PRODUCT LIABILITY: Fundamental Questions in a Comparative Perspective 9783110547559, 9783110546002

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Helmut KOZIOL, Michael D GREEN, Mark LUNNEY, Ken OLIPHANT, YANG Lixin (eds) Product Liability

Product Liability Fundamental Questions in a Comparative Perspective

| Helmut KOZIOL Michael D GREEN Mark LUNNEY Ken OLIPHANT YANG Lixin (eds) With Contributions by Enrique BARROS BOURIE • Jean Sébastien BORGHETTI • Jung-Lung CHEN • Andreas Bloch EHLERS • Anton FAGAN • Bruce FELDTHUSEN • John CP GOLDBERG • Michael D GREEN • Rahmah ISMAIL • Ernst KARNER • Helmut KOZIOL • LEONG Cheng Hang • Mark LUNNEY • Anisah Che NGAH • Donal NOLAN • Ken OLIPHANT • Ronen PERRY • Olesya PETROL • Alessandro SCARSO • Catherine M SHARKEY • Yoshio SHIOMI • SO Jae-Seon • SONG Jung-Eun • TONG Io Cheng • Vibe ULFBECK • Willem H VAN BOOM • Gerhard WAGNER • Alexander YAGELNITSKIY • YANG Lixin • YANG Zhen • Sakina Shaik Ahmad YUSOFF

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Preface | V

Preface Preface Preface

The editors are proud to have supervised the present volume, which to their knowledge is the first book-length analysis of comparative product liability laws around the globe written by scholars representative of the whole world, an achievement only possible due to the efforts of the World Tort Law Society (WTLS). In 2012, at the suggestion of Prof YANG Lixin, Renmin University, Beijing, the latter was jointly founded by the Research Center for Civil and Commercial Jurisprudence of the Renmin University, Beijing, China, and the Institute for European Tort Law (ETL) and European Centre of Tort and Insurance Law (ECTIL), both Vienna, Austria. The aim of the Society is to create a forum for discussion of current developments in tort law on a global scale. The first President of the Society is Prof Helmut KOZIOL (Vienna, Austria). The executive committee consists of Prof YANG Lixin, Prof Ken OLIPHANT (Bristol, UK) and Prof Michael D GREEN (Wake Forest, USA), supported by Prof WANG Zhu (Chengdu, China). The other members of the Society – numbering up to a maximum of 30 – are tort law researchers from around the world. The topic of the WTLS’s first research project is product liability. This is an area of law which constitutes ideal subject matter for the Society’s endeavours, as it plays an important practical role in various jurisdictions and, at the time of writing, there has been no other book-length legal study of global scope. The first conference took place in Harbin, China, in the autumn of 2013 and its organisation was shared by all of the partner institutions of the WTLS. During the conference, current product liability issues in the individual jurisdictions and certain basic questions were analysed – the latter through abstract questions and concrete cases – and solutions to problems were discussed. The results were already published in 2015 in Chinese. ‘Product Liability’ was also the topic dealt with at the second conference of the WTLS in Vienna in autumn 2015: it was organised by ETL/ECTIL and took place on 17 September 2015 at the Austrian Ministry of Justice. The conference provided the framework for the work of the WTLS. Helmut KOZIOL (ECTIL) presented his personal comparative conclusions, on which other members offered their comments: YANG Lixin (Renmin University, Beijing), Catherine M SHARKEY (New York University), Ken OLIPHANT (University of Bristol) and Anton FAGAN (University of Cape Town, South Africa). The editing of the greater part of the English contributions written by nonnative speakers has been undertaken by Michael D GREEN, Ken OLIPHANT and Mark LUNNEY (Armidale, Australia). The manuscript has been made ready for press and the publication organised by WANG Zhu and the ETL/ECTIL staff, in particular Helmut KOZIOL together with David MESSNER, Johannes ANGYAN, Fiona SALTER-TOWNSHEND, and Kathrin KARNER.

VI | Preface

It is hoped that this book will be the first of a series published by the WTLS, with the next to concern ‘Road Traffic Accidents’. The reports have been drafted on the basis of a common questionnaire addressing general issues of policy and principle and a selection of hypothetical cases to illustrate how the law might be applied to concrete facts. The questionnaire was initially drafted by Helmut KOZIOL, and the cases by Ken OLIPHANT, in consultation with each other and then with the full executive committee. As regards the various continents, countries and authors, the book is structured in alphabetical order. For Asia, individual country reports and a comparative report have been drafted; for Europe, North America and the Rest of the World, group reports are provided. The volume closes with concluding remarks, outlining not the ‘official’ view of the WTLS, but the author’s personal opinion and the statements of four representatives of different parts of the world. Helmut KOZIOL Michael D GREEN Mark LUNNEY Ken OLIPHANT YANG Lixin

Table of Contents | VII

Table of Contents Table of Contents Table of Contents

Preface | V List of Abbreviations | IX

Questions for Discussion (Helmut Koziol) | 3 Hypothetical Cases for Discussion (Ken Oliphant) | 9 Introductory Lecture (Helmut Koziol) | 13 Asia and Russia China (Yang Lixin/Yang Zhen) | 29 Japan (Yoshio Shiomi) | 62 Korea (So Jae-Seon/Song Jung-Eun) | 80 Macao (Tong Io Cheng/Leong Cheng Hang) | 97 Malaysia (Anisah Che Ngah/Sakina Shaik Ahmad Yusoff/ Rahmah Ismail) | 120 Russia (Alexander Yagelnitskiy/Olesya Petrol) | 147 Taiwan (Jung-Lung Chen) | 179 Comparative Report for Asia and Russia (Yang Lixin) | 215 European Group Report (Willem H van Boom/Jean-Sébastien Borghetti/ Andreas Bloch Ehlers/Ernst Karner/Donal Nolan/Ken Oliphant/ Alessandro Scarso/Vibe Ulfbeck/Gerhard Wagner) | 253 North American Group Report (Bruce Feldthusen/John CP Goldberg/ Michael D Green/Catherine M Sharkey) | 357 Report for the Rest of the World (Enrique Barros Bourie/Anton Fagan/ Mark Lunney/Ronen Perry) | 411 Comparative Conclusions (Helmut Koziol) | 499 Statements in Response to the Conclusions Statement from an Asian Perspective (Yang Lixin) | 553 Statement from a European Common Law Perspective (Ken Oliphant) | 561

VIII | Table of Contents

Statement from a Continental European Perspective (Willem H van Boom) | 574 Statement from the Perspective of the Rest of the World (Anton Fagan) | 593

List of Contributors | 601 Index | 605

Abbreviations | IX

List of Abbreviations Abbreviations Abbreviations

A A 2d AC ACL AD Admin Reg All ER ALR AM Am L & Econ Rev AMR Am J Comp L Ariz L Rev Ark L Rev

Atlantic Reporter, Second Series Appeal Cases Australian Consumer Law Appellate Division Reports Administrative Regulation All England Law Reports Australian Law Reports Revista de Aministração Pública de Macau American Law and Economics Review All Malaysia Reports American Journal of Comparative Law Arizona Law Review Arkansas Law Review

B BCJ BGB BGH BGHZ BMJ BMLR Brook L Rev Bull civ BW

British Columbia Judgments Bürgerliches Gesetzbuch Bundesgerichtshof Entscheidungen des BGH in Zivilsachen Boletim do Ministerio da Justiça Butterworths Medico-Legal Reports Brooklyn Law Review Bulletin des arrêts de la Cour de cassation, chambre civile Burgerlijk Wetboek

C CA Cal L Rev Cal Rptr Cardozo L Rev Cass Cass civ Cass com CBER CCLT CE ass CFR CJEU CLR CPA Ct App

Cour d’appell California Law Review California Reporter Cardozo Law Review Corte di cassazione Cour de cassation, chambre civile Cour de cassation, chambre commerciale Center for Biologic Evaluation and Research Canadian Cases on the Law of Torts Conseil d’Etat in administrative matters United States Code of Federal Regulations Court of Justice of the European Union Commonwealth Law Reports Consumer Protection Act Court of Appeal

X | Abbreviations

D D Danno resp DLR

Dalloz Danno e responsabilità Dominion Law Reports

E ECJ ECLI ECR EFS Eng Rep EWHC Exch

European Court of Justice European Case Law Identifier European Court Reports Etablissement français du sang English Reports England & Wales High Court Exchequer Reports

F F 2d FCA FCFCA FDA Foro it FRD F Supp

Federal Reporter, Second Series Federal Court of Australia Full Court Federal Court of Australia Food and Drug Administration Foro italiano Federal Rules Decisions Federal Supplement

G Gaz Pal Giur it Giur mer Giust civ GJ

Gazette du Palais Giurisprudenza italiana Giurisprudenza di merito Giustizia civile Gaceta Judicial

H HCA HL Hofstra L Rev HR

High Court of Australia House of Lords Hofstra Law Review Hoge Raad der Nederlanden

I ICBR

J JBl JCP JCP G JJS JLMB JLS

International Conference on Business and Economic Research

Juristische Blätter Journal of Consumer Policy Juris Classeur Périodique Edition Générale Journal of Juridical Studies Jurisprudence de Liège; Mons et Bruxelles Journal of Legal Studies

Abbreviations | XI

J Pharm & L JZ

Journal of Pharmacy and Law Juristenzeitung

K KB KBB

King’s Bench Kurzkommentar zum ABGB (Koziol/Bydlinski/Bollenberger)

L L & Hum Behav LCBR Leg Stud LGUC

LQR

Law and Human Behavior (Russian) Law on the Consumers’ Rights Protection Legal Studies Ley General de Urbanismo e Construcciones / Chilean General City Planning and Construction Act Lloyd’s Law Reports Medical Ley de Protección al Consumidor / Chilean Consumer Protection Act Law Quarterly Review

M Mass giur it MDA Miss LJ MLJ MLR

Massimario dell giurisprudenza italiana Magen David Adom Mississippi Law Journal Malayan Law Journal Modern Law Review

N NC L Rev NE 2d NGCC NJ NJW NW 2d NY CA NY S 2d NYU L Rev

North Carolina Law Review North Eastern Reporter, Second Series Nuova giurisprudenza civile commentata Nederlandse Jurisprudentie Neue Juristische Wochenschrift North Western Reporter, Second Series New York Court of Appeals New York Supplement, Second Series New York University Law Review

O OGH OJ OJLS Okla L Rev ONSC OR

Oberster Gerichtshof Official Journal Oxford Journal of Legal Studies Oklahoma Law Review Ontario Superior Court of Justice Oregon Reports

P P 2d PD

Pacific Reporter, Second Series Piskei Din

Lloyd’s Rep Med LPC

XII | Abbreviations

PHG PLA PLD

Produkthaftungsgesetz Products Liability Act Directive on Liability for Defective Products

Q QBD

Queen’s Bench Division

R RabelsZ Rb RDJ RDLC Rep Foro it Resp civ Rev Der Priv Riv dir civ RSQ

Rabels Zeitschrift für ausländisches und internationales Privatrecht Arrondissementsrechtbank Revista de Derecho y Jurisprudencia Revue des droits de la concurrence Repertorio del Foro italiano Responsabilità civile e previdenza Revista de Derecho Privado Rivista di diritto civile Revised Statutes of Quebec

S SA SALJ San Diego L Rev SCA S Cal L Rev SCC SCL Rev SCR S Ct SE 2d So 2d SQ Stan L Rev St Mary’s LJ SUV SW 2d

South African Law Reports South African Law Journal San Diego Law Review (South African) Supreme Court of Appeal Southern California Law Review Supreme Court of Canada South Carolina Law Review (Canadian) Supreme Court Reports Supreme Court South Eastern Reporter, Second Series Southern Reporter, Second Series Statutes of Quebec Stanford Law Review Saint Mary’s Law Journal Sports Utility Vehicle South Western Reporter, Second Series

T TBB Tel Aviv U Stud L Tenn Code Ann TGI TPC Tul L Rev

Tidsskrift for Bolig- og Byggeret Tel Aviv University Studies in Law Tennessee Code Annotated Tribunal de Grande Instance Town Planning Code Tulane Law Review

U U UCC

Ugeskrift for Retsvӕsen Uniform Commercial Code

Abbreviations | XIII

UCLA L Rev US USC

University of California at Los Angeles Law Review United States Supreme Court Reports United States Code

V Van L Rev VersR

Vanderbuilt Law Review Versicherungsrecht

W Wis Stat WLR

Wisconsin Statutes Weekly Law Reports

Y Yale LJ

Yale Law Journal

Z ZGH Z Vgl RWiss

Zeitschrift für das Gesamte Handelsrecht Zeitschrift für Vergleichende Rechtswissenschaft

XIV | Abbreviations

Questions for Discussion | 1

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Hypothetical Cases and Introduction

2 | Helmut Koziol

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Questions for Discussion | 3

___Helmut Koziol ___ ___ Questions for Discussion Helmut Koziol https://doi.org/10.1515/9783110547559-001 ___ ___In most legal systems producers are now subject to special liability regimes ___which appear much stricter than the fault-based liability regime applying in ___general: producers are liable irrespective of fault for damage caused by defec___tive products they put into circulation. These stricter rules on product liabil___ity originate in the USA but the concept spread rather quickly worldwide. It ___inspired, for example, the European Union to design its Product Liability Di___rective (Council Directive 85/374/EEC of 25 July 1985), which is not only influ___ential in the EU but has also provided the conceptual basis for new laws ___elsewhere. The almost worldwide tendency to provide for strict product liability ___ ___raises quite a few interesting questions, which should – as far as possible – ___be discussed in the analyses to be provided of the hypothetical cases and ___otherwise in introductions to those analyses. To some extent the questions ___can be subdivided into those which can be characterised as fundamental ___insofar as they go to the reasons for introducing strict product liability and ___its justification, and those focussing upon the concepts employed. I will ___start with the fundamental questions and then go on to the conceptual is___sues. ___ ___ ___ I. Reasons for introducing strict product ___ liability ___ ___ ___It appears that worldwide – with the possible exception of France – there ___was a prevailing impression of an urgent need to provide for the stricter li___ability for producers who put defective products into circulation and, there___fore, the American concept spread very quickly. But was there really such a ___need and, if so, why did it arise? What gaps existed in the reasonable pro___tection of both buyers and third persons and what were and are the short___comings of the general rules? For example, was the borderline between con___tractual and delictual liability a source of problems? Or was the regime of ___liability for others (agents, employees, etc) inadequate? Or was the protection ___of pure economic interests at stake? Or was it the opinion that the require___ment of fault in establishing liability was unreasonable? Or the difficulties in ___proving fault?

Questions for Discussion

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4 | Helmut Koziol

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II. The justification for strict product liability The further basic question seems to be how such strict liability can be justified. The imputation of liability always needs convincing reasons and, if liability is to be independent of fault, the most widely accepted criterion, some alternative criterion must be clearly enunciated. The answer to this question is, of course, decisive in laying down the reasonable scope of product liability, in solving questions of conceptual detail and in the interpretation of legislative provisions. Last but not least: if the WTLS wants to make recommendations on the development of product liability and worldwide harmonisation, then such recommendations can only be convincing if they are based on reasonable and comprehensible arguments. A number of possible justifications for strict product liability may be identified and evaluated.

A. Control of a dangerous thing In many legal systems keepers of dangerous things are strictly liable because they have the power to exercise influence over them. Might the same idea underlie strict product liability? Or is it an objection that the producer is no longer the keeper of a product when he or she has put it into circulation and damage occurs? In this context, is it significant that the dangerousness of defective products is in general qualitatively different from, for example, the dangerousness of nuclear plants, railways or motor cars, to mention the most important sources of danger for which strict liability is provided under many legal systems. A product is defective only if the product does not offer the safety that one is entitled to expect taking all the circumstances into account. In general, however, the danger emanating from the defect cannot be considered very great since many products, even in a defective state, are not likely to bring about extensive damage or to substantially increase the frequency of damage occurring. Typical examples are bent paper clips or rotten food insofar as they can only result in harmless scratches or temporary nausea respectively. In comparison, rules on strict liability which are based on dangerousness show that the high probability of causing damage and the extent of the possible damage are decisive considerations. A more fundamental reason for doubting that the danger caused by a product defect is able to justify strict liability may also be highlighted. The general, abstract danger generated by things or facilities such as, for example, nuclear

Questions for Discussion | 5

___plants or motor cars, serves the interest of the keeper; dangerousness and useful___ness are thus inter-related. The specific danger arising in the individual case as ___the result of a defect is, on the other hand, usually not beneficial in any way to the ___entrepreneur; on the contrary, the product’s defectiveness runs contrary to his in___terests. Can such concrete dangerousness nevertheless justify strict liability? ___ ___ ___B. Protection against the risks inherent in industrial ___ production ___ ___What about the justification for the European Directive provided by the legisla___tor? The Directive very clearly states that liability without fault should apply ___only to movables which have been industrially produced. The idea that the pur___chaser needs special protection against the special risks of anomalies associated ___with industrial mass production seems worth discussing as, in spite of all rea___sonable measures, product defects can never be absolutely excluded in the case ___of mass production nor can inspection always prevent defective products from ___being placed on the market. The wording of the Directive, however, relaxes the ___limitation to industrial products so that the liability set out also applies to ___handmade and artistic, custom-made items, and since 1999 also to agricultural ___products. Moreover, would the idea of the inevitable risks inherent in industrial ___mass production really justify liability for damage deriving from defective con___struction or inadequate instructions for use? ___ ___ ___C. Enterprise liability ___ ___Can the strong trend – especially in Europe but also in the USA – towards a spe___cial, more stringent liability for entrepreneurs (’enterprise liability’) help to jus___tify the strict liability of producers? Perhaps not, inasmuch as such liability – at ___least, in some conceptions – remains fault-based but with a reversed burden of ___proof (see eg Art 4:202 of the Principles of European Tort Law), and so would by ___no means be as strict as the liability on producers. ___ ___ ___D. A risk community ___ ___Would it be possible to call on the notion of the risk community? If the producer ___serves as a clearing house for all damage caused by his products, he or she can ___pass on all the compensation costs to the clients in general, who are the ones who

6 | Helmut Koziol

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derive advantages from the products. In particular, no-fault product liability laws have the effect that the position of the entrepreneur is approximated with that of an insurer, when seen from a functional perspective: the liability risks generated are taken into account by entrepreneurs in their price calculations, so that clients may be understood as a risk community, who from an economic perspective ultimately bear the costs of the risk-related liability regime imposed on the entrepreneur. However, this idea only applies when the acquirer of the goods suffers damage, and not when the damage is suffered by a third party.

E. Other justifications Are there any further ideas – for example, insurability – which may be able to justify the producer’s strict liability? Can economic analysis help to provide insight into this area?

III. Inconsistencies connected with product liability? It may be that a convincing justification can be given for strict liability on producers, but that such justification covers only part of the scope of the liability accepted today or that it also covers some areas which are currently not under the regime of strict product liability. Thus it could be the case that the general justification for strict product liability is not able to cover the inclusion of innocent bystanders in the circle of protected persons. On the other hand, the justification could raise the question of why fellow-entrepreneurs are not protected to the same extent as consumers or why strict liability does not arise in cases of damage caused by defective services or why only movables are subject to strict liability and not buildings or bridges or why some legal systems have a different regime for medicines, or why immaterial loss does not have to be compensated in some countries. One can imagine that quite a number of similar questions arise, varying in the individual legal systems.

IV. Conceptual issues The rules on product liability raise many questions of detail which are important in practice. A few worth mentioning are, for example, how “defect” is de-

Questions for Discussion | 7

___fined, whether a product’s failure to provide protection against harm (as in the ___case of a drug or weedkiller) can be a defect, what is to be understood by the ___terms ‘supply’ and ‘putting into circulation’, and who is a ‘producer’? The de___fences available in respect of a claim also cause not insignificant difficulties. ___ These conceptual issues are intrinsically linked with the fundamental ques___tions of need and justification highlighted in Sections 1 and 2 above, because ___the concepts employed should be adequate to meet the deficiencies that strict ___product liability was intended to address, and should reflect and support the ___justifications provided for it. ___ ___ ___V. Deficiencies of the rules in practice ___ ___What are the deficiencies of the rules on product liability in your legal system? ___ ___ ___VI. Further questions ___ ___Each respondent is requested to highlight further issues he or she thinks to be of ___relevance. ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

8 | Helmut Koziol

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Hypothetical Cases for Discussion | 9

___Ken Oliphant ___ ___ Hypothetical Cases for Discussion Ken Oliphant https://doi.org/10.1515/9783110547559-002 ___ ___ ___Case 1: Brake Pad Failure ___ ___X Ltd manufactures bicycles. In 2011, it started to use a new material for its ___brake pads, which X Ltd believed on the basis of its testing to be a cheaper, lon___ger-lasting and generally more effective alternative to traditional materials. X ___Ltd was aware of a very small risk that – given a combination of particular cir___cumstances (temperature, surface water, oil, etc) – the new brake-pad material ___might suddenly be rendered ineffective, but it considered that the risk was like___ly to eventuate only very rarely and did not outweigh the general advantages of ___the new material. It included a statement about the possibility of failure in the ___small print of the product instructions supplied with all of its bicycles incorpo___rating the new brake pads. A, who purchased one of the bicycles, is one of a ___handful of people injured in accidents attributable to the failure of the new bra___ke pads; A’s bicycle is also damaged. B, a passer-by, is injured in the same acci___dent. ___ ___ ___A. Analysis ___ ___What is X Ltd’s liability to A and B? Pay particular attention to the various pos___sible bases of liability (a general tortious liability for fault, vicarious liability, ___contractual liability, or a special strict liability regime?). Would it make any dif___ference to your analysis if Y, who is (i) an employed researcher in X Ltd’s labora___tory, or alternatively (ii) an independent research contractor, had covered up ___the risk that the new brake-pad material might fail? ___ ___ ___B. Commentary ___ ___What does your analysis demonstrate about the reasons for introducing strict ___product liability and the justifications that may be given for it? Do these justifi___cations apply where (as in the present case) the injury is caused by a standard ___product and results from choices made in the design process? And where the ___victim is a third party rather than the purchaser? Is the resulting liability truly a ___strict liability or does it ultimately rest on fault?

Hypothetical Cases for Discussion

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10 | Ken Oliphant

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Case 2: Infected Blood A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. At the time, the risk of Hepatitis N in donated blood had been identified in a single published paper in a scientific journal, but only a handful of research laboratories in the world had the capacity to test for its presence in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the condition’s existence came to be generally accepted and that a test was developed that allowed hospitals and blood suppliers to screen out infected parcels of blood.

A. Analysis What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if A contracted the virus as the result of a blood transfusion conducted in 2001, but her condition only manifested itself in 2012? (In this context, consider in particular differences in the time limits applied to the various possible bases of liability.)

B. Commentary What does your analysis demonstrate about the reasons for introducing strict product liability? In particular, why are ordinary principles of fault-based, vicarious and contractual liability considered insufficient? What does your analysis demonstrate about the justifications that may be given for strict product liability? Do these justifications apply where (as in the present case) the injury is caused by a non-standard product and results from a failure to identify a preexisting defect in the individual product?

Hypothetical Cases for Discussion | 11

___ Case 3: Bridge Collapse ___ ___A, a pedestrian using a public right of way, is injured by the collapse of a bridge ___constructed by X Ltd on land belonging to Y, who commissioned the construc___tion, on the basis of a plan drawn up by architect Z, whom Y also commissioned ___directly. It transpires that Z’s plan was defective and caused the collapse. Y in___curs the cost of instructing a different architect to redesign the bridge. Under the ___terms of its initial engagement, X Ltd is obliged to construct the new bridge for ___no additional remuneration. ___ ___ ___A. Analysis ___ ___What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ___‘product’, and so subject to strict product liability, or does it merely represent ___the performance by Z of a service, to which some alternative liability regime ap___plies? ___ What further liability, if any, does Z have to X Ltd and Y, whether on the ba___sis of a direct claim or a recourse action? ___ ___ ___B. Commentary ___ ___What does your analysis demonstrate about the coherence of strict product li___ability as it exists in your jurisdiction, paying particular attention to the limits ___on its scope. Identify the various alternative types of liability that could arise ___(including contractual liability), and highlight the main differences between ___them. To what extent is liability for immovables different from liability for mov___ables, and is this justified? To what extent is liability for the supply of services ___different from liability for the supply of products, and is this justified? ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

12 | Ken Oliphant

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Introductory Lecture | 13

___Helmut Koziol ___ ___ Introductory Lecture Helmut Koziol https://doi.org/10.1515/9783110547559-003 ___ ___Contents ___I. General Remarks | 13 ___II. The Interplay of Contract Law and Tort Law | 16 ___III. The Fundamental Questions Under Tort Law | 18 ___ ___ ___I. General Remarks ___ ___We must thank Prof Yang Lixin not only for creating the wonderful idea of 1/1 ___founding the World Tort Law Society and for inviting us to our first conference ___in such beautiful surroundings but also for suggesting ‘product liability’ as the ___first topic. I think that in discussing this topic we will have an opportunity to ___take advantage of the expertise of so many tort lawyers coming from all over the ___world: they are the representatives of very different legal systems – from east ___and west, north and south, with common law and codified law; they are used to ___quite different legal cultures and different legal thinking. Therefore, in our dis___cussions we will learn about other legal systems and thus afterwards be able to ___understand each other better; further, we will have the opportunity to explore ___which differences in legal culture we have to take regard of and which largely ___diverging habitual ways of thinking may be influential. By this means, we will ___also be in a position to recognize the common bases as well as the lack of uni___formity, we will receive much valuable stimulation, will be inspired by alter___native solutions and discover new tools for solving problems, become more ___open-minded for different ideas and increase our understanding of fundamental ___perspectives. However, we will without doubt also gain the experience that to reach these 1/2 ___ ___goals we have to overcome quite some difficulties. First of all, it is obvious ___that there are language barriers as we speak many different mother tongues, ___many know only their own language and as far as I know no one is able to un___derstand all the native languages spoken by our members. It is already difficult ___enough to take this hurdle by using only one or two ‘official’ languages or by ___translating our statements and papers. Lawyers – unlike the scholars of nearly ___all the other sciences – have to be aware of a more hidden and, therefore, even ___more dangerous source of misunderstanding each other: law and language are ___linked to one another in a special and very close manner; further, the terminol___ogy used by lawyers is marked by the whole legal system. Therefore, even pri-

Introductory Lecture

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14 | Helmut Koziol

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vate lawyers who use the same language, such as Germans and Austrians, are exposed to the danger of misunderstanding each other: the words ‘Sache’ (thing), ‘Besitz’ (possession) or ‘Rechtswidrigkeit’ (wrongfulness) and ‘Verschulden’ (fault) have quite different meanings. I am sure that our members who speak a sort of English as mother language can provide similar examples. Therefore, if lawyers want to understand each other, they have to define the concepts and terms. However, it must also be pointed out that besides these language problems quite a few further dangers lurk when it comes to trying to understand or seeking to draw inspiration from foreign legal systems; the risk one runs is all the greater, the more different the legal systems are. When I talk about differences, I not only refer to the differences in the part of private law which is primarily under discussion, in our context in tort law, but also in the other parts of private law. The discussion of product liability in itself will show us the inseparability of tort law from contract law. Further I refer also to fundamental divergences in the overall legal systems,1 eg including the social security system, administrative law and criminal law. Such a broad angle of view is necessary because of the interplay with all these areas: tort law and in particular product liability law is interrelated with nearly all legal areas and therefore all of them may be of greatest influence. The World Tort Law Society will run into all these problems and it will not be so easy to deal with them. I have experienced all this as a founding member of the European Group on Tort Law. Although most of the members came from the EU, it took years for them to become capable of understanding each other to some extent without comprehensive commentaries. The members of our worldwide society will encounter even longer-lasting and more serious difficulties. I feel that product liability is a very suitable area for beginning our cooperation, as on the one hand we can gain experience of nearly all the difficulties and learn how to overcome them, but on the other hand we have the advantage that it is a notion well-known worldwide for some decades and that the solutions in the individual legal systems display similarities at least to some extent. However, the disadvantage of the topic is an unbelievable flood of publications all over the world and an astonishing variety of ideas; therefore, we are exposed to the danger of getting lost in details and being drowned in the flood.2

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1 Cf B Markesinis, Comparative Law in the Courtroom and Classroom (2003) 167 ff. 2 On this and presenting a highly interesting overview M Reimann, Liability for Defective Products at the Beginning of the Twenty-First Century: Emergence of a Worldwide Standard?, 51 Am J Comp L 751 ff (2003). See further M Ebers/A Janssen/O Meyer (eds), European Perspectives

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___ Furthermore, in my view product liability is an excellent starter as it gives us 1/6 ___the opportunity to discuss fundamental issues including, in my opinion, not only ___basic questions for the individual legal systems but also for the Asian, American ___and European efforts towards harmonising the national legal systems or drafting ___multinational codes. I think of such questions as: What are the reasons for estab___lishing an – at least to some extent – special kind of stricter liability? What are ___the legal instruments for establishing such liability? Do the provisions take into ___account the relationship between prerequisites for liability and legal consequen___ces? As far as tort law is concerned: do the special rules fit into a consistent sys___tem of tort law or liability law? Do the rules on product liability take regard of the ___fundamental principle of equal treatment? All these questions are relevant in es___tablishing a legal system which complies with the idea of justice and can be ___called a legal order rather than having to be considered a legal disorder. ___ It may be that such questions sound slightly strange to common law law- 1/7 ___yers, who may point out that their courts only have to decide single cases and ___not to design a whole system. It may be true that courts and even scholars under ___common law do not place special emphasis on considering the whole system ___and its consistency. But looking at common law textbooks, one gets the impres___sion that ultimately there is nearly no difference to continental European text ___books and that even the courts – although possibly in a more hidden fashion – ___do take regard of an overall system. I think that they do so as it is unavoidable: ___if, eg, English courts have to consider whether a case has to be decided in ac___cordance with a precedent judgment although it is not identical in each and ___every detail, they have to ask whether it is a similar case or not. In doing that ___they have to investigate whether the decisive factors are the same and, there___fore, they have to design a more general rule on the basis of the preliminary de___cision and examine whether this rule is applicable to the case at hand. Thus, in ___the end they also have to apply more general rules in the individual case. The ___difference between common law courts and courts under legal systems with ___codes, which begin with the general rule, only seems to be that common law ___courts have to take one step more. But starting with a precedent judgement on ___an individual case, they may tend to overemphasize the importance of single ___judgements and neglect the overall system. On the other hand, lawyers under a ___codified legal system begin on a more general level and, therefore, tend to over___estimate the general rules of the overall system and to neglect the specific fea___tures of the case at hand. Nevertheless, in substance they have to do the same. ___ ___ ___on Producers’ Liability (2009) with many special reports as well as country reports and in par___ticular a detailed comparative report by the editors.

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II. The Interplay of Contract Law and Tort Law First of all, the range of product liability problems teaches us that we cannot restrict our look towards tort law but have to include at least contract law in our research. That has been pointed out clearly by quite a few scholars,3 and this does not seem far-fetched if the victim is the buyer who acquired the defective product pursuant to a contract. Of course, as a rule the victim concluded the contract with the distributor and not with the producer. But contract law in the national legal systems nevertheless offers rather different instruments of protection to the purchaser and some legal systems have solved the problems even solely on a contractual basis,4 some partly; therefore, contract law determines varying needs of protection under tort law. To begin with common law, on the basis of an implied warranty the seller is strictly liable if the goods do not come up to the required standard. As Peel/Goudkamp underline, the purpose of developing such warranty at common law was probably to allow the buyer a remedy for the financial loss he suffered in acquiring goods of inferior quality, ie for the difference in value. However, it has been accepted for many years that it also allows recovery for consequential damage to other property and for personal injuries. Such contractual strict liability means, as Peel/Goudkamp point out, that as far as the purchaser is concerned his right of action in tort against the manufacturer, dependent on proof of negligence, may be utilised only where the seller is insolvent or cannot be sued because of a valid exemption clause. Because of the privity rule, persons other than the purchaser, ie his family members, donees, passers-by, have to claim under tort law, but most of them and also the purchaser himself enjoy the producers’ strict liability provided by the Consumer Protection Act 1987. Therefore, recourse to the common law liability based on negligence is rarely necessary, eg in case of damage to property not intended for private use or when the time limitation period for a claim under the Act has expired.5 The import of the theory of implied warranty was more far-reaching in the USA6 as the courts and the Uniform Commercial Code developed exceptions to

_____ 3 See eg M Geistfeld, Principles of Products Liability (2006) 9 ff; E Peel/J Goudkamp, Winfield and Jolowicz on Tort (19th edn 2014) nos 1.004 and 11.001; M Schermaier, New Law Based on Old Rules: Antecedents and Paragons of the Modern Law on Producers’ Liability, in: M Ebers/A Janssen/O Meyer (eds), European Perspectives on Producers’ Liability (2009) 82 ff. 4 This is underlined by K Zweigert/H Kötz, An Introduction to Comparative Law (3rd edn 1998) § 42 V (p 676). 5 Winfield and Jolowicz on Tort (fn 3) nos 11.001 and 002. 6 See MS Shapo, Shapo on the Law of Products Liability (2013) § 3.

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___the privity rule;7 therefore the purchaser and even his household were allowed ___to claim against the manufacturer. Further, contractual limitations of the manu___facturer’s responsibility were ignored.8 Naturally, the main problem with strict ___liability under an implied-warranty theory was recognized: the term itself im___plies a contractual liability with privity and further contractual limitations. ___Therefore, the manufacturer’s strict liability was shifted to tort law.9 Australian ___Consumer Law10 goes even further in providing that producers of goods and ser___vices are subject to an implied guarantee that the goods or services meet certain ___quality standards and it is clear that a failure to meet some of these standards is ___actionable not only by the consumer who purchases the goods or services but ___also by ‘affected persons’; this includes persons who acquire title to the goods ___through the consumer. On the other hand, the privity rule is still respected in ___South Africa.11 ___ Nonetheless solving the problems of product liability by a contractual war- 1/11 ___ranty seems to be very popular under many legal systems; France gives a ___wonderful example:12 Article 1641 Code civil provides that the seller is bound to ___warrant against latent defects and according to art 1645 the seller is liable – in ___addition to restitution of the price – for all damage caused if he knew of the de___fect. This rule is of highest practical importance as the courts created for con___sumer sales contracts the irrefutable presumption that the professional had ___knowledge of the latent defect, even if the defect was undiscoverable. Thus the ___consumer always has a claim for damages against the professional seller and ___thanks to an ‘action directe’ also against the manufacturer and any other link of ___the sales chain. Although an outside observer may feel that it is rather astonish___ing and not very convincing to solve a problem by an irrefutable presumption ___without any basis in reality, nevertheless, we learn a lot about different ways of ___thinking and the surprising uses of legal instruments which have to be taken ___into regard. ___ Last a short glimpse at those legal systems, eg the German and Austrian, 1/12 ___under which the distributor of defective products would be rarely liable for the ___purchaser’s damage under the general rules on contract law: if he is not at fault ___the purchaser can ask under the law of warranty only for reduction of the price ___ ___ ___7 See Shapo (fn 6) §§ 3.03, 5.03. ___8 See with more details DB Dobbs/PT Hayden/EM Bublik, The Law of Torts II (2nd edn 2011) § 450. ___ 9 See Restatement Second of Torts § 402A. ___10 Rest of the World nos 12/26 ff and 12/221. ___11 Rest of the World nos 12/49 and 12/109. ___12 See Europe no 10/51 ff.

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or rescission of sale.13 Further, because of the privity rule, the purchaser will usually also not succeed with a claim against the producer as he bears under tort law the burden of proving fault and will as a rule fail; in addition, the rules on vicarious liability under tort law are rather restrictive. Under these legal systems the special rules on the producer’s strict liability for defective goods undoubtedly filled a gap. However, I must point out that Austrian courts and scholars tried to meet the needs of the purchasers – not of innocent bystanders – even before the introduction of special strict liability rules, not by contract law but an instrument between tort and contract:14 because of the purchaser’s special reliance on the careful production as well as control by the manufacturer and because of the special contact between purchaser and producer by a chain of contracts it is said that a special relationship exists which establishes special duties of care as well as a shift of burden of proof and an extensive vicarious liability similar to that in a contractual relationship. Thus, the purchaser at least enjoys a farreaching liability regime similar to that under contract law. German lawyers rejected such a way out.

III. The Fundamental Questions Under Tort Law Now to the fundamental questions we have to ask regarding product liability under tort law. The starting point is – as underlined in the questionnaire – that in most legal systems producers are subject to special liability regimes which appear much stricter than the fault-based liability regime that applies in general:15 producers are liable irrespective of fault for damage caused by defective products they put into circulation. These stricter rules on product liability origi-

_____ 13 On this decisive difference between the common law and the European continental legal systems see Zweigert/Kötz (fn 4) § 36 IV, § 42 V (p 672). 14 See Europe nos 10/41 f and 10/109; with further details E Karner/H Koziol, Mangelfolgeschäden in Veräußerungsketten (2012) 65 ff. 15 H Kötz/G Wagner, Deliktsrecht (13th edn 2016) no 614 are of the opinion that the EU Directive provides only a liability based on violation of Verkehrssicherungspflichten (duties to protect others against risks one has established by one’s activity or property). I think that this cannot be true because breach of duty of care is no requirement and the manufacturer also has no defence by proving that his activities complied with all duties of care. Further, in the typical cases which should be solved by the special product liability, namely the ‘Ausreisser’ or ‘runaways’, it is presupposed that such defects cannot be avoided and that therefore no misbehaviour is at stake.

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___nate from the USA,16 but the concept spread rather quickly worldwide. It in___spired, for example, the European Union to design its Product Liability Directive ___(Council Directive 85/374/EEC of 25 July 1985), which is not only influential in ___the EU but has also provided the conceptual basis for new laws elsewhere;17 eg ___also for the new Chinese Tort Law.18 It seems highly interesting that in the USA – ___after encouraging the whole world to make product liability more stringent – ___the development went in the opposite direction, moving away from strict liabil___ity.19 The widespread tendency to provide for strict product liability as well as ___the countermovement in the USA raise fundamental questions. ___ ___ ___A. Reasons for Introducing Strict Product Liability ___ ___It appears that worldwide – with the possible exception of France – there was a 1/15 ___prevailing impression of an urgent need to provide for the stricter liability of ___producers who put defective products into circulation and, accordingly, the ___American concept spread very quickly. But was there really such a need in all ___legal systems and, if so, why did it arise? What gaps existed in the reasonable ___protection of both buyers and third parties and what were and still are the ___shortcomings of the general rules? As to the need, there is one fundamental question which I want to touch on 1/16 ___ ___because it illustrates the relevance of taking into regard not only tort law and ___not only private law but the whole legal system. In the area of personal injury, ___insufficiencies in tort law are levelled out largely by the social security systems. ___This seems to be true for all EU member states, at least for the German speaking ___countries20 as well as for the United Kingdom,21 France22 and the Scandinavian ___countries,23 in contrast to the much less exhaustive American social security sys___tem. The fact that most legal systems provide for the victim’s extensive compen___sation for losses caused by personal injuries via the social security systems ___ ___ 16 See Shapo (fn 6) § 7.01 and 02. ___ 17 It seems that the South African Consumer Protection Act of 2008 has not been influenced; ___see Rest of the World no 12/16 ff. ___18 See art 41 CTL and H Koziol/Yan Zhu, Background and Key Contents of the New Chinese ___Tort Liability Law (2010) 1 JETL 328, 350 ff. ___19 Dobbs/Hayden/Bublik (fn 8) § 450 p 897 f. 20 H Koziol, Basic Questions of Tort Law from a Germanic Perspective (2012) no 2/74 ff. ___ 21 R Lewis/A Morris, Tort Law Culture in the United Kingdom: Image and Reality in Personal ___Injury Compensation (2012) 3 JETL 230, 232 ff. ___22 J-S Borghetti, The Culture of Tort Law in Europe (2012) 3 JETL 158, 164 f. ___23 H Andersson, The Tort Law Culture(s) of Scandinavia (2012) 3 JETL 210, 219 f.

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makes the provision of comprehensive compensation under tort law less urgent in such countries.24 Therefore, the popular argument that the highest ranking protected interest deserves the most extensive protection by tort law seems no longer to apply as another legal instrument already makes sure of such protection. From the victim’s perspective in this area, intensive protection under tort law is required only as far as social security does not provide full compensation. Probably, such loopholes do not concern primarily the most important interests of the victim. Seen from the compensation perspective we, therefore, come to the conclusion that the principle that ‘the highest ranking interests deserve the highest grade of protection under tort law’ is no longer as convincing as it seems at first sight. But is the victim’s perspective really the only or at least decisive aspect? Do we not also have to take regard of the fundamental ideas for attributing liability and, therefore, have to say that it is more reasonable to establish the entrepreneur’s liability and to concede the social insurer recourse to the producer rather than to shift the financial burden from the tortfeasor to the social security system?25 At any rate, such discussion shows us that the interplay of tort law and social security law is of great importance when designing tort law provisions. Further, the question as to which reasons can justify such comparatively strict producer’s liability, seems to gain even more importance.

B. The Justification for Strict Product Liability Therefore, we must emphasize the question of how such strict liability fits into a consistent overall liability system. The answer to the question as to which criteria justify establishing liability is, of course, also decisive in laying down the reasonable scope of product liability, in solving questions of conceptual detail and in the interpretation of legislative provisions. I would like to illustrate some of the relevant aspects by the example of product liability in the European Union;26 I refer to the Directive 85/374/EEC. Due to this Directive, product liability is very strict, being independent of any breach of duty of care and – apart from the development risks and statutory or-

_____ 24 It is highly interesting that in the USA strict liability is no longer thought to be a necessity although the social security system provides less protection than in those countries which tend to strict liability. 25 However, the legal systems in Scandinavian countries and in Poland have abolished the recourse against the offender. 26 In Israel the Liability for Defective Products Act, which was enacted in 1980, provided strict liability even before; see no 12/10 ff.

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___dinances – because of the lack of any grounds for exemption from liability, in ___particular of force majeure. ___ The objective justification for such strict liability for producers is by no 1/19 ___means self-evident and neither does it present itself from the genesis of the ___rules.27 In fact, the Directive was neither based on a well-thought out and recog___nised overall concept for producer-liability nor on any theory-based, under___standable justification of the legislators: in the recitals to the directive, it very ___clearly states: ‘Whereas liability without fault should apply only to movables ___which have been industrially produced.’ Thus, the non-fault based liability pro___vided for by the Directive for defective products was only intended to offer – as ___is also shown by the prior academic discussions – the purchasers protection ___against the special risks of ‘anomalies’ associated with industrial mass produc___tion. This could indeed be justified by the argument that in spite of all reason___able measures, product defects can never be absolutely excluded when it comes ___to mass production nor can inspection always prevent defective products from ___being placed on the market, the problem of the so-called ‘Ausreißer’ or ‘run___aways’. The wording of the directive, however, drops the limitation to industrial ___products so that the liability set out also applies to defective products of crafts___men, landlords, farmers and artists. Moreover, the idea of the inevitable risk of ___anomalies in the case of industrial mass production does not justify the liability ___for damage deriving from defective design or insufficient instructions.28 The ___lawmaker has never even attempted to justify the extended application of strict ___liability and it seems difficult to find any convincing arguments in favour of ___such broad and very strict liability. ___ Most strict liability rules are justified by the idea that the keeper of a dan- 1/20 ___gerous thing or someone who carries out dangerous activity should not only en___joy the advantages but also bear the risk. However, the producers’ stringent li___ability can not be justified, or at least not solely, by the notion of dangerousness: ___product liability takes as its starting point the fact that the damage is brought ___about by a defect of the product. As the description of defectiveness shows, the ___crux is that the defectiveness leads to a dangerousness which is not generally a ___common feature of suchlike products; specifically, a product is defective only if ___the product does not offer the safety that one is entitled to expect taking all the ___circumstances into account. The dangerousness emanating from the defect can ___not, however, in general be classified as very high since many products are not ___likely even in a defective state to bring about extensive damage or to substan___ ___27 See on this eg M Lunney/K Oliphant, Tort Law. Text and Materials (5th edn 2013) 588 f. ___28 See on the objections to strict liability in this area in the USA Dobbs/Hayden/Bublik (fn 8) ___§ 450 p 897.

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tially increase the frequency of damage occurring. Typical examples are bent paper clips or spoilt food, which can only bring about harmless scratches or temporary nausea. Therefore, unlike the general, abstract dangerousness presented by things or facilities, the specific dangerousness of defects required under the product liability rules is not enough to justify a liability completely regardless of any misconduct, ie a real and, due to the lack of any possible defences, extremely strict liability based on dangerousness. A further argument is, as recently highlighted by BC Steininger,29 that the general dangerousness generated for example by the high speed of motor vehicles, serves the interest of the keeper; dangerousness and usefulness are thus inter-related.30 The specific dangerousness presented in the individual case due to a defect is, on the other hand, usually not at all beneficial in any way to the entrepreneur as the defectiveness runs contrary to his interests. It must also be considered that when it comes to product liability, different ideas are behind the affiliation to someone’s sphere than may otherwise be. In the case of buildings, roads and vehicles, the defective things are imputed to their keeper’s sphere; the keeper is the person whose interests are served by the thing and who has the power to exercise influence on them.31 Neither criterion applies to the producer once he places the thing at issue on the market. He could only exercise influence in advance on the production process and thus in this sense towards the product being as free as possible from defects. Also, the material ideas behind the often heard32 suggestions in favour of a more stringent enterprise liability cannot on their own justify such strict nonfault based product liability. Relevant for such enterprise liability is, on the one hand, the principle that the advantages and risks should fall to the same party and thus be concentrated in the enterprise. But this element alone does not seem sufficient to establish strict liability and there is only one additional factor which speaks in favour of tightening liability: the idea that the victims of an enterprise are confronted on the opposing side with a complex organisation and typically have considerable difficulties in proving the facts that are material in relation to any carelessness that ensued within the company.33 Specifically, the

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29 Verschärfung der Verschuldenshaftung. Übergangsbereiche zwischen Verschuldens- und Gefährdungshaftung (2007) 35 ff. 30 Cf on that R Müller-Erzbach, Gefährdungshaftung und Gefahrtragung, AcP 106 (1910) 301, 365 ff; J Esser, Grundlagen und Entwicklung der Gefährdungshaftung (1941) 97 ff; H Koziol, Haftpflichtrecht I (3rd edn 1997) no 6/11. 31 See Koziol (fn 30) no 6/11. 32 See for the USA Dobbs/Hayden/Bublik (fn 8) § 450 p 895; Shapo (fn 6) § 7.02 [E]. 33 BA Koch/H Koziol, Comparative Conclusions, in: BA Koch/H Koziol (eds), Unification of Tort Law: Strict Liability (2002) 411; BA Koch, Enterprise Liability, in: European Group on Tort

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___victim has no insight into the organisation, the deployment of auxiliaries and ___technical equipment, the maintenance of machines and control processes. ___However, this all speaks in favour of a reversal of the burden of proof in this ___respect, but not of strict liability, cf art 4:202 of the Principles of European ___Tort Law. Therefore, even if the idea of such enterprise liability should be ac___cepted, it would on its own not be enough to justify the very strict producers’ li___ability. ___ Therefore, we have to ask whether the extremely stringent liability for de- 1/22 ___fective products could be justified at least partly by the interplay of the already ___mentioned ideas with the generally decisive criteria for enterprise liability, ___namely with the notion of the risk community of entrepreneur and buyers34: ___when consumer goods are produced, economic factors dictate that the highest ___technical safety and quality standards are not observed, but this does not mean ___that the processes involved are wrongful. The lower production costs resulting ___from the lowered safety standards lead to lower prices for the products but also ___to an increased risk of damage. However, the idea is that the consumer who is ___injured by a defective product is otherwise asked to bear the harm while the ___other consumers are beneficiaries because they were able to purchase the goods ___at lower prices precisely because of the lower safety requirements. If all pur___chasers enjoy the advantage of the lower prices, the few purchasers who suffer ___damage due to defects should not be left alone to bear the damage sustained. ___Their harm should be compensated by the producer as he is in a position to shift ___these costs via price changes on to all clients and thus all beneficiaries.35 This ___means that all purchasers bear the disadvantages jointly as a kind of risk com___munity. In particular, the non-fault based product liability law has the effect ___that the position of the entrepreneur is approximated with that of an insurer, ___when seen from a functional perspective: the liability risks generated by this le___gal area are taken into account by the entrepreneurs in their price calculations, ___so that the clients may be understood as a risk community, who from an eco___nomic perspective end up bearing the costs of the provisions for liability risks ___on the part of the entrepreneur.36 However, this rationale does not justify the li___ability of the producer towards external third parties; the idea only applies ___when the acquirer of the goods suffers damage. Given the fact that the element ___ ___ ___Law (ed), Principles of European Tort Law (2005) 94 f; G Wagner in: Münchener Kommentar zum BGB V (6th edn 2013) § 823 no 83. ___ 34 Cf also the idea of loss spreading mentioned by Dobbs/Hayden/Bublik (fn 8) § 450 p 895. ___35 See I Gilead, Israel 194 and 197, as well as BA Koch/H Koziol, Austria 20, both in: BA Koch/ ___H Koziol (eds), Unification of Tort Law: Strict Liability (2002). ___36 K Wantzen, Unternehmenshaftung und Enterprise Liability (2007) 84 ff.

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of dangerousness due to the simple existence of a threat posed by the defect in the product is not present to the same degree as in other cases of strict liability, however, defences (eg force majeure) should be admitted to a greater degree. However, MD Green/WJ Cardi 37 point out that it seems rather doubtful whether the idea of risk community can in fact justify producers’ strict liability: in case of personal injuries, victims of defective products who have high earnings will suffer high losses and receive high compensation; those who earn nearly nothing will receive nearly no compensation but have to pay the same price for the products. As a result, the group of purchasers who earn less have to support those who earn more. Such redistribution via product liability would not seem to be very just or desirable. But I am not so sure that Green/Cardi’s objections are justified: This argumentation is convincing only if you solely take regard of one and the same product; however, rich people usually buy products which are more expensive and I assume that they therefore pay all in all a higher contribution to the entrepreneur’s ‘liability funds’. Therefore, I feel that it is – at least roughly – a justly designed risk community. In considering the different approaches in the individual legal systems I think that one idea should be more emphasised, as it seems to have the potential to help to justify the producers’ liability in interplay with the already mentioned arguments: One may be sceptical about the common law idea that the producers’ liability is based on a warranty because it ignores the privity rule. Nevertheless, the idea that the producer declares explicitly or implicitly that his products comply with the reasonable consumer’s safety expectations seems quite convincing; even if it can not be understood as a warranty in favour of the purchaser it is at least a piece of information for all potential buyers which aims to influence their decision.38 On the other hand the buyer will and often has to rely on such declarations as he will be not able to inform himself.39 These are exactly the prerequisites in establishing so-called Vertrauenshaftung (liability based on principles of reliance) which has been designed above all by CW Canaris40 and enjoys widespread acceptance at least in the German speaking countries. This theory is insofar of importance as because of the special con-

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37 USA, in: H Koziol (ed), Basic Questions of Tort Law from a Comparative Perspective (2015) no 6/160. 38 Cf Shapo (fn 6) § 6. 39 This idea may have influenced the Dutch Supreme Court to introduce in 1989 the ‘reasonable safety expectation’ into the general principles of Dutch tort law; see Europe no 10/77. It seems that Chilean law also underlines this aspect, see Rest of the World no 12/7. 40 CW Canaris, Die Vertrauenshaftung im deutschen Privatrecht (1971); id, Die Vertrauenshaftung im Lichte der Rechtsprechung des Bundesgerichtshofs, in: CW Canaris/H Andreas/ KJ Hopt/C Roxin/K Schmidt/G Widmaier (eds), 50 Jahre Bundesgerichtshof I (2000) 129.

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___tact between the declaring and the relying party far-reaching duties of care ___are established and vicarious liability is as strict as under contract law. Na___turally, I have to confess that such liability based on reliance is nevertheless a ___fault based liability. But it seems worth closer reflection whether this idea could ___support the other arguments in establishing producers’ strict or at least stricter ___liability. ___ Although it seems that certainly not one reason alone – I am really not a be- 1/25 ___liever in mono causal theories – but a bundle of reasons can justify the produc___ers’ strict liability at least partly, neither should we omit a discussion of argu___ments against such conclusion, eg the ideas of David Owen.41 He points out that ___since the costs of product liability will be passed on to the manufacturer’s ___shareholders and to other consumers, their interests must be counted equally ___with those of the victims. However, I feel that this argument is not convincing, ___as those who are injured by a defective product suffer damage to high ranking ___interests, ie body, health or property, whereas the shareholders suffer pure eco___nomic loss. Further the victim would have to bear his loss alone, whereas the ___burden of product liability is spread among a great number of shareholders and ___other consumers. Owen further stresses that the injured consumers not only ___choose products but may contribute to their own injury by the way they use the ___goods. But this is a counterargument which can be ignored as the general rules ___on comparative negligence take regard of the victim’s misbehaviour. Therefore, ___all in all I think that these objections will not be able to overrule what has been ___said before. ___ Summarizing some of the questions which seem worthy of discussion: Must 1/26 ___Europeans really come to the conclusion that the product liability rules pro___vided by the EU can be justified – if at all – only in part, as their strictness ap___pears unreasonable and there is no justification for including innocent bystand___ers in the circle of protected persons? On the other hand: is it not inconsistent ___that those entrepreneurs who offer services or who design or build immove___ables, eg skyscrapers or bridges, are not burdened by strict liability? Further, is ___it true that such strict liability causes a rather unjust redistribution and that ___there is no real need for such strict liability as social security systems provide ___far-reaching compensation? ___ I feel that by discussing all these problems and doubts we can learn a lot. 1/27 ___ ___ ___ ___ ___41 The Moral Foundations of Products Liability Law: Toward First Principles, 68 Notre Dame L ___Rev 427 (1993).

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___Yang Lixin and Yang Zhen* ___ ___ ___Product Liability in China Yang Lixin and Yang Zhen https://doi.org/10.1515/9783110547559-004 ___Contents ___Part I: General Questions | 29 I. The Dual Principle of Imputation Applied in Product Liability ___ in China | 29 ___ II. Joint Liability (with indemnity) | 32 ___ III. Categories of Defects | 33 ___ IV. Manufacturers’ Defences | 34 ___ V. Compensation for Harm to the Defective Product Itself ___ (pure economic loss) | 35 ___ VI. Punitive Damages | 37 ___ Part II: Cases | 38 ___ Case 1: Brake Pad Failure | 38 ___ Case 2: Infected Blood | 43 ___ Case 3: Bridge Collapse | 53 ___ ___ ___ ___Part I: General Questions ___ ___I. The Dual Principle of Imputation Applied in Product Liability ___ in China ___ ___Articles 41 to 43 of the Tort Liability Law (TLL) state the basic principles of Chi- 2/1 ___nese product liability law. The understanding of these three articles is broadly ___the same throughout the academic community, though there are still different ___interpretations of particular aspects. ___ According to art 41 TLL, a manufacturer’s liability for harm caused by a 2/2 ___defective product is a non-fault liability. It arises so long as there is a causal ___link between the product defect and the harm to the victim. Article 41 TLL ___states:1 ___ ___ ___ * The reporters would like to express their gratitude to those who contributed to this report, ___ including Prof Zhang Tiewei of Heilongjiang University Law School, Prof Wang Zhu of Sichuan ___University Law School, Judge Liu Shengliang of Heilongjiang Provincial High Court, and Prof ___Man Hongjie of Shandong University Law School. The report was originally written in Chinese, ___and was translated into English by Prof Wang Zhu and Prof Man Hongjie.

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‘If a product defect causes harm to another, the manufacturer shall be subject to tort liability.’ According to art 42 TLL, the liability of the seller of a defective product is a fault-based liability. The seller is liable only if the defect in the product is caused by his fault. Article 42(1) TLL states: ‘(1) If due to seller’s fault a product defect exists and causes harm to another, the seller shall be subject to tort liability.’ However, if a seller cannot identify the defective product’s manufacturer or supplier, then the seller is liable and the liability under such circumstance is a non-fault liability, as art 42(2) TLL provides: ‘(2) If a seller cannot identify the defective product’s manufacturer and cannot identify the defective product’s supplier, the seller shall be subject to tort liability.’ Article 43 makes it clear that the victim may claim compensation from either the manufacturer or the seller, and provides for rights of recourse whereby the party initially held liable can claim an indemnity from the party who bears ultimate responsibility for the defect: ‘If a product defect causes harm, the victim may claim compensation from the product manufacturer, and may claim compensation from the seller. If a product defect is caused by a manufacturer, after the seller paid compensation to the victim, it has the right to claim indemnity from the manufacturer. If a seller’s fault causes a product defect, after the manufacturer paid compensation to the victim, it has the right to claim indemnity from the seller.’ As can be seen, the basis of imputation of liability under these provisions differs according to the identity of the defendant. The ultimate liability borne by the manufacturer is a non-fault liability, while the ultimate liability borne by the

_____ 1 Translation of the Tort Liability Law is by Wang Zhu. Translations of other Chinese laws are by PKULAW with amendments by Wang Zhu unless otherwise specifically indicated.

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___seller is a fault liability. The intermediate liability2 borne by either manufacturer ___or seller is a non-fault liability.3 ___ Some scholars think that there should be only one principle governing li- 2/7 ___ability, that is, that the principle of imputation applied to both the manufacturer ___and the seller should be liability based on danger (a non-fault liability).4 How___ever, that is not a mainstream opinion, and it is not accepted by many scholars. ___ In addition to the TLL, there are other statutes that provide rules applicable 2/8 ___to product liability in China. These include The Product Quality Law (PQL), the ___Law on Protection of Consumer Rights and Interests (LPCRI), and The Food ___Safety Law (FSL). The relationship between the TLL and the other statutes is ___that of general law and special laws. According to art 5 of TLL, ‘In the event that ___there are other statutory provisions governing tort liability, such statutory pro___visions must prevail,’ which means that the special law prevails over general ___law, and the newer statute prevails over the old one. In addition, the General ___Principles of the Civil Law (GPCL) is an early statute, enacted in 1986, that con___tains basic provisions relevant to product liability claims. All of these statutes ___are discussed in this report as appropriate. ___ Because the GPCL was promulgated early, the explanation of product liabil- 2/9 ___ity in art 122 is very simple. 5 When the PQL was enacted in 1993, the legislature ___added more detailed statutory provisions. The LPCRI was enacted later in 1993 ___but it just contained a general provision requiring safety in goods and services, ___as well as a provision for punitive damages, It did not address the more detailed ___rules about product liability contained in the PQL. In 2009, the TLL was enacted ___and it provided more detailed rules for product liability. But its provisions do ___not completely replace the provisions of the PQL. With regard to the definition ___and categories of product, the definition and categories of defective product, ___exemptions and defences, the PQL rules still apply. By contrast with the GPCL, ___the TLL has more rules about specific aspects of product liability, including ___compensation for the defective product itself, post-sale warning and recall re___quirements, and punitive damages. The LPCR, which was revised in 2013, still ___addresses the rule of product liability, but it provides compensation for damage ___ ___2 ‘Intermediate liability’ is explained below no 2/12. ___3 Wang Liming, Studies on Tort Liability Law, vol II (Beijing, China Renmin University Press ___2011) 238 f; Zhang Xinbao, Tort Liability Law (Beijing, China Renmin University Press 2010) 254; ___Cheng Xiao, Tort Liability Law (Beijing, Law Press China 2011) 372. 4 Zhou Youjun, Tort Law (China Renmin University Press 2011) 318. ___ 5 Art 122 GPCL states: ‘If a substandard product causes property damage or physical injury to ___others, the manufacturer or seller shall bear civil liability according to the law. If the carrier or ___warehouseman is responsible for the matter, the manufacturer or seller shall have the right to ___demand compensation for its losses.’

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caused by services and provides for punitive damages for fraud in providing goods or services. The FSL, which was enacted in 2009 and revised in 2015, focuses on application of the rule of product liability to harm caused by foods.

II. Joint Liability (with indemnity) Articles 41 to 44 TLL prescribe that the manufacturer and seller incur joint liability (with indemnity), as regards both the compensation payable to the victim and the indemnity payable by the ultimately liable person. In addition, initial liability applies to any third party whose fault contributed to the accident.

A. Compensation to the Victim Under the Framework of Joint Liability (with Indemnity) As noted above, art 43 TLL specifies that the victim may claim compensation from either the manufacturer or the seller. Each party is obligated to pay full compensation to the victim who makes the claim. This liability is referred to as an ‘intermediate liability.’

B. Indemnity Under the Framework of Joint Liability (with Indemnity) If the victim brings a claim against the seller, the seller bears the non-fault liability stipulated in art 43(1) TLL. In that event, even though the liability of a seller under art 42(1) is fault-based liability, the seller’s lack of fault does not provide any basis of exemption from art 43 liability. After compensating the victim, however, the seller may seek indemnity from the manufacturer. The right to indemnity is grounded on whether ‘the defect of the product is caused by the manufacturer’, as stipulated in art 43(2) TLL. This article impliedly refers to art 41 TLL, under which the manufacturer is subject to non-fault liability for the defective product. If the victim brings the claim against the manufacturer, the manufacturer’s intermediate liability arises on a non-fault basis under art 43(1) TLL. If the product defect is caused by the fault of the seller, then, after compensating the victim, the manufacturer may seek indemnity from the seller. In this respect, the basis of the ultimate liability borne by the seller is the fault liability specified in art 42 TLL. The fact that either the manufacturer or the seller who has borne intermediate liability has the right to seek indemnity from the other party serves to secure

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___the fulfilment of ultimate liability. In other words, the liability is finally imposed ___on the party required to bear the loss according to law. ___ ___ ___C. Indemnity for the Manufacturer and the Seller from the Liable Third Party ___ ___ ___Article 44 TLL states: 2/15 ___ ___ ‘If a transporter, warehouseman, or other third party’s fault causes a prod___ uct defect, which causes harm to another, after the product manufacturer or ___ seller pays compensation to the victim, it has the right to claim indemnity ___ from the third party.’ ___ ___ According to this article, if the defect is caused by the fault of a transporter, 2/16 ___warehouseman or other non-selling third party, the victim should not bring a ___direct claim against such person, but against the manufacturer or seller. After ___compensating the victim, the manufacturer or seller may then seek indemnity ___from the third party. The rule that allows the manufacturer and seller to seek ___indemnity from the third party after they pay compensation to the victim is ___known as a rule of ‘initial liability’.6 However, in certain circumstances it may ___lead to a ‘claim deadlock’. That is to say, when the manufacturer or seller is un___able to fully or partly compensate the victim, the ‘initial liability’ rule means ___that the victim cannot get the compensation to which he is entitled by directly ___suing the liable third party. To solve this problem, we suggest that, when the ___party bearing initial liability is unable to fully or partly pay the compensation, ___the victim should be allowed to sue the third party at fault on the basis of ___art 6(1) TLL (the general liability for fault). The third party should bear the obli___gation to pay for any gap in the victim’s compensation. ___ ___ ___III. Categories of Defects ___ ___Chinese scholars have different opinions about the categories of defect that 2/17 ___should be recognized in Chinese law. Some scholars advocate a four-fold classi___ ___ 6 ‘Initial liability’ refers to a defendant who is sued initially based on joint liability (with in___demnity) but who bears no ultimate liability after indemnity is awarded between the seller and ___producer. See Yang Lixin, On the Categorization and Regulation of Non-Substantial Joint and ___Several Liability, Comtemporary Law 2012(3).

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fication of defects: defects of design, defects in manufacture, defects in warning and instruction, and tracking defects (referring to defects resulting from the failure to take timely or adequate remedial measures such as warning and recall as defined in art 46 TLL7).8 Other scholars advocate a three-fold classification, omitting tracking defects from their scheme.9 The former theory is generally accepted by most scholars, while the latter is supported only by a minority.

IV. Manufacturers’ Defences Product liability is a non-fault liability but not an absolute liability. There are a number of statutorily recognized circumstances under which the manufacturer’s liability can be exempted or reduced. These arise not under the TLL but under the Product Quality Law (PQL) 2009.10 Article 41(2) PQL states: ‘Producers shall not be held responsible if they can prove one of the following facts: 1) The products have not been put into circulation; 2) The defects are non-existent when the products are put into circulation; 3) The defects cannot be found at the time of circulation due to scientific and technological reasons.’ Pursuant to art 4(1)(i) of the Provisions of the Supreme People’s Court on Evidence in Civil Procedures, it is for the producer of the product to provide evidence to establish the above-stated defences. If the manufacturer establishes a defence that the defect did not exist when the product was put into circulation, there may still be a duty to issue a postsale warning, recall the product or take other remedial measures in timely fashion (art 46 TLL). Liability for failure to take timely and adequate remedial meas-

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7 Article 46 TLL provides: ‘If a defect is discovered after the product is put in circulation, the producer and seller should take timely measures to warn, recall or take other remedial measures. The producer or the seller who fails to take timely or adequate remedial measures and causes harm shall bear tort liability.’ 8 Wang Liming (fn 3) 248; Zhang Xinbao (fn 3) 250–252; Yang Lixin, Tort Liability Law (Beijing, Law Press China 2012) 303–305. 9 Cheng Xiao (fn 3) 390 f. 10 The PQL was adopted by the National People’s Congress on 22 February 1993, and became effective as of 1 September 1993. It was amended in 2000 and 2009. Arts 41–43 TLL are very similar to arts 41–43 PQL, except that they do not include provisions equivalent to those in art 41(2) PQL.

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___ures which might have avoided the harm may be incurred by either the manu___facturer or seller. ___ ___ ___V. Compensation for Harm to the Defective Product Itself ___ (pure economic loss) ___ ___In most other countries, product liability does not extend to compensation for 2/22 ___harm to the defective product itself. However, such compensation is available ___under the TLL in China. This results from a difference in the language used in ___art 41 TLL and art 41(1) of PQL.11 ___ The damage required to establish product liability under art 41 TLL is differ- 2/23 ___ent from that contemplated by art 41(1) PQL. In the former context, the damage ___is ‘harm to another’, while in the latter context, damage is the ‘harm done to the ___person or to property other than the defective products themselves (hereinafter ___referred to as “property of others”).’ It is clear that the framers of the TLL in___tended to make a distinction between the damage required in the two provi___sions. Consequently, property damage under art 41 TLL refers to both harm ___done to other property and harm to the defective product itself. This may be ___considered consistent with the general objective of the TLL of protecting legiti___mate rights of consumers and other users in a timely and convenient fashion.12 A ___majority of scholars agree that the harm remedied by product liability law ___should include harm done to the defective product itself, in addition to personal ___injury and damage to other property.13 ___ Certain scholars offer a different interpretation whereby loss attributable to 2/24 ___the mere defectiveness of a product is pure economic loss, which they argue, on ___the basis of art 4 PQL and relevant provisions of the Contract Law (CL), should ___not be compensated by product liability law.14 In their view, damage refers only ___to death, personal injury and property loss and other consequential losses ___caused by the defective product, but the loss of value of the defective product ___itself should not be included. They argue that the approach taken in the PQL is ___reasonable in that respect.15 ___ ___11 Art 41(1) PQL states: ‘Producers shall be responsible for compensating for harm done to the ___person, or to property other than the defective products themselves (hereinafter referred to as ___‘property of others’) due to defects in products.’ 12 Wang Shengming (ed), The Interpretation of the Tort Liability Law of the People’s Republic ___ of China (Beijing, Law Press of China 2010) 226. ___13 Wang Liming (fn 3) 252. ___14 Zhang Xinbao (fn 3) 253. ___15 Zhang Xinbao (fn 3) 252 f.

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The authors of this report share the opinion of the framers of the TLL and the majority of scholars on this issue. They believe that this was one of the controversies that the TLL sought to settle through the legislative process. In product liability law, if the defective product suffers damage – meaning that the purchaser’s prospective contractual interest in the purchased product is harmed – it is better for the victim to bring a consolidated action under the TLL for both the harm to the product and for any other harms that occur. The benefit is obvious, as it protects the victim from an overload of actions. In other words, victims would not have to bring actions separately for tort liability and liability for breach of contract when the harms happen simultaneously. This consolidated practice was impossible according to the old litigation procedures, which was the reason that arts 40 and 41 of the PQL make a distinction between the two. On the one hand, based on traditional theories and principles, the victim might fully vindicate her rights by bringing two separate actions; on the other hand, it is considered that the civil interests of the victim may be better protected by making litigation more convenient. Chinese legislators chose the latter. It is with this consideration in mind that art 41 TLL gives a new definition of the ‘harm’ that may be compensated. It is only in the light of this understanding of ‘harm’ that we can accurately divine the true meaning of the article. For this reason, the ‘harm’ stated in art 41 TLL refers to personal and property harm caused by the defective product, as well as damage to the defective product itself. Furthermore, when considering the classical harms that result in product liability, harm to the person or other property, it is of more substantial concern than harm to the product itself. Notwithstanding this resolution in art 41, the two kinds of harms are different: the former is the preserve of tort liability and the latter is the preserve of liability for breach of contract. This interpretation of the relevant harm not only applies to art 41, but also to all the product liability provisions in Chapter 5 TLL. The People’s Court should support victims’ efforts to bring a consolidated lawsuit to recover for both personal injury and property loss and for damage to the defective product itself. The court should not force a victim to bring separate lawsuits. But it should be pointed out that this is a consolidated suit, not a single suit. When the two suits are under different jurisdictions,16 according to the

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___majority view, art 41 TLL allows for the suits to be consolidated into one and ___brought to one court instead of two different courts. Naturally, the law does not ___bar the victim from bringing two separate lawsuits in different courts. ___ ___ VI. Punitive Damages ___ ___ In terms of product liability, civil law systems generally do not recognise any li- 2/28 ___ ability to pay punitive damages. But it is worth pointing out that punitive dam___ ages are provided for in consumer protection laws of both Mainland China and ___ Taiwan. More than 20 years of legal practice has demonstrated that punitive ___ damages have played an important role in protecting the consumer and the vic___ tim of defective products. ___ The awarding of punitive damages in China originates from art 49 of the Law 2/29 ___ on Protection of Consumer Rights and Interests in LPCRI (1993), which provides ___ for punitive damages for fraudulent activities in supplying goods and services.17 ___ The scope of application of punitive damages has progressively expanded. Para___ graph 2 of art 96 of the Food Safety Law promulgated in 2009 has a specific stipu___ lation for punitive damages for knowing violations of food safety: ‘Besides claim___ ing damages, a consumer may require the producer who produces food which ___ does not conform to the food safety standards or the seller who knowingly sells ___ food which does not conform to the food safety standards to pay 10 times the ___ money paid.’ Article 47 TLL, enacted in the same year states: ‘Despite knowledge ___ that a product is defective, if the manufacturer or the seller still manufactures or ___ sells the product, and it causes death or serious harm to the health of another, the ___ victim has the right to claim corresponding punitive damages.’ ___ Article 47 TLL does not state how to determine the amount of punitive dam- 2/30 ___ ages. After an amendment, para 2 of art 55 of LPCRI (2013) states: ___ ___ ‘Where business operators knowingly provide consumers with defective ___ goods or services, causing death or serious damage to the health of consum___ ers or other victims, the victims shall have the right to require business opera___ tors to compensate them for losses in accordance with arts 49 and 51 of this ___ Law and other provisions of laws, and have the right to claim punitive com___ pensation of not more than two times the amount of losses incurred.’ ___ ___ ___ 17 Art 49 LPCRI (1993) states: ‘Business operators engaged in fraudulent activities in supply___ing commodities or services shall, when required by the consumers, increase the compensa___tions for victims’ losses; the increased amount of the compensations shall be two times the ___costs that the consumers paid for the commodities purchased or services received.’

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Part II: Cases Case 1: Brake Pad Failure X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it considered that the risk was likely to eventuate only very rarely and did not outweigh the general advantages of the new material. It included a statement about the possibility of failure in the small print of the product instructions supplied with all of its bicycles incorporating the new brake pads. A, who purchased one of the bicycles, is one of a handful of people injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also damaged. B, a passer-by, is injured in the same accident. What is X Ltd’s liability to A and B? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail?

A. The Bicycle is Defectively Designed Considering that ‘X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it considered that the risk was likely to eventuate only very rarely and did not outweigh the general advantages of the new material’, the defect in this case is a design defect according to Chinese law. Scholars propose the following criteria to determine whether or not a design is defective: 1) the design has unreasonable risk that may cause harm to person or property; or 2) the design does not meet the national or industry standards to safeguard physical health, personal and property safety.18 The situation stated in the case fits into the above criteria. Since the bicycle manufactured by X has a defect in design, which is a latent defect, it is neither necessary nor possible to apply the criterion of defects of warning and instruction (warning defects). The criterion to determine a warn-

_____ 18 Zhang Xinbao (fn 3) 250.

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___ing defect is whether the product poses risk which may be avoided or reduced ___by a warning by the merchant.19 Since the risk of the defective brake-pad cannot ___be avoided by a warning, the claims by A and B based on design defect will not ___be affected by the fact that the brake-pad risk is explicitly mentioned. Article 46 ___PQL states: ___ ___ ‘For the purpose of this law, defect means unreasonable danger that threat___ ens the safety of the human body or property exists in the product. If there ___ are standards to protect personal health, the safety of the human body and ___ property which has been set by the State or the specific trade, defect means ___ the product does not conform to that standard.20’ ___ ___ In this case, even if the product has met national standards or the compul- 2/33 ___sory standards of the industry, it is arguable that X has still put consumers at ___the risk of unreasonable hazard, which, even though the possibility is low, ___makes the bicycle defective. Chinese courts have not yet developed a majority ___view on this question, however. ___ No defences or other means for X to avoid liability exist in this case. 2/34 ___First, the defective brake-pad would not qualify for the developmental risk ___defence provided by Item 3 of para 2 of art 41 PQL. The basis for a develop___mental risk defence is that ‘[t]he defects cannot be found at the time of put___ting the product into circulation due to scientific and technological reasons.’ ___As is mentioned in the case, before the bicycle was about to be put on the ___market, X ‘was aware of a very small risk that – given a combination of par___ticular circumstances (temperature, surface water, oil, etc) – the new brake___pad material might suddenly be rendered ineffective’, but ‘considered that the ___risk was likely to eventuate only very rarely and did not outweigh the general ___advantages of the new material.’ Therefore, X was fully aware of the defect, ___and thus the developmental risk defence will not exempt X from liability. Sec___ond, when a product poses inevitable risk, the manufacturer can avoid liabil___ity through an adequate warning. In this case, X was aware of the fact that ___the material of the brake-pad might be rendered ineffective and explained the ___possibility of failure in small print in the bicycle’s instruction manual. Ac___cording to Chinese law, the design defect is a latent defect, therefore the ___manufacturer is unable to avail of the exemption provided by an adequate ___warning. ___ ___ ___19 Yang Lixin (fn 8) 263. ___20 The translation of art 46 PQL is by Prof Wang Zhu.

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Third, even if such defect is indeed an inevitable risk, the warning adopted by X does not meet the requirement of the LPCRI. Paragraph 1 of art 18 LPCRI (2013) states: ‘Business operators shall guarantee that their provided goods or services meet the requirements on personal and property safety. For goods and services which may endanger personal or property safety, business operators shall provide consumers with true explanations and clear warnings, explaining and indicating the correct methods of using goods or receiving services and the methods for preventing damage.’ In this sense, X failed to fulfil its duty of warning, and will bear tort liability.

B. Legal Remedies To clarify X Ltd’s liability to A and B, and their right to claim compensation for the damage they suffered, it is necessary to identify the legal relationships among the parties in this case. Logically, Z, a seller, should also be added to the parties in question and consideration given to the relationship of supply linking Z with manufacturer X. That relationship may be one of buyer-seller or an agency relationship. Z also has a contractual relationship with A, the purchaser. Conversely, there is no contract between B, the unspecified third party, and A, X or Z, so B’s only claim is in tort.

1. Remedies available to purchaser A a) Contract Since A has a contractual relationship with Z, he may seek remedies according to the Chinese Contract Law (CL). Article 112 CL states: ‘Where a party fails to perform its obligations under the contract or its performance fails to conform to the agreement, and the other party still suffers from other damage after the performance of the obligations or adoption of remedial measures, such party shall compensate the other party for such damage.’

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___ Article 113 CL states: ___ ___ ‘Where a party fails to perform its obligations under the contract or its per___ formance fails to conform to the agreement and cause losses to the other ___ party, the amount of compensation for losses shall be equal to the losses ___ caused by the breach of contract, including the interests receivable after the ___ performance of the contract, provided not exceeding the probable losses ___ caused by the breach of contract which has been foreseen or ought to be ___ foreseen when the party in breach concludes the contract. ___ The business operator who practises fraud in providing to the consumer ___ any goods or services shall be liable for paying compensation for damages ___ in accordance with the Law of the People’s Republic of China on Protection ___ of Consumer Rights and Interests.’ ___ ___ A may bring a lawsuit against Z according to the above, requiring Z to pay ___compensation for losses attributable to his breach of contract. ___ Article 122 CL states: ___ ___ ‘Where the breach of contract by one party infringes upon the other party’s ___ personal or property rights, the aggrieved party has the right to choose ___ whether to demand that the breaching party bear the liability for breach of ___ contract according to this Law, or to claim the assumption by the violating ___ and infringing party of liabilities for infringement according to other laws.’ ___ ___ On this basis, since A suffered physical damage, which amounts to the in___fringement of an ‘absolute right’, he may claim either for breach of contract or ___for tort, depending on which remedy is more favourable to him. ___ Conversely, due to the lack of contractual relationship between A and X, it ___is not possible for A to hold X liable for breach of contract. ___ ___ ___b) Tort ___ ___As a consumer, A may also seek to impose liability on Z, the seller, or X, the ___manufacturer, under the Chinese Tort Liability Law (TLL). If A claims against Z, ___arts 42 and 43 TLL apply, while if A claims against X, arts 41 and 43 TLL apply. ___ Article 41 states: ___ ___ ‘If a product defect causes harm to another, the manufacturer shall be sub___ ject to tort liability.’

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Article 42 states: ‘If due to seller’s fault a product defect exists, and causes harm to another, the seller shall be subject to tort liability. If a seller cannot identify the defective product’s manufacturer and cannot identify the defective product’s supplier, the seller shall be subject to tort liability.’ Article 43 states: ‘If a product defect causes harm, the victim may claim compensation from the product manufacturer, and may claim compensation from the seller. If a product defect is caused by a manufacturer, after the seller pays compensation to the victim, it has the right to claim indemnity from the manufacturer. If a seller’s fault causes a product defect, after the manufacturer pays compensation to the victim, it has the right to claim indemnity from the seller.’ If A’s claim is successful, the compensation covers the losses he suffers as a result of his physical injury in the accident. The costs of repairing or replacing the bicycle damaged in the accident are also within the scope of the compensation payable in respect of product liability under art 41 TLL.21

2. Remedies available to passer-by B Under the TLL, B may bring a product liability claim directly against X. Of course, B may also bring a tort claim against A, which A may defend on the basis of his lack of negligence. The court also has the right to add X as an additional defendant on its own motion. The court may rule that X should be liable for the defective product as the party ultimately responsible for the accident. If B should sue A for negligence but fail in his claim, he may bring another claim against X. Suing X on the basis of product liability seems to be the more convenient and appropriate choice for B. According to art 41 TLL, the party that claims

_____ 21 Wang Shengming (fn 12) 225.

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___compensation on the basis of product liability is not necessarily the user of the ___product, but may be any person (‘If a product defect causes harm to another…’). ___B, as a further victim of the defective product, is also within the class of persons ___covered by the same article. Therefore, B may also bring a suit against product ___manufacturer X or seller Z for product liability (art 34[1] TLL). ___ In this case, the manufacturer of the product is known; therefore, Z will not 2/51 ___have to bear the ultimate liability. ___ ___ ___Case 2: Infected Blood ___ ___ A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital ___ in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. ___ At the time, the risk of Hepatitis N in donated blood had been identified in a single pub___ lished paper in a scientific journal, but only a handful of research laboratories in the ___ world had the capacity to test for its presence in specific quantities of blood. Furthermore, ___ the majority of the scientific community did not believe that the condition (Hepatitis N) ___ really existed. It was only subsequently that the condition’s existence came to be gener___ ally accepted and that a test was developed that allowed hospitals and blood suppliers to screen out infected parcels of blood. ___ What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the ___ various possible bases of liability (a general tortious liability for fault, vicarious liabiliy, ___ contractual liability, or a special strict liability regime?). Would it make any diffeence to ___ your analysis if A contracted the virus as the result of a blood transfusion conducted in ___ 2001, but her condition only manifested itself in 2012? (In this context, consider in particular differences in the time limits applied to the various possible bases of liability.) ___ ___ ___ One thing that should be clarified is that the TLL was passed in December 2/52 ___2009 and became effective on 1 July 2010. Before that date, blood infection ___liability was different from art 59 TLL. This report is based on current Chinese ___law (art 59 TLL) even though it would not have governed a transfusion in ___2001.22 However, if damage due to A’s Hepatitis N did not manifest itself until af___ ___22 Before the TLL was promulgated, art 33 of The Regulation on the Management of Medical ___Accidents, which came into force in 2002, stated: ‘Any of the following circumstances shall not ___be deemed as a medical accident: … 4) unfavourable consequences caused by infections result___ing from faultless blood transfusions.’ Article 49(2) stated: ‘If a medical accident has not been proved, the medical institution is not responsible for making any compensation.’ In this sense, ___ the medical institution bears no tort liability for transfusions in the absence of fault. But schol___ars and legal practitioners generally argue that such practice would leave the interests of the ___patient unprotected, which defies the equity of the law. Therefore, in practice, the courts would ___base their judgment on art 132 of the General Principles of Civil Law, which states that ‘if none

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ter 1 July 2010, then art 59 TLL would apply even though the transfusion occurred before it came into effect. In China, there is only one type of blood supplier, namely a ‘blood station’. A blood station is a government-run institution in charge of collecting and providing blood. So there is no profit-making blood supplier, such as company Y in China. Nonetheless, the blood station has the same legal responsibilities as a blood supplier.

A. Remedies Available to Victim A 1. Legal issues relating to medical products and blood – Is blood a product? Article 59 TLL addresses product liability in the medical field. With regard to the issues in this case, the most controversial question is whether blood should be considered a product. As for whether blood, which is part of the human body, should be determined to be a product, there are three different opinions in the academic community. Some scholars believe that blood is a product, and the blood station is the manufacturer and the hospital the seller. Their argument is grounded on the fact that blood has to be processed and manufactured before it is supplied to hospitals and that it is supplied to hospitals at a price, which involves an exchange of equal value.23 Some other scholars argue that blood does not fall into the category of product, because blood is not processed and manufactured for sale; the nonprofit process does not fit into the characteristics of a product defined in the PQL and therefore blood is not a product.24 The third opinion proposes that blood is a quasi-product, to which specific regulations may apply.25 The real purpose of these arguments is to determine whether non-fault liability based on product liability should be applied to the harm caused by blood transfusions. The reporters agree that art 59 TLL has put substandard blood and defective medical products in a parallel position, where non-fault liability ap-

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of the parties is at fault in causing damage, they may share civil liability according to the actual circumstances’, and rule that the medical institution must pay reasonable compensation to the patient. After the TLL was enacted, it became unnecessary to apply art 132 GPCL because the blood supplier and the hospital performing the transfusion bear non-fault liability. 23 Wang Liming et al, The Textbook of China Tort Liability Law (Beijing, People’s Court Press 2010) 524. 24 Liang Huixin, The Consumer’s Law and Its Improvement, Industrial and Commercial Administrative Management 2000(21). 25 Yang Lixin, Three Opinions Concerning Medical Product Liability, Hebei Law 2012(6).

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___plies. Therefore, whether blood is a product or not, it is generally accepted that ___product liability applies to the harm caused by transfused substandard blood.26 ___ ___ ___2. Elements for non-fault liability for harm caused by blood transfusion ___ ___Article 59 TLL lists the necessary factors for liability for harm caused by a blood ___transfusion: ___ ___ ___a) The blood transfused is substandard ___ ___Substandard blood refers to defective blood that may cause the blood to be inef___fective for assisting in treating the patient’s disease or even to threaten the ___health of the patient. These defects are: 1) the blood collected does not meet the ___criteria for medical use and transfusing it will not provide a benefit for the pa___tient; 2) the blood collected, supplied and used is harmful, that is, it contains ___pathogenic bacteria or a virus; 3) the blood itself is safe, but was polluted dur___ing processing, storing, transporting or packaging.27 ___ Chinese scholars have different opinions about the relationship between ___the terms ‘defective product’ in arts 41–43 TLL and ‘substandard blood’ stated ___in art 59 TLL. ___ Some scholars think that ‘substandard’ is different from ‘defective’. As for ___blood, suppliers and medical institutions have to follow the collecting, testing, ___processing, storing, transporting and packaging procedures regulated by the Ba___sic Standard for Blood Stations (2000 no 448) and the Basic Standard for Aphae___resis Plasma Centres (2000 no 424) promulgated by the Ministry of Health as well ___as other administrative and technical standards. If the medical institution’s and ___blood supplier’s practice meets these standards, the blood supplied by them is ___considered ‘acceptable’. However, ‘acceptable’ does not necessarily mean ‘de___fectless’. Only when the blood supplied is ‘substandard’ do the supplier and ___medical institution bear liability. Here ‘substandard’, according to these schol___ars, means the blood supplier or medical institution is at fault for the defect in the ___blood. In other words, ostensibly, ‘substandard’ refers to the quality of the blood, ___but actually it constitutes a judgement about the practices of the supplier and ___medical institution. The liability for harm caused by blood defined by art 59 TLL ___is in fact fault-based liability. But because of difficulties of proof for the victim, ___ ___26 Ibid. ___27 Wang Liming (fn 3) 388 f.

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the burden of proof is shifted to the blood supplier and the medical institution to prove that the blood supplied was ‘acceptable’ and not ‘substandard’.28 Other scholars believe the difference between ‘substandard blood’ and ‘defective product’ is just a matter of phrasing. Article 59 put substandard blood and defective products in a parallel position, which means that the medical institution or blood supplier should bear the same non-fault liability as the manufacturer of a defective product. Therefore, there is no need to distinguish what causes the blood to be substandard.29 The reporters are of the opinion that the essence of this argument is to decide whether the medical institution and blood supplier should assume the risk of scientific development. Such risk originates from the following circumstances: 1) due to the limitations of medical technology, there is a possibility that bacteria or a virus which are known to medical professionals may not be detected; 2) certain bacteria or viruses may be unknown to the scientific community, as in this case. According to art 59 TLL, the medical institution is liable for any harm done to a victim by substandard blood. The medical institution cannot assert the developmental risk defence (ie that the defect was one that current science and technology cannot detect or avoid). This regulation aims at strengthening the protection of the patient and providing incentives for the medical institution and blood supplier to take effective measures against potential harms.30 b) Harms to the patient Since there are different reasons that make blood substandard, harms to the patient can include: delays in treatment as a result of the medical ineffectiveness of the blood transfused; infection caused by a virus or bacteria in the blood transfused; and harm to the patient’s health or life caused by polluted blood. Compensable harm includes personal injury and mental harm. c) Causal relationship between substandard blood and harm The ordinary rules of adequate causation apply in determining if the requisite causal relationship exists.

_____ 28 Yang Lixin/Yue Yepeng, The Legal Principles of Medical Product Liabity – A Rethinking of the ‘Qi Er Yao’ Case and the Interpretation of art 59 of the Tort Liability Law, Politica and Law 2012(9). 29 Wang Liming (fn 3) 388. 30 Ibid, 417.

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___3. The liability relationship between the medical institution and blood supplier ___ ___a) Liability should be determined referring to art 43 of the Tort Liability Law ___ ___It is the reporters’ opinion that, by virtue of art 59 TLL, the medical institution 2/65 ___and blood supplier bear non-fault liability for harm caused by a blood transfu___sion. As for the liability relationship between the two entities, art 59 states that ___‘the patient may claim compensation from…the blood supplying institution, and ___may claim compensation from the medical institution.’ It also provides: ‘If the ___patient claims compensation from the medical institution, after the medical insti___tution paid compensation to the patient, it has the right to claim indemnity from ___the liable manufacturer or blood supplying institution.’ In this sense, the medical ___institution is jointly liable (with indemnity) with the blood supplier. In other ___words, the patient may seek compensation based on intermediate liability from ___either of the two parties, and either the medical institution or the blood supplier ___will bear ultimate liability. This is different from the apportionment of ultimate ___liability among parties with joint and several liability. Such joint liability (with ___indemnity) is the same as that imposed on product manufacturer and seller as ___defined in art 43 TLL.31 Nonetheless, art 59 only provides one-way indemnity in ___that the medical institution has the right to claim indemnity from the ‘liable’ ___(meaning in this context ‘at fault’) supplier of the blood, whereas it does not ___specify that a blood supplier, after compensating the patient, has the right to ___claim indemnity from a medical institution that is at fault. To solve this problem, ___art 43 might be invoked to permit the blood supplier to claim indemnity from the ___medical institution. ___ ___ ___b) Neither the medical institution nor blood supplier is at fault ___ ___According to the second clause of art 59, after the medical institution pays com- 2/66 ___pensation for harm caused by substandard blood, if the blood supplying institu___tion is not ‘liable’ (ie not at fault), the TLL does not stipulate the result. In such cir___cumstances, since neither the medical institution nor the blood supplier has any ___fault, it is obviously unfair for the medical institution alone to compensate the pa___tient. The reporters think it is appropriate for the two parties to bear the ultimate ___liability on a pro rata basis. To be specific, after paying compensation, the medical ___institution should have the right to claim 50% indemnity from the blood supplier. ___ ___31 Yang Lixin, The Success and Unfinished Task of the Law of Tort Liability, China Renmin ___University Journal 2010(4).

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c) Both the medical institution and blood supplier are at fault It is possible that there is a joint and several liability of the medical institution and blood supplier based on each acting with fault. For instance, the blood supplier supplied substandard blood, and at the same time, the medical institution had some fault in the process of the blood transfusion. These two causes led to a single harm. According to art 8 TLL, if such circumstances exist, then the medical institution and blood supplier bear joint and several liability. Therefore, according to art 13 TLL, the patient may claim compensation from the two parties or either party. Apportionment of liability between the medical institution and blood supplier is determined by the respective degrees of their fault and their causative potency relating to the harm. If it is difficult to decide this share, the two parties should each bear 50% of the liability. If one party pays more than its share, it has the right to claim indemnity from the other party.

4. Justification for non-fault liability for harm caused by blood In the case of medical negligence, the TLL insists on fault liability for the medical institution, but in the case of harm caused by medical products and blood transfusions, it introduces non-fault liability. This is designed with regard to the consideration that, in cases where the harm is caused by a medical product, the interests of patients are not well protected. The patient does not have the capability to identify, control and prevent the substandard blood from being transfused. The patient received blood transfusion treatment only because he or she had trust in the professional capacity of the blood supplying institution and medical institution. Compared with the patient, the medical institution and blood supplier, as professional organisations, have greater capacity to control the risk. It is expected that non-fault liability imposed upon medical institutions will incentivise them to better perform their respective duties and minimise risk. In addition, in cases where the harm is caused by blood, in particular in cases of infection caused by blood transfusion, the harm done to the patient can be extremely severe. If the harm is borne solely by the patient, it may jeopardise his or her basic survival right, which is against the principle of social equity and justice. Subjecting blood transfusions to non-fault based liability transfers the risk involved in blood transfusions from the patient to the medical institution and blood supplier, relieves the patient of the burden of proving fault on the part of the blood supplier and medical institution, protects the patient against risks of medical development, and thus guarantees the legitimate rights of the patient. It is a demonstration of legal spirit – equity and justice. Of course, while protect-

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___ing the patients’ legitimate interests, non-fault liability for the harm caused by ___blood may inevitably increase the burden on the medical institution and blood ___supplier, especially the burden attributable to developmental risks. To solve ___this problem, it is recommended that the introduction of liability insurance and/ ___or a compensation fund should be considered. ___ ___ ___5. Medical malpractice defences are not applicable to harm caused by blood ___ Article 60 TLL states: 2/70 ___ ___ ‘If a patient is injured, in any of the following circumstances, the medical ___ institution shall not be subject to compensatory liability: 1) The patient or ___ his close relatives fail to cooperate with the medical institution for the pur___ poses of diagnosis and medical treatment in accordance with the applicable ___ standards regarding diagnosis and medical treatment; 2) If medical person___ nel act reasonably in diagnosing and treating in an emergency such as sav___ ing a patient on the verge of death; 3) Because of the limitations of the state ___ of medical treatment ‘then and there’ (at the relevant time and place), it is ___ impossible to diagnose and cure the patient’s condition. In the circum___ stances of item 1 of the preceding paragraph, if the medical institution or its ___ medical personnel is also at fault, the medical institution shall be subject to ___ corresponding compensatory liability.’ ___ ___ Items 1 through 3 are defences to medical malpractice. Item 1 means that 2/71 ___ the fault of the victim (and/or his or her family) is a cause of the harm; items 2 ___ and 3 clarify that the medical institution is free from fault because of ‘the state ___ of the medical treatment then and there’ defined in art 57. Since for blood trans___ fusions non-fault liability applies, the medical institution, even though not at ___ fault, is not exempted from liability. Therefore, items 2 and 3 are not applicable ___ in blood transfusion cases. Because the basis of compensation is substandard ___ blood, which cannot possibly be caused by the patient or his or her relatives’ ___ failure to cooperate with the medical institution, item 1 is also inapplicable. ___ ___ ___6. X’s liability to A ___ ___a) Contractual liability ___ ___Due to the characteristics of the current systems of medical care and blood col- 2/72 ___lection and supply in China, the hospital-patient relationship and blood sup-

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plier-receiver relationship are not considered to be contractual relationships under the law. Therefore, X is not subject to contractual liability. Nonetheless, if the victim insists on claiming based on contractual liability against the hospital, which is unusual, there will be no legal barriers, albeit the compensation is limited as a patient cannot claim damages for emotional harm if he sues the hospital under the medical contract.

b) Tort liability (i) Fault-based liability Article 13 of Law on Blood Donation (LBD) states that ‘A medical institution shall check the blood for clinical use and may not use the blood that is not up to the standard set by the State for clinical purposes’, and art 12 states that ‘Blood for clinical use must be packed, stored and transported in conformity with the sanitary standard and requirements set by the State.’ Therefore, if a medical institution’s failure to check the blood meant the blood used was not up to the standard set by the State, or its packaging, storage or transportation is not up to the standard set by the State, the medical institution is considered negligent. Article 22 LBD states: ‘Where a medical staff member of a medical institution, in violation of the provisions of this Law, uses blood that is not up to the standard set by the State on a patient, he shall be ordered to correct the wrongdoing by the administrative department for public health under the local people’s government at or above the county level; if any harm is done to the patient’s health, compensation shall be paid according to law,…’ X, as a medical institution, shall bear fault liability if its negligence in the context of the blood transfusion caused harm to A.32 In this case, since the defect that caused harm to A was already in the blood, according to the stated facts of the case, if A is to claim fault liability against X, he must prove that X failed to test the blood according to the standard set by the State. At the time of transfusion, Hepatitis N was not yet generally recognised within the scientific community, and there were no universal methods or requirements for examination for it. Therefore, X is not at fault. Accordingly, A cannot recover from X based on fault. One thing we should keep in mind, with the non-fault liability provided by art 59 TLL, is that almost nobody would seek to claim compensation on the basis of fault liability when non-fault liability is available. The purpose of men-

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32 X would also bear vicarious liability if one of its employee’s negligence in the course of the transfusion caused the harm.

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___tioning fault liability is to emphasise that the victim does have the legal option ___of seeking fault liability against the medical institution. ___ ___ ___(ii) Non-fault liability ___ ___Article 59 TLL states: ___ ___ ‘If the patient’s injury is caused by the defect in medicines, disinfectant or ___ medical equipments, or by the transfusion of blood below standard, the pa___ tient may claim compensation from the manufacturer or the blood supply___ ing institution, or claim compensation from the medical institution. If the ___ patient claims compensation from the medical institution, the medical insti___ tution has the right to claim indemnity from the liable manufacturer or ___ blood supplying institution after it paid compensation to the patient.’ ___ ___ Accordingly, the victim who suffers damage from a blood transfusion may ___obtain compensation from the medical institution or blood supplier, regardless ___of whether the medical institution is at fault or not. Therefore, A may claim ___based on non-fault liability against X. ___ In this case, A received a transfusion of blood infected with Hepatitis N in ___hospital X. Such blood is considered ‘substandard’ under art 59 TLL if it has a ___defect that threatens the life or health of the patient, After the blood was trans___fused, A was infected with Hepatitis N, which caused harm to her health, ac___cording to the case prompt. In this respect, A may claim compensation based on ___non-fault based liability from X according to the articles mentioned above. ___ According to art 59 TLL, A may seek compensation based on non-fault li___ability against X, the medical institution, or Y, the supplier of the blood. If A ___claims compensation from X, regardless of the cause of the substandard blood, ___X bears full liability to A. If X compensates A but the substandard blood was ___caused by Y, the blood supplier, then X has the right to claim indemnity from Y. ___ ___ ___7. Y’s liability to A ___ ___a) Contractual liability ___ ___The current system of blood supply in China has blood supplied by the supplier ___to medical institutions, and the medical institutions supply the blood to the pa___tient. There is no direct contractual relationship between blood suppliers and

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patients. Therefore, there is no contractual relationship between Y and A, and Y is not contractually liable to A.

b) Tort Liability According to art 59 TLL, the patient may claim compensation from the institution that supplies blood. In this sense, Y, as the supplier of the blood, is subject to non-fault liability for supplying substandard blood to A. Y and X bear joint liability (with indemnity) to A, and A can claim compensation against either X or Y.

8. Donor Z’s liability to A a) Contractual liability As the donor of the blood, Z has no contractual relationship with A and therefore is not subject to any contractual liability.

b) Tort liability Paragraph 1 of art 6 TLL establishes fault as the general basis for tort liability. In this case, when donating blood, Z was not aware that he was a carrier of Hepatitis N, so he did not have any intention of doing harm to others by donating infected blood. As a blood donor, Z does not have the obligation to check his blood either, and thus was not in any way negligent with respect to the harm to A. Therefore, Z does not bear fault liability to A. If Z was aware of having Hepatitis N in his blood and nonetheless donated blood, he would be at fault, and should be subject to fault liability according to para 1 of art 6 TLL.

9. The effect of timing on liability Article 136 General Principles of the Civil Law (GPCL) provides for a limitation period in actions for physical injury of one year. Article 137 further provides that the limitation begins to run from the date when the victim knows that his or her right has been infringed. Although A received the blood transfusion in 2001, the adverse effect did not emerge until 2012. Therefore, it was not until 2012 that the limitation period would begin to run.

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___Case 3: Bridge Collapse ___ ___ A, a pedestrian using a public right of way, is injured by the collapse of a bridge constructed by X Ltd on land belonging to Y, who commissioned the construction, on the ba___ sis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires ___ that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a dif___ ferent architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is ___ obliged to construct the new bridge for no additional remuneration. ___ What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and so subject to strict product liability, or does it merely represent the performance by Z ___ of a service, to which some alternative liability regime applies? ___ What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a di___ rect claim or a recourse action? ___ ___ ___A. The Liabilities of X, Y and Z to A ___ ___The drafting work on the Tort Liability Law was officially restarted in April 2008 2/86 ___after the Property Law (PL) was enacted in 2007. On 12 May 2008, a devastating ___earthquake of magnitude 8.0 on the Richter scale struck Sichuan Province, ___causing the collapse of countless houses and other buildings. The legislature ___was deeply affected because many buildings collapsed due to the poor quality ___of the construction. Therefore, art 86 TLL was singled out to define a separate ___type of harm caused by construction defect.33 ___ Paragraph 1 of art 86 TLL states: 2/87 ___ ___ ‘If a building, construction or any other facilities collapses, and causes ___ harm to someone else, the builder34 and the constructor shall bear joint and ___ several liability. After the builder or constructor has compensated the vic___ tim, if there is any other liable persons, the builder or constructor has the ___ right to claim indemnity from the other liable person.’ ___ ___ This provision specifies: 1) the directly liable persons are the builder and 2/88 ___constructor; 2) the designer is not a directly liable person, but instead an ‘other ___liable person’; 3) a presumption of fault applies to the builder and constructor, ___ ___ ___ 33 Law Committee of the National People’s Congress, The Review Report of the Tort Liability ___ Law (Draft) of the People’s Republic of China, in the 12th Session of the 11th Standing Commit___tee of the National People’s Congress, 22 December 2009. ___34 ‘Builder’ refers to the entity in charge of the construction, often the investor. The builder ___hires the general contractor who is referred to as the ‘constructor’.

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and this is a difference from liability for defective products;35 4) para 1 does not address what constitutes a ‘design defect’ in real estate, but imposes liability for all the resulting harms when a collapse is caused by a construction defect. According to this art 86 TLL, Y, the builder, and X, the constructor, bear joint and several liability to A. The designer Z bears no direct liability to A. After paying compensation, Y and X may claim indemnity from Z. It is necessary to point out that scholars have not reached any agreement on the ‘joint and several liability’ imposed in this article. Many scholars think that joint and several liability for building collapses should be understood as ‘joint liability (with indemnity)’. They argue that, although real estate is not a product, liability for harm caused by defective real estate should be treated similarly to product liability. They suggest that the first sentence of art 86(1) TLL should be rewritten in the style of art 41 TLL as follows: ‘If the collapse of a defective building, construction or other facility causes harm to another, the victim may claim compensation from the builder, and may claim compensation from the constructor.’36 Furthermore, joint liability (with indemnity) for defective real estate also raises the same problems of ‘initial liability’ and ‘claim deadlock’ as the joint liability (with indemnity) for defective products.37 The reporters agree with this argument.

1. Architectural plans are a service rather than a product Under Chinese law, an architectural plan itself is not a product, but instead classified as a service. Paragraph 1 of art 269 CL states: ‘A contract for a construction project is a contract whereby the contractor performs project construction, and the developer pays the price.’ Paragraph 2 states: ‘Contracts for construction projects include contracts for survey, design, and construction.’ Thus, a construction project design contract is a service that the designer provides to the builder, and thus the liability rule of contract law applies.

_____ 35 The difference is that liability of the manufacturer and seller of a defective product is nonfault while the liability of the builder and constructor is based on fault, albeit fault that is presumed and which thereby puts the burden of proof on the builder and constructor to prove that they were not at fault. 36 See Wang Zhu, The Interpretation of the Application of the Art 86 Item 1 of the Tort Liability Law, Yuedan Civil and Commercial Law Review 31. 37 Yang Lixin, On the Categorization and Regulation of Non-Substantial Joint and Several Liability, Contemporary Law 2012(3).

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___2. Z’s liability to X and Y ___ ___a) Apportionment of liability between X and Y ___ ___Article 12 of the Interpretation of the Supreme People’s Court on Certain Issues 2/92 ___Concerning the Application of Law in the Trial of Cases Involving Project Con___struction Contract Disputes states: ___ ‘Where a contract letting party causes a defect in the quality of a construc___ tion project through its fault in any of the circumstances below, it shall bear ___ liability for damage caused: ___ (1) The design it provides contains a defect; ___ (2) The main building materials, construction components and parts, equip___ ment it has supplied or designated for purchase meet the applicable stan___ dards; ___ (3) It directly designates a subcontractor to undertake professional tasks of ___ the project.38 ___ ___ Where the general contractor has any fault, it shall also bear liability for ___ fault accordingly.’ ___ ___ According to this interpretation, Y, the builder, bears fault liability for provid- 2/93 ___ ing a defective design to X, the constructor. Based on art 43 TLL, if A claims com___ pensation from X, X, after paying compensation to A, has the right to claim in___ demnity from Y. Alternatively, A may claim compensation from Y. Y bears the ul___ timate liability for A’s harm because the party who acts with fault bears the ulti___ mate liability. ___ However, there may also be joint and several liability. If there is a defect in 2/94 ___ the design of the construction project that Y commissioned, and X acted with ___ fault during the process of construction, X and Y are co-tortfeasors, and should ___ bear joint and several liability, which is apportioned according to their respec___ tive contributions. ___ ___ ___b) Z’s liability to Y ___ ___As the designer, Z, breached the design contract by providing a defective de- 2/95 ___sign. Article 280 CL states: ___ ___38 When a contract letting party hires a sub-contractor, the former often cannot guarantee the ___quality of the work of the latter and so is liable for any defects caused by the sub-contractor.

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‘Where the developer sustains any loss from construction delay due to noncompliance of the survey or design or due to delayed delivery of the survey or design documents, the surveyor or the designer shall continue to improve the survey or design, reduce or forgo the survey fee or design fee, and pay damages.’ According to this article: 1) since Y commissioned another designer, Z does not need to perfect his or her design; 2) Z should reduce or waive design fees; and 3) Z should make compensation for the losses Y suffered. Z’s compensation to Y should be paid according to provisions in the design contract. If there is no provision in the contract, Z’s liability includes: 1) Y’s compensation to A (see no 2/89 above: Apportionment of liability between X and Y), which is a recourse action; 2) the fee Y pays to another designer, which is also a recourse action; and 3) consequential losses resulting from the collapse of the bridge, which would be calculated based on what Y would have gained if the bridge had not collapsed and operated properly, and this is a direct claim. As provided in the contract, X is obligated to build another bridge without charging additional fees, so Z does not have to pay for construction of the new bridge. c) Z’s liability to X Article 92 GPLC states: ‘If profits are acquired improperly and without a lawful basis, resulting in another person’s loss, the illegal profits shall be returned to the person who suffered the loss.’ Although Z has no contractual relationship with X, because X is obligated to build another new bridge without being paid, Z has been unjustifiably enriched. Therefore, Z is obligated to return the illegal profits to X. This is a recourse action.

B. Analysis of Liability for Defects in Real and Movable Property The PQL emphasizes that real property is distinct from products, and art 86 TLL addresses liability for the collapse of buildings, constructions and other facilities. Its purpose is to differentiate product liability from real property liability and to specify that different legal principles apply. The main problems are as follows. 1. Liability for defective design of real property Before the TLL was enacted, a designer’s liability for the harm caused by the defective design of real property was determined by art 16 of the Interpretation of

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___the Supreme People's Court of Some Issues Concerning the Application of the ___Law on the Trial of Cases to Compensation for Personal Injury. Article 16 of the ___Interpretation states: ___ ___ ‘Under any of the following circumstances, Article 126 of the General Prin___ ciples of Civil Law shall apply, and the owner or administrator shall be li___ able for harm, unless he can prove that he has no fault: ___ 1) a road, bridge, tunnel or any other artificial building injures someone ___ due to a defect in maintenance or management; ___ 2) accumulated goods or matter rolls or slides down or collapses, and in___ jures someone; ___ 3) a tree falls down or is broken or a fruit drops, and injures someone. ___ ___ Where, in the event of a circumstance in Item (1) of the preceding para___ graph, an injury occurs due to a defect in design or construction, the owner ___ and the administrator shall bear joint liability together with the designer or ___ constructor.’ ___ ___ This provision has the following characteristics: 1) liable persons include 2/101 ___the owner, administrator, designer and constructor; 2) a presumption is em___ployed; 3) it employs the concept of a ‘defect of design’ of real property and ___specifies who bears liability therefor. According to this stipulation, Y, the owner ___of the bridge, X, the constructor, and Z, the designer, would bear joint and sev___eral liability to Z. It is worth pointing out that, like the criticism of ‘joint and ___several liability’ as defined in para 1 of art 86 TLL, such liability is indeed a joint ___liability (with indemnity).39 ___ The reporters believe that para 1 of art 86 TLL has changed the outcome un- 2/102 ___der art 16 of the Interpretation, in that the designer is no longer a directly liable ___person. Such change is desirable, in the reporters’ opinion, because the TLL fo___cuses on compensating the victim for harm caused by defective real property. ___Article 86 makes it easier for the victim to claim compensation from the builder ___and constructor. Therefore, it is consistent with the liability borne by a product ___manufacturer and seller. ___ ___ ___ ___ 39 See Yang Lixin, The Purity of Joint and Several Liability Should be Protected – A Study on ___the Joint and Several Liability Stipulated by the Interpretation of Some Issues Concerning the ___Legal Application in the Trial of Physical Damage Compensation Case, Juristic Case Studies ___2004(6).

