Product Liability
1. Scope and purpose
The term ‘product liability’ was introduced by US law and refers to a producer’s liability for damages caused to a third party by goods manufactured by him. The liability focuses primarily on the original producer—as he can easily be identified by the injured person—but the term also includes potential liability of other persons who are involved in the production process. In German doctrine the term ‘producer’s liability’ (Produzentenhaftung) has been and is still being used in some instances. Where producer’s liability is not, however, used synonymously with product liability, it refers to the liability for actions caused by personal responsibility, while product liability is meant to refer to the liability for the product based on its defectiveness according to the EC Product Liability Directive (Dir 85/374), or the national laws implementing that directive. In contrast to contractual warranty, product liability generally does not rely on individual undertakings between the parties and the fitness of the product for the specified use; responsibility of the manufacturer and defects of the product respectively are determined according to objective criteria and are limited to such features which concern the safety of the product, and/or the producer’s conduct in this respect. The focus is on the protection of the integrity of rights and interests, not—as in contract law—on responsibility for frustrated expectations.
a) Regulatory problems and approaches concerning their solution
The development of this special liability regime went along with the start of industrial mass-production at the beginning of the 20th century. Industrially crafted products were typically distributed via a chain of distributors independent of the producer and unknown to the consumer. As a result, all legal systems had to face the question of how the existing laws could provide a direct claim against producers for consumers, their possible legal successors and innocent bystanders. The liability of the seller or the producer along the lines of the distribution chain was deemed insufficient. Often, the seller could not be held liable, since he had no contractual or delictual (tortious) obligations with respect to the safety features of the product or the producer’s actions relating to those features. Also, the producer would generally have deeper pockets and was in a better position to estimate, avoid and insure himself against the risk of liability than the seller. A contractual liability along the lines of the chain of distribution under which the producer was finally liable for damages also leads to the problem that the individual contracts in the chain are to be judged independently of each other and do not necessarily entail the same contractual obligations. Additionally, each member of the chain would—within the limits of freedom of contract—be able contractually to exclude his liability.
It was also deemed unreasonable that each member of the chain of distribution rather than the producer should be exposed to the insolvency risk of the respective preceding member. Due to a lack of contractual relationship, an uninvolved third party would generally not be entitled to compensation, since third parties are in principle not included in the scope of protection of contracts concluded by other parties. Direct claims against the producer can either be based on contract or on tort/delict. Thus, one can either extend the range of creditors or of persons enjoying protection under the contract, or establish duties of care protecting persons suffering damage caused by the product. France, Belgium and Luxembourg, ie countries whose private law is based on the Code civil, chose a contractual solution by establishing a direct contractual claim (action directe). Other legal systems in continental Europe predominantly tried to solve the problem under the aegis of tort/delict. This is also the case in the United Kingdom where tort law, based on the principles of negligence, was applied, although this was subsequently developed into a strict liability regime. In Austria a combination of contractual and tort liabilities prevailed.
In cases where production is based on a division of labour, liability in delict/tort left the injured person with the problem of having to prove the personal responsibility of the producer or the attribution of responsibility to him of persons involved in the production process, although the injured person may have had no knowledge of the production process, the internal procedures, and the parties to the process. In Germany, exculpatory defences were deemed to be unsatisfactorily wide (see, in particular, § 831(1)2 Bürgerliches Gesetzbuch (BGB) on liability for others, and liability for failure to maintain proper organizational structures (Organisationsverschulden) according to § 823(1) BGB).
These problems were overcome by an inversion of the burden of proof in favour of the injured person; English courts availed themselves of the principle res ipsa loquitur. In Germany, this inversion of the burden of proof was also extended to the issue of whether the producer had caused the injury (haftungsbegründende Kausalität). In its landmark Hühnerpest-decision of 26 November 1968 (BGHZ 51, 91, 107) the German Federal Supreme Court (Bundesgerichtshof, BGH), in this context, referred to the ‘modern development of production of goods, … where the persons or machines involved are very hard to identify in retrospect, because the production is based on processes which can only be understood and controlled by an expert’. Some German scholars who tried to introduce new approaches inspired by developments in the United States in the 1960s did not prevail.
