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International Product Liability

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International Product Liability Compilation. ...

International Product Liability Compilation.

Juris Publishing has initiated the distribution of an international compilation of Product Liability reulation, where besides analyzing the general concepts, the regulations in different jurisdictions around the world are reviewed.

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    International Product Liability International Product Liability Document Transcript

    • PUBLICATION UPDATE INTERNATIONAL PRODUCT LIABILITY RELEASE 1 • 2012 HIGHLIGHTSJuris Publishing is pleased to present Release 1 of International ProductLiability. This release contains comprehensive revisions to the chapters on: • Colombia • Denmark • England and Wales • Italy • Mexico • South Africa • UkraineThis release also contains new chapters on: • Malaysia • Poland • RomaniaJuris Publishing and the authors welcome your questions, suggestionsand comments. Please contact us at Juris Publishing, Inc, 71 New Street,Huntington, N.Y. 11743 USA.
    • 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…………………………………………….1-631-350-2100or fax…………………………………………….……1-631-351-5712 JURIS
    • INTERNATIONALPRODUCT LIABILITY Second Edition DENNIS CAMPBELL General Editor CHRISTIAN CAMPBELL Editor JURIS
    • 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
    • Table of Contents ArgentinaIntroduction ............................................................................................ ARG-1Legal Regime ......................................................................................... ARG-1Consumers’ Claims ................................................................................ ARG-4Concept of Defect .................................................................................. ARG-7Information to Consumers ..................................................................... ARG-7Remedies ................................................................................................ ARG-8Provisions in Consumer Contracts ......................................................... ARG-8Product Liability Insurance .................................................................... ARG-11Product Liability Litigation .................................................................... ARG-12Conclusion ............................................................................................. ARG-13 AustriaIntroduction ............................................................................................ AUT-1Historical Evolution ............................................................................... AUT-2Purpose of the PHG................................................................................ AUT-4Product and Defective Product............................................................... AUT-5Warning and Recall Obligations ............................................................ AUT-8Defenses Contributory Fault .................................................................. AUT-8Defect as ‘Proximate Cause’ .................................................................. AUT-10Liable Persons General .......................................................................... AUT-11Joint and Several Liability ..................................................................... AUT-14Burden of Proof...................................................................................... AUT-15Remedies ................................................................................................ AUT-16Disclaimer Clauses................................................................................. AUT-16Statutes of Limitation ............................................................................. AUT-17Liability of Corporate Successors .......................................................... AUT-18 (Release 1 – 2012)
    • iv INTERNATIONAL PRODUCT LIABILITYInsurance ................................................................................................ AUT-18Role of the Courts .................................................................................. AUT-19Applicability of Austrian Law ............................................................... AUT-19Disclaimer .............................................................................................. AUT-20 CanadaIntroduction ............................................................................................ CDN-1Common Law......................................................................................... CDN-1Contract ................................................................................................. CDN-8Other Statutory Enactments ................................................................... CDN-11Québec Civil Law .................................................................................. CDN-14Conclusion ............................................................................................. CDN-25 ColombiaIntroduction ............................................................................................ COL-1Specific Normative Grounds .................................................................. COL-1Civil Liability Regime for Defective Products....................................... COL-3Civil Code Regulation of Extra-Contractual Responsibility .................. COL-9Collective Actions Provided under Constitution .................................... COL-10Conclusion ............................................................................................. COL-11 DenmarkIntroduction ............................................................................................ DEN-1Theories of Liability............................................................................... DEN-2Negligence ............................................................................................. DEN-3Fraud or Misrepresentation .................................................................... DEN-6Warranty ................................................................................................ DEN-6Strict Liability ........................................................................................ DEN-7Concept of Defect .................................................................................. DEN-8Defenses Available to Manufacturer ...................................................... DEN-15Liability in Chain of Commerce ............................................................ DEN-17Remedies ................................................................................................ DEN-18(Release 1 – 2012)
    • TABLE OF CONTENTS vLimitations ............................................................................................. DEN-20Successor Liability ................................................................................. DEN-21Insurance ................................................................................................ DEN-21Product Liability Litigation .................................................................... DEN-25Conclusion ............................................................................................. DEN-27 England and WalesIntroduction ............................................................................................ ENG-1Basis of Manufacturer’s Liability .......................................................... ENG-1Concept of Defect .................................................................................. ENG-4Defenses Available to the Manufacturer ................................................ ENG-5Examples of Strict Liability for Products ............................................... ENG-7Contractual Liability of Distributors ...................................................... ENG-9Remedies ................................................................................................ ENG-13Exclusion or Limitation of Liability ...................................................... ENG-16Statute of Limitations ............................................................................. ENG-17Corporate Successor Liability ................................................................ ENG-18Product Liability Insurance ................................................................... ENG-19Product Liability Litigation .................................................................... ENG-20Product Safety Legislation and Prosecutions by TradingStandards Officers .................................................................................. ENG-22Conclusion ............................................................................................. ENG-23 European CommunityIntroduction ............................................................................................ EU-1Theory of Products Liability .................................................................. EU-2Affected ‘Products’ ................................................................................ EU-2Definition and Types of ‘Defect’ ........................................................... EU-4Liable Parties ......................................................................................... EU-5Parties Entitled to Recovery ................................................................... EU-6Types of Remedies and Extent of Recovery .......................................... EU-7Questions of Evidence ........................................................................... EU-8 (Release 1 – 2012)
    • vi INTERNATIONAL PRODUCT LIABILITYLimits of Liability .................................................................................. EU-9Other Remedies ...................................................................................... EU-10Disclaimer .............................................................................................. EU-11Transformation of the EC Directive ....................................................... EU-11Further Developments in the European Community .............................. EU-14Appendix ................................................................................................ EU-16 IndiaIntroduction ............................................................................................ IND-1Theories of Liability............................................................................... IND-2Concept of Defect .................................................................................. IND-8Defenses ................................................................................................. IND-13Other Parties Impacted by Product Liability Considerations ................. IND-14Remedies ................................................................................................ IND-15Disclaimers/Limitation on Remedies by Contract ................................. IND-16Corporate Successor Liability ................................................................ IND-17Product Liability Insurance .................................................................... IND-18Product Liability Litigation .................................................................... IND-20Conclusion ............................................................................................. IND-22 ItalyIntroduction ............................................................................................ ITA-1Product Liability under Contract Law .................................................... ITA-2Product Liability under Tort Law .......................................................... ITA-3General Principle of Producer’s Liability without Fault ........................ ITA-7Statute of Limitation and Forfeiture Term ............................................. ITA-19Mandatory Regime of Liability .............................................................. ITA-20 MalaysiaBasis of Manufacturers’ Liability ........................................................ MAY-1Obligations to Warn or Recall Defective Products .............................. MAY-8Defenses Available to Manufacturer .................................................... MAY-9(Release 1 – 2012)
    • TABLE OF CONTENTS viiLimitation of Liability by Proximate Cause ......................................... MAY-11Impact of Product Liability Considerations ......................................... MAY-12Remedies .............................................................................................. MAY-14Limitations on Remedies by Contract .................................................. MAY-17Claims Affected by Statute of Limitation ............................................ MAY-17Extension of Liability for Defective Products to CorporateSuccessors ............................................................................................ MAY-18Role of Insurance in Product Liability Matters .................................... MAY-18Role of Courts and Lawyers in Product Liability Litigation ................ MAY-18 MexicoIntroduction ............................................................................................ MEX-1General Aspects of Liability in Mexico ................................................. MEX-3Theories of Liability............................................................................... MEX-6Concept of Defect .................................................................................. MEX-11Obligation to Recall Defective Products ................................................ MEX-11Obligation to Warn Consumers about Defective Products..................... MEX-11Defenses Available to the Manufacturer ................................................ MEX-12Proximate Cause .................................................................................... MEX-14Liability of Others in the Supply Chain ................................................. MEX-14Remedies ................................................................................................ MEX-15Contractual Disclaimers or Limitations ................................................. MEX-17Statute of Limitations ............................................................................. MEX-17Corporate Successor Liability ................................................................ MEX-18Product Liability Insurance .................................................................... MEX-18Product Liability Litigation .................................................................... MEX-19Conclusion ............................................................................................. MEX-23 The PhilippinesIntroduction ............................................................................................ PHI-1Theories on Manufacturers’ Liability .................................................... PHI-1Concept of Defect .................................................................................. PHI-11 (Release 1 – 2012)
    • viii INTERNATIONAL PRODUCT LIABILITYObligation to Warn Consumers or Recall Defective Products ............... PHI-15Defenses Available to the Manufacturer ................................................ PHI-16‘Proximate Cause’ Limits ...................................................................... PHI-18Others Affected by Product Liability Considerations ............................ PHI-20Remedies ................................................................................................ PHI-22Exclusion or Limitation of Contractual Liability ................................... PHI-25Statutes of Limitation ............................................................................. PHI-26Corporate Successor Liability ................................................................ PHI-27Product Liability Litigation .................................................................... PHI-27Conclusion ............................................................................................. PHI-30 PolandIntroduction ............................................................................................ POL-1Risk-Based Ex Delicto Liability for Dangerous Product ....................... POL-1Concept of Defect .................................................................................. POL-5Obligation to Warn or Recall Defective Products .................................. POL-6Defenses Available to Product Manufacturers ....................................... POL-7Proximate Cause and Limitation of Scope of Liability .......................... POL-9Impact of Product Liability Considerations ........................................... POL-9Remedies ................................................................................................ POL-10Disclaimers or Limitations on Remedies by Contract ............................ POL-11Claims and Statute of Limitation ........................................................... POL-12Liability of Corporate Successors for Defective Products ..................... POL-13Role of Insurance in Product Liability Matters ...................................... POL-13Role of the Courts and Lawyers in Product Liability Litigation ............ POL-14 PortugalIntroduction ............................................................................................ POR-1Legislative Framework ......................................................................... POR-1Strict Liability for Manufacturers .......................................................... POR-4Concept of Defect .................................................................................. POR-5Duty of Information ............................................................................... POR-8(Release 1 – 2012)
    • TABLE OF CONTENTS ixDefenses Available to the Manufacturer ................................................ POR-9Concept of Manufacturer ....................................................................... POR-11Damages and Remedies ......................................................................... POR-13Limitation Period and Lapse of Rights .................................................. POR-15Conclusion ............................................................................................. POR-15 RomaniaIntroduction .......................................................................................... ROM-1Traditional Sources of Product Liability .............................................. ROM-1Product Liability under Consumer Law ............................................... ROM-3Transfer of Product Liability to Corporate Successors ........................ ROM-13Insurance Policies and Product Liability .............................................. ROM-13Court Proceedings in Product Liability Litigation ............................... ROM-14Conclusion ........................................................................................... ROM-15 South AfricaIntroduction ............................................................................................ SA-1Theories of Manufacturers’ Liability ..................................................... SA-2Concept of Defect .................................................................................. SA-7Obligations to Warn Consumers or Recall Defective Products ............. SA-8Defenses Available to the Manufacturer ................................................ SA-9Proximate Cause .................................................................................... SA-12Liability in the Chain of Commerce....................................................... SA-13Remedies ................................................................................................ SA-14Contractual Disclaimers or Limitations ................................................. SA-17Statute of Limitation .............................................................................. SA-22Corporate Successor Liability ................................................................ SA-23Product Liability Insurance .................................................................... SA-23Product Liability Litigation .................................................................... SA-24Conclusion ............................................................................................. SA-27 (Release 1 – 2012)
    • x INTERNATIONAL PRODUCT LIABILITY SpainIntroduction ............................................................................................ SPA-1Nature and Characteristics of Product Liability ..................................... SPA-2Liability in the Chain of Commerce....................................................... SPA-3Concept of Defect .................................................................................. SPA-8Defenses Available to the Producer ....................................................... SPA-12Compensable Damage............................................................................ SPA-19Statutes of Limitation ............................................................................. SPA-22Product Liability Insurance .................................................................... SPA-25Conclusion ............................................................................................. SPA-28 SwedenIntroduction ............................................................................................ SWE-1Product Liability .................................................................................... SWE-1Contractual Liability .............................................................................. SWE-4Non-Contractual Liability ...................................................................... SWE-6Concept of Defect .................................................................................. SWE-7Obligation to Ward or Recall ................................................................. SWE-8Defenses ................................................................................................. SWE-9Who Can Be Liable? .............................................................................. SWE-10Remedies ................................................................................................ SWE-11Disclaimers and Limitations .................................................................. SWE-13Statutes of Limitation ............................................................................. SWE-13Corporate Successors ............................................................................. SWE-14Product Liability Insurance .................................................................... SWE-14Courts and Lawyers in Liability Litigation ............................................ SWE-16 UkraineIntroduction ............................................................................................ UKR-1Legislative Framework for Product Liability ......................................... UKR-1Theories of Liability............................................................................... UKR-2Concept of Defect .................................................................................. UKR-6(Release 1 – 2012)
    • TABLE OF CONTENTS xiObligation to Warn Consumers or Recall Defective Products ............... UKR-10Defenses Available to the Manufacturer ................................................ UKR-14Proximate Cause .................................................................................... UKR-16Liability of Others in the Chain of Distribution ..................................... UKR-17Remedies ................................................................................................ UKR-19Contractual Disclaimers and Limitations ............................................... UKR-23Statutes of Limitations ........................................................................... UKR-25Corporate Successor Liability ................................................................ UKR-28Product Liability Insurance .................................................................... UKR-28Product Liability Litigation .................................................................... UKR-30Conclusion ............................................................................................. UKR-32 United StatesIntroduction ............................................................................................ US-1Theories of Liability............................................................................... US-4Concept of Defect .................................................................................. US-12Obligations to Warn or Recall................................................................ US-14Defenses ................................................................................................. US-16Proximate Cause .................................................................................... US-23Liability of Others in the Chain of Distribution ..................................... US-25Remedies ................................................................................................ US-26Class Actions and Multidistrict Litigation ............................................. US-32Disclaimers and Limitations on Remedies ............................................. US-34Statutes of Limitation ............................................................................. US-35Corporate Successor Liability ................................................................ US-36Product Liability Insurance .................................................................... US-38Product Liability Litigation .................................................................... US-40Conclusion ............................................................................................. US-41 (Release 1 – 2012)
    • Authors ListArgentinaJavier CanosaCanosa AbogadosMontevideo 711 Piso 4C1019ABO Buenos AiresArgentinaTel: (54 11) 52522462Fax: (54 11) 52522463Email: jc@canosa.com.arAustriaBenedikt SpiegelfeldCHSH Cerha Hempel Spiegelfeld HlawatiParkring 21010 ViennaAustriaTel: (43 1) 514350Fax: (43 1) 5143535Email: benedikt.spiegelfeld@chsh.atandChristine WallnerCHSH Cerha Hempel Spiegelfeld HlawatiParkring 21010 ViennaAustriaTel: (43 1) 514350Fax: (43 1) 5143535Email: christine.wallner@chsh.atCanadaIlana SchragerOgilvy Renault LLPSuite 3800Royal Bank Plaza, South Tower200 Bay Street, PO Box 84Toronto, OntarioCanada M5J 2Z4Tel: (1 416) 2164000Fax: (1 416) (Release 1 – 2012)
    • xiv INTERNATIONAL PRODUCT LIABILITYandEmmanuelle DemersOgilvy Renault LLPSuite 3800Royal Bank Plaza, South Tower200 Bay Street, PO Box 84Toronto, OntarioCanada M5J 2Z4Tel: (1 416) 2164000Fax: (1 416)andBill McNamaraOgilvy Renault LLPSuite 3800Royal Bank Plaza, South Tower200 Bay Street, PO Box 84Toronto, OntarioCanada M5J 2Z4Tel: (1 416) 2164000Fax: (1 416) 2163930Email: wmcnamara@ogilvyrenault.comColombiaNatalia TobónCavelier AbogadosEdificio SiskiCarrera 4 No. 72 - 358 BogotáColombiaTel: (57 1) 3473611Fax: (57 1) 2118650Email: nataliatobon@cavelier.comandAdriana Durán FernándezCavelier AbogadosEdificio SiskiCarrera 4 No. 72 - 358 BogotáColombiaTel: (57 1) 3473611Fax: (57 1) 2118650Email: AdrianaDuran@cavelier.comand(Release 1 – 2012)
    • AUTHORS LIST xvEduardo Varela PezzanoCavelier AbogadosEdificio SiskiCarrera 4 No. 72 - 358 BogotáColombiaTel: (57 1) 3473611Fax: (57 1) 2118650Email: eduardovarela@cavelier.comDenmarkKlaus Ewald MadsenBech-BruunLangelinie Allé 352100 CopenhagenDenmarkTel: (45 ) 72270000Fax: (45 ) 72270027Email: kem@bechbruun.comandJes Anker MikkelsenBech-BruunLangelinie Allé 352100 CopenhagenDenmarkTel: (45 ) 72273490Fax: (45 ) 89310101Email: jam@bechbruun.comEngland and WalesPeter BurbidgeSenior LecturerUniversity of Westminster309 Regent StreetLondon W1B 2UWEnglandTel: (44 207) 9115000Fax: (44 207) 79115844Email: burbidp@wmin.ac.uk (Release 1 – 2012)
    • xvi INTERNATIONAL PRODUCT LIABILITYEuropean CommunitySusanne WeschWesch & BuchenrothKernerstraße 43Am Schützenplatz70182 StuttgartGermanyTel: (49 711) 2200940Fax: (49 711) 22009410IndiaKiran PrakashM.V.Kini & Co1st Floor, Bilquees MansionOpp Standard Chartered BankD.N.Road, Fort4001 001 MumbaiIndiaTel: (91 22) 612527Fax: (91 22) 612530Email: kiran.jaiprakash@gmail.comandRavi KiniM.V.Kini & Co1st Floor, Bilquees MansionOpp Standard Chartered BankD.N.Road, Fort4001 001 MumbaiIndiaTel: (91 22) 612527Fax: (91 22) 612530Email: ravikini@mvkini.comandDushyant DeepM.V.Kini & Co1st Floor, Bilquees MansionOpp Standard Chartered BankD.N.Road, Fort4001 001 MumbaiIndiaTel: (91 22) 612527Fax: (91 22) 612530Email: dushyant@mvkini.com(Release 1 – 2012)
    • AUTHORS LIST xviiItalyAntonello CorradoCFMP - Studio Legale AssociatoVia di Ripetta 14100186 RomeItalyTel: (39 06) 6876917Fax: (39 06) 68192116Email: acorrado@cfmplegal.comMalaysiaDhinesh BhaskaranShearn Delamore & Co7th FloorWisma Hamzah-Kwong HingNo 1 Leboh Ampang50100 Kuala LumpurMalaysiaTel: (60 3) 20272727Fax: (60 3) 20785625Email: dhinesh@shearndelamore.comMexicoMónica Noriega R.Barrera, Siqueiros y Torres Landa, S.C.Paseo de los Tamarindos #150-PBBosques de las Lomas05120 Mexico, D.F.MexicoTel: (52 55) 50910000Fax: (52 55) 50910123andJuan Francisco Torres Landa R.Barrera, Siqueiros y Torres Landa, S.C.Paseo de los Tamarindos #150-PBBosques de las Lomas05120 Mexico, D.F.MexicoTel: (52 55) 50910000Fax: (52 55) 50910123Email: jftl@bstl.com.mxand (Release 1 – 2012)
    • xviii INTERNATIONAL PRODUCT LIABILITYErnesto F. Algaba R.Barrera, Siqueiros y Torres Landa, S.C.Paseo de los Tamarindos #150-PBBosques de las Lomas05120 Mexico, D.F.MexicoTel: (52 55) 50910000Fax: (52 55) 50910123Email: ear@bstl.com.mxandOmar Cuéllar GamboaBarrera, Siqueiros y Torres Landa, S.C.Paseo de los Tamarindos #150-PBBosques de las Lomas05120 Mexico, D.F.MexicoTel: (52 55) 50910000Fax: (52 55) 50910123Email: ocg@bstl.com.mxandMichelle Farah M.Barrera, Siqueiros y Torres Landa, S.C.Paseo de los Tamarindos #150-PBBosques de las Lomas05120 Mexico, D.F.MexicoTel: (52 55) 50910000Fax: (52 55) 50910123The PhilippinesLovely Concepcion C. MatillanoAngara Abello Concepcion Regala& Cruz Law Offices22/F ACCRALAW TowerSecond Avenue corner 30th StreetCrescent Park WestBonifacio Global City, 0399 TaguigMetro ManilaPhilippinesTel: (63 2) 8308000Fax: (63 2) 4037007and(Release 1 – 2012)
    • AUTHORS LIST xixMa Patricia B. PazAngara Abello Concepcion Regala & Cruz Law Offices22/F ACCRALAW TowerSecond Avenue corner 30th StreetCrescent Park WestBonifacio Global City, 0399 TaguigMetro ManilaPhilippinesTel: (63 2) 8308000Fax: (63 2) 4037007andSalvador L. PeñaAngara Abello Concepcion Regala & Cruz Law Offices22/F ACCRALAW TowerSecond Avenue corner 30th StreetCrescent Park WestBonifacio Global City, 0399 TaguigMetro ManilaPhilippinesTel: (63 2) 8308000Fax: (63 2) 4037007PolandMarek OleksynSołtysiński Kawecki & SzlęzakUl. Wawelska 15B02-034 WarsawPolandTel: (48 22) 6087000Fax: (48 22) 6087070Email: marek.oleksyn@skslegal.plPortugalJacinto Moniz de BettencourtUría Menéndez - Proenca de CarvalhoEdifício Rodrigo UríaRua Duque de Palmela, 231250-097 LisbonPortugalTel: (351 210) 308600Fax: (351 210) 308601Email: jbt@uria.com (Release 1 – 2012)
    • xx INTERNATIONAL PRODUCT LIABILITYandJoão de Sousa AssisUría Menéndez - Proenca de CarvalhoEdifício Rodrigo UríaRua Duque de Palmela, 231250-097 LisbonPortugalTel: (351 210) 308600Fax: (351 210) 308601Email: jpz@uria.comandFilipe Fraústo da SilvaUría Menéndez - Proenca de CarvalhoEdifício Rodrigo UríaRua Duque de Palmela, 231250-097 LisbonPortugalTel: (351 210) 308600Fax: (351 210) 308601Email: fsi@uria.comRomaniaHoria IspasTuca Zbarcea & AsociatiiVictoriei Square4-8 Nicolae Titulescu Ave.America HouseWest Wing, 8th Floor, Sector 1011141 BucharestRomaniaTel: (40 21) 2048890Fax: (40 21) 2048899Email: horia.ispas@tuca.roSouth AfricaPer E van EedenVan Eeden AttorneysPOBox 336240010 Pretoria / TshwaneSouth AfricaTel: (27 86) 1111357Fax: (27 86) 5106782Email: vaneedenlaw@global.co.za(Release 1 – 2012)
    • AUTHORS LIST xxiSpainPatricia GualdeBroseta AbogadosC/.Pascual y Genís, 546002 ValenciaSpainTel: (34 96) 3921006Fax: (34 96) 3921088Email: pgualde@broseta.comSwedenMagnus DahlénSetterwallsKungstorget 2Box 112 35404 25 GothenburgSwedenTel: (46 31) 7011700Fax: (46 31) 7011701Email: magnus.dahlen@setterwalls.seUkraineYaroslav ShkvoretsRULG Ukrainian Legal Group, LLCOlimpiysky CenterSuite 14, 11th floor72 Velyka Vasylkivska Street03150 KievUkraineTel: (38 044) 2071060Fax: (38 044) 2071064Email: yaroslav.shkvorets@ulg.kiev.uaandIryna OstapenkoRULG Ukrainian Legal Group, LLCOlimpiysky CenterSuite 14, 11th floor72 Velyka Vasylkivska Street03150 KievUkraineTel: (38 044) 2071060Fax: (38 044) 2071064Email: Iryna.Ostapenko@ulg.kiev.ua (Release 1 – 2012)
    • xxii INTERNATIONAL PRODUCT LIABILITYUnited StatesJames Yuanxin LiStarRaft.comOakland, CaliforniaUnited StatesEmail: JamesYuanxinLi@gmail.comandDavid DeBusschereSedgwick, Detert, Moran & Arnold LLPOne Market PlazaSteuart Tower, 8th FloorSan Francisco, CaliforniaUnited States 94105Tel: (1 415) 7817900Fax: (1 415) 7812635Email: David.DeBusschere@sdma.com(Release 1 – 2012)
    • ArgentinaIntroduction ............................................................................................ ARG-1Legal Regime ......................................................................................... ARG-1 Civil Code System ................................................................... ARG-1 Consumer Protection Law System ........................................... ARG-3 System Related to Hidden Defects .......................................... ARG-4Consumers’ 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-7Concept of Defect .................................................................................. ARG-7Information to Consumers ..................................................................... ARG-7Remedies ................................................................................................ ARG-8Provisions in Consumer Contracts ......................................................... ARG-8 Abusive Clauses....................................................................... ARG-8 Prohibited Contractual Provisions ........................................... ARG-9Product Liability Insurance .................................................................... ARG-11Product Liability Litigation .................................................................... ARG-12 Frequency of Litigation ........................................................... ARG-12 Material Damages .................................................................... ARG-12 Lawyers’ Fees .......................................................................... ARG-13Conclusion ............................................................................................. ARG-13
    • Argentina Javier Canosa Canosa Abogados Buenos Aires, ArgentinaIntroductionProduct liability is the area of law in which producers and manufacturers ofproducts, as well as distributors, suppliers, retailers, and others who makeproducts available to the public, are liable for the injuries caused by defective orharmful products.Individuals who are harmed by an unsafe product may have a cause for actionagainst the persons who designed, manufactured, sold, or supplied that product.Today, the law on product liability has changed from caveat emptor (‘let thebuyer beware’) to strict liability for manufacturing defects that make a productunsafe, harmful, or dangerous.Strict liability claims focus on the product rather than on the behavior of themanufacturer. Under strict liability, the manufacturer is liable if the product isdefective, even if the manufacturer was not negligent in making that productdefective.The legal regime for product liability in Argentina is based on a strict liabilitysystem that distinguishes between contractual and non-contractual consumerrelationships.Legal RegimeIn Argentina, there are three different systems of product liability: the systemestablished by the Argentine Civil Code, the system set down by Law Number24240 on Consumer Protection, as amended (the Consumer Protection Law),and the system that relates to hidden defects, with some specific rules oncommercial matters, which are governed by the Civil Code.Civil Code SystemIn GeneralProduct liability under the Argentine Civil Code system may be contractual(when there is a contract between the buyer and the trader or manufacturer) ornon-contractual (when there is no contractual relation between the injured partyand the trader or manufacturer).
    • ARG-2 INTERNATIONAL PRODUCT LIABILITYContractual LiabilityAccording to the provisions of the Civil Code,1 contractual relationships aregoverned by the principle of good contractual faith. Consequently, the existenceof a defect of any origin implies, in the first place, the failure to fulfill theprimary obligation assumed by the seller or manufacturer, which consists ofdelivering a product free of defects.Failure to fulfill this obligation triggers the mechanisms that enable theconsumer to obtain the specific performance of the obligation by the seller ormanufacturer, with the eventual application of the corresponding remedies. Inthe case of products, remedies consist of the delivery of another defect-freeproduct in an appropriate condition; the fulfillment of the obligation by a thirdparty; or the monetary value of the product.Optionally, the consumer may request the resolution of the contract afterreturning 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 forthe damages derived from the seller or the manufacturer’s failure to perform theobligation or the resolution of the contract.Non-Contractual LiabilityWhen there is no contractual relation between the injured party and the trader,manufacturer, or any party in the marketing chain that generated the defect, therules of non-contractual liability based on the concept of ‘created risk’ apply.Created risk refers to the contingency or possibility of damage resulting fromintroducing defective products in the market, when the defects turn a productthat was not dangerous by its nature or use into a dangerous product or increasethe 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 theguardian of the product as established in the Civil Code,2 but also any party whoobtains a profit or benefit from the product, as considered in the latestjurisprudence.Nevertheless, the injured party will be able to claim against a member of themarketing chain or against all of them jointly. As in the case of contractualliability, the accused party will be able to claim a refund from the party thatcaused the defect. As the liability is objective, the defendant can only beexcused if the victim or a third party is at fault.After enactment of the Consumer Protection Law, the system of the ArgentineCivil Code is, in principle, restricted to those cases where the subject acquires1 Civil Code, s 1198.2 Civil Code, s 1103.
    • ARGENTINA ARG-3the product in order to introduce it into a production or trade process or whenthe subject is not a consumer.Consumer Protection Law SystemUnder the Consumer Protection Law, the seller is responsible on a contractualbasis as the person who engages with the consumer. The Consumer ProtectionLaw protects consumers throughout the different contractual phases, fromnegotiation to the delivery and performance of goods (including used goods) andservices.Traders must provide consumers with true, detailed, and accurate informationabout the goods or services offered. Consumers are vested with the right tocommence individual actions in the event their rights under the ConsumerProtection Law are threatened.The Consumer Protection Law also includes the right to initiate collectiveproceedings (class actions), which may include patrimonial claims throughconsumer associations and specific proceedings aimed at resolving disputesaffecting consumers.Claims initiated by consumers and consumer associations may include punitivedamages. The new Argentine Consumer Protection Law (the new ConsumerProtection Law)3 amended the Consumer Protection Law, extending andimproving consumer protection for both local and foreign individuals andcompanies.The new Consumer Protection Law extends the definition of ‘consumer’,making the term applicable to those individuals or entities obtaining cost-freegoods or services as final recipients, either for their own or for their familygroup’s benefit.Additionally, the concept of ‘supplier’ includes ‘every physical person or publicor private entity carrying out in a professional way, even occasionally, activitiesrelated to goods and services production, creation, construction, transformation,importation, distribution, and commercialization to consumers or users’.The new Consumer Protection Law establishes that ‘consumer relationshipsshall be ruled by the provisions of the Law and its regulations, notwithstandingthe laws that may apply by reason of the supplier’s activities’, hence settingforth the priority of the Consumer Protection Law over any other specific laws.Additionally, the Consumer Protection Law provides that ‘suppliers shouldguarantee equitable treatment to consumers and users, and they should refrainfrom displaying behaviors that put consumers in embarrassing, humiliating, orintimidating situations’. Infringements of these rules will be subject to fines.3 Law Number 26361 of 3 April 2008.
    • ARG-4 INTERNATIONAL PRODUCT LIABILITYUnder the new Consumer Protection Law, foreign consumers are consideredequal to national consumers in relation to prices or other commercial terms andconditions. Exceptions could be allowed with the prior authorization of theadministrative authority, taking the general interest into consideration.Finally, the new Consumer Protection Law establishes the priority of theConsumers’ Protection Law over the regulations applicable to the provision ofpublic services. Before the amendment, the provisions of the ConsumerProtection Law were subject to the specific regulations for public services.System Related to Hidden DefectsThe contractual liability provided by the Argentine Civil Code also includes theobligation to cure hidden defects in the sale contract.The obligation of curing the defects emerges when the hidden defects of theproduct sold make the product unsuitable for its purpose or diminish it in such away that a buyer who had been aware of the defects would not have bought theproduct or would have paid less for the product.The defects must be hidden, because the regime does not apply to manifestdefects that were visible or to those defects that the buyer should have knownabout, given his occupation or profession.In these cases, the buyer has the option of terminating the contract and receivinga refund of the price paid or a proportional discount on the price. If the sellerknew about the defect and hid it from the buyer, the buyer will have the sameoptions. In addition, the buyer will be entitled to compensation for the damagessuffered in case he decides to terminate the contract.Consumers’ ClaimsDevelopment of the Legal RegimeThe recognition of consumers’ claims in Argentina has been a slow and arduousprocess. The initial stage recognized consumer relationships and identified theconsumer as the weaker party in the trading relationship, due to the massivemarket, real inequalities, and lack of information, among other factors.The legal regime did not give precise answers to these issues. There were onlysome traditional warranties, such as the one provided for hidden defects, whichprotected the consumer to a certain extent.At this first stage, the liability of manufacturers and providers could only bebased on the concept of guilt; the validity of the free will of the parties wasvirtually unlimited, impeding the revision of non-equitable contracts and unfairpractices that were not precisely expressed in the legal regime.The second stage began with the reforms of the Civil Code and the enactment ofspecial regulatory laws for the market. The legal regime began to create a
    • ARGENTINA ARG-5consumer protection system through solutions that, although generic and notspecifically meant to address consumer protection, nonetheless representedsignificant progress toward equity in consumer relations.The reform of the Argentine Civil Code in 1968 included the rules on goodfaith4 and abuse of rights,5 which enable judicial control of abusive practices andunfair clauses in consumer contracts.The introduction of the liability regime for manufactured products implicitlyemerged in Sections 1198 of the Civil Code for the contractual sphere and inSection 1113 of the Civil Code for the non-contractual sphere.The prohibition of fraud in the identification of products and advertisements, thecontrol of offers with awards, and the regime of warranties was provided byseveral court precedents. The control of prices and commercialization of goodsand services was regulated by the Supply Law.6 The punishment of unfairpractices was governed by the Competition Law.7 The control of the systemsand contracts on pre-saving for determined purposes was another measure aimedat consumer protection.Finally, the third stage was initiated with the enactment of the ConsumerProtection Law, which completes the consolidation of a system of juridicalprotection that previously was only founded on general rules that were notdirectly or specifically aimed at the protection of consumers.The consolidation of the Consumer Protection Law did not come about until theconstitutional reform in 1994, which introduced consumers’ rights in theNational Constitution. The enactment of the law amending the ConsumerProtection Law8 and the new Consumer Protection Law of 2008 completed theconsumer protection regime by adding the concept of ‘user’, which includedusers’ claims against service providers, public or otherwise.On December 2008, the legislature of the City of Buenos Aires created theConsumers Arbitration Court, which aimed to solve consumers’ and users’claims within the scope of the City of Buenos Aires, with the same authority as ajudicial ruling.Strict LiabilityThe principle of strict liability applies to consumer claims. To be admitted bythe 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.
    • ARG-6 INTERNATIONAL PRODUCT LIABILITYStatute of LimitationsThe statute of limitations for any claim against any party is generally three yearsif the case falls within the scope of the Consumer Protection Law. In cases ruledby the Civil Code, the time limit for claiming damages is three months for aclaim based on a hidden defect. The time limit for a claim based on a hiddendefect is six months if the relationship is ruled by the Commercial Code. In bothcases, the term commences at the time of delivery of the product.For an action brought by the purchaser against the non-seller manufacturer, theclaim 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 10years.Successor LiabilityIf a consumer suffers damage as a result of defective goods or services, theproducer, manufacturer, distributor, trader, or the person who provides theproduct or service will be jointly liable for such damage, unless they can showthat the damage is not attributable to the relevant party.In this sense, all the subjects involved in the marketing chain may be liabletoward consumers under the Consumer Protection Law, including corporatesuccessors.This rule was included in the legal regime with the aim of guaranteeing thatconsumers will be able to obtain compensation for damage suffered from any ofthe parties to the consumer relation, regardless of the party that is ultimatelyresponsible.Causation and Burden of ProofIn relation to causation, the general principle established in the Procedural Codeis 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 positionthan the consumer to produce technical evidence; accordingly, the manufacturerhas the onus of proving that the product was not defective.The seller is deemed to hold a final obligation on the security of the productsold; therefore, if the product exhibits a defect, there is a presumption of thefault of the seller.The plaintiff bears the burden of proving the existence of the defect and therelation between the defect and the alleged damage. It is not necessary to provethat the damage would not have arisen without such exposure to the product.The mere exposure to potential damage does not produce any responsibility.
    • ARGENTINA ARG-7DefensesIn addition to procedural defenses (e.g., a time-bar defense), substantive lawauthorizes 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/orstatutory requirements relating to the development, manufacture, licensing,marketing, and supply of the product is not eligible, as the regulatoryrequirements are deemed to be granted under the condition that the product isharmless to consumers.Judicial and Administrative ProceedingsRelated to the procedure for claims, the trial is before a judge, as there are notrials by jury in Argentina. The Consumer Protection Law also regulates anadministrative proceeding and allows for the imposition of fines under suchprocedures.Concept of DefectIn Argentina, the concept of defect is defined as ‘defective manufacture’, as themanufacturer is liable for the defects of movable things.Additionally, the Consumer Protection Law introduced the liability of serviceproviders.Although a defect is defined as defective manufacture, the Consumer ProtectionLaw provides certain liability on the basis of advertising of products, in theevent that the advertising violates the obligation of providing accurateinformation on the products or services offered.Information to ConsumersThe new Consumer Protection Law establishes the minimum content of thepurchase 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 bewritten in Spanish, in a complete, clear, and easily understandable manner’.
    • ARG-8 INTERNATIONAL PRODUCT LIABILITYRemediesRegarding remedies, the new Consumer Protection Law includes thecompensation of direct damages, which is ‘any monetary damage to the user’sor 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 thesupplier to pay a compensation of up to five times the value of the totalconsumer basket, according to the value reported by the National Institute ofStatistics and Census.On this basis, on 27 May 2009 the Civil and Commercial Court of Appeals ofthe City of Mar del Plata confirmed the lower court’s decision that condemnedthe defendant to pay ARS 30,000 (approximately US $11,000 at the currentexchange rate) for moral material damages and ARS 30,000 for punitivedamages.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 claimsbefore the offices of a mobile telephone company of which he was a client, buthe had not received proper attention because the company’s building did nothave a wheelchair ramp.The innovation of this judicial decision is the confirmation of the award ofpunitive 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 notgive him decent treatment.Provisions in Consumer ContractsAbusive ClausesRegarding the provisions contained in consumer contracts, abusive clausesdeserve 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 areexpanded and the rights of the consumer/user are intentionally restricted. Anabusive clause is a provision that goes against the requirements of good faithand results in a significant and unjustified imbalance of the contractualobligations to the detriment of the consumer or user.An abusive clause may or may not be a general condition, as it may be presentin particular contracts in which actual negotiation of the provisions does notexist, particularly in adhesion contracts.
    • ARGENTINA ARG-9At times, it is more difficult to detect abusive clauses, because a significantnumber of consumer contracts are not written agreements. This does not meanthat the protection does not apply to contracts that are not in writing, but itrequires greater effort to prove the existence of an abusive clause.Resolution Number 53/03 of 2003 (the Resolution) sets forth specific provisionsthat are prohibited in consumer contracts. The Resolution not only establishesthe nullity of future provisions, but also sets forth that provisions in violation ofthe Consumer Protection Law that are included in an existing contract will beexpunged and this exclusion also will be notified to the consumer.The purpose of the Resolution was to establish objective parameters for theparties to learn, in advance, which contractual provisions would be consideredvoid. Section 37 of the Consumer Protection Law states that contractualprovisions 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 consumeragainst a company, the competent authority or the competent judge has toanalyze each particular provision in order to determine whether it violates (ordoes not violate) the general prohibition of the Consumer Protection Law.The interpretation of the provisions was subject to the discretion of theauthorities or the courts, according to the circumstances of the case. Under thenew Resolution, if a provision falls within the description established in its text,it will automatically be considered null and void.Prohibited Contractual ProvisionsWithout prejudice to other practices that could be considered in violation of thegeneral principles established by Section 37 of the Consumer Protection Law,specific contractual provisions are prohibited.The Consumer Protection Law prohibits contractual provisions that grant thesupplier 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 tounilaterally amend any provision of a contract are prohibited, unless the balancebetween the rights and obligations of the parties in the contractual relationship isnot disturbed by means of such amendments and provided that the right toamend 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 suchan amendment must have been previously established.Prohibited contractual provisions include those that, despite the due complianceby the consumer of all its obligations undertaken in the contract, authorize thesupplier of goods or services to terminate the contract without cause.
    • ARG-10 INTERNATIONAL PRODUCT LIABILITYThe termination of the contract by the supplier without cause will only be legalif an obligation of prior notification to the consumer is provided in the contractand if, in the case of fixed-term contracts, the right of the consumer to terminatethe contract also has been previously agreed.The Consumer Protection Law prohibits contractual provisions that establish thecommencement of the contract will be at the sole discretion of the supplier ofgoods or services, while the consumer’s acceptance of the terms and conditionsof the contract is irrevocably established in the text of the contract.Provisions that impose limitations on the consumer’s judicial rights also areprohibited. This is particularly the case when provisions establish a differentvenue than the one corresponding to the domicile of the consumer at the time ofthe execution of the contract (except in those cases where the judicial claim isfiled 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 onthe consumer the burden of producing specific evidence in disregard of theprovisions of the Procedural Code in this respect; and provisions that establishcertain limitations for the filing of defenses and remedies.Contractual provisions that establish the right of the supplier of goods orservices to set off a credit against a consumer already in arrears with anothercredit of the consumer against the provider, which originated in another contractor service rendered by the consumer to the provider, are prohibited, unless thiscompensation is admitted by the applicable law and the provider duly notifiesthe consumer of this circumstance in the contract.The prohibition applies to contractual provisions that exclude or limit theresponsibility of the supplier of goods or services regarding any indemnificationadmitted by the applicable law in case of damage caused by the product orservice provided to the consumer.In fixed-term consumer contracts that grant the parties the right to terminate thecontract before the specified term and in consumer contracts that have nospecified term, any provisions that make the consumer’s right of termination ofthe contract conditional on the consumer’s prior payment of all pendingobligations in favor of the other party are prohibited.Contractual provisions that establish the right of the provider to provide adifferent product or service than that agreed on in the contract without the priorconsent of the consumer and/or which impose a term for the consumer to acceptthe different product or service are prohibited.Also prohibited are contractual provisions that impose on the consumer arepresentative in order to exercise the rights provided in the contract or to carryon any other legal act on his behalf. Contractual provisions that violateenvironmental regulations or allow such violations are prohibited.