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2. The difference between liability for real and personal property a) Construction is not a product The Chinese legal system has different rules for real and movable property. The Construction Law (enacted in 1997 and amended in 2011) is in parallel with the PQL (enacted in 1993 and amended in 2000), and the CL has a separate chapter for ‘Construction Project Contracts’. In terms of specific provisions, para 2 of art 2 PQL states: ‘For the purpose of this law, product means a product40 processed and manufactured for the purpose of marketing’; and para 3 states: ‘This law is not applicable to construction projects. However, the construction materials, structural components and fittings and equipment that fall within the category as provided in the previous paragraph shall be governed by this law.’ Accordingly, a construction project as a whole is not a product, and product liability does not apply.

b) Difference between liability for real and movable property In China, the differences in principles for liability for movable and real property are: First, in drafting liability rules for defective real property, the majority of scholars have been of the opinion that a presumption of fault should apply in determining liability for real property with a construction defect, and it would be inappropriate to apply non-fault liability for movable property. Second, there is a difference regarding whether or not to include harm to the property itself within the scope of compensation. How to deal with harm to movable property itself is controversial. However, the mainstream thought in the academic community is that, on the one hand, harm to the property itself should theoretically be resolved by contract law. But on the other hand, the TLL has changed the PQL, the purpose of which is to consolidate the compensation for harm to the property itself along with other losses. Paragraph 1 of art 86 TLL does not specify harm to the defective construction itself, and the treatment of damage in art 41 TLL would not be applicable to this harm. Thus, relevant provisions of the CL would determine whether the constructor is liable to the builder or the owner of the construction for harm to the construction. Third, there is a difference relating to liability for defective maintenance. Real property liability can be based on either a construction defect or a mainte-

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40 In the original Chinese, ‘product’ is both the term defined and used in the definition as above.

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___nance defect, but the latter is not applicable to movable property. Paragraph 2 ___of art 86 TLL states: ‘If for the reason of any other liable persons, a building, ___construction or any other facilities collapses, and causes harm to another, the ___other liable person shall bear tort liability.’ Compared with art 126 GPCL41 and ___art 85 TLL,42 the ambiguity of this provision is obvious: para 2 should be under___stood as addressing liability for defective maintenance of real property. In other ___words, when a building, construction or any other facility collapses due to a ___maintenance defect, and causes harm to another, if the owner, administrator or ___user cannot prove that he had no fault, he shall bear tort liability.43 As for mov___able property, liability for defective maintenance is generally not considered. ___ ___ ___c) Justifications for the differences ___ ___The reporters are of the opinion that it is justified that liability for real estate is 2/109 ___different from that for movable property, in that: ___ First, there are a number of differences in the theory on which the liability is 2/110 ___based. The theoretical differences in liability for real estate and movable property ___are: 1) Regarding types of defects: A defect in real property is usually a construction ___defect (corresponding to a manufacturing defect in movable property) or a defect ___in design or maintenance. Defects in warning, instruction and post-construction ___remedial measures do not arise to the same extent as they would in relation to mov___able property. Defects in real property also include defects resulting from supervi___sion and monitoring. 2) Regarding costs of prevention: It is not cost-effective to ___prevent each and every single defect in a product during the manufacturing proc___ess. However, owing to the much larger value attached to buildings and other con___structions, it is economically appropriate to seek to prevent the presence of defects ___in every instance. 3) Regarding the cost of harm to the property itself: The cost of ___harm to the property itself is also very large in the case of constructions, and some___times even surpasses the cost of harm to third parties. Thus, it makes sense to em___ploy different rules regarding liability for real property and movable property. ___ ___41 Article 126 GPCL reads in translation: ‘If a building or any other installation or an object ___placed or hung on a structure collapses, detaches or drops down and causes damages to oth___ers, its owner or manager shall bear civil liability, unless he can prove himself not at fault.’ ___42 Article 85 TLL reads in translation: ‘Where any building, structure or facility or anything laid thereon or suspended therefrom falls off or falls down, causing any harm to another per___ son, if the owner, manager or user cannot prove that he is not at fault, he shall assume the tort ___liability. After making compensation, the owner, manager or user shall be entitled to be reim___bursed by other liable persons if any.’ ___43 See Wang Zhu, Yuedan Civil and Commercial Law Review 31.

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Second, there are differences in the liability systems applied. Such differences are exhibited in the following respects: 1) Regarding defences: The builder and constructor have almost no specific defence in respect of real property that has a construction defect, but the manufacturer and seller of defective products do have particular defences. 2) Regarding the basis for internal liability: Internally, the builder and constructor bear fault liability, but the manufacturer bears non-fault liability for a defective product. Finally, real and movable property are subject to parallel but distinct systems of administrative supervision in China. Under the framework of administrative organisation in China, the quality of real and movable property is under the supervision of different government departments. The Industrial and Commercial Administrative Department and Department of Inspection and Quarantine are responsible for quality management and market supervision of movable property, and the Departments of Industry and Information Technology are in charge of quality management and supervision of movable property of special kinds. On the other hand, the supervision and management of real property falls within the scope of responsibility of several other government departments: the Department of Housing and Urban-rural Development are responsible for the supervision and management of construction and rail transit in urban areas, the Department of Transportation for the quality of roads, water ways, railways, etc, and the Department of Water Resources for the quality of water conservation projects.

C. The Difference Between the Liabilities for Services and Products in China and the Justification 1. The difference between the liabilities for services and products There are several differences between the liabilities for defective products and services: 1) The requirement of privity. In terms of liability for services, if the person harmed is party to the contract under which the service is provided, then either liability for breach of contract or tort liability may be chosen according to art 12 CL. In terms of product liability, there is no need to consider the question of privity at all. 2) Principles of imputation. If the service provided harms a person who is not party to the contract, only tort liability can arise and it is based on fault. By contrast, non-fault liability is applicable to defective products. 3) Liable persons. The only person liable for a defective service is the provider of the service, whereas the product manufacturer and the seller are jointly liable in the case of a defective product.

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___2. Justification for differences in the liabilities for services and products ___ ___There is sufficient justification in the Chinese legal system to differentiate the 2/114 ___liability for providing services from that for defective products in that: 1) The ___degree of circulation is different. From manufacturer to final user, the product ___passes through many phases. By contrast, the provision of a service is generally ___direct and does not involve circulation. 2) It is difficult to discover and prove the ___fault of the person liable for a defective product. Modern methods of mass pro___duction are so sophisticated that it is hard for the victim to prove that the liable ___person was subjectively at fault, which in turn makes it harder to claim com___pensation. To solve this problem, strict liability is applied to defective products. ___On the contrary, it is easier for the victim to prove the fault of a service provider. ___3) It is difficult to claim compensation because of the privity requirement. China ___is a huge country. If the product manufacturer was the only liable person, this ___would impose a heavy economic burden on the victim when it came to bringing ___a claim for compensation. In this respect, for reasons of convenience of litiga___tion and in claiming compensation, the legislator adds the seller as a potentially ___liable person, who is required to bear the risk that the victim fails to recover ___compensation from the distributor or manufacturer. This strategy is designed to ___provide better consumer protection. By contrast, the victim does not have such ___difficulty in claiming compensation in the case of the provision of a service. ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___NEUE SEITE QQQ

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Yoshio Shiomi

Product Liability in Japan Product Liability in Japan Yoshio Shiomi https://doi.org/10.1515/9783110547559-005

Contents Part I: General Questions | 62 I. Compensation in Japanese Law for Defective Products and Services | 62 II. The Product Liability Act of Japan | 65 Part II: Cases | 70 Case 1: Brake Pad Failure | 70 Case 2: Infected Blood | 72 Case 3: Bridge Collapse | 75

Part I: General Questions I. Compensation in Japanese Law for Defective Products and Services Japanese law makes the following provision for compensation in respect of defective products and services:1 i) With regard to damage arising from a defect in ‘manufactured and processed movable property’, the Product Liability Act (PLA) of Japan imposes compensatory liability on manufacturers, importers and any person who provides a representation of name, etc, on the product (hereinafter referred to as ‘the manufacturer, etc’) (art 3 PLA). Negligence on the part of the manufacturer, etc is not required for the imposition of compensatory liability. The term ‘defect’ shall mean a lack of safety that the product ordinarily should provide, taking into account the nature of the product, the ordinarily foreseeable manner of use of the product, the time when the manufacturer, etc, supplied the product, and other circumstances concerning the product (art 2 [2] PLA). ii) As far as damage caused by immovable property is concerned, if any defect in the installation or maintenance of any structure on land – including devices integrated with the land functionally, for example, railway junction

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1 Prof Yinhong Yang, Fujian Normal University Law School, Ms Ying Tao, PhD candidate, Renmin University Law School and Ms Jun Fang, LLM, Renmin University Law School contributed to the translation from Chinese to English. https://doi.org/10.1515/9783110547559-005

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___ devices2 and track3 – causes damage to others, the possessor of such struc___ ture shall be liable to the victims to compensate for that damage (first sen___ tence of art 717 [1] Japanese Civil Code, (hereinafter, referred to as ‘CC’). In ___ this circumstance, if the possessor can prove he is not at fault in relation to ___ the installation and management of the structure, he will escape liability. ___ The owner must compensate for the damage (second sentence of art 717 [1] ___ CC). Compensatory liability for the owner is no-fault liability. Therefore, the ___ owner will not avoid liability even if he can prove that he was not at fault in ___ the installation and management of the structure. According to precedents, ___ the term ‘defect’ in connection with a structure on land shall mean the ___ structure is in a condition lacking the safety which the structure should or___ dinarily provide, considering the risk expected ordinarily. ___iii) For damage caused by a defect relating to the installation or management of 3/4 ___ any public structure managed by the state or a public body (whether im___ movable property or movable property, including an animal, under the con___ trol of the state or a public body), the state or the public body shall be liable ___ (art 2 of the State Compensation Law which describes such liability as liabil___ ity for structures). Here, the liability of the state or the public body is im___ posed on a no-fault basis. According to precedents, the term ‘defect’ in con___ nection with a structure shall mean the structure is in a condition lacking ___ the safety which the structure should ordinarily provide, considering the ___ risk expected ordinarily.4 So even if the state or the public body can prove it ___ was not at fault in the installation and management of the structure, it can___ not escape liability. ___iv) The possessor of an animal shall be liable to compensate for the damage 3/5 ___ that the animal has inflicted on others; provided, however, that this shall ___ not apply if he managed the animal with reasonable care appropriate to its ___ species and nature (art 718 CC). The liability of a possessor of an animal is ___ fault-based; however, the burden of proof as regards the negligence of the ___ possessor is reversed. In addition, the term ‘animal’ in art 718 CC is inter___ preted to include viruses and microorganisms, a construction which is ___ widely accepted in current private law theory.5 ___ ___2 Supreme Court Decision dated 23 April 1972, Minshu vol 25, 351. ___3 In fact, it is not unusual that devices which are manufactured while land is being developed ___and integrated into the land are deemed to be structures on land, for example, in the context of a golf course or a quarry. See Yoshio Shiomi, Fuhoukoui Hou [Law of Torts] II (2nd edn 2009) 244. ___ 4 Supreme Court Decision dated 20 August 1970, Minshu vol 24, 1268; Supreme Court Decision ___dated 4 July 1978, Minshu vol 32, 809; Supreme Court Decision dated 30 March 1993, Minshu ___vol 47, 3226. ___5 See Tatsuaki Maeda, Fuhoukoui Hou [Law on Torts] I (1980) 170; Shiomi (fn 3) 427.

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When driving a vehicle causes any harm to others’ life or body, any person who was using the vehicle for his or her own purposes shall be liable to ___ compensate for the damage (art 3 of the Automobile Accident Compensa___ tion Act). This refers to any person who controls the driving or obtains ad___ vantage from it. The person who supplies or drives the vehicle can avoid li___ ability if he or she can prove all of the following three circumstances: ‘he or ___ she and the driver fulfilled their duty of care in the driving of the vehicle’, ___ ‘the victim or a third party (except for the driver) acted intentionally or neg___ ligently to bring about the damage and ‘the vehicle is without structural de___ fect and functional obstruction’. However, it is very difficult to prove all of ___ the three circumstances in practice. For this reason, the liability of a person ___ who supplies or drives a vehicle is considered to be a no-fault liability. ___ (When the Automobile Accident Compensation Act was adopted in 1961, it ___ was in fact made for the purpose of establishing a no-fault liability.) ___ vi) Where the operation of any nuclear installation or storage or disposal of nu3/7 ___ clear fuel or waste causes damage, the operator shall be liable to compen___ sate the victim (art 3[1] of the Nuclear Energy Compensation Act). However, ___ the operator will avoid liability if he or she can prove that ‘the damage was ___ caused by an extremely serious natural disaster.’ Nonetheless, in relation to ___ the Fukushima Nuclear Power Station accident arising from the Japanese ___ earthquake and tsunami in 2011, there has been a court decision determin___ ing that this was not an ‘extremely serious natural disaster’.6 It is said that ___ the Japanese government holds the same viewpoint. Therefore, liability for ___ nuclear operators can be deemed to be essentially no-fault liability. ___ 3/8 ___ vii) Damage arising from the provision of services (defined restrictively here as personal services) is a matter of compensation for breach of the contract ___ under which the service was provided, between the parties to that contract. ___ In addition, tortious liability may arise on the basis of the general require___ ments set out in art 709 CC, which state that ‘a person who has intentionally ___ or negligently infringed any right of others, or legally protected interest of ___ others, shall be liable to compensate any damage resulting in consequence.’ ___ A person who employs others for a certain business shall be liable for dam___ age inflicted on a third party by his or her employees with respect to the ___ execution of that business (art 715[1] CC) though a proviso to the same arti___ cle states that the employer may avoid liability if he or she exercised rea___ sonable care in appointing the employee or in supervising the business. ___ However, in the 110 years since the Civil Code of Japan came into effect, ___ ___ ___ ___ 6 Tokyo District Court Decision dated 19 July 2012, Hanji vol 2172, 57.

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___ there have only been a few cases – shortly after the enactment of the Code – ___ which have applied this proviso so as to exempt the employer from liability. ___ Current theory interprets the employer’s liability as ‘a no-fault liability of ___ the employer resulting from tortious conduct involving an employee’s in___ tention or negligence’ and considers the proviso in art 715 CC to be ‘ineffec___ tive’. According to this theoretical interpretation, the justification for the ___ employer’s liability is derived from the risk-liability theory (any person who ___ creates or controls the source of a risk shall be liable to compensate for the ___ damage arising from such risk) or the advantage-liability theory (any per___ son who obtains advantage from an activity shall be liable to compensate ___ for the damage arising from such activity).7 ___ ___ ___II. The Product Liability Act of Japan ___ ___A. Before the Enactment of the Product Liability Act ___ ___The issue of damage caused by products first became a social problem in Japan 3/9 ___as a result of the SenYong arsenic poisoning in 1955, in which a great number of ___people suffered damage from arsenic contamination during the manufacture of ___infant milk powder. This was followed by the Thalidomide tragedy, the personal ___injuries associated with the SMON (subacute myelo-optic neuropathy) epidemic ___of the 1960s, in which a great number of people suffered crural paralysis, eye___sight impairment, abnormal perception and other ill effects from gastrointesti___nal drugs which contained clioquinol, the rice bran oil poisoning of 1968 (in ___which a great number of people became ill from the contamination of cooking ___oil with PCB [polychlorinated biphenyl]), and the chloroquine retinopathy con___troversy of the 1960s and 1970s (in which severe eyesight impairment occurred ___after chronic nephritis patients used chloroquine drugs for a long period). It was ___in light of such events that public debate about product liability law proceeded. ___In Japan, liability for products had for a long time been fault-based liability un___der art 709 CC. However, as the numerous public controversies were perceived ___as highlighting social problems in the corresponding period, the remedies ___available to the victim within the framework of fault-based liability were ex___panded on the theoretical bases of the enhancement of the duty of care, the eas___ing of the foreseeability requirement and the mitigation of the burden of proof ___ ___7 Tadashi Otsuka, Minpou 715 Jou, 717 Jou [Articles 715 & 717 Japanese Civil Code] in: Toshio ___Hironaka/Eiich Hoshino (eds), Miopouten no 100 nen [100 Years of Japanese Civil Code] III ___(1998) 673; Shiomi (fn 3) 427.

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relating to negligence and causation. Nevertheless, to impose liability under art 709, the precondition was still that the victim bore the burden of alleging and proving both the negligence of the tortfeasor and causation. Therefore, insofar as the provision of a remedy to the victim was considered primary, the liability regime suffered from limitations. In these circumstances, a strong trend of thought advocating ‘transforming fault-based liability into no-fault liability’ appeared in Japanese civil law research and, under this influence, the Product Liability Institute, established in 1972 and led by Prof Wagatsuma, published a ‘Proposal for a Product Liability Act’ in 1975.8 This, however, fell through. After that, little happened for a period of time. When some scholars and practitioners (especially manufacturers and their organizations) became aware of the factual effects of US product liability actions in that country, they were alerted to American style legislation on product liability. This had an effect on the law’s future development. By contrast, across the world, the distinction of product liability from faultbased liability became the prevailing orthodoxy at that time, for example, through the case law adoption of no-fault liability in the US and the enactment of the EC Product Liability Directive in 1985. Influenced by the trend of international legislation and the social necessity for a legal framework which provides remedies for victims suffering damage from defective products, the demand for special legislation regarding fault-based liability and the introduction of nofault liability became urgent from the late 1980s. A draft Product Liability Act was submitted to Congress after the Legal Review Committee of the Justice Ministry discussed the question of legislation. The Product Liability Act was adopted on 22 June 1994 and came into force on 1 July 1995. Since then, any product supplied by a manufacturer is subject to the Act. In addition, in Japan there was no legislative obstacle preventing protection against economic loss, because Japanese tort law has a very wide scope, including compensation for pure economic loss. Furthermore, as noted above, employer’s (vicarious) liability is no-fault liability and thus an employer may not be immune from liability even if he can prove that he was not at fault. It was also generally recognized that a general contractor was liable for a sub-contractor whose work fell below the applicable standard of care. Consequently, the main reason for special legislation relating to product liability lies in the view that it is unreasonable to apply a requirement of fault to the compensatory liability relating to defective products.

_____ 8 See Takeshi Kawai, Seizoubutsu-Sekinin non Kenkyu [A Study of Product Liability] (1979) 21, 31.

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___B. Overview of the Product Liability Act of Japan ___ ___Article 3 PLA states: ‘The manufacturer, etc, shall be liable for damages arising ___from the infringement of life, body or property of others which is caused by the ___defect in the delivered product which was manufactured, processed, imported, ___or provided with the representation of name, etc, described in item 2 or item 3 of ___para 3 of the preceding article, provided, however, that the manufacturer, etc, ___shall not be liable when the damage occurs only with respect to such product.’ ___ ‘The infringement to life, body, or property which is caused by a defect in ___the product’ is subject to art 1 PLA. The term ‘product’ shall mean movable ___property which is manufactured or processed (art 2[1] PLA). It excludes immov___able property and intellectual property. For example, serious damage caused by ___the defect in a commercial residential building or a computer software program ___is not subject to the Product Liability Act. Besides, natural products such as ___crops that have not been artificially processed are also excluded. Additionally, ___the provision of services is not subject to the Act either. ___ The Product Liability Act defines the manufacturer, etc, as the defendant. ___This covers not only (i) any person whose business is manufacturing or process___ing, but also (ii) any importer, (iii) any person who provides the representation ___of name, etc, on the product and any other person who is essentially considered ___subsidiary to the manufacturer (art 2[3] PLA). ___ Where there is any defect in the product, any person suffering damage ___from such defect shall be entitled to demand compensation from the manu___facturer. Intention or negligence on the part of the manufacturer, etc, is not ___required (art 3 PLA). A defect in the product supplied by a manufacturer is an ___attributable cause for the imposition of tortious liability under the Product ___Liability Act. Product liability is no-fault liability but requires proof of a de___fect. ___ In Japan, defects are divided into (i) ‘design defects’, referring to defects ___concerning the design of the product itself, (ii) ‘manufacturing defects’, where ___there is no defect in design but only in the process of manufacture, resulting in ___the creation of a product different from what was designed, and (iii) ‘defects of ___instruction or warning’ arising from the failure to give clear instructions for use ___of, and warning of dangers relating to, the product. The Product Liability Act ___also provides a general abstract definition of ‘defect’ as ‘a lack of safety that the ___product ordinarily should provide’ (art 2[2] PLA). ___ What is the ‘safety that the product ordinarily should provide’? The prevail___ing opinion in Japan states that whether there is a defect shall be judged by the ___expectations an ordinary reasonable person has of the product. What an ordi___nary reasonable person expects shall be judged on the premise that the person

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has sufficient knowledge of the safety and risk of the product after obtaining adequate instructions and warnings from the manufacturer, etc. By contrast, some scholars argue that a product is defective if its risk outweighs its utility and it lacks the safety which the product ordinarily should provide.9 However, this argument fails to attract the support of major scholars. Nor has it been adopted by judicial decisions concerning product liability. In addition, a few scholars propose that, to decide whether there is a defect, the following considerations should be taken into account: the possibility of avoiding the harm, the existence of available alternatives and other factors according to the state of the art when the product was put into circulation.10 But this proposal has not attracted support. The repeated recent cases of mass harm caused by defective vehicles and massive, severe damage caused by medical drugs and foodstuffs gives force to the argument (Erfolgsunrecht, unlawfulness of result) that it is just to provide remedies for the victims by way of compensation whether the manufacturer, etc, is at fault or not, and no matter whether its conduct is illegal, even if total social utility and benefit is thereby reduced or the development of science and technology stagnates. Consequently, any victim injured by a defective product, whether a buyer of the product or an ordinary bystander, shall be equally protected under the Product Liability Act provided the product is of a nature that may cause harm to the integrity of life, body or health. There is no provision concerning either the presumption of defect or the presumption of causation in the Product Liability Act of Japan. The victim is considered to bear the burden of proof concerning defect and causation. In addition, when damage caused by a defect occurs only to the product itself, the claim under art 3 PLA shall be dismissed (applying the proviso to that article) because, where damage occurs only to the product itself, it is proper to resolve the issue on the basis of contract law (liability for defective performance or breach of warranty).11 All product liability is subject to the development risks defence in Japan (the development risks defence is also admitted in respect of medical drugs), just as it is under the EU Directive.

_____ 9 Nobuhisa Segawa, Kekkan, Kaihatsukiken no Kouben to Seizoubutsu-Sekinin no Tokushitsu [Defect, the Defense of Developmental Risk and a Specific Characteristic of Product Liability], Jurist vol 1051, 20 [1994]. 10 Sigeto Yonemura, Seizoubutsu-Sekinin ni okeru Kekkan Hyouka no Houtekikouzou [Judging Method of Failure under the Product Liability Act of Japan], Hougaku vol 73, 427 [2009]. 11 Jun Masuda, Shoukai Seizoubutsu-Sekinin Hou [Detailed Explanation of Product Liability Act] (1997) 706, 713.

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___C. Ideas on Which the Product Liability Act is Based ___ ___Compensatory liability (product liability) under art 3 PLA is considered to be ___based on the risk-liability theory. The risk-liability theory in Japan is interpreted ___as contending that ‘any creator of the source of risk’ and ‘any manager of the ___source of risk’ shall assume liability for any damage arising from it.12 The manu___facturer, etc, are creators of the source of risk through their manufacture of ___products and their putting them into circulation and so it is justifiable to impose ___no-fault liability on them. ___ With regard to manufacturers and importers, some scholars propose the in___terest-liability theory in parallel with the risk-liability theory.13 The interest___liability theory in Japan is interpreted as proposing that any person who has de___rived a benefit from his or her activity shall be liable for damage arising from ___that activity. ___ Third, some scholars interpret liability for ‘holding oneself out as manufac___turer’ as liability resulting from the creation of a superficial appearance of who ___is the manufacturer to induce the reliance of others.14 However, in contrast to ___this view of reliance liability (liability for inducing reliance), some critics argue ___that this liability is actually based on the creation and management of a source ___of risk because of this representation, and thus that it is proper to explain the ___liability by reference to the risk-liability theory. ___ The present author believes that it is proper to justify no-fault liability un___der the Product Liability Act on the grounds that any creator of risk shall be li___able for damage arising from it (The interest-liability theory and the reliance___liability are unpersuasive.). This conforms with the view of the risk-liability the___ory as the basis of liability for defective immovable property, liability in respect ___of vehicles and nuclear energy facilities, and the liability of the possessor of an ___animal. ___ ___ ___ ___ ___ ___ ___ ___12 Yoshio Shiomi, Fuhoukoui Hou [Law on Torts] I (2nd edn 2009) 6. 13 See Michitaro Urakawa, Seizoubutsu-Sekinin no Syutai [Subject of Product Liability] in: ___ Takehisa Awaji (ed), Fohoukoui Hou no Geidaiteki Kadai to Tenkai [Development and Present ___Topics in Tort Law] (1995) 228. ___14 See Tsuneyuki Yamamoto, Chushaku Seizoubutsu-Sekinin Hou [Commentary on Product ___Liability Act] (1994) 55.

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Part II: Cases Case 1: Brake Pad Failure X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it considered that the risk was likely to eventuate only very rarely and did not outweigh the general advantages of the new material. It included a statement about the possibility of failure in the small print of the product instructions supplied with all of its bicycles incorporating the new brake pads. A, who purchased one of the bicycles, is one of a handful of people injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also damaged. B, a passer-by, is injured in the same accident. What is X Ltd’s liability to A and B? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail?

A. General Discussion In this case, we ought to discuss whether the bicycle has the safety that the product ordinarily should provide under art 2(2) PLA. In particular, we ought to consider whether there was a design defect. The prevailing opinion in Japan is that we should apply the expectations of an ordinary reasonable person to decide whether there is a defect, and what an ordinary reasonable person expects shall be judged on the basis that such person has sufficient knowledge of the safety and risks of the product after obtaining adequate instructions and warnings from the manufacturer, etc. As noted above, this is based on the concept of Erfolgsunrecht (unlawfulness of result).

B. Specific Discussion With regard to the case put forward for discussion, my answer is as follows. Under art 3 PLA, X should compensate both the cyclist (the customer) and the pedestrian (B) for the damage they suffer. The safety of any bicycle used in public involves consideration of risks not only to the life and health of its user

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___(A), but also to the life and health of pedestrians (such as B). In addition, the ___expectations an ordinary reasonable person regarding the safety of a bicycle in___cludes the expectations of both A and B. ___ The following factors are not significant for product liability under art 3 PLA: ___a bare possibility of an accident caused by the malfunctioning of the new materi___als; that the advantages of using new materials to manufacture the brake pad ___outweighed the disadvantages; and the foreseeability to X of the risk of using ___new materials in the brake pad. Similarly, it is not significant either that the new ___materials had the advantages of cheaper price and being longer lasting, as com___pared with the materials previously used (possible substitutes). ___ The justification for imposing product liability on X lies in the fact that X ___put bicycles into circulation for use in traffic, which created a risk to life and ___body, which subsequently eventuated, ie risk-liability, based on the creation of ___risk (X exposed itself to product liability by putting the defective product into ___circulation.). To establish the justification for product liability, the following ___factors were not significant: a) which choice X made internally, b) who it was ___who developed and designed the new materials (a researcher employed by X or ___an independent contractor), c) whether the decision to adopt new materials was ___reasonable. ___ In addition, even if X sought to rely on the development risks defence in ___this case, where a number of circumstances coincided and the risk of the brake ___pad losing its function eventuated, the defence should not be admitted. ___ On the other hand, if the manufacturer had clearly and unambiguously ___warned customers of the risk that the brake pad might lose its function, and of ___the conditions under which this might occur, if A still rode the bicycle in those ___circumstances, he should assume the risk of injury and X should not be liable ___under art 3 PLA. Even in these circumstances, however, X should be liable for ___B’s personal injury. ___ X might seek to establish contractual liability against Y who knew the dis___advantages of the new materials used in the brake pad but concealed them in___tentionally (liability for breach of an employment contract or contractor's ___agreement). ___ Second, we shall discuss the probability of compensation for negligence. ___i) Where Y was employed by X, if A and B could prove that Y was negligent ___ because he knew the disadvantages of the new materials used in the brake ___ pad but concealed them intentionally, they might claim against Y under ___ art 709 CC or against X under art 715 CC (employer’s vicarious liability). As ___ explained above, the employer’s vicarious liability in Japan is a no-fault li___ ability. Consequently, even if X claimed by way of defence that it was not at ___ fault, it should not be exempted from liability.

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Where Y was an independent operator, provided A and B could prove that Y was negligent in knowing the disadvantages of the new materials used in the brake pads but concealing them intentionally, they might claim against Y under art 709 CC. However, (because Y was not X’s employee) only in extremely exceptional cases – specifically, where X had given a specific instruction concerning the research and development of new materials to Y and placed Y under its control – could A and B claim against X.

Case 2: Infected Blood A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. At the time, the risk of Hepatitis N in donated blood had been identified in a single published paper in a scientific journal, but only a handful of research laboratories in the world had the capacity to test for its presence in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the condition’s existence came to be generally accepted and that a test was developed that allowed hospitals and blood suppliers to screen out infected parcels of blood. What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if A contracted the virus as the result of a blood transfusion conducted in 2001, but her condition only manifested itself in 2012? (In this context, consider in particular differences in the time limits applied to the various possible bases of liability.)

A. General Discussion First, we should consider whether blood products are a kind of product covered by the Product Liability Act of Japan. At the time of the Act’s introduction, some scholars argued that the determination of a defect in blood products should be addressed specifically, taking account of the social utility of such products. According to this viewpoint, if blood products were considered to be ‘products’ and thus to be subject to product liability, this would place a heavy burden on blood suppliers and lead to difficulty for medical institutions to get reliable supplies. Therefore, blood products should not be subject to product liability unless they had undergone significant processing. The Japanese government and congress, however, maintained that, since both blood products and vaccines were processed movable property, they cer-

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___tainly were certainly included in the definition of ‘products’. The Product Liabil___ity Act adopts this position, too. Hence, it is undisputed that blood products are ___included in the definition of products as regards the interpretation of the Prod___uct Liability Act in Japan.15 ___ Second, we ought to discuss the meaning of the safety that blood products 3/40 ___should ordinarily provide. Since blood products may be used when life is at ___stake and are of great utility because no alternative treatment is available, ___Japanese judges decide whether blood products have the safety that blood ___products should ordinarily provide by comparing the gravity and frequency of ___viral infection and other side effects with their utility in treatment. When the lat___ter outweighs the former, judges tend to decide blood products have the safety ___that they should ordinarily provide so that they are not defective.16 This ap___proach has attracted support in that there is an understanding that blood prod___ucts, like medical drugs, are beneficial to maintain and restore people’s life and ___health, whereas shifting the risk of their side effects to pharmaceutical compa___nies will impede their development and create restrictions to the availability of ___drugs, with the result that critical threats to life and health cannot be resolved, ___which must be avoided. ___ Third, Japanese prevailing opinion is that, though the supply of blood 3/41 ___products is governed by the strictest safety measures in the world, the risk of vi___ral infection and other side effects cannot be avoided technologically and this ___should be taken into account when judging whether there is a defect. Moreover, ___Japanese prevailing opinion argues that a side effect arising from a virus infec___tion or immune reaction which cannot be avoided technologically does not in ___itself establish a defect, and there is therefore no need to rely on the develop___ment risks defence.17 ___ Defective instructions and warnings relating to blood products ought also to 3/42 ___be discussed. In this context, in determining whether a manufacturer should be ___liable under art 3 PLA, in March 2013, the Supreme Court of Japan decided that ___it was sufficient that the pharmaceutical company had provided instructions ___and warnings of the risk arising from the drug’s side effects to a reasonable doc___tor who used such drugs in a form the doctor could understand. Blood products ___are subject to this decision.18 ___ ___ ___ 15 See Masuda (fn 11) 263, 397. ___ 16 Takashi Shiono, Yakugai Kashitsu to Ingakankei no houri [Structure of Liability for Dam___ages from Medicines – Causal Relationship and Negligence] (2013). ___17 Masuda (fn 11) 398. ___18 Supreme Court Decision dated 13 April 2013, Minshu vol 67, 899.

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B. Specific Discussion With regard to the case under discussion, my answer is as follows. In Case 2, we ought to discuss whether the hospital X should incur faultbased tort liability for medical malpractice to A or contractual liability based on the breach of the medical contract. Even if the blood product A was given was infected by the Hepatitis virus, the hospital X should not be liable. In 2005 when A received the blood from hospital X, even a reasonable doctor could not foresee either the existence of Hepatitis N or the risk of the blood product being infected by the Hepatitis N virus and, therefore, hospital X was not at fault, and did not breach the medical contract either. We should now discuss whether the pharmaceutical company Y will incur compensatory liability to A under art 3 PLA. First, as explained above, blood products are a kind of product. Second, whether or not there was a defect ought to be addressed. Here, the premise was that the blood transfusion was essential to A’s treatment (or at least that blood products were useful in A’s treatment). In the case of blood products, the risk of side effects arising from viral infection cannot be avoided technologically. But the risk of side effects arising from virus infection which could not be avoided by state of the art treatment does not establish a defect. Now the question is how to explain the meaning of the ‘state of the art’? In this case, when the hospital X put the blood product into circulation, the majority of researchers in the fields of medical science and pharmacology did not realize the existence of Hepatitis N. Moreover, when A received the blood transfusion from hospital X in 2005, reasonable pharmacology researchers could not foresee either the existence of Hepatitis N or the risk of the blood product being infected by the Hepatitis N virus. Therefore, with reference to the blood product’s manufacture and supply, Y was not at fault and should not incur faultbased liability. The issue in this case, however, is not the fault-based liability of the pharmaceutical company. The prevailing opinion in Japan today is that the ‘state of the art’ refers to the highest level and most advanced science and technology in the current world.19 In the case at hand, a research paper on the risks of Hepatitis N had been published in a professional journal. Moreover, a number of research institutions around the world had the ability to detect its presence in specific quantities of blood. That was the ‘state of the art’. So Y Ltd should be liable to compensate A

_____ 19 See Shiomi (fn 3) 413.

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___in damages. (However, a recent decision of the Supreme Court20 is more favour___able to pharmaceutical companies in its explanation of what constitutes the ___highest level and most advanced science and technology in the current world ___and how instructions for use and warnings of drugs’ side effects should be pre___pared. The decision can be seen as a policy judgment by the Supreme Court, at___taching importance to the earliest possible availability of drugs on the market so ___that more patients can benefit from them). ___ In addition, similarly to the above conclusion, in the series of cases where 3/49 ___drugs caused damage before the enactment of the Product Liability Act, as cited ___at the beginning of this report, courts in Japan used the technique of expanding ___‘negligence’ by including ‘the duty of investigation and research’ in the duty of ___care owed by pharmaceutical companies, thereby enhancing that duty, so as to ___impose fault-based liability on pharmaceutical companies. Considering the se___ries of cases as a whole, Japanese theory states repeatedly that although courts ___in Japan formally decide on the basis of negligence, they adopt ‘no-fault liabil___ity’ in practice.21 ___ In conclusion, it is submitted that, even if courts in Japan applied the re- 3/50 ___gime of fault-based liability according to art 709 CC to resolve this case, the re___sult would be the same as that according to art 3 PLA. ___ The blood donor Z could not foresee either the existence of Hepatitis N or 3/51 ___the risk of the blood product infected by the Hepatitis N virus in 2005 and hence ___was not at fault. ___ ___ ___Case 3: Bridge Collapse ___ ___ A, a pedestrian using a public right of way, is injured by the collapse of a bridge constructed by X Ltd on land belonging to Y, who commissioned the construction, on the ba___ sis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires ___ that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a dif___ ferent architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is ___ obliged to construct the new bridge for no additional remuneration. ___ What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and so subject to strict product liability, or does it merely represent the performance by Z ___ of a service, to which some alternative liability regime applies? ___ What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a di___ rect claim or a recourse action? ___ ___ ___ ___20 Supreme Court Decision dated 13 April 2013, Minshu vol 67, 899. ___21 See Shiomi (fn 12) 330.

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A. General Discussion Defects in immovable property (land and things fixed to land) and the provision of services are not subject to the Product Liability Act in Japan. In the drafting of the Product Liability Act, immovable property was excluded for the following reasons:22 i) Immovable property has its own pronounced individuality, which is different from the identical character of mass-produced items of movable property. ii) Unlike movable property, immovable property is not the subject of mass manufacture, circulation and consumption. iii) Immovable property was also excluded from the EC Product Liability Directive. iv) Where a third party is injured by a defect or flaw in immovable property, the victim may demand a remedy on the basis of the liability resting upon the possessor, manager or owner of a structure or construction, or seek to establish fault-based tort liability against the manufacturer of such property. Moreover, between parties to a contract, the victim could seek to establish contractual liability for failure to fulfill the contract (warranty liability) or on the basis of fault. v) Furthermore, the lifespan of a building is much longer than that of movable property, and the building will quite possibly be subject to change, repair and renovation during its lifespan. Therefore, it is difficult to distinguish a defect which existed at the time of construction from one arising from things done to the building after construction. Where a defect in a building is caused by its structural components or the materials used, the victim can claim on the basis of product liability against the manufacturer of such components or materials. What is most important is that the victim may claim compensation on the basis of the liability of the possessor, manager or owner of a structure or construction. Though this type of liability remains fault-based as regards the possessor, the burden of proof relating to fault is shifted to the possessor. Moreover, though the liability of the owner is a secondary and supplementary liability – arising when the possessor fails to discharge his/her liability – it is a strict liability. In addition, the liability of the state or a public body in respect of its management of the structure is also a strict liability. This liability too is based on the risk-liability theory.

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___ Japanese case precedents and academic writings define a defect in a struc___ture or construction as the quality of lacking the safety which the structure or ___construction should ordinarily provide. It is the same approach as is taken to the ___definition of defect under the Product Liability Act (more accurately, when the ___Product Liability Act was drafted, the definition of defect employed in respect of ___the liability for structures and constructions was adopted in respect of products23). ___ Thus, immovable property such as a structure on land, is not subject to the ___Product Liability Act, which does not recognize liability for damage due to its ___defectiveness. Moreover, whether under product liability or under the liability ___for structures, the existence of a defect is judged by whether the product or ___structure has the safety which it should ordinarily provide. Consequently, even ___if the law is amended so as to bring structures on land within the scope of appli___cation of the Product Liability Act, this would not change the result of individ___ual cases. ___ When the Product Liability Act was drafted, the provision of services was ___excluded from the scope of application of the Product Liability Act for the fol___lowing reasons:24 ___i) The kinds of service that may be provided are very diverse and have their ___ own individual character, in contrast with the identical character of items of ___ movable property. ___ii) There have been only a few cases in which a defect in the provision of a ser___ vice has injured someone else’s life or health, so this consideration pro___ vided no reason for imposing strict liability on a service provider.25 ___iii) In litigation about defective services, the issue is usually the quality of the ___ service provided rather than its safety.26 ___iv) It is usually the party who receives the service who suffers damage arising ___ from a defect in its provision. Because there is a contract between the ser___ vice provider and the service recipient, the latter can seek a remedy from ___ the former on the basis of contractual liability.27 ___ ___ ___B. Specific Discussion ___ ___With regard to this case for discussion, my answer is as follows. ___ ___ 23 Masuda (fn 11) 326. ___ 24 Masuda (fn 11) 232. ___25 In my opinion this reason is not persuasive. ___26 In my opinion this reason is not persuasive either. ___27 In my opinion this reason is not persuasive either.

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1. Who should compensate the pedestrian A? Because the bridge was immovable property rather than a product covered by the Product Liability Act, Company X that constructed the bridge should have no liability under art 3 PLA. We need only discuss whether X should incur faultbased liability under art 709 CC (the general liability for intention or negligence). The architect, Z, who designed the bridge, was not an employee of Company X and thus X should not be liable for Z’s negligence. Further, it was reasonable for X to rely on an architect who was certified in bridge design to design the bridge without defects (though it may be noted that the professional qualifications of architects are divided into different levels in Japan). If this was the case, X should have no fault-based liability unless the defect would have been easily discovered by a person of X’s abilities. The bridge was a structure built on land and Y was its owner. The bridge was defective because it lacked the safety which a bridge should ordinarily provide. Consequently, if Y was the state or a public body, Y would incur compensatory liability under art 2 of the State Compensation Law. If Y was a private entity, it would incur compensatory liability to A under art 717(1) CC (liability for structures and constructions). In each case, the liability would be a strict liability and Y would not be able to raise lack of fault as a defence. But in theory, A might seek to establish Y’s fault-based liability. In this event, Y (like X) would be entitled to rely on an architect certified in bridge design to design the bridge without defects and therefore, if Z was so certified, Y should have no fault-based liability unless a person of Y’s abilities would have discovered the defect of design easily. (Z who was entrusted with designing the bridge was not an employee of Y, so Y would not incur vicarious liability for Z’s negligence). If the architect did not fulfill his or her duty of reasonable care in designing the bridge, A could seek to establish compensatory liability against Z on the basis of Z’s negligence (art 709 CC). In Japanese judicial practice, an architect is held to an extremely high duty of care, having regard to the consideration that the safety of the construction has a close relationship with the health and safety of other people. Therefore, when an architect provides a service as an expert, he or she should exercise the highest degree of care. On the other hand, Z should not incur compensatory liability under art 3 PLA because neither the design nor the provision of the design was a ‘product’.

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___2. Should Z be liable to X or Y? ___ ___In this case, Y should compensate A’s injuries under art 2 of the State Compen- 3/73 ___sation Law or the second sentence of art 717(1) CC (which, as noted above, pro___vides for a no-fault liability). After Y has paid A, Y would have a right of re___course against Z who was at fault for the bridge design (art 717[3] CC). ___ Second, in this case, Y incurred additional expense in appointing another 3/74 ___architect to redesign the bridge. The costs resulted from Z’s incomplete per___formance of the contract under which Y commissioned Z to design the bridge. ___Consequently, Y should be entitled to demand compensation from Z for such ___costs based on Z’s failure to perform (art 415 CC). If there were any other losses, ___Y might demand compensation for such losses from Z only if Z could have fore___seen such losses (art 416(2) CC). ___ In this case, since X has no compensatory liability to the pedestrian, A, it 3/75 ___would have no recourse claim of its own against Z. However, if X is obliged to ___build a new bridge free of charge according to the terms of its agreement with Y, ___the result would be that X incurs costs in paying for workers and materials to ___build a new bridge. It seems that such costs would constitute a loss suffered by ___X because of Z’s defective design (an economic loss). Thus, there would be no ___problem establishing X’s entitlement to compensation under Japanese tort law. ___Therefore, X might claim compensation from Z for such losses on the basis of Z’s ___negligence (art 709 CC). If there were any other losses, X would be entitled to ___compensation only if such losses fell within the scope of adequate causation. ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___NEUE SEITE QQQ

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So Jae-Seon and Song Jung-Eun

Product Liability in Korea Product Liability in Korea So Jae-Seon and Song Jung-Eun https://doi.org/10.1515/9783110547559-006

Contents Part I: General Questions | 80 I. Subjects | 81 II. Scope of Application | 81 III. Defects | 82 IV. Negligence and Causation | 82 V. Causes of Exemption | 83 VI. Responsibility | 83 VII. Scope of Compensation of Damage | 84 Part II: Cases | 84 Case 1: Brake Pad Failure | 84 Case 2: Infected Blood | 88 Case 3: Bridge Collapse | 93

Part I: General Questions The Product Liability Act of Korea (‘PLA’) is the area of law in which manufacturers, distributors, and others who make products available to the public are held responsible for death, injuries, or damage to any item of property (other than the defective product itself) which is suffered by any person, due to a defect of the product. The PLA, which defines the liability of manufacturers as an absolute liability, was enacted on 1 January 2001 and has been in force since 1 July 2002. The purpose of this Act is to rectify the inadequate protection of victims offered by remedies for damage caused by defective products under tort law or contract law (art 1 of the PLA), and the Act applies to products supplied by a manufacturer on and after the date this Act came into force (Annex secs 1, 2). Before the enactment of the PLA, a party injured by a defective product would generally bring a tort claim under art 750 of the Korean Civil Code, known as the ‘Civil Act’. In the process, the manufacturer’s negligence would be assumed, and the victim’s burden of proof as regards the causal relationship lightened. Even when the manufacturer of the product is also the vendor of the product, tort law under art 750 of the Civil Act has been applied. The manufacturer of the product is usually not the vendor of the product, and the subject matter of product liability is generally secondary losses due to a defect in the safety of the product (art 3[1] of the PLA). https://doi.org/10.1515/9783110547559-006

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___I. Subjects ___ ___Product Liability is a liability for damages that is imposed on manufactu___rers, distributors, and others who make products available to the public when ___the product is defective and thereby causes death, injuries, or damage to ___property besides the defective product itself, but any damage to the defective ___product itself caused by its inadequate quality shall not be the subject of the ___PLA.1 ___ ___ ___II. Scope of Application ___ ___The term ‘products’ means all movables, industrially manufactured or proc___essed, even if incorporated into another movable or into an immovable. The ___term ‘process’ means adding new attributes or values to a movable, while main___taining its original nature, and the term ‘manufacture’ means a series of actions ___including designing, assembling, and inspection. It is a narrower notion than ___production and does not include services. ___ The PLA is not applicable to intangible services, real property, unprocessed ___agricultural products or any losses due to flaws in software and information. ___ There have been arguments in Korea over whether human body compo___nents such as blood are products that are manufactured or processed. Although ___blood and organs are parts of the human body, it is apparent that they are mov___ables once detached from the body. The problem is that the standard for such ___body parts to be viewed as products that are processed or manufactured is un___clear. For example, a medicine that has blood as one of its base materials is con___sidered a product, and so are blood derivatives.2 Even blood packs for transfu___sion can be thought of as products3 because blood packs include anticoagulant ___and a conservative solution for preservation. ___ The PLA is applicable to products supplied by a manufacturer on and after ___the date this Act came into force (secs 1, 2). ___ ___ ___ ___ ___ 1 Korean Supreme Court Judgments 2000.7.28, no 98/35525. ___ 2 Seoul High Court 2008.1.10, no 2005/69245. ___3 Kim Chen Soo, The Definition of a Product in Product Liability: A Comparative Study on US ___Restatements on Product Liability, Songgyungwan University Law Review 2004 16th issue no 1, ___54–55.

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III. Defects The term ‘defect’ means the defect of any product in manufacturing, design or presentation falling under any of the following items or the lack of safety that the product ordinarily should provide: i) The term ‘defect in manufacturing’ means the lack of safety caused by manufacturing or processing of any product deviating from the originally intended design, regardless of whether the manufacturer faithfully fulfils the duty of care and diligence with respect to the manufacturing or processing; ii) The term ‘defect in design’ means the lack of safety caused by the failure of the manufacturer to adopt a reasonable alternative design if it is the case that any damage or risk caused by the product would otherwise be reduced or prevented; and iii) The term ‘defect in presentation’ means that a manufacturer fails to give reasonable explanations, instructions, warnings and other indications on the product in cases where any such damage or risk caused by the product would otherwise be reduced or prevented. When determining the existence of a defect, i) the frequency and magnitude of the danger and the utility of the product, ii) the causality and seriousness of the damage, iii) the date of supply, iv) the reasonably foreseeable form of usage of the product, and v) other safety concerns shall be thoroughly considered.

IV. Negligence and Causation Negligence is not a requirement for the establishment of product liability; product liability is a strict liability. Therefore, a victim does not bear any burden of proof that the defects in the product arose from the negligence of the manufacturer. Although the PLA does not have any provisions regarding the burden of proof as regards the causal relationship, it specifies that matters concerning any liability for damage caused by defective products shall be governed by the Civil Act except as otherwise provided for in art 8 of the Act. Thus, it can be assumed that the victim carries the burden of proof that there is a defect in the product and the defect has caused damage, but precedents in Korean courts show that courts have generally eased consumers’ burden of proof by presuming the existence of a causal relationship.4

_____ 4 Korean Supreme Court Judgments 2004.3.12, no 2003/16771 and 2011.9.29, no 2008/16776.

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___V. Causes of Exemption ___ ___Where a person who is liable for damage in accordance with the provisions of ___art 3 proves a fact falling under any of the following subparagraphs, he shall be ___exempted from such liability: ___i) that the manufacturer did not supply the product; ___ii) that the state of scientific or technical knowledge at the time when the ma___ nufacturer supplied the product was not such as to enable the existence of ___ the defect to be discovered; ___iii) that the defect is due to compliance of the product with any Act or subordi___ nate statute at the time when the manufacturer supplied it; and ___iv) that, in case of raw materials or components, the defect is attributable to the ___ design of the product in which any raw materials or components have been ___ fitted or to the instructions concerning manufacturing given by the manu___ facturer of the product using them. ___ ___ Where, in spite of the fact that he knows or would be able to know of the ex___istence of any defect of the product after it has been supplied, the person who is ___liable for damage under the provisions of art 3 fails to take appropriate meas___ures to prevent the damage caused by the defect from occurring, he shall not be ___given any exemption referred to in subparas (1) 2 through 4. ___ ___ ___VI. Responsibility ___ ___A ‘manufacturer’ shall be liable for death, personal injuries, and damage to any ___item of property (other than the defective product itself) which is suffered by any ___person, due to a defect of the product (art 3[1] of the PLA). The term ‘manufac___turer’ refers to a person who is engaged in a business of manufacturing, process___ing, or importing any product. Furthermore, a person who presents himself as a ___manufacturer by putting his name, firm name, trademark, or any other distin___guishing feature (hereinafter referred to as ‘his name, etc’) and a person who ___puts his name, etc on the product in a manner mistakable for a manufacturer are ___also deemed manufacturers (art 2[3] of the PLA). If the manufacturer of a defective product cannot be identified, the distribu___ tor shall be liable for any damage the product causes, unless the distributor in___ ___forms the victim of the identity of the manufacturer or the supplier within a rea___sonable period of time (art 3[2] of the PLA). Where not fewer than two persons are liable for the same damage, they ___ shall be liable jointly and severally (art 5 of the PLA). ___

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VII. Scope of Compensation of Damage Manufacturers, suppliers, distributors, and others who make the product available to the public shall be liable for death, personal injuries, and damage to any item of property caused by a defect of the product, except when the damage is to the defective product only. In respect of damage to the defective product itself, warranty responsibility is applied, not the PLA (ie the seller’s responsibility under sales contract).

Part II: Cases Case 1: Brake Pad Failure X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it considered that the risk was likely to eventuate only very rarely and did not outweigh the general advantages of the new material. It included a statement about the possibility of failure in the small print of the product instructions supplied with all of its bicycles incorporating the new brake pads. A, who purchased one of the bicycles, is one of a handful of people injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also damaged. B, a passer-by, is injured in the same accident. What is X Ltd’s liability to A and B? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail?

A. Remedy under the Product Liability Act A bicycle falls within the range of products under the PLA. Generally, a manufacturer must manufacture products with an appropriate level of safety in use considering modern technology and economy. When the product fails to maintain this level of safety due to a defect and causes any damage, the manufacturer shall be liable for compensation. If the manufacturer fails to adopt a reasonable alternative design in a situation where any damage or risk caused by the product would otherwise be reduced or prevented, the defect is called a defect in design. Whether there is such defect in design shall be determined with

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___reference to socially accepted ideas regarding consumers’ expectations about ___the product, the seriousness of the risk, consumers’ awareness of the risk, the ___possibility of consumers’ evasion of the risk, the possibility and costs of alterna___tive design, and a comparison between the original and alternative design. ___ The bicycles that X Ltd manufactures were subject to a risk that the new ___brake-pad material might suddenly be rendered ineffective given a combination ___of particular circumstances (temperature, surface water, oil, etc), and the risk ___actually materialised even though consumers used the bicycles properly, ___thereby causing damage to the bodies and property of A and B in this case. ___Since liability under the PLA is a strict liability and requires proof only of the ___causal relationship between the product and the defect, there is no need to con___sider whether X Ltd was aware of the risk beforehand. That the new brake-pad is ___cheaper, longer-lasting, and generally more effective than the pre-existing ___brake pad is relevant only to the company’s marketing and economic profit and ___irrelevant to the functional essentials of brake pads, so the existence of the de___fect need not be considered. ___ Even when a defect in design or defect in manufacturing is not found, a ___manufacturer may still be held responsible for a defect in presentation if he ___failed to give reasonable explanations, instructions, warnings or other indica___tions on the product which would have reduced or prevented the damage the ___product caused. Whether there is such defect shall be determined with reference ___to socially accepted ideas regarding consumers’ expectations about the product, ___the seriousness of the risk, consumers’ awareness of the risk, the possibility of ___consumers’ evasion of the risk, and the normally expected form of usage of the ___product. ___ However, since the defect in this case is evidently a defect in design, a de___fect in presentation cannot be at issue. ___ Therefore, X Ltd shall be liable to compensate for the damage the product ___caused to A’s body and property (art 3[1] PLA). Victims who may recover dam___ages under the PLA are not limited to consumers. A is exempt from the liability ___towards B and X shall compensate for the damage B suffered as well. ___ The PLA does not have an express provision regarding the range of com___pensation, so claims for compensation for damage to health and property follow ___the general principles of compensation regarding tort under the Civil Act. The ___PLA provides that compensation for the damage to the defective product itself ___shall be in the form of contract liability or tort liability, for the PLA has devel___oped in the direction of holding manufacturers responsible for the lack of safety ___of their products. ___ ___

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B. General Tort Law Before the enactment of the PLA, a party injured by a defective product would generally bring a tort claim under art 750 of the Civil Act. X Ltd was fully aware of the slight risk that the new brake-pad might fail on operation but did not take any action, and therefore is liable for negligence. A brake-pad is an essential component that is directly related to consumers’ safety, and it is apparent that its breakdown would cause a serious risk to consumers’ lives; failure to secure the sufficient stability of the new brake-pad certainly involves negligence. In this case, A may obtain compensation for damage to his health or property. B may obtain compensation for his loss from A under art 750 of the Civil Act, and then A may exercise the right of indemnity against X Ltd, who was actually the negligent party.

C. Remedy under Sales Contract Under the Civil Act art 580, which defines the seller’s liability for warranty against defect, if the subject-matter of a sale lacks the objective quality or functionality that is conventionally expected or the seller guaranteed, the seller shall be liable under the warranty due to the defect. Since the stability of a brake-pad on a bicycle is a conventionally expected quality, X Ltd, the seller, is liable under the warranty due to the defect to A. B may obtain compensation for his loss from A under art 70 of the Civil Act, and then A may exercise a right of indemnity against X Ltd, who was actually the negligent party.

D. Researchers and Vicarious Liability If a researcher in X Ltd’s laboratory hid the possibility that the new brake-pad material might fail while in operation, then vicarious liability may arise. Vicarious Liability in Korea is specified in art 756 of the Civil Act; it is a type of liability based on the theory of strict liability.5 An employer hires an employee in

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5 In the translation provided on the Korean Ministry of Justice website, art 756(1) reads: ‘A person who employs another to carry out an undertaking shall be bound to make compensation for damage done to a third person by the employee in the course of the execution of the undertaking: Provided, that this shall not be the case, if the employer has exercised due care in

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___order to pursue his own purposes, so the employer’s business activities and the ___employee’s employment are closely interrelated. Therefore, it is fair for the em___ployer to have responsibility for the damage that might occur to others in the pur___suit of his business purposes and so in principle to bear the burden of liability for ___his employee’s torts in the course of employment. This is a strict but not absolute ___liability because the employer is not liable for an employee’s performance of a ___task if he exercised due care when hiring and supervising the employee. Thus, ___with respect to vicarious liability, an employer is only bound to compensate for ___the damage caused by his execution assistant when the basis of the latter’s strict ___(but not absolute) liability is the principle of liability for fault (Verschuldensprin___zip). In the present case, so long as X Ltd proves that it has exercised due care ___when hiring and supervising Y, X Ltd incurs no vicarious liability. ___ Vicarious liability is a joint and several liability involving the sharing of li- 4/33 ___ability within the internal relationship between the tortfeasors. The burden to ___be borne by the employer is determined in the light of his internal relationship ___with the employee. ___ In this case, if X Ltd did not exercise due care when hiring and supervi- 4/34 ___sing Y, the internal relationship between X Ltd and Y is not considered in the ___context of the external liabilities of X Ltd. ___ ___ ___E. Liability of the Person who Ordered Work to be Done ___ ___If the contractor conducted the research independently and hid the potential risk 4/35 ___of the new brake-pad material, the person who ordered the work does not carry ___the burden of compensation for the damage the contractor caused to consumers ___under art 757 of the Civil Act, because the contractor handles his work independ___ently and therefore is not an employee of the person who ordered the work. Thus, ___any Civil Act Articles regarding responsibilities of the person who ordered the ___work assumes that art 756 of the Civil Act is not applicable. However, if the per___son who ordered the work was guilty of gross negligence in placing the order or ___providing instructions, he shall be responsible to the victim (art 757 of the Civil ___Act). In such case, the person who ordered the work shall be responsible for ___compensation for the damage the contractor caused to consumers by himself ___or with the person who ordered the work Also, if the person who ordered the ___work gives the contractor specific instructions and supervision, an employer___employee relationship shall be inferred and the person who ordered the work ___ ___the appointment of the employee, and the supervision of the undertaking, or if the damage ___would have resulted even if due care had been exercised.’

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will incur vicarious liability.6 The employer-employee relationship shall not be deemed to exist if the person who ordered the work simply conducts inspections checking whether the process is following the original design.7 However, under art 3 of the PLA a person who presents himself as a manufacturer by putting his name, firm name, trademark, or any other distinguishing feature (hereinafter referred to as ‘his name, etc’) and a person who puts his name, etc on the product in a manner mistakable for a manufacturer shall be responsible as well.

Case 2: Infected Blood A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. At the time, the risk of Hepatitis N in donated blood had been identified in a single published paper in a scientific journal, but only a handful of research laboratories in the world had the capacity to test for its presence in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the condition’s existence came to be generally accepted and that a test was developed that allowed hospitals and blood suppliers to screen out infected parcels of blood. What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if A contracted the virus as the result of a blood transfusion conducted in 2001, but her condition only manifested itself in 2012? (In this context, consider in particular differences in the time limits applied to the various possible bases of liability.)

In this case, the remedy that the plaintiff can recover differs depending upon 2 factors which should be considered first. One is the time when the Product Liability Act came into force. The other is whether the blood product is included in the definition of ‘product’ by the PLA. Since the Product Liability Act applies to the initial product supply by the manufacturer, it will be applied to the blood product which caused Hepatitis N if the date of its first supply was after 1 July 2002, the date when the PLA was first introduced. There has been debate in Korea whether a blood product is product as defined by the PLA. It is certain that blood or a body part is a chattel but being a chattel is not on its own enough to qualify as a product. A blood product, however, is indeed a product to which the PLA applies since it is cate-

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6 Korean Supreme Court Judgments 1991.3.8, no 90/18432. 7 Korean Supreme Court Judgments 1983.11.22, no 83/1153.

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___gorised as medical supplies made from blood according to art 2 of the Pharma___cist Act and art 2(6) of the Management of Blood Act. ___ ___ ___A. Application of Torts Based on Negligence ___ ___Even when the PLA does not apply, the blood supplier still has a duty of care to ___produce a blood product matching reasonable expectations as to safety and ___quality in the light of technological standards and economic circumstances at ___the time of supply. He will be held liable for tortiously causing damage if there ___was a breach of that duty.8 In fact, there has been no case in which a Korean ___court has accepted strict liability under the PLA relating to the supply of blood ___and blood products; in Korea, all such cases have so far been decided under the ___general tortious liability for fault (art 50 CC) even after the introduction of the ___PLA. ___ For the case based on torts to be accepted in the courts, an additional condi___tion is the breach of a duty of care by the manufacturer of the blood supplied. A ___blood manufacturer will be held to a higher degree of care which requires him ___to do his best to preserve the purity of blood and secure its proper storage. The ___specific content of the higher degree of care in this case is the duty to ‘expect’ ___and ‘prevent’ foreseeable harmful results using all the medical knowledge ___available at the time of production. For example, the duty includes keeping ___groups suspected of infection from donating blood. ___ In consideration of breach of duty by a blood manufacturer, we have to ___evaluate the method and the process used in manufacturing blood products at ___the time, the infection rate resulting from contaminated blood products, the se___riousness of damage to the patient caused by the blood product, and the cost ___which will be incurred in taking the proposed precautions to evade the risk.9 ___ The most important issue is identifying the correct standard to be applied to ___the duty of care. According to Korean cases, the duty of care should be evalu___ated against the standard of care exercised by an average doctor across the ___country, not by the standard exercised by a specific doctor or medical institu___tion.10 However, it was hard to know about the risk of Hepatitis N infection from ___the blood product since this was published only in a single paper at the time. X ___and Y are not liable under Korean tort law so as long as X and Y did carry out ___ ___ ___8 Korean Supreme Court Judgments 1977.1.25, no 75/2092; 1992.11.24, no 92/18139. ___9 Korean Supreme Court Judgments 1998.2.13, no 96/7854. ___10 Korean Supreme Court Judgments 1997.2.11, no 96/5933.

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the test required by the Blood Safety Act and the Ministry of Health and Welfare Act to make sure of the safety of blood and blood products.

B. Application of the Product Liability Act 1. Whether the blood product can be a product as defined by the PLA Blood itself or a body part is not a product as defined by the PLA, but a blood product which is made from elements extracted from blood is a product under the PLA even if it is for transfusion, since it is combined with additional substances like anticoagulant and can be tested in respect of foreseeable risks in the process of production. In many cases, these blood products are included in medicine. Article 2(6) of the Management of Blood Act defines blood product as ‘medicine’ produced primarily from blood. There is no reason not to apply the PLA to a blood product since it comes from a manufacturing process and can be a movable like any other chattel.11

2. Meaning of defect The types of defect envisaged in the PLA are manufacturing defect, design defect and inadequate warning (presentation defect). The manufacturer incurs product liability when the product suffers from one of these elements.

a) Manufacturing defect A manufacturing defect refers to lack of safety and endurance with respect to the structure, quality, performance of the product at the time when it left the manufacturer’s hands.12 So although the blood had no defect in design, there is a manufacturing defect when the product does not satisfy the standard of feasible safety features at the time of its market circulation. What matters here are the feasible safety features at the time of market circulation. In our case, not only had the risk of Hepatitis N been identified but it was also possible to test for its presence, albeit only a handful of research laboratories in the world were capable of the test.

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11 Jeong Yisong, The Meaning of Product Liability Law and its Future Problems. Difficulties in the Law of Products (2002/7) 12. 12 Seoul Central District Court 2007.1.25, no 99/104973, 12.

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___Moreover, the patient obtained the transfusion in the anticipation of full recovery ___in health. The blood product manufactured by Y was defective since it did not ___meet the feasible safety features at the time of its market circulation. ___ The manufacturer of a blood product incurs product liability where the in- 4/47 ___fected blood product, because of a manufacturing defect, has caused damage to ___the patient for whom the blood product was used. ___ ___ ___b) Design defect ___ ___A design defect is a defect which is inherent in the process by design, which means 4/48 ___that there is an alternative design which is safer, inexpensive and still useful for ___the primary purpose of the product. Therefore, product liability is applicable to the ___manufacturer of a blood product when there is an alternative design which re___duces or removes the risk of infection in using the blood product. In deciding ___whether such an alternative exists, we have to consider all the factors as a whole ___by reference to social standards at the time, for example, as to the nature and us___age of the blood product, any expected performance from patient, the expected ___risk and possibility of risk evasion by the patient, the feasibility and cost___effectiveness of an alternative and advantages and disadvantages of that alterna___tive.13 ___ ___ ___c) Inadequate labelling or warning ___ ___If the patient who had a blood transfusion got infected as a result of inadequate 4/49 ___warning, product liability applies. In deciding whether inadequate labelling ___(etc) exists, we have to consider overall the characteristics of the blood product, ___its foreseeable usage, any expected performance in respect of the blood product ___from the patient, the anticipated risks of transfusion, the possibility of removing ___the risk, etc, in the light of social standards.14 ___ ___ ___ ___ ___ ___ 13 Yeun Kee-Young, The Liability in Accidents Involving Medicine Products and Medicine ___Product Faults, Medical Law Journal (2002.12) 33–34. ___14 Korean Supreme Court Judgments 2004.3.12, no 2003/16771; Jeong Bingnam, Defective ___Medicine as Product in Product Liability, Medical Law Journal (2007.6) 251.

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3. Unavoidably unsafe Unavoidably unsafe is defined by PLA as one of the exceptions to strict liability. If the manufacturer of the blood product had no way to discover the unit of blood was infected with Hepatitis N by any scientific knowledge level available at the time, then he is not liable under the PLA. Here scientific knowledge level refers to established technological and scientific knowledge which is objectively available as a whole, including the highest level of knowledge at the time.15 That is, the unavoidably unsafe defence will not be accepted on account of the difficulty in discovering the infection of the blood product if it was still possible to discover that infection.

4. Party held liable under the Product Liability Act According to art 2(3) of the PLA, manufacturer (A) is still liable for a defect which resulted from parts or elements purchased from another manufacturer (B) who is also liable for the defect so long as that defect existed when it was in hands of (B). In Korea, only a medical institution and the Korean Red Cross can carry out blood collection by reason of the Management of Blood Act. As a result, the manufacturer of a blood product needs to obtain supplies of blood from a blood collection institution for the purposes of production. When blood supplied by a blood collection institution is contaminated, (A) and (B) will be jointly and severally liable under art 5 of the PLA.

C. Damages Claim for Violation of Duty to Explain The duty of explanation required in respect of medical treatment is also applicable in this case since the injection of drugs is also a form of medical treatment.16 In particular, the duty of explanation cannot be disregarded on the grounds that the expected rates of risk or side effects are quite low. Doctors must comply with their duty of explanation if those risks and side effects are typically related with injection regardless of how small the chances are that they really happen.17

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15 Ahn Bup-Young, Medical and Manufacturers Liability, Korean Law Journal (2003.6) 191. 16 Chen Dae-Yeob, The Duty to Inform on the Use of Medicine in the Course of Medical Treatement, Case Comments on Supreme Court Decisions, 1-6/2005, 307–327. 17 Korean Supreme Court Judgments 1995.1.20, no 94/3421.

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___ If the doctor did not inform the patient about the risk of infection from ___transfusion, this constitutes tortious behaviour which deprives the patient of ___the chance of giving informed consent.18 ___ A follow-up question is whether the written drug use and safety instructions ___supplied with the product can substitute for the duty of explanation. It is not ___enough to supply abstract instructions on cares patients should take or general ___warnings about side effects. Instead there must be detailed instruction which ___enables patients to recognise the side effects instantly and to stop using the ___product in consultation with a doctor.19 So the drug use and safety instructions ___attached with blood products cannot replace a doctor’s duty of explanation. ___ ___ ___D. Statute of Limitation for Damage Claim ___ ___According to art 766(2) of the Civil Act, the statute of limitation for damage ___claims is 10 years from the date when damage from the tortious act occurred, ___not the date when tortious act happened.20 A was infected during the transfu___sion in 2001 and her condition only manifested in 2012. When it is hard to ___fathom which stage the disease has progressed to when, the statute of limitation ___should start from the day the disease manifested, not from the date it was in a ___dormant condition. ___ Damages should be claimed within 10 years from the date when the manu___facturer supplied the product under art 7(2) of the PLA, but art 7(2) of the PLA ___also says that for damage from the accumulation of hazardous material in the ___human body or disease which manifests only after some period of time, the ___statute of limitation starts from the date when damage materialized. Thus, al___though 10 years have passed since the manufacturer provided the blood prod___uct, the statute of limitation starts when the symptoms of disease appear. ___ ___ ___Case 3: Bridge Collapse ___ A, a pedestrian using a public right of way, is injured by the collapse of a bridge con___ structed by X Ltd on land belonging to Y, who commissioned the construction, on the ba___ sis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires ___ that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a dif___ ___ ___18 Korean Supreme Court Judgments 2011.3.10, no 2010/72410. ___19 Korean Supreme Court Judgments 2005.4.29, no 2004/ 64067. ___20 Korean Supreme Court Judgments 1979.12.26, no 77/1895.

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ferent architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is obliged to construct the new bridge for no additional remuneration. What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and so subject to strict product liability, or does it merely represent the performance by Z of a service, to which some alternative liability regime applies? What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a direct claim or a recourse action?

The scope of products under the Product Liability Act is limited to movables. Real estate cannot be an object of product liability. A portion of what constitutes real estate can be included within the scope of products. Elevators and cooling systems are examples of these, as they are movables, but still constitute parts of real estate. Therefore, even though a bridge is a human construction, it is not considered as a product under the Product Liability Act. If a third person is injured by a bridge collapse, he or she can receive relief from the damage in accordance with the liabilities for possessors of structures or the liabilities of owners, as stipulated in art 758 of the Civil Act.

A. A’s Means of Remedy Since real estate is not considered a product under the Product Liability Act, liabilities for structures such as for a house wall or a bridge are under the provisions of liabilities for possessors of structures as stipulated in art 758 of the Civil Act. Liabilities for structures apply in cases when someone sustains damage from installations of structures or defects of their maintenance. Liabilities for structures are distinguished from torts as they do not take illegal harmful acts as their basis. Generally, many people view liability for structures as liability for risk. In accordance with art 758 of the Civil Act on liabilities for structure, if a possessor, who holds the primary responsibilities, fulfils their primary responsibilities and proves that they have fulfilled their duty to prevent further damage, such possessor may free themselves from the liabilities. When the possessor is freed from the liabilities, compensation may be demanded from the owner, who holds the secondary responsibility. There is, however, no possibility for owners of defective structures to be exempt from responsibilities. If a structure is installed and maintained by national or local government, art 5 of the State Tort Liability Act is applied. According to the provisions of the third clause of art 758 of the Civil Act, a possessor or an owner who compensated damage to a victim can exercise a right to indemnity against those who are responsible for the cause of the damage,

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___that is to say a producer of a structure or parties who were entrusted with main___tenance. ___ Therefore, Y is primarily liable for damage to A even when Y is not culpable. ___After paying compensation for damage to A, Y may exercise a right to indemnity ___against the party ultimately liable. ___ ___ ___B. X’s Means of Exemption ___ ___If there is any damage to the object constructed by contractor X, the contractor ___has warranty responsibility for the construction as an independent contractor in ___accordance with art 28 of the Korean Framework Act on the Construction Indus___try. ___ According to item 2, second clause of art 28 of this provision, however, the ___contractor does not hold warranty responsibility if he or she carried out the con___struction in consonance with the owner’s order. Although X constructed the ___structure using Z’s design, there is no direct contractual relationship in between ___them, rather Y is the one who has a direct contract with Z. Z provided Y with the ___design, and Y ordered X on how to construct the structure by providing X with ___the design. Consequently, pursuant to item 2, second clause of art 28 of the Ko___rean Framework Act on the Construction Industry, X is free from the warranty ___responsibility for the collapse of the bridge. If, however, X knew about the de___fects from the design, but still did not inform Y of them, either by intention or ___by negligence, X has to pay any possible property damage to the owner in ___accordance with provisions on a construction project manager’s negligence ___prescribed in the fifth clause of art 26 of the Framework Act on the Construction ___Industry. Also, X and Z hold collective liability for damage from the collapse ___of the bridge if they constructed the bridge under the mutual supervision of X ___and Z. ___ ___ ___C. Liability for Compensation Between Z and Y ___ ___Construction designs are intellectual property which is not included within the ___scope of products defined by the Product Liability Act. There is an opinion that ___it is not plausible to subject information in general to liability without fault, be___cause intellectual property such as information or software in itself does not ___have risks of casualty or fire, it can be redeemed by contractual warranty re___sponsibility, and it is also excluded because the concepts, contents, and func___tions are too diverse.

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Therefore, within the contractual relationship between Z and Y, Z holds warranty responsibility for a specific thing as a vendor as stipulated in art 580 of the Civil Act. If the object’s defect is too significant to allow the accomplishment of the purpose of the contract, Y can not only seek compensation for the defective thing, but also for the cancellation of the contract as a whole. Y may ask the final liability holder Z for the right to indemnity and other compensations for A.

D. Liability for Compensation Between Z and X Despite Z’s negligence, it is X who is liable to construct a new bridge for Y free of charge in accordance with the initial contract. As is mentioned above, X is not liable for compensation to Y but must construct the new bridge for Y without charge due to the contract. All the costs and labours needed to construct the new bridge would not have been required if Z had not committed any faults. Consequently, X may seek compensation for the damage caused by Z’s defects from Z by citing the provisions on torts in art 750 of the Civil Act.21 Likewise, real estate, information, and other intellectual property do not fall within the boundary of the Product Liability Act, and this means remedies can be sought only in terms of tort relations from negligence and breach of contract. Therefore, multiple law suits will accumulate in a single case. As the stage of industrialization becomes more intensified and the scientific technology reaches its full development, the number of quality intellectual products such as technology-intensive skyscrapers will increase. Thus, it is expected that these products which entail high risks will have closer relationships with our lives, and we will have to seek ways of protecting rights in possible cases in the future.

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21 Kwon Tae-Sung, Software and Product Liability, Journal of Information and Industry, vol 173 (1996.9) 31.

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___Tong Io Cheng and Leong Cheng Hang ___ ___ ___Tong Io Cheng and Leong Cheng Hang Product Liability in Macao https://doi.org/10.1515/9783110547559-007 ___Contents ___Part I: General Questions | 97 I. Overview | 97 ___ II. Tort Liability Without Fault | 99 ___ III. Defences to Liability for Producers | 104 ___ IV. The Inadequacy of Macao Law | 104 ___ Part II: Cases | 105 ___ Case 1: Brake Pad Failure | 105 ___ Case 2: Infected Blood | 112 ___ Case 3: Bridge Collapse | 116 ___ ___ ___ ___Part I: General Questions ___ ___I. Overview ___ ___Producer’s liability for the damage caused by defective products began with ‘No 5/1 ___contract, No liability,’1 then evolved to the field of tort liability, and then shifted ___from liability with fault to strict liability, which means liability without fault. ___The purpose of strict product liability is to protect the consumers of the product ___as well as the interests of the users. However, at the same time, the relationship ___between the consumers and the producers must be balanced for their common ___benefit. ___ In Portugal, the producer’s product liability is adjusted through the contrac- 5/2 ___tual and non-contractual liability in the Civil Code, which is a general law, and ___special law DL 383/89.2 Macao’s law is broadly based on Portuguese law, and ___therefore is part of the civil law tradition of continental European legal systems. ___The constitutional document of the Macao Special Administrative Region ___(‘MSAR’) is ‘The Basic Law of the Macao Special Administrative Region of The ___People’s Republic of China’ (Basic Law), which was adopted by the Seventh Na___tional People’s Congress in accordance with the Constitution of the People’s Re___ ___ 1 Established by the case of K v Wright, 152 ER 402 (Ex Ct 1842), which is one of the most fa___mous and oldest cases concerning product liability law. ___2 This decree-law was established with reference to the Product Liability Directive of the ___European Community (85/374/EEC).

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public of China. The Basic Law sets the foundation for all systems and policies, fundamental rights and freedoms, administration, legislation and justice. According to the principle of ‘one country, two systems’, Macao retains a high degree of autonomy. It is allowed to keep its former laws and economic system for a period of at least fifty years after the handover. For this reason, almost all laws, decrees, by-laws and regulatory documents enacted in Macao prior to 20 December 1999 remain in effect, unless they conflict with the Basic Law of the MSAR (art 8 of the Basic Law). In Macao, the general civil liability of the producer is regulated in the Civil Code, and the product liability of the ‘producer commercial entrepreneur’ is specially regulated in the Commercial Code, with reference to the relevant provisions in Portugal. Product liability was first set out in relation to the contractual relationship and then developed into the field of tort liability. In Macao and other Continental law countries, the current contractual liability and tort liability separately address the different responsibilities relating to products. Contractual liability is the ‘guarantee liability’ for products, which is the liability imposed when the quality of a product does not conform to the requirements of the contract stipulated by the parties. Tort liability awards compensation for personal injury and property damage caused by unsafe products to the user of the product and third parties that . In other words, the quality of a product may reach the standard of the contract, but if the product causes damage to the user or a third party, the supplier may still have to bear the tort liability. If the product does not cause any damage to the user or third party, but contains defects in quality, the liability will only be in contract. Of course, both liabilities can co-exist. In Macao, the guarantee liability under contract for products is regulated by arts 905 to 915 of the Civil Code. The tort liability associated with injury caused by products is a non-contractual liability in the general law of the Civil Code, and is regulated specifically in relation to the product liability of the producer commercial entrepreneur in the Commercial Code. Overall, the contract guarantee liability and the special strict tort liability for products differ with respect to their purposes. The purpose of guarantee liability is to protect the balance of the corresponding value of trade, and to promote fairness and justice in law by ensuring that bargains are fulfilled. The purpose of strict tort liability for products is to give special protection to consumers, who are in a weak position in modern industrial society, and to encourage the producer to exercise safety policies to prevent accidents from occurring.3

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3 See GJ Ping, Relationship between the Sellers’ Guarantee Liability of Defects, Active Infringement of the Creditor’s Rights and Product Liability, in: L Huixing (ed), Civil and Commercial Law Review, vol 2 (2001) 406.

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___ This report is focused on the discussion of product liability. In Macao, ___product liability is mainly regulated in the Macao Commercial Code. ___ ___ ___II. Tort Liability Without Fault ___ ___Article 85, no 1 of the Macao Commercial Code establishes tort liability without ___fault in respect of the producer commercial entrepreneur: ‘A producer commer___cial entrepreneur is liable, regardless of fault, for damage caused to third parties ___by the defects of products that he puts in circulation.’ In the legal system of ___Macao, tort liability without fault is an exception to the general rule.4 ___ As a result of ongoing industrialization and increasing specialization, the re___lationship between the producer and the consumer is becoming increasingly ___complicated and contractual liability and liability based on fault are no longer ___sufficient to protect the interests of consumers. Tort liability without fault pro___vides a solution to this shortcoming, as it focuses on the protection of consumers. ___ In Macao, the bases for requiring the producer to bear tort liability without ___fault are: ___i) The socialization of risk: The relevant premiums for product liability insur___ ance purchased by the producer are included in the price of the product, ___ thus the risk of product liability is socialized; ___ii) Risk control: Requiring the producer to bear the liability without fault can ___ encourage the producer to research and develop safe products, thus reduc___ ing the danger caused by defective products to consumers; ___iii) To protect the reasonable expectations of consumers; and ___iv) The reduction of litigation expenses: Imposing liability without fault on the ___ producer can help to reduce litigation associated with injuries caused by ___ products by eliminating the need to prove fault and encourage the use of ___ extrajudicial ways to solve disputes, which can save time and reduce litiga___ tion expenses.5 ___ ___ Tort liability without fault on the part of the producer is composed of the ___following elements: ___i) The parties to a product liability action; ___ ___ 4 According to art 477, (2) of the Macao Civil Code: ‘Duty to compensate not depending on ___ fault shall only exist in cases specified by law.’ ___5 See JC Da Silva, Compra e Venda De Coisas Defeituosas, Vonformidade e Segurança, (2nd ___end 2004) 178. Quoted from: AI Seong, Legal Regime of Macao Product Liability: Based on Re___lated Regulations in Commercial Code (2009) 10 JJS, Faculty of Law, University of Macao, 161.

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ii) Product and product with defects; iii) Damage caused; and iv) Causal link between the defects of the product and the damage caused.

A. Product Liability Parties 1. The scope of the subject of liability Generally, liability for a product is borne by the manufacturer or the producer of the product. According to art 85 of the Commercial Code, the subject who bears objective liability is the producer. The effect of art 85, para 1, which describes the objective liability of a producer commercial entrepreneur of the Commercial Code of Macao, is that the producer commercial entrepreneur shall be deemed liable, regardless of fault, for damage caused to third parties by the defects of products that he/she puts into circulation. Academic commentary suggests that ‘producer’ should be given a broad meaning, as explained in the following: i) The Portuguese legal scholar Prof JC Da Silva refers to the manufacturer of a finished product, a component part, or a raw material6 as the real producer (produtor real). Because the product is made by the producer, he has an obligation to ensure the products put on the market are safe and will not cause damage to the consumer. Moreover, these manufacturers are in the best position to ensure and control the safety of the products, otherwise they are liable for damage caused by the products. However, not only the final manufacturer of the product, but also the manufacturer of a component part or raw material needs to ensure the safety of the product, as the manufacturer is liable if the component part or raw material was defective when it left their control and the defect causes damage to the consumer. ii) Prof JC Da Silva refers to whoever presents himself as the manufacturer through placing his name, trademark, or other distinctive sign on the product so as to make himself the apparent manufacturer. In fact, the law considers the apparent manufacturer to be the real producer. Even if the apparent manufacturer has sufficient evidence to prove that he was not the manufacturer who produced the defective product, his objective liability cannot be excluded because the apparent manufacturer shows himself as the manufacturer on the product or its packaging, thereby hiding the actual manufacturer. As a result of the product marketing process, the public and

_____ 6 First part of art 85, no 2 Macao Commercial Code.

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___ the consumer are led to believe that the apparent manufacturer is the prod___ uct manufacturer. To better protect the interests of consumers (because, in ___ most cases, these hidden manufacturers are small manufacturers that do ___ not have sufficient resources to afford the indemnity liability), the apparent ___ manufacturer should bear the objective liability of the product. ___iii) Prof JC Da Silva refers to anyone who, in the exercise of his enterprise, imports 5/14 ___ products for sale, lease, financial lease, or any other form of distribution, and ___ any distributor of products whose Macao producer or importer is not identi___ fied, as a manufacturer. In Macao, most of the locally circulated products are ___ imported goods and few are produced locally. Therefore, if a product has de___ fects and causes damage to the consumer, if the responsibility cannot be as___ signed to the importer, the consumer has to sue outside Macao. In this case, ___ the rights of the consumer have little protection, especially if the consumer ___ does not know the identity of the product manufacturer and as a result dam___ ages cannot be recovered. Therefore, the Commercial Code requires importers ___ to bear the product liability, which meets the requirements of consumer pro___ tection in the product liability law. Unlike the apparent manufacturer or im___ porter, the distributor has a supplementary liability. After providing the iden___ tity of the product manufacturer, importer, or the preceding distributor at the ___ request of the injured party, the distributor’s liability ceases. ___ ___ ___2. Injured party ___ ___According to art 85 of the Commercial Code, ‘A producer commercial entrepre- 5/15 ___neur is liable, regardless of fault, for damage caused to third parties by the de___fects of products that he puts in circulation.’ Although the plaintiffs are described ___as ‘third parties,’ the question remains as to how to define third parties. Is every___one besides the producer third parties? Or did the legislator wish to exclude the ___buyer from the protection, and therefore use the expression ‘third parties’? We ___can compare the above regulation with the relevant regulation in Portuguese ___law. According to art 1 of DL 383/89: ‘O produtor é responsável, independent___emente de culpa, pelos danos causados por defeitos dos produtos que põe em cir___culação.’ (The producer is responsible, regardless of fault, for damage caused by ___defects in the products put into circulation).7 Here, there is no mention of third ___parties. However, the regulations in the Commercial Code concern the civil liabil___ity of producers, in other words the tort liability of the producers. Tort liability re___ ___ ___7 Quoted from: Seong (2009) 10 JJS 164.

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fers to someone who violates another’s rights or interests protected by law, which is a liability of the offender with regard to the victim. Therefore, in this case, there would be a great deal of confusion if the expression ‘third parties’ were used.8 Legal scholars have suggested modifying this regulation by changing the term ‘third parties’ to others. In fact, the consultation on amendments to the Commercial Code also suggested clarifying the meaning of ‘third parties.’ Therefore, whoever has been harmed by the defects of imported products has the right to ask the producer to bear the tort liability without fault, regardless of whether the plaintiff is the buyer of the product, another user, or even a passer-by.

B. The Scope of the Product To determine product liability, the concept and scope of the legal meaning of ‘product’ must be clear. Article 86, no 1 of the Macao Commercial Code considers a product to be ‘any movable good,’ including that which is ‘incorporated in another movable or immovable good.’ In the above regulation, the legislator excluded immovable goods from the scope of a product. That which constitutes a movable good and an immovable good is regulated in the Civil Code, which is a general law.9 Article 86, no 2 of the Commercial Code is the same as DL 383/89 of Portugal before amendment: ‘Products from the land, from raising livestock, fishing and hunting are excluded if they have not undergone any transformation.’ However, to better protect consumers’ interests, the consultation on the amendments to the Commercial Code suggested repealing the rule in art 86, no 2 to extend the scope of products.

C. Defects of Product When damage is caused by a defective product, the product producer will bear the liability.10 The modern form of product liability is generally considered to be strict liability.

_____ 8 F Jianhong/Y Jian, Comparative Introduction on Liability for Defective Product of Commercial Code in Macau (2007) 6 JJS 25. 9 Arts 195 and 196 Macao Civil Code. 10 The word ‘defect’ – regulated in the Macao Commercial Code – is ‘defeito’ in Portuguese, which has the same meaning as the word ‘flaw’. Therefore, a product with defect in this article is equal to a product with flaw. Quoted from: Seong (2009) 10 JJS 165.

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___ DL 383/89 of Portugal identifies defects as follows: ‘A product is defective ___when it cannot provide the safety that the consumer has the right to expect.’11 To ___determine whether or not a product is defective, various factors should be con___sidered, such as the product condition, the reasonably expected use of the ___product, and the product useful life. Product instruction manuals are also rele___vant to determining product safety.12 Similar to the above regulation, art 87, no 1 ___of the Macao Commercial Code defines a defective product as follows: ‘A prod___uct is defective if, at the moment of its entry into circulation, it does not offer the ___safety that legitimately is to be expected, taking into account all circumstances, ___namely its presentation, characteristics and the use that reasonably can be ___made of it.’ However, a product is not considered to be defective merely because ___another better product later circulates in the market. ___ The Macao Commercial Code uses ‘the safety that legitimately is to be ex___pected’ as the standard to determine whether or not a product has a defect. The ___law does not require the product to provide absolute safety to the consumer, ___only the safety that can legitimately be expected. Rather than the expectation of ___the consumer (victim) in a specific case, the safety expectation is that of an ‘or___dinary person’ while using the product. ___ Given the variable and uncertain situations encountered in reality, the gen___eral idea of a defect is open and flexible, leaving the actual decision on defect to ___the specific circumstances in each case. Although the legislator defined a defect ___in a flexible manner, the legislation states a number of special circumstances to ___be considered to help apply the law, such as the product’s presentation, charac___teristics, and the use that can reasonably be made of it. ___ ___ ___D. Damage ___ ___Damage is one of the requirements for imposing strict product liability, and ___art 91 of the Commercial Code regulates the compensable damage, which in___cludes damage resulting from death or personal injury, and damage to goods ___other than the defective product itself. According to the general provisions of ___civil liability, the extent of compensation for damage includes actual damage, ___which means the damage caused by the violation of the right, and any conse___quential losses of the injured party due to the violation.13 In addition, if the law___yer requires, compensation for mental injury can be included. ___ ___11 Quoted from: Seong (2009) 10 JJS 165. This line was translated into English for this report. ___12 Jianhong/Jian (2007) 6 JJS 9. ___13 Art 558, Macao Civil Code.

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Damage to the product itself, and any associated losses, are not included in any damages that can recovered. For these losses, the buyer can only require the seller to bear contractual liability.

E. Causality A causal link between the defect and the damage caused is one of the requirements for imposing strict product liability on the producer. If the damage to the injured party is not caused by the defect of the product, the producer is not liable.

III. Defences to Liability for Producers As with product liability laws in other countries, the Macao Commercial Code clearly defines defences to liability. According to art 88 of the Code, a product commercial entrepreneur is not liable if he can prove: i) that he did not put the product into circulation; ii) that taking account of the circumstances, it can be reasonably assumed that the defect did not exist at the moment the product entered into circulation; iii) that he did not produce the product for sale or any other form of distribution with an economic objective, nor did he produce or distribute it in the exercise of his enterprise; iv) that the defect is due to the product conforming with required norms enacted by public authorities; v) that the state of scientific and technical knowledge at the time the product was put into circulation did not allow for the detection of the defect; and vi) that in the case of a component part, the defect is imputable to the design of the product in which it was incorporated, or to the instructions given by its producer.

IV. The Inadequacy of Macao Law The Macao Commercial Code is different from DL 383/89 of Portugal, as it does not prescribe the time within which the distributor must provide the injured party with the identity of the producer. Under DL 383/89 of Portugal, this must be done within a reasonable time. In this regard, the Portuguese regulation is

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___better than the Macao Commercial Code, as it states that the right to sue for ___product liability expires after a certain period, namely, ‘within 10 years from the ___date on which product was circulated.’ However, if, as under Macao law, the ___distributor can reply to the injured party with written notice at any time, and ___thus be no longer strictly liable, this may cause the following problems. ___ If the injury occurs almost 10 years after the product was put into circula- 5/27 ___tion and the product does not display any information identifying the producer ___or the importer, when the injured party requests the information from the dis___tributor, the distributor may make excuses to delay the proceedings. Even if the ___victim makes the request within the limitation period, if the circulation time ex___ceeds 10 years before the distributor replies giving the injured party the identifi___cation information in accordance with the regulation of the Commercial Code by ___sending written notice to the injured party informing them of the identity of the ___producer or importer, the distributor will not be subject to strict product liabil___ity. In this case, the interests of the injured party cannot be guaranteed. To bet___ter guarantee the interests of the injured party, the legislation should stipulate ___that the distributor must give notice to the injured party within a specific period ___after the request is made, and that otherwise the distributor remains strictly li___able for the injuries caused by the defective product. This will provide effective ___protection where the distributor must provide the information within a period of ___ten years. ___ ___ ___Part II: Cases ___ ___Case 1: Brake Pad Failure ___ ___ X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, ___ which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk ___ that – given a combination of particular circumstances (temperature, surface water, oil, ___ etc) – the new brake-pad material might suddenly be rendered ineffective, but it consid___ ered that the risk was likely to eventuate only very rarely and did not outweigh the general ___ advantages of the new material. It included a statement about the possibility of failure in ___ the small print of the product instructions supplied with all of its bicycles incorporating the new brake pads. A, who purchased one of the bicycles, is one of a handful of people ___ injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also ___ damaged. B, a passer-by, is injured in the same accident. ___ What is X Ltd’s liability to A and B? Pay particular attention to the various possible ___ bases of liability (a general tortious liability for fault, vicarious liability, contractual liabil___ ity, or a special strict liability regime?). Would it make any difference to your analysis if Y, ___ who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independ-

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ent research contractor, had covered up the risk that the new brake-pad material might fail?

A. What are the Labilities That X Ltd Should Bear to A and B? 1. Tort liability (strict liability) According to art 85, no 1 of the Macao Commercial Code, ‘A producer commercial entrepreneur is liable, regardless of fault, for damage caused to third parties by the defects of products that he puts in circulation.’ The objective liability system in product liability law is also exercised in Macao. This regulation, which is derived from the protection of consumers’ interests, clearly stipulates the liability of the producer for defective products and not only relieves the victim of the burden of proof with regard to the fault of the offender, but also does not allow the offender to defend himself by suggesting that he had made his best efforts to fulfill the duty of diligence. Therefore, in this case, even though X Ltd made a statement about the possible failure of the brake pad in the product instructions, the company cannot be exempted from its product liability. According to art 87 of the Macao Commercial Code: ‘1. A product is defective if, at the moment of its entry into circulation, it does not offer the safety that legitimately is to be expected, taking into account all circumstances, namely its presentation, characteristics and the use that reasonably can be made of it. 2. A product is not considered defective by the simple fact that a more advanced one has subsequently been put into circulation.’ After considering all of these factors, if a product cannot provide the level of safety that the public has a right to expect, the product is considered to be defective. Provisions of the later General Product Safety Regulation are also relevant in determining whether the product reaches the required safety standard and may in fact impose a higher standard on producers.14 According to art 3 of the General Product Safety Regulation (Admin Reg 17/2008), ‘safe products’ refers to products that show no sign of danger to users or only slight danger as long as this danger is compatible with the usage of the product and is identified as acceptable according to the strict standard based on the health and safety of the consumers.’ For the producer and distributor, this seems somewhat harsh given that the rela-

_____ 14 Art 87 of the Macao Commercial Code: ‘1. A product is defective if, at the moment of its entry into circulation, it does not offer the safety that legitimately is to be expected, having in account all circumstances, namely its presentation, characteristics and the use that reasonably can be made of it. 2. A product is not considered defective by the simple fact that a more advanced one has subsequently been put into circulation.’

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___tively high standard for identifying a safe product means that even a slight dan___ger can be considered to render a product defective. ___ A consumer and producer relationship exists between victim A and X Ltd, 5/30 ___while victim B does not have a direct contractual relationship with X Ltd, al___though both their injuries are caused by the problem with the brake pads pro___duced by X Ltd. X Ltd knew that the brake pads on the bicycles it produced had ___a hidden risk, but still circulated the product in the market, creating the possi___bility of an accident occurring. Although the company included a statement ___about the possibility of failure in the small print of the product instructions, this ___is not sufficient reason for exemption from liability. The danger does exist. ___ First, consumers have reason to believe that the bicycles they purchase can 5/31 ___be used normally and with reasonable safely. Although the combination of a ___certain temperature, surface water, and oil conditions was unlikely to occur at ___the same time, this still did not exceed the level of reasonable expectation of the ___consumer. It was even a predictable condition, although X Ltd considered it ___‘was likely to eventuate only very rarely.’ In fact, whether this condition was con___sidered to occur rarely or not should not have been only up to X Ltd to decide, but ___should have been identified by the product supervisors. To provide better protec___tion for consumers and to stipulate the product safety obligations of the producer ___and the distributor, the Macao SAR established the General Product Safety Regu___lation (Admin Regs 17/2008) in 2008, giving Macao Economic Services the au___thority to protect consumers and supervise any acts that may violate the provi___sions of the economic legislation and the responsibility to monitor product ___quality and execute sanctions.15 The major reform of the General Product Safety ___Regulation was to establish the legal basis for the removal of dangerous products. ___When a producer circulates unsafe products in the market, it must quickly act to ___clear the danger of the products. According to art 5, no 1, point (3) of the General ___Regulation, producers must ‘Take appropriate actions to prevent the possible ___dangers that the product may cause, including, if necessary, the removal of the ___product from the market,’ otherwise the government will forcibly recall or destroy ___the products, and the producers and distributors will be liable for the correspond___ing expenses.16 If possible, upon the request of the competent authority, the pro___ducers and distributors should also deliver product samples for security testing.17 ___ ___ ___15 Art 7 (Competent Authority), no 1 of the General Regime of Safety Products (Admin Regs 17/ 2008): ‘1. Macao Economic Services is the competent authority which supervises the enforce___ ment of this administrative regulation.’ ___16 Art 14 of the General Regime of Safety Products: ‘the producers and distributors, who are re___sponsible for withdrawing or destroying the products, are liable for the corresponding expenses.’ ___17 Art 5, no 1, point 4.

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Therefore, in the case of the bicycle with an unpredictable risk, whether the possibility of the conditions occurring was sufficiently small for it to be considered a rare condition that could be ignored should have been determined by Macao Economic Services, and if the bicycle was considered unsafe it would probably be withdrawn in Macao. In fact, producers need to increase their awareness of their liabilities under the new product safety regulations. In the field of product safety, if the minimum danger accidentally moves beyond the control of the consumer, the problem of product liability can easily arise, resulting in serious damage to the producer’s reputation. Second, even if an accident was identified as unlikely to occur, X Ltd should have stated this condition in the product instruction manual with an eyecatching label, instead of including a statement about the possibility of failure in the small print of the product instructions. The producer should have clearly informed the majority of consumers about the existing danger, instead of using small printed text, which resulted in the consumers being unaware of the danger due to ignorance or misreading the information supplied. Therefore, the brake pads that are ineffective under certain conditions are referred to as flawed safety products in Macao, because the danger is combined with the use of the product and the ineffectiveness of the brakes is a known risk. The use of small print to inform the consumer of the flaw in the product information failed to notify the consumers clearly, thus the danger was not under the control of the consumer. Even if the warning had been properly conveyed, this would be a factor in determining whether the product was unsafe but of itself would not be determinative. Because product liability refers to the tort civil liability that the distributor or the producer should bear to the victim owing to personal injuries and property (aside from the defective product) damage caused by the defective product to the victims; this liability is not affected by X Ltd having a contractual relationship with A and not having a direct contractual relationship with B. Naturally, product liability is a tort liability independent of liability for breach of contract. Product liability is not premised on the contractual relationship between the offender and the victim, but on the fact that a defective product causes damage to others and it is a legal liability stemming from the law or the direct violation of a legal obligation. The Macao Consumers’ Protection (1998) Law stipulates that when products are provided to consumers, the consumers’ right of guarantee for security must be ensured and it is prohibited to sell to consumers ‘things that can endanger the health and security of the consumers under normal and predictable usage.’18

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18 Art 4 (Prohibition of the supply of certain goods or services) of Law no 12/88/M (Consumers’ Protection): ‘1. It is prohibited to supply goods or services that can endanger the health and

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___These provisions are mainly concerned with imposing criminal and administra___tive sanctions on producers whose products endanger the health and safety of ___consumers. ___ ___ ___2. Contractual liability ___ ___Tort compensation claimants are persons who have experienced personal injury 5/37 ___or property damage as a result of defective products; they can be the buyers of ___the products, the users, or others who have experienced personal and/or prop___erty damage caused by a product defect. Regardless of whether they have a con___tractual relationship with the producer or the distributor, victims can bring ac___tion for compensation for the damage caused. Different from the liability for ___defective products, contractual liability based on the principle of the contract re___lationship means the right is held by the consumer or, in other words, the party ___who has a direct contractual relationship with the product provider. Hence, third ___parties who are harmed by the product are not included in the relationship, ___which differentiates as regards the subjects of rights between tort liability and li___ability for breach of contract. ___ Obviously, in this case, victim A did not sue X Ltd because of the condition 5/38 ___of the bicycle but because that condition resulted in an accident in which injury ___was caused to A. This gives A a potential claim for strict product liability in tort. ___Unless A asks X Ltd to compensate for the damage caused by the bicycle, the ___company will need to bear the contractual liability. ___ If Y (i) is hired as an employee by X Ltd as a researcher in the laboratory, or (ii) is hired as ___ an independent contractor to conduct the research and hides the risk that the new brake ___ ___ ___ ___security of the consumers under normally and predictable usage. 2. Administrative authorities ___will impede the supply of goods and services mentioned in the previous subparagraph, if necessary, confiscate the latter.’ ___ A recent case in Macao concerned the violation of Law no 12/88/M Consumers’ Protection, and ___the interests and rights of the consumer. In February 2011, Macao Customs took an action on ___the torts of three pharmacies suspected of selling fake products of the famous brand ‘Wong To ___Yick Medicated Balm.’ Six thousand bottles of fake ‘Wong To Yick Medicated Balm’ were found, ___which were valued at in excess of MOP 27,000. After the investigation, the three pharmacies were found to have been selling the counterfeit medicines for more than 10 years, at a rate of ___ approximately 150 bottles per month. These fake medicines undoubtedly endangered the con___sumers’ right to health. See: ‘Three pharmacies in Macao involved in selling counterfeit medi___cines for more than 10 years, selling 150 bottles per month,’ China Securities Network .

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pad material may be ineffective in certain conditions, what differences emerge when analyzing this case?

If Y is hired by X Ltd as a researcher in the laboratory and he hides the risk that the new brake pad material may be ineffective in certain conditions, X Ltd is still liable for compensation. An employment contract is termed a ‘labor contract’ in Macao. Article 1079, no 2 of the Macao Civil Code states that ‘The labor contract is regulated by special legislation.’ Proceeding from the structure of the Civil Code, the legislator initially wanted to equate the labor contract with other bilateral contracts and insisted on the ‘Performance and Counter-Performance’ in the principle of reciprocity, but this principle was found to be inapplicable in the later development of the law of labor relations because a labor contract is not a normal bilateral contract, it includes more social and personal factors.19 This is also the main difference between the nature of the labor contract and work contract, as the work contract is in accordance with the principle of ‘Performance and CounterPerformance.’ After a labor contract becomes effective, a subordinate-and-superior relationship is generated between employee Y and employer X. The former has to carry out his work under the arrangements or even directions of the latter, which is the characteristic of a labor contract. The third parties apparently believe in the subordinate-and-superior relationship between employee Y and employer X, which means the job of the subordinate is under the supervision of the superior who is responsible for him. Therefore, if Y is hired by X Ltd as a researcher in the laboratory and Y hides the risk that the new brake pad material may be ineffective in certain conditions, the liability is still imposed on X Ltd. X Ltd can seek recourse from Y for the recovery of any damages paid because of Y’s actions based on the articles of association governing the company. The difference between a labor contract and a work contract is discussed in the following section. If Y is an independent contractor, and hides the risk that the new brake pad material may be ineffective, then Y is liable to pay compensation. In principle, a contractor (empreiteiro) is not an employee. According to art 1133 of the Macao Civil Code, ‘A work contract is a contract by which one of the parties is obliged to the other to accomplish certain work, against a price.’ A work contract is a civil law transaction (negócio jurídicos) that indicates that one of the parties will work for the other to accomplish a certain work outcome, while the other will pay remuneration in return. Although there are a

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19 See Zaixing (2011) 24 AM 390.

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___number of similarities between contractors and employees, such as they are ___both paid for their efforts, a contractor is not an employee of the owner of ___work (dono de obra).20 The reason for distinguishing a contractor and an em___ployee is because the employer is responsible for the harm caused by an em___ployee based on the dependency, bondage, or subordination relation. Once a ___contractor signs a work contract with the owner of work, the contractor is ___obliged to the owner of work to accomplish the relevant work. However, the ___contractor does not become the employee of the owner of work as the depend___ency or bondage relation between the employer and the employee does not ex___ist in this case. This dependency relation ‘allows the former to send orders or ___instructions to the latter. Only with this possibility to direct can one construct ___the reason why the former is liable for the behavior of the latter.’21 Based on ___this ‘possibility to direct,’ the legislator has justification to make the principal ___(comitente) liable for the tort, although the principal did not commit the act. ___Once the employer loses the ‘possibility to direct,’ even if the tort of the agent ___is conducted completely for the sake of the employer, the employer is not li___able as no special relationship exists, which means he cannot give orders or ___instructions based on the ‘possibility to direct.’ If the employer had to bear the ___tort liability of the agent even though he did not have the ‘possibility to di___rect,’ this would be extremely unfair for him. Moreover, as everyone could ___possibly bear the tort liability of others, the supposed meaning of the liability ___of the employer would be lost. According to JS Monteiro and MM Veloso, ‘In ___principle, vicarious liability is not applicable to the damage caused by the act ___of the independent contractor.’ However, at the same time, they suggest that ___‘it is possible to extend the scope of the regulation,’22 which means that it is ___possible for the independent contractor to play the role of employee, although ___there is still room for further research in this area. ___ To protect the rights and interests of consumers, art 493 of the Macao Civil 5/45 ___Code stipulates, ‘1. A person who directs another to perform a certain activity ___ ___ 20 In addition, according to A Varela, a taxi driver is not an agent of the passenger, and a doc___ tor is neither an agent nor an employee of the patient or the sick person. However, as JS Mon___teiro and MM Veloso point out, V Serra and Varela consider doctors to be the employees of ___hospitals. See V Serra, Responsabilidade Contractual e Extracontratual, (1983) BMJ, nos 85 & ___142, quoted from JS Monteiro/MM Veloso, Liability for Damage Caused by Others: Portuguese ___Law, in: J Spier (ed), Unification of Tort Law: Liability for Damage Caused by Others (1st edn 2009), translated by M Xiaying/G Shengping, 273-274. ___ 21 João de Matos Antunes Varela, Das Obrigações em Geral, vol I (10th edn 2000), Almedina, ___translated into Chinese by TI Cheng, unpublished, 452-453. This line was translated into Eng___lish for this report. ___22 Monteiro/Veloso (fn 20) 279 & 283. This line was translated into English for this report.

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shall be liable, irrespective of fault, for the damage caused by such agent, provided that the latter is also liable. 2. The liability of the principal shall only exist if the damaging fact was committed by the agent in the exercise of the function entrusted to him, even if deliberately or against the instructions of the principal. 3. A principal who has paid the compensation shall have the right to demand a reimbursement from the agent, unless he was also guilty; in the latter case, para 2 of art 490 shall apply.’ In other words, under the normal circumstances in Macao, if Y is hired by X Ltd as an employee researcher in the laboratory and he hides the risk that the new brake pad material may be ineffective, the compensation liability is still borne by X Ltd. However, according to the Macao Civil Code, X Ltd is required to pay compensation, but it has the right to demand a reimbursement from its agent (comissário) Y, unless it is also guilty. For example, if X Ltd clearly knows that Y does not have the necessary research ability but still entrusts him to do the relevant research, then X Ltd has to bear the related joint liability according to art 490 of the Macao Civil Code. If Y is hired as an independent contractor, and he hides the risk that the new brake pad material may be ineffective, Y should bear the responsibility all by himself.

Case 2: Infected Blood A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. At the time, the risk of Hepatitis N in donated blood had been identified in a single published paper in a scientific journal, but only a handful of research laboratories in the world had the capacity to test for its presence in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the condition’s existence came to be generally accepted and that a test was developed that allowed hospitals and blood suppliers to screen out infected parcels of blood. What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if A contracted the virus as the result of a blood transfusion conducted in 2001, but her condition only manifested itself in 2012? (In this context, consider in particular differences in the time limits applied to the various possible bases of liability.)

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___A. What are the Liabilities that X Hospital, Y Ltd, and Z should Bear ___ in Relation to A? ___ ___1. What are the liabilities that Z should bear in relation to A? ___ ___In this case, as Z does not know that he is a carrier of the Hepatitis N virus, to 5/47 ___ensure the blood product of Y Ltd is safe and hygienic, the company has an ob___ligation to test the blood sample from the donor. According to art 86 of the ___Commercial Code, the blood provided by Z is not a product, therefore he is nei___ther a producer nor a person at fault, and he has no legal responsibilities. ___ ___2. What are the liabilities that X hospital should bear in relation to A? ___ ___a) Strict product liability ___ ___The blood sold to X hospital by Y Ltd is considered a product. The blood pro- 5/48 ___vided by Y Ltd to X hospital was not direct human blood, but a processed blood ___product. Therefore, as a producer, Y Ltd has to bear product liability for the ___safety of the blood product, regardless of whether the supply is onerous or gra___tuitous. Blood products are expected to be safe and hygienic. It may also be ___possible for X Ltd to be liable as a distributor, which has caused A to become in___fected with the Hepatitis N virus through the blood transfusion. ___ ___b) Liability in contract ___ ___In Macao, although the Regulations of Medical Accidents have not yet been es- 5/49 ___tablished, we can analyze the case for medical practice with the help of the Ma___cao Civil Code. According to arts 209 and 216 of the Macao Civil Code, when the ___expressed or implied declarations between the parties coincide, a contract (or ___an agreement) is formed. A medical relationship can be seen as a type of con___tract, thus the regulations concerning contracts in the section of the civil law of ___obligations can be applied. A medical contract is an agreement formed between ___the patient and the supplier of the diagnosis or treatment. Specifically, in the ___context of a medical contract, the patient describes the state of his illness hon___estly and entrusts the supplier to diagnose and treat him; in return, the supplier ___provides medical services to the patient using his professional knowledge and ___skills, and asks for remuneration from the patient.23 ___ ___23 FM Chong, Some Issues on Medical Treatment and Regulations on Medical Malpractice: Be___fore the Legislation of Medical Liability (2007) 6 JJS 97.