b) Development of product liability law
On the whole, however, the debate in the United States on product liability as a separate field of law had a sustained influence on European legal doctrine, in particular in the Netherlands, Germany, Italy and Great Britain during this time. On the European Community level, this impulse fell on fertile ground with respect to the systematic approach to product liability in the following years. Shortly before, the thalidomide scandal had demonstrated the potential for horrifying consequences of ‘modern products’ in many European countries. German case law objectified and intensified fault-based liability by creating the categories of manufacturing defect, design defect and instruction defect (Fabrikationsfehler, Konstruktionsfehler and Instruktionsfehler). Essentially, this led to a liability which closely resembled strict liability. All other European countries witnessed similar developments, though they were sometimes not as apparent or were achieved by other means. As far as some countries had initially restricted the scope of application of these principles to cases of industrial production, they later expanded them to small craft producers. While the rise of modern industrial production methods had originally served as an argument for extending liability, it later became apparent that similar evidentiary problems also had to be faced in other cases (see for German law, BGH 19 November 1991, BGHZ 116, 104).
By enacting the directive regarding product liability, the EC legislature opted for a non-contractual solution. However, the details of the proposed provisions were quite controversial. Only after protracted negotiations could a minimum consensus be reached in 1985, leaving the Member States with certain options regarding the implementation of a number of controversial questions (development risk defence (Arts 7(e), 15 and recital 16); non-pecuniary damage (Art 9 s 2); financial cap on liability (Art 16)). The EC Product Liability Directive introduced an independent cause of action for liability focused on producers, which deviated from the traditional approach of the Member State’s legal systems in that the product defect became, in principle, a self-contained requirement for liability. Accordingly, the Member States implemented the directive largely outside of, and without incorporating it into, their existing, traditional bodies of law. The exact classification of the liability created by the directive is still discussed controversially. Often it is referred to as ‘liability for a wrong independent of fault’ or ‘objective liability’. As far as a subjective element is deemed necessary for a fault-based liability, the directive does not require it; according to Art 1 the manufacturer is responsible to the injured party, without further ado, if damage is caused to another by a defect of the product which he had put into circulation. At the same time, a doctrinal classification as strict liability (in particular if understood as equivalent to the German notion of Gefährdungshaftung) is doubtful since producing goods cannot normally be considered as a source of increased danger as long as all feasible and economically reasonable preventive measures have been taken. A classification as liability for objective negligence seems more convincing, at least for cases of design and instruction defects. The liability for manufacturing defects comes closer to strict liability, for the producer is liable in case of defects that cannot be avoided even if all possible and economically reasonable measures of care and control have been taken. The liability under the directive would thus appear to resemble the regulation contained in the Restatement (Third) of Torts (1998) which tries to reflect the status quo of US tort and product liability law.
2. Tendencies of the legal development
Despite fears in the industry, the directive has not led to significant changes on the national level. The liability standards in the Member States do not seem to have become significantly stricter; an increase of insurance policies for manufacturers has not been observed. This seems to be mainly due to the limited scope of the directive and only slight differences between traditional national product liability regime and the national laws implementing the directive. In many instances the implementation of the directive has fallen short of the liability based on the general national regimes and accordingly has had little practical relevance. For example, under the German Product Liability Act, non-pecuniary damage could not be claimed until 2002. However, compensation for non-pecuniary damage is the most important motivation for individual damages claims in view of the fact that the ordinary pecuniary consequences associated with personal injuries are normally covered by health and social insurance in Germany. Even after 2002, however, claims based on the Product Liability Directive have not become significantly more important. Generally, the number of product liability cases appears even to be decreasing. To some extent it is thought that due to the increasing importance of soft factors such as image and reputation for a business more settlements are reached, or products are simply recalled in order to generate goodwill.