    • ARGENTINA ARG-11Product Liability InsuranceInsurance policies available for product liability in Argentina are those thatprotect the insured against civil claims. In general, these policies includecomprehensive general protection against liability claims derived fromcontractual or extra-contractual relationships, including claims related toproducts and services.According to the Insurance Law,9 insurance policies do not cover cases in whichthe insured acted intentionally or was guilty of serious misconduct. Additionally,insurance policies include a restriction on the insurance company’s protectiontoward the insured in case of liability, known as a ‘deductible’.If the insured incurs liability, the deductible is an amount, usually established bythe insurance company, that the insured is obligated to pay before the insurancecompany responds to the claim. In connection with the deductible and accordingto the Consumer Protection Law, in the case Saldivar, Federico Reynaldo vMetrovías S.A., Tribunal M of the Civil Court of Appeals ruled that thedeductible in liability insurance could not be asserted against the aggrievedparty, despite the Supreme Court of Justice’s precedents that found to thecontrary.The ruling provided that Metrovías S.A. and its insurance company (LaMeridional Compañía Argentina de Seguros S.A.) must pay the plaintiff 80 percent of the sums claimed. In addition, the Court ruled that the deductible of theliability insurance taken out by the insured could not be asserted against theplaintiff, in spite of several previous rulings of the Supreme Court of Justice tothe contrary.Notably, the Supreme Court of Justice has repeatedly affirmed the validity andassertion of this deductible.One of the basis for the Supreme Court’s decisions is that the aggrieved party isnot privy to the insurance contract entered into between the insured and theinsurer. Thus the ‘third party’ who invokes this insurance contract must confineits rights to the terms and conditions agreed on between the insured and theinsurer.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 derogatefrom them if new arguments should arise that have not been taken into accountby the Supreme Court.The Civil Court of Appeals maintained that the Consumer Protection Law wasamended by the Argentine Congress after the Supreme Court’s contrary rulings,9 Law Number 17418 of 1967.
    • ARG-12 INTERNATIONAL PRODUCT LIABILITYthat the new text of the new Consumer Protection Law was in line with theruling in a previous leading case, and that the Supreme Court had not issued anyother 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 consumerrelationship, use a service as end consumers and are exposed to a consumerrelationship (as in the case of the aggrieved party in Saldivar). In addition, theamendments had extended the benefits of the Consumer Protection Law to theseconsumers.Tribunal M held that a consumer relationship existed in the case, and thereforethe limited legal effects concept based on privity of contracts (ie, the SupremeCourt’s line of reasoning) should not be applied. It also held that the provisionsof Article 37 of the Consumer Protection Law should be applied, which setsforth that stipulations which distort the nature of the obligations or that limitliability for damage will be null and void.Product Liability LitigationFrequency of LitigationJudicial claims on product liability issues in Argentina started before theenactment of the Consumer Protection Law and its amendments. Numerouscourt decisions protecting the rights of consumers built the foundations of theprinciples later reflected in the Consumer Protection Law.The rate of judicial claims on product liability issues in Argentina has increasedsince the Consumer Protection Law came into force. This rate was significantlyincreased by class actions filed by consumer organizations, based on theinclusion of collective rights in the Argentine legal regime. Analysts claim that,currently, consumers’ claims in Argentine courts are as common as otherjudicial claims. The Argentine legal regime contemplates two categories ofdamages that can be indemnified: material damages and non-patrimonialdamages.Material DamagesIn GeneralMaterial damages include direct damages (the direct financial loss suffered),compensation for lost profits (the profits lost by the injured party), compensationfor lost chances (the loss of a potential opportunity), and litigation costs.Non-Patrimonial DamagesNon-patrimonial damages are subject to compensation. The compensationrelates to the pain and suffering of the victim, including physical pain andsuffering, and generally to any type of suffering not related to financial losses.
    • ARGENTINA ARG-13Non-patrimonial damages are for aesthetic injury (including anatomic andfunctional anomalies, permanent or temporary, that are externally visible) anddisease (including the recovery of medical expenses and related costs).Lawyers’ FeesLawyers’ fees are generally established based on the work done by the lawyer.Law Number 21839 on professional fees provides minimum rates that rangefrom 11 per cent to 20 per cent of the amount claimed by the plaintiff inpatrimonial claims.In addition, lawyers generally agree to a percentage to be paid by the client onwinning the case, based on the amount of damages awarded by the court.ConclusionThis analysis of the legal regime on consumers’ and users’ protection inArgentina leads to the conclusion that the regime has evolved during recentyears, so as to favor the rights of consumers and users and increase the tools forclaims.Together with these developments in the legal regime, consumers and users arenow better informed about their rights, and the rate of claims on consumerrelations has seen a corresponding increase.Surveys indicate that two out of 10 Argentines claim to have lodged a complaintagainst sellers of products or providers of services. This number increases inpeople of high socio-economic status (30 per cent) and within the City ofBuenos Aires (28 per cent).In general, consumers and users believe that their rights are not being respectedby the sellers of products or providers of services, which is a discouragingscenario that should demand the attention of the commercial sector.
    • AustriaIntroduction ............................................................................................ AUT-1Historical Evolution ............................................................................... AUT-2Purpose of the PHG................................................................................ AUT-4Product and Defective Product............................................................... AUT-5 Product ..................................................................................... AUT-5 Defect....................................................................................... AUT-6Warning and Recall Obligations ............................................................ AUT-8Defenses 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-10Defect as ‘Proximate Cause’ .................................................................. AUT-10Liable Persons General .......................................................................... AUT-11 Manufacturer ........................................................................... AUT-11 Importer ................................................................................... AUT-12 Merchants ................................................................................ AUT-13 Licensor and Licensee ............................................................. AUT-14Joint and Several Liability ..................................................................... AUT-14Burden of Proof...................................................................................... AUT-15Remedies ................................................................................................ AUT-16Disclaimer Clauses................................................................................. AUT-16Statutes of Limitation ............................................................................. AUT-17Liability of Corporate Successors .......................................................... AUT-18Insurance ................................................................................................ AUT-18Role of the Courts .................................................................................. AUT-19 Frequency of Litigation ........................................................... AUT-19Applicability of Austrian Law ............................................................... AUT-19Disclaimer .............................................................................................. AUT-20
    • Austria Benedikt Spiegelfeld and Christine Wallner CHSH Cerha Hempel Spiegelfeld Hlawati Vienna, AustriaIntroductionBefore examining Austrian product liability, what is understood by product1 liability inthis 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 rulesproviding for recovery of damage or injury to human life, health or someone’s propertysuffered as a result of (or caused by) a defective product.These rules must be clearly distinguished from those dealing with and enforcing a seller’sobligation to fulfill a contract he has entered into by transferring property (the product) inthe 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 contractenabling the buyer to sue for complete fulfillment of the contract without regard towhether such non-performance was negligent or not.2Within the broader sense of product liability as described above, we may distinguishbetween 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 orhealth or to his goods (apart from the product purchased).The general liability principles and rules contained largely in the Austrian Civil Code3 of1811, as amended, cover the obligations under both of these categories. Nonetheless, weshall deal with and expose these general rules only to the extent as we deem necessary tooutline the historical evolution leading very recently to the adoption of a specific ProductLiability Act and whenever this latter Act refers to the general rules. The specific set ofrules contained in this above-mentioned Product Liability Act will be our main interestand other related issues, such as compensation awarded due to negligence in general ordue 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).
    • AUT-2 INTERNATIONAL PRODUCT LIABILITYIn general, the PHG helps to increase the level of protection against defective products fortwo 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 andConsumer Protection Act4 (LMSVG) and the Product Safety Act5 (PSG) and, second,once these preventive measures have failed and accidents have happened, it allows toobtain redress of the producer.Historical EvolutionIn this chapter, the development in Austrian product liability law the equivalent of whichin common law is known and referred to as, the breakdown of the privity requirement,will be described.6Until 1988, product liability in Austria was mainly governed by the general principles andrules contained in the Civil Code of 1811. These entitled those who suffered damage todemand reparation of such damage from the originator or author of the conduct causingthe 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 DefectiveProduct on 21 January 19887 (according to its German title referred to as the PHG). Underthese general principles, the fault or wrongdoing consisted of a breach of a duty imposedby law or by contract.Being consigned to these general remedies against injuries to his person or property, aplaintiff could succeed in only a very few cases. Usually the manufacturer of a productdoes not himself violate any duty imposed by law and could moreover almost never beheld liable for any misconduct of his employees. Section 1315 of the Austrian Civil Codeimposes liability on employers towards third parties only in the two cases that theemployer either employs persons incapable of or unfit for the kind of work to be executedor 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 extensiveresponsibility of a producer or manufacturer for negligence of all persons assisting in theproduction or manufacturing process.Most of the typical product liability (related) cases, though, lack such an agreementbetween the producer and the person injured, as such agreement has generally only beenentered into between the customer and the retailer. The retailer himself very rarely couldbe 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).
    • AUSTRIA AUT-3be detected in the ordinary and due course of business. In general, the law does not imposeon wholesalers or retailers the duty to loosely examine the goods purchased for mereresale. Most of the time, wholesalers and retailers would lack both technical knowledge aswell as equipment to do so. As a consequence — in the case of absence of a respectiveduty — a plaintiff cannot prove negligence against such a middleman merely serving asconduit.Legal scholars8 and the courts9 tried to solve these difficulties implicit in the approach andlinked to a wrong or fault by developing an interpretative concept that would protect thirdparties beyond the contract between the producer and the first wholesaler so long as aseries of contracts lead to the person ultimately suffering the damage.10 It was argued thatobligations of the manufacturer should not extend to wholesalers’ or retailers’ (withwhom a contract actually was entered into) claims for the protection of individuals againstharm to life, health and property, because these never would use the product purchased forits intended purpose but rather for mere resale. Therefore, the purpose of any obligationarising from the contract between the producer and the first wholesaler guaranteeing acertain standard of quality and freedom from defect should be to entitle the final customeror user to claim compensation.This extension of the producer’s contractual obligations allowed the applicability of theabove-mentioned section 1313(a) of the Civil Code between original producer and finalpurchaser of goods. Therefore, the producer could be held responsible for the breach ofduty by his assistants and, pursuant to section 1298 of the Civil Code, he had to prove theabsence of such negligence.Since not all damage can be recovered under the new PHG, such as damage to property upto 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 bydeliberate 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-partyclaims as lawful.12 By maintaining that these claims arose by operation of law and notcontract, some Austrian scholars remain opposed to this holding.Still another drawback of the theory should be mentioned: as stated above, only personswith a certain contractual linkage to the producer would have benefited. One requirementwas that the defective product was either used as a result of a chain of contracts leading topossession 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.
    • AUT-4 INTERNATIONAL PRODUCT LIABILITYindividuals of which the producer reasonably must have expected that they might havecontact with the product (such as the family members of the ultimate purchaser). Theinnocent bystander therefore still remained unprotected.Motivated by these considerations, along with the adoption of the Directive on productliability of the European Community on 25 July 1985 obliging all Member States of theCommunity 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 tradingconditions and avoid any bias in competition, enacted the new law (PHG) on 21 January1988 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 wasnecessary 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 fordefective products of the European Parliament and of the Council, on 10 May 1999, therestriction regarding the exception of primary agriculture products and games wasremoved 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 inaccordance with the council directives on general product safety. It is to be noted that theProduct Safety Act and the Product Liability Act have a complementary function: the firstinstrument ensures that only safe products are put on the market (preventive function), andthe second instrument establishes the rules under which personal injury and damage toproperty caused by a defective product are compensated (compensational function).Purpose of the PHGSection 1 of the PHG sets forth the fundamental rule that certain groups of persons shall beliable 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).
    • AUSTRIA AUT-5• An injury of a person or harm to his health; and• An injury to his tangible property.18It excludes damage to the defective product itself.Therefore, liability under the PHG does not require negligence or fault of a particularperson 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 protectedunder 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 whenoffered for purchase are commonly quoted as the justifying rationale for the extendedresponsibility. Moreover, nobody else is in a better position to reduce risks caused bydefective products than the manufacturer. Furthermore, the persons potentially liableunder the rules of the PHG would tend to and now must19 react by insuring these liabilitiesand distribute the price of the insurance ultimately among those who benefit from theimproved safety: consumers.20As already mentioned, section 15(1) of the PHG explicitly states that any provision of theCivil Code or other laws imposing liability for losses to a greater extent or with regard tofurther 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 conventionratified by EFTA states and EC Member States. Under Austrian law, this field is coveredby the Federal Act on the Liability for Nuclear Damages of 29 April 1964.21Product and Defective ProductProductPursuant 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 orhas been annexed to realty, and shall moreover include energy.Under Austrian law, the term ‘Sache’, property, comprises everything different from theperson 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.
    • AUT-6 INTERNATIONAL PRODUCT LIABILITYremoved 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 commonlyattributed to property that can be touched and seen.Accordingly, services and rights will not be regarded as tangible and therefore cannotresult in liability under the PHG. It is, for example, impossible to establish responsibilityof 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 beapplied 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 aproduct for the purpose of this provision or not. In this case, you have to distinguishbetween operating system-related software and hardware-related software as well asstandard software and individual software. Whereas mass-produced operating system-relatedsoftware and hardware-related software fall under the definition of this provision, andexist controversial opinions in respect to standard software. Individual software pro-grams, however, cannot be viewed as products under the PHG.26For any reader from a common law country it should be noted that Austrian courts — inview of such exact wording in recent legislation — will almost certainly not extend theapplicability of the PHG for teleological reasons of whatever nature in cases where onemight otherwise see fit to do so.DefectPursuant to section 5(1) of the PHG, a product shall be regarded as defective if it does notprovide 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 ofcommon 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 withextraordinarily high or low expectations.A product falling within the realm of this standard set by the expectations of an ordinaryconsumer or user will not be regarded as defective and will therefore not trigger liabilityunder the PHG. 24 Civil Code, s 293. 25 Civil Code, s 292. 26 Posch in Schwimann, ABGB, s 4 PHG; 10.
    • AUSTRIA AUT-7Hinged on the concept of safety expectations, the concept of the PHG allows certainconsideration of inevitable defectiveness as a result of the production process and state oftechnology. 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 availablehuman knowledge.The term ‘presentation of the product’ means any activity of a person subject to liabilitythat introduces the product to the public or the individual user,27 such as advertisement,contractual guarantees, operating instructions, user’s manuals and other descriptivematerials such as plans and brochures.Up to a certain point, a risk unavoidably threatening a consumer’s safety would notamount 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 theconsumer’s attention to the inherent dangers. The greater, less obvious and less detectablethese 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 certainlimit (to be set ultimately by courts) must not be released into the stream of commerce atall, even if the defectiveness may be unavoidable at a certain point of time and technicalknowledge, notwithstanding warning and instructions. Such products must be recon-structed and improved, until at least the occurrence of serious damage (such as harm to anindividual’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 actualuse 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.28Number 3 of section 5(1), on the one hand, guarantees that technical knowledge whichwas not available at the time of the release of the product into the stream of commerce, butrather was accomplished and acquired by scientific progress and research afterwards,shall not render a previously marketed product defective and, thus, on the other, seeks toavoid any restraints on technical improvement and innovative efforts.29The 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 onthe various types of defectiveness, it is not necessary to further distinguish betweenthem.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.
    • AUT-8 INTERNATIONAL PRODUCT LIABILITYWarning and Recall ObligationsA long time before the PHG was enacted in 1988, Austrian case law had alreadyestablished (arguing on the basis of accessory contractual obligations) that a seller has towarn his customers of any possibility of damage with regard to a certain application or useof the product sold. Under general liability principles, this responsibility of a sellerdepends on fault or negligence of the persons involved.As described above, the PHG has changed this situation merely insofar as omission ofinstruction 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 furtherand did not introduce strict liability for damage suffered due to the failure to issue postalwarnings.Almost the same is true with regard to a duty of manufacturers to monitor the reliabilityand safety of their products when actually in use in the market: the PHG does not regulatethis issue and we are once again referred to the general principles of Austrian liability lawrequiring 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 anypotential hazard possibly caused by the usage of his product (the manufacturer must notwait until actual damage has occurred) and has to exchange defective and dangerousproducts by others. He must do this from the point of time he has actual knowledge of thedangers 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 berecalled. 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 FaultPursuant to section 11 of the PHG, section 1304 of the Civil Code shall apply accordinglyif the conduct of the user or consumer who has suffered the loss, or of any other personwhose 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.31Section 11 of the PHG requires the product liability-related cause(s) for the loss, such asthe 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.
    • AUSTRIA AUT-9the negligence of the plaintiff in protecting himself and his property from injury and forwhich 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.32Assumption of RiskThe concept of defect under the PHG is determined by the expectations of the public, thetypical, 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 ofproduct itself as well as on their qualification as a high or low quality product), this legalinterpretation of what the public may expect does not create an obligation of technicalperfection.Nonetheless, no average purchaser would assume any high risk that endangers substantialelements 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 defectiveunder section 5 of the PHG, even if the one particular customer actually having sufferedthe loss at the time of purchase was aware of assuming such high risk.Product MisuseIn 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 misuseby the customer or the user would not trigger any liability under the PHG or any otherAustrian law.33Nonetheless, number 2 of section 5(1) of the PHG stresses the importance of customerexpectations with regard to the use of a product and extends ‘use’under the PHG from theoriginal (maybe restrictive) intention of the manufacturer to the use that may equitably beexpected 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 Courtjudges rather tolerantly in favor for consumers.34Accordingly, if the actual use was equitably to be expected, a defect causing damagewould result in liability under the PHG; as pointed out above, this liability may be limitedin 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 propertyrecovery 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’.
    • AUT-10 INTERNATIONAL PRODUCT LIABILITYState-of-the-Art DefenseSection 8, number 2 of the PHG enables the manufacturer to escape his liabilities byproving that at the time at which the product was placed into the stream of commerce andby 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 causeinjury. 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 ofcommonly accepted knowledge being available in science and technology.36Under this concept, a manufacturer must not rely upon a single opinion or result but mustuse his best efforts to apply the highest possible standards and methods available andshould not implement scientific theory which has not yet proved its practical applicabilityin tests and experiments.37Binding Regulations, Directions and OrdersPursuant to section 8, number 1 of the PHG, a manufacturer may prove that the defectresulting in damage was caused by adherence to binding regulations, directives or orderssuch 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 themanufacturer 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 traderegulations that regulate the equipment on industrial premises. Mere compliance with theselatter minimal standards would certainly not avoid liability for defectiveness of a productoccurring despite these having been met. Interpretation of the relevant laws, directives andorders 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 triggerliability. 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 forconsequential 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.
    • AUSTRIA AUT-11exclusion of damage merely suffered as a result of the coincidence of an extraordinarychain of causes and events. Therefore, defects that under ordinary circumstances are notapt to cause the damage as suffered would remain out of consideration in determining theamount of consequential damage to be recoverable.Liable Persons GeneralSection 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 eachparty 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 tosection 1(2) of the PHG for damages.ManufacturerFrom 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 anddeserves primary consideration and attention.In order to avoid substantial doubts and problems of interpretation, section 3 of the PHGundertakes to define the term ‘manufacturer’.41 A manufacturer accordingly is thought tobe a person who has manufactured the final product, components of it or a raw materialand, furthermore, any person who appears to be a manufacturer by the means of attachinga (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 theAustrian Act on the Protection of Consumers of 8 March 1979,42 as amended (accordingto its German title: KSchG), are to be regarded as manufacturers and are therefore liableunder the PHG.From section 1(2) of the KSchG, we learn that ‘business entity’ requires an organizationdesigned and established to serve the permanent purpose of pursuing any independentbusiness 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.
    • AUT-12 INTERNATIONAL PRODUCT LIABILITYPHG. It shall be of no significance whether the manufacturer has applied for and obtainedthe appropriate trade license or concession as required by applicable laws.43The 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’sliability depending on the proof that a defect in their product caused the damage or, inother words, that the part in question has left the premises of the manufacturer of this partin a defective state.Entities attaching their trade name, trade mark or any other corporate sign of their own tothe product hold out that they have been involved in the production process and thereforefoster certain expectations of customers who rely on the reputation and the reliability ofcertain producers. This influence on the customer’s purchase decision justifies extendingliability 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 markshave been attached under a corresponding license agreement by the licensee, the licensorcannot held liable for any damages, because he the licensor is not the person who placesthe product into the stream of commerce.44Nonetheless, it should be stated that all current understandings of section 3 of the PHGrequire a certain minimal knowledge and will of the person whose trade name or trademark is used concerning their use (attachment) in order to trigger his liability.45ImporterSection 1(1) of the PHG provides for the concurrent liability of the entrepreneur who hasimported the product into the European Economic Area for the purpose of further distri-bution and has placed the same in the stream of commerce.46Imports are defined as imports from third countries into the European Economic Area; animport to Austria is not required. Thus, every importer from another member state of theEuropean 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 isreleased 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’.
    • AUSTRIA AUT-13Therefore, the importer bears both the risk of factual impairment of the quality ofproducts kept in stock by him as well as the risk of improved quality standards at the timethe importer places the product in the stream of commerce as compared to the applicablestandards at the point of time the manufacturer released the same products47 by sendingthem to the importer. Under such improved quality standards, a product may appeardefective when released by the importer though it complied with every standard whenshipped by the manufacturer.MerchantsAs 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 bedetermined, 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 thelosses suffered.48 This effectively means merchants.However, a merchant can avoid this liability if he is able to specify the person who eithermanufactured the product or, with regard to imported products, who imported it or fromwhom 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 toname those persons the law intrinsically regards as responsible for compensating anylosses suffered.As the law demands no specific form for the information to be given regarding the identityof 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 timeelapsed 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 thecase that he is not able to do so, does not want to, or for other reasons simply fails to namehis suppliers, his liability will be certain,49 though some Austrian scholars as well as theAustrian Supreme Court have argued that even a delayed specification may suffice if suchdelay does not cause further detriment to the injured person.50 This legal opinion is con-troversial in legal literature.51Of course, false or misleading information as to the identity of the producer or theimporter 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.
    • AUT-14 INTERNATIONAL PRODUCT LIABILITYOn the contrary, false information could even trigger further liability for any costsincurred by the consumer relying on the contents of the reply to his inquiry.52As a consequence of this subsidiary liability to which merchants are exposed, they arestrongly recommended to keep sufficient records of their purchases in order to enablethem — 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 ofproducts offered, this may cause an effort of data processing and storage not to beunderestimated.Licensor and LicenseeAs a license agreement only contains provisions relating to the transfer of intangibleassets, most of the time patented information, the licensor in principle will not be regardedas a manufacturer of component parts under the PHG.As pointed out above,53 the licensor nonetheless could incur liability if he lets somebodyattach 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 bythe licensor either entirely or in part or that the licensor at least guaranteed the licenseddesign or technology’s freedom of defects.Joint and Several LiabilitySection 10 of the PHG sets forth that under any circumstances where there is more thanone 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 andfrom different laws.Therefore, a customer who has suffered loss may at his own discretion either decide todemand 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 theclaims 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 beindemnified for their settlement ‘in advance’.If a person is liable for a defect under the principles of the PHG, though neither he nor thenegligence of one of his employees has caused such defect, but nonetheless has restoredthe injured party’s position by paying damages, then he shall be entitled to full recoveryand compensation from the manufacturer of the defective final product, component partor raw material. If there are two or more persons liable for such reimbursement of themere middleman, then their liability towards the middleman is again joint and several. 52 Welser, Produkthaftungsgesetz, 1988, 45. 53 See above, ‘Manufacturer’.
    • AUSTRIA AUT-15If 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 ofdamages shall be determined by the circumstances, with particular regard to the degree towhich each of these persons contributed to the occurrence of the defect and therefore tothe 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, unlessthere is raised criticism of Austrian scholars,54 still apply the rules of statutes of limitationunder there is the Civil Code. The Austrian, scholars, however, argue that, in accordancewith interpretation in respect to the purpose of the provision, the decennial period shall bedecisive.55Burden of ProofArticle 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 wasomitted since, according to the principle of Austrian procedural law, the party enforcing aclaim by a legal action has to prove the facts on which the claim is based on.56In general, the injured party, on the one hand, and the producer, on the other hand, have tosubmit evidence of their claims, the prevailing opinion among legal scholars and case lawrequiring 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-evidencerelieving himself from product liability only if the injured party was able to prove theexistence of a product’s defect.Section 7(2) of the PHG provides a shifting of the burden of proof if a defendant who isconfronted 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 tomake this probable under the circumstances of the case. As it is sufficient for the producerto bring forward only probability with regard to the defectiveness at the point of timewhen 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 loweredqualitatively; 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.
    • AUT-16 INTERNATIONAL PRODUCT LIABILITYRemediesSection 1 of the PHG imposes liability for damage caused by a defective product leadingto the death of an individual, the injury of a person or the injury to his health or his tangibleproperty 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 furtherregulation 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 thelatter 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 anypain or emotional distress suffered and for any income that was not earned or could not beearned 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 productionis 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 thedamage of a tangible asset.60Austrian civil law in general and the general liability principles in particular are basedentirely on the principle of compensation as a response to injury sustained. So far, as aresult, Austrian laws have not introduced the concept of punitive or exemplary damagesby awarding additional damages exceeding and in addition to compensatory damages.Thus, it is consistent with Austrian general principles that the PHG does not establish abasis for the (additional) remedy of punitive or exemplary damages.Disclaimer ClausesAny 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 ofcommerce, solely on the basis of contracts that exclude or at least reduce any obligationsarising 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 disclaimerclauses 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 notconditioned upon any sort of contractual relationship between the author of a defect (or aperson regarded by law to be held liable as such) and the person actually having sufferedloss. Motivated by these considerations, the liability arising from the PHG may not belimited 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.
    • AUSTRIA AUT-17manufactures, importers or merchants may issue declarations of commodity or instructionsfor use to ‘control’ their liability.61Any waivers agreed upon notwithstanding and contrary to section 9 of the PHG shall benull and void, a consequence which is not in the wording of the law but either may beinferred from the purpose of it or from the general rule contained in section 879 of theCivil Code pursuant to which each unlawful provision in a contract shall have no bindingcharacter but shall be void and ineffective. Any lawful disclaimer moreover shall onlyextinguish claims and rights of the person who has agreed to relinquish these and shall notbind any other party.62 According to the wording of section 9 of the PHG, any waiversagreed upon after the damage has occurred are legally allowed.Statutes of LimitationIn general, Austrian law sets a period of either three or 30 years (depending on the sort ofclaim in question) as the maximum time frame within which a right can be enforced bylegal 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 thereare any claims or proceedings pending (liability period). A person who wants to bring aclaim against a producer for damages due to a defective product must bring his claimwithin three years after the date on which he became aware, or should reasonably havebecome aware, of the damage, the defect and the identity of the producer (prescriptionperiod). This limitation of liability is mainly justified by the fact that strict liability puts ahigher burden on products than liability under the traditional system of contractual orextra-contractual liability. Therefore, the liability period is limited in order to discouragetechnical innovation and to allow insurance cover.63In examining the general rules setting forth that a claim for liability will be time-barredafter a period of three years has elapsed from when the person injured has reason to knowof such damage as well as of the author of the damage,64 the reader’s attention should bedrawn to the meaning of that said rule in the case law of Austrian courts, according towhich 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 theamount of damage cannot yet be determined, this will not hinder commencement of thesaid 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.
    • AUT-18 INTERNATIONAL PRODUCT LIABILITYLiability of Corporate SuccessorsAs the PHG does not contain specific rules on this matter of extension of liability tocorporate successors, the general rules shall apply,66 which can be outlined in a briefmanner.Under section 1409 of the Civil Code, an entity shall be regarded as liable for debts andobligations belonging to a certain substantial property or a business, if that entity acquiresby the means of a contract the whole or large parts of such substantial property or suchbusiness. The liability of the original debtor nonetheless remains unaffected.This additional liability (incurred by the purchaser as a matter of law) cannot be excludedby agreement but is, first, limited to debts and obligations the successor-in-property or thesuccessor-in-business either knew of or should have known of and, second, limited to anamount equivalent to the worth of the assets acquired.Section 38 of the Austrian Commercial Code67 imposes that the successor by the way of asingle 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 notlimited in any respect but may be excluded by agreement between seller and purchaser ofthe business and registration of such agreement in the commercial register.68Neither rule applies if the acquisitions were made in the course of certain bankruptcyproceedings.InsuranceSection 16 of the PHG creates an obligation for manufacturers and importers to providefor insurance or any other suitable means enabling them to discharge any claims againstthem arising under the PHG.With regard to manufacturers Austrian insurance companies report that section 16 of thePHG did not cause any substantial increase in the number of product liability insurancecontracts 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 andmerchants who supply anonymous products has increased disproportionately high.69The most substantial change of all since the enactment of the PHG was a certain increaseof the maximum amounts of damages to be covered by an insurance policy. Theseincreased 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.
    • AUSTRIA AUT-19An entrepreneur seeking coverage of product liability risks originating as a result of salesto the United States of America might encounter difficulties in obtaining an adequate pol-icy, as Austrian insurance companies are generally not able to reinsure suchcommitments.As Austrian manufacturers and importers, under section 16 of the PHG, may find othermeans enabling them to dissolve product liability claims arising against them, insuranceof product liability risks is not mandatory. Respective guarantee statements of a parentcompany 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 andresponsible officers as the most relevant ones.70Role of the CourtsFrequency of LitigationIn 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 indentedfor professional use or in virtue of the longer prescription period pursuant to the GeneralCivil Code.Moreover, the Austrian civil procedural rules allow victims to assign their liability claimto a consumers’ association.Applicability of Austrian LawThe 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 internationalprivate law apply.From a judgment of the Austrian Supreme Court71 rendered before the PHG entered intoforce, one might infer72 that the Austrian PHG shall be applicable if the product in disputewas 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 theplace 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.
    • AUT-20 INTERNATIONAL PRODUCT LIABILITYDisclaimerThis chapter shall represent an overview of the legal situation regarding product liabilityin Austria. It does not substitute the necessity of an individual advice of a legal expert ineach particular case. Therefore, CHSH reserves the right not to be responsible for the topi-cality, correctness, completeness or quality of the article provided. Liability claimsregarding damage caused by the use of the information provided, including any kind ofinformation which is incomplete, will therefore be rejected.
    • CanadaIntroduction ............................................................................................ CDN-1Common Law......................................................................................... CDN-1 Tort .......................................................................................... CDN-1 Causation ................................................................................. CDN-4 Defenses................................................................................... CDN-5Contract ................................................................................................. CDN-8 Legislative Framework for Sale of Goods ............................... CDN-8 Implied Warranties .................................................................. CDN-10Other 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-13Québec 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-24Conclusion ............................................................................................. CDN-25
    • Canada William McNamara, Emmanuelle Demers, and Ilana Schrager Norton Rose OR LLP Toronto, Ontario, CanadaIntroductionManufacturers, distributors, suppliers, and sellers of products in Canada1 are allvulnerable to product liability claims.2 Such claims are typically grounded in tortor, in Québec, delict, but principles of contract law (the law of obligations inQuébec), as well as federal and provincial statutory enactments such asconsumer protection legislation, also are highly relevant.Common LawTortIn GeneralUnder general principles of tort law, manufacturers who place a product in thestream of commerce owe a duty of care to the consumers of the product. In orderto succeed in a product liability claim, a consumer of the product must provethat the product was defective, that the manufacturer’s negligence caused thedefect, and that the defect caused the plaintiff’s injury.3However, it does not follow that every injury caused by a defective product willresult in a compensable product liability claim, as the general tort rules offoreseeability and remoteness may impose limits on recovery.4 In other words, amanufacturer’s liability extends only to a person whose injury was reasonablyforeseeable, whether or not the person injured was a consumer or user of thedefective product.5 Reliance, in a specific sense, is not a requirement forrecovery.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.
    • CDN-2 INTERNATIONAL PRODUCT LIABILITYBases for LiabilityThere 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 theproduct either contained something it should not have contained or that theproduct lacked something it should have contained.6Liability will be easiest to prove when the product was not produced inaccordance with the manufacturer’s design, perhaps due to an employee’snegligence or a faulty system of production.7The more difficult claim to establish is when the product was manufactured inaccordance with the manufacturer’s design but the plaintiff argues that thedesign itself was inadequate.8 In order to succeed with such a claim, the plaintiffmust establish that the design of the product fails to meet a reasonable standard.9Another important basis for liability is the manufacturer’s duty to warn, oradequately warn, consumers about the inherent risks associated with the‘reasonably foreseeable use’ of the products.10 The duty to warn extends to risksassociated with unintended uses or misuses of the product, when suchunintended use is foreseeable.11 However, the duty does not extend to obviousdangers.12 Manufacturers ‘do not have the duty to warn the entire world aboutevery danger that can result from improper use of their product’.13A manufacturer can fulfill its duty to warn consumers by placing the warning onthe product’s label or packaging, in the product’s instructions or brochure, or in6 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.
    • CANADA CDN-3a letter to the consumer advising of the possible danger and outlining anyprotective measures to be taken.14The Supreme Court of Canada’s decision in Lambert v Lastoplex ChemicalsCo.15 provides guidance as to what is required of manufacturers in order to meettheir duty to warn consumers.16In Lambert, the manufacturer’s lacquer product contained general warningsabout the product’s flammability, but no specific warning about the danger ofusing the product near a pilot light (which was what led to the plaintiff’sinjury).17The court held that the manufacturer’s general warnings were inadequate in thatthey failed to warn against specific dangers. In its decision, the Court set out thetwo principles regarding the duty to warn when selling dangerous products tothe general public: first, the manufacturer must specify the danger; second, therequisite explicitness of the warning should be proportional to the danger likelyto be encountered in the product’s ordinary use.18The Supreme Court has since confirmed the notion that general warnings willnot suffice when the ordinary use of the product entails specific risks ordangers.19The Ontario Court of Appeal has further expanded on the duty to warn byoutlining the following criteria for what will constitute adequate warning: itshould be clearly and understandably communicated; it must inform the user ofthe nature of the risk and the extent of the danger; it must be in termscommensurate with the gravity of the potential hazard; and it should not beneutralized or negated by collateral efforts on the part of the manufacturer.20The duty to warn may arise even if the manufacturer is not convinced of theevidence supporting the potential danger.21 For example, in Hollis v DowCorning Corp.,22 the Supreme Court of Canada rejected the manufacturer’s14 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.
    • CDN-4 INTERNATIONAL PRODUCT LIABILITYargument that it did not have an obligation to warn of reports of unexplainedruptures in its breast implants before it had reached its own conclusions as to thecause and effect of the ruptures.Further, the courts have refused to accept a manufacturer’s plea that it wasunaware of the dangerous characteristics of a product, on the basis that themanufacturer must be treated as an expert in the field.23The duty to warn is ongoing: manufacturers must warn of dangers known at thetime of sale, as well as dangers discovered after the product has been sold anddelivered.24Further, this continuous duty to warn applies not only to potential defects ordangers which become known to the manufacturer, but also to suspected dangerswhere the evidence of the danger may be inconclusive.25CausationIn order to succeed, a plaintiff also must establish that the defects in questioncaused the plaintiff’s injury.26 Canadian courts have not recognized theapplication of strict liability principles to tort claims27 and have consistentlyconfirmed that strict liability is not the law in Canada.28In practice, the existence of a product defect raises a rebuttable inference ofnegligence,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.
    • CANADA CDN-5on a balance of probabilities basis, that the manufacturer breached its duty ofcare and that a causal link exists between that breach and the plaintiff’s injury.30DefensesLack of NegligenceThe manufacturer can avoid liability by proving that it was not negligent.31 It isa complete defense to prove that all reasonable care was taken, based on theknowledge in existence at the time the product was manufactured.32One way in which a manufacturer can establish reasonable care is by adducingevidence that it complied with regulatory standards.33 The Supreme Court ofCanada has held that statutory requirements may provide a useful standard ofwhat constitutes reasonable conduct.34State-of-the-Art DefenseA manufacturer can argue that in addition to complying with the applicableregulatory or industry standards, its product represented the state of the art at thetime it was manufactured. Thus, the product should not be held to the standardof subsequent technological advances.35 However, this defense only applies insituations where the product’s ‘social utility’ outweighed its risks: a productwith high risk and low social utility will trump a defendant’s ability to invokethe state-of-the-art defense.36For example, in Brunski v Dominion Stores Ltd.,37 a case involving an explodingsoft drink bottle, the bottle manufacturer was deemed liable despite the absenceof evidence of a safer alternative design. Although the manufacturer’s testingand inspection procedure complied with quality control advice it received, theCourt was not satisfied that the procedure was reasonable, considering thedanger 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).
    • CDN-6 INTERNATIONAL PRODUCT LIABILITYLearned Intermediary DefenseWhen it is alleged that the manufacturer failed to warn against certain risks, themanufacturer may escape liability by demonstrating that it delivered an adequatewarning to a skilled person or learned intermediary, who was in turn responsiblefor relaying this information to the consumer.38The duty to warn can only be fulfilled through an intermediary when theintermediary is an expert whose knowledge approximates that of themanufacturer.39 Furthermore, the Canadian courts have proven unwilling toaccept the learned intermediary defense outside of the medical realm, and eventhen the manufacturer may still have a duty to directly warn the intermediary aswell as the consumer.40Indeed, this was the decision reached by the Ontario Court of Appeal withrespect to the manufacturer’s duty to warn of the risks associated with the use oforal contraceptives.41Volunti DefenseIn a situation in which a plaintiff continues to use a product after he knows of adefect or risk, a defendant can argue that the plaintiff assumed the risk ofinjury.42 If successful, this will operate as a complete defense.43 However, theSupreme Court of Canada has set a high bar for this defense, in that voluntaryassumption of risk requires a conscious awareness and acceptance of the risk bythe 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 understanding38 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 L6:6041 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).
    • 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.’44As noted above, the manufacturer’s duty to warn does not extend to obviousdangers. In a product liability claim, the argument that a danger was obvious andapparent will operate as a complete defense when the court accepts that thedanger was indeed obvious and apparent.45 For example, the Courtacknowledged in one case that a meat manufacturer was not required to warnagainst the dangers of eating uncooked meat, which is commonly accepted to bean obvious danger.46Product MisuseManufacturers may be liable for misuses of their products. However, the scopeof this liability will be limited to those misuses of the product that arereasonably foreseeable. Accordingly, when a manufacturer can establish that itcould not have foreseen the plaintiff’s unintended use of the product or theinjury which could result from that unintended use, this will operate as acomplete defense.47Furthermore, if the manufacturer can demonstrate that it subjected the product toreasonable testing and created a product that is safe for its intended use andforeseeable misuse, a finding of liability is less likely.48The court also will consider the intended or reasonably foreseeable user of theproduct 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, theCourt found no liability when the plaintiff repairman was injured while using theproduct at excessive speeds.4944 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).
    • CDN-8 INTERNATIONAL PRODUCT LIABILITYAlteration DefenseAn extension of the misuse defense is when the plaintiff has gone so far as toalter the product from its original intended design. When the altered productcauses the plaintiff’s injury, the manufacturer can argue that it was the alterationthat caused or contributed to the injury.50 As with the defense of misuse, thesuccess of an alteration defense hinges on whether the alteration in question wasreasonably foreseeable.51Contributory DefenseAlthough the argument does not represent a complete bar to recovery, adefendant can contend that a plaintiff negligently contributed to his injury, suchas by failing to read the instructions for use52 or by misusing the product.53Another possible ground for argument is that the plaintiff did not observedefects in the product that ought to have been observed.54If the court accepts that the plaintiff’s own negligence contributed to his injury,it will apportion liability between the plaintiff and defendant pursuant to theOntario 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.’56ContractLegislative Framework for Sale of GoodsA manufacturer of products also may be liable to a buyer for providing goodswhich breach express or implied contractual terms governing (for example) theirfitness for an intended purpose. This area of the law is generally treated under50 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.