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As the treatment of illnesses entails uncertainties regardless of the doctor’s medical skills, there are times when patients cannot be cured. Therefore, the doctor and the patient in the above mentioned medical contract cannot agree on a complete recovery, but can only agree that reasonable care will be used in the diagnosis and treatment of the illness. Based on the above analysis, X hospital has no liability to victim A in this case. X hospital simply followed the normal procedure in performing the blood transfusion for A. At that time, only a handful of research laboratories in the world had the capacity to test for the presence of Hepatitis N in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the existence of the condition came to be generally accepted and a test was developed that allowed hospitals and blood suppliers to screen out infected parcels of blood. When X hospital performed the blood transfusion for patient A, the presence of Hepatitis N could not be tested in the hospital, and the existence of the condition was doubted in the scientific community. Therefore, X hospital had no subjective fault, as it had fulfilled the obligation of ‘appropriate attention’ to its best ability and there were no faults in the other medical services for A. Accordingly, A cannot ask for compensation from X hospital based on contractual liability under the medical contract.

3. What are the liabilities that Y Ltd should bear in relation to A? In the period between Y Ltd’s collection of the blood and the production of the blood product and the time it sold the blood product to X hospital, the presence of Hepatitis N could not be tested by the company, and the existence of the condition was doubted in the scientific community. Therefore, Y Ltd had no subjective fault in this accident, as it had fulfilled the obligation of ‘appropriate attention’ to its best ability. However, Y Ltd is still responsible under strict liability. This is because, unlike liability based on fault, the liability by risk undertaken by Y Ltd is an objective liability, therefore it is not relevant to consider whether Y Ltd had exercised the ‘appropriate attention.’ Even if the defendant has paid all possible attention while manufacturing or distributing the blood products, if the product has defects and causes damage to the plaintiff, the defendant is still liable. In other words, the blood product producer, Y Ltd, has an inescapable liability as long as the product is found to be objectively defective. It is important to point out that the principle of liability by risk does not apply the principle of absolute liability, which requires the product supplier to

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___bear all of the damage caused by the product. Although the principle of liability ___by risk makes the product supplier liable without fault in relation to the damage ___caused by the defective product, defences are still allowed. If a defence is ac___cepted, the product supplier does not need to bear the compensation liability. ___ ___ ___B. The Effects of Limitation Periods ___ ___The extinction or prescription (prescrição) of claim can provide a defence for the 5/55 ___producer. In the Macao Civil Code, limitation of actions appears in the General ___Part and the part on non-contractual liability. According to art 302 of the Macao ___Civil Code, the ordinary period of prescription is fifteen years commencing from ___the date the damage was caused.24 According to art 491, no 1 of the same code, a ___shorter period of prescription (within three years) applies for the right to ask for ___compensation based on non-contractual liability. As the special prescription is ___superior to the ordinary prescription, the period of prescription for the right to ___ask for compensation in non-contractual liability or tort liability is generally ___three years. The period is counted from the date the injured party knew or should ___have known of his right, and the suit must then be brought within the period of ___prescription. However, it is logically possible that the injured party learns of his ___right to compensation very late, after the ordinary period of prescription has ___passed. Therefore, the second part of this paragraph stipulates that counting ___from the date the damage was caused, the right will be extinguished if it is not ex___ercised within 15 years.25 In fact, based on art 302 and para 1 of art 491, two differ___ent limitations of action function in this case. The first limitation is within three ___years counting from the date the injured party knew or should have known of his ___right and of the identity of the person responsible. The second limitation is, if the ___injured party did not know and could not have known of the relevant informa___tion, the longest functioning period for compensation in non-contractual liability ___is 15 years, which is the ordinary period of prescription. This distinction arises be___cause the last part of art 491 no 1 stipulates, ‘without prejudice to the ordinary pe___riod of limitation of actions if the respective period has passed.’ ___ Limitation of actions in product liability is a relatively special case. In the 5/56 ___general case of non-contractual claims, the right to compensation is barred ___three years after the date the injured party gained or should have gained knowl___edge of the damage, defect, and the identity of the entrepreneur.26 In the case of ___ ___24 See art 299 Macao Civil Code. ___25 A Neto, Código Civil Anotado (9th edn 1995) 382. ___26 See art 93 Macao Commercial Code.

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strict product liability, the regulation of the injured party’s ‘right to compensation lapses 10 years from the date when the entrepreneur put into circulation the product that caused the damage, except if judicial proceedings initiated by the injured party are pending.’27 Thus, ten years after putting the product into circulation, the producer is no longer liable for the damage caused by the defective product. In this case, A is only found to be infected with the virus 11 years after the blood transfusion. According to the law of prescription in Macao, Y Ltd is not legally liable for this damage.

Case 3: Bridge Collapse A, a pedestrian using a public right of way, is injured by the collapse of a bridge constructed by X Ltd on land belonging to Y, who commissioned the construction, on the basis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a different architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is obliged to construct the new bridge for no additional remuneration. What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and so subject to strict product liability, or does it merely represent the performance by Z of a service, to which some alternative liability regime applies? What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a direct claim or a recourse action?

A. What are the Liabilities that X Ltd, Y, and Z Should Bear in Relation to A? In this case, A is the victim, Y is the owner of the land, there is a contractual relationship of commission between Y and Z, and X Ltd is the builder for the construction of the new bridge.

1. The responsibilities of the principal (Y) The liability of a principal, regulated in art 493 of the Macao Civil Code, is an important regime in modern tort law. The liability is based on the entrusted relationship whereby the principal is responsible for damage caused to third par-

_____ 27 See art 94 Macao Commercial Code.

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___ties by his agent during the exercise of his functions. Liability of the principal ___rests on the balance between the interests of the principal, agent, and victim. In ___this case, Y is the principal, Z is the agent, and A is the victim, thus Y is liable ___for the damage caused to A in the bridge collapse because of the problematic ___plan drawn by Z. ___ This liability is not imposed on the principal without reason. Rather, the li- 5/60 ___ability is imposed because when the agent exercises the functions assigned by ___the principal, prejudice to the legal rights and interests of others and their proper___ties is possible. According to the traditional concept of civil (tort) liability, the ___likelihood of a victim gaining compensation mainly depends on the agent’s ___strength of assets or, in other words, the strength of his actual ability to fulfill his ___obligation to pay. If the agent’s financial condition is poor, the likelihood of the ___victim gaining compensation will be less, and the victim is usually innocent. As a ___result, based on this relationship, the principal is made the final loss bearer, and ___having the identity of an employer, his economic capacity is relatively stronger. ___ To guarantee the injured party compensation, a special regime of civil li- 5/61 ___ability has been established in this domain. The liability of the principal is a ___special civil non-contractual liability based on the entrusted relationship. The ___basic principle of tort is that everyone should be liable for his own acts, which ___only requires the offender to bear liability for his own torts. However, the liabil___ity of a principal does not refer to the principal bearing liability due to his own ___torts, but to his liability for the damage caused to third parties by torts that are ___committed by his agent during the exercise of his functions. Because the per___son responsible is not the infringer, the victim can ask for compensation from ___the infringer’s principal directly. Using the regime of liability of the principal to ___regulate the relationship between the principal, agent, and third party can bal___ance the interests of the parties. The construction of the regime of liability of ___the principal has not only theoretical significance, but also meaning in reality. ___Although many countries or regions in the world have already regulated the li___ability of principal in their laws, the expression used for the laws may not be ___the same, for example the liability of the user or hirer,28 employer’s liability,29 ___vicarious liability,30 and instructor’s liability.31 Although the intention and ex___ ___ ___28 See art 715 Japanese Civil Code and art 188 of the Civil Law in Taiwan Area. ___29 See Z Nan, Original Theory of Roman Law, Part II (2005) 868–869; and M Ruizhao, On Employer’s Vicarious Liability (2004) 5 Tribune of Political Science and Law 129. ___ 30 In common law, the nature of the liability of the principal is defined as ‘vicarious liability’: ___See C von Bar, The Common European Law of Torts, vol I (2001), translated by Z Xinbao, Law ___Press, 419. ___31 Monteiro/Veloso (fn 20) 261.

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tension of the concepts may be different, the laws have a similar nature and concerns.32 Therefore, in this case, Y is liable for all of the damage suffered by A, and based on art 493, no 3 of the Macao Civil Code, Y can ask Z for recourse. If Y is at fault, for example, because he knows that Z is not a qualified designer, but still entrusts him to complete the designs, then Y has to bear the full liability together with Z according to art 490 of the Macao Civil Code.

2. Responsibility of X Ltd If we consider the defective bridge to be a product, then the builder, X Ltd, will probably bear the responsibility. However, product liability in Macao does not include immovable goods. As the bridge cannot be considered a product; thus X Ltd does not bear any legal liability.

_____ 32 See art 1384 of the French Civil Code: ‘A person is liable not only for the damage he causes by his own act, but also for that which is caused by the acts of persons for whom he is responsible, or by things which are in his custody.’ Art 831, no 1 of the German Civil Code: ‘A person who uses another person to perform a task is liable to make compensation for the damage that the other unlawfully inflicts on a third party when carrying out the task. Liability in damages does not apply if the principal exercises reasonable care when selecting the person deployed and, to the extent that he is to procure devices or equipment or to manage the business activity, in the procurement or management, or if the damage would have occurred even if this care had been exercised.’ Art 715, no 1 of the Japanese Civil Code: ‘A person who employs another for a certain business, is bound to make compensation for any damage caused by the person employed to a thirdperson in the execution of the business; but this does not apply if the employer has used due care in the selection of the person employed and in the control of the business, or if the damage would have happened even though due care had been used.’ Art 188 of civil law in the Taiwan Area: ‘1. The employer shall be jointly liable to make compensation for any injury which the employee has wrongfully caused to the rights of another in the performance of his duties. However, the employer is not liable for the injury if he has exercised reasonable care in the selection of the employee, and in the supervision of the performance of his duties, or if the injury would have been occasioned notwithstanding the exercise of such reasonable care. 2. If compensation cannot be obtained according to the provision of the preceding paragraph, the court may, on the application of the injured person, take the financial conditions of the employer and the injured person into consideration, and order the employer to compensate for a part or the whole of the injury. 3. The employer who has made compensation as specified in the preceding paragraph may claim for reimbursement against the employee that committed the wrongful act.’

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___3. Is the architectural plan itself a ‘product,’ and should the strict product ___ liability be imposed based on this? Or does it only represent the services ___ provided by Z, meaning that other regimes of liability should be applied? ___ ___Although an architectural plan is a movable good, the majority of the legal ___community in Macao considers it to be a service rather than a product. Because ___the import of a plan does not lie in its container, but is the result of the archi___tect’s intellectual labor, the plan does not have a material form and therefore ___cannot be considered a movable good. If the plan was identified by law as an in___tellectual property right, which is protected by the law of intellectual property, ___it would come under general civil law rather than product law. ___ The authors agree that the architectural plan herein can be regarded as a ___service for the principal Y provided by Z based on the commission contract. As ___mentioned above, based on the commission contract, Y can sue Z for breach of ___contract as a result of Z producing defective plans. ___ ___ ___4. What are Z’s liabilities to X Ltd and Y? Which one is the foundation, ___ the direct litigation, or which is recovery litigation? ___ ___Although X Ltd has to build a new bridge without obtaining payment due to the ___problematic plan of Z, the liability is only based on the previous agreement be___tween X Ltd and Y. Because no juristic relation exists between X and Z, Z does ___not bear any responsibilities to X Ltd. ___ As Z is the agent of Y according to the analysis of the commission contract, ___the legal consequences of the damage caused by Z will be covered by Y, but Y ___has a right of recourse against Z due to the liabilities by risk undertaken by him ___according to art 493, no 3. However, if Y is also guilty, based on art 490 of the ___Civil Code, he will bear joint liability with Z. ___ The reimbursement demanded by Y from Z can be claimed as part of the ac___tion between X Ltd and Y. ___ ___ ___ ___ ___ ___ ___ ___ ___NEUE SEITE QQQ

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Anisah Che Ngah, Sakina Shaik Ahmad Yusoff and Rahmah Ismail

Product Liability in Malaysia Anisah Che Ngah, Sakina Shaik Ahmad Yusoff and Rahmah Ismail Product Liability in Malaysia

Contents Part I: General Questions | 120 I. Introduction | 120 II. Tort Law | 120 III. Contract Law | 121 IV. Strict Product Liability | 122 Part II: Cases | 131 Case 1: Brake Pad Failure | 131 Case 2: Infected Blood | 141 Case 3: Bridge Collapse | 145

Part I: General Questions https://doi.org/10.1515/9783110547559-008

I. Introduction There are three main sources of law in Malaysia that are relevant in determining the law applicable to the three hypothetical problems to which answers are sought. These are tort law, contract law, and strict product liability. A brief introduction to these three areas will be given before applying this law to the hypotheticals.

II. Tort Law There are three main sources of tort law in Malaysia. These are the English common law, local judicial decisions, and common law principles which have been codified into local statutes.1 The application of the English common law is based on the provisions of sec 3 of the Civil Law Act 1956. Section 3(1) states that the English common law and rules of equity as administered in England on 7 April 1956, 1 December 1951 and 12 December 1949, are applicable in Peninsular Malaysia, Sabah, and Sarawak, respectively. Any

_____ 1 N Talib, Law of Torts in Malaysia (3rd edn 2010) Sweet & Maxwell Asia. https://doi.org/10.1515/9783110547559-008

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___changes or new developments in the English common law and rules of equity ___that took place after the stated dates are only of persuasive authority. In ___other words, the Malaysian courts are at liberty to apply other laws, local or ___otherwise. ___ It is worth noting that the English common law and the rules of equity are 6/3 ___subject to an important proviso under said section. The proviso states that ‘…the ___said common law, rules of equity and statutes of general application shall be ap___plied so far as the circumstances of the states of Malaysia and their respective in___habitants permit and subject to such qualifications as local circumstances render ___necessary’. Hence, only those parts of the English laws which are suitable to lo___cal circumstances will be applied. The Malaysian courts must be vigilant to en___sure that principles arising from the English cases are appropriate and accepted ___in local circumstances.2 ___ ___ ___III. Contract Law ___ ___Consumer contracts (business to consumer [B2C]) in Malaysia are governed 6/4 ___mainly by the Contracts Act 1950, the Sale of Goods Act 1957 and the Consumer ___Protection Act 1999. The Contracts Act 1950 is the parent law governing contrac___tual relationships and has its origin in the Indian Contracts Act 1872. The Con___tracts Act 1950 governs three important phases of contract law: formation of ___contract, discharge of contract, and damages. The Contracts Act 1950 is, how___ever, silent on the content of a contract and thus recourse to common law on ___this part of the law of contract is required to determine the approach to be taken ___by the courts in the case of a breach of contract.3 The main legislation affecting ___content of a contract of sale of goods in Malaysia is the Sale of Goods Act 1957. ___This Act is modeled upon the Indian Sale of Goods Act 1930, which has its origin ___in the English Sale of Goods Act 1893. The 1957 Act only applies to Peninsular ___Malaysia. By virtue of sec 5(2) of the Civil Law Act 1956, the law applicable to the ___states of Sabah and Sarawak must be ‘the same as would be administered in ___England in the like case at the corresponding period.’ As such, the modern Eng___lish law on the sale of goods is applicable to Sabah and Sarawak. ___ ___ ___2 For further reading, see A Ibrahim/A Joned, The Malaysian Legal System (1987) Dewan Bahasa & Pustaka, Kuala Lumpur, ch 4; and WM Aun, The Malaysian Legal System (1990) Long___ man Malaysia, chs 2 and 3. ___3 SSA Yusoff et al, Consumer’s right to redress against traders under the law of supply of ___goods: A comparative study of selected jurisdictions, Proceedings of the 2nd International Con___ference on Business and Economic Research (2nd ICBER 2011).

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The Sale of Goods Act 1957 applies to contracts for the ‘sale of goods’ as defined in sec 4 of the Act. Under the Act, a ‘contract of sale of goods’ has been defined as ‘a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.’ The Act incorporates into statutory form important principles established in case law. As the 1957 Act is not a consumeroriented piece of legislation, it thus governs dealings between businesses (B2B) as well as between businesses and consumers (B2C). The Sale of Goods Act 1957 applies to all types of goods and does not differentiate between commercial and private sales or between wholesale and retail.4 The Sale of Goods Act 1957 does not provide a comprehensive law for sale of goods and as such it has to be read together with the Contracts Act 1950, the main legislation governing the law of contract in Malaysia. However, by virtue of sec 3 of the Sale of Goods Act 1957, in cases of inconsistencies between the two pieces of legislation, the 1957 Act shall prevail over the 1950 Act. In the realm of sale of goods, another legislative source of law in Malaysia is the Consumer Protection Act 1999. The 1999 Act came into force on 15 November 1999. The Act goes some way towards remedying the forces of inequality. As Wu Min Aun5 pointed out, it restores some equilibrium between suppliers and consumers. However, the 1999 Act defines the term ‘consumer’ narrowly to encompass only a consumer who acquires or uses goods or services of ‘a kind ordinarily acquired for personal, domestic or household purpose, use or consumption’. Consumer sale of goods in West Malaysia is now governed by two pieces of legislation, namely, the Sale of Goods Act 1957 and the Consumer Protection Act 1999 whilst the laws governing sale of goods in East Malaysia are the English Sale of Goods Act 1979 and the Malaysian Consumer Protection Act 1999. This dualism of laws in Malaysia has indeed led to confusion and conflict of laws issues.

IV. Strict Product Liability The law on product liability in Malaysia is governed by Part X (sections 68-72) of the Consumer Protection Act 1999 (CPA 1999). The enactment of the Malaysian CPA 1999 was greatly influenced by the Consumer Protection Act 1987 (UK).6

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4 WM Aun, Legal Aspects of Sale of Goods (1994) Longman Malaysia. 5 WM Aun, Consumer Protection Act 1999 – Supply of Goods and Services (2000) Longman Malaysia. 6 N Amin, Product Liability Law in Malaysia, Selangor (2007) Sweet & Maxwell Asia.

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___Part X was introduced to CPA 1999 after the report of the National Advisory ___Council for Consumer Protection (the Council) in 1992, which considered that ___the existing Malaysian law was insufficient to protect consumers against injury ___caused by defective products. The existing laws, which lie in the areas of tort ___and contract, were considered unable to provide redress to consumers. The ___Council proposed the introduction of a strict product liability law to Malaysia ___based on the European Community Directive (85/374/EEC) and the UK Act. ___ Part X of the CPA 1999, which adopts a strict liability regime, is a significant ___development in consumer protection law. The strict liability regime is consid___ered to have a stronger deterrent function with regard to the producers.7 Wade ___remarks that: ___ Experience seems to demonstrate that if a manufacturer knows he will be held ___liable for injuries inflicted by his product, that product will be safer than if he un___derstands that he can avoid liability by demonstrating the exercise of due care.8 ___ The strict liability regime has the potential to raise product safety standards ___in Malaysia.9 It brings local product liability law in line with the emerging inter___national product liability law. ___ According to sec 68(1) of the Consumer Protection Act 1999, if damage is ___caused wholly or partly by a defect in a product, the following persons may be ___liable: ___(a) the producer of the product; ___(b) own-brander; and ___(c) importer. ___ ___ ‘Producer’ is defined in sec 66(1) to mean: ___(a) The person who manufactured it; ___(b) In the case of a substance which is not manufactured but is won10 or ab___ stracted, the person who won or abstracted it; ___(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. ___ ___ The word ‘own-brander’ and ‘importer’ are not defined in the CPA 1999. How___ever, from the provision of sec 68(1)(b), ‘own-brander’ is a person who, by putting ___his name or trade mark or other distinguishing mark on the product, holds him___ ___ 7 Amin (fn 6). ___8 John W Wade, On the Nature of Strict Liability for Products (1973) 44 Miss LJ 825. ___9 Aun (fn 5). ___10 ‘Won’ means extracted/mining/having operated a mine.

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self out to be the producer of the product. According to Naemah Amin,11 the inclusion of own-brander is mainly intended to catch chain department stores and supermarkets, which are generally economically powerful. The word ‘importer’ is self-explanatory. The inclusion of importer is apparently intended to overcome the practical problems involved in suing the foreign producer in his own country.12 The Law Commission and the Scottish Law Commission are of the opinion that the inclusion of importer is justified based on the following reasons:13 i) It would be entirely unsatisfactory if the remedies available to a person injured by a defective product should depend on whether or not the product is an imported one; ii) The importer of goods should answer for the quality of these goods not only to persons with whom he is in a contractual relationship, but to any person who may be injured by them; and iii) The importer creates the risk by importing the product into the jurisdiction for commercial purposes. Section 66 defines a ‘product’ as any good and, subject to subsec (2), includes a product which is comprised in another product, whether by virtue of being a component part, raw material or otherwise. Section 3 defines ‘goods’ as goods which are primarily purchased, used or consumed for personal, domestic or household purposes, and includes: (a) goods attached to, or incorporated in, any real or personal property; (b) animals, including fish; (c) vessels and vehicles; (d) utilities;14 and (e) trees, plants or crops whether on, under or attached to land or not, but does not include choses in action, including negotiable instruments, shares, debentures and money. Based on sec 68 (1), the required elements for a claim for product liability under Part X of the CPA 1999 are: i) the product is defective; ii) damage; and iii) the defective product has caused the damage (causation).

_____ 11 Amin (fn 6). 12 Amin (fn 6). 13 The Law Commission and the Scottish Law Commission, Liability for defective products, HMSO Cmnd 7054. Amin (fn 6). 14 ‘Utilities’ mean public utilities, such as electricity and water.

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___ According to sec 67(1) of the CPA 1999, a product is defective if the safety of 6/17 ___the product is not such as a person generally is entitled to expect, taking into ___account all relevant circumstances and matters specified in sec 67(2), namely: ___(a) the manner in which, and the purposes for which, the product has been ___ marketed; ___(b) the get-up of the product; ___(c) the use of any mark in relation to the product; ___(d) instructions for or warnings with respect to doing or refraining from doing ___ anything with or in relation to the product; ___(e) what may reasonably be expected to be done with, or in relation to, the pro___ duct; and ___(f) the time when the product was supplied by its producer to another per___ son. ___ ___ The definition of ‘defect’ in sec 67(1) is based on the concept of safety which 6/18 ___is then based on the general expectation in respect of the safety of a person. Sec___tion 67(1) clearly adopts the consumer expectation test in determining defec___tiveness. The test is an objective one because it is based on general entitlement ___to expectation, not on the individual consumer expectation.15 The word ‘expec___tation’ should be judged not based on actual expectation but on the entitlement ___to expectation.16 Consumers are entitled to expect that consumer products they ___buy are safe to be used under normal circumstances and for reasonable use, ___otherwise they would not buy the products. ___ Section 67(2) refers to matters that will be taken into account in determining 6/19 ___what a person is generally entitled to expect. Section 67(2)(a) refers to the mar___keting of the product. For example, a product intended for toddlers must be ___marketed in a way that will not result in the product being misused. An extra ___warning may need to be given on such products. Where products are marketed ___for expert users, the level of warnings and instruction required can be expected ___to be less because the manufacturer can assume a certain amount of pre___existing knowledge on the part of the purchaser.17 Section 67(2)(b) to (d) deal ___with the presentation of the product. For example, where a product needs extra ___care, such as when it is a poison, the presentation of the product must be made ___in such a way that the purchasers or consumers know that the product is dan___gerous and the product needs extra care. Warnings and instructions must be ___given clearly and in a position where they can be easily seen and understood by ___ ___15 Amin (fn 6). ___16 A & Others v National Blood Authority & Others [2003] 3 All ER 289. ___17 SG Corones, The Australian Consumer Law (2nd edn 2013) Lawbook Co Australia.

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the consumers. Section 67(2)(e) comes into play in a situation whereby an injury occurs when a consumer is using the product. In this particular situation, the consumer may not use the product for a purpose contrary to its intended use and then claim that the product is defective if she is injured while using the product for this improper use. Section 67(2)(f) provides that the relevant time which is critical is the time when the products were put into circulation by its manufacturer. According to sec 67(3), defectiveness will not be inferred just because subsequently a safer product came onto the market. Subsection (4) in sec 67 states that ‘safety’, in relation to a product, shall include: (a) safety with respect to products comprised therein; (b) safety in the context of risk of damage to property; and (c) safety in the context of risk of death or personal injury. This section sets out that not only the final product must be safe, all the components or raw materials used must also be safe. A product can be defective if it creates a risk of injury to either the person or to propety. ‘Damage’ is defined in sec 66 as injury, damage to property and death. Section 69 provides for the extent of liability for loss or damage, whereby in sec 69(1)(a) it is clearly stated that the liability for the damage does not include the loss of or damage to the defective product. As far as damage to property is concerned, according to sec 69(1)(c), only damage to other property which is intended for private use, occupation or consumption is recoverable. For example, if a rice cooker bought by a consumer exploded and burnt her kitchen and her retail shop which was attached to the kitchen, the consumer can only claim for damage to her kitchen. Damage to the retail shop is not claimable because the shop is not intended for private use, occupation or consumption. The required elements for an action stated in sec 68(1) clearly impose liability without proof of fault as is required under negligence. This liability is based on the defective product. A claim under Part X will be successful if the claimant is able to prove that the product is defective and this defective product has caused damage to the claimant. Whether the producer has taken reasonable steps to ensure that the product is not defective is irrelevant. The liability is not dependent on the conduct of the producer. The conduct of the producer is only relevant in negligence claims. Theoretically, product liability claims under Part X of the CPA 1999 will make it easier for consumers to sue for injuries caused by defective products because consumers do not have to prove fault on the part of the producer as in negligence. The strict product liability regime has replaced the element of fault

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___with that of the defective product. A finding of defectiveness is a necessary pre___condition for liability.18 In A and Other v National Blood Authority and Anor,19 the ___court held that the advantage of this approach for the individual is that liability ___turns on the existence of a defect alone. ___ However, proving a defect is not an easy task for consumers who have very 6/25 ___limited knowledge of a product. In the case of Foster v Biosil20 and the Austra___lian case Carey-Hazell v Getz Bros and Co21 the courts held that the claimant ___must prove both a defect and that the producer is responsible for the defect. ___This standard of burden of proof is very difficult for the consumers to dis___charge. ___ In Malaysia, there are three types of defect that can give rise to product li- 6/26 ___ability as shown in Table 1. ___ ___ ___Table 1: Type of defect and its explanation ___ EXPLANATION ___TYPE OF DEFECT Occurs when the product design can cause risks to consumers and ___Design defect this defect exists in every product so designed ___ Manufacturing defect Occurs when a product fails to comply with the specifications speci___ fied by the manufacturer and it arises in the manufacturing process ___Warning defect Refers to the failure to give sufficient warning on the label, packaging, ___ or in the manual of the product. Failure to give sufficient warning can also occur when the warnings regarding the product risks are given in ___ small print ___ ___ ___Another element of strict liability which is very much akin to an element of 6/27 ___cause of action in negligence is causation. According to Miller, proving causa___tion is a severe burden on the claimant when such proof turns out to be techni___cally complicated.22 Geoffrey and Robert argue that in practical terms the aboli___tion of the need to prove negligence may often be of limited value because the ___task of proving causation (which still exists) can be difficult.23 Furthermore, ___proving causation will make the litigation very costly and will prolong the pro___ ___ ___18 FS Mokhtar/ R Ismail, Medical Product Liability under the Consumer Protection Act 1999: ___Aims Unmet (2013) 8 (6) The Social Sciences 567. 19 [2001] 3 All ER 289. ___ 20 (2001) 59 BMLR 178. ___21 (2004) FCA 853. ___22 CJ Miller, Product Liability (2nd edn 2004). ___23 W Geoffrey/L Robert, Woodroffe and Lowe’s Consumer Law and Practice (8th edn 2010).

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ceedings, particularly when these involves medical products because this means expert witnesses being called to the court to give evidence.24 Since the liability is strict, not absolute, the CPA 1999 does provide defences for the producer. The defences are provided under sec 72(1) of the CPA 1999. Section 72(1) introduced five defences and these defences are discussed below. Section 72(1)(a) –

the defect is attributable to compliance with any requirement imposed under any written law If the defendant can prove that the defect is due to compliance with any written law, the defendant will not be liable. The defence is only available where such requirement is a mandatory standard. It will not help a defendant where compliance with a standard is only advisory.25 The defendant must be able to prove that the defect was the inevitable consequence of complying with the standard. In Malaysia, in 2009, mandatory standards for toys were prescribed by the Ministry of Domestic Trade, Cooperatives and Consumerism via the Consumer Protection (Safety Standards for Toys) Regulations 2009 which came into force on 30 January 2010. These regulations set out the standards which need to be complied with by producers or importers. The Ministry also enacted the Consumer Protection (Certificate of Approval and Conformity Mark of Safety Standards) Regulations 2010. These regulations came into force on 1 August 2010. Section 72(1)(b) –

the producer did not at any time supply the defective product to another person There are two situations where this defence is applicable. The first situation is where a producer produced a product, such as a car, as a prototype model. If during a test drive it was found that the brake failed to function effectively and as a result the person who drove this prototype car was injured, the producer of the car can rely on this defence. This is because the producer did not at any time supply the defective product to another person. The crucial word here is the word ‘supply’. The word ‘supply’ in relation to goods is defined in sec 3 of the CPA 1999 to mean, to supply or resupply by way of sale, exchange, lease, hire or hire purchase. A prototype model is not meant for sale, exchange, lease, hire or hire purchase. Another situation where this defence is applicable is where a producer produced a machine to be used in his factory and one of his employees is injured due to the defective mechanics of the machine. Again, this producer

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24 For example, see XYZ and Others v Schering Health Care Limited and Others [2002] EWHC 1420 where ten epidemiologists were called to give expert evidence over a period of three months. 25 S Silberstein, Nutshells Consumer Law (2nd edn 1997).

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___can rely on this defence because he did not at any time supply the defective ___product to another person by way of sale, exchange, lease, hire or hire pur___chase. ___ ___Section 72(1)(c) – the defect did not exist in the product at the relevant time ___If a producer is sued under Part X of the CPA 1999, he can exonerate himself ___from liability if he can prove that the defect did not exist in the product at the ___relevant time. The relevant time is defined in sec 72(2)(b)(i) as meaning the time ___when the producer supplied the product to another person. This defence means ___that the producer will not be liable for the defects that arise later in the chain of ___distribution.26 To succeed in this defence, a producer has to prove either of these ___situations: ___i) at the time the product is supplied to another person, such as another sup___ plier or a wholesaler, the defect does not exist. The product becomes defec___ tive after it has left the producer’s control and the defect is due to misuse, ___ wrong installation or mismanagement of others;27 or ___ii) the manufacturing process, quality control system and inspection before ___ delivery show the product was defect-free when it left the producer’s con___ trol and it is shown that there was a later opportunity for the product to ___ have been made defective by someone else.28 ___ ___Section 72(1)(d) – the state of scientific and technical knowledge at the rele___ vant time was not such that a producer of products of the ___ same description as the product in question could rea___ sonably be expected to discover the defect if it had existed ___ in his product while it was under his control ___This defence is also known as the ‘state of the art’ defence. The knowledge here ___refers to the scientific and technical knowledge of all producers of the same ___product at the time of supply, not the subjective knowledge of the individual ___producer.29 The phrase ‘relevant time’ refers to the time when the producer sup___plied the product to another person. If advances in knowledge have occurred ___subsequent to the product leaving the producer’s control, the producer is not li___able for injury or damage caused because the crucial time to determine the liabil___ity is when the producer supplied the product to another person. To rely on this ___ ___ 26 SG Crones/PH Clarke, Consumer Protection and Product Liability – Commentary and Mate___ rials (1997) LB Information Services, Sydney. ___27 CJS Hodges/M Taylor/H Abbott (eds), Product Safety (1st edn 1996). ___28 Aun (fn 5). ___29 Aun (fn 5).

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defence, the producer has to prove not just that he could not detect the defect based on the current scientific and technical knowledge at the time, but that other producers of products of the same description also could not detect the defect. This defence requires the producer to have the same level of knowledge as other producers who produce products of the same description. If the level of knowledge of the producer in question is higher than the level of knowledge of other producers who produce products of the same description, this will not be taken into account. However, if the level of knowledge of the producer in question is lower than the level of knowledge of other producers who produce products of the same description, this will not be considered either. In the case of A and others v National Blood Authority, the defendant argued that the scientific and technical knowledge at that time meant it was not able to detect Hepatitis C in blood. However, the court ruled that the risk of blood being contaminated with Hepatitis C virus was a risk which was already known although the defendant failed to detect the virus. Therefore, based on A and others v National Blood Authority, the defence ceases to apply once the risk is known in the industry.30 Section 72(1)(e) – that the defect – (i) is a defect in a product in which the product in question is comprised (the ‘subsequent product’); and (ii) is wholly attributable to(A) the design of the subsequent product; or (B) compliance by the producer of the product in question with instructions given by the producer of the subsequent product. The ‘subsequent product’ refers to the finished or final product. This defence is useful to a component producer. If a component product causes damage or injury, and the defect in the final product was due to the defective component part, the component producer may raise a defence that the defect was due to compliance with the instructions given by the producer of the product of which the component was part. Although the CPA 1999 has been in force for almost sixteen years, unfortunately, until now, in Malaysia, there has been no case brought under Part X of the CPA 1999. Therefore, it is not known how the Malaysian judges or courts will interpret Part X of the CPA 1999. Based on the judicial experience in other areas of law, the judges in Malaysia tend to follow United Kingdom cases in interpret-

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___ing the provisions in legislation which is modelled on United Kingdom legisla___tion. Besides that, cases from Australia and other common law jurisdictions are ___also relied on by the Malaysian judges. Therefore, it is submitted that when ___there is a case on Part X of the Consumer Protection Act 1999, Malaysian judges ___will interpret the provisions in Part X based on United Kingdom cases and cases ___in other common law jurisdictions. ___ ___ ___ Part II: Cases ___ ___ ___Case 1: Brake Pad Failure ___ X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, ___ which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and gener___ ally more effective alternative to traditional materials. X Ltd was aware of a very small risk ___ that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it consid___ ered that the risk was likely to eventuate only very rarely and did not outweigh the general ___ advantages of the new material. It included a statement about the possibility of failure in ___ the small print of the product instructions supplied with all of its bicycles incorporating ___ the new brake pads. A, who purchased one of the bicycles, is one of a handful of people ___ injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also ___ damaged. B, a passer-by, is injured in the same accident. What is X Ltd’s liability to A and B? Pay particular attention to the various possible ___ bases of liability (a general tortious liability for fault, vicarious liability, contractual liabil___ ity, or a special strict liability regime?). Would it make any difference to your analysis if Y, ___ who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independ___ ent research contractor, had covered up the risk that the new brake-pad material might ___ fail? ___ ___ ___A. Tort Liability ___ ___1. X Ltd’s liability to A ___ ___The case in point is the case of Donoghue v Stevenson31 where Lord Atkin laid 6/40 ___down the formulation of the ‘neighbour principle’. In determining the existence ___of the duty of care under the law of negligence, it is necessary to show that A is ___within the range of foreseeable persons likely to be injured by the defective ___ ___ ___31 [1932] AC 562 at 580 (HL).

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product, namely the bicycle. Lord Atkin states that ‘…a manufacturer of products, which he sells in such a form to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with the knowledge that the absence of reasonable care in the preparation or putting up of the products will result in an injury to the consumer’s life or property, owes a duty to take that reasonable care’. Hence, X Ltd owes a duty of care to A. The Donoghue v Stevenson principle has been accepted and approved in various cases in Malaysia such as Sathu v Hawthorden Rubber Estate Co Ltd32 and Lok Kwan Moi & Others v Ramli bin Jamil & Others & Government of Malaysia.33 After establishing that there is a duty of care to both A and B, the next question to consider is whether X Ltd has breached that duty. Since X Ltd supplied the defective brake pad, below the minimum standard of care required by the law, A and B can claim compensation for personal injuries suffered as well as the damage to the bicycle. There is no question that A has been guilty of any contributory negligence. Therefore, X Ltd is liable to A in the tort of negligence for the physical injury A has suffered. The other issue is whether A can also claim damages for his property, namely his bicycle. The principle in Donoghue v Stevenson does not allow a claim for damage to the bicycle itself because this is regarded as pure economic loss.34 In Malaysia claims for pure economic loss are allowed for a defective building provided that the loss is foreseeable.35 Therefore, it is submitted that claims for defective goods might be allowed in Malaysia if the courts are prepared to apply the same principle as for defective buildings. If this is the case, there is a possibility that A could succeed in his claim for damage to the bicycle.

2. X Ltd’s liability to B Although B is a passer-by, nonetheless he can still claim under the tort of negligence because the manufacturer (X Ltd) must take reasonable care to avoid acts or omissions that it can reasonably foresee would be likely to injure persons who are closely and directly affected by the brake pad failure. ‘Closely’ refers to the foresight of a reasonable man, who would be able to foresee that B will be

_____ 32 [1961] MLJ 318 33 [1984] 1 MLJ 46. 34 Murphy v Brentwood District Council [1990] 2 All ER 908 and Caparo Industries Plc Dickman [1989]1 All ER 798. 35 Steven Phoa Cheng Loon & 72 Others v Highland Properties Sdn Bhd & 9 Others [2000] 3 AMR 3567.

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___affected by the brake pad failure because he is a pedestrian involved in the ___same accident. ___ ___ ___3. A’s liability to B ___ ___In this case, the issue is whether B, a passer-by, can sue A for injuries sustained ___as a result of the accident under the tort of negligence. Using the neighbour ___principle as the objective test, A has a duty to ride with care and skill so that no ___one is injured.36 However due to the defective brake pad, B was injured as a re___sult of the collision. Assuming there was no negligence on the part of A, the ___claim against A will fail because there has been no breach of duty by A. ___ ___ ___4. Y, an employee researcher in X Ltd’s laboratory ___ ___Since Y is an employee of X Ltd, X Ltd is liable for the torts of Y committed in the ___course of his employment. Policy dictates that the employer should be liable ___even for unauthorized acts of his employee since this is a contract of service.37 ___The fact that Y did not disclose the risk to the employer would be considered as ___Y being careless in the performance of his job, however the special relationship ___between employer and employee remains, meaning X Ltd would be vicariously ___liable for the negligent act of Y. ___ ___ ___5. M, an independent research contractor ___ ___X Ltd is not liable for the negligent act of M since he is an independent research ___contractor who is employed under a contract for service. ___ ___ ___B. Contractual Liability ___ ___1. X Ltd’s contractual liability to A ___ ___As a trader, X Ltd’s liability under the law of sale of goods in Malaysia, and in the ___context of the ‘Brake Pad Failure’ case, is governed by two statutes of a different ___ ___36 Kuala Lumpur Finance Bhd v KGV Associates Sdn Bhd [1995] 1 MLJ 504. ___37 Bahjaraj Kasinathen v Nagarajan Verapan & Anor [2001] 3AMR 3260.

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nature, namely the Sale of Goods Act 1957 and the Consumer Protection Act 1999. Upholding the doctrine of freedom of contract and privity of contract, the Sale of Goods Act 1957 provides for both the obligations of the seller and buyer. The Consumer Protection Act 1999, being a consumer oriented piece of legislation, upholds the consumer welfarism ideology and thus provides for the protection of consumers in trade. The Consumer Protection Act 1999 provides for rights against suppliers as well as against manufacturers in respect of guarantees in the supply of goods. The 1999 Act has to a certain extent set aside the doctrine of privity by allowing recourse against manufacturers under a contract for the supply of goods. a) Sale of Goods Act 1957 In the context of the ‘Brake Pad Failure’ case, A would only have recourse against X Ltd under the Sale of Goods Act 1957 if A bought the bicycle from X Ltd. Thus, in this context, X Ltd is not only the manufacturer but also the seller of the bicycle to A. The Sale of Goods Act 1957 only governs the relationship between seller and buyer. The Malaysian Sale of Goods Act 1957 contains several provisions on the obligations of sellers, such as X Ltd, under a contract for the sale of goods. The obligations of X Ltd as the seller of the bicycle are provided for in secs 12–17 of the 1957 Act. These implied terms38 are designed to ensure that buyers receive certain basic benefits from the sale transaction. From the material facts of the ‘Brake Pad Failure’ case, the main causes of action which A as a purchaser of the bicycle has against X Ltd would be provided for under: 1. Section 16(1)(a) – Implied condition39 as to fitness for the particular purpose; and 2. Section 16(1)(b) – Implied condition as to merchantable quality. Section 16(1)(a) – Implied condition as to fitness for the particular purpose Section 16(1)(a) provides that there is an implied condition that the goods shall be reasonably fit for the particular purpose for which they were bought:

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38 Implied terms are terms in a contract that are not directly stated in writing or in spoken words but are introduced into the contract (1) by the courts as necessary to give effect to the obvious intentions of the contracting parties, or (2) by a statute such as Sale of Goods Act, or (3) by usage of customs. 39 Under sec 12(2) of the Sale of Goods Act 1957, a ‘condition’ is ‘a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.’ ‘Implied condition’ is thus an essential term in a contract that is not directly stated in writing or in spoken words but is introduced into the Sale of Goods contract by legislation.

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___i) Where the buyer, expressly or impliedly, makes known to the seller the par___ ticular purpose for which the goods are required, so as to show that the ___ buyer relies on the seller’s skill and judgement, and ___ii) the goods bought are of the description of those which the seller is in the ___ course of business to supply.40 ___ The burden of proof is on A to show that he has made known the purpose to 6/51 ___ X Ltd. In the ‘Brake Pad Failure’ case, X Ltd’s knowledge of the purpose is im___ ___plied if A requires the good for its obvious purpose. A need not expressly state ___the purpose as X Ltd is taken to have known this obvious purpose.41 The second ___requirement is the need to show that there was reliance on X Ltd’s skill or judge___ment, either expressly or by implication. Judicial authorities are in general ___agreement with the view that reliance on the seller’s skill or judgement is a mat___ter of reasonable inference from the circumstances of the case. In consumer ___sales, normally the courts have been ready to infer reliance.42 The third re___quirement is that the goods must be of a description of those sold by the seller.43 ___From the material facts of the ‘Brake Pad Failure’ case, if X Ltd sold the bicycle ___to A, X Ltd is liable under sec 16(1)(a) for supplying to A a bicycle with defective ___brake pads. Breach of the condition implied by sec 16(1)(a) of the Sale of Goods Act 1957 6/52 ___ ___entitles A to repudiate the contract and claim for damages.44 A shall be able to ___reject the goods45 and claim for the price paid under sec 55 of the 1957 Act. The ___measure of damages under Malaysian law is governed by sec 74 of the Contracts ___Act 1950. Section 74(1) of the Contracts Act 1950 is the statutory enunciation of ___ ___ ___40 This phrase has been read widely to mean that the goods are of a kind which it is in the ___course of the seller’s business to supply. Hilbery J in Spencer Trading Co Ltd v Devon [1947] 1 All ___ER 284 stated that goods are ‘of a description which it is in the seller’s business to supply’ if ___they fall within the general description of the goods supplied by the seller, although in this par___ticular case they take a special form or are designed for a special use. 41 Preist v Last [1903] 2 KB 148; Grant v Australian Knitting Mills [1936] AC 85; Union Alloy (M) ___ Sdn Bhd v Sy Pembinaan Yeoh Tiong Lay Sdn Bhd [1993] 3 MLJ 190. ___42 Lord Wright in Grant v Australian Knitting Mills [1936] AC 85; Lord Reid in Henry Kendall & ___Sons v William Lillico & Sons [1968] 2 All ER 444. ___43 Spencer Trading Co Ltd v Devon [1947] 1 All ER 284; Christopher Hill Ltd v Ashington Pigger___ies [1969] 3 All ER 1496. 44 Section 12(2) and Khong Seng v Ng Teong Kiat Biscuit Factory Ltd [1963] MLJ 388 Gill J. ___ 45 ‘Rejection’ of goods means the non-acceptance of the goods by the buyer upon delivery due ___to breach of an essential term of the contract. The right of rejection may only be exercised by ___the buyer in cases of a breach of condition. Rejection is performed by the buyer intimating to ___the seller unambiguously that he refuses to accept the goods.

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the rule in Hadley v Baxendale.46 In essence, the test for whether damages are too remote47 is in two parts. The first measure is objective, determined according to what loss is a natural consequence of the breach. The second measure is subjective and is based on the specific knowledge of potential losses that is in the minds of both parties at the time the contract is formed.48 (2) Section 16(1)(b) – Implied condition as to merchantable quality Section 16(1)(b) provides that where goods are bought by description from a seller who deals in goods of that description,49 there is an implied condition that the goods shall be of merchantable quality. The 1957 Act however does not define the term ‘merchantable quality’. In dealing with cases under sec 16(1)(b), Malaysian judges have turned to the common law tests in interpreting the term; 50 the ‘usability’ test, ie that goods to be of merchantable quality must be usable for at least one use to which goods of that description are commonly put, and the ‘acceptability’ test, ie that goods should be in such a state that a buyer fully acquainted with the facts and therefore knowing what hidden defects exist (and not only defects apparent from the condition of the goods) would buy them without abatement of the price obtainable for such goods if in reasonable sound order and condition and without special terms.51 As regards the ‘Brake Pad Failure’ case, using the usability test (the test which is commonly used by Malaysian judges under sec 16[1][b]) X Ltd is in breach of the implied condition in sec 16(1)(b) for selling a bicycle with a defective brake pad. Under sec 12(2) of the Sale of Goods Act 1957, where there is a breach of an implied condition, the breach gives rise to a right to treat the contract as repudiated. Breach of the condition implied by sec 16(1)(b) of the Sale of Goods Act

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46 (1854) 9 Exch 341. 47 ‘Remoteness’ is a set of rules in both tort and contract which limits the amount of compensatory damages for a wrong. 48 C Turner, Unlocking Contract Law (2007). 49 The phrase seems to suggest that the goods must be of a description which the seller actually deals in. As such this section is limited to sellers actually dealing in those goods. However, the question is not unequivocally resolved. The majority of the House of Lords in Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441, took a wider view that as long as the seller dealt with goods of that kind, it did not matter that he has not dealt in goods of the contract description. Consequently, in this case, because the seller’s business was to make animal foods, the section was held to apply even though the seller had never made mink food before. 50 Henry Kendall & Sons v William Lillico & Sons [1969] 2 AC 31; Cammell Laird & Co v Manganese Bronze & Brass Co [1934] AC 402; Bristol Tramways Co Ltd v Fiat Motors Ltd [1910] 2 KB 831. 51 Khong Seng v Ng Teong Kiat Biscuit Factory Ltd [1963] MLJ 388 Gill J. Buyer knowing of the defect would still buy the goods at the same price and would not attach any other condition to him buying than if the goods are in good condition.

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___1957 entitles A to repudiate the contract and claim for damages.52 As such, A ___may exercise his right to reject the bicycle and claim for the price paid under ___sec 55 of the 1957 Act. As noted above, the measure of damages under Malaysian ___law is governed by sec 74 of the Contracts Act 1950. ___ ___ ___b) Sale of Goods Act 1957 – Section 16(1)(a), (b) and warnings and instructions ___ ___Instructions on the use of goods can be taken into account in considering 6/56 ___whether goods are fit for the purpose for which they were supplied or of mer___chantable quality. When dangerous substances are supplied by the seller, they ___may not be reasonably fit for their purpose or of merchantable quality unless an ___appropriate warning accompanies them. In certain circumstances, adequate ___warning or instruction given by the seller is enough to discharge his duty.53 ___Therefore, if the instructions gave a clear warning of the dangers of the goods to ___the buyer, the buyer cannot later complain that the goods are unfit or unmer___chantable. The seller on the other hand may be liable because the goods are ___supplied with inadequate information, warnings or instructions. The warning ___given in small print by X Ltd may lead to the bicycle sold with the defective ___brake pad to be held not to be reasonably fit for the particular purpose or to be ___of unmerchantable quality as the warning was inadequately provided by X Ltd. ___ ___ ___c) Consumer Protection Act 1999 ___ ___Parts V, VI and VII of the Malaysian Consumer Protection Act 1999 provide for 6/57 ___additional consumer protection in respect of the supply of goods. The Act con___tains provisions similar to Parts I, II and III of the New Zealand Consumer Guar___antees Act 1993. The 1999 Act has an impact on both suppliers and manufac___turers. Parts V and VI create rights against suppliers, whilst Part VII creates ___rights against manufacturers. As a consumer (sec 3 of the Consumer Protection ___Act 1999), A is entitled to claim against X Ltd as the supplier of the bicycle under ___Parts V and VI or under Part VII against X Ltd as the manufacturer of the bicy___cle. ___ ___ ___ ___ ___52 Section 12(2); Khong Seng v Ng Teong Kiat Biscuit Factory Ltd [1963] MLJ 388 Gill J. ___53 Wormell v RHM Agriculture East Ltd [1987] 3 All ER 75.

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d) Consumer’s rights against suppliers Parts V and VI of the Consumer Protection Act 1999 are applicable only if X Ltd is the supplier of the bicycle (sec 3 of the Consumer Protection Act 1999). By supplying a bicycle with a defective brake pad, X Ltd may be held liable under sec 32: Implied guarantee as to acceptable quality. Section 32 introduces a new standard of quality in supply of goods. The concept of ‘acceptable quality’ incorporates factors relevant in considering ‘merchantable quality’ under the Sale of Goods Act 1957. Under sec 32(2), goods shall be deemed to be of acceptable quality if they are (i) fit for all the purposes for which goods of that type are commonly supplied; (ii) acceptable in appearance and finish; (iii) free from minor defects; (iv) safe; and (v) durable. In assessing acceptable quality, regard should be had to the nature of the goods, the price, any statements made about the goods on any packaging or label on the goods, any representation made about the goods by the supplier or manufacturer, and all other relevant circumstances surrounding the supply of goods. By supplying a bicycle with a defective brake pad, X Ltd may also be liable under sec 33: Implied guarantee as to fitness for the particular purpose. Section 33 reproduces a substantial part of sec 16 of the Sale of Goods Act 1957. It states that where goods are supplied to a consumer, there shall be an implied guarantee that the goods are reasonably fit for any particular purpose that the consumer makes known, expressly or by implication, to the supplier, and that the goods are reasonably fit for any particular purpose for which the supplier represents that they are or will be fit. This provision does not however apply where circumstances show that the consumer does not rely on the supplier’s skill or judgement; or it is unreasonable for the consumer to rely on the supplier’s skill or judgement. A’s remedy against X Ltd for supplying a bicycle with a defective brake pad is provided for under Part VI of the 1999 Act. Based on sec 41 of the Act, A’s remedy would depend on whether the failure is one that can be remedied or the failure is one that cannot be remedied or is of a substantial character. In accordance with sec 44, the failure shall only be regarded as substantial if the bicycle with brake pad failure is not of acceptable quality within the meaning of sec 32 because it is unsafe or substantially unfit for the purpose for which goods of the type in question are commonly supplied. It would appear from the material facts that the defect of the bicycle can be remedied. As such, A may require X Ltd to remedy the failure within a reasonable time in accordance with sec 42 of the Act.

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___e) Consumer’s rights against manufacturers ___ ___The uniqueness of the Consumer Protection Act 1999 lies in the right given to 6/61 ___consumers in Part VII against manufacturers in respect of guarantees in the ___supply of goods. In this respect, the 1999 Act abolishes to a certain extent the ___antiquated or unjust doctrine of privity of contract.54 With the coming into force ___of the 1999 Act, a consumer now has a right of redress against a manufacturer ___who supplies goods which are to be sold when goods fail to comply with certain ___implied guarantees irrespective of the existence of a contract between the con___sumer and the manufacturer. Section 50 of the 1999 Act gives a consumer a right ___of redress against a manufacturer of goods where goods fail to comply with the ___implied guarantee as to acceptable quality, description, repairs and spare parts, ___and the express guarantee given by the manufacturer that is binding on the ___manufacturer in accordance with sec 38. For the purposes of sec 38, ‘express ___guarantee’, in relation to any goods, means an undertaking, assertion or repre___sentation in relation to: ___(a) the quality, performance or characteristics of the goods; ___(b) the provision of services that are or may at any time be required in respect ___ of the goods; ___(c) the supply of parts that are or may at any time be required for the goods; ___(d) the future availability of the identical goods, or of goods constituting or for___ ming part of a set of which the goods in relation to which the undertaking, ___ assertion or representation is given or made form part; or ___(e) the return of money or other consideration should the goods not meet any ___ undertaking by the guarantor. ___ ___ In the case of the ‘Brake Pad Failure’, X Ltd is liable under sec 50(a) of the 6/62 ___1999 Act because the bicycle is not of acceptable quality. Under sec 52, A may ___obtain damages from X Ltd for the reduction in the value of goods resulting ___from the X Ltd’s failure, namely, the reduction below the price paid or payable ___by the consumer for the goods because the bicycle is not of acceptable quality, ___or the reduction below the average retail price of the goods at the time of sup___ply, whichever is lower. A may also obtain compensation for any loss or damage ___to him resulting from X Ltd’s failure, other than loss or damage through the re___duction in the value of the goods, which is proved to be a result or consequence ___of the failure (such as his physical injury) ___ ___ ___ ___54 Yusoff (fn 3).

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2. X Ltd’s contractual liability to B No contractual liability exists towards B as there is no contract between X Ltd and B. The doctrine of privity governs this situation.

C. Strict Product Liability 1. X Ltd’s liability to A It is highly probable that X Ltd, as a manufacturer55 of the bicycle, will be liable to A. The bicycle is a ‘product’ under sec 66 of the Consumer Protection Act 1999. The material used for the brake pad is also a ‘product’ under sec 66 because the brake pad is comprised in the bicycle. A also must satisfy the definition of a ‘consumer’ under sec 3 of the Consumer Protection Act 1999.56 From the facts of the case, A will have no problem satisfying the definition of a consumer because A acquired or used the bicycle which is of a kind ordinarily acquired for a personal, domestic or household purpose, use or consumption. In order to make X Ltd liable to A, all the elements stated in sec 68(1) of the Consumer Protection Act 1999 must be fulfilled, namely, defective product, damage and causation. In this case, the bicycle is defective because the safety of the bicycle is not such as a person is generally entitled to expect.57 The expectation test does not refer to the expectation of an individual, but the expectation of the public at large.58 Logically, consumers will expect that the bicycle they purchase is safe and free from defects otherwise they would not have purchased it. As stated in sec 67(4), the safety in relation to a product shall include ‘safety with respect to products comprised therein.’ In this case, the brake pad is comprised in the bicycle, therefore the consumers expect this brake pad to be safe. This brake pad has caused damage in the form of personal injury to

_____ 55 Consumer Protection Act 1999, sec 66(1). 56 Section 3 provides that ‘consumer’ means a person who acquires or uses goods or services of a kind ordinarily acquired for personal, domestic or household purpose, use or consumption; and does nor acquire or use the goods or services, or hold himself out as acquiring or using the goods or services, primarily for the purpose of (i) resupplying them in trade; (ii) consuming them in the course of a manufacturing process; or (iii) in the case of goods, repairing or treating, in trade, other goods or fixtures on land. 57 Consumer Protection Act 1999, sec 67(1). 58 A v National Blood Authority (2001) All ER 289; A Grubb, The Law of Product Liability (2nd edn 2007).

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___A. It is submitted that A is able to prove the elements stated in sec 68(1). The de___fect in this case refers to design. ___ However, X Ltd might argue that there is no defect because they put a 6/65 ___warning on the bicycle. Therefore the injury is attributable to A for not observ___ing the warning given. However, as the warning is given in the small print by ___X Ltd, this will not be sufficient to release X Ltd from liability because in de___termining what a person is entitled to expect, matters such as instructions or ___warnings in relation to the product will be taken into account as stated in ___sec 67(2)(d). The consumer will not expect that a warning regarding the possi___bility of brake pad failure, which would cause damage, will be given in the ___small print. The consumer will expect that this important warning is given in a ___size which can be easily seen by the consumer and is put in a place which can ___be easily seen by the consumer. Taking into account the size of the warning, it ___is contended that there is a defect in the warning which makes the bicycle de___fective. X Ltd may be exonerated from liability if X Ltd has given a clear warn___ing and the warning is given in a size which can be easily seen by the con___sumer. ___ As far as the remedy is concerned, A will be able to claim a remedy for the 6/66 ___personal injury suffered. Damage to the bicycle is non-claimable because of ___sec 69(1)(a) of the Consumer Protection Act 1999. Section 69(1)(a) clearly states ___that damage to the product itself cannot be claimed under Part X of the Con___sumer Protection Act 1999. ___ ___ ___2. X Ltd’s liability to B ___ ___It is difficult for B to claim under Part X of the Consumer Protection Act 1999. 6/67 ___The Consumer Protection Act 1999 only recognises a claim made by a consumer. ___A ‘consumer’ is defined under sec 3 of the Consumer Protection Act 1999 as a ___buyer or user of the product. B is not a buyer or user of the product. B is merely ___a passer-by. B has no claim under Part X of the Consumer Protection Act 1999 ___against X Ltd. ___ ___ ___Case 2: Infected Blood ___ ___A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had collected ___it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. At the time, the ___risk of Hepatitis N in donated blood had been identified in a single published paper in a scien___tific journal, but only a handful of research laboratories in the world had the capacity to test for

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its presence in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the condition’s existence came to be generally accepted and that a test was developed that allowed hospitals and blood suppliers to screen out infected parcels of blood. What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if A contracted the virus as the result of a blood transfusion conducted in 2001, but her condition only manifested itself in 2012? (In this context, consider in particular differences in the time limits applied to the various possible bases of liability.)

A. Tort Liability The issue is whether A can claim under the tort of negligence against X hospital for contracting Hepatitis N as a result of the blood transfusion. The concept of foreseeability is the foundation of the neighbour principle, so the question is whether A falls within the scope of the foreseeable potential victim.59 Looking at the facts of the case, Hepatitis N was a remote risk as the majority of the scientific community did not believe that the condition really existed. Following this line of argument, it is highly improbable that X hospital should be made liable. The legal position is similar in the case of Y Ltd and Z. If a claim could be made, there is no difficulty with the limitation period. Section 6(1) of the Limitation Act 1953 states that in actions founded on tort, actions shall not be brought after the expiration of 6 years after which the cause of action accrued. A cause of action does not accrue until the plaintiff becomes aware that she or he has suffered an injury. In this case, the cause of action accrued in 2012 when the effect of the blood transfusion, which contained the Hepatitis N virus, manifested. As such, the action is not time barred.

B. Contract Liability The law has distinguished between contracts for the sale of goods and contracts for the supply of services. Contracts for professional services are plainly a contract for services. However, the position of goods supplied under this kind of contract has led to questions as to whether the supply of such goods could also fall under sale of goods legislation. In this area, Malaysian judges have followed

_____ 59 Bourhill v Young [1943] AC 92.

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___the English decisions in deciding whether goods supplied under contracts for ___services could also give rise to claims under the Sale of Goods Act 1957. ___ It has never been suggested in England that a doctor or hospital which sup- 6/71 ___plied drugs to a patient (even a paying patient) could be held liable if the drugs, ___despite all reasonable care, turned out to be unfit for their purpose; nor has it ___ever been suggested that a patient inoculated with some contaminated vaccine ___could sue for breach of implied warranty of fitness, as opposed to suing for neg___ligence.60 Similarly, it has never been suggested that a patient who receives a ___transfusion of contaminated blood could sue the supplier (even if he is a paying ___patient and a contract can be established) on the basis of implied warranty un___der a contract of sale of goods.61 ___ The Malaysian Sale of Goods Act 1957 is inapplicable in this case as the 6/72 ___supply of infected blood is not regarded as supply of ‘goods’ within sec 2 of the ___1957 Act. This transaction does not fall under the Consumer Protection Act 1999 ___either as the 1999 Act has excluded from its ambit services provided by profes___sionals who are regulated by any written law, or healthcare services provided or ___to be provided by healthcare professionals or healthcare facilities.62 ___ ___ ___C. Strict Product Liability ___ ___1. X Hospital’s liability to A ___ ___The service provided by X Hospital to A falls under contract for the supply of 6/73 ___services. The Consumer Protection Act 1999 regulates contract for the supply of ___services in Part VIII and IX. However, as far as the application of the Act to ser___vices is concerned, sec 2(2) states that the Act, amongst others, does not apply ___to services provided or to be provided by professionals who are regulated by any ___written law or healthcare services provided or to be provided by healthcare pro___fessionals or healthcare facilities. In Malaysia, services provided by doctors and ___hospitals are governed by the law of negligence and medical statutes. ___ ___ ___ ___ ___ 60 PS Atiyah et al, Atiyah’s Sale of Goods (2010). See for example: Roe v Minister of Health ___ [1954] 2 All ER 131. ___61 Perlmutter v Beth David Hospital (1955) 123 NE 2d 792 (NY CA); Dodd v Wilson [1946] 2 All ER ___691. ___62 Section 2(2)(e) and (f).

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2. Y Ltd’s liability to A (Y Ltd as a supplier of the blood) There is no issue under the provisions of strict product liability under Part X of the Consumer Protection Act 1999. Part X is not intended to impose liability on the supplier except when the supplier fails to fullfill, within reasonable time, the request made by the consumer under sec 68(2). Section 68(2) provides that the consumer may make a request to the supplier to identify persons liable for the damage. In this case Y Ltd is the supplier of the blood used in the blood transfusion.

3. Y Ltd’s liability to A (Y Ltd as a producer of the blood) Since Y Ltd obtains the blood from a donor, there is a possibility that Y Ltd is a producer of the blood. Y Ltd might fall within the meaning of producer under paragraph (c) in sec 66(1) of the Consumer Protection Act 1999. When the blood is obtained from a donor, Y Ltd will carry out certain processes at least for the safekeeping of the blood. This will make Y Ltd a person who carried this out and the status of Y Ltd will fall under paragraph (c) which reads as follows: ‘(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.’ Assuming Y Ltd is a producer, according to the case of A v National Blood Authority, blood is a good because blood is primarily purchased, used or consumed for personal purposes. The decision of A v National Blood Authority on the definition of goods should be treated with caution in Malaysia. This is because the definition of ‘goods’ in the CPA 1999 does not include ‘substances’. The Consumer Protection Act 1987 of the United Kingdom does include the word ‘substances’ in its definition of ‘goods’. If it is assumed that ‘blood’ falls under the definition of ‘goods’, then A has to fulfill the definition of a ‘consumer’ under sec 3 of the CPA 1999. It is submitted that A has no difficulty to satisfy the definition of a consumer under the CPA 1999. It is also submitted that the blood is defective because the safety of the blood is not such as a person is generally entitled to expect. Consumers do not expect that the blood would contain Hepatitis N virus. The fact that the blood contains N virus shows that the blood is defective. Consumers reasonably expect that Y Ltd will do something in relation to the blood to ensure that the blood is not contaminated with any virus because it would affect the consumers’

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___health. The failure of Y Ltd to carry out this task has caused the blood to be defec___tive. Therefore Y Ltd is liable to A as a producer of the blood. ___ There is a possibility that Y Ltd will rely on the defence stated in sec 72(1)(d). 6/77 ___Y Ltd would argue that the scientific and technical knowledge at the time of ___supply meant the majority of the scientifc community did not believe that the ___condition (Hepatitis N) really existed. Therefore, the act of Y Ltd in not testing ___the blood for Hepatitis N does not make the product defective since at the rele___vant time ie when the blood was supplied to X Hospital, the majority of the sci___entific community did not believe in the existence of Hepatitis N. The defence in ___sec 72(1)(d) requires an assessment of the state of scientific and technical ___knowledge of all producers of the same products. Whether the scientific and ___technical knowledge of the majority of the scientific community is enough to ___satisfy the requirements of the defence remains an open question in Malaysia. ___ ___ ___Case 3: Bridge Collapse ___ ___A, a pedestrian using a public right of way, is injured by the collapse of a bridge constructed by ___X Ltd on land belonging to Y, who commissioned the construction, on the basis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires that Z’s plan was de___fective and caused the collapse. Y incurs the cost of instructing a different architect to redesign ___the bridge. Under the terms of its initial engagement, X Ltd is obliged to construct the new ___bridge for no additional remuneration. What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and ___ so subject to strict product liability, or does it merely represent the performance by Z of a ser___ vice, to which some alternative liability regime applies? ___ What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a direct ___claim or a recourse action? ___ ___ ___A. Tort Liability ___ ___1. X Ltd, Y and Z’s liabilities to A ___ ___Applying the neighbour principle and the foreseeability test, A can sue all 3 par- 6/78 ___ties involved, namely X Ltd, Y and the architect Z for causing injuries due to the ___collapsed bridge. The court will decide in terms of the apportionment of liabili___ties and compensation to be awarded to A. Both X Ltd and Y can claim indem___nity from Z once it is established that Z’s plan caused the collapse. ___ ___ ___

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2. Z’s liability to X Ltd & Y Both X Ltd and Y can also claim against Z for losses incurred due to the defective design under the tort of negligence.

B. Contract Liability A contractual relationship exists between X Ltd and Y and between Y and Z. Y has entered into a contract for services with X Ltd and Z. Contracts for professional services are plainly contracts for services. In Malaysia, professional services are governed by their specific legislation. However, the position of ‘goods’ supplied under this kind of contract has led to questions on whether the supply of such ‘goods’ could also fall under sale of goods. In this area, the Malaysian judges have followed the English judicial decisions in deciding whether goods supplied under contracts for services could also give rise to claims under the Sale of Goods Act 1957. The Malaysian Sale of Goods Act 1957 is inapplicable to the contract between X Ltd and Y as the construction of the bridge by X Ltd is not regarded as a supply of ‘goods’ within sec 2 of the 1957 Act but rather as a contract for services. The defective plan drawn up by Z the architect does not fall under the Consumer Protection Act 1999 as the 1999 Act has excluded from its ambit professional contracts regulated by written law.63

C. Strict Product Liability This incident does not fall under the strict product liability regime under Part X of the Consumer Protection Act 1999 because it does not concern a ‘product’. The liability under Part X of the Consumer Protection Act 1999 deals with liability for products. The issue in this case is more a service provided by X Ltd and Z to Y. Furthermore, the architectural plan in this case is not a ‘product’ as defined under sec 66 of the Consumer Protection Act 1999.

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___Alexander Yagelnitskiy and Olesya Petrol* ___ ___ ___Alexander Yagelnitskiy and Olesya Petrol Product Liability in Russia https://doi.org/10.1515/9783110547559-009 ___Contents ___Part I: General Questions | 147 I. Law of Damages in General | 147 ___ II. Legislative Evolution | 150 ___ III. Product Liability Law in the Law of Damages | 155 ___ IV. Outline of the Product Liability Regime | 156 ___ V. Justification for Strict Liability | 164 ___ ___Part II: Cases | 166 Case 1: Brake Pad Failure | 166 ___ Case 2: Infected Blood | 169 ___ Case 3: Bridge Collapse | 175 ___ ___ ___ ___Part I: General Questions ___ ___I. Law of Damages in General ___ ___The most general rule on compensation for damage under Russian law is set in 7/1 ___art 15 of the Russian Civil Code (hereinafter – the Civil Code): ___ ___ ‘Article 15. Compensation for Damage1 ___ ___ 1. A person, whose right is infringed, is entitled to claim compensation for ___ damage caused to him in full, if the law or the contract does not provide for ___ a reduced amount of compensation.’ ___ ___ The cited rule constitutes an umbrella rule for compensation of any damage 7/2 ___(subject to lex specialis) whether it falls within the scope of tort law, contract ___law or somewhere in the grey zone between them. The difference between ___ ___ ___* The authors express their great gratitude to Prof Dr Kirill Trofimov, who prepared the first draft of a national report on product liability for Russia but, unfortunately and unexpectedly, ___ passed away before it could be completed. Developments of the black-letter and case law in ___Russia made it impossible to use the wording of his first draft, but we have tried to encompass ___his ideas. ___1 Translation of the laws cited in this report was undertaken by the authors hereof.

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contract and tort law is drawn, quite formally, by a residual principle. When the parties are bound by a contract, liability is determined by contract law. If there is no contract, tort law applies. Post-Soviet Russian law is new and still developing and areas on the borderline between tort and contract law, such as Schikaneverbot (prohibition of chicanery), pure economic losses, culpa in contrahendo (misrepresentation during contract negotiations), contracts with a protective purpose in favour of third parties, and others are not yet settled and located in private law. Being a general rule, art 15 does not, however, clarify the conditions of liability and must be read together with the provisions of tort and contract law. To turn to the conditions for liability under contract law we refer to art 401 of the Civil Code: ‘Article 401. Grounds for Liability for the Breach of Obligation 1. A person, who failed to perform an obligation or performed it improperly, is liable if he is at fault (in the form of intent or negligence) unless the law or the contract provides otherwise. A person is considered not to be at fault if given the degree of care and diligence required according to the nature of the obligation and circumstances of the trade, he undertook all measures for the proper performance of the obligation.’ Four conditions of contractual liability for damage flow from this provision: damage, wrongfulness, causation and fault. To briefly explain the meaning of these elements: Damage means actual losses (decrease in the claimant’s patrimony) or loss of profit (art 15 of the Civil Code). Wrongfulness means violation of a contractual obligation. The meaning of causation is not further specified; hence, courts determine its existence case-by-case based on common sense rather than on a doctrinal rule. Fault is understood objectively: The breaching party is at fault if the degree of care and diligence required under the circumstances is not met.2 The claimant must prove damage, wrongfulness and causation. Proving wrongfulness means demonstrating the existence of a contractual obligation to

_____ 2 Few authors mention any difficulty with distinguishing ‘objective’ fault from wrongfulness in contract law (eg OA Kuznetsova, Otvetstvennost’ za narusheniye dogovora i predstoyashchiye izmeneniya GK RF [Liability for breach of contract and the upcoming change of the Civil Code of the Russian Federation], Yurist 2013, No 10, 3–7); however, mainstream legal studies and case law follow the fault/wrongfulness distinction.

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___act in a certain way (eg to prove that all the conditions required for an obligation ___to arise were actually met) and the defendant’s failure to comply with that obliga___tion. Fault is presumed; the burden of proving otherwise is placed on the defen___dant. Where the three conditions of liability are met, a defendant can neverthe___less avoid liability if he proves he was not at fault. In business contracts, fault is ___irrelevant and the only exemption available is force majeure. ___ The conditions for tortious liability are set forth in art 1064 ff of the Civil 7/7 ___Code: ___ ‘Article 1064. General Conditions of Liability for Damage ___ ___ 1. Damage caused to a person or property, which belongs to a person, and ___ damage caused to a legal entity shall be compensated by the tortfeasor ___ in full. ___ 2. The tortfeasor is exempt from liability if he proves that damage was ___ caused not due to his fault. The law may provide that a tortfeasor shall ___ compensate the damage in the absence of his fault. ___ 3. Damage caused by acts that are not wrongful is subject to compensa___ tion only if so provided by the rule of law.’ ___ ___ The cited provision demonstrates that the conditions of tortious and con- 7/8 ___ tractual liability for damage are generally speaking the same: damage, wrong___ fulness, causation and fault. ___ Wrongfulness is understood as infringement of a right established by law as 7/9 ___ explained below, most likely, only absolute rights, ie, ones that can be asserted ___ against the world (although the law and academic commentary are not clear on ___ this). Some authorities also require violation of the rule of law. Case law shows ___ there is no clear view on wrongfulness among judges: The concept of wrongful___ ness is quite often employed without any reasoning to justify dismissal of the ___ claims in tort where other justifications are absent or difficult to establish. Like ___ their French colleagues, Russian judges are not open about their true reasoning ___ and often refer to legal concepts quite randomly. ___ Similar to the situation under the rules of contact law, fault in tort law is 7/10 ___ understood objectively (although the rules of tort law are not clear about this, ___ one cannot find a tort law rule similar to the contract law rule of art 401 of the ___ Civil Code3). Fault is also presumed. ___ ___ 3 Art 401 provides in part: ___‘A person is considered not to be at fault if given the degree of care and diligence required ac___cording to the nature of the obligation and circumstances of the trade, he undertook all meas___ures for the proper performance of the obligation.’

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It is arguable whether art 1064 constitutes a general clause similar to art 1382 of the French Code Civil (although the vast majority of Russian authorities are affirmative). We are of the opinion it does not, primarily because of the existence of wrongfulness as a condition, which is alien to French tort law. The black-letter and case law suggests that the Russian tort law system is closer to the German protected rights system than to the French general clause system, although wrongfulness in Russia is understood less strictly than in § 823 of the German Civil Code (BGB). It should be mentioned that Russian law traditionally inclines towards the German branch of the continental legal system. Whether product liability is a domain of tort law or contract law is not as straightforward as it might seem. In order to locate this issue within Russian liability law, we believe it useful to trace its evolution.

II. Legislative Evolution During the Soviet period, the issue of product liability was not the focus of social or legal thought. Until the end of the Soviet era neither of the Soviet civil codes (of 1922 and of 1964) contained any special rules on product liability. The state owned enterprises that manufactured all goods in the USSR were not even formally separated from the state. As a result, the ultimate producer of everything in the USSR was the state. Direct claims against a producer were described by Soviet academics as unnatural.4 This does not mean, however, that the quality of the goods was a matter of indifference to the state. On the contrary, it was of high interest. The legal approach to controlling defective products was directed at negligent workers who produced defective products, tackling the problem through administrative, labor and criminal law. For example, art 152 of the RSFSR Criminal Code of 1960 provided that the manufacturing of defective products was punishable by up to 3 years imprisonment. The absence of specific private law rules on product liability was also balanced by the social security system that provided free medicine and pensions to victims who lost their earning capacity. The approach to product liability changed gradually, and in 1985 (interestingly, several months before the 1985 EC Directive on product liability), the USSR Supreme Court promulgated a special decree on the subject matter. According to the decree, if goods were found to have latent defects that became

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4 VA Tarkhov, Otvetstvennost’ po sovetskomu grazhdanskomu pravu [Liability under the Soviet private law] (1973) 199–200.

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___apparent even after the warranty period expired (a period within which if the ___defect becomes evident a presumption of defect at the time of sale arises), the ___producer should compensate individuals (ie, natural persons) for damage to ___their personality and patrimony unless the producer proved that the damage ___occurred due to improper use or storage of the goods.5 ___ The USSR Supreme Court appears to have introduced through the decree a 7/15 ___new liability regime that: (1) applied only to goods (things), (2) allowed a direct ___claim against the producer, (3) allowed this after the warranty period was over, ___and (4) introduced strict (no-fault) liability. ___ It is currently difficult to find the reasons for the introduction of this special 7/16 ___product liability regime. Travaux préparatoires (papers reflecting preparatory ___work) are not available (if they exist), academic writings do not shed light on the ___issue either. Was there an urgent need to equip consumers with private law in___struments in addition to administrative law/criminal law/social security system ___cover? Not very likely, the regime before 1985 seems quite balanced – the social ___security system was a form of compensation and administrative/ criminal law ___aimed at prevention. Was the general tort/ contract liability for damages regime ___inadequate? At that time, the conditions of liability for damages (under the Civil ___Code of 1964) were typical – damage, wrongfulness, causation, and fault; fault ___was presumed. Academic writings do not express concern about any difficulties ___of proving any of these elements or any other practical difficulties. Hence, it is ___hard to establish the reason for the introduction of a special product liability re___gime in 1985 by the Supreme Court. It might have been the sign of a general move ___to private law means from criminal law means and from a planning to a market ___economy. It might also have been that the Supreme Court became aware of the ___quickly developing American and European debate on the matter. ___ In 1991, the Foundations of Civil Legislation were enacted. Article 129 of the 7/17 ___Foundations provided: ___ ‘Article 129. Liability for Damage Caused by Defective Goods or Work ___ ___ Damage to life, health or property of an individual due to defects of goods ___ or results of work6 in manufacturing, design, formulation or other shall be ___ ___ ___5 USSR Supreme Court Decree 5.4.1985 No 1 ‘O praktike primeneniya sudami zakonodatel’stva ___ob otvetstvennosti za vypusk iz promyshlennykh predpriyatiy nedobrokachestvennoy, nestandartnoy ili nekomplektnoy produktsii i za vypusk v prodazhu takikh tovarov v torgovykh pred___ priyatiyakh’ [‘On the case law on responsibility for the release by the industrial enterprises of ___defective, non-standard or incomplete products and for the putting of such products into circu___lation through commercial enterprises’], item 19. ___6 Work means the labor involved in producing a result, such as painting a car.

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compensated by the seller or manufacturer of the goods (work) irrespectively of whether the victim is a party to the contract with him. The seller or the manufacturer is exempt from liability if he proves that damage was due to the victim’s failure to comply with the rules of use or storage. Damage shall be compensated if it is inflicted within the service life term fixed in accordance with the law, and if such is not fixed within 10 years from the date of manufacturing of the goods (work).’ Compared to the product liability regime under the 1985 Supreme Court Decree, the regime under the 1991 Foundations of Civil Legislation: (1) was extended to work; (2) provided the victim with a choice of whether to sue the seller or the manufacturer, (3) established the irrelevance of whether or not there was a contract between the victim and the seller/ producer. This regime remains intact today, subject to modest modification. In 1992, the Law of the Russian Federation on the Consumers’ Rights Protection No 2300-1 (hereinafter: LCRP) was enacted. This law provides for expansive and comprehensive rules on product liability. Key provisions are the following: ‘Article 12. Liability of the Manufacturer (Contractor or Seller) for Improper Information about Goods (Work, Services) ... 3. Should harm be inflicted on the consumer’s life, health and property due to the failure to provide full and trustworthy information about the goods (work, services), the consumer is entitled to claim damages for such harm in accordance with Article 14 of the present Law, including full compensation of the losses inflicted on natural objects owned (possessed) by the consumer. ... Article 14. Liability for Harm Caused by Defects of the Goods (Work, Services) 1.

2.

3.

The harm caused to the life, health or property of the consumer due to defects of the goods (work, services) in design, manufacturing, formulation or other shall be compensated in full. The right to claim compensation for harm caused by defects of the goods (work, services) belongs to any victim, regardless of whether he was a party to the contract with the seller (contractor) or not. The harm caused to the life, health or property of the consumer shall be compensated if this harm was inflicted during the fixed shelf life term or service life term of goods (work).

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___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

If the shelf life or service life term for goods (result of work) was to be set under items 2 or 4 of Article 5 of the present Law, but was not in fact set or the consumer was not provided with full and trustworthy information on the shelf life or service life term or the consumer was not informed of the actions required upon the expiration of the shelf life or service life term and of the possible consequences of the failure to perform these actions, or the goods (result of work) are dangerous to life and health upon the expiration of these terms, damage shall be compensated irrespective of the time of infliction of the harm. If the manufacturer (contractor) fails to set a service life term for goods (work) in accordance with item 1 of Article 5 of the present Law, the harm shall be compensated if it was inflicted within 10 years from the date of the transfer of goods (work) to the customer; if the date of the transfer is not possible to establish, [the harm shall be compensated within 10 years] from the date of the manufacturing of the goods (the completion of the work). The harm caused by defects of goods shall be compensated either by the seller or by the manufacturer of these goods, at the choice of the victim. The harm caused by defects of the work or service shall be compensated by the contractor. 4. The manufacturer (contractor) shall be liable for harm caused to life, health or property of the consumer in connection with the use of materials, equipment, instruments and other means required for the production of the goods (performance of work or rendering of services), regardless of whether the level of scientific and technical knowledge made it possible to reveal their special properties or not. 5. The manufacturer (contractor or seller) is exempt from liability if he proves that the harm was inflicted due to force majeure or the breach by the customer of the rules for use, storage or transportation of the goods (work, services). Article 15. Compensation for Non-Pecuniary Damage Non-pecuniary damage caused to the consumer by infringement by the manufacturer (contractor, seller, authorized organization or authorized individual entrepreneur, importer) of consumers’ rights provided for by the laws and legal acts of the Russian Federation in the field of protection of consumers’ rights, shall be compensated by the tortfeasor if he is at fault. The amount of compensation for non-pecuniary damage shall be estab-

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lished by a court and does not depend on the amount of compensation for pecuniary damage awarded. Non-pecuniary damage shall be compensated regardless of the compensation for pecuniary damage incurred by the consumer.’ These arts 12, 14 and 15 of the LCRP lay down the basic rules of product liability. In 1996, substantially the same rules were repeated in arts 1095–1098 of the Civil Code: ‘Article 1095. Grounds for Compensation for Damage Caused by Defects of Goods, Work and Services Damage caused to the life, health or property of an individual or to the property of a legal entity due to defects of goods, work or services in design, formulation or other, or due to untrustworthy or insufficient information about goods (work, services)7 shall be compensated by the seller or the manufacturer of the goods, by the person who performed the work or rendered the service (contractor), regardless of their fault and of whether the victim was a party to a contract with them or not. The rules provided for by this article are applicable only where the goods were acquired (work was performed or services were rendered) for purposes of consumption and not for use in business activity. Article 1096. Persons Responsible for Damage Caused by Defects of Goods, Work and Services 1. 2.

3.

Damage caused by defects of goods shall be compensated at the choice of the victim by the seller or the manufacturer of the goods. Damage caused by defects in work and services shall be compensated by the person who performed the work or rendered the service (contractor). Damage caused by the failure to provide full and trustworthy information about goods (work, services) shall be compensated by the persons referred to in items 1 and 2 of this Article.

_____ 7 Parentheses are employed in the second iteration of this series in the statute but not in the first use of the series.

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___ Article 1097. The Time-limits for Compensation of Damage Caused by De___ fects in Goods, Work or Services ___ ___ 1. Damage caused by defects in goods, work or services shall be compen___ sated if it was inflicted within the set shelf life or service life term of ___ goods (work, services); if the shelf life or service life term was not set, ___ within 10 years from the date of production of goods (work, services). ___ 2. The harm shall be compensated regardless of the timing of infliction, ___ if: ___ in violation of the requirements of a law, a service life or shelf life term ___ was not set; or ___ the purchaser of the goods, the customer of the work or service was not ___ warned of the actions required upon the expiration of the shelf life or ___ service life term and of the possible consequences of the failure to take ___ these actions or he was not provided with full and trustworthy informa___ tion about the goods (work, service). ___ ___ Article 1098. The Grounds for Exemption from Liability for Damage Caused ___ by Defects of Goods, Work or Services ___ ___ The seller or the manufacturer of goods, contractor of the work or service is ___ exempt from liability if he proves that damage was caused due to force ma___ jeure or consumers’ failure to comply with the rules of use or storage of the ___ goods, of the results of work, service.’ ___ ___ It should be noted that the cited rules of the Civil Code are contained in the ___tort law section of the Civil Code. ___ Although arts 1095–1098 of the Civil Code mostly repeat the rules of the ___LCRP, they introduce at least one new idea. Under the Civil Code, legal entities, ___in addition to individuals, have product liability claims provided they used the ___goods for the purpose of consumption and not for profit. ___ Both the LCRP and the Civil Code rules are currently in force. In spite of mi___nor inconsistencies, arts 1095–1098 of the Civil Code are understood as equiva___lent to art 14 of the LCRP; often in judgments both laws are cited together. ___ ___ ___III. Product Liability Law in the Law of Damages ___ ___Article 14 of the LCRP and arts 1095–1098 of the Civil Code entitle victims ___(claimants) to choose their defendant – the seller or the manufacturer of the

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goods. Whether the claimant sues the seller or the manufacturer, the claims will be product liability claims and the cited provisions will be applicable, but will these claims be contract or tort claims?8 Logically, where the claim is against the seller the parties are bound by the sales agreement, thus contract law applies and the claim is treated as a contract claim. When the claim is against the manufacturer there is no basis to rely on contract law, and the claim is most often categorized as a tort claim. If damage is caused to a bystander, then the claim is also in tort.9 That said, according to the mainstream position, product liability rules are regarded as special rules that supersede both general contract and tort law rules. Minority opinion is that art 14 of the LCRP is a part of tort law even where it deals with a claim against a seller.10 This issue seems to be purely of academic interest as arts 1095–1098 of the Civil Code and art 14 of the LCRP provide for the same rules for sellers’ and manufacturers’ liability. There is no difference in the elements of such claims, burden of proof, recoverable damages, and defences available to the seller and the manufacturer.

IV. Outline of the Product Liability Regime A. Scope of Application Russian product liability law is applicable not only to goods but also to work and services. Hence, the debate around the notion of a ‘good’ or ‘product’ does not exist in Russian law. The scope of application is very broad and makes the debate unnecessary. Also, the need to distinguish between goods, work, and services, obviously does not emerge either.

B. Claimant According to art 1095 of the Civil Code, both individuals and legal entities are entitled to seek compensation under the product liability regime if they ac-

_____ 8 That is, while these claims are recognized as product liability claims, scholars disagree about whether they are grounded in contract or tort. 9 AE Sherstobitov in: EA Sukhanov (ed), Rossiyskoye grazhdanskoye pravo [Russian private law] vol 1 (2011). 10 AS Shevchenko/GN Shevchenko, Deliktnyye obyazatel’stva v rossiyskom grazhdanskom prave [Tort liability in Russian private law] (2013).

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___quired the goods for their consumption or own use. It is not very difficult to es___tablish whether an individual or non-commercial organization acquired some___thing for his, her, or its own use. It is difficult, however, to establish whether an ___individual entrepreneur or commercial organization used something commer___cially or for its own internal use and whether it can invoke arts 1095–1098 of the ___Civil Code. This distinction can be quite ephemeral. Case law also does not help ___much. In several cases, commercial organizations have been successful claim___ants in product liability litigation.11 On the other hand, in at least one case the ___court stated that a commercial organization purchases everything for business ___activity and not for consumption, hence, arts 1095–1098 of the Civil Code are ___inapplicable.12 All in all, a commercial organization’s standing in product liabil___ity litigation remains a grey zone. ___ If harm is caused to a bystander, the latter can rely on product liability rules 7/35 ___but still has to prove the goods and services were ultimately produced for con___sumption and not for business activities.13 If a service is provided to a business ___enterprise and the service causes damage to a non-businessman bystander, the ___bystander, based on art 14 of the LCRP and art 1095 of the Civil Code, can invoke ___product liability rules.14 ___ ___ ___C. Defendant ___ ___When defective service/work is involved, the proper defendant is the contractor 7/36 ___who performed the work. When defective goods are involved, as emphasized ___above, the victim in a product liability case is given an opportunity to choose ___the defendant as the victim may only sue one party. It may be the seller or the ___ ___ ___11 Judgment of Federal Commercial Court of Povolzhskiy Okrug (cassation) 12.3.2013, case ___No А57-10770/2011 (a car owned by a commercial entity was damaged in an accident caused by ___the defective suspension arm of a wheel – the direct claim against the manufacturer was successful); Supreme Commercial Court Ruling No 7189/08 refusing supervisory review dated ___ 9.6.2008, case No А08-879/07-5 (a car owned by a commercial guard security service was dam___aged in fire due to a manufacturing defect – the direct action against the manufacturer was ___successful). ___12 Judgment of Ninth appeal commercial court 11.7.2007, case No 09АП-7163/2007-ГК. ___13 AE Sherstobitov in: EA Sukhanov (ed), Rossiyskoye grazhdanskoye pravo [Russian private law] vol 2 (2011). ___ 14 Cassation judgment of Saint-Petersburg City Court, 24.7.2012 No 33-11334/12 (passenger in___jured by a transom window in the railroad car leased to the railroad carrier by another com___pany; the passenger claimed damages from the carrier and the other company – the appeal ___court found that the other company was liable).

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manufacturer. Case law does not allow a claim to be filed against both of them. It is not clear whether any intermediary in the chain of distribution (ie, wholesaler, distributor, or retailer) may be sued under the product liability rules. The relevant wording of the Civil Code and the LCRP (damage is compensable irrespective of whether the seller was a party to a contract with a victim) gives grounds to believe that the answer may be affirmative. We could not, however, find any case law in support of such an interpretation. Case law shows that claimants in most cases prefer to sue their immediate seller rather than a remote supplier or a manufacturer. A claim against the manufacturer is filed usually when a claim against the seller is not available (eg, the seller is bankrupt). If the product liability claim concerns assembled goods, the source of the defect, ie whether the defect is in the goods itself or in the assembling of them, must be determined. Although the standards of liability for manufacturers and contractors is the same, joint and several liability (solidary liability) may not be fair when one or the other is responsible for the defect. However, when it is not possible for the claimant to prove which one is responsible, a court may impose solidary liability on both.15

D. Defect The concept of ‘defect’ is not developed in Russian private law doctrine. It appears from the case law that the ‘defect’ requirement in product liability cases is often understood as wrongfulness. In Russia, various authorities/governmental bodies adopted numerous technical regulations in different spheres (medical services, safety of products, rules of architectural design, safety of cars, rules of building maintenance etc), and the defect in product liability cases is often found where the deviation from such technical rules is established. For services, the court examines the process of service rendering and regulations governing such services are relevant in determining whether such services are defective. It should be noted that many technical regulations in Russia are very difficult to follow – they are multiple, unclear, and outdated, and recent reform in the field did not bring much order. In typical product liability litigation, the court appoints an expert (in some cases several times if the court is not satisfied with the opinion of the initially appointed expert) to examine whether there was deviation from the technical

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15 Appeal judgment of Moscow City Court, 16.5.2013, case No 11-12879 (the court seems to lean toward imposing joint liability on the manufacturer and assembler).

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___regulation. In the absence of technical rules, it is determined whether the prod___uct is defective based on common sense. What a safe product means, which ad___verse side effects resulting from use of the goods are acceptable and similar ___questions are not discussed in legal studies or case law: The issue is decided ___based on technical regulations or, again, the common sense of the judge. ___ The defect is not presumed; the damage alone does not establish the exis- 7/41 ___tence of a defect. In the courts’ understanding, the causes of harm may be ___many, and it is the claimant’s burden to prove the defectiveness of the product. ___Proving the defect is particularly complicated in cases where the claimant al___leges defects in goods already consumed (food, petrol, motor oil) – the courts ___have to infer the defect from background circumstances such as defects in other ___goods; this is, again, one of the grey zones.16 ___ ___ ___E. Strict Liability ___ ___The liability of the manufacturer/seller/contractor is imposed irrespective of 7/42 ___fault (liability, thus, is strict), except for non-pecuniary loss. It can even be de___scribed as very strict (or, as it is sometimes labeled, ‘absolute liability’17) be___cause, under art 14(4) of the LCRP, the manufacturer (contractor) is liable for the ___damage regardless of whether the level of scientific and technical knowledge ___made it possible to reveal the special properties of the goods/work/services or ___not. This provision clearly means that ‘development risks’ are to be borne by the ___manufacturer/seller/contractor. ___ We have not managed, however, to find any case law where art 14(4) of the 7/43 ___LCRP would be applied rather than formally cited or referred to. In our view, ___should the court decide that the application of art 14(4) of the LCRP may lead to ___an unfair result and, hence, is undesirable, it will ignore the rule and dance ___around the concept of wrongfulness instead of fault. As fault is understood ob___jectively (as a failure to undertake precautionary measures that are required in ___ ___ 16 Appeal judgment of Sverdlovsk Regional Court, 15.1.2013, case No 33-177/2013 (claimant’s ___car broke down allegedly due to defective petrol that he obtained from defendant’s filling sta___tion – claim dismissed as the court found that the claimant failed to prove that the petrol with ___defects (expert confirmed that there were defects) was obtained from defendant’s fuel station); ___Appeal judgment of Penza Regional Court dated 2.10.2012, case No 33-2315 (claimant’s car motor was damaged due to defective motor oil, defendant service station insisted that it is impos___ sible to establish whether it was that very oil that was used by the defendant – claim success___ful). ___17 Sherstobitov (fn 13). Though this ‘absolute liability’ still requires that there be a defect – ___causation alone is not sufficient for liability.

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given circumstances), the judge unwilling to grant compensation can label a defendant’s behavior either as fault-free (defendant has taken all the necessary measures) or as not wrongful (defendant did not violate any right or rule of law). Regrettably, notwithstanding the clear strict liability rule contained in art 14 of the LCRP, in many product liability cases the courts examine whether the tortfeasor was at fault.18 Under art 15 of the LCRP, non-pecuniary damage is compensated if the tortfeasor acted at least negligently. However, under the dangerous things regime (strict liability for harm caused by things deemed to be ‘dangerous’), nonpecuniary damage is compensable irrespectively of fault.19 If damage is inflicted during rendering of service with a dangerous thing, courts tend to use the most favorable regime for claimant, ie, the dangerous things regime.

F. Typical Cases Typical cases in which Russian courts apply product liability rules are the following: • damage caused by poor management of common property in a condominium (causing parts of the roof to fall, often on cars parked near the property; fire caused by improper connection of common electrical appliances; flood caused by poor maintenance of a roof or common water pipes),20

_____ 18 Appeal judgment of Moscow City Court, 28.2.2014, case No 33-4157 (the claimant’s flat was flooded due to a clog in common pipes in a condominium – the court examined and established the defendant’s fault and decided in favor of the claimant); Appeal judgment of Moscow City Court, 22.5.2013, case No 11-17292 (defendant damaged claimant’s property while renovating it – the court examined and established that defendant was at fault and awarded damages to the claimant); Appeal judgment of Moscow City Court, 18.8.2011, case No N 33-26078 (customer’s vehicle left near a guest house in spite of requirement to park the vehicles in the guarded car park only, was stolen – the court dismissed the claim stating that the defendant was not at fault; the court could say instead the claimant used the service improperly or, probably, did not prove causation). 19 Appeal judgment of Moscow City Court, 16.4.2013, case No 11-11912/13 (claimant injured due to emergency stop of a bus of defendant transport company – claim for non-pecuniary damage was successful, because fault by the transport company and the driver is irrelevant as a bus is a dangerous thing). 20 Judgment of Saint Petersburg City Court (appeal) 15.4.2013, No 33-5235/2013; Decree of Presidium of Moscow Regional Court (supervision) 18.6.2014, No 330 (claim for compensation for fire that damaged a flat caused by poor maintenance of common electrical appliances was successful); Judgment of Moscow City Court (appeal) 26.4.2011, case No 33-12319/2011 (claim for

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___• medical malpractice – damage caused by hospitals’ poor medical services,21 ___• fire or explosion caused by manufacturing defects in heating or electrical ___ appliances,22 ___• damage caused by defects in newly built residential premises,23 ___• flood in a flat caused by a manufacturing defect in radiators or other plumb___ ing devices,24 ___• car fire caused by defective repair,25 ___• injuries caused by failure to ensure safety at sports or entertainment sites,26 ___• damage caused by instruction defects,27 ___• damage to a visitor of a seller’s premises (in Russia, there is no general rule ___ for pre-contractual liability, the courts that decide to award damages are ___ forced to rely on product liability rules).28 ___ ___ compensation of damage to the claimant’s flat flooded with water escaping from common ___ pipes was successful). ___21 Judgment of Moscow City Court (appeal) 30.3.2011, case No 33-5983/2011 (successful claim ___when cosmetic injection caused papules that covered claimant’s face); Judgment of Moscow ___City Court (appeal) 26.4.2011, case No 33-12470 (poor quality of dental prosthesis – claim ___against the hospital was successful). ___22 Judgment of Sverdlovsk Regional Court (appeal) 20.3.2012 case No 33-3661/2012; Appeal Judgment of Moscow Regional Court, case No 33-26557/2013 (claim for damage caused by a fire ___ in a flat due to refrigerator fire rejected as the claimant had installed the refrigerator improp___erly by having elements of the refrigerator touching gas pipe); Appeal Judgment of Moscow ___City Court, 2.4.2013, case No 11-10249 (refrigerator started fire – no misuse found, compensa___tion awarded). ___23 Summary on judgments on the Law ‘On Consumers Rights Protection’ of 7.2.1992 by the courts of Kaliningrad region in 2009–2011. ___ 24 Judgment of Leningrad Regional Court 2.8.2012, case No. 33-3450/2012. ___25 Supreme Court Summary of application of the legislation on consumer rights protection in ___private law disputes (approved by Presidium of the Supreme Court of Russian Federation on ___1.2.2012). ___26 Judgment of Judicial Panel for private law disputes of Moscow City Court (appeal) 12.9.2011, ___case No. 33-28935 (severe injuries to claimant at the site with no fence at the finish of a ski trail – damages awarded); Appeal Judgment of Moscow City Court, 16.8.2013, case No. 11-23770 (in___ juries to a customer of a boxing club due to the rope fencing a boxing ring breaking during a ___training session – claim against the club successful; boxing club’s objection that the proper de___fendant should be the manufacturer of the fencing rope rejected – the court decided the club ___rendered defective and unsafe services). ___27 Decree of Presidium of Ryazan Regional Court (cassation) 15.1.2014, case No 44-г-21/13 (hospital failed to provide patient with information on possible complication of the disease – ___ claimant was awarded pecuniary and non-pecuniary damages). ___28 Appeal judgment of Yaroslavl Regional Court, 19.7.2012, case No 33-3728 (injury due to the ___claimant’s heel becoming stuck in the floor covering while leaving defendant’s shop – claim ___successful; decided on product liability rules), Appeal judgment of Yaroslavl Regional Court,

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G. Procedural and Practical Environment The product liability regime set by the Russian black-letter law seems to be very pro-claimant and harsh for the manufacturer, seller, work performer, and service renderer. It would be, however, an exaggeration to state that product liability is flourishing in Russia. There are several factors that impede the spread of product liability cases. First, enforcement of judgments in Russia is very problematic. A strong cultural bias against voluntary payment of judgments exists in Russia. According to official records, only 20 to 30% of all court decisions are properly enforced; government officials hope to increase this number to 50% by 2020.29 This under enforcement scares away many potential claimants. The weakness of the enforcement mechanism is a cause for a small percentage of voluntarily paid judgments. Second, tort law in general is not well developed in Russia. As a result, claimants face serious difficulties in tort litigation, especially with proving wrongfulness (defectiveness of goods) and causation. Third, the amount of compensation is usually quite modest. In Russia, theoretically, the state provides everyone with free medical services; despite being aware of the poor quality of such services (due to the lack of doctors’ qualifications and patient overload) judges in personal injury cases nevertheless often refuse to provide compensation for medical expenses incurred by a victim in a private hospital, stating that free medical aid was available. Amounts of compensation for pain and suffering are also traditionally modest. It is difficult to give precise figures because damage amounts are removed from most reported cases under the personal data protection rules, but estimates by lawyers are of a maximum of RUR 2 million (about € 30,000)30 awarded in cases of death, with the amount drastically decreased in cases of injuries. Legal fees are compensable only if they are ‘reasonable’ which, in our experience, does not exceed € 1,500 to € 7,000 per case. In fact, legal fees are higher (especially in complicated cases), and even the winning claimant may find himself with negative total recovery. As a result, attorneys’ fees for those representing claimants in product liability litigation are quite modest (unlike, for example, fees of lawyers dealing with corporate stock, real estate, or oil and gas),31 consequently, skilled

_____ 18.6.2012 (injury due to claimant tripping over a box and falling in a passage in defendant’s shop – claim against the shop was successful). 29 . 30 Conversion rate as of 27 June 2016. 31 Contingent and conditional fees are not permitted.

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___professional lawyers rarely become involved in product liability or other per___sonal injury disputes. This contributes to the traditionally poor quality of par___ties’ arguments and judicial reasoning in product liability cases. ___ In Russia, courts are divided into commercial courts and ordinary courts. ___Commercial courts are better organized and equipped, more transparent, and ___their appeal procedures are effective; judges are aware of judgments of their col___leagues and follow the positions elaborated in the appellate courts,32 as a result ___conflicting judgments are rare. The state of the ordinary courts is worse. The ___majority of product liability cases are heard in ordinary courts. In Russia, there ___are more than 7,000 justices of the peace (first instance for claims below ___RUR 50,000, approx € 1,000), 2,188 district ordinary courts (courts of first in___stance for claims over RUR 50,000, appeal instance for judgments of justices of ___the peace), 83 regional ordinary courts (appeal and cassation for judgments of ___the first and appeal instances), and the Supreme Court (cassation and supervi___sion body).33 The combination of procedural rules and tradition results in an ex___tremely small percentage of cases heard before the Supreme Court, and there ___are practically no cases in the field of product liability decided by the Supreme ___Court. ___ Thus, the center of product liability case law rests in 83 regional ordinary ___courts. The case law in these courts reveals that cases heard before different ___judges may have different outcomes even within the same court. These courts ___do not tend to coordinate their decisions even within the same court – they have ___neither a legal duty nor the organizational stimuli to decide cases consistently. ___Also, judges are often poorly qualified. The judgments of these courts are poorly ___reported with little detail or explanation, and all personal data is deleted from ___the published judgments. Personal data includes the names, dates (sometimes ___it is difficult or impossible to deduce the chronological order of events from the ___judgments), amounts awarded (this makes it difficult to compare decisions on ___non-pecuniary damage and complicates research on this matter), and some___times medical diagnosis. All in all, this makes any research on Russian tort case ___law quite a challenging exercise. There are no signs that the situation in the or___dinary courts will change for the better in the foreseeable future. ___ Disappointingly, there are very few prominent academic writings on prod___uct liability. ___ All the aforesaid makes the results of this national report quite question___able. There is absolutely no guarantee that the approach taken by some judges ___and described elsewhere in this report will be followed by the judges of these ___ ___32 The Supreme Commercial Court was wound up in 2014. ___33 These data are as of the initial drafting of this report in 2013.

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and many other courts. Russian tort law is in its nascent stage, and this is particularly true for product liability law.

H. Punitive Damages The attitude towards punitive damages in Russia is generally negative.34 More recently, however, one can find mechanisms in Russian product liability law comparable to punitive damages. According to art 13(6) of the LCRP, if a defendant fails to meet a consumer’s claim voluntarily, the court shall impose a fine on the defendant in the amount of 50 per cent of the sum awarded to the claimant. The law is silent as to who should receive this fine; The only explicit rule in art 13(6) LCRP reads that the consumer society is entitled to receive half of the fine in cases where it is a claimant, which is not helpful in respect of the second half of the fine and for the entire fine in cases when the injured person himself was a claimant. Until 2012, in accordance with the Supreme Court decree, this fine was paid to the local municipality budget. In 2012, the Supreme Court unexpectedly changed its position and ruled that the fine should be paid to the claimant.35 In product liability cases, it virtually means that the court awards damages multiplied by 1.5 of the compensatory damages. This hardly makes product liability litigation ‘profitable’; however, it makes it somewhat less detrimental for a successful claimant.

V. Justification for Strict Liability The idea of product liability was borrowed by the Russian legislature from European and American counterparts. Academics accept that the provisions of arts 12, 14 of the LCRP are inspired by the provisions of the EC Directive 85/374/EEC dated 25.7.1985.36 Since product liability is a borrowed idea,37 no par-

_____ 34 A foreign decision (award) for compensation of punitive damages would be in violation of Russian public policy and, hence, not enforceable in Russia: Presidium of Supreme Commercial Court Information Letter, 26.2.2013 No 156 ‘Summary of case law on application of public policy reservation as a ground for refusing recognition and enforcement of foreign court judgments and arbitration awards’, item 6. 35 SL Budylin, Shtrafnyye ubytki. Teper’ i v Rossii? [Punitive damages. Now also in Russia?], Vestnik grazhdanskogo prava 2013, No 4, 19–52. 36 AE Sherstobitov, Grazhdansko-pravovaya okhrana prav potrebiteley [Private-law protection of consumers’ rights], Doctoral thesis 1992, 108–109. 37 Although the EC Directive is limited to tangible personal property and imposes strict liability ordinarily only on the manufacturer, Russia’s broader law (encompassing services, work,

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___ticular Russian justification for strict liability is available; the few explanations ___that appear in Russian academic writings are borrowed from American and ___European scholars as well. ___ 7/57 The following justifications, mixed in different combinations, appear: ___• Deterrence. The choice of strict and direct manufacturer’s liability reflects ___ the deterrent function of private law: The main purpose is to deter manufac___ turers from producing goods of poor quality and to deter retail sellers from ___ purchasing dangerous goods from unreliable suppliers.38 The same argu___ ment is sometimes put in a more law-and-economics fashion: If a pro___ ducer’s and seller’s liability were fault-based, they would, in order to maxi___ mize their profit, produce or sell more defective goods, and the incentives to ___ improve the quality of goods would be minor; ___• Protection of weak parties. It is submitted that a customer is a weak party in ___ a ‘manufacturer-customer’ relationship – he often possesses less informa___ tion on the goods, he is more exposed to emotional and non-rational choice ___ of the goods; thus, in order to ensure fairness, it is necessary to lighten the ___ customer’s burden in defective product litigation;39 ___• Difficulty of reaching manufacturers. The claimant’s right to choose between ___ the seller and the manufacturer is, to some extent, explained by the fact ___ that, an unofficial estimate calculates that half of all newly registered Rus___ sian companies are ‘fly-by-night companies’.40 The plurality of parties sub___ ject to products liability in such circumstances assists in ensuring that the ___ customer receives fair compensation one way or another; ___• Dangerous imported products. From an historical standpoint, strict products ___ liability is described as a desperate attempt to protect the population from ___ ___and all sellers in the chain of distribution) was nevertheless influenced by the adoption of the ___EC Directive. ___38 AG Karapetov/AI Savel’yev, Svoboda dogovora i yeyo predely: T. 1: Teoreticheskiye, ___istoricheskiye i politiko-pravovyye osnovaniya printsipa svobody dogovora i yego ogranicheniy ___[Freedom of contract and its limits: Vol 1: Theoretical, historical, law-policy foundations of the principle of freedom of contract and its limitations] (2013); Sherstobitov (fn 36) 110–120. ___ 39 AS Koblov/EM Fetisova, Pravo potrebitelya pred’yavlyat’ trebovaniya v svyazi s defektami v ___tovarakh ne tol’ko prodavtsu, no i proizvoditelyu kak otstupleniye ot printsipa otnositel’nosti ___obyazatel’stvennykh prav [The consumer’s right to claim damages caused by defects in goods not ___only from the seller, but also from the manufacturer as a departure from the principle of relativity ___of obligations], Vestnik grazhdanskogo prava 2012, No 6, 75–99; Karapetov/Savel’yev (fn 38). 40 S Zykov, “Roga i kopyta” ne umirayut, Rossiyskaya gazeta 18 March 2009; see also: ___ Kontseptsiya razvitiya grazhdanskogo zakonodatel’stva Rossiyskoy Federatsii [The concept of ___development of private law legislation of the Russian Federation], approved by the Resolution of ___the Presidential Council for the codification and improvement of private law, 7.10.2009, item ___III.2.1.

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low-quality (and often dangerous) imported products; this argument was advanced at the end of the Soviet era when interstate borders were opened to the importation of foreign goods.

Part II: Cases Case 1: Brake Pad Failure X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it considered that the risk was likely to eventuate only very rarely and did not outweigh the general advantages of the new material. It included a statement about the possibility of failure in the small print of the product instructions supplied with all of its bicycles incorporating the new brake pads. A, who purchased one of the bicycles, is one of a handful of people injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also damaged. B, a passer-by, is injured in the same accident. What is X Ltd’s liability to A and B? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail?

A. X’s Liability to A and B Neither A nor B have a contractual claim against X Ltd. Two possible options available to them are a claim under general tort law rules or under the special regime established in arts 1095–1098 of the Civil Code and art 14 of the LCRP. The special regime is more favorable for claimants in most respects. There is hesitation about permitting the competition41 or assertion of multiple claims (although there is no prevailing opinion on this issue). Courts prefer to escape from solving this cumulation problem, and they construct a single claim relying on both general and special rules. Even if the claimants themselves rely on gen-

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41 Claims ‘compete’ when different legal claims that are applicable provide for multiple remedies. The court must decide if both remedies are available to a claimant (cumulation of claims) or only one, which then wins the ‘competition’.

