of higher compensation to show disapproval for the acts of a manufacturer which were carried out in such a manner that the buyer has suffered more than would normally be expected in such a case.57 Contract Exemplary damages are generally not awarded in contract,58 but aggravated damages may be awarded. 59 For Emotional Distress Consumer Protection Act The CPA does not expressly prevent the courts from awarding damages for emotional distress. As such, damages for emotional distress may be awarded in proceedings brought under the CPA. Tort In order to recover damages for emotional distress, the buyer should establish that he has suffered from some serious mental disturbance outside the range of normal human experience, and not merely the ordinary emotions of anxiety, grief, or fear.60 Contract Emotional distress is generally not a claimable loss for breach of contract as such loss is non-pecuniary, except where the contract is for comfort, peace of mind, or freedom from distress.61 Economic Loss The definition of “damage” under the CPA excludes recovery for damage to the product itself.62 Damages may be recovered in negligence for pure economic loss, ie, financial loss that is not consequent upon injury to person or damage to property.63 In the case of contracts, damages are recoverable for pure economic loss. 56 Chin Choon vs. Chua Jui Meng (2005), 2 CLJ 569. 57 Lee Nyan Hon & Brothers Sdn Bhd vs. Metro Charm Sdn Bhd (2009), 6 CLJ 626. 58 Tan Sri Khoo Teck Puat & Anor vs. Plenitude Holdings Sdn Bhd (1995), 1 CLJ 15. 59 Lee Nyan Hon & Brothers Sdn Bhd vs. Metro Charm Sdn Bhd (2009), 6 CLJ 626. 60 Thiruvannamali a/l Alagirisami Pillai vs. Diners Club (M) Sdn Bhd (2006), 8 CLJ 671. 61 Subramaniam Paramasivam & Ors vs. Malaysia Airline System Bhd (2002), 1 CLJ 230. 62 CPA, s 69(1)(a). 63 Majlis Perbandaran Ampang Jaya vs. Steven Phoa Cheng Loon & Ors (2006), 1 CLJ 1. (Release 1 – 2012)
- 251. MALAYSIA MAY-17 Return or Repair Section 23(2)(e) of the CPA allows the Minister (by order published in the Government Gazette) to require the supplier to repair or replace goods deemed unsafe. Limitations on Remedies by Contract Consumer Protection Act Under Section 6 of the CPA, the provisions of the CPA will have effect regardless of anything to the contrary in any agreement, and every manufacturer and supplier who purports to contract out of any provision of the CPA commits an offense. Section 71 of the CPA also precludes the limitation or exclusion of liability for damages under Part X by any contract term, notice, or other provision. Tort Where there also is a contractual nexus between the buyer and the manufacturer, the manufacturer may exclude his liability for negligence, provided that clear words are used to this effect. Contract The manufacturer may rely on any exclusion or limitation clause in the contract. Further, terms implied by the SOGA can be expressly excluded by the terms of the contract.64 Claims Affected by Statute of Limitation Actions under tort and contract cannot be brought after the expiration of six years from the date on which the cause of action accrued.65 In cases of disability (ie, while a person is an infant or of unsound mind), the limitation period may be extended to six years from the date when such person ceased to be under the disability or died (whichever event first occurred), notwithstanding that the period of limitation has expired.66 In cases of fraud or concealment of a right of action by fraud, the period of limitation will not begin to run until the buyer has discovered the fraud or could have discovered it with reasonable diligence.67 There is no time bar against claims under the CPA. 64 SOGA, s 62. 65 Limitation Act 1953 (“Limitation Act”), s 6. 66 Limitation Act, s 24. 67 Limitation Act, s 29. (Release 1 – 2012)
- 252. MAY-18 INTERNATIONAL PRODUCT LIABILITY Extension of Liability for Defective Products to Corporate Successors A company has a distinct and independent legal personality.68 Thus, a successor company also has an independent and distinct legal personality, and does not share the same rights and liabilities with its predecessor.69 However, the court may pierce the veil of incorporation to attribute the liability of a predecessor company to a successor company in limited circumstances, such as when the successor company is a mere façade concealing the true facts, or a fraud device to assist the predecessor company in avoiding its existing obligations. Role of Insurance in Product Liability Matters Manufacturers in Malaysia generally insure against product liability risks, while manufacturers who are multinationals are often insured by a global policy. Whether or not coverage is provided by a specific product liability policy or as part of a general liability policy depends on the manufacturer concerned. Policies usually cover bodily injury, property damage, and sometimes death, caused by a defect in a product. Exclusions vary depending on the policy and the manufacturer concerned. The insured has a duty to act uberrimae fides, and should thus fully disclose all material facts within his knowledge, irrespective of whether the insurer asks him any questions.70 Therefore, the manufacturer should disclose any known defects or risks in the product to the insurer, or else the insurer may avoid the policy. Role of Courts and Lawyers in Product Liability Litigation Frequency of Litigation Litigation is not frequent, as buyers often prefer to pursue their claims in the Tribunal for Consumer Claims established under Part XII of the CPA, which is a cheaper alternative compared to suing in the civil courts. The Tribunal has jurisdiction over claims in respect of all goods and services where the award sought is not more than MYR 25,000.71 For claims exceeding this sum, a suit will normally be filed in the civil courts for negligence and/or breach of contract. 68 Tenaga Nasional Bhd vs. Irham Niaga Sdn Bhd & Anor (2011), 1 CLJ 491. 69 Case of Sutton’s Hospital (1612), 10 Rep 32. 70 Leong Kum Whay vs. QBE Insurance (M) Sdn Bhd & Ors (2006), 1 CLJ 1. 71 CPA, s 98(1). (Release 1 – 2012)
- 253. MALAYSIA MAY-19 Attitude of Courts toward Product Liability Claims There is no specific trend that can be detected from product liability cases in the courts. The success or failure of a suit will essentially depend on the facts of each case. Extent of Damage Awards The quantum of awards for general damages is within the domain of judicial discretion. The Bar Council has recently introduced a Compendium of Personal Injury Awards which contains comprehensive tables of contemporary trend of awards in Malaysian courts based on the types of injuries, and the typical range of awards for each type of injury.72 However, the Compendium is only intended to be a guideline, and ultimately the quantum lies in the court’s discretion. Nature of Lawyers’ Compensation For litigation, there are no scale or standard fees for lawyers in Malaysia. Conditional or contingency fees are prohibited.73 Choice and Application of Law Under the CPA, any choice of law clause in the contract of sale which applies the law of another country will be ousted if the clause appears to have been imposed wholly or mainly for enabling the party imposing it to evade the operation of the CPA.74 In all other cases, choice of law clauses will generally be upheld. 72 “Compendium of Personal Injury Award” (26 October 2010), at: http://www.klbar.org.my/files/uploaded/user/download/1288066155_compendium26 102010.pdf. 73 Legal Profession Act 1976, s 112. 74 CPA, s 4. (Release 1 – 2012)
- 255. Mexico Introduction ............................................................................................ MEX-1 General Aspects of Liability in Mexico ................................................. MEX-3 In General ................................................................................ MEX-3 Contractual Liability ................................................................ MEX-3 Non-Contractual Liability ........................................................ MEX-3 Legal Framework ..................................................................... MEX-4 Theories of Liability............................................................................... MEX-6 In General ................................................................................ MEX-6 Warranty Liability ................................................................... MEX-6 Liability for Negligence, Fraud, and Misrepresentation .......... MEX-8 Fault-Base Liability ................................................................. MEX-9 Strict Liability .......................................................................... MEX-9 Liability for Damage and Lost Profits ..................................... MEX-10 Concept of Defect .................................................................................. MEX-11 Obligation to Recall Defective Products ................................................ MEX-11 Obligation to Warn Consumers about Defective Products..................... MEX-11 Defenses Available to the Manufacturer ................................................ MEX-12 Contributory Fault ................................................................... MEX-12 Assumption of Risk ................................................................. MEX-12 Product Misuse ........................................................................ MEX-13 Comparative Fault ................................................................... MEX-13 State-of-the-Art Defense .......................................................... MEX-13 Proximate Cause .................................................................................... MEX-14 Liability of Others in the Supply Chain ................................................. MEX-14 Remedies ................................................................................................ MEX-15 Damage and Lost Profits.......................................................... MEX-15 Moral Damage ......................................................................... MEX-15 Redhibitory Action and Quanti Minoris Action ...................... MEX-15 Remedies for Non-Contractual Liability ................................. MEX-16 Contractual Disclaimers or Limitations ................................................. MEX-17 Statute of Limitations ............................................................................. MEX-17 Corporate Successor Liability ................................................................ MEX-18 Product Liability Insurance .................................................................... MEX-18 In General ................................................................................ MEX-18 (Release 1 – 2012)
- 256. Obligations of the Insurer ........................................................ MEX-18 Obligations of the Insured........................................................ MEX-18 Product Liability Litigation .................................................................... MEX-19 Federal Consumer Protection Agency ..................................... MEX-19 Role of Courts and Lawyers .................................................... MEX-19 Role of FCPL in disputes between manufacturers and consumers ................................................................................ MEX-20 Class Actions and Group Claims ............................................. MEX-20 Frequency of Litigation ........................................................... MEX-22 Attitude of the Courts .............................................................. MEX-22 Lawyers’ Compensation .......................................................... MEX-22 Choice and Application of Law ............................................... MEX-22 Conclusion ............................................................................................. MEX-23 (Release 1 – 2012)
- 257. Mexico Juan Francisco Torres Landa R., Ernesto Algaba R., Omar Cuéllar Gamboa, Mónica Noriega R., and Michelle Farah M. Barrera, Siqueiros y Torres Landa, SC Mexico City, Mexico Introduction Product liability has become a relevant and sophisticated topic for manufacturers, suppliers, retailers, distributors, and other members of the product supply chain due to its development from the mid-twentieth century to the present, including but not limited to the importance of the contingency represented by consumers claiming remedies or indemnity. Product liability emerged as a need to protect consumers given the abuse by suppliers and the notion of unfairness and inequity of consumer-supplier relationships, as the consumer is mostly regarded as the vulnerable party in such relationships. Moreover, as a consequence of product liability, manufacturers and members of the supply chain are required to take greater care in the design, manufacture, and marketing of products, thereby diminishing the number of defective products in the market and the risk of causing damage to consumers. In Mexico, the legal framework of product liability has been developing at a slow pace and has not been thoroughly regulated, primarily because of the few case precedents in this area. As all jurisdictions may have different concepts of product liability, it is important to first examine the concept of a ‘product’ and of ‘liability’ so as to understand the scope of a product, its implications, and liability that may derive from products. In simple terms, a product may be understood as a ‘produced thing’;1 a product is ‘the material or intangible result of human activity destined for mass consumption’.2 Liability can be understood as a ‘debt, an obligation to repair or 1 Translation of the definition of ‘Producto’ (product) in Diccionario de la Lengua Española – vigésima segunda edición online, at http://buscon.rae.es/draeI/Srvlt Consulta?TIPO_BUS=3&LEMA=producto. 2 S. Rocha, ‘La protección jurídica del débil en el consumo. Responsabilidad civil por productos defectuosos’ in J.A. Sánchez-Cordero (ed.), La protección del consumidor (Mexico, Nueva Imagen, 1981), at p. 383. (Release 1 – 2012)
- 258. MEX-2 INTERNATIONAL PRODUCT LIABILITY fulfill, for oneself or through another person, a consequence of an offense, guilt, or other legal cause’.3 From a legal standpoint, liability means: ‘. . . the obligation that a person has with respect to another to repair the damage and compensate lost profits that were caused as a consequence of [his] own or someone else’s act or due to the effects of the things or inanimate objects or from animals.’4 Considering the meanings of both ‘product’ and ‘liability’, respectively, a notable reference is the definition of product liability proposed by a distinguished scholar: ‘the power that the consumer of a defective product has to claim from the manufacturer as well as from the distributor the payment of damages and lost profits that such defect caused’.5 In general terms, this definition of product liability sets the scope of product liability in Mexico, where liability is mostly limited to defective products, as opposed to other countries, where product liability may cover product-derived injuries caused to people, regardless of whether the product is defective or not. In order to analyze the legal implications of product liability under the Mexican legal framework, it is important to know about the principal legal statutes governing the product liability regime. Product liability pertains to the branch of civil liability and consumer protection law. In Mexico, product liability is regulated by the Federal Consumer Protection Law (Ley Federal de Protección al Consumidor, FCPL), the Federal Law of Metrology and Standardization (Ley Federal sobre Metrología y Normalización, FMSL), the Federal Civil Code (Código Civil Federal, FCC), and by the civil codes of individual states. The FCPL has undergone several amendments in the last decade, those officially published on 4 February 2004 being the most relevant to product liability, as they introduced the concept of product liability in a clearer manner. These amendments directly favor the protection of consumers in product liability cases. Prior to the amendments to the FCPL, the actions arising from a defective product were solely based on the general principles contemplated by the FCC and other applicable state civil codes. The general principle under the state civil codes applicable to product liability is that anyone who acts against the law or good principles and as a result causes injuries or damage to another is bound to indemnify the victim, unless it is proved that the harmful result was due to the victim’s inexcusable fault or negligence. 3 Translated definition of ‘Responsabilidad’ (liability) in Diccionario de la Lengua Española – vigésima segunda edición online, at http://buscon.rae.es/draeI/Srvlt Consulta?TIPO_BUS=3&LEMA=producto. 4 R. De Pina, Derecho Civil Mexicano (Porrúa, 1993). 5 J. Barrera, ‘La responsabilidad del producto en el derecho mexicano’, Revista de Derecho Comercial y de las Obligaciones (Buenos Aires, 1978). (Release 1 – 2012)
- 259. MEXICO MEX-3 General Aspects of Liability in Mexico In General As mentioned in the Introduction, liability necessarily involves an obligation; nevertheless, the concept of civil liability is defined as a person’s obligation to repair the damage and compensate lost profits caused to another person due to a conduct performed against the law or against good practices.6 Accordingly, civil liability may arise from two sources: contractual, if it derives from the breach of an agreement, or non-contractual, if it derives from the breach of a general observance rule (referred to as tort liability in other jurisdictions). Civil liability is classified into strict liability (responsabilidad objetiva) and fault-based liability (responsabilidad subjetiva). Strict liability is imposed regardless of whether the responsible party acted with or without fault. Fault- based liability is based on the relevant person’s fault. Contractual Liability Contractual liability is understood as the liability arising from the transgression of a particular provision or an individual observance rule in an agreement or another legal act of private law.7 In other words, liability arising from the breach of an obligation that is contemplated in an agreement implies that the parties to the agreement are bound to repair the damage and/or compensate lost profits caused in the event of a breach of any of their obligations, based on the contractual liability originating from the terms of the agreement. Within the product liability context, contractual liability is relevant in the purchase of products where a consumer agrees to pay a certain price for a good or product offered by a supplier, based on the characteristics of the product offering. Non-Contractual Liability Non-contractual liability will exist when a person breaches a law and causes damage, in which case that person is liable on a non-contractual basis, and is bound to repair the damage and compensate lost profits (civil liability) caused. The source of this obligation is the violation of a law and not of an agreement.8 6 J. Ovalle Piedra, Responsabilidad Civil por Productos en México, available on the website of the Biblioteca Jurídica Virtual de la Universidad Nacional Autónoma de México at http://www.bibliojuridica.org/libros/1/32/6.pdf. 7 M. Bejarano Sánchez, Obligaciones Civiles, 5th ed (México, Oxford University Press, 2007), at p. 180. 8 M. Bejarano Sánchez, Obligaciones Civiles, 5th ed (México, Oxford University Press, 2007), at p. 180. (Release 1 – 2012)
- 260. MEX-4 INTERNATIONAL PRODUCT LIABILITY Legal Framework In General Despite the fact that product liability may derive from both contractual and non- contractual liability in Mexico, the involved parties are empowered to initiate legal actions for indemnification; therefore, before entering into the analysis of product liability theories, a general overview as regards the scope of the applicable legal statutes is important. Federal Consumer Protection Law The FCPL in force was published in the Federal Official Gazette on 24 December 1992 and has been amended since then. Its purpose is to promote and protect the rights and culture of consumers, and to seek fairness, assurance, and legal certainty in relations between suppliers and consumers. The FCPL law basically regulates relationships between suppliers and consumers. The FCPL defines a ‘consumer’9 as an ‘individual or legal entity that acquires, trades, or uses goods, products, or services as the ultimate beneficiary’, as well as ‘the individual or legal entity that acquires, stores, uses, or consumes goods or services in order to incorporate them into processes of production, manufacture, marketing, or to render services to third parties’. Legal entities that acquire goods or services to incorporate them into processes of production or to render services to third parties may exercise this action only for the purposes of the right to file certain complaints pursuant to the referred legal statute with the Federal Consumer Protection Agency (Procuraduría Federal del Consumidor, commonly known as PROFECO). PROFECO is the governmental agency, a dependant of the Ministry of Economy, in charge of the surveillance of compliance with the provisions of the FCPL. On the other hand, a ‘supplier’ is defined as an ‘individual or legal entity that customarily or periodically offers, distributes, sells, leases, or grants the use or availability of goods, products, and services’.10 The FCLP governs certain principles11 that prevail in all consumer-supplier relationships. For the purposes of this analysis, the most important principles are useful for interpreting related product liability provisions throughout that statute. One such principle is the protection of the life, health, and safety of consumers against risks caused by products, practices related to the supply of products, and services considered as hazardous or toxic. Another key principle is to provide clear and adequate information on the different products and services, with accurate specifications as regards their quantity, characteristics, composition, quality, and price, as well as on the risks they represent. 9 Federal Consumer Protection Law, s 2(I). 10 Federal Consumer Protection Law, s 2(II). 11 Federal Consumer Protection Law, s 1(I), (II), and (IV). (Release 1 – 2012)
- 261. MEXICO MEX-5 The effective prevention and redress of property damage and non-monetary damage, either individually or collectively, guaranteeing the administrative, technical, and juridical protection of consumers, also is a basic principle. Finally, a key principle is to respect the rights and obligations deriving from consumer relationships and to provide measures for guaranteeing their effectiveness and enforcement. The FCPL sets forth certain provisions concerning product liability, granting consumers the right to file actions against suppliers and/or other members of the supply chain, after which the liable party is obligated to carry out a restitution action in favor of the affected consumer. Federal Law of Metrology and Standardization The FMSL was published in the Federal Official Gazette on 1 July 1992, with several amendments published since then. The FMSL sets forth the guidelines for the creation and enforcement of standards, including the Mexican Official Standards (Norma Oficial Mexicana, NOMs). NOMs that are obligatory impose the minimum characteristics and/or specifications that products must comply with in the event that they may present risks to people’s health or cause damage to human health.12 Moreover, the FMSL has a significant impact on the regulation of product liability in Mexico, as NOMs impose obligations and duties not only on manufacturers, but, in some cases, even on some other members of the supply chain, such as importers and distributors. Hence, given the purposes of NOMs, members of the chain of supply are subject to the duty or obligation to observe certain specifications in taking due care in the design, manufacture, and labeling of products and in providing warnings for products. Failure to comply with the product standards contained in the applicable NOMs has two effects: first, the manufacturer, importer, or distributor, as the case may be, will be sanctioned for non-compliance pursuant to the provisions of the FMSL and the FCPL (in addition to the obligations for replacement, refund, and/or compensation of the product price); second, the manufacturer, importer, or distributor may be liable against the affected consumer for the damage and lost profits suffered pursuant to the terms of the provisions and applicable requirements under the FCC (as further explained in the following subsection). Federal Civil Code The FCC (in addition to the local civil codes that are applicable in each state within Mexico) complements the provisions of the FCPL and the FMSL on civil liability provisions, based on which consumers may claim damages and lost profits. Under Mexican law, damage and lost profits must be immediate and 12 Federal Metrology and Standardization Law, s 40. (Release 1 – 2012)
- 262. MEX-6 INTERNATIONAL PRODUCT LIABILITY direct consequences of the breach that gave rise to civil liability; consequential, punitive, or indirect damages are not permitted. Theories of Liability In General In Mexico, product liability is not expressly defined as such within the FCPL, the FMSL, the FCC, the civil codes of individual states, and applicable NOMs, but rather the concept of product liability is implicitly contained and derives from several mandatory provisions of said statutes, both from contractual and non-contractual perspectives. Under Mexican law, product liability is related to and may be analyzed based on different theories, considering that not only manufacturers but also other members of the supply chain may incur product liability. These theories are warranty liability; liability for negligence, fraud, and misrepresentation; fault- based liability; strict liability; and liability for damages and lost profits. Warranty Liability In General The FCPL regulates product warranties and therefore determines liability based on the compliance that the relevant parties (ie, manufacturers, importers, distributors, and others in the supply chain) need to observe as regards the specific requirements that product warranties are subject to in terms of both the FCPL and the applicable NOMs. Based on the FCPL, the term ‘warranty’ should be considered as the legal act (usually expressed in a policy) whereby the supplier assumes toward the consumer the liability for defects that are due to lack of quality or level of services rendered and which may affect the normal operation of the product or service that is the subject-matter of the consumer relationship, in accordance with the nature, characteristics, conditions, use, or expiry of the warranty. Therefore, the supplier is bound, for a certain term, to conduct all necessary repairs that may be required for the standard use of the sold or leased products, as well as for products that are the subject matter of the service.13 The FCPL sets forth that every product or service offered with a warranty is subject to the provisions of the FCPL and the provisions of the agreement between the supplier and the consumer. Notably, the provisions and requirements of the FCPL cannot be waived and the agreements between private parties cannot contravene these provisions or requirements.14 13 J. Ovalle Favel, Comentarios a la Ley Federal de Protección al Consumidor, 2nd ed (México, McGraw–Hill, 1995), at p. 151. 14 Federal Consumer Protection Law, s 77. (Release 1 – 2012)
- 263. MEXICO MEX-7 NOMs impose very specific requirements as regards the scope and aspects that the warranty for certain products need to comply with and even impose applicable limitations or exceptions. The execution of product or service warranties may be claimed either from the manufacturer or the importer, unless either of these or a third party has expressly undertaken this obligation in writing.15 Implied or Legal Warranties The FCPL provides product liability from three types of implied warranties: fitness for purpose, quality, and defects or hidden defects that diminish the possibility of using the product. Under the FCPL, the supplier is obligated to deliver the product or render the service pursuant to the terms and conditions offered or implied in the advertising or information relating to the product, unless as otherwise agreed by the parties or with the express consent of the consumer. As such, Mexican law neither differentiates between nor defines the terms of warranty of merchantability and warranty for fitness for purpose. The consumer may request the substitution of the product or service, rescind the contract, or obtain a price reduction. In any event, the consumer may obtain a refund or compensation when the product or subject-matter of the contract has any fault or hidden defect that renders it unsuitable for its customary use, diminishes its quality or the possibility of its use, or does not offer the safety that, due to its nature, is expected from the product and from its reasonable use. If the consumer chooses to rescind, the supplier will be bound to refund the price paid, along with interest, if applicable. Moreover, if the product is replaced, the term of the warranty must be renewed.16 These compensations and warranties are granted without prejudice to seeking payment of indemnity that may result from damage and lost profits (as further discussed later in this chapter). Express or Conventional Warranties Irrespective of implied warranties, express warranties also trigger product liability when the warranty is breached. Express warranties are considered to be those resulting from the information that the relevant supplier provides to consumers when the products are offered. At the choice of the consumer, a claim under an express warranty may be to obtain a replacement of the product or the return of the amount paid against the delivery of the product acquired (and even an additional bonus compensation). These claims are valid in four cases. The consumer may make this claim when the net content of one product or the amount delivered is less than the amount indicated on the container, receptacle, or packaging or when measurement instruments that do not comply with the 15 Federal Consumer Protection Law, s 79. 16 Federal Consumer Protection Law, ss 82, 83, and 91. (Release 1 – 2012)
- 264. MEX-8 INTERNATIONAL PRODUCT LIABILITY applicable provisions are used, taking into consideration the tolerance limits allowed by the set of internal rules and regulations (NOMs). A claim for replacement, refund, or even additional bonus compensation may be made if the product does not correspond to the quality, trade mark or specifications, and other essential elements under which it has been offered, or does not comply with the applicable NOMs. The consumer also may make this claim if a product that is repaired is not left in an adequate condition for its use or purpose within the terms of the warranty or in the other cases set forth by the FCPL. Any other violation of the applicable law is a ground for a claim for replacement, refund, or additional bonus compensation.17 Express warranty product liability claims may be submitted to either the seller, manufacturer, or importer within the two months following the date on which the product was received, provided the product has not been altered due to the consumer’s fault. Obligated parties may refuse to compensate the claim if it is submitted in an untimely manner, when the product has been used in conditions other than the conditions recommended or inherent to its nature or purpose, or if the product has experienced an essential, irreparable, and serious detriment due to causes attributable to the consumer. In order to be entitled to the substitution of the product, partial refund, compensation, or full refund, the consumer needs to prove that the product does not correspond to the quality, trade mark or specifications, and other essential elements under which the product was offered, without the need to prove that the fault lies with the seller or manufacturer of the product.18 As previously indicated, the FCPL obliges the supplier to deliver the product in accordance with the terms and conditions advertised, unless otherwise provided by an agreement or the consumer’s written consent.19 Liability of Third Parties Concerning Warranties The impact on the effectiveness of a warranty against a third party will only take place if the third party expressly undertook such obligations. Parties that cause common damage will be held jointly liable with respect to the indemnity to the victim for the damage caused.20 Liability for Negligence, Fraud, and Misrepresentation The FCC provides that a person who acts against the law or good practices and causes damage to another is bound to repair the damage, unless it is proved that 17 Federal Consumer Protection Law, s 92. 18 J. Ovalle Piedra, Responsabilidad Civil por Productos en México, at http://www. - bibliojuridica.org/libros/1/32/6.pdf, at p. 143. 19 Federal Consumer Protection Law, s 42. 20 Federal Civil Code, s 1917. (Release 1 – 2012)
- 265. MEXICO MEX-9 the damage is a result of the victim’s negligence or fault.21 Likewise, the FCC sets forth that liability arising from fraud (dolo),22 misrepresentation, or from bad faith (mala fe)23 and which may be claimed may not be waived under any circumstances.24 Negligence is understood as the lack of care and caution of an individual when acting, generally determined by comparing it with the behavior of a prudent individual in similar circumstances.25 As provided for by the FCC, in the event damage is caused without fault or negligence on the part of any of the parties, each one will assume the damages without any right to indemnification.26 Fault-Based Liability Article 1910 of the FCC provides that a person acting against the law or good practices who causes damage to another is bound to repair it, unless it is proved that the damage is caused by the victim’s negligence or fault. In order to attribute this particular type of liability to the manufacturer or supplier of a product for the damage caused by a defective product, it is necessary to prove that the manufacturer’s or supplier’s conduct was against the law or good practices. In this regard, the presence of the slightest negligence attributable to the offender is deemed enough reason to attribute liability, although proof is required that he acted against the law or good practices, as well as proof of the direct and immediate link between the damage suffered and the conduct of the offender. In the event that a claim for product liability is filed on the basis of Article 1910 of the FCC, the biggest challenge that the affected consumer might encounter is having to prove that the offender’s performance was against the law or good practices. This liability comprises the payment of an indemnity for the damage and lost profits suffered by the affected consumer. Strict Liability Under Mexican law, strict liability is understood as the obligation to respond to any damage caused when an individual makes use of mechanisms, instruments, apparatus, or substances which are dangerous by nature due to the velocity which they develop, their explosive or inflammable nature, the strength of the 21 Federal Civil Code, s 1910. 22 Pursuant to the Federal Civil Code, s 1815, understood as any suggestion or artifice employed by any of the contracting parties which induces or maintains an erroneous assumption. 23 Pursuant to the Federal Civil Code, s 1815, understood as the concealment of an error by one of the contracting parties when such error has become known. 24 Federal Civil Code, s 2106. 25 J. F. Becerra, Diccionario de Terminología Jurídica Norteamericana (Escuela Libre de Derecho, México, 2008), at p. 644. 26 Federal Civil Code, s 1914. (Release 1 – 2012)
- 266. MEX-10 INTERNATIONAL PRODUCT LIABILITY electric current they conduct, or for other analogous reasons. It is of no importance whether the individual acted illegally or legally, unless the defendant proves that the damage was caused by the victim’s fault or inexcusable negligence.27 As provided for by the FCC, in the event that damage is caused without the use of mechanisms, instruments, apparatus, or substances which are dangerous by nature, and without existing fault or negligence by any of the parties, each party will assume the damages without any right of indemnification.28 Liability for Damage and Lost Profits In terms of the FCC, the seller is bound to indemnify the affected party for any hidden defects that appear in a product that is sold which render it improper for the customary use for which it is intended or that diminish in any way its customary use in a manner that, had the buyer known of such defects, he would not have purchased it or would have offered a lower price for it.29 In case of hidden defects in a product, if the vendor knew about them and did not disclose them to the purchaser, the vendor will be obliged to indemnify the purchaser for the hidden defects.30 The purchaser is therefore entitled to choose to either rescind the purchase agreement and claim the costs he incurred with respect to the product or request a price reduction proportionate to the price of the product. If the purchaser chooses to rescind the purchase, he will be entitled to claim an indemnity for damage and lost profits.31 If the vendor did not know about the defects, he need only refund the price and reimburse costs incurred under the agreement, if the purchaser has paid these costs.32 Damages and lost profits to be indemnified in terms of the FCC must always be a direct and immediate consequence of the breach of the relevant obligation, as provided for by the theory of causation applicable under Mexican law.33 The protection granted to the consumer in terms of the provisions of the FCC is limited to the relations between parties arising from those agreements executed by them. This will be in addition to any other liability that may arise and could be attributable to the seller (ie, non-contractual liability). 27 Federal Civil Code, s 1913. 28 Federal Civil Code, s 1914. 29 Federal Civil Code, s 2142. 30 Those defects that make the product unsuitable for the use for which it is intended or that diminish such use in a way that, had the purchaser known of the defect, he would not have purchased the product or would have paid a lesser amount. 31 Federal Civil Code, ss 2142, 2144, and 2145. 32 Federal Civil Code, s 2148. 33 Federal Civil Code, s 2110. (Release 1 – 2012)
- 267. MEXICO MEX-11 Concept of Defect Generally, a defect is understood as an imperfection or shortcoming in a part that is essential to the operation or safety of a product.34 For the purposes of the FCPL, the product is deemed to be defective when it does not correspond to the quality, trademark or specifications, or to those other essential elements under which it was offered, or even in those cases where the product does not comply with the applicable NOMs as regards the product’s specifications. Obligation to Recall Defective Products In accordance with Article 98 bis of the FCPL, when the PROFECO detects violations of the FCPL and other applicable provisions (including NOMs) during a verification visit, it may order the supplier to inform consumers, either individually or collectively or through the mass media, about the irregularities detected in the products, as well as about the manner in which the supplier will refund or compensate the consumers. The supplier must prove that he has complied with such an order. More specific provisions exist on product recalls, such as those under the relevant health provisions applicable to pharmaceuticals. The PROFECO and other competent authorities (such as the health authority, when dealing with pharmaceuticals) have the authority to attach goods and products that may negatively affect the life, health, and safety of consumers or that may represent a risk.35 Any recall that is ordered by the competent authority will be in addition to those remedies that are available to consumers as regards product liability. Obligation to Warn Consumers about Defective Products In accordance with the FCPL and applicable NOMs, clear and adequate information on products and services must be provided to the consumers, with accurate specifications as regards their quantity, characteristics, composition, quality, and price, as well as regarding any risks they may represent. Specifically, Article 38 of the FCPL provides that clauses that restrict or limit the use of goods or services must be made evident in clear and truthful language that is free of ambiguities. Likewise, Article 41 of the FCPL establishes that in the case of products or services which, under the applicable provisions, are considered to represent a potential hazard to consumers or are harmful for the environment, or when their hazardous nature is foreseeable, the supplier must include an instruction manual 34 Black’s Law Dictionary, 8th ed (USA, West Publishing Co., 2004), at p. 450. 35 Federal Consumer Protection Law, s 25 bis. (Release 1 – 2012)
- 268. MEX-12 INTERNATIONAL PRODUCT LIABILITY to warn consumers, about the harmful characteristics by clearly explaining the recommended use or application and the potential effects of their use or application outside the recommended guidelines. The supplier will be accountable for damage and lost profits (and for the payment of the bonus compensation contemplated by the FCPL) that a violation of the referred provision may cause to consumers. According to the FCPL, when defective, used, or refurbished products are sold, these circumstances must be indicated to the consumer in accurate and clear terms that are displayed on the products and their packaging and noted in the pertinent bills or invoices.36 Defenses Available to the Manufacturer Contributory Fault Contributory fault can be understood as the plaintiff’s own negligence, which played a part in causing the plaintiff’s injury and which is significant enough to bar the plaintiff from recovering damages.37 In this regard, as provided by the FCC, the party held liable for acting against the law or good practices and thereby causing damage to another will not be bound to remedy the damage if it is proved that such damage was a result of the victim’s inexcusable negligence or fault. Likewise, the FCPL provides that the product’s seller, manufacturer, or importer is not bound to compensate the consumer on a claim filed by him when the product was used in conditions other than the conditions recommended or inherent to the nature or purpose of the product or if the product experienced essential, irreparable, and serious detriment due to causes attributable to the consumer.38 Therefore, in terms of both of these legal provisions, contributory fault is a defense available to the manufacturer under the Mexican legal system, under which the plaintiff will not be entitled to recover for the damage suffered due to his own negligence. This is in accordance with the judicial principle of nemo auditur propriam turpitudinem allegans (no one can be heard whose claim is based on their own negligence or malice). Assumption of Risk Assumption of risk is understood as the act of a prospective plaintiff taking on the risk of loss, injury, or damage. This occurs when the potential plaintiff has given his express consent in advance to relieve the defendant of an obligation of 36 Federal Consumer Protection Law, s 39. 37 Black’s Law Dictionary, 8th ed (2004), at p. 1062. 38 Federal Consumer Protection Law, s 93. (Release 1 – 2012)
- 269. MEXICO MEX-13 conduct toward him and to take his chances on injury from a known risk arising from what the defendant will do or leave undone.39 Bearing in mind that the provisions of the FCPL are in the nature of a public policy nature intended to render a social benefit, its provisions cannot be waived. Moreover, no customs, uses, practices, covenants, or stipulations to the contrary may be asserted against the provisions of the FCPL. In principle and to the extent the acquiring party is considered a consumer in terms of the FCPL, the supplier needs to fully comply with the provisions of the FCPL. Product Misuse In terms of the FCPL, the seller, manufacturer, or importer may legally refuse to compensate the claim when the product was used in conditions different from the conditions of use recommended or inherent to the nature or purpose of the product or when the product has experienced an essential, irreparable, and serious detriment due to causes attributable to the consumer.40 Comparative Fault Comparative fault is understood as a plaintiff’s own negligence that proportionally reduces the damages recoverable from a defendant.41 In this regard, although comparative fault is not extensively developed in the Mexican legislation, the amount of damages recoverable will be determined to the extent that these are proved (as an immediate and direct cause of the relevant infringement) before a judge. The damages recoverable will be determined on the basis of the extent of negligence, its intent, the level of guilt, the financial standing of the liable party and that of the victim, as well as any other particular circumstances of the case.42 State-of-the-Art Defense Considering that liability is governed by the theory of causation, in Mexico there is no regulation as such which allows the manufacturer a state-of-the-art defense. Under Mexican law, products need to comply with the relevant and applicable NOMs, and lack of compliance needs to be proved by the consumer and ultimately determined by a jurisdictional authority on a case-by-case basis. A manufacturer can defend himself by proving that the product did, in fact, comply with the applicable specifications in effect at the time; however, the 39 Black’s Law Dictionary, 8th ed (2004), at p. 134. 40 Federal Consumer Protection Law, s 93. 41 Black’s Law Dictionary, 8th ed (2004), p. 1062. 42 C. Portilla and G. Ruy–Díaz, The International Comparative Legal Guide to: Product Liability 2009, an online publication in Spanish, at http://www.iclg.co.uk/khadmin /Publications/pdf/2818.pdf. (Release 1 – 2012)
- 270. MEX-14 INTERNATIONAL PRODUCT LIABILITY final judgment will not be based solely on this ground, and courts may consider the consumer’s arguments and other relevant facts. Proximate Cause According to the provisions of the FCC and on a general basis, damages and lost profits can only be claimed as an immediate and direct consequence of a breach of an obligation or an unlawful act. Therefore, based on the theory of causation applicable in Mexico, liability concerning damages and lost profits will be limited to a direct cause, as only compensatory indemnity for damage may be obtained and all consequential punitive or exemplary damages are not permissible in Mexican law. Liability of Others in Supply Chain According to the applicable provisions of the FCPL, product liability also may impact members of the supply chain other than the manufacturer when the product liability arises from implied or legal warranties and from express or conventional warranties. Likewise, in terms of the FCC, parties that cause common damage will be held jointly liable with respect to indemnification to the victim for the damage caused.43 Irrespective of consumer rights arising from product liability against the manufacturer, importer, or distributor, these members of the supply chain may agree on their liability among themselves through private agreements. Such private agreements must in no event limit or affect the rights of consumers. The effectiveness of product or service warranties may be claimed either from the manufacturer or the importer, unless the manufacturer, the importer, or a third party has expressly undertaken such an obligation in writing.44 From a civil law perspective, if indemnity for damage and lost profits is claimed, it must be proven that the indemnity came about as a result of an immediate and direct consequence of the relevant breaching party (ie, manufacturer, importer, distributor, or any member of the supply chain), as based on the theory of proximate cause. There are no specific provisions with respect to franchisors and franchisees or with respect to licensors and licensees; in general, product liability between them will be in accordance with the terms and conditions of their corresponding agreements. 43 Federal Civil Code, s 1917. 44 Federal Consumer Protection Law, s 79. (Release 1 – 2012)
- 271. MEXICO MEX-15 Remedies Damage and Lost Profits In terms of Article 2108 of the FCC, ‘damage’ is understood as the loss or deterioration of property through failure to fulfill an obligation. In addition, Article 2109 of the FCC provides that the deprivation of any legal gain which should have been obtained from the fulfillment of an obligation is considered to be lost profits. Article 2110 of the FCC provides that damage and lost profits that can be claimed must necessarily be a direct and immediate consequence of the conduct or the failure to perform an obligation, whether they have been caused or will necessarily be caused. Moral Damage Moral damage can be defined as the negative consequences that a person may suffer in terms of feelings, beliefs, honor, reputation, privacy, or appearance. It will be presumed that moral damage has occurred when the freedom or physical or psychic integrity of an individual has been illegally violated. In this regard, when an illegal act or omission produces moral damage, the liable party will be bound to repair it through monetary compensation, independent of the material damage arising from contractual or non-contractual liability. Equal liability to indemnify moral damage will be imposed on the individual that incurs a strict liability.45 Therefore, under Mexican law, the concept of ‘emotional distress’ may be assimilated into that of moral damage. Redhibitory Action and Quanti Minoris Action A redhibitory action (Acción Redhibitoria) is understood as the agreement’s resolution, with its effects of product and price restitution.46 A quanti minoris action (Acción Estimatoria) is understood as a price reduction which is the proper monetary compensation for the defective product.47 In relation to the product’s legal or implied warranties in terms of the FCPL, the consumer may choose between filing a redhibitory or a quanti minoris action for hidden defects in products, in addition to the right to claim payment for the damage and lost profits suffered, as well as certain compensation bonuses contemplated by the FCPL.48 45 Federal Civil Code, s 1916. 46 J. Ovalle Piedra, Responsabilidad Civil por Productos en México, at www.biblio juridica.org/libros/1/32/6.pdf, at p. 154. 47 J. Ovalle Piedra, Responsabilidad Civil por Productos en México, at www.bibliojuri dica.org/libros/1/32/6.pdf, at p. 154. 48 Federal Consumer Protection Law, s 82. (Release 1 – 2012)