    • CANADA CDN-9the heading of sale of goods, and is conceptually distinct from product liabilityclaims undertaken against a manufacturer by an end user of the product inquestion.Such breach of contract claims are restricted by the doctrine of privity ofcontract: manufacturers are only liable in contract to their co-contracting party— that is, those who purchased the defective products directly from them. Thecontractual recourse of third-party consumers, if any, lies against their vendorsonly. Contract damages also are somewhat restrictive, because the governingprinciple is that they are intended to put the buyer in the monetary position itwould have been in had the contract been properly fulfilled.57In 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 tosupplement common law contractual principles by incorporating certainwarranties (known as implied warranties) into every contract for the sale ofgoods.58The theory behind the legislation is that a buyer should be entitled to assumecertain basic warranties of fitness and quality when dealing with a professionalseller acting in the normal course of business.59However, the framework of rules offered by sale of goods legislation is notdesigned to be comprehensive or obligatory, as it explicitly does not oust thecommon law60 and is subject to exclusion by contractual exclusion clauses.61Two 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 its57 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.
    • CDN-10 INTERNATIONAL PRODUCT LIABILITYintended purpose’, and the warranty that the goods must be of ‘merchantablequality’.Implied WarrantiesThe fitness for purpose warranty applies when the buyer makes its intendedpurpose known to the seller, such that the buyer is relying on the seller’sexpertise, and the seller is in the business of goods of such description, unlessthe sale is of a specified article under its patent or other trade name.63The warranty that the goods are of merchantable quality does not extend todefects which could reasonably have been revealed by an examination of thegoods prior to the sale.64The parties are, of course, free to include express contractual warrantiesregarding the goods which are the subject of the sale. However, the impliedwarranties of quality and fitness for purpose provided for under the SGA willapply 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.’65In its decision in Syncrude Canada Ltd. v Hunter Engineering Co., the SupremeCourt of Canada confirmed that when the implied warranties have been properlyexcluded, express warranties will exclusively govern.66When the implied warranties are not excluded, strict liability for breach will beapplied. Once a product is shown to have been defective, it is no defense for themanufacturer to show that he exercised reasonable care or that the defect wasundiscoverable.6762 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
    • CANADA CDN-11The SGA defines a sale of goods as a ‘contract whereby the seller transfers oragrees 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 limitedrecoverable claims pursuant to the doctrine of privity of contract.69 Themanufacturer (or seller) is answerable only to the buyer for breaches of theimplied warranties, and not to third parties who may be the owner or user of theproduct in question.70For example, in a case in which a 15-year-old boy was injured when riding adefective bicycle purchased for him by his stepfather, the Court concluded thatthe boy did not qualify as a ‘buyer’ under the Ontario SGA, even though he hadpaid part of the price and was the sole user of the bicycle.71The courts also have imposed liability on manufacturers in the situation where,although there was no obvious contract between the manufacturer and buyer, themanufacturer was involved in inducing the buyer to purchase the product.72In one instance, a buyer purchased the defective product from a dealer, butargued that the manufacturer also should be liable for breach of impliedwarranties.73 The buyer’s argument was that the manufacturer’s productbrochures, in conjunction with the dealer’s oral representations, induced thebuyer to purchase the product. The Court held that the manufacturer’srepresentations in the product brochure formed a ‘collateral warranty’ betweenthe buyer and the manufacturer,74 and that the manufacturer should not beshielded from liability simply because it had no direct contact with the buyer.75Other Statutory EnactmentsConsumer Protection ActA number of provinces have enacted consumer protection legislation76 in orderto 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,
    • CDN-12 INTERNATIONAL PRODUCT LIABILITYOntario Consumer Protection Act (the Ontario CPA)77 defines a ‘consumer’ as‘an individual acting for personal, family, or household purposes and does notinclude a person who is acting for business purposes’.78Unlike the SGA, the CPA does not allow suppliers of goods to contract out ofthese implied warranties to consumers.79The manufacturer’s duty to warn consumers about risks associated with usingspecific types of products (discussed in further detail in the followingsubsections) may be supplemented by specific requirements under particularstatutes and regulations. Significant examples in this regard are the federal Foodand Drugs Act (the FDA),80 the federal Hazardous Products Act (the HPA),81and the Canada Consumer Product Safety Act (the CCPSA).82Food and Drugs ActThe FDA and its accompanying regulations83 impose a number of stringentrequirements 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 ofthese 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 orconsumer’.84 Contravention of the FDA or the regulations is a criminal offenseand may result in a fine or a term of imprisonment.85Hazardous Products ActThe HPA and its accompanying regulations govern the packaging,advertisement, and sale of controlled products such as compressed gas, as wellas 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.
    • CANADA CDN-13infectious, and ‘dangerously reactive’. The HPA requires manufacturers to placewarning labels with the applicable prescribed hazard labels on controlledproducts or their containers.86 Failure to comply with the HPA or its regulationsmay result in fines of up to CA$1,000,000 as well as imprisonment of up to twoyears.87Canada Consumer Product Safety ActMore recently, the Canadian government enacted the CCPSA, which prohibitsmanufacturers from manufacturing and selling any consumer product88 whichconstitutes a ‘danger to human health or safety’, is subject to a recall order, or issubject to an order to take certain measures with respect to the product.89 Whenthe Minister of Health ‘has reasonable grounds to believe’ that a consumerproduct presents a danger to human health and safety, the Minister may orderthat the manufacturer recall the product or take any measure the Minister deemsnecessary to remedy the manufacturer’s non-compliance with the CCPSA.90The CCPSA also imposes strict requirements upon manufacturers, requiringthem to inform the Minister of any ‘incidents’ relating to the use of theirproducts within two days of becoming aware of such incidents and furtherrequires a written report on this within 10 days.91The definition of ‘incidents’ includes occurrences in Canada or elsewhere whichresulted 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 theproduct or issues with the product’s labeling which could reasonably haveresulted in death, injury, or adverse health effects.92Violations of the CCPSA can result in fines of up to CA$5,000,000 as well as amaximum prison term of two years.93 The CCPSA’s effect on the productliability landscape has yet to be seen, but there is no doubt that its strictrequirements and potentially significant penalties impose an additional incentiveon manufacturers to take every caution with respect to the manufacture and saleof consumer-bound products.Unlike the SGA and CPA, which provide consumers with a private right ofaction for breaches of their provisions, the CCPSA does not afford such rights to86 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).
    • CDN-14 INTERNATIONAL PRODUCT LIABILITYindividual consumers, instead endowing specified government actors with theresponsibility for the enforcement of the legislation and the prosecution ofbreaches of its provisions.Notably, the Supreme Court of Canada recently affirmed its decision in Canadav Saskatchewan Wheat Pool,94 in which it held that breach of statute is neithernecessary nor sufficient to ground a private cause of action,95 such asnegligence. However, the court did state that although proof of statutory breachin and of itself does not automatically result in a finding of negligence nor in aright to recovery, proof of such a breach may constitute evidence of negligence,and the statutory formulation of the duty may afford a ‘specific and usefulstandard of reasonable conduct’.96Québec Civil LawDelictual LiabilityThe principles of delictual (ie, non-contractual) liability under Québec civil laware set out in Articles 1457 et seq of the Civil Code of Québec (the CCQ). Thegeneral 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.
    • CANADA CDN-15Interestingly, if a product is affected with a ‘safety defect’ and causes injury to athird party, the injured party has a right of action against the manufacturer underArticle 1468 of the CCQ. This right of action exists against the distributor andthe supplier of the product as well, whether they be wholesalers or retailers andwhether or not they imported the product in question.Under Article 1469 of the CCQ, a product with a safety defect is one that doesnot 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 manufactureof the product. Rather, he need only demonstrate that the product does not affordthe safety which a person is normally entitled to expect.97DefensesUnder Article 1473 of the CCQ, manufacturers have two lines of defense toproduct liability claims brought against them by third parties: that the victimknew or could have known of the defect or could have foreseen the injury; orthat the state of knowledge at the time of manufacture was such that theexistence of the defect could not have been known, and the manufacturer did notneglect 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 noeffect when the injury is bodily or moral or when it results from an intentional orgross 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 knewabout the defects affecting their products, their failure to disclose them amounts97 Ministre de la justice, Commentaires du Ministre de la justice, Tome I (Québec, Les publications du Québec, 1993), at p. 898.
    • CDN-16 INTERNATIONAL PRODUCT LIABILITYto gross fault.98 Under this line of reasoning, it necessarily follows that alimitation 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 maynot be enforced if the manufacturer cannot show that the other party was awareof 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.’99Duty to InformAs is the case in Canada’s common law jurisdictions, the obligation of a seller toinform a buyer of the risks of using the product sold is well established underQuébec law. In Bank of Montreal v Bail,100 the Supreme Court of Canadaarticulated an implicit contractual duty to inform. This duty is founded upon theduty of good faith, which is codified in Article 1375 of the CCQ:‘The parties shall conduct themselves in good faith both at the time theobligation is created and at the time it is performed or extinguished.’In Bank of Montreal v Bail,101 the Supreme Court of Canada outlined threeelements giving rise to the obligation to inform: knowledge of the information,whether actual or presumed, by the party owing the obligation; the decisiveimportance of the information in question; and a situation in which it isimpossible for the party to whom the duty is owed to inform itself.The duty to inform comprises two separate components: the duty to provideinformation regarding proper use of the product; and the duty to provideinformation about the safety hazards and dangers related to the product.The duty to provide information regarding proper use of the product requiresthat the seller communicate to the buyer all necessary information for optimaluse of the product. This will require the seller to provide information relating tothe use, maintenance, and conservation of the product. This duty may be98 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 dauto 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.
    • CANADA CDN-17fulfilled by providing the buyer with a user guide. The more technical theproduct, the more onerous the duty to inform.The duty to provide information regarding the safety hazards of the productrequires the seller to provide the buyer with all necessary information regardingthe risks and safety precautions related to the normal use of the product. Thisduty may be fulfilled by providing safety warnings. The more dangerous theproduct, the more stringent the duty to inform.DefensesThe manufacturer’s liability under Québec civil law is not absolute. Forexample, pursuant to Article 1470 of the CCQ, a manufacturer may free himselffrom liability ‘by proving that the injury results from superior force’, ‘superiorforce’ being defined as ‘an unforeseeable and irresistible event’.The manufacturer also can avoid liability for injuries caused by a safety defectin the product if he proves that ‘the victim knew or could have known of thedefect, or could have foreseen the injury’.102More important, the manufacturer may be exonerated if he proves that theexistence of the defect could not have been known given the state of knowledgeat the time the product was manufactured or sold, and that it did not breach itsduty 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 particularmanner, the seller’s duty to inform is limited to the foreseeable uses of theproduct. Accordingly, a seller may escape liability by demonstrating that aclaimant’s damages did not result from a foreseeable use of the product.The duty to inform is predicated on presumed inequalities or disparities withrespect to access to information. This duty does not come into play when bothparties have equal access to information. As such, a seller is not obligated tocommunicate 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 sellerwill only be bound to disclose information that would not be reasonablyaccessible to a professional or sophisticated purchaser.Distinctions between Duty to Inform and Duty to Disclose Latent DefectsAlthough 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 discloselatent defects, but it is much broader and also covers all other information thatmay 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.
    • CDN-18 INTERNATIONAL PRODUCT LIABILITYWhen a seller fails to disclose a defect, it is likely that the seller also will havebreached the general duty to inform the buyer of a factor of decisive importancein respect of the product, namely the existence of a latent defect.104Distinctions between the Duty to Inform and the Duty to AdviseThe duty to inform also must be distinguished from the duty to advise. The dutyto advise is more demanding, in that it requires the seller to present theinformation in an objective manner, to evaluate the different options of thebuyer and, in some situations, to express an opinion as to whether the buyershould purchase the product.105 A seller is generally not bound to advise a buyerunless the buyer requests it.106Consumer Protection ActThe Québec CPA107 is similar to common law consumer protection legislation,in that it extends the possibility for recourse against sellers of defective productsto the average consumer. Article 1(e) of the Québec CPA defines a consumer asa ‘natural person, except a merchant who obtains goods or services for thepurposes of his business’.The Québec CPA provides warranties of fitness and quality in order to protectconsumers. Article 37 of the Québec CPA provides that ‘goods forming theobject of a contract must be fit for the purposes for which goods of that kind areordinarily used’.Article 38 of the Québec CPA states that ‘goods forming the object of a contractmust be durable in normal use for a reasonable length of time, having regard totheir price, the terms of the contract, and the conditions of their use’. Therecourse available to consumers against sellers or manufacturers is set out inArticle 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.
    • 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 LiabilityIn terms of contractual liability, the legal framework under Québec law is set outin Articles 1726−1733 of the CCQ.Article 1726 of the CCQ provides that manufacturers and distributors ofproducts (here referred to generally as ‘sellers’) must warrant to buyers that theproperty sold is, at the time of the sale, free of latent defects which either renderthe product unfit for its intended use or which diminish the product’s usefulnessto the extent that the buyer, had he been aware of the defects, would not havebought it or paid so high a price for it.Article 1730 of the CCQ imposes an identical duty on manufacturers anddistributors, and also may be interpreted as a specific application of the generalrule 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 theobligations set out Articles 1468 and 1469 of the CCQ into a contract for thesale of goods.108The legal regime of the CCQ relating to the warranty of quality creates twodistinct presumptions in favor of buyers: a presumption of existence of thedefect109 and a presumption of knowledge of the defect by the seller.110Both are simple legal presumptions which can be rebutted by sellers, dependingon the circumstances of the case.111108 Accessoires dauto 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.
    • CDN-20 INTERNATIONAL PRODUCT LIABILITYHowever, as noted by the Supreme Court of Canada in ABB v Domtar,112 aseminal decision on the subject of sellers’ and manufacturers’ liability inQuébec, the strength of the presumption of knowledge will vary depending onthe seller’s expertise.113The provisions of the CCQ relating to latent defects only apply when the defecteither renders the product unfit for its intended use or diminishes the product’susefulness such that the buyer would not have bought it or paid such a high pricehad 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 purposebut then became unfit due to damage occurring post-manufacture; functionaldefects, whereby the product does not function as intended (includes faultydesign or manufacturing); and conventional defects, whereby the parties agreedthat the product would serve a particular purpose, but it does not.114The product’s latent defect must exist at the time of sale. Article 1729 of theCCQ provides that a defect is presumed to have existed at the time of the sale ifthe 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 anembryonic state.115The requirement that the defect existed at the time of the sale ensures that sellerswill not be held liable for a ‘defect’ caused by abnormal use of the product bythe buyer post-sale.116In order for a buyer to succeed in a product liability claim, the defect must behidden. Sellers are not required to warrant against defects known to the buyer orapparent defects (ie, defects that the buyer could have detected).117111 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
    • CANADA CDN-21The latency of the defect is assessed objectively. Courts will examine whether aprudent and diligent buyer of identical expertise would have detected the defect.The more knowledgeable a buyer is, the more likely that a defect will beconsidered apparent. All buyers have an obligation to inform themselves bycarrying out a reasonable inspection of the goods they purchase.118Pursuant to Article 1739 of the CCQ, a buyer who discovers a latent defect mustgive 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-yearprescription period applicable to all actions. This contrasts with Article 1530under the former Civil Code of Lower Canada, which required buyers tocommence an action for latent defects within a reasonable time after discoveringthe 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 animplication 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 beallowed to cure the defect when the buyer has chosen to seek an annulment ofthe sale.119Under Article 1739(2) of the CCQ, the seller may not rely on the tardiness of abuyer’s notice as a defense if the seller was aware or could not have beenunaware of the defect.In addition, Article 1739(2) of the CCQ expressly dictates that manufacturersmay not rely on the lateness of a buyer’s notice as a defense, as manufacturersare presumed to be aware of the defects of the products they create (as discussednext). 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.
    • CDN-22 INTERNATIONAL PRODUCT LIABILITYDefensesAs stated above, there is a presumption in favor of buyers wherebymanufacturers are presumed to know of the defects in their products.120 Thispresumption is based on the notion that since manufacturers have control overthe labor and material used to manufacture their products, they should bedeemed to be experts with regard to those products.In principle, sellers can rebut this presumption by demonstrating that they couldnot have discovered the defect even if they had taken every precaution that areasonable manufacturer would have taken in the same circumstances.However, the rebuttal of this presumption is extremely difficult in practice. InABB v Domtar, the Supreme Court noted that, as of 2007, there were no knowncases in which a manufacturer had successfully rebutted the presumption.121Furthermore, only two possible sources of rebuttal have been recognized thusfar: that the damage was the fault of the buyer or of a ‘superior force’ (definedas ‘an unforeseeable and irresistible event’); or the ‘risk development’defense.122With regard to the first line of defense, a manufacturer may exonerate himselfby proving that the damage resulted from the buyer’s improper use ormaintenance of the product. This type of argument necessarily implies theargument that the defect did not exist at the time of the sale. This defense iscodified 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 beenimpossible to detect the defect given the state of scientific and technicalknowledge at the time the product was released into the market.123 This defenseis 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 the120 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).
    • 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 toextra-contractual matters (ie, when the plaintiff is a third party rather than acontractual buyer). Others take the position that the risk development defense isavailable to manufacturers in all instances, including contractual matters.124Buyers of defective goods have several options for recovery. Article 1590 of theCCQ provides that buyers may, without prejudice to the right to claim damages,either ask for the specific performance of the obligation, obtain the terminationor annulment of the contract, or take any other measure provided by law toenforce their right to the performance of the obligation.Articles 1727 and 1728 of the CCQ provide for specific rules when the productis no longer usable by reason of a latent defect. Under these provisions, theseller is bound to pay the buyer an amount equal to the actual value of theproduct. However, if the seller was aware of or could not have been unaware ofthe defect, the seller is required to restore the actual price of the product and tocompensate 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 manufacturerwill 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 dauto 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.
    • CDN-24 INTERNATIONAL PRODUCT LIABILITYIn light of the above, sellers and manufacturers will generally be liable for thedamage that was foreseeable at the time of the sale.Some decisions have suggested that, given that manufacturers are presumed tohave known about the defects, their failure to disclose the defects amounts to agross fault. Following this line of jurisprudence, manufacturers must pay for allthe damage suffered, even if it was unforeseeable. 125Limitation of Liability ClausesArticle 1733(1) of the CCQ provides that a seller may not rely on a limitation ofliability clause if he was aware, or could not have been unaware, of the latentdefect affecting the quality of the product, namely its fitness for its intendedpurpose: ‘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 situationswhere a buyer buys property at his own risk from a seller who is not aprofessional seller.As discussed above, manufacturers are presumed to have been aware of defectsin their products, and this presumption is extremely difficult to rebut. Therefore,on a practical level, a manufacturer may not rely on a limitation of liabilityclause to limit or exclude its liability with respect to a latent defect.126Finally, Article 1732 of the CCQ provides that a seller may not rely upon alimitation 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.
    • CANADA CDN-25ConclusionCanadian jurisdictions ⎯ both federal and provincial ⎯ require thatmanufacturers inform and warn consumers of the foreseeable dangers associatedwith the intended and unintended uses of their products. Requirements of fitnessfor purpose and quality also have been codified and apply to situations in whichthe buyers have a direct contractual relationship with the manufacturer.Consumer protection legislation also has been adopted to protect third-partyconsumers.When Canada’s liberal approach to class actions and active plaintiffs’ bar aretaken into account, the Canadian legal framework in the product liability areaensures that buyers and consumers who wish to advance such claims againstmanufacturers are given a very fair hearing. Manufacturers beware!
    • ColombiaIntroduction ............................................................................................ COL-1Specific 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-3Civil 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-9Civil Code Regulation of Extra-Contractual Responsibility .................. COL-9Collective Actions Provided under Constitution .................................... COL-10 Consumer’s Constitutional Rights ........................................... COL-10 Popular Action ......................................................................... COL-10 Group Action ........................................................................... COL-11Conclusion ............................................................................................. COL-11 (Release 1 – 2012)
    • Colombia Natalia Tobón Franco, Adriana Durán Fernández and Eduardo Varela Pezzano Cavelier Abogados Bogotá, ColombiaIntroductionThe regulations on product liability in Colombia are provided under the generalnorms 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 12April 2012.1Specific Normative GroundsPolitical ConstitutionArticle 78 of the Colombian Constitution establishes the general clause forliability of producers and traders of goods and services regarding forinfringement 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 samesubject matter are the Commercial Code, the Civil Code, and the New ConsumerStatute.Commercial CodeArticles 932 and 933 of the Commercial Code standardize purchase-saleagreements and provide a warranty for the proper operation of products when1 Issued on 12 October 2011, but in force from 12 April 2012. (Release 1 – 2012)
    • COL-2 INTERNATIONAL PRODUCT LIABILITYthey refer to the presumption of a sale with warranty, but Article 934 of thesame 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 CodeArticle 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 specificconditions. First, the seller is liable for redhibitory vices that exist at the time ofsale.Second, the seller is liable when the redhibitory vices are such that the productsold may not be used for its intended purpose or can only be used in such animperfect manner that it must be supposed that, had the purchaser been aware ofthis, he would not have purchased the product or he would have purchased it at alower price.Third, the seller is liable when he did not disclose the redhibitory vices and thevices are such that the purchaser may have failed to notice them without grossnegligence on his part, or the vices are such that the purchaser could not haveeasily perceived them due to his profession or occupation.Article 1917 of the Civil Code also establishes that ‘Redhibitory vices entitle thepurchaser to demand rescission of the sale or reduction of price, at hisdiscretion’.Article 1918 of the Civil Code furthermore regulates the event where indeminityof 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)
    • COLOMBIA COL-3New Consumer Statute (Law Number 1480 of 2011)The New Consumer Statute generally establishes a presumed minimum generalwarranty that is understood to be agreed upon in all sale-purchase and serviceprovision agreements.The Statute also establishes the liability of producers for the suitability andquality of their goods and services, including the exoneration mechanisms andmeans of defense for the producer, as well as the regulation on theinapplicability of the exoneration exemptions. It may be stated that, in a way,this warranty is grounded on the implied warranties regulated under the UniformCommercial Code in English law.Contractual Liability and Extra-Contractual LiabilityRegarding the specific legislation affording protection to consumers when aproduct causes damages to goods or persons due to safety defects, the provisionsin the Civil Code concerning civil contractual and extra-contractual liability, asapplicable, may be resorted to.In regard to fault, Article 2341 of the Civil Code establishes a general principleof 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 theconsumer due to the need to obtain the goods tendered in the market (theory ofrisk in contracts) and the responsibility for hazardous activities contained inArticle 2356 of the Civil Code.Civil Liability Regime for Defective ProductsIn GeneralIn Columbia, the regime of civil liability for defective products is providedunder several regulations. These include regulations which govern the seller’scontractual liability in the purchase-sale agreement, the special regulationcontained in the Consumer Statute, the relative effect of contracts under thescope of this Statute, and the application of the regime provided under theStatute that requires the existence of a consumer relationship.Regulation of the Seller’s Contractual LiabilityRegarding the contractual liability of the seller under the purchase-saleagreement, regardless of whether or not the seller is the actual manufacturer ofthe products whose defect is reported, under the provisions of the Civil Codeand Commercial Code, the seller will be held accountable for any vices orhidden 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 Codeas well as Articles 1914 et seq of the Civil Code regulate the purchaser’s actions (Release 1 – 2012)
    • COL-4 INTERNATIONAL PRODUCT LIABILITYagainst the seller of a product that had a hidden defect or a redhibitory defect atthe time of purchase.Both in commercial and civil matters, in sales and barters, the hidden defects orvices of the subject matter of the contract may give rise to a remedial actioneither for an action intended to rescind the agreement entered into or for anaction to discount the price in accordance with a just assessment. Both actionsinclude the possibility of demanding indemnification for the damage caused.As stated by the Supreme Court of Justice, for hidden or redhibitory vices toproduce 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.’ 2In commercial matters, it is presumed that the seller, who is a professional, isaware of the existence of the vice in the product. Despite this assumption, theseller may demonstrate unawareness of the vice if it was not possible for theseller to have been aware of it.Articles 932 and 933 of the Commercial Code regulate warranties in connectionwith both products that carry an express warranty and products in which thewarranty is presumed due to their customary manner of sale. In this respect,warranties in contractual matters fall under the scope of strict liability when theyare considered reinforced obligations of result (absolute obligations), as statedunder the doctrine. There is only one possibility of defense for the debtor (in thiscase, the seller), which is derived from the exclusive fact of the creditor (in thiscase, the purchaser) being responsible for the failure to perform the obligationunder the contract.Such a scheme of responsibility — which, in principle, seems beneficial for theaffected party — should be counterbalanced by the short periods entailed by theterms of the warranties. More often than not, warranty terms are established bymeans of adhesion contracts, under which, in connection with a warranty forproper operation or efficiency, a norm exists that supplements the will of the2 Colombia Supreme Court of Justice, Court of Civil Cassation, Ruling of 11 October 1977, R. J. Germán Giraldo Zuluaga.(Release 1 – 2012)
    • COLOMBIA COL-5parties,3 which establishes a maximum term of two years when no expresscontractual agreement exists.There is a notable difference between the warranty period and the statute oflimitations for liability actions. This means that once damage has arisen withinthe warranty period, the statute of limitations starts to run. In addition, theregulation of warranties and their relation to product liability requires adoctrinarian distinction that is important and might shed some light on theconcepts. 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’spersonal safety or property. Likewise, the proof of the seller’s fault relates to acontractual obligation of result, which may be exempted only by means ofevidence of a remote cause.Special Regulation under the New Consumer StatuteThe new Consumer Statute issued by means of Law 1480 of 2011 applies toColombian and foreign products/services, and its provisions govern the rightsand obligations arising between producers, suppliers, and consumers and theresponsibility 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 isany product that in consideration of a mistake in its design, manufacture,construction, packaging, or information does not provide reasonable assuranceto which every consumer is entitled.Moreover, Article 6 of this law states that a producer must ensure the adequacyand safety of goods and services offered or placed on the market and the qualityoffered.Under no circumstances may the quality of goods and services be lower, nor canthe quality contravene the provisions of technical regulations and sanitary orphitosanitary (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)
    • 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 electronicmedia, 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 consumers 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)
    • COLOMBIA COL-7Actions against ProducersConsumers may initiate a judiciary or administrative action against the producer,supplier, distributor, or even the middleman involved in the acquisition of thedefective 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 RulesThe Superintendence of Industry and Commerce may impose an administrativeinvestigation and penalties for non-compliance of the rules contained in Law1480 of 2011, technical regulations, legal metrology standards, and instructionsissued by the Superintendence in the exercise of powers entrusted to it by Law1480 and the Colombian President, or for failure to meet the obligation tosubmit 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 RightWithin the next five days after buying a product, consumers may retract fromthe 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 mustrefund to the consumer all sums paid without making deductions orwithholdings in any way within (30) calendar days after the consumer’sretraction.Consumers must return the product to the producer or supplier by the samemeans and in the same condition it was received. Transportation and other costsinvolved to return the goods shall be covered by the consumer. (Release 1 – 2012)
    • COL-8 INTERNATIONAL PRODUCT LIABILITYRelative Effect of Contracts under Consumer StatuteThere have been many discussions on the possibility or impossibility of theproducer being the object of legal actions and directly redressing the affectedconsumer, as the producer is not a party to the purchase-sale agreement betweenthe seller and the purchaser. In Colombia, as in most other countries, there is arule under which a contract is binding only on the parties to the contract.However, most doctrine and case law have accepted the possibility of theconsumer bringing action directly against the producer, based on the theory ofchain of commerce liability and Article 78 of the Political Constitution (cited inthe earlier subsection ‘The Political Constitution’). In this regard, theConstitutional 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.’4The Supreme Court of Justice also has acknowledged the possibility of bringingactions directly against the producer, based mainly on Article 78 of theConstitution, as this is the only means of effectively defending the interests ofconsumers and users, given the inferior or frail position they usually hold in thebusiness trade.5In the same finding, the Supreme Court of Justice states that the responsibility ofdistributors and manufacturers may not be restricted or limited by the principleof privity of contract (ie, that the contract is binding only between the parties:the purchaser and seller in consumer contracts). This is because, regardless ofthe immediate legal relation the consumer may have with the subject thatconveyed or supplied a given product or service, the protective measuresrelating to his own condition must be extended to the sphere of the producer ormanufacturer, insofar as the producer or manufacturer is the one that hasmanaged, controlled, or directed the design and manufacture of the product,among other aspects. The producer or manufacturer is also the one who decidedto make the product available or launch it in the market, finally compromisingthe 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)
    • COLOMBIA COL-9Consequently, the producer or manufacturer may not be oblivious or indifferentto the eventual defects or anomalies in the product or the dangers or risks thesemay generate; nor may the producer or manufacturer be oblivious to thefinancial losses that the product may cause the final receiver (either endconsumers or end users) or third parties. As such, the producer or manufacturerhas a clearly established ex contitutione ‘special responsibility’ toward endusers, which entitles them to bring action directly against the manufacturer inorder to claim any applicable warranty or collect damages for the harm caused.This entitlement may not be restricted by the mere non-existence of acontractual-type relation. Such a construction would not be in line with theguidelines unequivocally set by the Constitution because — as provided in theruling that substantiated the constitutionality of Articles 11 and 29 of theConsumer Statute — the existence of the possibility of a direct action by theconsumer against the manufacturer arises from the fact that ‘the professionalproducer produces for the market, profits from the market, and must be heldaccountable before the market’.6Necessary Existence of Consumer RelationshipFinally, the application of the regime provided under the Consumer Statuterequires the existence of a consumer relationship.This relationship is comprised of two essential elements: that the consumer isthe end receiver or purchaser of the product or service and that the purchase orutilization of the goods or services is not intended to be within the scope of aprofession or business. The Supreme Court of Justice has explained theconsumer 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. . . .’7Civil Code Regulation of Extra-Contractual ResponsibilityRegarding third parties affected by damages caused by a defective product, itsmanufacturer will be held accountable extra-contractually based on the6 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)
    • COL-10 INTERNATIONAL PRODUCT LIABILITYfollowing hypothesis: responsibility from the fact per se and responsibility fromthe goods or responsibility for hazardous activities.In the case of responsibility from the fact per se, if the manufacturer’s fault hasbeen proved in connection with the manufacture, distribution, or design of aproduct, it will be subject to extra-contractual liability as established underArticle 2341 of the Civil Code. In these cases, the manufacturer’s negligencemust be proved, together with the other elements of civil liability — that is, thedamage and the cause-effect relationship between the negligence and the guiltyconduct.Similarly, in regard to building matters, Article 2351 of the Civil Codeestablishes a particular regime of extra-contractual responsibility of a builder inthe event of collapse of a construction, backed by a warranty of good qualitywork for a term of 10 years, establishing the proof of remote cause as the onlymechanism of defense to be released from any responsibility.In the case of responsibility from the goods or responsibility for hazardousactivities, Article 2356 of the Civil Code, which deals with responsibility forhazardous activities, contains a presumption of responsibility.This presumption generally implies the possibility of objectively holding liablethe manufacturer of a defective product. This is because, as the producer of adefective product (such as an automobile), the manufacturer continues to be thecustodian of the structure of the product given that, although deprived of thephysical possession of the product in all forms, he has been responsible forarranging all the activities during manufacture or assembly of the defectiveproduct. In this context, if a third party is injured due to a defect in themanufacture of the product, the manufacturer will be held responsible forhazardous activities and may only be exempted from this responsibility byproving the existence of a remote cause.Collective Actions Provided under ConstitutionConsumer’s Constitutional RightsThe right to quality control and to obtain suitable and proper products — notonly in connection with economic activities, but also with products that are safeand suitable for use by the consumer — is a constitutional right that is part of theconsumer’s social, economic, and cultural rights.This is a constitutional right as it may be protected by means of collectiveactions (Popular and Group Actions) as provided under Article 88 of thePolitical Constitution.Popular ActionA popular action is filed with the intention of protecting collective interests orfor cessation of contingent damage and to put an end to a danger, infringement,or threat to consumer rights.(Release 1 – 2012)
    • COLOMBIA COL-11The interested party may not request damage indemnification or redress; theaction will take precedence over any other cases being heard by the competentjudge and may be filed at any time, as long as the danger remains against thecollective rights of consumers.Group ActionThis action is intended to obtain indemnification arising from damages caused toconsumers as a collective whole. It has a statute of limitations of two years fromthe date on which the damage was caused. The law requires group actions to befiled by a group of persons in similar conditions, all of whom have been affectedby 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 ofthe others similarly affected, even without powers of attorney, or by therepresentatives of the people or an ombudsman.ConclusionIn civil and commercial matters, the seller has the obligation of delivering anadequate and suitable product that fulfills the purposes for which it was acquiredby the purchaser. This is an absolute obligation and its breach gives theconsumer the right to collect damages. To be exempted from the duty ofindemnification, the burden of proof for the producer/seller relates only toproving a remote cause.There are procedural differences in product liability actions, depending onwhether a claim is based on an implied or an express warranty or whether it isbased on the obligation of repair due to hidden vices.If the claim is made through civil channels, the judge having competence will bea municipal or circuit civil judge, depending on the monetary amount of theclaim, 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 — theobligation of delivering merchandise of good quality remains with the seller,regardless of whether the merchandise is covered under an express or aminimum implied warranty. These are rights set forth in the Constitution and,consequently, may be protected under popular or group actions. (Release 1 – 2012)
    • DenmarkIntroduction ............................................................................................ DEN-1Theories of Liability............................................................................... DEN-2Negligence ............................................................................................. DEN-3 Contractual Liability and Tortious Liability ............................ DEN-3 Culpa Standard......................................................................... DEN-3 Burden of Proof ....................................................................... DEN-5 Reversed Burden of Proof........................................................ DEN-5Fraud or Misrepresentation .................................................................... DEN-6Warranty ................................................................................................ DEN-6Strict Liability ........................................................................................ DEN-7Concept 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-14Defenses 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-16Liability in Chain of Commerce ............................................................ DEN-17 Producers of Component Parts ................................................ DEN-17 Middlemen ............................................................................... DEN-17 Wholesalers and Distributors ................................................... DEN-18Remedies ................................................................................................ DEN-18 Damages for Personal Injury ................................................... DEN-18 Damages for Property Loss...................................................... DEN-19Limitations ............................................................................................. DEN-20 Contractual Limitations ........................................................... DEN-20 Statute of Limitations .............................................................. DEN-20Successor Liability ................................................................................. DEN-21 (Release 1 – 2012)
    • Insurance ................................................................................................ DEN-21 In General ................................................................................ DEN-21 Usual Extent of Cover ............................................................. DEN-22 Usual Exclusions ..................................................................... DEN-24 Duties of Insured...................................................................... DEN-25Product Liability Litigation .................................................................... DEN-25 Frequency of Litigation ........................................................... DEN-25 Attitude of Courts .................................................................... DEN-25 Lawyers’ Compensation .......................................................... DEN-26 Choice and Application of Law ............................................... DEN-26Conclusion ............................................................................................. DEN-27(Release 1 – 2012)
    • Denmark Jes Anker Mikkelsen and Klaus Ewald Madsen Bech-Bruun Copenhagen, DenmarkIntroductionIn an industrial country, manufacturing, trade, and consumption of productsform the basic economic grounds for the development and welfare of society.During manufacturing and distribution, mistakes occur that may result indefective products which, when consumed, may injure persons, such as theconsumer or a third party, or cause damage to assets.Damages awarded in connection with a defective product have been well knownfor many years. The draft Danish Sale of Goods Act 1904 specifically stated thatthe rules of liability for defects in goods sold were not applicable to cases ofproduct-related damage. As no other statutory law provided rules of liability forproduct-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 Danishcourts since the beginning of the twentieth century, the number of cases isrelatively small. In the beginning, most cases brought to the courts dealt withdefective machinery, defective gas or soda water bottles that exploded in theconsumers’ 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 dangerousand harmful characteristics. Today, however, the term ‘produktansvar’, a directtranslation of the term ‘product liability’, is generally used. The change of termmay express the fact that problems related to product-related damage andproduct liability are now evaluated from a wider point of view and that legalissues on product-related damage have become more complex.No statutory law had provided rules of liability for product-related damage untilthe European Community Council Directive on product liability (the ProductLiability Directive)1 was implemented in Danish law by Act Number 371 of 7June 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)
    • DEN-2 INTERNATIONAL PRODUCT LIABILITYas they had been applied until then, remained applicable after its implementation.2These include the statutory rules applied in specific fields of law3 and the generalrules on liability developed by case law.Theories of LiabilityThe effect and consequences of a defect in goods sold subject to the Sale of GoodsAct4 and a defective product causing product-related damage are often alike.However, it is important to distinguish between liability for defective productsunder the Sale of Goods Act and product liability under the rules of liability forproduct-related damage developed by the courts.5The distinction is marked in the case of personal injuries, as the provisions ofthe Sale of Goods Act will not be applicable in such cases. Liability for personalinjuries is to be assessed under the rules of product liability only according tothe case law.The distinction is more complex in terms of damage to assets. The basicquestion is whether the defective product sold has caused physical damage tothe product itself or whether the product has caused physical damage to otherassets. The problem of distinction arises when a product deteriorates due to adefect in the raw material. For example, a component part sold is incorporated asan ingredient in a product manufactured and sold; because of the defectiveingredient, the final product deteriorates.In the case of a defective ingredient, the provisions of the Sale of Goods Act areapplicable 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 partsinserted for the brakes of a car fail and the car is damaged. In this situation, thedamage to the car will be assessed as product-related damage. Component2 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)
    • DENMARK DEN-3damage only occurs during use. This is not necessarily the case when dealingwith ingredient damage. Ingredient damage may occur while the product is instorage.The distinction between liability for defective products under the Sale of GoodsAct and liability for product-related loss according to case law is illustrated bythe following example: a seller sells a crane with the information that the cranecan be loaded with a maximum of 30 tons. While loaded with 20 tons, the cranetopples, injures the crane driver, and causes damage to a car parked nearby. Thebuyer is entitled to full compensation for losses directly and naturally resultingfrom defects in the crane sold, except for personal injuries, according to theSale 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.NegligenceContractual Liability and Tortious LiabilityScholars have discussed whether the liability for product-related damage shouldbe assessed under the rules of contractual liability or under the rules of tortiousliability. Liability for product-related damage occurs in the case of a contractualrelationship between the manufacturer (or the seller) and the consumer(claimant) and in the case of a non-contractual relationship between themanufacturer and the consumer (claimant).7One could say that the resemblance to liability in tort is more marked than theresemblance to liability under a contract. Recent theories seem to accept thatliability for product-related damage is based on tortious liability.Culpa StandardThe culpa standard is the basic norm in Danish law establishing liability fordamage of any kind. It is not codified by statutory law, but has been developedthrough case law. The culpa standard is generally understood to be part ofgeneral Danish law of tort. Under this standard, a person is liable for theforeseeable damage caused by an unlawful act, which can be considered as anintentional or negligent act, provided the damage occurred has affected a subjectprotected 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 abreach of the duty of care that causes damage that is not too remote. If it had beenpossible, or if it should have been possible, to avoid the defect in the product and/or6 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)
    • DEN-4 INTERNATIONAL PRODUCT LIABILITYto avoid the damage caused by the defective product, then the manufacturer and/orseller will be held liable for damages.Negligence under the culpa standard has historically been defined on the basis ofwhat a meticulous and reasonable man (bonus pater familias) would deem to beproper behavior in a particular situation.8 This establishes the general concept ofa 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 notfor the possible (unforeseeable) consequences. Therefore, the fundamentalrequirement imposed on the manufacturer/seller is that productsmanufactured and/or marketed and sold by him must be harmless.Any dangerous elements inherent in a product should, as far as possible, beeliminated by the manufacturer and/or the seller. In the process of developingand designing the product and in the process of deciding whether the productshould be accompanied by an instruction manual, warnings, and the like, themanufacturer has to consider the situation in which the product is expected to beplaced and used, considering, among other things, its nature and designation. Themanufacturer has a duty of care, and his failure to observe reasonablepreparations and steps in order to eliminate any danger inherent in a product willgenerally give rise to liability.The manufacturer owes a duty of care toward the ultimate consumer and towardthird parties with whom he is not linked contractually. In alleging liability inaccordance with the culpa standard, the determining question is whether theharmfulness 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 itis usually easy to establish the existence of a duty of care imposed on themanufacturer in a case of product liability, it is not always easy to prove abreach of duty and causation/fault. The standard of care applicable is that ofreasonable care; in other words, the level of foresight of a meticulous andreasonable man.The standard is flexible, depending on the specific circumstances. Considerationsinclude, among others, the likelihood of injury and the kind of injury, the gravityof the consequences that must be weighed, and the cost and practicability ofovercoming the risks. Both commercial factors and the importance and utilityof the product have to be considered in this connection.Regarding the likelihood of injury and the kind of injury, the risk and the extentof care are connected proportionally. Both a greater risk of injury and a risk ofgreater injury are relevant, as also is the kind of injury. Only reasonableprobabilities (and not every possibility) have to be foreseen. The manufacturer’sduty of care has to be directed to the average consumer and to normalcircumstances of consumption. During the normal course of use, a product may8 von Eyben, Isager, Lærebog i erstatningsret (2011), pp 86 et seq.(Release 1 – 2012)