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___eral tort law rules only, courts nevertheless employ special product liability ___rules. This is because the courts are under a duty to apply the correct set of rules ___even where the claimant is mistaken (jura novit curia), and because the product ___liability rules (arts 1095–1098 CC) are special to the general tort law provisions ___(art 1064 ff CC) (lex specialis derogat generali). ___ As a result, irrespective of which set of rules the claimant relies on in his ___application, the court would apply arts 1095–1098 CC and art 14 LCRP (special ___product liability regime). ___ Design defects are contained in an open list of defects in the LCRP and the ___Civil Code and, if all other conditions are met, should lead to the imposition of ___liability. Unfortunately, there is little discussion among academics about the ___notion of ‘defect’, so it is not clear under which circumstances a particular de___sign decision made by a manufacturer based on a comparison of benefits and ___risks would lead to liability. One of the Russian appeal courts held that an un___controllable 10 degree temperature rise in a refrigerator was due to the absence ___of a mechanism to remove ice from the cooling air passage that was a design de___fect that impeded the ordinary use of goods.42 In another case, an appeal court ___found that the escape of air from the engine compartment into the car interior ___due to leaking barriers was a design defect that did not, however, make the use ___of the car impossible.43 Both cases were decided based on expert opinions. Our ___impression is that the safety of design decisions is examined under technical ___regulations and, in the absence of special technical rules, by common sense. ___Law-and-economics considerations (product liability as a means of security for ___consumers of goods; benefits of new brake pads compared to their risks) would ___not be cited in court judgments. ___ We believe that, in the absence of a reservation in the instruction (which is ___dealt with below), most judges will find that a bicycle has a design defect in its ___brake pad due to the fact that such a bicycle does not operate as it should from ___the perspective of the ordinary user. ___ The only defence available to the defendant is to prove that the harm was ___inflicted due to the customer’s breach of the rules of use of goods. The wording ___of the instruction might be crucial. Under art 1098 of the Civil Code and art 14(5) ___of the LCRP the manufacturer must prove the customer is in breach of the ‘rules ___of use’. If the statement about possible risk is just a statement without further ___instruction, it does not constitute a ‘rule of use’. A mere statement about possi___ble risk does not shift the loss from the manufacturer to the customer. If, how___ever, the language of the warning is imperative and detailed enough (‘it is pro___ ___42 Appeal Judgment of Moscow City Court, 24.12.2012, case No 11-30904. ___43 Judgment of Moscow City Court (appeal) 10.10.2011, case No 4г/5-8648/11.

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hibited to use the vehicle in the following conditions: …’), X Ltd has a valid defence against both A and B. With regard to an inadequate warning or instruction claim, it is the defendant’s burden to prove that he provided the customer with all necessary information. If the relevant statement is made in an unreasonably small font, A and B may argue that they were not provided with sufficient information about the use of the bicycle. A can also claim that the instructions were defective if X Ltd’s statements were contradictory (say, the bicycle was advertised as an off-roader). If A is successful in proving that the instruction is defective, he wins his case against X Ltd as does B. If X Ltd manages to prove that the instructions for the bicycle are complete and accurate, and the court finds that this good is not designed for riding in a given set of circumstances, A would lose his claim. B also loses his case against X Ltd: The court will most probably state that neither the bicycle nor the instructions are defective, and the damage was caused by A’s misuse of the bicycle. In this case, B can sue A and has a good chance to win because in Russia fault is, first, presumed and, second, understood objectively as the failure to act with due care and diligence. A would be at fault because he failed to comply with the user’s manual.

B. Modification with Y Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail?

If the risk of brake pad failure was not duly communicated to a customer in the form of an instruction not to use the vehicle in certain circumstances (we assume this failure stems from the modification that Y has covered up the risk), then X Ltd has no defences against A’s and B’s claims. X Ltd has an opportunity to sue Y under the employment agreement or under the contract for work. If Y is an employee, his liability is subject to labor law but not contract law. Under labor law, an employee’s liability is limited to the employee’s monthly earnings, subject to certain exceptions (the employee inflicted damage intentionally, or he inflicted damage while drunk or drugged, or the damage is caused by a crime or administrative offense, etc). An employee is liable on a fault basis. If Y was an independent contractor, then X Ltd could claim the amounts paid to A and B by way of recourse from Y; the recourse claim is based on breach of contract.

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___ If Y was an independent contractor, it is also theoretically possible for A 7/68 ___and B to claim damages directly from Y for defective services rendered to X Ltd ___that caused damage to A and B. As the Russian law of product liability does ___not distinguish between products and services, this option for A and B remains ___open. However, courts are hesitant to permit recovery of damages from remote ___contractors, and it will be very difficult for A and B to prove that Y’s perform___ance to X Ltd was defective. With regard to Y covering up the risk, Russian ___courts are reluctant to request evidence from a defendant and even when they ___do, defendants may mislead the court about their behavior. Victims have very ___limited ability to expose wrongful behavior by defendants or their testimonial ___misrepresentations. ___ ___ ___Case 2: Infected Blood ___ A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital ___ in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had ___ collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. ___ At the time, the risk of Hepatitis N in donated blood had been identified in a single pub___ lished paper in a scientific journal, but only a handful of research laboratories in the ___ world had the capacity to test for its presence in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that the condition (Hepatitis N) ___ really existed. It was only subsequently that the condition’s existence came to be gener___ ally accepted and that a test was developed that allowed hospitals and blood suppliers to ___ screen out infected parcels of blood. ___ What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the ___ various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference ___ to your analysis if A contracted the virus as the result of a blood transfusion conducted ___ in 2001, but her condition only manifested itself in 2012? (In this context, consider in ___ particular differences in the time limits applied to the various possible bases of liabil___ ity.) ___ ___ ___A. Claim Against X Hospital ___ ___1. Pecuniary damage ___ ___In a suit against X hospital, A can choose to rely either on the contract between 7/69 ___himself and X hospital or on art 14 of the LCRP (special product liability regime). ___His contract claim, however, would be immediately converted into the general ___tort liability claim by operation of law: ___

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Article 1084. Compensation for Damage to Life or Health of an Individual during Performance of Contractual or Other Obligations ‘Damage caused to life or health of an individual during performance of contractual obligations … shall be compensated under the rules of this [general tort law rules] chapter if the law or the contract does not provide for a higher amount of compensation.’ In other words, the contractual nature of the initial claim is replaced by a tort claim by operation of law44 hence, the claimant would have to prove that conditions for tort liability are met. As mentioned earlier in this report, the strict liability regime is much more favorable to the claimant than the general tort liability regime. Hence, A will most probably claim he was provided defective services. Even if he chooses to refer to contract liability (modified to general rules of tort law by operation of law), the court will, most probably, decide the case on the basis of the LCRP because (as explained above) the court is not bound by the claimant’s selection of which claim to assert and is under a duty to apply the correct law. The rules of art 14 LCRP (strict liability) would then apply. Black-letter product liability law places development risks on the contractor. Article 14(4) of the LCRP provides that damages are recoverable ‘regardless of whether the level of scientific and technical knowledge made it possible to reveal its [product’s/ services’/ work’s] special properties or not’. Literally applied and provided that all other conditions of liability are met, this rule would inevitably lead to awarding damages to A. According to prevailing opinion, a claimant in litigation under art 14 of the LCRP must prove wrongfulness (or ‘defect’, the two terms are often interchangeable), causation and damage. In the case at hand, proving damage does not seem problematic because A was infected with a disease. What does seem problematic is proving that X Hospital acted wrongfully (or that the services were defective). As explained at the beginning of this report, wrongfulness in Russia is understood as infringement of a right, and/or violation of the rule of law. In casu, X Hospital will most probably argue that it complied with numerous and, mostly, technical rules on blood transfusion enacted by various authorities, and A will have difficulty in proving the contrary. A ‘trick’ the judges employ in strict liability cases is manipulation of ‘fault’ and ‘wrongfulness’. In the absence of a clear borderline between fault and

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44 Art 1084 applies not only to the amount of damages but also to the substantive grounds for liability.

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___wrongfulness, judges feel entitled to use arguments in support of the absence of ___fault (which is irrelevant in strict liability cases) to conclude that wrongfulness ___is not established. The following case is illustrative. The prisoner sought dam___ages for HIV infection acquired during his imprisonment as a result of several ___medical treatments. The prison correctional agency (defendant in that case) ar___gued that all medical instruments were sterile and supported their arguments ___with various letters. The claimant’s HIV test performed on the date of impris___onment was negative. In the course of imprisonment a prisoner could not obtain ___medical treatment anywhere other than in the prison hospital. The court refused ___to grant compensation stating that the claimant did not prove the defendant ___committed a wrongful act.45 It should be noted that in Russia imprisoned per___sons have no practical means to determine or discover the circumstances of ___medical treatment. ___ Returning to the infected blood case, if the court agrees that the transfusion 7/75 ___service was defective, A faces another challenge – proving causation. As there ___are potentially several ways to contract Hepatitis N, the causal link between a ___blood transfusion in X Hospital and Hepatitis N infection is uncertain. A has to ___prove that the very blood transfusion at X Hospital was a factual cause of A’s ___disease. A’s position is even more difficult as he most probably has no test re___sults showing that he was Hepatitis N negative prior to the blood transfusion. ___ Case law reveals several medical malpractice cases where causation was in- 7/76 ___ferred from background circumstances. In Krasnoyarskiy Region, the claimant ___contracted Hepatitis C after a blood transfusion. The defendant provided both ___the blood and the instruments used for the transfusion. The court-appointed ___expert managed to get samples of transfused blood and examine them. He con___cluded that the blood transfused was not infected. The expert also noted that ___the infection could be transmitted with non-sterile medical instruments. It was ___not possible to establish whether the instruments used in the transfusion were ___sterile or infected. The court awarded compensation to the claimant relying on ___expert opinion, stating that medical treatment was the most probable cause of ___the infection.46 In another case, the claimant was infected with bony panaris of ___ ___45 Judgment of Moscow City Court (appeal) 4.4.2012, case No 33-9726; Judgment of Judicial ___Panel for private law disputes of Supreme Court of Komi Republic (appeal) 23.1.2012, case ___No 33-299/2012; Judgment of Judicial Panel for private law disputes of Moscow City Court (ap___peal) 26.11.2010, case No 33-36941. 46 Summary of Krasnoyarsk Regional Court (appeal) 24.4.2006 ‘Summary of case law of Kras___ noyarsk Region on medical malpractice cases’; Appeal Judgment of Krasnoyarsk Regional ___Court (appeal) 27.8.2012, case No 33-6203/2012 (donor infected with Hepatitis after proctologist ___treatment, uncertain causation – blood donation or proctologic treatment – claim against hos___pital that collected blood was successful). See also Decree of Presidium of Supreme Court of

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fingers after a manicure. The court held that the manicure was the most probable cause of the disease and awarded damages.47 Opposite judgements under similar circumstances also exist.48 Inferring causation and the standard of proof for causation are not extensively discussed in Russian academic writings. It should also be noted here that the medication in Russia is, hypothetically, free. Nevertheless, many prefer to employ private doctors (due to poor quality and the overburdening of state owned free hospitals). The courts, however, refuse to reimburse the costs of private medical care, stating that a victim can obtain free medical aid.49 Illustrative is a case where cancer was detected late and the victim underwent surgery in Germany – the costs of surgery were found non-compensable as the surgery could have been obtained in Russia for free.50 The court refused compensation notwithstanding the well-known fact that obtaining such surgery in Russia is a very lengthy and complicated procedure. In this case, assuming that the claimant is entitled to free medical treatment, he will be compensated only for the cost of drugs (if they are not provided for free, which could be the case) and for loss of earnings but not for treatment in private medical facilities.

2. Non-pecuniary damage Unlike pecuniary damage, non-pecuniary loss is compensable only if the seller/ manufacturer/ contractor is at fault (art 15 of the LCRP), so A has to prove X Hospital was at fault. The following case is illustrative. The patient was infected with HIV through a blood transfusion. The defendant hospital argued that it undertook all steps required to reveal the contamination, but the blood was

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Republic of Kalmykia (supervision) 11.7.2012, case No 44Г-08/2012 (6 children were infected with HIV after medical treatment in a hospital, the children subsequently died – parents’ claim was successful although the circumstances and details of contamination were not established; the cause could have been non-sterile instruments or transition from a HIV-infected child who had also undergone medical treatment). 47 Judgment of Saint-Petersburg City Court, 6.2.2013, case No 33-1712. 48 Appeal Judgment of Supreme Court of Republic of Kalmykia, 17.5.2012, case No 33-288/2012 (child with HIV from the same hospital as in note 46 and his mother both died from HIV, the expert stated it was not clear whether the claimants were infected with HIV in defendant hospital or elsewhere, and how they were infected – claims thus were dismissed); Judgment of Kuvshinskiy City Court (Sverdlovsk Region) (first instance) 9.10.2012, case No 2-1/2012. 49 Art 1085 of the Civil Code, Decree of Plenum of Supreme Court of Russian Federation dated 26.1.2010 No 1 ‘On application by courts of private law rules on compensation for damage to life and health of individuals’, item 27. 50 Judgment of Moscow City Court (appeal) 14.11.2013, case No 4г/4-11442.

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___taken from the donor during the period when HIV could not be detected with ___ordinary tests (‘seroconversion window period’). The donor also did not know ___that he was HIV infected. The court agreed that the hospital could not have ___known that the blood was infected and dismissed the claim for non-pecuniary ___losses.51 ___ We believe that the vast majority of Russian judges would find that X Hospi- 7/80 ___tal was not at fault. This would lead to refusal to compensate A for non___pecuniary damage. ___ ___ ___3. Time limits ___ Would it make any difference to your analysis if A contracted the virus as the result of a ___ blood transfusion conducted in 2001, but her condition only manifested itself in 2012? (In ___ this context, consider in particular differences in the time limits applied to the various ___ possible bases of liability.) ___ ___ The law is unclear in this respect. According to art 14(3) of the LCRP if goods 7/81 ___and work are dangerous to life and health of the consumer, damage is reparable ___regardless of when the damage became apparent. The cited provision, however, ___is silent on defective services. The gap can be filled with art 1097 of the Civil ___Code stating that damage is compensable if it occurs within 10 years from the ___date the service was rendered. ___ Until recently, the limitation period in Russia was three years and com- 7/82 ___menced when a claimant became aware or should have become aware of the ___violation of his rights. In principle, this could result in claims being filed long ___after the damage occurred provided that the claimant had not been aware of the ___damage. In 2013, relevant provisions of the Civil Code were amended and the ___maximum extension of the limitation period was introduced: the limitation pe___riod now expires 10 years after violation of a right. It is not clear yet what ‘a vio___lation of a right’ means; the provision is new and case law is not available yet. It ___is our belief that under the new wording of the Civil Code, which provides for 10 ___years maximum extension of the limitation period, in the case at hand (with the ___modification that the infection was revealed 11 years after the transfusion), the ___claim will be dismissed. The courts in Russia have authority to restore the limi___tation period for an individual who missed it due to good cause. It is not clear ___after the amendments to the Civil Code whether restoration of a limitation pe___riod for individuals or the unlimited period provided for in art 14(3) for defective ___ ___51 Judgment of Judicial Panel for solution of private law disputes of Penza Regional Court (ap___peal) 29.6.1999, case No 33-1204.

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goods and work must fall within the 10 year maximum extension term; it is still a grey zone that has not been resolved by the courts.

B. Claim Against Y Ltd A claim against Y Ltd. is available but, in practice, claimants in Russia prefer to sue their immediate contractors (hospitals or governmental entities having control over a hospital’s assets) rather than bothering with finding and suing suppliers or manufacturers. Should A decide to sue a blood provider, Y Ltd will likely be treated as a producer or, more probably, a contractor who rendered poor services to X Hospital that caused the damage to A. Whether the blood is treated as a ‘good’ or ‘service/work’ in the sense of art 14 of the LCRP does not matter – art 14 of the LCRP does not distinguish between goods, work, and services. The liability regime is ultimately the same. The analysis for the claim against Y Ltd would be similar to the analysis for the claim against X Hospital described above. At least once, Russian courts dismissed a claim against a blood supplier due to the absence of a contract between a blood supplier and the victim. We did not manage to obtain the full text of the decision; if the summary provided in a judgment of another court is correct, it looks contradictory to the clear wording of art 14 of the LCRP.52 The time limits for A’s claim against Y Ltd will be the same as the ones for X Hospital. If A’s claim against X Hospital is successful, X Hospital would have a recourse claim against Y Ltd for repayment of the amount paid to A. Y Ltd’s obligation to pay under the recourse claim to X Hospital would be determined based on the contract to which they were both parties. If the contract does not provide otherwise, Y Ltd, being a commercial organisation, is strictly liable for breach of the contract if the contract was made in the course of its business activities. In at least one case, a blood supplier was found liable for supplying blood infected with the HIV virus, which was not recognizable to him (again ‘seroconversion window period’). The blood supplier was a non-commercial state-owned hospital; the type of organization (non-commercial) did not preclude the court from ruling that the blood supply contract was made in the course of commercial activities. The blood supplier was held liable for the amount that was paid by the claimant to the victim.53

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52 Appeal Judgment of Thirteenth Commercial Appeal Court, 29.8.2012, case No А56-18158/ 2011. 53 Appeal Judgment of Thirteenth Commercial Appeal Court, 29.8.2012, case No А56-18158/ 2011.

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___C. Claim Against Z ___ ___A’s claim against Z is hypothetically available. As Z is neither the producer nor a 7/87 ___party to a contract with A, the claim will be governed by the general rules of tort ___law. A must prove damage, wrongfulness and causation, and Z can defend him___self by proving that he is not at fault. We believe A will lose his case as he will ___not be able to establish either wrongfulness (Z did not violate any rule of law) ___nor proximate causation (donation of blood by Z was not an immediate cause of ___A’s disease), and Z will be able to prove he was not at fault (he did not know he ___was a carrier of Hepatitis N and he was in no way obliged to monitor medical lit___erature before donating his blood). ___ ___ Case 3: Bridge Collapse ___ ___ A, a pedestrian using a public right of way, is injured by the collapse of a bridge con___ structed by X Ltd on land belonging to Y, who commissioned the construction, on the ba___ sis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires ___ that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a different architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is ___ obliged to construct the new bridge for no additional remuneration. ___ What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, ___ and so subject to strict product liability, or does it merely represent the performance by Z ___ of a service, to which some alternative liability regime applies? ___ What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a direct claim or a recourse action? ___ ___ ___A. Claim Against Y ___ ___Since July 2013, amendments to art 60 of the Town Planning Code (TPC) have 7/88 ___been in effect. Under these new provisions, the owner of a building54 is liable for ___damage caused by destruction or collapse of a building. Now, the claimant must ___prove only damage and that the damage was caused by destruction or collapse ___of the building. The owner can escape liability if he proves that the damage oc___curred due to the victim’s intentional conduct, the activities of third persons, or ___force majeure. If a victim is an individual who is deceased or suffered harm to ___health of at least medium grade,55 the owner shall pay not only compensatory ___ ___ 54 In Russia, buildings are separate immovables alongside land plots. We assume that Y was not ___only the owner of a land plot but also the owner of a bridge as an independent immovable thing. ___55 That is if a victim loses earnings capacity for more than 21 days, or if he suffers permanent ___earnings capacity loss of at least 10% (according to special methods of calculation).

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damages but also make additional compensation to the victim (or close relatives) in the amount of RUR 1 to 3 million (approx € 20,000 to € 60,000). The nature of this compensation (whether it is fixed non-pecuniary damages or a kind of a ‘punitive damages’) is unclear. The most plausible explanation for the provision of such compensation is the legislature’s belief that victims often remain undercompensated for damage to life and health and hesitation by courts in awarding damages for non-pecuniary losses. Non-pecuniary damage is not covered by art 60 of the TPC.56 Academics explain that the new regime of compensation for damage caused by defective buildings was introduced for the benefit of victims who, under the previous regime, were puzzled by the plurality of possible defendants (owner, real estate manager, constructor, engineer, designer, suppliers of raw materials) and were not in a position to prove which of them rendered defective services or supplied defective goods.57 The new legislation is also an echo of the Transvaal water park tragedy of 2004, in which 28 died and 193 were injured after an aqua park collapsed. It appears from the new legislation that the liability of building owners is now similar to the liability of owners of dangerous things, with the exception of non-pecuniary loss. In the latter case, non-pecuniary loss is compensable irrespective of the tortfeasor’s fault while art 60 does not address non-pecuniary loss. Also, similar to the entities involved in hazardous activities, the owners of buildings are liable under art 60 even if the buildings were used by the victim for business purposes, unlike under art 14 of the LCRP (product liability regime). As the new legislation provides for a special liability regime more favourable to the claimant than the product liability regime, Y seems to be the most probable defendant in this case, and the court will most probably find Y liable and responsible for compensating A. After Y pays compensation to A and, probably, additional compensation of RUR 1 to 3 million to each victim, Y is entitled, under art 60 of the TPC, to file a recourse claim against (1) a designer who drafted defective architectural plans, (2) a contractor, (3) a professional organization in which the designer or the constructor participated – within the limits of a compensatory fund of the organisation, (4) a state or non-state expert who confirmed that the plans or the building were in compliance with applicable safety regulations, (5) a state if the

_____ 56 Art 55 TPC. 57 UG Leskova, Zakonodatel’nyye modeli imushchestvennoy otvetstvennosti pered tret’imi litsami (potrebitelyami) s uchastiyem samoreguliruyemykh organizatsiy [Legal models of pecuniary liability to third parties (consumers) where self-governing organizations are involved], Grazhdanskoye pravo 2014, No 2, 18–22.

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___state authority confirmed that the building was in conformity with applicable ___safety regulations and allowed the use of the building. ___ In the case at hand, Y’s recourse claim against Z will be successful. It is not ___clear, however, whether art 60 of the TPC (in the part concerning a recourse ___claim against the designer) provides for a special liability regime or just a re___minder of general rules of liability for breach of contract. We suggest the regime ___is not special; hence, Y will have to prove that Z breached the contract and its ___breach caused the damage to Y. Z’s fault is irrelevant as liability for the breach ___of business contracts is strict. ___ There is no case law on the new version of art 60 of the TPC yet. ___ ___ ___B. Claim Against X Ltd ___ ___A can sue X Ltd. There is no contract between A and X Ltd; consequently, A will ___have to rely on general tort law provisions, or on product liability provisions ___(arts 1095–1098 of the Civil Code, art 14 of the LCRP). A can claim the damage ___was caused by X Ltd’s defective work. A then has to prove that X Ltd performed ___defective work. X Ltd will respond by asserting that the damage to A was caused ___not by its work but by the defective plan. This defence sounds convincing. A has ___an opportunity to rely on art 716 of the Civil Code (section on contracts for ___work), stating that the contractor building something shall stop the work if he ___determines that the plans provided are improper; if the contractor does not stop ___the work, he breaches the construction contract which results in harm to the ___claimant. However, the contractor is not obligated to stop the work if the defect ___in the plans is not manifest and the contract does not provide for the contrac___tor’s expertise on the documentation.58 ___ On the assumption that the defectiveness of the plan was not manifest, A ___has little chance of success with his claim against X Ltd. ___ ___ ___C. Claim Against Z ___ ___If A decides to sue Z directly, he will have to rely on the product liability rules of ___arts 1095–1098 of the Civil Code, art 14 of the LCRP, or on general tort law rules. ___ ___ 58 AE Sherstobitov, Postateynyy kommentariy k § 1 “Obshchiye polozheniya o podryade” gl. 37 ___“Podryad” (st. 702–729) GK RF [Article-to-article commentary to para 1 ‘Basic provisions on ___contract for work’ of ch 37 ‘Contract for work’ (arts 702–729) CC RF], Vestnik grazhdanskogo ___prava 2011, No 4, 130–206.

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As the special product liability provisions equate products and service, for the purposes of strict product liability, it is irrelevant whether a plan is a ‘product’. A successful claimant, however, must prove the work of the designer was defective. The mere collapse of the bridge is not enough to prove defectiveness. It will be difficult for a claimant to prove that the plan was defective; he should identify a defect in the design documents and demonstrate that the decision made by the defendant was contrary to the rules of architectural design. The claimant will have to apply for the appointment of an expert to establish the defect. If a court-appointed expert fails to find any discrepancies in the plans, the claim will fail. If the expert finds a discrepancy in the plan and it turns out that this discrepancy caused the collapse, then Z will be held strictly liable under arts 1095–1098 of the Civil Code, art 14 of the LCRP.

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___Jung-Lung Chen ___ ___ ___Jung-Lung Chen Product Liability in Taiwan https://doi.org/10.1515/9783110547559-010 ___Contents ___Part I: General Questions | 179 I. Inadequacy of Tort and Contract | 179 ___ II. Legitimacy of Adopting Strict Liability in Product Liability | 181 ___ Part II: Cases | 182 ___ Case 1: Brake Pad Failure | 182 ___ Case 2: Infected Blood | 197 ___ Case 3: Bridge Collapse | 205 ___ ___ ___ ___Part I: General Questions ___ ___Taiwanese law has adopted a strict liability regime for products liability. It is a 8/1 ___departure from the traditional fault-based tort liability found under the Taiwan ___Civil Code. The policy consideration for imposing strict liability reflects the ___concern about providing sufficient protection to parties that might be harmed ___by a product. To achieve that goal, the Taiwanese Civil Code was amended to ___include art 191-1 to allocate to the manufacturer a presumed negligence liabil___ity, and art 7 of the Consumer Protection Law was written to impose strict li___ability on business operators for harm caused to consumers. The proposal for ___Civil Code art 191-1 and the interplay of the Civil Code with Consumer Protec___tion Law art 7 reflect past and future discussion of products liability in Taiwan. ___ ___ ___I. Inadequacy of Tort and Contract ___ ___A. Problems with Contract Law1 ___ ___1. The circle of persons who may be liable is limited to parties in privity of ___ contract ___ ___Since contractual liability only applies to parties in direct contractual privity, 8/2 ___the persons who can be liable are restricted to manufacturers or traders and ___ ___1 The Executive Yuan Consumer Protection Committee, A Research on the Torts Liability of ___Business Operators to Consumers (1995).

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other sellers having direct contractual relationships with the consumer who purchases the product. If the manufacturer is not a party in direct privity of contract, it might not be possible for an aggrieved consumer to receive full compensation despite winning a lawsuit if there is extensive damage caused by the defective product as dealers are often businesses with limited capital (eg retailers).

2. The circle of persons entitled to claim compensation is limited to parties in privity of contract Contractual liability is based on the premise that contractual privity exists between the parties, thus only a buyer is entitled to claim compensation, not a buyer’s family members, relatives, or other persons using the product, or third parties suffering harm due to the product’s defect.

3. Business operators are in advantageous positions, often relying on standard disclaimer clauses to limit their liability Business operators are knowledgeable about the products they put on the market, and they include disclaimer clauses in the contract as a means of defence to be used in future litigation. This limits the compensation that an injured party can claim through a contractual relationship.

4. The limitation period for these claims is short When a buyer wants to claim rights based on contractual liability after suffering harm from a defective product, the statute of limitation for these claims has generally run out.

B. Problems with Tort Law2 The advantage of claiming compensation from business operators based on tort liability is that non-contractual third parties can also claim compensation. How-

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2 Tsung-Chih Chiu, Discussion of Basic Issues of Torts of Civil Code Draft Amendment (Middle), 30 China Law Journal No 2, 82 (April 1985).

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___ever, when a victim claims traditional tort liability based on fault doctrines, he ___must provide evidence of the offender’s intent or negligence in order to obtain ___compensation. Considering a manufacturer’s expertise and skills and the many ___stages in the course of marketing the product which allow for interference with the ___product, providing evidence of the manufacturer’s intent or negligence is difficult ___in practice. ___ ___ ___II. Legitimacy of Adopting Strict Liability in Product Liability ___ ___Considering the above, traditional contract and tort claims may not lead to satis- 8/7 ___factory compensation for consumers. But with the advances in science and ___technology and industrial development, today’s consumption is the result of ___mass production, mass marketing and mass consumption, unlike traditional di___rect sales methods in the past. Moreover, a manufacturer’s purpose is to make a ___profit, and production methods often involve a high degree of expertise and ___technology, often to the economic and informational disadvantage of consum___ers. Based on these grounds, scholars hold the view that this risk should be ___borne by the manufacturer to protect consumers. ___ ___ ___A. Risk Control ___ ___Manufacturers possess professional information, technologies and skills and 8/8 ___can thus better control risks in terms of product design, production or manufac___turing. If they bear the risk, this might lead to a higher degree of care or more ___investment funds to cover liability, reduce the risks of products and lower the ___occurrence of product accidents. ___ ___ ___B. Public Interest ___ ___Today’s consumption has mainly resulted in mass production, mass marketing 8/9 ___and mass consumption. Since risks cannot be avoided and will always exist in ___mass manufacturing, it is more acceptable that the burden of risks be imposed ___on manufacturers rather than consumers should inevitable harm occur. Based ___on public policy and social interests, it seems fair if parts of the revenues of ___manufacturers serve as compensation for consumers who have suffered harms. ___ ___

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C. Risk Distribution A manufacturer operating a business is engaged in a risky enterprise. When it can be expected that the products might be dangerous and cause harm, anticipated damage can be included in the costs and thereby passed on to consumers in general, or, by means of liability insurance, the responsibility for damages can be passed on to insurance companies, so as to reduce one’s own liability. Moreover, since the manufacturer’s financial resources are more abundant, this facilitates risk distribution and burden-shifting. Separately assuming strict liability for defective products is better than unsatisfied compensation claims by economically disadvantaged victims. We analyze and comment on the three cases as follows.

Part II: Cases Case 1: Brake Pad Failure X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it considered that the risk was likely to eventuate only very rarely and did not outweigh the general advantages of the new material. It included a statement about the possibility of failure in the small print of the product instructions supplied with all of its bicycles incorporating the new brake pads. A, who purchased one of the bicycles, is one of a handful of people injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also damaged. B, a passer-by, is injured in the same accident.

A. Analysis What is X Ltd’s liability to A and B? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail?

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___1. Liability of X Ltd to A ___ ___a) Contractual liability for failure to perform general obligation ___ ___Article 227 of Taiwan’s Civil Code provides the following rule with regard to in___complete performance: ___ ___ ‘If a contracting party incompletely performs his obligation by reason of ___ a circumstance which is imputed to that party, the other contracting party ___ may execute his right according to the provisions of the default or the im___ possibility of the performance. In addition to the injury arising from the ___ incomplete performance in the preceding paragraph, the other contract___ ing party may claim compensation for other injuries arising therefrom, if ___ any.’ ___ ___ The provision on incomplete performance provides a rule as to when liabil___ity can be attributed to a contracting party. In the present case, X Ltd – knowing ___that the new brake pads may under certain conditions entail a risk of malfunc___tioning – provides labeled instructions only in small letters, thus making it dif___ficult for a buyer to be aware of the situation so as to avoid the materialisation ___of the risk. This can be considered to be attributable to X and is in violation of ___the duty to provide accompanying instructions for proper use that is part of X’s ___performance obligations, thus resulting in A’s injuries and the bike’s damage. ___In addition to requesting compensation for the bike, A may also request addi___tional compensation for bodily injury and related interests. ___ ___ ___b) Contractual liability for breach of the warranty of merchantability ___ ___Article 354 of the Taiwanese Civil Code is a provision concerning product war___ranty, with defects of products divided into categories concerning value, fitness ___for ordinary purpose, fitness for particular purpose and guaranteed quality. The ___legal effect thereof is stipulated in arts 359, 360 and 364 of the Civil Code; de___pending on the situation, one can seek price reduction, rescission of contract, ___compensation for damages or delivery of another product free from defect. Arti___cle 360 provides that a buyer may demand compensation for nonperformance, ___provided the quality guaranteed by the seller is lacking or the seller intention___ally concealed a defect. ___ This is a statutory liability for a guarantee of quality, no matter whether or ___not the seller is negligent. However, the seller is only liable if the guarantee is

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not satisfied at the time when the risk shifts. In this case, the bike itself was not defective when the risk shifted. The seller merely failed to meet the obligation of informing the buyer about how to use the bike to avoid a malfunctioning of the brakes. No compensation may be claimed based on liability for warranty of merchantability.

c) General tort liability Article 184 of the Taiwanese Civil Code regulates three types of torts: (A) A person who, intentionally or negligently, has wrongfully damaged the rights of another is bound to compensate him for any injury arising therefrom. (B) The same rule shall be applied when the injury is done intentionally in a manner against the rules of morals. (C) A person, who violates a statutory provision enacted for the protection of others and therefore prejudice to others, is bound to compensate for the injury, unless no negligence in his act can be proved. The first two torts in art 184 (I) provide for fault-based claims for two different types of loss. The claim that rises from art 184 stating that ‘a person who, intentionally or negligently, has wrongfully damaged the rights of another is bound to compensate him for any injury arising therefrom’, is viewed to provide for a claim filed on behalf of the victim for injuries that harmed the personal rights of the victim. This personal right is inclusive of the health and well-being of a victim, and therefore a compensation claim for a victim’s injuries is usually based on this claim in art 184. The scope of a victim’s personal rights as stated in art 184 is still debated in Taiwan, but pure monetary or economic rights are not viewed as included in these personal rights. This is because the second claim that rises from art 184 stating, ‘the same rule shall be applied when the injury is done intentionally in a manner against the rules of morals’ has been determined to be the legal basis for property or pure economic loss. Under this definition, only intentional actions could be the basis of property or pure economic loss claims. Negligent actions could not. The third type of tort is found in the Taiwanese Civil Code art 184 (II) that states, ‘A person, who violates a statutory provision enacted for the protection of others and therefore causes injury to others, is bound to compensate for the injury, unless no negligence in his act can be proved.’ If statutory provisions mandate such compensation, then the injuring party needs to compensate for such injury, even if it is a pure eocnomic loss. This is the other basis for potential claim of pure economic loss. The essential elements constituting a tort are harmful conduct, violation of rights or interests of another person, damage, causation, illegality, and

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___willful misconduct. As regards the (A) type of tort mentioned above, regulated ___by art 184 of the Taiwanese Civil Code, it is as explained above the recognized ___law in Taiwan that creditors’ rights and purely economic loss are not in___cluded. ___ In the present case, A must prove all elements of a tort before holding X Ltd ___liable for damage to the injured persons. As an injured party, A could assert a ___claim based on the first type of tort claim in the Taiwanese Civil Code art 184. ___However, the damaged bike is damage to the product itself and thus represents ___purely economic loss. Only if A can prove that X acted intentionally in a manner ___infringing the rules of morals or in violation of a statutory provision enacted for ___the protection of others, can a claim be filed in this respect. ___ ___ ___d) Special tort liability (product manufacturer liability) ___ ___Article 191-1 of the Taiwanese Civil Code stipulates: ___ ___ ‘The manufacturer is liable for the injury to another arising from the com___ mon use or consumption of his merchandise, unless there is no defective___ ness in the production, manufacture, process, or design of the merchandise, ___ or the injury is not caused by the defectiveness, or the manufacturer has ex___ ercised reasonable care to prevent the injury.’ ___ ___ Article 4 of the Enforcement Rules of Consumer Protection Law stipulates: ___ ___ ‘The term “merchandise” refers to real estates or personal estates which are ___ the object of transaction, including final products, semi-finished products, ___ raw materials or parts and components.’ ___ ___ The civil liability of a manufacturer is based on presumed negligence and ___causality. When the ordinary use or consumption of the product results in harm, ___the manufacturer shall be liable unless the manufacturer can prove that there is ___no fault in the production, manufacture, process or design of the product or that ___the defect of the product did not cause the harm suffered by the victim. ___ In the present case, A was injured while riding the bike due to a failure of ___the new brake pads. X Ltd knew that the brake pads could malfunction under ___certain conditions, but only provided warning in small font letters that were not ___apparent enough to a general purchaser so that such a purchaser was made ___aware of such risks. Under such conditions, the reasonable care that X Ltd must ___prove that it had exercised to refute the presumed negligence claim has not

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been exercised. Unless X Ltd can prove that A’s harm had no causal relationship with its negligence and thus overcome the presumption of causal relationship, X Ltd is liable to pay compensation to A. According to prevailing scholarly opinion, a manufacturer’s liability under art 191-1 of the Civil Code resembles product liability under art 7 of the Consumer Protection Law in that compensation is limited to interests other than that in the product itself and does not include purely economic loss (for further details see below). Therefore, only to the extent that A has suffered bodily injury can he claim compensation from X Ltd based on product manufacturer’s liability.

e) Product liability under Consumer Protection Law In Taiwan, art 7 Consumer Protection Law provides: ‘(I) Business operators engaging in the design, production or manufacture of goods or in the provisions of services shall ensure that goods and services provided by them meet and comply with the contemporary technical and professional standards of reasonably expected safety prior to the sold goods being launched on the market, or at the time of rendering services. (II) Where goods or services may endanger the lives, bodies, health or properties of consumers, a warning and the methods for emergency handling of such danger shall be labeled at a conspicuous place. (III) Business operators violating the two foregoing paragraphs if this results in a product that does not meet the necessary standard and thus causes injury to consumers or third parties shall be jointly and severally liable therefor, provided that if business operators can prove that they are not guilty of negligence, the court may reduce their liability for damages.’ In Taiwan, product liability is a strict liability imposed on business operators. Business operators covers business entities that have partaken in various aspects of the product producing processes. Therefore, the parties responsible for product liability under Taiwanese law are not only limited to the manufacturer of the product, but also include businesses that have provided services in conjunction with the product. It is important to explain the different liabilities imposed by the Taiwanese Consumer Protection Law and the Civil Code art 191-1. There are two important differences: the parties who are covered by the provisions, and the liability standard that applies. As for the parties affected, the Consumer Protection Law imposes liability on business operators (inclusive of both manufacturer and ser-

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___vice provider) for harm caused to a consumer. In fact, there remains some doubt ___as to whether the protection provided by art 7 is provided only to consumers. In ___art 7 (III), the liability is imposed on ‘consumers or third parties’. There is dis___cussion among scholars as to whether or not it is proper to impose strict liability ___for injuries caused to non-consumer third parties. The Consumer Protection Law ___only mentions third party liability in one other article3 and makes it clear that it ___considers disputes and litigation arising under the Law to be between the con___sumer and business operator. Therefore, while the third party liability men___tioned in art 7 (III) has been defined to refer to reasonably foreseeable third par___ties that might be injured due to a business operator’s defective product, the ___debate as to whether or not the inclusion of third-party liability fits in with the ___structure of the Consumer Protection Law continues. As for the liability stan___dard, these operators are strictly liable for a defective product (or service) that ___enters the market and causes harm. Whether or not a business operator is negli___gent does not refute a business operator’s strict liability, but does create a pos___sibility of reduction of damages if the business operator can prove that they ___were not negligent (see below). ___ Conversely, under the Civil Code art 191-1, liability is only imposed on the 8/27 ___manufacturer although the liability is not limited to harm to consumers. As to ___the liability standard, a manufacturer is considered to be negligent for an injury ___caused by the common use or consumption of merchandise unless the manufac___turer can prove that they had taken reasonable care to prevent the injury from ___happening. This is in line with the overall fault-based liability found in the Tai___wanese Civil Code that allows the tortfeasor to refute their negligence liability ___by showing reasonable care went into preventing the injury from happening ___(except that it reverses the burden of proof of negligence). This is different from ___the Consumer Protection Law since the proof of taking reasonable care under ___the Civil Code art 191-1 refutes the negligence liability of a product manufacturer ___and means that there is no claim for any harm caused. ___ The Consumer Protection Law and the Civil Code serve different purposes. 8/28 ___The Consumer Protection Law is focused on protecting the consumer (and per___haps third parties) from defective products, so strict liability is imposed on vari___ous business operators that allow defective products to be used by the consum___ing public. Conversely, the Civil Code art 191-1 is focused on manufacturer liabil___ity, so the issue of whether or not a manufacturer has taken reasonable care in ___preventing a risk from happening determinines the liability. Proof that the ___ ___3 Consumer Protection Law art 10-1 provides, ‘Business operators set out in this section are ___prohibited from excluding or restricting liability as against consumers or third parties in ad___vance.’

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manufacturer exercised reasonable care refutes a manufacturer’s liability. Although many product liability cases would be covered by the Consumer Protection Law, the Civil Code art 191-1 serves as further statutory protection for injured parties that might not be consumers (if third parties are not covered under the Consumer Protection Law) although the liability standard is less strict than under the Consumer Protection Law. The Consumer Protection Law is considered to be a special law and is applied in most product liability cases before the Civil Code art 191-1. Under the Consumer Protection Law, if a product does not meet the reasonable expectations of safety to be expected in accordance with the security, technology or professional standards at the time the product entered the market or when the service was provided, any injury caused by that failure would allow compensation to be paid to the victim. In deciding this question, the Taiwanese courts have been rather consistent in not imposing strict liability under the Consumer Protection Law for harm suffered in ordinary use if there is sufficient evidence that the product has fulfilled various governmental test and professional standards related to the product before the product was allowed on the market. Moreover, if a business operator can prove that they were not negligent at the time of the injury, the Consumer Protection Law art 7 (III) states that the courts can reduce the amount of damages that they need to pay. In actual practice, the Taiwanese courts have used the business operator’s proof of meeting the reasonably expected safety standards and label standards required by art 7 (I) and (II) as a basis for establishing business operators as non-negligent and refused the damages that the plaintiffs sought.4 If this occurs, however, this may in fact be a finding that the product is not defective rather than a finding that the business operator has not been negligent and this would explain why damages are refused. More generally, the Consumer Protection Law art 7 (III) is viewed as a way of easing the burden resulting from the strict liability imposed on business operators when it can be proven that they were not negligent. However, because the Consumer Protection Law is meant to protect consumers, even if a manufacturer shows that they are not negligent, they will still have to pay some damages for the injuries caused to the consumers. It would be impossible to relieve the manufacturer from paying any damages. The exact determination of damage reduction is left to the discretion of judges presiding over the cases. Due to the lack

_____ 4 Taiwan High Court Kaohsiung Branch Court Civil Appellate Court No 18 (2004) and Taiwan Taipei District Court Civil Litigation No 1917 (2001). There has yet to be a case in Taiwan where a business operator has argued for non-negligence under the Consumer Protection Law art 7 (III) that was not based on them complying with the safety and labeling standards set forth by the Consumer Protection Law art 7 (I) and (II).

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___of cases highlighting this issue, there has not been any substantial discussion of ___the amount that damages should be reduced through the Consumer Protection ___Law art 7 (III). ___ The ‘reasonable expectation of safety’ is decided by three factors under art 5 ___of the Enforcement Rules of Consumer Protection Law: what the labels and in___structions state with regard to the products or services; the reasonably antici___pated use or acceptance of products or services; and the safety standards at the ___time when products are circulated into the market or when services are pro___vided. If business operators can prove that they were not negligent, their dam___ages could be decreased. ___ The types of defect that give rise to dangers are divided into four catego___ries: design, manufacturing, instruction and development. Instruction defects, ___also known as non-compliance with the duty to warn, means that, even ___though there are no design or manufacturing defects, due to special features of ___the product that require it to be used in a particular manner to be safe, if a ___product is not used in that manner, loss and injury may easily occur. If the ___manufacturer has not provided appropriate warnings, appropriate labels or in___structions, harm may result because of a consumer’s inappropriate use of ___product.5 ___ In this case, X Ltd knew of the risk that the new brake pads might in special ___circumstances fail, but nevertheless only provided labeled instructions in small ___font. As art 7 (II) of the Consumer Protection Law, which requires conspicuous ___warning labels, is violated, this constitutes an instruction defect and compensa___tion should be paid for A’s damage. ___ The prevailing scholarly opinion is that damage to the product itself consti___tutes purely economic loss, which is recoverable according to relevant provi___sions of civil law dealing with ‘warranty for product defects’ or ‘incomplete per___formance’ and other relevant provisions of contractual obligations. Consumer ___protection provisions for product liability should not be applied.6 The reasons ___are as follows:7 ___ ___ 5 Sen-Lin Chan/Chen-Yu Feng/Ming-Chu Lin, Understanding Consumer Protection Act 41, Ex___ecutive Yaun Consumer Protection Committee (February 1995). ___6 Tse-Chien Wang, Law of Tort (II): Special Tort 325 (March 2006); Tsung-Chih Chiu, Products ___Liability Interpretation – Using the Consumer Protection Act as Focus – A Collection of the ___Contemporary Famous Jurisprudents Thesis 206–207 (January 1996); Sen-Lin Chan, The Application and Analysis of the Consumer Protection Act on Products Liability in Practice, Civil ___ Jurisprudence and Precedents Research (III), Monographs of Consumer Protection Act 198 ___(August 2003). ___7 Chung-Wu Chen, Discussion the Scope of Legal Protection of Products Liability in the Con___sumer Protection Act, 134 Taiwan Law Journal 80 (August 2009).

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i)

Comparative law perspective: The United States, the EU Product Liability Directive, and other legal systems, all limit the scope of protected interests under product liability law by excluding purely economic loss.8 ii) Distinction between contract liability and tort liability: A consumer’s economic interest in possessing goods falls under ‘liability for warranty of product defect’ or ‘incomplete payment’ and other contract liability law originally within the scope of protected legal interests, and its nature does not fall within the scope of product liability under the Consumer Protection Law. iii) Reasonable limitation of business operator’s responsibility: The Consumer Protection Law stipulates that product liability is in principle a kind of strict liability. Since the liability is strict, the scope of protected interests should not be easily enhanced to avoid unlimited expansion of liability. Therefore, since this case is only about bodily injury, X Ltd can be required to pay compensation in accordance with product liability, but A’s bicycle would be considered to be pure economic loss and not recoverable.

2. Liability of X Ltd for B’s injury a) Contractual liability A contractual relationship between X and B does not exist, therefore as to B’s injury, it is not possible to claim contractual liability.

b) General tort liability General tort liability can be found in the Taiwanese Civil Code art 184, and art 184 (III) states that, ‘A person, who violates a statutory provision enacted for the protection of others and therefore causes prejudice to others, is bound to compensate for the injury, unless no negligence in his act can be proved.’ B can claim statutory violation based on the Consumer Protection Law art 7 (III) that states, ‘Business operators violating [reasonable expected safety requirements] which results in a product not meeting the necessary standard and thus causing injury to consumers or third parties shall be jointly and severally liable therefor, pro-

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8 Tse-Chien Wang, Civil Theory and Precedents Research (VIII): Products Liability and Pure Economic Loss 260–268 (December 2009).

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___vided that if business operators can prove that they are not guilty of negligence, ___the court may reduce their liability for damages.’ In this case, because B was in___jured due to X Ltd’s negligence, B’s claims against X Ltd would be made in con___junction with A being able to successfully make the negligence claims and seek ___compensation from X Ltd. ___ ___ ___c) Special tort liability ___ ___Article 191-1 of the Civil Code concerning the manufacturer generally applies 8/38 ___when due to the ordinary use or consumption of a product a person suffers ___damage. In this case, B is injured because of A’s defective brake and collision; ___in accordance with art 191-1 of the Civil Code it is presumed that X Ltd was neg___ligent (subject to X Ltd proving otherwise), it is also presumed that damage and ___defective product have a causal relationship, so X Ltd can be held liable to pay ___compensation. ___ ___ ___d) Product liability under Consumer Protection Law ___ ___Product liability provided for in the Taiwanese Consumer Protection Law art 7 8/39 ___(III) protects not only consumers but perhaps also third parties. As long as ___consumers and third parties suffer damage due to the dangerous condition of ___the product, they may request compensation. In this case, B was injured in a ___collision due to A’s brake failure, which for the reasons explained above ___made the product dangerous, so X Ltd may be held liable for damages. ___ ___ ___3. Y, a researcher of X Ltd, conceals the risk of failure ___ ___a) Contractual liability ___ ___Article 224 of the Civil Code stipulates: ‘A contracting party shall be responsible 8/40 ___for the intentional or negligent acts of his agent and of the person performing ___the obligation for him to the same extent as he is responsible for his own inten___tional or negligent acts, unless otherwise agreed upon by the contracting par___ties.’ In this case, Y – a researcher of X company – deliberately concealed the ___risk of failure; in accordance with the provisions of this article this is regarded ___as X’s intent, so X should be liable for incomplete performance. ___

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b) General tort liability Article 188 of the Civil Law regulates an employer’s liability: ‘The employer shall be jointly liable to make compensation for any injury which the employee has wrongfully caused to the rights of another in the performance of his duties. However, the employer is not liable for the injury if he has exercised reasonable care in the selection of the employee, and in the supervision of the performance of his duties, or if the injury would have occurred notwithstanding the exercise of such reasonable care.’ This provision is intended to protect victims. With regard to employers, liability is established for negligent selection and supervision, along with a presumption of causal relationship. If an employer is found liable under art 188, he can then claim compensation from the employee. In this case, the employer X Ltd generally is jointly and severally liable for Y’s tort, unless X can prove that there was no fault in the selection and supervision of Y or that there was no causal relationship.

c) Special tort liability Article 191-1 of the Civil Code stipulates, if the common use or consumption of a product leads to injury of another person, defectiveness of the product is inferred; it is assumed that the injury and the defective product have a causal relationship and that the manufacturer was negligent. X Ltd’s liability is unaffected by the fact that the defect was caused by the conduct of an employee.

d) Product liability under Consumer Protection Law Article 7 of the Consumer Protection Law provides that product liability is strict liability, as long as the product involves a security risk, the manufacturer is liable. X Ltd’s liability is unaffected by the fact that the defect was caused by the conduct of an employee.

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___4. Alternative scenario: Y is an independent contractor ___ ___a) General contractual liability ___ ___Some scholars think that art 224 of the Civil Code concerning agents or employed 8/45 ___persons means that a contracting party must have the right of selection and su___pervision, and only then can they be held liable for their agents’ or employee’s ___actions. However, some scholars consider this to be a statutory liability for war___ranty, so that agents or employed persons are not required to be subject to the ___employer’s command and supervision. This paper argues that as long as an ___agent or employee handles possible trading activities within the purview of their ___delegated duties, even if the contracting party is not directly subject to the em___ployer’s command or supervision, he should be liable regardless of whether ___there is a right of command and supervision. In the present case, Y is an inde___pendent contractor who concealed the risk of brake failure. Even though X Ltd ___had no right to command and supervise Y, X Ltd nevertheless chose to employ Y ___for research in the production of goods. Therefore, in accordance with art 224 of ___the Civil Code, X Ltd is liable for Y’s intentional act. ___ ___ ___b) General tort liability ___ ___Article 189 of the Civil Code stipulates: ‘The employer is not liable for the in- 8/46 ___jury wrongfully caused by a contractor to the rights of another in the course ___of his work, unless the employer was negligent with regard to the work or___dered or his instructions.’ This is because the employer has no right to com___mand and supervise the contractor. From the outset, the employer is not li___able for the behavior of the contractor. Y is an independent contractor, who ___intentionally concealed the risk of brake failure, thus causing A and B to suf___fer harm. The harm was caused by the unlawful conduct of Y in the perform___ance of his contract with X Ltd. Therefore, Y should assume tort liability and ___X Ltd is not liable. ___ ___ ___c) Special tort liability ___ ___According to art 191-1 Civil Code, the situation in this case and Y being em- 8/47 ___ployed as a researcher are similar. As long as the ordinary use or consump___tion of a product results in harm of other person, X Ltd is liable as manufac___turer.

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d) Product liability under Consumer Protection Law According to art 7 of the Consumer Protection Law, this case and Y being employed as a researcher are similar. As long as a product involves a risk, X Ltd is liable as manufacturer.

B. Commentary What does your analysis demonstrate about the reasons for introducing strict product liability and the justifications that may be given for it? Do these justifications apply where (as in the present case) the injury is caused by a standard product and results from choices made in the design process? And where the victim is a third party rather than the purchaser? Is the resulting liability truly a strict liability or does it ultimately rest on fault?

1. Case 1 analyzes traditional contract and tort liability and highlights the insufficiencies of product liability a) Aspects of contractual liability i)

B is not a party to the contract with X Ltd, so there is no contractual liability. ii) A is a party to the contract. With regard to the warranty of merchantability, this liability standard is based on the criterion of whether or not a product is defective at the time of product delivery. Because the product met the contractual standards at the time of delivery, A cannot claim under warranty of merchantability. The other possible claim under contract liability is liability for incomplete performance. Incomplete performance is often discussed in conjunction with the warranty of merchantability under Taiwanese Law. The Taiwanese Civil Code art 277 states, broadly, that (I) If a contracting party incompletely performs his obligation by reason of a circumstance which places that party in breach of contract, the other contracting party may sue according to the provisions of the default or the impossibility of the performance. (II) In addition to the injury arising from the incomplete performance in the preceding paragraph, the other contracting party may claim compensation for other injuries arising therefrom, if any.’ In our present case, A is required to prove that the responsibility for incomplete performance could be attributed to X Ltd, and only then can A claim compensation. This is true even when it is a third party, Y, who concealed this risk.

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___ ___ ___ ___ ___ ___ ___ ___ ___ ___b) ___ ___i) ___ ___ ___ ___ii) ___ ___ ___ ___ ___ ___ ___ ___ ___ ___c) ___ ___i) ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ii) ___ ___

Y is an agent or employee of X Ltd, and under the Taiwanese Civil Code, X Ltd shall be liable for the deliberate fault of its employees or agents. Unfortunately, A must provide evidence of the higher standard of contract performance that goes beyond the general warranty of merchantability to qualify a suit for incomplete performance, and victims often do not have access to the evidence that will prove their case. This creates an unfavorable situation for the victims.

Aspects of tort liability Victims A and B may both claim tort liability, but a victim bears the burden 8/51 of proving the elements of a tort. For instance, wilful misconduct or causal relationship are often difficult to prove and this is also unfavorable for the victim. Tortious behavior of a third party: If Y is an employee of X Ltd, X Ltd as an 8/52 employer is jointly and severally liable with Y, but X Ltd may also prove that there was no negligent selection or causal relationship and thus be exempt from liability. If Y is an independent contractor, a victim can hardly claim that X Ltd committed a tort, so X Ltd is not liable for tort. The reason why this is very unfair for the victim is that X Ltd delivers the same defective products, but due to internal factors a victim’s compensation claims are affected.

Product liability based on strict liability In Taiwan both the Consumer Protection Law and the Civil Code contain 8/53 provisions on product liability. Most scholars believe that the applicable subject, standard of liability and burden of proof differ, and it should be decided on a case by case basis which type of law applies. If this can be decided by the consumer, the applicant will always claim what is most beneficial for him. Since the Consumer Protection Law adopts liability without fault, most consumers will prefer to assert this claim. In this case, A and B were injured because X Ltd’s product label lacked sufficient instructions, and in accordance with strict liability, X Ltd is liable to pay compensation. The Consumer Protection Law adopts strict liability. Victims need to provide 8/54 evidence that the product was defective and that there is causal relationship between the defect and the damage suffered. With regard to evidence

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of causality, the court should in each case consider adjusting the burden of proof in order to protect the victim.9 iii) The standard of liability is whether a product is safe or defective, no matter whether Y is a researcher employed by X or an independent contractor. iv) Regarding A’s damaged bicycle, this is considered damage to the product itself and must be resolved in accordance with the contract in general. Since X Ltd did not clearly indicate that under certain circumstances there was a risk of brake failure, liability can be imputed and compensation claimed according to ‘incomplete performance’.

2. Discussing the legitimacy of strict liability in Case 1 a) Aspects of risk control X Ltd knows that the new material can in certain circumstances suddenly fail, although the probability of such an event is very low. This information about potential danger should still be clearly indicated to consumers to enable them to take preventive measures so as to avoid damage. Without information, consumers, who as nonprofessionals do not know what type of material the manufacturer used, are not aware of any possibility of danger. With regard to risk control, they can only rely on X Ltd.

b) Aspects of public interest X Ltd opted for cost reduction in the production of the bicycle. Although the new material generally improved the brake parts, X Ltd also knew that there was a very low risk of failure and after weighing the interests it still decided to use the new material. Knowing that cost reduction can increase profit, it is fair that the one who profits should pay compensation in the event the low probability of an accident occurs.

_____ 9 Li-Chen Kuo, An Introduction to the Development of ROC Product Liability Law in the Past Decade, 110 The Taiwan Law Review 37 (July 2004).

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___c) Risk diversification ___ ___X Ltd could foresee that the use of new material might result in danger and 8/59 ___harm so it was possible to include compensation in the cost calculations for the ___product. This would allow them to pass this on to consumers in general, or, by ___means of liability insurance, the liability can be transferred to insurance com___panies in order to reduce the company’s own liability. ___ ___ Case 2: Infected Blood ___ ___ A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital ___ in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had ___ collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. ___ At the time, the risk of Hepatitis N in donated blood had been identified in a single published paper in a scientific journal, but only a handful of research laboratories in the ___ world had the capacity to test for its presence in specific quantities of blood. Furthermore, ___ the majority of the scientific community did not believe that the condition (Hepatitis N) ___ really existed. It was only subsequently that the condition’s existence came to be gener___ ally accepted and that a test was developed that allowed hospitals and blood suppliers to ___ screen out infected parcels of blood. ___ ___A. Analysis ___ ___ What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the vari___ ous possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to ___ your analysis if A contracted the virus as the result of a blood transfusion conducted in ___ 2001, but her condition only manifested itself in 2012? (In this context, consider in par___ ticular differences in the time limits applied to the various possible bases of liability.) ___ ___ ___1. X hospital’s responsibility towards A ___ ___a) Contractual liability ___ ___Responsibility for incomplete performance is based on conditions which can be 8/60 ___imputed to the contracting party. In this case, concerning Hepatitis N in blood, ___research had been previously published, but a majority of the scientific com___munity denied the existence of Hepatitis N. Further, at that time only a few re___search laboratories in the world were suitable for testing. Thus, it can be con___sidered that no liability can be imputed to the hospital. A cannot claim that the ___hospital is liable for incomplete performance.

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b) General tort liability Tortious behavior requires intentional or negligent misconduct. Since there was no intentional or negligent misconduct on the part of X hospital, there was no tort.

c) Service liability under the Consumer Protection Law With regard to business operators providing services, Taiwan does not distinguish between different categories but adopts strict liability without exceptions. With regard to medical services, theory and practice hold that strict liability under the Consumer Protection Law10 should not apply, but art 82 of the Medical Care Act provides: ‘Those conducting medical practices shall pay proper attention to medical care procedure. Medical care institutions and their medical personnel who harm patients in the execution of practice, only by intent or negligence, shall be responsible for compensation.’ Liability is thus attributed based on intent or negligence. The reason why liability is limited to intention or negligence is to avoid restrictions on the provision of medical treatment when treatments are designed to save the life and health of people. With regard to a particular disease, a doctor – based on professional knowledge considering a patient's condition and physical condition – selects the most appropriate method of medical treatment. If strict liability is applied to medical treatment, the doctor might, for the purpose of reducing risky behavior, pay more attention to large numbers of side effects, thereby delaying opportune treatment time and increasing the waste of medical resources, which is not conducive to patients and society. Since the purpose should guide the interpretation of consumer protection laws, medical treatments provided by doctors are excluded from such laws. So in this case, medical services provided by the hospital are not governed by consumer protection laws.

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10 The Taiwanese Consumer Protection Law art 7: ‘(I) Business operators engaging in the design, production or manufacture of goods or in the provisions of services shall ensure that goods and services provided by them meet and comply with the contemporary technical and professional standards of the reasonably expected safety prior to the sold goods being launched on the market, or at the time of rendering services. (II) Where goods or services may endanger the lives, bodies, health or properties of consumers, a warning and the methods for emergency handling of such danger shall be labeled at a conspicuous place. (III) Business operators violating the two foregoing two paragraphs and thus causing injury to consumers or third parties shall be jointly and severally liable therefor, provided that if business operators can prove that they are not guilty of negligence, the court may reduce their liability for damages.’

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___2. Liability of Y Ltd with regard to A ___ ___a) Contractual liability ___ ___There is no contractual relationship between A and Y Ltd. Y Ltd has no contrac___tual liability. ___ ___ ___b) General tort liability ___ ___Tort generally requires intent or negligence. In the case concerning Hepatitis N in ___the blood, even though some research had been previously published, the major___ity of the scientific community denied the existence of Hepatitis N. Also, since ___only a few research laboratories in the world were suitable for testing experi___ments, such tests were not widespread or considered to be the norm. A hospital’s ___reasonable duty of care is viewed through the lens of general medical practice, ___and none of the situations involving the treatment of Hepatitis N could be deemed ___as negligent by reference to general medical practice. Therefore, the hospital ___cannot be held liable in negligence for not testing for Hepatitis N. In this case, Y ___Ltd and X hospital have no intent or negligence and therefore are not liable in tort. ___ ___ ___c) Special tort liability ___ ___Article 191-1 Civil Code stipulates: ___ ___ ‘The manufacturer is liable for the injury to another arising from the com___ mon use or consumption of his merchandise, unless there is no defective___ ness in the production, manufacture, process, or design of the merchandise ___ or the injury is not caused by the defectiveness, or the manufacturer has ex___ ercised reasonable care to prevent the injury.’ ___ ___ The Civil Code art 191-1 lays out the foundation of special tort liability, but ___the specific details relating to definitions of product liability is laid out in the ___Consumer Protection Law. The Consumer Protection Law takes precedent over ___the Civil Code art 191-1 because Consumer Protection Law is a special law. ___Whether or not blood could be considered to be a merchandise must be viewed ___in light of art 4 of the Enforcement Rules of Consumer Protection Law that stipu___lates: ‘The term ‘merchandise’ refers to real estates or personal estates which ___are the object of transaction, including final products, semi-finished products,

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raw materials or parts and components.’ Based on a literal interpretation, blood that has spread within the human body becomes a thing, a movable property, which should be regarded as a merchandise. In this case, although Y Ltd is presumed to be at fault, if Y Ltd can prove that the prevailing view at that time denied the existence of N-type Hepatitis, and only a few labs had the ability to test it, Y can overcome the assumption of negligence and be exempted.

d) Product liability under Consumer Protection Law Under the Taiwan Consumer Protection Law, the legal standard is that products should meet current technical or professional standards and should reasonably be expected to be safe. It is evident that Taiwan allows business operators to refer to science and technology as a defence to avoid liability.11 Allowing science and technology as a defence means that the production of such goods has already been in accordance with the level of science and technology at that time, and that only subsequently was a defect found. Based on the level of scientific skills and knowledge at the time of production, it was impossible to discover or overcome such defect. 12 The development of such a defective product has a special feature. Since it entails a risk that was scientifically unforeseeable at the time of production, neither manufacturers nor consumers could expect it to materialize, hence the question of who should bear the resulting damage is disputed. While N-type Hepatitis had been identified by a scientific paper, it would be hard to make the argument that this has created a defect contrary to ‘reasonably expected safety standards.’ Taiwan and a majority of countries generally recognize the science and technology defence for the reason of alleviating the liability of business operators to avoid interfering with scientific development and impeding economic growth. 13 Whether products are ‘in line with the technology or the professional standards of safety that can reasonably be expected’ is determined in art 5 of the En-

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11 The Taiwanese Consumer Protection Law art 7-1 stipulates: ‘(I) Where business operators allege that when their goods launched on the market or at the time of rendering service they were in compliance with the contemporary technical and professional standards, of reasonably expected safety, they are required to produce evidence in support thereof. (II) Goods or services can not be presumed inconsistent with the requirement of safety set forth in the first paragraph of the preceding article simply because better goods or services are subsequently provided.’ 12 Chun-Tang Liu, Consumer Protection and the Law of Consumer 146 (June 1996). 13 Po-Sung Chu, Discussion of Consumer Protection 102, Executive Yuan Consumer Protection Committee (September 1999).

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___forcement Rules of Consumer Protection Law. This article states that in determing ___whether goods or services are in accordance with scientific and technical or pro___fessional standards of reasonably anticipated safety, the following factors shall ___be considered: 1. the labels and instructions of the goods or services; 2. the rea___sonably anticipated use or accepted use of the goods or services; and; 3. the time ___when the goods are circulated into the market and the services are provided’. ___ Some scholars believe that the current science and technology standard ___should in general already be based on scientific experiments. In this case, the ___blood provided by Y Ltd was infected with N-type Hepatitis, but at that time in ___2005 only one scientific journal had published an opinion, which was rejected by a ___majority of the scientific community. Furthermore, only a few research labs in the ___world had the capacity to test it. It can therefore be held that based on technology ___or professional standards at that time, reasonable professionals were unable to ___foresee the risk of Hepatitis N. The blood provided by Y Ltd should be held to be in ___line with technological or professional standards of safety that can reasonably be ___expected. A cannot claim based on the fact that according to today’s technology ___and science, N-type Hepatitis is widely recognized and can easily be tested and ___thus claim that the blood provided by Y Ltd lacked safety because technology ___changes over time. Naturally, the later a good is produced, the higher its safety, so ___the relevant time for determining whether a product is defective should be when ___the product left the manufacturer’s hand and was brought into the market. ___ ___ ___3. Z’s liability towards A ___ ___a) Contractual liability ___ ___As there is no contract between the parties, there can be no contractual liability. ___ ___ ___b) General tort liability ___ ___Since Z did not know he was a carrier of N-type Hepatitis virus, he did not act ___with intention or negligence, hence there is no tort liability. ___ ___ ___c) Special tort liability ___ ___In accordance with art 191-1 of the Taiwanese Civil Code, it is presumed that if a ___merchandise was defective, such as the blood is in this case, a causal relation-

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ship exists between the defective product and the damage. However, Z does not qualify as a manufacturer under the Civil Code art 191-1 since he did not produce, manufacture or process the blood. Neither does Z qualify as the business operator under Consumer Protection Law art 7 because he did not design, produce, or manufacture the blood. Therefore, Z does not have any special tort liabilities towards A.

d) Product liability under the Consumer Protection Law The subjects falling under product liability are business operators with regard to consumers. In this case, Z is not a business operator, hence the strict liability under consumer protection law does not apply.

4. Lapse of time Claims for compensation arising from a contract shall, according to art 125 of the Civil Code, be exercised within 15 years. The claim for injury arising from a wrongful act shall be extinguished if not exercised within two years from the date when the injury occurred and the person bound to make compensation became known to the injured person. The same rule shall be applied if ten years have elapsed from the date when the wrongful act was committed. As scholars see product liability as a strict liability tort, according to art 197 Civil Code, tort claims shall be exercised within two years from the date when the injury occurred and the person bound to make compensation became known to the injured person. The claim shall be extinguished by prescription if ten years have elapsed from the date when the wrongful act was committed. In this case, A received blood transfusions from 2005 to 2013, not longer than ten years. Thanks to modern development of scientific teaching, A knew that he suffered harm from N-type Hepatitis infection, and knowing the person bound to make compensation, a claim may be filed within two years against Y Ltd. If the last transfusion occurred in 2001, the claim would be extinguished because the tort happened more than ten years ago.

B. Commentary What does your analysis demonstrate about the reasons for introducing strict product liability? In particular, why are ordinary principles of fault-based, vicarious and contractual liability considered insufficient? What does your analysis demonstrate about the justifica-

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tions that may be given for strict product liability? Do these justifications apply where (as ___ in the present case) the injury is caused by a non-standard product and results from a fail___ ure to identify a pre-existing defect in the individual product? ___ ___ ___1. Analysis of Case 2 ___ ___a) Adopting strict liability protects the victim better ___ ___When resolving the case concerning blood infected with N-type Hepatitis in ac- 8/77 ___cordance with the Taiwanese Civil Code contract or tort liability, A cannot prove ___that negligence was committed by or attributable to Y Ltd in connection with his ___injury and claim compensation. This is because at the time of the blood transfu___sion, it was not common knowledge that N-type Hepatitis existed. The lack of ___knowledge precluded Y Ltd from being aware of the N-type Hepatitis and testing ___for it, so Y Ltd would not be found negligent under the Taiwanese Civil Code. An argument can be made for changing the liability structure to a strict li- 8/78 ___ ___ability principle in this case. If the case was based on product liability in accor___dance with strict liability principles, A would only have to prove that he suf___fered harm from a Hepatitis infection as a result of N-type Hepatitis and that the ___blood with N-type Hepatitis was a defective product. Since A was infected be___cause Y provided blood infected by Hepatitis and this constituted a causal rela___tionship, he can request Y Ltd to pay compensation. However, if Y Ltd wants to ___avoid liability, it must prove that the blood provided was consistent with rea___sonably expected technology or professional standards and hence was not de___fective. ___ ___ ___b) Possibility of lack of legitimate basis for strict liability ___ ___i) As was mentioned before, art 4 of the Taiwanese Enforcement Rules of Consumer Protection Law stipulates: ‘The term “merchandise” refers to real es___ tates or personal estates which are the object of transaction, including final ___ products, semi-finished products, raw materials or parts and components.’ ___ Based on a literal interpretation, blood that has spread within human body ___ becomes a thing, a movable property, which should be regarded as a mer___ chandise falling within the scope of product liability; hence strict liability is ___ applicable. ___ ___ii) This paper argues that blood should not fall within the ambit of the strict product liability provisions. ___ ___

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In general, products are designed and produced by manufacturers. The control manufacturers have over the risk of creating defective products varies. When no mass production methods are employed, it is not possible to calculate the risk of loss into the costs, thus spreading the risk by way of transfer to all consumers. Based on public interest, if strict liability is imposed on manufacturers in this area, no one would be willing to engage in the business of blood supply, thus endangering the medical blood transfusion system.

2. Product defects (products lacking safety) The safety that can be reasonably expected is based on an objective model concept of product safety, namely the safety expectation of an objective rational consumer or user of the same product. In each case this standard is determined by a judge. Article 5 of the Enforcement Rules of Consumer Protection Law has reference to: 1. the labels and instructions of the goods or services; 2. the reasonably anticipated use or acceptance of the goods or services; and 3. the time when the goods are circulated into the market and the services are provided. All other circumstances substantially affecting product safety factors, such as scientific and technical standards and general technical regulations, the relationship between price and payment, objective attachment of safety instructions to the product itself, reasonable safety expectations of manufacturers and users, all must be taken into account.

Judgment period Based on the date when goods start being circulated, art 7 (I) sec 2 of Taiwan’s Consumer Protection Law stipulates that a product must not be viewed as failing to meet current safety standards just because better products or services are subsequently released.

3. Period of limitation Comparative Law Taiwan’s Consumer Protection Law does not have a specific statute of limitation provision, hence the rules for statute of limitation under general tort law apply. The limitation period for tort claims lapses in two ways. First, after two years

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___from the date of the victim’s knowledge that she has suffered damage and the ___identity of the person obliged to pay compensation, the claim is barred. Second, ___no claim can be brought more than ten years from the date the infringement has ___occurred. Because of the statute of limitation, a tort claim generally could not be ___brought before the court after 10 years. Imposing strict liability on manufactur___ers without time limitation is too harsh. The legislature should refer to compara___tive law when enacting special provisions. With regard to cumulative or delayed ___damage, Japanese law should be taken into consideration, where a claim is ex___tinguished after 10 years starting from the date the damage occurred. ___ ___ ___Case 3: Bridge Collapse ___ ___ A, a pedestrian using a public right of way, is injured by the collapse of a bridge constructed by X Ltd on land belonging to Y, who commissioned the construction, on the ba___ sis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires ___ that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a dif___ ferent architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is ___ obliged to construct the new bridge for no additional remuneration. ___ ___ ___A. Analysis ___ ___ What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and so subject to strict product liability, or does it merely represent the performance by Z of a ___ service, to which some alternative liability regime applies? ___ What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a di___ rect claim or a recourse action? ___ ___ ___1. Liability of X Ltd towards A ___ ___a) Contractual liability ___ ___As there is no contract between the parties, there can be no contractual liability. 8/83 ___ ___ ___b) General tort liability ___ ___Article 189 of the Civil Code provides: ‘The employer is not liable for the injury 8/84 ___wrongfully caused by a contractor to the rights of another in the course of his work, ___unless the employer was negligent with regard to the work ordered or his instruc-

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tions.’ Since a contractor acts independently with regard to contract matters, the employer has no right of command or supervision. So when a contractor commits a tort with regard to the contract matter, he himself should be responsible.

c) Special tort liability In this case, a bridge built by X Ltd collapsed, resulting in A’s injury. Even though a bridge is a non-movable real property and therefore unlike general merchandise that is movable personal property, a bridge is still considered to be ‘merchandise’ under Taiwanese Law. Article 4 of the Enforcement Rules of Consumer Protection Law stipulates: ‘The term ‘merchandise’ as mentioned in art 7 of the Law refers to real estates or personal estates which are the object of a transaction, including final products, semi-finished products, raw materials or parts and components.’ Since a non-movable real property bridge would be considered to be merchandise, according to art 191-1 Civil Code, X Ltd will be liable to pay A compensation. Only if X Ltd can prove, with regard to the occurrence of harm, that it already exercised utmost care, can it be exempted from liability.

d) Product liability under Consumer Protection Law Given that product liability under Taiwan’s Consumer Protection Law does not distinguish between movable and immovable property, and that, according to Taiwanese law, the bridge in this case qualifies as real estate, X would be considered to be a business operator under art 7 Consumer Protection Law since the bridge was designed and built by X, thus strict liability applies. X Ltd should bear joint and several liability in paying the compensation with Z, who designed the bridge. According to Taiwanese Consumer Protection Law art 7 (III), if X Ltd can prove that it is at no fault, the court might reduce X's liability to pay compensation in order to reduce the heavy burden on business operators, but it still cannot be exempted from liability.

2. Y’s liability towards A a) Contractual liability As there is no contract between the parties there can be no contractual liability.

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___b) General tort liability ___ ___Article 191 Civil Code stipulates: ___ ___ ‘(I) The injury, which is caused by a building or other work on privately ow___ ned land, shall be compensated by the owner of such building or work, un___ less there is no defective construction or insufficient maintenance in such ___ building or work, or the injury was not caused by the defectiveness or insuf___ ficiency, or the owner has exercised reasonable care to prevent such injury. ___ (II) In the case of the preceding paragraph, if there is another person who ___ shall be responsible for the injury, the owner making compensation may ___ make a claim for reimbursement against such person.’ ___ ___ The reason for this provision is the protection of victims. With regard to the ___owner of such work, defective construction and risk management are presumed, ___causal relationship is presumed, fault is presumed, and the owner of such ___building or work is liable. If there is another person who is the actual tortfeasor, ___the work owner may make a claim for reimbursement against such person. ___ In this case, Y is the owner of the bridge and the bridge collapsed resulting ___in A’s injury. According to art 191 Civil Code, compensation should be paid to A. ___If the real reason for the bridge collapse was flawed design by Z, Y, after paying ___compensation to A, may claim reimbursement from Z. ___ ___ ___c) Special tort liability ___ ___If Y is only the land owner, but has not engaged in the design, production or ___manufacture of the bridge, he is not a manufacturer, hence art 191-1 Civil Code ___does not apply. ___ ___ ___d) Product liability under the Consumer Protection Law ___ ___In the absence of designing, producing or manufacturing the bridge, the defen___dant is neither a manufacturer nor a business operator, hence art 7 Consumer ___Protection Law does not apply. ___ ___ ___ ___

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3. Liability of Z towards A a) Contractual liability As there is no contract, there can be no contractual liabiliy.

b) General tort liability In this case, it is the flawed design by Z that caused the collapse of the bridge resulting in A’s injury. According to art 184 para 1 Civil Code, A may claim compensation from Z in tort but the elements must be proved. Based on the facts, this would require proof that Z had been negligent, of a causal relationship between that negligence and A’s damage, and that A’s damage was legally recognised harm.

c) Special tort Article 191-1 para 2 Civil Code stipulates that the manufacturer is the person who produces, manufactures, or processes the merchandise. The designer is not expressly mentioned, but the third paragraph of the same article provides that if the production, manufacture, process, or design of the merchandise is inconsistent with the contents of its manual or advertisement, it is deemed to be defective. This suggests that a designer of the merchandise falls within the provision. In this case, Z is the designer of the bridge. According to art 191-1 Civil Code, he is liable to pay compensation.

d) Product liability under the Consumer Protection Law Article 7 of the Consumer Protection Law is applicable to subjects who are designers, producers, or business operators manufacturing goods or providing services. An individual could qualify as a business operator under art 7 according to the Executive Yuan Consumer Protection Committee.14 For Z to qualify as

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14 Executive Yuan Consumer Protection Committee, Introduction: Defining ‘Business Operators’, available at: (Chinese version) (last visited 29 November 2016.)

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___a business operator under art 7, it must be proven that Z has been consistently ___providing architectural design as a business operation. For people who might ___provide similar services but not be doing it consistently enough to be a busi___ness, it can be disputed as to whether or not these people will be viewed as ___business operators under the Consumer Protection Law art 7.15 In our present ___case, if Z has been consistently providing architectural design as part of his ___business, Z’s actions as a designer would qualify him as being a business opera___tor under the Consumer Protection Law art 7. ___ ___ ___4. Architectural plans ___ ___An appointment contract refers to one party entrusting another party with the 8/100 ___handling of certain matters, and the other party agreeing to handle certain mat___ters. In the present case, the appointment contract took the form of a labor con___tract. Y appointed architect Z to design the bridge. As the content of the contract ___was to provide the design of an architectural structure, the design was the speci___fication of an abstract service. The architectural design drafted by Z is a service ___provided by Z. ___ ___ ___5. Y’s claim with regard to Z ___ ___a) Contractual liability ___ ___As prescribed in the Taiwanese Civil Code art 544, the appointee in an appoint- 8/101 ___ment contract shall be liable to the principal of the appointment contract for ___any injury resulting from his negligence in the execution of the affairs commis___sioned. In this case, due to the flawed design by Z, the bridge collapsed. This ___can be considered a violation of Z’s contractual duty to exercise reasonable care ___as specified by art 544. Therefore Y has a claim against Z. ___ ___ ___ ___ ___ ___ 15 The Executive Yaun Consumer Protection Committee presented the sale of agricultural pro___ducts as an example. The enterprises that sell farmed produce would be considered to be busi___ness operators. However, farmers that sell their own products sporadically and not as a busi___ness operation should not be considered to be business operators. Ibid.

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b) General tort liability Since Z violated his contractual duty to exercise reasonable care as an appointee under art 544, in conjunction with art 184 (II),16 Z violated his duty of care under art 544. Therefore, Z should pay compensation to Y.

c) Service liability under the Consumer Protection Law Article 7 of the Consumer Protection Law stipulates with regard to service liability: ‘(I) Business operators engaging in the …provisions of services shall ensure that goods and services provided by them meet and comply with the contemporary technical and professional standards of reasonably expected safety prior …at the time of rendering services… (III) Business operators violating the two foregoing paragraphs if this results in a product that does not meet the necessary standard and thus causes injury to consumers or third parties shall be jointly and severally liable…’ In this case, Z is an architect and possibly a business operator under art 7 of Consumer Protection Law. Z should be subject to strict liability under art 7 Consumer Protection Law and be jointly liable with X Ltd because both are business operators in this scenario.

6. X Ltd’s claim with regard to Z a) Contractual liability Although no contractual relationship exists between the X Ltd and Z, in accordance with the contractual relationship between X Ltd and Y, X Ltd could use art 225 Civil Code as a basis to request Z pay for the re-construction of the bridge.

_____ 16 ‘A person, who violates a statutory provision enacted for the protection of others and therefore prejudice to others, is bound to compensate for the injury, except when no negligence in his act can be proved.’

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___ Article 225 of the Civil Code states, broadly: ___ ___ ‘If a contracting party is entitled to claim compensation for an injury against ___ a third party in consequence of the impossibility of the performance under ___ the preceding paragraph, the other contracting party may ask for the trans___ fer of the claim for the injury, or for the delivery of the compensation he has ___ received.’ ___ ___ On these facts, Y has a compensation claim against Z for his failure to act ___reasonably under the appointment contract. Under art 225, X Ltd could take ___over Y’s claim against Z to seek compensation. ___ ___ ___b) General tort ___ ___(i) No direct right to sue ___ ___The harm suffered by X Ltd – the cost of building a new bridge – is considered ___purely economic loss. Most scholars think that generally tort law does not pro___tect purely economic loss. In this case, the tort was committed by Z’s negli___gence, and, as the loss suffered was purely economic loss, X Ltd cannot obtain ___tort compensation ___ ___ ___(ii) Transfer of claim ___ ___Article 218-1 of the Civil Code provides: ‘If a person is bound to make compensa___tion for the loss or damage to a thing or a right, he may claim from another, who ___is entitled to claim for the injury but who has suffered no loss, for the transfer of ___the claim which the latter has against the third party by virtue of his ownership ___of the said thing, or by virtue of the said right.’ In this case, Y has suffered no ___loss as X Ltd will not have any additional compensation for re-building the ___bridge. Therefore X Ltd can transfer the right of compensation Y has against Z ___and claim for damages against Z. ___ ___ ___(iii) Service liability under the Consumer Protection Law ___ ___Z is not a business operator and the provisions of this section do not protect ___against purely economic loss so service liability does not apply.

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B. Commentary What does your analysis demonstrate about the coherence of strict product liability as it exists in your jurisdiction, paying particular attention to the limits on its scope. Identify the various alternative types of liability that could arise (including contractual liability), and highlight the main differences between them. To what extent is liability for immovables different from liability for movables, and is this justified? To what extent is liability for the supply of services different from liability for the supply of products, and is this justified?

Product liability law in Taiwan – Goods including movable and immovable property, application of strict liability Article 4 of the Enforcement Rules of Consumer Protection Law stipulates: The term ‘goods’ as mentioned in art 7 of the Law refers to real estates or personal estates which are the object of transaction, including final products, semi-finished products, raw materials or parts and components. Considering comparative law, subjecting real estate to strict liability without fault through strict product liability law is rare in other legal systems. The legislative background mainly was concerned with the fact that, in Taiwan at the time the legislation was passed, there were many problems with defective houses. With regard to defective real estate, there was no sound legal system to protect consumers. For the protection of consumers, immovable property was included in product liability.

C. Summary Taiwan applies strict liability to real estate, and although it can protect customers, this differs from legislative cases in other countries. Whether or not strict liability should apply to real estate should be based on whether the rationales that support strict liability apply. The production of real estate entails many building parts and pieces that are beyond the control of the builder, who can only partially control the risks. This is unlike a mass-production manufacturer that is in control of the design and production process and controls the risk which can be transferred to consumers. It is suggested that strict liability should only be imposed after an evaluation of each case when there are large numbers of buildings constructed by a business enterprise, or mass productions of general goods. If there is no mass production of buildings, liability should turn on the principles of general liability for negligence.

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___1. Service liability in Taiwan ___ ___Article 7 Consumer Protection Law concerning service liability stipulates: ___ ___ ‘(I) Business operators engaging in the… provisions of services shall ensure ___ that goods and services provided by them meet and comply with the con___ temporary technical and professional standards of reasonably expected ___ safety prior …at the time of rendering services… (III) Business operators vio___ lating the two foregoing paragraphs if this results in a product that does not ___ meet the necessary standard and thus causes injury to consumers or third ___ parties shall be jointly and severally liable…’ ___ ___ As there is no distinction with regard to services categories, strict liability is ___applicable in all cases. According to theory and practice, however, this does not ___apply to medical services. ___ ___ ___2. Reasons for not applying strict liability ___ ___Taiwanese scholars believe that the services categories are complex and the ___content ever-changing. Applying no-fault liability in all cases may not be ap___propriate for the following reasons: 17 ___ The concept of service is not clear and the types manifold. Imposing strict ___liability in all cases, would impose a heavy burden on the national economy ___and at the same time not benefit the nation’s people as a whole. ___ Given the many types of services and the different ways in which they can ___be integrated into a product or other service, consumers cannot know which ___service has been responsible for their harm. It would thus be unreasonable to ___impose strict liability on the provider of every service that comprised the prod___uct or composite service which causes harm to a consumer. ___ Foreign law rarely applies strict liability to all services. ___ ___ ___D. Conclusion ___ ___Considering the reasons stated above, and the differences (including sales ___methods) between services and mass production of machines for the use of ___ ___17 Po-Sung Chu, Discussion of Consumer Protection 193–194, Executive Yuan Consumer Pro___tection Committee (Sepember 1999).

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goods, legislation should not subject services to strict liability. At this time, we should return to general duties of care and negligence as the basis of liability. If manufacturers can use the defence that the state of science and technology prevented the product from being classified as dangerous (except where the allegation is that the product should have been recalled), this is potentially unfair to consumers. To solve this problem, a ‘compensation fund’ could be introduced to allow a consumer injured by a product to claim compensation if a business owner has successfully claimed the state of science and technology defence for its product.

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___Yang Lixin ___ ___ Yang Lixin Comparative Report for Asia and Russia https://doi.org/10.1515/9783110547559-011 ___ The Comparative Report* for the Asian and Russian Submissions** is based on the eight ___ submissions from the Asian and Russian Members attending the Inaugural Meeting and ___ the First Academic Conference of the World Tort Law Society. The Reporters are Prof Yo___ shio SHIOMI (Kyoto University, Japan), Prof Jae-Seon SO (Kyung Hee University, Korea), Prof Omprakash V NANDIMATH (National Law School of India University, India)***, Prof ___ Anisah Che NGAH (Universiti Kebangsaan Malaysia, Malaysia), Prof Lixin YANG (Renmin ___ University, Mainland China) & Prof Zhen YANG (Heilongjiang University, Mainland China), ___ Prof Jung-Lung CHEN (Fu Jen Catholic University, Taiwan), Prof Io Cheng TONG (University ___ of Macao, Macao) and Prof Kirill TROFIMOV**** (Far Eastern Federal University, Russia). ___ The author completed this report based on the comparison among these eight reports ___ above.***** Because there are not enough Asian submissions to represent the whole of Asia, and this comparative report also includes the Russian submission, strictly speaking ___ this report is not a comparative report for the whole of Asia. ___ ___ ___Contents ___Part I: General Comparative Comments on Asian and Russian Products Liability | 216 ___ I. Statutory Law and Case Law as Sources of ___ Product Liability Law | 216 ___ II. Diversity of Statutory Law Concerning Product Liability | 217 ___ III. Different Definitions of Product Result in Different Scopes of ___ Application of Product Liability Law | 217 ___ ___ ___ * The report, originally written in Chinese, was translated into English by Dr Lu Chen and Prof ___Yinhong Yang, and edited by Prof Hongjie Man and Prof Zhu Wang. ___** The World Tort Law Society divided the world into four regions: the first is Asia and Russia; ___the second is Europe; the third is Northern America; the forth is the others, including Australia, ___Africa and South America. ___*** Because of unexpected events, Prof Nandimath was unable to complete a final report for India, so although an early version is reflected in this Comparative Report, a final version is not ___ included in this publication. ___**** Prof Trofimov prepared the first draft of a national report on product liability for Russia ___but unfortunately passed away before it could be completed. The draft was completed by Alex___ander Yagelnitskiy and Olesya Petrol. ___***** The eight reports above were published in Chinese in The Memoir of the Establishment & the First Academic Conference of the World Tort Law Society edited by the Research Center ___ for Civil and Commercial Jurisprudence at the Law School of Renmin University of China. The ___references on the application of law to the cases of each jurisdiction in this report were col___lected from the aforementioned reports published in the Essays; they will not be individually ___mentioned in footnotes in this report. The author expresses thanks to all the reporters.

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IV. Definition of Product Defect | 220 V. Range of Remedies for Damage Caused by Different Types of Things | 221 VI. Introduction of Punitive Damages into the Products Liability Regime | 225 Part II: Cases | 226 Case 1: Brake Pad Failure | 226 Case 2: Infected Blood | 236 Case 3: Bridge Collapse | 242

Part I: General Comparative Comments on Asian and Russian Products Liability Regarding the legislation on product liability, the general situations of eight jurisdictions in Asia and Russia are as follows:

I. Statutory Law and Case Law as Sources of Product Liability Law Among the eight jurisdictions covered in the comparative research, six of them have statutory law concerning product liability, namely Japan, Korea, Mainland China, Taiwan, Macao, and Russia, while Indian law and Malaysian law in this respect are mainly case law. The different tradition and characteristics of product liability in civil law systems and common law systems are reflected in these jurisdictions of different legal traditions and history. However, even in Asian jurisdictions of the common law system, there are currently some statutes addressing product liability law. For example, there are comprehensive provisions on product liability in the Consumer Protection Law of Malaysia 1999. Case law also has more and more influence on tort law in the civil law jurisdictions. Courts direct and coordinate the application of product liability law and unify rules of application of law by decisions. In Russia, decisions of the Federal Supreme Court and the Federal Supreme Arbitration Tribunal are not legally binding upon lower courts or arbitration tribunals. The latter are neither obliged to follow the precedent nor to provide any reason for departing from the decisions. However, in the last 20 years, decisions or other judgments of the Supreme Court of the Russian Federation have played a more and more important role as the sources of law in judicial practices. The Supreme Court and the Supreme Arbitra-

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___tion Tribunal publish announcements periodically. The observations and orders ___by the Supreme Court can be considered one source of Russian tort law and other ___laws. This is meant to unify the judicial interpretations of statute law. ___ ___ ___II. Diversity of Statutory Law Concerning Product Liability ___ ___There are some differences in legislation regulating product liability in civil law 9/4 ___jurisdictions in Asia and Russia. In Japan, the Product Liability Act is the funda___mental law of product liability. In Mainland China, product liability is mainly ___regulated by the Tort Liability Law, the Product Quality Law and the Consumer ___Protection Law. While the general rules of product liability are stipulated in Chap___ter 5 of the Tort Liability Law, the concept of product, as well as exemptions, are ___set out in the Product Quality Law, and defect of warning and instruction (defect ___of management) is regulated by art 18 of the Consumer Protection Law. In Taiwan, ___product liability is governed by the Civil Code and the Consumer Protection Law; ___especially the latter is of more importance concerning the regulation of product ___liability. In Macao, general provisions of civil liability for manufacturers exist in ___the Civil Code and no-fault liability is imposed on manufacturers by the Commer___cial Code. The Product Liability Law of Korea was adopted in January 2001 and ___came into force on 1 July 2002, introducing the doctrine of liability based on dan___ger (non-fault liability) for manufacturers. Before that, damage caused by a prod___uct defect was remedied by the general tort law or contract law, which did not pro___tect the interest of victims satisfactorily. Therefore, the Product Liability Law was ___adopted to solve this problem. In Russia, besides the Civil Code, a Consumer Pro___tection Law has been adopted to regulate product liability. In Malaysia, there is English common law, Malaysian local judicial prece- 9/5 ___ dents, and codified statutes such as the Contract Law, Consumer Contract Law, ___ ___Sale of Goods Law and Consumer Protection Law that address various aspects ___of product liability. India follows the common law tradition. Besides a large ___amount of case law, there are also statutes such as the Consumer Protection Law ___and Competition Law. However, there is no specific legislation directed at prod___uct liability. ___ ___ III. Different Definitions of Product Result in Different Scopes ___ of Application of Product Liability Law ___ ___ ___Although product liability law has been accepted by almost all jurisdictions 9/6 ___globally, the product liability laws in the eight jurisdictions mentioned above

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differ from each other. The most significant issue is the difference in the scope of application of product liability law due to the different definitions of ‘product’. As we can see, in the three cases discussed in the conference, the applicable laws are different. This is an interesting phenomenon. The main differences regarding the definitions of product in these Asian and Russian jurisdictions are as follows:

A. Product Includes Movable Property and Immovable Property Among the eight jurisdictions, the law of Taiwan is the only one which defines product as including both movable property and immovable property. Although there is no definition of product in the Consumer Protection Law, art 4 of the Implementing Rules of Consumer Protection Law defines ‘product’ as regulated by art 7 of the Consumer Protection Law as immovable property or movable property for trade, including finished products, semi-completed products, raw materials and component parts. Therefore, art 7 of the Consumer Protection Law, which imposes no-fault liability, applies to product liability for both movable and immovable property. Thus, the bridge in the Bridge Collapse Case is governed by art 7 of the Consumer Protection Law.

B. Product Includes only Movable Property The product liability law of most jurisdictions does not define product as including immovable products. The Product Liability Act of Japan states that product includes movable property rather than immovables. When a defect of construction is the result of a defective component part and/or material, the victim may rely on product liability against the manufacturer of the component part or/and material. Nonetheless, damage by the construction itself is addressed in the civil code, or the provisions on public construction in State Compensation Law. Both the Tort Liability Law and the Product Quality Law of Mainland China address product as processed movable property, excluding real estate. In the Tort Liability Law, art 86 was adopted to define tort liability for damage caused by the collapse of buildings, structures and other facilities as liability for construction defects and management defects, which is similar to the regulation of liability for public construction in Japan, where the provisions about product liability do not apply. The definition of product in the Consumer Protection Law of Malaysia also excludes buildings, construction and other real estate. Article 86(1) of the Commercial Code of Macao defines product as ‘any movable

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___property’, including ‘movable property assembled with other movable property ___or attached to immovable property’, thereby excluding real estate. The question ___of what is movable property and what is immovable property is addressed by ___the Civil Code.1 Article 86(2) of the Commercial Code of Macao, which is the ___same as the former Order 383/89 of Portugal, states that an ‘unprocessed prod___uct from land, pasturage, fishing and hunting, shall not be deemed a product.’ ___In order to protect the interests of consumers better, a proposal has been made ___to revise the Commercial Code by eliminating art 86(2), thereby expanding the ___scope of product. The Product Liability Law of Korea limits the scope of product ___to movable property so that real estate is not subject to product liability laws. A ___component part of real estate, however, may be considered a product, for ex___ample, a lift or cooling equipment. ___ ___ ___C. Whether Blood or Blood Products are Products? ___ ___Most Asian jurisdictions exclude blood from the scope of product established in 9/9 ___product liability law. Therefore, product liability law does not apply in this case. ___In the jurisdictions that refuse to treat blood as a product, blood is distinguished ___from blood products, so that product liability law applies to injuries caused by ___blood products. However, in some jurisdictions, processed blood might be ___deemed a product. The Product Liability Law of Korea states that blood or human ___organs are not subject to product liability law. However, any blood product proc___essed by extracting some components from blood, rather than blood itself, is a ___product even if it is used for transfusion. For example, blood processed by adding ___preservative liquid or anticoagulant is treated as a product.2 Macao law states that ___blood is not a product but processed blood and blood products are products. ___ Most jurisdictions regard blood products as products. During the drafting of 9/10 ___the Product Liability Act of Japan, some commentators argued that liability for ___defects in blood products should be treated specially, in view of blood products’ ___utility for society. If blood products were considered ‘products’ and subject to ___product liability law, this would place a heavy burden on the suppliers who pro___vide blood, and lead to difficulty for medical institutions when it comes to ob___taining a stable supply of blood. Therefore, blood products should not be subject ___to product liability except for highly processed ones. The Japanese government ___and the parliament, however, declared their position that ‘since both blood ___ ___1 Arts 195 and 196 of the Civil Code of Macau. ___2 Lee Sangjung, The Significance and Future Research of Product Liability Law, Questions of ___Product Liability Law (2002) 12.

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products and vaccines were processed movable properties, they certainly should be included into products’. The Product Liability Act adopted this position. Mainland China’s Drug Administration Law states that blood products are drugs, and subject to product liability law. Article 59 of the Tort Liability Law has included blood in the concept of defective medical product. Though theories diverge, it is proper to consider blood for medical use as a quasi-product.3 This is similar to the conception of non-standard product in Europe.

IV. Definition of Product Defect As to product defect, there are three basic types of product defect recognized by all the product liability laws in the eight jurisdictions: (1) design defect; (2) manufacturing defect; (3) instruction defect. This last defect is also referred to as management defect, mark defect, or market defect. For a product posing danger, necessary and sufficient instructions must be given to avoid the risk of harm. Otherwise, the absence of instructions constitutes a management defect or warning instruction defect. Direct discussions on product defects are rare in the eight jurisdictions. Take Mainland China for example, art 18 of Law on the Protection of Consumer Rights and Interests of China states that, ‘… As to commodities and services with potential to harm personal or property safety, business operators shall give the consumers truthful explanation and clear-cut warnings, and shall explain or indicate the correct ways of using the commodities or receiving services as well as the methods of preventing damage ….’ Violation of this statutory obligation constitutes a warning defect. Consider a chemical factory that fails to warn about the potential risk of abnormal use of the spraying insecticide it produces, and thus excessive spraying leads to an explosion. The court held that this constitutes an instruction defect.4 Mainland China also recognizes the post-sale observation defect. If the existence of a defect was unknown given the scientific and technical knowledge at the time the product was put into circulation, the producer has a duty to continuously observe the product and establish a recall system. The violation of that duty results in a post-sale observation defect.5 Article 46 of the Tort Liability Law of the People’s Republic of China states that ‘Where any defect of a product is found after the product is put into circulation, the producer or seller shall

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3 Liming Wang, Studies on Tort Liability Law, vol II (Beijing, China Renmin University Press 2011) 413. Lixin Yang, Tort Liability Law (Beijing, Law Press China 2012) 355. 4 See Lixin Yang (fn 3) 261. 5 See Lixin Yang, Tort Law (Beijing, Court Press China, 5th edn 2013) 717 f.

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___take such remedial measures as warning and recall in a timely manner. Failure ___to provide reasonable remedies will subject the producer or seller to liability for ___harm caused by such failure.’ ___ The regulation of product defect in Macao is based on consumer expecta___tions, similar to the EU Directive on product liability. Article 87 of the Commer___cial Code of Macao states: ‘1. A product is defective if, at the moment of its entry ___into circulation, it does not offer the safety that legitimately is to be expected, ___taking into account all circumstances, namely its presentation, characteristics ___and the use that reasonably can be made of it. 2. A product is not considered de___fective due to the simple fact that a more advanced one has subsequently been ___put into circulation.’ Thus, a product is held to be defective when it does not pro___vide the safety which a person is entitled to expect. Notably, the General Princi___ples of Product Safety, a new statute, radically changes the previous definition of ___defect to provide much stronger protection for consumers. Article 3 states, ‘safe ___product’ refers to one ‘which appears to have no signs of danger’, or ‘only slight ___danger’ due to an inherent and necessary condition of the product (such as the ___sharpness of a knife) and thus ‘held to be acceptable in line with the strict protec___tion standard for consumers’ health and security.’ The definition of product ___safety in this article approaches the strictest extent. ‘Safety’ means no danger, or ___at least, the lowest level of danger under the control of the consumers. This re___quirement seems quite severe for producers and sellers, since the product safety ___standard is so high that even a slight risk is probably regarded as a defect. ___ As regards the case of the brake pad, the eight jurisdictions unanimously ___agree that the failure of the brake pad constitutes design defect, and thus X Ltd ___should pay compensation for any damage caused by it. ___ ___ ___V. Range of Remedies for Damage Caused by Different Types ___ of Things ___ ___The reports on the hypothetical cases for discussion demonstrate divergence in ___the definition of product. As to the damage caused by different types of things, ___the national laws provide different remedial methods. They can be summarized ___as follows. ___ ___ ___A. Liability for Damage Caused by Non-products ___ ___As to the damage caused by objects unrecognized by product liability laws, the ___Asian jurisdictions provide other solutions. For instance, the Products Liability

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Act of Japan does not consider immovable property a product, and when the damage is caused by immovable property, in particular if any defect in the installation or maintenance of any ‘structure on land’ (buildings, etc, including devices integrated with the land functionally, for example, railway junction devices and track devices; and other devices consequently generated and integrated into the land when the land is processed, for example, golf courses and quarries, etc) causes damage to others, there are two remedial methods. First, the possessor of such structure is liable to the victims to compensate this damage under the first sentence of art 717 (1) of the Civil Code. If the possessor can prove that he was not at fault in the installation and maintenance of such structure on land, he is liable, but the owner must compensate for the damage by virtue of the second sentence of art 717 (1) of the Civil Code. The liability of the owner is a no-fault liability. According to the precedents, the flaw of a structure on land means that, taking into account the foreseeable risk, the structure lacks proper quality. Secondly, concerning the damage caused by defects of installation and maintenance of a ‘public structure’ (not limited to immovable property, but also including movable property and animals) administered by the state or other public bodies, the state or the public bodies are liable according to art 2 of the State Compensation Law. It is a kind of no-fault liability for structures. The state or public body cannot be released from its liability even if there is no fault in the construction and maintenance of the structure. The law in Taiwan and Korea is similar to that of Japan. According to the Tort Liability Law of Mainland China, movable property is considered to be a product while blood is a quasi-product. However, immovable property is excluded. If real estate causes harm because of defects of construction and management, arts 85 and 86 apply. The former deals with the liability for damage caused by a component part of a building falling off, and the latter focuses on compensation for damage caused by building collapse. Furthermore, if the immovable property has defects, such as other hidden safety dangers, the owner shall assume the tort liability for any harm caused to another person as the result of the owner’s failure to fulfil the safety guarantee obligation. In those jurisdictions that do not recognize blood as a product, courts will not apply product liability law to harm caused by substandard blood, but identify responsibility by provisions of general tort or contract law, following the principle of fault-based liability. Such is the case in Korea, Taiwan and Macao.

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___B. Various Remedy Methods for Damage Caused by Defective ___ Products ___ ___In these eight jurisdictions in Asia and Russia, if the defective product causes ___harm, there are still some bases for liability besides product liability. ___ ___ ___1. Product liability ___ ___With regard to product liability, all eight jurisdictions adopt the principle of no___fault liability (also called risk liability, liability based on danger or strict liabil___ity), and the fault of the defendant is thus no longer a necessary requirement of ___tort liability. For instance, Macao legislation considers that, with the develop___ment of industrialization and the deepening of specialization, the relationship ___between the producer and the consumer is more and more complicated. There___fore, neither contractual liability nor fault-based liability provides sufficient ___protection for consumers, while no-fault liability offers a solution placing more ___emphasis on consumer protection. ___ ___ ___2. General tort liability ___ ___In most of the jurisdictions, even when an ‘object’ is recognized as a product, ___victims may recover under general tort rules. In Malaysia, Korea, Japan, Taiwan ___and Macao, even if product liability can be established, the victim can prove the ___fault of defendant and take actions based on general tort liability or negligence ___so as to obtain compensation. However, in Mainland China only, remedies for ___product liability and general tort are the same. The damages the victims may ___obtain are the same, no matter what kind of liability the victim may establish, ___strict product liability or negligent tort liability, and no matter whether the fault ___of the defendant could be proved or not. As a result, victims generally will not ___bother to try to prove that product liability meets the requirements of the gen___eral tort law. ___ In jurisdictions where a distinct law of product liability has not been estab___lished, eg, India, there is no statute law laying down the contours of product li___ability. According to the product liability report of India, in one recent judgment ___by a High Court, the judge states that ‘the doctrine of strict product liability is ___not presently recognized in India. But the Supreme Court in the Bhopal Gas case ___stated that there is a need for proper legislation and multi-nationals should be ___bound by different laws when they commence their activities on Indian soil.

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There is an active advocacy for legislation providing for strict liability (or nofault liability). In view of the development of India and the level of judicial remedy, it might be worth considering adopting legislation regulating the safety of products for market access to India rather than providing the right for consumers to claim redress under product liability. After the introduction of the landmark case Donoghue v. Stevenson and its principle (ie, the neighbour principle) to the legal field, the liability of manufacturers for defective products has been expanding. There is no doubt that the manufacturer owes a duty of care to the end user of the product. The end user may be either a consumer of the product who has purchased the product/goods, or a gratuitous user who has not paid the consideration (eg a family member or employee). The person who has purchased the product may resort to the Consumer Dispute Redressal Agency to seek redress. The 1986 Consumer Protection Act has created an effective mechanism in this regard.

3. Contractual liability If the victim seeks remedy under contract law, the harmful performance theory applies to determine liability for damage caused by a defective product. For instance, the Macao legal system holds that, according to contractual privity, only the consumers who have a direct contractual relationship with the suppliers of a product are entitled to seek damages under contract law, while a third party who suffers harm because of defective products does not enjoy this right. This is an important distinction between contractual liability and tort liability. In Mainland China, if the victim of a defective product is in contractual privity, he is entitled to obtain remedies according to arts 112 and 113 of the Contract Law of the People’s Republic of China. Article 112 states that ‘Where either party fails to perform its obligations under the contract or does not perform its obligations as contracted, and losses are still caused to the other party after the performance of obligations or the adoption of remedial measures, the party in fault shall compensate for the losses.’ Article 13 stipulates that ‘If either party fails to perform its obligations under the contract or does not perform its obligations as contracted and thus causes losses to the other party, the amount of compensation for the loss shall be equivalent to the loss actually caused by the breach of contract and shall include the profit obtainable after the performance of the contract, but shall not exceed the sum of the loss that might be caused by a breach of contract and has been anticipated or ought to be anticipated by the breaching party in the making of the contract.’ Furthermore, a business operator who practices fraud in providing commodities or services to consumers is

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___subject to liability for punitive damages in accordance with the provisions of the ___Law on the Protection of Consumers' Rights and Interests. ___ It is a general principle that for contractual liability the basis for the claim ___of victims is the existence of a contractual relationship. An injured third party ___can obtain recovery only according to tort law and not contract law. ___ ___ ___C. Different Compensation under Strict Product Liability and Fault Based Liability ___ ___ ___In the jurisdictions of Asia and Russia, some clearly stipulate that the principle ___of product liability is strict liability, and victims can claim compensation for ___harm caused by defective products without having to prove the producers’ or ___sellers’ fault. However, the liability of producers or sellers is limited in this ___situation, and the compensation a victim can obtain is less than compensation ___under general tort law. Such difference in compensation available is reason___able, because whether the victims could prove the fault or not affects not only ___the litigation costs incurred by the victims, but also the degree of the blamewor___thiness established on the part of the producers and the sellers. ___ However, this policy has not yet been adopted in Mainland China. Full ___compensation is implemented no matter whether the victim can prove fault or ___not. Only in the case of high risk, may the rule limiting the extent of liability ap___ply. Moreover, in the cases where the rule of limited compensation is applied, ___the victims are not entitled to full compensation even if they can prove the de___fendant’s fault. There are great deficiencies in these rules, and Mainland China ___should learn from other jurisdictions and reform its current law. ___ ___ ___VI. Introduction of Punitive Damages into the Products Liability Regime ___ ___ ___Although these are not a prevalent topic in the tort and product liability law in ___civil law countries, rules of punitive damages, which play a great role in de___terring product and service fraud, have been adopted by Mainland China and ___Taiwan. Therefore, the legislation and practice in these two jurisdictions may ___provide significant experience for other civil law countries. Article 47 of the Tort ___Liability Law of Mainland China states that ‘Where a manufacturer or seller ___knowing any defect of a product continues to manufacture or sell the product ___and the defect causes death or serious injuries to the health, the injured person ___shall be entitled to seek the corresponding punitive compensation.’ However,

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this article does not stipulate how to determine the maximum amount of punitive damages. The Consumer Protection Law states that ‘where business operators knowing any defect of a product or service continue to supply commodities or services and such fraudulent activities cause death or serious harm to the health of consumers or other victims, the injured victims shall be entitled to seek damages not more than three times of the actual losses.’ Article 51 of Consumers Protection Law in Taiwan states that the consumer may claim for punitive damages up to three times the amount of actual damages as a result of injuries caused by the deliberate act of business operators; however, if such injuries are caused only by negligence, punitive damages up to 100% the amount of the actual damages may be claimed.

Part II: Cases Case 1: Brake Pad Failure The brief details of the brake pad failure case are as follows: In 2011, X Ltd started to use a new material for its brake pads, which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk that – given a combination of particular circumstances – the new brake pad material might suddenly be rendered ineffective, but it still used the new brake pad to manufacture bicycles. It only included a statement about the possibility of failure in small print in the product instructions. A injured himself and a pedestrian B when he used bicycle with these new brake pads. This is a typical product liability case, about which all the eight jurisdictions reporting are virtually unanimous in certain respects. Without exception, they consider that the bicycle is a product, and if it causes personal injury to users and other persons owing to its defects, product liability rules determine the manufacturer’s and seller’s tort liability. Nonetheless regarding the details of the application of law, several differences still exist. The particular issues are as follows:

A. Principles to Determine the Liability As to the principle of product liability, there are seven jurisdictions adopting nofault liability (strict liability), but India is an exception, which does not have a proper product liability regime yet.