- 272. MEX-16 INTERNATIONAL PRODUCT LIABILITY As regards the product’s conventional or express warranties, according to the FCPL, the consumer also may file a redhibitory action (generally when the product does not comply with its offered specifications, including lack of compliance with NOMs). This means that the consumer also is entitled to the substitution of the product or refund of the amount paid, and, in any case, to the payment of the bonus compensation referred to in the FCPL. In addition to the repair of the product, also remedies for return of the product and for economic loss are foreseen under the FCPL and the FCC. Finally, in terms of the FCC, the buyer is entitled to file either a redhibitory or a quanti minoris action. In the event that the seller had knowledge of the existence of the product’s hidden defects and if the victim chooses to execute the redhibitory action, the victim also is entitled to be indemnified for the damage and lost profits incurred.49 Remedies for Non-Contractual Liability There are several remedies contemplated under Mexican law for non-contractual liability. In the event of breach of the duty to warn consumers about potentially hazardous products or when there is failure to provide instructions, the supplier will be held liable for the damage and lost profits caused to the consumer.50 Likewise, the product’s supplier and/or manufacturer held liable in terms of Article 1910 of the FCC will be bound to indemnify the damage and lost profits caused to the consumer in those cases where the supplier and/or manufacturer has acted illegally or against good practices. Punitive damages are understood as the damages awarded in addition to actual damages when the defendant acted with recklessness, malice, or deceit, assessed as a means of penalizing the wrongdoer or providing a deterrent example to others.51 Punitive damages are not contemplated and therefore are unrecoverable under Mexican law. In connection with personal injuries or death, the amount of damages to be awarded will be established in accordance with the provisions of the Federal Labor Law. Under this Law, consumers with personal injuries or persons that suffer death are entitled to indemnification as provided under the Federal Labor Law for workers suffering injuries or in case of death. By the choice of the injured party, the restitution for the damage will consist of the restoration of the status previously existing, when this is possible, or by the payment of damages, including compensation for losses. When the damage is caused to persons and produces death or results in total permanent, partial permanent, total temporary, or partial temporary incapacity, 49 Federal Civil Code, ss 2142 and 2144. 50 Federal Consumer Protection Law, ss 38 and 41. 51 Black’s Law Dictionary, 8th ed (2004), at p. 418. (Release 1 – 2012)
- 273. MEXICO MEX-17 the amount of indemnity will be determined according to the provisions established by the Federal Labor Law. The appropriate indemnity is calculated by taking as the base four times the highest minimum daily salary in force in the region, multiplied by the number of days indicated in the Federal Labor Law in the case of death or for each of the incapacities mentioned.52 Contractual Disclaimers or Limitations Under the provisions of the FCPL, the warranties offered may not be less than the warranties determined by the applicable provisions (NOMs), nor may they stipulate conditions or limitations that diminish the rights legally conferred on consumers.53 Disclaimers in contracts may be allowed so long as they do not contravene legal provisions, including the implied or legal warranties set forth in the FCPL. Moreover, according to the provisions of the FCC, waivers stating that any of the parties will not be liable either for fraud or for misrepresentation are not allowed.54 Statute of Limitations The statute of limitations may vary, depending on the kind of claim that is to be enforced. As a general rule, the term for exercising the rights and obligations set forth in the FCPL is subject to a one-year statute of limitations, except when a particular statute of limitations may exist under a specific provision.55 In this regard, administrative proceedings before the Federal PROFECO may be filed within the term of one year from the time of the sale of the product. The date of sale must be either the date when the voucher that covers the price or the consideration agreed upon is issued; the date when the goods have been paid for, in whole or in part; the date when the product is received; or the last date when the consumer proves a direct request to the supplier for the performance of any of the obligations assumed by that supplier.56 When the claim relates to products that do not comply with the specifications under which they were offered (or even when the products lack compliance with NOMs), the claim can be filed within two months following the date when the product was received, provided the product has not been altered due to the consumer’s fault.57 52 Federal Civil Code, s 1915. 53 Federal Consumer Protection Law, s 79. 54 Federal Civil Code, ss 2106 and 2158. 55 Federal Consumer Protection Law, s 14. 56 Federal Consumer Protection Law, s 105. 57 Federal Consumer Protection Law, s 93. (Release 1 – 2012)
- 274. MEX-18 INTERNATIONAL PRODUCT LIABILITY For claims arising from civil liability for unlawful acts that do not constitute offenses (crimes), the statute of limitations is two years, counted from the date when the acts were verified.58 The statute of limitations is six months for claims related to hidden defects, and will be counted from the date of the delivery of the product.59 Corporate Successor Liability Under Mexican law, corporate successors will be liable to consumers for claims arising from defective products. This liability will be irrespective of the scope and possible limitations that may have been agreed between the relevant corporate successor and the former corporate entity. Product Liability Insurance In General Product liability insurance may be understood as an agreement to indemnify a manufacturer, supplier, or retailer for a loss arising from the insured’s liability to a user who is harmed by a product manufactured or sold by the insured.60 In this regard and in accordance with Mexican law, suppliers may decide to acquire a civil liability insurance policy in order to be indemnified for the possible material and/or moral damage, lost profits, injuries, and other afflictions that may be caused by the product to consumers. Moreover, liability arising from manufacturing errors, faults, or defects of all or part of the product or defective services rendered by the insured may cover material damage, injuries, or death, when the insurance contract covers these liabilities. Obligations of the Insurer The insurance company’s obligations usually include the payment of damages and compensation for lost profits, as well as moral damages for which the insured individual or entity is being held liable, in accordance with the provisions foreseen in the corresponding insurance policy and its particular conditions, as well as the payment of the insured’s legal expenses. Obligations of the Insured In General The insured individual or entity is obliged to promptly communicate to the insurance company the product liability claims to which it is subject, as soon as 58 Federal Civil Code, s 1161. 59 Federal Civil Code, s 2149. 60 Black’s Law Dictionary, 8th ed (2004), at p. 818. (Release 1 – 2012)
- 275. MEXICO MEX-19 knowledge of such claims become available to the insured. The insured also is obliged to pay the premium set by the insurance company, in order for the insurance company to respond to any damage the insured causes to third parties. Usual Exclusions The commonly known exclusion provisions in product liability insurance policies are: • Liability arising from breach of agreements (contractual liability); • Liability arising from damage caused with malice; • Damage or defects of the defective product sold by the insured; • Expenses arising from withdrawing the product from the market, or from its inspection, repair, substitution, or loss of use; • In the case of defective products, consequences arising from the fact that the defective product does not correspond to the quality under which it was advertised (breach of quality warranty) or may not be used for the purpose it was intended without causing damage or injury to third parties, covering only such damage or injuries; • Loss of the insured product; and • Damage arising from neglecting to observe instructions for the consumption, use, or execution of the product. Product Liability Litigation Federal Consumer Protection Agency The PROFECO is in charge of monitoring compliance with the provisions of the FCPL and also in connection with NOMs falling within its scope, basically to ensure that the rights of consumers are respected. PROFECO is an administrative authority that seeks to resolve disputes between suppliers and consumers, although its resolutions are not of a judicial nature. Non-compliance with the provisions of the FCPL by suppliers is administratively sanctioned through fines, attachment of products, and orders for the suspension of marketing and advertising of the relevant products, among others. However, if for any reason the supplier and the consumer fail to reach an agreement with respect to the claims filed with the PROFECO by the consumer, then the parties will resolve the dispute before competent courts. Role of Courts and Lawyers In the event of court proceedings, a Mexican judge will serve the trial; the Mexican legal system does not contemplate trial by jury. In this sense, the legal principle is that the judge will assess and appraise the evidence presented by the parties. (Release 1 – 2012)
- 276. MEX-20 INTERNATIONAL PRODUCT LIABILITY However, the parties are granted the right to appoint experts to assess the evidence presented and, in the event the experts appointed by the parties disagree in their opinions, a third expert will be appointed by the judge. Role of FCPL in disputes between manufacturers and consumers As will be elaborated below, the PROFECO is also entitled to receive individual and group claims of consumers in connection with problems with products and services. Besides, the PROFECO is also entitled to act as conciliator in the aforementioned disputes, and try to help the parties to reach a settlement, or to act as arbitrator and render an award. In connection with the above, an amendment to the Commercial Code was published in the Official Federal Gazette on 17 April 2012, in terms of which either the settlements reached by the parties before the PROFECO or the awards rendered by the same in the arbitration proceedings are considered as executive titles. Accordingly, the breach to any of those acts will empower the affected party to file executive commercial proceeding, which consists in a summary proceeding with the possibility for the plaintiff to perform a provisional attachment of assets since the beginning of the lawsuit. Class Actions and Group Claims Class action claims are not common, although the FCPL authorizes the PROFECO to represent consumers before judicial and administrative authorities, including by filing a class action with the courts as the consumers’ representative. On 29 July 2010, an amendment to Article 17 of the Mexican Political Constitution was published in the Official Federal Gazette, incorporating class actions as a remedy available to citizens. Under the amendment, Congress will issue laws that regulate its application, and federal judges will review the judicial proceedings and mechanisms to avail of damages in class actions. Congress has a term of one year from 30 July 2010 to issue the legislative amendments. Likewise, on 28 January 2011, amendments to the FCPL related to Article 17 of the Mexican Political Constitution were officially published. The amendments to the FCPL incorporate the possibility for consumers to file group claims against a manufacturer. The feasibility of group or class actions must be proved before the PROFECO. It is necessary to identify the legal cause, action, legal claim, and to identify the supplier, and there must be a common representation of the relevant group. In addition, the representation and process of the claim must be made gratuitously, so that it is not linked to any kind of political interest. Moreover, according to (Release 1 – 2012)
- 277. MEXICO MEX-21 the relevant amendments, consumer associations have to fulfill certain mandatory requirements in order to represent consumers through class actions.61 Based on the constitutional amendment, a chapter to the Federal Code of Civil Proceedings was added as published in the Federal Official Gazette on 30 August 2011. Said addition deals with all relevant features of this kind of proceedings. The referred class action amendment also impacted other federal statutes including: (i) the FCC; (ii) the Federal Competition Law; (iii) the FCPL; (iv) the Federal Environmental Law; (v) the Financial Services Law; and (vi) the Federal Justice System Law. Stemming from the above, it is clear that class actions will deal with matters related to consumer goods and services, financial services, environmental damage, and antitrust injury. It is worth mentioning that the only individuals or entities authorized to file class action lawsuits are: (i) PROFECO (consumer services); (ii) PROFEPA (environmental protection agency); (iii) CONDUSEF (financial services agency); (iv) the common representative of a class comprised by at least 30 members; (v) non-profit organizations created at least one year prior to the claim is filed; and (vi) the Attorney General. The procedure for class actions has certain special and flexible features in comparison with traditional civil procedures, such as the certification of the class, the judge’s broad authority for obtaining further evidence, opt in and opt out rights, the amicus curiae institution, caps to attorney’s fees, and conciliation stage, among others. This procedure is more flexible than traditional procedures and even some adversaries to the statute have criticized that there is an imbalance since it allows the judge to supply deficiencies of the class. These “flexible” rules have produced criticism; the “level the paying field” between a major corporation and a class or whether the concept of a true adversarial procedure and equality before the law could be broken. Likewise, it can be questioned whether these proceedings would really change the state of affairs in Mexico where there is no discovery, trial by jury, punitive damages, and true oral proceedings such as in other jurisdictions. Thus, there might not be a real incentive to settle these cases. However, to obtain actual relief each individual will have to individually assert their claim and damages so caused in another ancillary liquidation procedure under the “direct and immediate damage test”. The court may order injunction relief consisting in: (i) an order to refrain from doing certain acts or activities; (ii) an order to do certain acts or activities omission of which caused or would necessarily cause and imminent and irreparable damage to the class; (iii) recall or seize instruments, goods, and 61 Federal Consumer Protection Law, s 99. (Release 1 – 2012)
- 278. MEX-22 INTERNATIONAL PRODUCT LIABILITY products directly related to the irreparable damage they caused; and (iv) any other measure the judge deems convenient to protect the interests and rights of the class. The statute of limitations elapses in a three- year and six- months term. This term commences on the day of the causation of the damage. If the damage is continuous, then the term for the statute of limitations will commence on the last day when the damage ceased. Frequency of Litigation Lawsuits on product liability are not very common at the judicial level, and thus the frequency of litigation is rather low. Complaints largely remain at an administrative level and are handled by the PROFECO. Attitude of Courts As yet, there is no particular attitude of the courts toward product liability claims; rather, lawsuits in the field are treated as any other judicial matter. Judicial trials are usually lengthy, but much depends on the complexity of the matter. The plaintiff is required to fully prove the existence of product liability succeeded in the action and legal claim, based on which the judge determines the extent of the damage and awards the corresponding damages. Notably, damages to be awarded need to be evidenced and must exist as an immediate and direct consequence of a breach by the supplier. Lawyers’ Compensation There is no rule on the nature of lawyers’ compensation. Much will depend on the specific agreement reached by the consumer and his lawyers; however, a trend in litigation matters is that compensation may be agreed based on a customized scheme, where a fixed fee may be agreed for each stage of the judicial procedure and a variable amount as a success fee. Choice and Application of Law In connection with the choice and application of law in disputes between suppliers and consumers, there will first be an attempt to resolve disputes through an amicable mediation procedure before the PROFECO under the terms of the FCPL, provided that the parties have expressly submitted to this administrative procedure. The choice of law and application of law for judicial procedures may be those the parties have agreed on in the relevant agreement. When no agreement has been previously executed containing all the terms and conditions regulating the relation between the parties, the dispute will be resolved under the applicable Mexican law. (Release 1 – 2012)
- 279. MEXICO MEX-23 Conclusion Before the latest amendments to the Federal Consumer Protection Law in 2004, the concept of product liability per se did not exist in Mexican law. Actions arising from a defective product were governed by the general provisions of federal and state civil codes, under which any person causing injury or damage to another is obligated to indemnify the injured, unless the harm can be proved to be caused by the victim’s inexcusable fault or negligence. A product liability claim requires the claimant to prove that the injury or damage is the direct result of either a breach of contract or a legal obligation. In a liability claim for a product or service, the claimant has to show that there is an obligation (either by agreement or imposed by law), that there has been a breach of this obligation (which is an illegal act), the causation between the breach and the injury or damage caused to the claimant, and that the damage is not due to inexcusable fault or negligence of the claimant. The new class action likely will change the way to try cases in Mexico and will incentivize parties to hold stricter to compliance with the law. Thus, companies should be aware of this new statute and take preventive measures so as to avoid being exposed to such a class action. (Release 1 – 2012)
- 281. The Philippines Introduction ............................................................................................ PHI-1 Theories on Manufacturers’ Liability .................................................... PHI-1 In General ................................................................................ PHI-1 Negligence ............................................................................... PHI-1 Fraud or Misrepresentation ...................................................... PHI-6 Warranty .................................................................................. PHI-8 Strict Liability .......................................................................... PHI-11 Concept of Defect .................................................................................. PHI-11 Defective Manufacture ............................................................ PHI-11 Defective Marketing ................................................................ PHI-12 Defective Design ..................................................................... PHI-15 Obligation to Warn Consumers or Recall Defective Products ............... PHI-15 Defenses Available to the Manufacturer ................................................ PHI-16 Contributory Fault or Comparative Fault................................. PHI-16 Assumption of Risk ................................................................. PHI-17 Product Misuse ........................................................................ PHI-17 State-of-the-Art Defense .......................................................... PHI-18 ‘Proximate Cause’ Limits ...................................................................... PHI-18 Others Affected by Product Liability Considerations ............................ PHI-20 Remedies ................................................................................................ PHI-22 In General ................................................................................ PHI-22 Civil Action ............................................................................. PHI-22 Criminal Proceedings............................................................... PHI-24 Administrative Complaint........................................................ PHI-24 Exclusion or Limitation of Contractual Liability ................................... PHI-25 Statutes of Limitation ............................................................................. PHI-26 Corporate Successor Liability ................................................................ PHI-27 Product Liability Litigation .................................................................... PHI-27 Frequency of Litigation ........................................................... PHI-27 Attitude of the Courts .............................................................. PHI-28 Typical Extent of Damages Awards ........................................ PHI-28 Lawyers’ Compensation .......................................................... PHI-29 Choice and Application of Law ............................................... PHI-29 Conclusion ............................................................................................. PHI-30
- 283. The Philippines Salvador L. Peña, Lovely Concepcion C. Matillano and Patricia B. Paz Angara Abello Concepcion Regala & Cruz Law Offices Metro Manila, Philippines Introduction Product liability laws are formulated to protect consumers from injury or harm that results from the manufacturing and sale of defective or unsafe products. The standard of absolute liability is intended to prevent harm to consumers or their property by holding manufacturers, sellers, and other parties in the supply chain liable for injuries caused by their defective or unsafe products. Theories on Manufacturers’ Liability In General Product liability in Philippine jurisdiction is commonly fault-based under the general principle of quasi-delict in Republic Act Number 386, otherwise known as the Civil Code of the Philippines (the Civil Code) and under the precept of criminal negligence in Act No. 3415 (better known as the Revised Penal Code of the Philippines, RPC). However, by virtue of the enactment of Republic Act Number 7394, entitled “the Consumer Act of the Philippines” (the Consumer Act), strict liability has come to be recognized in certain instances. Contractual liability under the Civil Code also may arise due to breach of express or implied contract warranties. Negligence In General Actionable negligence may be civil, criminal, or contractual in character. In other words, a negligent act may be actionable based on a contract, delict, or quasi-delict. These are separate and distinct bases of liability.
- 284. PHI-2 INTERNATIONAL PRODUCT LIABILITY Civil Negligence or Quasi-Delict Civil negligence or quasi-delict is governed by Article 2176 of the Civil Code as follows: ‘Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties is called a quasi-delict and is governed by the provisions of this Chapter.’ To sustain a claim based on quasi-delict, three requisites must concur: first, damage suffered by the plaintiff; second, fault or negligence of the defendant; and, third, connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff.1 In the realm of product liability, therefore, an act or omission amounting to fault or negligence that is attributable to a manufacturer and results in damage or injury to another is actionable negligence under Article 2176 of the Civil Code. Based on Article 2176, it appears that an action based on quasi-delict is only applicable when there is no pre-existing contractual relationship between the parties.2 However, jurisprudence has determined that an action based on quasi- delict may be maintained even if there is an existing contractual relationship between the parties. This is not absolute. To determine whether quasi-delict can be deemed to underlie a breach of a contract, it must be proved that even if a contract did not exist between the parties, the act or omission was such that it amounts to an actionable tort by itself.3 In Coca-Cola Bottlers Philippines, Inc. v Court of Appeals,4 the Supreme Court had occasion to discuss the available remedies for reckless and negligent manufacture of adulterated food items intended to be sold for public consumption. Other than an action for breach of warranties against hidden defects and annulment of contracts, the Supreme Court held that a vendor may likewise be liable for quasi-delict under Article 2176, despite the pre-existing contract between the parties: ‘The vendor could likewise be liable for quasi-delict under Article 2176 of the Civil Code, and an action based thereon may be brought by the vendee. While it may be true that the pre-existing contract between the parties may, as a general rule, bar the 1 Guillang v Guillang-Cabatbat, G.R. Number 162987, 21 May 2009. 2 Consolidated Bank and Trust Corporation v Court of Appeals, G.R. Number 138569, 11 September 2003. 3 Far East Bank and Trust Company v Court of Appeals, G.R. Number 108164, 23 February 1995. 4 Coca-Cola Bottlers Philippines, Inc. v the Honorable Court Of Appeals (Fifth Division) and Ms. Lydia Geronim, G.R. Number 110295, 18 October 1993.
- 285. THE PHILIPPINES PHI-3 applicability of the law on quasi-delict, the liability may itself be deemed to arise from quasi-delict, ie, the act which breaks the contract may also be a quasi-delict. Thus, in Singson vs. Bank of the Philippine Islands, this Court stated: “We have repeatedly held, however, that the existence of a contract between the parties does not bar the commission of a tort by the one against the other and the consequent recovery of damages therefor. Indeed, this view has been, in effect, reiterated in a comparatively recent case. Thus, in Air France vs. Carrascoso, involving an airplane passenger who, despite his first-class ticket, had been illegally ousted from his first-class accommodation and compelled to take a seat in the tourist compartment, was held entitled to recover damages from the air-carrier, upon the ground of tort on the latter’s part, for, although the relation between the passenger and a carrier is ‘contractual both in origin and nature. . . the act that breaks the contract may also be a tort’.” ‘Otherwise put, liability for quasi-delict may still exist despite the presence of contractual relations.’5 Criminal Negligence A commission of fault or negligence amounting to a crime is punishable under Article 365 of the RPC, which states: ‘Art. 365. Imprudence and negligence. — Any person who, by reckless imprudence, shall commit any act which, had it been intentional, would constitute a grave felony, shall suffer the penalty of arresto mayor in its maximum period to prision correccional in its medium period; if it would have constituted a less grave felony, the penalty of arresto mayor in its minimum and medium periods shall be imposed; if it would have constituted a light felony, the penalty of arresto menor in its maximum period shall be imposed.’ In criminal negligence, the injury caused to another should be unintentional, it being simply the incident of another act performed without malice.6 Reckless imprudence and simple imprudence are defined by Article 365 of the RPC: ‘Reckless imprudence consists in voluntary, but without malice, doing or failing to do an act from which material damage results by reason of inexcusable lack of precaution on the part of the person performing or failing to perform such act, taking into consideration his employment or occupation, degree of intelligence, physical 5 Coca-Cola Bottlers Philippines, Inc. v the Court Of Appeals and Ms. Lydia Geronim, G.R. Number 110295, 18 October 1993 (citations omitted). 6 People v Fallorina, G.R. Number 137347, 4 March 2004.
- 286. PHI-4 INTERNATIONAL PRODUCT LIABILITY condition, and other circumstances regarding persons, time, and place. ‘Simple imprudence consists in the lack of precaution displayed in those cases in which the damage impending to be caused is not immediate nor the danger clearly manifest.’ There are five elements of reckless imprudence: that the offender does an act or fails to do an act; that the doing of the act or the failure to do that act is voluntary; that the act is without malice; that material damage results from the reckless imprudence; and that there is inexcusable lack of precaution on the part of the offender, taking into consideration his employment or occupation, degree of intelligence, physical condition, and other circumstances regarding persons, time, and place.7 In comparison to intentional felonies, what substitutes the element of malice or intention to commit a wrong or evil is the failure of the offender to take precautions due to lack of skill, taking into account his employment or occupation, degree of intelligence, physical condition, and other circumstances regarding persons, time, and place.8 On the other hand, there are two elements of simple imprudence: that there is lack of precaution on the part of the offender and that the impending damage is not immediate or the danger is not clearly manifest.9 The elements of reckless imprudence and simple negligence are practically the same; the only difference lies in the degree of negligence, and this can be substantiated by proper evidence.10 Notably, however, to date, there has been no Supreme Court decision on criminal conviction based on Section 365 of the RPC in relation to product liability. Contractual Negligence Contractual negligence or culpa contractual is the fault or negligence incident in the performance of an obligation that already existed and which increases the liability from an already existing obligation.11 Culpa contractual is governed by Article 1170 of the Civil Code: ‘Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.’ 7 Cruz v Court of Appeals and Lydia Umali, G.R. Number 122445, 18 November 1997. 8 People v Carmen, G.R. Number 137268, 26 March 2001. 9 Gaid v People, G.R. Number 171636, 7 April 2009. 10 People v Lingad, G.R. Number L-10952, 30 May 1958. 11 Batal v San Pedro, G.R. Number 164601, 27 September 2006.
- 287. THE PHILIPPINES PHI-5 In Radio Communications of the Philippines, Inc. v Verchez,12 the Supreme Court expounded on the nature of culpa contractual: ‘In culpa contractual . . . the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promise that may include his “expectation interest”, which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his “reliance interest”, which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his “restitution interest”, which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence . . . or of the attendance of fortuitous event, to excuse him from his ensuing liability.’13 For culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief.14 Article 1173 of the Civil Code defines what constitutes fault and negligence: ‘Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time, and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. ‘If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.’ 12 Radio Communications of the Philippines v Verchez, G.R. Number 164349, 31 January 2006. 13 Manila Electric Company v Ramoy, G.R. Number 158911, 4 March 2008. 14 Saludaga v Far Eastern University, G.R. Number 179337, 30 April 2008.
- 288. PHI-6 INTERNATIONAL PRODUCT LIABILITY The Supreme Court has yet to decide on what comprises ordinary care in the context of products liability, particularly the degree of care required from a manufacturer in the production of goods and of the wholesaler, retailer, and seller in the distribution of goods. Thus, the general rule that applies is the care with the diligence of a good father of a family (or bonus pater familias). Article 1173 of the Civil Code is very clear that if the law or the contract does not state the degree of diligence which is to be observed in the performance of an obligation, then that which is expected of a good father of a family, or ordinary diligence, will be required.15 Responsibility arising from negligence in the performance of every kind of obligation is demandable, but such responsibility may be regulated by the court, according to circumstances.16 Fraud or Misrepresentation In General Fraud refers to all kinds of deception — whether through insidious machination, manipulation, concealment, or misrepresentation — that would lead an ordinarily prudent person into error after taking the circumstances into account.17 The commission of fraud may be a basis for either civil or criminal action, depending on the attendant circumstances of a case. Provisions under the Civil Code The Civil Code distinguishes two kinds of civil fraud: causal fraud or dolo causante and the incidental deceit or dolo incidente. Causal fraud is defined in Article 1338 of the Civil Code: ‘Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.’ Based on Article 1344 of the Civil Code, in order that fraud may make a contract voidable, it should be serious and should not be employed by both contracting parties. On the other hand, in case of incidental fraud, it only renders the party who employs it liable for damages.18 The Supreme Court distinguished the two kinds of civil fraud in this manner: ‘In contracts, a fraud known as dolo causante or causal fraud is basically a deception used by one party prior to or simultaneous 15 Mindanao Terminal and Brokerage Service, Inc. v Phoenix Assurance Company of New York, G.R. Number 162467, 8 May 2009. 16 Civil Code, s 1172. 17 Solidbank Corporation v Mindanao Ferroalloy Corporation, G.R. Number 153535, 28 July 2005. 18 Woodhouse v Halili, G.R. Number L-4811, 31 July 1953.
- 289. THE PHILIPPINES PHI-7 with the contract, in order to secure the consent of the other. Needless to say, the deceit employed must be serious. In contradistinction, only some particular or accident of the obligation is referred to by incidental fraud or dolo incidente, or that which is not serious in character and without which the other party would have entered into the contract anyway.’19 The four elements of causal fraud are that the fraud must be material and serious; that it must be employed by only one party; that there must be a deliberate intent to deceive; and that the other party must have relied on the untrue statement and must not himself be guilty of negligence in ascertaining the truth.20 Not every deception constitutes fraud. The Civil Code provides that actions that are not tantamount to fraud include usual exaggerations in trade, when the other party had an opportunity to know the facts;21 a mere expression of an opinion, unless made by an expert and the other party has relied on the expert’s special knowledge;22 misrepresentation by a third person, unless that person has made a substantial mistake that is mutual;23 and misrepresentation made in good faith.24 To protect the public against unreasonable risks to injury associated with consumer products, the Consumer Act regulates sales acts or practices, advertisement, and sales promotion. Provisions under the Consumer Act One of the objectives of the Consumer Act is to promote and encourage fair, honest, and equitable relations among parties in consumer transactions and to protect the consumer against deceptive, unfair, and unconscionable sales acts or practices.25 Pursuant to this policy, the Consumer Act prohibits certain deceptive sales acts or practices. An act or practice will be deemed deceptive whenever the producer, manufacturer, supplier, or seller, through concealment, false representation, or fraudulent manipulation, induces a consumer to enter into a sale or lease transaction for any consumer product. The Consumer Act likewise declares unlawful false, deceptive, and misleading advertisement: 19 Solidbank Corporation v Mindanao Ferroalloy Corporation, G.R. Number 153535, 28 July 2005. 20 Hilltop Subdivision, Inc. v Villacorte, CA Number 27916-R, 14 February 1968, 13 C.A. Rep. 113, 122. 21 Civil Code, art 1340. 22 Civil Code, art 1341. 23 Civil Code, art 1342. 24 Civil Code, art 1343. 25 Consumer Act, art 48.
- 290. PHI-8 INTERNATIONAL PRODUCT LIABILITY ‘Art. 110. False, Deceptive, and Misleading Advertisement – it shall be unlawful for any person to disseminate or to cause the dissemination of any false, deceptive, or misleading advertisement by Philippine mail or in commerce by print, radio, television, outdoor advertisement, or other medium for the purpose of inducing or which is likely to induce directly or indirectly the purchase of consumer products or services.’ As to what is false, deceptive, or misleading advertisement, the Consumer Protection defines it as advertisement ‘that is not in conformity with the provisions of [the Consumer Act] or if it is misleading in a material respect’.26 In determining whether an advertisement is false, deceptive, or misleading, the factors that are taken into account, aside from the representation made, are the extent to which the advertisement fails to reveal material facts in the light of such representations and material on the consequences which may result from the use or application of consumer products to which the advertisement relates, under the conditions prescribed in the advertisement or under customary conditions. The Consumer Act specifically prohibits the advertisement of foods, drugs, cosmetics, devices, or hazardous substances in a manner that is false, misleading, or deceptive or is likely to create an erroneous impression regarding its character, value, quantity, composition, merit, or safety.27 Warranty In General In Philippine law and jurisprudence, breach of warranty, rather than liability for negligence, has played a role in the realm of products liability. Express Warranty Under the Consumer Act, the provisions of the Civil Code on conditions and warranties will govern all contracts of sale with conditions and warranties.28 Article 1546 of the Civil Code defines express liability as ‘any affirmation of fact or any promise by a seller relating to the thing’, the natural tendency of which is to ‘induce the buyer to purchase the same and if the buyer purchases the thing relying thereon’. However, affirmation of the value of the thing or an affirmation that purports to be a statement of the seller’s opinion will not be construed as a warranty unless the seller made such affirmation or statement as an expert and the buyer relied 26 Consumer Act, art 110. 27 Consumer Act, art 112(b). 28 Consumer Act, art 67.
- 291. THE PHILIPPINES PHI-9 on it. In Pormentilla v Ambray,29 the Court of Appeals ruled that the term ‘express warranty’ includes all warranties which are derived from express language, whether the language is in the form of a promise or a representation. The breach of an express warranty makes the seller liable for damages. Three requisites must be established in order that there be an express warranty in a contract of sale: first, the express warranty must be an affirmation of fact or any promise by the seller relating to the subject matter of the sale; second, the natural tendency of the affirmation or promise is to induce the buyer to purchase the thing; and, third, the buyer purchases the thing relying on the affirmation or promise by the seller.30 In addition to the Civil Code provision on sale with warranties, the Consumer Act governs the sale of consumer products with warranty. Specific acts are prohibited under the Consumer Act. Refusal without any valid legal cause by the local manufacturer or any person obligated under the warranty or guarantee to honor a warranty or guarantee issued is prohibited. The Consumer Act prohibits unreasonable delay by the local manufacturer or any person obligated under the warranty or guarantee in honoring the warranty. The Consumer Act also prohibits removal by any person of a product’s warranty card for the purpose of evading the warranty obligation. Finally, any false representation in any advertisement as to the existence of a warranty or guarantee is prohibited under the Consumer Act. Implied Warranty Warranty of Merchantability. Under the Civil Code, particularly Article 1562(2), there is an implied warranty of merchantability when the goods are bought by description from a seller who deals in goods of that description (regardless of whether or not the seller is the producer or manufacturer). Based on Article 1562 of the Civil Code, a warranty of merchantability only applies to sale by description, as stated by the Supreme Court in Mendoza v David.31 In brief, Mendoza had ordered three furniture sets from David, after they had agreed to the specifications for quality and material. When the furniture was delivered, Mendoza rejected the furniture for its poor quality and inferior material and requested a refund of her deposit, which David refused to pay. Mendoza filed a complaint for payment of money with damages. The Supreme Court stated: ‘There is a sale of goods by description where “a seller sells things as being of a particular kind, the buyer not knowing whether the seller’s representations are true or false, but relying on them as 29 Pormentilla v Ambray, CA Number 24713-R, 20 July 1966, 10 C.A. Rep. 72. 30 Carrascoso v Court of Appeals, G.R. Number 123672, 14 December 2005. 31 Mendoza v David, G.R. Number 147575, 22 October 2004.
- 292. PHI-10 INTERNATIONAL PRODUCT LIABILITY true; or as otherwise stated, where the buyer has not seen the article sold and relies on the description given to him by the seller, or has seen the goods, but the want of identity is not apparent on inspection”. A seller’s description of the goods which is made part of the basis of the transaction creates a warranty that the goods will conform to that description. Where the goods are bought by description from a seller who deals in the goods of that description, there is an implied warranty that the goods are of merchantable quality.’ According to the Supreme Court, whether a sale is by description depends on the facts disclosing the intention of the parties. In Mendoza, the Supreme Court ruled that the subject transaction therein was a ‘made to order’ agreement and not a sale by description. In ruling out sale by description, the Supreme Court reasoned: ‘Neither is the transaction a sale by description. Mendoza did not rely on any description made by David when she ordered the furniture. Mendoza inspected the furniture displayed in David’s furniture shop and made her own specifications on the three sets of furniture she ordered.’ In case of breach of an implied warranty of merchantability, the vendee may opt to either rescind the contract or demand a proportionate reduction of the price, with damages in either case.32 In Mendoza, rescission of the contract does not apply, because the subject transaction was not a sale by description and thus there was no implied warranty of merchantability. Fitness Warranty. Apart from the implied warranty of merchantability, the Civil Code provides for implied warranty that the goods are reasonably fit for a particular purpose. This warranty applies when the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are to be acquired, and it appears that the buyer relies on the seller’s skill or judgment (regardless of whether the seller is the producer or manufacturer).33 However, this warranty does not apply in case of a contract of sale of a specified article under its patent or other trade name, unless there is a stipulation to the contrary. Notably, the fitness warranty, as distinguished from the warranty of merchantability, does not require that the seller be a merchant or one who deals in goods of a certain description. However, a fitness warranty requires proof of reliance on the part of the buyer. 32 Civil Code, art 1567. 33 Civil Code, art 1562(b).
- 293. THE PHILIPPINES PHI-11 Breach of Implied Warranty. To be able to prove liability on the basis of breach of implied warranty, there are three elements that must be established: first, that the buyer sustained injury because of the product; second, that the injury occurred because the product was defective or unreasonably unsafe; and, third, the defect existed when the product left the hands of the seller.34 Strict Liability Strict liability has been adopted in the Philippines in a limited sense. Article 2187 of Civil Code states: ‘Manufacturers and processors of foodstuffs, drinks, toilet articles, and similar goods shall be liable for death or injuries caused by any noxious or harmful substances used, although no contractual relation exists between them and the consumers.’ Liability is limited or restricted because its application is limited by the subject product, causation, and effect. The subject product is limited to food, drinks, and toilet articles. Causation is confined to noxious or harmful substances. Liability operates only when there is death or injury. Liability under strict tort only applies to manufacturers and processors. To establish liability for death or injury under Article 2187, the injured buyer must allege and prove that the defendant is a manufacturer or processor of foodstuff, drinks, toilet articles, or similar goods; that the defendant used noxious or harmful substances in the manufacturing and processing of foodstuff, drinks, toilet articles, or similar goods; and that the death or injury was caused by the product. Unfortunately, there is a dearth of jurisprudence applying and construing Article 2187 of the Civil Code. Concept of Defect Defective Manufacture Article 97 of the Consumer Act defines a ‘defective product’ as one that ‘does not offer the safety rightfully expected of it’. Article 97 also provides that, in determining whether a product is defective, relevant circumstances must be taken into consideration. These include, among others, the presentation of the product; the use and hazards reasonably expected of it; and the time it was put into circulation. A product is not to be considered defective merely because a better quality product is subsequently offered to the public.35 A ‘materially defective product’ is one that creates a substantial risk of injury to the public because of the pattern 34 Nutrimix Feeds Corporation v Court of Appeals, G.R. Number 152219, 25 October 2004. 35 Consumer Act, art 97.
- 294. PHI-12 INTERNATIONAL PRODUCT LIABILITY of the defect, the number of defective products distributed in commerce, and the severity of the risk.36 A ‘substandard product’ means a product that fails to comply with an applicable consumer product safety rule and which creates a substantial risk of injury to the public.37 The Consumer Act further provides for ‘product imperfection’, which occurs when the product is unfit or inadequate for consumption in terms of the purpose for which it is designed, or when the imperfection decreases its value.38 Moreover, whenever the relevant government department finds, on its own initiative or on a petition by a consumer, that a consumer product is injurious, unsafe, or dangerous, it will, after due notice and hearing, make the appropriate order for its recall, prohibition, or seizure from public sale or distribution.39 The Consumer Act also specifies instances when products are found to be ‘adulterated’, particularly in relation to food,40 drugs and devices,41 and cosmetics.42 The concept of defect that would give rise to a liability for damages under the Consumer Act is relatively broad. It contemplates manufacturing defects that result from a product’s construction, assembly, and erection formulas.43 On the other hand, in cases where a suit is initiated based on an implied warranty, it must be sufficiently shown that the product ‘was not reasonably fit and suitable to be used for the purpose which both parties contemplated’. The concept of defect in such a case is not only that it makes a product ‘unreasonably unsafe’, but also that the defect was present on delivery or manufacture, when the product left the seller’s or manufacturer’s control, or when the product was sold to the purchaser; or the product must have reached the user or consumer without substantial change in its condition when it was sold.44 Defective Marketing Liability for damages also may arise from improper instructions and the failure to warn consumers of latent dangers in the use of a product. The Consumer Act, in particular, imposes liability for injuries caused by defects resulting from insufficient or inadequate information on the use and hazards of a product.45 Product imperfection under the Consumer Act also arises from inconsistency 36 Consumer Act, art 4(au). 37 Consumer Act, art 4(bt). 38 Consumer Act, art 100. 39 Consumer Act, art 10. 40 Consumer Act, art 23. 41 Consumer Act, art 29. 42 Consumer Act, art 35. 43 Consumer Act, art 97. 44 Nutrimix Feeds Corporation v Court of Appeals, et al., G.R. Number 152219, 25 October 2004. 45 Consumer Act, art 97.
- 295. THE PHILIPPINES PHI-13 with the information provided on the container, packaging, labels, or publicity messages/advertisement, with due regard to the variations resulting from their nature.46 All consumer products domestically sold in the Philippines must display the minimum required information on their packaging labels.47 Certain products require additional information to be indicated on their labels, such as whether the product is flammable or inflammable; directions for use, if necessary; warning of toxicity; wattage, voltage, or amperage; or process of manufacture used.48 Specific requirements are set out in the Consumer Act for products marketed for children, food, cosmetics, hazardous substances, and cigarettes.49 Labeling requirements for drugs are set out in Republic Act No. 6675 (the Generics Act of 1988).50 The Consumer Act also bans hazardous substances, notwithstanding the existence of cautionary labels, when this is necessary to safeguard public health and safety.51 Government agencies are authorized to issue regulations containing requirements other than the prescribed minimum information, as may be necessary to prevent deception of consumers or to facilitate value comparisons of any consumer product.52 Acceptable marketing or sales practices include direct marketing, sale by sample, sale by description, referral sale, or home solicitation sale. Chain distribution plans or pyramid sales schemes are disallowed in the sale of consumer products.53 The state protects consumers against deceptive, unfair, and unconscionable sales acts or practices that are either grossly inimical to the interests of the consumer or grossly one-sided in favor of the producer, manufacturer, distributor, supplier, or seller.54 The Consumer Act considers a number of circumstances to determine whether a sales act or practice is ‘unfair or unconscionable’.55 One such circumstance is that the producer, manufacturer, distributor, supplier, or seller took advantage of the inability of the consumer to reasonably protect his interest because of his inability to understand the language of the agreement or similar factors. 46 Consumer Act, art 100. 47 Consumer Act, art 77. 48 Consumer Act, art 77. 49 Consumer Act, arts 80, 84, 87, 88, 91, and 94. 50 Consumer Act, art 86. 51 Consumer Act, art 4(g). 52 Consumer Act, art 79. 53 Consumer Act, art 53. 54 Consumer Act, art 48. 55 Consumer Act, art 48.