    • DENMARK DEN-5cause damage because of some specific circumstances affecting the individualconsumer; these circumstances are to be taken into consideration. Themanufacturer will, however, seldom be liable for damages caused by anyabnormal use.Conduct by the manufacturer in accordance with a general and approvedpractice by other manufacturers in similar situations, as well as compliance withstatutory requirements or specific technical standards within the field, is strongevidence of what constitutes the reasonable standards of care in a givensituation, but it is not necessarily conclusive. To the extent that an activityrequires special skills or competence, the relevant standard is that of theordinary skilled man working within that specific field.Burden of ProofIn cases of negligence, as in every type of civil law action, unless otherwisespecifically provided by statutory or case law, the burden of proof falls on theclaimant, who has to establish each factor necessary for liability based on theculpa 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 norare 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 themanufacturer to prove to the court’s satisfaction either that he has not committedany negligent act or that the damage does not originate from the defectiveproduct.The fact that the burden of proof lies with the claimant constitutes the principle ofdirect burden of proof. According to the principle of direct burden of proof, theclaimant must prove that three conditions are met.First, the claimant must prove that the damage which occurred was caused bythe defective product manufactured or distributed by the manufacturer or thedistributor. Second, the claimant must prove that the manufacturer or distributoris liable for the defect in the product, either due to a positive negligent act or due toan omission. Third, the claimant must prove that damage to assets has aneconomic expression or has caused personal injuries.Reversed Burden of ProofAlthough it has not yet been recognized as a general principle, the burden ofproof 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)
    • DEN-6 INTERNATIONAL PRODUCT LIABILITYThis implies that the manufacturer or distributor is assumed liable if theclaimant 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 thedefect is not due to a failure or omission of his duty of care. This burden ofproof placed on the manufacturer may be difficult to bear. The reversed burdenof proof increases the liability of the manufacturer and/or distributor by allowingnegligence-based liability to simulate a form of strict liability.In connection with the principle of a reversed burden of proof, anotherimportant 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 thebasis of an assessment of all evidence produced during the proceedings andtaking all relevant circumstances into account.Fraud or MisrepresentationAccording to general Danish law, fraud and misrepresentation are stronggrounds for liability. The grounds for liability may be set out so that fraud is anintentional disposition to harm or deceive, while misrepresentation is anintentional disposition that causes harm, but the person misrepresenting a fact isnot clear in his mind as to what the consequences of his misrepresentation will be.When fraud or misrepresentation has caused a product-related loss, themanufacturer will be held liable for any product-related loss incurred.WarrantyIn contractual dealings, the manufacturer may express a warranty that creates strictliability for product-related damage. However, according to Danish law, the basisof liability for product-related damage may only be pleaded by the othercontracting party and cannot be pleaded by a third party, who will have to proveliability based on the culpa standard.Even if there is no privity of contract between the manufacturer and the claimantin the form of a contract such as a sales contract or a hire contract, a contractualrelationship may, in certain circumstances, be established between themanufacturer and the claimant.The establishing of a contractual relationship can result from an advertisementpublished by the manufacturer or the labeling on the product. However, anexpress warranty that clearly covers compensation for product-related damage isrequired.In rare situations, a manufacturer may have given an express warranty orexpress statements definitely assuming liability on the safety of his product.Such published product information may constitute a promise to the public thatthe manufacturer will compensate any potential consumer for product-relateddamage.(Release 1 – 2012)
    • DENMARK DEN-7For example, after a pressure cooker exploded, a consumer was seriously burnt.The accident was commented on in the newspapers and, with reference to this, amanufacturer of a competing pressure cooker had an advertisement published,saying: ‘Can a Trumf cooker explode? Reward DKK 5,000. We will pay DKK5,000 to the first person to make a Trumf cooker explode’. Shortly afterward, aTrumf cooker exploded. The court stated that the consumer was entitled to thereward of DKK 5,000 according to the advertisement. 10Notably, statements made in advertisements are not normally sufficient toestablish a contractual relationship, as advertisements are usually only ordinarypraises of the product or goods sold.A statement concerning the merchantability of the product or its fitness for apurpose does not establish an implied warranty or condition creating liability forproduct-related damage.An implied condition or warranty about quality or fitness for a purpose cannotitself give rise to liability for product-related damage, but it may create liabilityfor defects under the Sale of Goods Act.11Strict LiabilityStrict liability will only occur in cases of a contractual commitment tocompensate product-related damage. However, statutory rules regulating themanufacturer’s liability for product-related damage are found in special statutes.These rules differ in various ways from the general principle of liability forproduct-related damage based on the culpa standard developed by court practiceand the rules of the Product Liability Act.Examples of special statutes are Consolidated Act No. 996 of 13 October 2011on Natural Gas Supply and Consolidated Act No. 990 of 8 December 2003 onPower Plants and Electrical Equipment. Under the Act on Natural Gas Supply,the liability of the licensee is based on strict liability.12Under the Act on Power Plants and Electrical Equipment, product liability isbased on the culpa standard, with a reversed burden of proof. The courts haveimposed 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)
    • DEN-8 INTERNATIONAL PRODUCT LIABILITYConcept of DefectThe price, age, intended use, and general condition of the product as well as otherrelevant facts, such as inadequate labeling or instructions for use, will have animpact on the establishment of a defect.If the buyer expressly or by implication has made known to the seller anyparticular purpose for which the product is being bought, it is an impliedcondition that the product supplied is reasonably fit for that purpose, regardless ofwhether or not such products are normally used for that purpose. Impliedconditions or warranties about quality or performance may appear by usage orstandard requirements within a certain field. In the case of a sale by sample, it isan implied condition that the batch will conform to the sample in terms ofquality.In case of substantial defects, the seller will be liable for losses resulting from thedefects based on the culpa standard. Liability arising under a contract of sale ofgoods may be rejected or varied by express agreement between the parties.The provisions of the Sale of Goods Act and the Convention on the InternationalSale of Goods (CISG), which Denmark has ratified, on liability for defectiveproducts are not applicable with respect to product-related damage, although theCISG might be applicable to product-related loss of property belonging to thebuyer.Industrial production is characterized by mass production of uniform products. Theaim is 100 per cent uniform production, and the only way to achieve this isthrough extensive control of raw materials, component parts, the final product,and its marketing and distribution. However, various errors occur inmanufacturing and cause defective products.The concept of a defective product under the rules of product liability hasdeveloped through case law as a dangerous product that may cause damageduring normal and well-known use. The dangerousness of a product may be dueto an unexpected harmful characteristic inherent in the product or due to anexpected characteristic that, for some unknown reason, is not present in theproduct.The harmfulness of a product depends on the actual situation in which theproduct is placed or used. A knife is safe and harmless placed in a drawer, butdangerous in the hands of a killer. The fact that a knife is intended for cutting doesnot make the knife a dangerous or defective product. Any consumer will be awareof the fact that incorrect use of a knife may cause damage and, therefore, theaverage consumer will handle a knife with due attention and care.In general, products are not dangerous in and of themselves, but only undercertain circumstances. Only the unknown risks connected with the normal use of aproduct make the product dangerous. In other words, a product is defective if itcan cause harm in the normal course of use.(Release 1 – 2012)
    • DENMARK DEN-9Case law quickly developed a general principle of liability for product-relateddamage. When liability is alleged in accordance with the culpa standard, thesignificant question is whether the harmfulness of the product is attributable tosomeone’s fault, not whether the harmfulness is attributable to a defect or adangerous characteristic.According to case law, defective products may be divided into differentcategories that form a concept of product liability. The different categories aredefined and illustrated by case law in the following subsections.Defective ManufactureIn GeneralEven though extensive controls are carried out in the manufacturing process,flawed products may result. A flawed product is characterized as a product notconforming to design, nor to the overall production batch manufacturedaccording to the design when the product is brought into circulation.13A flawed product may come about, first, if the raw material or components useddo not bear the characteristics expected, such as stones in meal.14 Second,mistakes may occur during the manufacturer’s production process. Thesemistakes may include inadequate subsequent production control or faultymaintenance of the production machinery.In a case reported in 1955,15 a gas bottle turned over and exploded on hittingthe floor, injuring a worker. The court stated that the explosion was due to badwelding — a defective product caused by faulty manufacturing.Liability for defects arising in the manufacturing process is judged strictly by thecourts; in certain cases, a tendency toward strict liability is seen. From case law, itseems evident that the courts apply the assumption that if a product has beenindustrially processed and if flawed products emerge from this process, theliability lies with the manufacturer.16The reason for this strict practice of the Danish courts seems to be based on thefact that the manufacturer has a duty to organize production in such a way that themanufacturing process is executed correctly and no defects occur.It is of no relevance to the manufacturer’s liability for product-related damagewhether 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)
    • DEN-10 INTERNATIONAL PRODUCT LIABILITYfrom a statistical viewpoint, a defect attributable to the class of unavoidablydivergent and flawed products.System DamageBasically, the courts have stated that a manufacturer is not liable for product-related loss arising from what is called ‘system damage’. System damage isproduct-related loss caused by a known but unavoidable danger inherent in theproduct. In other words, the danger is known, but cannot be avoided byreasonable change in design or purpose.Cases of system damage include various sorts of damage. One example is casesin which the manufacturer is well aware that the product will cause damage to alimited group of allergic persons, irrespective of the fact that the product isconsidered a proper and non-defective product and the fact that no faults aredetectable. 17Another instance of system damage includes cases in which damage concernedwith normal use of the product is accepted by any consumer because the usefulnessof 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 theexecution of an individually produced and designed product in contrast to amass-produced product. The essential issue is whether the service and/or theworkmanship has been performed correctly and in accordance with the normalprofessional 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 forany product-related loss that occurs due to his faulty installation. In one case, aplumber had installed a cistern, which fell down two years later when a guestpulled the rope. The guest was injured. The plumber was held liable, as thecistern had not been installed safely.18Even when a technician has made no errors during installation, he may be heldliable for product-related loss if he has failed to give correct and normaldirections for use or failed to provide information on the risks involved in usingthe product.Contaminated ProductsCase law concerning contaminated products has usually dealt with product-related loss caused by tainted food or animal feed and chemicals.19 The issues17 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)
    • DENMARK DEN-11related to contaminated products are very similar to those of defectivemanufacturing, because the basic problem is a defective component or acomponent with unexpected and unwanted characteristics. Generally, themanufacturer will be held liable for the product-related loss that occurs due tocontaminated products.The problem of contaminated products can be illustrated by a case in which aconsumer, while eating a slice of bread, suffered a dental injury caused by a stonehidden in the bread. The manufacturer was held liable. 20Defective MarketingThe manufacturer has a duty to ensure a safe product. He also is required to giverelevant information about the product. The marketing performed by themanufacturer also should follow certain standards.In a number of cases, the courts have dealt with defective marketing of varioussorts. Defective marketing can be divided into two broad categories, which are notexhaustive: a product may be confused with another product because ofincorrect labeling or because the product has been placed in the wrongwrapping; and a manufacturer may incorrectly state that a specific product isidentical to another previously sold or marketed product.In distribution, a product may be confused with another that has been proved safefor its specific purpose. This was the issue in a case where a waiter gave a guest inthe restaurant a powder that he thought was soda, but which turned out to be ahighly poisonous insecticide, and the guest died shortly afterward.21In some circumstances, the manufacturer has a duty to observe specialprecautions. This is often the case when delivering products that could easily beconfused with other products — for instance, when dealing with chemicals thatare very alike in appearance. In these cases, confusion may cause severe damagein the course of use. The risk is easily avoidable by correct labeling or warningson the packages.If a manufacturer states incorrectly that a specific product is identical to anotherpreviously marketed or sold product, he is held liable for damages caused by thenew 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-knownmaterials, the proliferation of new products, and product differentiations andvariations all involve a considerable risk that their consumption by the individualtakes 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)
    • DEN-12 INTERNATIONAL PRODUCT LIABILITYThis increases the duty of the manufacturer to provide comprehensiveinstructions and directions for the proper use of the product under normalcircumstances. The directions and warnings must be directed to the averageconsumer so as to inform him on how to make the most out of the product andhow to avoid loss and injury.23It might be that a warning does not prevent all sorts of injury or damage. There isalways a marginal group of persons who may suffer personal injuries due toindividual conditions such as allergies. The essential issue is that this marginalgroup is given the opportunity to avoid risks by being informed before using theproduct. 24The manufacturer is not obliged to give information in the realm of commonknowledge about the product, but misleading, incorrect, or insufficient directionsfor 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 wasmounted on the door case according to the enclosed directions. The wall bar couldnot safely be used without some safety fittings that the buyer had notmounted. As the directions did not expressly state that the wall bar was not to beused without the safety fittings, the manufacturer was held liable for personalinjuries suffered by the consumer.25Defective DesignDefective design is not related to individual samples of the product, but usuallyto a batch of the product. Defective design occurs when the design or constructionof the product is not in accordance with the current state of technological andscientific development.In assessing the liability of the manufacturer, due attention must be given to allcircumstances, and especially to whether the product might or ought to havebeen designed or constructed in a different and better way.A manufacturer’s liability under the culpa standard is illustrated by the followingsituation. A camping gas bottle exploded after being refilled at a shop. Theexplosion was due to overfilling of the bottle, which was possible due to thedesign of the bottle and the safety valve. The manufacturer was held liable, becausehe ought to have foreseen that the refilling of the bottle would take place under23 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)
    • DENMARK DEN-13primitive circumstances, which made it important that the safety valves weredesigned and built in a way that made overfilling impossible.26According to case law, material demands are made known to a manufacturerwhen designing and developing new products. The manufacturer has anobligation to utilize prevailing scientific and technological knowledge in the fieldand to construct the product in accordance with this knowledge.After the commencement of production and marketing, the manufacturer has acontinuous duty to obtain information about the current state of technical andscientific knowledge and development in the field and to act accordingly.Therefore, it appears that the manufacturer has a duty to consider the usualcircumstances under which the product is to be used and the dangers connectedwith its use under these circumstances. The manufacturer must prevent suchdangers by improvements in design or by instructions or by any other adequatemeans. The liability for defective designs is based on the culpa standard, with atendency toward strict liability.27Regarding what is called ‘developmental damage’, the courts have stated thatliability for product-related damage is assessed according to the culpa standard.After a certain time of use, new products may appear to contain harmful sideeffects, such as the pesticide DDT in food, certain contraceptive pills, newdesigns, and new building materials or construction methods. Developmentaldamage also is found within the chemical and drug industry.Often, a producer is requested to test products and designs and to obtain anydiscoverable scientific and technical knowledge of the product before the productis marketed or sold. Even though a product has been tested carefully, it mightappear to be defective at a later stage. If a product-related loss is attributable to ahitherto unknown and undiscoverable danger that could not have beenreasonably known or foreseen, the manufacturer is not liable for the product-related loss caused, according to the state-of-the-art defense theory.28Industrial development has increased the need for governmental regulations. Toa large extent, the authorities lay down standards for the design and manufactureof a product or the form of instructions and directions for use that are toaccompany a product. Failing to comply with such governmental requirementsleads to the manufacturer’s liability.The manufacturer’s compliance with governmental requirements will normallycreate the assumption that the manufacturer is not liable for the incurrence of aproduct-related loss. However, the central issue is not whether governmental26 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)
    • DEN-14 INTERNATIONAL PRODUCT LIABILITYrequirements and standards have been observed, but whether the manufacturerhas exercised the proper care, which could be expected of a manufacturer ofsimilar products. This is due to the fact that safety standards do not always keepup with technological developments.The manufacturer must consider, on his own initiative, the conditions underwhich the product will be used and he must keep on improving the product bymeans of design or instruction.Manufacturer’s Obligation to Warn Consumers or Recall DefectiveProductsFollowing a certain time of safe use, a distributed product may develop a defector the advance of technology may reveal a defect in the product which wasunknown and could not reasonably have been foreseen at the time ofdistribution.As the circumstances and technological environment are not static, themanufacturer has a duty to test his products continuously. In order to maintain orgain market share, the manufacturer will, on his own initiative, develop andimprove his products.During this process, if the manufacturer discovers hitherto unknown dangers ordefects in the original product, or the manufacturer is informed that a number ofincidents of various sorts of damage have occurred, he is obliged to do what isnecessary and possible to avoid further damage.The manufacturer’s duty could be to warn the consumers individually or bypublic advertisements and/or to recall the defective products. The manufactureris not required to warn consumers with respect to products or components inproducts which are only dangerous or potentially dangerous when consumed inexcessive quantities or over a long period, or if the danger or potential danger isgenerally known and recognized, as with alcoholic beverages or tobacco.No published court decision has established such a duty for the manufacturer towarn or recall products, but a duty to warn or recall is in accordance with thegeneral principle of the culpa standard in Danish law, under which a person also isliable for omissions leading to damage.Establishing a duty to warn or recall is conditioned upon whether the warning orrecalling will prevent further damage. It is not possible to precisely define theresponsibility of the manufacturer to warn consumers or recall defectiveproducts, 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 otherfactors.Although it is difficult to specifically define the manufacturer’s obligation inthis regard, the Product Safety Act, which came into force on 1 March 2010,(Release 1 – 2012)
    • DENMARK DEN-15establishes such a duty for the manufacturer to warn customers about dangerousconsumer products or recall the products in order to prevent damage.29Defenses Available to ManufacturerContributory FaultIn certain exceptional circumstances, the manufacturer’s liability may be partlyor fully exempted.30 Liability may be exempted if it is unreasonably andexorbitantly burdensome for the manufacturer or when extraordinarycircumstances in other respects make it fair and reasonable to limit or exemptthe liability of the manufacturer.In some cases, negligence of a third party may affect the liability of themanufacturer or the seller. Depending on the circumstances, the third party maybe exclusively liable for the damage or part of the damage incurred and, in othersituations, the manufacturer or seller and the third party may be jointly liable. Theburden of proving the consumer’s or a third party’s (contributory) fault and itscausation is on the defendant (manufacturer/seller).Comparative FaultWhen product-related loss is caused partly by the manufacturer and partly by theclaimant (consumer) himself, the court will reduce the damages recoverable to afair and reasonable amount, based on the consumer’s share of responsibility.According to case law, minimal comparative negligence displayed by theconsumer is not considered sufficient to lead to damages being reduced by thecourts.Assumption of RiskWhile comparative negligence often involves a distribution of liability betweenthe parties, depending on the degree of negligence displayed by either party, anassumption of risk implies no recovery of damages. Consequently, it is importantto distinguish between comparative negligence, contributory negligence, andassumption of risk; however, this is often quite difficult.Generally, it is assumed that an assumption of risk is present only when theclaimant knows, without reasonable doubt, that the continued use of the product isdangerous but disregards such an obvious danger and continues using theproduct.An assumption of risk is equivalent to an acceptance of the risks involved whenusing the product. An acceptance of risk displayed by the claimant exempts themanufacturer 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)
    • DEN-16 INTERNATIONAL PRODUCT LIABILITYProduct MisuseThe claimant’s misuse of a product will not create liability for the manufacturerwhen the misuse of the product could not have been foreseen by a meticulousand responsible manufacturer.If the claimant’s misuse or mishandling of the product is due to the lack ofinformative directions for use, the manufacturer will be held liable for product-related damage.31State-of-the-Art DefenseRegarding the state-of-the-art defense, the major problem is not only whetherthe danger could have been discovered, but also whether it ought to have beenforeseen. Conduct by the manufacturer in accordance with general and approvedpractices by other manufacturers in a similar situation will often constitute thereasonable 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 thoroughinvestigation could have disclosed the risk, it is likely that the manufacturer willbe held liable.Under certain circumstances, the period of time maybe argued to be a defensefor the manufacturer, but it will never in itself be a complete defense. If theproduct-related loss occurs several years after the product was distributed, it maybe difficult for the claimant to prove that the damage is due to a fault committedby the manufacturer. It is more likely that the damage suffered is due to wear andtear; in other words, the assumption is that if a product had an existing or latentdefect, it would have appeared within a reasonable period of consumption.According to the general law, the claimant has an obligation to minimize anylosses. This rule on avoidable consequences implies a defense similar to thedefense of comparative negligence. The difference is that instead of adistribution of the liability displayed by either party, the claimant simply is notgranted any compensation for that part of the damage that could have beenavoided if reasonable steps had been taken to prevent further damage.DisclaimersSubject only to certain exemptions, liability for negligence may be contractuallyexcluded. Such disclaimers must be explicitly worded in order to be accepted bythe courts. In principle, it is possible to exclude liability for death, personalinjury, and damage to property; in practice, however, the courts only seem toaccept such disclaimers to the extent that they are considered reasonable in thespecific circumstances taken into consideration.Disclaimers are only effective between contractual parties and will neveraffect the liability toward any third person.31 UfR 1923.678.(Release 1 – 2012)
    • DENMARK DEN-17In cases where the parties are in unequal positions regarding the ability tobargain — for example, in the case of a professional dealer and a consumer — thecourts have set aside disclaimers. Case law shows a restricted interpretation ofdisclaimers, which implies that they are only a limited defense.A related issue is whether the manufacturer warned against the specific dangeror risk of harm. If the claimant has been made aware of a particular danger, theassessment of the expected safety of the product is modified in themanufacturers favor32. However, it must be noted that the manufacturer is notable to disguise a disclaimer, which would be invalid under the Product LiabilityAct, as a general warning.Liability in Chain of CommerceProducers of Component PartsProducers of components are liable under the culpa standard developed by caselaw. A fault may occur in the course of manufacture of the component parts orspare parts or during control or handling of the component parts.The liability of the producer of component parts corresponds to the liability of amanufacturer. In relation to the consumer, the producer of component parts andthe manufacturer will be held jointly liable for any product-related damage thatoccurs in this context.33MiddlemenDanish law also imposes liability for defective products on so-called‘middlemen’. A middleman is a person who, in the course of his business, resellsproducts, hires out products, or distributes products in any other way.Consequently, licensors and franchisors will be held liable either asmanufacturers or as middlemen.The liability for product-related loss placed on the middleman falls into twocategories: liability based on the act or omission of the middleman and liabilitybased on faults committed in previous links of the chain of manufacturing anddistribution.A middleman is liable for product-related loss if his handling of the product hasresulted in a defective product. As a starting point, a middleman will be liable forproduct-related loss according to the culpa standard. According to case law, theliability of the middleman is rather strict, especially when the product demandsspecial 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 of32 Ulfbeck, Erstatningsretlige grænseområder (2010), at pp 213 et seq.33 Kruse, Erstatningsretten (1989), at pp 307 et seq. (Release 1 – 2012)
    • DEN-18 INTERNATIONAL PRODUCT LIABILITYmanufacturing and distribution. In this situation, even though the middleman hasnot committed any fault, he is nevertheless held liable for the product-relatedloss which occurs. The middleman’s liability for product-related damages in thissituation is considered to be based on principles of strict liability. One could saythat the middleman serves as a guarantor for the manufacturer.Wholesalers and DistributorsWholesalers and distributors are liable for product-related damage under the culpastandard. This implies that the wholesaler and the distributor are liable fornegligence committed in their own organization while handling the products.However, according to Danish case law, a professional or commercial wholesaleror distributor in the capacity of a middleman also is held liable for any errorscommitted in a previous link in the chain of manufacturing or distribution.RemediesDamages are awarded on the basis of the actual loss suffered. The aim is solelyto compensate the injured person for the damage, loss, or injuries that have beensuffered or incurred. Accordingly, compensation is not awarded in order topunish the responsible party. In case of a criminal offense, such cases are dealtwith separately and do not influence the damages awarded in a civil case.In assessing the damages, it is necessary to distinguish between personal injuryand damage to property. Personal injury is regulated by statutory law, which isnot the case with damage to property.Damages for Personal InjuryAssessment of damages for personal injury is regulated by the Liability forDamages Act,34 which fixes the level of damages to be awarded in respect of fourrelevant elements: the injured person’s pain and suffering; acquired permanentdisability; the injured person’s actual losses (medical expenses, health care, andloss of earnings, among others); and future losses (including expected futuremedical expenses and loss of earnings).Compensation for pain and suffering is awarded for the period that the injuredperson is ill. The injured person is compensated with an amount of DKK 180 foreach day of illness; the maximum compensation is DKK 69,000.35The award for disabilities is calculated on the basis of a medical statement as tothe 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)
    • DENMARK DEN-19disabled, the award will amount to approximately DKK 790,500.36 This amount isreduced proportionally, depending of the level of disability; no damages areawarded to persons with less than 5 per cent disability. For persons 39 years ofage or older, the damages are further reduced by 1 per cent; they are furtherreduced if the person is more than 59 years of age.The injured person’s loss of working ability is compensated if reduced by morethan 15 per cent. The calculation is normally based on the injured person’sannual salary multiplied by 10 and with a percentage deduction based on his lostworking ability.If, for instance, the injured person’s annual salary amounts to DKK 300,000 andthe injured person has lost 25 per cent of his working ability, the compensationcan be calculated as follows: 300,000 x 10 x 25 per cent = DKK 750,000Finally, the injured person’s actual costs (such as medical costs, health carecosts, costs for rehabilitation, and similar costs) are fully compensated.Damages for pain and suffering are normally minimal, whereas damages fordisability and reduced working ability normally represent the largest portion ofthe total award. Thus, it is not possible to give a more precise estimate on thelikely amount of damages to be awarded, as damages awarded in previous caseshave all been based on the individual circumstances.This assessment of damages for personal injury is a simplification of how anaward is calculated. A number of other factors will be taken into considerationin assessing the damages arising from a particular accident as a result of the useof a particular product, including whether the injured person is married and/orhas dependants, whether he can participate fully in his family life, andemotional or psychiatric disturbance.Damages for Property LossAs regards damages for property loss, case law has shown that direct and indirectlosses naturally deriving from the product are fully compensated. When propertyis damaged or lost, the compensation is fixed at the current purchase price foridentical property, but is reduced on the basis of use and age. If the property isonly partly damaged, compensation is fixed at the actual expenses for repair.Furthermore, the injured is entitled to compensation for loss of profits and otherindirect losses. Compensation for indirect damage is seldom awarded. Thereason is that the more indirect the damage becomes, the greater the tendency ofthe 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 adefective product.36 Figures for 2012. (Release 1 – 2012)
    • DEN-20 INTERNATIONAL PRODUCT LIABILITYThe total loss is compensated unless specific circumstances are present, such ascontributory liability and assumption of risk. Damages are assesseddiscretionary by the court and awarded as a lump sum.Due to the principle of free evidence and the fact that the courts consider allrelevant circumstances, it is difficult to give a precise calculation of the likelyamount of damages that might be awarded, as previous cases are seldom used asprecedents.LimitationsContractual LimitationsThe principle of party autonomy is highly accepted and express agreements onlimitation of claims are valid. Such limitations, however, will not affect theclaims by any third person having suffered a product-related loss.In certain circumstances, a court will set aside the parties’ agreement onlimitation, especially if the parties have been in unequal bargaining positions.Statute of LimitationsAccording to the Act on Limitations,37 the general statutory time bar is threeyears, calculated from the date on which the claim fell due, which is from the dayof the incident causing the damage or from the day the injured person had orought to have had knowledge of the incident.Along with the three-year time bar, a 10-year limitation period for damages forproperty loss and a 30-year limitation period for damages for personal injuryruns from the time at which the claim was founded, which is the time at whichthe damage occurred.A three-year time bar also applies in product liability cases, calculated from thedate the injured knew or ought to have known that a product-related loss hadoccurred,38 although the three-year time bar can be suspended. The three-yeartime limitation applies equally to liability under the Product Liability Act as toliability for product-related damage not covered by the Act.39Along with the time bar of three years, a limitation period of 10 years runs from thetime when the manufacturer placed the product into the stream of commerce.40This 10-year limitation period does not apply to liability outside the scope of theAct.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)
    • DENMARK DEN-21Successor LiabilityWhen dealing with the subject of extension of liability for defective products tocorporate successors, the following substantial issue that should be considered is‘who has manufactured the defective product, and is the corporate successor thesame legal entity or has a new legal entity been founded?’If the manufacturing company and the corporate successor are the same legalentity, 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 theentity. Consequently, there is no question of extension of liability, as themanufacturing company alone is liable.In the case of a merger between a manufacturing company and another continuingcompany, the continuing company will be liable for defective productsmanufactured by the manufacturing company.The acquisition of assets from a company does not extend the liability fordefective products to the corporate successor as regards products marketed andsold before the date of the acquisition, unless specifically provided for.InsuranceIn GeneralIn recent years, product liability has become of growing relevance, although theconcept has been known for several decades. As a direct and naturalconsequence, the importance of insurance in product liability matters hasincreased accordingly.In Denmark, most insurance companies offer a combined public and productliability insurance, the conditions of which are based on the general conditions ofcombined commercial and product liability insurances prepared by Skafor (theAssociation of Danish Non-Life Insurance Companies) and Industrirådet (theFederation of Danish Industries) in 1987. Insurance companies are not legallyobliged to use these general conditions as the basis of their insurance but, inpractice, all major insurance companies do so.Ten years ago, only the largest industrial companies were aware of productliability matters. This has changed, however, during the last five to ten years;today, most companies and/or private enterprises have effected insurancescovering product-related damage.The usual extent of cover will be discussed in the next subsection. Public andproduct liability insurance is usually effective for a period of one year. Theinsurance may be canceled by either party, giving one month’s written notice, toexpire on the principal due date. In the absence of any such notice ofcancellation, the insurance will automatically be renewed for a period of oneyear. (Release 1 – 2012)
    • DEN-22 INTERNATIONAL PRODUCT LIABILITYFurthermore, it is a general condition that any dispute concerning the contract ofinsurance will be settled according to Danish law and by Danish courts. Themost common public and product liability insurance alternatives andstandardized 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 withother insurances, such as professional liability insurance. Various standardized orspecific exclusion alternatives may be agreed upon under the specific insurance.Furthermore, the coverage may be extended and/or individualized in accordancewith the specific risks and the specific demands of the insured. Such individualconditions will not be further discussed in this chapter.Usual Extent of CoverAccording to the general conditions of the combined public and product liabilityinsurance, the insurance covers the insured and any person engaged in theservice of the insured.The insurance covers the liability of the insured in respect of personal injury ordamage caused by or arising out of the product or services of the insured after theyhave been distributed or performed. Cover will be provided only if such personalinjury or property damage is caused in the course of the business described in thepolicy by products or services specified in the policy. However, certain liabilitiesare excluded from the coverage of the insurance, the most important of whichare:• 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)
    • 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 financialloss not being a result of personal injury or property damage covered under theinsurance. The insurance also does not cover certain types of pecuniary orfinancial losses (fines or the like, including punitive damages), even if such lossesare a result of personal injury or property damage covered under the insurance.Consequential losses, loss of time, loss of profits, or similar types of indirectlosses are only covered under certain specified conditions. In addition, theinsurance 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 componentsliabilities’. Although damage to ingredients is not defined as a product-relatedloss, such damage is thus covered by the general conditions of the productliability insurance.With respect to ingredient and component damage, the coverage is limited toinclude the insured’s liability for any direct loss incurred as a result of theinsured’s product or service. Cover will be provided only in respect of thedecrease in value of the manufactured or processed object, any furthermanufacturing or processing costs, or the actual costs of repairs. Other costs orlosses will not be covered. In addition, product liability policies contain specialprovisions regarding liability for serial loss.The insurance is geographically limited as stated in the policy. However, undercertain circumstances, injury or damage occurring outside the geographicterritory will be covered by the policy. This exception is particularly aimed at41 Compare with the duties of the insured listed in the subsection ‘Duties of the Insured’, below. (Release 1 – 2012)
    • DEN-24 INTERNATIONAL PRODUCT LIABILITYproducts 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 ofinsurance. Any claims advanced must be notified to the insurer immediately and nolater than three months after expiry of the insurance policy. The insurance does notcover losses ascertained before the inception date stated in the policy. Usually, theinsurance contains exceptions regarding liabilities covered by other insurances.The insurance does not cover liability caused by the insured with malicious intentor as a result of incompetence or gross negligence.The liability is always limited as stated separately in the policy, the maximum limitfor the insurer’s liability being the liability in respect of claims advanced in anyone insurance year. The limits of liability in insurances effected by small andmedium-sized companies are usually between DKK 10,000,000 and DKK20,000,000. The limits of liability in insurances effected by larger companies varyfrom DKK 10,000,000 to several hundred million Danish kroners.Usual ExclusionsThe commonly known exclusion alternatives are exclusion of cover for loss ofor damage to ingredients and components; exclusion of cover for objects whichhave been treated, processed, or prepared by the insured; and exclusion of coverfor loss of (contrary to damage to) ingredients and components.Each of the exclusion alternatives may be effected either by inserting a provisionin the policy, stating that the relevant section of the general conditions will notapply and that the liability in question will not be covered by the insurance, orsimply by redrafting the relevant section in the general conditions.Exclusion of cover for loss of or damage to ingredients or components iscommonly effected by companies which are not manufacturing, marketing, and/orselling products or services which are likely to be made part of, mixed with, usedas packing for, or otherwise connected with other property, used as feed, or usedin the manufacturing, processing, or other kinds of treatment of property.Exclusion of cover for product liability for loss of or damage to processed orprepared property is typically effected by companies not offering such serviceswithin 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. Thedistinction between loss of and damage to can be illustrated as follows: if, forinstance, an ingredient (flour) of bread does not have the right consistency, thebread may become too heavy, which causes the bread to be sold at a reducedprice. In such cases, the final product has not been damaged, as it can actually besold. The baker, however, has suffered a loss, as the bread cannot be sold at thefull price and this loss will not be covered by the insurance, if this exclusionalternative has been effected. On the other hand, if it was not possible to sell thebread (for instance, because the flour was poisoned), then the bread was damaged(Release 1 – 2012)
    • DENMARK DEN-25and 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 forsuch loss.Duties of InsuredVarious duties are incumbent on the insured. If, for instance, a change occurswhich alters the risks specified in the policy, the insured must give immediatenotice to the insurer of such change.Furthermore, the insured must give immediate notice to the insurer of any claimadvanced against the insured or in case there is reason to expect any claim to beadvanced. Finally, the insured is not entitled to make any admission, offer,promise, or indemnity without the consent of the insurer.Product Liability LitigationFrequency of LitigationOnly a few court decisions concerning product-related loss have been published.Most cases dealing with the subject of product-related damage have either beensettled before an action has been issued or before the court has been able toevaluate the evidence and circumstances of the particular case.Another reason for the small number of published court decisions may be thatcontracting parties in commerce very often agree on arbitration. Arbitral tribunalsawards are usually not published and the results are therefore not known to anyoneexcept the parties involved.Attitude of CourtsCase law seems to express a tendency to recognize liability for product-related lossbased on the culpa standard, often with a reversed burden of proof, which impliesa liability close to a strict liability. In one case, the Supreme Court stated that aDanish company was liable for industrial injuries, including personal injuries toformer workers that are caused by asbestos fiber in the production process. Theliability for product-related damage was clearly based on strict liability.42At the moment, it is still too early to say that liability for product-related damageunder the case law is based on strict liability, as it is not yet known if this decisionwill 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 expectedto be more marked in the future, partly because of the influence of the casereferred to above and partly because the provisions of the Product Liability Act42 UfR 1989.1108. (Release 1 – 2012)
    • DEN-26 INTERNATIONAL PRODUCT LIABILITYthat stipulate strict liability for product-related loss within the privateconsumers’ area also are expected to influence the assessment of liability forproduct-related damage in the fields of law outside the Act.Lawyers’ CompensationIn general, lawyers are compensated regardless of the result of the case broughtbefore the court. Usually, lawyers’ fees are assessed in accordance with theguiding tariffs stipulated by the Danish Lawyers Association (Det DanskeAdvokatsamfund), unless the fees have been agreed between the lawyer and theclient.The Danish Lawyers’ Association is an association of which all Danish lawyersare compulsory members. In cases concerning claims of an amount betweenDKK 50,000 and DKK 200,000, the fee will range between approximately DKK10,000 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; forclaims between DKK 500,000 and DKK 1,000,000, the fee will range betweenapproximately DKK 40,000 and DKK 100,000; for claims between DKK1,000,000 and DKK 2,000,000, the fee will range between approximately DKK60,000 and DKK 150,000; and for claims between DKK 2,000,000 and DKK5,000,000, the fee will range between approximately DKK 100,000 and DKK300,000.For claims exceeding DKK 5,000,000, the fee will be decided based on anoverall 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-basedfees. Fees based on a lump sum also are possible, but are usually not seen inproduct liability litigation.In principle, Danish lawyers may not agree to a salary based on a contingencyfee. However, fees that are inequitable are reduced accordingly. Agreements oncontingency 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 conductof the case. In practice, the legal costs are seldom compensated in full.Choice and Application of LawThere are no statutory rules in Danish law regulating the choice of law whendealing with product liability. According to Danish private international law, theprincipal choice-of-law rule regarding claims for economic compensation is, ingeneral, 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, asmeans of determining the applicable law.(Release 1 – 2012)
    • DENMARK DEN-27In a typical situation, the consideration will lead to an application of the law ofthe claimant’s residence, provided the defective product is marketed and soldthere. This implies that in the case of an injury arising in Denmark caused by aproduct marketed and sold in Denmark, the choice of law will be Danish law.43ConclusionUnder Danish law, product liability is defined as the producer’s liability forproduct-related damage caused to a customer by a defective product he hasproduced or manufactured. Until the enactment of the Product Liability Act,which implemented the Product Liability Directive, the basis for this liabilitywas the law governing torts, which is not codified in a single statute but hasdeveloped from case law.The Product Liability Act is not intended to replace the law on torts and theexisting laws on product liability, but to complement these statutes. To seekremedies against product liability actions, the claimant must prove that thedefect in the product is due to the producer’s negligence.The obligations between a purchaser and seller in sales of goods are governedby the Danish Sale of Goods Act, as amended. The Act only governs damage tothe ingredients of product that are sold; as such damages are not consideredproduct-related, the Act does not contain any provisions on product liability.However, the existence of a contract between the purchaser and seller isrelevant, because a contractual relationship may limit or eliminate productliability. Product liability may not be limited or eliminated under the ProductLiability Act.In terms of causation, the basic rule of law is that the claimant has to prove thatthe product is defective, that the producer or manufacturer has demonstratednegligence, that a loss has been incurred, and that there is causation between thedefective product and the loss incurred.As there are no rules to establish the standard of proof that a claimant ordefendant must meet to prove his case, the courts have freedom to evaluate theevidence on a case-by-case basis to determine whether the burden of proof hasbeen met.43 Philip, Dansk international privat og procesret, 2nd ed (1976). (Release 1 – 2012)
    • England and WalesIntroduction ............................................................................................ ENG-1Basis 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-3Concept of Defect .................................................................................. ENG-4 In General ................................................................................ ENG-4 Manufacturer’s Obligations to Warn Consumers or Recall Defective Products ................................................................... ENG-5Defenses 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-7Examples of Strict Liability for Products ............................................... ENG-7Contractual Liability of Distributors ...................................................... ENG-9 Fraud or Misrepresentation ...................................................... ENG-9 Contractual Liability for Warranty .......................................... ENG-10 Implied Satisfactory Quality or Fitness for Purpose ................ ENG-10Remedies ................................................................................................ 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-16Exclusion or Limitation of Liability ...................................................... ENG-16Statute of Limitations ............................................................................. ENG-17Corporate Successor Liability ................................................................ ENG-18Product Liability Insurance ................................................................... ENG-19 Availability of Insurance ......................................................... ENG-19 (Release 1 – 2012)
    • Nature of Policy and Usual Extent of Cover............................ ENG-19 Usual Exclusions ..................................................................... ENG-20Product Liability Litigation .................................................................... ENG-20 Role of Courts and Lawyers .................................................... ENG-20 Where to Sue and Which Law to Apply .................................. ENG-21Product Safety Legislation and Prosecutions by TradingStandards Officers .................................................................................. ENG-22Conclusion ............................................................................................. ENG-23(Release 1 – 2012)
