Committee Reports > List of Committees > Joint > 1981 > Committee on the Secondary Legislation of the European Communities > Report No. 94 - Toy Safety

REPORT

Introduction

1. The Joint Committee has examined the Commission proposal for amendment of the Council Directive relating to the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products [9427/79—COM(79) 415 final].

2. The original proposal [R2237/76—COM(76) 372 final] was examined by the former Joint Committee in its Fifty-third Report (Prl. 6167) in March, 1977.

3. The former Joint Committee considered that the justification for the proposed Directive lay in “the need for making the economic consequences of liability uniform throughout the Community”. The Committee thought that these consequences depend not merely on the basis of liability but also on the rules for quantifying damages. It suggested that the Directive would fail in its objective unless it incorporated uniform rules for the measure of damages and contributory negligence. Moreover, it suggested that Member States where fault and no-fault liability existed side by side could be put at a disadvantage.

4. The present amendments were made following the Opinions of the European Parliament and the Economic and Social Committee.

5. In recent years in the United Kingdom there have been reports on the subject by the Law Commission, the Scottish Law Commission and the Royal Commission on Civil Liability and Compensation for Personal Injury. There is also a Council of Europe Convention on Products Liability in regard to personal injury and death (“Strasbourg Convention”).

6. A detailed examination of this amended proposal was carried out for the Joint Committee by its Sub-Committee on Statutory Instruments and Legal Affairs under the Chairmanship of Senator David Molony. The Sub-Committee had discussions on the subject with the Federation of Trade Associations, the Federation of Irish Chemical Industries, the Confederation of Irish Industry, the Irish Insurance Association and an official from the Department of Industry, Commerce and Tourism. It also considered written memoranda received from the Department and the bodies mentioned and also from the National Consumer Advisory Council. The Joint Committee is indebted to Senator Molony and his Sub-Committee for their work.

Contents of the Proposal

7. The fundamental purpose of the proposed Directive is to introduce the principle of strict or no-fault liability for defective products into the domestic law of all Member States. Subject to certain defences, the onus of proving which would lie on him, a producer of an article would be liable for damage to persons or property caused by a defect in an article whether or not he knew or could have known of the defect. The introduction of no-fault liability would not affect existing remedies.

8. The main changes introduced in the present proposal are as follows:—

(i)Liability under the Directive will be expressly defined as extending to articles incorporated in immovable property. This does not represent a widening of the scope of the Directive but is merely intended to clarify its area of application.

(ii)Primary agricultural products (including fish) and craft or artistic products will not now be covered by the Directive where it is clear that such products are not industrially produced.

(iii)Where two or more persons are liable they will continue to be liable jointly and severally but it is now made clear that each person retains the right to compensation from the others.

(iv)A product will now be considered defective when, being used for the purpose for which it is apparently intended, it does not provide for persons or property the safety which a person is entitled to expect, taking into account all the circumstances, including its presentation and the time at which it was put into circulation.

(v)The Commission proposes to cater for the borderline cases arising in the business use/private use context by providing that the Directive shall not apply to products used exclusively for the purpose of a trade, business or profession.

(vi)A defence of contributory negligence will be allowed to the producer where the product in question has not been used for the purpose for which it is apparently intended.

(vii)The definition of “damage” has been extended to expressely include the element of pain and suffering endured by the claimant.

(viii)The Commission has recognised the very real problems involved in setting a financial limit on liability for personal injuries arising under the Directive and proposes that this question be examined and determined by the Council acting on a Commission proposal. As an interim measure it is proposed to retain the original figure of 25m European Units of Account (about £17m). The figure set will be reviewed every three years, as also will the property damage figures which have been retained.

(ix)A minor modification of the time limit on the producers liability has been introduced so that the ten year period originally proposed will apply from the date on which the producer put the defective article into circulation.

9. An important element of the Commission’s proposal is the decision to maintain the inclusion of development risks and to refuse to allow the state-of-the-art defence to the producer. The European Parliament had proposed that the producer should not be liable if he could produce evidence that the article could not be considered defective in the light of scientific and technological development at the time the article was put into circulation. The Commission was unwilling to accept this proposal which it considered to be an unjustified negation of the responsibilities of the producer.

