Committee Reports > List of Committees > Joint > 1987 > Committee on the Secondary Legislation of the European Communities (5th Committee) > Report No. 01 - Implementation of the Directive on Product Liability

A. INTRODUCTION

1.The Joint Committee in 1977 examined the original proposal for a Council Directive on the approximation of the laws, regulations and administrative provisions of the Member States concerning Liability for Defective Products. ⁽¹⁾ In 1981 it considered an amended proposal in this regard. ⁽²⁾

The Directive was adopted by the Council on 25 July, 1985 and requires to be implemented by Member States by 30 July, 1988. In view of the important implications for this country of a stricter liability regime the Joint Committee decided to examine the Directive as now passed and the question of its implementation into Irish law.

Acknowledgements

2.This Report was prepared for the Joint Committee by its Sub-Committee on Legal Affairs and Statutory Instruments under the Chairmanship of Senator Mary Robinson. The Joint Committee is indebted to Senator Robinson and her colleagues for their work.

3. In the course of the preparation of this Report the Sub-Committee considered written and oral submissions from the Department of Industry and Commerce, the Confederation of Irish Industry (CII) and the Irish Insurance Federation (IIF). The Committee also considered views expressed by Mr. John G. Roche, Director of the Quality Assurance Research Unit at University College Galway.

The Joint Committee wishes to express its appreciation to all those who assisted in the preparation of this Report.

B. CONSIDERATION OF DIRECTIVE

4.The purpose of the Directive on Product Liability is to impose responsibility by law on producers of products and their components for injury or loss occasioned to any person due to a defect in the product. This regime of strict liability would impose liability irrespective of the negligence of the defendant, though, unlike absolute liability, certain defences would be open to the producer. Liability under the Directive would be an additional legal redress to liability in tort and contract law which constitute the existing Irish law in this area. An injured party could, therefore, proceed with actions under any of these laws. Indeed, depending on the nature of the damage, there would be nothing to stop claims, in respect of the same offence, being made under each of the laws.

Scope of the Directive

5.With certain limited exceptions, the Directive applies to all products manufactured in, or put into circulation in the Community. Primary agricultural products (i.e. products of the soil, of stockfarming and of fisheries) and game are specifically excluded from the scope of the Directive. This exemption would not include products which have undergone processing of an industrial nature. According to the Department of Industry and Commerce it seems clear that the Directive will apply to processed products even in cases where the defect in the product was not caused by the industrial processing itself. Those involved in the processing of such products would be expected to discover any hidden defects, no matter how they were caused.

6.The Directive also defines ‘product’ as including electricity. This is intended solely to cover defects which are due to a failure in the process of production of electricity and not to defects which are due to external agents intervening once the electricity has been put into the network nor to damage resulting from a failure to supply.

It appears that ‘product’ as defined in the Directive will be very wide in its coverage. Any specific problems on the question of whether a particular ‘product’ (e.g. computer software) is covered by the Directive will ultimately be determined by the Courts.

7.The ‘producer’ is defined as the manufacturer of a finished product, component or raw material, or anyone who presents himself as the producer (e.g. own brand products). Where the producer cannot be identified, each supplier of the product that the producer will be treated as its producer, unless the identity of producer or any other person along the chain of supply is made known to the injured party. The importer of a product into the EEC will be treated as its producer.

8. A product will be regarded as defective when it does not provide the safety which a person would be entitled to expect, taking all circumstances into account including the presentation of the product, the use to which it would reasonably be expected that the product would be put and the time when the product was put into circulation. Furthermore, a product would not be considered defective for the sole reason that a better product was subsequently put into circulation.

9. Strict liability, as defined in the Directive, must be distinguished from absolute liability. Both apply irrespective of fault but absolute liability is subject to no defences. Strict liability allows several defences, including that of contributory negligence, on the part of the injured party. Other defences would include proof -

(i)that the producer did not put the product into circulation,

(ii)that the product was not defective when he put it into circulation,

(iii)that it was not manufactured for commercial purposes,

(iv)that the defect was due to the compliance of the product with mandatory regulations issued by public authorities. The expression “mandatory regulations” means regulations imposed by law, and

(v)that, in the case of the manufacturer/producer of a component/raw material, the damage was attributable to the design of the product of which the component/raw material is part.

The Directive also includes the so-called “state-of-the-art” defence.