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___ Chapter V of the Tort Liability Law of Mainland China regulates product li- 9/32 ___ability especially, and arts 41 to 43 require that producers assume product (tort) ___liability on a no-fault basis as long as the defective product inflicts harm on the ___victims, no matter whether it is the intermediate or the ultimate liability. Sellers, ___by contrast, assume intermediate liability by virtue of the no-fault principle and ___bear the ultimate liability under the negligent theory respectively. However, ___each supplier of the product in the chain of distribution is liable on the basis of ___no-fault liability if that supplier is not able to identify the producer or the prior ___supplier.6 In Japan, product liability cases were initially handled according to ___fault-based liability under art 709 of Civil Code. However, the later Product Li___ability Act, which came into force on 1 July 1995, adopted no-fault liability. In ___Malaysia, although product liability can be handled under the tort of negli___gence, the consumer does not have to prove fault on the part of the producer ___under the Consumer Protection Act. Actually, this is the reason for introducing ___strict product liability in the Consumer Protection Act, namely to lessen the ___consumer’s burden of proof. In Taiwan, art 7 of the Consumer Protection Law ___stipulates that business operators engaging in the design, production or manu___facture of goods shall ensure the safety of the goods provided by them, and once ___goods or services have the potential to cause harm, a warning or instruction ___should be provided. In particular the third paragraph of this Article states that ___‘Business operators violating the two foregoing paragraphs and thus causing in___juries to consumers or third parties shall be jointly and severally liable. If busi___ness operators can prove that they are not guilty of negligence, the court may ___reduce their liability for damages.’ This provision confirms that no-fault liability ___is generally applied in the product liability cases on the one hand, but on the ___other a proviso clause still exists, stating ‘if business operators can prove that ___they are not guilty of negligence, the court may reduce their liability for dam___ages.’ Thus, the liability under this particular rule is considered a ‘unique no___fault liability of equity Taiwan style’,7 or ‘a slight or comparative no-fault liabil___ity’.8 This provision is particularly unique. In Macao, art 85(1) of the Commercial ___Code states that ‘commercial enterprises should be liable to third parties for the ___damage caused by the defective product put into circulation, no matter whether ___they are at fault or not.’ In the legal regime of Macao, no-fault liability is a kind ___ ___ ___ 6 See Lixin Yang, Tort Liability Law (Law Press China, 2nd edn 2011) 308 f. ___ 7 See Tez-Chien Wang, Manufacturers of Commodity and Pure Economic Loss, Research on ___Theories and Cases of Civil Law, vol 8 (1998) 257. ___8 See Tsung-Chih Chiou, Interpretation of Product Liability: Consumer Protection Law as Cen___ter, Papers of the Famous Jurists in Contemporary Era 202.

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of particular legislation,9 and product liability falls just within the scope of it. In Russia, pursuant to art 1095 of the Civil Code, the product liability law moved from caveat emptor to caveat venditor. In other words, sellers assume strict liability for personal injuries caused by a defective product. In situations where defective products cause personal injuries, liability is presumed unless the producers or sellers are able to prove that the damage or injury was caused by a force majeure circumstance or by the consumer’s failure to comply with rules for the use or storage of the product. In India, there is no dedicated statute laying down the contours of product liability yet, and product liability is still governed by the principle of the common law of tort. Even though several law scholars actively advocate for such legislation with a strict liability component, current policy is to regulate products with a safety threshold for products to enter the market rather than further the rights of consumers to claim redress under product liability. The overall trend of the law reveals that the law is in transit from negligence to strict liability for products. However, the application of full-throated strict liability to cases by Indian courts or consumer relief agencies remains to be seen.

B. A Design Defect or the Developmental Risk when Defective Component Is Used? The brake pad case raises the question of whether component parts made from new materials that are cheaper or more effective but have a slight risk of sudden failure in particular conditions involves a design defect or a developmental risk. The product liability laws in the eight jurisdictions are almost unanimous in principle, and the consensus is that it is a design defect rather than a developmental risk. Japanese law holds that even if the producer argues the defence of developmental risk in this case, it will be rejected due to the fact that the risk of brake pad failure had been realized under certain conditions. Since the bicycle put into circulation creates a risk of personal injury and thus is a source of danger, a defect exists. In Mainland China, a developmental risk, governed by art 41(2) of Product Quality Law, is defined as: ‘The science and technology at the time the product is put in circulation is at a level incapable of detecting the defect.’ The possibility of failure of components under certain conditions is a defect detected

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9 Art 477 (2) of the Macao Civil Code states that ‘Duty to compensate not depending on fault shall only exist in cases specified by law.’

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___already, so the producer can not avail himself of the developmental risk de___fence. In a word, it is an issue of design defect. ___ According to Korean law, the defect in the brake pad failure case is a design ___defect rather than a mark defect (warning or instruction defect), and the devel___opmental risk defence cannot be raised in this case. Under the law of Macao, ___failure of a brake pad is a defect, for the use of the product is accompanied by ___the danger and such failure is foreseeable. In addition, the warning given in ___small print cannot ensure that consumers are clearly aware of the risk, and the ___danger is still out of consumers’ control, so the product is defective. ___ Malaysian law also holds that a defect exists in the discussed product. If a ___bicycle with a defective brake pad is provided, on the one hand, the producer ___and seller may be liable by virtue of the implied warranty rule established by ___sec 32 of the Consumer Protection Act. On the other hand, since the product ___does not provide the safety that a person is entitled to expect and thus a design ___defect exists, when combined with the fact that all of the elements set forth in ___art 68(1) are proved, the producer and the seller are liable for damage suffered ___by A and B. ___ ___ ___C. The Range of Plaintiffs Including Users and the Injured Third Parties ___ ___ ___As to the claimants, the vast majority of the eight jurisdictions hold that poten___tial plaintiffs include the user as well as other third parties who do not use the ___product, while a few jurisdictions provide that a non-user third party should be ___excluded from the protection provided by product liability law and thus is not ___entitled to bring a product liability claim. ___ Under art 3 of the Product Liability Act in Japan, producers and sellers must ___compensate both users and third parties for damage they suffer, because prod___uct danger not only concerns the user’s life and health, but also the safety of ___third parties. Furthermore, the expectations of a reasonable person about prod___uct safety include the expectations of users as well as other third parties. In ___Mainland China, the claimants entitled to pursue product liability claims are ___plainly identified as ‘other persons’ in art 41 of the Tort Liability Law. Thus, the ___range of those entitled to pursue product liability claims includes not only the ___contractual party but also users of the defective product and other injured third ___parties.10 In Taiwan, art 7(2) of the Consumer Protection Law states that ‘Busi___ ___ ___10 See Xinbao Zhang, Tort Liability Law (Beijing, China Renmin University Press 2010) 247.

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ness operators violating the two foregoing paragraphs and thus causing injury to consumers or third parties shall be jointly and severally liable therefor….’ Once consumers or third parties suffer damage because of a product’s lack of reasonable safety, any of them can claim compensation. In Korea, the range of persons protected covers the buyer and the third parties. It is the producer rather than the buyer who is liable for the damage suffered by third parties. In Macao, art 85(1) of the Commercial Code states that ‘commercial enterprises are liable to third parties for damage caused by a defective product put into circulation, no matter whether they are at fault or not.’ Consequently, this Code, like the EU directive, does not make any restriction about the range of claimants who may sue. According to art 14 of the Russia Consumer Protection Law, harm caused to the life, health or property of the consumer due to defects of a product in structure, manufacture, design or defects of other goods (works, services) shall be fully remedied. The right to request such compensation belongs to any victim, regardless of whether he has contractual relations with the seller or not. In India, if a pedestrian is hurt, suing the cyclist is the easiest means for recovery, as the pedestrian would be able to prove that the damage is a direct consequence of the cyclist’s negligent act. However, he would likely not be able to obtain sufficient compensation due to the limited economic strength of the cyclist. If the pedestrian chooses to sue the manufacturer, the only approach is to resort to the normal Civil Court on the basis of common law. He has to carry the burden of proof to convince the court that defective material was used in the brake pad. However, this is almost impossible for him. Moreover, there are no clear precedents, providing guidance about this type of litigation in India. Legal scholars hold that the absence of product liability law will make claims by third parties injured by defective products difficult. This opinion is reasonable, and it also reveals the necessity for product liability law to provide remedy for victims’ damage. Malaysian law states that a third party who suffers damage caused by a defective product is entitled to claim compensation based on negligence. It is difficult for the pedestrian to claim under the Malaysia Consumer Protection Act, because the Act only recognizes a claim made by a consumer, who is defined as a buyer or user of the product. Since the pedestrian is neither a buyer nor a user of the product, he has no claim under the Act against the producer of the defective product. In Russia, while a buyer can choose to bring a lawsuit according to contract liability or tort liability, a third party can sue only based on tort law. However, regardless of the substantive or procedural law in the field of tort law, there is no difference between the third party and the buyer when each of them are the victims of personal injury, they should be equally protected.

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___D. Whether Damage to the Defective Product Itself Is Recoverable? ___ ___When product liability law is applied, another interesting question is raised 9/43 ___when the defective product causes damage to itself (namely self-harming, also ___called self-hurting) as well as other kinds of damage. The question is whether ___damage to the product itself is governed by product liability law or may only be ___remedied under contract law. With regard to this issue, the jurisdictions are di___vided into two opposite camps. The Tort Liability Law of Mainland China clearly ___adopts a positive attitude. ‘Damage’, as one of the elements for liability, has dif___ferent meaning in art 41 of Tort Liability Law and in art 41 of Product Quality ___Law. The difference is that the former is expressed as ‘…causes any harm to an___other…’ while the latter is defined as ‘… causes physical injury to a person or ___damage to property other than the defective product itself (hereinafter referred ___to as another person's property)…’ So the difference is obvious. The intention of ___the Tort Liability Law is that recoverable damage includes damage to the prod___uct itself as well as other property damage so as to provide timely and conven___ient protection for consumers.11 Most scholars agree that product liability covers ___damage to the product itself as well as damage to persons and other property.12 ___Grounding recovery in tort means that an owner who has not purchased the ___product, ie, lacks privity, may recover for damage to the product itself. How___ever, the commentators’ view is that they are different forms of damage in na___ture after all – the one is of contract law, and the other pertains to tort, and this ___boundary is still necessary to be kept. ___ With regard to this issue, Malaysian law seems to split the difference. Al- 9/44 ___though precedent does not allow a tort claim for damage to the product itself ___because it is regarded as pure economic loss, claims for pure economic loss are ___allowed for defects in buildings provided that the loss is foreseeable. Scholars ___suggest that tort claims for harm to the goods themselves might be allowed in ___Malaysia if courts are prepared to apply the same principle as is used for defec___tive buildings. ___ In Taiwan, there are different opinions as to whether the damage to a defec- 9/45 ___tive product itself is recoverable under product liability law. However, according ___to the prevailing opinion, such damage should be excluded from product liabil___ity13 for the reason that the economic interests of the goods that consumers enjoy ___ ___ 11 See Shengming Wang (ed), The Interpretation of the Tort Liability Law of the People’s Re___ public of China (Beijing, Law Press of China 2010) 226. ___12 See Liming Wang (fn 3) 252. ___13 See Chung-Wu Chen, Protection Scope of Legal Interests in Product Liability of Consumer ___Protection Law, Taiwan Law Journal, vol 134, 80.

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fall within the scope of interests that are protected under contractual liability, such as warranty liability and insufficient performance liability, and thus should not be governed by product liability law which in nature is tort law. This is also the position of some other jurisdictions. For example, the latter paragraph of art 3 of the Product Liability Law of Japan states that ‘when damage caused by the defect occurs only to the product itself, the claim shall be dismissed.’

E. Whether the Product Instructions Given in Small Print Could Be Adopted as an Affirmative Defense? Having awareness of the general or reasonable risk in the materials or components during the process of manufacture, the producer should provide warnings and instructions regarding existence of risk as well as how to avoid it. Failure to do so gives rise to an instruction defect. Such is the basic view of all of the jurisdictions in Asia. In the view of commentators, if the risk in the product has been regarded as a design defect, the liability of the producer cannot be excluded or mitigated because the warnings in small print have been given but Chinese law has yet to develop to provide definitive guidance on this matter. However, some argue that such a slight risk in the new brake pad is reasonable and liability could be excluded as long as the warnings are adequate. A general rule of a product liability system is that the degree of risk in the product is a way to distinguish a design defect and an instruction defect. If the risk in a product is considered to be unreasonable, then the product is defective and the producer could not be exempted from liability merely by providing warnings or instructions. In contrast, if the risk is not serious but reasonable, and providing adequate warnings and instructions could avoid such risk, then the fact of inappropriate warnings or instructions constitutes an instruction defect. If the risk in the components of a product cannot be avoided by providing a correct instruction for use, then there is no instruction defect and no possibility for the producer to be exempted from liability by giving such an instruction.14 Under the product liability laws in Mainland China, Taiwan and Japan, since the risk of harm caused by the defective component has been realized, a design defect is involved rather than an instruction defect. Thus, whether warning is given or not, liability for design defect, instead of liability for instructions defect, will be triggered. Consequently, providing warnings and instructions about the design defect in small print will not change the liability of producer.

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___According to the law of Macao, the producer in this case has no chance to be ex___empted from liability even if the risk posed by the brake pad has been listed in ___the manual of the bicycle. ___ In Malaysia, warnings are considered to be information regarding dangers ___that can be found in the product, which are important to protect consumers be___cause the warnings can help consumers to avoid risks in the products. However, ___when the injury occurs as a result of a consumer’s failure to comply with the ___warnings, the manufacturer will be discharged from liability. It should be noted ___that it is insufficient to give the warnings in small print. The public will expect ___that this important warning is given in a size which can be seen easily by con___sumers. Taking into account the size of the warning, it is contended that there is ___a defect in the warning. And if the failure to provide an adequate warning ___causes harm, the producer should be liable. ___ ___ ___F. The Assumption Rules of Product Liability ___ ___Who should be liable for the damage caused by defective product is a question ___involving the liability of the producer and the supplier. However, the eight ___Asian jurisdictions differ on this issue. ___ Articles 7(3) and 8 of the Taiwan Consumer Protection Law clearly define joint ___and several liability. According to these articles, business operators engaging in ___the design, production or manufacture of goods or services shall be jointly and ___severally liable on the one hand; and business operators engaging in product dis___tribution shall be jointly and severally liable for damages with business operators ___engaging in the design, production or manufacture of goods or services with re___spect to injury caused by defects in such goods or services on the other hand. ___However, if any of these parties has exercised due care for the prevention of the ___injury, or if even had they exercised due care, the injury would still have occurred, ___such joint and several liability shall not be applicable to the business operator. ___ According to the Tort Liability Law in Mainland China, the producer and the ___supplier are subject to joint and several liability with indemnity. Where a defective ___product causes harm, the victim may claim compensation from the producer or ___from the seller of such product and this liability is defined as initial liability. If the ___defendant who has responded in damages should not bear such liability, he has ___the right to recover the loss through indemnity from the one who really should ___be liable. In other words, the real wrongdoer should bear ultimate liability. ___ In Korea, producers are liable for damage to persons and property of the ___victims according to art 3(1) of the Product Liability Law. The Malaysia Con___sumer Protection Act creates rights of consumers against suppliers as well as

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manufacturers. And the consumer, by virtue of art 3 of the Consumer Protection Act, is entitled to claim against suppliers under Parts V and VI or against the manufacturer of the bicycle under Part VII. In Russia, manufacturer, seller, and executor (arts 1095 and 1096 of the Civil Code) are defined by the preamble of the Consumer Protection Law. In a case where the product is not in conformity with the standard of the quality of goods set forth for such goods, a franchiser may be held vicariously liable in a claim against the franchisee according to Chapter 54 Commercial Concession (art 1034) of the Civil Code. Harm caused by defects in goods can be recovered by the seller or the manufacturer at the discretion of the claimant. Although legislation establishes joint and several liability of the producer and supplier, the nature of such liability should be regarded as joint and several liability (with indemnity) according to the legal theory. It is either the producer or the supplier who shall bear the ultimate liability without apportionment of liability between the producer and the supplier.

G. Designer’s Liability as an Employee of the Producer A hypothetical proposed in the discussion of this case inquires as to when the designer, who works in the producer’s laboratory as an employee or is an independent contracting researcher, conceals the danger of the new materials, how product liability law should be applied. With regard to this, the approaches in Asia and Russia are as follows: According to Mainland China Tort Liability Law, the designer is part of the producer, so the producer and the supplier should be liable under the general rules of product liability. However, where the designer, as an independent contracting researcher, conceals the defects and thus causes harm, by virtue of art 44, the producer and the supplier should be liable first and after that the producer or the supplier will have the right to seek indemnity to recover the loss from a third party such as the designer. Such regulation provides for stronger protection of the victims’ rights, but one of its deficiencies is that it may lead to an impasse when both the producer and the supplier lose the capacity to compensate. So if this occurs, the victims should be allowed to claim damages from the designer under art 6(1) of Tort Liability Law.15 According to art 7 of the Taiwan Consumer Protection Law, victims injured due to a defective product are entitled to bring claims against the producer,

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15 See Lixin Yang, The New Development of the Multi-Tort and the Liability, Law Science, vol 7, 2012.

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___whether the designer is the producer’s researcher or an independent contrac___tor. Producing and selling a defective product is a violation by the company ___and does not depend on the acts of the company’s employees or agents. How___ever, the difference lies in the fact that the producer has the right to recover ___the loss from the designer through recourse if the designer is an independent ___contractor after the producer has made the compensation. By contrast, for an ___employer to recover recourse when it is vicariously liable for the tort of an em___ployee, the employer must demonstrate gross negligence or intentional mis___conduct. ___ In Macao, the producer is liable for the damage if the designer is employed ___as a researcher of the producer’s laboratory and conceals the risk of possible ___failure of the new brake material. In contrast, if the designer who conceals such ___danger is an independent contractor, the designer would assume liability for ___compensation. ___ In Japan, where the designer was employed by the producer, the producer ___should not be exempted even if the producer claimed the defence that he was ___not at fault, since product liability in Japan is liability without fault. In contrast, ___where the designer was an independent operator and was negligent for know___ing the defects of the new materials used in the brake pad but intentionally con___cealing it, the victims might seek compensatory damages from the designer un___der art 709 of the Civil Code. But only in extremely exceptional cases, such as ___when the producer has given a specific instruction concerning research and de___velopment of new materials to the designer and monitored the designer, might ___the victims seek damages from the producer. ___ The liability of the designer is categorized respectively as employer’s liabil___ity and the contractor’s liability in Korea. If the designer is an employee of the ___corporation, the employer should be liable in principle. However, if the em___ployer could prove that the duties of selection and supervision have been per___formed without wrongdoing, the employer is exempted from liability. If the de___signer contracts for the research work independently, and conceals the danger ___of possible failure of the new brake material, then the producer assumes liabil___ity for the injured third parties solely or with the contractor. In addition, if the ___contracted work is substantially under the direction and supervision of the pro___ducer, then the employer-employee relationship virtually exists, and the pro___ducer should bear the employers’ liability finally.16 ___ In Malaysia, if the designer is an employee of the producer, then the pro___ducer is liable for the wrongdoing of the designer. Furthermore, the employer ___ ___ ___16 See Korean Supreme Court Judgments 1991.3.8, no 90/18432.

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should be liable even for unauthorized acts of his employee since this is an employment contract. Consequently, the producer would be vicariously liable for the negligent act of the designer. However, the producer is not liable for the negligent act of the designer if such is an independent contractor. Under Russia’s law, the corporation as an infringer cannot shift liability to its employee or a subcontractor, since the corporation is the manufacturer and as such is the only tortfeasor. However, the corporation may sue a subcontractor in contract for any loss caused by the brakes’ failure (eg product recall, consumers’ claims) provided that there is a provision for such in the contract. As yet, very few, if any, corporations’ claims against their own employees to recover the loss are supported under Russian law.

Case 2: Infected Blood The facts of the infected blood case are as follows: A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, which had collected it from a donor, Z. At the time, the risk of Hepatitis N in donated blood had been identified in a single published paper, but only a handful of research laboratories had the capacity to test for its presence in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that Hepatitis N really existed. On the law applicable to this case, several differences exist among the eight jurisdictions.

A. Whether Infection Caused by Blood Transfusion Is Governed by Product Liability Law In Mainland China, where blood is treated as a quasi-product, legal treatment of infection caused by blood transfusion is removed from the general scope of product liability. In accordance with art 59, Chapter 7 of the Tort Liability Law of the People’s Republic of China, infection caused by blood transfusion triggers medical damage liability. This is the specific application of product liability in the medical area.17 Nevertheless, despite the aforesaid art 59 of the Tort Liability Law, liability for medical products, including blood, is in principle guided by the strict liability provisions of product liability in arts 41–43.18

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17 Lixin Yang (fn 6) 437. 18 Lixin Yang, Medical Damage Liability Law (Law Press of China 2012) 326 f.

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___ The question of whether blood is a product has been very controversial in 9/66 ___Korea. Blood used for transfusions that has been processed by the provider, for ___example by adding a coagulant, is deemed to be a product. Nevertheless, even ___after the Product Liability Law came into effect, cases related to blood or blood ___products have in practice been decided under the general tortious liability ___based on fault. There has been no case handled through provisions of no-fault ___product liability so far. ___ In the majority of jurisdictions, product liability law is not applied to cases 9/67 ___of infection caused by blood transfusion. In Taiwan, since blood is not deemed ___to be a product, cases involving blood contamination are defined to be a medi___cal service dispute and are not subject to consumer protection law. Instead, ___these cases are regulated by art 82 of the Medical Law: ‘Medical service shall be ___conducted with necessary attention. If medical institutions as well as their staff ___harm patients due to medical conduct, liability for damage shall be limited to ___compensation liability on the basis of intentionality or negligence’. Here the li___ability principle is intentionality or negligence, thus requiring fault.19 In Macau, ___blood is not deemed to be a product and thus product liability law is not appli___cable. The same is true in Malaysia, services provided by hospitals to patients ___are subject to the Negligence Liability Law and Medical Law rather than the ___strict liability applicable to products contained in the Consumer Protection Law, ___which does not impose liability on blood providers in Part 10. Similarly in India, ___hospitals are not liable without fault. ___ ___ ___B. Whether Blood Containing Hepatitis N Virus is Defective? ___ ___As in other Asian jurisdictions where infection caused by blood transfusion are 9/68 ___subject to product liability law, Chinese law defines problems in blood as ren___dering it ‘substandard’ rather than constituting a ‘defect’. Blood providers and ___medical institutions are liable only if the blood is substandard. In accordance ___with the legislative intention to regulate substandard blood and defective prod___ucts together in art 59 of the Tort Liability Law; medical institutions or blood ___providers are subject to no-fault liability if patients are damaged due to blood ___transfusion, no matter what the causes of the blood defect are. Blood providers ___and medical institutions are subject to liability, with no right to invoke a de___fence of developmental risk (undiscoverable or unavoidable defect in accor___dance with current science and technology). The objective of these provisions is ___ ___ ___19 Bosong Zhu, On the Consumer Protection Law (2004) 293 f.

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to enhance protection for patients as well as to incentivise medical institutions and blood providers to take steps to prevent damage.20 In Korea, if the existence of Hepatitis N virus was undiscoverable according to the current level of science and technology, product liability would not be imposed in cases like the Hepatitis N one. Producers would be exempted from liability. The level of science and technology applied is objective and employs the top level of knowledge available. Producers’ subjective cognition of the problem is not considered.21 Even if the existence of Hepatitis N virus is difficult for the producer to discover, the developmental risk defence is not available. Russian law considers that Hepatitis N was not widely understood as a disease when the blood was transfused in 2005. Under the LCPR, development risks are borne by the provider. Nevertheless, in the absence of relevant regulation or other legal provisions that were applicable to transfusions and which were not complied with, it would be extremely difficult to establish that a defect existed in the blood. Using blood infected by Hepatitis N virus for transfusion will not necessarily subject the provider to liability. As cases involving blood transfusion infection are not included in the scope of product liability in other Asian jurisdictions, there is no discussion about defect problems with blood. This is true in India; if only one research paper about such virus had been published and only a few laboratories were capable of examining and determining the existence of Hepatitis N virus, most scholars did not think such a virus existed and thus a defect would not be found to exist.

C. Whether Blood Providers, Medical Institutions and Blood Donors are Subject to Liability In jurisdictions where Product Liability Law is applied to blood transfusion infection cases, the blood provider is deemed the same as the producer, which should assume liability for substandard or defective blood. According to Macao Law, if transfused blood is processed into blood products, the blood producers assume liability that cannot be excused. As for the apportionment of liability among medical institutions that conduct blood transfusion, practice varies in different jurisdictions. According to

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20 Wang Liming, Studies on Tort Liability Law, vol II (Beijing, China Renmin University Press 2011) 417. 21 Bupyoung Ahn, Medical and Manufacture Liability, Korean Law Journal No 40(2003/6) 191.

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___art 59 of the Chinese Tort Liability Law, if a patient suffers damage due to trans___fusion of blood that does not meet the applicable standard, he or she may seek ___compensation from the blood provider; if the patient seeks compensation from ___the medical institution, the medical institution is entitled, after providing com___pensation to the victim, to claim reimbursement from the blood provider. In Ja___pan, this liability is addressed by product liability. Medical institutions do not ___assume liability without negligence. In Taiwan, blood is treated differently from ___general products. The latter are designed, produced and manufactured by ___product producers and thus the producers can control risks and damage, by ___contrast blood is not produced, manufactured or sold on a large scale, and risks ___cannot be taken into account in the cost and thereby transferred to all consum___ers because Taiwan provides free medical care and there is no charge for blood. ___Blood should neither be regarded as a product nor treated as defective because ___of public policy. If blood producers are subject to harsh liability, nobody will ___engage in supplying blood, thereby impeding the development of the medical ___transfusion system. ___ According to the Law of Blood Management in Korea, only medical institu- 9/74 ___tions and the Korean Red Cross are permitted to collect blood. Producers of ___blood products can only obtain blood from the blood administrations, ie, medi___cal institutions and the Korean Red Cross. If the blood administrations provide ___infected bloods to producers, both assume joint and several liability according ___to regulations that provide that both parts producers and material providers are ___responsible, and art 5 of the Korea Product Liability Law. If the doctor has failed ___to explain to the patient the risk of infection due to blood products, it is a tort of ___interference with the patient’s autonomy rights (right to choose whether to use ___the blood product).22 In Macao, if there is no fault in the hospital treatment, ___which means the hospital conducts the blood transfusion in accordance with ___customary actions, the N Hepatitis cannot be tested for, and there is doubt in ___the academic field whether the N Hepatitis really exists or not, it can be con___cluded that the hospital has fulfilled its ‘appropriate care’ duty and made no ___mistake in the victim’s treatment. Therefore, the victim cannot claim compensa___tion based on the damage. ___ As for blood donors, all jurisdictions agree that they should not be the sub- 9/75 ___ject of liability, because they do not know that there is Hepatitis N in their ___blood. For example, in Japan it is considered that when the blood provider can ___neither realize the existence of Hepatitis N nor realize the risk of contamination ___of the blood products, he has not been negligent. ___ ___22 For a representative case of a doctor’s instructional responsibility, see Korean Supreme ___Court Judgments 2011.3.10, no 2010/72410.

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D. Limitation Period for Action One question in the legal application of the blood transfusion infection case is whether there will be any different result if the victim was infected with the virus in 2001 as a result of the blood transfusion, but the damage did not manifest until 2012. According to art 45 of the Chinese Product Quality Law, the limitation period for bringing an action claiming compensation for damage due to a defect in a product is two years which is counted from the date on which the party concerned knows of or should know of the violation of his rights and interests. In the Hepatitis N case, although the victim was transfused with deficient blood in 2001, the damage did not manifest until 2012. Therefore, the limitation period started to run on the date on which he knew of the violation of his health, ie in 2012. According to art 5 of the Japanese Product Liability Law, para 1, ‘the limitation period of the claim for damage compensation regulated in art 3 is 3 years, starting from the date on which the victim or his statutory agent knows of the violation of his rights and interests. The limitation period for products is 10 years, starting from the date on which the producers deliver the products’. Paragraph 2 says ‘The latter limitation period counts from the date on which the damage happens, when damage that is caused by materials harmful to human health, or shows symptoms after an incubation period.’ These regulations are clear on the issue. The period from 2001 to 2013 is more than 10 years. The victim, who knew of the infection because of modern technology, and knew who was liable to pay compensation, does not have the right to ask the blood provider for compensation. According to art 6(1) of the Limitations Law of Malaysia 1953, lawsuits based on tort shall not be filed more than 6 years after the cause of action accrues. The cause of action accrued in 2012 when the effect of the blood transfusions, which contained the Hepatitis N virus, manifested. The limitation period in product liability in Macao is relatively special. The right to obtain compensation is subject to a limitation period of three years, which starts from the date when the injured party knew of or should have known of the damage, the defect, and the identity of the party causing the damage.23 The right to compensation lapses ten years after the date when the party puts the product that causes the damage into circulation, except if judicial proceedings initiated by the injured party are pending.24 The producer does not assume any liability for the damage caused by product defects 10 years after the product was put into circulation. In this case, the damage did not appear until 11 years after

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23 See art 93 Macao Commercial Code. 24 See art 94 Macao Commercial Code.

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___the transfusion of the virus-infected blood. Therefore, the blood provider does ___not assume any legal liability for the damage. ___ According to art 776 (2) of the Korean Civil Law, the limitation period ex___pires if the victim does not bring a suit within 10 years, counting from the date ___of tort, which is not the date on which the harmful behavior takes place, but the ___date on which the damage occurs.25 According to art 7(3) of the Product Liability ___Law, the right to compensation based on product liability must be exercised ___within 10 years, counting from the date on which the producer provides the de___fective product. According to art 7(2), for latent injury, the limitation period ___starts from the date on which the damage becomes manifest (eg when the symp___toms of disease appear). ___ According to Russian Law, if the victim, who was transfused blood in 2001, ___did not know he was infected until 2012, the 10-year limitation period would still ___be applied. The limitation period does not change because of the differences in ___the basis of liability. In this instance, the victim would be barred from obtaining ___compensation based on the expiration of the limitations period. ___ ___ ___E. The Legal Remedies Available to the Blood Transfusion Victim ___ ___As for the legal application to the infected blood transfusion case, there are ___various remedies available in Asian and Russian jurisdictions, and their effects ___vary. ___ The best civil remedy for the victim in the infected blood transfusion case ___would be product liability. Product Liability Law would be applied to this case ___in Mainland China. The application of the principle of liability without fault ___can assure recovery. Chinese Tort Liability Law insists medical institutions as___sume fault liability for medical damage, and assume strict liability for medical ___product liabilities and infected blood transfusion liability. This strict liability is ___based on the consideration that fault liability cannot provide adequate protec___tion of the victim’s rights in the medical product liability field. On the one ___hand, the patient, relying on the professional, technical capability of blood ___providers and medical institutions, is not capable of recognizing, controlling ___and preventing any defect in the blood that he is transfused. Medical institu___tions and blood providers, as professionals, have far better ability to control ___risk than the patient. Imposing liability without fault for the patient’s damage ___can better encourage them to assume the responsibility to minimize the risk of ___ ___ ___25 Korean Supreme Court Judgments 1979.12.26, no 77/1895, unanimous verdict.

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blood transfusions. Also, in the infected blood transfusion case, the damage is very large for the patient, therefore the patient’s compensation remedy should be protected or it would be contrary to the principles of social equity and justice. The infected blood transfusion victim could also resort to Contract Law or the negligence liability under the Tort Law. However, because of the principle of fault, the patient may not prove the negligence of the blood providers or the medical institutions; therefore though the victim is innocent in causing the damage, he would not be able to obtain timely and necessary remedy. For example, Malaysian law distinguishes contracts for the sale of goods from service contracts. Obviously, professional medical service contracts fall into the category of service contracts. Therefore, the infected blood transfusion case cannot be covered by the Sales of Goods Act, because the provision of blood is not the provision of ‘goods’ which is regulated in art 2. Meanwhile, blood is not subject either to the Consumer Protection Law, because the scope of application of the law does not include professional service contracts. Even in the jurisdictions where Product Liability Law applies to the infected blood transfusion, it is also possible that contract liability or general tort liability will provide a remedy for the victim. However, blood providers’ and medical institutions’ fault is necessary when resorting to contract liability or general tort liability. Therefore, the possibility to obtain a remedy is slim. For example, in Japan, if a tort liability lawsuit is filed on the basis of medical negligence, or a liability lawsuit is filed on the basis of breach of a medical contract, even though the blood is polluted by the Hepatitis virus, the hospital does not need to assume any liability. Because at the time of transfusion, even reasonable doctors were unaware of the existence of Hepatitis N and the risk of blood products containing Hepatitis N, there is neither medical negligence nor breach of the medical contract. In Mainland China, the blood transfusion infection would not support liability under contract. Article 33(4) of the Regulation on the Handling of Medical Accidents states that ‘unfavourable consequences caused by infections resulting from faultless blood transfusions’ ‘shall not be deemed a medical accident’. In practice, this would bar compensation on the basis of breach of contract.

Case 3: Bridge Collapse The facts of the case of the defectively designed bridge are as follows: A is injured by the collapse of a bridge constructed by X Ltd on land belonging to Y who commissioned X to perform the construction. The collapse is caused by the

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___defective design by architect Z whom Y also commissioned directly. As for the ___application of law in this case, most Asian countries, except for Taiwan, do not ___consider that product liability laws can be applied to harm caused by real es___tate. ___ ___ ___A. Whether the Defectively Designed Bridge Should be Subject to ___ Product Liability Laws? ___ ___In the eight jurisdictions, only Taiwan considers real estate a product which can 9/87 ___be subject to product liability laws. Though there is no express definition of ___product in the Consumer Protection Law of Taiwan, art 4 of the Implementing ___Rules of Consumer Protection Law states that product in art 7 of the Consumer ___Protection Law means real estate or movable property as transaction object, in___cluding final product, semi-finished product, raw material and components. ___Therefore, in Taiwan, product liability, making no distinction between real es___tate and movable property, would apply to the collapsed building on the basis ___of no-fault liability. The constructor is jointly and severally liable with the de___signer and owner for damages. If the constructor can prove it was not at fault, ___the court can mitigate its liability. This is meant to relieve the constructor from ___an excessively heavy burden. But this does not mean it is entirely exempt from ___any liability. ___ Other jurisdictions adopt different methods to determine liability for the 9/88 ___defectively designed bridge, since real estate is not considered a product and ___thus is not subject to product liability laws. ___ The Tort Liability Law of Mainland China states that a defect in real estate is 9/89 ___not subject to product liability laws but rather art 86, which regulates liability ___for harm caused by objects. In the 8.0 magnitude earthquake that took place in ___Sichuan province on 12 May 2008, a large number of houses collapsed resulting ___in enormous damage. Some buildings had quality defects, which received great ___attention from the legislature. Then laws were adopted to regulate liability for ___defective buildings, structures and other facilities.26 Paragraph 1 of this article ___states: ‘Where any building, structure or facility collapses, causing any harm to ___another person, the builder and the constructor shall be jointly and severally li___able. After making compensation, the builder and the constructor shall have re___course against other liable persons, if any.’ The features of this legislation are: ___ ___26 The report regarding the deliberation of the Tort Liability Law (draft) of the People’s Repub___lic of China of the Law Committee of National People’s Congress, The twelfth session of the ___Standing Committee of the 11th National People’s Congress on 22 December 2009.

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(1) the directly liable persons are the builder27 and the constructor; (2) the builder and the constructor are jointly and severally liable and subject to presumption of fault liability rather than no-fault liability, which is different from the liability for defective products; (3) the provision does not use the concept of ‘design defect of product’ but instead ‘construction defect’, and it is applied to all the harms caused by collapse of real estate due to a construction defect; (4) the designer is not the directly liable person, but instead falls into the category of ‘other liable persons’. After making compensation, the builder and the constructor shall have recourse against other liable persons if any.28 Paragraph 2 of this article regulates liability for harm caused by management defects of real estate, which is not relevant to this case. Real estate (land and appurtenances) is not subject to the Product Liability Act in Japan. When drafting the Product Liability Act, immovable property was excluded from the scope of the Act for the following reasons: (1) Immovable property has its own pronounced individuality, which is different from the identical character of mass-produced items of movable property (2) Unlike movable property, immovable property is not the subject of mass manufacture, circulation and consumption. Therefore, provisions regarding land structure liability in civil law were applied to harm caused by immovable property including a general land structure. Liability for harm caused by public constructions was governed by State Compensation Law. Neither was subject to the Product Liability Act. But this does not create any injustice. For both product liability and land structure liability, the defect is determined by whether a product or land structure has the ‘ordinary safety which it should have’. Consequently, even if the law would be amended and real estate such as a land structure were covered by the Product Liability Act, this would not lead to different results. The scope of products is limited to movable property in Korean product liability laws. Real estate is not subject to product liability laws. A part of real estate, however, may be a product. For example, a lift or the cooling equipment is movable property that constitutes a part of real estate. Though the bridge is built by human labour, it is not a product covered in the product liability laws. If collapse of a bridge does harm to a third party, he/she may seek recovery according to art 758 of the Civil Law of Korea concerning liability of the occupant or owner of the construction. When construction is managed by the state or a local autonomous body, liability is addressed in art 5 of the State Compensation Law. These clauses are similar to those of Japan.

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27 The builder is the investor in the construction project and owns the constructed project according to art 30 of the Property Law. 28 See Lixin Yang (fn 5) 700 f.

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___ In Malaysia, product liability applies only to products. Since a bridge is not ___a product, provisions of product liability law in the Consumer Protection Act ___will not apply. According to tort law, where the collapse of a bridge causes harm ___to others, the victim may sue the third party, namely, the builder, the land ___owner and the architect. ___ The definition of product in Macau excludes real estate. Article 86(1) of the ___Commercial Code defines product as ‘any movable property’, including ‘mov___able property assembled with other movable property or real estate’. The Civil ___Code as a general law determines what movable property is and what real estate ___is.29 Currently the bridge cannot be deemed a product, and the builder of the ___bridge will not be liable under products liability law. ___ There are no well-established product liability laws in India so that any li___ability would be subject to general tort law. The builders’ liability is very limited ___unless it can be proved that the builder did not comply with the design prepared ___by the architect. The facts reveal that the architect’s design is defective. There___fore, the builders are not liable. Regarding the owner of the land, courts have ___clarified possessor’s liability, and that liability is equal to absolute liability, ___which is even stricter than strict liability. Under this rule, the owner of the land is ___liable. It is very clear that the architect should be liable to the owner and the vic___tim as the design has proven defective. If the victim chooses to sue the architect ___on the ground of the latter’s knowledge, the architect will be liable to the victim. ___ ___ ___B. Is a Bridge Architectural Plan a Product? ___ ___In Mainland China, a bridge architectural plan is not a product but a service ___provided to a builder by a designer, governed by contractual liability addressed ___in the Contract Law. In the circumstance of art 86 of the Tort Liability Law, a de___signer is categorized as an ‘other liable person’. After the builder and the con___structor fulfill their liability for harm caused by real estate jointly and severally, ___they can have recourse against the designer.30 ___ In Japan, an architectural plan and design service does not constitute ___‘products’ and thus an architect does not bear compensatory liability under art 3 ___of the Product Liability Act. If an architect does not fulfil the duty of reasonable ___care in preparing a design, the victim can demand compensatory liability for the ___architect’s negligence under art 709 of Civil Code. In judicial practice, an archi___tect’s professional status is taken into account in determining whether reason___ ___29 Arts 195 and 196 Civil Code of Macau. ___30 Lixin Yang (fn 6) 567.

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able care was exercised, resulting in a higher degree of care being required, which is beneficial for the protection of the victims. Paragraph 2 of art 191-1 of the Civil law of Taiwan states that manufacturer refers to any person who produces, manufactures or processes products. Although an architect is not expressly mentioned, the prevailing opinion argues that an architect is also a danger-maker, and should be governed by the same provisions that regulate persons who produce, manufacture or process the product.31 If a bridge designed by the architect lacks safety, the architect should be subject to liability under art 191-1 of the Civil law. A party liable under art 7 of the Consumer Protection Law is limited to business operators who design, produce and manufacture a product or provide a service, including any design entity. The architect would not bear no-fault liability under this provision if the architect is a natural person rather than a business entity. In Macau, though a construction architectural plan might be characterized as movable property, it is not a product but a service according to the prevailing opinion. The design itself does not lie in its carrier, but in the intellectual creation, and thus it does not appear in a material form and should not be considered movable property. Thus, it is not subject to product liability law. The essence of the construction architectural plan is a service provided by the architect to the principal according to the commission contract. Because of the relationship of commission contract, the principal shall be liable for the harm caused by the design. In Korea, an architectural plan, as an intellectual product, does not fall into the category of product for purposes of the product liability laws. Intellectual products such as information or software do not pose a risk of personal injuries or fire, and thus the victim may only seek a remedy based on warranty liability under contract law. It is hard to impose no-fault liability on this kind of product because the definition, content and function of intellectual property are quite diverse.32 Under art 28 of the Fundamental Law of Construction Industry, where the product of a contractor is defective, the contractor assumes warranty liability to the employer. However, pursuant to the exemption under Item 2, para 2, art 28 of the law, the contractor shall not be liable provided he/she works in compliance with the employer’s directions. The contractor works according to the architect’s design, and there is no direct contractual relationship between them. The direct contractual relationship exists only between the land owner and the architect. The architect delivers the architectural plan to the land owner, then the owner offers the architectural plan to the contractor and thus the contractor does not as-

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31 Johnson Lin/Zhenyu Feng/Mingzhu Lin, Understanding Consumer Protection Law (2005) 41. 32 Teasung Gun, Computer Software and Product Liability Law, Information Industry, No 173 (1996/9) 31.

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___sume the defect warranty liability for the bridge collapse. If the architect is fully ___aware of the defect of the design but does not inform the land owner intention___ally or negligently, under art 26(5) of the Fundamental Law of Construction In___dustry, the manager of the project shall be liable to compensate the property ___damage which he/she incurs to the contractor intentionally or negligently in the ___performance of his/her duties. The contractor and the architect shall be jointly ___and severally liable for the damage due to the bridge collapse provided they ___build the bridge with mutual consultation or supervision. ___ Under Russian law, the special product liability provisions equate products 9/100 ___and service, for the purposes of strict product liability. Thus, it is irrelevant ___whether a plan is a ‘product’. Nevertheless, it will be difficult for a victim to ___prove a defect as the collapse of a structure, in itself, does not establish a defect. ___Instead, the victim will have to show, through an expert, that the architect acted ___contrary to the rules of architectural design. ___ ___ ___C. The Difference Between Liability for Movable Property and for Real Estate ___ ___ ___The Chinese legal system makes a clear distinction between rules for movable 9/101 ___property and real estate. The Construction Law (enacted in 1997 and amended ___in 2011) is in line with Product Quality Law (enacted in 1993 and amended in ___2000), and Contract Law has a separate chapter of ‘Construction Project Con___tracts’. The Tort Liability Law defines liability for harm caused by products ___(movable property) as product liability, while defining the liability for harm ___caused by real estate collapse as liability for harm caused by objects. In China, ___the differences between rules of liability for movable property and real estate ___are as follows: First, the difference in tort liability principle. The majority of ___scholars hold the opinion that a presumption of fault should apply in determin___ing the liability for real estate with a construction defect,33 which is different ___from non-fault liability for defective products. Second, there is a difference in ___whether ‘harm to the property itself’ falls within the scope of compensation in ___tort. ‘Harm to the product itself’ is included in the compensation of product li___ability, while ‘harm to the real estate itself’ is excluded from the compensatory ___tort liability for real estate. Third, a difference exists in whether there is liability ___for a defect in maintenance. The liability for real estate includes liability for ___both construction defects and maintenance defects, but the latter is not appli___ ___ ___33 Liming Wang (fn 3) 697.

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cable to movable property. This difference in liability for real estate from that for movable property is justified for the following three reasons: First, there are differences in the types of defects that occur – rarely do warning, instruction or post-sale defects arise in real estate. Also, the cost of preventing every single manufacturing defect in products may not be cost-justified but the high cost of construction may justify greater efforts to prevent defects in building. Finally, regulation of real estate and movable property is undertaken by different administrative bodies in China.34 Real estate in Taiwan is a product and governed by no-fault liability. In the opinion of academics, although this legislation can protect consumers, it is still necessary to reconsider whether real estate should be subject to strict liability. Justifications for strict product liability should be taken into account; that is, with the development of technology, consumers find themselves confronted with mass production, mass sale and mass consumption and movable property can be standardized, produced on a mass scale and it is easy to control its quality; therefore manufacturers should be subject to more stringent liability. In contrast, real estate lacks substitutability and it is difficult to determine what caused the harm due to a great deal of factors and the long time period between the completion of construction and when an accident may occur. Therefore, it may be appropriate to exclude real estate from the scope of product liability laws in future law revision.

D. The Differences Between Liability for Providing Products and Services There are several differences in liability for providing products and services in the legislation of Mainland China: (1) Requirement of privity. The person harmed by the provision of a service, as the party to the service contract, can choose to obtain a remedy through either contractual liability for breach of contract or tort liability according to art 122 of Contract Law, which provides for both remedies. When it comes to product liability, there is no requirement of privity, and claimants include both contractual parties and third parties. (2) Liability principles. If the service provided harms a person other than a party to the contract, tort liability is established on the basis of the principle of fault liability. But third parties injured by a defective product may recover on a non-fault basis. (3) Liable subject. The person liable for defective service is the service provider, while the product manufacturer and seller are jointly liable persons for defective products

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34 See Lixin Yang/Zhen Yang, Chinese Law Application in the Field of Product Liability, Northern Legal Science, vol 5, 2013.

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___in China. The Chinese legal system justifies these distinctions between liability ___for providing services and for selling products by the following reasons: (1) The ___degree of circulation is different. From the manufacturer to the end user or third ___party, the product is distributed through many steps. In contrast, service is pro___vided directly to an end user and does not go through the distribution process. ___(2) It is difficult to discover and prove the fault of the producer of a product. The ___modern massive production of product is so sophisticated that it is hard for the ___victim to prove that fault, which makes it harder for a victim to claim compensa___tion. Therefore, strict liability for defective products is employed to solve this ___problem. On the contrary, it is relatively easier for the victim to prove the fault of ___a service provider. (3) It is difficult to claim compensation because of the privity ___requirement. China is a country with a large geographic size. If the product ___manufacturer is the only liable person, this would impose a heavy economic ___burden on the victim to bring a claim for compensation. With this in mind, for ___reasons of convenience of litigation and in claiming compensation, the legislator ___adds the seller as a potentially liable person, who is required to bear the risk that ___the victim fails to recover compensation from the distributor or manufacturer. ___This strategy is designed to provide better protection. By contrast, the victim ___does not have such difficulty in demanding compensation in the case of service ___provision. ___ In the process of drafting the Product Liability Law of Japan, service (labor) 9/104 ___was excluded from the scope of product liability. The considerations for this ___choice are as follows: (1) When a service is provided, each kind of service is di___verse and has its own outstanding individuality, which is different from mov___able property with strong commonality; (2) There were only a few cases in ___which the defective service injured others’ life or health so that there was no ___compelling reason for imposing strict liability on service providers; (3) The issue ___was usually the quality of the service itself rather than the safety of a service; ___(4) It was the party contracting for a service who usually suffered damage aris___ing from defective service. Because there is a contract between the service pro___vider and the service accepter, the latter can pursue contractual liability against ___the former. According to art 7 of the Taiwan Consumer Protection Law, product ___liability applies to services. Business operators engaging in the provision of ser___vices must ensure that services provided by them meet and comply with con___temporary technical and professional standards to provide reasonably expected ___safety in the rendering of services. All business operators, including designer, ___manufacturer, and other sellers, violating the foregoing duty and thus causing ___injury to consumers or third parties are jointly liable. This Article imposes strict ___liability. However, academic and lawyer opinion is that this rule does not apply ___to medical services. Scholars suggest services, with great diversity in type and

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content, are different from goods which are massively produced and marketed. Therefore, it is improper to impose no-fault liability on service providers. The essence of service is different from goods which are manufactured and marketed on a massive scale, and service should not be subject to no-fault liability but to fault liability, which is determined by the general duty of due care. Macau considers an architectural plan a service. Article 493 of the Civil Code concerning the principal’s liability defines it as an important system in modern tort law, namely, in the commission relationship, the principal’s civil liability for harm caused by the trustee to a third party during the trustee’s activity. The principal’s civil liability is established for the balance of interests among the principal, trustee and the victim. In this case, the owner of land is the principal, and the designer is the trustee, so that the owner as the principal shall bear the tort liability for harm caused by the bridge collapse to the victim because of the defective architectural plan of the architect.

E. Should the Constructor be Responsible to Build a new Bridge Free of Charge? The reports of these jurisdictions have few discussions on whether the constructor is obliged to build a new bridge free of charge. Japanese law argues that according to the agreement of the constructor and the land owner, the latter has a duty to build a new bridge free of charge and this means the constructor will bear the cost for workers to build a new bridge and the required materials. This cost is pure economic loss to the constructor’s property caused by the architect’s defective design. Moreover, there is no obstacle for the Tort Liability Act of Japan to impose liability for such cost. Thus, the constructor might claim compensation for such cost based on the architect’s tort under art 709 of the Civil Code. If there were any other harm, compensation might be claimed as long as such harm falls into the scope of adequate causation (proximate cause). In Korean law, the contractor has fulfilled its original obligation to the land owner based on the architect’s faulty plan, that is, to build a new bridge for a value in the amount of the original construction cost. The contractor would not have been obliged to pay for the cost and labor if the architect had not been at fault. Therefore, the contractor may claim compensation from the architect based on the architect’s fault according to the provisions of general tort under art 750 of the Civil Law of Japan. In Macau, although the constructor has to build a new bridge without obtaining payment due to the problematic plans, this liability is only based on his previous agreement with the land owner. Since there is no direct relationship between the constructor and the architect, the architect is not

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___liable to the constructor. Instead, the land owner as the principal is responsible ___for the harm caused by the architect as according to the interpretation of the ___commission contract, the architect is an agent of the land owner. According to ___para 3 of art 493 of the Civil Code of Macau, the land owner may then have re___course against the architect as the agent. However, if the constructor is also ___guilty, he shall bear joint liability with the architect according to art 490 of Civil ___Code. The reimbursement demanded by the land owner from the architect can ___be claimed as part of the action between the constructor and the land owner. ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

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___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ NEUE RECHTE SEITE

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___Willem H van Boom, Jean-Sébastien Borghetti, Andreas Bloch ___Ehlers, Ernst Karner, Donal Nolan, Ken Oliphant, ___ Alessandro Scarso, Vibe Ulfbeck and Gerhard Wagner ___ ___ ___van Boom, Borghetti, Ehlers, Karner, Nolan, Oliphant, Scarso, Ulfbeck, Wagner ___Contents ___Part I: General Questions | 255 I. Jurisdictions Covered | 255 ___ II. The EU Directive and its Implementation in National Law | 255 ___ III. Overview of Alternative Claims Available | 268 ___ ___Part II: Cases | 281 Case 1: Brake Pad Failure (Jean-Sébastien Borghetti) | 281 ___ Case 2: Infected Blood (Donal Nolan) | 296 ___ Case 3: Bridge Collapse (Vibe Ulfbeck and Andreas Bloch Ehlers) | 335 ___ ___ ___ ___ Part I: General Questions ___ Product Liability in Europe https://doi.org/10.1515/9783110547559-012 ___ I. Jurisdictions Covered ___ ___ This report covers Austria, Denmark, England, France, Germany, Italy and the 10/1 ___ Netherlands, but it should be noted at the outset that, within the European Un___ ion (EU), the law of product liability has to a large extent been harmonised by ___ the EU Product Liability Directive. Quite how complete this harmonisation has ___ been is a matter for debate. ___ ___ ___ ___II. The EU Directive and its Implementation in National Law ___ ___A. The EU Product Liability Directive (Ken Oliphant) ___ ___1. Overview ___ 1 ___The EU Product Liability Directive of 1985 establishes liability on the part of the 10/2 ___producer of a product for damage caused by a defect in it. Each of the italicised ___ ___ ___1 Directive 85/374/EEC on product liability.

Product Liability in Europe

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terms is defined or otherwise qualified in the articles of the Directive. By way of brief introduction, it may be noted that: product means all movables even if incorporated into another movable or into an immovable, and includes electricity (art 2); the producer of a product means the manufacturer of a finished product or component part, or the producer of raw material, or any person who, by putting his name, trade mark or other distinguishing feature on the product, presents himself as its producer (art 3[1]). The Directive also deems any person who imports into the EU a product for sale, hire, leasing or any form of distribution in the course of his business (art 3[2]) to be a producer and, subject to conditions, any supplier of the product who, where the producer of the product cannot be identified, fails to inform the injured person, within a reasonable time, of the identity of the producer or of the person who supplied him with the product (art 3[3]); a product is defective ‘when it does not provide the safety which a person is entitled to expect, taking all circumstances into account’ (art 6[1], which proceeds to list specific circumstances by way of illustration); the test is one of (reasonable or legitimate) expectations rather than whether the producer exercised due care; damage for the purposes of the Directive refers to death or personal injury and damage to property (including its destruction), but only insofar as the property is for private use or consumption and even then subject to a € 500 threshold;2 defences generally recognised under national law also apply under the Directive, which specifically refers to the reduction or disallowing of the liability on grounds of the injured person’s contributory fault (art 8[2]); by way of exception, however, the limitation or exclusion of liability by any (contractual or other) provision is not permitted (art 11); specific defences provided for in the Directive include the well-known ‘development risks defence’ (art 7[1][e]). The remedy under the Directive does not replace but co-exists alongside remedies in contract and tort recognised independently under national law.

_____ 2 It is sometimes questioned whether the € 500 limit acts as a true threshold or as a deductible. See below, passim.

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___2. Context and aims ___ ___The Directive was enacted in the midst of widespread public concern arising ___from the Thalidomide tragedy of the late 1950s and early 1960s.3 Thalidomide ___(also known as Contergan) was a prescription sedative recommended for use by ___pregnant women to alleviate the effects of morning sickness. Tragically, its en___tirely unforeseen side-effect was to cause severe abnormalities in the fetus in ___ventro which led to thousands of babies being born without limbs or with fore___shortened limbs. Subsequently, legal claims were brought seeking compensa___tory damages for the children affected. However, in most legal systems, they ran ___up against the traditional requirements for establishing liability, namely fault ___and foreseeability. Many of the claims foundered because, as the manufacturers ___argued, the terrible side-effects associated with Thalidomide were unforesee___able at the time the drug was supplied, and consequently they were not at fault. ___ Getting away from the fault-based approach of the past was a primary aim ___of the Directive, as its Recital makes clear: ‘liability without fault on the part of ___the producer is the only way of solving the problem, peculiar to our age of in___creasing technicality, of a fair apportionment of the risks inherent in modern ___technological production’. The Directive therefore holds the producer liable for ___harm caused by a product defect regardless of the producer’s fault. It creates ___what is sometimes called a ‘strict liability’, though the appropriateness of this ___terminology is disputed. ___ The Directive is frequently seen as a consumer protection measure. This im___pression is reinforced by the repeated reference in its terms – especially its Re___cital – to the need to protect the consumer. However, in fact the Directive’s legal ___basis – ie the provision in the Treaties that allowed the then Council of Ministers ___to act – was the harmonisation of the laws of Member States so as to improve ___the functioning of the internal market.4 It addressed the concern that diver___gences between Member States in product liability laws could distort competi___tion and affect the free movement of goods. The Directive thus had an eco___nomic, not social, objective. ___ In fact, the Directive’s economic objective can even be seen to have under___mined consumer protection. It has actually prevented attempts made by na___tional legislators to establish a more stringent form of liability – more protective ___of the consumer – than under the Directive, or even to maintain in force pre___existing national provisions which afforded greater consumer protection. The ___ ___3 On the background to the reform, see Jane Stapleton, Product Liability (1994) 41 ff. ___4 Art 100 of the EEC Treaty (no longer in force), corresponding to art 115 of the (current) ___Treaty on the Functioning of the EU.

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Court of Justice of the EU (CJEU) has consistently ruled that such provisions of national law are contrary to the Directive, because differences in levels of consumer protection in different member states might distort competition and impede free movement of goods. National legislation in Denmark, France, Greece and Spain has already fallen foul of such rulings.5 Consumer (and victim) protection is also obstructed by the defence provided in the Directive for unknowable defects (art 7[e]). It is a defence if the producer establishes that ‘the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of the defect to be discovered’.6 It only takes a moment’s reflection to recognise that this so-called ‘development risks defence’ could well have prevented any claim by the Thalidomide children whose plight was so instrumental in bringing about the change in the law. Thus, it may be questioned whether the Directive achieves its declared goals.

3. Text (excerpts) Art 1. The producer shall be liable for damage caused by a defect in his product. Art 2. For the purpose of this Directive ‘product’ means all movables even if incorporated into another movable or into an immovable. ‘Product’ includes electricity.

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Art 3. ‘Producer’ means the manufacturer of a finished product, the producer of any raw material 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. Without prejudice to the liability of the producer, any person who imports into the Community a product for sale, hire, leasing or any form of distribution in the course of his business shall be deemed to be a producer within the meaning of this Directive and shall be responsible as a producer. Where the producer of the product cannot be identified, each supplier of the product shall be treated as its producer unless he informs the injured person,

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5 See M Lunney/K Oliphant, Tort Law: Text and Materials (5th edn 2013) 573 f, with further references. 6 Member States have the option of derogating from the defence, but only Finland and Luxembourg chose to do so. France and Spain have done so in part.

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___ within a reasonable time, of the identity of the producer or of the person who ___ supplied him with the product. The same shall apply, in the case of an im___ ported product, if this product does not indicate the identity of the importer ___ referred to in paragraph 2, even if the name of the producer is indicated. ___ ___ Art 4. The injured person shall be required to prove the damage, the defect ___and the causal relationship between defect and damage. ___ ___ Art 5. Where, as a result of the provisions of this Directive, two or more per___sons are liable for the same damage, they shall be liable jointly and severally, ___without prejudice to the provisions of national law concerning the rights of con___tribution or recourse. ___ ___ Art 6. ___1. A product is defective when it does not provide the safety which a person is ___ entitled to expect, 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 is subsequently put into circulation. ___ ___ Art 7. The 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 de___ fect 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 after___ wards; 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 regula___ tions issued by the public authorities; or ___(e) that the state of scientific and technical knowledge at the time when he put ___ the product 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.

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Art 8. Without prejudice to the provisions of national law concerning the right of contribution or recourse, the liability of the producer shall not be reduced when the damage is caused both by a defect in product and by the act or omission of a third party. The liability of the producer may be reduced or disallowed when, having regard to all the circumstances, the damage is caused both by a defect in the product and by the fault of the injured person or any person for whom the injured person is responsible.

Art 9. For the purpose of Article 1, ‘damage’ means: (a) damage caused by death or by personal injuries; (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-material damage.

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Art 10. 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 plaintiff 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 suspension or interruption of the limitation period shall not be affected by this Directive.

Art 11. Member States shall provide in their legislation that the rights conferred upon the injured person pursuant to this Directive shall be extinguished upon the expiry of a period of 10 years 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. Art 12. The liability of the producer arising from this Directive may not, in relation to the injured person, be limited or excluded by a provision limiting his liability or exempting him from liability.

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___ Art 13. This Directive shall not affect any rights which an injured person ___may have according to the rules of the law of contractual or non-contractual li___ability or a special liability system existing at the moment when this Directive is ___notified. ___ ___ Art 14. This Directive shall not apply to injury or damage arising from nu___clear accidents and covered by international conventions ratified by the Mem___ber States. ___ ___ Art 15. 1. Each Member State may: ___(a) [deleted] ___(b) by way of derogation from Article 7 (e), maintain or, subject to the proce___ dure set out in paragraph 2 of this Article, provide in this legislation that ___ the producer shall be liable even if he proves that the state 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 a defect to be discov___ ered. … ___ ___ Art 16. 1. Any Member State may provide that a producer’s total liability for ___damage resulting from a death or personal injury and caused by identical items ___with the same defect shall be limited to an amount which may not be less than ___70 million ECU. … ___ ___ ___B. Implementation of the Directive in National Law ___ ___The following paragraphs highlight particularities in how the Directive has been 10/15 ___implemented or interpreted in the selected national legal systems. ___ ___ ___1. Austria (Ernst Karner) ___ ___In the wake of European efforts to reform liability for defective products Austria, 10/16 ___which was not a member of the European Union at that time, decided to enact a ___specific product liability law (Produkthaftungsgesetz, PHG) in 1988. Although ___the Austrian PHG emulated the European Directive 85/374/EEC in most re___spects, Austria’s accession to the EU made it necessary to fully adopt the Direc___tive in 1993 by revising the PHG. In some minor points there is still some contro___versy as to whether this revision satisfies all the provisions of the Directive. ___Furthermore, it seems worth mentioning that Austria has made no use of the op-

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tion to waive the exclusion of product liability for development risks as provided by art 15 sec 1 lit b of the Directive.

2. Denmark (Vibe Ulfbeck and Andreas Bloch Ehlers) The EC Directive on Liability for Defective Products (85/374/ECC) was implemented in Danish law by the Products Liability Act 1989 (PLA) §§ 1-9, 11(1), 12, 14(1), 15, and 17. Three special features may be noted.

a) No limitation on the producer’s total liability and no derogation from the ‘development risk’ defence In the PLA there is no limitation of the producer’s total liability as allowed by art 16 of the Directive. Further, there is no derogation from the ‘development risk’ defence as permitted by art 15.

b) Fixed amount deducted on claims for property damage § 8 of the PLA states that when calculating a claim for property damage, an amount of DKK 4000 (€ 535 approx) should be deducted from the total claim, cf the Directive art 9 (b). In other words, the Danish rule is understood as a rule requiring deduction, not as a threshold rule. However, in legal theory it is recognized that the proper interpretation of the Directive in this regard may be doubtful.7

c) Liability of suppliers Today, the PLA contains two special provisions concerning the liability of the supplier; §§ 10 and 10(a). According to § 10, a supplier is liable for damage caused by a product unless he can prove that the damage was not caused by his fault or neglect. According to § 10(a), a supplier is liable to the claimant and other suppliers in the distribution chain if the damage in question is caused by the fault or neglect of the producer or previous links in the chain of distribu-

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7 J Rostock-Jensen/A Kvist-Kristensen, Produktansvar, Produktansvarsloven med kommentarer (2004) 171-172.

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___tion. It is debated whether § 10 and perhaps § 10(a) are in accordance with the ___Directive. Both paragraphs were introduced on 8 June 20068 in order to bring ___the PLA into conformity with the Directive as construed by the Court of Justice ___in C-402/03 (‘Skov Æg’) decided on 10 January 2006. However, some argue that ___the Danish provisions on supplier liability still do not conform with the Direc___tive.9 ___ ___ ___3. England (Donal Nolan) ___ ___The EC Directive on Liability for Defective Products (85/374/EEC) was imple- 10/21 ___mented in the UK by Part I of the Consumer Protection Act 1987. The legislation ___does not include a limitation of a producer’s total liability, as permitted by art 16 ___of the 1985 Directive, and there is no derogation from the ‘development risk’ de___fence, as permitted by art 15. ___ Section 1(1) of the CPA 1987 states that the provisions in Part I were passed in 10/22 ___order to implement the 1985 Directive, and that they should be construed accord___ingly. It follows that any ambiguities in the legislation should be resolved in a ___manner consistent with the provisions of the Directive, and in interpreting the Di___rective for this purpose account should be taken (in accordance with general ___principles) of its recitals and of decisions in other jurisdictions interpreting its ___provisions. In the most important English case on the strict product liability re___gime, A v National Blood Authority [2001] 3 All ER 289, Burton J went further than ___this, and bypassed the CPA 1987 altogether, applying the wording of the Directive ___instead. Needless to say, this approach was highly unorthodox and is unlikely to ___be followed, since it renders the wording of the CPA 1987 entirely otiose. ___ Under sec 5(4) of the CPA 1987, no liability for property damage arises 10/23 ___unless the amount of the award would be at least £ 275. This provision does not ___therefore operate as a ‘deductible’, but as a threshold, which is consistent with ___the English language version of art 9(b) of the 1985 Directive. Section 5(2) of the ___CPA 1987 also states that no liability arises under the legislation for ‘loss of or ___any damage to the [defective] product itself, or for the loss of or any damage to ___the whole or any part of any product which has been supplied with the product ___in question comprised in it’ (compare art 9[b] of the Directive, allowing claims ___for ‘damage to, or destruction of, any item of property other than the defective ___product itself’). ___ ___8 Cf Act no 541, 2006, amending the PLA. ___9 See G Lett/J Rostock-Jensen, Ugeskrift (Danish Weekly Report, U) 2007B 62 ff and U 2006B ___211 ff.

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The wording of the development risk defence in sec 4(1)(e) of the CPA 1987 was considered by many to be more favourable to producers than the equivalent provision of the 1985 Directive, art 7(e). Whereas the latter spoke of the state of scientific and technical knowledge being ‘not such as to enable the existence of the defect to be discovered’, in sec 4(1)(e) the issue is what comparable producers ‘might be expected to have discovered’. The European Court of Justice (ECJ) has held, however, that the wording of the 1987 Act is not inconsistent with the Directive, and has accordingly dismissed infringement proceedings brought against the UK by the European Commission (Case C-300/95 Commission v United Kingdom [1997] ECR I-2649), albeit that this conclusion was based on the assumption that the English courts would interpret sec 4(1)(e) ‘in light of the wording and purpose of the Directive so as to achieve the result it has in view’ (ibid, para 33).

4. France (Jean-Sébastien Borghetti) France was ten years late in transposing the Directive into the Civil Code (arts 1245 to 1245-17). 10 However, the Cour de cassation, France’s highest civil court in civil matters, rules that judge-made product liability rules, which apply to damage caused by products put into circulation between 30 July 1988 (when the Directive should have been transposed) and 21 May 1998 (when the new Civil Code provisions came into force), should be implemented ‘in the light of the Directive’. In practice, this means that the solutions of the Directive apply to these products. The only restriction is that the development risk defence, which was retained by the French legislator but was optional in the Directive and was previously unknown in French law, only applies to products put into circulation after 21 May 1998. The provisions of the Civil Code, which purport to transpose the Directive into French law, depart slightly from the Directive in that compensable damage to property is not restricted to property ‘of a type ordinarily intended for private use or consumption, and used by the injured person mainly for his own private use or consumption’ (art 9 of the Directive). Instead, according to art 1245-1 Code civil, any damage to property can be recovered, provided it was not caused to the defective product itself and its value is over € 500. The ECJ ruled that this departure from the Directive is not a breach of the latter, since damage to an

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10 Formerly art 1386-1 to 1386-18. The new numbering came into force on October 1st, 2016, following a broad reform of the French law of obligations, which, however, did not affect the rules of tort law, nor those on the law of sales.

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___item of property intended for professional use and employed for that purpose ___lies outside the scope of application of the Directive (ECJ 4 June 2009, C-285/08, ___Moteurs Leroy Somer v Dalkia France and Ace Europe). Damage to such items is ___also compensable under judge-made product liability rules, which apply to ___products put into circulation between 30 July 1988 and 21 May 1998. ___ ___ ___5. Germany (Gerhard Wagner) ___ ___Germany was among the first jurisdictions to transpose the Directive into its na- 10/27 ___tional legal system, in the form of the Products Liability Act of 15 December 1989 ___(PLA). The PLA is a stand-alone statute that remains faithful to the prerogatives ___of the Directive. The German lawmakers did not use the option granted in ___art 15(1)(b) of the Products Liability Directive to exclude the development-risks ___defence. Rather, under sec 1(2)(No 5) PLA the Producer may exonerate himself ___by establishing that the state of scientific and technical knowledge at the time ___when he put the product into circulation was not such as to enable him to dis___cover the defectiveness of his product. As commentators have pointed out, ___sec 1(2)(No 5) PLA covers only a fraction of the cases which may be labeled as ___involving development risks, with the larger fraction being governed by the re11 ___strictive concept of product defect, as embraced in art 3 of the Directive. The ___German Supreme Court (Bundesgerichtshof, BGH) limited the application of the ___development risk defence to design defects and failures to warn, and excluded 12 ___manufacturing defects from the scope of sec 1(2)(No 5). In doing so, the court ___held that manufacturing defects were always discoverable, and that denial of ___liability for some categories of manufacturing defects would thwart the inten___tions of the framers of the Directive. Under the PLA, liability for property damage remains limited, as required 10/28 ___ under art 9 (b) of the Directive. Section 11 PLA provides that victims must put up ___ ___with property damage up to an amount of € 500. If damage amounts to less than ___€ 500, there will be no claim for compensation at all, if damage exceeds this 13 ___sum, the threshold applies in the form of a deductible. In German legal doctrine, it is understood that national law implementing a 10/29 ___ ___European Directive must be interpreted and applied in light of the Directive, not ___on the basis of domestic principles. For some time, the BGH has decided cases

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___ ___ 11 Gerhard Wagner in: Münchener Kommentar zum Bürgerlichen Gesetzbuch (MünchKomm), ___vol 5 (6th edn 2013) § 1 ProdHaftG para 50. ___12 BGH 09.05.1995, VI ZR 158/94, NJW 1995, 2162. ___13 MünchKomm/Wagner (fn 11) § 11 ProdHaftG para 3.

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under the PLA without involving the CJEU. Recently, this attitude has undergone some change. The BGH has turned to the CJEU for guidance on the question of how to interpret the concept of product defect with a view to cases in which there is only a risk that a product is defective.14 The CJEU gave an affirmative answer and held further that surgery undergone by the victim to fend off risks associated with a potentially defective medical device qualify as personal injury for which damages are recoverable under the European regime.15 Furthermore, the BGH has involved the CJEU in the dispute as to whether the amendments to the special liability rules supplied by the German Drug Act (Arzneimittelgesetz) were in compliance with art 13 of the Directive.16 The CJEU upheld the amendments to the Drug Act as not being in defiance of European law.17

6. Italy (Alessandro Scarso) Liability of the producer for damage caused by the defectiveness of their products was introduced in Italy by the Decree of the President of the Republic no 224 of 24 May 1988, issued in implementation of EC Directive 85/374/EEC of 25 July 1985. Subsequently – by virtue of sec 146 Legislative Decree no 206 of 6 September 2006 – the statutory provisions ruling on producer liability for defective products have been transposed into the newly issued Consumer Code (cf therein secs 114 – 127 as well as sec 3, subsec 1, let d), containing the definition of ‘producer’). The Consumer Code also provides for specific rules which – at least in an indirect way – relate to the liability of the producer for (the defectiveness of) their products, as secs 102–112 Consumer Code contain provisions on ‘Products’ safety’, which impose on whoever places products on the market – ie not just the producer – obligations of control and information aimed at guaranteeing the safety of the products (pursuant to sec 3, subsec 1, let d), Consumer Code). Whilst secs 102–113 Consumer Code have a merely preventive purpose, being aimed at ensuring that the products placed on the market are ‘safe’ irrespec-

_____ 14 BGH 30.07.2013, VI ZR 32/12, Versicherungsrecht (VR) 2013, 1451. 15 European Court of Justice (ECJ) 05.03.2015, C-503/13 and C-504/13, Boston Scientific Medizintechnik GmbH v AOK Sachsen-Anhalt and RWE, ECLI:EU:C:2015:148, para 36 ff; cf G Wagner, Der Fehlerverdacht als Produktfehler, 71 JZ 2016, 292–303. 16 BGH 30.07.2013, VI ZR 284/12, VersR 2013, 1450. 17 ECJ 20.11.2014, C-310/13, Novo Nordisk Pharma GmbH v S, ECLI:EU:C:2014:2385, para 19 ff.

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___tive of any actual damage, sec 114 ff Consumer Code intervene – so to speak – ex ___post and rule the on liability profiles of the producer, ie the adjudication of ___damages.18 Notwithstanding such conceptual distinction, where the defective ___product causing the damage does not meet the safety requirements laid down in ___sec 102 ff Consumer Code, any person under a duty to abide by such provisions ___will be jointly and severally liable with the producer of the finished product ___(pursuant to sec 3, subsec 1, let d), Consumer Code). ___ Although the scope of application of statutory provisions ruling on the li- 10/33 ___ability of producers for the defectiveness of their products is delimited – in sub___jective terms – by the concepts of ‘producer’ and ‘person suffering a prejudice’ ___and – from an objective viewpoint – by the concept of ‘products’, the relevant ___statutory provisions aim at implementing an effective compensation of the dam___age suffered to victims. ___ From such perspective, and despite the wording of sec 114 ff Consumer Code, 10/34 ___both the supplier of any raw material and/or the producer of any component in___corporated into the (finished) product are – as a matter of principle – jointly and ___severally liable with the producer of the finished product for the defectiveness of ___the (finished) product. Similarly, third parties having supplied any raw material or ___sub-contractors having produced any component incorporated into the finished ___product will be liable together with the producer of the finished product where – ___respectively – the raw material or the component incorporated into the finished ___product is defective, notwithstanding the latter’s joint and several liability with ___the supplier of any (defective) raw material or the sub-contractor supplying the de___fective component incorporated into the finished product, also where the defect of ___the finished product is imputable in toto to the raw material supplied or to the ___single component manufactured by sub-contractors:19 ___ For similar reasons inherent in holding the producer effectively liable to- 10/35 ___wards the person suffering a prejudice due to the defectiveness of their product, ___any person who imports into the European Union a product for sale, hire, leas___ing or any form of distribution in the course of their business shall be deemed to ___be a ‘producer’ within the meaning of the statutory provisions on producers’ li___ability (notwithstanding the fact that such liability is without prejudice to the ___liability of the producer) laid down in the Consumer Code and shall be respon___sible as a producer (cf sec 3, subsec 1, let d), Consumer Code). ___ ___ 18 Cf G Stella, La responsabilità del produttore per danno da prodotto difettoso nel Codice del ___ Consumo, Resp civ 2006, 1588, 1589. ___19 The liability of the producer of the finished product is without prejudice to their recourse to ___the supplier of any defective raw material or the producer of the defective component incorpo___rated into the finished product: cf Stella, Resp civ 2006, 1588, 1593.

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The same purpose of protecting prospective victims lies behind the application of the statutory provisions on producers’ liability for defective products to any person putting their name, trade mark or other distinguishing feature on the product, laying down that such be deemed to be a producer within the meaning of sec 102 ff Consumer Code (pursuant to sec 103, subsec 1, let d), Consumer Code).

7. The Netherlands (Willem H van Boom) Directive 1985/374/EC was implemented in the Civil Code in 1990 (the section was transferred to art 6:185-194 of the new Civil Code in 1992). The legislature chose not to introduce a limitation of liability pursuant to art 16 of the Directive, nor did it opt for the exclusion of the defence of ‘the state of scientific and technical knowledge’ allowed by art 15. Dutch doctrine considers the € 500 threshold (art 9) to be a proper threshold rather than a deductible.20 There are no Dutch Supreme Court decisions on the application of the Directive. There is some case law of lower courts, the most interesting case being one where the court held that anxiety as such does not constitute ‘personal injury’ for the operation of the (implemented provisions of the) Directive.21

III. Overview of Alternative Claims Available In this section, the analysis highlights alternative claims (ie claims independent of the Directive) that may be available in the selected national systems, and identifies their principal pros and cons relative to claims under the Directive.

A. Austria (Ernst Karner) Under Austrian law the contract between the producer of the (defective) goods and the retailer of these goods is deemed to be a so-called ‘Vertrag mit Schutzwirkungen zugunsten Dritter’, ie a contract with protective effects for third par-

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20 See J Spier et al, Verbintenissen uit de wet en Schadevergoeding (6th edn 2012) 152. 21 Gerechtshof Den Bosch (Court of Appeal Den Bosch) 1 September 2009, ECLI:NL:GHSHE: 2009:BJ7299.

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___ties. According to this concept, the contractual duties of the producer to protect ___their contractual partner, the retailer, are extended to the consumer, who pur___chases the goods from the retailer. The idea behind this concept is to establish a ___quasi-contractual relationship between the producer and the consumer even ___though contractual agreements actually exist merely between the producer and ___the retailer as well as between the retailer and the consumer. As a consequence ___of this concept, the consumer is granted all the benefits of contractual liability ___and is not compelled to rely on delictual claims, which would regularly fail: ___against the retailer for lack of negligence (wrongfulness, fault); against the pro___ducer due to the very restrictive rules on vicarious liability in tort law. The bene___fits of contractual liability are in particular a reversal of the burden of proof in ___respect of fault (§ 1298 Allgemeines Bürgerliches Gesetzbuch, ABGB) and – even ___more importantly – a stern vicarious liability regime imposed on the producer ___for all the failures of his assistants (§ 1313a ABGB). ___ The option of establishing liability according to the general rules was natu- 10/42 ___rally of paramount importance before the Austrian PHG and the EU-Directive ___were implemented. However, even nowadays a contractual claim may have an ___advantage as compensation for damage to property is not restricted by a thresh___old, unlike under the Directive. On the other hand, the serious downsides of ___such a fault-based claim resulting from breach of contract have to be pointed ___out: Firstly, this concept is often not applicable in cross-border cases. Secondly, ___‘innocent bystanders’, who are only randomly injured by the defective good, are ___– unlike the actual buyers of such goods – not covered by the protective effects ___of the contract. Thirdly, producers and retailers are allowed to enter a dis___claimer excluding consumers from the protective effects of their contracts. Al___though such disclaimers at the expense of third parties, namely the consumers, ___are heavily criticised by academia, they are nonetheless deemed valid by estab___lished court rulings. Consequently, the value of the concept of the Vertrag mit ___Schutzwirkungen zugunsten Dritter is seriously diminished in practice. ___ ___ ___B. Denmark (Vibe Ulfbeck and Andreas Bloch Ehlers) ___ ___There are basically two sets of rules which regulate product liability in Danish 10/43 ___law: (i) The Products Liability Act 1989 (PLA) and (ii) the liability rules estab___lished in case law. Unlike the PLA, the rules established by case law allow com___pensation for damage to property which is (mainly) used commercially by the ___claimant. Further, the different kinds of damage already covered by the PLA (ie ___damage to the person and property not used commercially) can also be recov___ered pursuant to the rules established in case law. According to the rules estab-

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lished in case law, damages can be claimed only if the basic requirements of product liability are met. As a rule, it is a requirement that the claimant can establish negligence. Only in a limited number of cases has a strict form of liability been imposed.22 Furthermore, under the rules established by case law, the concept of a product is construed quite expansively in comparison with the rules laid down in the PLA. Thus, compensation may be claimed for damage caused by real estate and services.23 This paves the way for liability to a much greater extent than available under the PLA. Of course this is an advantage for the claimant. On the other hand, it is, of course, a disadvantage for the claimant that negligence must as a rule be established. There are no rules allowing for a fixed compulsory deduction to the claimant’s claim for damages (ie there is no rule which corresponds to PLA § 8). As a general rule, ordinary contract law might also be applicable in a product liability case as between the parties to the contract. However, it is a particularity of Danish law that as regards claims for damage caused by a defective product, it is not possible to base a claim on contract. This understanding of the law is based on the preparatory works to the Danish Sales of Goods Act of 1906.24

C. England (Donal Nolan) In English law, product liability is a hybrid made up of contract, common law negligence, and statutory tort liability under the CPA 1987. On a given set of facts, it may be that one, two, or even all three of these distinct causes of action will be available. There is no channelling of liability, and sec 2(6) of the CPA 1987 specifically preserves liability at common law. Although the primary focus of contract law is on the quality of the product, rather than its safety, contract law also performs a product liability role, since the damages payable for breach of contract terms relating to quality extend to compensation for consequential loss, including personal injury and property damage caused by the defective product. The most significant provisions relating to quality in contracts for the sale of goods are the implied terms as to correspondence with description, satisfactory quality and fitness for purpose in the Sale of Goods Act 1979. Where goods are sold by description, sec 13 implies a term that the goods will comply with that description. In addition, where the seller sells the goods in the course of his business, there is an implied term that

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22 See eg U 1999.255 H (‘Medierørsdommen’). 23 See eg U 2008.982 H (‘Tjæreborg Industri A/S’). 24 V Ulfbeck, Erstatningsretlige grænseområder (2010) 201.

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___the goods are of satisfactory quality (sec 14[2]), and that they are fit for any par___ticular purpose that the buyer has made known to the seller (sec 14[3]). ___ The main advantage of a contract action in this context is that liability is 10/47 ___strict: it is no defence to show that the breach occurred without fault on the de___fendant’s part, nor that the existence of the defect in question was unforesee___able. On the other hand, the scope for contractual redress is limited, since the ___privity of contract doctrine means that liability generally only arises between ___the parties to the contract of sale, so that a buyer cannot generally sue the pro___ducer of a defective product in contract, and an injured non-buyer (such as a ___donee, employee or bystander) cannot generally sue the seller in contract. The ___Contracts (Rights of Third Parties) Act 1999 allows a third party expressly identi___fied in a contract to sue on the contract if (1) the contract expressly provides that ___he may do so, or (2) if the contract purports to confer a benefit on the third party ___and the parties intended the contract to be enforceable by him, but these excep___tions to the privity doctrine are of limited significance in this context. They are ___unlikely to apply to consumer claims against producers, while in the case of a ___non-buyer and a seller, the requirements that the third party be expressly iden___tified in the contract of sale, and that the contract ‘purport to benefit’ him, will ___not often be satisfied. Finally, the contract limitation rules are less generous ___than the rules in tort, since time starts to run from the time when the goods are ___supplied, rather than when the damage occurs. ___ Since the landmark decision of the House of Lords in Donoghue v Stevenson 10/48 ___[1932] AC 562, it has been clear that a manufacturer of a product owes a duty of ___care to all persons who might foreseeably suffer personal injury or property ___damage as a result of a defect in the product. To succeed in a negligence action ___against the manufacturer, such a person will need to establish fault, damage ___and causation, applying general negligence principles. ___ Most claimants in product liability cases will prefer to sue under the CPA 10/49 ___1987 than in negligence, since fault need not be proven and there may be a ___wider range of defendants. However, there are a number of circumstances in ___which resort to the common law will still be necessary. In certain cases, prop___erty damage caused by a defective product will not give rise to liability under ___the legislation, most notably where the property damaged is commercial prop___erty (CPA 1987, sec 5[3]). In addition, there is a defence under the CPA 1987 if the ___product was never put into circulation (sec 4[1][b]), or if the production or sup___ply of the product was non-commercial (sec 4[1][c]), so in such cases any claim ___would have to be in negligence. Those who repair, certify or inspect products ___cannot be sued under the CPA 1987, but may be liable at common law. Finally, ___the limitation rules are more favourable in negligence. Under the CPA 1987, no ___claim can be brought more than ten years after the supply of the product (Limi-

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tation Act 1980, sec 11A[3]), but there is no such restriction at common law in personal injury cases, while in property damage cases the cut-off point is 15 years after the negligent conduct (LA 1980, sec 14B). And while the basic limitation period applicable to property damage claims is three years under the CPA 1987 (LA 1980, sec 11A[4]), in negligence it is six (LA 1980, sec 2). Both under the CPA 1987 and under common law negligence, liability for defective products is limited to personal injury and damage to other property. It follows that pure economic loss caused by a defective product is recoverable only in contract.

D. France (Jean-Sébastien Borghetti) Where applicable, product liability claims may be brought under the ‘hidden defects warranty’ (garantie des vices cachés; art 1641 ff Code civil). Article 1641 Code civil provides that the seller of goods is bound to warrant against hidden defects, which render the item sold unfit for the use for which it was intended. The claimant must prove the defect. Article 1645 further provides that where the seller knew of the defect, he is liable, in addition to restitution of the price received from him, towards the buyer for all damages. According to a judge-made rule, in a consumer sales contract, the professional is irrebuttably presumed to have had knowledge of the hidden defect of the thing he sold, even if that defect was in fact undiscoverable. The lay purchaser can therefore always claim damages against a business seller on the basis of art 1645 when the thing’s hidden defect has caused damage to the purchaser’s person or to any item of property. And thanks to an action directe, the purchaser may bring this contractual claim for damages grounded on art 1645 not only against the retailer, but also against the distributor, the manufacturer or any other professional seller along the sales chain. According to art 1648 Code civil, the claim must be brought by the buyer within a period of two years following the discovery of the vice. A 20-year long-stop period also applies, which starts to run as of the ‘birth of the right’ (art 2232 Code civil). This long-stop period was introduced in 2008 and it is still unclear if this ‘birth of the right’ should be understood as the time at which the contract came into force or the moment when damage was suffered. The first interpretation should probably be preferred, if only because the second one would render the long-stop rule devoid of any practical significance. Pros for the claimant: long-stop period significantly longer; all types of damage can be compensated; any professional seller of the product may be sued; no development risk defence. Cons: 2-year prescription period; only a buyer of the defective product may bring a claim under art 1641 Code civil.

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___ Where applicable, a claim may be brought under art 1240 (formerly art 1382) ___Code civil. Article 1240 is the clausula generalis on fault liability in French law. ___Anybody at fault must compensate any damage whatsoever caused by his fault. ___Given the strict non-cumul rule of French law, however, art 1240 is only applica___ble when there is no contractual relationship between the parties. According to ___art 2224 Code civil, the limitation period is five years from the moment when the ___claimant knew of the elements needed to bring the claim. In case of bodily in___jury, the period extends to ten years (art 2226 Code civil). Except in the case of a ___bodily injury, a 20-year long-stop period applies, which starts to run as of the ___birth of the right, ie the moment when damage was suffered (art 2232 Code civil). ___ It is disputed among French lawyers whether the mere putting into circula___tion of a defective product amounts to a fault under art 1240. Although there is ___some ancient case-law supporting this view, a majority of authors holds that ___this cannot be so any more, as it would systematically circumvent the Directive ___because claimants could then always bring a claim under art 1240 when a prod___uct is defective, and hence avoid the 10-year long-stop period. ___ Pros for the claimant: longer limitation period; no (effective) long-stop pe___riod; all types of damage can be compensated. ___ Cons: proof of fault required; not applicable in a contractual context, or ___when the claimant is a buyer and the defendant a seller higher along the sales ___chain. ___ Where applicable, a claim may be brought under art 1242 (formerly art 1384), ___para 1, Code civil. This text, as interpreted by case-law, provides that the ‘keeper ___of a thing’ (le gardien de la chose) must compensate any damage caused by that ___thing. No fault on the part of the keeper is required, nor any defect in the thing. ___The keeper is the person who had the power to use, direct and control the thing ___at the time when it caused damage. Like art 1240, art 1242, para 1, only applies ___in a non-contractual context. Applicable limitation periods are the same for ___both provisions. ___ Pros for the claimant: no proof or defect required; no development risk de___fence; longer limitation period; no (effective) long-stop period; all types of da___mage can be compensated. ___ Cons: not applicable in a contractual context, or when the claimant is a bu___yer and the defendant a seller higher along the sales chain. ___ ___ ___E. Germany (Gerhard Wagner) ___ ___Under German law, as in other legal systems, a claim for damages against the ___manufacturer of a defective product may be based on contract and tort, in addi-

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tion to whatever special statutory causes of action may exist. Before the passing of the PLA, there were cases where courts had allowed claims against manufacturers based on the general law of tort, or rather: delict. In addition, if the victim bought the defective product directly from its manufacturer, an action for breach of contract was available. Since the German law of obligations never subscribed to the doctrine of non-cumul or some other theory granting contract priority over tort, the two categories of claims exist alongside each other. Against this background, it seemed only natural to follow the same principle of co-existence with regard to the PLA. As a consequence, sec 15(2) PLA follows art 13 of the Directive in providing that the PLA does not preempt other causes of action. Therefore, the liability of manufacturers under the general law of delict and contract remains unimpaired by the Act. As the PLA applies cumulatively with the general law of delict, the victim has the choice of whether to base its claim either on the law of delict or to rely on the PLA. In practice, the system more favorable to the victim applies. This may well be the law of delict as courts had developed special rules within the general framework of delict that were designed to improve the situation of victims vis-à-vis manufacturers. In essence, the victim is relieved of the burden of having to establish negligent behaviour on the part of the manufacturer and instead proof of a product defect suffices. The resultant framework of judge-made law comes very close to the allegedly strict system of European products liability law that is likewise based on the concept of product defect and also burdens the victim with proof of such defect (art 4 Products Liability Directive). For this reason, the limitations on the manufacturer’s liability supplied by the Directive has turned out to be dead words in those areas where the general law of delict went further. This is particularly true for the narrow definition of damage to property contained in art 9 of the Directive. The exclusion of damage to property which is used for commercial purposes (art 9 b [ii] Directive) does not apply to claims based on the law of delict. In fact, claims involving property damage in supplier/assembler-relationships have formed one of the most prolific categories of products liability cases.25 As for damage to privately used property, the threshold of € 500 is easy to circumvent by relying on the general law of delict which knows no such deductible. The law of delict offers no remedy in cases in which the loss complained of is of purely economic nature, ie where there is neither personal injury nor damage to property. Pure economic losses remain outside the protective perimeters of both the PLA and negligence liability in delict. Finally, the limitation rules that apply to claims based on the law of delict are

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25 BGH 12.02.1992, VIII ZR 276/60, NJW 1992, 1225; BGH, 31.03.1998, VI Z 109/97, NJW 1998, 1942.

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___slightly more favourable to the victim than those supplied by art 10 of the Direc___tive and § 12 PLA.26 ___ During its first 13 years, the PLA was uninteresting for victims of personal ___injury as compensable harm was limited to pecuniary losses, to the exclusion of ___damages for pain and suffering and other nonpecuniary losses. This limitation ___was abandoned in 2002, when the scope of compensation available under the ___PLA was broadened so to include nonpecuniary harm, as authorized by art 9 ___(para 2) of the Directive.27 Since then, the PLA has flourished with regard to per___sonal injury cases and the practical relevance of the general law of delict has ___declined. ___ Under German law, the seller is liable in contract for personal injury or ___property damage caused by defective products sold by him, provided, however, ___that he knew or could have known of the defect. In other words, liability for ___breach of contract is not strict, but fault-based. In addition, it is limited to the ___parties to the contract. The proposal, voiced in the relevant literature, to include ___subsequent buyers and ultimately consumers within the protective perimeter of ___the first contract of sale between the manufacturer and his dealer was rejected ___by the BGH in the Chicken Pest Case.28 ___ The determination of fault within the context of contractual liability for ___product defects turns on whether the product in question was acquired directly ___from the manufacturer or indirectly from a merchant-seller who did not manu___facture the item in question. With regard to the liability of the manufacturer, it ___is well-established that the sale of a product that does not meet the safety re___quirements developed under the law of delict constitutes fault within the con___text of contract law.29 ___ Where the contract of sale was made with a merchant-seller, fault is a more ___complicated matter. As a matter of principle, the seller of a product is not ex___pected to investigate it for hidden defects.30 Sellers of mass-produced goods in ___particular may limit themselves to an investigation of a specimen item and then ___ship the goods of the relevant category to buyers without further ado. As a re___sult, merchant-sellers are liable for harm caused by product defects only where ___they knew about such defects or where they could have discovered them with___ ___ ___26 For details cf MünchKomm/Wagner (fn 11) § 12 ProdHaftG para 2. ___27 For details cf G Wagner Das zweite Schadensersatzrechtsänderungsgesetz, NJW 2002, 2049, 2053 f. ___ 28 BGH 26.11.1968, VI ZR 212/66, NJW 1969, 269, 272 note Diederichsen. ___29 F Graf von Westphalen in: U Foerste/F von Westphalen, Produkthaftungshandbuch (2012) ___§ 9 para 29. ___30 BGH 25.09.1968, VIII ZR 108/66, NJW 1968, 2238, 2239.

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out investigating each and every item sold. This state of the law changes if the contract in question is not governed by the German Civil Code but by the CISG. In principle, liability under the CISG is strict, and the BGH has held that the seller is liable under art 45(1)(b), art 74 CISG for harm caused by shipped defective goods, regardless of whether he or she could have known of the defect.31

F. Italy (Alessandro Scarso) Section 127 Consumer Code establishes that the statutory provisions of the Consumer Code ruling on the liability of producers for the defectiveness of their products do not exclude nor limit any rights granted to the victim by other statutory provisions, irrespective of whether such provisions ground contractual and/or tortious liability.32 Under Italian law the rights attributed to the victim by other statutory provisions depend on whether the latter purchases the defective product from the (re)seller, who themselves purchased it from the producer, rather than from the producer themselves, ie where there is a direct relationship between the producer and the victim.33 In cases where the victim purchases the defective product from the (re)seller, the former may file an action against both the producer (who – by definition – did not sell the [defective] product) and against the (re)seller (who – by definition – did not manufacture the defective product). The victim may bring an action against the producer grounded either on: section 114 ff Consumer Code, which deals with the liability for defective products, or on section 2043 Civil Code ie, the general clause governing tortious liability in the Italian Civil Code, or, depending on the facts of the case, on other statutory provisions of the Civil Code introducing special regimes of tortious liability (for instance, sec 2050 ff Civil Code).34 From a substantive viewpoint, the differences between grounding a claim on sec 114 ff Consumer Code rather than on sec 2043 Civil Code lie primarily in the

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31 BGH 24.03.1999, VIII ZR 121/98, NJW 1999, 2440 ff. 32 U Carnevali, La responsabilità del produttore (1994) 938. Contra: F Galgano, Trattato di diritto civile (2014) 233; Court of Naples, 21 March 2006, Giur mer 2006, 12, 2667. 33 Stella, Resp civ 2006, 1588, 1618. 34 For instance, grounded on the exercise of so-called ‘dangerous activities’ pursuant to sec 2050 Civil Code, according to which ‘Whoever causes injury to another in the carrying out of an activity dangerous by its nature or by reason of the means employed, is liable for damages, unless they prove that they have taken all suitable measures to avoid the injury’.

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___burden of proof to be discharged and in the damages: indeed, should the victim ___bring an action against the producer pursuant to sec 114 ff Consumer Code, ___the latter will ‘solely’ have to prove the defect (ie the ‘dangerousness’) of ___the product, the damage suffered and the causal link between the defect and ___the damage suffered, without having to prove the ‘fault’ of the producer which ___has caused the defect, as the liability of the producer for the defectiveness of ___their products is commonly defined as strict (as opposed to fault-based liabil___ity), as it is grounded on the criterion of ‘imputation’ rather than ‘fault’ (ie on ___the sole fact of the manufacturing and placement on the market of a defective ___product). ___ Needless to say, the different burden of proof to be discharged is of rele- 10/71 ___vance where the causes determining the damage remain unknown as, unlike in ___cases where the liability of the producer is grounded on sec 2043 Civil Code, the ___plaintiff does not have to prove the ‘faulty’ conduct of the alleged tortfeasor.35 ___On the contrary, sec 2043 Civil Code provides for a more favourable treatment ___with reference to the limitation period,36 to (the absence of) terms of forfeiture37 ___and to the amount of recoverable damages.38 ___ A further difference relates to their subjective scope of application: indeed, 10/72 ___unlike sec 2043 Civil Code, in the case of sec 114 ff Consumer Code the plaintiff ___may also sue whoever has put their name, trade mark or other distinguishing ___feature on the product (pursuant to sec 103, subsec 1, let d), Consumer Code), ___irrespective of the latter’s ‘faulty’ conduct. ___ Where the seller of the defective product is not its producer, the victim may 10/73 ___also sue the (re)seller: such action would be grounded on sec 1494 Civil Code, ___governing the compensation for prejudice due to the defects of the purchased ___product in sale-purchase agreements. In such cases, the purchaser may also ___ ___35 Notwithstanding this (conceptual) difference in relation to the discharge of the burden of ___proof, its substantive impact is of limited relevance, as normally the court orders an expert to ___ascertain whether the product causing the damage was defective: cf M Gorgoni, La responsa___bilità ex d.P.R: n. 224/1988 tra rigurgiti giurisprudenziali e manovre normative, Resp civ 2006, 41. ___ 36 Indeed, in the case of liability for the defectiveness of products (sec 114 ff Consumer Code) ___the limitation period amounts to three years (pursuant to sec 125 Consumer Code) as opposed ___to the 5-year-term which applies to tortious liability in general (pursuant to sec 2947 Civil Code). ___37 In terms of forfeiture, sec 126 Consumer Code states that the right to sue the producer is ex___tinguished upon the expiry of a period of ten (10) years 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. ___38 In the case of the liability of the producer for the defectiveness of their product, a threshold ___of € 387.00 applies (pursuant to sec 123, subsec 2 Consumer Code), whilst no threshold applies ___in the case of liability grounded on sec 2043 Civil Code.

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seek compensation for pure economic loss (pursuant to sec 1494, subsec 1, Civil Code), unless the (re)seller proves that they had no knowledge – without any fault – of the defects.39 The purchaser may also bring an action grounded on sec 2043 Civil Code, seeking compensation for the personal injury they have suffered due to the defectiveness of the product:40 according to jurisprudence,41 such concurrent liability – contractual and tortious – is also admissible where the latter is grounded on special tortious liability regimes provided for in the Civil Code, for instance in the case of tortious liability flowing from the exercise of socalled ‘dangerous activities’ pursuant to sec 2050 Civil Code. Finally, the purchaser of the defective product may also bring an action grounded on the statutory provisions ruling the ‘safety’ of products (cf sec 104 ff Consumer Code).42 Should the victim have purchased the defective product directly from the producer, they may file a claim grounded: • on the Consumer Code, pursuant to sec 114 ff ruling the liability for defective products; and/or • on sec 2043 Civil Code or, depending on the facts of the case, on other statutory provisions ruling for special tortious liability regimes (for instance, sec 2050 ff CC). • finally, the victim may also file an action based on sec 1494 Civil Code, ruling on the rights of the purchaser in sale-purchase agreements: in the latter case, the victim may (also) seek compensation for the damage suffered to their property, besides seeking compensation for the personal injury they suffered due to the defectiveness of the purchased product. The purchaser may also seek the compensation of the pure economic loss pursuant to sec 1494, subsec 1, Civil Code, notwithstanding the fact that the seller will not be liable, should they prove that, without being at fault, they had no knowledge of the defects.43

_____ 39 A Luminoso, I contratti tipici e atipici (1995) 154. 40 Indeed, a concurrent liability, contractual and tortious, is admissible where the breach of a contract (also) results in the infringement of absolute subjective rights (as in the case of personal injuries): cf, with reference to personal injuries due to the defectiveness of the product, Cass, judgment of 5 February, 1998, no 1158, Giur it 1999, 32. 41 Cf Court of Rome, judgment of 20 April 2002, Giur merit 2002, 1254. 42 Notwithstanding the fact that the purchaser of the defective product may not bring an action against the (mere) (re)seller of the defective product grounded on the statutory provisions governing the liability of the producer for the defectiveness of their products (secs 114–127 Consumer Code). 43 Cf Luminoso (fn 39) 154.

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___G. The Netherlands (Willem H van Boom) ___ ___1. Tort liability for defective products ___ ___The general clause of Dutch tort law consists mainly of the elements 1) wrongful ___act, 2) imputability of the act to the tortfeasor (accountability on the basis of ___fault, statute or uncodified societal norms), 3) damage and 4) causation. ___ In 1989, the Dutch Supreme Court introduced the ‘reasonable safety expecta___tion’ referred to in art 6 of the Directive into the general principles of Dutch tort ___law. Thus, a manufacturer is deemed to commit a wrongful act when he puts into ___circulation a product which does not meet the consumer’s reasonable safety ex___pectations. Omitting to warn for serious side effects in pharmaceuticals renders ___the product unreasonably unsafe, which also constitutes a wrongful act.44 ___ In designing and manufacturing, the manufacturer must take into account ___that consumers will not always follow instructions and may not always act with ___the utmost care.45 ___ In a number of recent B2B cases, the Supreme Court has introduced a ___wrongfulness standard which seems less suitable than the ‘reasonable expecta___tion test’. In these cases, it was held that a manufacturer commits a tort if he ___puts a product into circulation ‘which causes damage when used in a proper ___way in accordance with its purpose’.46 Although some authors argue that this ___standard is more or less comparable to the Directive’s ‘reasonable expectation ___test’, taken literally it is clearly different. For instance, one may ask whether this ___broad standard implies that manufacturers of products which are commonly ___known to cause (a risk of) damage (eg, tobacco, alcohol, motor vehicles) are ___committing wrongful acts by merely putting such products into circulation. ___Possibly, the standard should not be taken so literally. ___ The manufacturer is accountable for his wrongful acts when he is at fault. The ___fault standard implies a lack of reasonable care in the specific circumstances. ___Generally, a manufacturer is under a duty to take reasonable measures to prevent ___his products from causing damage. When he changes the composition of the ___product, he is under a duty to verify the harmlessness of his innovation. Thus, a ___manufacturer of agricultural fertiliser products is at fault if he omits to effectively ___communicate that the composition of the product has changed.47 ___ ___ 44 HR (Dutch Supreme Court) 30 June 1989, NJ (Dutch Case Law Digest)1990/652. ___ 45 HR 2 February 1973, NJ 1973/315. ___46 HR 6 December 1996, NJ 1997/219; HR 22 October 1999, NJ 2000/159; HR 4 February 2011, NJ ___2011/69. ___47 HR NJ 1999/159.

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The general tort regime does not operate on the Directive’s 10-year time lapse and 3-year prescription period basis. Instead, a two-tiered prescription period applies. The long stop period is 20 years (30 if the product constitutes a hazardous substance), starting with the occurrence of the event that eventually causes the damage. The short stop period is five years starting from the moment the injured party becomes cognisant of the injury and the liable party (ie, usually after the damage becomes manifest). Note that if the long-stop period has expired, any latent claim which comes to fruition afterwards has also expired. However, since 2004 in case of death and personal injury, only the short stop period applies (which may be more favourable to claimants).

2. Channelling of products liability Contractual liability for defective products is unaffected by the Directive’s regime. Hence, manufacturers, wholesalers and retailers may be liable above and beyond the EU regime if there is a contractual basis for the claim. Usually, the claimant would have to prove the existence of a direct contractual nexus between himself and the respondent. In a chain of contracts, it is unlikely that such a direct link would exist between the outer ends of the chain. Note that the Dutch Civil Code has introduced a principle of ‘channelling’ of products liability in consumer sales law. The basic idea is that the Directive’s strict liability for death, personal injury and consumer property damage is incumbent on the manufacturer (as defined by art 3). Those parties in the marketing chain who fall outside the definition of manufacturer, remain free from liability. So, in principle, the retail seller is not liable for death, personal injury and damage to consumer moveables (above the threshold). Liability is channelled to the manufacturer or – in the event that one of the defences against liability applies, no one is liable.48 The same ‘channelling principle’ is applied to

_____ 48 Article 7:24 Civil Code (consumer sales contracts) reads: 1) a good has been delivered pursuant to a consumer sales contract which does not possess the qualities that the purchaser was entitled to expect on the basis of the contract, the purchaser is entitled to damages in accordance with [the law of damages]. 2) f the non-performance consists of a defect [within the meaning of article 6 of the Directive], the vendor is not liable for damage [within the meaning of article 9 of the Directive] unless a) he knew or should have been aware of the defect, b) he had positively guaranteed the absence of the defect, or c) it concerns property damage [within the meaning of article 9 Directive] below the threshold,

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___owners and possessors of defective moveables: where the defect falls within the ___definition of the Directive, the owner/possessor is not strictly liable for the dam___age which falls within the remit of the Directive (death, personal injury, con___sumer property damage above the threshold). ___ ___ ___ Part II: Cases ___ ___ ___Case 1: Brake Pad Failure (Jean-Sébastien Borghetti) ___ X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, ___ which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and gener___ ally more effective alternative to traditional materials. X Ltd was aware of a very small risk ___ that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it consid___ ered that the risk was likely to eventuate only very rarely and did not outweigh the general ___ advantages of the new material. It included a statement about the possibility of failure in ___ the small print of the product instructions supplied with all of its bicycles incorporating ___ the new brake pads. A, who purchased one of the bicycles, is one of a handful of people ___ injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also ___ damaged. B, a passer-by, is injured in the same accident. ___ ___ ___A. Analysis ___ What is X Ltd’s liability to A and B? Pay particular attention to the various possible bases ___ of liability (a general tortious liability for fault, vicarious liability, contractual liability, or ___ a special strict liability regime?). Would it make any difference to your analysis if Y, who is ___ (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent re___ search contractor, had covered up the risk that the new brake-pad material might fail? ___ ___ ___1. From a French law perspective ___ ___The case will first be analysed from a French law perspective. The implicit as- 10/84 ___sumption is thus that all parties are domiciled in France. ___ ___ ___ without prejudice to any vendor’s defences on the basis of [the law of damages]. ___3) If the vendor compensates the purchaser pursuant to secs. (2) (a) or (b), the purchaser is ___ under the obligation to assign his rights [under the products liability regime] to the ven___ dor.

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a) X Ltd’s liability to A There is presumably no direct contractual relationship between X Ltd and A. In French law, however, when the ownership of a thing has been transferred several times through contracts, the contractual warranties attached to these contracts are regarded as having been transferred with the thing. As a result, the last person to acquire the ownership of the thing can bring a contractual warranty claim against any person up the contracts’ chain.49 On the other hand, since French law applies a strict ‘non-option’ rule (rather improperly called ‘règle du non-cumul’), which forbids bringing a claim in tort as soon as a claim in contract is available, the last person to acquire ownership cannot bring a claim in tort against the various persons in the contracts’ chain, unless she can rely on a specific tort liability regime, whose application is not impeded by the non-option rule.50 In the present case, since there is a chain of contracts that has transferred the bike’s ownership from X Ltd to A, A cannot rely on general tortious liability for fault against X Ltd. But A certainly has a claim in contract against X Ltd. Besides, A can rely on the special strict liability regime derived from the 1985 Directive on product liability, which is applicable regardless of any contractual relationship between the plaintiff and the defendant.

(i) Liability based on the hidden defects warranty In the present case, A could rely on the hidden defects warranty (garantie des vices cachés; art 1641 ff Code civil), which is attached to any contract of sales. Article 1641 Code civil provides that the seller of goods is bound to warrant against hidden defects, which render the item sold unfit for the use for which it was intended.51 The claimant must prove defect. The problem is of course deciding whether, in the present case, the bike was defective. French courts have not tried

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49 Such a claim is called an ‘action directe’. For more details on action directe in sales chains, see S Whittaker, Privity of Contract and the Law of Tort: the French Experience (1995) 15 OJLS 327 ff, 343 ff. 50 In French law, there are currently two specific tortious liability regimes of significant practical importance that apply regardless of the existence of contractual relationships between the parties: the traffic accidents regime and the product liability regime. 51 ‘Le vendeur est tenu de la garantie à raison des défauts cachés de la chose vendue qui la rendent impropre à l'usage auquel on la destine, ou qui diminuent tellement cet usage que l'acheteur ne l'aurait pas acquise, ou n'en aurait donné qu'un moindre prix, s'il les avait connus.’