Basis for Proposal

10. The proposal is based on Article 100 of the EEC Treaty. The Commission states in the preamble to the proposal that divergences in national legal provisions may distort competition and influence the free movement of goods within the common market.

Implications for Ireland

11. In Ireland, there is liability in tort where a defect in a product, due to negligence, causes damage to a person or to his property, and there are certain terms implied by statute including one that articles bought must be good, fit and suitable for the purposes for which bought and that an action for damage lies if, because goods are not suitable, damage or loss ensues.

12. As of now a person who suffers injury because of a defect in a product arising from its faulty manufacture can sue the manufacturer in tort but to succeed he must prove negligence. He has also a right of action against the person who sold him the goods and in that event he will normally have the benefit of the terms implied by the Sale of Goods Act, 1893. This right of action is further strengthened by the Sale of Goods and Supply of Services Act, 1980 which came into force on 1st January, 1981. If he succeeds in recovering damages from the supplier, the latter will be entitled to be indemnified by his supplier and so on along the chain of supply. In the case of death a cause of action will survive for the benefit of the deceased’s estate by virtue of Part II of the Civil Liability Act, 1961 and under Part IV of that Act, an action may be brought on behalf of certain dependants who suffer injury or mental distress as a result of death. In the case of these actions the rules relating to contributory negligence apply.

13. This proposed Directive is not intended to replace or substitute existing law but rather to supplement it. It is important to point out that the Directive’s proposals do not cut out fault liability. This would continue to exist side-by-side in any country which had it in its law of tort. If a consumer wishes to base his action on fault liability he would be entitled to do so; in that case neither the terms of the Directive nor the limit of damages which is proposed would apply.

14. The proposed Directive, if adopted, would require the introduction by statute of strict liability on a no-fault basis.

Views of Interested Bodies

15. The Confederation of Irish Industry feels that rather than being a harmonising influence, as intended, the Directive, if adopted, will disturb competition within the Community and impede Ireland’s economic development and industrial progress. The Confederation makes the point that the Commission has produced no evidence that existing laws in the Member States distort competition but merely asserts that this is the case. The Confederation considers that it is wrong in principle and damaging in practice to the interests of both consumers and producers, particularly small producers, that a producer should be liable if he can prove a product was not defective in the light of scientific and technological development at the time it was put into circulation. The Confederation also feels that the justification put forward by the Commission for the introduction of a system of strict liability that the consumer is in most cases not protected against damage caused by defective products in the Members States is highly contentious. It makes the point that the product liability regime as set out in the Directive should not extend to property damage. It says that the inclusion of property damage, pain and suffering and other non-material damage, increases the cost for those who do not require such protection or who may have alternative arrangements. The Confederation urges strongly that the proposal be opposed but the principle of harmonisation be applied in its stead to liability on a “fault” basis. Should this be unsuccessful, the inclusion in the proposed Directive of “development” risks should be strongly resisted by the admission of a “state-of-the-art” defence. In the event of neither of these changes being implemented in the final Directive, and implementation by means of the introduction of national legislation is necessary, the Confederation strongly recommends reference to the considerable volume of interpretative data produced by the Commission in the course of the long debate on the provisions of the Directive. In this way deviations of interpretation of the very vague provisions in the Directive by Irish courts would be minimised. Such an approach should minimise the incidence of unnecessarily high cost to Irish industry and unnecessarily high prices to Irish consumers.