Accordingly, during the first ten years after the directive had to be implemented there was no case law coming from the ECJ. In the meantime, however, it has been clarified in a number of cases that the directive aims to create a full harmonization within its scope of application and that the Member States are not, therefore, allowed to deviate from the concepts of the directive by either increasing or decreasing the liability regime (ECJ Case C-52/100 – Commission v France [2002] ECR I-3827; ECJ Case C‑154/0 – Commission v Greece [2002] ECR I-3879; ECJ Case C‑183/00 – Gonzáles Sánchez v Medicina Asturiana SA [2002] ECR I-3901; ECJ Case C‑402/03 – Skov AEg v Bilka Lavprisvarehus A/S [2006] ECR I-199; ECJ Case C‑177/04– Commission v France [2006] ECR I-2461; ECJ Case C-285/08 - Moteurs Leroy Somer v Dalkia France, Ace Europe [2009] ECR I-4735). According to the ECJ, a full harmonization of the product liability regime and thus also of the product liability costs is necessary in order to avoid any distortion of competition and impairment of the free movement of goods. In essence, the ECJ is pursuing a formal harmonization of a core area of liability for damages caused by defective products, narrowly defined by the person liable and the respective liability standard. Apart from the implementation of the directive which needs to follow its provisions closely, every Member State may thus keep in place, or institute, a liability regime for damage caused by products on a different basis, as long as that regime does not refer to the Product Liability Directive and is not (merely) based on the existence of a product defect impairing its safety. Although this approach prevents the core of product liability law from developing differently in the different jurisdictions, the classification based on liability concepts appears to be rather artificial, in particular against the background of the development of the traditional national grounds for liability, and it impedes the natural development of a comprehensive European product liability law. Moreover, it has been widely doubted that such a formally defined harmonization is capable of avoiding distortions of competition due to different liability costs in different countries; particularly against the background of only few differences existing between the liability regimes, one can hardly expect that other concepts of liability cause significant lower costs.
Obviously the Product Liability Directive never aimed at a comprehensive harmonization of liability for damages caused by products, for apart from the options granted to the Member States on a number of issues (see 1. above) important questions such as causation, imputation, determination of damages (damages), as well as procedural problems are left to the national legal systems. However, also with respect to the formally defined core area of product liability law, it is questionable whether harmonization is substantially moving ahead. For it appears that traditional national principles of product liability continue to be applied in the disguise of the directive. This is certainly facilitated by the use of abstract legal concepts (such as the term defect of the product). Additionally, legislation by means of a directive, which should normally leave some leeway or its implementation, seems to be hardly reconcilable with the jurisprudence of the ECJ. Accordingly, the European Commission suggests in its Third Report concerning the application of the Product Liability Directive (2006) a common interpretation of the directive across Europe in order to achieve further harmonization. In the European Commission’s view, there is at the moment no need for a reform; the development of certain areas should however be observed (burden of proof, notion of defect, development risk defence, defence of compliance with public regulations, innovative products).
3. Regulatory structures
The Product Liability Directive ties liability to putting a defective product into circulation (see ECJ Case C-358/08 – O'Byrne v Aventis Pasteur SA [2010] 1 WLR 1375). The defendant may only exonerate himself by the circumstances listed in Art 7.
For reasons of consumer protection the directive sets up a joint and several liability of all participants of the production process including those describing themselves as manufacturers (quasi-manufacturer) and those importing the product into the EEA; rights of contribution and recourse are left to the respective national legal systems (Arts 3, 5, but see Art 7(f)). If the producer cannot be identified and if the supplier does not provide his name within a reasonable time, even the supplier himself can be held liable (Art 3(3)). This goes beyond the ordinary principles of non-contractual liability. Members of the distribution chain cannot be held liable for a violation of producer specific duties. Also, according to the general principles of tort/delict, not all involved in the production process are, without ado, subject to liability; rather, liability is channelled towards the person in whose sphere the defect originated.
According to the concept of the directive, the product defect is the key requirement for liability. Whether it is met, ie whether the product is defective and therefore does not provide the safety which its users are entitled to expect, has to be assessed by taking all circumstances (particularly those stated in the directive) into account (Art 6). In contrast, in establishing product liability based on tort/delict proof that the product is defective only serves to achieve a reasonable allocation of the burden of proof equally among producer and the injured party. Essential for liability remains the violation of a duty of care.
The possibilities of the producer to exonerate himself from liability are limited by Art 7. Contrary to product liability based on tort/delict, the directive does not allow exoneration from liability based on the fact that the producer has exercised all possible and economically reasonable diligence and control to avoid the defect (see BGH 7 June 1988, BGHZ 104, 323 and BGH 9 May 1995, BGHZ 129, 353). According to Art 7(a)–(c), the producer may be exempted from liability (apart from the defence of non-commercial activity) if he can prove that he has not put a defective product into circulation (either because the product was not put into circulation by him or because it was not defective at that time). Although, for example, under German law the burden of proof lies with the injured person, the practical difference should be marginal as prima facie evidence is allowed. According to Art 7(d)–(e) the producer can exonerate himself by proving that he is not responsible for the product defect either because the state of scientific and technical knowledge at the time when the product was put into circulation was not such as to enable the existence of the defect to be discovered (development risk defence) or because the defect was due to compliance of the product with mandatory regulations issued by public authorities. Such objections would also release the producer from liability according to national regimes of tort/delict as he would be in the position to prove that he did not violate producer specific duties relating to the safety of the product. It was due to Member States insistence that the development risk defence was adopted by the directive. The drafts from 1976 and 1979, as well as the European Convention on Products Liability in regard to Personal Injury and Death from 1977, explicitly envisaged liability for development risks. Essentially, the directive sets out the defence (Art 7(e)) but provides the option to derogate from it and thereby to introduce a liability for development risks (so far only Luxembourg and Finland have availed themselves of this option).