- 296. PHI-14 INTERNATIONAL PRODUCT LIABILITY Another instance is that when the consumer transaction was entered into, the price grossly exceeded the price at which similar products or services were readily obtainable in similar transactions by like consumers. Another circumstance that is considered is that the consumer was unable to receive a substantial benefit from the subject of the transaction when the transaction was entered into. Yet another circumstance is that when the transaction was entered into, the seller or supplier was aware that there was no reasonable probability of payment of the obligation in full by the consumer. Finally, an act or sales practice is considered unfair or unconscionable when the transaction that the seller or supplier induced the consumer to enter into was excessively one-sided in favor of the seller or supplier. A deceptive sales act or practice, in turn, is committed by a seller or supplier before, during, or after a sales transaction when, through concealment, false representation, or fraudulent manipulation, a consumer is induced into purchasing or leasing the seller or supplier’s consumer products.56 Under the Consumer Act,57 a sales act or practice will be deemed ‘deceptive’ when it represents that: • A consumer product or service has the sponsorship, approval, performance, characteristics, ingredients, accessories, uses, or benefits that it does not have; • A consumer product or service is of a particular standard, quality, grade, style, or model when, in fact, it is not; • A consumer product is new, original, or unused, when, in fact, it is in a deteriorated, altered, reconditioned, reclaimed, or second-hand state; • A consumer product or service is available to the consumer for a reason that is different from the fact; • A consumer product or service has been supplied in accordance with the previous representation when, in fact, it has not; • A consumer product or service can be supplied in a quantity greater than the supplier intends; • Servicing or repair of a consumer product is needed when in fact it is not; • A specific price advantage exists for a consumer product, when, in fact, it does not; • The sales act or practice involves or does not involve a warranty, a disclaimer of warranties, particular warranty terms or other rights, remedies, or obligations, if the indication is false; and • The seller or supplier has a sponsorship, approval, or affiliation he does not have. 56 Consumer Act, art 50. 57 Consumer Act, art 50.
- 297. THE PHILIPPINES PHI-15 Deceptive sales acts, practices, or techniques other than these are determined by regulations issued by the concerned government agency.58 The state further protects the consumer from misleading advertisements and fraudulent sales promotion practices.59 Direct advertising includes advertisement by Philippine mail or in commerce by print, radio, television, outdoor advertisement, or another medium, for the purpose of directly or indirectly inducing or which is likely to induce the purchase of consumer products or services.60 The determination of whether any advertisement is false, deceptive, or misleading entails a consideration of not only the representations made in relation to the product, but also the extent to which the advertisement fails to reveal material facts in the light of such representations or the consequences which may result from use or application under the conditions prescribed or under such conditions as are customary or usual.61 The Consumer Act also sets out specific advertising requirements for food, drugs, cosmetics, devices, and hazardous substances.62 Any advertisement which makes special claims in relation to any product is further required to substantiate such claims and properly use research results, scientific terms, statistics, or quotations.63 State regulation for promotional campaigns that are national in character and sponsored and promoted by enterprises manufacturing consumer products cover the actual conduct of the campaign, packaging of products, and determination of winners.64 Defective Design Design defects, which are inherent and existing even before the product is manufactured, may consist of inadequacies in the plans or specifications, the choice of materials, or safety devices or features. Such defects are recognized under the concept of ‘defective product’ under the Consumer Act.65 Obligation to Warn Consumers or Recall Defective Products As previously discussed in the subsection ‘Criminal Negligence’, negligence in Philippine law is defined as the omission of that degree of diligence which is required by the nature of the obligation and corresponding to the circumstances 58 Consumer Act, art 51. 59 Consumer Act, art 108. 60 Consumer Act, art 110. 61 Consumer Act, art 110. 62 Consumer Act, art 112. 63 Consumer Act, art 115. 64 Consumer Act, arts 116–121. 65 Consumer Act, art 97.
- 298. PHI-16 INTERNATIONAL PRODUCT LIABILITY of persons, time, and place.66 The standard of due care in civil law, or the care that an ordinarily prudent person would take in like circumstances, would thus already suffice to require manufacturers or sellers to warn consumers in certain instances or recall their own products in order to avoid damage to the public. The Consumer Act nonetheless provides for strict liability in relation to manufacturers, producers, and importers of consumer products,67 such that a violation of its provisions results in the very injury that it seeks to prevent. Concerned government agencies, in establishing consumer product quality and safety standards, require that a consumer product be marked with or accompanied by clear and adequate safety warnings or instructions.68 New products, or those that incorporate a design, material, or form of energy exchange not previously used substantially in consumer products, and as to which there exists a lack of adequate information to determine the quality and safety of the product if used,69 are included in a list, along with their descriptions. This list is published by government agencies in a newspaper of general circulation.70 When the concerned government agency, whether on its own initiative or on a petition by a consumer, finds a product to be injurious, unsafe, or dangerous, it may make the appropriate order for its recall, prohibition, or seizure from public sale or distribution after due notice and a hearing. The department or agency may even order the immediate recall, ban, or seizure of the product if it is found to be imminently dangerous, subsequently affording the seller, distributor, manufacturer, or producer a hearing within 48 hours from issuing the order.71 The Consumer Act makes it unlawful for any person to fail to comply with orders requiring notifications of substantial product hazards, as well as those directing the recall, repair, replacement, or refund of unsafe products.72 A claim for failure to recall a product may be filed with the concerned government agency under Article 159 of the Consumer Act. Defenses Available to the Manufacturer Contributory Fault or Comparative Fault Contributory fault or negligence is conduct on the part of the injured party contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection.73 There is 66 Civil Code, art 1173. 67 Consumer Act, art 97. 68 Consumer Act, art 7. 69 Consumer Act, art(ax). 70 Consumer Act, art 13. 71 Consumer Act, art 10. 72 Consumer Act, art 18. 73 Estacion v Bernardo, G.R. Number 144723, 27 February 2006.
- 299. THE PHILIPPINES PHI-17 contributory negligence when the party’s act showed lack of ordinary care and foresight that such act could cause him harm or endanger his life. Contributory fault is an act or omission amounting to want of ordinary care on the part of the person injured, which, concurring with the defendant’s negligence, is the proximate cause of the injury.74 Contributory negligence is a proper defense in negligence actions. Article 2179 of the Civil Code provides: ‘Art. 2179. When the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.’ Based on Article 2179 of the Civil Code, contributory negligence is a proper defense, although an incomplete one, in that it does not operate as a bar to recovery, but only in reduction of damages that may be awarded to the injured party. Assumption of Risk Under Philippine jurisprudence, the doctrine of assumption of risk is a complete defense or bar to recovery because of the fault of the person who has suffered damage. In the common law doctrine, this defense is known as volenti non fit injuria (to a willing person, no injury is done). That is, a person who knows and comprehends the peril and voluntarily exposes himself to that peril is deemed to engage in an assumption of the risk and is therefore precluded from recovery for an injury ensuing from that peril.75 Pursuant to Articles 1174 and 1262 of the Civil Code, liability attaches even if the loss was due to a fortuitous event if ‘the nature of the obligation requires the assumption of risk’. There is a dearth of product liability cases applying the assumption of risk doctrine. By analogy, the case of Afialda v Hisole76 may be applied, which held that assumption of risk is a proper defense in negligence actions, whether based on quasi-delict or on contractual negligence. Product Misuse Product misuse prevents recovery because the damage or injury is caused by abnormal use by the injured party rather than by reason of a defect in the product. The existence of product misuse negates one of the elements of 74 National Power Corporation v Heirs of Noble Casionan, G.R. Number 165969, 27 November 2008. 75 Cerezo v The Atlantic Gulf & Pacific Company, G.R. Number L-10107, 4 February 1916. 76 Afialda v Hisole, G.R. Number L-2075, 29 November 1949.
- 300. PHI-18 INTERNATIONAL PRODUCT LIABILITY products liability: that damage or injury was caused by a defect in the product. Under the Consumer Act, product misuse may be availed of as a defense, particularly based on Article 97 of the Act, which provides: ‘The manufacturer, builder, producer, or importer shall not be held liable when it evidences: ‘. . . ‘(b) that the consumer or third party is solely at fault.’ Product misuse also may be a defense in the enforcement of a warranty. While the Consumer Act requires a warrantor to comply with minimum standards in honoring a warranty, it may be excused from doing so if it can show that ‘the defect, malfunction, or failure [of the product] to conform to a written warranty was caused by damage due to unreasonable use thereof’.77 Philippine courts have yet to interpret and apply provisions of the Consumer Act related to product misuse. State-of-the-Art Defense The state-of-the-art defense has not yet been applied and recognized by Philippine courts. ‘Proximate Cause’ Limits Generally, any negligence or fault can only result in liability when there is a causal connection between the resulting injury and the violation of a statutory prohibition or mandate. As previously discussed in the subsection ‘Contributory Fault or Comparative Fault’, even a finding of negligence on the part of the plaintiff will only serve to mitigate recoverable damages when it is shown that the proximate cause for his loss is still the conduct of the defendant.78 ‘Proximate cause’ is jurisprudentially defined as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. It is determined from the facts of each case, on combined considerations of logic, common sense, policy, and precedent.79 In a product liability suit founded on a breach of implied warranty, the Supreme Court followed the common law rule that places on the buyer of the product the burden of proving that the seller breached the implied warranty and that the 77 Consumer Act, art 68(d). 78 Civil Code, art 2179. 79 Solidbank Corporation v Spouses Arrieta, G.R. Number 152720.
- 301. THE PHILIPPINES PHI-19 breach was the proximate cause of the loss sustained.80 Therefore, other than in strict liability cases, the burden of proof is on the consumer to prove the existing defect, the resulting injury, as well as the proximate cause relationship. The mere violation of a statute such as the Consumer Act, on the other hand, may already constitute negligence as a matter of law or negligence per se.81 The Supreme Court in Teague v Fernandez ruled: ‘The generally accepted view is that violation of a statutory duty constitutes . . . negligence as a matter of law . . . for the reason that non-observance of what the legislature has prescribed as a suitable precaution is failure to observe that care which an ordinarily prudent man would observe, and, when the state regards certain acts as so liable to injure others as to justify their absolute prohibition, doing the forbidden act is a breach of duty with respect to those who may be injured thereby. . . . ‘ . . . However, the fact that other happenings causing or contributing toward an injury intervened between the violation of a statute or ordinance and the injury does not necessarily make the result so remote that no action can be maintained. The test is to be found not in the number of intervening events or agents, but in their character and in the natural and probable connection between the wrong done and the injurious consequence. The general principle is that the violation of a statute or ordinance is not rendered remote as the cause of an injury by the intervention of another agency if the occurrence of the accident, in the manner in which it happened, was the very thing which the statute or ordinance was intended to prevent.’82 This statement of the Supreme Court on negligence per se, however, must admit of qualifications that may arise from the circumstances attending the occurrence of the injury. While useful in adjudging liability, as culpability can be established based on a person’s failure to observe a legally defined standard, the doctrine should not be so strictly applied as to deny relief when there is, in fact, no causal relation between the violation and the injury sustained. Hence, a defendant who is sought to be held liable under the Consumer Act cannot be prevented from raising such matters as will justify or excuse his conduct, as his violation only gives rise to a disputable presumption of negligence. 80 Nutrimix Feeds Corp. v Court of Appeals et al., G.R. Number 152219, 25 October 2005. 81 Añonuevo v Court of Appeals et al., G.R. Number 130003, 20 October 2004. 82 Teague v Fernandez, 151-A Phil. 648, 652–653 (1973) (citations omitted).
- 302. PHI-20 INTERNATIONAL PRODUCT LIABILITY Others Affected by Product Liability Considerations While it is true that, under the Consumer Act, the liability for damages arising from product defects is generally borne by the manufacturer, producer, or importer,83 pertinent provisions of the statute and the Civil Code allow for different causes of action that provide a consumer with redress against the seller, retailer, distributor, or persons other than the manufacturer. The Civil Code, at the very least, provides that any person who causes damage to another through an act or omission that is attended by fault or negligence is obliged to pay for the damage done.84 The Consumer Act, in turn, provides for certain instances where a violation of its provisions may be committed by ‘any person’. This includes any individual, partnership, corporation or association, trust, government or governmental subdivision, or any other legal entity, though not necessarily the manufacturer or producer. Article 18 of the Consumer Act, for instance, states that it is unlawful for any person to not only manufacture or import for sale any consumer product which is not in conformity with an applicable consumer product quality or safety standard, but also to offer such a product for sale or distribution in commerce. Article 18 also makes it unlawful for any person to refuse access to or copying of pertinent records or to fail or refuse to permit entry of or inspection by authorized officers or employees of the concerned government agency. Several of the prohibited acts related to food, drugs, cosmetics, and devices that are set out in Article 40 of the Consumer Act, and those in relation to labeling and packaging under Article 76 of the Consumer Act, may likewise be committed by persons other than the manufacturer or importer. Retailers and distributors are expressly made liable for such violations if it is shown that they indeed engage in the packaging or labeling of such products; or that they prescribe or specify the manner in which such products are packaged or labeled; or when they, having knowledge, refuse to disclose the source of the mislabeled or mispackaged products. A retailer, or a person engaged in the business of selling products directly to consumers,85 is made subsidiarily liable in case both the manufacturer and distributor fail to honor a warranty. In such cases, the retailer must shoulder the expenses and costs, which it could subsequently recover from the distributor or manufacturer.86 A distributor is a person, excluding those considered to be manufacturers or retailers, to whom a product is delivered or sold for purposes of distribution in commerce.87 Under Article 68 of the Consumer Act, the failure of the distributor 83 Consumer Act, art 97. 84 Civil Code, art 2176. 85 Consumer Act, art 4(bk). 86 Consumer Act, art 68(3). 87 Consumer Act, art 4(ac).
- 303. THE PHILIPPINES PHI-21 to make the required sales report on sale of products covered by warranties will relieve the manufacturer, producer, or importer from liability. A distributor who fails to comply with its obligation to send the sales reports will be personally liable under the warranty.88 A seller, or a person engaged in the business of selling consumer products directly to consumers, includes a supplier or distributor if the seller is a subsidiary or affiliate of the supplier or distributor; if the seller interchanges personnel or maintains common or overlapping officers or directors with the supplier or distributor; or if the supplier or distributor provides or exercises supervision, direction, or control over the selling practices of the seller.89 A seller is made liable for defective goods if the manufacturer or producer cannot be identified.90 Suppliers are defined as persons who solicit, offer, advertise, or promote the disposition or supply of a consumer product or who engage in, enforce, or otherwise participate in a consumer transaction.91 Suppliers are made jointly liable for imperfections in quality that render products unfit or inadequate for consumption for which they are designed or that decrease their value. They also are made jointly liable for imperfections resulting from inconsistency with the information provided on the container, packaging, labels, or publicity messages/advertisement. In such cases, the consumer is afforded the right to demand replacement of the imperfect parts.92 A supplier’s ignorance of the quality imperfections due to inadequacy of the products and services does not exempt him from any liability.93 Liability for the dissemination of any false advertisement is borne not only by the manufacturer, but also by the packer, distributor, or seller of the consumer product or service, and the advertising agency responsible for the false and misleading advertising.94 In any case, a person who attaches his own brand name to a product that has undergone manufacturing, assembling, or processing will be considered the manufacturer of that product.95 An importer also will be considered a manufacturer if the latter has no domestic representative.96 The Consumer Act further provides that if there is more than one person responsible for the cause of the damage, they will be jointly liable for the redress established in favor of the consumer. The manufacturers, builders, or importers 88 Consumer Act, art 68. 89 Consumer Act, art 4(bn). 90 Consumer Act, art 98(a). 91 Consumer Act, art 4(bu). 92 Consumer Act, art 100. 93 Consumer Act, art 104. 94 Consumer Act, art 124. 95 Consumer Act, art 4(as). 96 Consumer Act, art 4(as).
- 304. PHI-22 INTERNATIONAL PRODUCT LIABILITY of specific component parts that are proven to have caused such damage or injury also are made jointly liable.97 Remedies In General As discussed in the section ‘Negligence’, actionable negligence in product liability law may be civil, criminal, or contractual in nature. The Civil Code sets out a classification of damages that may be awarded depending on the circumstances of each case and enumerates the instances when court fees, legal costs, and other incidental expenses may be recovered.98 Injunctive and declaratory relief may likewise be availed of in certain instances. Civil Action A civil suit based on breach of a contractual obligation will give rise to the liabilities imposed by the terms and conditions of the contract as well as the pertinent provisions of the Civil Code. Under the law on obligations, responsibility arising from fraud is demandable in all obligations and any waiver of an action for future fraud is void.99 Courts may award actual damages or liquidated damages (and moral damages, in cases where the breach is fraudulent) when it is shown that the plaintiff actually experienced mental anguish, a besmirched reputation, sleepless nights, wounded feelings, or any similar injury. A civil action also may be initiated based on liability in warranty when damage is caused by the failure of the product to meet the express or implied representations of a manufacturer or supplier. For breach of contractual warranties, a court may award only the reasonably foreseeable consequences arising from the use of the defective product. However, if the breach is attended by bad faith or fraud or is caused by gross negligence, all consequences are compensable. Apart from electing to withdraw the contract with a proportionate reduction in price,100 the Supreme Court has had occasion to outline the following remedies with respect to the warranties against hidden defects: ‘The vendee may also ask for the annulment of the contract upon proof of error or fraud, in which case the ordinary rule on obligations shall be applicable. . . . 97 Consumer Act, art 106. 98 Civil Code, art 2208. 99 Civil Code, art 1171. 100 Civil Code, art 1567.
- 305. THE PHILIPPINES PHI-23 ‘The vendor could likewise be liable for quasi-delict under Article 2176 of the Civil Code, and an action based thereon may be brought by the vendee.’101 As previously discussed, under the system of sources of obligation under the Civil Code, an ordinary civil action for damages based on quasi-delict requires a showing that there is a negligent act or omission on the part of the defendant; that there is damage or injury to the plaintiff; that the defendant’s act or omission is the proximate cause of the resulting injury; and that the injury was reasonably foreseeable. Only Article 2187 of the Civil Code imposes strict liability on manufacturers of specified products. Each party in an ordinary negligence case will have to prove his own affirmative allegations, but the person claiming negligence has the burden of proving it by a preponderance of evidence. Liability is generally established for all resulting damage caused by the product. The existence of a contract between the parties does not forestall the availment of this remedy. When the injurious defect results from negligence or imprudence, actual damages may be recovered. It is possible, however, for a manufacturer to avoid liability based on quasi-delict if it is proven that the act or omission causing the negligence is attributable solely to an employee and that the manufacturer exercised due diligence in the selection of and supervision over his employees.102 Reliefs awarded also may include replacement of the defective product, compensation for medical care and loss of income, as well as compensation for mental suffering. Punitive or exemplary damages also may be awarded when the defendant has been grossly negligent or if his actions or omissions are attended by bad faith or fraud. Temperate or moderate damages may be awarded when it is shown that some pecuniary loss has been suffered, but its amount cannot be proved with certainty. A suit based on strict liability under the provisions of the Consumer Act also may be filed. Recovery of damages in this instance is based on broader notions of consumer protection and public policy, and the burden of proof is placed on the person who has exposed the public to unreasonable risk of harm. Hence, it is sufficient to prove that the plaintiff was injured by the product and consequently suffered damages; that the product was unreasonably unsafe; that the injury was proximately caused by the defect in the product; and that such defect existed when the product left the hands of the defendant. The rule on strict liability is based on the premise that, as between the consumer and the manufacturer, producer, or importer, the manufacturer or importer is in a 101 Coca-Cola Bottlers Philippines, Inc. v Court of Appeals and Ms Lydia Geronimo, G.R. Number 110295, 18 October 1993. 102 Civil Code, art 2180.
- 306. PHI-24 INTERNATIONAL PRODUCT LIABILITY better position to prevent any danger or risk that the product may reasonably pose to the public. Criminal Proceedings Criminal proceedings may be initiated on the basis of Article 365 of the RPC. In such cases, the defect or the sale of the defective product must be shown as having been caused or attended by reckless negligence or deceitful conduct. Article 365 also creates criminal liability even when there is only simple negligence, if the resulting injury would constitute a grave felony or a less grave felony had the negligent act or omission been intentional. Actual damages may be awarded in criminal cases, as well as moral damages in cases where the offense results in physical injuries. Exemplary damages also may be imposed, by way of example or correction for the public good. Administrative Complaint The Consumer Act also sets out the procedure for the filing of an administrative complaint with the concerned department. An investigation may be commenced on a petition or a letter-complaint from any consumer.103 Qualified consumer arbitration officers are appointed to exercise original and exclusive jurisdiction to mediate, conciliate, hear, and adjudicate all consumer complaints. Complaints are decided within 15 days from the time the investigation was terminated.104 Administrative penalties that may be imposed, even if these are not requested in the complaint, are the issuance of a cease and desist order; acceptance of a voluntary assurance of compliance or discontinuance from the respondent; restitution or rescission of the contract, without damages; condemnation and seizure of the consumer product; and the imposition of administrative fines and an additional fine for each day of continuing violation.105 Any order of the arbitration officer is appealable to the department secretary within 15 days from receipt of such order.106 The decision of the department secretary, in turn, is appealable with the proper court within 15 days from its receipt.107 103 Consumer Act, art 159. 104 Consumer Act, art 163 105 Consumer Act, art 164. 106 Consumer Act, art 165. 107 Consumer Act, art 166.
- 307. THE PHILIPPINES PHI-25 Notably, the Consumer Act provides that the administrative procedure may not restrict, limit, or derogate from any other rights or remedies of a consumer under any other law.108 Exclusion or Limitation of Contractual Liability Under Article 1306 of the Civil Code, contracting parties are at liberty to establish such stipulations, clauses, and terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.109 Pursuant to this provision, Philippine courts recognize disclaimers and limitations of remedies agreed on by the parties under the rationale that the contract is the law between them. This is particularly true when it comes to conditions and warranties. The Consumer Act allows any seller or manufacturer who gives an express warranty to state what the consumer must do to avail of the rights which accrue to the warranty and to stipulate the period within which, after notice of defect, malfunction, or failure to conform to the warranty, the warrantor will perform any obligation under the warranty.110 Likewise, the seller and the consumer may stipulate the period within which the express warranty will be enforceable.111 In addition, the Civil Code recognizes the right of the parties to limit or exclude the implied warranty against hidden defects: ‘Art. 1547. In a contract of sale, unless a contrary intention appears, there is: ‘. . . ‘(2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer.’ Although there is no express provision allowing the parties to limit or exclude warranty of merchantability and fitness warranty, as distinguished from the warranty against hidden defects, Article 1306 of the Civil Code provides that the parties are at liberty to establish their own stipulation in their contract. While parties are given wide latitude in establishing their own stipulations in a contract, this is not without limitation. Article 1171 of the Civil Code states that ‘any waiver of an action for future fraud is void’. Furthermore, a stipulation by which exemplary damages are renounced in advance is null and void.112 108 Consumer Act, art 167. 109 Civil Code, art 1306. 110 Consumer Act, art 68(a). 111 Consumer Act, art 68(e). 112 Civil Code, art 2235.
- 308. PHI-26 INTERNATIONAL PRODUCT LIABILITY The Consumer Act also prohibits certain contractual stipulations. In particular, a stipulation in a contract of a clause preventing, exonerating, or reducing the obligation to indemnify for damages effected in Articles 97 to 105 of the Act if there is more than one person responsible for the cause of the damage is prohibited.113 The Consumer Act also declares null and void and without legal effect all covenants, stipulations, or agreements contrary to Article 68 of the Act. Among other provisions, Article 68 states that the warranty rights may be enforced by presentment of a claim. This means that the purchaser only needs to present to the immediate seller the warranty card of the receipt, along with the product to be serviced or returned; no other documentary requirement may be demanded from the purchaser.114 Statutes of Limitation Under the Civil Code, rights and actions are lost through the lapse of the prescribed period for each cause of action.115 The RPC likewise provides that criminal liability is totally extinguished by the prescription of the crime charged.116 Procedural law further allows for the affirmative defense that an action is barred by prescription.117 A product liability case based on breach of contract must be brought within 10 years from the time the cause of action accrues,118 while a case based on quasi- delict may be brought within four years.119 In cases based on a quasi-delict that involve concealment or fraud, the period is counted from the discovery of the concealed defect or fraud.120 Actions based on breach of express warranties must be filed within four years,121 while those based on breach of implied warranty against hidden defects or warranty of merchantability must be filed within six months from the delivery of the thing sold.122 Actions based on criminal negligence under Article 365 of the RPC would depend on the gravity of negligence, which is included in the determination of the penalty to be imposed and thus the corresponding statute of limitations.123 113 Consumer Act, art 106. 114 Consumer Act, art 68(b)(4). 115 Civil Code, arts 1106 and 1139. 116 Revised Penal Code, art 89. 117 Rules of Court, Rule 6, s 5(b). 118 Civil Code, art 1114. 119 Civil Code, art 1146. 120 Civil Code, art 1146. 121 Spouses Dino v Court of Appeals et al., G.R. Number 113564, 20 June 2001. 122 Civil Code, art 1571. 123 Revised Penal Code, art 365, in relation to art 90.
- 309. THE PHILIPPINES PHI-27 The periods prescribed in the Civil Code are understood to be without prejudice to those established in special laws with respect to specific cases of prescription.124 Hence, any action to be filed pursuant to the provisions of the Consumer Act must be filed within two years from either the time the consumer transaction was consummated or when the deceptive or unfair and unconscionable act or practice was committed; or from the time of discovery of hidden defects, if any.125 Corporate Successor Liability An action for defective products on the basis of a contract may only be maintained against the parties to the contract. This is pursuant to Article 1311 of the Civil Code, which states that ‘contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law’. A corporate successor may be liable as an assignee of its predecessor. Notably, the definition of a supplier under the Consumer Act, for purposes of adjudging liability, includes a successor to or assignee of any right or obligation of the supplier.126 Assignment, however, does not automatically result in transfer of liabilities to the successor. Successor liability may only be imposed when the successor expressly or at least implicitly assumes the obligations of the predecessor. However, when it is shown that the transaction was merely a ruse to defraud the creditors and avoid liabilities of the predecessor, the successor may be liable for the obligations of the liabilities of its predecessor, notwithstanding the absence of stipulation of assumption of liabilities. In this case, the courts may hold a successor liable by piercing the veil of its corporation fiction, under which it is treated as a mere alter ego or business conduit of its predecessor. Product Liability Litigation Frequency of Litigation There is no available reference from which to draw a conclusion on the frequency of product liability litigation in the Philippines. Based on the very few cases decided by the Supreme Court in this area, however, it can be said that the number of product liability cases that raise novel legal issues or questions with substantial merit to warrant consideration may not be significant. 124 Civil Code, art 1115. 125 Consumer Act, art 169. 126 Consumer Act, art 4(bu).
- 310. PHI-28 INTERNATIONAL PRODUCT LIABILITY Litigation costs and the long period of time that may lapse from filing to a final judgment (approximately 10 to 15 years) also play a factor in a potential litigant’s decision to institute a product liability suit in the regular courts. Many opt to file simple consumer complaints before administrative bodies, such as the Department of Trade and Industry. Attitude of the Courts In 1989, a few years before the passage of the Consumer Act, the Supreme Court had occasion to state: ‘Common sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or ‘buyer beware’) and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty.’127 There is yet no ruling by the Supreme Court applying strict liability under the Consumer Act. Typical Extent of Damages Awards The typical damages that may be awarded are actual or compensatory damages, moral damages, exemplary damages, and attorneys’ fees. Actual damages must be alleged in the complaint and duly proven in the trial.128 They cover the value of the loss suffered by the complainant as well as the profits he failed to obtain.129 In product liability cases that constitute a crime or a quasi-delict, the actual damages that are the natural and probable consequences of the act or omission complained of, whether foreseeable or not, may be awarded.130 In case of personal injury, loss or impairment of earning capacity may be recovered.131 In case of death, there will be an indemnity of at least PHP 75,000 (approximately US $1,800).132 Moral damages may be recovered if there is physical injury. Exemplary damages may be granted if there was gross negligence. In adjudicating moral and exemplary damages, proof of pecuniary loss need not be established. This is left to the court’s discretion, depending on the circumstances of the case. Awards for these kinds of damages typically range from PHP 25,000 to PHP 75,000. 127 Fil-Invest Credit Corporation v Court of Appeals et al., G.R. Number 82508, 29 September 1989. 128 Civil Code, art 2199. 129 Civil Code, art 2200. 130 Civil Code, art 2202. 131 Civil Code, art 2205. 132 Civil Code, art 2206; Virgilio Bug-Atan et al. v People, G.R. Number 175195, 15 September 2010.
- 311. THE PHILIPPINES PHI-29 Attorneys’ fees are recoverable when exemplary damages are awarded; when the defendant’s act or omission has compelled the plaintiff to incur expenses to protect his interests; when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just, and demandable claim; and in any other case where the court deems it just and equitable that attorneys’ fees and expenses of litigation should be recovered. Lawyers’ Compensation Unless found to be unconscionable or unreasonable,133 a lawyer’s professional fees are based on the agreement with his client, such as time-based fees, a percentage of the amount recovered, or milestone billing. In the absence of an agreement, the lawyer may recover a reasonable compensation for his services based on quantum meruit and after considering the importance of the subject matter in controversy, the extent of services rendered, and the professional standing of the lawyer.134 Choice and Application of Law Parties may stipulate on the applicable foreign law to govern in a case of dispute arising from their contract. This is known as the rule of lex loci voluntatis. This is in light of the provision in the Civil Code that allows the contracting parties to ‘establish such stipulations, clauses, terms and condition as they may deem convenient’.135 Philippine courts adopt lex loci voluntatis in order to allow the parties to select the law applicable to their contract, subject to the limitation that it is not against the law, morals, or public policy of the forum and that the chosen law must bear a substantive relationship to the transaction.136 In the absence of agreement as to the applicable law, the courts of the forum apply the rules of conflicts of law such as lex loci celebrationis, lex loci solutionis, and ‘the state of the most significant relationship’ rule. These rules determine which state’s law is to be applied in resolving the substantive issues of a conflicts problem.137 In cases involving torts, the traditional rule is lex loci commissii, or the law of the place where the injury, wrong, or death took place. 133 Rules of Court, Rule 138, s 24. 134 Rules of Court, Rule 138, s 24. 135 Civil Code, art 1306. 136 Cadalin v Philippine Overseas Employment Administration’s Administrator, G.R. Number 104776, 5 December 1994; Kazuhiro Hasegawa and Nippon Engineering Consultants Co., Ltd. v Kitamura, G.R. Number 149177, 23 November 2007. 137 Kazuhiro Hasegawa and Nippon Engineering Consultants Co., Ltd. v Kitamura, G.R. Number 149177, 23 November 2007.
- 312. PHI-30 INTERNATIONAL PRODUCT LIABILITY Conclusion Under the product liability regime in the Philippines, product liability may be fault-based liability (according to the provisions of the Civil Code), strict liability (as set forth in the Consumer Code), or contractual liability, which may be incurred on breach of express or implied contractual warranties. The manufacture and supply of defective or unsafe products is not generally deemed sufficient to give rise to potential criminal liability, unless reckless negligence or deceitful conduct has caused the defect in the product or the sale of the defective product. However, the Revised Penal Code stipulates that even an act of simple negligence in the production or sale of a defective product could give rise to criminal liability if, had the negligent act causing the damage been intentional, the resulting damage would amount to a less grave or a grave felony. In July 2007, the Senate passed a bill for the proposed Product Liability Act,138 which is intended to establish clearer parameters and streamline the mechanism for the recovery of damages in product liability claims. It has not yet been determined when the bill will be enacted into law. 138 Senate Bill Number 1311 entitled ‘An Act Establishing Legal Standards and Procedures for Product Liability Litigation and for Other Purposes’.