16. The Federation of Irish Chemical Industries finds the proposal fundamentally unacceptable. Its most serious criticism is of the refusal of the Commission to acknowledge the reasonableness of providing a defence for development risks. The Federation says that this is an area which, in the context of pharmaceuticals and chemicals is of vital importance. Ireland as such has little industry involved in original research but on the other hand greatly benefits and at reasonable cost from the vast expenditure in other countries on original research not least in the field of pharmaceutical products. It feels that, if there is no acknowledgement of the need to differentiate between manufacturing and design defect and if those companies involved in innovative research become less involved because of the high risks involved, it will be disadvantageous to the Community as a whole both in industrial and consumer terms. It makes the point that it is not possible to say that the rules for contributory negligence in the various Member States would become harmonised on adoption of the Directive i.e. there is no provision that a defence successful in one country would be successful in another. Consequently, distortion of competition and differing costs for industry will not be eliminated contrary to the stated intention of the Directive. It considers the drafting of the Directive loose and imprecise. The Federation fears that the cost of insurance cover would be prohibitive and that this factor will prove a significant element in final costs. It sees the great majority of product liability actions taking place in the High Court thus leading to more delays in court actions and time-consuming absorption of company management in court appearances. Having regard to the level of damages in civil actions in Ireland it recommends the abolition of juries for such actions and their replacement by a system of a judge setting the level of damages with the aid of assessors. An alternative would be the setting up of a Damages Appeal Tribunal.

17. The Federation of Trade Associations says that while the proposed Directive relates essentially to the liability of manufacturers—and to that extent could ease a lot of wholesalers and retailers—it has implications for distributors to the extent that, in certain circumstances, they may be embraced within the scope of the definition of producer e.g. in the case of “own brand” products and in the case of goods imported from outside the European Community. It makes the point in referring to Article 6 that it would be important for the members of a number of the Federation’s affiliated associations that farmers purchasing goods for use in their farming business should be deemed to have acquired the goods exclusively for the purpose of a trade, business or profession. It feels that the total liability provision in Article 7 may lie heavily on small producers who may well experience great difficulty in obtaining or affording adequate insurance cover. It says that the limit for the commencement of proceedings for the recovery of damages should be one year and that the period of three years suggested is unjustifiably long having regard to the rapid turnover of goods and the frequent changes in methods of production and distribution and that the liability of a producer should expire after three years in view of the difficulties which can arise in time of identifying an original defect because of considerable usage of the product, wear and tear and the frequency of repairs by other firms and companies. According to the Federation the principal area of concern arising from the proposal is the likelihood that it will lead to an explosion in litigation and a substantial rise in insurance premiums, the total cost of which will have to be borne untimately by the consumer. It is not satisfied that the Commission has made a sufficiently strong case for the introduction of legislation dealing with product liability.

18. The National Consumer Advisory Council says that Council members are anxious to see that responsibility for losses and injuries arising out of defective products is placed directly on producers. The Council hopes that the changes now planned in the area of product liability will remove the legal obstacles which had made it extremely difficult in certain cases for people to obtain redress for injuries or loss caused by defective products. At present in the absence of proof of fault on the part of the manufacturer only a person who has a contract with the supplier of goods has a right of remedy and that remedy is usually against the retailer. It says that very often the fault is on the part of the manufacturer or producer. It feels that the producer is best able to bear the cost of insurance and he could build this cost into the finished product but it would have to be seen that the increased cost would reflect a better standard of safety.

19. The Irish Insurance Association is satisfied that the Irish insurance market will be in a position to provide Irish “producers” with the requisite insurance cover to meet the new and increased liability regime proposed by the draft Directive. It feels that we have strict liability at present, in fact, if not in law. It feels however that Article 5 should contain a provision to exempt the producer from any liability where the defect in the article was caused by an “unavoidable accident” (e.g. Act of God). It welcomes the proposed amendments but thinks that the present text of Article 7 is ambiguous both as regards the monetary level on liability for personnel injury and the use of the word “identical” for determining the application of the overall limit and recommends that the paragraph be reworded to put the issues beyond doubt. Regarding the cost of insurance the Association is of the view that it would not add a significant sum to the cost to the consumer. It points out that even a doubling of existing premia would only have a marginal effect on ultimate consumer prices.