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___to define hidden defects more precisely than the Code does, nor have they elabo___rated a specific test to assess defectiveness, such as a risk-utility test. The defec___tiveness is assessed on a case-by-case basis. It has been observed, however, that ___a thing or product is normally regarded as defective, when damage has been ___caused through the product’s or thing’s malfunction, and the product or thing ___has not been used unreasonably.52 In the present case, nothing indicates that A ___was injured while using the bike in an abnormal or unreasonable manner. It is ___therefore most likely that a French court would conclude that the bike was defec___tive, in the sense of art 1641 Code civil. But would the defect be regarded as hid___den? Article 1642 Code civil states that ‘the seller owes no warranty for apparent ___defects (‘apparents’) which the buyer could have discovered on his own (‘dont ___l’acheteur a pu se convaincre par lui-même’).53 Since the manufacturer had in___cluded a statement about the possibility of failure in the small print of the prod___uct instructions supplied with all of its bicycles incorporating the new brake ___pads, the question is whether A did not have the possibility to ascertain the de___fect by himself. French courts would certainly be reluctant to admit such a solu___tion. They could probably argue that the statement in the small print of the prod___uct instructions did not make the defect apparent, but rather knowable, which is ___not exactly the same thing. Besides, art 1642 insists that the buyer must have ___been able to ascertain the defect by himself at the time of the delivery of the ___product, and this is something that A probably could not do when he bought the ___product. The idea behind art 1642 is that the buyer cannot complain about a de___fect, which he actually saw or should have seen when he took delivery of the ___good he bought. Contending that a mere statement or notice could make a defect ___apparent, would amount to neutralising the hidden defects warranty, as such ___statements would become common practice. This is something that French ___courts are clearly and rightly not willing to do, however. In the present case, it is ___therefore most likely that a French court would regard the bike as having a hid___den defect, allowing A to bring a claim under the hidden defects warranty. A fur___ther condition for this claim to succeed is that the defect should have existed at ___the time of the sale, but this is not disputed in the present case, since the defect is ___inherent in the product’s design. ___ As a buyer of the defective bike, A has the choice ‘either of returning the 10/88 ___thing and having the price repaid to him or of keeping the thing and having a ___ ___ 52 JS Borghetti, La responsabilité du fait des produits. Étude de droit comparé (2004) nos 318___ 319. ___53 Unless otherwise stated, the English translation of the Code civil articles is borrowed from ___Prof DW Gruning, whose English translation of the entire Civil Code is accessible on the French ___law official website Legifrance ().

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part of the price repaid to him (art 1644 Code civil). It is irrelevant whether the seller knew of the defect or not. Article 1645 Code civil further provides that where the seller knew of the defects, he is liable to the buyer, in addition to restitution of the price received, for all damages. In the present case, X Ltd knew of the defect, but even if he had not A could nevertheless rely on art 1645, since according to a judge-made rule, in a consumer sales contract, the professional is irrebuttably presumed to have had knowledge of the hidden defect of the thing he sold, even if that defect was in fact undiscoverable.54 The consumer purchaser can therefore always claim for damages from the professional seller on the basis of art 1645 when the thing’s hidden defect has caused damage to the purchaser’s person (including emotional distress) or to any item of property other than the defective product itself.55 A can thus claim for full compensation against the company for his personal injuries on the basis of art 1645. As far as damage to his bicycle is concerned, he could either rescind the sale or have a part of the price repaid to him (art 1644), but he cannot ask for the sum needed to repair his bike if this sum is higher than the price paid. The price or the part of it repaid to him by X Ltd would further be based on the price paid to X Ltd by the first buyer, and not on the price paid by A to the party who sold it to him, which is presumably higher.56 The claim must be brought within two years of the discovery of the vice (art 1648 Code civil). A should of course pay attention to this delay. There is also a 20-year long-stop period, which starts to run as of the moment when the sales contract came into force, and which is therefore much less constraining for the plaintiff than the one provided for by art 11 of the 1985 Directive on product liability. The fact that Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail, would have no impact on the possibility for A to bring a claim against X Ltd on the basis of the hidden defects warranty, since the professional seller must answer for his product’s defect, even if he was not or could not be aware of it.

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54 Cass com, 1 July 1969, Bull civ IV, no 243. 55 In the present case, however, there is no direct contractual relationship between X Ltd and A, and X Ltd could raise against A any defence that it could have raised against the first buyer, including, as the case may be, the existence in that first contract of a term limiting or excluding liability based on art 1645. Such terms are valid between professionals in the same speciality, but are neutralised when the seller knew of the defect. As X Ltd knew of the defect in the present case, such a term would therefore be of no effect. 56 The reason for it is that A, when acting against X Ltd, exercises the claim of the first buyer, which has been transmitted alongside the bike.

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___(ii) Liability based on the special product liability regime ___ ___France, as all other Member States of the European Union, has a special product 10/91 ___liability regime derived from the 1985 Directive. The country was ten years late ___in transposing the Directive into the Civil Code (art 1245 to 1245-17), but the new ___regime has been in force for 15 years now and applies to all products put into ___circulation as of 21 May 1998. There were initially some discrepancies between ___the provisions of the Directive and those of the French Civil code purporting to ___transpose them, but most of them have now been dealt with and they are in any ___case irrelevant as far as the present case is concerned.57 It is therefore precisely ___the Directive’s regime, which applies to the facts of this case in France. ___ Article 1245 Code civil provides that ‘A producer is liable for damage 10/92 ___caused by a defect in his product, whether he was bound by a contract with ___the injured person or not’.58 The strict liability regime created by the 1985 thus ___stands as an explicit exception to the non-cumul rule, since a plaintiff is al___lowed to rely on this regime against the producer regardless of any contractual ___relationship between them. In the present case, the existence of a contractual ___claim on the part of A against X Ltd therefore does not prevent A from claiming ___damages59 from X Ltd on the basis of art 1245 Code civil,60 X Ltd being clearly ___the producer of the bike.61 Article 1245-8 Code civil states that ‘The plaintiff is ___required to prove the damage, the defect and the causal relationship between ___ ___57 For more details on the implementation of the Directive in French law, see, in English, J Bell/ ___S Boyron/S Whittaker, Principles of French Law (2nd edn 2008) 404 and S Whittaker, Liability ___for Products. English Law, French Law and European Harmonisation (2005) 149–151, 315–319, 324, 391–401; and, in French, G Viney/P Jourdain, Les conditions de la responsabilité (3rd edn ___ 2006) no 771-6. ___58 ‘Le producteur est responsable du dommage causé par un défaut de son produit, qu’il soit ___ou non lié par un contrat avec la victime.’ ___59 Of course, A cannot get compensated twice for the same damage, but he can bring a claim ___on both grounds or choose either of the two grounds. ___60 Article 13 of the Directive provides that ‘This Directive shall not affect any rights which an injured person may have according to the rules of the law of contractual or non-contractual li___ ability or a special liability system existing at the moment when this Directive is notified.’ And ___the ECJ ruled that ‘the reference in Article 13 of the Directive to the rights which an injured per___son may rely on under the rules of the law of contractual or non-contractual liability must be ___interpreted as meaning that the system of rules put in place by the Directive (…) does not pre___clude the application of other systems of contractual or non-contractual liability based on other grounds, such as fault or a warranty in respect of latent defects’ (25 April 2002, C-183/00, ___ María Victoria González Sánchez c Medicina Asturiana SA). ___61 In accordance with the Directive, art 1245, para 1, Code civil defines the producer as ‘the ___manufacturer of a finished product, the producer of a raw material, the manufacturer of a ___component part, where he acts as a professional.’

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defect and damage.’ In the present case, the difficulty is of course to prove the defectiveness of the product. The Code civil, following the Directive, provides (art 1245-3): ‘A product is defective within the meaning of this Title where it does not provide the safety which a person is entitled to expect. In order to appraise the safety, which a person is entitled to expect, regard shall be had to all the circumstances and in particular to the presentation of the product, the use to which one could reasonably expect that it would be put, and the time when the product was put into circulation. product shall not be considered defective for the sole reason that a better product is subsequently put into circulation.’ The question is thus whether the bike ‘does not provide the safety which a person is entitled to expect’. It is suggested that French courts would assess the bike’s defectiveness in more or less the same way as they would assess the existence of a vice caché.62 The fact that the bike malfunctioned (the brakes did not work), while nothing indicates that it was used in a way that was unreasonable or could not reasonably be expected by the manufacturer, would be regarded as prima facie evidence that it was defective according to art 1245-3.63 The manufacturer could of course argue that it had warned users of this possible malfunctioning and that this means the product should not be regarded as defective, since defectiveness must be assessed with regard to the product’s presentation. It is doubtful whether this argument could be accepted, however. The product’s presentation must certainly be considered when the product presents a danger that is inherent in it or cannot be avoided. For example, cigarettes are inherently dangerous, but their defectiveness depends on whether their presentation makes the consumers aware of their danger. However, when the product’s dangerousness can be avoided at a reasonable cost, accepting that mere information on the danger is enough to rule out the product’s defectiveness would amount to allowing exclusion clauses. Such clauses are expressly forbidden in the field of the special product liability regime64 and it would therefore be held that, in the present case, the fact that the small print of the instructions mentioned the risk of failure does not suppress the product’s defect, the existence of which can be deduced from the product’s malfunctioning.

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62 Borghetti (fn 52) no 318. 63 See eg TGI Aix-en-Provence, 2 October 2001, D 2001, inf rap 3092; CA Poitiers, 8 March 2005, Jurisdata 2005-274233. 64 Article 12 of the Directive and art 1245-14 Code civil.

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___ Could X Ltd depart from this way of assessing the product’s defect, and rely 10/94 ___alternatively on a risk-benefit analysis? Two alternative approaches to this ___analysis are actually possible. The manufacturer could either argue that the ___brake pads’ advantages were greater than its risks, or that the use of the new ___material amounted to a reasonable alternative design in comparison to the use ___of the traditional materials. It is unlikely that French judges would endorse ei___ther of these approaches, however. Risk-benefit analysis is quite alien to the ___French tradition and French case law. There is now some authority, both in case ___law65 and in academia,66 that such an analysis is actually the right way to assess ___defectiveness for pharmaceuticals, but these are very special products, if only ___because the risk they present is normally of the same nature as the benefits they ___offer, since both have to do with the plaintiff’s health. Outside the field of ___pharmaceutical liability, risk benefit-analysis is not recognised as a way of as___sessing the defectiveness of products. Nonetheless, cases can be mentioned, in ___which the courts, even if they did not clearly say so, in effect assessed a prod___uct’s defectiveness by considering if a reasonable alternative design was avail___able.67 In the present case, however, this approach would probably not benefit X ___Ltd, as the claimant could argue that the new brake pads were not a reasonable ___alternative design in comparison to the older ones, since the risk of malfunc___tioning that had materialised outweighed the benefits of the new design in ___terms of cost and efficiency. Morever, a precise risk-benefit analysis would re___quire that it be known if the new brake pads cause more accidents than the ___older ones, and if so to what extent. ___ Despite the fact that not all relevant information is known, the conclusion is 10/95 ___therefore that, in the present case, French courts would probably regard the ___bike as defective, since it malfunctioned while being used in a normal way. Be___sides, X Ltd cannot rely on any of the defences mentioned by the Directive.68 ___ In accordance with the Directive, A should bring his claim based on art 1245 10/96 ___within three years from the day on which he became aware, or should reasona___bly have become aware, of the damage, the defect and the identity of the pro___ducer.69 He could claim full compensation for his personal injuries, plus the ___ ___65 CA Versailles, 17 March 2006, no 04/08435; 16 March 2007, no 05/09525; 29 March 2007, ___no 06/00496; 5 November 2007, no 06/06435; 10 February 2011, no 09/07555; CA Paris, 19 June ___2009, no 06/13741. ___66 See eg G Viney, JCP G 2004, I, 101, no 23 ff, no 28; L Clerc-Renaud, Quelle responsabilité en cas de dommages causés par des produits de santé? (2007) RLDC 34, no 14, Borghetti (fn 52), no 394. ___ 67 Borghetti (fn 52), nos 331, 387. ___68 Article 7 of the Directive and art 1245-6 Code civil. ___69 In the present case, the 10-year long-stop period of art 13 of the Directive would not be a ___problem, since the bike was put into circulation in 2011 at the soonest.

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emotional distress they might have caused. But he cannot claim compensation on that basis for damage caused to his bike. Article 1245-1 Code civil, following the Directive, provides that the special product liability regime does not apply to damage caused to the defective product itself. A could only claim compensation for damage caused to his bike on a contractual basis. The fact that Y had covered up the risk that the new brake-pad material might fail, would not have any impact on the possibility for A to bring a claim against X Ltd on the basis of art 1245 Code civil, since the producer must answer for his product’s defect, even if he was not aware of it, or was not responsible for its affecting the product. Y’s action would not allow X Ltd to rely on any of the defences mentioned by the Directive. The development risk defence, in particular, would not be available, as the cover-up of the possible brake failure clearly shows that the risk was known. But A might bring a claim against Y based on the general tortious liability for fault (art 1240 Code civil), which would be applicable in the absence of any contractual relationship between A and Y.70

b) X Ltd’s liability to B In the absence of any contract, or any chain of contracts, between X Ltd and B, the former’s liability against the latter can only be in tort. B can of course rely on the strict product liability regime, just like A. On that basis, and given French courts’ probable assessment of the bike’s defect, he could claim damages against X Ltd for his personal injuries. B could also bring a claim against X Ltd based on art 1240 Code civil,71 the clausula generalis, on which general tortious liability for fault is based in French law. As early as the 1930s, French courts ruled that commercialising a defective product amounted to a fault in the sense of art 1240, even when the defect was

_____ 70 If Y were a researcher employed by X Ltd, he would normally enjoy immunity against any claim brought by a third party in relation to damage caused by him in the course of his employment, unless it were demonstrated that his was an intentional or a criminal fault, or that he committed the fault while exceeding the boundaries of the task he had been entrusted with – but such circumstances would be hard to prove in the present case, and immunity would thus probably apply. If Y were an independent research contractor, on the other hand, he would enjoy no immunity and his cover-up would be regarded as a fault, giving rise to liability in tort under art 1240 Code civil. 71 ‘Any human action whatsoever which causes harm to another creates an obligation in the person by whose fault it was caused to make reparation for it.’ This translation is borrowed from Bell/Boyron/Whittaker (fn 57).

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___not or could not be known by the professional seller.72 It is debatable whether ___this solution still applies,73 since fault seems to coincide with the existence of a ___defect in such cases, and the ECJ has made it clear that a system of producer li___ability founded on the same basis as that put in place by the Directive (ie defect) ___and not limited to a given sector of production cannot remain in force within the ___field of application of the Directive.74 The main advantages of applying art 1240 ___are that a claim based on that text is not as easily time-barred as one based on ___the special product liability regime,75 and that compensation for any type of ___damage, including damage to the product itself, can be claimed under it (with___out any threshold applying). In the present case, however, B would have plenty ___of time to act under the special product liability regime and the personal inju___ries, for which he can claim damages, can be fully compensated under art 1245 ___as well under art 1240. It makes therefore no practical difference if B brings his ___claim under one text or the other. ___ As explained above, the fact that Y had covered up the risk that the new 10/101 ___brake-pad material might fail would not have any impact on the possibility for B ___to bring a claim against X Ltd on the basis of art 1245. The impact of such a fact ___on a claim based on art 1240 is less clear,76 but this has no practical relevance in ___the present case, since art 1245 can at any rate be relied on. ___ A peculiarity of French law must be mentioned. B could bring a claim 10/102 ___against A on the basis of art 1242, para 1, Code civil. This text, as interpreted by ___ ___ ___72 See Cass civ 22 July 1931, Gaz Pal 1931, 2, 683 and the other decisions cited in Borghetti ___(fn 52), no 211. 73 On that debate, see eg T Riehm, Produits défectueux: quel avenir pour les droits communs ? ___ D 2007, 2749, no 43. ___74 See eg ECJ 25 April 2002, C-183/00, María Victoria González Sánchez c Medicina Asturiana ___SA. ___75 The normal prescription period is five years in French law, and even ten years in case of ___bodily injury (arts 2224 and 2226 Code civil). It applies to claims based on art 1240. Besides, ___in case of a bodily injury, there is no long-stop period, similar to the ten-year one of the Directive. ___ 76 If X Ltd’s fault consists in putting the defective product into circulation, then it should not ___matter if Y, whatever his position, actually covered up the risk. Even if it were admitted that X ___Ltd was not at fault in putting the bike into circulation because it did not know of the risk, the ___company could nevertheless be liable towards B. In the case where Y was employed by X Ltd, X ___Ltd would be liable the on the basis of art 1242, para 5, Code civil, which renders employers vicariously liable for damage caused by their employees. If Y was an independent contractor, on ___ the other hand, X Ltd would not have to answer for his fault on the basis of art 1242, para 5, and ___would thus incur no liability. If X Ltd were to be found at fault, it would have recourse against ___Y, based on the contract between them, if Y was an independent contractor. But X Ltd would ___have no recourse against its employee.

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case-law, provides that the ‘keeper of a thing’ (le gardien de la chose) must compensate any damage caused by that thing. No fault on the part of the keeper is required, nor any defect in the thing. The keeper is the person who had the power to use, direct and control the thing at the time when it caused damage. Like art 1240, art 1242, para 1, only applies in a non-contractual context. In the present case, A was undoubtedly the keeper of the bike at the time of the accident and B could thus bring a claim against him. A would then have recourse against X Ltd, however, since the accident was ultimately caused by the product’s defect.

2. From other European legal systems’ perspectives The case can be considered from other European legal systems’ perspectives, always with the assumption that the rules of only one country apply. A few words must be said on the application of the special product liability regime created by the 1985 Directive in these various legal systems. The question of whether other liability regimes may apply will then be briefly considered.

a) The application of the special product liability regime In all Member States of the European Union, and even in some other European States that have freely introduced the Directive, both A and B could rely on the special product liability regime provided for by the 1985 Directive. To date, however, the ECJ has not had an occasion to interpret art 6 of the Directive, which defines the defective product, and to say how defectiveness should be assessed. There may therefore be divergences in the assessment of defectiveness in the various legal systems. While courts in some countries seem to be quite willing to deduce the product’s defectiveness from its malfunctioning in ordinary circumstances,77 like in France, judges in other countries might be less prone to regard the bike as defective. In England, for example, courts have been reluctant to deduce the product’s defectiveness from the sole fact that it had failed or malfunctioned.78 In some countries, judges might adopt some kind of risk-benefit ap-

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77 See eg in Belgium Trib civ Namur, 21 November 1996, JLMB 1997, 104. 78 See Richardson v LRC Products, QBD (2000) 59 BMLR 185; Foster v Biosil, London County Court [2001] 59 BMLR 178. A different approach seems to have been taken by Justice Gray in Ide v ATB Sales Ltd [2007] EWHC 2007.

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___proach,79 but the result of such an approach is hard to predict, as the precise ___risks and benefits of the former design and of the new design of the brake pads ___are not known.80 The fact that, in the present case, the product caused bodily in___juries (as opposed to purely material damage) might be an incitation to some ___judges to regard the product as defective. ___ As is the case under French law, the fact that Y covered up the risk would 10/106 ___normally have no impact on the application of the Directive’s regime.81 ___ ___ ___b) The application of other regimes ___ ___In nearly all European countries, neither A nor B would have any contractual 10/107 ___claim against X Ltd in the absence of any direct contractual relationship be___tween the claimant and that company.82 But both of them could try to rely on the ___(more or less) general tortious liability for fault that can be found in all Euro___pean legal systems. The question would then be whether the putting into circu___lation of these new brake pads by X Ltd, in its capacity as a producer, amounts ___to a fault. The answer to this question will usually depend on whether the prod___uct is regarded as defective. It is an established solution in several countries’ ___case law that the putting into circulation of a defective product allows a pre___sumption of fault, which is usually difficult for the producer to rebut.83 ___ It is at this point that Y’s cover up might have an impact. While most legal sys- 10/108 ___tems would probably consider that X Ltd was at fault for having produced and ___marketed a defective product, even if it did not actually know of the defect, other ___systems might regard the manufacturer’s ignorance of the defect as a defence. In ___ ___79 In England, for example, there has been some debate as to whether a risk-benefit approach ___should be used to assess defectiveness; See Burton J in A and Others v The National Blood Author___ity and Others [2001] 3 All ER 289, as well as the authors cited by G Howells, Product Liability, in: ___HW Micklitz/J Stuyck/E Terryn (eds), Cases, Materials and Text on Consumer Law (2010) 463. ___80 On Dutch law see below no 10/115 f. 81 On Dutch law see below no 10/117. ___ 82 They could therefore not benefit from strict contractual liability where such liability exists, ___like in England, where implied warranties as to correspondence with description, satisfactory ___quality and fitness for purpose normally apply in sales contracts. ___83 See the seminal Chicken Pest case in Germany: BGHZ 51, 91, NJW 1969, 269. For an English ___translation of the judgment in this case, see Markesinis/Unberath The German Law of Torts: A Comparative Treatise (4th edn 2002) 555 ff. In the Netherlands, the Hoge Raad (Supreme Court) ___ ruled that a manufacturer is deemed to commit a wrongful act when he puts into circulation a ___product which does not meet the consumer’s reasonable safety expectation: HR, 30 June 1989, ___NJ 1990/652. For other European legal systems, see Borghetti (fn 52) no 184, and the European ___Commission’s Third Report on Product Liability, COM(2006) 496 final, 9-10.

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that case, however, the manufacturer might nevertheless be vicariously liable for Y’s fault. The precise solution would depend on the exact conditions in respect of liability for fault and of vicarious liability in the various legal systems, however. Furthermore, in Austria, A might also have a contractual claim against X Ltd, based on the so-called Vertrag mit Schutzwirkungen zugunsten Dritter (contract with protective effects for third parties) mechanism.84 According to this mechanism, the contractual duties of the producer to protect their immediate contractual partner, usually the retailer, are extended to the consumer who purchases the goods from the retailer. The idea behind this concept is to establish a quasi-contractual relationship between the producer and the consumer, even though contractual agreements only actually exist between the producer and the retailer as well as between the retailer and the consumer. The consumer is thus granted all the benefits of contractual liability and is not compelled to rely on delictual claims, which, in the context of Austrian law, would regularly fail against the producer due to the very restrictive rules on vicarious liability in tort law. The benefits of contractual liability are in particular a reversal of the burden of proof in respect of fault (§ 1298 Allgemeines Bürgerliches Gesetzbuch, ABGB) and – even more importantly – a stringent vicarious liability regime applying to the producer for all the failures of his assistants (§ 1313a ABGB). However, serious downsides of such a fault-based claim resulting from breach of contract must also be pointed out: Firstly, ‘innocent bystanders’, who are only randomly injured by the defective good, are – in contrast to the actual buyers of such goods – not covered by the protective effects of the contract. In the present case, B could therefore not rely on the Vertrag mit Schutzwirkungen zugunsten Dritter mechanism. Secondly, producers and retailers are allowed to enter a disclaimer excluding consumers from the protective effects of their contracts. Although such disclaimers at the expense of third parties, namely the consumers, are heavily criticised by academia, they are nonetheless deemed valid by established court rulings. Consequently, the value of the concept of the Vertrag mit Schutzwirkungen zugunsten Dritter is seriously diminished in practice.85

B. Commentary What does your analysis demonstrate about the reasons for introducing strict product liability and the justifications that may be given for it? Do these justifications apply where

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84 This part on Austrian law is borrowed from E Karner. 85 It must be noted that German courts, even though they are familiar with the mechanism of Vertrag mit Schutzwirkung für Dritte, do not apply it in matters of product liability and prefer to rely on general tortious liability for fault as has been explained above.

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(as in the present case) the injury is caused by a standard product and results from choi___ ces made in the design process? And where the victim is a third party rather than the pur___ chaser? Is the resulting liability truly a strict liability or does it ultimately rest on fault? ___ ___ This case raises the question of whether the bike is safe enough, ie reasona- 10/110 ___ ___bly safe. Reasonable minds may differ on this issue, but it does not make any ___real difference whether the case is apprehended using the special European ___product liability regime or ‘ordinary’ fault liability. Besides, both these regimes ___offer the same protection to the purchaser of the product and to the innocent ___bystander. Potential differences in the way these two types of victims are pro___tected only appear in those countries where product liability based on contract ___still plays a significant role, despite the adoption of the Directive. Austria and ___France seem to be the only two countries concerned, however, and in the latter ___country tort liability offers to bystanders the same level of protection as contrac___tual liability does to purchasers. Austria therefore appears be the real exception, ___since there has been no reversal of the burden of proof of fault in tort liability, ___and the Vertrag mit Schutzwirkung für Dritte mechanism only benefits those ___claimants who have purchased the defective product. This confirms the opinion of many authors, according to whom ‘strict’ 10/111 ___ ___product liability based on the product’s defect is not substantially different from ___negligence liability as far as standard products are concerned, ie when the al___leged defect is not a manufacturing one but one in the product’s design.86 The ___proximity of the Directive’s regime to negligence liability is even clearer in those ___EU countries – actually a great majority, in which the development risk defence ___has been accepted.87 ___ ___ ___86 See eg Borghetti (fn 52) nos 481–485; H Cousy/ D Janssen, Liability for Defective Products ___and Services: Emergence of a Worldwide Standard? Responsabilité du fait des produits et ser___vices défectueux: développement d’un standard mondial? Rapports belges au congrès de ___l‘Académie internationale de droit comparé à Brisbane (2002) 111 ff, no 11 ; Lord Griffiths, Developments in the Law of Product Liability, The Holdsworth Club of the University of Birmingham ___ (1987) 1313; W Lorenz, Europäische Rechtsangleichung auf dem Gebiet der Produzenten___haftung: Zur Richtlinie des Rates der Europäischen Gemeinschaften vom 25 Juli 1985 (1987) ___ZGH 1 ff, 31; C Nedwick, The Future of Negligence in Product Liability (1987) LQR 104, 288 ff, ___304; G Ponzanelli, Responsabilità del produttore, Riv dir civ 1995, II, 215 ff, 220; WH van Boom, ___Inherent Risk and Organisational Design in European Tort Law, 108 Z Vgl RWiss (2009) 118 ff; S Whittaker, The EEC Directive on Product Liability, Yearbook of European Law 1986, 233 ff, ___ 246. ___87 The defence was not mandatory under the Directive (art 15, sec 1 lit b), but only Finland ___and Luxemburg have chosen not to retain it, while France and Spain have adopted a restricted ___version of it; see Borghetti (fn 52) no 545.

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Nonetheless, although the test for liability seems to be substantially the same under the Directive and under general tortious liability for fault, there can be significant practical differences between these regimes. Prescription and limitation periods, especially, will usually not be the same. Claims under the Directive are subjected to a three-year limitation period (art 10), and cannot be initiated more than ten years after the product was put into circulation (‘long-stop’ period; art 11). As far as general tortious liability for fault is concerned, limitation periods vary from one country to another,88 but they are usually not shorter than three years; and long-stop periods, when they exist, are often longer than the ten-year one applicable under the Directive.89 The present case also illustrates how difficult it is to assess reasonable safety (or ‘unreasonable unsafety’). It is the implementation of this test, rather than the test itself, that can be contentious. And it is doubtful whether the ECJ will be able to force a harmonised implementation throughout Europe. It has not started to do so, at any rate.

C. Additional Notes from Specific National Perspectives 1. The Netherlands (Willem H van Boom) a) Analysis As far as liability of the manufacturer on the general tortious liability for fault is concerned, the manufacturer has acted wrongfully by introducing a product to the market that causes injuries when used in a proper way in accordance with its purpose’.90 He can be held liable for this wrongful act if he was at fault. The fault standard implies a lack of reasonable care in the specific circumstances. Generally, a manufacturer is under a duty to take reasonable measures to prevent his products from causing damage. Given that the manufacturer was aware of the risks of the new material, he has probably breached his duty to verify the harmlessness of his innovation.91

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88 The ordinary limitation period is, for example, three years in Germany, five years in the Netherlands and in France (where the period is extended to ten years in case of bodily injuries) and six years in England for negligence claims. 89 The long stop period is 30 years in Germany in case of bodily injury. No long-stop period applies to claims for the compensation of bodily injury in England, France and the Netherlands. 90 HR 6 December 1996, NJ 1997/219; HR 22 October 1999, NJ 2000/159; HR 4 February 2011, NJ 2011/69. 91 HR NJ 1999/159.

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___ The issue here is that the product innovation is such that there are substan___tial benefits (in terms of lower cost, longer life-span and effectiveness) and sub___stantial costs (risk of failure under certain conditions) attached to this new ___product. Given that it may become dangerous under certain conditions and that ___information on this particular risk was shared with users, one could think of ___applying the ‘risk-benefit test’ of product design. It is uncertain, however, ___whether Dutch law, acknowledges this test. Although doctrine has advocated ___the use of this test,92 case law has yet to decide on it. ___ The same answer would apply if we judge the case on the basis of the Euro___pean framework: whether the consumer expectation test implies a ‘risk-benefit ___test’ in design issues is unclear. In any event, it would be helpful to know what ___‘a handful of people’ actually denotes: does the product innovation generate ___more accidents than conventional products? And if so, how many more? ___ As far as concerns the relevance of the employee´s cover-up, I doubt ___whether it would make any difference if the risk remained undisclosed due to ___an individual covering up risk information. I feel that the mere fact of not shar___ing risk information would not constitute an imputable wrongful act in itself – ___again, it would depend on the gravity of the information. If, for instance, the ___risk increase is unacceptably large, then the manufacturer himself would be li___able for putting a defective product on the market. The fault would lie with the ___manufacturer as such – I think that the wrongful omissions by employees or in___dependent contractors would be imputed to the manufacturer as if these were ___his own acts and omissions, given that the decision to bring the product to the ___market was his. In exceptional circumstances, where the manufacturer could ___not have known of the defects, the issue of vicarious liability might come into ___play. Usually, torts committed by employees having a bearing on their work will ___result in joint and several liability of the employee and the employer (art 6:170 ___Burgerlijk Wetboek, BW). In the case of the independent contractor, the manu___facturer will be vicariously liable as well (art 6:171 BW) under the condition that ___the independent contractor performed functions which are deemed part of the ___business processes of the manufacturer himself. ___ As far as the different positions of the consumer using the product and a ___third party are concerned, I do not feel that ultimately they would be treated dif___ferently. Neither has a direct contractual relationship with the manufacturer. ___The fact that the risk information was shared with the consumer through the in___structions may perhaps be relevant for the extent of the right to damages. Per___ ___92 WH van Boom, Structurele fouten in het aansprakelijkheidsrecht. (inaugural lecture Tilburg ___University) (2003). Cf SB Pape, ‘May Contain’ Labelling: Adequate Consumer Warning or Un___necessarily Defensive Manufacturer Behaviour? JCP 32 (2009) 165–188.

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haps the consumer can be held contributorily negligent (art 6:101 BW) since he owned the bicycle and could have been aware of the risk. I doubt, however, that if the product was found unreasonably unsafe in light of the consumer expectation test (EU framework) or even in light of the ‘risk-benefit test’, that the consumer could be considered negligent in using the product. Then, the manufacturer should not have introduced the innovation and the accident will be said to have been caused preponderantly by the manufacturer’s conduct. This is even more likely in light of case law stating that manufacturers have to design their products taking into account that not all consumers (fully) read instructions.

b) Commentary I think that the analysis shows that whatever the basis for liability, the main question is whether the product meets the relevant safety expectation test. Though it is not entirely clear which test this exactly is and how it would need to be applied to the facts of the case, it is the test and not so much the fault of the manufacturer or its employees that would be the pivotal requirement. This underpins an argument I made in earlier writing that fault-based liability and strict liability for product design and business processes converge to a single test of ‘unreasonable unsafety’.93

Case 2: Infected Blood (Donal Nolan) A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. At the time, the risk of Hepatitis N in donated blood had been identified in a single published paper in a scientific journal, but only a handful of research laboratories in the world had the capacity to test for its presence in specific quantities of blood. Furthermore, the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the condition’s existence came to be generally accepted and that a test was developed that allowed hospitals and blood suppliers to screen out infected parcels of blood. What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if A contracted the virus as the result of a blood transfusion conducted in

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93 WH van Boom, 108 Z Vgl RWiss (2009) 118–133.

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2001, but her condition only manifested itself in 2012? (In this context, consider in particu___ lar differences in the time limits applied to the various possible bases of liability.) ___ ___ ___ ___A. Introduction ___ ___The analysis of Case 2 from a European perspective is divided into four parts: 10/120 ___(1) liability under national legislation implementing the EC Directive on Liability ___for Defective Products; (2) liability under general tort principles; (3) liability in ___contract; and (4) the relevant position when the damage becomes known eleven ___years after the transfusion takes place. The primary focus is on English law, but ___reference is also made to the position in other European jurisdictions. The ___commentary on the case that follows the analysis considers what the analysis ___demonstrates about the justifications for strict product liability. ___ ___ ___B. Liability under National Legislation Implementing the EC ___ Directive on Liability for Defective Products ___ ___1. Introduction ___ ___The EC Directive on Liability for Defective Products94 (the Directive) was imple- 10/121 ___mented in the UK by Part I of the Consumer Protection Act 1987 (CPA 1987). The ___UK was the first EU Member State to implement the Directive. In 1989, Germany ___followed suit, in the Product Liability Act.95 In 1998, France was the last of the ___then Member States to implement the Directive, in arts 1386-1 to 1386-18 of the ___Code civil.96 Section 1(1) of the CPA 1987 states that the provisions in Part I were ___passed in order to implement the Directive, and that they should be construed ___accordingly. It follows that any ambiguities in the legislation should be resolved ___in a manner consistent with the provisions of the Directive. In the most impor___tant English case on the product liability regime deriving from the Directive, A v ___National Blood Authority,97 Burton J went further than this, and bypassed the ___ ___ ___94 85/374/EEC. ___95 Produkthaftungsgesetz 15 December 1989, BGBl I, 2198. For an English translation of the Act, see BS Markesinis/H Unberath, (fn 83) 872 ff. ___ 96 Loi no 98-389 du 19 Mai 1998 relative à la responsabilité du fait des produits défectueux. ___For an English translation of the main provisions, see W van Gerven et al, Cases, Materials and ___Text on National, Supranational and International Tort Law (2000) 661 ff. ___97 [2001] 3 All ER 289 (QBD).

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CPA 1987 altogether, applying the wording of the Directive instead. This approach was highly unorthodox and is unlikely to be followed, since it renders the wording of the CPA 1987 entirely otiose. The general effect of Part I of the CPA 1987 is to establish a system of strict liability for damage caused by defective products. The focus is on the product’s safety, as opposed to its merchantability (the issue in a contract action) or the producer’s conduct (the issue in a negligence action). The central provisions are in sec 2, and these impose liability on the producer, apparent producer or importer into the European Economic Area for damage caused wholly or partly by a defect in a product. The onus is on the claimant to establish the damage, the defect, and the causal link between the two. She must also establish that the defendant is liable for the damage under the terms of the Act. The burden of proof then shifts to the defendant, for whom several defences are available.

2. Product Products are defined in art 2 of the Directive as ‘all movables’, and in sec 1(2) of the CPA 1987 a product is defined as ‘any goods or electricity’, with ‘goods’ being said to include any ‘natural or artificial substance’.98 The definition of a product therefore seems to encompass human body products, such as blood, and in A v National Blood Authority, where claims were brought by claimants infected with Hepatitis C through blood transfusions, it was conceded that blood products were covered by the Directive and the Act.99 The same view has been taken in other European jurisdictions.100

3. Damage Damage as defined in sec 5(1) of the CPA 1987 includes ‘death or personal injury’, so A’s contraction of Hepatitis N clearly amounts to damage for the purposes of the legislation.

_____ 98 CPA 1987, sec 45(1) (definitions of ‘goods’ and ‘substance’). 99 [2001] 3 All ER 289 [2]. 100 C van Dam, European Tort Law (2nd edn 2013) 427.

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___4. Defect ___ ___a) Defectiveness in general ___ ___According to sec 3(1) of the CPA 1987, ‘there is a defect in a product … if the 10/125 ___safety of the product is not such as persons generally are entitled to expect’. The ___definition in the Directive is almost identical, though it refers to ‘a person’ in___stead of ‘persons generally’.101 This test should not be confused with the US ___‘consumer expectations’ test, according to which a product is ‘deemed defective ___if it contains a danger that an ordinary consumer would not expect to find in ___such a product’.102 There are two distinctions between the two tests. The first is ___that whereas the US test looks to the expectations of ordinary consumers, the ___standpoint that matters for the European test is that of ‘persons generally, or the ___public at large’.103 And the second distinction is that under the European test, ___the issue is what persons are entitled to expect, not what they actually do ex___pect, and as Burton J pointed out in A v National Blood Authority, it is the courts ___which will decide what the public is entitled to expect.104 It follows that what he ___termed the ‘objectively assessed legitimate expectation’105 test of defectiveness ___is not really a ‘test’ at all, but rather an empty formula, the eventual content of ___which will derive from the decisions made in cases brought under the Directive ___and the CPA 1987. ___ In the course of filling out the empty formula, it seems both inevitable and 10/126 ___desirable that the courts will employ some version of the familiar threefold clas___sification of product defects into manufacturing defects, design defects and ___marketing defects. Although this classification is not to be found in either the ___Directive or the 1987 Act, it is well recognised in the case law and academic ___commentary in Europe,106 and experience suggests that regimes of strict product ___liability require a classification of product defects along these lines if they are to ___function successfully. ___ ___ ___ ___101 Directive, art 6(1). ___102 See North America no 11/47. ___103 A v National Blood Authority [2001] 3 All ER 289 [31] (Burton J). See also the sixth recital of ___the Directive. 104 Ibid. ___ 105 Ibid. ___106 German case law and doctrine, for example, distinguishes between Fabrikationsfehler ___(manufacturing defects), Konstruktionsfehler (design defects) and Instruktionsfehler (instruc___tion defects).

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b) Infected blood as a non-standard product In A v National Blood Authority, the claimants had been infected with the Hepatitis C virus through blood transfusions, the transfused blood and blood products having been taken from infected donors. Claims were made under the CPA 1987 against the state authorities responsible for the production of the blood and blood products. Although Burton J said in his judgment that no assistance was to be derived from the traditional threefold categorisation of defects for the purpose of construing the Directive,107 he nevertheless recognised a distinction between what he termed ‘standard’ and ‘non-standard’ products: [A] standard product is one which is and performs as the producer intends. A non-standard product is one which is different, obviously because it is deficient or inferior in terms of safety, from the standard product: and where it is the harmful characteristic or characteristics present in the non-standard product, which has caused the material injury or damage.’108 Burton J’s distinction between standard and non-standard products roughly tracks the traditional distinction between design defects and manufacturing defects, and the terminology he adopted is readily explicable in the context of the case, since human blood is a natural product and not the outcome of a manufacturing process. Burton J went on to characterize the infected bags of blood which caused the claimants to contract Hepatitis C as non-standard products, since they were ‘different from the norm which the producer intended for use by the public’.109 He quite rightly rejected the contention of counsel for the defendants that the infected bags of blood were standard products because they shared the same characteristics as all blood, in that all blood bears a risk of being infected, an argument which appears to collapse the distinction between standard and nonstandard products altogether.110

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107 [2001] 3 All ER 289 [39]. 108 Ibid [36] (emphasis in original). 109 Ibid [65]. 110 In a commentary on the decision, Howells and Mildred criticise Burton J’s characterisation of the infected blood as a non-standard product on the grounds that the standard/nonstandard distinction ‘seems best left to situations where the defect involves deviation from a conscious design choice and does not result from an inherent flaw’ (G Howells/M Mildred, Infected Blood: Defect and Discoverability (2002) 65 MLR 95, 101), but do not explain why they would limit the distinction to such cases.

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___c) The application of the test of defectiveness to non-standard products ___ ___In a strict product liability regime centred on defectiveness, as opposed to a negli- 10/130 ___gence regime centred on producer fault, it seems almost axiomatic that a non___standard product which is deficient or inferior in terms of safety to a standard ___product of the same type will be regarded as defective. There is clear support for ___this position from commentators,111 and it was certainly the view taken by the Ital___ian and Spanish legislators, since the legislation implementing the Directive in ___those countries expressly stipulates that a product is defective if it does not pro___vide the level of safety normally provided by other products of the same series.112 ___This approach is also consistent with the decision of the German Federal Supreme ___Court (BGH) when it held that if a hairline crack had caused a carbonated mineral ___water bottle to explode it would amount to a defect for the purposes of the German ___legislation, even if the producer’s quality control process was beyond reproach ___and such a crack were technically impossible to identify in every case.113 ___ Matters are, however, complicated by the reasoning in the A v National 10/131 ___Blood Authority case. According to Burton J, in a jurisdiction where no legisla___tive distinction had been made between standard and non-standard products, it ___could not be said that non-standard products were automatically defective, al___though he accepted that it might be ‘easier to prove defectiveness’ in such a ___case114 and at one point went so far as to say that where there is a harmful char___acteristic in a non-standard product ‘a decision that it is defective is likely to be ___straightforward’.115 One situation in which Burton J appears to have thought that ___a non-standard product might not be judged to be defective is where the public ___at large accepted that a proportion of products of the same type would be ___flawed.116 This exception is open to criticism, though, as it seems to look not to ___what the public are entitled to expect, but to what the public actually expect, an ___approach disavowed by Burton J elsewhere in his judgment.117 Furthermore, ___ ___ ___111 See, eg, L Griffiths et al, Developments in English Product Liability Law: A Comparison with the American System (1988) 62 Tul L Rev 354, 377; A Stoppa, The Concept of Defectiveness ___ in the Consumer Protection Act 1987: A Critical Analysis (1992) 12 Leg Stud 210, 212; van Dam ___(fn 100) 428. ___112 See M Martín-Casals, Spanish Product Liability Today: Adapting to the ‘New’ Rules, in: D ___Fairgrieve (ed), Product Liability in Comparative Perspective (2005) 50-51. ___113 BGHZ 129, 353; NJW 1995, 2162; JZ 1995, 1060 (9 May 1995). For an English translation of the judgment, see Markesinis/Unberath (fn 83) 584 ff. ___ 114 A v National Blood Authority [2001] 3 All ER 289 [38]. ___115 Ibid [66]. ___116 Ibid [68]. ___117 Ibid [31].

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while the exception appears to have been based on a concept of ‘social acceptability’ of the risk put forward by certain commentators,118 they seem to have had in mind the rather different problem of inherently dangerous products, such as kitchen knives. All in all, it is suggested that it would have been preferable if Burton J had adopted the simpler approach taken in other European jurisdictions of holding that a non-standard product which is inferior in terms of safety to a standard product of the same series will automatically be regarded as defective for the purposes of the CPA 1987. By contrast, Burton J was unequivocal in his rejection of the defendant’s argument that the avoidability of the defect was a relevant circumstance when determining whether a product was defective. Arguably, the learned judge overstepped the mark here, since questions of avoidability would appear to be central to the defectiveness enquiry in the case of an alleged design defect in a standard product, but he was certainly right to reject it as irrelevant on the facts of the case, since taking account of avoidability in non-standard product cases threatens reversion to a negligence standard, which (as Burton J pointed out) would render the supposed strict liability regime laid down in the Directive and the CPA 1987 not only ‘toothless but pointless’.119

d) Is the infected blood defective? The claimants in A v National Blood Authority had been infected with Hepatitis C at a time when the risk of such infection was known to the medical profession, but not to the public at large. There had been no warnings or material publicity. Since the infected blood was a non-standard product, it followed taking Burton J’s approach to the defectiveness issue that the public had been entitled to expect that blood used for transfusions would be free from the virus, and so the presence of the virus in blood constituted a defect for the purposes of the legislation. And since the avoidability of the defect was irrelevant, it was not material to consider whether additional steps could have been taken to eliminate or reduce the risk. A similar conclusion was reached in a Dutch case where the claimant had been infected with the HIV virus following a blood transfusion. Although at the relevant time blood donors were screened for the HIV virus, there remained a very small possibility of infection in cases where the donor had only just contracted HIV, meaning that his infection could not yet be detected by the screening process. The District Court of Amsterdam held that the infected blood

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118 See ibid at [55]. 119 Ibid [69].

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___was defective for the purposes of the Directive and the implementing national ___legislation, even though the defendant had acted in accordance with the rele___vant guidance.120 ___ Applying these authorities to the facts of Case 2, it can be assumed that the ___parcel of blood infected with Hepatitis N is a defective product for the purposes ___of the Directive and the CPA 1987, regardless of the fact that at the time the ma___jority of the scientific community did not believe that the condition existed, and ___that only a handful of research laboratories had the capacity to test for its pres___ence in specific quantities of blood. ___ ___ ___5. Causation ___ ___On the facts, the causal link between the presence of Hepatitis N in the trans___fused blood and A’s contracting the condition is clear. ___ ___ ___6. Who can be liable? ___ ___Under sec 2 of the CPA 1987, the following are subject to primary liability for ___damage caused by a defective product: the ‘producer’ of the product; any per___son who has held himself out to be the producer of the product; and any person ___who has imported the product into the European Economic Area. In addition, ___any person who has supplied the product is liable if, after receiving a request to ___identify those primarily liable, he fails either to comply with the request or to ___identify the person who supplied the product to him. ___ In the case of a substance which has not been manufactured but has been ___‘won or abstracted’, the producer of the product is defined in the CPA 1987 as ___‘the person who won or abstracted it’.121 It follows that in Case 2, Y Ltd is the ___‘producer’ of the infected blood. ‘Supplying’ goods is given a broad definition, ___and encompasses not only selling them, but also making a gift of them, the per___formance of any contract for work and materials to furnish the goods, and pro___viding the goods in or in connection with the performance of any statutory func___tion.122 It seems clear, therefore, that (regardless of whether it is a public or ___private hospital) X Hospital is a supplier of the defective blood, so that it could ___be liable to A if it is unable or unwilling to inform A of the identity of Y Ltd as ___ ___120 Rb Amsterdam 3 February 1999, NJ 1999, 621 (Scholten v Sanquin Bloedvoorziening). ___121 CPA 1987, sec 1(2). ___122 CPA 1987, sec 46(1).

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the producer. Although it could also be argued that the donor Z is a supplier of the blood, the secondary liability of the supplier under the CPA 1987 seems to be premised on the assumption that the supply of the defective product by the defendant was subsequent to a supply of the product to the defendant by a producer, apparent producer, importer or intermediate supplier (see in particular, the wording of sec 2[3]),123 and since in this case there was no such supply of the blood to Z, it seems unlikely that Z is in fact a ‘supplier’ under the legislation.

7. The private production or supply defence Section 4(1)(c) of the CPA 1987 excludes private production or supply from the ambit of the legislation. If the supplier of the product is sued, it is a defence for him to prove that the supply by him was not in the course of his business. If the action is brought against a producer, the defendant must establish both that the supply by him was not in the course of his business and that he made it other than with a view to profit. The equivalent provision in the Directive (art 7[c]) states that it is a defence for the defendant to prove 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’. In Veedfald v Århus Amtskommune,124 the European Court of Justice held that the art 7(c) defence did not apply where a product was manufactured and used in the course of a medical service financed entirely from public funds, and for which the patient was not required to pay any consideration, since the production was still in the course of the defendant’s business. This ruling is consistent with the definition of ‘business’ in the CPA 1987 as including ‘the activities … of a local authority or other public authority’.125 It follows that the supply of the blood by X Hospital in Case 2 is in the course of its business, even if it is a public hospital, so that the private production or supply defence will not be available to it. And the defence is clearly not available to the producer, Y Ltd, since the supply of the blood to X Hospital was in the course of its business. However, if the donor Z did count as a supplier under the legislation, he would be able to avail himself of the defence, since the

_____ 123 The same assumption seems to underlie the wording of art 3(3) of the Directive: ‘each supplier … shall be treated as its producer unless he informs the injured person … of the identity of the producer or of the person who supplied him with the product’. 124 ECJ C-203/99 [2001] ECR I-3569. 125 CPA 1987, sec 45(1).

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___supply of the blood by him was not in the course of his business. Nor does Z’s ___ability to rely on the defence depend on whether or not Z was paid for donating ___the blood, since while a producer must establish both that he did not produce ___the product with a view to profit and that he did not supply it in the course of ___his business, a supplier need prove only the latter. ___ ___ ___8. The development risks defence ___ ___a) Introduction ___ ___According to art 7(e) of the Directive, the producer has a defence if he proves ___that ‘the state of scientific and technical knowledge at the time when he put the ___product into circulation was not such as to enable the existence of the defect to ___be discovered’. Member States were given the option of not including this de___fence in their implementing legislation. Finland and Luxembourg chose not to ___include the defence at all, while the defence is excluded in relation to human ___body products in France. It follows that in those countries, X Hospital and Y Ltd ___would not be able to rely on this defence. ___ In the UK, the provision of the CPA 1987 implementing the develop___ment risks defence, sec 4(1)(e), states that there is a defence under the Act ___where: ___ The state of scientific and technical knowledge at the relevant time was not ___such that a producer of products of the same description as the product in ques___tion might be expected to have discovered the defect if it had existed in his ___products while they were under his control. ___ This wording proved controversial, with many considering it to be more ___favourable to defendants than art 7(e), on the grounds that whereas the latter ___refers to the state of scientific and technical knowledge being ‘not such as ___to enable the existence of the defect to be discovered’, under sec 4(1)(e) the is___sue is what comparable producers might have been expected to discover. How___ever, in EC Commission v UK,126 the European Court of Justice (ECJ) held that the ___wording of sec 4(1)(e) was not inconsistent with the Directive, and accordingly ___dismissed infringement proceedings brought against the UK by the European ___Commission, a conclusion based on the assumption that the domestic courts ___would interpret sec 4(1)(e) ‘in light of the wording and purpose of the Direc___tive’.127 ___ ___126 ECJ C-300/95, EC Commission v United Kingdom [1997] ECR I-2649. ___127 Ibid, para 33.

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b) The application of the defence to non-standard products Whether the development risks defence can be relied on in the case of a nonstandard product such as infected blood is controversial. Three different categories of case should be distinguished. The first is where the producer is aware of the possibility that a number of his products will have a manufacturing-style defect, but it would be very expensive to eliminate the risk or to identify the affected products. Here, the defence does not apply because the difficulty is attributable to the cost of absolute quality control, and not to the state of ‘scientific and technical knowledge’.128 In the second category of case, the producer is again aware of the possibility of such a defect in its product range, but this time the state of scientific and technical knowledge is such that it is impossible to identify the affected products, or to prevent the defect from arising in the first place. In A v National Blood Authority, Burton J held that the defence was also inapplicable in cases of this kind, because the defendant was aware of the danger, even if there was nothing he could do about it.129 That leaves the final category of case, which is where the state of scientific and technical knowledge is not such as to enable the producer to be aware of even the possibility of the defect arising in his products. Here the indications are that in the UK the defence would be available,130 though cases falling within this category are likely to be rare. Burton J’s approach to this issue is consistent with academic commentary and case law on the defence in Germany. According to German commentators cited in A v National Blood Authority, the defence is not available if, on the basis of scientific and knowledge accessible at the relevant time, it was objectively possible to recognise the product’s potential danger.131 And the same conclusion was arrived at by the BGH when rejecting the defence’s application on the facts of the case involving an exploding mineral water bottle;132 indeed, on one reading of that decision, the BGH ruled out the possibility of the defence applying to

_____ 128 See ibid, Opinion of AG Tesauro, para 20 (‘aspects relating to the practicability and expense of measures suitable for eliminating the defect from the product’ fall outside the scope of the art 7[e] defence). 129 See also Richardson v LRC Products Ltd [2000] Lloyd’s Rep Med 280 (QBD) 285 (Ian Kennedy J): development risks defence ‘not apt to protect a defendant in the case of a defect of a known character merely because there is no test which is able to reveal its existence in every case’. 130 Ibid. See also A v National Blood Authority [2001] 3 All ER 289 [77] (Burton J). This also appears to be the view of van Gerven et al (fn 96) 657. 131 A v National Blood Authority [2001] 3 All ER 289 [54] (Burton J). 132 Fn 113 above.

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___manufacturing-style defects altogether, and limited its operation to design de___fect cases.133 Similarly, it has been said that in Austria the defence applies only ___where ‘it was impossible to view a certain attribute of the product as a defect’, ___and not where ‘it was impossible to ascertain the defectiveness of a rogue prod___uct’.134 By contrast, in the case of the HIV-infected blood,135 the District Court of ___Amsterdam held that the producers of the blood were able to rely on the devel___opment risks defence, since given the state of the scientific and technical ___knowledge at the relevant time it was impossible to detect the infection of the ___blood with HIV if the donor had only very recently contracted the virus. ___ Overall, however, the weight of European opinion and case authority rejects 10/146 ___the operation of the development risks defence in cases where the possibility of ___the defect existing is known, but the state of scientific and technical knowledge ___is not such as to enable it to be identified in an individual product. This conclu___sion also seems consistent with the rationale of the defence – protecting pro___ducers from liability for ‘development risks’ which are difficult to insure ___against, and hence encouraging innovation – since it is the very fact that such ___risks are an unknown quantity which is said to make obtaining insurance ___against them problematic.136 ___ ___ ___c) The tests of knowledge and discoverability ___ ___In the EC Commission v UK case, Advocate General Tesauro took a broad view of 10/147 ___what counts as knowledge for the purposes of the development risk defence. The ___defence would not be available if a scientific discovery came to be accepted by a ___majority of scientific opinion, even if at the time the product was supplied it was ___merely an ‘isolated opinion’.137 The state of scientific knowledge should not be ___‘identified with the views expressed by the majority of learned opinion, but with ___the most advanced level of research which has been carried out’ at the relevant ___ ___ 133 According to the English translation of the judgment in Markesinis/Unberath (fn 83) at ___ 586, the Court held that ‘[t]he only dangers to be treated as development risks are dangers in___herent in the design and construction of the product … not those that were inevitable at the ___stage of production’. Cf A v National Blood Authority [2001] 3 All ER 289 [53] (Burton J) (‘What ___the BGH was primarily saying [was] that if the risks are known, unavoidability of the defect in ___the particular product is no answer’). 134 C von Bar, Principles of European Law on Non-Contractual Liability Arising out of Damage ___ Caused to Another (2009) 701. ___135 See fn 120 above. ___136 Though note the argument to the contrary by S Whittaker (fn 57) 500. ___137 ECJ C-300/95, EC Commission v UK [1997] ECR I-2649, Opinion of AG Tesauro, para 22.

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time.138 And as regards the test for the discoverability of that knowledge, the ECJ held in the same case that the standard was not one of reasonableness but of ‘accessibility’. It follows that provided the relevant scientific and technical knowledge was accessible to the producer when the product was supplied, the defence is not available, even if a reasonable producer would not have been aware of it. We can presume that this ‘accessibility’ requirement would generally not be met in the case of unpublished research,139 but even in the case of published work the Advocate General suggested that account would have to be taken of its place of origin and language of publication, and of the circulation of the journal in which it was published.140

d) The application of these principles to the facts of Case 2 Applying these principles to the facts of Case 2 is not entirely straightforward. We can usefully approach the issue in two stages. At the first stage, it could be argued that since the majority of the scientific community did not believe at the relevant time that Hepatitis N really existed, Case 2 falls within the category of non-standard product cases where the English courts have countenanced the possibility that the development risks defence might apply, namely where the state of scientific and technical knowledge at the relevant time is not such as to enable the producer to be aware of the possibility of the defect arising in his products (assuming that by ‘the defect’ we mean here the presence of the Hepatitis N virus, as opposed to the presence of damaging viruses more generally). Whether this argument succeeds would depend on whether the single published paper identifying the risk of Hepatitis N in infected blood is ‘scientific knowledge’, which is ‘accessible’ to Y Ltd at the time when the blood is supplied to X Hospital. Even if (as appears to be the case), the majority of the scientific community reject the findings of the paper on the grounds that the virus does not exist, it seems that the paper would still count as knowledge for the purposes of the defence. Furthermore, there is nothing to suggest that the paper is not accessible to the producer applying the principles laid down in EC Commission v UK. It follows that at this first stage, the development risks defence will not be successful. At the second stage, it could be argued that since at the relevant time a test had not yet been developed that allowed hospitals and blood suppliers to

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138 Ibid, para 21. 139 See A v National Blood Authority [2001] 3 All ER 289 [49] (Burton J). 140 ECJ C-300/95 EC Commission v UK [1997] ECR I-2649, Opinion of AG Tesauro, para 23.

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___screen out infected parcels of blood, Case 2 falls into the category of non___standard product case where the state of scientific and technical knowledge is ___such that it is impossible to identify the individual products in which the defect ___exists, and that the development risks defence ought to be available in cases of ___this kind. This argument is inconsistent with the majority European view as re___flected in the decision of Burton J in A v National Blood Authority and of the BGH ___in the mineral water bottle case, but the decision of the District Court of Amster___dam in the HIV infection case shows that a more expansive approach to the de___fence (which would encompass the facts of Case 2) is possible. ___ ___ ___9. Conclusion on liability under national legislation implementing the ___ EC Directive on Liability for Defective Products ___ ___It seems that under national legislation implementing the EC Directive on Li- 10/151 ___ability for Defective Products, Y Ltd would probably be liable to A as the pro___ducer of the defective blood, and that X Hospital would probably be liable as the ___supplier of the blood if it did not identify Y Ltd as the producer. It is possible, ___but unlikely, that Z is also potentially liable as a supplier of the blood, but he ___would in any case have a defence under art 7(e), since he did not supply the ___blood in the course of business. ___ ___ ___C. Liability under General Principles of Tort Law ___ ___Inevitably, the European perspective fragments when the focus shifts to liability 10/152 ___under general tort principles. In England, the position under general tort prin___ciples is determined by the application of the law of negligence. On the facts, it ___can be assumed that all the potential defendants owed A a relevant duty of care, ___since the case involves positive action causing personal injury, and in such a ___scenario the existence of a duty of care can generally be taken as read. However, ___to succeed in a negligence action against X Hospital, Y Ltd or Z, A would have to ___establish that the defendant was at fault, and there is no evidence that they ___were at fault in any way, since at the relevant time the majority scientific view ___was that Hepatitis N did not exist, and in any case only a handful of research ___laboratories had the capacity to test for its presence in specific quantities of ___blood. ___ It is just about conceivable that X Hospital or its employees might be under 10/153 ___a duty to warn A of the possibility of infection with the virus as a result of the ___transfusion. This would depend on whether a reasonable health professional

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would have warned A of this risk, and when considering this question the court must apply the test laid down in Bolam v Friern Hospital Management Committee,141 according to which such a professional will not be held liable for negligence if she has acted in accordance with a practice accepted as proper by a responsible body of specialist professional opinion, even if there is a body of opinion that takes a contrary view.142 In the light of the majority scientific opinion against the existence of the virus at the relevant time, it seems unlikely that X Hospital or its employees would be held to have breached a duty of disclosure in this case. And even if there were such a breach, A would also have to show that she would not have gone ahead with the transfusion had she been warned of the risk, in order to establish a causal link between the non-disclosure and her damage. Experience suggests that it will often be difficult for a patient to establish such a causal link, particularly in the case of non-elective treatment.143 In some European countries, the courts when applying general tort principles in product liability cases have been willing to reverse the burden of proof as to the existence of fault if the claimant establishes that the product was defective.144 In Germany, for example, the case law of the BGH establishes that where a product causes injury to a protected interest under § 823(1) of the Civil Code (BGB), the claimant must establish that the product was defective when it left the producer’s hands, in which case the burden of proof shifts to the producer, who must show that it could not reasonably have detected and/or avoided the defect, or that the defect did not cause the damage.145 It follows that on the facts of Case 2, the burden of proof in German law would be on Y Ltd to show that it was not at fault, but again, it seems likely that Y Ltd would be able to discharge that burden. As regards the position under the general regime of fault liability based on art 1240 of the French Code civil, it is unclear to what extent putting a defective product into circulation amounts in itself to fault.146 This would be relevant to the position of Y Ltd in Case 2. Under French law, it seems that the position of X Hospi-

_____ 141 [1957] 1 WLR 582 (QBD). 142 The applicability of the Bolam test in medical non-disclosure cases was affirmed by a majority of the House of Lords in Sidaway v Bethlem Royal Hospital [1985] AC 871 (HL). 143 See, eg, H v Royal Alexandra Hospital [1990] 1 Med LR 297 (Supreme Court of New South Wales). 144 See Lovells, Product Liability in the European Union: A Report for the European Commission (2003) 19-20. 145 The key decision is that in the ‘Chicken Pest’ case, BGHZ 51, 91; NJW 1969, 269 (26 November 1968). For an English translation of the judgment in this case, see Markesinis/Unberath (fn 83) 555 ff. 146 See above no 10/55.

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___tal would be governed entirely by contractual principles if it is a private hospital, ___and entirely by principles of administrative liability if it is a public hospital.147 ___ ___ ___D. Liability in Contract ___ ___The discussion of whether any claim would lie in contract is divided into two 10/156 ___parts. First, I consider whether X Hospital would be liable in contract to A if it ___were a private hospital. Then I consider whether there is any possibility of A ___bringing a contractual action against Y Ltd despite the fact that Y Ltd’s contract ___is with X Hospital and not A. ___ ___ ___1. Contract liability of X Hospital ___ ___If X Hospital were a private hospital, then its relationship with A would in part 10/157 ___be governed by contractual principles. In English law, there is an implied term ___in contracts for the supply of a service where the supplier of the service is acting ___in the course of a business that the service will be provided with reasonable care ___and skill.148 However, we have already seen that there is no evidence of fault on ___the part of X Hospital, so it seems that there is no breach of this implied term. A ___more promising option for A is to rely on the implied terms as to the quality of ___goods supplied under a contract for services found in sec 4 of the Supply of ___Goods and Services Act 1982, as liability under these provisions is strict. The gist ___of sec 4 is that where under a contract for the transfer of goods, the transferor ___transfers the property in goods in the course of business, there is an implied ___term that the goods are of satisfactory quality and fit for any particular purpose ___that the transferee has made known to the transferor. ___ It is unclear whether this provision would apply on the facts of Case 2. We 10/158 ___have seen that human blood is treated as ‘goods’ for the purposes of the CPA ___1987. Furthermore, X Hospital’s property rights in the blood are clearly lost ___when the transfusion takes place, though whether this is a ‘transfer of property’ ___in the conventional sense is doubtful. On the other hand, it could be argued that ___this is not a ‘contract for the transfer of goods’, but a pure professional services ___contract, albeit that the definition of the former phrase in the legislation seems ___wide enough to cover this case.149 It is noteworthy that courts in other common ___ ___147 See further, van Gerven et al (fn 96) 632–633. ___148 Supply of Goods and Services Act 1982, sec 13. ___149 Ibid, sec 1(1).

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law jurisdictions have been reluctant to imply strict contractual obligations into contracts for the provision of medical services, even where products such as drugs and medical devices have been transferred to a paying patient by a healthcare provider,150 but whether this result can be achieved in English law in the light of the wording of the 1982 Act is uncertain.151 Contractual redress against X Hospital might also be possible in other European jurisdictions,152 but two complications should be noted. The first is that in Scandinavian countries contract law is of limited utility in product liability cases, since damages for personal injury are generally not recoverable under contract law.153 And the second is that in most continental systems, contractual liability is premised on fault, so that a seller of a defective product is liable only if he knew or should have known of the defect. In Germany, for example, the German courts have consistently held that merchants who are not producers of the goods that they sell are not held to inspect the goods before they put them up for sale,154 and that save for cases where they had independent knowledge of product failures they are not liable for the harm caused by a defective product. Finally, we should note that in France the Cour de Cassation has held that the contractual liability of a private hospital for blood products they use in the course of medical treatment is fault-based, rather than strict.155

2. Contract liability of Y Ltd In English law, the obvious difficulty with a claim by A against Y Ltd in contract is the doctrine of privity of contract, which generally confines the scope of contractual recourse to the parties to the contract. The most important exception to this doctrine is found in the Contracts (Rights of Third Parties) Act 1999, which allows a third party expressly identified in a contract to sue on the contract if the contract

_____ 150 See, eg, Perlmutter v Beth David Hospital, 123 NE 2d 792 (NY 1954) (infected blood, for which patient was charged separately); Pittman Estate v Bain (1994) 112 DLR (4th) 257 (Ontario Court, General Division) (infected blood); ter Neuzen v Korn (1993) 103 DLR (4th) 473 (British Columbia Court of Appeal) (semen used in artificial insemination infected with HIV virus). 151 For the view that strict liability would attach under the 1982 Act, see AP Bell, The Doctor and the Supply of Goods and Services Act 1982 (1984) 4 Leg Stud 175. Cf the more equivocal position taken in JN Adams/H MacQueen, Atiyah’s Sale of Goods (12th edn 2010) 23–25. 152 For the position in Dutch contract law, see below no 10/233 ff. 153 Lovells (fn 144) 16 (referring to Denmark, Finland and Sweden). 154 BGH 02.04.2014, VIII ZR 46/13, BGHZ 200, 337 para 31; BGH 15.07.2008, VIII ZR 211/07, BGHZ 177, 224 para 29. 155 Cass civ 1, 12 April 1995, JCP 1995, II 22467 (Dupuy).

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___expressly provides that he may do so, or if the contract purports to confer a benefit ___on the third party and the parties intended the contract to be enforceable by him. ___However, the 1999 Act is of no help to A, since she will not have been identified in ___the contract between Y Ltd and X Hospital, and nor does that contract purport to ___confer a benefit on her. Similarly, in Germany, contractual liability arises only ___where there is a direct contractual relationship between the parties, and the ex___ception to this principle whereby a contract can have protective effects vis-à-vis ___a third party is unlikely to apply in the product liability context.156 ___ The prospects for a contractual action by A against Y Ltd look rosier in some 10/161 ___other European systems, however. In Austrian law, for example, the ‘protective ___effects’ principle also found in German law has been used to give consumers di___rect contractual redress against the producers of defective products,157 although ___this would probably assist A only if there was a contract between her and X ___Hospital, as the principle is unlikely to apply unless the parties are connected ___by a contractual chain.158 French law, meanwhile, implies into contracts for the ___sale of goods by a commercial party both a latent defects warranty (garantie des ___vices cachés) and a general safety duty (obligation de sécurité), the benefits of ___which are passed on to subsequent purchasers of the product. Of particular note ___in the present context is the obligation de sécurité, which imposes a strict duty ___on a commercial seller not to sell a product with a defect which could endanger ___persons or property, and which has been extended by the courts to all third par___ties, so that A would be able to rely on this duty to seek recourse from Y Ltd ___even if there is no contract between A and X Hospital. It is, however, doubtful ___whether the general strict product liability regime to which the obligation de sé___curité gives rise can survive the ECJ ruling that a system of producer liability ___founded on defectiveness and not limited to a particular category of products ___cannot remain in force alongside the provisions of the Directive, since the latter ___is an instrument of maximum harmonisation.159 If not, then A would have to rely ___instead on the garantie des vices cachés, which imposes a strict liability on a ___commercial seller for latent defects that render the product unfit for its intended ___purpose, but which can be relied on only by a purchaser of the product.160 ___ ___156 S Lenze, German Product Liability Law: Between European Directives, American Restate___ments and Common Sense in: D Fairgrieve (ed), Product Liability in Comparative Perspective ___(2005) 101. ___157 See above no 10/41 f. 158 Lovells (fn 144) 16. ___ 159 ECJ C-183/00, María Victoria González Sánchez v Medicina Asturiana SA [2002] ECR I-3901. ___See further, D Fairgrieve, L’Exception Française? The French Law of Product Liability, in: D ___Fairgrieve (ed), Product Liability in Comparative Perspective (2005) 91 ff. ___160 See further above no 10/51.

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E. The Position Where the Damage Manifests Itself Eleven Years After the Transfusion Takes Place Although the basic limitation period for claims under the Directive is three years ‘from the day on which the plaintiff became aware, or should reasonably have become aware, of the damage, the defect and the identity of the producer’ (art 10[1]), the Directive also incorporates a ‘longstop’ limitation period of ten years from the date at which the product was put into circulation by the producer.161 Unlike the basic limitation period, this longstop period cannot be suspended or interrupted. It follows that if A’s condition manifested itself only in 2012, it would then be too late for A to bring an action under the national legislation implementing the Directive. Under English law, a claim by A for personal injury in negligence would be subject to a limitation period of three years from the date on which the cause of action accrued, or (if later) the ‘date of knowledge’ of A.162 The action in negligence accrues when the damage is sustained, regardless of the claimant’s awareness of it. The limitation period for claims for personal injury in contract is the same, although this time the cause of action accrues not when A sustains damage, but when the contract is breached (here, when the defective blood is supplied). It follows that if A’s condition manifested itself only in 2012, it would not then be too late for A to bring an action in negligence or contract, if otherwise available. It is not practicable to discuss the limitation periods applicable to claims under general tort principles or in contract in other European jurisdictions.163

F. Commentary What does your analysis demonstrate about the reasons for introducing strict product liability? In particular, why are ordinary principles of fault-based, vicarious and contractual liability considered insufficient? What does your analysis demonstrate about the justifications that may be given for strict product liability? Do these justifications apply where (as in the present case) the injury is caused by a non-standard product and results from a failure to identify a pre-existing defect in the individual product?

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161 Directive, art 11. For the implementation of this longstop in UK law, see the Limitation Act 1980, sec 11A(3). Although English law generally permits extension of the limitation period in personal injury cases if certain conditions are satisfied, there is no possibility of extension of the longstop period for claims under the CPA 1987: Limitation Act 1980, sec 33(1A)(a). 162 Limitation Act 1980, sec 11(4). For the definition of the ‘date of knowledge’, see sec 14(1). 163 For the time limits applied to product liability claims in the Netherlands, see above no 10/71; and for a comparison of the time limits applicable to such claims under English law and French law, see Whittaker (fn 57) 527–529.

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___ What does the analysis of Case 2 from a European perspective tell us about 10/165 ___the reasons for introducing strict product liability? A number of different justifi___cations have been given for replacing or supplementing regimes of fault liability ___and contract liability with strict tort liability for personal injury and property ___damage caused by defective products. How convincing are these justifications ___in the context of strict liability for dangerous defects in non-standard products ___generally, and infected blood used in medical treatment in particular?164 ___ ___ ___1. Loss-spreading ___ ___One argument in favour of strict product liability is that it enables the costs of 10/166 ___product accidents to be spread by pushing them on to the producer, who can ___then pass them on to purchasers of their products in the form of higher prices. If ___this argument is accepted, it provides a clear justification for the imposition of ___strict liability in the case of non-standard products. In the case of infected ___blood, the loss-spreading rationale seems to be fully engaged, although where ___blood is not (as here) collected by a profit-making enterprise but by a state or ___charitable body, the cost will ultimately be borne not by the ‘consumers’ of the ___blood, but by those who fund the body in question. It is worth noting in this ___connection that a number of European countries (including Austria, Belgium, ___Denmark, France, Ireland, Italy, Spain and the UK) have established no-fault ___compensation schemes of varying scope for those who have contracted certain ___diseases from blood used in transfusions.165 ___ ___ ___2. Deterrence ___ ___Another argument for strict product liability is that it will have a salutary deter- 10/167 ___rence effect, by encouraging manufacturers to adopt the highest possible safety ___standards. This argument is, however, weak, as it is not clear why a strict liabil___ity standard will produce more optimal deterrence than a fault standard, and ___because in any case product safety is now very strictly regulated, at least within ___ ___ ___164 The introduction of a harmonised system of product liability in the EU was in part justified by the concern that differences in national laws might distort competition and hamper ___ trade within the European single market (see the first recital of the Directive), but since this is ___not a justification for strict product liability as such, it is not addressed here. ___165 For details of the French HIV scheme, see van Gerven et al (fn 96) 629 ff; and for details of ___the UK HIV scheme, see Whittaker (fn 57) 359–360.

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the EU.166 The weakness of this argument is illustrated by the application of strict product liability in this particular case, where it seems clear that there was no efficient precaution available to the producer Y Ltd which would have avoided the injury which occurred to A, and where nevertheless strict product liability would be imposed.

3. The perceived inadequacy of a product liability regime founded on fault and contract A third argument for introducing strict product liability was the perceived inadequacy of the existing product liability regime, which in English law was founded on negligence and contract. Actions in negligence were hampered by the need to prove fault, which it was argued was not an easy task when the circumstances surrounding the manufacture of a product were in general known only to the defendant. And the strict contract liability applicable between buyer and seller appeared to create an unjustifiable distinction between the rights of purchasers and non-purchasers. Furthermore, even where the injured party was entitled to recover from the retailer in contract, strict tort liability offered practical advantages, since in place of a series of claims up the contractual chain there would be a single action aimed directly at the manufacturer. The perceived inadequacy of the previous product liability regime cannot really be separated out from the other arguments in favour of strict product liability, but insofar as this argument is accepted, it has particular force in cases involving non-standard products, since in such cases the argument resting on the difficulty of proving fault in the production process is fully engaged, and there is likely to be a breach of any relevant sale contract. On the particular facts of Case 2, however, this argument seems weaker, since the reason for the existence of the defect in the particular product is clear here, and there may well not have been a contract between A and X Hospital.

4. Fair apportionment of the risks inherent in modern technological production According to the second recital of the Directive, strict product liability is ‘the sole means of adequately solving the problem, peculiar to our age of increasing

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166 See in particular Council Directive 2001/95/EC of 3 December 2001 on general product safety [2002] OJ L11/4, implemented in the UK by the General Product Safety Regulations 2005, SI 2005/1803.

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___technicality, of a fair apportionment of the risks inherent in modern technologi___cal production’. This rather questionable assertion seems to rest on the idea that ___strict liability is peculiarly appropriate to dangers arising out of the process of ___industrial mass production itself. If so, then this justification would apply with ___full force in the case of mass-produced non-standard products, but would not ___justify imposing strict liability where (as with infected blood) the defect in a ___product is not the result of an industrial process.167 ___ ___ ___5. Enterprise risk ___ ___A variation on the basic loss-spreading argument is that all the losses caused by 10/171 ___a profit-making activity should be borne by the commercial enterprise in ques___tion. Theories of ‘enterprise risk’ along these lines tend to be rather unfocused, ___but are sometimes justified by a market deterrence rationale, or by the argument ___that those who benefit from a commercial activity should also bear the burden ___of the losses it causes. If accepted, this would provide a justification for the im___position of strict product liability on commercial enterprises (including Y Ltd in ___Case 2), but it does not provide a justification for the extension of the strict ___product liability regime to state authorities or non-profit organizations, which ___dominate the supply of blood and blood products for medical use, at least in ___Europe.168 If the enterprise risk idea were considered to be a significant justifica___tion for strict product liability, then this would suggest that the private produc___tion or supply defence recognised in art 7(c) of the Directive and sec 4(1)(c) of ___the CPA 1987 should be redrawn as a non-commercial production/supply de___fence, thereby excluding the activities of state authorities and non-profit enti___ties from the scope of the strict product liability regime. ___ ___ ___6. The Case against Strict Liability for Infected Blood Products ___ ___Finally, we should note that a case can be made against the imposition of strict 10/172 ___liability for infected blood products on the grounds (1) that in this particular ___ ___ ___167 See J Stapleton, Bugs in Anglo-American Products Liability, in: D Fairgrieve (ed), Product Liability in Comparative Perspective (2005) 315. ___ 168 See Pittman Estate v Bain (1994) 112 DLR (4th) 257 (Ontario Court, General Division), where ___the Canadian court held that because the defendant hospital was a non-profit organization, it ___should not be held to a standard of care approaching strict liability imposed on commercial ___manufacturers.

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context some of the justifications for strict liability do not apply; and (2) that there are policy arguments for not subjecting the supply of blood products to strict liability. These policy arguments include the public benefit derived from the supply of such products, the fact that those producing and supplying the blood may be state actors under a duty to do so,169 and the concern that the fear of liability may have a distorting effect on the clinical decision whether to carry out a blood transfusion.

G. Additional Notes from Specific National Perspectives 1. Austria (Ernst Karner) a) Product liability (i) X Hospital’s liability to A According to § 1 para 2 of the Austrian Product Liability Act (Produkthaftungsgesetz, PHG), any entrepreneur who has put the relevant product into circulation shall be subsidiarily liable, if he fails to supply the injured party within a reasonable period with the name of the producer or of the importer and provided that the prerequisites of product liability as such are met.170 This distributor’s liability not only encompasses certain forms of distribution like the sale of products, but any form of entrepreneurial selling.171 For instance, a contractor using a product for the creation of his work is also regarded as a distributor or supplier.172 In this sense thus, X Hospital can be held liable as a distributor or supplier according to § 1 para 2 PHG. However, since this only constitutes subsidiary liability, it can be inhibited by supplying A with the name of the producer Y Ltd.173

_____ 169 This was, for example, true of the defendants in A v National Blood Authority [2001] 3 All ER 289. 170 See C Rabl, Produkthaftungsgesetz (2017) § 1 no 53 ff with further references. 171 Rabl (fn 170 § 1 no 60 f; C Rabl, Die Haftung des Händlers nach dem Produkthaftungsgesetz, JBl 1999, 490 (492). 172 H Koziol/P Apathy/BA Koch, Österreichisches Haftpflichtrecht III (3rd edn 2014) no B/70. 173 The further prerequisites for the application of the Austrian PHG will be dealt with in the following section.

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___(ii) Y Ltd’s liability to A ___ ___The first question that arises is whether blood can be regarded as a product in 10/174 ___the sense of the PHG. Prevailing opinion is that blood is a movable tangible and ___therefore a product according to § 4 PHG from the time it has been drawn from ___its donor.174 Apart from qualification as a product, the faultiness of the product ___constitutes the main prerequisite for liability under the PHG. In order to evalu___ate faultiness, the focus must be on the point in time when the product was put ___into circulation, ie in our case on the moment when the blood was transferred ___from Y Ltd to X Hospital.175 According to § 5 PHG, a product is defective if it does ___not provide the safety which, taking all circumstances into account, may be rea___sonably expected. In the present case, the infected blood represents a defective ___product, since it cannot offer the safety that can be expected from ‘healthy’ ___blood. ___ Under the PHG, primarily the producer of a product as well as its importer 10/175 ___can be held liable. It must therefore be established whether Y Ltd can be re___garded as the producer of the blood. Although Y Ltd did not produce the blood ___itself, it can still be regarded as the producer if it processed, preserved or ___cleaned the blood.176 Sometimes the view is taken that even the act of taking the ___blood from the donor is sufficient to establish a party as the producer.177 If it is ___assumed that Y Ltd also cleaned and preserved the blood in addition to taking ___the blood, Y Ltd can be regarded as a producer in the sense of the PHG. ___ It must still be established, however, whether Y Ltd can benefit from the li- 10/176 ___ability exclusion provided for by § 8 subsec 2 PHG, which would mean the in___jured party has to bear the development risk. The prerequisite for this liability ___exclusion is that according to the state of technology at the time when the prod___uct was put into circulation, the defect in the product could not be recognised. ___If, however, the defect could actually be recognised, but was not reparable, no ___exclusion of liability is granted.178 Moreover, regarding the question of the ap___plicable state of technology, the reference point is the highest possible state, ___which means that one single scientifically sound opinion may be sufficient to ___determine this state. By no means can one refer to an average level of tech___ ___ ___174 Rabl (fn 170) § 4 no 58 ff; Koziol/Apathy/Koch (fn 172) no B/141; H Fitz/A Grau in: H Fitz/ ___A Grau/P Reindl, Produkthaftung (2nd edn 2004) § 4 no 35. 175 Rabl (fn 170) § 5 no 94; R Posch/U Terlitza in: M Schwimann/G Kodek (ed), ABGB Prax___ iskommentar (4th edn 2017) § 5 PHG no 19 f. ___176 Rabl (fn 170) § 4 no 60 f. ___177 Fitz/Grau (fn 174) § 3 no 9. ___178 Koziol/Apathy/Koch (fn 172) no B/238; Rabl (fn 170) § 8 no 37 f.

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nology.179 In the present case, one published scientific article already pointed to the risk of Hepatitis N in donated blood. This consequently establishes the highest, and therefore for the PHG relevant, state of technology. It is accordingly irrelevant that the majority of scientists did not believe in the existence of Hepatitis N and that the technical means to prove its existence were limited. Consequently, Y Ltd cannot benefit from the liability exclusion provided for by § 8 subsec 2 PHG and can be held liable by A under the rules of the PHG. Since there is no deductible in the case of physical injury – in contrast to cases of damage to objects180 – Y Ltd must compensate A in full. According to § 14 PHG in conjunction with § 1325 of the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch, ABGB), medical expenses and lost earnings must be compensated. In addition, adequate damages for pain and suffering must be paid.181 Assuming, however, that the risk of a Hepatitis N infection actually could not be recognised, Y Ltd could benefit from the liability exclusion under § 8 subsec 2 PHG and so shift the development risk to the injured party, A. A higher state of technology after the product was put into circulation cannot trigger any liability under the PHG.182 However, there is a subsequent obligation upon the producer to monitor its product after putting it into circulation, which in the case of violation can trigger a fault-based claim for damages (Produktbeobachtungspflicht).183 Consequently, the producer is obliged to eliminate such risks posed by its products as were only recognised subsequently, for instance by warning the users, changing the method of production or recalling the affected products.184 Such a product monitoring duty can be derived from general duties to maintain safety (Verkehrssicherungspflichten), since they do not end at the time the product is put into circulation, but continue to exist afterwards.185 In our case, a duty on the part of Y Ltd to inform the injured party A of the risk of Hepatitis N after it had been generally recognised could be assumed. If Y Ltd culpably violated its product monitoring duty, it can be held liable by A under the general rules for claims for damages.

_____ 179 Rabl (fn 170) § 8 no 27 ff; Koziol/Apathy/Koch (fn 172) no B/239; Schwimann/Kodek/Posch/ Terlitza (fn 175) § 8 PHG no 10. 180 If damage is caused by the injury to an object, a deductible of € 500 will be applied according to § 2 PHG. For further information see Rabl (fn 170) § 2 no 23 ff; Koziol/Apathy/Koch (fn 172) no B/231 ff. 181 Rabl (fn 170) § 14 no 1 f. 182 Rabl (fn 170) Vorbemerkung no 39 ff; A Schopper, Nachvertragliche Pflichten (2009) 240 f. 183 Rabl (fn 170) Vorbemerkung no 42 ff; Schopper (fn 182) 241 ff; Schwimann/Kodek/Posch/ Terlitza (fn 175) § 8 PHG no 11. 184 Rabl (fn 170) Vorbemerkung no 53 ff. 185 Fundamental for the product monitoring duty is the Austrian Supreme Court’s case OGH 6 Ob 215/11b = EvBl 2013/16 (M Spitzer); see also Schopper (fn 181) 243 f.

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___(iii) Z’s (donor’s) liability to A ___ ___In accordance with prevailing opinion, any liability of the donor Z under the 10/178 ___rules of the PHG must be rejected, since the act of blood donation does not con___stitute the production of a movable tangible and therefore the donor cannot be ___regarded as a producer in the sense of the PHG.186 ___ ___ ___b) Claims based on the Austrian Civil Code (ABGB) ___ ___(i) X Hospital’s contractual liability to A ___ ___Owing to the contractual relationship between the injured party A and X Hospi- 10/179 ___tal, it must be established whether A can bring a contractual, fault-based claim ___against X Hospital. The advantage of such a claim can be seen in the reversal of ___the burden of proof regarding fault (§ 1298 ABGB) as well as in the extensive vi___carious liability for agents (§ 1313a ABGB). In the present case, X Hospital uses ___infected blood, which is therefore not in conformity with the contract. However, ___this lack of performance of the contract does not per se establish there was ___unlawful behaviour. For behaviour to be unlawful, some objective duty of care ___needs to be infringed (objektive Sorgfaltspflichtverletzung).187 X Hospital must be ___regarded as an expert in the sense of § 1299 ABGB, which means that an objec___tive scale of fault must be applied.188 However, in our case not even any objec___tive duty of care is infringed, since there was no means for X Hospital to conduct ___a blood test at the time of the blood transfusion. Consequently, since there is no ___unlawful behaviour, A cannot bring a fault-based claim for damages against X ___Hospital. ___ In addition, an attribution of wrongdoing by Y Ltd as vicarious agent based 10/180 ___on § 1313a ABGB is not possible either: vis-à-vis the injured party A, X Hospital ___was only obliged to procure a unit of stored blood, but not to produce the unit ___itself. Therefore, X Hospital does not have to take responsibility for the behav___iour of Y Ltd. ___ ___ ___ ___ ___ 186 Rabl (fn 170) § 4 no 59; Fitz/Grau (fn 174) § 3 no 9. ___187 H Koziol, Österreichisches Haftpflichtrecht I (3rd edn 1997) no 4/40; E Karner in: H Koziol/ ___P Bydlinski/R Bollenberger (eds), Kurzkommentar zum ABGB (5th edn 2017) § 1294 no 5. ___188 KBB/Karner (fn 187) § 1299 no 1.

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(ii) Y Ltd’s liability to A – Extra-contractual liability First, the question arises whether A can bring an extra-contractual claim against Y Ltd in addition to her claim based on the PHG. However, the unlawfulness of Y Ltd’s conduct as a prerequisite for the claim seems to be problematic. It can be assumed that no duty to test the blood for Hepatitis N existed at the time the blood was drawn from the donor. Consequently, the required violation of an objective duty of care is missing. However, as already mentioned, Y Ltd might have violated its product monitoring duty if the company did not act even after having recognised the risk of Hepatitis N. A culpable violation of its product monitoring duty would trigger an extra-contractual claim for damages.189

– Liability based on a contract with protective effects towards third parties In addition, it must be established whether the contract between Y Ltd and X Hospital provides protective effects vis-à-vis A (Vertrag mit Schutzwirkungen zugunsten Dritter). This is the case if the injured party is increasingly endangered by the fulfilment of the contract and if he or she is proximate to the sphere of influence of one of the contracting parties.190 This kind of liability provides the advantage of a reversed burden of proof regarding fault according to § 1298 ABGB as well as an attribution of wrongdoing by vicarious agents according to § 1313a ABGB. In the present case, A is – at least in the abstract – foreseeably endangered by the fulfilment of the contract between Y Ltd and X Hospital and belongs to X Hospital’s sphere of influence. Therefore, protective effects towards A arising out of this contract can be assumed. However, as in the case of extra-contractual liability, the criterion of unlawfulness of Y Ltd’s behaviour is missing, since the company did not violate any objective duty of care.191 Consequently, a fault-based claim for damages based on a contract with protective effects towards third parties is not possible either.

_____ 189 See above no 10/177. 190 KBB/Karner (fn 187) § 1295 no 19; for a detailed analysis see F Bydlinski, Vertragliche Sorgfaltspflichten zugunsten Dritter, JBl 1960, 359 ff; E Karner/H Koziol, Mangelfolgeschäden in Veräußerungsketten (2012) 65 ff. 191 See above no 10/181.

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___c) Z’s (donor’s) extra-contractual liability to A ___ ___Any extra-contractual liability of the donor Z is ruled out, as Z’s behaviour can___not be said to be unlawful. Since Z was neither aware of his infection, nor was ___he under any duty to be aware of it, he cannot be accused of any violation of an ___objective duty of care. ___ ___ ___d) Variation of the facts of the case ___ ___The facts of the case just discussed above are now changed as follows: A con___tracted the virus as the result of a blood transfusion conducted in 2001, but her ___condition only manifested itself in 2012. ___ ___ ___(i) Lapse of claims under the PHG ___ ___According to § 13 PHG, product liability claims – but not other claims under the ___general rules of the law of damages192 – lapse after ten years from the time when ___the product was put into circulation.193 The time of the occurrence of damage, on ___the other hand, is not of importance for the period of limitation.194 In the present ___case, the period of ten years stated in the PHG has already expired, since the ___transfusion took place in 2001 and consequently the infected unit of stored ___blood was also put into circulation by Y Ltd before that point in time. However, ___a legal action was only taken in 2012 at the earliest. ___ ___ ___(ii) Limitation of claims under the ABGB ___ ___According to § 1489 ABGB, claims for damages based on the general rules of the ___ABGB have to be brought within three years from the time when the injured per___son becomes aware of the damage and the identity of the injurer.195 This means ___ ___192 See below no 10/187. ___193 This only applies, if the shorter period of limitation of three years, starting from the time ___when the injured person becomes aware of the damage and the identity of the injurer, has not already lapsed; see also Rabl (fn 170) § 13 no 12; Koziol/Apathy/Koch (fn 172) no B/252; P Reindl ___ in: H Fitz/A Grau/P Reindl, Produkthaftung (2nd edn 2004) § 13 no 3 f. ___194 Rabl (fn 170) § 13 no 15 f; Koziol/Apathy/Koch (fn 172) no B/253. ___195 W Dehn in: H Koziol/P Bydlinski/R Bollenberger (eds), Kurzkommentar zum ABGB (5th ___edn 2017) § 1489 no 2 ff.

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for our case that the period of limitation only starts in 2012. The absolute period of limitation of 30 years196 is not lapsed either and therefore does not constitute any difficulty.

2. France (Jean-Sébastien Borghetti) At the outset, it must be said that a major sanitary catastrophe took place in France in the 1980s, with thousands of persons getting contaminated with HIV through blood transfusions. Numerous civil liability claims ensued, and in the 1990s, at a time when the 1985 Directive had not yet been transposed into French law, the Cour de cassation developed a strict liability in tort regime for blood producers (ie centres de transfusion sanguine, which collected blood and dispatched it to hospitals). This regime was openly inspired by the 1985 Directive, but the development risk defence was explicitly rejected.197 Other consequences of this tainted blood scandal were that: a public body (Etablissement français du sang, EFS) was given the monopoly on the production (ie collecting and dispatching) of blood; a compensation fund was set up, which compensates victims of HIV contamination through blood transfusions; the mechanism was later extended to include victims of Hepatitis C contamination through blood transfusions, but it does not compensate victims of other types of Hepatitis. In the French context, a private company could therefore not supply blood to a hospital, as in Case 2. The following comments will nonetheless follow the facts as set out in Case 2, and assume that Y is a private company and not a public body (in the French context, this makes a difference as far as judiial competence is concerned: administrative courts [in the French sense] are competent for claims brought against public bodies, whereas civil courts are competent for claims brought against private persons; special product liability law deriving from the 1985 Directive applies before both types of courts, however). The tainted blood scandal also created a great public sensitivity about contaminations through blood transfusions. As a result, and whatever the technical rules applicable, French courts (which are in any case rather ‘victim-oriented’) would probably be reluctant to leave someone who was definitely infected through a blood transfusion without any compensation.

_____ 196 KBB/Dehn (fn 195) § 1489 no 8 f. 197 See Cass civ 1, 12 April 1995, no 92-11.950, no 92-11.975, Bull civ I, no 180.

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___a) Liability under the special product liability regime ___ ___Nota bene: Comments are only made on the points about which French law ___might be original in one way or another. ___ ___ ___(i) Product ___ ___When the legislator finally transposed the Directive in 1998, it accepted the devel___opment risk defence, but with one restriction, which is a direct consequence of the ___tainted blood scandal: this defence shall not apply ‘where damage was caused by ___an element of the human body or by products thereof’ (art 1245-11 Code civil). This ___exception was clearly intended to cover blood and its derivatives. It makes clear ___that, for the French legislator, blood can indeed be a product under the special ___product liability regime; this opinion has never really been challenged. ___ ___ ___(ii) Defect ___ ___French case-law on defectiveness is not as elaborated as the English one, for ex___ample (the distinction between manufacturing and design defects, or between ___standard and non-standard products, for instance, is hardly ever mentioned). In ___the numerous tainted blood cases that were brought before French courts, it ___seems that the defectiveness of blood contaminated with HIV or Hepatitis was ___never seriously challenged. In the present case, there is no doubt that a French ___court would regard blood contaminated through Hepatitis N as defective. ___ ___ ___(iii) Who can be liable? ___ ___Liability under the special product liability regime lies primarily on the pro___ducer. Given the definition of the producer given by the Directive and repro___duced in the French Code civil (art 1245-5), it is not self-evident whether Y Ltd, ___which collected blood from a donor, really qualifies as a producer. As a matter ___of fact, Y Ltd does not manufacture the blood it supplies. Blood that has been ___collected must be processed before it can be used for a transfusion, however, ___and this processing alone probably is sufficient grounds that a blood collector ___and supplier be regarded as a producer under the Directive. Besides, before the ___implementation of the Directive, French courts did not hesitate to regard blood ___collectors and suppliers as producers, to which they applied the Directive-

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inspired strict liability regime they had developed. 198 There is therefore little doubt that Y Ltd would be regarded as a producer under art 1245-5 Code civil. One might also wonder if Z, the donor, could not also be regarded as a producer. In the French context, however, Z could not be paid for his blood and he could thus, if need be, rely on the art 7.c defence (the product was not manufactured for sale or any economic purpose). He could therefore not be made liable under the special liability regime. X hospital is clearly only a supplier of the blood, and could therefore not be liable under the special liability regime – unless the identity of the producer were not known.

(iv) The development risk defence As said previously, this defence does not apply in French law ‘where damage was caused by an element of the human body or by products thereof’ (art 124511 Code civil).

b) Liability under general principles of tort and contract law (i) Liability of X to A Under French law, a distinction should be made depending on whether X is a private or a public structure. If X is a private hospital, it is unclear whether any liability that may arise between X and A is in tort or in contract. The traditional position of French caselaw was that medical liability of non-public hospitals was in contract (which meant that liability in tort could not apply, since the ‘non-cumul’ rule forbids the application of tort law when the rules on contract are applicable), but a major 2010 decision by the Cour de cassation199 suggested that medical liability arising outside public hospitals should now be regarded as in tort. Assuming that X could only be liable to A in tort, liability for fault under art 1240 Code civil could theoretically apply. In the present case, however, X can hardly be regarded as having been at fault and there would therefore be no liability on that basis.

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198 See eg Cass civ 1, 28 April 1998, no 96-20421, Bull civ I, no 158. 199 Cass civ 1, 3 June 2010, no 09-13591, Bull civ I, no 128.

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___ Besides, in a 2005 decision, the Cour de cassation stated that a private hospi- 10/204 ___tal was strictly liable to the patient to whom it had supplied contaminated blood, ___regardless of fault.200 Although the decision did not clearly say so, the ground for ___this liability was the blood’s defectiveness. The facts of the case dated back to ___1985, however, ie before the Directive should have been implemented in French ___law. For products put into circulation after the date at which the Directive should ___have been implemented (July 1988), a supplier cannot be liable in tort if the ___ground for this liability is the same as the liability ground under the Directive, ie ___the product’s safety defect.201 The solution of the 2005 decision could therefore ___not apply in this case and Hospital X would not be liable in tort to A. ___ If X is a public hospital, there can be no contractual relationship between it 10/205 ___and A, and X could only be liable to A on the basis of administrative liability ___rules. The Conseil d’Etat, the highest French court in administrative matters, ___rules that liability of a public hospital which supplied contaminated blood is ___normally based on fault.202 In the present case, if Hospital X is a public struc___ture, it would therefore not be liable to A based on the rules of administrative li___ability. ___ ___ ___(ii) Liability of Y to A ___ ___Although there is no direct contractual relationship between Y and A, a liability 10/206 ___in contract of Y to A could be considered. In the 1990s, some lower courts ruled ___that the contract between a blood producer and a hospital, which later supplied ___the blood to a patient, included a stipulation pour autrui, whereby the patient ___was made a creditor under the contract and could claim damages in contract if ___the blood proved to be contaminated, in violation of the hidden defects war___ranty.203 This solution was more or less forgotten when the Cour de cassation de___veloped the producer’s strict liability in tort (see above). Given the strict time ___limits that the Directive sets to the producer’s liability based on the product de___fectiveness, however, French courts might be tempted, if a claim were time___barred under the Directive’s regime, to resort to the old stipulation pour autrui ___ ___200 Cass civ 2, 21 April 2005, no 03-20683, Bull civ II, no 108. ___201 ECJ, 25 March 2002, González Sánchez. ___202 CE ass, 26 May 1995, Consorts N’Guyen et Consorts Pavan, req no 143238, Rec CE, 221 & 222. ___ 203 CA Paris, 28 November 1991, JCP G 1991.II.21762, note M Harichaux; TGI Toulouse, 16 July ___1992, JCP G, II.21965, note X Labbée; TGI Nice, 27 July 1992, D 1993, jur 38, note D Vidal; CA Aix___en-Provence, 12 July 1993, D 1994, jur 13, note D Vidal; see also Cass civ 2, 17 December 1954, ___JCP 1955 II.8490, note R Savatier.

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solution. Since the ECJ explicitly acknowledged that hidden defects are a different ground for liability than the Directive’s safety defect (González Sánchez), a producer can be made liable in contract on the basis of a hidden defect, without its potential liability under the Directive being an obstacle. It must be added that a special 2-year limitation period applies to claims based on the basis of the hidden defects warranty (art 1648 Code civil), as well as a 20-year long-stop period which starts running as of the entry into force of the sales contract (art 2232 Code civil). In the present case, one could therefore think of making Y liable to A on the basis of the (contractual) warranty for hidden defects, arising out of the supply contract concluded between X and Y Ltd. If no stipulation pour autrui were recognised, Y could not be made strictly liable in tort on the basis of the product’s defectiveness, since the ground for this liability would then be the same as the ground for the liability under the Directive, and that is not possible. It would also probably not be possible to consider that the mere putting into circulation of defective blood amounts to fault, as fault in this case would be the same thing as the product’s defectiveness. But could Y be made liable in tort for a ‘true’ fault if it were proven that he lacked care in putting into circulation a product, which he should have known could be defective? It is suggested that French courts would be very strict towards the producer in the context of the present case. They might thus consider that Y was at fault for not testing the blood for Hepatitis N, since such a test was available.204

(iii) Liability of Z to A There is of course no contract between Z and A, and French courts would most probably not consider that the contract between Z and Y Ltd contains a stipulation pour autrui for the benefit of A. There is therefore no liability in contract of Z to A. There is no liability in tort either, as this liability could only be based on fault, and Z was clearly not at fault in this case.

3. Italy (Alessandro Scarso) Italian case law has repeatedly addressed the liability of both medical instiutions and public authorities for personal injuries suffered by patients as a

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204 See, in the context of DES litigation, Casse civ 1, 7 March 2006, nos 04-16180 and 0416.179, Bull civ I, nos 142 and 143, which considered that a producer was at fault for not having taken into account risks that had been mentioned in scientific literature.

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___consequence of the transfusion of infected blood when the relevant medial con___dition had not been identified at the time the transfusion was conduced.205 ___ The assessment of (prospective) liability profiles has been primarily con___ducted:206 ___• on a contractual basis, with reference to the medical institution where the ___ transfusion was conducted, grounded – as will be outlined below – on the ___ latter’s failure to abide by statutory provisions regulating both compulsory ___ blood screenings and monitoring of medical records of blood donors; ___• on a tortious basis, with reference to the Ministry of Health, for the latter’s ___ failure to fulfil their statutory supervisory duties in respect of medical insti___ tutions related to the production, import and distribution of blood products: ___ in this context, claims have been grounded on the general clause providing ___ for tortious liability entrenched in sec 2043 Civil Code.207 ___ ___ In a recent judgment,208 the Corte di Cassazione (the Italian Supreme Court for ___civil matters, Cass) upheld the tortious liability of the Ministry of Health for its ___failure to fulfill its supervisory duties related to the production, import and dis___tribution of blood products in a case of transfusion of infected parcels of blood ___containing Hepatitis C, although such medical condition had not been identi___fied at the time the transfusion was conducted (in 1973). ___ The line of reasoning of the Italian Supreme Court may be condensed as fol___lows: ___i) the Ministry of Health is under a duty to supervise blood transfusions, as ___ statutory provisions regulate the production, import and distribution of ___ ___ 205 As far as the most common diseases which may be contracted through the transfusion of in___fected blood parcels are concerned, Italian case law considers Hepatitis B to have been identified ___in 1978, HIV to have been identified in 1985 and Hepatitis C to have been identified in 1988. ___206 For straightforward reasons related to the non-applicability of the statutory provisions ___governing the liability for defective products (in all cases the relevant blood transfusion had ___been conducted before 1988), according to sec 16 Decree of the President of the Republic of 30 July 1988, no 224, which has transposed into Italian law EC Directive 85/374/EEC of 25 July ___ 1985, the statutory provisions regulating the liability for defective products are not applicable ___to products placed on the market before 30 July 1988: an identical provision may be found in ___the Consumer Code (sec 127, subsec 3, Consumer Code into which the statutory provisions ___regulating the liability for defective products has been transposed). ___207 Especially patients who, due to their health conditions, had recourse to blood transfusions at regular intervals (primarily patients suffering from haemophilia and thalassaemia) ___ have sued the Ministry of Health for its failure to supervise medical institutions conducting ___blood transfusions due to the difficulty of proving the specific blood transfusion which (alleg___edly) led to their contracting the relevant medical condition. ___208 Cass 29 August 2011, no 17685, Danno resp 2012, 135 ff.

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ii)

iii)

iv)

v)

vi)

blood products providing – amongst others – for the compulsory screening of blood products and the monitoring of the medical records of the blood donors: such supervisory duties are laid down in a variety of statutory provisions dating back to as early as 1958; the risk of contracting Hepatitis viruses (although not of the Hepatitis C virus, as such medical condition had not been identified in 1973) due to the transfusions of infected parcels of blood had been known from the beginning of the 60s and 70s: indeed, starting from 1967 statutory provisions provided for the screening of blood products aimed at preventing the contracting of diseases flowing from blood transfusions;209 the failure, by the Ministry of Health, to abide by such provisions grounds its (tortious) liability whenever such failure results in the infringement of public interests deserving of protection, eg the contracting – by the patient – of medical conditions (the Hepatitis or HIV viruses); such liability rests on sec 2043 CC, and applies all the more taking into account that the failure by the Ministry of Health to fulfil its supervisory duties has to be ascertained by referring to a particularly high standard of diligence, given its obligation to prevent or to reduce the risk related to the contracting of medical conditions as a consequence of the transfusion of infected parcels of blood; should the risk which the infringed statutory provisions aimed to prevent materialize, the causal link between the faulty conduct by the Ministry of Health, grounding its liability pursuant to sec 2043 CC (inherent in its failure to abide by statutory provisions providing for its supervisory duties), and the damage suffered by the victim is to be presumed;210 such presumption applies also in the case of the contracting of Hepatitis C, as, irrespective of its identification at the time the relevant blood transfusion was conducted, such medical condition represents a ‘unique harmful event (resulting in harm to the liver)’ (rather than an ‘autonomous and distinct event’ from the Hepatitis B virus) as compared to other Hepatitis viruses which had already been identified at the time the infected parcels of blood were transfused.

_____ 209 Cass 29 August 2011, no 17685, explicitly mentions Statute no 592, of 14 July 1967, the Decree of the President of the Republic, no 1256 of 24 August 1971, Statute no 519 of 7 August 1973 and Statute no 833 of 23 December 1973. 210 Cass 29 August 2011, no 17685. Cf also Cass 27 April 2011, no 9404, NGCC, I, 1258 (with reference to the Regulatory Authorities’ failure to carry out their supervisory duties with reference to investments funds).

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___ The establishment of the Ministry of Health’s liability – by the Corte di Cassa- 10/220 ___zione – for the contracting of the Hepatitis C virus as a consequence of the trans___fusion of infected parcels of blood despite the non-identification of such medi___cal condition at the time the relevant blood transfusion was conducted marks ___the arrival of a general trend towards the granting of damages to victims of ___transfusions of infected parcels of blood. ___ The first trial court decisions affirming the liability of the Ministry of Health 10/221 ___due to its failure to fulfil its supervisory duties date back to the beginning of the ___90s:211 the liability of the Ministry of Health was grounded on its failure to fulfil ___its supervisory duties related to the production, the import and the distribution ___of blood products. ___ In terms of legal reasoning, originally such liability had been grounded on 10/222 ___the (fault-based) general principle grounding tortious liability entrenched in ___sec 2043 CC as well as both on the vicarious liability laid down in sec 2049 CC212 ___and on the strict liability governing the exercise of so-called ‘dangerous activi___ties’ (pursuant to sec 2050 CC). Subsequently, the liability of the Ministry of ___Health has been grounded ‘solely’ on the general clause laid down in sec 2043 ___CC: indeed, jurisprudence rejected the grounding of the latter’s liability on ___sec 2049 CC, due to the non-existence of any employment relationship between ___the Ministry of Health and the medical institution where the relevant transfu___sion was conducted;213 similarly, case law negates the applicability of sec 2050 ___CC due to the fact that whilst blood transfusions represent ‘dangerous activities’ ___(pursuant to sec 2050 CC), such classification does not apply to the supervising ___duties which the Ministry of Health failed to fulfil.214 ___ ___ 211 Cf Court of Rome, 27 November 1998, Giust civ 1999, I, 2851 = Foro it 1999, I, 313. Court of Rome, ___20 January 2004, Foro it 2004, I, 2899; Court of Rome, 29 August and 31 August 2005, Foro it 2006, I, ___794; Court of Rome 3 January, 2007, Rep Foro it, keyword Responsabilità civile, 2007, no 355. ___212 According to sec 2049 CC, ‘Masters and employers are liable for the damage caused by an ___unlawful act of their servants and employees in the exercise of the functions to which they are ___assigned’. 213 Cf Court of Rome, 14 June 2001, NGCC 2002, I, 559. According to prevailing jurisprudence, ___ two requirements have to be met in order to apply sec 2049 CC: firstly, there has to be a so-called ___‘occasionalità necessaria’, to be understood in the sense that the wrongful act occurs as a conse___quence of a situation created by the employer; secondly, the tortious act should not have been ___committed within the ‘private activity’ of the employee. Both criteria aim at affirming the liability ___of the employer whenever the wrongful act has to be considered as being ‘connected’ with the employee’s working activity. Such doctrine dates back to Cass 10 October, 1957, no 3726, Mass ___ giur it 1957 (the Corte di Cassazione stated that the employer is not liable in the case where the em___ployee falls from a balcony as a consequence of the fact they leaned out in order to communicate ___with a friend and, for instance, not in order to clean windows as they had claimed). ___214 Cass 11 January, 2008, no 576, Il Corriere del merito 2008, 694.

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The grounding of the Ministry of Health’s liability on sec 2043 CC (rather than on sec 2049 or 2050 CC) implies that – as a matter of principle – the alleged victim has to prove both the former’s failure to fulfil its supervisory duties and the causal link between such failure and the blood transfusion which led to their medical condition. In order to ease such burden of proof, the Corte di Cassazione has – subsequently – de facto shifted the burden of proof to the medical institution by applying the principle of ‘proximity of the evidence’ (the so-called rule of vicinanza della prova), according to which the burden of proof is imposed on whoever is in a better position to discharge it.215 Corte di Cassazione no 17685/2011216 focuses on the standard of care required of the Ministry of Health, ie on its failure to abide by its statutory duties to supervise the production, import and distribution of blood products. In the specific case underlying the decision of the Supreme Court, the causal link between the failure – by the Ministry of Health – to fulfil its supervisory duties and the damage suffered by the plaintiff is grounded on a presumption: according to the Corte di Cassazione, such presumption rests on the purpose of the infringed statutory provisions and on the risks such provisions aim to prevent materialising.217 Notwithstanding the absence of any reference thereto in the reasoning of the Corte di Cassazione, its line of reasoning appears to rest on the so-called doctrine of ‘specific causation’, according to which the (alleged) wrongdoer will be held liable where their conduct led to a ‘significant’ aggravation of the risk that the damage occurs.218 The recourse to a presumption in relation to the existence of a causal link between the relevant conduct (the failure – by the Ministry of Health – to abide

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215 Cass, Grand Panel, 11 January 2008, no 584, Foro it 2008, I, 451. The principle of the ‘proximity of the evidence’ was first applied in medical malpractice cases: cf Cass 13 January 2005, no 583, Rep Foro it, keyword Professioni intellettuali, 2005, no 208, where the medical institution failed to find the case file of the patient (including the records related to the blood transfusions). 216 Cass 29 August 2011, no 17685. 217 By so doing, the Corte di Cassazione tends to ‘overlap’ the evaluation of the standard of conduct with the assessment of the existence of a causal link between the conduct of the (alleged) wrongdoer and the damage suffered; such ‘overlapping’ of distinct concepts may be found relatively often in tortious liability: cf R Pucella, La causalità ‘incerta’ (2007) 229. 218 Cf CM Bianca, Diritto civile, vol 5: La responsabilità (1994) 624. As has been correctly pointed out, such doctrine does not coincide with the conditio sine qua non-doctrine, as the latter – by definition – rests on the certainty of the occurrence of the harmful event: on the contrary, in the cases related to diseases contracted as a consequence of blood transfusions, it remains uncertain whether the Ministry of Health abiding by statutory provisions would have prevented the medical condition arising.