10.Implementation of the Directive focuses on two main issues -

(1)the choice of implementing legislation. A Directive can be incorporated into domestic law through primary or secondary legislation. The former is achieved through the enactment of legislation by the Oireachtas and the latter through Ministerial Regulations under the European Communities Act, 1972,⁽¹⁾

(2)whether (i) to derogate from the norms of the Directive to include development risks and primary agricultural products and game and (ii) to opt for the imposition of financial limits on producers’ total liability.

Choice of Implementing Legislation

11.The CII is in favour of implementation of the Directive by Ministerial Regulations under the European Communities Act, 1972. It advocates the incorporation of the terms of the Directive into such Regulations on the grounds that, if a similar approach were adopted by other Member States, it would reduce the possibility of interpretative inconsistency which would inevitably manifest itself, through litigation, in increased costs for producer and consumer.

12.The IIF favour implementation of the Directive through secondary legislation particularly as this would expedite implementation. However, the IIF acknowledges that full implementation of the Directive may not be possible through secondary legislation.

13.The Department of Industry and Commerce have yet to take a final decision on the method of implementing the Directive into domestic law.

Development Risks/State of the Art Defence

14.A major area of contention during negotiations on the draft Directive was whether so called “development risks” should be included as a defence. The Directive, as adopted, excludes producers’ liability in respect of development risks by providing that the producer would not be liable if he proved that the state of scientific and technological knowledge at the time when he put the product into circulation was not such as to enable existence of the defect to be discovered. The Directive (Article 15) provides that, Member States, can be way of derogation from Article 7(e), introduce or maintain liability for development risk, but any country seeking such a derogation must follow the special procedure provided for in that Article. The Department of Industry and Commerce, informed the Joint Committee that, although no final decision has yet been taken, it is probable that Ireland will not seek a derogation to exclude the “state-of-the-art” defence.

The Joint Committee understands, however, that some member States-France, Luxembourg, Belgium and Denmark - are contemplating seeking a derogation to exclude the “state-of-the-art” defence and that Germany and Spain are also considering partial derogation ie to exclude the defence for all products except pharmaceuticals.

15.The CII strongly opposes derogation as it believes that it would be particularly unreasonable to make a producer liable for a defect which neither he nor anyone else could possibly have detected at the time he produced the article.

Furthermore, the CII contend that, if producers were to be made liable for latent defects in new products which were not capable of being discovered in the current state of science and technology, there would be a powerful disincentive to innovation which would have the effect of denying the public many useful and valuable new products.

16.The CII drew the Joint Committee’s attention to the significance of high technology to Irish industry (estimated at 42 per cent in 1985) which, in its view, makes a compelling case for not seeking a derogation to exclude the “state-of-the-art” defence.

17.The CII also pointed out that three countries (UK, Denmark and the Netherlands), which have so far introduced implementing legislation, as well as Austria which has introduced a Bill on similar lines, have all opted not to seek a derogation from Article 7 (e) of the Directive.

18.The CII are concerned that, although the norm established by the Directive includes the “state-of-the-art” defence at present, provision is, nevertheless, made for a review of this position in 10 years time.

19.The IIF is confident that insurance cover will continue to be available, though at an increased cost, under the terms of the Directive. It opposes derogation to exclude “state-of-the-art” defence as this would have a very significant effect on the cost of and, in certain circumstances, the availability of insurance cover.

20.The Director of the Quality Assurance Research Unit at UCG doubts the value of the development risks defence as he believes it would add enormously to the cost of defending a claim.

Primary Agricultural Products and Game

21.In order to include primary agricultural products and game within the scope of domestic implementing legislation it would be necessary for Member States to seek a derogation under Article 15 (i) (a) of the Directive. The Department of Industry and Commerce informed the Joint Committee that, while a final decision has not yet been taken, it is unlikely that a derogation will be sought. The Department also stated that this is likely to be the course that will be followed by most Member States.

22.While recognising that the norm of the Directive accords more favourable treatment to primary producers than to manufacturers, the CII acknowledges the force of the various arguments adduced in the course of the gestation of the Directive in favour of excepting primary agricultural products. It, therefore, does not press for a derogation in this respect, but insists that nothing in the method of implementation should take in any way from the redress which under existing law is available to a manufacturer of processed foods against suppliers of primary products in cases where a defect in the processed product is traceable to the primary products from which it is prepared.

23.The IIF are not in favour of seeking a derogation to include primary agricultural products and game.

24.The Director of the Quality Assurance Research Unit at UCG advances the case for seeking a derogation to include primary agricultural products on the basis of our international standing as a food exporting country. He feels that the inclusion of primary products within the scope of the Directive could project and enhance our image as a source of pure and wholesome foodstuffs.