European Convention on Products Liability in regard to Personal Injury and Death

20. This Council of Europe Convention dated 27th January, 1977 imposes strict liability on producers for death and personal injuries caused by defective products. The EEC draft Directive is closely modelled on the Convention particularly as a result of the revisions which have now been introduced into the Directive but there are still some significant differences. Unlike the Convention it excludes from its provisions primary agricultural products and it imposes strict liability for damage to personal property in addition to compensation for death and personal injuries. Also, Article 10 of the Convention (“Contracting parties shall not adopt rules derogating from this Convention…”) suggests an absolute measure, while the question of whether the Directive is a minimum or absolute measure is still open. Of the 21 Member States of the Council of Europe, 4 States have signed including three EEC States—Belgium, France and Luxembourg. There have been no ratifications so far of the Convention. The Joint Committee understands that no decision has yet been taken as to whether or not Ireland will sign the Convention. The implementation of EEC Directives is mandatory on Member States. The Joint Committee understands that if the provisions of the Directive, when adopted, conflicted with those of the Convention then the Directive would take legal precedence. In the event of such a situation arising, the Committee is informed that it is unlikely that Ireland would ratify the Convention.

Views of the Joint Committee

21. The Joint Committee is not convinced that adoption of the proposal as now drafted under Article 100 is justified and it feels that the Commission has not furnished evidence that competition is being distorted or that any differences existing between the national laws directly affect the free movement of goods. Moreover it does not see how the economic consequences of liability can be made uniform throughout the Community unless the varying rules of Member States governing the assessment of damages are the same.

22. The Joint Committee understands that in view of the many uncertainties surrounding the eventual “shape” of the Directive, as well as the absence of comparable estimates, it is still not possible to quantify in cost terms the implications of the proposal for manufacturers, consumers, etc. and that the only figures available in this area are those produced by the European Committee of Insurances which show, for different sectors of industry, the estimated insurance costs by reference to turnover.

23. There is some conflict of opinion in the representations made to the Joint Committee regarding the likelihood of insurance cover being available at reasonable cost. In Ireland we have a higher proportion of small manufacturing companies than in other EEC countries and the Joint Committee is concerned that the increased cost of insurance may bear more heavily on Irish manufacturers than on some of its foreign competitors and consequently have an adverse effect on our competitiveness. This could be particularly the case for certain industries such as the pharmaceutical and other innovative industries who may have difficulty in obtaining insurance at reasonable cost. If the Directive is adopted, then presumably the overall cost of insurance will have to be spread over all products and, in the case of smaller Irish manufacturing companies, the unit cost would bear more heavily than on its larger European counterparts.

24. As a developing country the introduction and development of new technologies is necessary for our economic survival and it has been alleged that some manufacturers will not now want to take the risks involved in developing new products and will go out of the manufacturing business.

25. In contrast to the views contained in the foregoing paragraphs 22-24, it is only fair to point out that the Irish Insurance Association states that it can provide the necessary insurance at reasonable cost (see paragraph 19 above).

26. Article 1 (2) provides that the producer is to be liable even if the article could not have been regarded as defective in the light of the scientific and technological development at the time when he put the article into circulation. The European Parliament suggested that an amendment should be made here so as to exclude “development risks”. The Commission did not accept the amendment stating, inter alia, “that the effect would be to require the consumer to bear the risk of the unknown”. As already stated in paragraphs 23 and 24 above the Joint Committee feels that the insurance costs for bearing development risks may adversely affect Irish industry.

27. The Joint Committee welcomes the amended provision of Article 1 under which primary agricultural products, crafts or artistic products are excluded from liability, where it is clear that they are not industrially produced. This amendment, suggested by the European Parliament, is justified by the Commission in its explanatory memorandum (page 2) on the grounds that strict liability for primary agricultural products whose defects have been caused by factors extraneous to the activities of the producers would be too onerous: for craft and artistic products, the same considerations apply, in conjunction with the fact that production is by individual item and not by serial production, thus justifying the continuation of the traditional liability for fault. The Committee feels that the definition in practice of “industrially produced” may cause difficulties.

28. The Joint Committee welcomes the amended Article 5, which now provides for a defence of contributory negligence on the part of the plaintiff and those for whom he is liable—a principle which already exists in the law of Member States.