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___by statutory provisions imposing supervisory duties) and the damage suffered ___(the contracting of the Hepatitis C or HIV viruses) converges – from a substan___tive viewpoint – with the res ipsa loquitur-approach applied by Italian courts in ___the case of routine medical treatments: according to such doctrine, in the case ___of routine medical treatments, failure – by the medical staff – to achieve the ex___pected result exempts the victim – irrespective of the medical staff’s contractual ___liability – from discharging the burden of proof in respect of the negligent con___duct of the medical staff.219 ___ As has been pointed out, such doctrine serves the purpose of identifying a ___causal link whenever any other ‘explanation’ of the facts of the case has to be ___excluded: from a substantive viewpoint, it de facto amounts to the introduction ___of a strict liability regime.220 ___ In order to settle any claims, the Statutes on the victims of infected blood ___transfusions no 222, of 29 November 2007 and no 244, of 31 December 2007 ___have empowered the Ministry of Health to conclude amicable settlement agree___ment with plaintiffs who filed an action before 1 January 2008, provided the lat___ter: ___i) have suffered from a medical condition listed in Annex A of the Decree of ___ the President of the Republic no 834, of 20 December 1981 (essentially, He___ patitis or HIV viruses); ___ii) such medical condition derived from the transfusion of infected parcels of ___ blood. ___ ___ The onus of proof with reference to the satisfaction of both requirements men___tioned above under i) and ii) will have to be discharged by the victims. ___ The amount to be awarded considers both the victims and the heirs and is ___‘capped’ at: ___ ___ ___219 Cf ex multis: Cass 19 May1999, no 4852, Foro it 1999, I, 2874; Cass 8 January 1999, no 103, ___Danno resp 1999, 779: indeed, medical liability is basically a ‘fault-based liability’, although over the last few years Italian jurisprudence has increased patients’ protection by having re___ course to ‘new’ criteria applicable to the discharge of the burden of proof: for instance, by in___troducing the so-called ‘proximity of the evidence’-criterion (the so-called rule of vicinanza ___della prova), which shifts the burden of proof to whoever is in a better position to discharge it ___(cf Cass – Grand Panel, 11 January, 2008, no 577, Resp civ 2008, 856 = Danno resp 2008, 788; ___Cass 13 January, 2005, no 583, Giust civ 2006, 2186) and the ‘evidential damage doctrine’ (the so-called doctrine of danno evidenziale), which basically states that the burden of proof will ___ have to be discharged by the tortfeasor, so long as they are under a duty to store the data re___lated to the damaging event. ___220 G Monateri, La responsabilità civile, in: R Sacco (ed), Trattato di diritto civile (1998) ___179.

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i) € 619,748.28 for the heirs of deceased victims; ii) € 464,811.21 for victims who are alive, and have already obtained a judgment in their favor; iii) € 413,165.52 for victims who have not obtained any judgment.

4. The Netherlands (Willem H van Boom) a) Analysis Under the EU regime, both hospital and supplier would probably count as manufacturer. The EU regime of ‘state of the art’ defence would apply but whether the defence would be upheld by a court, is open to debate. Z would not count as a manufacturer. According to Dutch law, there is no specific tort regime for medical products. The hospital would probably be in a contractual relationship with the patient. The core contractual obligation would be the supply of blood. One could consider whether this is a sales contract, a contract for services or a contract of medical treatment. Possibly, the exact nature of the contract would be relevant for the precise statutory basis for liability. In any event, the defectiveness of the blood supplied would in all likelihood count as the non-performance of the contract (art 6:74 BW). The hospital could in this case be held liable either on the basis of own fault, fault of auxiliaries, defectiveness of ‘auxiliary objects’ used in the execution of the contract, or on the basis of ‘imputation of the nonperformance for reasons of societal accountability (arts 6:75, 76, 77 BW). Obviously, the issue of scientifically unknown risks is relevant. The debtor may be excused for non-performance of a contract causing personal injury to the creditor if the defectiveness of the blood supply was totally unforeseeable due to the state of scientific knowledge in this area. The ‘state of the art’ defence may be more successful here than it might be under the EU regime. I think that Z would not be liable. First, there is no contract between the patient and the donor. This leaves only the common tort framework available to the patient. Given the donor’s excusable ignorance, he will not be deemed at fault. As far as time limitation is concerned, in case of contract in 2001 and latency until manifestation in 2012 the ten-year long-stop would bar any claim on the European strict liability basis. Claims under the (national implementation of the) European Directive would have been extinguished in 2011. In case of liability based on ‘national’ principles of fault-based liability, the claim would manifest itself in 2012. This would give the injured person 5 years to claim (until 2017).

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___b) Commentary ___ ___In this case, the prospects of obtaining compensation seem better if one uses the 10/237 ___EU framework. Although the defectiveness was scientifically speaking discover___able, this was so only in a restricted sense. The common tort and contract routes ___will probably be more hostile to imputing such unknown risks than the EU ___framework. In tort and contract cases concerning unprotected exposure to as___bestos by employers and manufacturers, we can see that the ultimate test is ___whether the specific defendant could have been expected to take on board the ___available scientific knowledge. This depends, inter alia, on the size of the de___fendant’s business, the gateways through which he could have obtained ‘state ___of the art’ knowledge, the extent of the risk, what was already known of the ___substance in terms of other risks, etc. So, ultimately, the common tort and con___tract doctrine focuses on what the defendant could and should have done to ___prevent the exposure. The more difficult it is to obtain the information, the less ___likely he will be considered liable.221 ___ ___ ___Case 3: Bridge Collapse (Vibe Ulfbeck and ___ Andreas Bloch Ehlers) ___ ___ A, a pedestrian using a public right of way, is injured by the collapse of a bridge con___ structed by X Ltd on land belonging to Y, who commissioned the construction, on the basis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires ___ that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a dif___ ferent architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is ___ obliged to construct the new bridge for no additional remuneration. ___ ___ ___ A. Analysis ___ ___ What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and ___ so subject to strict product liability, or does it merely represent the performance by Z of a service, to which some alternative liability regime applies? ___ What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a di___ rect claim or a recourse action? ___ ___ ___ ___221 On this line of case law, see, eg, SD Lindenbergh, The Netherlands, in: K Oliphant/G Wagner, ___Employers’ Liability and Workers’ Compensation (2012) 351 ff; YRK Waterman, De aansprake___lijkheid van de werkgever voor arbeidsongevallen en beroepsziekten (2009).

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Case 3 gives rise to a discussion of at least three important issues of product liability. First, and most importantly, it raises the question of what constitutes a product, cf EC Directive on Liability for Defective Products (85/374/ECC) (hereinafter the ‘PLD‘) art 2. Pursuant to said article, a ‘product’ means all moveables with the exception of primary agricultural products and game. Moreover, the case raises the questions of who qualifies as a ‘producer’ and what constitutes ‘damage’, cf arts 3 and 9 of the PLD respectively. In many of the jurisdictions where the PLD has been implemented the courts seem to struggle to settle these issues.

1. What is a ‘product’ according to the PLA? Is information a product? With respect to the first issue it is, inter alia, unclear to what extent harm caused by intangible products – eg information provided in an architectural plan – may give rise to liability. In Danish law, for instance, as a rule information is not considered a ‘product’ within the Products Liability Act 1989 (hereinafter the ‘PLA’) § 3. However, it is not clear to what extent (and in what circumstances) exceptions can be made to this rule. The same uncertainty applies to the Danish rules on products liability developed in case law. With respect to these rules, it has been argued that liability may ensue if the information, which has been provided, was sufficiently concrete and gross negligence can be established.222 In Dutch, Austrian, and French law it seems to be the settled rule that information given in an architectural plan is not regarded as a product according to the domestic legislation implementing the PLD. In English law the PLD was implemented by Part I of the Consumer Protection Act 1987 (CPA). It is not entirely clear whether incorrect information conveyed in an architectural plan can give rise to product liability under the CPA. Nolan argues that this is the case if physical harm is somehow caused by reliance on the information.223 Obviously, this means that strict liability can be imposed in many scenarios and the author is aware that said interpretation of the CPA may lead to undesirable outcomes. However, it is maintained that there is nothing in the CPA suggesting that so-called information products are not covered by its ambit.224

_____ 222 See A Ehlers, Om entreprenørens produktansvar i dansk entrepriseret, T:BB 2012, 3, at 14 f. 223 See D Nolan, Product Liability, in: K Oliphant (ed), The Law of Torts (3rd edn 2015) para 19.43. 224 Ibid.

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___2. Who is ‘producer’? What happens in the case of service providers? ___ ___As to the second issue, in many of the said jurisdictions it does not seem clear to 10/240 ___what extent service providers such as, for example, architects can be regarded ___as ‘producers’. In Danish law, as a rule, service providers are not regarded as ___producers pursuant to the PLA. Thus, in this respect liability must be addressed ___under the product liability rules developed in case law. These rules allow for ___service providers to be held liable to a rather far-reaching extent if they some___how participate in the physical mending or construction of something.225 How___ever, it is highly doubtful whether liability can ensue on this basis for the mere ___providing of information in architectural plans. There are no cases establishing ___this. The law seems to be largely the same in Austria, where service providers ___such as architects cannot be held liable according to the PHG. If liability is to be ___established by the injured party against, eg, an architect, this must be done pur___suant to the Austrian rules on ‘extra-contractual liability’ or a ‘contract with ___protective effects towards third parties’. These rules seem to allow the injured ___party to recover. In French law too, it seems possible for an injured party to re___cover against a service provider according to the applicable domestic rules on ___tort, cf art 1382 of the Code civil. In the Netherlands, the domestic tort law rules ___seem to allow for liability if the architect has acted negligently, cf art 6:162 BW. ___In German and English law it is not possible either to qualify a service provider ___as a producer in the sense of the product liability rules. Thus, a claim made by ___an injured party against a service provider (with whom there is no contractual ___relationship) must be based on the ordinary rules of tort. ___ ___ ___3. What damage is recoverable and on what grounds? ___ ___With regard to the third issue, it is, inter alia, controversial whether pure economic 10/241 ___loss, such as the loss suffered by X Ltd, can be recovered. In most European juris___dictions, there has traditionally been much scepticism towards imposing liability ___for pure economic loss. Perhaps this is evidenced most clearly by the so-called ‘ex___clusionary rule’ which for many years was considered good law in the common ___law and some civil law jurisdictions. As suggested by the name of the rule, it ___served to exclude all claims for pure economic loss. This applied even when the ___loss was perfectly foreseeable and could reasonably have been avoided.226 With ___ ___225 See decision by the Supreme Court published in the Danish Weekly Law Report [2008] at ___982. See further, A Ehlers, T:BB 2012, 3, at 10–13. ___226 See P Benson, The Problem with Pure Economic Loss (2009) 60 SCL Rev 823.

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the emergence of modern society, however, there has been a development towards an increased understanding of the need to impose liability for pure economic loss. In English law this development was instituted by the prominent case of Hedley Byrne & Co Ltd v Heller & Partners Ltd which deals with liability for misstatements in negligence.227 Hedley Byrne was an advertising company which entered into a contract with another company, Easipower Ltd, for the supply of certain advertising services. Prior to this Hedley Byrne had asked its bank, National Provincial Bank, to obtain a report from Easipower’s bank, Heller and Partners Ltd, on the company’s financial stability. Heller and Partners Ltd replied in a letter that Easipower was ‘(…) considered good for its ordinary business engagements.’ In the letter the bank included a disclaimer reading ‘For your private use and without responsibility on the part of this bank or its officials.’ Subsequently, Easipower went into liquidation and Hedley Byrne suffered a loss of £ 17,000. Hedley Byrne sued Heller & Partners claiming that the information on Easipower’s financial standing was provided negligently. Heller & Partners argued that no duty of care was owed regarding the statements and that liability in any case was excluded due to said disclaimer. The House of Lords held that the relationship between Hedley Byrne and Heller and Partners was sufficiently proximate to give rise to a duty of care. Essentially, this was based on the finding that Heller and Partners possessed ‘special skills’ in financial matters and knew or ought to have known that the information provided was likely to be relied upon by Hedley Byrne. In this regard the court talked of a ‘special relationship’ between said parties. By finding a duty of care, the court admitted that in principle Hedley Byrne could recover the loss. However, on the facts of the case damages were not awarded since liability had been sufficiently disclaimed. Since Hedley Byrne, English courts have several times confirmed that in certain circumstances pure economic loss may be recovered and therefore, it cannot be ruled out that Z may be liable not only to Y but also to X Ltd. Briefly this requires that the court agrees that the information provided by Z in the architectural plan can be qualified as a misstatement and that X Ltd can be said to have detrimentally relied on this misstatement. Also, in order to establish a duty of care on behalf of Z, it is necessary for X Ltd to show that a ‘special relationship’ was established with Z. Largely the same seems to apply in Austrian and French law. In the former legal system, Z may be held liable for the pure economic cause suffered by X Ltd according to § 1300 ABGB. Pursuant to this rule, liability may ensue from any advice that has been given negligently provided that some sort of consideration for such advice has been agreed upon.

_____ 227 [1964] AC 465.

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___The rule is usually applied in traditional contractual relationships but may also ___apply to third parties provided that the advice is somehow directed at them. ___Since the architectural plan made by Z was indeed directed at X Ltd, § 1300 ___ABGB seems to allow for the latter to claim against the former for the pure eco___nomic loss incurred. In French law Z may be held liable to X Ltd pursuant to ___art 1382 Code civil. French law usually allows for pure economic loss to be re___covered in tort and therefore, the nature of X Ltd’s loss does not seem to pose a ___problem. ___ In German law pure economic loss (reine Vermögensschäden) is not covered 10/242 ___by the rules on product liability.228 The basic rules of torts are codified in the ___BGB, which entered into force in 1900. With the exception of intentional torts, it ___is also the established rule under the BGB that pure economic loss is not recov___erable.229 The reason for this is apparently a concern on behalf of the authors of ___the BGB that liability would otherwise extend too far, a concern already voiced ___by Jhering some 50 years earlier.230 The prima facie exclusion of pure economic ___loss from liability derives from the wording of § 823(1) BGB, which is often said ___to be the main rule of German tort law. In said section the interests protected by ___tort law are limited to life, body, health, freedom, property, and what can be ___translated as ‘another similar right’ (‘ein sonstiges Recht’). On the face of it, the ___aim of the section is first and foremost to protect against classical infringements ___such as damage to the person and property. Pure economic loss as such is not ___expressly protected. However, certain losses of a purely economic kind have ___been held recoverable by the courts. This has been accomplished by what seems ___to be a rather expansive interpretation of the notion of ‘another similar right’. ___For example, losses flowing from infringements of intellectual property rights ___such as patents, trademarks, and copyrights may now be recoverable. The same ___applies to losses stemming from wrongful boycotts or strikes.231 Further, the ___spreading of harmful information about another person may be protected. Such ___information can, for example, pertain to the creditworthiness of that person.232 ___Thus, the notion of ein sonstiges Recht does give the German courts a certain ___discretion to award damages for pure economic loss. BGB § 823(2) is also impor___tant in this respect. According to this section, a person who commits a breach of ___ ___228 See W Braun, Produkthaftung – Produzentenhaftung. Ein Leitfaden für die Praxis (2008) 43. ___229 H Kötz/G Wagner, Deliktsrecht (13th edn 2016) para 96 ff; K Larenz/C-W Canaris, Lehrbuch ___des Schuldrechts, vol II/2 (13th edn 1994) § 75 I, 350 ff. 230 R v Jhering, Culpa in contrahendo, Jherings Jahrbuch für die Dogmatik des bürgerlichen ___ Rechts 4 (1861) 1, at 12 f. ___231 Kötz/Wagner (fn 229) para 462 ff. ___232 BGH, 24.01.2006, XI ZR 384/03, BGHZ 166, 84 para 44, 123; OLG München, 14.12.2012, 5 U ___2472/09, ZIP 2013, 558, 568.

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a statute which is intended to protect another person is (in certain circumstances) liable to pay damages for loss arising from such breach. The protection under § 823(2) is not limited to certain specific interests and therefore, pure economic loss caused by the tortfeasor’s breach of a so-called Schutzgesetz may well be protected.233 Further, pure economic loss may be recovered under BGB § 826, according to which a person is liable if he intentionally causes harm to another in a way which is contrary to public policy.234 Pursuant to § 826, a person who participates as a third person in a breach of contract may be liable for pure economic loss.235 In Danish law, liability for pure economic loss is available neither under the above-mentioned PLA nor the case law based rules on product liability.236 Therefore, since there is no contract between Z and X Ltd, the only way for X Ltd to claim damages against Z is through the special rules regarding ‘indirect claims’. This means that X Ltd must establish that the requirements for causation and adequacy are satisfied and that Z’s conduct amounts to what the courts call a ‘clear professional error’.237

B. Commentary What does your analysis demonstrate about the coherence of strict product liability as it exists in your jurisdiction, paying particular attention to the limits on its scope. Identify the various alternative types of liability that could arise (including contractual liability), and highlight the main differences between them. To what extent is liability for immovables different from liability for movables, and is this justified? To what extent is liability for the supply of services different from liability for the supply of products, and is this justified?

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233 See M Bussani/VV Palmer (eds), Pure Economic Loss in Europe (2003) 149. 234 Ibid. 235 Ibid. 236 The Swedish approach to pure economic loss reflects well the strong connection between tort law and criminal law which (still) prevails in that jurisdiction. Thus, pursuant to Skadeståndslagen (Liability for Damages Act) Chapter 2, § 2, pure economic losses can be recovered only if the conduct giving rise to such loss constitutes a violation of criminal law. This means that recovery is allowed to a limited extent only. At least this is the established rule. However, in Swedish law too there seems to have been an increased recognition of the need for recovery as regards pure economic loss. See further J Hellner/M Radetzki, Skadeståndsrät (2010) 70 and Bussani/Palmer (fn 233) 156–158. 237 For a national report on liability for pure economic loss under Danish law, see KM Siig in: VV Palmer/M Bussani (eds), Pure Economic Loss: New Horizons in Comparative Law (2009) 282–299. In Swedish law recovery for pure economic loss is regulated in Skadeståndslagen Chapter 1, § 2 and Chapter 2, § 2. The former section defines what pure economic loss is and the latter lays down the basic requirements for liability.

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___ The case of the bridge collapse seems to illustrate at least two things about 10/243 ___the concept of product liability. First of all, despite the significance and sui ___generis nature of the product liability rules within private law it is not always ___easy to say what the contents of these rules are and when they apply. Obvi___ously, the introduction of the EC Directive on Liability for Defective Products ___(85/374/ECC) (the PLD) and the implementation hereof in the various EC coun___tries have made the rules much more clear with respect to personal injury and ___damage to property (intended for non-commercial utilization) caused by move___ables, but some important issues remain unclear. In the bridge collapse case ___this is because it is not entirely clear whether (and to what extent) information ___can be regarded as a product according to the product liability rules based on ___the PLD. In Danish case law, there is a case regarding damage ensuing from in___correct information in a sea chart but unfortunately for the present purpose the ___Supreme Court did not address the facts from the perspective of product liabil___ity. Moreover, the scope of the domestic product liability rules that are not based ___on the PLD is unclear in several EU countries. In Danish law this relates to the ___so-called case law based product liability rules. These rules, which have a much ___broader scope than the PLD based rules, apply not only to moveables but also ___to immovables and services. With regard to the case at hand, a company such as ___X Ltd may indeed become liable according to the case law based product liabil___ity rules if a bridge collapses and causes damage to a person.238 However, in ___many cases where the scenario is not as straightforward it may be difficult ___to say who can be held liable. Say, for instance, that a few years after the bridge ___has been finished welding needs to be done. The welder makes a mistake and ___consequently a certain part of the bridge falls off and causes damage to a pedes___trian. In such a case it is not clear whether the welder can be held liable accord___ing to the case law based rules on product liability. This is, of course, pro___blematic since much damage to persons and property may be caused in said ___way. ___ Second, the bridge collapse case provides a good basis for discussing what 10/244 ___the difference is between the above two sets of product liability rules and how ___these rules differ from ordinary rules of contract law. With regard to the differ___ence between the two sets of product liability rules, it should be noted first that ___in many ways the directive based rules laid down in the Danish Product Liabil___ity Act (the PLA) differ substantially from the case law based rules. For instance, ___when a claimant sues under the former set of rules there are certain special ___ ___238 Provided that the requirements of these rules are satisfied of course. As it appears from ___the analysis below, this is in fact probably not the case since X Ltd does not appear to have ___acted negligently.

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rules on prescription239 and also a certain limitation applies to the extent of the liability with respect to damage to property.240 There is also a difference with regard to the basis of liability since it is strict under the PLA whereas the claimant must prove culpability to raise a claim pursuant to the case law based rules. Normally, this would of course make a great difference but on closer scrutiny it may not be that much more difficult to establish a claim under the latter rules. This is due to the wording of § 6 and § 5 of the PLA. In PLA § 6 (1) the liability of the producer is defined as being strict but in § 5 (1) it is specified that a product is defective only if it is not as safe as may ‘reasonably be expected’. In effect this means that the liability of the producer is relaxed quite a bit and at least some would argue that this kind of liability does not differ significantly from the rule of culpa as interpreted when product liability is established according to the case law based rules. Thus, the rule of culpa is interpreted strictly here and the burden of proof is reversed. The liability rules developed in contract law obviously differ from the product liability rules in several important respects. First of all, the privity of contract will normally prevent a claimant from suing parties other than the ones he has entered into a contract with. With respect to the bridge collapse case this means, for instance, that X Ltd cannot sue Z in contract unless an exception can be made to the principle of privity. As noted above that may be the case if X Ltd can prove that Z made a ‘clear professional error’. But in some respects the difference between the product liability rules and contract law are more difficult to see. For instance, when there is a contractual relationship between, eg, a buyer and seller it has long been recognized in Danish contract law that the buyer (eg of real estate) may in some cases recover not only for pure economic loss but also for damage to the person and to property.241 Of course the buyer would have to demonstrate culpability on behalf of the seller but it would not require much to do so. Thus, in contract law too the rule of culpa is interpreted strictly as is the case pursuant to the case law based product liability rules. Moreover, the burden of proof is usually reversed under both sets of rules and therefore, there does not seem to be much of a difference here. Given the fact that the case law based product liability rules have developed from contract law (and tort law),242 the similarity of the rules is not surprising.

_____ 239 See PLA § 14 (2). 240 See PLA § 8 (1). 241 See T Iversen, Juristen 2008, 190-191. See, however, below regarding contract law pertaining to the sale of goods. 242 See V Ulfbeck, Erstatningsretlige grænseområder (2nd edn 2010) 178-179.

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___ All in all, while there are important differences between the above three sets 10/245 ___of rules, the differences are not significant with respect to the basis of the liabil___ity. This means that it is not that much more difficult to claim for damages ___caused by moveables on the one hand and immovables and services on the ___other. This seems (to some extent) justified when it comes to moveables and ___immovables. But it seems difficult to justify that in many cases product liability ___can be incurred for providing a service. Thus, in this way the liability for, eg, a ___welder or another craftsman doing repair work on a house or at a factory may be ___extended too far. Perhaps in some cases it may be reasonable to hold a service ___provider liable according to the product liability rules but in by far the most ___cases it seems that product liability should not be detached from the things ___(moveables or immovables) that actually cause the damage. ___ ___ ___C. Additional Notes from Specific National Perspectives ___ ___1. Austria (Ernst Karner) ___ ___a) Product liability ___ ___(i) X Ltd’s liability to A ___ ___Since the bridge constructed by X Ltd constitutes immovable property, liability 10/246 ___under the PHG (Austrian Product Liability Act), which is only applicable to mov___able tangibles according to § 4 PHG, is ruled out.243 ___ ___ ___(ii) Z’s (architect’s) liability to A ___ ___The drawing up of the plan by the architect Z only constitutes a service 10/247 ___and therefore cannot be regarded as the production of a product in the sense ___of the PHG.244 Consequently, any liability of Z under the PHG is also ruled ___out. ___ ___ ___ ___ ___ ___243 Rabl (fn 170) § 4 no 26; see also Koziol/Apathy/Koch (fn 172) no B/112 ff. ___244 Rabl (fn 170) § 3 no 24 ff and § 4 no 38 ff; see also Koziol/Apathy/Koch (fn 172) no B/141.

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b) A’s claims based on the Austrian Civil Code (ABGB) (i) X Ltd’s liability to A – Extra-contractual liability As there is no contractual relationship between X Ltd and the injured party A, the question is whether a claim for damages based on extra-contractual liability is possible. However, the requirement in respect of such claim that X Ltd’s behaviour was unlawful seems to be problematic in this context. Since the company used a plan drawn up by an architect for the construction of the bridge, it was entitled to rely on the accuracy of this plan and consequently did not act in an objectively careless way. Therefore, as no objective duty of care has been infringed, a fault-based claim for damages under the ABGB is not possible. A different view would have to be taken, however, if X Ltd ought to have realised the incorrectness of Z’s plan but nonetheless based the building of the bridge on the incorrect plan.245 In this case, an extra-contractual liability claim against X Ltd could be based on a violation of legal duties to maintain safety (Verkehrssicherungspflichten).246 – Liability based on a contract with protective effects towards third parties The question arises whether the contract between X Ltd and the owner of the land, Y, provides protective effects vis-à-vis the injured party, A (Vertrag mit Schutzwirkung zugunsten Dritter), in which case A would benefit from a reversed burden of proof regarding fault (§ 1298 ABGB) as well as attribution of liability for vicarious agents (§ 1313a ABGB). This is the case if the injured party is increasingly endangered by the fulfilment of the contract and if he or she is proximate to the sphere of interest of one of the contracting parties.247 With regard to recent rulings of the Austrian Supreme Court concerning the determination of persons benefiting from protective effects,248 it seems questionable, though, whether A can actually be said to belong to Y’s sphere of interest. For

_____ 245 For liability under § 1168a ABGB, which provides for a duty to warn the other contracting party in the case of unsuitable instructions, see below nos 10/254, 10/258. 246 For a detailed analysis see H Koziol, Österreichisches Haftpflichtrecht II (2nd edn 1984) 57 ff. 247 KBB/Karner (fn 187) § 1295 no 19; for a detailed analysis see F Bydlinski, Vertragliche Sorgfaltspflichten zugunsten Dritter, JBl 1960, 359 ff. 248 See KBB/Karner (fn 187) § 1295 no 19 with further references.

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___instance, the Austrian Supreme Court rejected an extension of protective effects ___to visitors to an apartment, who were only present for a short period of time.249 ___In the present case, A is only a random pedestrian, which is why an extension of ___protective effects is questionable. If, however, it is assumed that the contract ___does actually provide protective effects towards third parties, the violation of an ___objective duty of care by X Ltd is – as in the case of a claim based on extra___contractual liability250 – again the missing element. Furthermore, any vicarious ___liability of X Ltd for the architect Z must also be rejected as X Ltd was not ___obliged to draw the plan and hence did not use Z as its agent to do so. ___ Consequently, the lack of any unlawful behaviour or vicarious liability also 10/250 ___rules out a fault-based claim for damages. ___ ___ ___(ii) Y’s (land owner’s) liability to A ___ ___With regard to the land owner Y, the application of the special liability rule of 10/251 ___§ 1319 ABGB, which provides for liability for buildings, must be considered. Ac___cording to prevailing opinion, this rule lays down liability for the violation of ___objective duties of care, made more stringent by a reversed burden of proof.251 ___According to § 1319 ABGB, a possessor of a building is liable when a person is ___injured or some other harm is caused through the collapse or the detachment of ___parts of a building or any other structure erected on land if the event was a con___sequence of the structure’s defective condition and he cannot prove that he ex___ercised all care necessary to avert the danger.252 In our case, the bridge falls ___within the concept of a building, which must be interpreted widely, and in addi___tion it must be regarded as causal for the damage that occurred due to its defec___tiveness. Whether the defect arose as a result of faulty construction or insuffi___cient maintenance does not matter.253 As the owner of the land, Y must be ___regarded as the possessor in the sense of being the keeper of the bridge, since ___he is not only in a position to but also obliged to avert danger emanating from it ___by taking the necessary precautionary measures.254 Y is not burdened with this ___ ___249 OGH 2 Ob 335/97x = JBl 1998, 655 (S Dullinger); similarly OGH 2 Ob 216/03h = immolex ___2004, 83; OGH 2 Ob 70/12a = immolex 2013, 179 (N Neugebauer-Herl). ___250 See above no 10/248. ___251 KH Danzl in: H Koziol/P Bydlinski/R Bollenberger (eds), Kurzkommentar zum ABGB (5th edn 2017) § 1319 no 4; Koziol (fn 246) 400 f. ___ 252 Translation of § 1319 ABGB by BC Steininger in: K Oliphant/BC Steininger (eds), European ___Tort Law: Basic Texts (2011) 5 f. ___253 Danzl (fn 251) § 1319 no 1. ___254 See for instance OGH 1 Ob 87/09i = JBl 2009, 786.

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strict liability, however, if he proves that he has exercised all care necessary to avert the danger. In the present case, it can be assumed that Y has actually exercised this care, since he commissioned an architect to plan the bridge. In addition, the facts do not contain any indication that Y failed to carry out necessary inspection or maintenance work. Y will therefore succeed in proving that no objective duties of care have been infringed and will thus not be held liable under § 1319 ABGB.

(iii) Z’s (architect’s) liability to A – Extra-contractual liability In the absence of a contractual relationship between the injured party A and the architect Z, the question is whether A can bring a claim for damages based on extra-contractual liability. By drawing up an incorrect plan, Z violated his objective duties of care, which result from a comprehensive weighing of the interests of the parties involved.255 Furthermore, Z was obliged to observe legal duties to maintain safety because he created a source of danger, for which he must take responsibility. Consequently, Z’s behaviour can be regarded as unlawful. Being an architect, Z is an expert, which means that an objective scale of fault is applicable under § 1299 ABGB. Z therefore is under obligation to have the typical skills for his profession.256 Due to his unlawful and culpable behaviour, which must be proven by A (§ 1296 ABGB), Z can be held liable by A based on extracontractual liability under the general rules of the law of damages. – Liability based on a contract with protective effects towards third parties In addition to his extra-contractual claims, it must be established whether the injured party A can also bring a claim for damages against the architect Z based on a contract with protective effects towards third parties (Vertrag mit Schutzwirkung zugunsten Dritter). The advantage of such a claim can be seen in the reversal of the burden of proof regarding fault (§ 1298 ABGB), on the one hand, and the extensive attribution of liability for vicarious agents (§ 1313a ABGB), on the other hand. In addition to being increasingly endangered by the fulfilment of the contract, the third party must also be sufficiently proximate to the sphere of interest of one of the contracting parties in order to benefit from an extension

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255 KBB/Karner (fn 187) § 1294 no 4; Koziol (fn 187) no 4/28 ff. 256 KBB/Karner (fn 187) § 1299 no 1 f.

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___of protective effects. In the present case, however, it is doubtful with regard to ___recent rulings of the Austrian Supreme Court, whether the injured party A can ___actually be said to belong to Y’s sphere of interest. Since A is a random pedes___trian, his inclusion in the group of people protected by the contract is rather ___doubtful.257 If, however, one were to assume that the contract does provide pro___tective effects vis-à-vis A, the architect Z could be held liable: as in the case of ___extra-contractual liability,258 Z’s behaviour can be said to be unlawful and cul___pable and with regard to fault, the increased liability for experts according to ___§ 1299 ABGB as well as the reversal of the burden of proof according to § 1298 ___ABGB can be applied. ___ ___ ___c) X Ltd’s claims based on the Austrian Civil Code (ABGB) ___ ___If X Ltd ought to have realised the incorrectness of Z’s plan, X Ltd would have 10/254 ___been under obligation to warn Y about the unsuitability of Z’s plan according to ___§ 1168a ABGB.259 In this case X Ltd and the architect Z, who drew the incorrect ___plan,260 would be jointly and severally liable towards Y. If X Ltd had already ___paid damages to Y, X Ltd could base its claim against the architect Z on § 896 ___ABGB, which provides for recourse in the case of joint and several liability. ___However, in the present case there is no indication that the inaccuracy of the ___plan provided by Z was obvious for X Ltd. Consequently, X Ltd did not violate ___any obligation under § 1168a ABGB to warn its contracting partner Y and can ___therefore not be held jointly and severally liable with Z. Therefore, no recourse ___action will take place. ___ As far as X Ltd incurs a loss, the question is whether a claim against the ar- 10/255 ___chitect Z could be based on the special rule of § 1300 ABGB, which provides for ___liability for false advice and misinformation. The terms advice and information ___must be understood in a broad sense, which is why experts’ reports and state___ments also fall under § 1300 ABGB.261 Therefore, a plan drawn up by an architect ___can be regarded as advice or information in this sense, too. According to § 1300 ___ABGB, an expert262 can be held liable for any, even slightly, negligently given ___advice if he or she received some kind of ‘payment’. This term must also be un___ ___ ___257 See above no 10/249 f. 258 See above no 10/252. ___ 259 See below no 10/258. ___260 See below no 10/257. ___261 KBB/Karner (fn 187) § 1300 no 1. ___262 For experts, an objective scale of fault applies according to § 1299 ABGB.

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derstood in a broad sense, since any advice given within a special relationship is encompassed by this liability.263 In the present case, there is a contractual relationship between the owner of the land Y and the architect Z. Although liability under § 1300 ABGB generally only exists vis-à-vis the other contracting party, liability vis-à-vis third parties is possible in cases where the advice is apparently directed at these third parties, ie in that it provides the basis for his or her decision-making.264 In our case, there is exactly such a statement providing the basis for third parties’ decisions, as X Ltd relies on the accuracy of Z’s plan. Consequently, the architect Z can be held liable by X Ltd for the damage the company may have incurred as a result of the incorrect plan drawn up by Z. The fact that X Ltd is obliged under the terms of its contract with Y to construct a new bridge for no additional remuneration, does not exclude a claim for damages against the architect Z. However, taking into account the general rules of the interpretation of contracts, it must be assumed that X Ltd only committed itself to rebuilding the bridge without any additional payment if the bridge was defective due to shortcomings in X Ltd’s own sphere. In the present case, though, the faultiness results from the sphere of the contracting party Y, since it was he who commissioned the architect Z.

d) Y’s claims based on the Austrian Civil Code (ABGB) (i) Z’s (architect’s) liability to Y Since there is a contractual relationship between the land owner Y and the architect Z, the question is whether – in addition to other remedies for a breach of contract like a warranty claim (Gewährleistung, §§ 922 ff, 1167 ABGB) – a contractual claim for damages is possible. In contrast to extra-contractual claims, pure economic losses can also be compensated in the case of contractual claims.265 Since Z acted unlawfully266 and culpably by drawing up an incorrect plan, he must reimburse the land owner Y for the damage suffered due to the improper performance of the contract (§§ 933a, 1167 ABGB). It must be emphasised that Z is burdened with the increased liability for experts according to

_____ 263 KBB/Karner (fn 187) § 1300 no 2; R Welser, Die Haftung für Rat, Auskunft und Gutachten, (1983) 32 ff. If no such special relationship exists, liability for false advice and misinformation is only possible in cases where the expert has knowingly given false advice or misinformation. 264 KBB/Karner (fn 187) § 1300 no 3; Welser (fn 263) 86 ff. 265 See KBB/Karner (fn 187) § 1295 no 2. 266 Again the unlawful behaviour can be seen in the violation of objective duties of care by Z.

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___§ 1299 ABGB on the one hand,267 and that the reversal of the burden of proof re___garding fault (§ 1298 ABGB) as well as the attribution of liability for vicarious ___agents (§ 1313a ABGB) are applicable on the other hand. ___ ___ ___(ii) X Ltd’s liability to Y ___ ___It must be determined whether Y can bring a claim for damages arising out of his 10/258 ___contractual relationship with X Ltd. By providing a plan, which was drawn up by ___the architect Z, Y gave X Ltd an instruction in the sense of § 1168a ABGB regarding ___the construction of the bridge.268 Under this rule, X Ltd as the contractor is obliged ___to warn the other contracting party if the instructions given are obviously unsuit___able. In this context, it must be remembered that the contractor is to be regarded ___as an expert and is therefore burdened with the increased liability for experts ac___cording to § 1299 ABGB.269 Thus, if the contractor violated his duties, he can be ___held liable for the damage that occurred.270 However, an instruction can only be ___said to be obviously unsuitable if the contractor realised or at least should have ___realised its inaccuracy. § 1168a ABGB does not, though, provide for a special ___duty to verify the correctness of such instructions. X Ltd can therefore in princi___ple rely on the instructions given by Y in the form of the plan. Since there is no ___indication in the present case that the plan and therefore Y’s instructions were ___obviously unsuitable for building the bridge, X Ltd was not obliged to warn its ___contracting partner Y. Consequently, a contractual claim for damages based on ___a violation of duties to warn arising out of § 1168a ABGB is ruled out. ___ ___ ___e) Commentary ___ ___The Austrian PHG, based on Council Directive 85/374/EEC of 25 July 1985 on the 10/259 ___approximation of the laws, regulations and administrative provisions of the ___Member States concerning liability for defective products, is only applicable to ___products in the sense of § 4 PHG, which defines the term product as ‘any mov___able tangible property even if it is part of another movable property or combined ___with an immovable property, including energy’. Consequently, the PHG does ___ ___ 267 See above no 10/252. ___ 268 M Bydlinski in: H Koziol/P Bydlinski/R Bollenberger (eds), Kurzkommentar zum ABGB ___(5th edn 2017) § 1168a no 6. ___269 Bydlinski (fn 268) § 1168a no 7. ___270 In addition, rights of warranty could also be claimed.

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not provide for any liability for damage caused by defective immovable property and neither are faulty services covered. The scope of application of the PHG is therefore not as comprehensive as it might seem at a first glance. The bridge constructed by X Ltd, which collapsed injuring the pedestrian A, constitutes an immovable property, which is why it is not possible that X Ltd is liable under the PHG.271 The situation would be different, however, if the bridge was constructed beforehand and subsequently transferred to the place where it collapsed later on. In this case, the bridge would have been a movable tangible – since it was possible to transfer it – before it became immovable. Thus, the bridge would be regarded as a product in the sense of § 4 PHG, since it is sufficient that the product was movable at some point in time. The fact that it became immovable afterwards does not impede the application of the PHG.272 Obviously, this constitutes an inconsistency, since there is no objective reason why it should matter for liability under the PHG whether the bridge was constructed on site, or whether it was constructed beforehand and transferred afterwards.273 Naturally, many other examples of such inconsistency could be mentioned: for instance, a carpenter can be held liable for damage caused by a collapsing wooden bench, while the producer of a motorway bridge does not have to fear any liability under the PHG.274 Another inconsistency in respect of the PHG should also be addressed in this context. The PHG can only be applied to products, which is why it does not provide for any liability for services. Therefore, the architect Z cannot be held liable under the PHG for drawing up a defective plan which led to the collapse of the bridge.275 His work must be regarded as a kind of mental achievement and therefore constitutes only a service and not the production of a product.276 The fact that the plan may have been drawn up on a piece of paper or in digital form does not matter as regards the application of the PHG. Either way, the process of drawing up a plan is a service and thus not encompassed by the PHG.277 It is, of course, inconsistent that the PHG only covers the production of products and that services are excluded from its scope of application. For instance, a carpenter is liable un-

_____ 271 See above no 10/248. 272 Rabl (fn 170) § 4 no 26 ff; Koziol/Apathy/Koch (fn 172) no B/114; Fitz/Grau (fn 174) § 4 no 23. 273 Liability for a bridge that was constructed beforehand and transferred afterwards is, of course, only possible if the bridge was put into circulation before becoming an immovable property. The moment the product is put into circulation is the relevant point in time for liability under the PHG. See Koziol/Apathy/Koch (fn 172) no B/129. 274 Koziol/Apathy/Koch (fn 172) no B/29. 275 See above no 10/247. 276 Rabl (fn 170) § 3 no 25; Schwimann/Kodek/Posch/Terlitza (fn 175) § 4 PHG no 8; Koziol/ Apathy/Koch (fn 172) no B/123 ff; Fitz/Grau (fn 174) § 4 no 16 f. 277 Rabl (fn 170) § 3 no 25 and § 4 no 44 f; Schwimann/Kodek/Posch/Terlitza (fn 175) § 4 PHG no 8.

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___der the PHG if he calculates the carrying capacity of his wooden bench wrongly ___and the bench therefore collapses. On the other hand, a structural engineer can___not be held liable under the PHG if his calculations for a bridge are not correct. ___ Although both of these inconsistencies have been discussed and criticised a 10/262 ___great deal by several authors,278 there have been no attempts by the EU so far to ___overcome these problems. As can be seen from the present case, liability for de___fective immovable property or services must therefore be based on the general ___rules of the law of torts and not on the special provisions of the PHG. ___ ___ ___2. Denmark (Vibe Ulfbeck and Andreas Bloch Ehlers) ___ ___a) Analysis ___ ___(i) Liability of X (the constructor) to A ___ ___A bridge is a structure and thereby not a ‘product’ within the meaning of the 10/263 ___Danish Product Liability Act (PLA). Consequently, the liability of the constructor ___to A is not covered by the act. Instead, the product liability rules established in ___case law apply. This means that A must prove that X has acted negligently in ___order to succeed with a claim. Thus, only if X ought to have detected the defect ___in Z’s plan could there be a basis for liability. In the concrete case, there are no ___indications that X ought to have been aware of the problems with the plan. As a ___starting point, therefore, X would not be liable to A in this case. ___ ___ ___(ii) Liability of Y (the owner of the land and the building) ___ ___Neither the land nor the bridge qualifies as a ‘product’ within the meaning of 10/264 ___the Danish PLA. In addition, Y, who commissioned the work, does not qualify as ___the ‘manufacturer’. Consequently, product liability rules are not applicable to Y. ___The question is whether Y could become liable in his capacity as the owner of ___the building. In Danish law, there are no special liability rules applying to the ___owner of an immovable. The owner is obliged to maintain the immovable and ___can become liable if he neglects this duty. There are no indications in this case ___that the owner has neglected a duty to maintain the bridge and consequently, ___ ___278 See for instance Koziol/Apathy/Koch (fn 172) no B/29; Rabl (fn 170) § 3 no 24 ff and § 4 ___no 25 ff. Additionally, H Koziol addresses these inconsistencies in his introductory lecture as ___well as in his conclusions, both in this volume.

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there is no basis for imposing liability on Y in his capacity as owner. It could be considered whether there would be a basis for imposing liability on Y in his capacity as commissioner of the work. This might be the case if Y is a professional and ought to have detected the defect in Z’s plan.

(iii) Liability of Z Z has provided a defective plan for the project. It is the incorrect information in this plan which causes the collapse of the bridge. However, information is most likely not considered a ‘product’ within the meaning of the PLA.279 The information may be considered a product under the case law based product liability rules but since pure economic loss cannot be recovered under the Danish product liability rules, this does make much of a difference. Consequently, as noted above, the only way for X Ltd to recover against Z (since there is no contract between the parties) is to claim damages pursuant to the special rules regarding ‘indirect claims’. This means that X Ltd must establish that the requirements for causation and adequacy are satisfied and that Z’s conduct amounts to what the courts call a ‘clear professional error’.280 As regards the liability of Z to Y, as a starting point this will depend on the contract between the parties. As to the liability of Z to X, a claim might be based on ordinary tort law since there is no contract between the parties and since Danish tort law does not bar claims for purely economic loss.

b) Commentary The case illustrates how a rather firm line is drawn between damage caused by defective, tangible products and other objects, tangible or intangible, causing damage. It could be argued that there is no obvious reason why a producer of tangible goods is subject to strict liability, while the producer of immovables and services is ‘only’ subject to more ordinary tort law rules. However, in practice the differ-

_____ 279 A case concerning this issue (defective maritime sea chart) was brought before the Danish Supreme court in 2007. However, in the end the court decision did not address the issue, see U 2007.2821 H. 280 For a national report on liability for pure economic loss under Danish law, see Siig (fn 237) 282–299. In Swedish law recovery for pure economic loss is regulated in Skadeståndslagen (Liability for damages Act) Chapter 1, § 2 and Chapter 2, § 2. The former section defines what pure economic loss is and the latter lays down the basic requirements for liability.

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___ences may be less extensive than they may seem at first sight, since under the ___product liability rules established in case law the burden of proof may be reversed ___once it is established that the object causing damage suffered from a defect. The ___handling of liability for incorrect information leading to damage may become a ___challenge in the light of the modern use of information technology. ___ ___ ___3. France (Jean-Sébastien Borghetti) ___ ___The bridge itself is not a product under the Directive. Movables incorporated ___into it could be regarded as products under the Directive, but damage in this ___case was not caused by any such movable. ___ There has not been much discussion in France on whether immaterial ___goods could be regarded as products under the Directive, but the defective ___plans would probably not be regarded as one, if only because it is fairly easy, ___under French law, to find other liability bases in this case. ___ The Directive’s regime would therefore not apply in this case, but other re___gimes would. ___ ___ ___a) Liability of X ___ ___X is not the producer of a product in the sense of the Directive and cannot there___fore be liable on the basis of the Directive. ___ X has no contractual relationship to A and could only be liable to him in tort. ___Fault would have to be proven, however (art 1240 of the Code civil). In the present ___case, there seems to be no fault, unless it appeared that a skilled constructor ___should have become aware, when doing the construction work, of the flaw in the ___plans. Only in the latter case could X be made liable to A on the basis of tort law. ___ ___ ___b) Liability of Y ___ ___Y is strictly liable in tort to A on two different bases. He is liable as the owner of ___a defectively built building under art 1244 Code civil (‘The owner of a building is ___liable for the damage caused by its collapse, where it happens as a result of lack ___of maintenance or of a defect in its construction.’) And he is also liable to A as ___the keeper of the damaging building under art 1242, para 1. In either case, the ___plaintiff’s comparative fault and force majeure are the only available defences, ___but none of them applies in the present case.

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c) Liability of Z Z is of course liable in contract to Y. This liability is regulated by arts 1792 ff Code civil, and expires ten years after the ‘reception’ of the building (art 1792-4-1 Code civil). It covers damage directly caused by a ‘disorder’ of the building. On this basis, Z must indemnify Y if Y is made liable towards A, and Z must also assume the cost of commissioning a new architect. Z has no contractual relationship either to A or X. The conception of a defective bridge would probably be regarded as a fault under art 1240 Code civil, however, and Z could thus be made liable in tort both towards A for his bodily injuries and towards X for the costs of rebuilding the bridge. The fact that X’s loss is purely economic would not be an obstacle, as French law normally allows the compensation of pure economic loss in tort.

4. The Netherlands (Willem H van Boom) a) Analysis A suffers personal injury. A bridge is a structure for the application of art 6:174 BW. This art holds the owner of an immovable structure strictly liable for death, personal injury and property damage caused by the materialization of a risk caused by defectiveness of the structure. A structure is defective if it does not offer the safety one is entitled to expect from a structure, given its function, use and other circumstances of the case.281 One is entitled to expect bridges, when used in a normal manner, not to collapse and therefore Y is liable, irrespective of fault. If the architect Z can be said to have committed a wrongful act – this depends on expert evidence on what a reasonable architect would have done in the given circumstances – then he will be liable as well (art 6:162 BW). Additionally, builder X could be liable as well in tort (art 6:162) if it transpires that a reasonable and diligent builder would have known that the construction was defective or would otherwise be aware of the risks and would somehow have acted to prevent the construction or accident. The architectural plan will probably not be considered a product for the purposes of the EU regime – although there has been some debate in Dutch doc-

_____ 281 Cf WH van Boom/CE du Perron, The Netherlands, in: BA Koch/H Koziol, Unification of Tort Law: Strict Liability (2002) 227 ff.

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___trine on the extension of the regime to software and durable information medi___ums such as books.282 ___ Any recourse between the architect, the builder and the land owner de___pends on rules of recourse in case of joint and several liability. Firstly, one ___would need to check contract terms which may be relevant for risk allocation. If ___no such terms exist, one would need to look for relevant points for allocation in ___the relative weight of the causative factors attributable to all involved. The rela___tive weight of the negligence involved may point the way. At face value, it ___seems that the architect made a faulty design and the builder neglected to check ___the design. This would imply that they would need to bear the brunt of the li___abilities incurred – amongst themselves, the services contract of the architect ___would decide whether he could be held liable and if so, for which heads of the ___damage. ___ ___ ___b) Commentary ___ ___An architectural design is probably not a product for the purposes of products ___liability. I think that the same would apply to designs for, eg, motor vehicles. ___The tangible object into which the design is transformed is the object to which ___the liability attaches. ___ However, there may come a time when courts extend the product liability ___principles to intangible sources of danger. In a recent court case, the Dutch Su___preme Court extended rules on contractual vendor liability (which literally only ___applies to tangibles) to standard software. So, there may be a case for extension ___of product liability to intangibles as well. On the other hand, a design in itself is ___merely a plan, not the execution of a plan whereas manufactured software is ___more than a design, it is the execution of a design. A mere architectural plan ___may be the root source of the risk of the bridge collapsing but it is not the object ___itself that constitutes the risk.283 ___ Note that strict liability for defective immovable structures (art 6:174 BW) is ___very like the strict liability for moveable tangible objects (art 6:173 BW). The ___case would not really be decided differently if the bridge had been a moveable ___tangible object. ___ ___ 282 See RJJ Westerdijk, Produktenaansprakelijkheid voor software (1995). ___ 283 That is one of the reasons why strict liability may perhaps best attach to objects rather ___than activities. See Erdem Büyüksagis/WH van Boom, Strict Liability in Contemporary European ___Codification: Torn Between Objects, Activities, and Their Risks, 44 Georgetown Journal of In___ternational Law 2 (2013) 609 ff.

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___Bruce Feldthusen, John CP Goldberg, Michael D Green and ___Catherine M Sharkey ___ ___ ___Bruce Feldthusen, John CP Goldberg, Michael D Green, Catherine M Sharkey Product Liability in North America https://doi.org/10.1515/9783110547559-013 ___Contents ___Part I: General Questions | 359 I. The Context in Which Products Liability Law Operates | 359 ___ II. The Development of Strict Products Liability | 362 ___ III. Responses to Specific Questions | 367 ___ ___Part II: Cases | 376 Case 1: Brake Pad Failure | 376 ___ Case 2: Infected Blood | 387 ___ Case 3: Bridge Collapse | 405 ___ ___ ___ ___ Part I: General Questions ___ ___ ___I. The Context in Which Products Liability Law Operates ___ ___It is perhaps best to begin with some context about the operation of products 11/1 ___liability law in the United States and Canada. ___ ___ ___A. United States ___ ___1. Substantive law ___ ___In the US, the substantive rules of products liability are primarily determined by 11/2 ___state courts and legislatures.1 Because the US has a common law system, state ___courts have played an especially important role in the area of products liability ___and tort more generally.2 It is true that federal law sets some important limits on ___ ___ ___1 The US has a federal system of government but tort law, including products liability, has been left almost exclusively to the states. ___ 2 Some state legislatures have enacted provisions relating to products liability, although often ___these legislative efforts merely codify the existing body of products liability law developed by ___the courts. In addition, over the past four decades many state legislatures have enacted specific ___‘tort reform’ provisions, some of general application to all tort claims, some targeted to specific

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state products liability law in certain areas subject to federal regulation. For example, because, under the US Constitution, federal law preempts conflicting state law, manufacturers of drugs, medical devices, and automobiles who have satisfied federal-law regulations with respect to safe product design, or warnings of product risks, are sometimes immune from liability under state tort law.3 In addition, the US Supreme Court has identified federal constitutional limits on when, how, and in what amounts punitive damages may be awarded.4 Still, state law is the primary source of law governing liability for product-related injuries. It would be a significant overstatement to say that, in substance, the US has 51 different versions of products liability law: there is a good deal of uniformity across the products liability law of each state and the District of Columbia. But there are also important differences, and thus it is often inaccurate to speak and write as if there were a single US products liability law. In what follows, we will aim to answer the discussion questions posed by the WTLS by reference to legal rules that have gained broad acceptance across the different US jurisdictions, and we will also try to note areas in which the law varies significantly among jurisdictions.

2. Procedure Claims for compensation for injuries caused by products can be adjudicated in state or federal court. However, even when they are brought in federal court, state substantive law applies. Plaintiffs who bring products liability suits are represented by attorneys hired on a contingency-fee basis, according to which the attorney receives a percentage (usually about 33%) of any settlement or ver-

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types of tort claims such as medical malpractice or products liability. For a comprehensive cataloguing of these efforts, see . 3 See, eg, Pliva, Inc v Mensing, 564 US 604 (2011) (plaintiff’s state-law products liability claim, alleging that a generic drug was defective for inadequately warning of its side-effects is preempted by federal statute and by Food and Drug Administration regulations specifying how generic drug manufacturers may and may not alter their drugs’ labels); Geier v American Honda Motor Co, 529 US 861 (2000) (plaintiff’s state-law products liability claim, alleging that defendant’s car model was defectively designed for not having air bags, is preempted by federal Department of Transportation regulations allowing manufacturers to experiment with different passive safety devices rather than mandating the installation of air bags). 4 See, eg, Philip Morris USA v Williams, 549 US 346 (2007) (Fourteenth Amendment’s Due Process Clause prohibits juries from awarding punitive damages as punishment for harms inflicted by the defendant on nonparties); BMW of North America, Inc v Gore, 517 US 559 (1996) (Due Process Clause sets guidelines for the maximum amount of punitive damages that can be awarded against a tortfeasor).

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___dict. The plaintiff’s bar, on the whole, is quite active, organized, and experi___enced. The defense of products liability claims is conducted by lawyers hired ei___ther by the product seller5 who is being sued, or by the seller’s liability insurer. ___These lawyers are typically paid on an hourly basis. ___ Whether filed in state or federal court, products liability suits are first litigated ___in trial courts presided over by a single judge. Unless each party waives its right to a ___jury trial, a jury of six to twelve laypersons will be called on to find facts and to ap___ply substantive products liability law to those facts. For example, juries are to de___cide whether the seller’s product was ‘defective’ (as that term is defined by state ___law), whether the defect actually caused the plaintiff’s injuries, whether the plain___tiff was partly or wholly responsible for those injuries, and what damages, if any, ___the seller should pay the plaintiff. It is true that trial judges have a limited authority ___to preclude jurors from deciding these sorts of issues. Roughly speaking, for a trial ___judge to resolve an issue that is normally to be resolved by a jury, the judge must ___conclude that no reasonable juror could disagree about the issue – a high stan___dard that, on balance, makes trial judges reluctant to invoke this authority. ___ Upon entry of judgment by the trial court, the losing party has a right to ap___peal to at least one and possibly two levels of appellate court. Appellate courts ___typically review trial court proceedings for errors in the application of proce___dural and substantive law. ___ ___ ___B. Canada ___ ___Like the US, most issues in Canadian Products Liability law are under provin___cial, not federal jurisdiction. However, the Supreme Court of Canada is the final ___court of appeal on all of these issues and many of the leading cases have been ___decided at that level. Nine of the ten Canadian provinces are common law juris___dictions, and there are few differences among them in the relevant substantive ___law. Moreover, the substantive law of negligence as applied to products liability ___cases is substantially similar to that in the US. Procedural rules, including limits ___to contingency fee and class action arrangements, vary from province to prov___ince. Civil jury trials are much less common in Canada than in the US. Neverthe___less, for present purposes it will usually be accurate to speak of a law of negli___gence common to all common law North America. ___ The most striking difference between common law Canada and the US is ___that the Canadian courts have never adopted strict product liability in tort, ___ ___5 In referring to ‘seller’, we include any entity in the chain of distribution from component ___part manufacturer through to retailer.

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whether through a warranty theory or by something similar to sec 402A of the Second Restatement. Section 402A, which adopted strict liability for sellers of defective products, is widely credited with spurring the vast majority of state courts to adopt strict products liability, although the precise form of that strict liability has varied across states and over time. There is considerable familiarity with the US literature and jurisprudence on point and much academic support, but adoption of strict liability in tort has never been seen as imperative. The only form of strict product liability in common law Canada is found in the codified law of contract, usually Sale of Goods statutes, which require both vertical and horizontal privity between the parties.6 In contrast, the Province of Quebec has a unique Civil Code applied in the European tradition. It contains provisions similar to common law negligence and also many context-specific provisions imposing strict liability for defective products.

II. The Development of Strict Products Liability Prior to 1963, a lawsuit brought in a US court seeking compensation for physical harm or property damage caused by a product would typically include claims for negligence and/or breach of warranty. Negligence, of course, is a tort. Breach of warranty claims belong to the law of contracts, although certain warranty claims – particularly for ‘implied’ warranty – had tort-like features. For example, parties’ efforts to disclaim warranties were sometimes deemed void by courts when victims suffering personal injury or property damage sued in contract for breach of warranty. In the decades leading up to the 1960s, prominent judges and scholars had argued that negligence and warranty law were inadequate and that suits seeking compensation for physical harm or for tangible property damage caused by products should be governed by ‘strict’ tort liability. Collectively, these jurists and scholars invoked multiple justifications for the move to strict liability.7 They can be roughly categorized and described as follows:

_____ 6 By ‘vertical privity’, we mean that the buyer has a contractual relationship with the seller. Horizontal privity, by contrast, concerns the relationship of the victim with the consumerpurchaser. Thus, one of the first relaxations of a strict horizontal privity rule was to permit family members of the purchaser to sue the seller of a defective product. 7 Many of the justifications offered for strict products liability are discussed in the famous concurring opinion of Justice Roger Traynor in Escola v Coca-Cola Bottling Co of Fresno, 150 P 2d 436 (Cal 1944).

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___ Doctrinal/Pragmatic. Courts applying negligence law had already ruled that ___manufacturers owe a duty to take reasonable care that their products not cause ___foreseeable injuries to consumers and bystanders, regardless of whether there ___existed a contractual relationship between victim and manufacturer. However, ___they also at times applied negligence doctrine in a restrictive manner that ar___guably placed excessive responsibility on consumers. For example, judges ___would sometimes preclude juries from deeming a manufacturer careless for fail___ing to adopt a feasible safety feature because the product’s dangers were, in the ___judge’s opinion, sufficiently obvious that product users alone should bear re___sponsibility to guard against those dangers.8 ___ Some courts had also ruled that products carry with them an implied war___ranty that they are safe for ordinary use.9 Where present, such a warranty cre___ated a form of strict liability because the warranty amounts to an unconditional ___promise of safety, rather than a promise to take ordinary care to ensure safety.10 ___At the same time, liability for breach of warranty was limited in various ways. ___For example, courts often required that there be contractual privity between the ___plaintiff and the defendant in order for a warranty claim to be viable. ___ The imposition of strict tort liability was seen by many supporters as a rea___sonable extension of these precedents, particularly given that: (a) negligence ___law in general contains rules that sometimes ease the plaintiff’s burden of prov___ing manufacturer fault (see the discussion of res ipsa loquitur below); and (b) in ___practice, jurors’ broad discretion to make determinations of fault probably al___lowed some negligence plaintiffs to prevail on minimal showings of fault. ___ Evidentiary/Process-Based. Some supporters of strict products liability ar___gued that negligence law placed an inappropriate evidentiary burden on plain___tiffs injured by products. Particularly for mass-produced products, it can be dif___ficult for a plaintiff to find evidence of what exactly went wrong in the produc___tion of the particular product that injured the plaintiff. Negligence law contains ___the doctrine of res ipsa loquitur, which permits a jury to find carelessness even ___in the absence of evidence as to how exactly the defendant was careless, and ___some courts permitted negligence plaintiffs to take advantage of res ipsa when ___suing for injuries caused by defective products. However, res ipsa is only avail___able under certain conditions: the accident must be the kind of accident that ___ ___ ___8 See Gary T Schwartz, Foreword: Understanding Products Liability, 67 Cal L Rev 435, 455 (1979) (arguing that more robust applications of negligence law might have dampened the call ___ for adoption of strict product liability). ___9 See below no 11/63 f. ___10 Breach of contract in North America is based on strict liability in the US and does not re___quire a finding of fault.

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tends not to happen without carelessness on the part of someone, and the instrumentality of harm must (at least according to some authorities) have been in the ‘exclusive’ control of the defendant. In some product-related cases, these preconditions for the application of res ipsa were not satisfied, requiring plaintiffs to produce evidence establishing exactly what had gone wrong in the defendant’s production processes. A move to strict liability, proponents argued, would spare plaintiffs from having to meet this potentially difficult burden and thus would prevent careless manufacturers from avoiding liability just because of the plaintiff’s inability to prove carelessness. Policy-Based. Courts and commentators have identified various goals or values that might be realized by moving from negligence and warranty to strict products liability. Among these are: a right/duty rationale, a deterrence rationale, and a compensatory or loss-shifting rationale. We briefly describe each in turn. Right/Duty. Some maintain that strict products liability is consistent with a broad principle of consumer protection, according to which consumers are entitled to look to manufacturers to ensure that products are safe for everyday use. Likewise, manufacturers are said to be under duties to provide such products. More so than negligence and warranty, a strict liability regime arguably better ensures that consumers’ rights are vindicated and manufacturers’ duties are heeded. Deterrence. The threat of tort liability can incentivize firms and individuals to change their behavior. If one assumes that negligence law’s ‘ordinary care’ standard requires manufacturers to adopt any safety measure that costs less than the harm expected to result from not taking the precaution – and if one further assumes that manufacturers are rational actors with perfect information and that the courts do not make mistakes in adjudicating these cases – there is no difference between the deterrence signal sent by negligence and strict liability. (Under a strict liability rule, a manufacturer will not take precautions beyond ordinary care because the cheaper solution is to pay expected losses.) In practice, however, there are reasons why strict liability might consistently generate more deterrence than negligence. For example, insofar as negligence law’s placement of the burden of proving carelessness on the plaintiff produces ‘false negatives’, a rule of strict liability may be preferable from a deterrence perspective.11 With a lessened ability to fend off claims for product-related injuries, manufacturers should invest more in safety, other things being equal. Compensation. When a product causes an injury, the victim must at first bear all of the economic and noneconomic costs that attend the injury. How-

_____ 11 See, eg, Mark Geistfeld, Principles of Products Liability (2006) 23 f.

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___ever, tort liability can enable the victim to shift some or all of those costs to ___the manufacturer. And strict liability, relative to negligence, shifts more costs, ___by requiring a non-negligent, but strictly liable seller, to bear the costs of ___the accident rather than the victim, as would be the case under a negligence ___regime. Moreover, when the claim is against large or well-insured manufac___turers, liability not only shifts costs, it can spread them. If the manufacturer ___can simply increase the price of its products to reflect those costs then, in effect, ___it has acted like the victim’s insurer, with all customers of the manufac___turer bearing a tiny fraction of the victim’s loss in the form of slightly higher ___prices. ___ It is doubtful that any one of the foregoing justifications was universally or 11/20 ___even widely regarded as the single most important or compelling. Nor is it clear ___that all proponents of strict products liability had in mind precisely the same ___concept of ‘strict liability’– though all agreed that it involved an expansion of ___liability relative to the then-existing negligence and warranty schemes. It is ___probably most accurate to say that different proponents highlighted different ___justifications for different iterations of strict liability, but that there was none___theless an ‘overlapping consensus’ that common-law rules ought to be changed ___to make it easier for some victims of product-related injuries to hold product ___manufacturers and sellers liable. ___ A highly influential early formulation of the doctrine of strict products liabil- 11/21 ___ity came in the form of a provision contained in the Second Restatement of Torts, a ___treatise published by the American Law Institute that aims to provide, as much as ___possible, consensus principles of tort law from across the different states. This ___provision – sec 402A,12 which was published in 1965 –stated that a commercial ___seller is subject to liability for physical harm caused by a product that, at the time ___of sale, was ‘in a defective condition unreasonably dangerous to the consumer or to ___ ___ ___12 Section 402A (‘Special Liability of Seller of Product for Physical Harm to User or Con___sumer’) reads as follows: (1) One who sells any product in a defective condition unreasonably dangerous to the user or ___ consumer or to his property is subject to liability for physical harm thereby caused to the ___ ultimate user or consumer, or to his property, if ___ a) the seller is engaged in the business of selling such a product, and b) it is expected to and does reach the user or consumer without substantial change in ___ the condition in which it is sold. ___ (2) The rule stated in Subsection (1) applies although ___ a) the seller has exercised all possible care in the preparation and sale of his product, ___ and the user or consumer has not bought the product from or entered into any con___ tractual relation with the seller. ___Restatement (Second) of Torts § 402A (1965).

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his property.’13 Section 402A further stated that this liability attaches even if the seller exercised ‘all possible care’ to render the product safe, and even if the consumer injured by the product had not bought it directly from the seller.14 Finally, commentary to this provision stated that a defect renders a product ‘unreasonably dangerous’ only when, because of the defect, the product is ‘dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community of its characteristics.’15 By linking the idea of a defective product to consumer expectations rather than lack of care on the part of the seller, while at the same eliminating the requirement of contractual privity, sec 402A brought together elements of negligence and warranty law to create a new form of tort liability. How drastically this form of liability departed from negligence is discussed below, as is the definition of defect under the more recently adopted Third Restatement of Torts, which the American Law Institute regards as superseding the Second. Influenced by sec 402A of the Second Restatement, state courts and legislatures in the United States overwhelmingly embraced the idea of strict products liability, which they understood as liability based on product defectiveness rather than manufacturer fault. Henceforth, and still today, a person alleging physical harm caused by a product was required to prove only that she was injured by a product that was in a defective condition at the time it left the control of the manufacturer or seller, and that her injury resulted from a foreseeable use of the product. (We leave aside here any discussion of affirmative defenses, such as comparative negligence.) It is important to emphasize that strict products liability law was first adopted in the 1960s and 1970s with certain kinds of cases in mind. These tended to involve defects that could be identified in a relatively straightforward and commonsensical manner: for example, glass bottles of carbonated beverages that exploded during normal use16 or cars with steering mechanisms that caused the car to veer violently off the road.17 A key point of contention today among judges and scholars is the degree to which genuinely strict products liability has been applied, or should be applied, to less glaring dangers – for example, to injuries caused by an efficacious prescription drug that has certain harmful side-effects for a small number of users, and for which there are few if any suitable alternatives.

_____ 13 14 15 16 17

Ibid (emphasis added). Ibid. Ibid cmt i. See, eg, Escola v Coca-Cola Bottling Co of Fresno, 150 P 2d 436 (Cal 1944). See, eg, Vandermark v Ford Motor Co, 391 P 2d 168 (Cal 1964).

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___ A related set of arguments concerns the question of how much of a gap 11/24 ___there really is between the idea of a product that is carelessly made (negligence) ___and a product that is defective (strict products liability). The difference is par___ticularly elusive in cases in which the plaintiff alleges a ‘design defect’ – a de___fect in the way in which an entire product line or model was designed. For ___example, suppose the passenger in a 2012 sports utility vehicle (SUV) manu___factured by M Motor Company is injured when the vehicle rolls over, and sues ___M for having designed this particular SUV model with a suspension system ___that raises its center of gravity and thus increases the likelihood of rollover ___relative to comparable models offered by other manufacturers. Is this alle___gation of ‘defect’ equivalent to an assertion that M was careless in designing ___this model of SUV? Some judges and scholars maintain that there is a differ___ence, at least on certain understandings of what counts as a defectively de___signed product. Others deny that there is a difference, perhaps in part because ___they favour different understandings of what counts as a defectively designed ___product. ___ These arguments notwithstanding, most US jurists would agree that there 11/25 ___are some meaningful differences between defect-based and fault-based liability, ___with the clearest example being cases of so-called ‘manufacturing defects’. If an ___ordinary kitchen appliance comes off the assembly line with defective wiring ___that causes it to explode and to injure a consumer during normal use, the manu___facturer (and the retailer) of the appliance are subject to liability irrespective of ___whether the victim offers proof that the manufacturer was careless in manufac___turing the appliance. Indeed, even if the manufacturer demonstrates conclu___sively that it exercised extraordinary care to prevent its products from malfunc___tioning, the manufacturer is still subject to liability simply because it sold a ___product that contained a manufacturing defect that injured a consumer in a ___foreseeable manner. The absence of fault (and the absence of any express or ___implied warranty) does not defeat the plaintiff’s claim. ___ ___ ___III. Responses to Specific Questions ___ ___A. Reasons for Introducing Strict Products Liability ___ ___As stated above, Canadian courts did not adopt strict products liability. While it 11/26 ___is not possible to identify precisely why common law Canadian courts declined ___to embrace strict liability in tort, the general view seems to be that the outcome ___of Canadian negligence claims are not markedly different from what they might ___be under strict tort. There are few reported cases where a manufacturer has es-

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caped a finding of negligence when the product was found to be defective.18 Perhaps decisions by judges alone, not juries, are also a factor. Was there really an urgent need to provide for stricter liability for producers who put defective products into circulation? If so, why?

It is difficult to answer this question, in part because it is difficult to determine what counts as an ‘urgent need’. As noted above, some courts and commentators believed that negligence and warranty law often created unjustified obstacles to suits for injuries caused by dangerous products, that the situation could be improved by the adoption of strict products liability, and that strict liability could be adopted without causing serious problems for manufacturers, sellers, insurers, or the courts. Whether, in hindsight, one can say that there was ‘really’ an urgent need for strict products liability calls for contestable judgments. For example, some commentators today would argue that early proponents of strict products liability overstated the value of strict liability as a means of providing prompt and adequate compensation to injury victims. Long delays and high transaction costs still attend litigation even when liability is strict, they would argue. These same commentators might further argue that supporters of strict liability overestimated the degree to which American businesses could bear the cost of an expanded liability regime while remaining competitive in a global economy. Relatedly, they might argue that supporters underestimated the expansion of liability that would result from adopting the doctrine, at least in a decentralized legal system that operates on a contingent-fee system and gives an important decision-making role to juries. Further, as noted above, early advocates of strict products liability probably had in mind relatively straightforward claims of manufacturing defect and design defect, whereas today, plaintiffs are pushing courts to micro-manage design choices involving difficult judgments as to when and how safety should be traded for cost-savings or product functionality. Our point is not to endorse the foregoing criticisms – many find them unpersuasive. Rather, it is to demonstrate that one’s view about whether strict products liability ‘really’ filled a need, and whether it did so at an acceptable cost, is dependent on one’s view of contestable claims about the benefits and costs of a regime of strict products liability as compared to a regime of negligence and warranty.

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18 See Dean F Edgell, Product Liability in Canada (2000); Stephen M Waddams, Products Liability (5th edn 2011); see also McMorran v Dominion Stores Ltd (1977) 14 OR (2d) 559 (HC); Meisel v Tolko Industries Ltd [1991] BCJ No 105 (SC); Goodridge v Pfizer Canada, 2010 ONSC 109, para 82 (quoting Steven M Waddams, Products Liability (4th edn 2004) 67).

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What gaps existed in the reasonable protection of both buyers and third persons and what 11/30 ___ were and are the shortcomings of the general rules? ___ ___ As noted in our introductory overview, some courts and commentators con___ ___cluded that negligence law could in practice place an excessive evidentiary bur___den on certain plaintiffs suing for product-related injuries. Some also chafed at ___certain judges’ unwillingness to allow jurors to decide the issue of the manufac___turer’s carelessness. As also noted above, some maintained that, in principle, ___negligence law does not adequately vindicate consumers’ rights. Finally, some ___maintained that negligence and warranty law failed consistently to provide ap___propriate levels of compensation and/or loss-spreading, and in that sense failed ___adequately to protect consumers from the harmful consequences of product___related injuries.

___ Was the borderline between contractual and delictual liability a source of problems? 11/31 ___ ___ Yes. As noted above, although warranty law could be a source of strict (no___ ___fault) liability, it often contained various limitations, including, for example, a ___requirement of privity between manufacturer and consumer. Other limitations ___included notice provisions, according to which a consumer would lose her ___claim if she failed to give notice of breach of warranty within a reasonable pe___riod of time after the purchase of the product, and statutes of limitations that ___could even operate to bar a claim before the injury occurred. Strict products li___ability was in part meant to eliminate these limits on warranty-based liability, ___and thereby move liability for product-related injuries squarely into the law of ___torts rather than the law of contracts. ___ Was the regime of liability for others (agents, employees, etc) inadequate? 11/32 ___ ___ ___ Limits on liability imposed by rules of agency, such as respondeat superior ___and other rules of vicarious liability, do not seem to have played a major role in ___the adoption of strict products liability. Indeed, one effect of extending strict li___ability only to sellers has been to insulate individual agents from strict liability. ___However, it is worth noting that one expansionary effect of the adoption of strict ___products liability was to render retailers, as well as manufacturers, strictly li___able, not only to immediate purchasers of products sold by the retailer, but also ___to other foreseeable users of those products. If a guest in the home of a person ___who has purchased a standard household appliance is injured while using that ___appliance in a foreseeable manner, the guest has a strict liability claim against ___both the manufacturer and the retailer (although of course the person cannot

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recover more than 100% of her total damages, and in practice, manufacturers often indemnify retailers for any liability incurred by the retailer as a result of an injury attributable to the sale of the manufacturer’s defective product). A number of states have enacted legislation to limit the strict liability of retailers to situations where the manufacturer is judgment proof or cannot be sued in the jurisdiction. Was the protection of pure economic interests at stake?

Liability for pure economic loss caused by products was not a focal point in the discussions and debates leading up to the adoption of strict products liability. Section 402A of the Second Restatement of Torts, cited above, limits strict products liability to claims for personal injury or property damage.19 Was the requirement of fault in establishing liability unreasonable?

As discussed above, some supporters of strict products liability argued that manufacturers owe fairly demanding duties to consumers, duties that correspond to a broad right enjoyed by consumers not to be injured by defective products. Likewise, in the period from roughly 1915 to 1945, some judges were overly aggressive in taking away from juries the issue of whether the defendant took reasonable care to render its product safe. Was it the difficulties in proving fault?

As discussed above, some supporters of strict products liability emphasized the difficulties faced by certain plaintiffs of proving manufacturer carelessness.

B. The Justifications for Strict Products Liability Control of a dangerous thing. Is the justification for strict products liability that keepers of (especially) dangerous things owe strict duties to keep those things from harming others?

_____ 19 Restatement (Second) of Torts § 402A (1965) (strict products liability is for ‘physical harm … caused to the ultimate user or consumer, or to his property….’). The products liability provisions of the Third Restatement of Torts likewise apply only to claims of personal injury and property damage and not to economic loss. Restatement (Third) of Torts: Products Liability § 21 (1998).

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___ Anglo-American common law has long recognized strict liability for injuries ___caused by wild animals and explosives. The owners or keepers of such things ___are said to owe a strict duty to prevent them from causing injuries to third___parties, and hence can be held liable even if they take great care in attempting ___to prevent injuries to others. Does strict products liability belong in this doc___trinal category? Probably not. ___ It is perhaps fair to say that the common law rule of strict liability for keep- 11/37 ___ing a dangerous thing provided indirect precedential support for the adoption of ___strict products liability. However, there are important differences between the ___two kinds of case. As the WTLS Question document notes, manufacturers and ___retailers do not typically retain physical control over their products, which is ___arguably essential to the recognition of liability imposed on keepers of danger___ous things. Moreover, strict liability for keepers of dangerous things is also ___premised on the idea that the things in question are of a particularly dangerous ___sort, such that even if reasonable care is used to control them, they might still ___escape and cause harm. There is no reason to suppose that products generally ___(as opposed to particularly dangerous products) pose this sort of risk. ___ Protection against the risks inherent in industrial production. Do mass-produced prod- 11/38 ___ ucts, in particular, deserve a strict liability rule because it is difficult or impossible for ___ mass producers to prevent at least some of their products from being sold in a defective ___ condition? Does it justify strict liability for all kinds of defects, or only for so-called ‘manu___ facturing defects’? ___ As noted above, manufacturing defects were at the center of early strict ___ ___products liability law, and today remain there. Whatever disputes continue to ___rage about the existence and desirability of strict liability for defective designs ___and failures to warn, strict liability for manufacturing defects remains uncon___troversial. That manufacturing defects continue to arise even with massive ___technological change perhaps suggests that they are inevitable features of mass ___production and, as such, their costs are appropriately born by manufacturers. This having been said, products liability doctrine has always extended be- 11/39 ___ yond the case of the mass-produced product. True, it is limited to injuries ___ ___caused by products made or sold by commercial sellers – sellers who are in the ___business of making and/or selling the product in question. However, it is not re___stricted to industrial manufacturers. A local artisan who is in the business of ___selling crafts can be held strictly liable if one of his products is defective and ___proximately causes injury. Likewise, as noted above, retailers who played no ___role in the production of the product are also subject to strict products liability. ___Thus, while it may be the case that those who first advocated strict products li___ability had in mind primarily cases involving mass-produced products, and

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while it may be that injuries caused by manufacturing defects in these sorts of products are particularly appropriate for treatment under a strict liability rule, the doctrine has always extended beyond that case. Enterprise Liability. Can the strong trend – especially in Europe but also in the USA – toward a special, more stringent liability for entrepreneurs (‘enterprise liability’) help to justify the strict liability of producers?

It is difficult to answer this question. Part of the problem is that, in the US, different courts and commentators use the phrase ‘enterprise liability’ to refer to different ideas, and sometimes it is used in ways that make it very difficult to figure out what the phrase means. Also, it is rare (perhaps unheard of) in US legal discourse to link enterprise liability with entrepreneurship, at least if the latter term is understood to refer to the taking of risks in pursuit of a business venture. Finally, it is not clear that there is in fact a ‘strong trend’ in the US toward more stringent liability for entrepreneurs or business enterprises. Indeed, one can fairly observe that, since about 1980, the overall trend in US law has been to scale back on the most aggressive applications of strict products liability law in order to protect enterprises from the perceived threat of excessive or unfair liability. (Most notably, a number of courts, along with the Products Liability provisions of the Third Restatement of Torts (1998), have insisted that, particularly for claims of design defect, the standard of liability is really not strict after all, but instead hinges liability on negligence, defined as a failure to adopt a reasonable product design given the foreseeable benefits and risks associated with that design as compared to an alternative safer design.) To the extent ‘enterprise liability’ refers to a coherent position on tort liability, it seems to combine two principles.20 The first principle holds that the costs of accidents that are characteristic or typical of an enterprise’s activities should be borne by the enterprise, not by strangers who happen to have the misfortune of being injured as a result of such accidents. This principle supports a rule of strict liability for injuries caused by accidents resulting from activities characteristic of the enterprise – irrespective of fault, losses should be shifted from innocent victims. The second principle holds that the costs of such accidents should not be concentrated on the particular person or persons who inflicted the injury. Instead, they should be borne by all those who systematically benefit from the activities that generated the risk of injury – among customers, employees, suppliers and shareholders of a business, for example. Underlying these

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20 We gratefully acknowledge the assistance of Professor Gregory Keating in helping us to articulate the idea of enterprise liability. The views described in this document, however, are ours, not his.

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___two principles is the assumption that, when an enterprise is made liable for the ___toll in life, limb and property damage it predictably generates, it will usually in___sure (or self-insure) against that liability, and will factor the cost of such insur___ance into the cost of its products, the prices that it pays to its suppliers, the ___wages of its employees, and so on. A further assumption is that the activities of ___the enterprise are worthwhile and ought to continue, provided that it pays for ___the damage resulting from its characteristic activities. Finally, the thought is ___that liability imposed on these terms will be desirable from a deterrence per___spective, because it will incentivize the right sort of actors – that is, actors in a ___relatively good position to do something to reduce the incidence of this class of ___injury – to take steps to reduce such injuries. ___ The idea of enterprise liability can certainly support the adoption of strict 11/42 ___products liability. It is worth noting, however, that it would also support the ___adoption of strict liability for any injuries caused by enterprises to non___participants, regardless of whether the enterprise was involved in the making ___and selling of products. For example, a hospital is arguably an enterprise that ___generates a characteristic set of accidents (instances of medical malpractice) ___that inflict injuries on innocent victims, such that it, too, should be held strictly ___liable for those injuries. The same goes for vehicle accidents involving a trans___portation company that owns and operates a fleet of trucks. In short, enterprise ___liability is a rationale that supports the application of strict liability well beyond ___liability for injuries caused by products. ___ Second, whatever the merits of enterprise liability as a normative theory of 11/43 ___what tort liability ought to be, there is only modest support for the idea in exist___ing tort doctrine. Many domains of activity that, according to enterprise liability ___theory, would seem to call for a rule of strict liability – including medical mal___practice committed in hospitals, and injuries caused by transportation compa___nies – are in fact governed by a fault standard. As noted, some claim that parts ___of modern products liability law in effect apply a fault standard as well. Cer___tainly, it would be an overstatement to suggest that US tort law has generally ___embraced the idea of enterprise liability, which again raises the question of why ___injuries caused by enterprises that produce and sell products should be treated ___by rules consistent with enterprise liability theory, whereas other injuries ___caused by others sorts of enterprises should not. ___ A risk community. If the producer serves as a clearing house for all damage caused by its 11/44 ___ products, the producer can pass on all the compensation costs to its customers, who are ___ the ones who derive advantages from the products. Does this establish a rationale for ___ strict products liability with respect to injuries caused to customers (and perhaps users) of ___ its goods (though not to non-users)? ___

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Strict liability to customers and/or users injured by products can perhaps be justified by the notion that the customers/users are, in effect, a community that collectively shares the benefits and costs of the manufacturer’s products. However, it is not clear that recognition of such a community of interest supports an argument for strict liability, as opposed to negligence. Indeed, one might argue that a rational consumer/user would want the manufacturer to take only those precautions against injury that are cost-efficient, and that it would be suboptimal, so far as each member of the community is concerned, to require the manufacturer to pay for losses resulting from the failure to take a precaution that cost more than the expected cost of the injuries prevented by the taking of that precaution. This is particularly so, one might argue, given the costs that are incurred in litigating tort claims, as compared with the costs of first-party insurance. That is, it costs somewhere around 70 to 90 cents in transactions costs for every dollar of compensation paid in the tort system.21 By contrast, private health insurance costs around 10 cents on the dollar in transaction costs while the federal Social Security disability scheme costs even less, around 8 cents for every dollar of compensation.22 Finally, as the question notes, this rationale would not explain why non-customers and non-users would be entitled to a rule of strict liability for injuries caused to them.

C. Inconsistencies Connected with Products Liability? As noted above, certain rationales for the adoption of strict products liability (such as enterprise liability) are overinclusive, in that they seem to suggest that strict liability should attach to other kinds of injury-producing activities beyond the manufacture and sale of products. Others (such as the community-ofinterest rationale) are underinclusive, in that they suggest that some injury victims who currently can bring strict products liability claims should not be able to. Others fail to explain current doctrine. For example, if the primary reason for adopting strict products liability is that it spreads losses from victims to a broader segment of the public, it is not clear that courts should require proof of defectiveness. Likewise, if proof problems associated with negligence are the best justification for strict products liability, then it is likely that the doctrine ought not to apply as broadly as it does. (For example, plaintiffs often have ac-

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21 See Joni Hersch/W Kip Viscusi, Tort Liability Litigation Costs for Commercial Claims, 9 Am L & Econ Rev 330, 360 (2007). 22 Stephen Sugarman, Doing Away with Tort Law, 73 Cal L Rev 555 (1985); Jeffrey O’Connell/ Christopher J Robinette, A Recipe for Balanced Tort Reform (2008) 48.

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___cess to evidence that a product was defectively designed.) While there are his___torical and sociological explanations for why courts and legislatures in the US ___have to some extent developed special rules for product-related injuries – most ___obviously, the central and highly visible role that products play in a modern, ___consumer-capitalist society – it is less clear that there is a simple or ‘clean’ prin___ciple that justifies this differential treatment. ___ ___ ___D. Conceptual Issues ___ ___There are many ambiguities in state products liability law, including ambigui- 11/46 ___ties over what counts as a ‘product’. As noted, courts and commentators in the ___US have particularly struggled over how to identify when a product contains a ___‘defect’ or is ‘defective’, which is a necessary element of any products liability ___claim. There is broad consensus on the idea of a ‘manufacturing defect’. It con___sists of a single unit or item (for example, one particular car) that departs from ___the manufacturer’s own specifications for that product line in a way that ren___ders the particular item or unit more dangerous than it would be if it conformed ___to the manufacturer’s specifications. ___ Design defects, by contrast, have historically been defined in terms of one 11/47 ___of two tests: (1) the consumer expectations test and (2) the risk-utility test. Un___der the former, a product is deemed defective if it contains a danger that an or___dinary consumer would not expect to find in such a product, and the question ___of what an ordinary consumer would expect is largely for the jury. Under the lat___ter, a product is deemed defective if the risks of injury associated with its design ___outweigh the benefits of that design. The risk-utility test comes in different vari___ants, but generally, as compared to the consumer expectation test, it is thought ___to invite judges and jurors to give more deference to the testimony of design ex___perts and engineers, as opposed to giving greater weight to ‘common sense’. ___Most courts today probably use the risk-utility test, though some use consumer ___expectations, and some have adopted a hybrid approach under which claims of ___design defect for relatively simple and familiar design issues are adjudicated ___under the consumer expectations test, while claims of design defect for more ___complex products are adjudicated under the risk-utility test. ___ ___ ___E. Deficiencies of the Rules in Practice ___ ___The extent to which current products liability law has deficiencies is, of course, 11/48 ___hotly debated, and one’s views on this question will depend on broader views

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about law, morality, politics, and economics. There are vocal critics who decry this body of law as enabling aggressive plaintiffs’ lawyers to bring claims of questionable legal validity before sympathetic juries so as to impose unfair and socially counterproductive liability on manufacturers and retailers. There are equally vocal critics who insist that products liability law makes it too difficult for victims to hold accountable manufacturers who place bottom-line concerns for profitability over safety. And there are many others who have more nuanced or fine-grained criticisms of the law – for example, that it generates liability inconsistently – or that it is often a slow and expensive means of achieving goals such as deterrence and compensation.

Part II: Cases Case 1: Brake Pad Failure X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it considered that the risk was likely to eventuate only very rarely and did not outweigh the general advantages of the new material. It included a statement about the possibility of failure in the small print of the product instructions supplied with all of its bicycles incorporating the new brake pads. A, who purchased one of the bicycles, is one of a handful of people injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also damaged. B, a passer-by, is injured in the same accident.

A. Analysis What is X Ltd’s liability to A and B? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail?

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___1. X Ltd’s (‘X’) liability to A and B ___ ___a) A’s personal injury and property damage ___ ___Our answer to the question of X’s liability to A is the same for the personal in- 11/49 ___jury and property damage suffered by A. Under negligence, strict products li___ability, and contractual theories of liability,23 liability extends equally to per___sonal injury loss as well as tangible property loss. ___ ___ ___b) X’s liability to A ___ ___(i) Strict products liability ___ ___Aside from several elements that appear clearly satisfied,24 the critical issue that 11/50 ___would determine X’s liability is whether the bicycle was defective because of its ___brakes. Even though the incidence of accidents due to this defect appears to be ___quite low, the question would be analyzed under the rules applicable to design ___defects. Although sec 402A of the Second Restatement did not distinguish ___among types of defects, after its widespread adoption virtually all courts identi___fied three different types of defects: 1) manufacturing; 2) design; and 3) informa___tional (warnings), with different standards for defectiveness for each.25 ___ As noted above, two different standards have been employed to determine 11/51 ___whether a product is defectively designed. The first stems from the Second Re___statement, which provided, based on the contractual roots of sec 402A, a con___sumer expectations standard as explained above.26 The second standard was ___developed after the adoption of sec 402A, largely in response to the aggressive___ness of a plaintiffs’ bar that pushed the boundaries of strict liability by bringing ___claims that raised the question of how much safety must be built into a prod___uct.27 Durable products can almost always be made safer by adding safety fea___tures (at additional cost) or by reducing risk (often by trading off utility). Thus ___ ___23 With an exception here not relevant. See Uniform Commercial Code § 2-719(3). ___24 X is a commercial seller of bicycles, A is a user or consumer of the bicycle, A’s injury was ___factually and proximately caused by the design of the brake pads, and A suffered physical ___harm. See Restatement (Second) of Torts § 402A(1) (1965). 25 The Third Restatement of Torts reflects this development, providing different standards of ___ liability for each different type of defect. See Restatement (Third) of Torts: Products Liability § 2 ___(1998). ___26 See above no 11/21. ___27 See above no 11/26 ff (III. A of Discussion Questions).

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automobiles could be made almost completely safe by turning them into tanks that travel at only 4 miles per hour and that consume vastly more fuel than automobiles. While no plaintiff’s lawyer argued that cars must take the form of tanks to be non-defective, many suits asserted theories of defect that raised the difficult question of how much safety tort law should mandate. Courts and commentators became concerned about the indeterminacy of the consumer expectations test for these kinds of cases and the concomitant unconstrained discretion it afforded juries.28 In addition, some courts29 became dissatisfied with the consumer expectations standard because of the way it treated open and obvious dangers – no matter how much risk was created by an obvious danger and how minimal the costs to correct it, the product would not violate consumer expectations and therefore was not defective. Thus, courts developed a risk-utility test that, after some early misconceptions,30 employs cost-benefit methodology to compare the additional safety that an alternative safer design would provide with the costs of employing such a design. Those costs might implicate economic, functionality, aesthetic or other issues that, as with safety in the personal injury realm, cannot be quantified. But such cost-benefit methodology provides a framework for addressing questions about design defects of these sorts. This risk-utility test also generally requires expert testimony about the existence and the availability of safer alternative designs and the relevant trade-offs that exist. In the Products Liability provisions of the Third Restatement of Torts, published in 1998, the risk-utility test was adopted as the sole standard for determining whether a design defect exists.31

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28 See Soule v General Motors Corp, 882 P 2d 298 (Cal 1994) (limiting the availability of consumer expectations for design defects to instances when the design violates ‘consumers’ reasonable minimum assumptions’ about safety); Mary J Davis, Design Defect Liability: In Search of a Standard of Responsibility, 39 Wayne L Rev 1217, 1236-37 (1993) (explaining dissatisfaction with the consumer expectations test for design defect claims). 29 See, eg, Camacho v Honda Motor Co, Ltd, 741 P 2d 1240 (Colo 1987); see also Restatement (Third) of Torts: Products Liability § 2 cmt g (1998) (conformance with consumer expectations is not a basis for exonerating a design). 30 Many courts relied on a list of factors from an early canonical article. See John W Wade, On the Nature of Strict Tort Liability for Products, 44 Miss LJ 825 (1973). Wade’s factors were not appropriate for the type of cost-benefit analysis described above. See Michael D Green, The Schizophrenia of Risk-Benefit Analysis in Design Defect Litigation, 48 Vand L Rev 609 (1995). 31 Some jurisdictions, including California, employ both a risk-utility and consumer expectations test either of which can be the basis for finding a design defective. In California, at least, the consumer expectations standard is limited to cases in which the product’s failure justifies an inference that it is defective, equivalent to sec 3 cases in the Third Restatement of Torts, which we explain below no 11/58. See Soule v General Motors Corp, 882 P 2d 298 (Cal 1994).

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___ We should observe that the risk-utility test draws on the famous Carroll 11/53 ___Towing32 algebraic formulation for negligence: B < P X L.33 Thus, once an alterna___tive safer design is identified by the plaintiff, the additional safety provided by ___the alternative design is balanced against the costs (not limited to money) of ___adopting that alternative design. Although juries are not routinely instructed in ___algebraic terms, the factors contained in the Carroll Towing formula play an im___portant and often determinative role in jury determinations of negligence in ___some cases34 and in appellate review, such as it exists, of these jury determina___tions. Thus, today, in many, but by no means all, US jurisdictions, design de___fects are determined by a negligence standard or something closely akin to a ___negligence standard.35 ___ In jurisdictions that retain consumer expectations for design defects, the 11/54 ___matter of whether the bicycle was defective would be a jury question. We are in___clined to believe that most juries would find a bicycle whose brakes could sud___denly (and apparently without warning) fail due to the design of the brakes is ___more dangerous than an ordinary bicycle rider would expect. However, there is ___a complication to this analysis arising from the statement about the possibility ___of a brake failure in the instructions. When dangers are open and obvious or ___when dangers are known by consumers, consumer expectations are not vio___lated.36 If the warning described in Case 1 were prominently displayed, liability ___would not likely be imposed for this reason. The inconspicuous nature of the ___warning, however, raises doubts about this conclusion. The issue might be ___posed as whether reasonable consumers would be aware of this hazard in the ___bicycle, and we are inclined to believe most courts would leave that question for ___jury determination.37 ___ ___32 United States v Carroll Towing Co, 159 F 2d 169 (2d Cir 1947). ___33 Where ‘P’ is the foreseeable probability of an accident occurring, ‘L’ represents the magni___tude of any such loss, and ‘B’ is the burden of preventing such accidents from occurring. (The ___concept of the expected value of an accident, reflected in the summing of P and L, simplifies ___the reality that many different accidents with different probabilities and magnitudes might be implicated, requiring something more akin to determining the area under a curve representing ___ a function expressing those various possibilities). ___34 The Hand formula factors are generally not helpful when personal inadvertent careless ___conduct is the basis for a claim of negligence. ___35 See above no 11/46 f (III. D of Discussion Questions). ___36 See David G Owen, Products Liability Law § 10.2, at 604 & no 49 (3rd edn 2015) (noting that the obviousness of the danger associated with a product’s design may render the product non___ defective under the consumer expectations test irrespective of other considerations, such as ___the ease with which the danger can be eliminated). ___37 The matter of whether the bicycle is defective is analytically distinct from the affirmative ___defenses of contributory (or comparative) fault and assumption of risk. A bicyclist who had

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11/55 ___

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In a risk-utility jurisdiction, notwithstanding X’s determination that the benefit of the new brake design outweighed its risks, the balancing is an objective one and so would be decided by the court or jury, rather than according to the subjective judgment of the manufacturer (which the case prompt describes). Contending expert witnesses, hired by the parties, would likely be required to testify about the extent of the risk created by the new design as compared to the original design (or another proposed by A’s expert), the range of injuries that might result, and the savings provided by the new design, both in cost and greater durability. Depending on how those factors played out, if reasonable jurors could disagree about the outcome, the court would be obliged to submit the matter to the jury. Justifying a design that contains greater risk of physical injury for the benefits of lower cost or greater utility is widely thought to be a difficult argument by which to convince a jury. Psychological research identifying ‘hindsight bias’,38 the tendency to believe the likelihood of an event is greater after such an event occurs, supports this belief. But the nature of the jury, differences in the makeup of its members, and other legally irrelevant factors, such as the degree to which the plaintiff presents a sympathetic figure, make predicting jury outcomes very difficult. The role of warnings in a jurisdiction employing a risk-utility standard is quite different from the role described above with regard to consumer expectations. Even dangers that are open and obvious, or of which the consumer is subjectively aware, may render a product defective if the design’s risks outweigh its utility. Thus, the existence of even an adequate warning does not of itself preclude a finding that the product was defectively designed. However, the obviousness of the risk, and the consumer’s actual awareness of it, can be considered as factors within a risk-utility analysis of the product’s design.39 Before leaving strict liability theories – more accurately theories based on product defect – one other basis for liability deserves mention. Section 3 of the Products Liability Restatement explains that the existence of a defect can be in-

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read the instructions and was aware of the dangerous brakes would have her recovery reduced in most jurisdictions and barred in a handful of others. 38 See Kim A Kamin/Jeffrey J Rachlinski, Ex Post ≠ Ex Ante: Determining Liability in Hindsight, 19 Law & Hum Behav 89 (1995); Susan J LaBine/Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 Law & Hum Behav 501 (1996) (both describing results of experiments). 39 The Third Restatement explains, ‘Warnings are not … a substitute for the provision of a reasonably safe design. … [O]bviousness of risk does not necessarily obviate a duty to provide a safer design.’ Restatement (Third) of Torts: Products Liability § 2 cmt l (1998).

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___ferred in some cases from the circumstances of the accident.40 It is closely re___lated to the classic negligence doctrine of res ipsa loquitur, which recognizes ___that circumstantial evidence may support an inference of carelessness even ___though the specific careless acts of the defendant are not known. Thus, if a ___brand-new car being driven home by its new owner suddenly veers to the left on ___its own, sec 3 might be invoked to permit a jury to find it was defective.41 Such a ___finding most likely would be the result of a manufacturing defect but is not lim___ited to such. Section 3 might well be invoked to permit A to satisfy her prima fa___cie case of demonstrating the existence of a defect.42 ___ As noted above, Canada with the exception of Quebec has not adopted strict 11/59 ___products liability. Section 1468, para 1 Civil Code of Quebec imposes strict liability ___on the manufacturer of a movable property (product) in the case of a safety defect: ___ ___ ‘The manufacturer of a movable property is liable to reparation for injury 11/60 ___ 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.’ ___ ___ Section 1469 adopts consumer expectations into its definition of safety. Sec- 11/61 ___tion 1473 allows the manufacturer to escape liability if ‘the victim knew or could ___have known of the defect, or could have foreseen the injury.’ In this respect, ___Quebec law is in accord with a minority of US jurisdictions that retain consumer ___expectations to determine whether a design defect exists. Another provision, ___sec 1474 states that a person ‘may not in any way exclude or limit his liability for ___bodily or moral injury caused to another.’ ___ ___40 The text of sec 3 provides: ___It may be inferred that the harm sustained by the plaintiff was caused by a product defect exist___ing at the time of sale or distribution, without proof of a specific defect, when the incident that ___harmed the plaintiff: ___ (a) was of a kind that ordinarily occurs as a result of product defect; and (b) was not, in the particular case, solely the result of causes other than product defect ___ existing at the time of sale or distribution. ___Restatement (Third) of Torts: Products Liability § 2 (1998). ___41 At least one commentator claims that these were the types of defects that strict products ___liability was intended to address and explains why no attention was paid to the different types ___of defects in sec 402A. See Michael D Green, The Unappreciated Congruity of the Second and Third Restatements on Design Defects, 74 Brook L Rev 807 (2009). But see George L Priest, Strict ___ Products Liability: The Original Intent, 10 Cardozo L Rev 2301 (1989) (claiming that sec 402A ___was intended to address only manufacturing defects). ___42 These are the same types of ‘defects’ that were targeted in the development of strict prod___ucts liability in sec 402A of the Second Restatement of Torts. See above no 11/23.

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(ii) Negligence Since the risk-utility test closely resembles a negligence standard, the analysis of X’s liability for a negligence claims will be similar to the analysis discussed above. For quite some time after the adoption of strict liability, plaintiffs were permitted to pursue both strict liability and negligence claims. However, as jurisdictions have reverted to negligence-like standards for design and warning defects, courts have limited plaintiffs to a single claim to avoid submitting duplicative theories to the jury.43

(iii) Contractual liability In terms of contract, the implied warranty of merchantability is the only one of the three types of warranties recognized by courts that would apply to X’s claim.44 The standard for merchantability was drafted with a focus on product performance rather than product safety. Thus, the most applicable requirement only tangentially addresses product safety in mandating that goods ‘are fit for the ordinary purposes for which such goods are used.’45 Most courts have equated the merchantability standard with the products liability defectiveness standard and deferred to the more developed and appropriate standards from that arena.46 One important exception to this congruity of strict products liability and implied warranty emerged in a line of New York cases.47 New York adheres to

_____ 43 See Restatement (Third) of Torts: Products Liability § 2 cmt n (1998) (explaining that two claims based on risk-utility even if they arise under different doctrinal bases (ie, strict liability, negligence, or contract) should not be submitted to the jury). 44 The other two are express warranty and implied warranty of fitness for a particular purpose. The former is based on factual representations by the seller and the latter is based on the seller recommending the product to the buyer for a special use, the buyer relying on the seller’s superior knowledge of the appropriate product for the use, and the seller’s awareness of the buyer’s reliance. See Uniform Commercial Code §§ 2-313 & 2-315. The Canadian Sale of Goods Acts are similar. In Quebec, see sec 1726 of the Civil Code of Quebec. 45 Uniform Commercial Code § 2-314(2)(c). 46 See, eg, Larsen v Pacesetter Systems, Inc, 837 P 2d 1273, 1283 (Haw 1992) (‘However, despite the disparity in terminology [between defectiveness and unfitness], many courts and commentators have concluded, and we agree (to the extent that the implied warranty action is based on a claim of personal injury), that any difference between the two standards is largely formal.’). Other differences between tort and warranty, including notice requirements, validity of disclaimers, limitations of remedy, and statutes of limitations may produce different outcomes despite the same substantive standard. 47 See Denny v Ford Motor Co, 662 NE 2d 730 (NY 1995).

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___the risk-utility test for design defects. However, the state’s high court held ___that whether a product is fit for the ordinary purposes for which such goods are ___used is determined by the consumer expectations test, because implied war___ranty originates in contract law and is concerned with fulfilling expectations. ___Those two tests can lead to different result and thus may be asserted alter___natively when the seller markets a product for a specific use for which it is ___more dangerous and thus may violate consumer expectations. Thus, plaintiffs ___in New York (and, in theory, several other jurisdictions) could assert alterna___tively a risk-utility standard (tort) and a consumer expectations standard (war___ranty) as the basis for X’s liability when products are marketed for dual pur___poses.48 ___ ___ ___c) X’s liability to B ___ ___B is a bystander in the sense that she had no contractual or other relationship 11/65 ___with X existing before the accident. Historically, tort law limited liability when ___harm resulted from the performance of a contract to those who were in ‘privity’ ___of contract with the injurer. This principle is reflected in a venerable English ___case, in which the party hired to maintain a stagecoach that collapsed and in___jured the driver and passengers was not liable to those injured; the victims were ___not parties to the contract between the maker and the stagecoach purchaser and ___operator.49 This privity rule was adopted in the United States and, with a few ex___ceptions, reigned until the seminal case of MacPherson v Buick Motor Co.50 ___While MacPherson was a product of the common law tradition and written so ___that it appeared only to extend those exceptions, in fact it turned out to be the ___genesis for the abandonment of privity in tort in United States courts over the ___next several decades. MacPherson, although an application of negligence law, ___was a critical first step in the development of products liability in the US. ___ When strict products liability developed in the early 1960s, there was ini- 11/66 ___tially some confusion about how to treat bystanders such as B. Strict products ___liability doctrinally was an amalgam of contract (warranty) and tort law,51 and ___from the former perspective privity of contract still imposed considerable limita___ ___ ___48 See Castro v QVC Network, Inc, 139 F 3d 114, 116–119 (2d Cir 1998) (explaining when strict liability and breach of warranty provide different standards under New York law and therefore ___ should both be submitted to the jury). ___49 See Winterbottom v Wright, 152 Eng Rep 402 (Exc 1852). ___50 111 NE 382 (1916). ___51 See above no 11/21.

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tions on who could recover. A caveat to sec 402A of the Second Restatement of Torts explicitly left unresolved whether a bystander could assert a claim based on strict liability.52 An influential early case, drawing on the tort strand of strict products liability, extended strict liability to bystanders: ‘If anything, bystanders should be entitled to greater protection than the consumer or user where injury to bystanders from the defect is reasonably foreseeable. Consumers and users, at least, have the opportunity to inspect for defects and to limit their purchases to articles manufactured by reputable manufacturers and sold by reputable retailers, whereas the bystander ordinarily has no such opportunities. In short, the bystander is in greater need of protection from defective products which are dangerous, and if any distinction should be made between bystanders and users, it should be made, contrary to the position of defendants, to extend greater liability in favor of the bystanders.’53 Thus, for all tort claims that might be asserted by B against X, the analysis would be the same as that for X’s liability to A. The view that liability to bystanders for product-related injuries should be determined by the same rules as apply to purchasers and product users is now the prevailing rule in the US.54 The answer would be different in a considerable number of jurisdictions for an implied warranty of merchantability claim. Probably a majority of jurisdictions would not extend warranty protection to an injured bystander who was outside the chain of distribution of the product, as B was. The remainder would permit recovery by those ‘who may reasonably be expected to use, consume or be affected’55 by the product. A bicycle manufacturer surely should anticipate that a bicycle could affect those in the vicinity who might be injured in a collision with the bicycle and thus, in this latter class of jurisdictions, privity would not bar an implied warranty claim.

_____ 52 Restatement (Second) of Torts § 402A caveat (1) (1965). 53 Elmore v American Motors Corp, 451 P 2d 84, 89 (Cal 1969). 54 Indeed, this rule is so well accepted that the Third Restatement does not contain an explicit provision addressing it. There are, however, a number of examples that reveal that its provisions are intended to be applicable to products causing harm to bystanders. 55 Uniform Commercial Code § 2-318 alt C.

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___d) The effect of Y’s coverup ___ ___ Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up ___ the risk that the new brake-pad material might fail? ___ ___ US products liability law imposes liability on the entity that sells a defective 11/70 ___ ___product and that liability is not conceived as vicarious. This obviates an inquiry ___into the actions of specific employees of the entity and the role that they played ___in a product’s defectiveness. Although in theory Y could be sued for her tortious ___conduct by A or B, such suits are so rare that none of the US delegation is aware ___of any serious efforts to impose liability on the seller’s employees.56 They are in___frequently joined in suits against the seller-employer, but the reasons for doing ___so have to do with forum shopping and jurisdiction rather than an attempt to ___impose liability on them. Doctrinally, Y’s coverup would not affect the liability analysis set forth 11/71 ___ ___above. However, it could affect the plaintiff’s damages award. One of the major ___bases for awarding punitive damages in products liability has been evidence of ___manufacturer efforts to cover up the existence of dangerous conditions in their ___products.57 In addition, it is common wisdom among US trial lawyers that jurors can be 11/72 ___ ___influenced by the culpability of the defendant and that culpability may ‘spill ___over’ and have an effect on the determination of independent issues such as ___causation or compensatory damages.58 Thus, although some products liability ___theories may not require a showing of fault by the defendant, plaintiffs’ lawyers ___prefer to do so if they have such evidence because of their belief in this culpabil___ ___56 Nor do employers bring recourse actions against their employees, although in theory they ___could, for reasons explained in Gary T Schwartz, The Hidden and Fundamental Issue of Em___ployer Vicarious Liability, 69 S Cal L Rev 1739 (1996). ___57 This has been true in some of the most prominent mass torts in US history. Punitive damage awards against asbestos manufacturer are listed in Paul Brodeur, Outrageous Misconduct: ___ The Asbestos Industry on Trial (1985) 220-24. Brodeur explains that these verdicts were a re___sponse to evidence ‘showing that asbestos manufacturers had engaged in a coverup of the as___bestos hazard for nearly half a century … .’ Ibid at 224. Similarly, the manufacturer of the ___Dalkon Shield IUD became aware of the greater risk of bacterial infections in a user’s uterus ___because of its unique design and proceeded to conceal and deny these complications from the use of its IUD. See Richard B Sobol, Bending the Law: The Story of the Dalkon Shield Bank___ ruptcy 1-2, 37 (1991) (detailing the misconduct and the explaining the punitive damage awards ___that resulted). ___58 See Paul D Rheingold, The Expanding Liability of the Product Supplier: A Primer, 2 Hofstra ___L Rev 521, 531 (1974).

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ity phenomenon.59 Y’s engaging in a cover up of the risk of the new brakes would be just the type of evidence that plaintiffs’ lawyers would think helpful in swaying a jury. If Y were an independent research contractor, his actions would not be attributable to X, unless X in some way ratified his actions or was aware of Y’s actions and did nothing to counteract Y’s secreting the risk involved. Principals are not liable for the tortious acts of independent contractors subject to exceptions not here applicable.60 To the extent that Y provided research that contributed to X’s employing the newly designed brakes, Y may be liable in his own right based on negligence.

B. Commentary What does your analysis demonstrate about the reasons for introducing strict product liability and the justifications that may be given for it? Do these justifications apply where (as in the present case) the injury is caused by a standard product and results from choices made in the design process? And where the victim is a third party rather than the purchaser? Is the resulting liability truly a strict liability or does it ultimately rest on fault?