    • England and Wales Peter Burbidge, Barrister Senior Lecturer, University of Westminster London, United KingdomIntroductionIt should be stressed initially that the United Kingdom is made up of threeseparate legal systems: those applying in England and Wales (a singlejurisdiction), in Scotland, and in Northern Ireland.Although the liability for defective products is subject to essentially the samerules in each jurisdiction, the procedures in the courts may be different. For thisreason, this chapter is confined to the law as applied in England and Wales.Basis of Manufacturer’s LiabilityIn GeneralExcept 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 Iof the Consumer Protection Act 1987, and liability for breach of statutory dutyimposed by criminal legislation, such as the product safety rules issued underPart II of the Consumer Protection Act 1987.NegligenceProduct liability under English law is classified as a tort, as there is usually nocontract between the manufacturer and the end user or person injured. Undercommon law, liability was based on negligence under the case of Donoghue vStevenson,1 which imposed a duty on manufacturers to take reasonable care inthe 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 theend user or ultimate purchaser. Until the introduction of strict liability forproducts in 1987, the end purchaser would normally prefer to sue the seller incontract, as liability in this area is strict (further discussed in the subsection‘Strict Liability in Tort’). The liability of the producer for negligence at common1 Donoghue v Stevenson [1932] AC 502. (Release 1 – 2012)
    • ENG-2 INTERNATIONAL PRODUCT LIABILITYlaw is, however, confined to physical damage to other property or injury topersons and the financial losses that result from them. It thus does not coverforeseeable purely financial loss to a consumer who has to repair the product orsuffers expenses when the product breaks down.2Fraud or MisrepresentationAlthough it is possible for a manufacturer to be liable for fraud ormisrepresentation (eg, by inducing purchasers to buy the product by makingfalse claims about its properties), this is not considered the basis on whichproduct liability is imposed on those who suffer damage or injury.Such statements, as they relate to the expected level of safety, will be an elementin determining whether the product is defective under Section 3 of the ConsumerProtection Act 1987 (further discussed in the section ‘Concept of Defect’);however, they are not the basis for imposing liability.WarrantyExpress WarrantyIn some cases, the manufacturer will issue an express warranty (guarantee) withthe product, which will amount to a contract with the end user. It is generallyrecognized that the English requirement of consideration for contractualpromises is satisfied by the buyer’s decision to buy the product and thus obtainthe guarantee.The extent of the guarantee is likely to be restricted and will usually only coverthe cost of repairs to the product. It will be interpreted according to its terms andwill not in itself give rise to liability if the product causes damage.It cannot, however, reduce the consumer’s own rights against the seller incontract or the manufacturer in tort (further discussed in the subsection‘Contractual Liability for Warranty’).Implied ContractEnglish law does not recognize any implied contract between the manufacturerand the ultimate consumer of the product (assuming, of course, that theconsumer did not buy directly from the manufacturer).Implied Satisfactory Purpose or Fitness for PurposeThe vendor of a defective product may, of course, be liable in contract to hispurchaser for breach of certain implied contractual terms imposed by the Sale ofGoods Act 1979.2 Anns v Merton [1970] AC 728.(Release 1 – 2012)
    • ENGLAND AND WALES ENG-3These terms strictly guarantee satisfactory quality3 and fitness for purpose,4 butthis liability is only to the other contracting party (further discussed in thesection ‘Contractual Liability of Distributors Down the Chain’).Impact on Third PartiesIn general, these implied terms only benefit the other contracting party. TheContracts (Rights of Third Parties) Act 1999 does allow third parties to sue oncontracts to which they are not a party, but only when they are identified as thebeneficiary under the contract.This means that consumers generally may not be able to sue the manufacturerfor breaches of satisfactory quality in its contract of sale to a retailer, as they willnot be named in that contract as beneficiary, either individually or as a class. Forexample, in the case of Avraamides v Colwell (BTC), 5 the Court of Appealrefused to allow a claim by a subsequent purchaser of a house for defectivebuilding work carried out under a contract with the previous owner.However, a third party who is injured by the product or suffers damage to hisproperty can, in any case, rely on the strict product liability in tort under theConsumer Protection Act 1987 enacting the European Union (EU) ProductLiability Directive 1985.6Strict Liability in TortSince the enactment of the EU Product Liability Directive in 1987, it is nolonger necessary to show negligence by the producer.7 Provided that the producthas been shown to be defective and the defect caused injury or damage toprivate property (not to the product itself), the producer is strictly liable to thevictim and should have insurance to cover this.8Section 1 of the Consumer Protection Act 1987 defines the ‘producer’ as theperson who manufactured the product or, in the case of raw materials, the personwho 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)
    • ENG-4 INTERNATIONAL PRODUCT LIABILITYFor agricultural products, the Consumer Protection Act 1987 imposed strictliability only on those who put the produce through an ‘industrial process’.However, regulations in 2000 extended liability to cover farmers growing orrearing food produce.9 As well as the producer, strict liability also may attach tothose who hold themselves out as producers.10 Thus, for example, a supermarketwith its ‘own brand’ of products should be liable under the Act, as the realproducer’s name is not mentioned.By the same token, liability may attach to the owner of intellectual propertyrights who licenses another to produce the goods in his name. The licensor herewill be liable to the victim under Section 2(2)(b) of the Consumer Protection Act1987, but will usually be able to recover an indemnity from the licensee forbreach 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 LiabilityDirective.11 Suppliers also may be liable if they fail to identify the producer orthe supplier up the chain.Concept of DefectIn GeneralFor liability under the Consumer Protection Act 1987, the product must bedefective in that the product’s safety is not such as persons generally are entitledto 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, andincludes the safety of products or parts comprised in the product. Section 3(2) ofthe Consumer Protection Act 1987 makes it clear that persons would generallytake into account all the circumstances when determining the safety they areentitled to expect, but these factors include the manner and purposes ofmarketing and the use of marks, instructions, and warnings with respect to doingthings in relation to the product.Thus, determining whether a product is defective and will therefore attract strictliability under the Consumer Protection Act 1987 will include elements ofdefective 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 generallevel 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)
    • ENGLAND AND WALES ENG-5Manufacturer’s Obligations to Warn Consumers or Recall DefectiveProductsAs the manufacturer will be liable for damage caused by defects, he clearly hasa 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 ofsafety that the public generally is entitled to expect.This does not mean, however, that the producer needs to warn a consumer aboutrisks 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 ofStrict 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 hadpower to order the complete recall of dangerous products under Regulation 14General Product Safety Regulations 2005 (S.I. 1803/2005), enacting EUDirective 2001/95/EC (further discussed in the section ‘Product SafetyLegislation’). All product recalls are published on a daily basis on the website ofthe Trading Standards Institute.13Defenses Available to ManufacturerDefenses under the Consumer Protection ActThe manufacturer is primarily concerned with strict liability under the ConsumerProtection 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 theproduct at the time the product was supplied. ‘Supply’ here has to be in thecourse of business.The manufacturer will usually argue (as the defendant successfully did in Piperv JRI, which is further discussed in the section ‘Examples of Strict Liability forProducts’) that the defect did not exist in the product at the time the product wassupplied. This will rest entirely on the judge’s interpretation of the expertevidence.Product MisuseIn some cases, the manufacturer may argue that the defect was caused byproduct 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 thebalance of probabilities.If he cannot, it will be assumed, as in the case of Ide, that the defect was therewhen the product left the factory. It is not up to the victim to show that a product13 At http://www.tradingstandards.gov.uk/advice/advice-recall-list.cfm. (Release 1 – 2012)
    • ENG-6 INTERNATIONAL PRODUCT LIABILITYwas defective when it left the factory, still nor he establish what actually causedthe defect.State-of-the-Art DefenseThe 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.’14Clearly, the tests for defects may improve over time. However if, as in Abouzaid(further discussed in the section ‘Examples of Strict Liability for Products’), thecourt accepts that the tests used by the defendant for detecting defects in theparticular product had not been improved upon by subsequent developments,this defense is unlikely to work.Producers of Component PartsProducers of parts can escape liability if any resulting defect was whollyattributable to the design of the final product or compliance with instructionsfrom that producer.15If the entire cause of the defect is not down to the final producer, the producer ofthe part will be at least partly liable. In this situation, the producers may each beconsidered jointly liable for the whole amount of the claimant’s damage, butunder the Civil Liability (Contribution) Act 1978, the person paying can recovera contribution from the other. The amount of the contribution is determined bywhat is just and equitable having regard to that person’s responsibility for theclaimant’s losses.16If only one producer is sued, he can join the other to the action as a third party inorder to recover the appropriate contribution or indemnity. For those supplyingdefective spare parts, there may, in any case, be a contractual duty to indemnifythe final producer.Contributory FaultWhen the claimant is at least partly to blame for the injuries he suffers, thedefendant to any claim in tort, whether for strict liability or negligence, can usethe defense of contributory negligence. Examples might be the way theconsumer misused the product, his failure to heed recalls or warnings, or hisunreasonable failure to have the defect repaired, or his failure to wear protective14 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)
    • ENGLAND AND WALES ENG-7equipment that would have reduced injury (eg, a helmet for a motorcyclist or asafety belt for a car passenger).The claimant in these situations will suffer a reduction in damages according towhat the court considers just and equitable having regard to the claimant’s sharein the responsibility for the damage.17 If the claimant is considered wholly toblame, the reduction may be as much as 100 per cent, which is tantamount tosaying that the defect did not cause the injuries. There is, in any case, a defenseof volenti non fit injuria (voluntary assumption of risk), but this isindistinguishable from the argument that the claimant was 100 per cent to blame.Notably, the notion of a ‘defect’ under the Consumer Protection Act 1987 takesaccount of what might reasonably be expected to be done by the user, and aproduct which is safe when properly used may not actually be ‘defective’.English law also requires claimants to take reasonable steps to mitigate any lossthey have suffered; therefore, unreasonable failures to seek treatment oremployment may result in reductions in the damages that are recoverable.Accordingly, in principle, medical developments caused by the failure toundertake reasonable treatment or lost earnings caused by the failure to takereasonable employment are not recoverable.CausationThe 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 tobe due to the proximate cause, so long as, on the balance of probabilities, theclaimant can show that he would not have suffered the damage or injury but forthe defective product.Examples of Strict Liability for ProductsThe following examples will suffice to illustrate the application of the rulesabout strict liability for products in England. In Abouzaid v Mothercare,18 theEnglish Court of Appeal ruled that a fleecy-lined sleeping bag for a child’spushchair sold in 1990 was ‘defective’ under the Consumer Protection Act andthus gave rise to strict liability, despite the fact that there was no negligence atcommon law. The claimant, aged 12 years, was injured by an elastic strap whichflew out of her hand and caught her in the eye as she was fastening it around heryounger 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’), butthe court ruled that the safety tests existing in 1990 were exactly the same as17 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)
    • ENG-8 INTERNATIONAL PRODUCT LIABILITYthose in 2000, so the failure to use the available tests at the time meant thedefense was inapplicable.In Bogle v McDonalds,19 a group of claimants who had been burnt by hot drinksargued that the defendants were negligent or liable under the ConsumerProtection Act for the state of the thermal cups in which they were served theirdrinks. The claims were rejected, as the cups were adequately designed andmade 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 generalsafety, as the public would expect scalding to result from a spillage and shouldtake care in relation to this. Mr. Justice Field rejected all arguments that thecoffee or tea could be served at safe temperatures, as serving drinks at 70degrees (as the claimants suggested) would have impaired the flavor and wouldnot have made users safe from burns. There was thus neither negligence norstrict liability under the Consumer Protection Act.Many cases will hinge on the issue of whether the product was defective andwhether the defect caused the damage. This is a matter for evidence, with thejudge having to determine on the balance of probabilities whether the defectexisted at the time of supply and whether it caused the damage. Very often, thiswill be a matter for expert evidence.Although English civil procedure rules encourage the parties to agree on a singleexpert, it is still normal for each party to call their own expert witnesses, eachparty’s expert putting forward his own competing explanation of how the eventoccurred.In Ide v ATB Sales,20 the Court of Appeal had to deal with an appeal from aproducer (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 alternativeexplanations (supported by experts) were that the handlebar had fracturedbecause of a defect, causing him to fall (according to the plaintiff’s witness) orthat 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 inthe fall as unlikely, he was entitled to infer that it was probably defective, as ithad failed whilst being put to its normal use as a mountain bike. As the Courtruled in this case, the Act merely requires the judge to determine that theproduct 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 ahairline fracture was a secondary issue regarding the cause of the defect; theprimary 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)
    • ENGLAND AND WALES ENG-9The case of Toyota v Russell,21 although concerned with contractual liability,raised similar issues. The car concerned had caught fire while being serviced ina garage, and three possible explanations were put forward: that it was due to anarson attack, or that it was due to a defect either in the car’s electrics or in thewiring inserted by the garage. Having eliminated arson, the judge had to decidebetween the other explanations, neither of which was improbable. On the basisof the evidence, including eye-witness evidence, the judge decided (as the Courtof Appeal concluded he was entitled to) that the defect was more likely to havebeen in the car’s electrics.By contrast, in Piper v JRI,22 a claimant failed in his appeal against a ruling thatthe prosthesis used in his hip replacement was not defective. The prosthesis hadsheared in two and had to be removed and replaced, resulting in significant lossof mobility. In this case, the judge accepted evidence that any imperfectionsduring machining or polishing of the prosthesis would have been detected in thefinal inspection process. Hence, the product was not defective when it left thedefendant’s factory and the defendant had proved, on the balance ofprobabilities, the defense under Section 4 of the Consumer Protection Act.Contractual Liability of DistributorsFraud or MisrepresentationUsually, liability for misrepresentation arises only in relation to contracts. Thus,if the manufacturer makes representations (even without fault), which influencedthe party that purchased from him (eg, a wholesaler, retailer, or distributor) topurchase the goods, that purchaser may rescind the contract once he discoversthe truth of the matter. Assuming the purchaser has not lost this right byunreasonable delay, or the inability to restore the previous position (makerestitutio in integrum), the court can award damages in lieu of rescission if itthinks this is more equitable.Rescission is a right which exists in the rules of equity derived from case law. Ifthe statement is negligent or fraudulent, the purchaser will be entitled todamages for any losses; this measure is intended to put the purchaser back in theposition he was in before the contract.23When claiming for negligent misrepresentation, the burden is on the seller toshow he had reasonable grounds for believing the truth of his statement.24 Whenthe person claiming has no direct contract with the manufacturer, he should stillbe able to claim for fraudulent statements in the literature about the product and21 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)
    • ENG-10 INTERNATIONAL PRODUCT LIABILITYperhaps even for negligent statements, although, because the contract is not withthe manufacturer, succeeding in the claim on the basis of case law is less likely.Contractual Liability for WarrantyIf the manufacturer gives an express warranty with the product, this will usuallyamount 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 spareparts and perhaps labor and thus may not cover the full losses that result fromthe defect.The consumer may well have better rights against the seller under the Sale ofGoods Act, as discussed in the following subsection. Any warranty or guaranteegiven by the manufacturer can only add to these rights for consumers but cannotreduce them. When the claimant is a consumer, restrictions on rights under theSale of Goods Act will be void by virtue of Section 6 and Section 4 of theUnfair Contract Terms Act 1977.Implied Satisfactory Quality or Fitness for PurposeThe Sale of Goods Act provides for implied conditions of satisfactory quality25and fitness for purpose.26 Every sale of goods by businesses contains an impliedterm that the goods are of satisfactory quality ⎯ the standard being that whichone would reasonably expect, taking into account the relevant circumstances.The quality of the goods is specifically stated to include their state and conditionand 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 orexaggerated expectations in the marketing literature, as well as defects inmanufacture.Liability under the Sale of Goods Act is a strict term, which is not dependent onwhether the seller should have been aware of the defect. Hence, if a consumer isinjured by a defective product, he can always recover full damages from theretailer by relying on the strict contractual liability under the Sale of Goods Actand 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 hisprice, provided he has not accepted the goods.27 The buyer will be treated asaccepting the goods if he fails to take action within a reasonable time from thepoint when he should have discovered the defect. Thus, in the case of latent25 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)
    • ENGLAND AND WALES ENG-11defects which could not have been discovered for some time, the buyer may beable 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 ofdelivery, although it was driven for more than 5,500 miles. Despite having amanufacturer’s warranty providing for repair, the Court nevertheless ruled thatthe 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 wassubstantially 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 soughtcertain 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 torecover their full price of £90,000. Section 35(6)(a) of the Sale of Goods Actmakes it clear that time taken merely in requesting or agreeing to repairs andcarrying them out is not to be counted as an unreasonable delay.Thus, the several months it took to find out what would be required formodification or repair (in this case, to the keel) had to be ignored, and thesubsequent three weeks it took to write a clear letter of rejection did not exceeda reasonable time for the purposes of the Act. In other words, the buyer musthave enough time and information to make a properly informed choice.As well as the recovery of his price, the buyer also may obtain damages forlosses which were reasonably foreseeable, such as the extra cost of buyingreplacement goods. In the case of business purchasers, the foreseeable lossesmay include the lost profits that result from lost sales to customers or damage toreputation.If the buyer fails to clearly indicate his rejection to the seller within a reasonabletime, he is still entitled to damages for any foreseeable loss he suffers, such asdamages for cost of repairs or lost profits or even for injury to himself ordamage to his other property.Consumer buyers also may have the right to insist on repairs or a reduction inthe 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, butare rarely used in practice, as the consumer will usually insist on his right to geta full refund, having rejected the goods.30 The recent claims for faulty PIP breast28 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)
    • ENG-12 INTERNATIONAL PRODUCT LIABILITYimplants have, however, highlighted the use of these remedies as providing apossible advantage in contracts involving goods and services.It is argued by Hertzell and Moore31 that the right to a replacement necessarilyinvolves the costs of the surgical operation to implant the safe substitute product,giving a more secure remedy than for product liability under the ConsumerProtection Act 1987. There is some support for this in the ECJ’s ruling in Weberv. Wittmer.32Even if the goods are of satisfactory quality, the buyer will still have recourse tothese remedies if the goods are not fit for the purpose he bought them for. Hemust, however, have made this known, expressly or implicitly, before thecontract.If he has not done so, the purpose will be taken to be the normal purpose forwhich goods of that kind are used, in which case the fitness of the goods willoverlap with their satisfactory quality.The consumer will always be able to claim for any losses (including purelyeconomic losses, such as for repairs or lost profits) resulting from the defectiveproduct, against the seller (contract) and for damage to property or injury topersons against the manufacturer (tort).In both cases, the liability is strict and cannot be limited by contract. The termsof the manufacturer’s contract with the retailer may pass this liability on to theretailer, but only if it was reasonable to do so at the time of the contract.33Producers of component parts (as previously discussed in the subsection ‘DefectAttributed to Design of Final Product’) can escape strict liability for injurycaused by the finished product if any resulting defect was wholly attributable tothe design of the final product or compliance with instructions from thatproducer.34 In this situation, the final producer is liable, but the parts producer isnot.When the producer of the part is at least partly to blame, both producers mayeach 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 forbreach of satisfactory quality, and the contract of sale for the part may thusprovide the final producer with a complete indemnity for the losses resulting,including loss of profits.31 Implanting Doubts (2012) NLJ, 27 January, at p. 11532 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)
    • ENGLAND AND WALES ENG-13RemediesPersonal Injury DamagesIn GeneralThe manufacturer or seller will be liable for injuries or death resulting from adefective product. The level of general damages (ie, damage not related tospecific 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 canexpect for particular types of injury. Lawyers also may refer to specialistpractitioners’ reports of awards, such as Butterworth’s Personal Injury Serviceand Sweet & Maxwell’s Personal Injuries and Quantum Reports.InjuryHowever, the victim also will be entitled to damages to cover his medical billand any other expenses he might incur as a result of the injury. In addition, thevictim 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 onthose earnings.The calculation of future lost earnings or future medical expenses is complexand is usually done using government actuarial tables, known as the OgdenTables. When there is ongoing need for medical support, the defendant (usuallyan insurance company) may be required to pay a capital sum into a trust fund forthe victim’s upkeep.Detailed examples of damages calculations are available in Kemp & Kemp: TheQuantum of Damages. However, tables on personal injury awards would suggestthat English awards are among the highest in the EU,35 especially for seriousinjuries. Thus, for example, awards for total blindness for a professional personin England are likely to exceed £1,000,000, the highest in the EU, whiledamages awarded for partial blindness may be only £70,000, perhaps theaverage in the EU. There has also been criticism by the parliamentary TransportSelect Committee of the rising number of whiplash claims which are alsoconsiderably greater than in other countries. About 70% of UK motor insurancepersonal-injury claims involve whiplash.36DeathWhen the victim is killed by the defective product, the deceased’s estate,represented by his personal representatives (ie, the executor under his will or the35 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)
    • ENG-14 INTERNATIONAL PRODUCT LIABILITYadministrator 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 aminor, to a parent. The claim also will include loss of dependency on thedeceased’s income by dependants such as children or a spouse. Damages for adeath are usually notably less than if the victim is left in a seriously disabledstate.Punitive DamagesIn general, punitive damages are not available, as the rules under English lawnormally limit these damages to cases where the defendant deliberately commitsa tort thinking he will make a profit. The purpose of punitive damages isgenerally to teach the tortfeasor that tort does not pay.37A manufacturer who deliberately cuts back on safety precautions in order to earnhigher profits may be subject to punitive damages but, in this event, there wouldbe criminal sanctions in any case, including the possibility of corporatemanslaughter charges (further discussed in the section ‘Product SafetyLegislation’).Emotional DistressA victim suffering injuries will be entitled to damages that cover his ownemotional distress. These will be included in the element for pain and sufferingin personal injury damages. Even if the victim escapes injury but suffersemotional injury (nervous shock) through fearing for his own safety, he will beentitled to claim for this.However, it is essential that he establish a recognizable psychiatric injury, suchas post-traumatic stress disorder (PTSD) or another illness recognized by theWorld Health Organization (WHO) in the International Classification of Mentaland Behavioral Disorders, Tenth Edition (ICD-10).The cases draw a distinction between primary victims (those at risk of physicalinjury) and secondary victims (those who are merely witnesses). Provided someform of psychiatric injury is foreseeable, the primary victim is entitled torecover damages even if he is predisposed to this type of injury (the ‘eggshellskull rule’ or ‘take your victim as you find him’).An illustrative example is the case of an accident caused by a defective car. InPage v Smith,38 the claimant was involved in a minor car accident where nobodysuffered physical injury (although such an injury was foreseeable). Theexperience brought back a previous tendency to chronic fatigue syndrome, forwhich 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)
    • ENGLAND AND WALES ENG-15This is because of the long-standing principle in tort: the eggshell skull rule thatyou take your victim as you find him. Thus, as long as some form of injury fromthe defect in the product is foreseeable, the victim will recover damages even ifthe extent of his particular injury is considerably more extensive than could havebeen envisaged.Damages are recoverable for bystanders who suffer nervous shock (eg, PTSD)through witnessing the accident, provided there is a sufficiently close familyrelationship with the victim at risk (eg, a wife who sees her husband burning todeath in a defective car); however, they must have witnessed the event or itsaftermath. There is thus no direct claim for those who suffer bereavement onlearning of a loved one’s death without actually witnessing it; however, a closerelative who sees the dead and mangled body of the victim in the immediateaftermath of the accident can recover damages.39Economic Loss and Cost of RepairIn general, the cost of repairing a faulty product or recovering the resultinglosses (ie, pure economic loss) is only recoverable in contract against the seller(discussed in the subsection ‘Contractual Liability for Warranty’). They are notrecoverable in tort from the manufacturer. However, very often, the repairs maybe covered by a manufacturer’s guarantee, which must give better rights thanthose 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 lostearnings or lost profits; however, in the case of damage to property, liability isonly strict if the property is private property. Thus, when claiming in tort fordamage to commercial property (eg, a defective product setting fire to theclaimant’s shop) and resulting lost profits, the claimant is obliged to show thatthe defendant manufacturer was negligent.Return or RepairIn most cases, the consumer has a right (assuming he has not delayedunreasonably) to insist on the return of his price, and contractual terms in hissale that restrict his remedies to only replacement or repair will therefore bevoid. 40 However, the consumer has an alternative right, if he prefers this, toinsist 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 wasincorporated to meet the requirements of the EU Consumer Sales Directive 1999.There were some further proposals from the Commission for a directive toharmonize consumer remedies across the EU (October 2008). The United39 Galli-Atkinson v Seghal [2003] EWCA Civ. 697.40 Unfair Contract Terms Act 1977, s 6. (Release 1 – 2012)
    • ENG-16 INTERNATIONAL PRODUCT LIABILITYKingdom’s Law Commission has recommended that this should not lead to theremoval of the consumer’s basic right to reject faulty goods, as this is a simpleremedy which the consumer can exercise unilaterally, without having to go tocourt. They have, however, recommended that the period for rejection be limitedto 30 days. 41 Consumer Rights Directive 2011/83/EU is much less ambitiousthan originally envisaged and is confined to harmonizing consumer rights onissues like distance selling. It does not provide a single set of remedies for faultygoods as originally envisaged.42Enforcement of RemediesWhen consumers have problems with defective products and cannot resolvethem amicably with the retailer, they can enforce their remedies quite cheaplythrough the courts. Claims of up to £5,000 can be resolved for only a small feein small claims arbitration in the County Court.This will involve a hearing, but both sides pay their own separate costs, so therule that the loser has to pay the winner’s costs does not apply. Hence,consumers will invariably represent themselves and receive considerableassistance from the judge, who has more of an inquisitorial role.Many manufacturers and retailers belong to trade associations which also offercheap arbitration, but this is usually a purely written procedure, without ahearing. The consumer must voluntarily agree to submit to such arbitration, asclauses excluding his right to go to court will be considered void.43Exclusion or Limitation of LiabilityThe seller will not be able to exclude or limit his liability to consumers for anydefects in the goods. Thus, all attempts by retailers to limit liability forunsatisfactory quality, fitness, and the like will be void and will usually involvea criminal offense.44Examples of the seller attempting to exclude or limit liability would includeterms stating that there is no right to reject the product and recover the price butonly a right to replacement, limiting damages to the price of the goods, makingliability contingent on losses being reported within a period of time, and similarlimitations.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)
    • ENGLAND AND WALES ENG-17Manufacturers selling to commercial buyers are subject to exactly the sameterms regarding satisfactory quality or fitness for purpose. However, for purelytechnical 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 canlimit or exclude liability to commercial purchasers for defects, provided it isreasonable.46Thus, the validity of the clause here may depend on the bargaining power of thecommercial buyer, which of the two is best placed to take out insurance againstdefects, and on prevailing trade practices.47 An example of the way the courtassesses these factors is found in St Albans District Council v InternationalComputers, a case involving defective software. 48 Generally, however, amanufacturer who has produced an unsafe product will not be able to excludeliability.The Unfair Contract Terms Act 1977 does not apply to international sales ofgoods, as defined in Section 26. Thus, when an English manufacturer is sellinggoods to purchasers in other countries, an exclusion of liability may not becontrolled by the English courts even if English law is the chosen law. AsEnglish purchasers benefit from the protection of the Unfair Contract Terms Actbut other EU purchasers (eg, retailers in France) do not, it is arguable thatSection 26 amounts to discrimination against other EU nationals and would haveto be set aside by English courts as a breach of the EU Treaty.49Statute of LimitationsThe statute of limitations is governed by the Limitations Act 1980. The periodfor claiming in tort for personal injuries — for example, against themanufacturer for injury caused by defective products — is three years,beginning from the time that the victim had knowledge of his injury and right toclaim.50 If the victim has died, his personal representatives have a similar periodto 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)
    • ENG-18 INTERNATIONAL PRODUCT LIABILITYWhen claiming for damage to property or other losses caused by negligence, thelimitation period is six years, but this can be extended beyond three years, ifnecessary, to three years from the date of knowledge of the claim. Potentially,the producer may therefore be faced with claims arising many years after theproduct was put into circulation. There is thus a ‘long-stop’ in non-personalinjury claims of 15 years from the date of knowledge of the claim fornegligence.51In claims for strict product liability under the Consumer Protection Act, theclaim must be brought within three years of the injury or damage (or knowledgeof the injury or damage, if later), but there is a 10-year maximum limitationperiod fixed by the EU Directive.52The Supreme Court of the United Kingdom 53 has held, 54 relying on the ECJruling in Aventis Pasteur v OB, 55 that when proceedings have been startedagainst a subsidiary company which acted as distributor of products, the courtswill not allow the substitution of the manufacturing parent company outside the10-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 aproduct containing asbestos that causes lung disease 30 years later, the victimwill still be allowed to claim for his injuries, provided he brings his claim withinthree years of his knowledge of the damage. Section 13 of the Limitation Act1980 defines this as knowledge that the injury was significant and that it was atleast partly attributable to alleged negligence by the defendant. The SupremeCourt has ruled by a bare majority (4 of 7) that the Claimant’s reasonable beliefthat his injury was capable of being attributed to the act or omission of thedefendant was sufficient to constitute knowledge of the claim for purposes of theAct. Hence, victims of radiation fall-out from nuclear bomb testing a halfcentury earlier could not claim.56Corporate Successor LiabilityArticle 3 of the Product Liability Directive57 defines ‘producer’ to include thosewho hold themselves out as producer, so it is possible that a corporate successorwill come under this definition and attract strict liability in tort. Otherwise, there51 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)
    • ENGLAND AND WALES ENG-19is no general recognition in English law of the concept of corporate successorsbeing liable when they have merely bought the business through an asset salerather than having bought shares in a continuing company, which continues tobe liable as a legal person.In the case of an asset sale by a company which has subsequently gone intoliquidation, it is possible that these assets can be clawed back under insolvencylaw. If they have been deliberately put beyond the reach of claimants or havebeen transferred at an undervalue within two years before the petition forliquidation, the liquidator can apply to the court to set the sale aside.58When claiming on the producer’s insurance cover, it is possible to have defunctcompanies restored to the register of companies so that proceedings can bebrought against them to claim the benefit of any insurance cover.Product Liability InsuranceAvailability of InsuranceInsurance is widely available, but the policy should cover the legal liabilitiesestablished 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 productwas defective and the defect in the product caused the injury. Individual policyterms will vary, however, and the producer should ensure he has the terms thatsuit him.Nature of Policy and Usual Extent of CoverThe insurance should cover claims for faulty goods up to a maximum amounteach year (typically £10,000,000). This cover should include damages for deathor injury, or damage in respect of injury to any person, or loss of or damage tomaterial property caused by the products supplied. The insurance also shouldcover 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 theinsured for each day that attendance in court is required.If the product is imported, the importer should have cover to include the risk thatthe manufacturer will go into liquidation. The cover should include productsproduced under license by others but with the licensor’s brand name (ie, whenthe 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 suchproducts.58 Insolvency Act 1986, s 238. (Release 1 – 2012)
    • ENG-20 INTERNATIONAL PRODUCT LIABILITYUsual ExclusionsIndividual policy terms vary, but basic insurance terms may exclude liabilityarising because the product or service the producer supplies is substandard (theinsurance company may therefore have the right to approve quality) or when theproducers fail to comply with safety standards, fail to provide safety informationto the customer, or store products in an unsafe manner.Also excluded may be defects caused by gradual pollution damage and pollutiondamage caused by sudden and unforeseen events. Policies also may be endorsedto exclude the ‘efficacy risk’ (ie, when damage is inevitable if the product failsto perform its intended function, such as rust inhibitors and fire alarms).Product Liability LitigationRole of Courts and LawyersDepending on the complexity of the case and the amount being claimed, the casemay be referred to either the County Court (courts situated locally in districtsaround the country) or the High Court (centered in London, but with regionalregistries). All courts sit with just a single judge. Essentially, claims for personalinjury should start in the County Court (where costs are much lower), unless theclaim is for more than £50,000 or has complex or important issues. If the claimturns 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 isexpensive. It also should be remembered that unlike many other countries,litigation which does not involve a small claim (less than £5,000) is subject tothe rule that the loser has to pay the winning party’s costs (assuming they havebeen reasonably incurred). Thus, in a number of claims, the costs that a litigantmay potentially pay (his own and those of the other side) may be greater thanthe 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 allowsthe solicitor to charge up to 100 per cent of his normal fee as a success fee. Ithas to be agreed in writing and signed by the client and the lawyer — there is amodel form of agreement available from the Law Society Conditional FeesCommittee. If the client loses the case, he pays nothing to the lawyer, but mayhave 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 amountif the case is not settled at the pre-trial stage. Contingent fees (eg, when thelawyers take 40 per cent of any winnings) are not allowed in England.59 The59 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)
    • ENGLAND AND WALES ENG-21Legal Aid, Sentencing and Punishment of Offenders Act 2012 includes in Part 2extensive changes to the treatment of civil costs in line with therecommendations of the Jackson Review.60In summary, the new regime (i) limits success fees to 25% of damages (ii)Limits recoverable costs from the losing party by prohibiting the recoverabilityof success fees and after-the-event insurance premiums; and (iii) introducescontingency fees (damage-based agreements) for contentious business, i.e., notjust for employment cases. The changes which are controversial (see commentsof the Law Society of 15 March 2012) are set to come into force in April 2013. Itis intended to increase the awards for general damages by 10% to ensure that theclaimant does not lose out through these changes, but at the time of writing thelegislation for this has not yet appeared.As product liability cases are likely to involve a large number of claimants, thesecan be grouped together under a group litigation order. 61 This will assignmanagement of the group to one particular judge, who will acquire specialistknowledge about the claims. There has to be a group register of the names of allthe 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) unlessthey expressly opted out of it. There are, however, a number of proposals at theUnited Kingdom and EU level that may lead to legislation permitting this inconsumer cases in the future.62Where to Sue and Which Law to ApplyThe rules on the issues of forum and applicable law have been harmonizedacross the EU by Regulations: Brussels I63 and Rome II.64 Claimants injured inthe United Kingdom by products produced elsewhere in the world can sue theproducer (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)
    • ENG-22 INTERNATIONAL PRODUCT LIABILITYUnder Article 5(3) of Brussels I, a claim can be brought in the courts of the EUcountry where the harmful event occurred. This is interpreted as meaning eitherthe place of manufacture or the place where the defective product caused theinjury. The victim can, in any case, always sue the defendant in the courts of thedefendant’s own country.65The applicable law is determined by Article 5 of Rome II. Usually, this will bethe law of the victim’s habitual residence, but, very exceptionally, if thedefendant could not foresee marketing in the country where the victim acquiredthe product, the law of the manufacturer’s location may apply.Product Safety Legislation and Prosecutions by Trading StandardsOfficersProduct safety is subject to considerable legislation fixing product standards,much of which is harmonized across the EU. Most of the legislation is enactedby Regulations issued under the Consumer Protection Act 1987.66In England and Wales, product safety is policed by the local government tradingstandards inspectors (TSOs) and the Office of Fair Trading. 67 However, thisproduct safety law has developed piecemeal and it is not entirely clear exactlyhow many cases are brought, as there is as yet no readily accessible database ofproduct safety prosecutions or, indeed, of civil product liability cases.68 As theenforcement takes place locally, there is no consistency in the level ofenforcement of fair trading laws throughout the United Kingdom. Thus,although unsafe products are likely to be uniformly distributed throughout thecountry, there is no real uniformity in the level of official action that will betaken.Since October 2005, there has been a General Safety of Products requirementunder the General Product Safety Regulations 2005 (S.I. 1803/2005) enactingthe EU Directive of 2001 (2001/95/EC). Breach of this requirement in relationto 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 tothe producer concerned, including a requirement to warn consumers or withdrawthe product (Regulation 13) or have it recalled (Regulation 14).TSOs plead inadequate resources and often have to let larger, better resourcedauthorities take action. Official action has thus been criticized as more ad hocthan risk-based. 69 In a report for the Royal Society for the Prevention of65 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)
    • ENGLAND AND WALES ENG-23Accidents, Jenkins, the author of this criticism, suggests that the number ofprosecutions by TSOs fell during the 1990s, contributing to a rise in accidents inthe home (2,800,000 in 1999). During this period, the 3,000 TSOs andsupporting staff working in the 200 local authorities in Great Britain brought just4,793 cases ‘representing a rate per 100 officers for safety prosecutions is just 16p.a.’. The author suggests, however, that there may be as many as 750,000injuries each year which are due to breaches of safety regulations.In addition to prosecutions by TSOs under product safety regulations, acompany whose defective product causes death may now be prosecuted forcorporate manslaughter. This was introduced in 2008 by the CorporateManslaughter and Corporate Homicide Act 2007. It may, however, be someyears before one sees a manufacturer prosecuted for homicide caused by itsproducts. To date, the only such prosecution has involved a breach of legislationon health and safety at work.ConclusionThe EU Product Liability Directive establishes common rules governing liabilityfor defective products in the EU, by imposing strict liability on the producer of adefective product for damage caused by the defect. A product is considereddefective if it fails to provide the safety that consumers are entitled to expect.The Consumer Protection Act 1987, which implements the Product LiabilityDirective in the United Kingdom, follows the provisions of the Directive byimposing strict liability on the producer of defective products for damage causedby the defect. The claimant need not prove that the manufacturer was at fault incausing the defect, but need only prove that there is a defect and that there is acausal relationship between the defect and the damage caused.For the claimant to establish negligence, it is necessary to prove that themanufacturer has breached the duty of care by failing to take reasonable careand that the breach caused the resulting damage. Although claims of negligenceare usually brought against the manufacturer, they also may be brought againstsuppliers, retailers, wholesalers, and other parties in the supply chain, providedthat fault can be established.Claims for breach of contract by the injured person may only be brought againstthe immediate supplier of the defective product. Breach of contract carries strictliability that depends on the explicit and implicit terms of the contract. (Release 1 – 2012)
    • European CommunityIntroduction ............................................................................................ EU-1 Historical Background of the Directive ................................... EU-1 Concept of the Directive .......................................................... EU-2Theory of Products Liability .................................................................. EU-2Affected ‘Products’ ................................................................................ EU-2 Definition ................................................................................. EU-2 Raw Materials .......................................................................... EU-3 Agricultural Products ............................................................... EU-3 Immovable and Intellectual Works .......................................... EU-3 Computer Software .................................................................. EU-4Definition and Types of ‘Defect’ ........................................................... EU-4Liable Parties ......................................................................................... EU-5Parties Entitled to Recovery ................................................................... EU-6Types of Remedies and Extent of Recovery .......................................... EU-7 Personal Injury, Death ............................................................. EU-7 Property ................................................................................... EU-7Questions of Evidence ........................................................................... EU-8Limits of Liability .................................................................................. EU-9 Wrongful Behavior of Injured Person...................................... EU-9 Amount of Damages Awarded ................................................ EU-9 Time Limits ............................................................................. EU-10Other Remedies ...................................................................................... EU-10Disclaimer .............................................................................................. EU-11Transformation of the EC Directive ....................................................... EU-11 Member States ......................................................................... EU-12 Non-member States ................................................................. EU-14Further Developments in the European Community .............................. EU-14Appendix ................................................................................................ EU-16 Article 1 ................................................................................... EU-16 Article 2 ................................................................................... EU-16 Article 3 ................................................................................... EU-16 Article 4 ................................................................................... EU-16 Article 5 ................................................................................... EU-16
    • Article 6 ................................................................................... EU-17Article 7 ................................................................................... EU-17Article 8 ................................................................................... EU-17Article 9 ................................................................................... EU-17Article 10 ................................................................................. EU-18Article 11 ................................................................................. EU-18Article 12 ................................................................................. EU-18Article 13 ................................................................................. EU-18Article 14 ................................................................................. EU-18Article 15 ................................................................................. EU-19Article 16 ................................................................................. EU-19Article 17 ................................................................................. EU-19Article 18 ................................................................................. EU-20Article 19 ................................................................................. EU-20Article 20 ................................................................................. EU-20Article 21 ................................................................................. EU-20Article 22 ................................................................................. EU-20
    • European Community Susanne Wesch Wesch & Buchenroth Stuttgart, GermanyIntroductionDue to the concept of the common market, there is a need to harmonize laws regardingproducts liability. European Community (EC) Member States must eliminate distortionsin competition to promote the free movement of goods and to provide equal and adequateprotection to the consumer.1Historical Background of the DirectiveIn 1970, the Council of Europe established a panel of experts to elaborate proposals forthe harmonization of the laws in the field of products liability. Initial work regarding theelaboration of a convention concerning products liability began in 1972. On 27 January1977, the draft of the European Convention on Products Liability in Regard to PersonalInjury 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.3After the first draft of a working paper by the EC was presented in 1974 and modified in1975, the EC Directive was proposed in 1976.4 It then was debated in the Economic andSocial Council and in the European Parliaments, finally amended, and published on19 September 1979.5After negotiations and discussions lasting many years, the EC Directive on the Approxi-mation of the Laws, Regulations and Administrative Provisions of the Member StatesConcerning 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.