- 313. Poland Introduction ............................................................................................ POL-1 Risk-Based Ex Delicto Liability for Dangerous Product ....................... POL-1 In General ................................................................................ POL-1 Ex Delicto Liability ................................................................. POL-2 General Contractual Liability .................................................. POL-3 Statutory Warranty................................................................... POL-3 Voluntary Guarantee for Quality of Product............................ POL-4 Specific Liability Regime in Sale Transactions with Consumers ............................................................................... POL-4 Concept of Defect .................................................................................. POL-5 Factors Defined in Civil Code ................................................. POL-5 Factors Defined in GPSA ........................................................ POL-5 Obligation to Warn or Recall Defective Products .................................. POL-6 Defenses Available to Product Manufacturers ....................................... POL-7 Specific to Damage Caused by the Product ............................. POL-7 General Exonerating Circumstance in Risk-Based Liability ... POL-8 Contributing Fault .................................................................... POL-8 Product Misuse ........................................................................ POL-8 Assumption of Risk ................................................................. POL-8 State-of-the-Art Defense .......................................................... POL-9 Proximate Cause and Limitation of Scope of Liability .......................... POL-9 Impact of Product Liability Considerations ........................................... POL-9 Remedies ................................................................................................ POL-10 Personal Injury and Death........................................................ POL-10 Punitive Damages .................................................................... POL-10 Emotional Distress ................................................................... POL-11 Economic Loss......................................................................... POL-11 Return or Repair ...................................................................... POL-11 Disclaimers or Limitations on Remedies by Contract ............................ POL-11 Claims and Statute of Limitation ........................................................... POL-12 Liability of Corporate Successors for Defective Products ..................... POL-13 Role of Insurance in Product Liability Matters ...................................... POL-13 Availability and Use of Insurance............................................ POL-13 Nature of General Liability Policies ........................................ POL-13 Usual Extent of Cover ............................................................. POL-13 (Release 1 – 2012)
- 314. Usual Exclusions ..................................................................... POL-14 Duties of Insured...................................................................... POL-14 Role of the Courts and Lawyers in Product Liability Litigation ............ POL-14 Frequency of Litigation ........................................................... POL-14 Attitude of Courts toward Product Liability Claims ................ POL-14 Typical Extent of Damage Awards .......................................... POL-15 Nature of Lawyers’ Compensation .......................................... POL-16 Choice and Application of Law ............................................... POL-16 (Release 1 – 2012)
- 315. Poland Marek Oleksyn Sołtysiński Kawecki & Szlęzak Warsaw, Poland Introduction The legal framework for product safety in Poland comprises of public law regulations which set forth duties related to product safety, and provisions of civil law on the ramifications of liability for damages caused by dangerous products. General obligations of producers and distributors relating to product safety are included in the General Product Safety Act of 12 December 2003 (GPSA) and its implementing legislation. The provisions of the GPSA are patterned after the applicable European Union (EU) laws, largely incorporating the European Parliament and Council Directive 2001/95 of 3 December 2001 on general product safety. In addition to the GPSA, there are various sector regulations on product safety requirements pertinent to particular categories of products (eg, toys, lighters, or shoes). Specific rules on product civil liability were introduced in Poland together with the enactment of the Law of 2 March 2000 on the Protection of Certain Rights of Consumers and on Liability for Damage Caused by a Dangerous Product (the “Law on Product Liability”). The Law on Product Liability amended the Civil Code by inserting a new title VI, “Liability for a Damage Caused by a Dangerous Product”, among others. The relevant provisions on product liability are based on EEC Directive 85/374 of 25 July 1985 regarding the approximation of the laws, regulations, and administrative provisions of the Member States on liability for defective products. Risk-Based Ex Delicto Liability for Dangerous Product In General Liability for damage caused by a dangerous product under the Civil Code is based on risk. Under the Law on Product Liability, a product is dangerous if it (Release 1 – 2012)
- 316. POL-2 INTERNATIONAL PRODUCT LIABILITY does not offer the safety that could be expected, taking into account its ordinary use. A producer will be liable for damage caused by a dangerous product if the plaintiff would be able to prove (a) the damage, (b) that the product was not safe, and (c) the causal link between the defect and the damage. The liability of a producer for material damage suffered by an injured person is subject to certain limitations. Pursuant to Article 449(2) of the Civil Code, the producer is liable for material damage if the damaged or impaired thing is fit for private use or consumption and it was mainly used by the injured person in such a manner. However, the requirement that a thing is “mainly” used for private use or consumption opens some room for interpretation depending on circumstances. A producer will be liable for damage suffered by anyone, not just the actual purchaser of the product. The Law on Product Liability also introduces joint and several liability for other entities participating in the commercial circulation of the product (eg, importers) for damage caused by such. The provisions on damage caused by dangerous products do not exclude liability for damages under the general provisions of the Civil Code, or for damages resulting from the non-performance or improper performance of contractual obligations or liability on statutory warranty for defects or the guarantee of quality. Ex Delicto Liability Civil law provides for a general concept of fault-based liability for damage caused by a delict or prohibited act. Pursuant to Article 415 of the Civil Code, whoever by his faulty behavior causes damage to another should be required to redress it. In order to obtain compensation, an injured person should prove before a court (a) the damage suffered, (b) the fault of the defendant, and (c) the causal link between such damage and fault. Until the enactment of the Law on Product Liability, courts have developed a concept of “product liability” on the basis of the provisions of the Civil Code on ex delicto liability. In 1980, the Supreme Court stated that placement of a dangerous product on the market constitutes a delict.1 It pointed out that while the manufacturing of a defective product does not result in ex delicto liability, such liability may arise if the defects of the product caused personal injury or damage to property. A person who placed a dangerous product on the market may be held liable for the damage caused by such product. 1 Resolution of the Supreme Court dated 21 November 1980, Case III CZP 50/80. (Release 1 – 2012)
- 317. POLAND POL-3 Where someone was harmed by a defective product, the producer, seller, or importer may be held liable for damage caused by the product’s failure to offer the safety standards which could be reasonably expected from it. In practice, these principles have been very similar to the strict liability regime introduced by the Law on Product Liability. For purposes of product liability claims, courts and legal writers have developed a concept of “anonymous fault” (also “organizational fault”), such that a fault may be attributed to a legal person where it infringes objective standards, such as general safety requirements or common rules of behavior, or for its organizational carelessness. General Contractual Liability A buyer may demand compensation from a seller for damages resulting from a defect under the general rules of contractual liability. Such liability for improper performance of a contract under the law is based on the concept of fault. Pursuant to Article 471 of the Civil Code, a debtor is required to redress the damage arising from non-performance or improper performance of an obligation, unless the non-performance or improper performance results from circumstances for which the debtor is not liable. In case of a claim based on non-performance or improper performance of a contract, the plaintiff should show (a) the damage suffered and (b) the causal link between the damage and the culpable behavior. Statutory Warranty Under Articles 556-576 of the Civil Code, a seller is liable to the buyer for the physical and legal defects of the thing sold. The liability for physical defects arises in the following circumstances: • If the thing sold has defects which decrease its value or utility with respect to the purpose defined in the contract, with respect to the destination of the thing, or resulting from the circumstances; • If the thing does not have the features which the seller assured the buyer; or • If the thing was released to the buyer in an incomplete condition. Pursuant to liability for statutory warranty, a buyer has the right to (a) demand a price reduction, (b) rescind a contract, or (c) demand that the product be repaired or replaced at the seller’s cost. The statutory warranty applies by operation of law in sales and other contracts (eg, in agreements for specific work), and no specific representations or declarations of the seller are required in this respect. In contracts concluded between entrepreneurs, the parties may extend, limit, or exclude liability for statutory warranty. However, in contracts with consumers, the limitation or exclusion of such warranty is admissible only in cases specified by law. (Release 1 – 2012)
- 318. POL-4 INTERNATIONAL PRODUCT LIABILITY The seller is released from liability if the buyer knew about the defects at the time of the conclusion of the contract or, in case of things designated only as to their kind, if he knew about the defects when such things were released to him. Voluntary Guarantee for Quality of Product Articles 577 to 581 of the Civil Code provide for a voluntary guarantee which may be issued by a producer with respect to the quality of a product he offers. If the buyer received a guarantee document, he may ask the seller to replace the defective product or request for delivery of a product which is free of defects within the period specified under the guarantee. Claims under voluntary guarantee can be asserted irrespective of claims allowed under the statutory warranty. The scope of the seller’s obligations arising from the voluntary guarantee can be determined freely by the seller, and the Civil Code rules apply to the extent not addressed otherwise in the guarantee document. Specific Liability Regime in Sale Transactions with Consumers The Act of 27 July 2002 on specific conditions applicable to sale of consumer goods (the “Consumer Sale Act”) implemented EC Directive 1999/44 of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees. It also set forth specific rules on a seller’s liability to consumers for failure of a sold consumer good to conform with a contract which exists when the goods are delivered to the consumer. In case of lack of conformity between the goods and the contract, the consumer is entitled to repair or replacement of the goods free of charge within a reasonable period and without major inconvenience to him. If repair or replacement is impossible or disproportionate, the customer may, subject to certain conditions, claim for an appropriate reduction of the price or demand rescission of the contract. The Consumer Sale Act excludes the application of the Civil Code statutory warranty and voluntary guarantee rules in goods sale contracts made with consumers. Although Article 449(10) of the Civil Code does not expressly refer to the Consumer Sale Act, commentators point out that the latter also may constitute legal basis for asserting claims for damages caused by dangerous products. 2 2 Gawlik, “Commentary to Article 449(10) of the Civil Code” in Kidyba (ed.), Lex 2010. (Release 1 – 2012)
- 319. POLAND POL-5 Concept of Defect Factors Defined in Civil Code Under Article 449(1), Section 3 of the Civil Code, a product is considered dangerous if it does not offer the safety that could be expected, taking into account its ordinary use. Circumstances existing at the time the product was put on the market, especially its presentation and the information on its features offered to the consumer, will have an impact on the assessment of its safety. The product cannot be deemed dangerous only because a similar but better product is subsequently put on the market. Factors Defined in GPSA Article 4, Section 1 of the GPSA defines a safe product as one which “under normal or reasonably foreseeable conditions of use including duration and, where applicable, putting into service, installation and maintenance requirements, does not present any risk or only the minimum risks compatible with the product’s use, considered to be acceptable and consistent with a high level of protection for the safety and health of person.” In assessing whether a given product is safe, the following factors should be taken into account: • Features of the product, including its composition, packaging, assembly manual, and installation and maintenance manual (taking into account the type of product considered); • Impact on other products, in case it can be reasonably foreseen that the product examined will be used together with other products; • The product’s appearance, its marking, warnings, user’s manual, instructions for dealing with a waste product, and any other information and instructions concerning the product which are given to a consumer; and • Consumers’ categories which are at risk in connection with the product’s use, in particular, children and the elderly. Article 6 of the GPSA states that a product will be deemed safe if, in the absence of specific Community provisions governing its safety, such product conforms to the specific rules of national law on product safety. A product also is presumed safe as far as the risks and risk categories covered by relevant national standards are concerned when it conforms to voluntary national standards transposing European standards considered by the European Commission as compliant with rules governing general safety products and the references published in the Official Journal of the European Communities. (Release 1 – 2012)
- 320. POL-6 INTERNATIONAL PRODUCT LIABILITY Otherwise, the safety of the product is assessed by taking into account other factors, such as: • Compliance with voluntary national standards transposing relevant European standards other than those which the European Commission considered as compliant with rules governing general product safety; • Compliance with the Polish Standards; • Compliance with Commission recommendations setting guidelines on product safety assessment; • Compliance with product safety codes of good practice in force in the sector concerned; • The state of the art and technology; or • Reasonable consumer expectations concerning safety. In a recent judgment issued by the Warsaw Administrative Court on 10 November 2011 (Case Number SA Sa/Wa 1391/11), the court held that while assessing a given product (ie, bicycle for children) in light of meeting the safety requirements, its overall appearance and actual application should be taken into account rather than the declaration of the entrepreneur introducing the product on the market. In another judgment issued on 29 September 2011 (Case Number II GSK 882/10) and involving a cosmetic lotion considered by the supervising authority as an imitation of yogurt and thus constituting a dangerous product, the Supreme Administrative Court held that in order for the cosmetic lotion to be considered a dangerous product imitating a food product, the supervising authority should have obtained expert opinion evidence rather than just relying on the organoleptic tests. Obligation to Warn or Recall Defective Products Article 10, Section 1 of the GPSA requires producers to place on the market only those products which are safe. A producer putting a product on the market within the course of his business is required to provide consumers with information in the Polish language, allowing such consumers to (a) assess threats connected with such products in the course of the ordinary or foreseeable terms of product use, in case such threats are not (in lack of respective warning) immediately noticeable, and (b) counteract such threats. However, providing consumers with such warnings does not release the producers and distributors from other statutory obligations. Pursuant to Article 10, Section 4(1) of the GPSA, producers are required to adopt ⎯ acting with due care ⎯ measures commensurate with the characteristics of the products which they supply, which enable them to be sufficiently apprised of threats which these products might pose. (Release 1 – 2012)
- 321. POLAND POL-7 Upon discovery of a threat associated with a product, Article 10, Section 4(2) of the GPSA requires the producer to implement measures intended to avoid such threats, including but not limited to: • Issuance of proper and efficient warnings to consumers; • Recall of products from the market; and/or • Recovery of products from consumers. These measures are undertaken by a producer at his own initiative or, in the absence of voluntary action, pursuant to an administrative decision. Although there are no express warning obligations in the Civil Code pertaining to product liability, the courts have developed a concept where failure to take any action leading to elimination of a threat associated with an unsafe product should be qualified as “gross negligence” on the part of the responsible entity. For instance, in the judgment dated 4 December 1981 (Case Number IV CR 433/81), the Supreme Court held that if a producer is aware of the threats related to the safety of his product and refrains from undertaking any remedial action, such omission qualifies as gross negligence (culpa lata) on his part. Defenses Available to Product Manufacturers Specific to Damage Caused by the Product Under Article 449(3), Section 1 of the Civil Code, a producer is not liable for damage caused by a dangerous product if he proves that he did not put the product on the market or that the product was not put on the market in the course of his business. However, there is a rebuttable presumption that a dangerous product was produced and put on the market by the producer in the course of his business. Under Article 449((3), Section 2 of the Civil Code, the producer also is not liable if he proves that the dangerous features of the product appeared only after the product had been on the market, unless such features resulted from the faults present in the product when it had been put into circulation. The producer also is not liable if he proves that the state of scientific and technical knowledge at the time the product was put on the market was not such as to enable the existence of the dangerous features to be discovered (“risk development defense”). Finally, the producer is not liable for damage caused by a dangerous product provided that the dangerous features of such product resulted from the application of the provisions of law. (Release 1 – 2012)
- 322. POL-8 INTERNATIONAL PRODUCT LIABILITY General Exonerating Circumstance in Risk-Based Liability The producer also may be exonerated from risk-based product liability if he is able to prove that the damage was caused merely as a result of third-party action or force majeure, as no causal link between the damage and the product itself could be proven by the claimant. 3 Pursuant to Article 449(5), Section 1 of the Civil Code, the manufacturer of materials, raw materials, or a component part of a product will bear liability equal to that of the producer, unless the only cause of the damage was a defective construction of the product or the instructions given by the producer. Contributing Fault According to a general rule on liability for damage set forth in the Civil Code, if the injured person contributed to the occurrence or increase of the damage, the duty to redress it will correspondingly be reduced according to the degree of fault of both parties. Product Misuse A product is dangerous if it does not offer the safety that could be expected, taking into account its ordinary use. Commentators point out that “ordinary product use” should not only be perceived as the use of the product in accordance with its suitability (application), but also in such a manner which, although not its typical suitability, could have been foreseen by the producer, importer, and retailer in connection with the given product and the customers to which the product is addressed. Consequently, the manufacturer would not be exempt from liability if the product was incorrectly used by the user (eg, contrary to the user’s manual or other information given to consumers), but such misuse could have been foreseen. Assumption of Risk The laws on civil liability do not specifically provide for a mechanism for assumption of risk from the product manufacturer who is deemed liable for damage caused by a dangerous product, even where such product was sold to the final customer by a third party (eg, importer, distributor, or retailer). However, such an assumption of risk may arise indirectly from the occurrence of some exonerating circumstances, such as product misuse by a customer or his exclusive contributing fault in causing damage. 3 Łętowska, Protection of Certain Consumers’ Rights: Commentary (2001), at p. 132. (Release 1 – 2012)
- 323. POLAND POL-9 State-of-the-Art Defense The producer is not liable if he proves that the state of scientific and technical knowledge at the time the product was put on the market was not such as to enable the discovery of the existence of the dangerous features of the product. Proximate Cause and Limitation of Scope of Liability Although there is no specific legal concept of a “proximate cause” in the Law on Product Liability, such limitation or exclusion of the producer’s liability would be possible if the producer was able to prove that the injured person contributed to the occurrence or increase of the damage. Nevertheless, liability of the entities referred to in Article 449(5), Section 1 of the Civil Code may be excluded if they are able show that the only cause of the damage was a defective construction of the product or the instructions for the product given by the producer. Impact of Product Liability Considerations The Civil Code, following EEC Directive 85/374, sets forth a regime of joint and several liability with the final product manufacturer for certain categories of entities involved in the product manufacturing and sale chain. These entities are divided into three groups: • The first group includes persons referred to in Article 449(5), Section 1 of the Civil Code, ie, manufacturers of materials, raw materials, and component parts. • The second group is listed in Article 449(5), Section 2 of the Civil Code and includes importers and “quasi-producers” (ie, entities which present themselves as producers by putting their name, trade marks, or other distinguishing markings on the product). • The third group consists of entities referred to in Article 449(5), Section 4 of the Civil Code which sold a dangerous product within the course of their business, provided that the product manufacturer and the entities covered by the second group cannot be identified. However, the third group entity may still release itself from liability in case it was able to identify, within a month from the date of the notification on the damage, the identity and address of the producer or importer (quasi-importer). Product civil liability of each entity would need to be examined individually based on the facts of each case. Retailers, wholesalers, and distributors fall within the scope of the third group. However, depending on the case, wholesalers and distributors also may be liable as importers or those who present themselves as producers by (Release 1 – 2012)
- 324. POL-10 INTERNATIONAL PRODUCT LIABILITY putting their name, trade marks, or some other distinguishing markings on the product (ie, quasi-producers). Makers of component parts fall within the scope of the first group. Franchisors may be considered as either a product manufacturer or one of the entities referred to in the second group (ie, product importer or quasi-producer), while franchisees may potentially bear joint and several liability for a dangerous product as either an importer or quasi-producer under the second group, or as a product final seller under the third group. Licensors may qualify as a product manufacturer under the second group or as a seller of a dangerous product under the third group, while the product liability of a licensee would mostly be similar to that of a franchisee. Remedies Personal Injury and Death Under the general law on civil liability for personal injury (also applicable to injury or death caused by a dangerous product), the redress of the damage in case of a bodily injury or health disorder includes all expenditures arising from it. Upon the request of the injured party, the perpetrator should lay out in advance the amount required to cover treatment costs and the costs of training for another profession where the injured party has become a disabled person. Where the injured party partially or completely loses the ability to perform work, or where his needs have increased or his prospects for future success are reduced, he may demand a relevant pension from the party obliged to redress the injury. The court also may grant to the injured party a relevant amount as pecuniary satisfaction (zadośćuczynienie) for the harm suffered. In case of death resulting from bodily injury or health disorder, the perpetrator is required to reimburse the treatment and funeral expenditures to the person who incurred them. A person to whom the deceased had a statutory maintenance duty also may demand from the perpetrator a pension calculated according to the needs of the injured party, as well as the earning and proprietary capacity of the deceased throughout the period of the probable duration of the maintenance duty. A court also may grant compensation to the closest family members of the deceased, in case a considerable deterioration in their living situation has occurred as a result of the death. It also may grant the closest family members pecuniary satisfaction for the harm suffered. Punitive Damages The civil law system does not recognize the concept of punitive damages.4 4 Certain exceptions pertain to damage caused as a result of infringement of intellectual property or similar rights (eg, economic copyrights or rights to databases), where (Release 1 – 2012)
- 325. POLAND POL-11 Emotional Distress Pecuniary satisfaction for the harm suffered as well as an obligation to redress the damage may be awarded by a court in case of emotional distress caused by a dangerous product. Economic Loss Pursuant to Article 449(7), Section 1 of the Civil Code, compensation for material damage does not cover compensation for an impairment of the dangerous product in itself, nor the loss of the income that could have been obtained by the injured person. The compensation also is not demandable if the material damage suffered by the injured person does not exceed EUR 500. The restrictions specifically applicable to dangerous products include the right to demand redress of damage based on general ex delicto or ex contractu rules, where full amount of damage can be requested. In such a case, the claimant can demand recovery of actual losses suffered (damnum emergens) as well as the profits which he could have likely obtained if the damage had not been caused (lucrum cessans). Return or Repair The Civil Code does not have specific rules concerning the return or repair of goods destroyed as a result of a product defect and merely provides that in, such case, material damage does not cover compensation for an impairment of the dangerous product itself. However, since the general civil liability rules also apply to damage caused by dangerous products, the claimant also can demand restoration of the former state (restitutio in integrum). This may consist in the repair of the damaged good or the return of the damaged good in place of the one destroyed or lost. The repair or return obligation may arise where claims connected with the product’s defect are raised under the statutory warranty, contractual guarantee, or consumer sale regimes. Disclaimers or Limitations on Remedies by Contract Under Article 449(9) of the Civil Code, liability for damage caused by a dangerous product cannot be excluded or limited. This rule is considered to be of the so-called “semi-imperative character” and its applicability cannot be contractually excluded.5 multiple fictitious license fees may be applied by the court as compensation for damage. 5 However, the producer’s liability for a dangerous product may be broadened in a contract with the customer. (Release 1 – 2012)
- 326. POL-12 INTERNATIONAL PRODUCT LIABILITY These rules do not apply to contracts with consumers who are offered broader protection.6 The Civil Code provides that any contractual provisions which (a) exclude or limit liability for personal injury to a consumer or (b) exclude or substantially limit liability for non-performance or improper performance of a contractual obligation are considered to be “abusive clauses” and will not bind consumers by operation of law. Similarly, consumer rights arising from the Consumer Sale Act, including rights arising from the failure of a sold consumer good to conform to an agreement, cannot be excluded or limited in a contract with a consumer. However, these restrictions aimed at the broad protection of product users do not exclude the right to set forth in a contract involving entities which participate in the product supply chain (eg, product manufacturer and his local distributor) an indemnification mechanism where the producer or his distributor will be financially liable to the other contracting party for all damage which may be caused to customers by the dangerous product. Claims and Statute of Limitation Article 449(8) of the Civil Code provides for the following statutes of limitation in product liability claims: • A three-year deadline which starts when the injured person learns (or at least should have learned, acting diligently) of the damage and the entity obliged to redress such damage; and • A 10-year deadline for all product liability claims which starts on the date of the introduction of a product on the market. Legal commentators emphasize that the 10-year commencement date may lead to a situation where a product liability claim would be time-barred even before damage occurs, such as where the 10-year deadline starts on the date of putting on the market a third product of a given kind, even if this product did not cause damage.7 Thus, the 10-year term should commence separately with respect to a particular item put on the market. The statute of limitation may be interrupted or suspended in circumstances set forth in the Civil Code. For instance, it may be interrupted by the filing by the injury party of any action before a court or other agency authorized to hear cases or by acknowledgement of the claim by the person against whom the claim was made. After each interruption, the period starts to run anew. It is not possible to contractually shorten or prolong the statute of limitation. 6 Under the Civil Code, a “consumer” is understood as a natural person who carries out a legal action which is not directly related to his economic or professional activity. 7 Gawlik, “Commentary to Article 449(8) of the Civil Code” in Kidyba (ed.), Lex 2010. (Release 1 – 2012)
- 327. POLAND POL-13 Liability of Corporate Successors for Defective Products The liability for defective products falls within the scope of the general succession of rights arising from company law. According to the Commercial Companies Code, the acquiring or newly established company in case of a merger or division assumes all rights and duties of its legal predecessor. Role of Insurance in Product Liability Matters Availability and Use of Insurance Insurance companies in Poland are increasingly offering insurance against liability for damage caused by a dangerous product. Such product liability insurance most often constitutes part of general insurance policies against civil liability arising ex delicto and is not issued separately to business entities. In principle, a product liability insurance policy is granted for a one-year term and is offered to product manufacturers, importers, and entities which put a product on the market. Nature of General Liability Policies General civil liability policies are extended based on insurance agreements between an insurance company and its client which requires a minimum standard of protection from insured entities. Such level of minimum protection cannot be limited or excluded in an agreement with an insurance company. Claims arising from an insurance agreement are subject to a three-year statute of limitation. However, with respect to civil liability, insurance claims of an injured party against the insurer are subject to the same statute of limitation as claims against the perpetrator (insured entity). The insurance company is liable to third parties within the scope of liability caused by the product of the insured entity. Extension of civil liability insurance to damages caused by a product may usually increase the insurance premium from 20 per cent to 40 per cent, depending on the type of product, size of the insured entity, and safety requirements or production control systems introduced by the insured.8 Usual Extent of Cover Product liability policies usually cover (a) personal injury, health disorder, and death resulting from the use of a defective product, and (b) damages to property. Cross-border policies which are effective outside the territory of Poland also are available. 8 Skibińska, “Defective good, substantial damage, serious consequences”, at www.ekonomia24.pl. (Release 1 – 2012)
- 328. POL-14 INTERNATIONAL PRODUCT LIABILITY Usual Exclusions The list of liability exclusions varies in each insuring company offer. Insurance companies usually tend to exclude their liability in case of damage: • Caused in the product; • Caused by misuse of the product; • Caused by a product which was not sufficiently tested or examined before being put on the market; • Caused as a result of the insured’s concealment of the product’s defects; • Caused by a product which lacks attestations, certificates, technical approvals, or permits required by law; • Resulting from failure by the insured to correctly label a product or attach sufficient safety information; or • Resulting from misleading advertisement.9 Duties of Insured The duties of the insured against product liability are analogous to the duties and obligations which arise from standard agreements for commercial insurance against civil liability. Before issuing an insurance policy covering dangerous products, an insurer may require an insured to show that production control mechanisms were introduced or that respective safety standards were complied with. Role of the Courts and Lawyers in Product Liability Litigation Frequency of Litigation Civil court proceedings concerning liability for dangerous products are still uncommon in Poland compared to other types of court actions concerning ex delicto liability, although the number of such litigations is growing. Attitude of Courts toward Product Liability Claims The approach presented by courts in cases concerning product liability varies depending on the facts of each case, such as the type of defective product, the type of damage caused by the product, the circumstances of an accident, the proof of damage or harm, and the causal link between the damage and the product’s defect, among others. In a judgment issued on 8 November 2006 (Case Number III CSK 174/06), the Supreme Court held that it is sufficient for the claimant asserting claims based 9 Puczek, “Insurance against civil liability for product - civil liability of the producer”, at www.firmy.ubezpieczenie.com.pl. (Release 1 – 2012)
- 329. POLAND POL-15 on product liability to show the producer’s organizational negligence. Since the organization of the company is not known to the claimant, a prima facie evidence of the producer’s fault ⎯ taking into account the type of harm caused by a product ⎯ should be allowed. In a judgment issued on 28 May 2010 (Case Number I ACA 1278/09), the Court of Appeal of Warsaw commented on the amount of pecuniary satisfaction requested by the claimant and stated that the assessment of criteria for deciding on the amount of pecuniary satisfaction depends on the particular facts of the case examined. Thus, references to earlier similar cases should be aimed solely at preventing gross disparities, and the amounts awarded in similar cases cannot constitute an additional prerequisite for the measurement of pecuniary satisfaction. The court also held that the amount of the pecuniary satisfaction should take into account “the current conditions and the standard of living of the society of the country where the injured party lives”. In a judgment issued on 10 August 2011 (Case Number I ACA 571/11), the Court of Appeal of Poznań confirmed that the concept of rebuttable presumption under Article 449(4) of the Civil Code may not apply where there is no proof that the defendant indeed manufactured and introduced a product on the market. The court also stressed that the pro-consumer interpretation of law may not lead to a reversal of the burden of proof or a conclusion that the importer of dangerous products is always liable for damages caused by such products, despite the fact that such importer is able to show that he had nothing to do with the particular product that actually caused the damage. In another judgment issued on 14 March 2006 (Case Number I ACA 996/05), the Court of Appeal of Poznań confirmed that a perpetrator cannot be released from product liability by showing that he had obtained permits from the public authority for the marketing of fireworks, as the permit requirement merely constitutes an administrative obligation and is not linked to civil liability for damage caused by the product covered by the permit. The Supreme Court outlined in its judgment dated 24 August 2005 (Case Number III CK 701/04) that specific liability rules applicable to dangerous products, which transposed EEC Directive 85/374, cannot be applied to damages caused by dangerous products prior to the date of such transposition. For the same reason, the GPSA ⎯ which came into force after the accident occurred ⎯ cannot be applied to determine whether a product was dangerous. Typical Extent of Damage Awards The product liability cases handled by courts pertain to compensation for damage suffered as well as to pecuniary satisfaction for personal injury. Similarly, the amounts awarded are linked to particular facts of the case and no generalization can be made in this respect. (Release 1 – 2012)
- 330. POL-16 INTERNATIONAL PRODUCT LIABILITY In the judgment of the Court of Appeal in Warsaw dated 28 May 2010, the claimant requested for more than EUR 33,000 but was only awarded PLN 80,000, while the compensation claim of PLN 10,000 was dismissed as not sufficiently evidenced. In a judgment issued on 21 February 2002 (Case Number I ACA 378/01), the Court of Appeal in Rzeszów confirmed the legitimacy of awarding approximately EUR 47,000 as pecuniary satisfaction for substantial injury suffered as a result of an unexpected airbag explosion. Nature of Lawyers’ Compensation The law provides for minimum fees for professional attorneys’ assistance before justice authorities. Such fees are dependent on the type of case handled as well as the value of the case claim. The attorney also may agree with the client on a fixed remuneration for handling a case, and hourly rates also are possible. However, professional attorneys cannot agree on a success fee (pactum de quota litis) if such fee constitutes the only element of their remuneration. Choice and Application of Law The application of law with respect to damages caused by dangerous products is addressed in Regulation (EC) Number 864/2007 of the European Parliament and of the Council dated 11 July 2007 on the law applicable to non-contractual obligations (Rome II). (Release 1 – 2012)
- 331. Portugal Introduction ............................................................................................ POR-1 Legislative Framework ......................................................................... POR-1 Consumer Protection Act ......................................................... POR-1 Product Liability Act ............................................................... POR-2 Strict Liability for Manufacturers .......................................................... POR-4 Concept of Defect .................................................................................. POR-5 Presentation ............................................................................. POR-5 Reasonable Use ........................................................................ POR-7 Entry into Circulation .............................................................. POR-7 Duty of Information ............................................................................... POR-8 Defenses Available to the Manufacturer ................................................ POR-9 Concept of Manufacturer ....................................................................... POR-11 In General ................................................................................ POR-11 Effective Manufacturer ............................................................ POR-11 Apparent Manufacturer ............................................................ POR-12 Presumptive Manufacturer ....................................................... POR-12 Damages and Remedies ......................................................................... POR-13 Death or Personal Injuries........................................................ POR-14 Damage to Property ................................................................. POR-14 Limitation Period and Lapse of Rights .................................................. POR-15 Statute of Limitations .............................................................. POR-15 Commercial Responsibility for the Product ............................. POR-15 Conclusion ............................................................................................. POR-15
- 333. Portugal Filipe Fraústo da Silva, Jacinto Moniz de Bettencourt and João de Sousa Assis Uría Menéndez - Proença de Carvalho Lisbon, Portugal Introduction Portugal not only comprises the continental territory that forms the Iberian Peninsula with Spain, but also the archipelagos of the Azores and Madeira in the Atlantic Ocean, which are politically autonomous regions. As in most civil law systems, the most important legal instrument in Portugal is the Constitution of the Republic. The current Constitution was enacted on 2 April 1976 and came into force on 25 April 1976. Since then, it has been amended in 1982, 1989, 1992, 1997, 2001, 2004, and 2005. Legislative Framework Consumer Protection Act Article 60 of the Portuguese Constitution includes the basic provisions governing consumers’ rights. According to Article 60(1): ‘Consumers shall have the right to the good quality of the products and services they consume, to education and to information, to the protection of their health, safety, and economic interests, as well as to the compensation for damage.’1 The first Portuguese Consumer Protection Act was passed in 1981 by Law Number 29/81 of 22 August. This Law has been repealed by the Consumer Protection Act which was approved by Law Number 24/96 of 31 July 1996 (as amended by Law Number 85/98 of 16 December 1998 and Decree-Law Number 67/2003 of 8 April).2 Article 3 of the new Consumer Protection Act 1 Before the 1989 constitutional amendment, this matter was governed under Article 110, as part of the constitutional rules concerning the economical organization of the state, and not as a matter of the economic, social, and cultural rights of the people. 2 Decree-Law Number 67/200 has been amended by Decree-Law Number 84/2008 of 21 May.
- 334. POR-2 INTERNATIONAL PRODUCT LIABILITY acknowledges a number of rights for the benefit of consumers, such as the rights to: • The good quality of goods and services; • The protection of health and physical security; • The education of consumers and the right to be informed; • The protection of economic interests; • The prevention and recovery of both property damage and personal injuries arising from harm to individual, collective, or diffuse interests; • The right to accessible and quick justice; and • The right to participate, through civil associations, in the legal and administrative determination of their rights and interests. Based on the rights laid down in Article 3 of the Consumer Protection Act, Article 12 of the Act sets the specific provision on the right to the prevention of damage and recovery of damages. Under this provision, the consumer is entitled to be compensated for any property damage or personal injuries resulting from defective goods and/or services. The producer also is responsible, even if there is no fault on his part, for the damage caused by defects in products he puts in the market. Product Liability Act On a historical note, it was only in 1989 that Portugal enacted regulations on product liability,3 by means of Decree-Law Number 383/89 of 6 November (the Product Liability Act) in pursuance of Article 19(1) of Council Directive 85/374/EEC of 25 July 1985 on product liability (the Product Liability Directive).4 Being based on European Community (EC) Directives, the Portuguese product liability system is therefore based on strict liability, that is, liability without fault on the part of the manufacturer. This is an exception in Portuguese law, and the Product Liability Act provides for a unique liability system. In Portugal, there are two different but related liability systems: one based on the general rules on civil liability (contractual liability and liability in tort) and another formed by the special rules based on strict liability contained in the Product Liability Act. The Product Liability Act was later amended by Decree-Law Number 131/2001 of 24 April, implementing Directive 1999/34/EC of 10 May 1999,5 which 3 The prevailing terminology in Portugal is ‘manufacturer’s liability’ (responsabilidade do produtor) rather than ‘product liability’ (responsabilidade por produtos). 4 Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations, and administrative provisions of the Member States concerning liability for defective products, OJ 1985 L 210/29. 5 Directive 1999/34/EC of 10 May 1999 amending Council Directive 85/374/EEC on the approximation of the laws, regulations, and administrative provisions of the Member
- 335. PORTUGAL POR-3 amended the Product Liability Directive by extending the principle of strict liability laid down in the Product Liability Directive to all types of products, including agricultural raw materials and game, and eliminating the maximum amount of liability for producers. Before the enactment of the Product Liability Act, there were only a few scholarly works on product liability.6 In recent times, scholars’ works7 on product liability have seen a marked increase, as has the case law. Before the Product Liability Act was enacted, there were very few court cases dealing with product liability and related matters. One of the first rulings was issued by the Oporto Court of Appeal on 28 January 1988.8 In this case, the owners of two vehicles which were parked outside a building claimed damages against the user and the supplier of a bottle of gas which had exploded inside the same building. One of the building’s skylights and some other parts were dislodged by the explosion and collapsed onto the vehicles, damaging them. The bottle of gas was sold without a protective valve, which allowed the gas to escape and explode. The absence of fault on the part of the defendants led to their absolution. A similar case was decided by the Supreme Court (Superior Tribunal de Justiça, STJ) on 28 October 1984,9 where the wholesaler of a gas bottle, who had consigned it to a distributor, was held liable for the damage caused by an explosion due to a defective protection device, under the provisions of Section 509 of the Portuguese Civil Code. Section 509 provides for a special system of strict liability for persons having effective control over electric fixtures or gas fittings for damage caused by the conduction and delivery of the electricity, gas, or the fitting. States concerning liability for defective products, OJ 1999 L 141/20. 6 C.A. da Mota Pinto and J. Calvão da Silva, ‘Responsabilidade civil do produtor’, O Direito, 121st year, 1989, II (April–June), at pp 273–312; C.A. da Mota Pinto, ‘Garantia do bom funcionamento e vícios do produto’, Collectânea de Jurisprudência, 1983, III, at pp 19–29; C. Ferreira de Almeida, Os Direitos dos Consumidores (Livraria Almedina, Coimbra, 1982); M. Frota, ‘A responsabilidade civil do produtor por especialidades farmacêuticas defeituosas’, Tribuna da Justiça (1 December 1989), at pp 71–75; J. Conde Rodrigues, A Responsabilidade Civil do Produtor Face a Terceiros, Associação Académica da Faculdade de Direito de Lisboa (Lisboa, 1990). 7 J. Calvão da Silva, Responsabilidade Civil do Produtor (Doctoral thesis), (Livraria Almedina, Coimbra, 1990); M. Afonso and M. Variz, Da Responsabilidade Civil Decorrente de Produtos Defeituosos (Coimbra Editora, Coimbra, 1991); A.P. Monteiro, ‘Estudos de direito do consumidor: publicação do Centro de Direito do Consumo’, Centro de Direito do Consumo, Coimbra, vol 7; J. Calvão da Silva, Venda de bens de consumo: comentário (Livraria Almedina, Coimbra, 2003); and J. Calvão da Silva, ‘Compra e venda de coisas defeituosas: conformidade e segurança’ (Livraria Almedina, Coimbra, 2004). 8 Colectânea de Jurisprudência I (1988), at pp. 196–198. 9 In Boletim do Ministério da Justiça, Number 240, at pp. 209–211.
- 336. POR-4 INTERNATIONAL PRODUCT LIABILITY The case law on product liability has been enhanced in recent years. There are currently several rulings from the STJ,10 as well as from the regional courts of appeal.11 The general rules on civil liability that may be applied to matters of product liability are beyond the scope of this chapter. Strict Liability for Manufacturers The Product Liability Act was published in the Official Gazette (Dirio da Republica) on 6 November 1989, and its legal provisions came into force five days after its publication in the mainland and another five days later (ie, 10 days after its publication) in both the autonomous regions of Azores and Madeira. It was later amended by Decree-Law Number 131/2001 of 24 April, which implemented the amendments to the Product Liability Directive into the Portuguese legal framework. In the Portuguese jurisdiction, manufacturers’ liability is based on strict liability. According to Article 1 of the Product Liability Act, which states the basic principle applicable to this matter, ‘[t]he manufacturer is liable, irrespective of any fault on his part, for damage caused by defects in the products he has put into circulation’. Examining this provision, the relevant aspects are that the manufacturer’s product must have been put into circulation; that there must be a defect in the product; that there must have been damage; and that this damage must have been caused by the defect in the product. In such cases, the manufacturer will be liable, even if there is no fault on his part, which is clearly an exception in Portuguese private law. Article 483(1) of the Civil Code states the general principle on liability in tort: ‘Any person who, either deceitfully or negligently, unlawfully violates somebody else’s right or any legal provision aimed at the protection of the interests of others, shall be bound to indemnify the injured person in respect of the damage caused by the violation.’ Article 483(2) of the Civil Code states that ‘only where specifically provided for by the law shall there be an obligation to indemnify beyond fault’. 10 Recent examples are the STJ rulings of 25 March 2010, 6 August 2003, 27 May 2008, 19 February 2004, 6 June 2003, 11 March 2003, and 16 December 1999. They are available on the website of the Ministry of Justice at http://www.dgsi.pt/. 11 Recent examples are the Oporto Court of Appeal rulings of 7 March 2005, 20 November 2007, 6 March 2001, and 13 July 2000; the Lisbon Court of Appeal rulings of 1 March 2007, 20 October 2009, 14 October 2008, 27 February 2007, 9 January 2007, and 18 March 1999; the Coimbra Court of Appeal rulings of 27 April 2004 and 2 October 2001; the Guimarães Court of Appeal ruling of 27 June 2007; and the Évora Court of Appeal rulings of 13 September 2007 and 13 September 2007. All the rulings are available at http://www.dgsi.pt.
- 337. PORTUGAL POR-5 Concept of Defect The concept of a defect is defined by Article 4 of the Product Liability Act. Article 4(1) states: ‘A product is defective when it does not provide the safety which may be legitimately expected from it, taking all circumstances into account, including its presentation, the use to which it is reasonably expected to be put, and the moment it was put into circulation.’ This definition adopts the provisions of Article 6 of the Product Liability Directive, which is that a defective product is one that lacks safety and is likely to cause damage to persons and property. However, what is important is not so much the product’s fitness for the purpose for which it is intended, but the degree of safety that consumers may legitimately expect from the product.12 Such safety must be ascertained taking into account all relevant circumstances — with special reference being made to the presentation of the product, its expected use, and the moment when the product was put into circulation. Presentation The basic idea behind the presentation of the product is that a product’s expected safety depends, among other things, on how the product is presented to the public. This presentation includes the information or instructions for use which may (or may not) be provided with the product, but also any marketing campaigns and publicity relating to the product. In this sense, the concept of defect includes, besides defective design and manufacture, the factor of defective marketing and defective warnings. In respect of the duty to inform, the Consumer Protection Act provides for both a general right to information for consumers and a specific right to this information.13 The provisions for the general right to information for consumers instructs the state to develop the necessary measures to inform consumers, by supporting consumer associations, creating a database concerning the rights of consumers, and creating airtime on radio and television for the promotion of consumers’ rights and interests. This general duty to inform includes the stipulation that all information provided to consumers must be given in Portuguese, and all advertisements must be lawful and respect the truth, so that the information contained in advertisements is deemed to be incorporated in all contracts to be concluded with the consumer. 12 The degree of safety is not the same as absolute safety. J. Calvão da Silva, Responsabilidade Civil do Produtor (Livraria Almedina, Coimbra, 1990), at p. 635. 13 Consumer Protection Act, arts 3(d), 7, and 8.
- 338. POR-6 INTERNATIONAL PRODUCT LIABILITY Under the provisions for the specific right of consumers to information, the provider of goods or services must, both during the negotiations and when closing the contact with a consumer, inform him in a clear, objective, and appropriate way, particularly regarding the characteristics, composition, and price of goods or services, period of duration of the contract, guarantees, and the health risks of the product, among other relevant information. According to these provisions, when some of the relevant information is missing or has been inadequately provided, the consumer may exercise his right of withdrawal from the contract within seven working days from the product delivery date or, in the case of services, from the date of the contract. In pursuance of provisions on consumers’ rights, Decree-Law Number 69/2005 of 17 March (which implemented the Product Safety Directive),14 as amended by Regulatory Decree Number 57/2007 of 27 April regarding the general safety of products, and Decree-Law Number 560/99 of 18 December (as amended) have stipulated that all information on the nature, characteristics, and warranties in respect of products or services offered to the public in the national market must be written in the Portuguese language. This information includes information contained on labels and packages, in prospectuses, catalogues, instruction books or leaflets, and other means. The duty to inform in the Portuguese language binds the manufacturer, the packager, the person rendering the service, or any other wholesaler or retailer. Non- compliance with this duty is subject to a maximum fine of €44,891.81. Similar regulations were enacted in respect of the information or instructions concerning the characteristics, installation, servicing, maintenance, storing, transportation, and warranties of machinery, devices, utensils, and tools. In what specifically concerns the advertising of products, the Portuguese Advertising Code15 provides for the strict compliance of advertising with the rights of consumers. It prohibits all advertising that encourages conduct that is detrimental to health and safety, particularly conduct or acts based on incorrect information concerning the dangerousness of the product or its particular susceptibility to accidents as verified by product use. Advertisements also must not contain any visual representation or description of situations where security is not respected, unless justified. Particular caution must be exercised in the case of advertising directed at children, adolescents, the elderly, or the disabled. Non-compliance with these provisions is subject to a maximum fine up to €44,891.81 and other sanctions, such as the seizure of objects, the cancellation of benefits granted by public entities, and temporary prohibition, up to a 14 Directive 2001/95/EC of the European Parliament and of the Council of 3 December 2001 on general product safety, OJ 2002 L 001/4. 15 Approved by Decree-Law Number 330/90 of 23 October, as amended.
- 339. PORTUGAL POR-7 maximum of two years, from conducting advertising business, and similar penalties. Reasonable Use The law stipulates that another factor that should be taken into account when determining whether a product is defective is the use to which one may reasonably expect the product to be put. The concept of reasonable use is wider than that of a product’s normal use. Any manufacturer must therefore carefully anticipate any reasonable or socially acceptable uses;16 otherwise, he may be held liable for any damage caused. The concept of reasonable or socially accepted use does not cover any use which may be deemed abusive according to the circumstances. On the other hand, if a product is not safe in terms of misuse that may be reasonably expected, the manufacturer has a duty to warn consumers about it.17 Some authors stress that the concept of defect used by the Product Liability Act must be understood on an objective basis (that is, with regard to the general public and consumers, the ordinary members of the community) and not with reference to a specific person.18 Entry into Circulation When determining whether or not a product is defective, the relevant moment must be that of the product’s appearance in the market, which is the moment it was put into circulation. This means that there is no liability on the manufacturer’s part before the product is put into circulation. Portuguese law does not provide for a definition of when a product is deemed to have been put into circulation, and it is generally accepted that this moment will correspond to the moment when the manufacturer willingly delivers the product to any third party. Third parties, in this sense, are not those which may have been entrusted by the manufacturer with any late manufacturing step, such as testing, controlling, and labeling. Difficulties may be raised by special circumstances, such as when, prior to formally being put on the market, a product is tested by consumers (eg, testing the taste of a new soft drink). Most important, a product’s safety has to be ascertained with reference to a specific moment (the moment it was put into circulation) and with recourse to 16 J. Calvão da Silva, Responsabilidade Civil do Produtor (Livraria Almedina, Coimbra, 1990), at p. 635. 17 J. Calvão da Silva, Responsabilidade Civil do Produtor (Livraria Almedina, Coimbra, 1990), at p. 643, no. 2. 18 For example, J. Calvão da Silva, Responsabilidade Civil do Produtor (Livraria Almedina, Coimbra, 1990), at pp. 635–636; M. Afonso and M. Variz, Da Responsabilidade Civil Decorrente de Produtos Defeituosos (Portugal, 1991), at p. 36.