29. The extension of the definition of damage to include “damages for pain and suffering and other non-material damage” [Article 6(3)] is welcomed by the Joint Committee as there is a corresponding head of damage in the present tort of negligence in Ireland. These non-pecuniary heads of damage have been expressly included at the suggestion of the European Parliament.

30. The Joint Committee feels that Article 7 regarding limit of liability is not clear in its intention and needs clarification. Should it be adopted as it stands the Joint Committee feels that it may be very difficult to operate. Questions which could, inter alia, give rise to difficulty and which should be resolved are:-

(i)It is provided that the total liability for personal injuries may be determined etc.… From this it is not clear whether the total limit is optional or mandatory. It appears as if it was intended by the Commission to have it made mandatory and, if so, the meaning should be made clearer.

(ii)Presumably the total amount of liability applies to the whole Community, though this again is not absolutely clear in the Directive. If so, how would the total be divided in practice between different countries in the case of identical defective articles sold on a Community basis, and between different individuals?

(iii)How would it be known whether the limits had been exceeded until all the claims had been received and determined? In the meantime could claims be met by interim payments in such circumstances? Or would the consumer have to wait an inordinate length of time (e.g. the maximum limit of 10 years provided under the Directive)? Where no limit is provided for an individual’s claim, as in the proposal, these difficulties are increased.

(iv)The limit on the producers liability is expressed to be for all personal injuries caused by “identical articles having the same defect”. What is the meaning of the expression “identical articles”?

The Commission in its explanatory memorandum (page 6) states that the amendment introduces flexibility into the difficult problem as to whether or not the strict liability should have a ceiling and that the new formula tends towards a compromise acceptable to proponents and opponents of limited liability. The Joint Committee reiterates its view that Article 7 should be tightened up, as otherwise it could give rise to serious difficulties which could be resolved only by litigation with a lot of frustration for consumers.

Progress of Commission Proposal

31. The Economic Questions Group of the Council which is examining the proposal has completed its second reading and it has entered on a third reading. The Joint Committee is informed that to-date discussion has been largely confined to the general questions raised by the proposal. It is expected that the third reading, which has now commenced, will entail a more detailed examination. The Joint Committee understands that future progress is expected to be slow, and that negotiations could even take several years. Member States are required to bring into force the provisions required to comply with the Directive within 18 months [Article 13] and there is a suggestion that this period should be extended.

32. All Member States, except Ireland, have now agreed to the principle of strict liability for defective products although several Members States, notably the UK, have already indicated that the present text as proposed by the Commission is largely unacceptable and will require major amendments before worthwhile progress can be envisaged.

Conclusions of the Joint Committee

33. The Joint Committee has indicated certain misgivings which it has regarding the application of the proposal in Ireland and to certain sectors of Irish industry. The Committee has drawn attention to certain provisions which need clarification and redrafting. National provisions are to remain in force alongside the proposed Community system of product liability. As a result of this and of differing national legal and administrative systems, the costs arising from liability for defective products will vary from one Member State to another. This would hardly lead to the Commission’s objective of creating equal competitive opportunities in the Community. Finally, the Committee feels that, notwithstanding the position outlined in paragraph 32, it would be extremely difficult for the Committee to form a judgement in depth in regard to the principle of strict liability as it might be applied in the field of tort in Ireland generally and that such a study should be undertaken by some body here, ideally by the Law Reform Commission, in the context of the Directive, before a change of such magnitude is introduced into the Irish legal system.

Debate in Seanad Éireann

34. In view of the serious implications which the adoption of the proposed Directive could have in this country the Joint Committee requests that a debate take place in Seanad Éireann. In this connection the Joint Committee refers to the Order of Seanad Éireann of 18th February, 1981.

Acknowledgements

35. The Joint Committee wishes to acknowledge its indebtedness to the Confederation of Irish Industry, the Irish Insurance Association, the Federation of Irish Chemical Industries, the Federation of Trade Associations and the National Consumer Advisory Council for the considerable help it received from them and it wishes to express its sincere thanks to all these bodies.

(Signed) ALEXIS FITZGERALD,

Chairman of the Joint Committee.

13th May, 1981.