Furthermore, the directive provides uniform provisions regarding limitation/prescription and extinction of claims (Arts 10, 11), and it limits the liability for damage to property, apart from adopting a threshold, to damage to items for private use and consumption (see Art 9).
4. Harmonization projects
At about the same time as the Product Liability Directive, the above-mentioned European Convention on Products Liability in regard to Personal Injury and Death (1977) was prepared under the auspices of the Council of Europe. Its content differs only in a few though quite significant points. Its ratification, however, was not pursued because of the enactment of the directive. The Principles of European Tort Law (PETL) of the European Group on Tort Law do not provide special provisions on product liability but introduce strict liability for enterprises which is, according to its authors, not in competition with the Product Liability Directive. Similar to the German delictual product liability law, the legal basis and statutory requirement for liability remains the violation of the duty of care. Besides an inversion of the burden of proof due to the potential danger emanating from the activity (Art 4:201), the PETL also shift the burden of proof if the enterprise uses auxiliary persons or technological means. As far as damage is caused by defects in the enterprise, or of its products, the enterprise can only exonerate itself by proving that it has observed the required duty of care (Art 4:202). In its Chapter on Non-Contractual Liability Arising Out of Damage Caused to Another (PEL Liab. Dam.), the Study Group on a European Civil Code follows the concept of the Product Liability Directive and provides for a liability regime for damage caused by a defective product independent of fault (see Art 3:204).
5. International product liability law
Unfortunately, in Europe there are two different regimes which govern the law applicable to product liability claims. In some Member States courts apply the Hague Convention on the law applicable to products liability of 2 October 1973 (Finland, France, Luxembourg, the Netherlands, Slovenia and Spain, as well as Norway, Macedonia and Croatia), whereas in the remaining Member States Art 5 of the Rome II Regulation (EC Reg No 864/2007) governs the applicable law (see Art 28 Rome II Regulation). With its Art 5 the regulation also provides a lex specialis, but the legal basis differs from the Hague Convention. The repeated request for harmonization in the course of preparation of the Rome II Regulation has remained unheard.
Except for a different order of the connecting factors, the provision of the Rome II Regulation differs mainly in the fact that all three connecting factors cumulatively require that the product is put into circulation in the particular state. This approach which has been favoured by legal literature for quite some time is aiming to render the applicable law more predictable for the producer. For the same reason the defendant is allowed to object that he could not reasonably have foreseen that the particular product or a similar product was marketed in the relevant country (Art 5 (1) Rome II Regulation). A similar exception can also be found in the Hague Convention. However, under the Rome II Regulation the three connecting factors are subject to a manifestly closer connection with another country (Art 5(2) Rome II Regulation). This proviso was taken from the general conflicts rule in Art 4(3) Rome II Regulation and has been largely approved as it allows contractual and non-contractual claims to be governed by the law of the same country.
Literature
Uwe Diederichsen, Die Haftung des Warenherstellers (1967); Joachim Schmidt-Salzer, Produkthaftung, vols 1–3 (2nd edn, 1985–88); Jane Stapleton, Product Liability (1994); Jean-Sébastien Borghetti, La responsabilité du fait des produits (2004); Gerhard Wagner, ‘Produkthaftungsgesetz’ in Münchener Kommentar zum Bürgerlichen Gesetzbuch, vol 5 (4th edn, 2004); Christopher J Miller and Richard S Goldberg, Product Liability (2nd edn, 2004); Simon Whittaker, Liability for Products (2005); Duncan Fairgrieve (ed), Product Liability in Comparative Perspective (2005); Duncan Fairgrieve and Geraint Howells, ‘Rethinking Product Liability’ (2007) 70 MLR 962; Martin Illmer, ‘The New European Private International Law of Product Liability—Steering Through Troubled Waters’ (2009) 73 RabelsZ 269.