    • EU-2 INTERNATIONAL PRODUCT LIABILITYConcept of the DirectiveThe harmonization of national laws is the underlying goal of the EC Directive, both to thebenefit of the consumer and to the benefit of the producer. According to article 1 of theDirective, the producer is liable for damage caused by a defect in his product. On the onehand, this means that a person is entitled to expect and rely upon a certain standard ofsafety of a product.7 On the other hand, the notion of defect also limits the liability of theproducer and makes the risks calculable for him8 and, furthermore, competition distortionand hindrances to free trade are avoided under a uniform system.9Despite the aforementioned advantages of the Directive, it was still a long road to trans-formation for most of the Member States.10The main problem was that both Civil Law and Common Law countries have needed tointegrate the new products liability laws in order to transform the EC Directive into thesystem of liability already existing in the various countries.Theory of Products LiabilityThe EC Directive establishes a remedy for typical products liability cases in which thereis 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 liabilityin tort based on a defect in the product, according to article 1 of the Directive.12Affected ‘Products’DefinitionArticle 2 of the Directive defines product as ‘all movables with the exception of primaryagricultural products and game even though incorporated into another movable or into animmovable’. ‘Primary agricultural products’means ‘products of the soil, of stock farmingand 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.
    • EUROPEAN COMMUNITY EU-3Furthermore, according to article 2 (last sentence) of the Directive, the term ‘product’alsoincludes electricity. Products in the sense set forth above are affected by the Directiveregardless of how they were made (ie, in an industrial, hand-made, artistic manner or oth-erwise).13Raw MaterialsDue 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 defectiveproduct. Thus, raw materials, such as crude oil or also game not produced by a humanbeing 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 notproducts. Thus, an HIV-infected person aware of an infection who donates blood is notliable to the person receiving the blood on the basis of the EC Directive on ProductsLiability.Agricultural ProductsAgricultural products are close to being raw materials because production depends onnature. Agricultural products were thus explicitly excluded from the term ‘products’ inthe EC Directive. Nevertheless, article 15(1)(a) of the Directive originally left an optionto each Member State to disapprove article 2 of the Directive and provide in its legislationthat, 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 theDirective 85/374 EEC this privileges for frames was canceled.Immovables and Intellectual WorksArticle 2 of the Directive defines products as ‘movables’. Immovables and intellectualworks are thus not included. The latter is very important as, otherwise, one would haverestrictions on free speech and the freedom of the press.Immovables include real estate and land. Furthermore, immovables cannot be goods putinto 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.
    • EU-4 INTERNATIONAL PRODUCT LIABILITYComputer SoftwareAnother main issue regarding the term ‘product’ is whether computer software fallswithin 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 thecustomer by a vendor), computer software often involves the rendering of services. Theconsumers order special kinds of software fitting special purposes and needs. Softwareconsequently may be intellectual work, rather than a product manufactured from rawmaterials 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 toregulate liability of persons rendering services (as distinguished from manufacturingproducts).Definition and Types of ‘Defect’The definition of ‘defect’ in the Directive is rather broad. According to article 6 of theDirective, 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 regardingthe standard of the safety of a product. This can be compared to the so-called consumerexpectation test18 under United States law.19Accordingly, the producer will not be liable under the EC Directive if he proves that thestate 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.20The consumer cannot reasonably expect the product to be safer than the state of scientificand technical knowledge at the time it is first sold. This is the state-of-the-art defense, amanufacturer not being liable for such ‘development risks’. Furthermore, ‘a product shallnot be considered defective for the sole reason that a better product is subsequently putinto circulation’.21 Liability for such development risks would be inadequate andunfair. The consumer cannot and will not rely on a future standard of safety of thegoods 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).
    • EUROPEAN COMMUNITY EU-5producer to avoid such defects nor to calculate the risks or adequately to insure againstthese risks. Nevertheless, each Member State can disapprove article 7(e) of the Directiveand legislate that the producer shall be liable even if he proves that the state of scientificand technical knowledge at the time when he put the product into circulation was not suchas to enable the existence of a defect to be discovered.22Despite the above definition of ‘defect’, it is nevertheless difficult to determine exactlywhat 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 definitionhas been formulated that would resolve all cases.’23Thus, 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.24Liable PartiesAccording to the definition under article 3(1) of the Directive, ‘producer’ means ‘themanufacturer of a finished product, the producer of any raw material or the manufacturerof 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. Thisincludes 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 themeaning 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 inthe 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’.
    • EU-6 INTERNATIONAL PRODUCT LIABILITYmore persons liable for the same damage under this Directive shall be liable jointly andseverally (without prejudice to the provisions of national law concerning the rights ofcontribution or recourse). This is to ensure that the injured person has the highest chanceof 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, normanufactured 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 Marketshall be excluded.26As products liability is liability for manufacturing of defective products, pure dealers,retailers, middlemen and wholesalers do not fall within the scope of the Directive. Thesame 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 beidentified, unless the supplier informs the injured person within a reasonable time of theidentity 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 theidentity 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 aproduct for sale, hire, leasing or any form of distribution in the course of his business shallbe deemed to be a producer within the meaning of this Directive and shall be responsibleas a producer (without prejudice to the liability of the producer). This regulation is meantto make sure that consumers who are injured by products from non-Member States areequally protected like consumers injured by products from Member States. This is veryimportant as it is, or at least can be, very difficult for an EC citizen to pursue rights againsta non-EC citizen in a non-Member State (the latter is often required because there are lesstreaties outside the EC regarding rules as to competent courts ensuring that the personseeking his right is not worse off compared to suing in his own country).Parties Entitled to RecoveryThroughout the Directive, the person entitled to recovery is called the ‘injured person’.28Thus, 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 ofinjury.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’.
    • EUROPEAN COMMUNITY EU-7Types of Remedies and Extent of RecoveryPersonal Injury, DeathAccording to article 9 of the Directive, ‘damage’ means that caused by death or bypersonal injury.The question of whether there is full compensation, meaning that damages due in case ofdeath 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 theEC Directive is without prejudice to national provisions relating to non-material damage.This regulation is very important. Otherwise, liability under the EC Directive would notfit into the scheme of damage compensation of the national laws and could thus cause notonly insecurity, but also unjust results.Possible ceilings on damages are set forth in article 16 of the Directive. Any MemberState 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 anamount not less than ECU 70 million. The ceiling should be high enough to allow for fullcompensation in most cases.30PropertyThe Directive also includes damage to property,31 eg, damage to or destruction of anyitem of property other than the defective product itself. Property damage has a lowerthreshold of ECU 500, provided that the item of property is of a type ordinarily intendedfor private use or consumption and was used by the injured person mainly for his privateuse or consumption. Accordingly, there will be no recovery for damages to the defectiveproduct itself. This kind of damage is regulated by the law of sales or law of torts. TheDirective does not affect any such rights which an injured person may have under the lawof contractual or non-contractual liability or under a special liability system existing at themoment when the Directive was notified.32The EC Directive is also not intended to protect legal rights between two or more businesspeople. 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 fordefective 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.
    • EU-8 INTERNATIONAL PRODUCT LIABILITYprice charged for the product. In addition, in this case, there is no fear of distortion ofcompetition or hindrances to free trade.33 There is thus no need for the EC Directive toregulate these cases.Questions of EvidenceIn 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 otherhand: . . . 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.35This clause contains a list of manufacturer defenses. Thus, the producer has the burden toprove the requirements set forth therein.Article 4 of the Directive does not explicitly mention that the injured person also mustprove who the producer is within the meaning of article 3, but this is dealt with elsewherein the EC Directive because otherwise the injured person would not know who to turn toor whom to sue. The EC Directive does not provide for a market-share liability like in theUnited 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’sburden of proof. Thus, this depends on the relevant applicable law of civil procedure, theso-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).
    • EUROPEAN COMMUNITY EU-9private law/conflict of laws. Therefore, the question whether prima facie evidence issufficient or the rules of res ipsa loquitur apply is decided under the national law of civilprocedure 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 provethat ‘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 LiabilityWrongful Behavior of Injured PersonThere are several restrictions as to liability of the producer due to the behavior of theinjured person.For example, the injured person is under a duty to take all reasonable steps to mitigatethe loss caused by the liable person’s wrong. An injured consumer cannot recovercompensation for any damage due to the consumer’s neglect to take such steps as set forthin article 8(2) of the Directive. The liability of the producer may be reduced or disallowedwhen, with regard to all the circumstances, the damage is caused both by a defect in theproduct and by the fault of the injured person or any person for whom the injured person isresponsible. 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 theconsumer’s contributory negligence or assumption of risk.Product misuse or abnormal use of the product, where the consumer uses the product in away the producer did not intend and could not have foreseen, may result in the partial ortotal defenses of comparative fault or assumption of risk.37Amount of Damages AwardedThere 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 personin case of damage to any item of property other than the defective product itself) and inarticle 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 byidentical 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 tothe 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 compensationfully for a damage caused by him. Another reason for such a limitation of damages is topermit 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.
    • EU-10 INTERNATIONAL PRODUCT LIABILITYTime LimitsThere are time limits as to the liability of the producer. According to article 10 of theDirective: 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 uponthe expiry of a period of ten years from the date on which the producer put into circulationthe 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 theproducer 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 besomewhat calculable to be insurable. Otherwise, the free market would collapse or theprices could be so high that no consumer could afford to buy the products.Other RemediesAccording 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 theDirective.This type of regulation is very important. The underlying goal of the EC Directive is not torestrict any existing rights of the consumer according to national laws of the MemberStates. Rather, the purpose is to protect adequately the consumer and ensure recoverywhen a consumer has paid good money for a product. that nevertheless did not meet thestandard 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 ofcompetition distortion. This goal can, however, still be met if the different remediesregarding 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 MemberStates would want to give up its national liability laws, including the remedies basedthereon. Furthermore, total equalization would also mean the absolute end of any nationalliability system. Not only are there certain remedies in every country, but the remedies are 38 See also Directive, art 7.
    • EUROPEAN COMMUNITY EU-11usually 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 MemberStates with Common Law systems on the other side.The EC Directive is intended to give more rights to consumers, not take rights from themby giving them only the one right provided under the EC Directive.Thus, the regulation under article 13 of the Directive provides for harmonization of thenational laws of the Member States and does not obstruct it.DisclaimerThe absence of a contractual link between the liable producer and the injured consumer istypical 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 whohimself has bought it from another retailer and so on and so forth. Thus, there can be quitea long chain of vendors and purchasers where the only contractual relationship is betweenthe two consecutive parties in the chain of sale.Thus, hold harmless or release agreements are basically only possible between these twopeople who have entered into a contractual relationship. Hold harmless agreements can-not exist between the manufacturer and the final consumer because there is no directcontractual relationship between them. Their only connection is the product itself, so theonly possibility of any kind of disclaimer is that the manufacturer excludes or limits hisliability by explicitly saying so by a label attached to the product or some comparabledevice. However, according to article 12 of the Directive, the manufacturer cannot limitor exclude liability to the injured consumer with a provision limiting the liability of theproducer 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 thewhole EC Directive would be worthless.Transformation of the EC DirectiveThe 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 intoforce 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 andregulations. 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 theEuropean 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.
    • EU-12 INTERNATIONAL PRODUCT LIABILITYdamages 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 StatesAustriaLaw on Products Liability of 21 January 1988 (BGBl 99/1988).BelgiumLaw on Products Liability (Moniteur Belge — 22 March 1991 — Belgisch Staatsblad).Czech RepublicLaw on Products Liability, 5 March 1998 (Law Number 59/1998 Slg.).DenmarkLaw on Products Liability of 7 June 1989 (Lovtidende A Number 371).FinlandLaw on Products Liability, No. 694 of 17 August 1990.FranceLaw on Products Liability of 19 May 1998.GermanyLaw on Products Liability of 15 November 1989 (BGBl I, at p 2198).GreeceArticle 6 of Law 2251/1994 (Ministerial Decree A 191 of 16 November 1994).HungaryProduct Liability Act, Law No. X/1993 (Magyar Közlöny 1993/24).IrelandLiability for Defective Products, LDPB 1991, Number 11a of 16 December 1991 (AnBille om Dhliteanas e Leigth Tairgi Fabhtacha 1991).
    • EUROPEAN COMMUNITY EU-13ItalyDecree of the President of 24 May 1988 (Supplemento Ordinaria alla Gazetta Ufficiale,no 146, DDE, 23 June 1988 — Serie generale).LatviaLaw on Safety of Products and Services as well as Liability of Producers and Service Pro-viders of 26 September 1996.LuxembourgLaw on Products Liability of 21 April 1989 (Memorial Journal Officiel du Grand-Duchede Luxembourg of 28 April 1991, A-Number 25, at p 522).The NetherlandsLaw on Products Liability of 13 September 1990 (Staatsblad 1990, Number 487).PortugalLaw on Products Liability, No. 383/89 of 6 November 1989 (Decreto-Lei Number383/89, Diario da República — I Série Number 255 of 6 November 1989, 4880).SpainLaw regarding Products Liability, in force since 8 July 1994.SwedenLaw on Products Liability of 23 January 1992, in force since 1 January 1993 (Svenskförfatteningssamling SFS 1992:18 of 4 February 1992).SlovakiaLaw No. 294/1999 of 2 November 1999.SloveniaConsumer Protection Act, article 4(11), in force since 28 March 1998 (Uradni ListRepublike Slovenije 20/1998, U.I.R.S. 83/2001) and Liability Act, article 155 of 2001.United KingdomConsumer Protection Act 1987 of 15 May 1987 (Chapter 43).
    • EU-14 INTERNATIONAL PRODUCT LIABILITYNon-Member StatesIcelandLaw on Products Liability of 20 March 1991.LiechtensteinLaw on Products Liability of 12 November 1992 (LGBl 1993/13).NorwayLaw on Products Liability, in force since 1 January 1993, amending the Law on ProductsLiability of 23 December 1988 (Nors Lovtidende 1988, 1025).RomaniaGovernmental Decree Number 58/2000 (M. of Number 43/31.01.2000).SwitzerlandLaw on Products Liability, in force since 1 January 1994.TurkeyConsumer Protection Act (Tüketicinin korunmasi hakkinda kanun), Article 172 of 1995.Further Developments in the European CommunityA draft proposal for an EC Directive on general safety of products had been in existencesince 27 April 1989.40 The new law was passed on 29 June 1992.41 According to theDirective, there are statutory regulations regarding recalls, and public authorities super-vising it. Furthermore, according to article 6 of the Directive, manufacturers, suppliersand importers to the EC are obliged to take adequate steps to assure constant control overthe safety of the products.Regarding special kinds of products, there is the EC Directive on the approximation of thelaws, regulations and administrative provisions of the Member States concerning thesafety 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 tobaccoproducts. 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.
    • EUROPEAN COMMUNITY EU-15In addition, on 24 October 1990, the EC Commission approved a draft proposal for aDirective regarding liability for services.45 The main feature is the shift of the burden ofproof to benefit the injured consumer. As long as the consumer proves causation betweenthe service and damage, the service provider must prove he, she or it is without fault. Thisdraft was withdrawn in June 1994.On 12 September 1991, the EC Commission sent a notification regarding environmentalliability to the European Parliaments and the Council of Ministers. The main goal is theEC-wide harmonization of environmental liability, the most important field of liabilityfor industrial activities. Environmental liability shall be based on strict liability and, if theliable party causing environmental damages cannot be found, the injured parties shall beentitled to recovery from a certain fund that is to be established. A corresponding ECDirective 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.
    • EU-16 INTERNATIONAL PRODUCT LIABILITY AppendixEnglish 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 fordefective products47 including the amendments according to the Council Directives of10 May 1999.48Article 1The producer shall be liable for damage caused by a defect in his product.Article 2For the purpose of this Directive ‘product’ means all movables even if incorporated intoanother movable or into an immovable. ‘Product’ includes electricity.Article 31. ‘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 hisbusiness, shall be deemed to be a producer within the meaning of this Directive and shallbe responsible as a producer.3. Where the producer of a product cannot be identified, each supplier of the product shallbe 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 sameshall apply, in the case of an imported product, if this product does not indicate the identityof the importer referred to in paragraph 2, even if the name of the producer is indicated.Article 4The injured person shall be required to prove the damage, the defect and the causal rela-tionship between defect and damage.Article 5Where, as a result of the provisions of this Directive, two or more persons are liable for thesame 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.
    • EUROPEAN COMMUNITY EU-17Article 61. A product is defective when it does not provide the safety which a person is entitled toexpect, 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 issubsequently put into circulation.Article 7The 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 81. Without prejudice to the provisions of national law concerning the right of contributionor recourse, the liability of the producer shall not be reduced when the damage is causedboth 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 allthe circumstances, a damage is caused both by a defect in the product and by the fault ofthe injured person or any person for whom the injured person is responsible.Article 9For the purpose of article 1, ‘damage’ means:(a) Damage caused by death or by personal injuries;
    • 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-materialdamage.Article 101. Member States shall provide in their legislation that a limitation period of three yearsshall 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 theproducer.2. The laws of Member States regulating suspension or interruption of the limitationperiod shall not be affected by this Directive.Article 11Member States shall provide in their legislation that the rights conferred upon the injuredperson pursuant to this Directive shall be extinguished upon the expiry of a period of 10years from the date on which the producer put into circulation the actual product whichcaused the damage, unless the injured person has in the meantime instituted proceedingsagainst the producer.Article 12The liability of the producer arising from this Directive may not, in relation to the injuredperson, be limited or excluded by a provision limiting his liability or exempting him fromliability.Article 13This Directive shall not affect any rights which an injured person may have according tothe rules of the law of contractual or non-contractual liability or a special liability systemexisting at the moment when this Directive is notified.Article 14This Directive shall not apply to injury or damage arising from nuclear accidents and cov-ered by international conventions ratified by the Member States.
    • EUROPEAN COMMUNITY EU-19Article 151. Each Member State may by way of derogation from article 7(e), maintain or, subject tothe 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 knowledgeat the time when he put the product into circulation was not such as to enable the existenceof a defect to be discovered.2. A Member State wishing to introduce the measure specified in paragraph 1(b) shallcommunicate the text of the proposed measure to the Commission. The Commission shallinform the other Member States thereof.The Member State concerned shall hold the proposed measure in abeyance for ninemonths 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 relevantmatter. 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 aproposal 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 Directivewithin 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 theproposal is submitted.3. Ten years after the date of notification of this Directive, the Commission shall submit tothe 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 thefunctioning 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, shalldecide whether to repeal article 7(e).Article 161. Any Member State may provide that a producer’s total liability for damage resultingfrom a death or personal injury and caused by identical items with the same defect shall belimited 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 tothe 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 MemberStates which have used the option provided for in paragraph 1. In the light of this reportthe 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 17This Directive shall not apply to products put into circulation before the date on which theprovisions referred to in article 19 enter into force.
    • EU-20 INTERNATIONAL PRODUCT LIABILITYArticle 18For 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 currencyshall 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 examineand, if need be, revise the amounts in this Directive, in the light of economic and monetarytrends in the Community.Article 191. 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 tocomply 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 thisDirective.Article 20Member States shall communicate to the Commission the texts of the main provisions ofnational law which they subsequently adopt in the field governed by this Directive.Article 21Every five years the Commission shall present a report to the Council on the applicationof this Directive and, if necessary, shall submit appropriate proposals to it.Article 22This Directive is addressed to the Member States.
    • IndiaIntroduction ............................................................................................ IND-1Theories of Liability............................................................................... IND-2 Negligence ............................................................................... IND-2 Fraud or Misrepresentation ...................................................... IND-3 Warranties ................................................................................ IND-4 Strict Liability .......................................................................... IND-8Concept 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-13Defenses ................................................................................................. IND-13Other Parties Impacted by Product Liability Considerations ................. IND-14Remedies ................................................................................................ IND-15Disclaimers/Limitation on Remedies by Contract ................................. IND-16 In General ................................................................................ IND-16 Limitation ................................................................................ IND-16Corporate Successor Liability ................................................................ IND-17Product 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-20Product 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-22Conclusion ............................................................................................. IND-22
    • India Adv. Ravi Kini, Adv. Dushyant Deep, and Adv. Kiran Prakash M.V. Kini & Co. Mumbai, IndiaIntroductionIn India, the term ‘product liability’ has not been defined in any statute.1However, the concept of consumer protection through product liability has beenembodied in the Constitution of India and in the law of torts. An example ofconsumer protection being embodied in the Indian Constitution can be observedunder Article 19(6).This provision allows the government to impose reasonable restrictions on thepractice of any trade or business in the interest of the general public. Thus, if aparticular food item or drug has been tested by experts and found to be harmfulfor consumption, the government has the authority to prohibit the manufactureand sale of such an item.2Among statutes related to product liability, of particular importance is theConsumer Protection Act, 1986 (COPRA),3 intended by the legislature topromote and protect the rights of consumers, along with setting up themachinery for consumer grievance redressal.COPRA provided for the establishment of the Central Consumer ProtectionCouncil by the central government and the State Consumer Protection Councilsby the state governments.The redressal system is three-tiered, comprising of the District ConsumerDisputes Redressal Forum (District Forum), the State Consumer DisputesRedressal Commission (the State Commission), and the National ConsumerDisputes Redressal Commission (NCDRC).41 ‘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
    • IND-2 INTERNATIONAL PRODUCT LIABILITYOther important statutes include the Sale of Goods Act, 1930 (the SGA)5 and theMonopolies and Restrictive Trade Practices Act, 1969 (the MRTP Act).6 TheMRTP Act is particularly relevant in the context of defective marketing — thatis, 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 statutespertaining to different kinds of goods and specific irregularities. For examplespurious drugs are covered by the Drug and Cosmetics Act, 1940.7Actions also can arise from tort liability for negligence, provided that there wasa duty of care, a breach of that duty, and resultant damage. Tort actions are fairlyuncommon in cases involving product liability. Finally, in cases involving acontract, liability would be dependent on the terms of the contract.Certain defective products also could invite criminal liability. Sections 272 to276 of the Indian Penal Code, 1860 (IPC) make adulteration of food and drugsand their sale and the sale of a drug with the label of a different drug punishableoffenses sanctioned with a few months’ imprisonment and/or a fine. Sections479−489 penalize the usage of false property marks; a manufacturer who sellshis product using another person’s property mark is liable to be punished underSections 479−489 of the IPC.Theories of LiabilityNegligenceAn 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 intort actions is founded on twentieth-century English jurisprudence. Mostnotably, product liability follows the foundation of negligence in theCommonwealth, the well-known M’Alister (or Donoghue) v Stevenson.9In Jay Laxmi Salt Works v State of Gujarat,10 the ingredients of negligence weredetermined to be a duty to exercise care, breach of that duty, and consequentialdamage. 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.
    • INDIA IND-3In Eastern Mining Contractors v Premier Automobiles11 (decided more than 20years before the enactment of the COPRA), where the complainant bought a carfrom a dealer and which turned out to be defective, one of the principal issueswas the liability of the manufacturer, there being no privity of contract.Approving the decision in Grant v Australian Knitting Mills,12 the Bombay HighCourt held that the complainant is not required to lay his finger on the exactperson in the chain who was responsible, nor is he required to specify the wrongcommitted by such person. Negligence is found as a matter of inference from theexistence of the defect, taken in connection with all the known circumstances.In this particular case, the Court stated that had all the manufactured carssuffered from the same defect, the claim of negligence could have beendisproved. But this was not the case. In negligence, liability is predicated on thebreach of a duty of care. Therefore, the conduct of the manufacturer, rather thanthe condition of his product, is scrutinized by the courts.Fraud or MisrepresentationThe principal difference between fraud and misrepresentation is that, in the caseof 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 amisstatement of facts that misleads the consumer.In India, an action for a manufacturers’ liability can be divided into twocategories: tort of deceit or negligent misrepresentation and unfair tradepractices under the COPRA or the MRTP Act.As stated previously, tort actions for manufacturer’s liability are uncommon inIndia, although actions for unfair trade practices are fairly common. UnderSection 2(1)(r) of the COPRA, unfair trade practices include making falserepresentations; misleading representations regarding warranty or guarantee of aproduct; 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 acomprehensive report reflecting an overall picture of the trade in the country.14Trade practices are usually in a state of flux, and the generally accepted practicehas to be taken into account.Additionally, in Lakhanpal National Ltd. v MRTP Commission,15 the SupremeCourt held that the question of whether the representation contains the elementof misleading the buyer has to be answered first. The Supreme Court further11 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.
    • IND-4 INTERNATIONAL PRODUCT LIABILITYheld that the question of what a reasonable man would think of themisrepresentation has to be answered with objectivity, in a reasonable manner.16WarrantiesIn GeneralUnder the SGA, a warranty is a stipulation collateral to the main purpose of thecontract, the breach of which gives rise to a claim for damages, but not to a rightto reject the goods and treat the contract as repudiated.17 This is as opposed to acondition, which gives a right to repudiate the contract.18 In effect, both termsrefer to a guarantee made by a manufacturer or retailer that the product (orservice) will conform to a certain standard. Whether a stipulation is a conditionor a warranty depends upon the construction of the contract.The scope of the warranty also would depend on the warranty clauses. Forexample, in Maruti Udyog v Susheel Kumar,19 it was observed that the warrantyclause in the user manual did not contain any agreement to replace the car, butmerely to replace or repair the engine. Overruling the Jammu and Kashmir HighCourt decision, the Supreme Court held that the warranty clause specially statedthe repair of the engine and not replacement of the car itself.Express WarrantyParties can specify whether a particular stipulation will be a warranty or acondition. The fact whether such a stipulation is a warranty or a condition willdepend on the surrounding circumstances of the case.Notably, under Section 16(4) of the SGA, an express warranty does not negatean implied warranty under the Act, unless the latter is inconsistent with it. Asimple commendation does not amount to an express warranty.20MerchantabilityThe Indian courts broadly follow the common law rule of caveat emptor but, inthis era of consumerism, the decisions reflect a tendency to dilute this rule. For16 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.
    • INDIA IND-5example, in Director-General of Investigation and Registration v Inter-Shoppe,21 the defendant was a dealer of textile goods, who issued anadvertisement announcing a sale offering ‘up to 50% off’. In reality, the salewas an ‘off-season clearance sale’ and the maximum discount was available onvery few items. Holding that the advertisement suppressed material information,the Monopolies and Restrictive Trade Practices Commission (MRTPCommission) observed:‘The business gimmicks which a decade or two ago were slurred over as normalbusiness practices under the notion “caveat emptor” are latterly becomingintolerable for their potentially exploitative character.The consumer wants not only quality, durability, and due service of the goods hepurchases, but also straightforwardness and outspokenness in dealings andfairness in price, divorced from attempts at concealment; and where it is foundto be lacking, it hurts him, apart from occasioning monetary loss.’ The caveatemptor rule is contained in Section 16 of the SGA and subject to certainconditions: ‘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 foundout 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 bythe defendant. The hair dye was recommended by the defendant as a good hairdye. However, upon its use, the plaintiff contracted dermatitis. The defendantwas 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.2321 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.
    • IND-6 INTERNATIONAL PRODUCT LIABILITYHowever, as a matter of note, the term used in the provision is ‘merchantablequality’ and not ‘merchantable’.The term ‘merchantable quality’ has been explained in S.H. Joshi and Co. vV.M. Ismail.24 Essentially, the Madras High Court quoted with approval thedefinition of ‘merchantable quality’ given in Bristol Tramway Co. v Fiat MotorsLtd.25In that case, it was provided that goods are of merchantable quality if they are ofsuch a quality and in such condition that a reasonable man, acting reasonably,would, after a full examination, accept them under the circumstances of the casein performance of the offer to buy them, whether he buys for his own use or tosell again.The Calcutta High Court concluded that ‘merchantable quality’ is a far morerestrictive term than ‘merchantable’.26 Goods cease to be merchantable due todefects rendering them unfit for the purpose for which they are usually sold, ormerchantability is fulfilled when the goods do not differ from the normal qualityof the described goods, including under the term ‘quality’, the state or conditionas required by the contract. The goods should be immediately saleable under thedescription by which they are known in the market.27Fitness for a Particular PurposeSection 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 AustralianKnitting Mills Ltd., the Privy Council opined that the reliance will seldom beexpress 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.
    • 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.’28In Bengal Corporation Private Ltd. v The Commissioner for the Port ofCalcutta,29 the Calcutta High Court observed that fitness for a particular purposeunder 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, theparticular purpose for which the goods are required; second, that this ‘makingknown’ to the seller of the purpose would show that the buyer relies on theseller’s skill or judgment; and, third, that the goods are of a description which itis in the course of the sellers business to supply. If these three conditions aresatisfied, the court can draw the conclusion that it amounts to an ‘impliedwarranty’ in law.30In addition, this provision also implies that if the goods are suited for a numberof purposes and the seller has not been informed of the purpose for which thegoods are wanted, there is no condition of fitness for the purpose.Impact on Third PartiesComplaints under the COPRA can only be made by a ‘complainant’. Section2(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.
    • 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 arefor the benefit of a ‘buyer’. Section 2(1) of the SGA defines a ‘buyer’ as ‘aperson who buys or agrees to buy goods’.Strict LiabilityThe courts in India have not pronounced clearly on whether liability under theCOPRA is strict or fault-based. However, the failure of the manufacturer tocomply with the standards required under the relevant statutory law could inviteliability.Under the COPRA, the requirement of proving negligence is required only if thecomplainant is claiming compensation for loss or injury.31 There is no suchrequirement in case the complaint requests repair, replacement, or even return ofthe price. For example, in Abhaya Kumar Panda v Bajaj Auto,32 the complainanthad 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 ofsocial efficiency. This efficiency can reach an optimal level when courts pickand choose the ‘due care’ level.33 Typically, Indian courts will impose a higherstandard of care for products which are ‘hazardous substances’. These aredefined as any substance or preparation which, by reason of its chemical orphysicochemical properties or handling, is liable to cause harm to human beings,other living creatures, plant, microorganisms, property, or the environment, asprovided in the Environment (Protection) Act, 1986.34Concept of DefectPatent Defects and Latent DefectsThe COPRA defines ‘defect’ as any fault, imperfection, or shortcoming in thequality, quantity, potency, purity, or standard which is required to be maintained31 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).
    • INDIA IND-9by or under any law in force for the time being, under any contract, express orimplied, or as is claimed by the trader in any manner whatsoever in relation toany goods.35In S.H. Joshi and Co. v V.M. Ismail,36 it was laid down that the proviso toSection 16 of the SGA divides defects into two kinds: patent defects and latentdefects. Patent defects are those that can be found on examination by a person ofordinary prudence with the exercise of due care and attention. Latent defects arethose that cannot be discovered on such an examination. Whether a defect is alatent or a patent defect will depend on the nature of the goods, the nature of thedefect, and the extent of examination needed for its discovery. It is a question ofthe facts in each case.Defective ManufactureUnder Indian law, defective manufacture refers to defect arising duringproduction. It is a defect that arises in the manufacture, assembling, and similarprocessing of a product. A complaint can be filed under Section 2(1)(c)(ii) (to beread with Section 12) of the COPRA against a manufacturer, seller, or licensorin case a product consumed or purchased for consumption turns out to bedefective.The NCDRC held that if the purchaser of a vehicle is forced to hand over thevehicle to the dealer/manufacturer on the ground that it is required to be repairedevery now and then within a few days of its purchase, the vehicle is defectiveand the amount paid by the consumer must be refunded, the liability of thedealer and manufacturer being joint and several.37Similarly, a tractor was considered defective because it had been repaired ninetimes in the warranty period (ie, within one year of purchase) and the owner hadwasted lot of time and money on the tractor. The dealer and manufacturer of thetractor were held to be jointly and severally liable to compensate the owner forthe losses incurred.38In Hyundai Motors v Affiliated East West Press,39 the NCDRC took the carmanufacturer to task for protracting litigation instead of admitting the defects.The NCDRC stated that in other countries defective vehicles are easily replacedbut, 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).
    • IND-10 INTERNATIONAL PRODUCT LIABILITYDefective MarketingDefective marketing refers to a defect in promoting goods or services. In India,defective marketing comes under the ambit of several legislations: theprovisions on unfair trade practices, the Drugs and Magic Remedies(Objectionable Advertisements) Act, 1954,40 and the Standards of Weights andMeasures Act, 1976.41A section on unfair trade practices was added by an amendment to the MRTPAct in August 1984, prior to the enactment of the COPRA. In 2002, the MRTPAct was replaced by the Competition Act.In September 2009, Section 66 of the Competition Act was notified, essentiallyrepealing the MRTP Act, implying that the MRTP Commission will function fortwo years to clear pending cases. Subsequently, all powers of the MRTPCommission regarding unfair trade practices would be wielded by consumercourts, under the COPRA.Section 2(1)(r) of the COPRA defines unfair trade practices as trade practicesthat adopt any unfair method or unfair or deceptive practice for the purpose ofpromoting the sale, use, or supply of any goods or for the provision of anyservice.The provision essentially deals with false representation regarding the quality,quantity, grade, and similar attributes of the goods; misleading the public withrespect to the price; and offering gifts, prizes, and similar inducements with theintention of not providing them, among other such practices. For example,failing to mention the purity or standard of gold in jewelry in the bill andcollecting the price as if it were 22-carat gold is an unfair trade practice.42The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954,banned the advertisement of certain categories of drugs, such as drugs promisingpregnancy, abortion, claiming to solve ailments through black magic, andsimilar quack medication.43The Standards of Weights and Measures Act, 1976, imposes a liability on themanufacturer of any commodity in packaged form to mention the identity, exactweight/measure, sale price, unit sale price, the name and address of themanufacturer, and similar details. This information should be displayed on thepackage itself or on a label securely attached to it.44In addition to these statutes, manufacturers also will have to consider certainother acts, rules, and regulations, including the Indecent Representation of40 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.
    • INDIA IND-11Women Act, 1986,45 and the regulations on tobacco and alcoholic products,among other legislative measures.Defective DesignThe concept of liability for defective design was first enunciated by ViscountSimonds in Davie v New Merton Board Mills Ltd,46 where he stated that amanufacturer is liable if the fault lays in the design and was due to lack ofreasonable care or skill on the part of the manufacturer.There is no rigid dichotomy between design defect and manufacturing defect inIndia. There are very few cases brought before the consumer forums that involvefaulty product design. Most cases involve negligence in manufacturing aspecific product. Usually, in cases involving defective design, manufacturersrecall their faulty products. For example, in 1994, Maruti Udyog recalled theircars due to problems in axle components that endangered consumer safety.47In Godrej G.E. Appliances Ltd v Moti Dharani,48 the respondent had purchaseda refrigerator from the appellant. The back wall of the refrigerator was made ofpolyurethane foam (PUF) insulation material, protected by aluminum foil. Aportion of the back wall was destroyed by rats entering the fridge to consume theeatables. The appellants contended that it was a new design and many fridgeshad been sold with no complaints. The NCDRC, however, concluded that therewas no indication that the back wall was not of a hard material, when it wascommon knowledge that fridges should be made from a hard material. TheCommission called the design faulty and wondered why the ‘technology’ wasnot used in other designs.Obligation to Warn Consumers and Recall Defective ProductsThere is no duty to warn consumers or to recall defective products under theCOPRA or the MRTP Act. However, there are certain precautions to be takenby the manufacturers of food and drug products. Under the Food Safety andStandards Act, 2006,49 there is a duty imposed on a food business50 operator toinitiate procedures to withdraw food products from the market if he considers orhas reason to believe that the food he has processed, manufactured, or45 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.
    • IND-12 INTERNATIONAL PRODUCT LIABILITYdistributed is not in compliance with the Act or the applicable rules orregulations.51In relation to this is the provision that if any unsafe food product is part of abatch, lot, or consignment of food of the same class or description, it will bepresumed that all the food in that batch, lot, or consignment also is unsafe.However, to counter this provision, the operator may submit a detailedassessment within a specified time, showing that there is no evidence that therest of the batch, lot, or consignment is unsafe. Again, even despite conformitywith provisions, if the competent authority suspects that the food is unsafe (forreasons to be recorded in writing), it could impose restrictions on that food beingplaced in the market or require its withdrawal from the market.52Additionally, under Section 78(i) of the Drugs and Cosmetics Rules, 1945, alicense for a drug is subject to the condition that upon being informed by thelicensing authority or controlling authority that ‘any part of any batch’ has beenfound not to conform with the standards of strength, quality, or purity specified,the manufacturer must, on being directed to do so, withdraw the remainder ofthat batch from sale. In addition, guidelines for product recall are provided underSchedule-M Part 1(27), which essentially state that that there should be anestablished procedure and arrangement to deal with product recall.CausationIn 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’stortious conduct, the plaintiff would not have sustained damage (or injury). InCork 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 expressedreservation over some aspects. In Jaipur Golden Gas Victims Association vUnion of India,55 the Delhi High Court stated that the ‘but-for’ test remains thestarting point in tort. In case of a single cause, it is likely to determine the factualaspect of causation; however, in case of multiple causes, it should satisfy thefactual test. The case law reflects the approach that the courts have not usedtechnical barriers to dismiss meritorious claims. For instance, in Jaipur GoldenGas 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.
    • INDIA IND-13rule.56 The Court quoted Lord Justice Mackinnon in Owens v LiverpoolCorporation,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 ProofThe burden of proof is on the defendant; under Section 14 of COPRA, thecomplainant has to prove his allegation of defect in the goods to obtain afavorable verdict.58 However, this principle has to be understood in the contextof the decision in Vinoo Bhagat v General Motors (India) Ltd. and RegentAutomobiles Ltd.59 The NCDRC stated that each case before the forum has to beanalyzed from the angle of a reasonable man of ordinary prudence. When theconsumer who buys a brand new car alleges that that it is not functioningproperly, his statement is to be taken as adequate to meet the requirement ofburden of proof when it is supported by his affidavit.Moreover, the COPRA itself contains machinery to help the complainant indischarging his burden of proving a defect. Under Section 13(1)(c) of theCOPRA, the District Forum can send the allegedly defective goods for analysisto a proper laboratory to determine the fact of defect. The results given by thelaboratory also can be challenged under Section 13(f) of the COPRA, and bothparties are given reasonable opportunity to be heard on the validity of thelaboratory results under Section 13(g) of the COPRA, the burden of proof beingon the person alleging that the laboratory test results are not correct.DefensesUnder Section 2(1)(d) of the COPRA, a person who purchases goods for a‘commercial purpose’ (self-employment being excluded) is excluded from thescope 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 Auto56 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).
    • IND-14 INTERNATIONAL PRODUCT LIABILITYLtd.,61 it was observed that earning a livelihood by hard toil cannot be calledcommerce. 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 transportationbusiness and engages a driver, it may be called a commercial purpose. The keyterms involved here are ‘management’ and ‘earning a livelihood’. Whenmanagement is the main purpose, the activity is commercial.62The COPRA and the MRTP do not refer to any specific defenses. In case thereis no inference of strict liability, the defenses applicable include absence of aduty of care, voluntary assumption of risk,63 contributory negligence, and similardefenses.For example, in K.G. Sathyanarayan v Bharat Petroleum Corporation Ltd,64 thecomplainant was sound asleep late one night when he thought he heard an LPGgas cylinder exploding. Startled awake, he switched on the light, at which pointthe entire room was engulfed in flames. The complainant suffered burn injuriesas well as extensive damage to his apartment. The accident occurred mainly onthe account of a defective regulator. The NCDRC held that both themanufacturer of the gas cylinder and the distributor were jointly and severallyliable. However, since the complainant turned on the light when there was gasleakage in the surrounding area, he was guilty of contributory negligence.65Other Parties Impacted by Product Liability ConsiderationsIn Raheja Automobiles v Krishan Kumar,66 the dealer of a motorcycle attemptedto escape liability for providing a new motorcycle in place of a defective onewhich had previously been bought by the consumer. The dealer claimed thatsince it was a manufacturing defect, it was the manufacturer who wasresponsible for providing the consumer with a new motorcycle.The NCDRC held the liability of the dealer and manufacturer to be joint andseveral and ordered the manufacturer to provide the consumer with a newmotorcycle 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.
    • INDIA IND-15Again, in K.G. Sathyanarayan v Bharat Petroleum Corporation Ltd,67 theNCDRC held that both the manufacturer of the defective gas cylinder anddistributor were jointly and severally liable.RemediesUnder Section 14(1)(d) of the COPRA, the District Forum has the power toorder the opposite party to pay compensation as may be determined by it, forloss or injury suffered by the consumer due to the negligence of the oppositeparty.There are two important points involved here: the definition of ‘compensation’and how the complainant’s conduct could have an impact on damages. InLucknow Development Authority v M.K. Gupta,68 the Supreme Court judged thatthe word ‘compensation’ has a very wide connotation. Furthermore, the Courtobserved: ‘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 withpunitive damages. However, Section 14 of the COPRA was amended in 2002,empowering the forum to award punitive damages.69Punitive damages are rarely, if ever awarded. Damages awarded in India havetraditionally been compensatory, although the common law remedy ofexemplary damages does exist.It was only in 1996, in Common Cause v Union of India,70 that the SupremeCourt awarded exemplary damages. This case established that punitive damageswere appropriate for deplorable conduct such as fraud and malicious, reckless,abusive, and oppressive behavior.71The damages awarded could be affected by certain factors, such as thecomplainant’s conduct. In Tata Engineering & Locomotive Co. Ltd. v Gajanan67 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.
