The Gazette 1986

MARCH 1986

GAZETTE

The EEC Directive on Products Liability P A R T I

by Wi l l i am Bi nchy, B . A . , B . C . L ., LL .M., Barrister-at-Law

O ur law relating to products liability has in recent years greatly extended the protection given to those who suffer injury or damage from dangerous or defective products. In contract, the Sale of Goods and Supply of Services Act 1980 has conferred important new statutory protection; the law of negligence has con- tinued to expand the range of liability in respect of products, the most notable example being the High Court decision in Ward -v- McMaster and Louth Co. Co. 1 Moreover, the decision in Kearney -v- Paul and Vincent Ltd. 2 though not imposing liability on the facts, expressed the principles of products liability in fairly broad terms. Activity has also been apparent at the international level. The Council of Europe has established a Conven- tion on the subject of products liability. More recently on 25 July 1985 the European Economic Community has issued a Directive on the subject. The Directive has important implications for Irish law. This article will consider some of these implications and seek to place the Directive in the broader context of international thinking on products liability over the past decade. The Preparation of the Directive The Commission of the European Economic Com- munities presented its draft Directive on Product Liabil- ity to the Council in September 1976/ Negotiations between the EEC countries then followed and, as has been mentioned, the Directive was finally implemented on 25 July 1985. 4 The Directive extends only to Member States (Article 22). Article 19 of the Directive requires Member States to bring into force, not later than three years from the date of notification of the Directive - 30 July 1985 - the laws, regulations and administrative provisions necessary to comply with the Directive. It should be noted that the Directive supplements, rather than replaces, the existing remedies in tort and contract under Irish law: Article 13. The Socio-Economic Background Increased concern for the rights of injured consumers is, of course, a feature of European and North American culture over the past twenty years - Ralph Nader is still regarded by very many people as a champion of their interests. It is interesting, therefore, to note that the Directive springs only in part from the urge to solve the problem of fair apportionment of risks inherent in modern technological production. The Directive also stresses the fact that approximation of the laws of the Member States is necessary because "the existing divergences may distort competition and affect the movement of goods within the common market . . . " The economic arguments for and against strict liabil- ity for products are worth mentioning briefly. It has

been noted by one expert that strict liability substantially reduces litigation costs, inhibits socially unacceptable side effects and reflects the lack of bargaining equality between consumers and producers/ But the same expert also mentions some drawbacks: "Firstly, strict producer liability will have roughly the same effects on prices as an indirect tax. Moreover, producer liability leads to a redistribution of income away from consumers who incur low accident costs (presumably poorer consumers) to those with higher accident costs (the richer consumers). Both effects are regressive and many would argue that on equity grounds they should be avoided. A second problem is that in as much as direct product regulation or the imposition of producer liability is a restriction on the freedom of producers to maximise long-run profits, innovation may be retarded and consumers may eventually be denied products which could have ben- efited them greatly. This effect will be most marked in technically progressive industries such as pharma- ceuticals, where the product comes in very direct contact with the consumer (for example, foodstuffs) and where small firms are involved. Small firms have historically been highly innovative but might also be unable to compete in the future given the substantial economies of scale to insurance which arise from risk-spreading." 6 In Britain, the Pearson Commission also adverted to some of these difficulties but took the view that, " f or most industries, the cost of products liability insurance would be small in relation to other costs. . . " / The economic arguments range far more widely than this brief summary. A helpful series of articles by leading authors from the United States is contained in the Sym- posium on Products Liability: Economic Analysis and the Law. 6 After these very general observations, let us turn to consider the main features of the Directive. The Main Features of the Directive The essence of the Directive is contained in Article 1, which is drafted with commendable simplicity: "The producer shall be liable for damage caused by a defect in his product." There are, of course, some important qualifications to this statement of general principle, but the main notion is clear: liability is based, not on wrongful con- duct by the producer, which (in theory at least) is the hallmark of negligence, but merely on proof of a fact, that a defect in the product caused the plaintiff damage'. Whether it is all that easy to avoid the elaborate norm- ative scaffolding of negligence law - the duty of care, unreasonable conduct, the reasonable man, for example - is a question we will consider later in this article.

37