Financial limits

25.The Directive does not set a financial limit on liability but it allows individual Member States to provide for a limit on the total liability of a producer resulting from a death or injury caused by identical items with the same defect, provided it is not less than 70m ECUs (IR£53m approx). However, in ten years time, any use of this option by Member States will be reviewed, in the light of its effect on consumer protection and the functioning of the common market, with a view to repealing it.

26.According to the Department of Industry and Commerce no final decision has been taken on whether this option of setting a financial limit will be taken up. The general feeling of most Member States and the Commission is that the limit is set at such a high level that it is equivalent to an unlimited liability system. The option of setting a limit was included at the insistence of a few Member States whose existing legislation already provided for such limits.

27.The CII maintains that the balance of advantage to Irish Industry lies with there being no upper limit. However, it feels that if other Member States impose a limit on total liability this country should enjoy an equal degree of protection.

28.The IIF are concerned that financial limits could become targets for claimants. It also draws attention to the difficulty associated with defining “identical items with the same defect” in order to invoke the limit on total liability.

The IIF maintains that unlimited liability for defective products will not materially affect the availability of product liability insurance at the levels currently sought by producers under our present system of unlimited liability. Overall, the IIF are not in favour of a financial limit.

C. VIEWS OF THE JOINT COMMITTEE

29.Adoption of the Directive on Product Liability is the culmination of years of protracted negotiation among Member States, and represents a significant advance in the area of consumer protection which the Joint Committee welcomes. It now remains to implement the Directive into Irish domestic law and this procedure raises several very important issues which have been referred to at paragraph 10 of this Report. The Joint Committee proposes to express its view on each of these, infra.

Choice of Implementing Legislation

30.The Joint Committee regards the method of implementing the Directive into Irish law as of paramount importance. Implementation can be achieved through primary (an Act of the Oireachtas) or secondary (Regulations under the European Communities Act, 1972) legislation.

The Joint Committee understands that the intention among most Member States is to proceed by way of primary legislation to implement the Directive. (In the UK, a statute ⁽¹⁾ has already been passed by Parliament).

The Joint Committee is strongly in favour of implementation in this country by way of an Act of the Oireachtas. The Directive raises many substantive issues, such as the shift in the burden of proof from the claimant to the producer, and above all the question of definition of key terms such as “product”, “producer”, “defect”, “development risk”, “damage” etc. Defining such concepts is, in the Joint Committee’s view, a primary function of the Oireachtas, particularly as the implementing legislation will have to be read in conjunction with existing law on tort and contract.

31.A well informed debate in the Dail and Seanad on an enabling Bill (accompanied by a detailed Explanatory Memorandum) would ensure that the issues involved in the Directive are fully considered. This procedure would allow for the tabling of amendments, where appropriate. It should, therefore, reduce the likelihood of interpretative rulings being sought through litigation.

32.The Joint Committee, while it acknowledges the valuable service performed by the Department of Industry and Commerce through the issue of a discussion document on the implementation of the Directive, is not entirely satisfied as to the adequacy of consultation with consumers and their representative bodies. The initiation of a Bill and the ensuing parliamentary debate would serve to rectify this deficiency.

33.The Joint Committee feels that it is important not to delay the introduction of implementing legislation as producers will need time to adjust their operations to the new regime of strict liability, such as the negotiation of adequate insurance cover.

34.The alternative to enactment of legislation by the Oireachtas to implement the Directive is for the Minister for Industry and Commerce to make Regulations under the European Communities Act, 1972. Oversight of such Regulations has been delegated by the Oireachtas to the Joint Committee which has been assigned the statutory power ⁽¹⁾ to recommend annulment of the Regulations to the Houses of the Oireachtas, if it see fit. The Joint Committee has, however, no statutory power to recommend amendment of the Regulations.

35.Where EC Directives have been implemented in the past through Ministerial Regulations, the Joint Committee has been critical ⁽²⁾ of the practice of incorporation of the terms of Directives by reference as this procedure frequently employed terminology not familiar in the Irish legislative conte:

The Joint Committee feels that it would be singularly inappropriate on this occasion to resort to secondary legislation as the terms of the Directive need to be defined with precision and accuracy. This is a legislative function appropriate to the Oireachtas.

Development Risks

36. The Joint Committee feels that the balance of advantage favours not seeking a derogation from the Directive to exclude the “state-of-the-art” defence.