    • IND-16 INTERNATIONAL PRODUCT LIABILITYY. Mandrekar,72 the complainant had purchased a truck and used it for a periodof eight months and traveled a distance of 9,000 kilometers. At that point, thecomplainant noticed certain defects and returned the truck for repairs. Theproblems continued despite the repairs. The Supreme Court, while holding thatcompensation was to be paid, decided to deduct one-third of the compensationfor 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 thecomplainant was entitled to compensation in addition to the replacement of thedefective part, in lieu of the tractor being inoperative for a number of years.Disclaimers/Limitation on Remedies by ContractIn GeneralSection 62 of the SGA deals with the exclusion of implied rights, duties, orliabilities by way of express agreement between the parties. In the absence of awritten contract, limitation can be achieved in two ways.The first is by a course of dealing between the parties, where previoustransactions would be looked into. The second is by usage, if the usage is suchas to bind the parties to the contract. Usage is to be understood as ‘custom’, asprovided in A.K. Srinivasa Naidu v S. Jayarama Reddiar.74LimitationOriginally, the COPRA did not provide for a limitation period. The limitationperiod was derived from the Indian Limitation Act, 1963. The District Forum,the State Commission, and the NCDRC had adopted a period of three years asthe prescribed period of limitation in consumer disputes, starting from the dateof cause of action.This rule of limitation devised by the Consumer Courts was approved by theSupreme Court in Corporation Bank v Navin Shah.75 The reason was that thiswas the period under the Limitation Act for bringing a monetary claim.Subsequently, on 18 June 1993, the Consumer Protection (Amendment) Actintroduced Section 24-A. According to Section 24-A of the COPRA, claimsmust be brought before the appropriate forum within two years from the date onwhich 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.
    • 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 theground of limitation when the cause of action is continuing.76 The delay may becondoned if the complainant satisfies the forum that he had sufficient cause. InState of West Bengal v Howrah Municipality,77 the Supreme Court held that thewords ‘sufficient cause’ should receive a liberal construction so as to advancesubstantial justice when no negligence, inaction, or want of bona fide isimputable to the party.78Under the MRTP Act, claims for negligence and breach of contract must bebrought within a period of three years. This period was approved by theSupreme Court in Corporation Bank v Navin Shah,79 which, although renderedin the context of the COPRA, is equally applicable to the MRTP Act.80 TheMRTP Commission has observed that even in the absence of an expressprovision of limitation, the principle of laches and delays cannot be forgotten.81Corporate Successor LiabilityIn India, the liability of a corporate successor is usually determined by thearrangement under which the succession has taken place. In Saraswati IndustrialSyndicate 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.
    • 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 intoanother company, the opposite party was allowed to amend its position so as toimplead the company emerging from the merger which had taken over theliabilities of the earlier company.83There is no authority in India regarding the product liability of a successorcorporation.84 However, it has been held in a case involving the evasion ofexcise that any liability for penalties remains the liability of those whocommitted the offense as a manufacturer and cannot be transferred in law to asuccessor.85Product Liability InsuranceIn GeneralIn India, there is no statutory provision to encourage manufacturers to seekinsurance coverage, with one exception. The Public Liability Insurance Act86was enacted in 1991, in accordance with Principle 13 of the Rio Declaration onEnvironment 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 theBhopal Gas tragedy in 1984, which was marked by a flurry of legislativeactivity. Some examples are the Environmental Protection Act, 1986, and theFactories Act, 1987. The real impetus for liability insurance in the marketplacecame after the decision in Vellore Citizens Welfare Forum v Union of India,87where the tanneries in the vicinity of the Palar River were penalized for causing83 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.
    • INDIA IND-19pollution. The total compensation amount amounted to approximately INR304,800,000.88The Public Liability Insurance Act provides for compulsory public liabilityinsurance payments to persons affected by accidents that occur while hazardoussubstances are handled. Under Section 4(1) of the Public Liability InsuranceAct, it will be the duty of an ‘owner’ (meaning a person who owns or hascontrol over handling any hazardous substance at the time of an accident) to takeout, before handling the substance, one or more insurance policies.Under Section 4(2A) of the Public Liability Insurance Act, such policies must befor an amount not less than the amount of paid-up capital of the undertaking andnot more than INR 150,000,000.Product liability insurance is widely available in India and is offered by all themajor general insurance companies. However, there is no data available on theactual number of manufacturers who utilize such policies. In India, as thingsstand, most companies opt for product liability insurance that insures for liabilityagainst accidental death, bodily injury, and/or disease or accidental damage toproperty.89 A more recent development in the Indian scenario has been theintroduction of product recall policies.90Nature of General Liability PoliciesA standard policy available in India would indemnify the insured againstliability for accidental death and/or bodily injury or disease caused to any thirdparty 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 productsmanufactured by the insured after the product has left his premises.Usual Extent of CoverThe coverage is afforded to claims related to injury or damage caused as aconsequence of a defect in the product. Most policies also provide legal costsand 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; liabilityarising out of judgments or settlements in countries which operate under UnitedStates or Canadian laws (‘North American’ jurisdiction is usually excluded88 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).
    • IND-20 INTERNATIONAL PRODUCT LIABILITYunder a standard policy); and liability of technical collaborators arising out ofthe agreement between the collaborator and the insured.Usual ExclusionsThe 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 inthe list of exclusions in policies offered by different companies.Duties of the InsuredThe insured party is duty-bound to notify the insurer about every relevant matterand factor that could influence the insurer’s decision to accept the risk. After thepolicy comes into effect, the insured party must ensure compliance withstatutory provisions. Willful or deliberate non-compliance with statutoryprovisions invites an exclusion of coverage.Upon the happening of an event likely to result in a claim, the insured mustnotify the insurer immediately. After the notification, the insured must submitthe relevant documents, including the completed claim form; the original letterfrom the third party claiming compensation; the First Information Report by thepolice, where necessary; the medical certificate/medical bill/postmortem report,where necessary; and the survey/investigation report.91Product Liability LitigationFrequency of LitigationIn India, most product liability claims are not settled out of court prior to thejudgment. The primary reason for this situation is that, in most cases, thecompensation offered by the manufacturer tends to be below the expectation of91 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.
    • INDIA IND-21the complainant. The volume of litigation in India is reasonable, largely becauseof the ubiquity and the simple procedures of the consumer forums.Second, the litigant can approach such forums without engaging the services ofa lawyer, although such cases are not very common and there is no requirementof court fees.Third, legal technicalities are not strictly followed in consumer forums. Thisensures that the forum’s decisions are primarily influenced by the circumstancesof each individual case.Finally, under Section 11 of the COPRA, if the value of product is below INR2,000,000, the complaint is to be filed before the District Forum. Most claimsfall into this category. Given the ubiquity of the district forums, this aspect addsto 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 onthis information. It merely suggests that complainants prefer filing a complaintunder the COPRA to a civil suit.There are already plans being laid down for a new court called the NationalConsumer Protection Court Authority, on the lines of the United States FederalTrade Commission (FTC).92Attitude of the CourtsGenerally, the consumer forums have a pro-consumer approach. In LaxmiEngineering 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 theywould be in a civil suit. An analysis of consumer forum judgments reveals thedown-to-earth manner in which the evidence is analyzed and the decisionrendered.The Supreme Court observed that the COPRA is a ‘social benefit legislation’.94The courts must therefore adopt a constructive approach to do full justice to theobjectives of the legislation.9592 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.
    • IND-22 INTERNATIONAL PRODUCT LIABILITYExtent of DamagesThere is no specific limit on the extent of recoverable damages in India. Punitivedamages are possible, although rare. In fact, under Section 14(1)(d) of theCOPRA, compensation to the complainant is awarded only with due regard tothe circumstances of the case. Orders for repair/replacement are much morecommon.Choice and Application of LawAn analysis of the product liability claims in the country reveals a gargantuanamount of complaints filed before consumer forums. As previously discussed,civil suits are not as popular, owing to various factors, including the highlytechnical and complicated procedure, the need of paying court fees and variousother legal expenses, and the comparatively slower speed of redressal.Although the consumer forums in the country are more popular, it does notmean that this redressal system is perfect. There are several problems with thesystem, including but not restricted to the fact that consumer forums are notempowered to take up cases on a suo moto basis; a consumer cannot file acomplaint if a remedy is available under another law; and consumer forumscannot grant interim relief, or ad interim relief.96ConclusionWhile there is no specific legislation in India which deals with product liabilityclaims, several legislative measures govern the liability of manufacturers,wholesalers, distributors, and other members in the chain of commerce. Thepurpose 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 consumerforums in the country are responsible for handling most of the claims. While theforums have consistently focused on a pro-consumer approach and are vastlypreferred to civil courts, there is a need for a watchful guardian of consumerinterests, 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.
    • ItalyIntroduction ............................................................................................ ITA-1Product Liability under Contract Law .................................................... ITA-2Product 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-6General 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-18Statute of Limitation and Forfeiture Term ............................................. ITA-19Mandatory Regime of Liability .............................................................. ITA-20 (Release 1 – 2012)
    • Italy Antonello Corrado CFMP – Studio Legale Associato Rome and Milan, ItalyIntroductionSince 1998, the legislature has introduced a specific set of rules governingproduct liability.1 Presidential Decree Number 224 dated 24 May 1988(“Presidential Decree Number 224/1988”) implements Directive 85/374/ECC onthe approximation of the laws, regulations, and administrative provisions ofMember States concerning liability for defective products.The entry into force of Presidential Decree Number 224/1988 is a milestone inthe 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 consumersto obtain compensation for damages incurred in the use of defective products. Infact, consumers only had the general remedies under contract law or tort law setforth by the Civil Code.Since then, several other statutes have been approved by the legislature toamend Presidential Decree Number 224/19882 or to regulate other relatedaspects.3Nowadays, the matter of liability for defective products is mainly governed byTitle II of Legislative Decree Number 206 dated 6 September 2005 (“ConsumerCode”), which has essentially codified the rules contained in several statutesapproved over the years.This area of law is certainly one of the most remarkable examples of howEuropean legislation has significantly contributed to the rapid evolution ofdomestic legislation, thus avoiding the need for consumers to have recourse togeneral legal remedies not tailored for this purpose, and reducing the risk ofhaving to rely on fluctuating and uncertain interpretations made of suchremedies 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)
    • ITA-2 INTERNATIONAL PRODUCT LIABILITYProduct Liability under Contract LawThe main remedies for product liability under contract law are those under theCivil 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 otherwiseessential 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 thathad been contracted for (aliud pro alio).7In case of sale of defective goods, the Civil Code allows the purchaser to eitherterminate the contract or request for a reduction of the purchase price.8 In case oftermination of a contract, the seller should refund the purchase price andreimburse the purchaser for his expenses and payments reasonably incurred inconnection with the sale, while the purchaser should return the goods to theextent that they have not perished as a result of the defects.9The seller also is liable for any damages incurred by the purchaser unless theformer is able to prove that he was unaware, without fault, of the claimeddefect.10Where the goods lack promised or essential qualities, the Civil Code onlyentitles the purchaser to terminate the contract when the lack of qualitiesexceeds the limits of tolerance generally allowed by common practice.In the case of aliud pro alio, the purchaser is entitled to terminate the contractaccording to the general principles of law applicable in the case of a breach ofcontract.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)
    • ITALY ITA-3All these remedies may only be employed against parties to the contract. Aconsumer may not sue the producer under contract law unless the defectiveproduct was sold directly by the producer, which is very unlikely for most massmarket goods. As such, these remedies may not guarantee a sufficient degree ofprotection for the purchaser.The seller also can be held accountable for damages caused, but only if thepurchaser is able to prove that the former was aware of the defects, lack ofqualities, or differences among the goods. This burden of proof is veryfrequently hard to meet, especially when the seller is at the end of thedistribution chain.11 The purchaser may validly utilize the relevant remediessolely 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 qualitieshas been actually discovered. As such, even if the defect or lack of qualities hasbeen discovered after the expiry of such term, any action against the sellerwould be time-barred.The forfeiture term and the statute of limitation do not apply in the case of aliudpro alio. The general rules on breach of contract are applicable, such that noforfeiture term is to be complied with, and the general 10-year statute oflimitation period should be observed in order to bring an action.The scenario of the aliud pro alio has precisely been developed to create a moreflexible remedy for the purchaser in very serious cases of breach of contract thatdo not justify the use of the strict regime. Thus, the remedies under contract lawhave proven to afford purchasers of defective goods a very limited degree ofprotection.Product Liability under Tort LawIn GeneralOne of the main limits of the remedies under contract law is the fact that thepurchaser 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 the11 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)
    • ITA-4 INTERNATIONAL PRODUCT LIABILITYCivil Code as the main body of law used in previous years to hold producers,distributors, or suppliers accountable for damages incurred through the use ofdefective products, at least until the entry into force of Presidential DecreeNumber 224/1988.Until then, case law had tried to extend the application of tort law provisions tothe area of product liability, acknowledging that technological progress hadincreased the need to guarantee a higher degree of protection for generalconsumers.There also exists asymmetrical information between producers and consumerswhich often results in the impossibility for consumers to adequately evaluate therisks connected to the use of certain products, and to adequately prove theproducers’ fault in case of defective products.General Provisions under Civil CodeGeneral Provision under Article 2043Under Article 2043 of the Civil Code, which is usually referred to in mostproduct liability cases, anyone who causes unfair damage to a third person as aresult of a willful or negligent act is obliged to hold such person harmless and toindemnify such person from the damages caused by the act.Each tort case brought under Article 2043 of the Civil Code requires theclaimant to prove (a) the defendant’s fault or willful act, (b) the damagesincurred, and (c) causation.While the last two items are generally easy to demonstrate, the first item may bemore difficult to prove due to the lack of technical expertise and knowledge onthe part of the consumer. Case law has acknowledged this objective difficultyand 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 ofcare when designing and producing their goods because general consumers mayuse the goods in a manner different than those suggested by the producer or thatcould reasonably be expected to be used. This principle is usually relevant inproducts destined to be used by children or those that are inherently hazardous.12Thus, the producer also may be held liable for damages caused by defectiveproducts when the consumer has contributed to the occurrence of such damagesthrough his negligent conduct.In other instances, courts have found that the specific circumstances of the caseled to an affirmation of the producer’s fault on the basis of mere factualpresumptions. This has resulted in the consumer being released from the burden12 Supreme Court (10 October 1957), Number 4004; Supreme Court (10 November 1970), Number 2337.(Release 1 – 2012)
    • ITALY ITA-5of proving the producer’s fault. Instead, the producer was left with the burden ofproving the absence of any negligence on his part.13Liability of Principal under Article 2049Under Article 2049 of the Civil Code, a principal is liable for the damagescaused by his employees in the performance of their duties. This generalprinciple has sometimes been applied by case law to remedy liability fordefective products, especially in cases of manufacturing defects. In contrast tocases of design or warning defects, manufacturing defects are generallyattributable to employees.Article 2049 provides for an objective liability scheme that does not allow anyexemptions or the submission of contrary proof in favor of the principal. Theonly way for the principal to escape liability is to prove the absence of anymanufacturing defect or the absence of causation between the product and thealleged damage incurred by the injured person.Liability for Hazardous Activities under Article 2050Article 2050 of the Civil Code states that anyone who carries out hazardousactivities is liable for the damages caused to third parties in the performance ofsuch activities, unless he is able to prove that he has adopted any and all safetymeasures necessary to avoid the damage.The hazardous nature of the product or its manufacturing process requires theproducer to adopt all necessary safety measures required under thecircumstances. From a procedural standpoint, this implies that, in the case ofdamages caused by hazardous products, the consumer has a reduced burden ofproof, while the producer’s burden of proof is correspondingly enhanced.Thus, one of the most debated questions in product liability cases brought underArticle 2050 is whether the activity qualifies as hazardous as expressly providedby law or based on factual indexes.A significant trend in case law has been to qualify the manufacture ofpharmaceutical products as hazardous. As to derivative products, the courts haveheld that the manufacturer should verify the complete absence of any potentialrisk of transmitting diseases by adopting every possible analysis and controlmethod at their most advanced level as required by biological and medicalscience at the time of production, regardless of the cost of such methods.As such, case law on the manufacture of hemoderivatives has contributed to thedevelopment of the question of product liability caused by factors unknown atthe time of production. Many manufacturers are exempted from liability if they13 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)
    • ITA-6 INTERNATIONAL PRODUCT LIABILITYcan prove that they used every state-of-the-art test and the most sophisticatedcontrols available at the time of production.Thus, if new diseases are discovered that were unknown at the time of thecommercialization of the product and the hemoderivative product transmits suchdisease, the manufacturer will be exempt from liability.14Specific Laws on Liability for Defective ProductsThe Consumer Code has introduced a clearer and more effective set of remediesand warranties in favor of consumers compared to those in contract law or tortlaw.The current age of increasing technology has incited the introduction of theprinciple of liability without fault on the part of the producer as the sole meansof guaranteeing adequate protection for consumers against damages caused bydefective products, and for solving the problem of fair apportionment of therisks inherent in modern technological production.The principle of liability without fault also implies that, in order for theconsumer to obtain compensation for damages, he will be required to prove theproduct defects and the actual damages incurred, while the producer is left withthe burden of proving the existence of certain exonerating circumstances.Thus, the new system currently adopted by the Consumer Code has not only hadthe benefit of thoroughly disciplining the matter of product liability in Italy, buthas introduced a much higher degree of protection in favor of consumers byestablishing a more certain, complete, and reliable legal framework.The set of remedies and warranties introduced by Presidential Decree Number224/1988 is not intended to supersede the general remedies under the CivilCode.15 Thus, in case of damages for defective products, the consumer maydecide to utilize any of these remedies either alone or concurrently.1614 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)
    • ITALY ITA-7General Principle of Producer’s Liability without FaultIn GeneralArticle 114 of the Consumer Code sets forth the general principle according towhich “the producer is liable for the damages caused by the defects of itsproducts”.Scholars have variably interpreted this principle, either as a case of strictliability without fault or mere presumption of fault subject to contrary proof, orotherwise as a fair model transferring to producers the burden of proving theabsence of fault due to the position of asymmetrical information relating to themanufacturing technology.Definition of ProductArticle 115 of the Consumer Code specifies that, for the purpose of productliability, “product” is to be construed as any movable asset, even if it isincorporated into another movable or immovable asset.This definition places specific emphasis on movable assets industrially producedand industrial fragmentation in the manufacturing process. By referring to theconcept of incorporation, the Consumer Code extends the regime of liability fordefective products to any producer that has contributed to the manufacture of thefinished product or has participated in the supply chain.17On the other hand, the Consumer Code excludes from its scope of applicationany defect of immovable assets and intangible assets.18 A highly debatedquestion among courts and scholars is whether or not the supply of services alsoshould 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)
    • ITA-8 INTERNATIONAL PRODUCT LIABILITYArticle 115 of the Consumer Code also includes electricity in its scope ofapplication. The generic reference to “electricity” implies that the liability mightbe extended not only to the producer but to all other operators involved in thesupply grid.Definition of ProducerPursuant to Article 3, Paragraph 1(d) of the Consumer Code, a producer is anymanufacturer of goods or supplier of services or any agent thereof, as well asany importer of goods or services into the territory of the European Union, orany other natural or legal person purporting to be a producer by placing hisname, 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 finishedproduct or its component, as well as the manufacturer of raw materials and, foragricultural products and for those deriving from farming and hunting, theproducer is respectively the farmer, the cattle farmer, the fisherman and thehunter”. This definition completes the previous general definition under Article3, 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 ofthe finished product, or otherwise of the finished product.Any agent of such manufacturers also might be held liable. Product liability alsoattaches to importers of products coming from outside the European Union(although the importer will have recourse against the manufacturer forcontribution).Product liability also attaches to all those persons who appear to consumers asbeing the actual manufacturers of the goods or the actual suppliers of services byapplying a distinctive sign to either the goods or the services supplied.This is aimed at enhancing protection for consumers who may not be aware ofthe distinction between a “trade mark” and a “brand or merchandise mark”. Inthis case, liability will not only be limited to the actual manufacturer of thedefective product, but will be extended to any person who markets the product.Obviously, if the name of the manufacturer is known to consumers, the formerwill be liable to the latter.Pursuant to Article 116, Paragraph 1, of the Consumer Code, when themanufacturer of the defective product is not identified, a supplier distributing theproduct 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)
    • ITALY ITA-9and 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. Thesupplier also may be held liable under the general remedies of contract law ortort law.20Definition of ConsumerUnder Article 3 of the Consumer Code, the term “consumer” is applied only toone who acts for purposes unrelated to his profession. The possibility of alsoincluding legal entities within the definition has long been discussed in bothdoctrine and jurisprudence.The Court of Justice has clarified that the term “consumer” includes only naturalpersons and not companies that conclude agreements with other companies forthe purchase of goods or services for the exclusive benefit of their employees.The notion of consumer depends on the particular activity of the individual andnot on his permanent condition. Thus, a person may take, from time to time, aconsumer or professional status, depending on whether or not the agreementpresents a functional connection to the professional or business activities to beperformed.The Supreme Court has stated that the natural person who carries out business orprofessional activities may be considered as a consumer only when he entersinto a contract for the satisfaction of needs of daily life not connected with theseactivities, and should be considered a professional when he concludes anagreement relating to his professional activity.Some scholars are of the opinion that a person should be qualified as aprofessional at all times when there is a professional purpose, even where thelatter is a qualitative or quantitative minority with respect to personal use.However, some writers are of the opinion that a quantitative and qualitativejudgment of preference should be conducted between the two activities, so thatthe contractor will be considered a consumer whenever personal purposesprevail.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 thebusiness purposes are so limited as to be negligible in the general context of theoperation.Definition of Defective ProductArticle 117 of the Consumer Code substantially reproduces the definition andreference model of a defective product under Directive 85/374/EC. As specified20 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)
    • ITA-10 INTERNATIONAL PRODUCT LIABILITYin the Directive, in order “to protect the physical well-being and property of theconsumer, the defectiveness of the product should be determined by referencenot to its fitness for use but to the lack of the safety which the public at large isentitled to expect; whereas the safety is assessed by excluding any misuse of theproduct not reasonable under the circumstances”.Thus, the definition of “defective product” is completely different from thegeneral principles on warranties applicable to sales contracts, which emphasizethe inherent defect or lack of promised quality. To activate the regime ofcontractual warranties, the product is required to have an actual and objectivedefect or lack of quality. The definition under Article 117 of the Consumer Codeemphasizes the concept of safety and the legitimate expectations of the generalpublic 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 ofattention and caution which the general public has come to expect has beenreduced by the specific circumstances of the case, ie, those listed under Article117, Paragraphs 1(a) to (c), of the Consumer Code.Article 117 also refers to the 3 main categories of product defects generallyaccepted by the modern theories of product liability, ie, manufacturing defects,design defects, and warning or information defects, which have been discussedin case law but had never been transposed into a legislative measure beforePresidential Decree Number 224/1988. More precisely, Article 117 clarifiescertain 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)
    • 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 warningor information regarding the product, may result in reducing the consumer’slevel of attention or caution or may otherwise mislead him in the use hemakes of the product. As such, the producer may be found liable for a defectin information. On the other hand, the higher the degree of detail andcompleteness of the information and warning given, the higher the degree ofsafety for the consumer, resulting in a reduction of the likelihood for theproducer to be found liable for a defective product.22Under Article 117, Paragraph 1(b) of the Consumer Code, the reasonableexpectation of safety should be evaluated mainly on the basis of the use of theproduct 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 theproduct and prevent any conduct on the part of the consumer which mightincrease the level of risk, within the bounds of reasonableness, so that theproducer will not be found liable for uses of the product that exceed thesebounds and could not be reasonably predicted.23This principle is not absolute and may vary depending on the nature of theproduct or of the consumer. The standard of reasonableness for products to beused by children will be much higher in comparison to products to be used byadults, and the same goes for products that have an inherent risk of affectinghuman health in comparison to products that do not present such a risk.Burden of Proof on Part of Injured PersonUnder Article 120 of the Consumer Code, the injured person will be required toprove the defect, the damage, and the causal relationship between the two.This provision is a significant derogation from the general principles of Italiantort law, which normally require the injured person to prove the injurer’s fault orwillfulness. The consumer’s protection is enhanced by limiting his burden ofproof to very objective and factual pieces of evidence. This implies that theconsumer will be exempt from having to prove the nature of the defect or thatsuch defect is ascribable to the producer’s fault, the burden being left to thelatter 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)
    • ITA-12 INTERNATIONAL PRODUCT LIABILITYWith regard to proof of the defect, specific reference should be made to Article117 of the Consumer Code. The extent of the evidentiary burden is variabledepending on the nature of the defect claimed and on the factual circumstancesof the claimant’s situation.24 Proof of causation will follow the ordinary rulesregarding proof of causation in tort law.Burden of Proof on Part of ProducerIn GeneralArticles 118 and 120 of the Consumer Code contain the procedural rules to beapplied to exempt a producer from claimed liability for a defective product. Heshould prove any of the circumstances described in Article 118 of the ConsumerCode, 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 ProducerWhen the defective product has been circulated against the will and intention ofthe producer (eg, when the product has been stolen from the producer andsubsequently put into circulation), it would not be fair to hold him responsible asthe 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)
    • ITALY ITA-13Article 119 of the Consumer Code construes the time when the product is putinto 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 momentthat the product is actually introduced in the market and exits from the sphere ofcontrol and disposability of the producer.Some scholars have debated whether the product should be considered put intocirculation if, once a contract for the sale of goods has been concluded, theproducts purchased have not yet been delivered and are still stored in theproducer’s warehouse. A strict interpretation of Article 119 would exclude thepossibility of considering the products put into circulation until they are actuallydelivered to the purchaser or to a carrier or forwarding agent.Nonetheless, some scholars have held that importance should be placed on theproducer’s actual intention of putting the products into circulation, which isunquestionable once the sale contract has been concluded. Thus, according tothis interpretation, the time when the product is put into circulation is the time ofexecution of the sale contract.Nevertheless, pursuant to Article 119, the time the product is put into circulationwill not necessarily correspond to the time when the product is sold. In fact, theproducer will be held liable even when the product is tendered to a carrier orforwarding agent where a sale contract with the purchaser or user may not havebeen executed yet.By considering the case of delivery to a carrier or forwarding agent, part of theacademic opinion has held that the Consumer Code has basically extended theregime of product liability to include damages caused to “bystanders”, ie, thirdparties different from the purchaser or user who nonetheless have been damagedby the defective product on a merely occasional basis.However, arguments against this theory postulate that the bystander may notbenefit from the regime of product liability as he is not the purchaser or user towhich the Consumer Code makes reference. If the defective product accidentallycauses damages, then the bystander would only have recourse to the generalremedies in tort law.The concept of the time a product is put into circulation is crucial for the regimeof product liability because the Consumer Code attributes several legal effects tothis concept, such as the following: (Release 1 – 2012)
    • 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 significantclarification when it held that “Article 11 of Directive 85/374/EEC is to beinterpreted as meaning that a product is put into circulation when it is taken outof the manufacturing process operated by the producer and enters a marketingprocess in the form in which it is offered to the public to be used orconsumed”.25Defect Not Existing at Time When Product Was Put into CirculationThe Consumer Code exempts the producer from liability every time he is able toprove that the defect is dependent on exogenous factors that occurred after theproduct was put into circulation.Such factors should not be attributable to the producer and should be able toexclude the possibility that the defect actually existed at the time of thecirculation but that it was not readily apparent at the time or that its potentialdetriment developed at a later point.It might not be easy to meet this burden of proof with absolute certainty giventhe fact that, from the time of circulation of the product until the moment inwhich the evidentiary process is carried out, a significant period of time mayhave elapsed.Thus, and to guarantee the effectiveness of this excluding factor, Article 120 ofthe Consumer Code has expressly reduced the extent of the burden of proof byrequiring the producer to prove that, under the circumstances, it is likely that thedefect 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)
    • ITALY ITA-15Product Not Manufactured for Sale or Distribution or within Ordinary Courseof BusinessThe producer also is exempt from liability where the product has not beenproduced within his course of business, ie, professionally. This exclusion relieson the fact that the whole regime of product liability is directed to mass-marketed products manufactured by professional producers, on the mainassumption of a significant contractual imbalance existing between suchprofessionals and the mass of consumers.In the absence of the professional nature of the producer, such imbalance maynot automatically occur, thus any damage caused by defective products shouldbe remedied on the grounds of the general principles of tort law or contract law.Defect Depending on Compliance with Mandatory ProvisionsThe producer also may not be held liable for defects arising from him having tocomply with mandatory provisions of law or binding regulations. However, thisexemption should not be extended so as to exclude liability if the producer isable to prove that he complied with all applicable laws and binding regulationswhile producing the product.The same should apply to compliance with minimum safety standards requiredfor certain types of products or where the producer has obtained certificationfrom public certification bodies.Impossibility to Detect Defect at Time Product Was Put into CirculationUnder Italian law, the producer may not be held liable if he could not ascertainor be aware of the product defects even by using the most advanced and updatedtechniques offered by scientific knowledge at the time when the product was putinto circulation (the so-called “development risk”), whereas Directive85/374/EC allows the possibility of considering him so liable.A different question is whether the producer should be held liable if he becomesaware of the defect or a deficiency in the product’s safety after the time ofcirculation. Although some scholars have affirmed the producer’s liability, astrict interpretation of Article 118 of the Consumer Code should lead to theopposite result.Nonetheless, the consumer may still claim the producer’s liability under thegeneral principles of tort law as the producer has become aware of the defectand has not carried out any measures to remedy such defect.Other provisions of the Consumer Code also could apply, especially those thathave been introduced with the implementation of Directive 44/1999/ECregarding certain aspects of the sale of consumer goods and associatedguarantees. (Release 1 – 2012)
    • ITA-16 INTERNATIONAL PRODUCT LIABILITYDefect Attributable to Design or Instruction of ManufacturerProducers or suppliers of components or raw materials are exempt from liabilityif the defect of the assembled product is a result of the design of the product inwhich the component or raw material has been fitted or of a failure on the part ofthe manufacturer of the product which used them to comply with the instructionsgiven.For products that contain different components or raw materials, the purpose ofthe rule is to avoid the situation where every producer or supplier is held jointlyliable towards the consumer, at least in circumstances where the liability isexclusively attributable to the design of the product or to the instructions givenby the assembler.Contributory Negligence on Part of the ConsumerArticle 122 of the Civil Code provides that Article 1227 will apply in caseswhere the consumer, through his negligent conduct, has contributed to thecausation of the damage in addition to the defective product.The producer will still be considered liable for the damages caused by hisdefective product, although the indemnification of the injured person will bereduced depending on the seriousness and the relevance of the injured person’sfault and the extent of the effects arising from his contributory conduct.The producer is not required to indemnify the injured person if the latter wasaware of the product’s defect and the danger that might have arisen from suchdefect, and nevertheless willfully undertook the risk of using the product. Theproducer also is exempt from liability in this situation.In case of damages to material assets, the conduct of the person who wasactually using the damaged asset will be considered in addition to thecontributory negligence of the injured person.26Case law has recognized the application of Article 1227 of the Civil Code wherethe producer was able to prove that the consumer’s conduct had been negligentand had contributed to the causation of damage. In evaluating the possiblenegligence of the consumer, case law has required a factual analysis to beconducted on a case-by-case basis, and a standard of evaluation to be applied toascertain the nature of the product involved and the ordinary type of consumerby whom the product is generally intended to be used.In several cases, the Supreme Court has excluded the consumer’s contribution asa result of negligent conduct whenever, with regard to the nature of the productand the type of consumer to which the product was destined to be used, theproducer was required to predict the consequences of an abnormal use of theproduct.26 Civil Code, art 122, Paragraph 3.(Release 1 – 2012)
    • ITALY ITA-17Hence, the prevailing case law has held that the contributory negligence of theconsumer can be found only when he has engaged in conduct that went beyondthe area of predictability within which the producer is obliged to create andprovide safety measures.With respect to inherently hazardous products which require a license to beused, the Supreme Court has held that the use of such products by a personlacking a license may not itself be considered contributory conduct that mayreduce the producer’s liability.On the contrary, to claim a consumer’s contributory negligence, the producershould prove not only that the consumer lacked the required license to use theproduct but also that his conduct was actually negligent. Otherwise, the producerwould be solely liable for the damages caused by his defective product.27Contributory Negligence on Part of Other Producers or ProfessionalsInvolved in Supply ChainPursuant to Article 121 of the Consumer Code, if more than one person isresponsible for the damage caused by the defective product, all of them arejointly and severally liable to the injured party.The ones who have indemnified the injured party will have recourse against theothers who have not made any such payment for the difference based onproportion to the degree of fault and to the extent of the damages caused by suchperson’s conduct as judicially ascertained.Where it is impossible to prove the respective degrees of fault and the extent ofthe contribution to the damage incurred by the injured party, each person whocaused the damage will be held equally liable.These provisions are aimed at avoiding the situation where a consumer has toprove 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 damagehave been found, the consumer may request the whole indemnification from anyof the persons found liable, and such persons have the burden of obtainingcompensation from the others for the portion of indemnification paid in excessof his proportional liability.28The principle of joint and several liability is clearly aimed at protectingconsumers, especially when the product is composed of many parts produced byseveral manufacturers. The principle should be coordinated with the exclusionset 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)
    • ITA-18 INTERNATIONAL PRODUCT LIABILITYAnother derogation to the general principle of joint and several liability isprovided for by Article 116, Paragraph 1, which limits the liability of thedistributor only where he has failed to communicate to the injured person theidentity of the producer within three months after the injured person hasspecifically requested such information.DamagesUnder Article 123 of the Consumer Code, the following types of damage will besubject 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 personaldamages and material damages, thus excluding punitive damages. It has thus notderogated from the general principle of tort law which limits recourse fordamages to those only actually incurred by the injured party.The general principles applicable under tort as to the liquidation of personaldamages and material damages will apply to actions brought on grounds ofspecific 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 person29 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)
    • ITALY ITA-19may be awarded “existential” damages as well as moral damages33 despite thefact that the damages have not been caused by criminal conduct.34Under Article 123, it is not possible to claim compensation for the loss of thedefective product itself and for damages whose value does not exceed EUR387.35Statute of Limitation and Forfeiture TermIn accordance with Directive 85/374/ECC, Article 125 of the Consumer Codeprovides for a limitation period of three years to commence proceedings for therecovery of damages for defective products.The limitation period will begin to run from the day on which the plaintiffbecame aware, or ought to have become aware, of the damage, of the defect, andof the identity of the producer.Where the damage has subsequently become more serious, the limitation periodwill begin to run from the day on which the injured person became aware, orought to have become aware, of damage whose seriousness justified thecommencement 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)
    • ITA-20 INTERNATIONAL PRODUCT LIABILITYUnder Article 126 of the Consumer Code, the rights conferred on the injuredperson under the Consumer Code will be extinguished upon the expiry of aperiod of 10 years from the date on which the producer or importer into theEuropean Union put into circulation the actual product which caused thedamage, unless the injured person has instituted proceedings against theproducer within that timeframe.Where an action is taken by the injured person that results in the interruption ofthe 10-year period against any of the persons liable for damages, suchinterruption may not be invoked against any person other than those againstwhom the action is taken, even if they are jointly liable pursuant to theprovisions of the Consumer Code.This does not impair the possibility for the injured person to benefit from thegeneral remedies available in contract law or tort law if they are moreconvenient.However, the contractual remedy may not be beneficial as the Civil Code setsforth 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 ageneral time limit of five years is set under Article 2947 of the Civil Code. Inthis respect, the absence of a forfeiture term may allow the injured person tobring an action in tort law despite the lapse of the three-year period set forth bythe Consumer Code, provided that the 5-year term is complied with.Mandatory Regime of LiabilityUnder Article 124 of the Consumer Code, any agreement or contractual clausethat excludes or limits in advance liability for the defective product as set forthby the Consumer Code is null and void. This confirms the mandatory regime ofthe liability for defective products under the Consumer Code, which may not besubject to contractual derogation among the parties.36A related legal issue to be considered is whether, where a similar clause isagreed to by the parties, the nullity of the clause will void the entire contract orwhether the contractual clause alone will be considered void.In the latter case, the clause considered void would be automatically replacedwith 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)
    • ITALY ITA-21In consideration of the specific purpose of the Consumer Code (which is toprotect the interests of consumers against producers) and the application of thegeneral principles of contract law,37 the second theory seems to be the properand 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)
    • MalaysiaBasis of Manufacturers’ Liability ........................................................ MAY-1 Negligence ............................................................................. MAY-1 Fraud and Misrepresentation ................................................. MAY-1 Warranty ................................................................................ MAY-1 Strict Liability ........................................................................ MAY-4 Concept of Defect .................................................................. MAY-5Obligations to Warn or Recall Defective Products .............................. MAY-8 Obligation to Warn ................................................................ MAY-8 Obligation to Recall ............................................................... MAY-8Defenses 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-10Limitation of Liability by Proximate Cause ......................................... MAY-11 Consumer Protection Act ....................................................... MAY-11 Tort ........................................................................................ MAY-11 Contract ................................................................................. MAY-12Impact of Product Liability Considerations ......................................... MAY-12 Retailers ................................................................................. MAY-12 Wholesalers, Distributors, Franchisors, Franchisees, Licensors, and Licensees ....................................................... MAY-13 Makers of Component Parts .................................................. MAY-13Remedies .............................................................................................. 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-17Limitations on Remedies by Contract .................................................. MAY-17 Consumer Protection Act ....................................................... MAY-17 Tort ........................................................................................ MAY-17 Contract ................................................................................. MAY-17Claims Affected by Statute of Limitation ............................................ MAY-17Extension of Liability for Defective Products to CorporateSuccessors ............................................................................................ MAY-18 (Release 1 – 2012)
    • Role of Insurance in Product Liability Matters .................................... MAY-18Role 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)
    • Malaysia Dhinesh Bhaskaran Shearn Delamore & Co. Kuala Lumpur, MalaysiaBasis of Manufacturers’ LiabilityNegligenceThe buyer will usually sue the manufacturer for negligence in case of defectiveproducts. This is in view of the fact that the manufacturer owes a duty to thebuyer to take reasonable care in manufacturing and designing the product or anycomponents used in its assembly.The buyer can establish liability on the part of the manufacturer if he can provethat the manufacturer has breached this duty, and that the damage or injurysuffered by the buyer in consequence of the breach was reasonably foreseeable.Fraud and MisrepresentationThe 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 hasperpetrated a fraud upon or has misrepresented the position to the buyer. In anaction for fraud, the buyer has the burden of proving fraud on a higher standardof beyond reasonable doubt.1WarrantyExpress WarrantyThe buyer of a defective product may sue the seller for breach of an expresswarranty as to the safety of the product in the contract of sale, and recover anyloss or damage suffered upon establishing that the seller has breached thecontract.However, the immediate seller of the product will usually not be themanufacturer. Since the doctrine of privity of contract dictates that a suit canonly be brought against the actual party to the contract,2 manufacturers areseldom sued in contract as there is usually no contractual nexus between the1 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)
    • MAY-2 INTERNATIONAL PRODUCT LIABILITYmanufacturer and the buyer. Still, the manufacturer may independently incurcontractual liability to the buyer, such as through a separate warranty document.Implied Warranty or MerchantabilitySale 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 ingoods 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 impliedcondition as regards defects which such examination ought to have revealed.3Still, the terms implied by the SOGA can be and are often expressly excluded bythe terms of the contract of sale.4Consumer Protection Act. A buyer also may avail himself of the provisions ofthe Consumer Protection Act 1999 (CPA). The CPA is designed to protect“consumers”, who are persons who acquire or use goods of a kind ordinarilyacquired for personal, domestic, or household purposes, use, or consumption,and do not acquire or use the goods primarily for purposes of trade.5Thus, the “goods” covered by the CPA are limited to those that are primarilypurchased, 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.6Under Section 32(1) of the CPA, there is an implied guarantee that goodssupplied to a consumer are of acceptable quality. Goods will be deemed to be ofacceptable quality if they are fit for all the purposes for which goods of the typein question are commonly supplied, acceptable in appearance and finish, freefrom minor defects, and safe and durable.7Section 32(2)(b) of the CPA also requires that a reasonable consumer fullyacquainted with the state and condition of the goods, including any hiddendefects, would regard the goods as acceptable, having regard to the nature of thegoods, the price, any statements made about the goods on any packaging or labelon them, any representation made about the goods by the supplier or themanufacturer, and all other relevant circumstances of their supply.Where any defects in the goods (ie, any failure to comply with the impliedguarantee as to acceptable quality) have been specifically drawn to theconsumer’s attention before he agrees to the supply, the goods will not be3 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)