- 340. POR-8 INTERNATIONAL PRODUCT LIABILITY the safety criteria which were valid at that time and not those accepted at any later stage. Furthermore, Article 4(2) of the Product Liability Act provides for a limitation on the concept of defective product, stating that ‘a product shall not be deemed defective for the sole reason that a more perfect product is subsequently put into circulation’. This means that a product has to be safe (perfect) when it enters the market, it being irrelevant that a safer product is subsequently put into circulation by the same manufacturer or by another manufacturer. A different, although related, issue is the liability for the so-called risks of development. Article 5(3) of the Product Liability Act states that the manufacturer will not be held liable if he proves ‘that the state of the scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of the defect to be detected’. If the product was not safe when it entered the market, but the manufacturer could not have known this at the time, and it is then deemed unsafe according to subsequent safety criteria, then, as foreseen in the text, the product is deemed safe when put into circulation and the manufacturer will not be held liable. Duty of Information Although there are no specific provisions in the Product Liability Act for the obligation to warn or recall defective products after they have been put into circulation, some authors seem to include such an obligation in a broader duty of information, the breach of which would result in a defective warning, as covered by the definition of defect in Article 4 of the Product Liability Act.19 In this respect, it is important to refer to Decree-Law Number 69/2005, transposing the Product Safety Directive, which provided for general rules on the consumers’ right to the safety of products and services, pursuant to Article 60(1) of the Portuguese Constitution and of Article 4 of the Consumer Protection Act. Under the provisions of Decree-Law Number 69/2005, the supply of products or services that may pose a danger to the physical safety or health of consumers when used under normal or foreseeable conditions that should have been considered by manufacturers, importers, or suppliers are prohibited. However, there is a presumption that the product or service is not dangerous to the physical safety or health of consumers when its characteristics correspond to those determined by law or in accordance with Portuguese quality norms. In this 19 J. Calvão da Silva, Responsabilidade Civil do Produtor (Livraria Almedina, Coimbra, 1990), at pp. 661–662.
- 341. PORTUGAL POR-9 context, Article 3 of Decree-Law Number 69/2005 defines a ‘safe product’ as a product that: ‘. . . in normal, reasonable, or foreseen use, including its duration, does not present any risk or only the minimum risks compatible with its use, a risk considered consistent with a high level of health protection and consumer safety, taking into account, in particular: (i) the characteristics of the product, including its components; (ii) the production, packaging, labeling, and instructions for assembly, use, storage, and disposal, as well as any warnings or other product information; (iii) the effect on other products, where joint use is foreseeable; (iv) the consumer categories at risk when using the product, especially children and elderly people.’ A special agency, the Commission for the Protection of Consumer Goods and Services (Comissão para a Segurança de Servicos e Bens de Consumo), was created with the purpose of, among other things, monitoring products and services which may be dangerous in the light of these rules. The manufacturer, importer, or supplier of products or services that are deemed dangerous under the provisions of Decree-Law Number 69/2005 will be subject to a fine up to €44,890, with possible accrued penalties. These penalties include the publicity of the punishment at the expense of the agent, the loss of objects belonging to the agent, and the prohibition from performing activities whose exercise depends on a public authority’s approval. Deprivation measures under the accrued penalties include deprivation of the right to grants or benefits granted by public entities; deprivation of the right to participate in fairs or markets; deprivation of the right to participate in auctions or tenders with the objective of being awarded a public work, the supply of goods or services, the provision of public services, and the awarding of licenses and permits; and the closure of the establishment and the suspension of licenses and permits. Defenses Available to the Manufacturer Article 5 of the Product Liability Act provides for several defenses available to the manufacturer. A manufacturer who proves that he did not put the defective product into circulation will not be held liable. The manufacturer will not be held liable if he proves that, having regard to all relevant circumstances, it is reasonable to admit that the product was not defective at the time it was put into circulation. Another defense available to the manufacturer is if he proves that the product was not manufactured by him for
- 342. POR-10 INTERNATIONAL PRODUCT LIABILITY sale or any other form of distribution having an economic purpose or was not manufactured or distributed by him in the course of his business. The manufacturer will not be held liable if he proves that the product’s defect is due to or caused by compliance with mandatory provisions issued by public authorities. A manufacturer who proves that the state of the scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of the defect to be detected (state-of-the-art defense), will not be held liable. In the case of a component (including raw materials), its manufacturer will not be held liable if he proves that the defect is attributable to the design of the product in which it has been fitted or to the instructions provided by the manufacturer of the end product. Another defense available to the manufacturer is provided for under Article 7(1) of the Product Liability Act and is related to the injured person’s fault in having contributed to the damage. Article 7(1) states: ‘If the fault of the injured person has contributed to the damage, the court may, in the light of all the circumstances, reduce or disallow the payment of an indemnity’. A defense of contributory fault, encompassing the concurrence of risk and negligence, is clearly an innovation in the Portuguese legal system.20 This defense is, however, not available if the injured person, although having contributed to the damage caused by the defective product, was not guilty of negligence or gross negligence. Should there have been such a contributory fault on the part of the injured person, the court may, according to circumstances which must be carefully weighed, either determine full indemnification of the damage (if there was only slight or ordinary contributory negligence) or reduce or even disallow payment of an indemnity to the injured person (if there was gross contributory negligence). A different situation arises when a person has assumed the risk of using the product despite having been or having been made aware of its defectiveness; in this case, the manufacturer should not be held liable. The contributory fault defense is only available to the manufacturer if is a fault on the part of the injured person himself. If the damage was caused by the defective product and a third party’s (and not the injured person’s) fault, there will be no reduction of the manufacturer’s liability. Although not mentioned in the Product Liability Act, it is currently understood that the force majeure defense also is available to a manufacturer of defective products and may reduce or exclude his liability. The manufacturer is otherwise prevented from stipulating any limitation to his liability, even with the injured person’s consent. According to Article 10 of the Product Liability Act, any such 20 Calvão da Silva, Responsabilidade Civil do Produtor (Livraria Almedina, Coimbra, 1990), at p. 731, no. 1.
- 343. PORTUGAL POR-11 stipulation will be deemed not to have been written (ie, not to have been made or agreed upon) and therefore such stipulations may not be relied on by the manufacturer as a defense against liability toward the injured person. Concept of Manufacturer In General The concept of manufacturer used by the Product Liability Act is very broad, as is mentioned expressly in the preamble to the Act. According to Article 2 of the Product Liability Act, a ‘manufacturer’ means the producer of the finished product, of a component part, or of any raw material (the ‘effective manufacturer’), as well as any other person who holds itself out as manufacturer by putting its name, trade mark, or any other distinguishing feature on the product (the ‘apparent manufacturer’). In addition, certain categories of importers and suppliers are deemed manufacturers (‘presumptive manufacturers’) for the purposes of the Product Liability Act. Effective Manufacturer The notion of ‘manufacturer’ covers a broader category than the maker of a product and includes the entrepreneur who was responsible for the making of the product, of a component part, or of any raw materials used in the product. Pursuant to Article 6(1) of the Product Liability Act, if there is a defect in a product caused by a defect in a component part or due to the poor quality of the raw material, then the producer of the component parts or the raw material will be held jointly and severally liable for damages, along with the manufacturer of the finished product. According to one author,21 the wide concept of manufacturer envisaged by the Product Liability Act includes the assembler, but not the know-how licensor, who cannot be held liable with respect to the person injured by a defective product manufactured by the licensee under the know-how license agreement. Only the licensee may be held liable as the manufacturer, despite the possibility of him bringing a claim against the licensor upon having indemnified the person injured by the defective product. The same provision is applicable to franchisors and franchisees: the franchisor also is not liable to the victim for defective products made by the franchisee. However, both the franchisor and the licensor could be held liable as manufacturers if the defective products are put in the market bearing their trade mark and without referring to the franchisee or the licensee, the real producer. In this case, the franchisor or the licensor will be deemed apparent manufacturers. 21 J. Calvão da Silva, Responsabilidade Civil do Produtor (Livraria Almedina, Coimbra, 1990), at pp. 547–548.
- 344. POR-12 INTERNATIONAL PRODUCT LIABILITY A maker of component parts and raw materials will be held liable as manufacturer together with the maker of the finished product if the parts or material are defective. Makers and suppliers of perfect component parts (parts which were not defective) which are incorporated into a defective product are not held liable. Apparent Manufacturer The concept of apparent manufacturer includes any person other than the effective manufacturer who presents himself as the manufacturer by putting his name, trade mark, or any other distinguishing feature on the product. This concept aims to cover the large distributors and wholesalers who sell, under their own name or trade mark, products made by anonymous manufacturers. If the effective manufacturer is identified as such, the concept of apparent manufacturer will not be applicable. Should there be damage caused by defective products manufactured by an anonymous manufacturer but carrying the name, trade mark, or other distinguishing feature of the apparent manufacturer, the latter will be held liable jointly and severally with the effective manufacturer. Presumptive Manufacturer A presumptive manufacturer is any person who, within the EC and in the course of his business, imports from abroad products for sale, hire, leasing, or any other form of distribution; and any supplier of a product which was manufactured or imported into the EC by an unidentified person, unless the supplier, after having been notified in writing, informs the injured person within three months of the identity of either the manufacturer or the importer, or of a preceding supplier. This information also must be given in writing. Article 2(2) of the Product Liability Act foresees two separate cases where a person is presumed to be a product’s manufacturer. The first case deals with a person who imports into the EC a defective product (or component part or raw material) made in a third country;22 in this case, the EC importer will be liable for damage caused by the defective product he has imported, irrespective of the effective manufacturer being known (in which case, the parties will be jointly and severally liable for the damages). The importer of a defective product from another EC country (either a product made in the EC or previously imported from a third country by an EC importer) is not envisaged in Article 2(2)(a) of the Product Liability Act. On the other hand, even an EC importer will only be held liable if the import was made in the course of his business and the product was imported for sale, hire, leasing, or 22 Or made in the EC but subsequently exported to a third country, as pointed out in J. Calvão da Silva, Responsabilidade Civil do Produtor (Livraria Almedina, Coimbra, 1990), at p. 554, no. 1, and pp. 556–557.
- 345. PORTUGAL POR-13 any other form of distribution, such as franchising. If a product was not imported with the aim of subsequently being distributed, then the importer will not be presumed a manufacturer for the purposes of the Product Liability Act, even if he uses the product in his business. The second case where a person is presumed to be a product’s manufacturer involves supplying a product which was manufactured or imported into the EC by an unidentified person. In this case, the supplier will himself be held liable as if he were the effective manufacturer, unless he informs the injured person within three months about the identity of either the manufacturer or the importer, or of a preceding supplier, after having been notified to do so. It is, however, immaterial whether or not the injured person succeeds in claiming damages from the person so identified by the supplier. In order to be held liable, the supplier must have been notified in writing by the injured person to provide information on the identity of the anonymous manufacturer, or the importer, or of a previous supplier, and he must have failed to provide such information within three months from the date of receipt of the notification. The law does not specify the contents of the notification to the supplier, which should, however, include all relevant items so as to enable the supplier to know which product is at stake, including the identification of the product and the place and time of its acquisition. In addition, in the case of a product manufactured outside the EC, if the effective manufacturer is indicated but its importer into the EC is not, the supplier of the product may be notified to provide the identity of the importer and he will be held liable for the damage suffered if he fails to do so. The supplier may, in any event, choose to indicate the identity of any preceding supplier (not necessarily his own direct supplier) instead of that of the manufacturer or the importer. Should this be the case, then the injured person will be required to notify that other supplier in order to get the required information, and so on, down the chain. Damages and Remedies Only damage which has been caused by defects in products is covered by the Product Liability Act, not the matter of causation. The provisions in the general law are applicable to causation, particularly Article 563 of the Civil Code, which states that ‘[t]he obligation to indemnify shall only exist in respect of those damages that the injured party would probably not have suffered should the injury not have taken place’. The injured person bears the burden to prove the damage, the defect in the product, and that the defect was the relevant cause of the damage. This must be done according to the general rules on onus probandi contained in Article 342 of the Civil Code.
- 346. POR-14 INTERNATIONAL PRODUCT LIABILITY According to Article 8 of the Product Liability Act, the recoverable damages in case of product liability are limited to those related to death or personal injuries and damage to any item of property other than the defective product itself. Death or Personal Injuries In case of death or personal injury, the recoverable damages include pecuniary damages as well as damages for pain and suffering, provided that the court finds such pain and suffering to be ‘serious’ and ‘worthy of legal protection’ in accordance with the provision of Article 496 of the Civil Code. The Civil Code also determines that the recoverable amount in respect of pain and suffering will be fixed by the court with reference to equity and having regard to all relevant circumstances, including the degree of fault and the economic situation of both the liable and the injured persons. Damage caused by death or personal injuries or damage to property other than the defective product will be compensated under the rules of the Product Liability Act, provided the damage exceeds the amount of €500 and as long as the item of property is one intended for private use or private consumption. Damage to Property In respect of damage to property, which includes both moveable and real property, recoverable damages are limited to those caused to property of a type ordinarily intended for private use or consumption and that has mainly been used in such way by the injured person. The ‘private use’ criterion may, in certain cases, be of limited utility, especially in respect of items of property normally used for both private and professional purposes. In any event, the injured person will bear the burden of proving the prevalently private use of such items of property. There is no maximum amount of damages recoverable for damage to property. Finally, damages for the defective product itself are not recoverable under the Product Liability Act, despite the possibility of claiming for damage to the product on the grounds of contractual liability or liability in tort in accordance with the prevailing provisions of general law, as is permitted by Article 13 of the Product Liability Act and under the provisions of Decree-Law Number 67/2003 (as amended by Decree-Law Number 84/2008).23 23 Decree-Law Number 84/2008 amended the Consumer Protection Act to implement Directive 1999/44/EC of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees, OJ 1999 L 171/12.
- 347. PORTUGAL POR-15 Limitation Period and Lapse of Rights Statute of Limitations Article 11 of the Product Liability Act provides for a three-year limitation period (prazo de prescrição) for the right to recover damages, commencing from the date the injured party became aware, or should have become aware, of the damage, the product’s defect, and the identity of the manufacturer. However, under Article 12 of the Product Liability Act, the right to recover damages lapses (caducidade) 10 years from the date the product was put into circulation, unless the relevant claim has been presented in court by the injured party within this period. Commercial Responsibility for the Product Under Article 2 of Decree-Law Number 67/2003 (as amended by Decree-Law Number 84/2008), the seller is required to comply with the sale and purchase agreement in respect of delivery of goods. According to Articles 6 and 7 of Decree-Law Number 67/2003, in case of non-conformity, the consumer will be entitled to repair or replacement of the product or to an appropriate price reduction or termination of the contract. This right may be enforced directly with the manufacturer, who may only oppose the claim based on the following grounds: • The defect results solely from the seller’s statements about the product and its use; • The product was not placed on the market; • Given the circumstances, the defect did not exist when the producer put the product into circulation; • The producer did not produce the goods for sale or for any other form of distribution with the purpose of earning profits or within the scope of its business activity; and • More than 10 years have passed from the moment when the product was put into circulation. Conclusion Product liability in Portugal is specifically governed by the Product Liability Act, which transposed the Product Liability Directive into Portuguese law. Certain aspects that give rise to product liability are governed by provisions of the Civil Code and by the Consumer Protection Act. Additionally, Decree-Law Number 67/2003, as amended, applies to contracts for sale of consumer goods, including repair and replacement of defective products.
- 348. POR-16 INTERNATIONAL PRODUCT LIABILITY Strict liability is imposed on the manufacturer for damage caused by defective products, though there are certain defenses available to reduce or exempt liability. Strict liability requires only that the product was put into circulation, that there was damage or injury, and that the defective product caused the damage or injury. When the defect may be attributed to others, such as the producer of components or raw materials, the liability may be joint and several. The Product Liability Act provides that damages in case of product liability are limited to those related to death or personal injuries and damage to any item of property other than the defective product itself. The Consumer Protection Act sets forth provisions for the right to recovery of damages, while the Civil Code governs contractual liability and liability in tort.
- 349. Romania Introduction .......................................................................................... ROM-1 Traditional Sources of Product Liability .............................................. ROM-1 Tort Liability.......................................................................... ROM-1 Contractual Liability .............................................................. ROM-2 Product Liability under Consumer Law ............................................... ROM-3 In General .............................................................................. ROM-3 Products Subject to Special Liability ..................................... ROM-4 Concept of Defect .................................................................. ROM-5 Prudence Obligation as to Defective Products ....................... ROM-6 Defenses Available to Producer ............................................. ROM-6 Proof of Causation ................................................................. ROM-9 Subjects of Product Liability ................................................. ROM-10 Recoverable Damage under Product Liability Statutes ......... ROM-11 Conventional Alteration of Product Liability ........................ ROM-12 Statute of Limitations ............................................................ ROM-12 Transfer of Product Liability to Corporate Successors ........................ ROM-13 Insurance Policies and Product Liability .............................................. ROM-13 Court Proceedings in Product Liability Litigation ............................... ROM-14 Frequency .............................................................................. ROM-14 Variable Compensation.......................................................... ROM-14 Legal Assistance .................................................................... ROM-15 Applicable Law...................................................................... ROM-15 Conclusion ........................................................................................... ROM-15 (Release 1 – 2012)
- 351. Romania Horia Ispas Ţuca Zbârcea & Asociaţii Bucharest, Romania Introduction Product liability emerged as a stand-alone branch of law in Romania rather recently, during the last few decades. However, it is essentially grounded on “classical” civil law, which has acknowledged and regulated fundamental principles such as tort liability and contractual liability for more than a century. Product liability is thus based on the traditional civil law under the New Civil Code1 and the special statutes regulating product liability. The major laws establishing the relevant legal framework in this field are: (a) Law Number 296/2004 on the Consumption Code, as amended (“Consumption Code”);2 (b) Law Number 240/2004 on producers’ liability for damages caused by defective products (“Law Number 240/2004”);3 and (c) Government Ordinance Number 21/1992 on consumer protection, as amended (“GO Number 21/1992”).4 The Consumption Code represents the general statutory framework regulating consumers’ protection, including product liability, while Law Number 240/2004 and GO Number 21/1992 provide for more specialized rules regarding the terms and circumstances for product liability. The main rules governing product liability are currently harmonized with the European Union (EU) regulations. Traditional Sources of Product Liability Tort Liability Article 1349 of the New Civil Code provides for the principle of integral reparation of damages caused to a third party due to willful or negligent faulty 1 Law Number 287/2009 on the Civil Code was republished in the Official Gazette of Romania, Part I, Number 505 of 15 July 2011 (“New Civil Code”) and entered into force on 1 October 2011. It is the product of legal reforms undertaken in the past couple decades where the outdated statutory provisions of the old Civil Code (adopted in 1864) were repealed. 2 Republished in the Official Gazette of Romania, Part I, Number 224 of 24 March 2008. 3 Republished in the Official Gazette of Romania, Part I, Number 313 of 22 April 2008. 4 Republished in the Official Gazette of Romania, Part I, Number 208 of 28 March 2007. (Release 1 – 2012)
- 352. ROM-2 INTERNATIONAL PRODUCT LIABILITY actions or inactions. A faulty behavior is assessed in relation to the objective standard of bonus pater familias, which is the standard of care of a diligent and prudent person. Prior to the New Civil Code, the sources of tort liability were found in Articles 998 and 999 of the Civil Code. However, the provisions of the former regulations on tort liability were broadly the same as that of new ones. When seeking reparation for damages under the general principles of tort law, the following elements have to be proven: • The damage; • The faulty act (ie, the defect of the product); • The causal nexus between the damage and the defect of the product; and • The fault of the seller. Generally, the fault of the seller is the most difficult element to prove, as sellers are seldom also the manufacturers of the product. This major shortcoming was alleviated by the integration into the legal framework of EU principles of product liability. Contractual Liability Under the civil law, contractual liability applies to claims arising (a) between parties to a contract that has been validly concluded and (b) in connection with the non-performance or improper performance of the parties’ obligations under a given contract. In a sale contract, only the purchaser may enforce the contractual liability of the seller for (a) hidden defects of the purchased good,5 (b) lack of the agreed qualities of the purchased product,6 (c) and the malfunctioning of the purchased product within a period of time determined contractually or by special laws.7 The occurrence of the first two cases entitles the purchaser to request from the seller the following: • Removal of the defects by the seller or for his account; • Replacement of the purchased product with another similar product; • Proportionate reduction of the price; and • Termination of the agreement. Upon the seller’s request, the court, assessing the level of the defect and the scope for which the agreement was concluded, may impose any other measure 5 New Civil Code, arts 1.707 et seq. 6 New Civil Code, art 1.714. 7 New Civil Code, art 1.716. (Release 1 – 2012)
- 353. ROMANIA ROM-3 than that requested by the purchaser, to the extent that such measure is one of those available to the purchaser. Under Article 1712 of the New Civil Code, if the seller was aware of the existence of the defects or the nonconformity when the agreement was concluded, he also will cover the entire damage caused to the purchaser. As regards liability for the good operation of the purchased product, Article 1716 of the New Civil Code provides that the seller should repair the product within 15 days from the date the purchaser requested for such repair, or within the term provided by the law or contract concluded by the parties. The seller should replace the product if he cannot repair the product or if the repair exceeds the period necessary for such. If the seller fails to abide by the obligation to replace the defective product, the purchaser may request reimbursement of the paid price, subject to the return of the purchased product to the seller. The major drawback of contractual liability as regulated by the New Civil Code is that it may be sought only by the parties to the agreement, thus, in principle, preventing third parties from having a redress against the seller of a defective product for prejudice incurred. However, such limitation applies only to agreements concluded with the purchaser deemed as “non-consumer”. Article 1177 of the New Civil Code provides that contracts concluded with consumers are subject to specific norms regulating consumer protection and product liability, which may be supplemented by the general statutory rules of civil law. Product Liability under Consumer Law In General Traditional statutory sources regulating liability for defective products contain inherent disadvantages in the protection of the buyer, as general civil law naturally needs to ensure a balanced allocation of rights and obligations between the seller and the buyer. In contrast, contracts concluded with a special category of buyers (ie, end- consumers) require special treatment. As consumers are non-professional individuals legally assumed as having limited knowledge and experience compared to the manufacturer or seller, a special legal framework offers customized tools aimed at easing the exercise of consumer rights and triggers the liability of manufacturers for defective products. In this regard, Article 3 of Law Number 240/2004 holds the producer liable for present and future damages caused by the defects of his product. Thus, the person incurring the damage caused by a defective product only needs to prove the damage, defect of the product, and causal nexus between the damage and the (Release 1 – 2012)
- 354. ROM-4 INTERNATIONAL PRODUCT LIABILITY defect, but not the fault of the seller. The “traditional” fault-based liability is thus replaced by the seller’s strict liability (ie, liability without any proof of specific negligent acts or omissions). Even prior to the implementation of the EU rules on product liability, specific laws (ie, GO Number 21/1992) already regulated the strict liability of the seller or producer. However, jurisprudence only gradually accepted such shift of perspective and continued to apply the general principles of tort liability set forth by the Civil Code.8 Currently, Article 1349(4) of the New Civil Code specifically makes reference to laws on consumer protection in what concerns liability for the damage caused by defective products, thus specifically imposing the full application of the objective liability principle. Still, the general statutory rules of the New Civil Code will apply whenever the special provisions of consumer law do not provide a solution for a specific matter. Products Subject to Special Liability According to Article 2(1)(b) of Law Number 240/2004, the concept of product means “any movable asset, even though it is incorporated into another asset whether movable or immovable; product also means electrical power”. Thus, the scope of the law includes only movable assets, whether processed products, raw materials, or an asset incorporated into another. Considering that the law does not distinguish as to the type of movable assets, legal doctrine asserts that the category of “products” also should include goods such as medicines, parts of the human body (eg, organs for transplants), or even products of the human body (eg, blood, male or female reproductive cells).9 Legal scholars do not have a unanimous view on whether the notion of “products” also should include intangible assets. It may be inferred that, since the law only included electrical energy among the notion of “products”, it should be regarded as an explicit derogation, and any other intangible movable asset should be excluded from the category of products. A different and (probably) correct opinion posits that even intangible movable assets (eg, software) should be included in the category of products in the meaning of Law Number 240/2004 as they also may cause deaths, harm corporal integrity or health, or generate pecuniary damages. 8 Decision Number 548/R/2004 of Cluj Tribunal, quoted in 6/2005 Pandectele Române (2005), at p. 127, where the court retained as grounds of producer’s liability the provisions of Articles 998 and 999 of the Civil Code, although the claimant sought the liability of the producer based on the provisions of G.O. Number 21/1992. 9 Chirică, Treatise of Civil Law, Special Contracts, I Volume, Sale and Exchange (2008), at p. 443. (Release 1 – 2012)
- 355. ROMANIA ROM-5 Concept of Defect The legal framework on product liability transposed almost identically the concept of “product with defect” as regulated under Directive 85/374/EEC (“Product Liability Directive”).10 According to Article 2(1)(d) of Law Number 240/2004, a product with defect is one which does not provide the safety which an individual is entitled to expect, by taking in consideration all circumstances, including (a) its manner of presentation, (b) any of its reasonable utilization, and (c) the date it was put into circulation. Article 36 of the Consumption Code prohibits putting into circulation products which are not safe. Thus, the concept of defect under the consumer protection law should not necessarily render the product unsuitable for use, as is the case under civil law. The concept of defect is assessed by reference to the general and objective obligation not to put into circulation products which may affect public safety and assets. The “defect” mentioned by law refers to any deficiencies of the product, such as a manufacturing defect, design defect, or simply that the product does not offer the security which an individual would reasonably expect, by taking into consideration the foreseeable and normal utilization of the product. A simple occurrence of the defect is thus a breach of the security obligation in itself, which may trigger the liability of the producer. However, Article 2(2) of Law Number 240/2004 provides that the product will not be deemed defective for the sole reason that a similar improved product has been placed on the market. Thus, the existence on the market of a similar but better product will not constitute sufficient grounds for triggering producers’ liability. Instead, the prejudiced consumer will have to apply the criteria in Article 2(1)(d) of Law Number 240/2004 when seeking to enforce the product liability of the producer. The concept of “defect” is not equivalent with that of “dangerous”. There may be certain products which are dangerous per se (eg, rifle, knife), but this does not mean that such products are defective should the consumer be properly informed of the associated dangers. This is because the product will be deemed defective only if it does not provide the safety which an individual is entitled to expect. Hence, a consumer who was informed of the associated risks is in a position to knowingly decide whether to use the product. If he chooses to use the product, it may be inferred that he undertook the risk that dangerous events may occur during such use, and the producer may not be accused of putting a defective product on the market. 10 OJ 1985 L 210/29-33. (Release 1 – 2012)
- 356. ROM-6 INTERNATIONAL PRODUCT LIABILITY Prudence Obligation as to Defective Products Warning or Information One of the elements of the producers’ obligation to launch only safe products on the market is the related obligation to adequately inform consumers of the risks related to the use of such products, as required by Article 36(2) of the Consumption Code. In addition, Article 15 of the Consumption Code requires sellers or producers to inform competent authorities of any newly identified danger related to the products and of which they were not aware upon the date of the products’ placement on the market, and to make public such information. Considering that the supply of complete product information is essential for the assessment of a product’s safety, failure to comply with such obligation may give rise to the producer’s liability, as the product may be regarded as dangerous or defective. However, the injured person bears the burden of proving the causal nexus between the lack of or errors in the instructions or warnings provided by the producer and the damage actually incurred. Obligation to Recall The obligation to recall defective products is regulated by the Consumption Code and Law Number 245/2004 on the general safety of products (“Law Number 245/2004”). Under the Consumption Code, producers and/or suppliers are required to recall defective products from the market, to replace them, or to repair them, as the case may be. If such measures cannot be taken within a reasonable period of time, the producers have to adequately indemnify the consumers. Law Number 245/2004 establishes stricter obligations as regards recall of “dangerous products”, defined as products which, under normal or predictable conditions of use, present a high degree of risk for the health or safety of the consumers. In the case of dangerous products, the producer does not have the option to grant compensations to consumers or to repair them, but he is at all times required to recall them from the market. Besides the recall at the initiative of the producer of the dangerous product, a recall operation also may be imposed on the producer by the Autoritatea Naţională pentru Protecţia Consumatorilor (National Authority for Consumer Protection). Defenses Available to Producer In General Articles 7 and 8 of Law Number 240/2004 provide for the defenses that may be presented by the producer to eliminate or reduce his liability. Other types of (Release 1 – 2012)
- 357. ROMANIA ROM-7 defenses not specifically listed in Law Number 240/2004 also may be used by the producer in his defense. Product not Put on Market by Producer As per Article 7(1)(a) of Law Number 240/2004, the producer of a defective product may be exempt from liability if he can prove that he was not the person who released the product on the market. Although the legal framework does not clarify the meaning of “release of the product on the market”, legal scholars are of the opinion that in order to trigger the producer’s liability, a product should be willingly launched on the market. Thus, the producer will not bear the responsibility for the defect of products released on the market where such products were stolen or were seized by a public authority. Defect Occurred after Product Was Released on Market Under Article 7(1)(b) of Law Number 240/2004, the producer will not be held liable if the defect which caused the damage did not exist at the moment the product was put on the market, or if the defect occurred afterwards due to causes for which the producer bears no responsibility. The defect is thus presumed to exist at the date the product was released on the market. However, the producer can overthrow this presumption by proving that the defect actually did not exist at the date it was put on the market or that it occurred afterwards. Product Not Manufactured for Sale or Distribution Under Article 7(1)(c) of Law Number 240/2004, the producer will be exempt from liability when “the product has not been manufactured for sale or distribution for lucrative purposes and such product has not been manufactured or distributed in the exercise of the producer’s business operations”. Thus, the producer may be held liable only for products destined to be placed on the market, and not for those destined for his own consumption or manufactured occasionally. The liability will apply only to professionals and only with respect to their professional activity. Defect Results from Observance of Mandatory Regulatory Provisions Under Article 7(1)(d) of Law Number 240/2004, the producer will be exempt from liability if the defect is the result of the observance of certain mandatory conditions that have been imposed on the basis of regulations issued by the relevant authorities. This exemption will operate only when the imperative regulation confines the producer’s freedom of decision as to manufacturing the product. (Release 1 – 2012)
- 358. ROM-8 INTERNATIONAL PRODUCT LIABILITY State of Scientific and Technical Knowledge Article 7(1)(e) of Law Number 240/2004 provides that the level of scientific and technical knowledge existing at the time the product was released on the market, and which prevented the producer from discovering the defect, is a defense that can be asserted by the producer to be exonerated from liability. However, the producer should prove that the defect was impossible to be discovered at the date of the product’s release on the market. The concept of the state of scientific and technical knowledge (“state of art”) was clarified by the European Court of Justice in that the notion is “not specifically directed at the practices and safety standards in use in the industrial sector in which the producer is operating, but, unreservedly, at the state of scientific and technical knowledge, including the most advanced level of such knowledge, at the time when the product in question was put into circulation” subject to the fact that “the scientific and technical knowledge must have been accessible to at the time when the product in question was put into circulation”.11 Defect Caused by Consumers’ Actions Under Article 7(1)(f) of Law Number 240/2004, the producer of a defective product may be exempt from liability if he can prove that the defect is the result of the consumer’s failure to observe the instructions provided as part of the technical documentation that accompany the product, the existence of which need to be proved on the basis of a technical survey. In addition, Article 8 provides that the producer’s liability will be reduced pro rata if the damage is caused both by the defect of the product and the faulty behavior of the injured consumer or of another person the deeds of which the injured consumer is held liable. Defect Caused by Third Party Under Article 4 of Law Number 240/2004, the producer cannot assert as a defense the fact that the fault or defect was due to the actions of a third party. The defendant thus faces full liability for the entire damage vis-à-vis the claimant. However, the producer may seek an indemnity from the third party who contributed to the damage, even within the same legal proceedings. The legal framework allows the defendant to file, within the same proceeding initiated by the claimant, a so-called “request for warranty” (cerere de chemare în garanţie). This is a request addressed by the defendant to the court to also call 11 Judgment of 29 May 1997, Case C-300/995, at: http://curia.europa.eu/juris/showPdf.jsf?text=&docid=100708&pageIndex=0&doclan g=EN&mode=doc&dir=&occ=first&part=1&cid=212510. (Release 1 – 2012)
- 359. ROMANIA ROM-9 a third party against whom the defendant may seek redress or indemnity, in case the defendant would be required by the court to pay damages to the claimant. Nevertheless, the producer may opt to file a separate lawsuit against such third party. A third-party action also may be filed on the basis of Article 7(2) of Law Number 240/2004, which exempts the producer of components from liability if he proves that the defect was caused by the design of the product into which the component was integrated or by the wrong instructions given by the manufacturer of the product into which the component was integrated. The producer also should prove the external cause which determined the occurrence of the defect. Force Majeure Law Number 240/2004 does not include force majeure among the producer’s defenses, but a significant part of legal doctrine considers force majeure as an exoneration of liability as it represents a fundamental ground for exemption of liability under civil law. Proof of Causation As an application of the Roman law principle probatio incumbit actor (“the claimant has the burden of proof”), the applicable statutory provisions on product liability explicitly state that the person incurring the damage resulting from a defective product bears the burden of proving the damage, the defect of the product, and the causal nexus between the damage incurred and the defect. Although Law Number 240/2004 establishes a relative presumption of defectiveness of the product released on the market, the victim is required to show proof of causation between the defect of the product and the incurred prejudice. Although various tests for the proof of causation have been proposed by legal scholars, case law generally prefers a specific method for verifying the coexistence of (a) the “proximate cause” (cauza necesară), which is considered to be the event in the absence of which the damage would have not occurred, and (b) the conditions which, although not decisive for the occurrence of the damage, nevertheless have favored such occurrence. Thus, as a general rule, both the “necessary cause” and the favoring conditions are taken into account by the courts when establishing the causal nexus and the liability. As a result, the producer of the defective product will be liable irrespective of whether the defect was the necessary cause of the damage or merely a collateral condition which contributed to the occurrence of the damage. (Release 1 – 2012)
- 360. ROM-10 INTERNATIONAL PRODUCT LIABILITY Subjects of Product Liability Beneficiary Under Article 12 of GO Number 21/1992, the consumer has the right to file a legal action against the seller to seek compensation for damages caused by defective products. The term “consumer” includes not only the person who purchased the product from the producer or seller, but also the person who subsequently acquired the product from the initial purchaser (ie, the one who uses or consumes the product), only if such product is normally destined for private consumption. However, Law Number 240/2004 provides that when the damage is related to death, harm to health, or bodily integrity of a person, the liability will operate regardless of whether the victim is a private consumer or a professional. Entities Held Liable Law Number 240/2004 provides that the liability for defective products is borne by the “producer”, which is defined under Article 2(a) thereof as: • The manufacturer of the finished product, raw material, or components of the product; • Any person presenting himself as the producer by putting his name, trade mark, or other distinctive element on the product; • The importer of the product, who will be liable on the same terms as the manufacturer; and • Any supplier, if the producer or importer cannot be identified and the supplier fails to provide the consumer with information necessary for the identification of the manufacturer or importer within a reasonable period of time. The Consumption Code provides for a broader definition of the term “producer”, and additionally includes the following categories of entities: • The economic operator reconditioning the product; • The economic operator or distributor who, in the context of his business, alters the features of the product; • The domestically registered representative of an economic operator headquartered outside Romania; • The economic operator importing products for the purpose of a subsequent sale, lease, or any other form of distribution specific to his business; • The distributor of an imported product, in case the importer is unknown, even if the manufacturer is being mentioned; and • The distributor of the product, if the importer cannot be identified and the distributor fails to inform the injured person within 30 days from his request on the identity of the importer. (Release 1 – 2012)
- 361. ROMANIA ROM-11 It thus follows that product liability will apply only to professionals and not to private individuals. Article 5 of Law Number 240/2004 provides that if two or several entities are held liable, each of them will be liable up to the full amount of the relevant obligation. Romanian scholars analyzed whether such joint liability applies equally to all entities listed in Article 2(a) of Law Number 240/2004, or whether there should be a specific order among them for triggering their liability. In such a case, the joint liability under Article 5 of Law Number 240/2004 will exist only between the same categories (ie, manufacturers, importers, suppliers), as a reasonable interpretation of the relevant law leads to the conclusion that the liability of importers or suppliers is only subsequent, and only if the producer may not be identified.12 Recoverable Damage under Product Liability Statutes In accordance with general statutory provisions, the injured person who seeks indemnity for product liability should prove the damage incurred due to the defective product. In contrast to common law legal systems, Romanian statutory liability provisions only allow the award of damages actually incurred, thus punitive damages may not be awarded. Under Article 2(1)(c) of Law Number 240/2004, only the damage caused by the following is covered: • Death, bodily injury, or health injury, regardless of whether the person was a contracting party; and • Degradation or destruction of an asset other than the defective product, provided that the asset is of a type ordinarily intended for private utilization or consumption, and the value of the damage is not less than the equivalent in RON of EUR 500. Under the law, any damage which occurs as a result of bodily injury, health injury, or physical destruction of an asset will be subject to reparation, regardless of whether the damage is pecuniary or not. If the claim is grounded on contractual liability, the consumer may request compensation for both actual incurred damage (damnum emergens) and loss of benefits (lucrum cessans) from the breach of contract by the seller of the product. 12 Chirică, Treatise of Civil Law, Special Contracts, I Volume, Sale and Exchange (2008), at pp. 441−442. (Release 1 – 2012)