It agrees that derogation

In this respect would impede our economic development and industrial progress by discouraging innovation in pioneering industries, such as pharmaceuticals and electronics, which make a major contribution to our industrial exports.

The Joint Committee is satisfied that the exclusion of “state-of-the-art defence” would almost certainly mean higher insurance premiums for producers which would damage their competitive position.

Primary Agricultural Products and Game

37. While it appears that most Member States will not seek a derogation from Article 2 of the Directive to include primary agricultural products and game, the Joint Committee understands that France and Luxembourg will follow the special procedures laid down in Article 15 to include such products.

The Joint Committee urges that, before any decision by this country is taken whether or not to exclude primary agricultural products and game, careful consideration be given to the position of Ireland as major food producer.

Financial Limits

38.The Joint Committee sees little advantage in exercising the option under the Directive of setting financial limits, particularly at the minimum level of 70m ECUs (IR£53m). The setting of a financial limit on the producer’s overall liability could have the effect of treating claims on a pre-emptive basis or, in the case of major “damage” (such as injury resulting from a defective pharmaceutical) “product”), failure to compensate the victims adequately.

39.The only grounds on which the Joint Committee would countenance the exercise of this option by Ireland is the avoidance of distortion of competition in favour of our Community partners should a significant number of them decide to impose a ceiling on producers’ total liability.

Limitation Periods for Proceedings and Extinction of such rights

40. Article 10 of the Directive requires Member States to provide in their legislation for a limitation period of three years in respect of proceedings for the recovery of damages. The Joint Committee notes, however, that national laws regulating suspension or interruption of the limitation period shall not be affected by the Directive.

41. Article 11 of the Directive imposes the obligation on Member States to provide in their legislation that the rights conferred upon the injured person be extinguished after a ten-year period from the date on which the producer put into circulation the actual product which caused the damage, unless the injured person has in the meantime instituted proceedings against the producer.

42. The Law Reform Commission, in a recent Report⁽¹⁾ has pointed out that the effect of Article 11 in extinguishing the injured person’s rights after this ten-year period is to render inoperative the laws of Member States regulating suspension or interruption of the limitation period. The Commission cites minority and mental incapacity as examples of where national laws would have no effect in relation to protraction of limitation periods.

43. The Joint Committee sees the provision of Article 11 as an attempt to balance the rights of producers and consumers. The former has a reasonable case to be freed of liability for proving that a product was defective after a specified period. This introduces a degree of certainty in relation to assessment of risks and provision of insurance cover and places a limit on expensive record keeping which ultimately is reflected in higher consumer costs. On the other hand, many products have a life-span of more than ten years, ships for example. A problem could also arise for a consumer in relation to multi-component products where, in effect, a different limitation period could apply to each component. This could involve a consumer in costly litigation.

44. The Joint Committee accepts that as the Directive has already been adopted the provisions of Articles 10 and 11 must be incorporated into our domestic law. However, should proposals be put forward by the European Commission in connection with amendment of the Directive these issues could be further considered.

D. CONCLUSION

45.The Joint Committee has followed the progress of the Directive since its first publication in draft form in 1976 and is pleased that it is now about to be implemented into domestic law. It sees the Directive as a bench-mark in consumer protection policy. It urges implementation through primary legislation where debates in the Dail and Seanad on the various stages of the enabling Bill would allow for the incorporation into Irish law of the terms of the Directive, precisely and accurately, in familiar Irish legislative terminology, and would apprise consumers of their newly acquired rights and encourage their exercise.

46.The Joint Committee commends the representative bodies of industrialists for their endeavours to familiarise their members with the implications of the Directive and endorses their conclusion that the best defence industry has against possible debilitating claims for compensation is proper quality control and adequate insurance cover.

47. Finally, the Joint Committee urges the early initiation of an enabling Bill to implement the Directive so that producers and consumers can have adequate time to study its provisions, in view of the time constraint on implementation (30 July, 1988).

(1) 53rd Report “Proposed Directive on Product Liability” (Prl 6167) adopted 23 March, 1977.

(2) 90th Report “Liability for Defective Products” (Prl 9823) adopted 13 May, 1981.

(1) No. 27 of 1972.

(1) Consumer Protection Act, 1987 (1987 Chapter 43).

(1) European Communities Act, 1973 (No. 20 of 1973) S. 1(b).

(2) Report No. 23 of 18 December, 1985.

(1) The Law Reform Commission, Ardilaun Centre, 111 St. Stephen’s Green, Dublin 2. (LRD 21-1987).