    • MALAYSIA MAY-3deemed to have failed to comply with the implied guarantee as to acceptablequality by reason only of those defects.8Where goods are displayed for sale or hire, the defects that are to be treated ashaving been specifically drawn to the consumers attention will be thosedisclosed on a written notice displayed with the goods.9Goods will not be deemed to have failed to comply with the implied guaranteeas to acceptable quality if they have been used in a manner or to an extentinconsistent with that which a reasonable consumer would expect to obtain fromthem, and the goods would have complied with the implied guarantee as toacceptable quality if they had not been used in that manner or to that extent.10Apart 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 abusiness of assembling, producing, or processing goods, and includes anyperson who holds himself out to the public as a manufacturer of the goods, anyperson who affixes his brand or mark or causes or permits his brand or mark tobe affixed to the goods and, where the goods are manufactured outside Malaysiaand the foreign manufacturer of the goods does not have an ordinary place ofbusiness in Malaysia, a person who imports or distributes those goods.12Under Section 3(1) of the CPA, a “supplier” is broadly defined as including aperson who, in trade, supplies goods to a consumer by transferring theownership 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 PurposeSale of Goods Act. Where the buyer expressly or impliedly makes known to theseller the particular purpose for which the goods are required, so as to show thatthe buyer relies on the seller’s skill or judgment, and the goods are of adescription which is in the course of the seller’s business to supply (whether heis the manufacturer or producer or not), there is an implied condition that thegoods will be reasonably fit for such purpose.13However, in the case of a contract for the sale of a specified article under itspatent or other trade name, there is no implied condition as to its fitness for anyparticular purpose.148 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)
    • MAY-4 INTERNATIONAL PRODUCT LIABILITYConsumer Protection Act. According to Section 33(1) of the CPA, thefollowing 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 arecommonly supplied.15 However, the implied guarantees will not apply where thecircumstances show that the consumer does not rely on the supplier’s skill orjudgment, or it is unreasonable for the consumer to do so.16Impact on Third PartyWhere someone other than the buyer has been affected by a defective product,he will not normally have a contractual relationship with the manufacturer, andwill not have remedies against the manufacturer under the contract of sale orunder the SOGA for breach of any warranty.However, if he falls within the definition of a “consumer” as a user of theproduct, he may seek recourse under the CPA, which dispenses with therequirement of privity of contract.Alternatively, he may sue the manufacturer for negligence, provided that he canestablish that the manufacturer stood in a sufficiently proximate relationshipwith him so as to give rise to a duty of care.Strict LiabilityManufacturers are subject to strict liability for defective products under theCPA. While the consumer claiming under the CPA does not have to establishfault, he still has to prove that the product was in fact defective, and that thedefect 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 whoface increased potential liability under the CPA.A consumer can choose to bring his claim before the civil courts or the Tribunalfor Consumer Claims. Most claims of significance will be brought in the civilcourts, given that the Tribunal’s jurisdiction to award compensation is limited toMYR 25,000 unless the parties agree otherwise.1715 CPA, s 33(3).16 CPA, s 33(2).17 CPA, s 98.(Release 1 – 2012)
    • MALAYSIA MAY-5Concept of DefectConsumer Protection Act. Part X (particularly Section 66(1)) of the CPAbroadly defines a “product” as any goods covered by the CPA, including aproduct which is comprised in another product, whether by virtue of being acomponent part, raw material, or otherwise.Under Section 67(1) of the CPA, there is a “defect” in the product if its safety isnot such as a person is generally entitled to expect. The “safety” of a productwill include safety with respect to products comprised therein, safety in thecontext of risk of damage to property, and safety in the context of risk of deathor personal injury.18In determining what a person is generally entitled to expect in relation to aproduct, all relevant circumstances should be taken into account, including themanner in and purposes for which the product has been marketed, the get-up ofthe product, the use of any mark in relation to the product, instructions for orwarnings with respect to doing or refraining from doing anything with or inrelation to the product, what may reasonably be expected to be done with or inrelation to the product, and the time when the product was supplied by itsproducer to another person.19Under Section 67(3) of the CPA, a defect will not be inferred from the mere factthat the safety of a product which is subsequently supplied is greater than thesafety of the product in question.Tort. There is no defined concept of a “defect” in common law. However, acourt will generally consider the factors that have already been discussed indeciding whether the product was defective.Defective ManufactureConsumer Protection Act. As liability under the CPA is strict, a manufacturerwill be liable for a defect in a product caused by defective manufacture if theconsumer can prove that he has suffered injury or loss as a result of the defect. Itdoes not matter whether the defect was caused by a mistake in themanufacturing process or other reasons.Where the defect wholly or partly causes death, personal injury, or loss of ordamage to property,20 the following persons are automatically liable for thesame, 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 person18 CPA, s 67(4).19 CPA, s 67(2).20 CPA, s 66(1). (Release 1 – 2012)
    • 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 mayrequest the supplier to identify any or all of them within a reasonable periodafter the damage occurs, whether or not he is or they are still in existence.21 Ifthe supplier fails to comply with the request within a reasonable time, havingregard to all the circumstances, he will be held liable for the loss or damage.22It is immaterial whether the supplier supplied the defective product to the personwho suffered the damage, the producer of a product in which the defectiveproduct is comprised therein, or any other person.23 The liability of a personunder Part X cannot be contractually limited or excluded.24Section 19(4) of the CPA also provides that the supplier should adopt andobserve a reasonable standard of safety to be expected by a reasonableconsumer, with due regard to the nature of the product, while Section 20prohibits any person from importing, supplying, or offering to or advertising forsupply goods which do not meet such a standard of safety.Under Section 21 of the CPA, no person should supply, or offer to or advertisefor supply, a product which is not reasonably safe, having regard to all thecircumstances, including the manner in and the purposes for which the productis being or will be marketed, the get-up of the product, the use of any mark inrelation to the product, and instructions or warnings in respect of its keeping,use, or consumption. However, all these obligations do not apply to health caregoods and food.25Any person violating these provisions will be liable to fines and/orimprisonment upon conviction.26 In the case of a body corporate, any personwho 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 to21 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)
    • MALAYSIA MAY-7act 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 hadexercised due diligence to prevent its commission.27Section 29 of the CPA empowers the courts to grant various reliefs, includingdeclaratory relief and damages, against a person violating these provisions. Theend result of the provisions of the CPA is to potentially hold all parties in thedistribution chain of a product liable for its defects.Tort. In principle, there is no restriction on the liability of the parties in thechain of distribution for the tort of negligence. In practice, it is often themanufacturer who is found to be at fault, being the creator of the defect, and theother parties in the chain of distribution may not necessarily have the means ofor responsibility for discovering the defect.Contract. Ordinarily, a buyer is more likely to have purchased the defectiveproduct directly from a retailer rather than a manufacturer. The contract is thusbetween the buyer and the retailer.As such contract is one for the sale of goods, there are implied terms ofmerchantability and fitness for purpose under the SOGA, and it is likely that adefect in the product as a result of defective manufacture is a breach of theseimplied terms.Defective MarketingConsumer Protection Act. Section 67(2)(a) of the CPA provides that, inconsidering whether a product is “defective”, the manner in and the purposes forwhich the product has been marketed are relevant. The existence of instructionsfor or warnings with respect to doing or refraining from doing anything with orin relation to the product also is a relevant factor.28 Thus, it is entirely possiblethat defective marketing may give rise to liability.Tort. The absence of adequate warning on risks of harm and the absence ofadequate instructions may give rise to liability for negligence in certaincircumstances. If risk of harm is foreseeable, then the manufacturer may berequired to give adequate warning and instructions to the buyer.Conversely, if the risk of harm is not foreseeable or is so obvious to theconsumer, 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)
    • MAY-8 INTERNATIONAL PRODUCT LIABILITYDefective DesignA design defect is inevitably the manufacturer’s responsibility, and would attractliability.Obligations to Warn or Recall Defective ProductsObligation to WarnDepending on the circumstances, there could be an obligation on themanufacturer to warn the buyer of risks. For example, if a product exposes abuyer to a high degree of danger, a failure to warn him of such danger may benegligent. However, if the danger is obvious to the buyer, then a failure to warnhim may not be negligent.Naturally, a prudent manufacturer should warn the buyer of the dangers of hisproduct whenever possible. The content of the warning will vary with theproduct and circumstances, and the information furnished may be basic ordetailed, depending on the person to whom the warning is directed. In certaincircumstances, warnings to a professional intermediary instead of the buyer maysuffice (eg, if the product is complex and the buyer is unlikely to be adequatelyqualified to understand the warning).However, the mere fact that the product can only be obtained through anintermediary who also has an obligation to assess the suitability of the productfor the buyer does not absolve the manufacturer of the need to warn theintermediary and/or the buyer of the dangers of the product. Nevertheless, it maybe argued that, in the circumstances of the case, the information furnished by themanufacturer to the intermediary constitutes an adequate warning of the dangersof the product.Even if the manufacturer has failed to adequately warn the buyer or intermediaryof the dangers of the product and/or disclose information pertaining to suchdangers, the buyer still has to prove that the absence of the warning and/orinformation did in fact cause his injury. These issues do not generally arise incontractual claims.Obligation to RecallConsumer Protection ActSection 23(1) of the CPA allows the Minister to declare any goods or class ofgoods to be prohibited, by order published in the Government Gazette, where thegoods or goods of that class have caused or are likely to cause injury to anyperson or property or are otherwise unsafe. Such an order may require thesupplier, in the manner and within the period specified in the order, and at thesupplier’s own expense, to:• Recall the prohibited goods;(Release 1 – 2012)
    • 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.29Failure by the supplier to comply with the order may subject him to fines and/orimprisonment.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.31TortThe failure to recall a defective product once the defect is discovered may initself amount to negligence, particularly if the risk is serious. In addition, such afailure could lead to a claim for aggravated or exemplary damages in certaincircumstances.ContractThe failure to recall a defective product once the defect is discovered willgenerally be of no consequence in a contractual claim.Defenses Available to ManufacturerContributing or Comparative FaultWhere a person suffers damage partly through his own fault and partly throughthe fault of any other person, a negligence claim in respect of that damage willnot 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)
    • MAY-10 INTERNATIONAL PRODUCT LIABILITYHowever, the damages recoverable as a result of the injury will be reduced tosuch extent as the courts think just and equitable, having regard to the claimant’sshare in the responsibility for the damage.32Section 70(3) of the CPA preserves the application of contributory negligence toliability arising under Part X. These issues do not generally arise in contract.Assumption of RiskIn tort, if the buyer voluntarily places himself in a position of risk and harm, themanufacturer may successfully plead the defense of volenti non fit injuria byestablishing that the buyer freely and voluntarily, with full knowledge of thenature and extent of the risk, agreed either expressly or impliedly to take suchrisk.33Product MisuseUnder Section 67(2) of the CPA, a relevant factor to be considered indetermining whether there is a defect in a product is what may reasonably beexpected to be done with or in relation to the product. Thus, product misuse mayassist in absolving the manufacturer of liability.In tort, a buyer who has suffered loss or injury as a result of product misuse mayhave his damages limited by reason of contributory negligence. This issue doesnot generally arise in contract.State-of-the-Art DefenseConsumer Protection ActIn civil proceedings under Part X (which deals with product liability), themanufacturer may avail himself of the state-of-the-art defense by showing thatthe state of scientific and technical knowledge at the relevant time was not suchthat a producer of products of the same description as the product in questionmay reasonably have been expected to discover the defect if it had existed in hisproduct while it was under his control.34 The manufacturer also may avail ofother 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 wholly32 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)
    • 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.35In the case of a failure to comply with safety standards under Part III, themanufacturer may show that the alleged failure is attributable to compliancewith a requirement imposed under any written law, or that the alleged failure is afailure to do more than is required by Sections 20 and 21 of the CPA.36TortAlthough the defense is not directly available in tort, the fact that the defect wasnot discoverable in light of the state of scientific and technical knowledge at thetime may be strong evidence to show that the manufacturer was not negligent.Once again, it is for the manufacturer to prove this fact.ContractThe defense is inapplicable.Limitation of Liability by Proximate CauseConsumer Protection ActThe manufacturer of a defective product is liable for any damage caused whollyor partly by a defect in the product. The buyer bears the burden of proving thatthe product is defective and that he has suffered injury, loss, or damage as aconsequence of the defect. Once this burden is discharged, the manufacturer willbe 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 thatthe causation principles applicable to negligence claims will be applicable.TortThe onus is on the buyer to prove the defect, fault, and damage. The buyershould not merely show that the manufacturer exposed him to an increased riskof a known injury, but also that such exposure did not cause or materiallycontribute to the injury.The normal test to prove causation is the “but for” test, where the buyer willhave to prove that the injury would not have occurred but for the manufacturer’snegligence. 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)
    • MAY-12 INTERNATIONAL PRODUCT LIABILITYWhat is a material contribution is a question of degree for the court to decideupon. However, trifling contributions or contributions which come within theexception of de minimis non curat lex are not material. 37In exceptional circumstances, the buyer may rely on the doctrine of res ipsaloquitur (“the thing speaks for itself”), in which event the onus of disprovingnegligence will fall on the defendant.However, this doctrine can only be relied upon where an event which, in theordinary course of things, was more likely to have been caused by negligence isby itself evidence of negligence, and depends on the absence of explanation forthe event.38ContractThe onus is on the buyer to prove the breach of the contract and the damagesuffered. In contractual claims, the buyer will be entitled to compensation forany loss or damage which naturally arose as a consequence of the breach, or waswithin the contemplation of the parties when they made the contract.39Impact of Product Liability ConsiderationsRetailersConsumer Protection ActUnder the CPA, a retailer who has imported a defective product into Malaysiafor the purpose of supply may be held liable.The retailer may be deemed to be a “manufacturer” of the product if he holdshimself out to the public as such, affixes his brand or mark, or causes or permitshis brand or mark to be affixed, to the product, and, where the product ismanufactured outside Malaysia and the foreign manufacturer of the product doesnot have an ordinary place of business in Malaysia, the retailer imports ordistributes the product.40Under Part X of the CPA, the retailer may be liable if, by putting his name onthe product or using a trade mark or other distinguishing mark in relation to theproduct, he has held himself out to be the producer of the product,41 or he hasimported the product into Malaysia in the course of his business to supply it toanother person.4237 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)
    • MALAYSIA MAY-13A retailer also may be considered a “supplier” by being a person who suppliesgoods to a consumer by transferring the ownership or possession of the goodsunder a contract of sale, exchange, lease, hire, or hire-purchase to which thatperson is a party.43A retailer may be liable to a consumer for product liability claims by virtue ofstatutory implied terms for sale of goods contracts under the SOGA if theconsumer has purchased the defective product directly from the retailer.TortThe buyer may sue the retailer for negligence, provided that he can establish thatthe retailer stood in a sufficiently proximate relationship with him, so as to giverise to a duty of care.ContractThe buyer may sue the retailer in contract, provided that he bought the productfrom the retailer.Wholesalers, Distributors, Franchisors, Franchisees, Licensors,and LicenseesThe same principles applicable to retailers apply to wholesalers, distributors,franchisors, franchisees, licensors, and licensees.Makers of Component PartsAs 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, itfollows that the maker of a component part may attract liability under Part X ifthe defect in the product complained of was in respect of the component part.However, a person who supplies any product in which other products arecomprised therein, will not be treated as supplying any of the products socomprised therein by reason only of his supply of that product.45The maker of a component part also will not be liable if he can show that thedefect is a defect in the subsequent product, and is wholly attributable to thedesign of the subsequent product or compliance by the maker of the componentpart with instructions given by the producer of the subsequent product.4643 CPA, s 3(1).44 CPA, s 66(1).45 CPA, s 66(2).46 CPA, s 72(1). (Release 1 – 2012)
    • MAY-14 INTERNATIONAL PRODUCT LIABILITYRemediesFor Personal Injury and DeathConsumer Protection ActUnder Section 66(1) of the CPA, “damage” is defined as death or personalinjury, or any loss of or damage to property (including land). The consumercannot 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 thecourts to award the consumer inter alia the refund of the money paid and theamount of loss or damage incurred.TortDamages in negligence are intended to place the injured party in the position asif the negligent act had not occurred. Damages can accordingly be awarded fordeath, personal injury, mental damage, and property damage, provided that thedamage is shown to be reasonably foreseeable and not too remote.In respect of death, the courts will assess damages in accordance with theprovisions of the Civil Law Act 1956 (CLA). Such damages would primarilyconsist of the loss of support suffered by the dependents, a relative factor beingthe 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 theannual multiplicand multiplied by the statutory multiplier.47In respect of damages for personal injury, the responsible party would be liablefor the injury caused, the medical expenses, and loss of future earnings, forwhich particular considerations will be taken into account48 and the statutorymultiplier will be used.49Damages for pain and suffering and actual losses also would be granted in apersonal injury claim.47 CLA, s 7(3)(iv)(d).48 CLA, s 28A(2)(c).49 CLA, s 28A(2)(d).(Release 1 – 2012)
    • MALAYSIA MAY-15ContractDamages in contract are intended to put the parties in the position as if thecontract had been performed. The buyer will be entitled to compensation forany loss or damage caused to him by the manufacturer’s breach which naturallyarose 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 thecontract, although compensation will not be awarded for any remote and indirectloss or damage sustained due to the breach.50As such, compensation for damage to the product itself, for bodily injury,mental damage, and property damage, can be recovered as long as such damageor injury naturally arose as a consequence of the breach or was within thecontemplation 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, damagesshould still be proven, and ultimately the court will have to decide the sumpayable.52It is only in very rare circumstances that damages would be allowed for death orpersonal injury pursuant to a breach of contract.Punitive DamagesConsumer Protection ActThe CPA does not expressly prevent the courts from awarding exemplary (orpunitive) damages to punish the manufacturer. Thus, exemplary damages maybe awarded in proceedings brought under the CPA if the manufacturer’s conductwas calculated by him to make a profit for himself which may exceed thecompensation payable to the buyer.53TortExemplary damages may be awarded in tort.54 However, if the cause of action isbrought by the estate of a deceased, damages recoverable will not includeexemplary damages.55Aggravated damages also are claimable in tort to compensate the buyer forinjuries affecting his feelings arising out of the wrongful acts of the50 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)
    • MAY-16 INTERNATIONAL PRODUCT LIABILITYmanufacturer.56 Aggravated damages are awarded as a form of highercompensation to show disapproval for the acts of a manufacturer which werecarried out in such a manner that the buyer has suffered more than wouldnormally be expected in such a case.57ContractExemplary damages are generally not awarded in contract,58 but aggravateddamages may be awarded. 59For Emotional DistressConsumer Protection ActThe CPA does not expressly prevent the courts from awarding damages foremotional distress. As such, damages for emotional distress may be awarded inproceedings brought under the CPA.TortIn order to recover damages for emotional distress, the buyer should establishthat he has suffered from some serious mental disturbance outside the range ofnormal human experience, and not merely the ordinary emotions of anxiety,grief, or fear.60ContractEmotional distress is generally not a claimable loss for breach of contract assuch loss is non-pecuniary, except where the contract is for comfort, peace ofmind, or freedom from distress.61Economic LossThe definition of “damage” under the CPA excludes recovery for damage to theproduct itself.62 Damages may be recovered in negligence for pure economicloss, ie, financial loss that is not consequent upon injury to person or damage toproperty.63 In the case of contracts, damages are recoverable for pure economicloss.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)
    • MALAYSIA MAY-17Return or RepairSection 23(2)(e) of the CPA allows the Minister (by order published in theGovernment Gazette) to require the supplier to repair or replace goods deemedunsafe.Limitations on Remedies by ContractConsumer Protection ActUnder Section 6 of the CPA, the provisions of the CPA will have effectregardless of anything to the contrary in any agreement, and every manufacturerand supplier who purports to contract out of any provision of the CPA commitsan offense.Section 71 of the CPA also precludes the limitation or exclusion of liability fordamages under Part X by any contract term, notice, or other provision.TortWhere there also is a contractual nexus between the buyer and the manufacturer,the manufacturer may exclude his liability for negligence, provided that clearwords are used to this effect.ContractThe 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 ofthe contract.64Claims Affected by Statute of LimitationActions under tort and contract cannot be brought after the expiration of sixyears from the date on which the cause of action accrued.65In cases of disability (ie, while a person is an infant or of unsound mind), thelimitation period may be extended to six years from the date when such personceased to be under the disability or died (whichever event first occurred),notwithstanding that the period of limitation has expired.66In cases of fraud or concealment of a right of action by fraud, the period oflimitation will not begin to run until the buyer has discovered the fraud or couldhave discovered it with reasonable diligence.67 There is no time bar againstclaims 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)
    • MAY-18 INTERNATIONAL PRODUCT LIABILITYExtension of Liability for Defective Products to CorporateSuccessorsA company has a distinct and independent legal personality.68 Thus, a successorcompany also has an independent and distinct legal personality, and does notshare the same rights and liabilities with its predecessor.69However, the court may pierce the veil of incorporation to attribute the liabilityof 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 existingobligations.Role of Insurance in Product Liability MattersManufacturers in Malaysia generally insure against product liability risks, whilemanufacturers who are multinationals are often insured by a global policy.Whether or not coverage is provided by a specific product liability policy or aspart 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 allmaterial facts within his knowledge, irrespective of whether the insurer asks himany questions.70 Therefore, the manufacturer should disclose any known defectsor risks in the product to the insurer, or else the insurer may avoid the policy.Role of Courts and Lawyers in Product Liability LitigationFrequency of LitigationLitigation is not frequent, as buyers often prefer to pursue their claims in theTribunal for Consumer Claims established under Part XII of the CPA, which is acheaper alternative compared to suing in the civil courts.The Tribunal has jurisdiction over claims in respect of all goods and serviceswhere the award sought is not more than MYR 25,000.71 For claims exceedingthis sum, a suit will normally be filed in the civil courts for negligence and/orbreach 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)
    • MALAYSIA MAY-19Attitude of Courts toward Product Liability ClaimsThere is no specific trend that can be detected from product liability cases in thecourts. The success or failure of a suit will essentially depend on the facts ofeach case.Extent of Damage AwardsThe quantum of awards for general damages is within the domain of judicialdiscretion. The Bar Council has recently introduced a Compendium of PersonalInjury Awards which contains comprehensive tables of contemporary trend ofawards in Malaysian courts based on the types of injuries, and the typical rangeof awards for each type of injury.72 However, the Compendium is only intendedto be a guideline, and ultimately the quantum lies in the court’s discretion.Nature of Lawyers’ CompensationFor litigation, there are no scale or standard fees for lawyers in Malaysia.Conditional or contingency fees are prohibited.73Choice and Application of LawUnder the CPA, any choice of law clause in the contract of sale which appliesthe law of another country will be ousted if the clause appears to have beenimposed wholly or mainly for enabling the party imposing it to evade theoperation of the CPA.74 In all other cases, choice of law clauses will generallybe 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)
    • MexicoIntroduction ............................................................................................ MEX-1General Aspects of Liability in Mexico ................................................. MEX-3 In General ................................................................................ MEX-3 Contractual Liability ................................................................ MEX-3 Non-Contractual Liability ........................................................ MEX-3 Legal Framework ..................................................................... MEX-4Theories 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-10Concept of Defect .................................................................................. MEX-11Obligation to Recall Defective Products ................................................ MEX-11Obligation to Warn Consumers about Defective Products..................... MEX-11Defenses 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-13Proximate Cause .................................................................................... MEX-14Liability of Others in the Supply Chain ................................................. MEX-14Remedies ................................................................................................ 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-16Contractual Disclaimers or Limitations ................................................. MEX-17Statute of Limitations ............................................................................. MEX-17Corporate Successor Liability ................................................................ MEX-18Product Liability Insurance .................................................................... MEX-18 In General ................................................................................ MEX-18 (Release 1 – 2012)
    • Obligations of the Insurer ........................................................ MEX-18 Obligations of the Insured........................................................ MEX-18Product 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-22Conclusion ............................................................................................. MEX-23(Release 1 – 2012)
    • 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, MexicoIntroductionProduct liability has become a relevant and sophisticated topic formanufacturers, suppliers, retailers, distributors, and other members of theproduct supply chain due to its development from the mid-twentieth century tothe present, including but not limited to the importance of the contingencyrepresented by consumers claiming remedies or indemnity.Product liability emerged as a need to protect consumers given the abuse bysuppliers and the notion of unfairness and inequity of consumer-supplierrelationships, as the consumer is mostly regarded as the vulnerable party in suchrelationships.Moreover, as a consequence of product liability, manufacturers and members ofthe supply chain are required to take greater care in the design, manufacture, andmarketing of products, thereby diminishing the number of defective products inthe market and the risk of causing damage to consumers.In Mexico, the legal framework of product liability has been developing at aslow pace and has not been thoroughly regulated, primarily because of the fewcase precedents in this area.As all jurisdictions may have different concepts of product liability, it isimportant to first examine the concept of a ‘product’ and of ‘liability’ so as tounderstand the scope of a product, its implications, and liability that may derivefrom products.In simple terms, a product may be understood as a ‘produced thing’;1 a productis ‘the material or intangible result of human activity destined for massconsumption’.2 Liability can be understood as a ‘debt, an obligation to repair or1 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)
    • MEX-2 INTERNATIONAL PRODUCT LIABILITYfulfill, 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.’4Considering the meanings of both ‘product’ and ‘liability’, respectively, anotable reference is the definition of product liability proposed by adistinguished scholar: ‘the power that the consumer of a defective product has toclaim from the manufacturer as well as from the distributor the payment ofdamages and lost profits that such defect caused’.5In general terms, this definition of product liability sets the scope of productliability in Mexico, where liability is mostly limited to defective products, asopposed to other countries, where product liability may cover product-derivedinjuries caused to people, regardless of whether the product is defective or not.In order to analyze the legal implications of product liability under the Mexicanlegal framework, it is important to know about the principal legal statutesgoverning the product liability regime. Product liability pertains to the branch ofcivil liability and consumer protection law.In Mexico, product liability is regulated by the Federal Consumer ProtectionLaw (Ley Federal de Protección al Consumidor, FCPL), the Federal Law ofMetrology and Standardization (Ley Federal sobre Metrología y Normalización,FMSL), the Federal Civil Code (Código Civil Federal, FCC), and by the civilcodes of individual states.The FCPL has undergone several amendments in the last decade, those officiallypublished on 4 February 2004 being the most relevant to product liability, asthey introduced the concept of product liability in a clearer manner. Theseamendments directly favor the protection of consumers in product liabilitycases.Prior to the amendments to the FCPL, the actions arising from a defectiveproduct were solely based on the general principles contemplated by the FCCand other applicable state civil codes. The general principle under the state civilcodes applicable to product liability is that anyone who acts against the law orgood principles and as a result causes injuries or damage to another is bound toindemnify the victim, unless it is proved that the harmful result was due to thevictim’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)
    • MEXICO MEX-3General Aspects of Liability in MexicoIn GeneralAs mentioned in the Introduction, liability necessarily involves an obligation;nevertheless, the concept of civil liability is defined as a person’s obligation torepair the damage and compensate lost profits caused to another person due to aconduct performed against the law or against good practices.6Accordingly, civil liability may arise from two sources: contractual, if it derivesfrom the breach of an agreement, or non-contractual, if it derives from thebreach of a general observance rule (referred to as tort liability in otherjurisdictions).Civil liability is classified into strict liability (responsabilidad objetiva) andfault-based liability (responsabilidad subjetiva). Strict liability is imposedregardless of whether the responsible party acted with or without fault. Fault-based liability is based on the relevant person’s fault.Contractual LiabilityContractual liability is understood as the liability arising from the transgressionof a particular provision or an individual observance rule in an agreement oranother legal act of private law.7In other words, liability arising from the breach of an obligation that iscontemplated in an agreement implies that the parties to the agreement arebound to repair the damage and/or compensate lost profits caused in the event ofa breach of any of their obligations, based on the contractual liability originatingfrom the terms of the agreement.Within the product liability context, contractual liability is relevant in thepurchase of products where a consumer agrees to pay a certain price for a goodor product offered by a supplier, based on the characteristics of the productoffering.Non-Contractual LiabilityNon-contractual liability will exist when a person breaches a law and causesdamage, in which case that person is liable on a non-contractual basis, and isbound 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.86 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)
    • MEX-4 INTERNATIONAL PRODUCT LIABILITYLegal FrameworkIn GeneralDespite the fact that product liability may derive from both contractual and non-contractual liability in Mexico, the involved parties are empowered to initiatelegal actions for indemnification; therefore, before entering into the analysis ofproduct liability theories, a general overview as regards the scope of theapplicable legal statutes is important.Federal Consumer Protection LawThe FCPL in force was published in the Federal Official Gazette on 24December 1992 and has been amended since then. Its purpose is to promote andprotect the rights and culture of consumers, and to seek fairness, assurance, andlegal certainty in relations between suppliers and consumers. The FCPL lawbasically 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 wellas ‘the individual or legal entity that acquires, stores, uses, or consumes goods orservices 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 processesof production or to render services to third parties may exercise this action onlyfor the purposes of the right to file certain complaints pursuant to the referredlegal statute with the Federal Consumer Protection Agency (ProcuraduríaFederal del Consumidor, commonly known as PROFECO). PROFECO is thegovernmental agency, a dependant of the Ministry of Economy, in charge of thesurveillance of compliance with the provisions of the FCPL.On the other hand, a ‘supplier’ is defined as an ‘individual or legal entity thatcustomarily or periodically offers, distributes, sells, leases, or grants the use oravailability of goods, products, and services’.10 The FCLP governs certainprinciples11 that prevail in all consumer-supplier relationships. For the purposesof this analysis, the most important principles are useful for interpreting relatedproduct liability provisions throughout that statute.One such principle is the protection of the life, health, and safety of consumersagainst risks caused by products, practices related to the supply of products, andservices considered as hazardous or toxic. Another key principle is to provideclear and adequate information on the different products and services, withaccurate 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)
    • MEXICO MEX-5The effective prevention and redress of property damage and non-monetarydamage, 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 fromconsumer relationships and to provide measures for guaranteeing theireffectiveness and enforcement. The FCPL sets forth certain provisionsconcerning product liability, granting consumers the right to file actions againstsuppliers and/or other members of the supply chain, after which the liable partyis obligated to carry out a restitution action in favor of the affected consumer.Federal Law of Metrology and StandardizationThe FMSL was published in the Federal Official Gazette on 1 July 1992, withseveral amendments published since then. The FMSL sets forth the guidelinesfor the creation and enforcement of standards, including the Mexican OfficialStandards (Norma Oficial Mexicana, NOMs).NOMs that are obligatory impose the minimum characteristics and/orspecifications that products must comply with in the event that they may presentrisks to people’s health or cause damage to human health.12Moreover, the FMSL has a significant impact on the regulation of productliability in Mexico, as NOMs impose obligations and duties not only onmanufacturers, but, in some cases, even on some other members of the supplychain, such as importers and distributors.Hence, given the purposes of NOMs, members of the chain of supply are subjectto the duty or obligation to observe certain specifications in taking due care inthe design, manufacture, and labeling of products and in providing warnings forproducts.Failure to comply with the product standards contained in the applicable NOMshas two effects: first, the manufacturer, importer, or distributor, as the case maybe, will be sanctioned for non-compliance pursuant to the provisions of theFMSL 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 andlost profits suffered pursuant to the terms of the provisions and applicablerequirements under the FCC (as further explained in the following subsection).Federal Civil CodeThe FCC (in addition to the local civil codes that are applicable in each statewithin Mexico) complements the provisions of the FCPL and the FMSL on civilliability provisions, based on which consumers may claim damages and lostprofits. Under Mexican law, damage and lost profits must be immediate and12 Federal Metrology and Standardization Law, s 40. (Release 1 – 2012)
    • MEX-6 INTERNATIONAL PRODUCT LIABILITYdirect consequences of the breach that gave rise to civil liability; consequential,punitive, or indirect damages are not permitted.Theories of LiabilityIn GeneralIn 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 derivesfrom several mandatory provisions of said statutes, both from contractual andnon-contractual perspectives.Under Mexican law, product liability is related to and may be analyzed based ondifferent theories, considering that not only manufacturers but also othermembers of the supply chain may incur product liability. These theories arewarranty liability; liability for negligence, fraud, and misrepresentation; fault-based liability; strict liability; and liability for damages and lost profits.Warranty LiabilityIn GeneralThe FCPL regulates product warranties and therefore determines liability basedon the compliance that the relevant parties (ie, manufacturers, importers,distributors, and others in the supply chain) need to observe as regards thespecific requirements that product warranties are subject to in terms of both theFCPL 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 theconsumer the liability for defects that are due to lack of quality or level ofservices rendered and which may affect the normal operation of the product orservice that is the subject-matter of the consumer relationship, in accordancewith the nature, characteristics, conditions, use, or expiry of the warranty.Therefore, the supplier is bound, for a certain term, to conduct all necessaryrepairs 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.13The FCPL sets forth that every product or service offered with a warranty issubject to the provisions of the FCPL and the provisions of the agreementbetween the supplier and the consumer. Notably, the provisions andrequirements of the FCPL cannot be waived and the agreements between privateparties cannot contravene these provisions or requirements.1413 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)
    • MEXICO MEX-7NOMs impose very specific requirements as regards the scope and aspects thatthe warranty for certain products need to comply with and even imposeapplicable limitations or exceptions. The execution of product or servicewarranties may be claimed either from the manufacturer or the importer, unlesseither of these or a third party has expressly undertaken this obligation inwriting.15Implied or Legal WarrantiesThe FCPL provides product liability from three types of implied warranties:fitness for purpose, quality, and defects or hidden defects that diminish thepossibility of using the product. Under the FCPL, the supplier is obligated todeliver the product or render the service pursuant to the terms and conditionsoffered or implied in the advertising or information relating to the product,unless as otherwise agreed by the parties or with the express consent of theconsumer. As such, Mexican law neither differentiates between nor defines theterms of warranty of merchantability and warranty for fitness for purpose.The consumer may request the substitution of the product or service, rescind thecontract, or obtain a price reduction. In any event, the consumer may obtain arefund or compensation when the product or subject-matter of the contract hasany 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 safetythat, 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 theprice paid, along with interest, if applicable. Moreover, if the product isreplaced, the term of the warranty must be renewed.16 These compensations andwarranties are granted without prejudice to seeking payment of indemnity thatmay result from damage and lost profits (as further discussed later in thischapter).Express or Conventional WarrantiesIrrespective of implied warranties, express warranties also trigger productliability when the warranty is breached. Express warranties are considered to bethose resulting from the information that the relevant supplier provides toconsumers when the products are offered. At the choice of the consumer, aclaim under an express warranty may be to obtain a replacement of the productor the return of the amount paid against the delivery of the product acquired (andeven 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 theamount delivered is less than the amount indicated on the container, receptacle,or packaging or when measurement instruments that do not comply with the15 Federal Consumer Protection Law, s 79.16 Federal Consumer Protection Law, ss 82, 83, and 91. (Release 1 – 2012)
    • MEX-8 INTERNATIONAL PRODUCT LIABILITYapplicable provisions are used, taking into consideration the tolerance limitsallowed by the set of internal rules and regulations (NOMs).A claim for replacement, refund, or even additional bonus compensation may bemade if the product does not correspond to the quality, trade mark orspecifications, and other essential elements under which it has been offered, ordoes not comply with the applicable NOMs.The consumer also may make this claim if a product that is repaired is not left inan adequate condition for its use or purpose within the terms of the warranty orin the other cases set forth by the FCPL. Any other violation of the applicablelaw is a ground for a claim for replacement, refund, or additional bonuscompensation.17Express warranty product liability claims may be submitted to either the seller,manufacturer, or importer within the two months following the date on whichthe product was received, provided the product has not been altered due to theconsumer’s fault. Obligated parties may refuse to compensate the claim if it issubmitted in an untimely manner, when the product has been used in conditionsother than the conditions recommended or inherent to its nature or purpose, or ifthe product has experienced an essential, irreparable, and serious detriment dueto 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 doesnot correspond to the quality, trade mark or specifications, and other essentialelements under which the product was offered, without the need to prove thatthe fault lies with the seller or manufacturer of the product.18 As previouslyindicated, the FCPL obliges the supplier to deliver the product in accordancewith the terms and conditions advertised, unless otherwise provided by anagreement or the consumer’s written consent.19Liability of Third Parties Concerning WarrantiesThe impact on the effectiveness of a warranty against a third party will only takeplace if the third party expressly undertook such obligations. Parties that causecommon damage will be held jointly liable with respect to the indemnity to thevictim for the damage caused.20Liability for Negligence, Fraud, and MisrepresentationThe FCC provides that a person who acts against the law or good practices andcauses damage to another is bound to repair the damage, unless it is proved that17 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)
    • MEXICO MEX-9the damage is a result of the victim’s negligence or fault.21 Likewise, the FCCsets forth that liability arising from fraud (dolo),22 misrepresentation, or frombad faith (mala fe)23 and which may be claimed may not be waived under anycircumstances.24Negligence is understood as the lack of care and caution of an individual whenacting, generally determined by comparing it with the behavior of a prudentindividual in similar circumstances.25 As provided for by the FCC, in the eventdamage 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.26Fault-Based LiabilityArticle 1910 of the FCC provides that a person acting against the law or goodpractices who causes damage to another is bound to repair it, unless it is provedthat the damage is caused by the victim’s negligence or fault.In order to attribute this particular type of liability to the manufacturer orsupplier of a product for the damage caused by a defective product, it isnecessary to prove that the manufacturer’s or supplier’s conduct was against thelaw or good practices. In this regard, the presence of the slightest negligenceattributable to the offender is deemed enough reason to attribute liability,although proof is required that he acted against the law or good practices, aswell as proof of the direct and immediate link between the damage suffered andthe conduct of the offender.In the event that a claim for product liability is filed on the basis of Article 1910of the FCC, the biggest challenge that the affected consumer might encounter ishaving to prove that the offender’s performance was against the law or goodpractices. This liability comprises the payment of an indemnity for the damageand lost profits suffered by the affected consumer.Strict LiabilityUnder Mexican law, strict liability is understood as the obligation to respond toany damage caused when an individual makes use of mechanisms, instruments,apparatus, or substances which are dangerous by nature due to the velocitywhich they develop, their explosive or inflammable nature, the strength of the21 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)
    • MEX-10 INTERNATIONAL PRODUCT LIABILITYelectric current they conduct, or for other analogous reasons. It is of noimportance whether the individual acted illegally or legally, unless the defendantproves that the damage was caused by the victim’s fault or inexcusablenegligence.27As provided for by the FCC, in the event that damage is caused without the useof mechanisms, instruments, apparatus, or substances which are dangerous bynature, and without existing fault or negligence by any of the parties, each partywill assume the damages without any right of indemnification.28Liability for Damage and Lost ProfitsIn terms of the FCC, the seller is bound to indemnify the affected party for anyhidden defects that appear in a product that is sold which render it improper forthe customary use for which it is intended or that diminish in any way itscustomary use in a manner that, had the buyer known of such defects, he wouldnot have purchased it or would have offered a lower price for it.29In case of hidden defects in a product, if the vendor knew about them and didnot disclose them to the purchaser, the vendor will be obliged to indemnify thepurchaser for the hidden defects.30The purchaser is therefore entitled to choose to either rescind the purchaseagreement and claim the costs he incurred with respect to the product or requesta price reduction proportionate to the price of the product. If the purchaserchooses to rescind the purchase, he will be entitled to claim an indemnity fordamage and lost profits.31If the vendor did not know about the defects, he need only refund the price andreimburse costs incurred under the agreement, if the purchaser has paid thesecosts.32 Damages and lost profits to be indemnified in terms of the FCC mustalways be a direct and immediate consequence of the breach of the relevantobligation, as provided for by the theory of causation applicable under Mexicanlaw.33The protection granted to the consumer in terms of the provisions of the FCC islimited to the relations between parties arising from those agreements executedby them. This will be in addition to any other liability that may arise and couldbe 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)
    • MEXICO MEX-11Concept of DefectGenerally, a defect is understood as an imperfection or shortcoming in a partthat is essential to the operation or safety of a product.34For the purposes of the FCPL, the product is deemed to be defective when itdoes not correspond to the quality, trademark or specifications, or to those otheressential elements under which it was offered, or even in those cases where theproduct does not comply with the applicable NOMs as regards the product’sspecifications.Obligation to Recall Defective ProductsIn accordance with Article 98 bis of the FCPL, when the PROFECO detectsviolations of the FCPL and other applicable provisions (including NOMs)during a verification visit, it may order the supplier to inform consumers, eitherindividuall