- 362. ROM-12 INTERNATIONAL PRODUCT LIABILITY Legal scholars also have asserted that product liability will cover both direct and indirect damage, but indirect damage will be covered only in case of damage caused by death, bodily injury, or health injury.13 Although the Product Liability Directive allowed EU Member States to set up a threshold for the indemnification to be awarded in product liability, the Romanian lawmaker opted for a traditional treatment of reparation value, without limiting the amount of damages that can be awarded. Conventional Alteration of Product Liability Article 10 of Law Number 240/2004 prohibits the limitation of product liability through conventional waivers. If a limitation or exoneration clause was inserted in an agreement, the nullity of such clause will not affect the entire agreement. However, parties may provide for stricter rules of product liability in the sale agreement. Statute of Limitations The statute of limitation for bringing into court claims for product liability is three years under Law Number 240/2004. This term starts running from the date the claimant knew or should have known of the existence of (a) the damage, (b) the defect, and (c) the identity of the producer. According to scholars, the term will start to lapse from the date when the last of these elements became known or should have been known by the victim. Article 11 of Law Number 240/2004 provides that, in any case, any claim on product liability should be filed within 10 years from the date the producer put the product on the market. After the lapse of this 10-year term, the right to initiate legal proceedings and the right to indemnification will cease. Apart from actions brought in court that are based on special product liability laws, an injured party may bring actions for compensation based on contractual liability under the provisions of civil law. A distinction should thus be made between defects which occurred within the warranty or validity period and those which occurred within the average product life. The consumer may require the seller to remedy defects which occur within the warranty or validity period, to replace the defective product, or to reimburse the purchase price of such defective product. However, the lapse of the warranty period does not exonerate the seller of his liability and he would continue to be liable for latent defects during the entire average life of the product. However, the latent defects would have to be acknowledged by a technical expert. 13 Chirică, Treatise of Civil Law, Special Contracts, I Volume, Sale and Exchange (2008), at pp. 447−448. (Release 1 – 2012)
- 363. ROMANIA ROM-13 Transfer of Product Liability to Corporate Successors The consumers’ law does not regulate the transfer of product liability to corporate successors. However, Companies Law Number 31/1990 regulates the matter of company reorganization via spin-off and/or merger.14 A spin-off and/or merger results in the global transfer of the entire patrimony or the transfer of a portion of the patrimony to the beneficiary company. The patrimony or fraction thereof represents the bundle of rights and obligations binding upon a company. Hence, the corporate successor of a spin-off or merger may acquire the product liability obligation incumbent on the predecessor company, and will thus be held liable for product liability under the same conditions as its predecessor-in-interest. The allocation of liabilities among several corporate successors is provided in the spin-off or merger project (ie, the fundamental corporate document which details the terms and conditions thereof, such as the allocation of shares among shareholders of the involved entities). However, in case the spin-off or merger project does not provide for the distribution of liabilities, the Company Law provides that the corporate successors will be held jointly liable. Insurance Policies and Product Liability Article 9(2) of Law Number 240/2004 provides that insurance companies have rights of redress against producers, in accordance with the law, for the amounts paid to injured persons to ensure that insurance companies receive compensation from the producer for the amount paid in relation to the defective product. Naturally, this provision is not applicable when the beneficiary of the insurance policy is the producer himself. The law allows producers to contract insurance policies covering tort liability for damages caused to third parties. Hence, they may conclude insurance policies which also may cover product liability. Unlike insurance liability for car accidents,15 the value of the damages covered by an insurance policy on product liability is not predetermined, but varies depending on the contractual clauses agreed upon by the producer and the insurance company. 14 Republished in the Official Gazette of Romania, Part I, Number 1066 of 17 November 2004. 15 According to Order Number 14/2011 of the National Insurance Commission, the mandatory insurance policies for liability in case of car accidents may not provide a compensation threshold lower than EUR 1,000,000 in case of physical damage of assets and EUR 5,000,000 in case of damage caused by death or bodily injuries. (Release 1 – 2012)
- 364. ROM-14 INTERNATIONAL PRODUCT LIABILITY Court Proceedings in Product Liability Litigation Frequency Product liability litigation in Romania is not very frequent (although there is an upward trend during the past years). This is primarily due to a relatively low level of awareness of consumers’ rights, and the fact that court proceedings are rather cumbersome and time-consuming (eg, complex cases may take up to two years before a final and enforceable court decision is passed). Consequently, consumers are rather keen on solving disputes amicably, and usually only bring to court cases with significant value. The lengthy procedure for passing a final decision is mainly determined by the fact that civil lawsuits are subject to a three-tier jurisdiction control. As a general rule, a first-instance judgment may be appealed on factual and legal grounds, while decisions passed by appeal courts may subsequently be challenged under a second-appeal procedure (limited to technical and procedural grounds). For product liability claims based on tort or contractual breach of producers under Law Number 240/2004, the first litigation tier is judged by the relevant Lower Courts (judecătorie), if the value of the claim is lower than RON 500,000, and by the relevant Tribunals (tribunal), if the value of the claim exceeds such amount. The decisions of courts of first instance (ie, Lower Courts or Tribunals) can be appealed under the second litigation tier at the relevant Tribunals and Courts of Appeal (curtea de apel), respectively, depending on the court that has ruled in the first instance. Finally, decisions passed by Tribunals or Courts of Appeal within the second litigation tier may be challenged once more in a third litigation tier (recurs) at the Appeal Court or High Court of Justice and Cassation (Înalta Curte de Justiţie şi Casaţie), respectively. Parties may agree on a settlement to end litigation, as provided for under Article 2267 of the New Civil Code. Thus, the parties may ⎯ at any time prior to or during the litigation ⎯ conclude a settlement of their claims regarding an eventual product liability. Due to certain advantages offered by this mechanism (ie, costs and time saving), lawyers very often recommend this path. Variable Compensation The actual amounts awarded by courts of law depend on the actual damage incurred by the victim on a case-by-case scenario, which naturally has to be proven by the claimant. While there is no maximum amount of compensation that may be awarded, Article 2(1)(c)(3) of Law Number 240/2004 establishes a de minimis threshold of EUR 500 for the requested damage. (Release 1 – 2012)
- 365. ROMANIA ROM-15 Legal Assistance It was only recently that law firms started to develop specialized practice in the area of product liability. Large local law firms have developed teams trained in consumer protection. There is no unified practice as to the level and type of lawyer fees. The law allows lawyers to apply hourly or flat fees without setting up a limit. The value of the fees depends only on the complexity of the litigation and the amount of work to be carried out by the lawyer. However, where a person proves that he cannot afford to pay the expenses in connection with the proceedings without jeopardizing his own or his family’s means of subsistence, the court may grant legal aid. A lawyer will be appointed ex officio and will be paid by public funds. In this case, the law provides for a maximum amount to be granted to the lawyer as fees for his legal services. Relevant laws explicitly prohibit a “quota litis pact”, where the entire attorney’s fees constitute a portion of the amount awarded by the court in favor of the client. However, “success fees” consisting of an amount payable in case the litigation is won are allowed. Such success fees can be established only as complementary fees, in addition to the agreed retainer or hourly fees. Applicable Law Since 11 January 2009, the provisions of Regulation (EC) Number 864/2007 of the European Parliament and of the Council on the law applicable to non- contractual obligations (“Rome II Regulation”) became enforceable in Romania. Pursuant to Article 5 of the Rome II Regulation, the applicable laws in case of litigation include: (a) the law of the country where the victim has his habitual residence; (b) the law of the country where the product was acquired; (c) the law of the country where the damage occurred; or (d) the law of the country where the producer is a resident. Thus, whenever a court will be vested with jurisdiction over a product liability claim, it should apply the criteria provided by the Rome II Regulation to find out the applicable law on the merits of the litigation. The parties may not derogate from these rules in order to appoint a law of another country different from those enumerated in the Rome II Regulation. Conclusion As part of the effort to harmonize the local legal framework with EU law, the most important piece of legislation regulating the field of consumer protection is the Consumption Code, which entered into force when Romania joined the EU (ie, 1 January 2007). (Release 1 – 2012)
- 366. ROM-16 INTERNATIONAL PRODUCT LIABILITY The Consumption Code sets forth the main principles and rules regulating legal relationships between consumers and the entity which manufactures, imports, stores, transports, or trades products or parts thereof or provides services. It provides for relevant standards and obligations aimed at ensuring product safety, ensuring proper education and information of consumers, establishing clear and fair pricing policies, and regulating product advertising practices, among others. In addition, Law Number 204/2004 transposes the provisions of the Product Liability Directive and also is a fundamental statute regulating product liability in Romania. (Release 1 – 2012)
- 367. South Africa Introduction ............................................................................................ SA-1 Theories of Manufacturers’ Liability ..................................................... SA-2 Negligence and Wrongfulness ................................................. SA-2 Fraud or Misrepresentation ...................................................... SA-4 Warranty .................................................................................. SA-4 Strict Liability .......................................................................... SA-6 Concept of Defect .................................................................................. SA-7 Definition ................................................................................. SA-7 Defective Manufacture ............................................................ SA-7 Defective Design ..................................................................... SA-7 Defective Marketing ................................................................ SA-7 Obligations to Warn Consumers or Recall Defective Products ............. SA-8 Defenses Available to the Manufacturer ................................................ SA-9 Contributory Fault ................................................................... SA-9 Assumption of Risk ................................................................. SA-10 Product Misuse ........................................................................ SA-10 Comparative Fault ................................................................... SA-10 Defenses to Strict Liability ...................................................... SA-11 Proximate Cause .................................................................................... SA-12 Liability in the Chain of Commerce....................................................... SA-13 Retailers ................................................................................... SA-13 Distributors .............................................................................. SA-13 Producers and Makers of Component Parts, Importers, and Wholesalers ....................................................................... SA-14 Franchisors and Franchisees, Licensors and Licensees ........... SA-14 Remedies ................................................................................................ SA-14 Personal Injury and Death........................................................ SA-14 Punitive Damages .................................................................... SA-15 Emotional Distress ................................................................... SA-15 Pure Economic Loss ................................................................ SA-15 Return or Repair ...................................................................... SA-16 Contractual Disclaimers or Limitations ................................................. SA-17 Common Law .......................................................................... SA-17 Statute ...................................................................................... SA-20 Statute of Limitation .............................................................................. SA-22 Corporate Successor Liability ................................................................ SA-23 (Release 1 – 2012)
- 368. Product Liability Insurance .................................................................... SA-23 Availability and Use of Insurance............................................ SA-23 Nature of General Liability Policies ........................................ SA-23 Usual Extent of Cover ............................................................. SA-23 Usual Exclusions ..................................................................... SA-23 Duties of Insured...................................................................... SA-24 Product Liability Litigation .................................................................... SA-24 Frequency of Litigation ........................................................... SA-24 Attitude of the Courts .............................................................. SA-25 Typical Extent of Damages Awards ........................................ SA-25 Lawyers’ Compensation .......................................................... SA-25 Choice and Application of Law ............................................... SA-26 Conclusion ............................................................................................. SA-27 (Release 1 – 2012)
- 369. South Africa Evert van Eeden Van Eeden Inc Pretoria/Tshwane, South Africa Introduction In the past, issues of manufacturers’ liability in South Africa have been largely confined to liability in a commercial context involving claims against manufacturers by distributors and retailers, as opposed to liability in respect of consumer claims. The basis for manufacturers’ liability consists primarily of negligence liability under the law of delict. Fraud or misrepresentation and warranty law offer limited scope for claims regarding a manufacturer’s liability. With effect from 1 April 2011, a comprehensive strict liability regime was introduced by Section 61 of the Consumer Protection Act.1 The Consumer Protection Act also limits the use of disclaimers in consumer transactions. In terms of the Consumer Protection Act,2 a consumer, in respect of any particular goods or services, means a person to whom those particular goods or services are marketed in the ordinary course of the supplier’s business; a person who has entered into a transaction in the ordinary course of the supplier’s business (except for certain exempt transactions); if the context so requires or permits, a user of those particular goods or a recipient or beneficiary of those particular services, irrespective of whether that user, recipient, or beneficiary was a party to a transaction concerning the supply of those particular goods or services; and a franchisee.3 A ‘transaction’ is defined, in respect of a person acting in the ordinary course of business, as an agreement between or among that person and one or more other persons for the supply or potential supply of any goods or services in exchange for consideration; the supply by that person of any goods to or at the direction of a consumer for consideration; and the performance by or at the direction of that person of any services for or at the direction of a consumer for consideration.4 1 Act Number 68 of 2008. 2 Consumer Protection Act, s 1. 3 As contemplated in the Consumer Protection Act, s 5(6)(b)–(e), and in the definition of ‘transaction’. 4 Consumer Protection Act, s 1. (Release 1 – 2012)
- 370. SA-2 INTERNATIONAL PRODUCT LIABILITY To the extent that the definition of a ‘consumer’ contemplates a person, such a person includes both a natural person and a juristic person. To the extent that a consumer includes a juristic person, it excludes juristic persons whose asset value or annual turnover equals or exceeds the value of ZAR 2,000,000.5 Theories of Manufacturers’ Liability Negligence and Wrongfulness The Supreme Court of Appeal has stressed that the basic point of departure in the law of delict is that ‘everyone has to bear the loss he or she suffers’.6 The principles of Aquilian liability (loss wrongfully inflicted), however, provide an exception to this ‘first principle’.7 Negligent conduct that is manifested in the form of a positive act causing physical damage to the property or person of another is prima facie wrongful.8 In cases of liability for negligent omissions and for negligently caused pure economic loss, wrongfulness depends on the existence of a legal duty not to act negligently.9 The question whether or not such a legal duty is to be imposed is, given the existence of negligence, ‘a matter for judicial determination involving criteria of public or legal policy consistent with constitutional norms’.10 Aquilian liability distinguishes between liability on the basis of intent and liability on the basis of negligence. With regard to negligence, a distinction is made between negligence and gross negligence. Liability for negligence arises ‘if it is foreseen that there is a reasonable possibility of conduct causing harm to an innocent third party, and where there is an omission or failure to take reasonable steps to guard against such occurrence’.11 ‘Gross negligence’ means 5 GN No 294, GG No 34181 of 1 April 2011, whereby the monetary threshold applicable to the size of the juristic person in terms of s 5(2)(b) is determined as ZAR2,000,000.00. 6 Telimatrix (Pty) Ltd t/a Matrix Tracking v Advertising Standards Authority SA, [2006] 1 All SA 6 (SCA). 7 Telimatrix (Pty) Ltd t/a Matrix Tracking v Advertising Standards Authority SA, [2006] 1 All SA 6 (SCA). 8 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240 (SCA) 244. 9 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240 (SCA) 244; Telimatrix (Pty) Ltd t/a Matrix Tracking v Advertising Standards Authority SA, [2006] 1 All SA 6 (SCA) 12; 2006 (1) SA 461 (SCA) 465; Hawekwa Youth Camp v Byrne, 2010 (6) SA 83 (SCA) 91. 10 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240 (SCA) 244. 11 Checkers Supermarket v Esme Lindsay, [2009] 3 All SA 487 (SCA), citing the standard test for negligence in Kruger v Coetzee, 1966 (2) SA 428 (A) 430E−G. For an illustration of a successful claim against a manufacturer based on negligence, see Ciba-Geigy (Edms) Bpk v Lushof Plase (Edms) Bpk en ‘n ander [2002] 2 All SA 525 (A) 540. (Release 1 – 2012)
- 371. SOUTH AFRICA SA-3 conduct which, although falling short of dolus eventualis,12 involves a departure from the standard of a reasonable person to such an extent that it may properly be categorized as extreme.13 In a situation of conscious risk-taking, there must be a complete obtuseness of mind.14 In a situation where there is no conscious risk-taking, there must be a total failure to take care.15 If the risk of harm is foreseen and the person in question acts recklessly or indifferently as to whether or not harm ensues, the conduct will amount to recklessness in the narrow sense (ie, dolus eventualis).16 It is now settled that the negligent manufacture of a defective product which causes physical damage and loss to another is wrongful.17 An employer is vicariously liable for delicts of its employee if three requirements are satisfied: first, there must be an employer-employee relationship at the time when the delict is committed; second, the employee must commit the delict; and, third, the employee must act within the scope of his employment when the delict is committed.18 The liability of an employer for negligence of a subcontractor (independent contractor) is personal and not vicarious.19 In Langley Fox Building Partnership (Pty) Ltd v Brown and others, the Court (per Goldstone AJA, as he then was) 12 Meaning that the wrongdoer, while not desiring a particular result, foresees the possibility that he may cause the result and reconciles himself to this fact; J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at p. 127. 13 Transnet Ltd t/a Portnet v The owners of the Mv ‘Stella Tingas’ and another, [2003] 1 All SA 286 (SCA) 291. 14 Transnet Ltd t/a Portnet v The owners of the Mv ‘Stella Tingas’ and another, [2003] 1 All SA 286 (SCA) 291. 15 Transnet Ltd t/a Portnet v The owners of the Mv ‘Stella Tingas’ and another, [2003] 1 All SA 286 (SCA) 291. 16 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240 (SCA) 290. 17 See Betko Products CC v Grasso (Pty) Ltd [2010] JOL 25246 (WCC), para 23. See also Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA) at 297, citing with approval the following statement by Van der Merwe S and De Jager F; “Products Liability: A Recent Unreported Case” SALJ 83: “…it is submitted that a manufacturer has a general duty to take reasonable steps to ensure that defective products do not reach the market or, if they do, to withdraw them from the market or to take other steps to ensure that no harm ensues from the presence of the product on the market.” In AB Ventures Ltd v Siemens Ltd [2011] JOL 27136 (SCA), the Supreme Court of Appeal conferred an oblique imprimatur on arguments justifying the modern development of “products liability”. 18 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at pp. 366–371; K v Minister of Safety and Security, 2005 (9) BCLR 835 (CC); Minister of Safety and Security v F (592/09) [2011] ZASCA 3 (22 February 2011) (Saflii). 19 Langley Fox Building Partnership (Pty) Ltd v De Valence, [1991] 3 All SA 736, 740- 744; Pienaar v Brown, 2010 (6) SA 365 (SCA) 371. (Release 1 – 2012)
- 372. SA-4 INTERNATIONAL PRODUCT LIABILITY held that in determining whether the employer has incurred a ‘duty of care’, the following questions should be considered: would a reasonable man have foreseen the risk of danger in consequence of the work he employed the contractor to perform? If so, would a reasonable man have taken steps to guard against the danger? If so, were such steps duly taken in the case in question?20 Fraud or Misrepresentation In terms of the common law and provided that the parties have not agreed otherwise, a person who has suffered loss as a result of another’s fraud has an action for damages.21 A purchaser has an action to set aside a contract and to claim restitution or to claim a reduction in the price paid22 if the goods do not comply with representations23 made regarding the goods.24 The representations concerned are confined to material statements made by the seller to the buyer during the negotiations, bearing on the quality of the goods and going beyond mere praise and commendation. In Bayer South Africa (Pty) Ltd v Frost, it was held that, in principle, a negligent misstatement may (depending on the circumstances) found a delictual claim for damages by the person to whom the negligent misstatement was made, when the misstatement had induced such person to enter into a contract with the party who made it.25 Warranty In General In the context of the common law, a defect has been described as an abnormal quality or attribute which destroys or substantially impairs the utility or effectiveness of the goods for the purpose for which the goods have been sold or for which the goods are commonly used.26 In terms of Sections 55 and 56 of the Consumer Protection Act, there is an implied provision in any transaction for the supply of goods to a consumer that 20 Langley Fox Building Partnershjip (Pty) Ltd v De Valence, [1991] 3 All SA 736 (AD) 746. Also relevant is Skead and others v Melco Elevator (South Africa) (Pty) Ltd and another, [2010] 3 All SA 445 (GSJ). 21 Davidson v Bonafide, [1981] 2 All SA 19 (C). 22 R.H. Zulman and G. Kairinos, Norman’s Law of Purchase and Sale in South Africa, 5th ed (LexisNexis, 2005). 23 Statements regarding the presence of good qualities and the absence of specific characteristics; A.J. Kerr, The Law of Sale and Lease, 3rd ed (LexisNexis, 2004), at p. 126. 24 A.J. Kerr, The Law of Sale and Lease, 3rd ed (LexisNexis, 2004), at p. 126. 25 Bayer South Africa (Pty) Ltd v Frost, [1991] 2 All SA 444 (A) 451. 26 Kroonstad Westelike Boere Ko-op Vereniging v Botha, 1964 (3) SA 561 (AD) 571; Holmdene Brickworks v Roberts Construction, 1977 (3) SA 670 (A) 683. (Release 1 – 2012)
- 373. SOUTH AFRICA SA-5 the supplier warrants that the goods are reasonably suitable for the purpose for which they are generally intended, are of good quality, in good working order and free of any defects, will be useable and durable for a reasonable period of time (having regard to the use to which the goods would normally be put), and will comply with prescribed standards. Express Warranty Subject to certain restrictions in the Consumer Protection Act (discussed further in the section ‘Contractual Disclaimers or Limitations’), breach of an express warranty may afford a basis for manufacturers’ liability, depending on the wording of the warranty. Implied Warranty of Merchantability In terms of the law of sale, a purchaser has an action to set aside a contract and to claim restitution or to claim a reduction in the price paid,27 if the goods suffered from any disease or defect.28 A ‘merchant’ who sells goods either of his own manufacture or in relation to which he publicly professes to have attributes of skill and expert knowledge may, in terms of the common law, be liable to the purchaser for consequential damage caused to the purchaser by reason of any latent defect in the goods.29 Once it is established that he falls into one of the specified categories, the law irrebutably attaches this liability to a merchant, unless he has expressly or impliedly contracted out of it. In terms of the Consumer Protection Act, a consumer has a right to receive goods that are of good quality, in good working order, and free of any defects.30 Implied Warranty of Fitness for Purpose In terms of the Consumer Protection Act, a consumer has a right to receive goods that are reasonably suitable for the purposes for which they are generally intended.31 27 A.J. Kerr, The Law of Sale and Lease, 3rd ed (LexisNexis, 2004), at p. 114. 28 A.J. Kerr, The Law of Sale and Lease, 3rd ed (LexisNexis, 2004), at p. 114. In Holmdene Brickworks v Roberts Construction, 1977 (3) SA 670 (A) 683H, a defect in the context of sale is defined as ‘an abnormal quality or attribute which destroys or substantially impairs the utility or effectiveness of the res vendita, for the purpose for which it has been sold or for which it is commonly used’. 29 Holmdene Brickworks v Roberts Construction, 1977 (3) SA 670 (A) 683; Ciba-Geigy (Edms) Bpk v Lushof Plase (Edms) Bpk en ‘n ander, [2002] 2 All SA 525 (A) 540. D & H Piping Systems (Pty) Ltd v Trans Hex Group Ltd and another 2006 (3) SA 593 (SCA); Langeberg Voedsel Bpk v Sarculum 1996 (2) SA 565 (AD). 30 Consumer Protection Act, s 55(2)(b). 31 Consumer Protection Act, s 55(2)(a). (Release 1 – 2012)
- 374. SA-6 INTERNATIONAL PRODUCT LIABILITY Impact on Third Parties As regards liability based on delict, the manufacturer may be directly liable to the victim. The other grounds of liability (ie, fraud and misrepresentation and express and implied warranties) will apply only to the parties to the agreement. Strict Liability Section 61 of the Consumer Protection Act provides for liability of certain parties for harm arising from the supply of any unsafe goods,32 a product failure,33 defect (either manufacturing or design defects)34 or hazard35 in any goods, or inadequate instructions or warnings provided to the consumer pertaining to any hazard arising from or associated with the use of any goods, irrespective of whether the harm resulted from any negligence on the part of such a party.36 These parties are producers, importers,37 retailers, and distributors (as discussed further in the section ‘Liability of Others in the Chain of Commerce’). A ‘producer’, in relation to any particular goods, means: ‘. . . a person who — ‘(a) grows, nurtures, harvests, mines, generates, refines, creates, manufactures, or otherwise produces the goods within the Republic, or causes any of those things to be done, with the intention of making them available for supply in the ordinary course of business; or ‘(b) by applying a personal or business name, trade mark, trade description, or other visual representation on or in relation to the goods, has created or established a reasonable expectation that the person is a person contemplated in paragraph (a).’38 Harm is defined as including death, injury, illness, any loss of or physical damage to any property (movable or immovable) as well as any economic loss 32 As defined in the Consumer Protection Act, s 1, ‘unsafe’ means that, due to a characteristic, failure, defect, or hazard, particular goods present an extreme risk of personal injury or property damage to the consumer or to other persons. 33 As defined in the Consumer Protection Act, s 1, ‘failure’ means the inability of the goods to perform in the intended manner or to the intended effect. 34 Consumer Protection Act, s 53(1)(a)(i) and (ii). 35 The Consumer Protection Act, s 1, defines ‘hazard’ as a characteristic that has been identified as, or declared to be, a hazard in terms of any other law, or a characteristic that presents a significant risk of personal injury to any person or damage to property when the goods are utilized. 36 Consumer Protection Act, s 61. 37 As specified in the Consumer Protection Act, s 1, an ‘importer’, ‘with respect to any goods, means a person who brings those goods, or causes them to be brought, from outside the Republic into the Republic, with the intention of making them available for supply in the ordinary course of business’. 38 Consumer Protection Act, s 1. (Release 1 – 2012)
- 375. SOUTH AFRICA SA-7 that may result from such harm.39 The strict liability regime introduced by Section 61 of the Consumer Protection Act applies to producers, importers, distributors, and retailers. A supplier of services who, in conjunction with the performance of those services, applies, supplies, installs, or provides access to any goods, is regarded as a supplier for the purposes of Section 61.40 If more than one person is, in any particular case, liable in terms of Section 61, their liability is joint and several.41 A court may assess whether any harm has been proven and adequately mitigated, determine the extent and monetary value of any damages, including economic loss, and apportion liability among persons who are found to be jointly and severally liable.42 Concept of Defect Definition ‘Defect’ includes both manufacturing and design defects. Section 53(1) defines ‘defect’ as: ‘(i) any material imperfection in the manufacture of the goods or components that renders the goods less acceptable than persons generally would be reasonably entitled to expect in the circumstances; or ‘(ii) any characteristic of the goods or components that renders the goods or components less useful, practicable, or safe than persons generally would be reasonably entitled to expect in the circumstances.’ Defective Manufacture The producer, importer, distributor, or retailer of any goods is liable for any harm caused wholly or partly as a consequence of supplying any unsafe goods or a product failure, defect, or hazard in any goods, irrespective of whether the harm resulted from any negligence on their part.43 Defective Design The producer, importer, distributor, or retailer of any goods is liable for any harm caused wholly or partly as a consequence of supplying any unsafe goods or a product failure, defect, or hazard in any goods.44 Defective Marketing In relation to any hazard arising from or associated with the use of any goods, the producer, importer, distributor, or retailer of any goods is liable for any harm 39 Consumer Protection Act, s 61(5). 40 Consumer Protection Act, s 61(2). 41 Consumer Protection Act, s 61(3). 42 Consumer Protection Act, s 61(6)(a). 43 Consumer Protection Act, s 61(1). 44 Consumer Protection Act, s 61(1). (Release 1 – 2012)
- 376. SA-8 INTERNATIONAL PRODUCT LIABILITY caused wholly or partly as a consequence of inadequate instructions or warnings provided to the consumer pertaining to any hazard arising from or associated with the use of the goods, irrespective of whether the harm resulted from any negligence on the part of the producer, importer, distributor, or retailer, as the case may be.45 Section 61(1)(c) imposes strict liability on producers, importers, distributors, and retailers in that such person may be held liable absent any proof of negligence. A person who packages any hazardous or unsafe goods for supply to consumers must display on or within that packaging a notice that meets the requirements of Section 22 of the Consumer Protection Act46 (and any other applicable standards), providing the consumer with adequate instructions for the safe handling and use of those goods.47 Obligations to Warn Consumers or Recall Defective Products In view of the fact that liability for negligence arises ‘if it is foreseen that there is a reasonable possibility of conduct causing harm to an innocent third party, and where there is an omission or failure to take reasonable steps to guard against such occurrence’,48 the question also arises whether there may be a duty on a manufacturer who acquires information as to a defective product which poses danger to consumers to implement a recall or to undertake a campaign to notify purchasers of the product defect. It is suggested that if a manufacturer has information about defects in a product that create a reasonable possibility of causing harm to users of its products, this may create an obligation on the manufacturer to take steps to inform such users of the danger and to correct the defect. An obligation to warn of or recall defective products also may be grounded in the strict liability provisions of Section 61(1) of the Consumer Protection Act. According to Section 61(1), the producer, importer, distributor, or retailer of any goods is liable, irrespective of negligence, for any harm caused wholly or partly as a consequence of supplying unsafe goods, a product failure, defect or hazard in any goods, or inadequate instructions or warnings provided to the consumer pertaining to any hazard arising from or associated with the use of the goods.49 It is suggested that, in the first place, the duty imposed by Section 61(1)(c) contemplates an obligation on the manufacturer to furnish, as part of the supply of goods, appropriate instructions or warnings pertaining to any hazard arising from or associated with the use of any goods. Should the manufacturer be 45 Consumer Protection Act, s 61(1). 46 The Consumer Protection Act, s 22, requires that certain documents must be in plain language and capable of being understood by an ordinary consumer of the class of persons for whom the document is intended. 47 Consumer Protection Act, s 58(2). 48 Checkers Supermarket v Esme Lindsay, [2009] 3 All SA 487 (SCA). 49 Consumer Protection Act, s 61(1). (Release 1 – 2012)
- 377. SOUTH AFRICA SA-9 unaware of any hazard, or be aware of any hazard and fail to issue the necessary instructions or warnings, it will be potentially liable in terms of Section 61(1)(c). Another question that arises is what the manufacturer’s duties are should it, after sale of the product, become aware of certain hazards (other than any hazard of which it has given instructions or warnings in connection with the supply of the product) arising from or associated with the use of the goods. It appears that the wording of Section 61(1)(c) is sufficiently broad to entail an obligation to warn of or recall defective products. The National Consumer Commission is required to promote industry-wide codes of practice providing for effective and efficient systems to receive notice of defective products; to monitor relevant sources of information and conduct relevant investigations; and to notify consumers of the nature, causes, extent, and degree of risk to the public.50 Once such codes of practice have been adopted and the National Consumer Commission has reasonable grounds to believe that any goods may be unsafe, or that there is a potential risk to the public from the continued use of or exposure to the goods, and the producer or importer of those goods has not taken any steps required by an applicable code, the Commission, by written notice, may require that producer to conduct an investigation in terms of the applicable code or to carry out a recall program as required by the Commission. Defenses Available to Manufacturer Contributory Fault Prior to the enactment of the Apportionment of Damages Act,51 the position was that if two persons were negligent in relation to a particular result and one or both of them suffered damage, only the party whose negligence was not the decisive cause of the harm could succeed in a claim and the negligence of the other party was ignored.52 Section 1(1) of the Apportionment of Damages Act states that in cases of contributory negligence, when a person suffers damage which is partly caused by his own fault and partly by another person’s fault, a claim for damages is not ruled out by reason of the claimant’s fault, but the damages recoverable may be reduced as the court deems just and equitable with respect to the degree of fault attributed to the claimant. ‘Damage’ in this context is regarded as having been caused by a person’s fault, regardless thereof that another person had the opportunity to avoid the damage and negligently failed to do so. 50 At the date of writing, the codes of practice have yet to be adopted. 51 Act Number 34 of 1956. 52 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at p. 161. (Release 1 – 2012)
- 378. SA-10 INTERNATIONAL PRODUCT LIABILITY Section 1(2) of the Apportionment of Damages Act states that in cases of contributory damage under Section 1(1), when one of the persons at fault avoids liability to any claimant by pleading and proving that the time within which proceedings should have been instituted or within which notice should have been given in connection with such proceedings in terms of any law has been exceeded, then such person will not be entitled to recover damages from that claimant. ‘Fault’, in this context, includes any act or omission which would, but for the provisions of Section 1, have given rise to a defense of contributory negligence. Assumption of Risk In terms of the common law, harm will not be viewed as having been caused unlawfully where a person who was injured or harmed consented to such harm or injury.53 The person giving consent must have the legal capacity to give consent, i.e., the person must be sufficiently intellectually mature to appreciate the implications of his acts.54 The consent giver must not only have full knowledge of the extent of the potential prejudice but must also appreciate the nature and extent of the potential harm.55 Where a contractual term in a consumer contract constitutes a voluntary assumption of risk, such a term will be subject to adjustment by the court in terms of the Consumer Protection Act. Product Misuse Product misuse by the consumer is not expressly recognized by Section 61 of the Consumer Protection Act as a potential defense against strict liability in terms of Section 61(1). Liability in terms of Section 61(1) may arise if harm has been caused partly as a consequence of a supply of unsafe goods or a product failure, defect, or hazard in any goods.56 In terms of section 61(6), nothing in section 61 has the effect of limiting the authority of a court to assess whether any harm has been proven. It is submitted that a court, in exercising this authority, may find that, to the extent that given harm has been caused by product misuse, such harm has not been caused due to a supply of unsafe goods or a product failure, defect, or hazard in any goods. Comparative Fault The Apportionment of Damages Act allows the court to apportion the damages of each party in accordance with their relative degrees of fault.57 Although the 53 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at p. 103. 54 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at p. 106. 55 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at pp. 106−107. 56 Consumer Protection Act, Section 61(1)(a)−(b). 57 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, (Release 1 – 2012)
- 379. SOUTH AFRICA SA-11 issue of fault is an issue that is governed by the Aquilian principles relating to negligence,58 issues of contributory fault are governed by the Apportionment of Damages Act.59 When any person suffers damage which is caused partly by his own fault and partly by the fault of any other person, a claim in respect of that damage is not precluded by reason of the fault of the claimant.60 However, the damages recoverable in respect of such damage suffered by the claimant may be reduced by the court to such extent as the court deems just and equitable, having regard to the degree to which the claimant was at fault in relation to the damage.61 Defenses to Strict Liability Strict liability of distributors and retailers in terms of Section 61 of the Consumer Protection Act does not arise if it is unreasonable to expect the distributor or retailer to have discovered the unsafe product characteristic, failure, defect, or hazard, having regard to the distributor’s or the retailer’s role in marketing the goods to consumers.62 This special defense for distributors and retailers is clearly not a state-of-the-art defense and appears to be directed more at conferring some relief on distributors and retailers that are minor cogs in the supply chain. Liability of a particular person in terms of Section 61(1) also does not arise if the unsafe product characteristic, failure, defect, or hazard that results in harm is wholly attributable to compliance with any public regulation63 or was wholly attributable to compliance by that person with instructions provided by the person who supplied the goods to that person.64 If the alleged unsafe product characteristic, failure, defect, or hazard did not exist in the goods at the time when it was supplied by a person to another person alleged to be liable, strict liability according to Section 61 also does not arise in respect of the person who supplied the goods.65 Durban, 2010), at p. 162. 58 In the context of the Apportionment of Damages Act, ‘fault’ does not refer to intent. A claim for the reduction of damages in terms of the Apportionment of Damages Act is consequently not available to a plaintiff who has intentionally caused another harm; J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at p. 162. 59 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at p. 163. 60 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at p. 162. 61 J. Neethling, J.M. Potgieter, and J.C. Knobel, Law of Delict, 6th ed (LexisNexis, Durban, 2010), at p. 162. 62 Consumer Protection Act, s 61(4)(c). 63 Consumer Protection Act, s 61(4)(a). 64 Consumer Protection Act, s 61(4)(b)(i). 65 Consumer Protection Act, s 61(4)(b)(ii). (Release 1 – 2012)
- 380. SA-12 INTERNATIONAL PRODUCT LIABILITY Proximate Cause Although the defendant’s wrongful conduct may have been the sine qua non for the plaintiff’s loss, it does not necessarily follow that the defendant is legally answerable for the loss that his wrongful act has caused. The criterion of ‘legal causation’ is distinguished from ‘factual causation’. ‘Factual causation is described as the determination, by means of an hypothetical enquiry as to whether the defendant’s act was the cause of the plaintiff’s loss. If the loss would have occurred regardless of the defendant’s act, the wrongful (unlawful) conduct was not a (factual) cause of the plaintiff’s loss. If the wrongful act was not a sine qua non of the loss, no legal liability can arise.’66 The criterion of legal causation is applied to determine whether the wrongful act is, in law, sufficiently closely or directly linked to the loss in order for legal liability to arise.67 The criterion of legal causation is used as an instrument of legal policy to curb the consequences of an act from extending to infinity, particularly with regard to a potentially limitless cause of action, such as is comprised by liability for negligent misstatement.68 In Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd,69 a toll company instituted an action against a hauler whose negligence had resulted in a spillage of asbestos on a highway, causing the closure of the highway for 24 hours. It was alleged that the closure of the highway had resulted in a loss of revenue for the toll company, which loss it sought to claim from the hauler. The Court noted that the application of the criteria of wrongfulness with regard to liability for omissions and pure economic loss, as well as with regard to remoteness, served as measures of control, enabling judges to avoid the imposition of liability where such imposition in a particular case would be untenable on policy grounds: ‘Even where negligent conduct resulting in pure economic loss is for reasons of policy found to be wrongful, the loss may therefore, for other reasons of policy, be found to be too remote and therefore not recoverable.’70 The test for determining remoteness cannot be comprised of vague considerations of reasonableness, fairness, and justice, as these considerations are subjective.71 What is required is a flexible application of the norms of other 66 International Shipping Co (Pty) Ltd v Bentley, [1990] 1 All SA 498 (A) 516-517. 67 International Shipping Co (Pty) Ltd v Bentley, [1990] 1 All SA 498 (A) 516-517. 68 S v Mokgethi and others, [1990] 1 All SA 320 (A); International Shipping Co (Pty) Ltd v Bentley [1990] 1 All SA 498 (A) 516-517. 69 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 150 (SCA). 70 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 164. 71 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 165. (Release 1 – 2012)
- 381. SOUTH AFRICA SA-13 tests, such as foreseeability, proximity, or direct consequences. Applying such tests to the case in hand, the Court found that the loss suffered by the toll company was not too remote. The loss had followed directly from the negligence of the driver of the truck; it also had been reasonably foreseeable that a collision could cause spillage and that, because of the dangerous nature of the cargo, spillage could result in a closure of the road, leading to a revenue loss.72 The International Shipping73 case involved a claim for negligent misstatement by an accountant concerning the affairs of a debtor company. The Court, in reaching a decision that the misstatement involved was not the legal cause of the plaintiff’s loss, took into account the broad factual matrix of the circumstances surrounding the plaintiff’s reliance on the negligent misstatement. This included factors such as the lapse of time between the defendant’s negligent reporting on the financial statements, the decisions taken by the plaintiff that permitted the defendant’s indebtedness to escalate, and the fact that the plaintiff had had additional information at its disposal, yet continued to make further advances after its initial reliance on the negligent misstatement. Liability in Chain of Commerce Retailers A ‘retailer’, in relation to any particular goods, means a person who, in the ordinary course of business, supplies goods to a customer.74 To date, the exposure of retailers to product liability litigation has been limited. Product liability for retailers has generally been subject to proof of negligence. With the introduction of Section 61 of the Consumer Protection Act on 1 April 2011, this situation changed dramatically, and retailers may now be held liable, jointly and severally with the producer, importer, or distributor, for the harm specified in Section 61(5) of the Consumer Protection Act, irrespective of whether the harm resulted from any negligence on the part of the producer, importer, distributor, or retailer, as the case may be. The liability of a retailer as envisaged by Section 61(1) does not arise if it is unreasonable to expect the retailer to have discovered the unsafe product characteristic, failure, defect, or hazard, having regard to the retailer’s role in marketing the goods to consumers.75 Distributors A ‘distributor’, in relation to any particular goods, means: ‘. . . a person who, in the ordinary course of business 72 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 165. 73 International Shipping Co (Pty) Ltd v Bentley, [1990] 1 All SA 498 (A). 74 Consumer Protection Act, s 1. 75 Consumer Protection Act, s 61(4)(c). (Release 1 – 2012)
- 382. SA-14 INTERNATIONAL PRODUCT LIABILITY ‘(a) is supplied with those goods by a producer, importer, or other distributor; and ‘(b) in turn, supplies those goods to either another distributor or to a retailer.’76 The liability of importers, wholesalers, and distributors is likewise strict and joint and several with the other parties in the supply chain. However, among these parties, the retailer and the distributor qualify for the relief offered by Section 61(4)(c). The strict liability imposed by Section 61(1) does not arise if it is unreasonable to expect the distributor to have discovered the unsafe product characteristic, failure, defect, or hazard, having regard to the distributor’s role in marketing the goods to consumers.77 Producers and Makers of Component Parts, Importers, and Wholesalers The liability of producers and makers of component parts, importers, and wholesalers for product defects is primarily based on theories of negligence and wrongfulness, such as illustrated in Ciba Geigy78 and now also in terms of the strict liability regime in terms of Section 61(1) of the Consumer Protection Act. Franchisors and Franchisees, Licensors and Licensees Manufacturers’ liability in relation to franchisors and franchisees, and licensors and licensees must be determined on the basis of delictual liability involving wrongfulness, together with the provisions of Section 61 of the Consumer Protection Act. In terms of the Consumer Protection Act, it must be determined whether any franchisor, franchisee, licensor, or licensee is a producer, importer, distributor, wholesaler, or retailer as defined in Section 1 of the Act. Remedies Personal Injury and Death The damages recoverable for personal injury and death include damages for pain and suffering (non-pecuniary loss), loss of the amenities of life, disfigurement, and shortened life expectation, incurred and future medical expenses, loss of past income and earning capacity, and damages for loss of support (in the case of dependants).79 76 Consumer Protection Act, s 1. 77 Consumer Protection Act, s 61(4)(c). 78 Ciba-Geigy (Edms) Bpk v Lushof Plase (Edms) Bpk en ‘n ander, [2002] 2 All SA 525 (A). 79 See P.J. Visser, J.M. Potgieter, L. Steynberg, and T.B. Floyd, Law of Damages, 3rd (Release 1 – 2012)
- 383. SOUTH AFRICA SA-15 Punitive Damages No provision is made for punitive damages. Emotional Distress Damages may be awarded for shock (psychiatric injury), as well as for emotional shock (ie, a sudden painful emotion or fright) which causes further forms of shock.80 The emotional shock must not be of a negligible nature and of short duration.81 Pure Economic Loss ‘Pure economic loss’ is understood as ‘loss that does not arise directly from damage to the plaintiff’s person or property, but rather in consequence of the negligent act itself, such as a loss of profit, being put to extra expenses, or the diminution in the value of property’.82 In contrast to the position of negligent conduct, which manifests itself in the form of a positive act causing physical damage to the property or person of another and which is prima facie wrongful, the wrongfulness of negligent causation of pure economic loss does not follow prima facie and is regarded as depending on the existence of a legal duty that is a matter for judicial determination. This judicial determination involves weighing up and applying criteria of public or legal policy consistent with constitutional norms.83 The Supreme Court of Appeal in Delphisure Insurance Brokers v Dippenaar identified a set of factors to be considered in determining the wrongfulness of the negligent causation of pure economic loss.84 The first of these factors is the fear of so-called ‘boundless liability’ and an appreciation that the law will recognize liability more readily when there is not a limitless number of claimants likely to bring a multiplicity of actions. Another factor to be considered is whether the plaintiff was vulnerable to the risk (which would favor a finding of liability) or whether he could have avoided ed (Juta, 2012). 80 P.J. Visser, J.M. Potgieter, L. Steynberg, and T.B. Floyd, Law of Damages, 2nd ed (Juta, 2003), at pp. 444–445. 81 P.J. Visser, J.M. Potgieter, L. Steynberg, and T.B. Floyd, Law of Damages, 2nd ed (Juta, 2003), at pp. 444–445. 82 Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA, 2006 (1) SA 461 (SCA); [2006] 1 All SA (6). 83 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 150 (SCA) 156; Coronation Brick (Pty) Ltd v Strachan Construction Co (Pty) Ltd, [1982] All SA 330 (D) (where the defendant’s bulldozer engaged in road-making activities disrupted electrical cables carrying power to the plaintiff’s manufacturing business, causing loss of production and income). 84 Delphi Insurance Brokers v Dippenaar, 2010 (5) SA 499 (SCA) 508, 508-509. (Release 1 – 2012)
- 384. SA-16 INTERNATIONAL PRODUCT LIABILITY it by contractual means, such as a disclaimer (which would operate against liability).85 It also must be considered whether the extension of liability would impose an unwarranted burden on the defendant or, conversely, whether it would not unreasonably interfere with the defendant’s commercial activities, as the defendant was already under a duty to take reasonable care in respect of third parties. The nature of the relationship between the parties, contractual or otherwise, also must be considered, as well as whether the relationship between the parties was one of ‘proximity’, or closeness. Other important considerations are the professional standing of the maker of the statement, the extent to which the plaintiff was dependant upon the defendant for information and advice, and the reasonableness of the plaintiff relying on the accuracy of the statement. A plaintiff who claims pure economic loss must therefore allege wrongfulness and must plead the facts relied upon to support that contention.86 Return or Repair In terms of Sections 55 and 56 of the Consumer Protection Act, the consumer is entitled to return the goods to the supplier within six months after their delivery to the consumer if the goods fail to satisfy the requirements of Section 55.87 The supplier must, at the direction of the consumer, repair or replace the goods or refund the consumer the price paid by the consumer.88 If the failure, defect, or unsafe feature has not been remedied within a further period of three months, or within such further period of three months another failure, defect, or hazard is discovered, the supplier must replace the goods or refund the price paid.89 85 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240 (SCA) 248-249 (vulnerability to risk). The Two Oceans Court also indicated that it could see no reason why the Aquilian remedy should be extended to a plaintiff who was in a position to avoid the risk of harm by contractual means, but who failed to do so. See also AB Ventures Ltd v Siemens Ltd [2011] JOL 27136 (SCA). 86 Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd, 2009 (2) SA 150 (SCA) 157; Delphi Insurance Brokers v Dippenaar, 2010 (5) SA 499 (SCA) 508. 87 In terms of section 55(2)(a)−(d), the goods must be reasonably suitable for the purposes for which they are generally intended; of good quality, in good working order and free of defects; usable and durable for a reasonable period of time (having regard to the use to which they would normally be put and to all the surrounding circumstances of their supply); and of applicable statutory standards. 88 Consumer Protection Act, s 56(2). 89 Consumer Protection Act, s 56(3). (Release 1 – 2012)
- 385. SOUTH AFRICA SA-17 Contractual Disclaimers or Limitations Common Law Exemption clauses have not only been common in both commercial and consumer agreements, but also have been widespread enough to have become the rule rather than the exception.90 ‘Entire agreement’ or ‘entrenchment’ clauses typically stipulate that no alteration, variation, or cancellation of any term or condition of a contract will have any force or effect unless the change or cancellation is recorded in writing and signed by the parties to the contract.91 Clauses typically encountered are ‘owner’s risk’ clauses92 or clauses that limit liability for negligence,93 consequential damage, or loss suffered as a result of defective workmanship or materials,94 and clauses that limit liability imposed by the implied warranty against latent defects95 and damages for defective construction.96 Parties have enjoyed wide latitude to impose limitations on liability in both consumer and non-consumer agreements.97 The courts have in the past adhered to a strict freedom-of-contract approach,98 although there have been indications of a more flexible approach in recent years.99 Although the Supreme Court of Appeal had in 2002 indicated that disparity of bargaining power could be a factor that might play a role in determining the public interest,100 the courts have not subsequently developed the implications of this principle. The fundamental point of departure of the courts has been that ‘public policy generally favored the utmost freedom of contract and required that commercial transactions should not be unduly trammeled by restrictions on that freedom’.101 90 Afrox Healthcare Bpk v Strydom, 2002 (6) SA 21, 42. 91 Brisley v Drotsky, 2002 (4) SA 1; SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en Andere, [1964] 4 All SA 520 (A); De Villiers v McKay NO and another, 2008 (4) SA 155 (SCA). 92 Mercurius Motors v Lopez, 2008 (3) SA 572 (SCA). 93 Masstores (Pty) Ltd v Murray & Roberts Construction (Pty) Ltd and another, [2009] 1 All SA 146 (SCA). 94 Adel Builders (Pty) Ltd v Thomson, [1998] 2 All SA 534 (SE); Strijdom Park Extension 6 (Pty) Ltd v Abcon (Pty) Ltd, [1998] 4 All SA 117 (A). 95 Consol Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd and another, [2004] 1 All SA (SCA). 96 Strijdom Park Extension 6 (Pty) Ltd v Abcon (Pty) Ltd, [1998] 4 All SA 117 (A). 97 Restrictions on liabilities that might otherwise be implied by law are included here. 98 Afrox Healthcare Bpk v Strydom, 2002 (6) SA 21; Brisley v Drotsky, 2002 (4) SA 1 (SCA) 15; Magna Alloys and Research (SA) Pty) Ltd v Ellis, 1984 (4) SA 874, 893- 894. 99 Barkhuizen v Napier, 2007 (5) SA 323 (CC), minority judgment of Sachs J; Swinburne v Newbee Investments (Pty) Ltd, 2010 (5) SA 296 (KZD). 100 Afrox Healthcare Bpk v Strydom, 2002 (6) SA 21, 42. 101 Afrox Healthcare Bpk v Strydom, 2002 (6) SA 21, 33-34, citing Sasfin (Pty) Ltd v (Release 1 – 2012)
- 386. SA-18 INTERNATIONAL PRODUCT LIABILITY A contractual provision which is unfair to such an extent that it conflicts with the public interest would be unenforceable.102 While the courts declared that they possessed the power to declare contracts contrary to public policy, they have, simultaneously, warned that this power ‘should, however, be exercised sparingly and only in the clearest of cases, lest uncertainty as to the validity of contracts results from an arbitrary and indiscriminate use of the power’,103 and have exercised this power sparingly. In Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd,104 a supplier (Hirsch) supplied spices to a fast food franchise group (Chickenland). The spices (cayenne pepper) were imported and contained a banned colouring agent. Chickenland used the imported pepper in sauces that were exported to a number of countries, amongst others the United Kingdom. The health authorities in the United Kingdom detected the presence of the illegal substance. This resulted in a worldwide recall of the sauces and extensive negative publicity for Chickenland. Chickenland refused to pay for the supplies of pepper and Hirsch sued for payment. Chickenland counter-claimed on the basis that the goods supplied were not fit for human consumption and had not been subjected to sufficiently stringent quality control processes. Hirsch relied on a broad non-liability clause which excluded liability by reason of any defect in the goods (clause 4.1) and that limited the extent of liability to certain monetary amounts (clauses 4.2 and 4.3). The court held that the presence of the prohibited substance did not constitute a defect in the goods but rather had the result that the goods delivered entailed a delivery of goods different to that which had been bargained for: “Chickenland was entitled to delivery of spices free of Sudan 1, that being what they had bargained for. Failure by Hirsch to deliver spices free of that banned contaminant was in effect a failure to perform in terms of the contract because what was delivered was different in substance to that purchased.”105 As regards clause 4.1, the Court simply held that the limitation was irrelevant to the facts of the matter: non-performance as opposed to defective performance. In terms of clause 4.4, Chickenland had acknowledged that all conditions, terms, warranties, or representations (express or implied, statutory or common-law) as to quality, fitness, or performance would be excluded. The Hirsch case reflects a gradual adjustment by the Supreme Court of Appeal away from an unqualified freedom-of-contract approach. Clause 4.6 there provided that the customer indemnified and held the supplier harmless against all claims, loss, damage, expense, or proceedings of whatsoever nature against Beukes, 1989 (1) SA 1 (A); Botha (now Griessel) and Another v Finanscredit (Pty) Ltd, 1989 (3) SA 773 (A). 102 Afrox Healthcare Ltd v Strydom, 2002 (6) SA 21, 33. 103 Sasfin (Pty) Ltd v Beukes, 1989 (1) SA 1 (A), cited in Afrox Healthcare Ltd v Strydom, 2002 (6) SA 21, 33-34. 104 Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd, 2011 (4) SA 276 (SCA). 105 Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA). (Release 1 – 2012)
- 387. SOUTH AFRICA SA-19 or on the part of the supplier arising out of the sale or distribution of the goods whether or not defective or not for any reason whatsoever. As regards clause 4.4, the Court observed that the clause included reference to statutory law. If the exclusion were to be enforced, it would necessarily result in a contravention or tend to induce a contravention of statutory law: “the relevant statute here not only prohibits the delivery of foodstuff that contains a prohibited substance, but also makes it an offence for one to do so.”106 This statement has profound implications for commercial contracts of South African suppliers, over and above the regime in relation to consumer contracts. There are undoubtedly countless commercial contracts currently in use in South Africa containing similar language. Not only would suppliers be prudent to steer clear of employing language which might limit liability under statute, but it may also be problematical for such language to be retained in existing contracts. As regards clause 4.6, the court held that this clause was “so gratuitously harsh and oppressive that public policy would not tolerate it”, and “clearly inimical to the interests of the community… or run[ning] counter to social or economic expedience”.107 Issues that have arisen with regard to disclaimers and disclaimer notices have been whether the disclaimer has been incorporated in the agreement and the interpretation of the disclaimer.108 Subject to the comments above regarding the Hirsch case, the courts have not been concerned with the ‘fairness’ of disclaimers. As regards disclaimers contained in transactional documentation, the Supreme Court of Appeal noted in Mercurius Motors v Lopez that, in order for a clause that undermines the very essence of the contract in question to be effective, such a clause should be clearly and pertinently brought to the attention of a customer who signs a standard form109 and should not be by way of an inconspicuous and barely legible clause that refers to the conditions on the reverse side of the page in question.110 However, when a disclaiming notice has been conspicuously and prominently displayed and located so that it would not escape notice, it will be effective,111 provided that it is clear and unambiguous. 106 Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA) 286. 107 Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA) 286. 108 Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 (4) SA 276 (SCA) 286. 109 The courts also have started to generally indicate a growing awareness of the nature and implications of the fact that when contracts amount to standard form contracts, additional considerations may play a role; for example, Barkhuizen v Napier 2007 (5) SA 323 (CC), minority judgment of Sachs J; Swinburne v Newbee Investments (Pty) Ltd 2010 (5) SA 296 (KZD). 110 Mercurius Motors v Lopez, 2008 (3) SA 572 (SCA) 578. 111 Jacobs v Imperial Group (Pty) Ltd, [2010] 2 All SA 540 (SCA) 543-544; Durban’s Water Wonderland (Pty) Ltd v Botha and another, 1997 (3) SA 245 (NPD); D & H Piping Systems (Pty) Ltd v Trans Hex Group Ltd and another, 2006 (3) SA 593 (SCA) 600. (Release 1 – 2012)
- 388. SA-20 INTERNATIONAL PRODUCT LIABILITY In general, exemption clauses are treated no differently from any other contractual clauses: ‘They are simply contractual provisions that must be construed by examining the words used, the structure of the provision itself, and the context of the contract as a whole’.112 However, as regards the interpretation of disclaimers, the application of the contra proferentem rule is only relevant if the provision is ambiguous.113 There are now increasing indications that when a disclaimer exempts a party from liability that would otherwise attach or, as noted in Mercurius Motors v Lopez, undermines the very nature of the type of contract in question,114 the fact of the attempted exemption itself may cause the court to look closely at how a reasonable person would understand the provision in question115 or whether the person relying on the disclaimer acted sufficiently reasonably in bringing the notice to the customer’s attention.116 A disclaimer in terms of which the breadwinner undertakes not to institute a claim against another party is not enforceable against the breadwinner’s dependants.117 Statute In terms of the Consumer Protection Act, a supplier may not make a transaction or agreement subject to any term or condition if it purports to limit or exempt a supplier of goods or services from liability for any loss directly or indirectly attributable to the gross negligence of the supplier or any person acting for or controlled by the supplier.118 In the context of Regulation 44 of the Consumer Protection Act Regulations (CPA Regulations) issued by the Minister of Trade and Industry,119 a term listed in the Regulation is presumed to be an unfair contract term, subject to the 112 Swinburne v Newbee Investments (Pty) Ltd, 2010 (5) SA 296 308, relying on Masstores (Pty) Ltd v Murray & Roberts Construction (Pty) Ltd and another, [2009] 1 All SA 146 (SCA). Also relevant is KPMG Chartered Accountants v Securefin Ltd and another, [2009] 2 All SA 523 (SCA). 113 ER24 Holdings v Smith NO and another, [2007] 4 All SA 679 (SCA). 114 Mercurius Motors v Lopez, 2008 (3) SA 572 (SCA) 578. 115 Swinburne v Newbee Investments (Pty) Ltd, 2010 (5) SA 296. 116 Jacobs v Imperial Group (Pty) Ltd, [2010] 2 All SA 540, 544. 117 Jameson’s Minors v CSAR, 1908 TS 575. Discussed in J. Neethling, J.M. Potgieter, P.J. Visser, and J.C. Knobel, Law of Delict, 5th ed (LexisNexis, 2006). 118 Consumer Protection Act, s 51(1)(c)(i). 119 Government Gazette (GG) No. 34180, Regulation Gazette (RG) No. 9515, Government Notice (GN) No. R 293. Under the Consumer Protection Act, s 120(1)(d), the Minister is authorized to make regulations relating to unreasonable, unjust, or unfair terms. A general discussion is provided in T. Naudé, ‘Consumer Protection Act Clarified’, Moneyweb (22 March 2011), at http://www.moneyweb .co.za/mw/view/mw/en/page292681?oid=533804&sn=2009+Detail&pid=295023. (Release 1 – 2012)
- 389. SOUTH AFRICA SA-21 provisions of Regulation 44(1) and 44(2).120 Such terms may be found to be fair ‘in view of the particular circumstances of the case’.121 The list in Regulation 44(3) is non-exhaustive and the terms that are listed in Regulation 44 remain subject to the provisions of Sections 48 to 52 of the Consumer Protection Act. The list in Regulation 44(3) is indicative only.122 Listed terms that are presumed to be unfair by definition may, in view of the particular circumstances of the case, nevertheless be held to be fair for purposes of Regulation 44.123 The following terms, inter alia, are listed in Regulation 44: • Terms excluding or restricting the legal rights or remedies of the consumer against the supplier or another party in the event of total or partial breach by the supplier of any of the obligations provided for in the agreement, including the right of the consumer to set off a debt owed to the supplier against any claim which the consumer may have against the supplier;124 • Terms modifying the normal rules regarding the distribution of risk, to the detriment of the consumer;125 • Terms excluding or limiting the liability of the supplier for death or personal injury caused to the consumer through an act or omission of that supplier subject to Section 61(1) of the Consumer Protection Act;126 • Terms forcing the consumer to indemnify the supplier against liability incurred by it to third parties;127 • Terms limiting, or having the effect of limiting, the supplier’s vicarious liability for its agents;128 • Terms excluding or restricting the consumer’s right to rely on the statutory defense of prescription;129 • Terms imposing a limitation period that is shorter than otherwise applicable under the common law or legislation for legal steps to be taken by the consumer (including for the making of a written demand and the institution of legal proceedings);130 • Terms excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to 120 CPA Regulation 44(1). 121 CPA Regulation 44(2)(a). 122 CPA Regulation 44(2)(a). 123 CPA Regulation 44(2)(a). 124 CPA Regulation 44(3)(b). 125 CPA Regulation 44(3)(g). 126 CPA Regulation 44(3)(a). 127 CPA Regulation 44(3)(e). 128 CPA Regulation 44(3)(d). 129 CPA Regulation 44(3)(f). 130 CPA Regulation 44(3)(z). (Release 1 – 2012)
- 390. SA-22 INTERNATIONAL PRODUCT LIABILITY take disputes exclusively to arbitration not covered by the Act or other legislation;131 and • Terms restricting the evidence available to the consumer or imposing on him a burden of proof which, according to the applicable law, should lie with the supplier.132 Statute of Limitation In general, the limitation period for claims based on delict is three years.133 The limitation (prescription) period begins to run when the debt is due.134 A debt is not deemed to be due until the creditor has knowledge of the identity of the debtor and of the facts from which the debt arises, provided, however, that a creditor will be deemed to have such knowledge if he could have acquired it by exercising reasonable care.135 A term in such a consumer agreement that imposes a limitation period that is shorter than otherwise applicable under the common law for legislation for legal steps to be taken by the consumer (including for the making of a written demand and the institution of legal proceedings) is deemed to be unfair.136 Rule 7(4) of the Policyholder Protection Rules deals specifically with short-term insurance claims and requires that the insured be apprised of sufficient information to enable him to properly understand what he is required to do in the circumstances.137 The strict liability regime provided for by Section 61 of the Consumer Protection Act does not arise if the claim for damages is brought more than three years after the death or injury of any natural person,138 or three years after the earliest time at which a person had knowledge of the material facts about an illness of a natural person,139 or three years after the earliest time at which a person with an interest in any property had knowledge of the material facts about the loss of or damage to that property.140 The strict liability regime of Section 61 also does not arise if the claim is brought more than three years after the latest date on which a person suffered 131 CPA Regulation 44(3)(x). 132 CPA Regulation 44(3)(y). 133 Prescription Act (Act No. 68 of 1969), s 11(d). 134 Prescription Act, s 12(1). 135 Prescription Act, s 12(3). 136 CPA Regulation 44(3)(z). 137 Policyholder Protection Rules (Short-Term Insurance), GN No. R 1128, RG No. 26853 of 30 September 2004, Rule 7(4), as amended by Variation of Policyholder Protection Rules, GN No. 1213, RG No. 33881 of 17 December 2010. 138 Consumer Protection Act, s 61(3)(d)(i). 139 Consumer Protection Act, s 61(3)(d)(ii). 140 Consumer Protection Act, s 61(3)(d)(iii). (Release 1 – 2012)
- 391. SOUTH AFRICA SA-23 any economic loss arising from any such death, injury, illness, loss, or damage.141 Corporate Successor Liability Liability for damage caused by defective products is not differentiated from other kinds of liability as regards corporate successors, and there is no special provision for extending liability for damage caused by defective products to corporate successors. A company that is unable to pay its debts is liable to be wound up in terms of Section 345 of the Companies Act.142 Product Liability Insurance Availability and Use of Insurance Insurance is widely accessible and widely used. South Africa has an active and thriving insurance industry with extensive links to the international insurance underwriting industry, particularly to the insurance industry in the United Kingdom. Nature of General Liability Policies As a form of indemnity insurance, short-term insurance (also referred to as business insurance, commercial insurance, product liability insurance, and liability insurance) covers a wide array of risks for both businesses and consumers.143 Usual Extent of Cover Comprehensive and limited cover is available. Usual Exclusions In view of the courts’ emphasis on the doctrine of freedom of contract, a wide range of exclusions has been used. Such exclusions include indemnities, exclusions of implied warranties of quality, exclusions of liability for damage due to negligence, and various limitations of risk.144 The ordinary rules relating to the interpretation of contracts are applied in construing policies of insurance. However, any provision purporting to place a 141 Consumer Protection Act, s 61(3)(d)(iv). 142 Act Number 71 of 2008. 143 Additional information available at Life Annuities, ‘Theories and Forms of Product Liability Insurance’ on the Annuity & Insurance website at http://annuity. webarticles.co.za/theories-and-forms-of-product-liability-insurance.html. 144 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd, [2010] 4 All SA 366 (SCA). (Release 1 – 2012)
- 392. SA-24 INTERNATIONAL PRODUCT LIABILITY limitation on a clearly expressed obligation to indemnify is restrictively interpreted.145 In Raqa v Hofman, the Court denied an insurance claim on the basis that the insured lacked locus standi where the insured had made an application for consumer credit on behalf of a third party who did not qualify for credit in terms of the National Credit Act,146 and the goods were damaged while in possession of the third party.147 Duties of Insured The insured has a duty of good faith to the insurer. The insured must not only avoid misrepresenting material facts, but also must not fail to disclose material facts.148 In Papagapiou v Santam Ltd., the insurer successfully relied on an exemption clause excluding liability when any claim under the policy was fraudulent or if any fraudulent means or devices were used by the insured to obtain any undue benefit under the policy.149 Product Liability Litigation Frequency of Litigation It is difficult to assess the actual incidence of product liability litigation accurately, as some product liability cases may not be reported in the various court reporting systems, and some cases are settled. The requirement of negligence, coupled with the courts’ relative tolerance of disclaimers150 and the prevalence of such clauses, along with the high cost of litigation, have probably discouraged product liability litigation to some extent. With the removal of negligence as a necessary element of product liability and the stricter approach toward disclaimers introduced by the Consumer Protection Act, it may be expected that the number of product liability cases will steadily increase. 145 Papagapiou v Santam Ltd (58/2005) [2005] ZASCA 140, at para 6. The ruling is available at http://www.saflii.org/za/ cases/ZASCA/2005/140.pdf. 146 Act No. 34 of 2005. 147 Raqa v Hofman (A38/2009) [2009] ZAWCHC 90; 2010 (1) SA 302 (WCC) (29 May 2009), available at http://www.saflii.org/za/cases/ZAWCHC/2009/90.html. 148 W.S. Getz, D.M. Davis, and G. Gordon, The South African Law of Insurance, 3rd ed (1983), at p. 106. 149 Papagapiou v Santam Ltd (58/2005) [2005] ZASCA 140, available at http://www.saflii.org/za/cases/ZASCA/2005/140.html. 150 C.-J. Pretorius, ‘Exemption Clauses And Mistake’, 73/3 THRHR (2010), at p. 491, providing an analysis of the courts’ indirect methods of restraining exemption clauses; Mercurius Motors v Lopez, 2008 3 SA 572 (SCA). (Release 1 – 2012)
- 393. SOUTH AFRICA SA-25 Attitude of Courts While English courts are perceived as adopting a liberal approach to the extension of the duty of care, South African courts tend to adopt a cautious approach,151 not being inclined to ‘extend the scope of the Aquilian action to new situations unless there are positive policy considerations which favor such an extension’.152 In Wagener v Pharmacare Ltd, Cuttings v Pharmacare Ltd,153 the Supreme Court of Appeal was invited to adopt a regime of strict liability in product liability cases and to discard liability based on negligence as the test for liability in product liability cases. Noting that in other countries it was legislatures which had imposed strict liability, the Court held that while there might be valid arguments for the introduction of strict liability in respect of product liability claims, this was a matter for the legislature to undertake. Typical Extent of Damages Awards When plaintiffs are successful in product liability cases, the quantum of liability may be the subject of confidential settlement. Generally, however, damages awards tend to be on the conservative side. Lawyers’ Compensation The structure of the legal profession in South Africa is similar to that in the United Kingdom. Advocates (barristers) typically practice in association as members of bar associations. Attorneys constitute the so-called side-bar. Advocates have right of appearance in the magistrates courts (the lower courts) as well as the high courts, while attorneys, who have right of appearance in the lower courts, may acquire the right of appearance in the high courts. Attorneys’ remuneration for litigious work is subject to supervision by the relevant professional bodies. The remuneration of advocates is subject to approval by the respective bar committees. Contingency fees for attorneys are governed by the Contingency Fees Act,154 which allows for a success fee to be up to more than 100 per cent of the normal fees, but subject to a maximum of 25 per cent of the award obtained.155 151 Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd, [2007] 1 All SA 240 (SCA). 152 Lillicrap, Wassenaar and partners v Pilkington Brothers SA (Pty) Ltd, [1985] 1 All SA 347 (A) 355. 153 Wagner v Pharmacare Ltd, Cuttings v Pharmacare Ltd, 2003 (4) SA 285 300 (SCA). 154 Act No. 66 of 1997. 155 A general discussion is provided in A.J. Reinecke, The Legal Practitioner’s Handbook on Costs (2011), at pp. 99–100. (Release 1 – 2012)
- 394. SA-26 INTERNATIONAL PRODUCT LIABILITY Choice and Application of Law In Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd, the Supreme Court of Appeal applied the general rule that the choice by parties to a contract of the governing law (the proper law of the contract) is valid.156 This did not, however, mean that party autonomy can prevail over the peremptory provisions of an applicable statute, especially when the action is brought in terms of such a statute.157 Legality is determined by the lex fori, and the ius cogens (peremptory law) of the lex fori cannot be excluded.158 Applying the peremptory law, the Court stated that, when considering the question whether parties may exclude the operation of statutory provisions by choice of another system of law, the question that must be asked is whether they can waive the application of those provisions.159 Provided that public policy and interest are not prejudiced by a waiver, a party falling in a class for whose benefit the provision was enacted may waive the application of such provisions.160 The dispute in Representative of Lloyds concerned provisions that were subject to provisions of the Short-Term Insurance Act161 dealing with the effect of non- disclosures and misrepresentations162 and the effect of a contravention of the law163 on a policy. These provisions were enacted for the protection of insured parties who are ignorant, careless, or uneducated from unscrupulous insurers who attempt to escape liability.164 Terms in consumer agreements providing that a law other than that of the Republic applies to a consumer agreement concluded and implemented in the Republic, when the consumer was residing in the Republic at the time when the agreement was concluded, are presumed to be unfair.165 156 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4 All SA 366 (SCA) 373. 157 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4 All SA 366 (SCA) 373. 158 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4 All SA 366 (SCA) 373. 159 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4 All SA 366 (SCA) 374. 160 Representative of Lloyds and others v Classic Sailing Adventures (Pty) Ltd [2010] 4 All SA 366 (SCA) 374. 161 Act Number 53 of 1998. 162 Short-Term Insurance Act, s 53. 163 Short-Term Insurance Act, s 54. 164 A.J. Reinecke, The Legal Practitioner’s Handbook on Costs (2011), at p. 374, para 24. The Court also relied on the provisions of the Admiralty Jurisdiction Regulation Act (Act No. 105 of 1983), s 6(2). See also Bafana Finance Mabopane v Makwakwa and another [2006] 4 All SA 1 (SCA) with regard to the waiver of legislative protective provisions. 165 CPA Regulation 44(3)(bb). (Release 1 – 2012)
- 395. SOUTH AFRICA SA-27 Regulation 44(3)(bb) appears to be based on the provisions of the European Unfair Consumer Terms Directive.166 The preamble to the Directive expresses the specific concern that there is a risk that the consumer may be deprived of protection under the Directive as a result of contracts designating the law of a non-EU country as the law applicable to the contract. Article 6(2) of the Unfair Consumer Terms Directive accordingly directs Member States to take the necessary measures ‘to ensure that the consumer is not deprived of the protection granted by the Directive by virtue of the choice of the law of a non-Member country as the law applicable to the contract if the contract has a close connection with the territory of the Member States’. Conclusion In the field of consumer protection in South Africa, the Consumer Protection Act is the culmination of a long process of development and reform. In governing the relationship between businesses and consumers, the Act provides a regulatory framework to ensure fair contractual terms and a significantly amended liability regime when a defective product causes death or injury, with specific requirements for product safety. The Consumer Protection Act is targeted at eradicating irresponsible marketing, unethical trade practices, and unsafe or defective products that amount to unethical trading. In doing so, the Act extends product liability to all parties in the supply chain. Moreover, claimants no longer need to prove negligence on either the part of any member of the supply chain, but merely need to establish a causal link between the defective, unsafe, or hazardous product and the harm caused. In terms of product liability, one of the major changes that the Act introduces to consumer law are the provisions on safety monitoring and recall of products in Section 60, and strict liability for damage caused by unsafe, hazardous, or defective products in Section 61. These key provisions apply to all transactions and to all consumers of goods and services. 166 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ 1993 L 095/29, Annex, item (q). (Release 1 – 2012)
- 397. Spain Introduction ............................................................................................ SPA-1 Nature and Characteristics of Product Liability ..................................... SPA-2 Liability in the Chain of Commerce....................................................... SPA-3 In General ................................................................................ SPA-3 Producer ................................................................................... SPA-3 Importer ................................................................................... SPA-5 Supplier.................................................................................... SPA-6 Joint Liability ........................................................................... SPA-7 Concept of Defect .................................................................................. SPA-8 In General ................................................................................ SPA-8 Manufacturing Defects ............................................................ SPA-9 Design Defects ......................................................................... SPA-10 Informational Defects .............................................................. SPA-11 Defenses Available to the Producer ....................................................... SPA-12 In General ................................................................................ SPA-12 Defenses under Article 140...................................................... SPA-12 Contributory Negligence.......................................................... SPA-17 Comparative Negligence.......................................................... SPA-18 Compensable Damage............................................................................ SPA-19 In General ................................................................................ SPA-19 Personal Damage ..................................................................... SPA-19 Moral Damage ......................................................................... SPA-20 Material Damage ..................................................................... SPA-21 Statutes of Limitation ............................................................................. SPA-22 Action by the Injured Party ...................................................... SPA-22 Action for Recovery between Those Liable for Damages ....... SPA-25 Producer’s Liability ................................................................. SPA-25 Product Liability Insurance .................................................................... SPA-25 Civil Liability Insurance .......................................................... SPA-25 Conclusion ............................................................................................. SPA-28
- 399. Spain Patricia Gualde Broseta Abogados Valencia, Spain Introduction This chapter analyzes the system covering a producer’s responsibility for damage caused by defective products, as regulated by Royal Decree Number 1/2007 of 16 November, approving the Revised Text of the General Law for the Defense of Consumers and Users (General para la defensa de los consumidores y usuarios, LGDCU) and other complementary laws, known as the TR-LGDCU (referred to as the TR). Prior to the TR, the Product Liability Directive1 had been implemented in Spanish law through Law Number 22/1994, which was repealed by the TR. The Third Book of the TR includes the regulation of Law Number 22/1994 in Title I and in Chapter I of Title II, which contains specific provisions regarding damage caused by products.2 The focus of this chapter is on the system for liability contemplated in the TR. It does not contain an analysis of other rights which a victim of defective products may hold in the event of being eligible for compensation for damage suffered as a result of contractual liability based on the lack of conformity of the goods purchased or any other cause of breach or improper performance of the contract or tort that might arise. A discussion and analysis of the multidimensional aspects of product liability is beyond the scope of this chapter, although it does refer to the most basic and elementary questions on product liability so as to provide the most complete picture possible of product liability as regulated in the TR. 1 Directive 85/374/EEC of 25 July 1985 on the approximation of laws, regulations, and administrative provisions of Member States concerning liability for defective products, OJ 1985 L 210/29. 2 Therefore, to the extent that the TR revises Law Number 22/1994 and other laws with virtually no modifications to its articles, a great many of the legal decisions discussed in this chapter refer to Law Number 22/1994, although they are fully applicable to the TR presently in force.
- 400. SPA-2 INTERNATIONAL PRODUCT LIABILITY Nature and Characteristics of Product Liability The provision that covers the principal features of the product liability regulation as established in Spanish law is Article 135 of the TR, which states: ‘Producers will be responsible for damage caused by product defects which they, respectively, manufacture or import.’ First, as reflected in the Explanatory Memorandum of Law Number 22/1994, the product liability regime is a system covering objective liability, and proof of this is that Article 135 of the TR omits any mention of fault or negligence on the part of the producer. In other words, the producer is liable for the damage caused by defective products, independent of the existence of fault or negligence on his part. This consideration of liability clearly diverges from the basic criterion for the imputation of extra-contractual liability contained in Article 1902 of the Spanish Civil Code, which requires the concurrence of fault or negligence on the part of the party responsible for causing the damage. In line with this objective nature of the producer’s liability for damage caused by defective products, Article 139 of the TR determines the manner in which proof of defect in a product is to be justified. The joint interpretation of this provision and of Article 135 of the TR reveals that the person affected by the defective product must prove the existence of a defect in the product, the damage caused by the defective product, and the causal relationship between the defective product and the damage caused. Therefore, if the plaintiff in such a procedure is able to prove these circumstances, the producer’s liability is admitted, without the need to discuss the degree of diligence employed by the producer. This liability arises from product defects (such as defects in design and manufacture), and responsibility for the inherent danger of the product is not a matter for discussion. Second, there is an objective but not absolute liability, insofar as Article 140 of the TR establishes a range of causes for exoneration from the producer’s liability, such as a failure to put the product into circulation, lack of a defect in the product when it was put into circulation, and similar defenses. Given the importance of this question, the section ‘Defenses Available to the Manufacturer’ is dedicated to the analysis of these issues. Nevertheless, it is important to point out that the producer will be able to obtain exoneration from liability if he proves the concurrence of any one of these circumstances. Furthermore, there is no absolute liability when the producer’s liability may be reduced or even eliminated if the damage caused is jointly attributable to the product defect and the fault of the victim. Another of the defining features of the product liability regime is that it is an extra-contractual liability. This is because,
- 401. SPAIN SPA-3 under the TR, any victim of a defective product is entitled to receive compensation independent of the existence of a contractual relationship with the producer. Yet another characteristic of the producer’s liability is that it is quantitatively limited by the TR (as further discussed in the section ‘Compensable Damage’, dealing with the extent of liability for damage caused by a defective product). Specifically, these limits are set out in Article 141 of the TR and consist of the deduction of a waiver of €390.66 from the amount of compensation for physical damage and a maximum limit of €63,106,270.96 for the producer’s total liability for death or personal injury caused by identical products with the same defect. Based on these defining characteristics of the liability for damage caused by product defects, the rest of this chapter analyzes a number of questions that are of paramount significance in obtaining a global vision of the concept of product liability under Spanish law. Liability in the Chain of Commerce In General Logically, given the competitive system in which companies operate, numerous people may intervene and be involved in the commercial and manufacturing process of a product until its final acquisition by the consumer. Therefore, in order to determine the responsibility of these participants, it is necessary to first define which subjects are responsible and in what order they should be liable for the damage caused by defective products made or sold by them. Once this order has been established, it is necessary to examine what conditions need to be in place for the liability to be attributed. As indicated in the previous section, when determining the liability of participants, the Spanish model uses a system of objective liability, with the TR finding liability with a specific group of subjects who also will answer jointly3 for damage caused to consumers by defective products manufactured, imported, or sold by them. Producer In accordance with the Product Liability Directive, Article 135 of the Spanish regulations establishes a general rule under which liability will be attributed to any subject directly participating in the manufacture or production of the product, but not in its distribution. Therefore, the producer will be directly 3 Royal Decree Number 1/2007, art 132, states: ‘Those liable for the same damage, based on this text, will be jointly liable before the injured party. Any party paying compensation to the injured party will have the right to take recovery action against other liable parties based on their proportional liability for the damages’.
- 402. SPA-4 INTERNATIONAL PRODUCT LIABILITY liable, while the supplier also will be found liable for damage only in certain circumstances. This means that for all claims, the producer will be held directly liable for damage caused by defective products, with the exception of certain circumstances that are detailed below. However, as understood by Spanish courts, the direct liability of the producer refers only to the owner of the business, not the workers employed by the owner, nor, as has occasionally been found in case law, to other group companies. Therefore, according to the TR, the party initially responsible for damage caused by defective products manufactured or sold will be the producer of the products. Accordingly, the TR defines what is understood by ‘producer’, indicating two distinct concepts. Specifically, Article 5 of the TR, as a general provision, details a definition of ‘producer’. However, this definition is made broader by Article 138 of the TR, specific to liability for defective products, which states: ‘1. For the purposes of this section, as well as the definition found in article 5, the producer is understood to be the manufacturer or importer into the European Union of: ‘a.) A determined product. ‘b.) Any element forming part of a finished product. ‘c.) A raw material. ‘2. If the producer cannot be identified, then the supplier of the product will be considered the producer, unless the supplier provides the injured party with the identity of the producer or the party that supplied or provided said product, within three months. The same rule will be applied in the case of imported products if the product does not indicate the name of the importer, even when the name of the manufacturer is indicated.’ Article 5 of the TR stipulates: ‘Without prejudice to the stipulations of article 138, for the purposes of this regulation, the producer will be understood to be the manufacturer of the good or provider of the service, or the intermediary, or the importer of the good or service into the European Union, as well as any person presented as such on the good itself, whether on the container, packaging or any other element of its packaging or presentation, service name, brand, or any other distinctive symbol.’
- 403. SPAIN SPA-5 In the light of these precepts, it is evident that the producer, and therefore the party initially responsible for damage caused by a defective product manufactured or sold by it, is represented by both the manufacturer of the product and the importer of the product into the European Union (EU), and, in case of the importer, the supplier. By using these concepts of a producer, the law broadens consumer protection, finding not only the manufacturer of a defective product liable for damage caused by the product, but also all those that participate in its creation (as ruled by Spanish courts,4 these comprise the manufacturer of the finished product, the producers of raw materials, and manufacturers of parts or components) until the moment it is put at the disposal of the end consumer, including the importer and, finally, in certain circumstances, also the supplier. Obviously, all businesses in the course of their professional activities produce and manufacture goods for use by end consumers, and, if the goods are found to be defective and cause damage, the producer of the goods must compensate this damage. There have been numerous rulings by Spanish courts that have found producers, understood as the manufacturer of the product, liable for defective products. One example is a case in which the Spanish Supreme Court found sole liability to lie with the manufacturer of a catheter which broke after it was implanted in a patient. The ruling went against the manufacturing company and exempted other participants (such as the doctor who implanted the apparatus) from liability. The Supreme Court found only the manufacturer liable, as the other participants acted with the due diligence, with the damage being caused solely and exclusively by a defect in the implanted catheter.5 Spain’s Supreme Court also found the vehicle manufacturer liable for manufacturing defects in an engine that triggered a sudden fire that had no external cause whatsoever.6 Importer Legislation on product liability aims to extend consumer protection, which in certain cases has led to importers of defective goods being found directly responsible for damage. In this context, a series of clarifications is required, in accordance with Article 135(1) of the TR. First, according to this precept, liability will only be found with the importer of the product into EU Member States. Second, the import must, in all cases, be a part of business activity. The TR aims to protect consumers by broadening protection to include cases in which it is difficult to enforce liability on a producer (understood as the 4 Judgment of the Balearic Islands Provincial Court of 28 December 2006 (Aranzadi 2007/155). 5 Supreme Court Judgment of 15 November 2000. 6 Supreme Court Judgment of 30 April 2008 (Aranzadi 2008/2686).
- 404. SPA-6 INTERNATIONAL PRODUCT LIABILITY manufacturer), as the producer is located in a non-EU state. In such specific cases, the TR allows consumers to make direct claims against the importer (who introduced the defective product into Spain) instead of the manufacturer. The Provincial Court of the Balearic Islands7 categorically identified this liability, stating: ‘Without prejudice to the liability of the producer, any person importing into the European Union a product for sale, hire, leasing, or any other form of distribution in the course of its business activities shall be deemed to be a producer for the purposes of [the Product Liability] Directive and shall face the same liability as the producer.’ Supplier At the final level in the hierarchy of liable parties set by law, there is the supplier. According to Article 138(2) of the TR, the supplier will only be liable in cases where the producer (who is the manufacturer or importer) cannot be identified or, if identified, the supplier ‘has supplied the product in the knowledge of the defect’s existence’, as stipulated in article 146 of the TR. The TR therefore includes two particular cases in which the supplier will be liable. According to Article 138(2) of the TR, the supplier will be considered the producer and will be held liable as such when it is not possible to identify the producer or, if applicable, the importer. Based on Article 146 of the TR, the supplier also will be held liable when it has supplied a product to consumers while aware of the existence of a defect. The law thereby establishes the ‘subsidiary’ liability of the supplier in cases where it seems impossible for the producer to be held responsible, as the producer is unknown. Furthermore, even if the producer is known, a supplier who was aware of defects in a product but allowed it to be sold will be liable for damage caused by that product, thereby providing further protection to consumers. As well as the two cases in which, according to the law, responsibility can be found to lie with the supplier, other specific criteria also must be met for a party to be considered a supplier. The supplier is understood to mean an entity operating as a business, which means that any distribution of goods by a party not involved in a business activity will be exempt from defective product liability. As well as operating as a business, to be considered a supplier under the TR, the party must provide goods or services. Finally, regarding the supplier’s liability, 7 Balearic Islands Provincial Court Judgment of 28 December 2006 (Aranzadi 2007/155).
- 405. SPAIN SPA-7 Article 146 of the TR8 allows consumers to make claims directly against the supplier when the supplier provides a product while aware of its defect. However, in such cases, the law allows the supplier, despite incurring the liability of a real producer, to pass on its liability to the producer. This provision therefore represents a further means of extending protection to consumers, who, in their disadvantageous contractual position, see their rights broadened and are allowed to make claims against any participants in the chain of commerce, regardless of whether these may or may not subsequently pass on their liability to other participants. There are abundant precedents in case law where the supplier has been held liable. For example, in the case of a consumer claiming compensation for damage to the engine of a vehicle, which occurred when installing a part that was required, the Court cited Article 138(2) of the TR, under which the supplier of the part was found directly liable, as the producer could not be accurately identified.9 Another example is a case where a consumer died from an electric shock. The Court ruled against the supplier, even though the supplier was not the manufacturer of the product that caused the death of the claimant’s husband, as the company’s distinctive symbol appeared on the device and thereby generated a perception before consumers that the supplier was the manufacturer. The supplier was therefore found liable for the damage incurred.10 Joint Liability Courts do not always find the supplier liable for damage from defective products. One recent example was a case involving a defective coil cartridge that caused a number of injuries to the consumer who bought it. The seller of the cartridge was exempted from liability as the producer could be appropriately identified, and therefore it was the producer that was held liable for the damage incurred.11 The law provides that all parties taking part in the production of a defective product can, in theory, be found directly liable for damage (the manufacturer, the producer of the raw materials, and the importer). Furthermore, in a supplementary manner only, in some cases the supplier may be found liable when the manufacturer or importer is unknown or, while they are known, when the supplier provided the product while aware of its defects. 8 Royal Decree Number 1/2007, art 146, states: ‘The supplier of the defective product will face the same liability as the producer when it has supplied the product with knowledge of the existence of the defect. In this case, the supplier may initiate an action for recourse against the producer’. 9 Barcelona Provincial Court Judgment of 7 May 2010 (Aranzadi 2010/1034). 10 Madrid Provincial Court Judgment of 17 April 2007 (AC 2007/1131). 11 Toledo Provincial Court Judgment of 11 December 2009 (Aranzadi JUR 2010/85388).
- 406. SPA-8 INTERNATIONAL PRODUCT LIABILITY However, in accordance with the joint liability stipulated in Spanish regulations, the liability of parties taking part in the production of a defective product has not prevented courts from sometimes finding joint liability among all participants in the chain of commerce, including the producer or importer and the supplier. An example of this would be the Supreme Court ruling in a case where a vehicle owner filed a claim for damages. The Court found liability to lie jointly with the company that imported the vehicle and the local garage that sold it, amounting to joint liability for the importer, the producer, and the supplier.12 Concept of Defect In General Article 137 of the TR provides the legal definition of a defective product capable of engendering liability under the terms of the cited law. Article 137 states: ‘1. A product will be understood to be defective if it fails to meet the safety standards that can be legitimately expected, taking into account all applicable factors, particularly the presentation of the product, use to which it could reasonably be put, and the time when the product was put into circulation. ‘2. A product is defective if it does not provide the safety standards normally provided by other items of the same series. ‘3. A product may not be considered defective for the mere fact that it is subsequently put into circulation in an improved fashion.’ As the wording demonstrates, liability for product defects is based primarily on safety, meaning that for a product to be deemed defective it must fail to satisfy consumers’ legitimate safety expectations. This is a general clause — a vague legal concept that courts must consider while bearing in mind all other circumstances of the case. The TR expressly mentions the presentation of the product, use to which it could reasonably be put, and the time at which it is put into circulation, but this is not an exclusive list. All circumstances must be considered when determining whether or not a product meets legitimately expected safety standards (eg, product type, its natural target market, the expectations of the average and collective consumers, the price of the product, and similar circumstances). 12 Supreme Court Judgment 753/2003 (Aranzadi RJ 2003/5837).
- 407. SPAIN SPA-9 A reading of Article 137 demonstrates that the essential concept of a defective product capable of engendering liability is based on the lack of safety, which, beyond a shadow of a doubt, is precisely how the Supreme Court understands it. Two rulings, in particular,13 show how the essential concept of a defect is based on safety flaws and embraces experience from the United States in the area of product liability, therefore making this a flexible and broad concept, as, in the absence of other subjective factors, safety is required of all products; consumers are entitled to make use of a product without physical or material risk. This is because the concept of a defective product is a direct result of the principles behind product liability regulations, which are aimed at eliminating risks to consumers rather than guaranteeing the efficiency or utility of products used by them. As stipulated in Directive 85/374/EEC, lack of quality, lack of efficacy, or other flaws rendering a product unsuitable or unfit for use do not necessarily mean a product is defective. If, despite being unsuitable or of poor quality, such goods meet all legitimate safety expectations, they cannot be deemed defective and the consumer may therefore not make liability claims using the systems described in the TR. Instead, any action will have to be based on contractual or extra- contractual liability proceedings, as applicable. The same can be said of goods that breach any contractual agreement between the seller and the consumer or user. In such cases, the provision on warranties and after-sale service, found in Book II, Title V, of the TR, is applicable, and the consumer will have the right, depending on each individual case, to product repair, replacement, price discount, or contract termination, but the systems governing liability for defective products, which is the topic under discussion here, will not be applicable. Based on the concept of a defective product as described in this section ⎯ a product that does not provide the safety standards that could legitimately be expected ⎯ Spanish legal doctrine usually distinguishes between manufacturing defects, design defects, and informational defects (in instructions of use or risk warnings). Manufacturing Defects Manufacturing defects are anomalies that are produced during the manufacturing process. This means the products are correctly designed, but as a result of irregularities during the manufacturing process, they fail to meet anticipated safety standards due to use of low-quality materials, inclusion of defective or unsuitable pieces, errors in the assembly process, and similar irregularities. 13 Supreme Court Judgment of 19 February 200 (Aranzadi RJ 2007/1895); Supreme Court Judgment of 21 February 2003 (Aranzadi RJ 2003/2133).
- 408. SPA-10 INTERNATIONAL PRODUCT LIABILITY For example, one of the benchmark cases heard recently in Spanish courts involved a manufacturing defect in a car airbag, which should have deployed during a traffic accident but failed to do so, causing the claimant to suffer serious injuries.14 The Court found the car manufacturer liable. In another case, the Supreme Court also held a vehicle manufacturer liable for manufacturing defects found in a motor that caught fire, with no external cause for the fire whatsoever.15 There also are numerous cases in which damage is caused by manufacturing defects in food products. For example, a producer of pitted olives was found to be liable for a can that contained a whole olive which broke the molar of the person that ate it.16 The Court ruled that this element, which was not the advertised product, being found in the can demonstrated insufficient safety standards in the selection, preparation, and canning of the olives. Article 137(1) of the TR also includes a rebuttable presumption17 of the existence of a manufacturing defect if the product does not meet the safety standards normally provided by other goods of the same series. It is reasonable to expect all articles manufactured based on the same design to offer the same safety standards. Should this not be the case, if one specific product is less safe than the rest, it is presumed to be the result of a manufacturing defect. This presumption has been used by the Supreme Court on several occasions, one such case being a civil liability case against the producer of a firework rocket that exploded near the face of a claimant, causing serious injuries.18 In this case, the Court found evidence that the rocket had manufacturing defects, and ruled out the existence of storage defects on the grounds that a considerable number of rockets from the same pack had been launched that day without mishap. Design Defects Design defects are found in products that are poorly designed or formulated and fail to offer consumers legitimately expected safety standards. While there is less litigation involving these kinds of defects, in practice they usually affect a greater number of consumers, as these are not individual manufacturing defects but anomalies found in all defectively designed products. There are only a few rulings of the Supreme Court that have found producers liable for damage caused by erroneously designed products. One such ruling was against a supplier of spherical-shaped sweets, approximately three and a half centimeters in diameter, which caused the death by asphyxiation of a three-year- 14 Supreme Court Judgment of 7 November 2008 (Aranzadi RJ 2009/137). 15 Supreme Court Judgment of 30 April 2008 (Aranzadi 2008/2686). 16 Provincial Court Judgment of 29 November 2005 (AC 2006/182). 17 A presumption that is only considered true if the opposite is not proved. 18 Supreme Court Judgment of 23 November 2007 (RJ 2007/8122).
- 409. SPAIN SPA-11 old child.19 The Court ruled that the sweet represented a serious health and safety risk to infants — their largest consumers — due to its size, texture, and the constitution of its ingredients. Informational Defects Informational product defects also can engender liability for any damage caused by the products in question. Such products might be well designed and manufactured, but may be defective and non-compliant with safety standards due to inadequate instructions for use or insufficient warnings on the potential risks of using the product. The absence or insufficiency of instructions or warnings means the product may be deemed defective. Logically, damage might be caused by products that carry no instructions or warnings whatsoever. One such case, for example, involved replacement seals for a well-known brand of pressure cookers, which were sold with only the written information that they were ‘original’ and with no warning that the rubber contained within was for six-flange seals, not suitable for old cooker models that needed five-flange seal replacements. In the absence of any warning, a person purchased and fitted the unsuitable seal onto the cooker, which exploded, causing several injuries. Had the manufacturer included a warning, the damage could have been avoided. This omission therefore rendered the product defective, as it failed to meet legitimately expected safety standards.20 Likewise, the manufacturer may include instructions or warnings, but these may prove insufficient to warn consumers of existing dangers or may not allow the user to form a well-founded opinion on the safety of the product. One clear example would be information pamphlets that come with medications, but fail to include details of adverse side effects the medication might produce. Pharmaceutical manufacturers are legally required to provide information on any side effects a drug might produce, and the importance of such warnings is clearly indisputable. Pharmaceuticals are well known to be potentially dangerous, and patients must have full knowledge of any possible effects that use of a given medication might have. The Provincial Court of Barcelona reached a ruling involving the product ‘Agreal’,21 which came with an informational leaflet that did not warn patients of several side effects that its use could produce. The Court therefore ruled that the pharmaceutical did not meet enforceable and legitimately expected safety standards, as the instructions with which it was sold failed to provide all the necessary information for safe and proper use of the medication. Finally, Article 137(3) of the TR states that the mere fact that a product is subsequently put into circulation in an improved form does not mean that ‘older 19 Supreme Court Judgment of 10 June 2002 (Aranzadi RJ 2002/6198). 20 Guipuzcoa Provincial Court Judgment of 17 May 2007 (AC 2007/1985). 21 Barcelona Provincial Court Judgment of 16 March 2009 (Aranzadi AC 2009/1534).
- 410. SPA-12 INTERNATIONAL PRODUCT LIABILITY versions’ of the product can automatically be deemed defective. Obviously, manufacturers are constantly developing and improving their products in the modern competitive market, and the mere fact that, subsequent to a product going on sale, new and improved versions of the same product are released does not mean earlier versions can be deemed defective. Defenses Available to the Producer In General Before looking at the grounds on which producers might be exempted from liability or have their liability reduced, it should be noted that Article 130 of the TR expressly stipulates that no agreement will be valid if it aims to exempt the producer from liability for damage caused by defective products or aims to limit or reduce this liability. Not only will any clause expressly exempting or limiting liability be invalid, so also will any clause that limits compensation payments, excludes liability for specific damage (eg, material damage), or that amends burden-of-proof regulations included in the TR. Nor will any agreement be valid, as far as the injured party is concerned, between parties involved in the manufacturing and sale of a product that might attribute liability to one party or another. Aside from the invalidity of these clauses, the TR does stipulate a series of grounds that could exempt the producer from liability or reduce its liability. Defenses under Article 140 In General As described in previous sections, liability for a defective product is objective and non-absolute, or ‘quasi objective’, with Article 140(1) of the TR describing a series of circumstances that, if proven by the producer, will exempt it from responsibility. If the injured party proves the existence of damage, a defect, and a causal relationship between the two, the producer will automatically be deemed liable unless it can demonstrate the simultaneous existence of one of the conditions stipulated in Article 140. Specifically, Article 140(1) stipulates: ‘1. The producer will not be liable if it can prove: ‘a) That the product had not been put into circulation. ‘b) That, given the circumstances of the case, it may be presumed that the defect did not exist when the product was put into circulation.
- 411. SPAIN SPA-13 ‘c) That the product had not been manufactured for the purposes of sale or any other kind of distribution for economic gain, nor manufactured, imported, supplied, or distributed under the framework of a professional or business pursuit. ‘d) That the defect occurred due to the product being manufactured in compliance with existing mandatory regulations. ‘e) That the scientific and technical knowledge existing when the product was put into circulation did not allow for the existence of a defect to be recognized.’ Obviously, it is incumbent on the defendant producer to plead and prove the existence of one of these grounds for exemption. This array or list of grounds for a producer’s exemption from liability is restricted and must be interpreted strictly by courts in order to protect the interests of victims of damage caused by defective products. Product Not In Circulation at Time of Damage One of the grounds for a producer’s exemption from liability is that the defective product responsible for specific damage had not been put into circulation at the time the damage was caused. In such cases, if the producer can prove that it had not voluntarily put the product into circulation, it cannot be held liable for damage caused by the product, as the causal relationship would clearly be broken, with the damage not resulting from the defendant’s business activities. Neither the TR nor the Product Liability Directive defines when a product is ‘put into circulation’, nor have there been rulings from Spanish courts citing this ground for exoneration. The most widely accepted understanding of a product going into circulation is when it moves out of the manufacturing stage and the producer voluntarily makes it available to consumers or users via the corresponding retail or distribution channels. A hypothetical example often used of a producer being exempted from liability for damage caused by defective products is when a product has been stolen before the producer voluntarily puts it into circulation. Non-Existence of Defect at the Time of Circulation Another argument that the defendant can use to exempt itself from liability is that the defect did not exist when the product was put into circulation. In this case, the producer would claim that the product was in perfect condition when it left its sphere of influence and that the defect appeared at a later date due to handling in transport, storage, installation and/or sale, or due to use by the user.
- 412. SPA-14 INTERNATIONAL PRODUCT LIABILITY In the awareness that it would be difficult to prove these grounds, Article 140(1)(b) does not require that full proof be provided, instead requiring only a supposition based on indications that would reasonably lead the court to believe that a product had no defect whatsoever when put into circulation.22 As a result, the defendant producer must provide sufficient evidence to convince the court that the defect appeared at a later time, when the produce was outside of its sphere of control. In contrast to the ground that the defective product responsible for the specific damage was not in circulation at the time the damage occurred, this cause is frequently cited by defendant producers and there have been numerous precedent cases, although few courts found that this ground for exemption had been proven. Evidence often put forward by producers to convince courts that defects occurred after the product had been put into circulation include the wear and tear suffered by the product over time, improper or incorrect use of the product by the user, or manipulation of the product by third parties beyond the producer’s control. For example, a Spanish court exempted from liability the producer of a water accumulator part that broke, causing flooding and damage to several apartments. The Court ruled that the defect did not exist when the accumulator was put into circulation.23 This presumption was reached based on the consideration that the piece had broken after the appliance had been operating for nearly five years, without other breakages occurring over this long period that might suggest the accumulator suffered any initial manufacturing defect. The Court therefore found it reasonable to assume that the breakage was due to the wear and tear suffered by the device over time, particularly bearing in mind that it was in constant use. Another of the rare cases in which a producer was exempted from liability on these grounds involved an accident caused by a defective car tire.24 The owner of the vehicle claimed that the tire producer was liable for the accident, but the Court rejected the claim on the grounds that the car had been purchased a considerable length of time prior to the accident and had traveled 70,000 kilometers on the same tires, when the useful life of a tire is usually thought to be approximately 40,000 kilometers, at which time it should be replaced. 22 Presumption as a means of proof is regulated by the Law of Civil Prosecution, article 386, which states: ‘Based on an admitted or proven fact, the court may presume the veracity, for the purposes of the trial, of another fact, if between the admitted or proven fact and the presumption there is a direct and defined link according to the rules of human criteria’. 23 Guipuzcoa Provincial Court Judgment of 7 March 2005 (AC 2005/193279) 24 Madrid Provincial Court Judgment of 20 June 2005 (AC 2005/173118).
- 413. SPAIN SPA-15 The Court ruled that the alleged defect in the tire did not exist when the product was put into circulation and that once the useful life of the tire had come to an end, any defect could not be deemed the producer’s responsibility. The Court believed that no producer should be found liable for product defects that did not exist when the product was put into circulation; in this case, the damage to the tire was a result of factors external to the producer, such as use of the product beyond its useful life. Manipulation of Product by a Third Party As mentioned, one argument against the producer’s liability that is often cited is that manipulation of the product by a third party caused the product defect. In such cases, the producer is exonerated from responsibility, as the necessary causal relationship between its actions and the resulting damage is broken. Examples from Spanish case law usually take into consideration whether or not the manufacturer has been given a contract for product maintenance. For example, one case involved the death of a person by electrocution in a laundry facility as workers operated an industrial washing machine. The Court understood that the defect was caused by repairs made to the machines.25 As the producer had not assumed any obligation whatsoever to monitor the industrial facility, it was exempted from liability the moment that other technicians outside of its control intervened and manipulated the product. There also are numerous precedent rulings on cases of damage caused by the ingestion of toxic products found in containers purportedly containing liquids suitable for consumption (bottled water, beer, and grape juice served in restaurants or discotheques). In such cases, when ruling whether liability lies with a bottling company or those responsible for the establishments where the drinks were served, courts took into consideration whether the bottle was properly sealed or not. If during the trial it is proven that the bottle or container was properly sealed, liability is deemed to lie with the manufacturer; if it is proven that the bottle was not properly sealed, the toxic substances may be judged to have entered the bottles or cans due to the negligence of those responsible for the establishment, thereby exonerating the producer from liability. Product Misuse Another argument that defendant producers regularly put forward to demonstrate that no defect existed when a product went into circulation is improper or unsuitable use of the product by the user. In such cases, the fact that a user disregards the product’s technical specifications or instructions of use exonerates the producer from liability for damage that this improper use may have caused. 25 Barcelona Provincial Court Judgment of 20 June 2005 (AC 2007/2001).
- 414. SPA-16 INTERNATIONAL PRODUCT LIABILITY There are examples in Spanish case law of manufacturers being exempted from liability on these grounds, such as, among many other cases, a wax product designed for apples used on other fruits, which contravened the manufacturer’s instructions of use; cisterns being operated under extreme conditions, contrary to the manufacturer's indications; and the use of a potent industrial insecticide inside a home, contrary to the producer’s instructions for use of the product. Product Not Manufactured for Sale Another cause for exemption from liability, as stipulated in Article 140(1)(c) of the TR, is that the product had not been manufactured for sale. A reading of this section is enough to demonstrate that the scope of these grounds for exoneration is highly restricted, as two circumstances must exist simultaneously, both of which are very rare: first, that the product had not been manufactured for sale or profit; second, that the product had not been manufactured as part of a professional or business activity. There are, therefore, very few court rulings citing these grounds for exoneration, as the required circumstances are only rarely seen: the manufacturing of a product to be gifted to an acquaintance, sale by the business of a second-hand private product, and circumstances of that nature. On the other hand, the manufacturer will be liable for damage caused by sample products or gift products that are sometimes given away to consumers along with a purchased product. Development Risk Finally, but no less important, there is the ground for the producer’s exemption from liability, as stipulated in Article 140(1)(e) of the TR, commonly known as the ‘development risk defense’. If the producer can demonstrate that the scientific and technical knowledge available to the manufacturer at the time the product was put into circulation did not allow for the defect to be detected, the producer will be exempted from liability. There are three key issues that need to be taken into account regarding this defense. First, the relevant time for the purpose of article 140(1)(e) is the time the product was put into circulation. Second, the scientific or technical knowledge available at a specific moment in time must be considered objectively, regardless of the product type, the characteristics of the manufacturer, and similar aspects. Courts must determine whether, at the given time, a manufacturer could have prevented the defect had it examined and taken into consideration the scientific and technical knowledge it had potential access to. Third, this defense will not be applicable if, having already put the product into circulation, the producer becomes aware of any safety risks that use of the
- 415. SPAIN SPA-17 product could entail and fails to take the necessary precautions to prevent the occurrence of damage. In this case, producer will be liable for damages. Contributory Negligence As well as all the defenses available under Article 140, Article 145 of the TR expressly states that the producer’s liability may be eliminated or reduced when the damage has been caused jointly by a product defect and the contributory negligence of the injured party or a person that could be liable under civil law. Despite the precept citing ‘negligence’, both Spanish legal doctrine and case law demonstrate that the negligent behavior or fault of the claimant need not necessarily be recognized. As such, there have been consistent rulings based on this provision even when the injured party is a minor or disabled, and therefore not legally accountable. Therefore, only the causal and objective behavior that leads to damage is taken into account, regardless of whether there is fault or negligent behavior. Obviously, the burden of proof for a causal relationship between the injured party’s behavior and the damage lies with the producer that is defending itself in a liability proceeding. The producer must prove that the actions of the claimant truly contributed to the damage. Therefore, if it is deemed that the damage would have occurred even had the injured party acted differently, liability will remain with the producer. Such a ruling was made by the Supreme Court26 in the case where a vehicle’s airbag did not properly deploy at the time of an accident, with the driver consequently suffering serious injuries. The Court deemed that the manufacturer had not proved that the injuries were caused or aggravated by the actions of the driver, who was not wearing a seatbelt. In this case, it was judged that the airbag did not work, that the driver suffered several injuries, and that the airbag could have reduced these injuries by 40 per cent. As a result, the Court ruled that the product defect and its causal relationship with the damage were demonstrable, the burden of proof for which lay with the plaintiff, while it was not proven that the driver’s failure to use a seatbelt caused or aggravated the injuries, the burden of proof of which lay with the defendant. Spanish case law includes few legal precedents in which a producer has been fully exonerated from liability on the grounds of contributory negligence of the injured party. One of the benchmark cases in which the Spanish Supreme Court exonerated a manufacturer from liability27 concerned a home that exploded following the use of potent insecticide acquired for its disinfection. Despite the product’s manufacturer being found liable in the court of second instance, the Supreme Court exonerated it from liability, judging that the damage was caused 26 Supreme Court Judgment of 7 November 2008 (RJ 2007/137). 27 Supreme Court Judgment of 21 November 2008 (RJ 2009/144).
- 416. SPA-18 INTERNATIONAL PRODUCT LIABILITY exclusively by the person that bought the product and made use of it with absolute disregard for the instructions printed on its label. Another example of exemption from liability on the ground of the claimant’s contributory negligence came in a ruling from the Lleida Provincial Court.28 The case concerned a wax product intended for exclusive use on apples and not designed for any other types of fruit. A user subsequently utilizing the wax on other fruits broke the causal relationship between the producer’s actions and the damage, as the claimant showed negligence by disregarding the manufacturer’s instructions for use. In contrast, a manufacturer would not be exempted from product liability if a claimant makes improper use of a product when that improper use is a consequence of an absence or deficiency or insufficient clarity of instructions or warnings. Comparative Negligence There have been cases very frequently heard in Spanish courts featuring a so- called ‘percentage of fault’ (comparative negligence/fault), based on which the manufacturer’s liability and compensation payable to the claimant are reduced. In such cases, the court evaluates the percentage or degree of fault that can be attributed to each party in relation to the damage, and thereby apportions the producer’s liability and the compensation it should pay. A benchmark example of concurrent cause is when the injured party is a minor who was not duly supervised by the parents or guardians. For example, the Spanish Supreme Court29 found concurrent cause for damage in the case of a three-year-old child that died of asphyxiation after swallowing a sweet known as fresón. The Court subsequently reduced the compensatory damages payable by the manufacturer. In this case, the Court believed that the parent had given the sweet to the child despite the sweet being unsuitable for the child’s age, thereby contributing to the cause, and therefore the Court reduced the compensation that the manufacturer was ordered to pay. Other cases in which Spanish courts often find concurrent cause are traffic accidents in which safety systems have not worked properly. In such cases, if an accident is found to be the result of imprudence or negligence on the part of the affected driver, the courts will assess the proportion or percentage by which the driver’s conduct contributed to the accident and subsequently reduce the compensation payable by the manufacturer. 28 Lleida Provincial Court Judgment of 14 July 2004 (AC 2004/293605). 29 Supreme Court Judgment of 10 June 2002 (RJ 2002/6198).
- 417. SPAIN SPA-19 Compensable Damage In General Compensable damage under the product liability regime of the TR can only be determined if its Articles 128 and 129 are interpreted with reference to each other. Article 129 states: ‘1. The liability regime covered in this Book is for personal damage, including death, and material damage, when these involve goods or services objectively intended for private use and consumption and that have been chiefly used for such purposes by the injured party. ‘2. This Book will not apply to compensation for damage caused by nuclear accidents, as long as such damage is covered by international conventions ratified by European Union Member States.’ Meanwhile, Article 128 expressly stipulates that the liability regime established in the TR will have no effect whatsoever on any other rights that the injured party might hold when compensated for damage, including moral rights based on contractual liability, non-compliance of goods or services, or any other grounds for non-fulfillment or defective fulfillment of contracts or extra- contractual liability, if applicable. The following subsections discuss various kinds of damage that an injured party might sustain and to what degree these are covered or excluded by the protection offered by the TR. Personal Damage Article 129 stipulates ‘personal damage, including death’ and the Article contains several expressions such as ‘personal injuries’. Obviously, death and all types of injuries sustained as a result of defective products are included in personal damage subject to compensation under the TR. The concept of personal injuries is understood to include all physical and psychological injuries, illnesses, any costs incurred to re-establish health, and even the recovery of earnings lost as a result of these injuries. Spanish case law understands that all damage resulting from death or injuries is covered, both consequential damage (including costs incurred to re-establish personal health, among others) as well as loss of earnings (which covers income not generated due to incapacity preventing usual activities from being carried out).30 In practice, when quantifying damage caused by defective products, Spanish courts have had a tendency to use the standard personal damage system used for damage incurred in traffic accidents. This standard model is published annually by the General Directorate of Insurance and Pension Funds and specifies 30 Balearic Islands Provincial Court Judgment of 28 December 2006 (AC 2007/155).
- 418. SPA-20 INTERNATIONAL PRODUCT LIABILITY compensation for death, permanent injuries, and temporary incapacity sustained in traffic accidents. Obviously, this standard is non-binding and courts are not obliged to follow it when assessing damages for injuries caused by defective products; however, courts have found the standard useful for reference purposes on numerous occasions, in order to safeguard the principles of equality and legal certainty and to avoid ordering compensation in a purely arbitrary manner. For this kind of personal damage, the TR, specifically Article 141(b), sets a maximum payable compensation, stipulating that ‘the producer’s total civil liability for death and personal injuries caused by identical products showing the same defect will be limited to a sum of 63,106,270.96 euros’. This limit is applicable to each manufacturer of the product in question, not to the entire sector or group of companies selling the identical products referred to in the precept. The aim is to establish a maximum sum that the producer will have to pay as compensation to the entire group of parties affected by a defective product. However, does this mean the producer will only have to pay this maximum figure even when the combined compensation payable to injured parties is higher? Obviously, the answer must be in the negative, as the maximum amount included in the TR is not exclusive. This means that if accredited damage exceeds the stipulated maximum sum, then injured parties may resort to other means to obtain compensation for accredited damage, and this is precisely how the Spanish Supreme Court has understood the matter. In terms of Spanish regional case law, a ruling from the Castellón Provincial Court31 stands out for its clarity and forceful wording, stating that the established maximum compensation: ‘. . . is indeed a limit. But bear in mind that it refers to the liability system stipulated by the Law, which is objective by nature, as expressly attested in its statement of purpose. It can therefore be understood that if damages exceed this compensation limit, then claims can be made via the general extra-contractual civil liability system [. . .] of the Civil Code). [. . .] Therefore, compensation not covered by this specific law may be awarded via general regulations.’ Moral Damage Official legal doctrine understands that moral damage must be excluded from the protection provided by the TR, due to the stipulation of Article 128(2), referring expressly to the possibility of the injured party obtaining compensation 31 Castellón Provincial Court Judgment of 29 March 1999 (ARP 1990/722).
- 419. SPAIN SPA-21 for moral damage via the corresponding contractual or extra-contractual liability action in each case. Despite this, whether under the heading of psychological injuries or as part of the overall quantification of damage, there have been numerous court rulings in civil product liability cases that have ordered the liable party to pay a determined sum as compensation for moral damage incurred. In cases of personal injuries according to the standard described in Article 129 of the TR, there is the express inclusion of moral damages when determining compensation for death and permanent injuries. There have been numerous Spanish court rulings that have awarded compensation for aesthetic damage suffered by the injured party or for post-traumatic or depressive conditions, although there is usually no express mention of moral damages, making it common for compensation to be awarded for moral damage caused by defective products. Material Damage Not all material damage caused by defective products is included under the protection of the TR. First, Article 142 of the TR expressly excludes material damage caused to the product itself, an exclusion that has been echoed in Spanish courts on numerous occasions. However, the fact that the TR excludes from its protection any damage to the defective product itself does not mean that such damage may not be compensated, as Article 142 stipulates that any party suffering such damage has a right to receive compensation ‘under civil and commercial law’. As a result, in order to receive compensation for material damage to the defective product itself, claimants should not resort to the defective product liability regime that is discussed here, but should instead use channels stipulated in applicable commercial and civil laws. Second, for material damage to be compensable, the TR demands that the damage involve goods or services that may objectively be considered for private use or consumption and that have been used for such purposes by the injured party. It is obvious that the TR refers to goods that have been damaged by the defective product and the defective product itself, and therefore any damage caused to goods other than the defective product that have been employed in business or industrial use will not be covered by the protection available under the TR. On more occasions than would be desirable, courts have ruled against producers despite the damage being caused by industrial use. However, Spanish case law has generally applied this exclusion in the appropriate manner.
- 420. SPA-22 INTERNATIONAL PRODUCT LIABILITY A good example is the ruling in the case of a company claiming compensation for damage to a refrigeration machine installed at its industrial facilities,32 which was caused by the interruption and fluctuation of electricity supply. The Court ruled that this damage was not compensable under the TR, as the damaged item comprised industrial machinery used as part of the company’s business activities — in the sense that it was not usually employed for private use or consumption, nor had the injured party employed the item on this occasion for private use or consumption — and therefore it was not a product protected by the provisions of the TR. As a result, the Court believed that general assessment criteria were applicable instead of those included in the TR. Another example is a ruling in a case in which a company acquired a generator that was attached to a vehicle used in the company’s business of selling meat to various municipal markets.33 The company submitted a claim for damage caused by the generator when it became detached from the vehicle. The ruling excluded the use of defective product liability regulations on two grounds: first, the damage was caused to the defective product itself, manufactured by the defendant; second, the affected product was used for the claimant’s professional or industrial purposes and not for private use or consumption. The stipulation of Article 141(a) of the TR establishes a sum of €390.66 deductible from total compensation payable for material damage. Most legal doctrine understands that this precept establishes a sum deductible from the compensation payable to each injured party: if the compensation is less than €390.66, the liable producer will pay no sum whatsoever while, if the total is greater, the sum of €390.66 will be deducted from the amount payable. Despite this clear legal provision regarding a deduction, to date Spanish courts have generally overlooked the provision; the courts establish the corresponding compensation and order the liable party to pay the full amount, without deducting the sum of €390.66 as stipulated in the TR. Obviously, this deduction is applicable solely and exclusively to compensation for damage caused by defective products under the jurisdiction of the TR, but not to compensation awarded under the contractual or extra-contractual liability regimes. Statutes of Limitation Action by the Injured Party Article 143 of the TR stipulates the statute of limitations for claims for damages on the grounds of product liability. This precept establishes a prescriptive 32 Madrid Provincial Court Judgment of 28 June 2006 (2007/9254). 33 Valencia Provincial Court Judgment of 30 July 2002 (JUR 2002/247790).
- 421. SPAIN SPA-23 period, stating that legal action must be brought to the courts within three years, starting from the date on which the injured party suffered the damage, whether for a defective product or for damage caused by the defective product, as long as the party responsible for the product is known. A great deal of criticism has been aimed at the unfortunate wording of Article 143, which, in an attempt to identify the day on which the prescriptive period begins, is actually very vague and can give rise to numerous interpretations. Furthermore, Article 143 clearly differs from the Product Liability Directive on when the period should begin, which means that any doubts over interpretation must be resolved in accordance with the statute of limitations cited in the Directive. Specifically, the Product Liability Directive establishes a prescriptive period of three years, starting on the date that the injured party becomes aware or should have become aware of the damage, the existence of a defect, and the producer’s identity. This provision shows how the Directive not only standardizes the prescriptive period, but also the starting date of that period in a commendable attempt to provide maximum legal security to both manufacturers and those affected by defective products. The Product Liability Directive clearly opts for subjective criteria when determining the start of the prescriptive period by linking the start of the period to the injured party becoming aware or potentially becoming aware of various circumstances, which must all be in place for liability to be claimed: a product defect, damage caused by the defective product, and the identity of the manufacturer of the defective product. These criteria favor the injured party by preventing any legal action from being prescribed when the injured party becomes aware of the defect or damage at a much later time. However, inexplicably, the TR does not include the awareness criteria and indicates that the three-year period should begin at the moment when the damage is incurred. As previously mentioned, both Spain’s legal doctrine and case law34 have aimed an enormous amount of criticism at this wording. The first criticism is that that the injured party may not be aware of the damage at the time that it is incurred. Furthermore, Article 143 of the TR does not include the triple safety mechanism stipulated in the Product Liability Directive, which states that the period will not begin until such time that the injured party has knowledge of three distinct elements: damage, defect, and the manufacturer’s identity. Criticisms also are leveled at the fact that the TR adds a demand that the Product Liability Directive does not include: the requirement that the claimant must have knowledge of which party is responsible for the damage, while the European regulation only mentions the identity of the manufacturer or importer. 34 The Balearic Provincial Court Judgment of 28 December 2004 (JUR 2005/38399) widely argues these criticisms.
- 422. SPA-24 INTERNATIONAL PRODUCT LIABILITY As a result of these contradictions and the interpretational uncertainties they engender, it must be understood — in accordance with the spirit of the Product Liability Directive and despite the unfortunate wording of Article 143 of the TR — that the precept intends to define the start of the prescriptive period as the moment at which the injured party has genuine awareness of the damage incurred and the identity of the producer. There are some court cases in which the precept has been mistakenly construed. For example, a Supreme Court ruling found that the initial day of the prescriptive period was the day on which the product was acquired.35 Another ruling from the Albacete Provincial Court36 set the first day as the day on which the tiles, eventually deemed defective and the subject of the claim, were placed. There are other rulings which exclusively used the moment that the damage was incurred.37 Apart from these cases, Spanish case law has largely made correct use of the awareness criterion. One such example was a ruling in a case in which a blood transfusion led to a person contracting the HIV virus and hepatitis C.38 The Court quite correctly understood that the precept,39 with greater or poorer clarity, linked the start of the prescriptive period with the moment that the victim was fully aware of the damage incurred and the identity of the manufacturer. In this case, the Court used the moment that the illness was diagnosed and found that the claim had been presented within three years starting from that date. Regarding interruptions of the prescriptive period, the TR merely points to provisions stipulated in the Civil Code. Therefore, causes for interruption of the prescriptive period detailed in Article 1973 of the Civil Code are fully applicable: action being brought before the courts, extra-judicial claims being made by the party held liable, and any act of acknowledgement of the debt by the debtor. The final matter of note is that this prescription system is solely and exclusively applicable to product liability deriving under the TR. Obviously, if the action is filed for a different kind of liability, the prescriptive period will not correspond to the three years stipulated by the TR. For example, for a contract liability action, the general prescriptive period is 15 years, as stipulated in Article 1964 35 Supreme Court Judgment of 21 June 1996 (RJ 1996/6712). 36 Albacete Provincial Court Judgment of 16 April 1998 (AC 1998/936). 37 Such as the Barcelona Provincial Court Judgment of 12 September 2003 (JUR 2003/261064) and the Valencia Provincial Court Judgment of 16 September 2002 (AC 2002/1657). 38 Cadiz Provincial Court Judgment of 20 April 2007 (AC 2007/1700). 39 The ruling referred to Law Number 22/1994 of 6 July on civil liability for damage caused by defective products, art 12, which reads nearly identically to the TR, art 143.
- 423. SPAIN SPA-25 of the Civil Code while, for an extra-contractual liability action the applicable prescriptive period is one year, regulated by Article 1968 of the Civil Code. Action for Recovery between Those Liable for Damages According to 143(1), there is a one-year limitation period for recovery of compensation for payment made by one party from the others held jointly liable, counted from the date of payment of the compensation. Interruption of this period is governed by the Civil Code. Producer’s Liability The producer’s liability expires 10 years after the product has been put into circulation. Article 144 of the TR stipulates that injured parties may not assert their rights once 10 years have passed since the product responsible for the damage was put into circulation. The corresponding claim must be brought before the courts within the 10-year period. Product Liability Insurance Civil Liability Insurance In General Compulsory civil liability insurance for damage caused by defecti