As explained above, X’s liability for a design defect would be determined based on the application of a risk-utility standard in most US jurisdictions today, although in some instances, plaintiffs might be able to take advantage of a consumer expectations/implied warranty standard that gives jurors more discretion than the risk-utility test to determine that a product was defective. Results under a consumer expectations standard are highly dependent on how individual juries assess the facts of a given case. Hence it is difficult to know how ‘strict’ such liability truly is.61 This case nicely illustrates the kind of scenario for which strict products liability was adopted – ordinary household products that fail and cause physical injury in the ordinary course should subject the seller to liability regardless of

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59 There is ample social science research documenting this phenomenon. See, eg, Christine M Shea Adams/Martin J Bourgeois, Separating Compensatory and Punitive Damage Award Decisions by Trial Bifurcation, 30 Law & Hum Behav 11 (2006) (citing research finding a spillover effect from liability evidence to the amount of compensatory damages awarded). 60 See below fn 154. 61 One experimental study of jury decisionmaking found that plaintiffs fared better when the same liability regime was described as being based on negligence as opposed to being based on strict liability. See Richard L Cupp Jr/Danielle Polage, The Rhetoric of Strict Products Liability versus Negligence: An Empirical Analysis, 77 NYU L Rev 874 (2002).

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___proof of fault or even whether fault existed. That was the normative principle on ___which strict products liability was developed and which still exists today in ___sec 3 of the Third Restatement (explained above). While there is a strong overlap ___between manufacturing defects and sec 3, this case example illustrates that ___sec 3 might be invoked for some design defects. To the extent that a court might ___invoke sec 3 (and this can entail difficult line-drawing) even if a risk-utility ___analysis would exonerate the manufacturer’s design choice, sec 3 imposes strict ___liability. To put the point slightly differently, sec 3 is a full-throated alternative ___basis for finding the existence of a defect thereby imposing strict liability re___gardless of whether any of the defect-specific tests are met. ___ ___ ___Case 2: Infected Blood ___ ___ A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had ___ collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. ___ At the time, the risk of Hepatitis N in donated blood had been identified in a single pub___ lished paper in a scientific journal, but only a handful of research laboratories in the ___ world had the capacity to test for its presence in specific quantities of blood. Furthermore, ___ the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the condition’s existence came to be gener___ ally accepted and that a test was developed that allowed hospitals and blood suppliers to ___ screen out infected parcels of blood. ___ ___ ___ A. Background: Products Liability: A Tale of Two Restatements ___ ___ ___1. Restatement (Second) of Torts: § 402A ‘strict liability’ for products and ___ comment k for ‘unavoidably unsafe products’ ___ ___The Restatement (Second) imposed a regime of strict liability to the consumer 11/76 ___for ‘product[s] in a defective condition unreasonably dangerous’ even where ___‘the seller has exercised all possible care.’ Restatement (Second) of Torts 62 ___§ 402A. This ‘strict liability’ standard, however, applied only to products un___reasonably dangerous to the user or consumer. Moreover, comment k covered ___‘unavoidably unsafe products’ – which came to include drugs, food, cigarettes, ___and blood products – so that sellers of these products were not to be held ___strictly liable: ‘Such a product, properly prepared, and accompanied by proper

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___ ___62 See above fn 13.

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directions and warning, is not defective, nor is it unreasonably dangerous.’63 Comment k became a defense, and since an alternative safer design for these products was normally not available, litigation focused on failure-to-warn and manufacturing defects rather than design defects. As explained above,64 strict liability came to be more confined to manufacturing defects, while negligence governed a product’s warning or overall utility rather than a particular aspect of a product’s design; ‘risk-utility’ tests were particularly utilized by courts to assess design defects.65

2. Restatement (Third) of Torts: Products Liability § 2: ‘strict liability’ for manufacturing defects; negligence standard for design defect and failure to warn; § 6(c) immunity provision for prescription drug manufacturers; § 19(c) exemption for blood products Under sec 2 of the Restatement (Third), defective design liability arises ‘when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design.’66 But prescription drugs, vaccines, and medical devices are subject to a different standard of liability – the ‘net benefit test’:67 sec 6(c) circumvents the alternative-safer-design test such that even when a product creates unnecessary danger, it will still not gen-

_____ 63 Restatement (Second) of Torts § 402A cmt k (1965) (emphasis added). 64 See above no 11/46 f (III. D of Discussion Questions). 65 See, eg, John J Wade, On the Nature of Strict Tort Liability for Products, 44 Miss LJ 825, 83738 (1973) (listing seven factors for determining unreasonable danger); Page Keeton, Product Liability and the Meaning of Defect, 5 St Mary’s LJ 30, 37–38 (1973) (putting forth a test for unreasonable danger such that that question depends on whether the danger of a product outweighs its utility, so that a reasonable seller would not sell the product if it knew the risks). 66 The Restatement (Third) recognizes the three traditional categories of products liability: manufacturing defect, design-defect, and failure-to-warn. The design-defect provision is as follows: ‘(b) [A product] is defective in design when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the alternative design renders the product not reasonably safe.’ Restatement (Third) of Torts: Products Liability § 2(b) (1998). 67 See ibid § 6(c) (‘A prescription drug or medical device is not reasonably safe due to defective design if the foreseeable risks of harm posed by the drug or medical device are sufficiently great in relation to its foreseeable therapeutic benefits that reasonable health-care providers, knowing of such foreseeable risks and therapeutic benefits, would not prescribe the drug or medical device for any class of patients.’).

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___erate liability when it does more good than harm for at least one group of con___sumers. ___ The Restatement (Third) excludes blood products from the general liability 11/78 ___rule in sec 2, as sec 19(c) states: ‘Human blood and human tissue, even when ___provided commercially, are not subject to the rules of this Restatement.’68 As de___tailed further below, by excluding blood from the Restatement (Third), the effect ___is to relegate liability exclusively to a fault-based regime. ___ ___ ___3. FDA regulation of blood ___ ___The federal Food and Drug Administration (FDA) is an agency housed within 11/79 ___the Department of Health and Human Services. FDA has a broad mission to ___‘protect [ ] the public health by assuring the safety, efficacy, and security of hu___man and veterinary drugs, biological products, medical devices, our nation’s ___food supply, cosmetics, and products that emit radiation.’69 ___ FDA has authority to regulate blood through the Public Health Services Act, 11/80 ___which requires a blood facility to be licensed by FDA before any blood products ___can be introduced into interstate commerce.70 The license may be obtained by ___submitting information showing that the product is ‘biosimilar’ to actual blood ___and that the facility meets standards meant to ensure safety, purity, and po___tency.71 The blood facility must also register with FDA and obtain an establish___ment license as well as a product license for each component of the blood prod___uct the company prepares.72 FDA is required to inspect each licensed location at ___ ___ 68 Restatement (Third) of Torts: Products Liability § 19(c) (1998). ___69 US Food and Drug Administration, FDA’s Mission Statement . ___70 42 USC § 262(a) (2012). ___71 42 USC § 262(k) (2012). Roughly 85 to 90% of the blood supply comes from licensed facili___ties. FDA Regulation of Blood and Blood Components in the United States, FDA, [herein___ after FDA Regulation of Blood]. ___72 21 USC § 260 (2012). This registration involves a form requiring a blood center’s address, ___identification of the type of center (bank, hospital, etc), and listing of the types of blood prod___uct manufactured, prepared, or processed at the facility. FDA Form 2830, FDA, . A facility must register its blood products within five days of beginning operation, submit new registration ___ forms each year between November 15 and December 31, and update all product listings twice a ___year, in June and December. Blood Establishment Registration and Product Listing, FDA, ___.

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least once every two years.73 Once licensed and registered, a facility must maintain certain standards for its personnel74 and ‘good manufacturing processes’ with respect to every part of the blood production such as supplies, labeling, records, and standard operating procedures.75 The Center for Biologics Evaluation and Research (CBER), within FDA, regulates the collection and testing of blood. First, this means determining the suitability of the donor, which is for the doctor on the premises to decide based upon a medical history, physical examination as necessary, freedom from scars and punctures on the arms, and additional criteria such as a normal temperature.76 The blood must then be tested for syphilis, blood type, and any communicable disease.77 FDA regulates the labeling of blood products.78 FDA also regulates record keeping and laboratory controls and requires that licensed and unlicensed blood facilities must report any adverse event to FDA as soon as possible and

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73 21 CFR § 600.21 (2012). FDA also has the authority to enter and inspect any facility at ‘all reasonable hours’. 42 USC § 262(c) (2012). 74 The employees must be ‘adequate in number, educational background, training and experience, including professional training as necessary … to assure competent performance of their assigned functions … and to ensure that the final product has the safety, purity, potency, identity, and effectiveness it purports or is represented to possess.’ 21 CFR § 606.20 (2012); see also 21 CFR § 211.25 (2012) (requiring the same standards of experience and education). 75 21 CFR § 606 (2012). A facility may adopt its own written procedures, or follow the procedures of one of the major national blood banks such as Red Cross or American Association of Blood Banks. 21 CFR § 606.100(b), (d) (2012). 76 21 CFR § 640.3 (2012). FDA issues guidelines for screening donors, including guidelines for questionnaires for potential donors. See, eg, Blood Guidances, FDA, (listing guidance documents); Questions about Blood, FDA, (for questionnaires). 77 21 CFR § 640.5 (2012). FDA issues guidelines for testing blood. See, eg, Infectious Disease Tests, FDA, (listing diseases for which testing must be done). 78 Each package of blood products must be ‘plainly marked’ with the name of the blood product contained in the package, the license number of the blood center, and the product’s expiration date. 42 USC § 262(a)(1)(B) (2012). More specifically, the label must include information such as a lot unit for the blood, expiration date, a warning that ‘this product may transmit infectious agents’, and a donor classification statement that denotes whether the blood comes from a paid or volunteer donor. 21 CFR § 606.121 (2012). A ‘circular of information’ acts as a supplementary label or package-insert; it must be available for products intended for transfusion, and include directions on proper use and mixing of the blood products. 21 CFR § 606.122 (2012).

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___that a written statement must be submitted to the agency within one week.79 Fi___nally, any applicant for licensing or registration of blood products must inform ___FDA of any changes to its products, processes, quality controls, equipment, fa___cilities, personnel, or labeling.80 ___ ___ ___4. Canadian variation ___ ___In Canada, blood products have traditionally been donated to the collector, not 11/83 ___sold, although there is pressure to change this. The relationship between hospi___tal and blood recipient has not been characterized as a sale under the Sale of ___Goods Acts. Accordingly most issues concerning blood donation would be re___solved under common law negligence or under the fault-based sec 147 of the ___Civil Code of Quebec. ___ The blood supply in Canada is managed by the Canadian Blood Services, a na- 11/84 ___tional not-for-profit charitable organization that manages blood supply in all of ___Canada outside of Quebec. In Quebec, the blood supply is managed by Héma___Québec. Charitable institutions do not enjoy any formal privileges in Canadian ___negligence law. ___ Quebec has adopted no-fault liability by legislation in actions against the pro- 11/85 ___vider, Héma-Québec. Section 54.2 of the Act states that: ‘The Minister must com___pensate, regardless of liability, a victim of bodily injury caused by a defect in or ___contamination, by known or unknown pathogens, of a Héma-Québec product’. ___The victim cannot institute civil proceedings against Héma-Québec if she chooses ___this compensation; she can however sue other defendants for personal injury ___ ___79 21 CFR §§ 606.170, 606.171 (2012). ___80 21 CFR § 601.12 (2012). There are three categories of changes: Prior Approval Supplement, ___Changes-Being-Effected in 30 Days Supplement, and Changes-Being-Effected Supplement. FDA ___Regulation of Blood, above fn 71. The first – prior approval – involves relatively major changes ___that have a ‘substantial potential to have an adverse effect’ on the product, process, personnel, or facility, such as changes in the product’s formulation, or changes that require further hu___ man study. 21 CFR § 601.12(b)(2) (2012). FDA must approve the change before the product may ___be marketed. 21 CFR § 601.12(b)(3) (2012). Labeling changes also fall into this category; FDA ___must approve any changes before they are marketed. 21 CFR § 601.12(f) (2012). The second, CBE ___in 30 Days Supplement, involves changes that have a ‘moderate potential to have an adverse ___effect’, where the producer notifies the FDA that it plans to implement the new program within 30 days, and may distribute it after that period unless the FDA requests additional information, ___ a Prior Approval Supplement, or denies the change altogether. 21 CFR § 601.12(c) (2012). Third, ___minor changes – such as the size or style of the container where the dose remains the same – ___should be submitted in the blood facility’s annual report to FDA, and do not require approval. ___21 CFR § 601.12(d) (2012).

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damages. Compensation programs for individuals with HIV or Hepatitis C have been set up by the federal government, other provinces and territories, as well as by the Red Cross, in order to financially compensate victims of the tainted blood scandal.81

B. Analysis What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if A contracted the virus as the result of a blood transfusion conducted in 2001, but her condition only manifested itself in 2012? (In this context, consider in particular differences in the time limits applied to the various possible bases of liability.)

1. Present-day tort claims a) Blood shield laws Forty-nine states have enacted ‘blood shield laws’, which are statutes immunizing blood providers from strict liability or breach of warranty actions for injuries caused by contaminated blood products.82 These laws were intended to respond

_____ 81 At least 2000 recipients of blood and blood products contracted HIV/Aids and 30,000 transfusion recipients were infected with Hepatitis C in Canada between 1980 and 1990. Subsequent investigation discovered: 1) the failure to screen out high-risk donors for fear of blood shortages; 2) the importation of plasma collected in US prisons and other high-risk areas; 3) delays in purchasing safer, heat-treated blood products for hemophilia; 4) delays in implementation of testing for the AIDS virus due to spending restrictions; 5) the refusal to use a test that would have weeded out almost 90% of Hepatitis C cases; 6) and the failure to track down those who had received tainted blood so they could receive treatment and avoid passing on the viruses to others. See André Picard, ; and Royal Commission of Inquiry on the Blood System in Canada (Krever Inquiry) (1997). 82 New Jersey is the only state that has not adopted a shield law, but its case law protects blood providers from strict liability; the same is true for the District of Columbia. See Ross D Eckert, The AIDS Blood-Transfusion Cases: A Legal and Economic Analysis of Liability, 29 San Diego L Rev 203, 205-06 no 8 (1992) (noting that forty-nine states adopted shield laws, and citing cases). Litigation in New Jersey and the District of Columbia has been limited because, early on, courts provided immunity from strict liability. See Brody v Overlook Hospital, 332 A 2d 596 (NJ 1972); Fisher v Sibley Memorial Hospital, 403 A 2d 1130 (DC Ct App 1979). There are no legislative equivalents to the ‘Blood Shield’ laws in Canada, but neither is there any strict liability.

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___to the unavailability, at the time of their adoption, of tests to screen blood dona___tions for Hepatitis C or HIV. They limit liability for hospitals, blood banks, and ___in some cases pharmaceutical companies by requiring proof of negligence or ___willful misconduct to establish liability.83 In Canada ‘blood shield’ laws have ___not been required because the Canadian courts have held that the relationship ___between the blood provider and recipient is not governed by the strict liability ___of statutory sales law.84 ___ ___ ___b) Negligence claims ___ ___After the shield laws were passed, plaintiffs pursued negligence actions relating 11/87 ___to the procedures used by hospitals to screen blood donors for infection with ___hepatitis. These were largely unsuccessful.85 ___ In the face of the blood shield statutes, most courts have held blood provid- 11/88 ___ers to a professional standard of care rather than ordinary negligence.86 Under ___ordinary negligence principles, a party is held to an objective standard of rea___sonable care that is left to the jury to determine. Professionals, by contrast, are ___held to the standard actually employed by reasonable professionals, requiring ___expert testimony about customarily employed care. Courts have refused to im___pose a ‘unique super-standard’ of care for those on the ‘cutting edge’ of blood ___collection; the customary practices of the medical community determine this ___professional standard of care.87 ___ ___ 83 Most states enacted shield laws in the 1960s and 1970s; by 1972, for example, there were ___ already forty-one states with this type of law on the books. See Marc A Franklin, Tort Liability ___for Hepatitis: An Analysis and a Proposal, 24 Stan L Rev 439, 474 & no 203 (1972) (noting that ___only nine states had not yet adopted a shield law by 1972 and citing statutes). ___84 Walker Estate v York-Finch General Hospital, 2001 SCC 23, [2001] 1 SCR 647, 198 DLR (4th) ___193; Ter Neuzen v Korn [1995] 3 SCR 674, 127 DLR (4th) 577; Pittman Estate v Bain [1994] 19 CCLT ___(2d) 1, 112 DLR (4th) 257 (Ont Ct J); Pittman Estate v Bain (1994) 112 DLR (4th) 482 (Ont Ct J). 85 See George W Conk, Is There a Design Defect in the Restatement (Third) of Torts: Products Li___ ability? 109 Yale LJ 1087, 1100 no 113 (1999) (citing cases and discussing Wadleigh v Rhone-Poulenc ___Rorer, Inc, 157 FRD 410 (ND Ill 1994)). In Canada, see Pittman Estate v Bain (1996) 112 DLR (4th) 257. ___86 See, eg, Zaccone v Am. Red Cross, 872 F Supp 457, 460 (ND Ohio 1994) (‘[Red Cross] cannot ___be negligent if it met the generally recognized and accepted practices of blood bank profes___sionals.’); Osborn v Irwin Memorial Blood Bank, 5 Cal Rptr 2d 101, 121 (Cal Ct App 1992) (requiring blood bank ‘to exercise with respect to blood testing and donor screening that reasonable ___ degree of skill, knowledge, and care ordinarily possessed and exercised by other blood banks ___under similar circumstances’). ___87 See Kozup v Georgetown Univ, 663 F Supp 1048, 1057 (DDC 1987) (granting defendants’ mo___tion for summary judgment for failure to obtain informed consent, test and screen blood ade-

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There are, however, several potential avenues for recovery against blood banks, hospitals, and doctors. In his seminal 1972 article, Marc Franklin discussed hypothetical claims based upon failing to ask donors about exposure to diseases, conducting operations in an area occupied primarily by high-risk populations, or receiving blood from commercial rather than volunteer donors.88 Invoking these suggestions from Franklin, the court in Morse v Riverside Hospital dismissed a res ipsa loquitur claim against a hospital, but allowed a negligence claim based on specific allegations of wrongful conduct because issues of fact existed about where the blood bank obtained blood from donors, tested it, and put it in containers.89 But courts more often found that defendants were not negligent, particularly when they followed industry custom and internal guidelines, as in Hines v St Joseph Hospital. In that case, the plaintiff failed to show a breach of the professional duty of care, and the court held that the defendant hospital satisfied its burden of showing due care under the circumstances by complying fully with ‘(a) all existing Federal regulations, (b) all accreditation standards of the American Association of Blood Banks, and (c) Blood Services’ own internal regulations.’90

2. Tort claims prior to the adoption of blood shield laws a) Strict liability claims Before shield laws were in place, plaintiffs sued mostly in strict liability asserting claims based on defective products or breaches of warranty. In the landmark case of Cunningham v MacNeal Memorial Hospital,91 the Supreme Court of Illinois held that the plaintiff stated a valid cause of action for strict liability against a hospital that supplied the plaintiff with defective blood.

_____ quately, or to suggest a directed donation), aff’d in part and rev’d in part, 851 F 2d 437 (DC Cir 1988). But see Ter Neuzen [1995] 3 SCR 674, 127 DLR (4th) at para 73 suggesting that a higher standard than usual would be required to reflect the higher risks associated with prooducts intended to be placed in the body. 88 Franklin, 24 Stan L Rev 439, at 447-55 (1972). 89 339 NE 2d 846, 850 (Ohio App 1974); see also Hutchins v Blood Services, 506 P 2d 449 (Mont 1973) (finding no liability for blood bank where, despite failing to test for hepatitis by measuring liver abnormalities, the facility followed the rules of FDA and the American Association of Blood Banks; no facility in the country routinely used this particular test; and professionals and industry experts did not recommend the test nor consider it useful for screening donors). 90 527 P 2d 1075, 1078 (NM App 1974). 91 266 NE 2d 897 (Ill 1970).

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___The court rejected the defendant’s argument that it was not possible to detect ___the hepatitis virus in the blood; the court refused to find a distinction between a ___case involving infected blood and cases involving canned meat and bottled ___drinks containing foreign objects or impurities, in which strict liability was im___posed on sellers. The court reasoned that the opposite conclusion would evis___cerate the strict liability regime of sec 402A.92 The Cunningham court also re___jected the defendant’s comment k defense by holding that blood did not fall ___within the exception for unavoidably unsafe products.93 ___ Other important cases of the time refused to allow strict liability against 11/92 ___hospitals on the grounds that the blood product was an ‘unavoidably unsafe ___product’ that fell within comment k.94 ___ ___ ___(i) Manufacturing defect or design defect? ___ ___The cases seem to approach contaminated blood under the design-defect um- 11/93 ___brella, but it is unclear whether defective blood products are conceptually best ___treated as design defect or manufacturing defect actions. George Conk argued ___that tainted blood cases are design defect cases that involve a ‘departure from ___its intended design’; he notes that viral contamination was just an ‘acceptable ___risk’, such that the decision to test or not to test blood samples was an element ___of design.95 James Henderson and Aaron Twerski (Reporters for the Restatement ___[Third] on Products Liability), on the other hand, assert that claims against ___blood providers were properly conceptualized as raising claims of manufactur___ ___ 92 Ibid at 902. It relied on comment e of sec 402A to reach this conclusion, which does not ___limit strict liability to artificially produced goods. Comment e provides as follows: ___ ‘Normally the [strict liability] rule stated in this Section will be applied to articles which ___ have already undergone some processing before sale, since there is little in the way of consumer products which will reach the consumer without such processing. The ___ rule, however, is not so limited, and the supplier of poisonous mushrooms which are nei___ ther cooked, canned, packaged, nor otherwise treated is subject to the liability here ___ stated.’ ___Ibid (quoting Restatement (Second), above fn 11, § 402A cmt e). ___93 Ibid at 903-04. ___94 See, eg, Brody v Overlook Hosp, 332 A 2d 596, at 597 (NJ 1972). ___95 George W Conk, The True Test: Alternative Safer Designs for Drugs and Medical Devices in a Patent-Constrained Market, 49 UCLA L Rev 737, 772 (2002). Conk notes that a product’s design ___ includes ‘a multitude of safety-related choices’ such as the materials used and the decision to ___include, or not include, a particular safety device. Ibid no 141 (quoting David G Owen et al, ___Madden & Owen on Products Liability § 8.1 at 438 (3rd edn 2000). Therefore, he argues, con___taminated blood resulted from a defect in the blood product’s design. Id.

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ing defect because contaminated blood deviates from the supplier’s intended design for the product.96 The case law is unclear about whether these claims are more appropriately classified as design defect or manufacturing defect. In Cunningham, the court conceded that human blood is not a manufactured product: ‘While whole blood may be viable, human tissue, and thus not a manufactured article of commerce, we believe that it must in this instance be considered a ‘product’ in much the same way as other articles wholly unchanged from their natural state which are distributed for human consumption.’97 A look at how these blood products are actually produced may shed some light on the design/manufacturing distinction. The central problem transfusions sought to cure was hemophiliacs’ need for blood coagulants called ‘factor concentrate’.98 There is now recombinant factor concentrate available, but at the time of the hepatitis and AIDS epidemics, the only solution for hemophiliacs was to create concentrate ‘manufactured from blood plasma collected from thousands of different donors.’99 Plasma from a single infected donor contaminated this entire pool of factor concentrate.100 Blood providers continued to prescribe factor concentrate despite the risk, and methods for detecting and neutralizing the virus were being researched – although no reliable test for infection existed at that time.101 Heat pasteurization proved effective, but it was not implemented until well after these epidemics.102 The best test during the 1970s and 1980s was the hepatitis-associated antigen (HAA) test, which was about 25 percent successful in identifying the blood of carriers.103

_____ 96 James A Henderson, Jr/Aaron D Twerski, Drug Designs Are Different, 111 Yale LJ 151, 160 (2001). 97 47 NE 2d at 899. The Colorado Supreme Court cited this passage from Cunningham when it held that the blood bank was in the business of selling blood. Belle Bonfils Memorial Blood Bank v Hansen, 579 P 2d 1158, 1159 (1978). 98 Conk, 109 Yale LJ 1087, at 1107 (1999). 99 Ibid. 100 Ibid at 1108. 101 Ibid at 1109. 102 Ibid. 103 Franklin, 24 Stan L Rev 439, at 444 (1972). It costs only about 40 cents per unit of blood, where this unit is typically sold for $25, but was still not widely adopted during this period. Ibid at 441, 444. Franklin cites a startling figure: ‘paid donors in large urban centers were 10 to 15 times more likely to transmit hepatitis than were volunteer donors’, which subsequent application of the HAA test corroborated. Ibid at 444. The question then is whether hospitals and blood banks should continue to obtain blood by paying donors $5 or $10 (in 1972), which, for example, was the source of about one-third of Los Angeles’s blood at the time; or, whether hospitals and blood banks use exclusively volunteer donations, as was the case in San Francisco and most of northern California. Ibid at 441-42.

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___(ii) Product or service? ___ ___US courts disagreed over whether blood is a product or service; only the for___mer – selling a product – creates liability under sec 402A, and cases have come ___out both ways on the product/service distinction.104 It is clear in Canada that ___blood is not a product and not governed by statutory sales legislation.105 ___ The blood shield laws characterize blood as a service rather than as a prod106 ___uct. But before the adoption of these statutes, courts were divided, with many ___taking the view that blood was a product subject to strict liability. ___ Interpreting sec 402A, the court in Cunningham held that blood constituted ___a ‘product’ and that the hospital was in the business of ‘selling’ that pro___duct even if it is an ‘ancillary part of the services rendered to that patient’.107 A ___Washington court also imposed strict liability on a blood bank through ___sec 402A, as the transaction between the hospital and blood bank ‘had all the ___attributes of a sale’ when the hospital paid the blood bank for each container of ___blood.108 The Supreme Court of Florida likewise held that blood was a product ___on the grounds that the blood bank transferred it to the plaintiff in return for ___consideration, and because blood is a product intended for human consump___tion just like a vaccine or food product is.109 ___ Cunningham stands in opposition to Perlmutter v Beth David Hospital, where ___the New York Court of Appeals refused to allow the plaintiff to recover on a the___ ___ ___104 Start with the basic distinction between goods and services for the purposes of the Re___statement (Second). At one end there are pure inanimate goods such as cars or power tools that fall easily within sec 402A. At the other end are pure services such as travel agency arrange___ ments or architects’ plans, which courts have held not to be subject to strict liability. In be___tween are the more difficult cases involving things like the installation of concrete walkways or ___the fitting of contact lenses by an optometrist. See, eg, Barbee v Rogers, 425 SW 2d 342 (Tex ___1968) (involving contact lenses, where the appointment was held to be a service). ___105 See Ter Neuzen v Korn [1995] 3 SCR 674 at para 73. ___106 Charles E Cantu, The Illusive Meaning of the Term ‘Product’ under Section 402A of the Restatement Second of Torts, 44 Okla L Rev 635, 651 (1991); see also Franklin, 24 Stan L Rev 439, at ___ 474-76 (1972) (discussing how the early blood shield laws used the product/service distinction ___to immunize blood products, while some later statutes simply declared that blood transfusions ___would not be subject to strict liability). ___107 47 NE 2d 897, 900 (Ill 1970). ___108 Reilly v King Cnty Cent Blood Bank, 492 F 2d 246 (Wash Ct App 1971). For another example, see Hanson v Mercy Hospital, Denver, where the court allowed a strict liability claim against a ___ blood bank, which actually sold blood to a hospital, as well as a claim for breach of implied ___warranty because privity was no longer a barrier to such suits. 570 P 2d 1309, 1310-11 (Colo Ct ___App 1977). ___109 Rostrocki v SW Fla Blood Bank, Inc, 276 So 2d 475, 476 (1973).

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ory of breach of warranty by holding blood was not a ‘sale’ within the meaning of the state Sales Act – rather, it was an incidental feature of the services provided by the hospital.110 The court reasoned, ‘The supplying of blood by the hospital was entirely subordinate to its paramount function of furnishing trained personnel in specialized facilities in an endeavor to restore plaintiff’s health.’111 And many other states followed this approach.112 To sort through the thicket of hybrid product-service transactions in the context of blood products, William Powers suggests using the ‘proof rationale’ of strict liability to determine whether the case involves primarily the sale of a product or a service. This proof rationale is the idea that strict products liability should be justified in some cases by the extreme burden on the plaintiff to prove specific acts of negligence.113 Then, a court may take one of two approaches: looking broadly and using an ‘essence of the transaction’ test or scrutinizing the transaction to determine the difficulty of proof with respect to individual elements of the transaction.114 The broader ‘essence’ test has also been referred to

_____ 110 123 NE 2d 792, 794 (NY 1954) (prior to the adoption of the Restatement [Second]). 111 Ibid at 795. One distinction to keep in mind is that the plaintiff here went in for surgery, where the transfusion could very well be seen as ‘incidental’; the transfusion looks much more central in cases such as Cunningham and Rostrocki where the plaintiff goes in simply for treatment of hemophilia. Moreover, the notion from Perlmutter that blood is just an element of a ‘service’ begins to break down when one considers the various ways in which a hospital can obtain its blood supply. If a hospital receives donations itself and provides that blood to its patients, it looks like a type of supply, and service, just like providing gauze or iodine. See Irwin H Haut/Aaron A Alter, Blood Transfusions – Strict Liability? 43 St John’s L Rev 557, 563 (1968). But as soon as a hospital goes to blood banks, there is a sale between these two entities; the only difference between volunteer blood banks and commercial blood banks is that the commercial ones seek a profit. In both cases the blood bank charges the hospital. Ibid at 563-64. This transaction thus appears to be a sale because it involves an exchange of goods with consideration. Ibid at 564. Some courts have still held that transfusions are a service regardless of whether the blood comes from the hospital or blood banks. Perlmutter, 123 NE 2d at 794; accord Balkowitsch v Minneapolis War Memorial Blood Bank, Inc, 132 NW 2d 805 (Minn 1965). 112 See Haut/Alter, 43 St John’s L Rev 557, at 562 (1968) (citing cases). 113 See William C Powers, Jr, Distinguishing Between Products and Services in Strict Liability, 62 NC L Rev 415, 425 (1984) (citing Escola v Coca-Cola Bottling Co, 150 P 2d 436, 441 (Cal 1944) (Traynor, J, concurring)). 114 Ibid at 430-31. Consider the example of a plumber who installs a water heater; under the former view, the court would see it as a single transaction and not inquire into whether the installation was defective or the water heater was defective, but under the latter view, the court would look in detail into the act of installation as well as the composition and potential defect of the heater. Ibid; see also Bonebreak v Cox, 499 F 2d 951 (8th Cir 1974) (using the broader test); Barbee, 425 SW 2d 342 (Tex 1968) (employing the narrower test).

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___as the ‘predominant factor’ inquiry, which is the dominant standard and re___quires a jury finding the real thrust of the bargain.115 ___ ___ ___3. The effect of latent infection for strict liability and negligence claims ___ ___Infection from blood transfusions may present an additional problem for plain- 11/101 ___tiffs seeking to recover under either negligence or strict liability theories. Both ___types of claims may be time-barred if the plaintiff does not discover her infec___tion until years after the actual transfusion, eg, she discovers the infection in ___2012 when she underwent the transfusion in 2001 – and such a delay is common ___with viruses such as HIV.116 ___ In these cases, plaintiffs suing under either strict liability or negligence may 11/102 ___encounter the same problem: statutes of repose.117 The time periods will likely ___differ among states, and the claims under the blood shield statutes may be gov___erned by negligence, products liability, or personal injury statutes of repose or ___limitations depending on the jurisdiction. 118 But as one example, consider ___Spence v Miles Laboratories, Inc,119 where a Tennessee federal trial court held ___that blood was a ‘product’ that fell within the statute of repose for products li___ ___ 115 See Charles E Cantu, A New Look at an Old Conundrum: The Determinative Test for the ___Hybrid Sales/Service Transaction Under Section 402A of the Restatement Second of Torts, 45 ___Ark L Rev 913, 923-24 (1993) (citing the Bonebreak case, where the court used this test to resolve ___a case involving the installation of a bowling lane). Cantu argues that this approach is easy to ___apply, and simply involves asking whether the plaintiff entered into the bargain wishing to purchase a product as opposed to an associated service. Cantu, 44 Okla L Rev 635, at 643-44 ___ (1991). ___116 See, eg, Stages of HIV, US Dep’t of Health & Human Services (6 August 2009), (de___scribing life cycle of HIV and the latency period where one may not exhibit symptoms, which ___‘can last up to 8 years or longer’). ___117 Statutes of repose are similar to statutes of limitations, except that they begin to run from the time the product is first sold, rather than from the time when the plaintiff suffers harm, as is ___ the case for statutes of limitations. ___118 See, eg, Silva v SW Fla Blood Bank, Inc, 601 So 2d 1184 (Fla 1992) (holding that actions ___against blood bank were governed by four-year negligence statute of limitations rather than ___two-year medical malpractice statute of limitations); Walls v Armour Pharm Co, 832 F Supp 1467 ___(MD Fla 1993) (applying products liability statute); Doe v Am Nat’l Red Cross, 500 NW 2d 264 (Wisc 1993) (holding applicable time period was that of personal injury statute). ___ 119 810 F Supp 952 (ED Tenn 1992, aff’d, 37 F 3d 1185 (6th Cir 1994); accord Jones v Methodist ___Healthcare, 83 SW 3d 739 (Tenn Ct App 2001); see also Kaminar v Canas, 653 SE 2d 691 (Ga ___2007) (barring plaintiff’s claim for negligent failure to diagnose AIDS condition under five-year ___limit in statute of repose).

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ability actions, regardless of the plaintiff’s theory of liability. This law required that ‘the action must be brought within ten (10) years from the date of which the product was first purchased for use or consumption’,120 and given that the plaintiff had been infected thirteen years before he filed suit, the court barred the claim. Even assuming that a plaintiff could bring a strict liability action against a blood provider in 2012 (which is not the case, because nearly every state bars strict liability claims under blood shield laws121), the claim may still be dismissed because of courts’ reliance on statutes of repose in other contexts.122 Where statutes of repose have not come into play, however, courts have tended to hold that the limitations period does not begin to run until the date of discovery of the injury.123 Because of the prevalence of blood shield laws, the relevant cases have involved claims sounding in negligence, where courts tend to look favorably on plaintiffs, such as in the case of DiMarco v Hudson Valley Blood Services.124 There, a New York appellate court, applying a negligence statute of limitations, concluded that ‘where plaintiff alleges injuries as a result of the latent effects of defendants’ negligence in exposing him to blood infected with the AIDS virus, the statute of limitations shall be computed as of the date of plaintiff’s discovery of his illness.’125 The court reasoned that the three-year period in this statute was ‘enacted to remedy a widespread injustice of the common law rules in determining the time of accrual of an action’, because ‘New York courts had steadfastly refused to alter the ancient doctrine that in tort cases the statute of limitations runs from the date the injury is inflicted, regardless of when the injury is actually discovered.’126

_____ 120 Tenn Code Ann § 29-28-103(a) (West 2013). 121 See above no 11/86 (noting prevalence of blood shield laws). See also David v Our Lady of the Lake Hospital, Inc, 849 So 2d 38 (La 2003) (holding that plaintiff’s strict liability claim for conduct before the enactment of the relevant blood shield law was also barred by prescriptive medical malpractice statute, which had a three-year limitations period). 122 See, eg, Groth v Sandoz, Inc, 601 F Supp 453 (D Neb 1984) (barring claim against drug manufacturer under 10-year statute of repose, regardless of whether the plaintiff used theories of negligence, strict liability, breach of warranty, or fraudulent misrepresentation); Ruiz v Harris Corp, 532 F Supp 139 (ND Ill 1980) (barring plaintiff’s action against manufacturer of paper cutting machine because 12-year limitations period had expired). 123 See, eg, Chambarry v Mount Sinai Hosp, 615 NY S 2d 830, 834 (App Div 1994) (‘[T]he court concludes that the Statute of Limitations here must be computed as having begun to run upon the discovery by [plaintiffs] of their seropositive status.’); Smith v McComb Infirmary Ass’n, 196 So 2d 91, 93 (Miss 1967) (allowing claim where ‘the statute of limitations began to run from the date of the infant’s death in December 1964 and not from the time of the alleged negligent act in 1958’). 124 542 NY S 2d 521 (App Div 1989). 125 Ibid at 524. 126 Ibid.

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___C. Commentary ___ ___1. Justifications for strict liability ___ What does your analysis demonstrate about the reasons for introducing strict product li___ ability? In particular, why are ordinary principles of fault-based, vicarious and contractual ___ liability considered insufficient? What does your analysis demonstrate about the justifica___ tions that may be given for strict product liability? Do these justifications apply where (as ___ in the present case) the injury is caused by a non-standard product and results from a fail___ ure to identify a pre-existing defect in the individual product? ___ ___ Courts have often overtly relied on policy considerations to justify their de- 11/104 ___cisions in blood product cases.127 ___ Marc Franklin has identified four basic justifications for liability without 11/105 ___fault: (1) difficulty of proof of negligence, given that the defendant typically has ___complete control and expert knowledge of the production process; (2) incen___tives for safer alternatives, based upon the defendant’s knowledge and access ___to production techniques; (3) resource allocation, such that the market should ___reflect through higher prices the costs certain products impose upon society; ___and (4) loss spreading, in order to minimize the harm imposed on each individ___ual.128 ___ ___ ___a) Difficulty of proof of negligence ___ ___Under the difficulty of proof rationale, strict liability seeks to reach the right re- 11/106 ___sult where, even if the plaintiff can take advantage of an inference of negligence ___via res ipsa loquitur, she may nonetheless be at a disadvantage in terms of re___butting the defendant’s affirmative evidence of due care.129 Whether a doctor, ___blood bank, or hospital may be a defendant, this is not a persuasive rationale ___for imposing strict liability for blood products. As Franklin notes, negligent acts ___ ___ 127 For some courts, the distinction lies not in whether the blood transfusion is a sale of a ___product or service. As the court stated in Jackson v Muhlenberg Hospital, ‘It makes no difference ___whether the transaction was a sale or a service if the basic policy considerations which lead to ___strict liability are applicable.’ 232 A 2d 879, 884 (1967). ___Two commentators have suggested deciding blood product cases on policy reasons altogether; courts should come to the right conclusion, and reject the ‘artificial reasoning’ in Perlmutter ___ and other cases that struggle with the sale-service distinction. Haut/Alter, 43 St John’s L Rev ___557, at 574 (1968). ___128 Franklin, 24 Stan L Rev 439, at 461-65 (1972). ___129 Ibid at 461.

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should not be difficult to prove: records are kept at the blood facilities, witnesses should be available, and the hospital where a blood transfusion takes place is unlikely to be a great distance away from the blood bank.130

b) Incentive for safer alternatives Strict liability as an incentive for safer alternatives has more purchase in the context of blood products. Critics of the blood shield laws have argued that insulating blood providers from strict liability has diminished manufacturers’ incentives to innovate.131 Critics of FDA charge that it has been too passive with respect to monitoring the blood supply and encouraging manufacturers to innovate.132 This policy choice derives from Justice Traynor’s concurrence in Escola v Coca-Cola Bottling Co, in which he emphasized the superior information available to the defendant: ‘Even if there is no negligence, however, public policy demands that responsibility be fixed wherever it will most effectively reduce the hazards to life and health inherent in defective products that reach the market. It is evident that the manufacturer can anticipate some hazards and guard against the recurrence of others, as the public cannot.’133 Franklin elaborates on Traynor’s argument: If the manufacturer is forced to bear all its costs, he argues, then it will have an incentive to seek that ‘optimal accident level for its product’.134 Strict liability might compel blood banks to change their sources of supply; or to a volunteer-versus-compensation-based system; or, if on the basis of compensation, they might offer larger sums of money to attract more reliable do-

_____ 130 Ibid at 462. 131 See, eg, Conk, 109 Yale LJ 1087, at 1100 (1999) (arguing that blood shield laws give ‘no incentive to pursue research and development of pasteurization techniques to reduce the risk of contracting hepatitis (and later HIV) from the blood supply.’). 132 See, eg, ibid at 1110-11 (citing Institute of Med, HIV and the Blood Supply: An Analysis of Crisis Decisionmaking (1995)); see also Comment, Linda M Dorney, Culpable Conduct with Impunity: The Blood Industry and the FDA’s Responsibility for the Spread of AIDS Through Blood Products, 3 J Pharm & L 129, 142-49 (1994) (discussing the underenforcement of FDA regulations and the failures of the agency to require adequate testing and monitoring of blood providers). According to Conk, the experience of hemophiliacs can serve as an example of underenforcement by FDA, stifled recovery for victims, and stunted innovation in drug markets. See Conk, 109 Yale LJ 1087, at 1130 (1999) (‘The tragedy of the hemophiliacs demonstrates the limitations inherent in this [FDA] structure.’). 133 150 P 2d 436, 440-41 (1944). 134 Franklin, 24 Stan L Rev 439, at 462 (1972).

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___nors.135 This safety rationale could also apply to hospitals, if the hospitals had ___different banks at their disposal or chose to set up its own bank. But it is unclear ___whether a hospital can expect to be able to pass on these extra costs to pa___tients.136 ___ The court in Glass v Ingalls Memorial Hospital opined that safety incentives 11/110 ___would not be served by imposing strict liability on a hospital because of the un___availability of tests to discover hepatitis in blood or human organs.137 Of course, ___the imposition of strict liability might lead hospitals to devote more resources to ___researching tests to find these contaminants. ___ ___ ___c) Resource allocation ___ ___The resource allocation justification proposes that the price charged by a manu- 11/111 ___facturer should include the social costs as well as those for labor and material. ___The idea is that consumers should be able to choose among products that have ___different social impacts because the harm they cause will be reflected in the ___price.138 Considering blood banks, this justification may not hold much weight ___because the market does not control the allocation of blood.139 Commercial ___blood banks and volunteer-based banks such as the Red Cross should be able to ___sell their blood at the same rate, at least where both types of banks are available ___to hospitals.140 But, what happens in reality is that the Red Cross charges a proc___essing fee that covers its costs, so that it charges less than the commercial ___banks, and allocates blood on a first-come first-served basis – not on the basis ___of which patients are willing to pay the most.141 With respect to hospitals, strict ___liability suggests that hospitals with greater rates of contamination would have ___to raise prices and thus lose customers to those hospitals with cleaner re___ ___ ___135 Ibid at 466. ___136 Ibid at 470-71. 137 336 NE 2d 495, 498 (Ill App 1975) (also distinguishing Cunningham and deferring to the ___ legislature’s sound judgment in enacting the shield law). Cases like Glass echo the idea pro___posed by the Reporters of the Restatement (Third) that plaintiffs still would not have prevailed ___in this era under Conk’s sec 2 alternative-safer-design analysis because they were unable to ___prove that ‘an alternative method of decontaminating blood was reasonably available at the ___time of sale.’ Henderson/Twerski, 111 Yale LJ 151,161. 138 Franklin, 24 Stan L Rev 439, at 463 (1972). ___ 139 Moreover, the demand for blood may be largely inelastic. As a result, activity levels will ___not be diminished by higher prices, which is the point of building in the costs of accidents. ___140 Ibid at 468-69. ___141 Ibid.

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cords.142 Yet this will not hold if a single blood bank supplies all the hospitals in the area.143

d) Loss spreading The loss spreading justification for liability without fault seems strong in cases involving both blood banks and hospitals. The notion here is the basic ‘desirability of maximizing the number of persons bearing a loss in order to minimize its impact on each individual.’144 The loss spreading rationale complements the resource allocation rationale (as losses will typically be spread via increases in prices) and also bears on the safety alternatives rationale (buttressing the cheapest cost avoider rationale, where, as Justice Traynor emphasized in Escola, the manufacturer knows the risks and has information about whether or not the risks can be reduced).145 But significantly, the loss spreading rationale relies on the doctrine of the diminishing marginal return of money, which is basic to the institution of insurance. The loss spreading rationale rests on the assumption that the manufacturer will be in a better position than individuals to insure against losses.146 The Cunningham court acknowledged the availability and affordability of insurance for hospitals.147 On the other hand, the court in McDonald v Sacramento Medical Foundation Blood Bank found that loss spreading would be the only policy consideration conceivably served by strict liability, but that factor alone could not justify imposing liability without fault.148 In general, the loss spreading justification seems the strongest with respect to blood banks and hospitals. But, as a stand-alone justification, it suffers from the one-way ratchet effect, providing a reason for imposing liability on entities able to insure against losses, but not suggesting any limitation, regardless of outcomes in terms of preventing accidents.

_____ 142 Ibid at 471. 143 Ibid. 144 Ibid at 463. 145 For a general discussion of loss spreading, as well as the applicability of this justification to competitive and monopoly markets, see Guido Calabresi, Some Thoughts on Risk Distribution and the Law of Torts, 70 Yale LJ 499, 517-27 (1961). 146 Ibid at 469. 147 266 NE 2d at 904. 148 133 Cal Rptr 444, 448 (Cal App 1976).

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___2. Government compensation ___ ___In Canada, governments have played a more active role in compensating vic- 11/115 ___tims of tainted blood. The Krever Commission149 found that negligence law was ___an inadequate response to promoting safety in the blood distribution networks, ___and an inadequate source of effective victim compensation. It did not consider ___strict liability in tort as an alternative. Instead it recommended that the govern___ment introduce a publically funded no-fault compensation scheme to replace ___tort altogether. Only the Province of Quebec adopted this recommendation.150 ___However, other Canadian governments, while retaining the option to sue in neg___ligence, adopted optional public programs to compensate the victims of tainted ___blood.151 ___ ___ ___Case 3: Bridge Collapse152 ___ ___ A, a pedestrian using a public right of way, is injured by the collapse of a bridge constructed by X Ltd on land belonging to Y, who commissioned the construction, on the ba___ sis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires ___ that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a dif___ ferent architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is ___ obliged to construct the new bridge for no additional remuneration. ___ ___ ___ ___ 149 See above fn 81. ___ 150 An Act to Amend Various Legislative Provisions Concerning Health, SQ 2009, c 45, ___amending RSQ 1998, c H-1.1 [Act]. ___151 Compensation programs for individuals with HIV or Hepatitis C, information gathered by ___the Canadian Hemophilia Society during the summer of 2009, Canadian Hemophilia Society, ___. 152 The Quebec Civil Code contains numerous provisions dealing specifically with the re___ sponsibilities of owners, contractors and architects in cases like this one. A pedestrian can sue ___the architect, the contractor or the owner (or these three jointly) based on fault similar to com___mon law negligence according to sec 1457 of the Civil Code: 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. ___ Section 1467 of the Civil Code deals specifically with a claim against the owner for injuries ___ arising from the ruin of an immovable, such as the bridge in this example. The owner can ___ sue the architect according to sec 1458 of the Civil Code of Quebec for breaching an obliga___ tion stated in the contract. See also secs 2100, 2118 and 2119, para 1 of the Civil Code of ___ Quebec.

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A. Analysis What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and so subject to strict product liability, or does it merely represent the performance by Z of a service, to which some alternative liability regime applies? What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a direct claim or a recourse action?

1. X Ltd’s (‘X’) liability to A From the case description, we infer that X never owned nor sold the bridge that it constructed. Thus, aside from the matter of whether strict products liability applies to real property, X would not be subject to strict products liability because it is not a seller.153 Contractors, who would be categorized as providing a service, are subject to liability based on negligence in the construction process. Since nothing in this case prompt suggests any negligence by X, it would have no liability to A.

2. Y’s liability to A Y’s liability to A would be determined by a body of law distinct from products liability. Once again, Y is not a seller of a product nor is it engaged in the business of selling bridges, so products liability would not apply. Y might be liable for negligence in the selection of Z to design the bridge. Thus, if Y acted unreasonably in hiring Z, for example by not conducting due diligence as to Z’s experience and credentials to design such a bridge, Y may be liable to A. Since Z is an independent contractor of Y154 (no facts suggest suffi-

_____ 153 Both the Second and Third Restatements limit products liability to sellers (or distributors such as lessors) who are engaged in the business of selling. See Restatement (Third) of Torts: Products Liability § 1 (1998) (‘One engaged in the business of selling or otherwise distributing products who sells or distributes a defective product is subject to liability for harm to persons or property caused by the defect.’); Restatement (Second) of Torts § 402A(1)(a) (1965) (liability limited to a seller ‘engaged in the business of selling such a product’). 154 Although ordinarily hirers of independent contractors are not vicariously liable for the negligence of their independent contractors, there are a number of exceptions. See Restatement (Third) of Torts: Liability for Physical and Emotional Harm §§ 57–65 (2012). Section 65 addresses apparent agency. Thus, if the services of an independent contractor are accepted in the reasonable belief that the contractor is an employee of the principal, the principal may be vicariously liable for the torts of the apparent agent.

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___cient control of Z by Y to establish an employer-employee relationship), Y would ___not be vicariously liable for Z’s tortious conduct. ___ Another source of Y’s liability would be in its role as the owner of land on 11/119 ___which A was injured. Jurisdictions in the US do not universally impose a duty of ___reasonable care on land owners for entrants on the land. About half of the states ___impose such a duty with respect to those who enter by express or implied per___mission (as opposed to trespassers), but the other half rely on the status of the ___entrant to determine the duty owed. In the latter jurisdictions, A, as the user of a ___public right of way, would be classified as a licensee and owed only a limited ___duty of warning of dangers that were known to (or perhaps reasonably discov___erable by) the landowner, but not to the entrant. The land owner must also ___avoid wanton or willful conduct that might harm the entrant. ___ Even under the reasonable care standard, liability would not be imposed 11/120 ___unless Y knew or should have known that there was a defect in the bridge pos___ing a risk to users. While we could imagine unusual facts in which there might ___be an obligation to inspect and assess the safety of a new bridge, in their ab___sence, we think that most courts would withdraw the issue of Y’s liability to A ___from jury consideration and render judgment for Y. ___ ___ ___3. Z’s liability to A ___ ___Under US law, the architectural ‘plan’ would not be considered a product but 11/121 ___instead would be treated as a service.155 Services are not subject to the warran___ties contained in the Uniform Commercial Code, which is limited to tangible ___goods.156 Nor would the package provided by the architect be treated as a prod___uct for strict liability purposes.157 Two other doctrinal bases that might be the ___ ___ ___155 The goods/services distinction has been criticized by a prominent common law torts com___mentator. See Jane Stapleton, Bugs in Anglo-American Products Liability Law, 53 SC L Rev 1225, 1253 (2002) (commenting on ‘the artificiality of any product/service distinction in our law of ob___ ligations and the incoherence of the idea that products liability can sensibly look at the prod___uct and not the human behaviour surrounding its production and handling’). ___156 UCC § 2-105(1). ___157 Kevin R Sido/Frances O’Meara/Amy K Jensen, Architect and Engineer Liability: Claims ___Against Design Professionals § 20.04 (2013) (‘The courts are presently unanimous in holding that the design professional who merely provides a service is immune from strict liability.’); ___ James Acret, Architects and Engineers § 6:7 (4th edn 2012) (‘In cases that have given explicit ___consideration to the subject, courts have held that the doctrine of strict liability will not be ap___plied to architects.’); see also Chubb Group v CF Murphy & Associates, Inc, 656 SW 2d 766 (Mo ___App 1983) (designer of arena not subject to strict products liability).

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basis for denying strict liability would be that Z’s plan did not reach A without substantial change by X, which constructed the bridge158 and that architects often provide in the terms of their contractual engagement that they retain ownership of the design plans and only provide architectural services to the engaging party.159 Any basis for Z’s liability to A would arise from negligence where the relevant standard of care would be found in those applied to professionals.160 Thus, the issue would be whether Z’s design deviated from that customarily used by other reasonable professional architects and would require expert architect testimony to explain that standard.

4. Z’s liability to X and Y Any liability of Z directly to X or Y would be based on the contractual arrangement between the parties rather than tort law. Both X and Y are only making claims for economic loss.161 Especially when the parties have a contractual relationship,162 tort law in the US defers to contract and leaves to the parties’ agreement the determination of who should bear the costs of that type of harm. Since neither X nor Y would be held vicariously liable for Z’s negligence, neither one would have an indemnity claim against Z that would entitle them to recover all of their liability to A from Z. With regard to a contribution claim, joint and several liability is no longer the majority rule in the US. A modest number of states have either joint and several liability or pure several liability, but the majority have some form of hybrid of the two, such as a rule that only tortfeasors assigned a percentage of responsibility above a specified threshold are jointly

_____ 158 Section 402A required that the product ‘reach the user or consumer without substantial change in the condition in which it is sold.’ Restatement (Second) of Torts § 402A(1)(b) (1965). See K-Mart Corp v Midcon Realty Group of Connecticut, Ltd, 489 F Supp 813 (D Conn 1980). 159 A standard architectural services agreement quoted in a treatise about architect liability provides that ‘drawings and specifications as instruments of service are and shall remain the property of the architect whether the Project for which they are made is executed or not.’ See Sido et al, Architect and Engineer Liability: Claims Against Design Professionals § 20.04 (2013). 160 See above no 11/88. 161 Y also appears to have suffered property damage due to the destruction of the bridge in its collapse. However, the property damaged is the subject of the contract between Y and Z and Y and X. US courts would treat such damage in the same fashion as economic loss – leaving the allocation of the risk of loss to the parties’ agreements. See, eg, East River Steamship Corp v Transamerica Delvavel Inc, 476 US 858 (1986). 162 Although it is not clear that there is a contractual relationship between X and Z.

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___and severally liable while those at or below the threshold are severally liable. In ___jurisdictions with pure or some joint and several liability, if two or more of X, Y, ___and Z were held liable to A, anyone who paid more than its comparative respon___sibility share of the damages to A could maintain a contribution-recourse action ___against the others found liable.163 ___ ___ ___B. Commentary ___ What does your analysis demonstrate about the coherence of strict product liability as it ___ exists in your jurisdiction, paying particular attention to the limits on its scope. Identify ___ the various alternative types of liability that could arise (including contractual liability), ___ and highlight the main differences between them. To what extent is liability for immov___ ables different from liability for movables, and is this justified? To what extent is liability ___ for the supply of services different from liability for the supply of products, and is this justified? ___ ___ ___As revealed in the analysis above, liability, if at all, for the actors in this exam- 11/125 ___ple would be based on negligence not strict liability. To the extent that strict li___ability does apply to sellers in the US today, that liability is largely limited to ___manufacturing defects, defects that cause a product to fail in a way that it ___should not,164 and sellers of defective products in the chain of distribution who ___are not responsible for those defects. There are some reasonable bases for distinguishing the strict liability identi- 11/126 ___ fied above with architect, owner, and contractor liability. First, none of the ac___ ___tors in this example enter into repeated transactions for the same goods that ___would enable them to spread the cost of non-negligently caused harm. Second, ___the difficulties of proof of negligence faced by those in A’s position in general do ___not appear as daunting as they might be to prove how a manufacturing defect or ___a defect responsible for product failure occurred. A should be able to identify ___the defect and negligence in the architectural design with the assistance of an ___expert. As with manufacturing defects, res ipsa loquitur may be available, al___though it would likely require expert testimony to explain that bridge failures ___such as occurred in this case ordinarily are the result of negligent design. A cri___tique of this analysis might point out the difficulty of A proving whether it is X ___or Z’s negligence that was responsible for the bridge collapse. A would, how___ ___ 163 When a partial settlement, ie, with less than all liable tortfeasors, occurs, recourse is often ___governed by state statutes that adopt two different bases, which also have some variations. See ___Restatement (Third) of Torts: Apportionment of Liabilitly § 16 (2000). ___164 See Restatement (Third) of Torts: Products Liability § 3 (1998); above no 11/58.

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ever, be assisted in such proof by the self-interest of X and Z who each of whom would have an incentive to demonstrate that it was the other’s negligence. Finally, although this case example specifies that the architectural design was defective, determining whether an architectural design is defective would generally be more difficult than the self-referential determination of whether a manufacturing defect exists. Services, because of their variability, generally are less amenable to deviation-from-the-norm assessments than are chattels.

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___Enrique Barros Bourie, Anton Fagan, Mark Lunney ___and Ronen Perry ___ ___ ___Enrique Barros Bourie, Anton Fagan, Mark Lunney and Ronen Perry Product Liability in the Rest of the World https://doi.org/10.1515/9783110547559-014 ___Contents ___Part I: General Questions | 413 I. Jurisdictions Covered | 413 ___ II. Overview of Specific Product Liability Regimes | 413 ___ III. Overview of Alternative Claims Available | 419 ___ ___Part II: Cases | 424 Case 1: Brake Pad Failure (Anton Fagan) | 424 ___ Case 2: Infected Blood (Ronen Perry) | 443 ___ Case 3: Bridge Collapse (Enrique Barros Bourie and Mark Lunney) | 464 ___ ___Annex | 496

Product Liability in the Rest of the World

___ ___ ___Part I: General Questions ___ ___I. Jurisdictions Covered ___ ___This report covers Australia, Chile, Israel and South Africa. Israel and South 12/1 ___Africa are ‘mixed jurisdictions’, markedly influenced by both Common and Civil ___Law traditions, which for that reason demand inclusion in any broad-based ___comparative legal research. Australia and Chile are, respectively, Common Law ___and Civil Law jurisdictions, and they offer a perspective on how these two broad ___traditions have extended their reach to other parts of the world, adapting ___themselves in the process to local circumstances. ___ ___ ___II. Overview of Specific Product Liability Regimes ___ ___Contributors were asked: Does a specific product liability regime apply in your 12/2 ___national system? How does it compare with other product liability regimes you ___are aware of? ___ ___ ___ ___ ___ https://doi.org/10.1515/9783110547559-014

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A. Australia (Mark Lunney) Australia has a specific product liability regime which was introduced in the early 1990s and is now contained in Part 3-5 of the Australian Consumer Law (which is a schedule to the Competition and Consumer Act 2010 (Cth)). The current scheme is similar in form to the initial scheme with one main jurisdictional difference. Because of its federal structure, the federal (Commonwealth) government has limited legislative competence (the areas in which it can legislate are set out in the Commonwealth Constitution). Prior to the 2010 reforms, the main constitutional base for Commonwealth legislation on products liability was the corporations power in the Australian constitution, and the previous products liability regime was limited to corporations. Although some of the state and territory jurisdictions had passed laws which implemented some measure of consumer protection, there was little uniformity. The result was that there were different levels of protection depending on whether the producer was a corporation or not, and if not, in what jurisdiction the producer operated. As part of the 2010 reforms, it was agreed among the Commonwealth and states and territories that the Australian Consumer Law should be a national law. To that end, all jurisdictions have enacted the Australian Consumer Law so the level of consumer protection, including for defective products, is now uniform throughout Australia. In substance, the product liability regime in Australia largely mirrors that of the European Union (the original legislation was modeled on Directive 85/374). Although much more radical suggestions were made by law reform bodies in the late 1980s, these were never enacted and recent reports from the Productivity Commission (a statutory body set up by the Commonwealth government to review economic consequences of policy changes) suggest that the status quo (in terms of the substance of products liability law) is satisfactory.

B. Chile (Enrique Barros Bourie) Chilean law does not have a specific product liability regime, as is usual in other countries (eg 85/374/EEC). However, in the Chilean Consumer Protection Act there are some rules about product safety. These rules (i) establish an information duty of the vendor, whereby he must alert the customer of the risks associated with products or services that may qualify as hazardous (art 45) and (ii) establish a penalty for the vendor who negligently delivers a defective product or service (art 23).

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___ In any case, it is well accepted that damage caused by defective products or ___services may also give rise to liability according to the general rules relating to ___civil liability. ___ In addition to the Consumer Protection Act, the Planning and Construction ___Act refers specifically to liability for defects in construction. This regulation ___governs the liability of professionals in construction, establishing a regime of ___strict liability for the builder and the owner who is the first-seller (real estate ___developer) of the building (art 18). ___ ___ ___C. Israel (Ronen Perry) ___ ___The Israeli parliament enacted the Liability for Defective Products Act in 1980. ___The Act imposes strict liability on manufacturers for bodily injuries caused by ___defective products that they manufactured (sec 2(a)). If the injury is caused by a ___defective component of a product, strict liability is imposed on the manufactu___rer of the product and on the manufacturer of the component (sec 2(b)). ___ The term ‘manufacturer’ encompasses not only the actual manufacturer of the ___product, but also (1) the person who represented himself as the manufacturer, by ___giving his name or trademark, or in any other way; (2) the importer of a product ___manufactured outside the country; and (3) the supplier of the product – when the ___identity of the actual manufacturer or the importer is unknown (sec 1). The term ___‘product’ encompasses a product’s component or packaging, a fixture or a ___building (sec 1), but the Act does not apply to livestock, birds, fish and ___unprocessed agricultural products (sec 9). A product is ‘defective’ in one of two ___cases: (1) it is likely to cause bodily injury due to a defect; (2) a warning or ___operating instructions are required for safety reasons under the circumstances, ___and they have not been provided or are inadequate in light of the danger (sec 3(a)). ___The product is presumed to be defective if the circumstances of the case are more ___consistent with its being defective than with the opposite conclusion (sec 3(b)). ___ The manufacturer may invoke one of five defences: (1) the defect arose after ___the product was no longer in the manufacturer’s control; (2) the state of ___scientific and technical knowledge at the time when the manufacturer put the ___product into circulation was not such as to enable the manufacturer to know ___that the product did not comply with reasonable levels of safety; (3) the product ___left the manufacturer’s control without his consent, and he took reasonable ___precautions to prevent this, and warned the public about the risk; (4) the victim ___knew about the defect and the ensuing risk, and willingly exposed himself to ___that risk; (5) in the case of severe contributory negligence, the court may reduce ___the amount of damages awarded to the victim (sec 4).

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In determining the scope of damages for loss of earnings and loss of earning capacity the court cannot take into account any income above three-times the average wage. If the award is exempt from tax, damages for lost income should be calculated in accordance with the after-tax income, provided that the deduction from the pre-tax income would not exceed 25% of it (sec 5(a)). Nonpecuniary damages cannot exceed NIS 150,000 (sec 5(b)). The limitation period for proceedings under the Act is three years, but no action can be brought more than ten years after the product left the manufacturer’s control (sec 6). Liability under the Act is non-dispositive. As already mentioned, the Liability for Defective Products Act was enacted in 1980, five years before the approval of Council Directive 85/374/EEC on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products. It is clear, therefore, that the Israeli Act was neither based on or inspired by the Directive itself. Legislative history provides very little evidence about the sources of the Act’s provisions. However, secondary literature (mostly the writings of Israel Gilead and Daniel More) demonstrates that in crafting the Act the legislature did not rely on the relatively developed American law. Rather, it intended to fall into line with European unification attempts, then manifested in the 1977 Convention on Products Liability in regard to Personal Injury and Death (the Strasbourg Convention). There are indeed many similarities between the Act and the Convention. Interestingly, while the Israeli legislature was intended to harmonize local law with European standards, the Directive was ultimately different in many respects from the Convention, so despite some resemblance Israeli law is not fully in line with the prevailing European model.

D. South Africa1 (Anton Fagan) South Africa does have a specific product liability regime. It was created by the Consumer Protection Act 68 of 2008. The most important provisions, for present purposes, are secs 61 and 53. Below are the most relevant passages in the two sections:

_____ 1 In writing this submission, Anton Fagan relied extensively on Max Loubser/Elspeth Reid, Product Liability in South Africa (2012). This is, he thinks, the only comprehensive account of product liability in South African law to appear since the enactment of the Consumer Protection Act.

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Section 61 Liability for damage caused by goods 12/17 (1) Except to the extent contemplated in subsection (4), the producer or importer, distributor or retailer of any goods is liable for any harm, as described in subsec (5), caused wholly or partly as a consequence of – (a) supplying any unsafe goods; (b) a product failure, defect or hazard in any goods; or (c) inadequate instructions or warnings provided to the consumer pertaining to any hazard arising from or associated with the use of any goods, irrespective of whether the harm resulted from any negligence on the part of the producer, importer, distributor or retailer, as the case may be. (4) Liability of a particular person in terms of this section does not arise if – (c) it is unreasonable to expect the distributor or retailer to have discovered the unsafe product characteristic, failure, defect or hazard, having regard to that person’s role in marketing the goods to consumers … (5) Harm for which a person may be held liable in terms of this section includes – (a) the death of, or injury to, any natural person; (b) an illness of any natural person; (c) any loss of, or physical damage to, any property, irrespective of whether it is movable or immovable; and (d) any economic loss that results from harm contemplated in paragraph (a), (b) or (c). Section 53 Definitions applicable to this Part 12/18 (1) In this Part, when used with respect to any goods, component of any goods, or services – (a) ‘defect’ means – (i) any material imperfection in the manufacture of the goods or components, or in performance of the services, that renders the goods or results of the service less acceptable than persons generally would be reasonably entitled to expect in the circumstances; or (ii) any characteristic of the goods or components that renders the goods or components less useful, practicable or safe than persons generally would be reasonably entitled to expect in the circumstances; (b) ‘failure’ means the inability of the goods to perform in the intended manner or to the intended effect; (c) ‘hazard’ means a characteristic that – (i) has been identified as, or declared to be, a hazard in terms of any other law; or (ii) presents a

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significant risk of personal injury to any person, or damage to property, when the goods are utilised; and (d) ‘unsafe’ means that, due to a characteristic, failure, defect or hazard, particular goods present an extreme risk of personal injury or property damage to the consumer or to other persons. Compared to the European Directive 85/374, as well as to § 402A of the US Restatement of the Law Second, Torts and the US Restatement of the Law Third: Products Liability, the South African product liability regime, as created by the Consumer Protection Act, is a conceptual shambles. Here follow some of the difficulties: First, instead of a single ground for liability, namely defectiveness, the Act has five: not merely defectiveness, but also being unsafe, being hazardous, constituting a product failure, and having inadequate instructions or warnings. But the distinctions between these grounds are far from clear. For example, it would seem that any product which is ‘unsafe’ necessarily is either defective, or a failure, or a hazard. Secondly, sec 61(1) seeks to impose strict liability (that is, liability without ‘any negligence’) on producers, importers, distributors and retailers. But sec 1(4)(c) seems to re-introduce negligence as a requirement for liability in the case of distributors and retailers. And it is arguable, at the very least, that the definition of ‘defect’ in sec 53(1)(a) in effect introduces a requirement of negligence also on the part of producers and importers. Thirdly, although pure economic loss is not listed in sec 61(5), that – according to sec 2(7) of the Act, which explains how the word ‘include’ is to be interpreted – does not entail that it is excluded. So can liability for pure economic loss be founded on the Act? Fourthly, sec 53(1)(a) implies that a product is ‘defective’ for the purpose of sec 61(1)(b) if a component in it is. Sections 61(1) and 61(5) together entail that there will be liability for any property damage resulting from a defective product. Does this mean that, if a defective component in a product damages the product itself, liability for that damage can be founded on the Act? Fifthly, sec 51(1)(c) of the Act (this has not been reproduced above) holds that a term in an agreement between a supplier and consumer which purports to ‘limit or exempt [the] supplier … from liability for any loss directly or indirectly attributable to the gross negligence of the supplier’ is void. This suggests that it remains possible for suppliers to exempt themselves from liability for loss resulting from negligence which is not gross. But that is not altogether clear, as sec 51(1)(a) of the Act (also not reproduced above) holds that a term in an agreement between a supplier and consumer is also void if ‘its general purpose or

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___effect is to – (i) defeat the purposes and policies of this Act’. Those purposes and ___policies are set out in sec 3, but in very vague and broad terms. ___ ___ ___III. Overview of Alternative Claims Available ___ ___Contributors were asked: What alternative claims (independent of the special ___regime, if there is one) are available in your national system, and what are their ___principal pros and cons relative to claims under the special regime? ___ ___ ___A. Australia (Mark Lunney) ___ ___Perhaps the most interesting innovation for products liability from the Australian ___perspective is the explicit widening of the class of persons who can sue for certain ___quality guarantees in relation to goods. For some time, there were examples in ___both Commonwealth and state and territory law of contractual warranties as to ___the quality of goods (broadly, the same warranties as were implied in contracts for ___the sale of goods under the various Sale of Goods Acts that the goods were of ___merchantable quality, that the goods corresponded to their sales description, and ___the goods were reasonably fit for their purpose) which could be enforced against ___the manufacturer. Generally, these protections only operated where the plaintiff ___had purchased the goods from a retailer (who had previously been supplied by ___the manufacturer). The idea behind them was to establish a quasi-contractual ___relationship between the manufacturer/producer and the consumer even though ___there was in fact no legally recognised contract. ___ The Australian Consumer Law now provides that producers of goods and ___services are subject to an implied guarantee that the goods or services meet ___certain quality standards. It is clear that a failure to meet some of these stand___ards is actionable not only by the consumer who purchases the goods or ___services but also by ‘affected persons’; this includes persons who acquire title to ___the goods through the consumer (such as by gift or resale). ___ The result of these changes is potentially quite significant. In the case of a ___defective product that does not meet the implied guarantees as to quality implied ___by the statute, an affected person will have a remedy against the manufacturer. As ___it may well be the case that goods that do not meet the implied guarantees as to ___quality will also be defective and hence attract liability under the product liability ___provisions of the Australian Consumer Law, the injured person will have a choice ___of remedies. If it proves easier to establish liability for breach of the implied ___guarantees than to prove that the product is defective, there may be little incentive

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to use the product liability provisions (although potentially there may be different rules relating to quantum in the two actions).2 Suppliers of products remain liable in contract law or under the Australian Consumer Law for breach of any express contractual terms and also for failure to comply with any of the implied guarantees as to quality (where the supply is to a consumer). The liability is not limited to the consumer who acquires the goods but extends to any person who acquires title to the goods through the consumer and who suffers loss as a result of the failure of the supplied goods to meet the required standard. The general law of tort (delict) also applies to defective products. A producer who carelessly manufactures a product that causes personal injury or damage to property (other than the product itself) is very likely to be found liable for the tort of negligence. Unlike the statutory defective product regime, the basis of liability in the tort of negligence is fault, and if the injured person cannot establish fault, the claim will fail. However, examples can be found of courts inferring negligence from the very fact of the accident (using the doctrine of ‘res ipsa loquitur’) and in some cases this inference has come very close to imposing a form of strict liability on the manufacturer.3

B. Chile (Enrique Barros Bourie) The absence of systematic regulation has caused the courts to resort to the general civil rules of liability, which are based on either breach of contract or tort. Product liability is covered by the general presumption of negligence contained in the torts section of the Chilean Civil Code, art 2329. Courts and doctrine have understood that the rule has the effect of reversing the burden of proof, imposing it on the doer/defendant in cases (i) of damage caused by hazardous activities and (ii) when the rules of experience indicate that the doer/ defendant who is in control of the circumstances is to be deemed negligent (res ipsa loquitur). Such interpretation relieves the victim from the burden of proof of negligence and causality, and is more generally applied to product liability. Supreme Court decisions have resolved a problem arising from the legal rule on the statute of limitations for torts actions. Article 2332 expresses that actions ‘shall last for four years from the perpetration of the action’. Traditionally it was understood that the perpetration of the action referred to the time when

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2 See further no 12/219. 3 See Grant v Australian Knitting Mills Ltd [1936] AC 85.

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___the action was committed. However, already established case law counts the ___term from the time when the damage manifested itself. ___ The Consumer Protection Act expressly establishes three alternative ___remedies for non-conforming or defective products: (i) repair free of charge, ___(ii) replacement or (iii) full price refund. For each of these alternatives the rule ___indicates against whom the customers can bring their action, and the corres___ponding statute of limitations (art 21). In contrast, the statute does not establish ___any claims for compensation of harm suffered as a consequence of defective ___products; such suits are ruled by general liability rules. ___ Most actions arising from the Consumer Protection Act may be brought as ___class actions (art 50 ff). In 2010 (as a response to the February 27th earthquake), ___an amendment was introduced into the Planning and Construction Act so as to ___make the procedures contemplated in the Consumer Protection Act applicable ___thereto, thus allowing class actions to seek compensation for harm suffered due ___to construction defects. ___ The regulation of class actions in Chile is incomplete, rendering the proce___dure unclear in important matters such as who is able to bring a class action. In ___addition, the procedure described in the Consumer Protection Act contemplates ___an admissibility stage prior to the actual trial – which is held in a different ___court, dilating the procedure. ___ ___ ___C. Israel (Ronen Perry) ___ ___Section 10 of the Liability for Defective Products Act provides that the Act does ___not exclude any other cause of action. Thus, a person injured by a defective pro___duct may resort to the general law of torts and in some cases to the law of con___tracts or to consumer protection law. I will discuss each of these in turn, and ex___plain the relative advantages and disadvantages it may have compared to the ___Act. ___ A person injured by a defective product can frequently sue the manu___facturer in torts. Israeli negligence law is a codification of the landmark English ___House of Lords decision in Donoghue v Stevenson,4 which dealt with bodily ___injury caused by a defective product. It is undisputed today that a manufacturer ___owes a duty of care to end consumers, and should take reasonable care in ___manufacturing, marketing and advertising its products. An alternative cause of ___action is breach of statutory duty (which is an independent tort in Israel). This ___ ___ ___4 [1932] AC 562.

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can be used where the manufacturer violated manufacturing, marketing or advertising standards set by statutes, regulations, and the like. The main advantage of an action in torts from the plaintiff’s standpoint is that neither pecuniary damages nor non-pecuniary damages are capped.5 Additionally, general tort law applies in cases of defective products in which the Act does not apply at all, such as cases of property damage or pure economic loss. Notably, Israeli law allows recovery in negligence for pure economic loss ensuing from a product defect very generously, as opposed to other common law jurisdictions. In this respect, general tort law provides wider protection to interests at risk. On the other hand, the Act seems to provide a significant advantage for the plaintiff: by definition, a strict liability regime does not require proof of fault (or deviation from a statutory/regulatory standard). Moreover, the Act lays down a very useful presumption, reminiscent of the res ipsa loquitur doctrine, whereby the product is deemed defective if the circumstances of the case are more consistent with its being defective than a contrary conclusion. The occurrence of unusual harm thus shifts the burden of proof with respect to the defect. The procedural/evidentiary advantage of this presumption is somewhat offset by doctrines like res ipsa loquitur which may shift the burden of proof with respect to fault in negligence from the plaintiff to the defendant (who is required to prove that he or she was not negligent). In many cases there is no contractual privity between the manufacturer and the end consumer. Consequently, the former will not be liable to the latter in contracts. This general observation is subject to several exceptions. First, where the product is sold by its manufacturer directly to the end consumer, a contract exists between the two, and if the product is defective and harm ensues the consumer may often sue for breach. Second, a direct contractual link may be established between the manufacturer and the consumer without direct interaction between them through a warranty, although this usually covers only pure economic losses (ie, the cost of repair or replacement). Third, when the very strict conditions for recognizing a contract for the benefit of a third party are met, the consumer can have a contractual right against the manufacturer despite the absence of privity. Fourth, if the harm may be attributed to a breach of contract between the consumer and the retailer (who is not the manufacturer), the consumer may sue the retailer in contract or under the Sales Act of 1968. The main advantages of contract law from the plaintiff’s standpoint are similar to those of tort law: neither pecuniary damages nor non-pecuniary damages are capped, and the party in breach may also be liable for losses which

_____ 5 Under the Liability for Defective Products Act 1980, damages are capped: see sec 5.

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___are not covered by the Act, such as property damage or pure economic loss. The ___main disadvantage is that a contractual cause of action may exist only in one of ___the limited cases outlined above. Contract law does not apply to the paradig___matic case in which physical injury was caused by a defective product and there ___was no privity between the manufacturer and the consumer. ___ The Israeli Consumer Protection Act of 1981 provides that the seller and the ___manufacturer of a product owe a duty to the consumer not to mislead him with ___respect to any matter material for the transaction (sec 2), and a duty to disclose ___any defect, inferior quality, or other feature which diminishes the product’s ___value (sec 4). Violation of any of these duties constitutes an actionable wrong. ___According to the case law these provisions are applicable not only where the ___actual value of the product is lower than the perceived value, but also where the ___defect causes a bodily injury or emotional harm (such as disgust ensuing from ___the undisclosed addition of polydimethyilsiloxane to UHT milk by a large dairy). ___It should be emphasized that the Consumer Protection Act is limited to cases of ___misrepresentation. ___ ___ ___D. South Africa (Anton Fagan) ___ ___South African law does allow for alternative claims, independent of the special ___product liability regime created by the Act. These are still effective, as sec 2(10) of ___the Act provides that ‘[n]o provision of this Act must be interpreted so as to pre___clude a consumer from exercising any rights afforded in terms of the common law.’ ___ The common law claims are both delictual and contractual. The delictual ___claim would be brought under the developed lex Aquilia.6 The usual conditions ___for Aquilian liability would thus have to be satisfied. That means, on the one ___hand, that there could be no liability without fault. It means, on the other hand, ___that there could be liability for negligently caused pure economic loss – provi___ded the producer, by negligently causing the loss to the consumer, had commit___ted a wrong against him, because he had owed the consumer a duty ‘not to be ___negligent’ (ie, a duty of care). The existence of such a duty is to be determined ___on a case by case basis, mainly by asking whether, as a matter of policy, it is de___sirable that liability be imposed. (See Freddy Hirsch Group v Chickenland 2011 (4) ___SA 276 (SCA).) ___ The contractual claims – for loss caused by a defective product – are the ___following: ___ ___6 Broadly, Lex Aquilia was the Roman law which formed the basis of delictual claims for ___wrongfully caused injury to another.

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First, a claim by the purchaser of a product against its seller for the breach of a warranty as to the quality or attributes of the product; Second, a claim by the purchaser of a product against its seller seeking an aedilitian remedy7 for loss resulting from a latent defect in the product, of which the seller was aware; Third, a claim by a purchaser of a product against its seller seeking an aedilitian remedy for loss resulting from a latent defect in the product, if the seller is a manufacturer who sells products of his own skill or is a merchant who publicly professes specialised knowledge of the product in which he deals (and even if the seller was unaware of the latent defect). Liability for breach of a warranty, as well as seeking the aedilitian remedies, is strict. However, it is of course subject to the doctrine of privity of contract.

Part II: Cases Case 1: Brake Pad Failure (Anton Fagan) X Ltd manufactures bicycles. In 2011, it started to use a new material for its brake pads, which X Ltd believed on the basis of its testing to be a cheaper, longer-lasting and generally more effective alternative to traditional materials. X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective, but it considered that the risk was likely to eventuate only very rarely and did not outweigh the general advantages of the new material. It included a statement about the possibility of failure in the small print of the product instructions supplied with all of its bicycles incorporating the new brake pads. A, who purchased one of the bicycles, is one of a handful of people injured in accidents attributable to the failure of the new brake pads; A’s bicycle is also damaged. B, a passer-by, is injured in the same accident. What is X Ltd’s liability to A and B? Pay particular attention to the various possible bases of liability (a general tortious liability for fault, vicarious liability, contractual liability, or a special strict liability regime?). Would it make any difference to your analysis if Y, who is (i) an employed researcher in X Ltd’s laboratory, or alternatively (ii) an independent research contractor, had covered up the risk that the new brake-pad material might fail?

_____ 7 A reference to a class of actions available in Roman law of sale in which, unlike in contractual remedies, the buyer could not recover consequential losses.

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___A. Introduction ___ ___This submission focuses mainly on the way that South African law would re___spond to this set of facts. However, it also contains some comparative references ___to Australian, Chilean and Israeli law.8 ___ While section B looks at whether X Ltd could be liable to A and B under the ___South African common law, section C investigates the possibility of X Ltd’s ___liability under the statutory product liability scheme created by secs 61 and 53 of ___the South African Consumer Protection Act 68 of 2008. Unfortunately, the ___analysis cannot but be highly speculative. This is the case for two reasons. ___Firstly, though the South African common law has long acknowledged that a ___manufacturer may be held liable for physical harm done by one of its products ___to the person or property of a third party with whom it has not contracted, it has ___never developed any more specific doctrines for this particular form of liability. ___Secondly, though secs 61 and 53 of the South African Consumer Protection Act ___attempt to regulate this particular form of liability in detail, the conditions for ___liability set out in the two sections are unclear – moreover, because the Act is ___new, the two sections have not yet been interpreted by the South African ___courts.9 ___ As the analysis in sections B and C will show, in one respect the liability of a ___manufacturer for physical harm done by one of its products to the person or ___property of a third party under the common law differs significantly from that ___under the Consumer Protection Act. For the former, fault (typically negligence) ___is a necessary condition. For the latter, it is not. However, as the analysis in ___section C will suggest, because the Act substitutes for the requirement of fault ___the requirement that the harm has been caused by a product that has one of ___several properties (it is ‘unsafe’, ‘defective’, and so on), the difference in the ___liability outcomes produced by the Act and the common law may be less signifi___cant than perhaps expected. ___ Finally, section D considers how the liability of X Ltd might be affected ___by two variations to the case above. One is that an employed researcher in ___X Ltd’s laboratory had covered up the risk that the new brake-pad ma___terial might fail. The other is that an independent research contractor had done ___so. ___ ___ ___ ___8 For these references, thanks are due to the other Rest-of-the-World contributors: Mark Lun___ney, Enrique Barros and Ronen Perry. ___9 The two sections only apply to goods supplied on or after 31 March 2011.

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B. Liability under South African Common Law 1. The law South African common law accepts that a manufacturer may be liable for physical harm done by one of its products to the person or property of a third party with whom it has not contracted. The basis for this liability is delictual (or tortious).10 More specifically, the basis for this liability is the developed lex Aquilia.11 It follows that the two most important rules determining liability in such cases are the following:12 First, if a person commits a wrong against another by breaching the duty, which every person owes to every other not to cause physical harm to his person or property by a positive negligent act and, by committing such wrong, causes the victim of the wrong to suffer patrimonial loss, then he owes the victim a duty to compensate him for that loss. Second, a positive act causing physical harm to another’s person or property is negligent if and only if a reasonable person in the position of the harm-causer would have foreseen that the act might cause such harm and for that reason would have refrained from performing it.13 South African common law regards the manufacture of a product as a positive act. It follows that, whenever the manufacture of a product has caused physical harm to another’s person or property, liability will turn not on whether the manufacturer owed the harmed party a duty – it necessarily did – but rather on whether the manufacturer was negligent. To put this in terminology more familiar to Anglo-American lawyers, the critical enquiry will not be whether the manufacturer owed the harmed party a ‘duty of care’, but rather whether the manufacturer failed to meet the requisite ‘standard of care’ and thus acted ‘in breach of duty’.14

_____ 10 In this respect, South African law coincides with Australian, Chilean and Israeli law. 11 As it is in Chilean law, although that is now codified, while South African law of delict is not. 12 If these two rules look familiar to an Australian or Israeli lawyer, or indeed to an English or American one, that is because the South African law of delict, like much of South African law, has a ‘mixed’ ancestry. Its basic structure is taken from Roman law, as that was interpreted by the German Pandectists in the nineteenth century. But much of the detail is taken from English law, partly because that is where many South African legal academics and judges received their training. 13 See, for the classic statement of this rule, Kruger v Coetzee 1966 (2) SA 428 (A) at 430E-F. 14 South African cases in the first half of the twentieth century tended to speak of a ‘duty of care’ and its ‘breach’. However, more recently the tendency has been to speak rather of a ‘duty

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___ This has been the South African common law for about a century. In 1914, 12/58 ___in the case of Lennon Limited v British South Africa Company, the South African ___Appellate Division held that the vendor of a poison required for dipping cattle ___could be liable for the death of cattle belonging to a purchaser of that poison, ___caused by the fact that the vendor had placed false information and directions ___on the receptacles containing the poison.15 Innes JA, in one of the majority ___judgments, stated: ___ ___ ‘In these circumstances there would, apart from a defence of contributory ___ negligence, be no doubt whatever as to the liability of [the defendant]. And ___ that liability would be founded, not on any breach of contract, but on culpa, ___ in having delivered to the [plaintiff], for use as a cattle dip, a substance poi___ sonous and dangerous in itself, with directions which were wrong and mis___ leading, and bound, if acted upon, to lead to disaster.’16 ___ ___ In his dissent, Lord De Villiers CJ also accepted ‘the general proposition that 12/59 ___there is a duty cast upon the vendor of poisonous articles to exercise reasonable ___care and skill in the manner of supplying such articles, and that he is liable to ___make good any damage sustained by a purchaser in consequence of a neglect of ___such duty’.17 He also accepted that the basis for this liability was Aquilian.18 ___ Six years later, in the case of Cooper & Nephews v Visser, the Appellate Divi- 12/60 ___sion affirmed the approach it had taken in Lennon.19 The plaintiff had dipped his ___sheep in a solution prepared with a powder which had been manufactured by ___the defendant and sold to the plaintiff by a third party. A number of the plain___tiff’s sheep had died as a result. The Court rejected the plaintiff’s claim. How___ever, it accepted that, had the defendant caused the death of the plaintiff’s ___sheep by negligently manufacturing the powder in question, it would have been ___liable.20 And it accepted that this liability would be delictual rather than con___ ___ ___not to be negligent’ and ‘negligence’. Moreover, from the 1970s onwards, the South African cases have also used the word ‘wrongful’ to designate conduct which is in breach of a duty not to ___ be negligent (ie, in breach of a duty of care). This use of the word ‘wrongfulness’ again reflects ___the influence of nineteenth century German Pandectism on the South African law of delict. For ___a detailed account of this, see Anton Fagan, The German Origins of a South African Dogma ___about Delict (2012) 76 RabelsZ 967. ___15 Lennon Limited v British South Africa Company 1914 AD 1. 16 At 15. ___ 17 At 5-6. ___18 At 6. ___19 Cooper & Nephews v Visser 1920 AD 111. ___20 At 115.

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tractual in nature. As the Court put it: ‘This action is one on tort not on contract, and it is based upon negligence on the part of the defendant.’21 Since 1920, the liability of a manufacturer for physical harm done by one of its products to the person or property of a third party has been discussed in only three South African cases. 22 The first is a provincial division decision decided in 1975. The second and third are decisions of the Supreme Court of Appeal, reported in 2002 and 2003 respectively. All three accept that, where a manufacturer’s product has caused physical harm to the person or property of a third party, the manufacturer may be delictually liable to the third party.23 All three accept that whether the manufacturer is delictually liable to the third party is to be determined by applying the usual rules of Aquilian liability.24 And all three seem to accept that the critical determinant of liability will be whether the manufacturer was negligent (failed to meet the requisite standard of care) rather than whether it owed the harmed party a duty not to be negligent (a duty of care).25 As far as the South African common law goes, that is pretty much all of the relevant case law.26 None of the five cases discussed above attempted, let alone managed, to fashion any rules or doctrines specific to manufacturers and the third parties who have been harmed by their products.

2. The law applied to the facts The implication of the foregoing survey of the South African case law for the analysis of the hypothetical case – ie, Case 1: Brake Pad Failure – is this.

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21 At 114; also at 116. 22 A Gibb & Son (Pty) Ltd v Taylor & Mitchell Timber Supply Co (Pty) Ltd 1975 (2) SA 475 (W); Ciba-Geigy (Pty) Ltd v Lushof Farms (Pty) Ltd 2002 (2) SA 447 (SCA); and Wagener v Pharmacare Ltd, Cuttings v Pharmacare Ltd 2003 (4) SA 285 (SCA). 23 Gibb, 1975 (2) SA 475 (W) at 460C-D; Ciba-Geigy, 2002 (2) SA 447 (SCA) at 470B; Wagener, 2003 (4) SA 285 (SCA) at 291G-H. 24 Gibb, 1975 (2) SA 475 (W) at 460D, 464D; Ciba-Geigy, 2002 (2) SA 447 (SCA) at 471F; Wagener, 2003 (4) SA 285 (SCA) at 294D, F, 295B, 296B, 297C, 300C, G. 25 Gibb, 1975 (2) SA 475 (W) at 464H-467A; Ciba-Geigy, 2002 (2) SA 447 (SCA) at 470E-G, 471BD; Wagener, 2003 (4) SA 285 (SCA) at 291G-H. 26 There have been cases on the liability of a manufacturer causing pure economic loss to a third party (Combrinck Chiropraktiese Kliniek v Datsun Motor Vehicle Distributors 1972 (4) SA 185 (T); Freddy Hirsch Group v Chickenland 2011 (4) SA 276 (SCA)) and a negligent misrepresentation case that could be construed as involving a manufacturer’s delictual liability (Bayer South Africa (Pty) Ltd v Viljoen 1990 (2) SA 647 (A)) but these add nothing as regards the liability of a manufacturer for physical harm done by one of its products to the person or property of a third party.

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___Whether X Ltd is liable, under the South African common law, to A for the harm ___to A’s person and property and to B for the harm to B’s person is to be deter___mined by application of the general rules of Aquilian liability set out at the start ___of this section, and not by application of any rules particular to manufacturers, ___their products, and third parties harmed by them. The first rule makes it a ___necessary condition, for X Ltd to be liable to A or B, that X Ltd acted negligently. ___The second rule makes it a necessary condition for X Ltd to have acted ___negligently, both in that a reasonable manufacturer in X Ltd’s position would ___have foreseen the possibility that acting as X Ltd did might result in harm to ___another and in that a reasonable manufacturer in X Ltd’s position, having ___foreseen that, would therefore have acted otherwise. ___ Moreover, according to the South African common law, whether a reason- 12/64 ___able person, having foreseen the possibility that some act might result in harm ___to another, would therefore have acted otherwise depends on a utilitarian ___calculation that balances the risk of harm posed by the act against the benefits ___that it secures (or costs that it avoids).27 As Schreiner JA put it in 1954, in the Ap___pellate Division case of Herschel v Mrupe: ___ ___ ‘No doubt there are many cases where once harm is foreseen it must be ob___ vious to the reasonable man that he ought to take appropriate avoiding ac___ tion. But the circumstances may be such that a reasonable man would fore___ see the possibility of harm but would nevertheless consider that the ___ slightness of the chance that the risk would turn into actual harm, corre___ lated with the probable lack of seriousness if it did, would require no pre___ cautionary action on his part. Apart from the cost or difficulty of taking pre___ cautions, there are two variables, the seriousness of the harm and the chan___ ces of its happening. If the harm would probably be serious if it happened ___ the reasonable man would guard against it unless the chances of its hap___ pening were very slight. If, on the other hand, the harm, if it happened, ___ would probably be trivial the reasonable man might not guard against it ___ even if the chances of its happening were fair or substantial.’28 ___ ___ ___27 Australian and Israeli law use similar calculations, and they are all, of course, variations ___on the formula made famous by Learned Hand (N if B < PL) in United States v Carroll Towing Co ___159 F 2d 169 (2d Cir 1947). 28 Herschel v Mrupe 1954 (3) SA 464 at 477A-C. See also Ngubane v South African Transport ___ Services 1991 (1) SA 756 (A) at 776I-777D; Pretoria City Council v De Jager 1997 (2) SA 46 (A) at ___56A-C; Mostert v Cape Town City Council 2001 (1) SA 105 (SCA) at 119E-G; Cape Metropolitan ___Council v Graham 2001 (1) SA 1197 (SCA) at 1203H-J; Gouda Boerdery v Transnet 2005 (5) SA 490 ___(SCA) at 500C-E; Eskom Holdings v Hendricks 2005 (5) SA 503 (SCA) at 509E-H.

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Given the above-stated criteria for negligence, did X Ltd act negligently visà-vis A and B? It is at least possible that it did not. According to the stated facts, X Ltd, on the one hand, ‘was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective’. According to those facts, X Ltd, on the other hand, ‘believed on the basis of its testing [that the new brake-pad material was] a cheaper, longer-lasting and generally more effective alternative to traditional materials’. It also ‘considered that the risk [that the new brake-pad material might suddenly be rendered ineffective] was likely to eventuate only very rarely and did not outweigh the general advantages of the new material’. Much turns on the meaning of the phrase ‘generally more effective’. Absent any evidence to the contrary, it is to be presumed that – in certain combinations of circumstances – ‘traditional’ brake-pad materials also will ‘suddenly be rendered ineffective’. Moreover, it is not only complete brake-pad failures that result in harm. Partial ones do so as well. The fact that a bicycle’s stopping distance at a certain speed is 20 metres rather than 15 metres may be the cause of any number of collisions. It is therefore possible that, even though X Ltd knew that the new brake-pad material might in certain circumstances fail completely, it believed that they would do so less often than traditional brakepad materials. It is also possible that, though X Ltd did not believe that the new brake-pad material would completely fail less often than traditional materials, it believed that the new brake-pad material nonetheless would cause less harm than the traditional materials – because the new brake-pad material would partially fail less often or to a lesser degree than the traditional materials. For example, it may have believed that the stopping distance at any speed was on average at least 10% less with the new material than with any of the traditional ones. It may well be that these beliefs on the part of X Ltd (assuming it had them) were true. But, for X Ltd to have acted without negligence, that is not required. It is enough that these beliefs were reasonable ones. For, if they were, then it would not be true that a reasonable manufacturer in X Ltd’s position would have foreseen the possibility that acting as X Ltd did might result in harm to another. On the contrary, what would have been foreseen by the reasonable manufacturer in X Ltd’s position would have been a reduction in the harm suffered by others. To put the point another way, what would have been reasonably foreseeable would have been harm prevention rather than harm being caused. Of course, whether the beliefs in question (assuming X Ltd had them) were or were not reasonable would depend, largely but not exclusively, on the thoroughness of X Ltd’s testing.

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___ It may be objected that, even if – for the reasons stated above – a reason___able manufacturer in the position of X Ltd would have believed that acting as X ___Ltd did would reduce rather than increase the harm suffered by others, that ___does not preclude the possibility that X Ltd was negligent. The basis for this ___objection is most easily explained with an analogy. ___ A pharmaceutical company manufactures a drug which, if taken by a ___million people afflicted by a certain disease, will reduce the number of fatalities ___by a hundred thousand more than any other drug aimed at combatting that ___disease. However, if the drug is taken in combination with a certain amount of ___alcohol, there is a one per cent chance that it could cause death. The company ___knows this. It also estimates that, given average drinking habits, it is almost ___certain that, if the drug is taken by a million people afflicted by the disease, ten ___will be killed by the drug’s being combined with alcohol. Notwithstanding this, ___the company makes the drug available – and it does so without any warning ___against taking the drug with alcohol. In the first year of its availability, the drug ___prevents twenty thousand deaths from the disease. But two people die because ___they took the drug with alcohol. ___ Did the company act negligently? Surely yes. But that is not the answer one ___gets if, in order to determine the company’s negligence, one asks whether a ___reasonable manufacturer in its position would have foreseen that making the ___drug available without a warning would cause harm. A reasonable manufactu___rer would have believed – correctly – that making the drug available, even with___out a warning, would prevent harm rather than cause it. That is, the reasonably ___foreseeable consequence of making the drug available, even without a warning, ___is a reduction rather than an increase in the harm suffered by others. This sug___gests that, to determine whether the company was negligent, a slightly different ___question needs to be posed. One must ask whether harm was a reasonably ___foreseeable consequence, not of making the drug available without a warning, ___but simply of the failure to warn. And, of course, it was. A reasonable manu___facturer in the company’s position would have foreseen that the failure to warn ___– as opposed to the making available of the drug without a warning – would ___lead to an increased number of fatalities. ___ How does the foregoing apply to Case 1: Brake Pad Failure? Well, it may be ___that, while the new brake-pad material would reduce the overall incidence of ___harm, it would increase the incidence of harm in a particular set of circum___stances, say when the temperature is below five degrees Celsius. And it may be ___that a reasonable person in the position of X Ltd would have known that. ___According to the stated facts, X Ltd ‘included a statement about the possibility ___of failure in the small print of the product instructions supplied with all of its ___bicycles incorporating the new brake pads’. However, it is possible that this

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statement did not describe the exact circumstances in which the new brake-pad material would increase (rather than decrease) the risk of harm – the statement did not, for example, say: ‘When the temperature is below five degrees Celsius, the new brake-pad material, unlike traditional materials, may suddenly be rendered ineffective.’ And it is possible that, had the statement done so, some purchasers of the bicycles would have chosen not to use them in those circumstances, or to use them more circumspectly. And it is possible that all this was reasonably foreseeable. Now assume that, as in the case of the pharmaceutical company, so in the case of X Ltd, its negligence is to be determined by asking whether harm was a reasonably foreseeable consequence, not of its using the new brake-pad material without a statement describing the exact circumstances in which it would increase the risk of harm, but simply of its failure to provide such a statement. It would then follow that X Ltd, like the pharmaceutical company, was negligent. Whether the South African common law requires the negligence of X Ltd to be determined by following the first or second of the two approaches discussed above is unclear. Moreover, whichever approach were adopted, whether X Ltd was negligent would depend on facts not provided in the stated case: whether X Ltd’s testing was reasonable; what is meant by ‘generally more effective’; how often do brakes made with the traditional materials fail, either completely or partially; what exactly was said in the statement supplied with the bicycles; how small was the ‘small print’; and so on? But let it be assumed, for a moment, that X Ltd was negligent. Would it follow that X Ltd was liable, under the South African common law, to A for the harm to A’s person and property and to B for the harm to B’s person? Not necessarily. The most obvious difficulty pertains to the harm to A’s property. The discussion of the South African common law earlier in this section mentioned five cases in which it was acknowledged that a manufacturer may be liable for physical harm done by one of its products to the person or property of a third party. In two of those cases, the harm was to the third party’s person.29 In the other three, it was to the third party’s property.30 But the property in question was not the product itself: in Lennon it was the plaintiff’s cattle; in Cooper & Nephews it was the plaintiff’s sheep; in Ciba-Geigy it was the plaintiff’s pear trees. It would be possible, therefore, to distinguish the damage to A’s bicycle on the ground that it is harm to the product itself, rather than harm done by the product to other property.31 But it would also be possible to take the view, as is

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29 Gibb, 1975 (2) SA 475 (W); Wagener, 2003 (4) SA 285 (SCA). 30 Lennon, 1914 AD 1; Cooper & Nephews, 1920 AD 111; Ciba-Geigy, 2002 (2) SA 447 (SCA). 31 This seems to be how Australian law would approach it.

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___the case in some jurisdictions, that the brakes and the bicycle sans brakes are ___two distinct items of property, so that it then could be said that a product manu___factured by X Ltd (the brakes) harmed property other than that product (the bi___cycle sans brakes).32 ___ A less obvious difficulty pertains not only to the harm to A’s property, but ___also to the harm to A’s and B’s persons. The difficulty arises only if X Ltd’s ___negligence is determined by means of the second approach discussed above, ___that is, by asking whether harm was a reasonably foreseeable consequence, not ___of its using the new brake-pad material without a statement describing the exact ___circumstances in which it would increase the risk of harm, but simply of its ___failure to provide such a statement. The difficulty is that, so determined, the ___negligence of X Ltd relates to an omission rather than a positive act. It follows ___that X Ltd’s liability could no longer be determined by applying the two general ___rules of Aquilian liability presented at the start of this section. Instead, X Ltd’s ___liability would have to be determined by applying a more complex set of rules, ___developed by adapting those two general rules of Aquilian liability in order to ___accommodate the South African law’s extension of Aquilian liability to cases in ___which a person causes physical harm to another’s person or property by a ___negligent omission rather than by a negligent positive act.33 This more complex ___set is as follows. ___ First, if a person commits a wrong against another by breaching a duty not to ___cause physical harm to his person or property by negligent conduct and, by ___committing such wrong, causes the victim of the wrong to suffer patrimonial loss, ___then he owes the victim of the wrong a duty to compensate him for that loss. ___ Second, conduct causing physical harm to another’s person or property is ___negligent if and only if a reasonable person in the position of the harm-causer ___would have foreseen that the conduct might cause such harm and for that ___reason would have refrained from performing it. ___ Third, every person owes every other a general duty not to cause physical ___harm to his person or property by negligent positive conduct. ___ Fourth, in exceptional circumstances, a person may owe another a particular ___duty not to cause physical harm to his person or property by a negligent omis___sion. Whether such an exceptional circumstance obtains is to be determined in ___ ___ ___32 This may be the approach taken in German law, in so far as liability for defective products is determined by application of sec 823(1) of the German BGB. ___ 33 For the South African law’s extension of Aquilian liability to negligent omissions, and for ___the adaptation of the rules of Aquilian liability in order to accommodate this extension, see es___pecially Halliwell v Johannesburg Municipal Council 1912 AD 659; Minister of Forestry v Quath___lamba 1973 (3) SA 69 (A); and Minister van Polisie v Ewels 1975 (3) SA 590 (A).

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each case by asking whether the community would believe that, if the harm caused by the negligent omission in turn caused the harmed person to suffer patrimonial loss, the person who committed the negligent omission ought to be placed under a legal duty to compensate the person harmed by it for his loss. As to the question whether X Ltd could be held liable to A and B for its negligent failure to provide a statement describing the exact circumstances in which its using the new brake-pad material would increase the risk of harm to others, it is clearly the fourth of the rules above that is of greatest importance. However, given the rule’s indeterminacy, it is impossible to say whether it justifies the conclusion that X Ltd owed the purchasers of its bicycles a duty not to cause physical harm to their persons or property by its negligent failure to provide a statement of that kind. The fourth rule in the above set was only introduced into South African law in 1975, by the case of Minister van Polisie v Ewels.34 For about sixty years before that, from the Halliwell case in 1912 to the Quathlamba case in 1973, Aquilian liability for negligent omission was determined by the so-called prior conduct doctrine.35 This doctrine held that a person owes another a duty not to cause physical harm to his person or property by a negligent omission if and only if he by his prior positive conduct created a risk of physical harm to the other’s person or property. Though this doctrine was displaced by the more open-ended and discretionary test introduced by Ewels, it is at the very least possible that it continues to play a subordinate role, as a factor weighing in favour of the imposition of a duty not to cause harm by one’s negligent omission. But, even if – or in so far as – the prior conduct doctrine could still be invoked today, it is not clear that it would avail A and B. For the prior conduct by X Ltd would have to be: using the new brake-pad material instead of the traditional ones. And, as explained earlier, it is not obvious that X Ltd’s conduct, so described, did introduce a new risk (rather than removing or at least reducing an existing one).

C. Liability Under the South African Consumer Protection Act 1. The law It is not only according to South African common law, but also according to the South African Consumer Protection Act 68 of 2008, that a manufacturer may be liable for physical harm done by one of its products to the person or property of

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34 Ewels, 1975 (3) SA 590 (A). 35 Halliwell, 1912 AD 659; Quathlamba, 1973 (3) SA 69 (A).

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___another, even another with whom it has not contracted.36 Liability under the ___Act, which applies to products supplied to a consumer on or after 31 March 2011, ___differs significantly from liability under the common law. The common law, ___as was explained in the previous section, requires fault for liability – most often, ___it requires negligence. The Act, by contrast, expressly rejects this require___ment.37 According to the Act, a manufacturer whose product has caused physi___cal harm to the person or property of a third party will be liable ‘irrespective of ___whether the harm resulted from any negligence on [its] part’.38 ___ That does not mean that, under the Act, a manufacturer whose product has 12/82 ___caused physical harm to the person or property of a third party will always be ___liable. It will not. For, though the Act does not require negligence on the part of ___the manufacturer, it does require that the product have one of five properties, ___and that its possession of one of those properties was a cause of the harm in ___question.39 The five properties are:40 ___i) that the product is defective; ___ii) that the product is hazardous; ___iii) that the product has failed; ___iv) that the product is unsafe; and ___v) that the product, if it is hazardous, is not accompanied by adequate ___ instructions or warnings pertaining to its hazardous nature. ___ ___ The Act does not abolish liability under the common law.41 For sec 2(10) of 12/83 ___the Act provides that ‘[n]o provision of this Act must be interpreted so as to pre___clude a consumer from exercising any rights afforded in terms of the common ___law.’ Nevertheless, it is likely that some future cases concerning the liability of a ___manufacturer for physical harm done by one of its products to the person or ___property of a third party will be decided on the basis of the Act rather than the ___ ___ ___36 In this respect, South African law closely resembles Australian law, because of Part 3-5 of ___the Australian Consumer Law, a schedule to the Competition and Consumer Act 2010 (Cth). It only partly resembles Israeli law, because the latter’s Defective Products Liability Act of 1980 ___ excludes liability for physical harm to property. Chilean law, by contrast, does not have any ___general statutory product liability regime. ___37 The Australian and Israeli statutory product liability regimes, similarly, do not require neg___ligence for liability. ___38 Sec 61 (1). 39 The Australian and Israeli statutory product liability regimes, by contrast – and rather ___ more sensibly – require that the product only have one property, namely that it be ‘defective’ ___or has a ‘safety defect’. ___40 Sec 61 (1). ___41 Neither do the Australian and Israeli statutory product liability regimes.

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common law. Why? Because the requirement in the Act, namely that the harm in question be caused by the product’s possession of one of the stipulated five properties, is less rigorous (that is, more easily met) than the requirement of the common law, namely that the manufacturer have been negligent. However, just how much stricter liability under the Act is than liability under the common law is far from clear. In respect of the liability of manufacturers for the physical harm done by their products to the persons or properties of third parties, the important provisions in the Act are secs 61 and 53. The relevant passages in the two sections are produced below. Even a cursory look at those passages reveals them to be a conceptual shambles. Especially confused – and confusing – are the definitions provided for four out of the five required properties in sec 53. Section 61 Liability for damage caused by goods (1) Except to the extent contemplated in subsection (4), the producer or importer, distributor or retailer of any goods is liable for any harm, as described in subsec (5), caused wholly or partly as a consequence of – (a) supplying any unsafe goods; (b) a product failure, defect or hazard in any goods; or (c) inadequate instructions or warnings provided to the consumer pertaining to any hazard arising from or associated with the use of any goods, irrespective of whether the harm resulted from any negligence on the part of the producer, importer, distributor or retailer, as the case may be. (4) Liability of a particular person in terms of this section does not arise if – (c) it is unreasonable to expect the distributor or retailer to have discovered the unsafe product characteristic, failure, defect or hazard, having regard to that person’s role in marketing the goods to consumers … (5) Harm for which a person may be held liable in terms of this section includes – (a) the death of, or injury to, any natural person; (b) an illness of any natural person; (c) any loss of, or physical damage to, any property, irrespective of whether it is movable or immovable; and (d) any economic loss that results from harm contemplated in paragraph (a), (b) or (c).

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___ Section 53 Definitions applicable to this Part ___ (1) In this Part, when used with respect to any goods, component of any ___ goods, or services – ___ (a) ‘defect’ means – (i) any material imperfection in the manufacture ___ of the goods or components, or in performance of the services, that ___ renders the goods or results of the service less acceptable than per___ sons generally would be reasonably entitled to expect in the cir___ cumstances; or (ii) any characteristic of the goods or components ___ that renders the goods or components less useful, practicable or ___ safe than persons generally would be reasonably entitled to expect ___ in the circumstances; ___ (b) ‘failure’ means the inability of the goods to perform in the intended ___ manner or to the intended effect; ___ (c) ‘hazard’ means a characteristic that – (i) has been identified as, or ___ declared to be, a hazard in terms of any other law; or (ii) presents a ___ significant risk of personal injury to any person, or damage to ___ property, when the goods are utilised; and ___ (d) ‘unsafe’ means that, due to a characteristic, failure, defect or ___ hazard, particular goods present an extreme risk of personal injury ___ or property damage to the consumer or to other persons. ___ ___ There is much in these two sections that requires interpretation. Moreover, ___it is at least possible to interpret the two sections in a way that renders the ___‘required property’ liability under the Act only marginally stricter than the fault___based liability under the common law. ___ Consider first the definition of a ‘defect’ in sec 53(1)(a). According to the ___definition it is a necessary condition for a product to be ‘defective’ that it fails to ___meet the standard of quality, utility or safety that ‘persons generally would be ___reasonably entitled to expect in the circumstances’.42 The meaning of this ___phrase is by no means self-evident. But it is at least arguable that ‘persons ___generally’ are not ‘reasonably entitled to expect’ that a product meet a particu___lar standard of quality, utility or safety, if the product could fail to meet that ___standard notwithstanding that its manufacturer had done everything that could ___reasonably be required of it: that is, notwithstanding that the manufacturer had ___acted without negligence in designing and making the product. ___ Imagine that a manufacturer of toasters takes all the care that could reason___ably be expected of it. That is, it designs and makes its toasters without any ___ ___ ___42 A similar requirement to that imposed in EU Directive 85/374.

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negligence. Imagine further that, nevertheless, every one of the manufacturer’s toasters has a one in a million chance of igniting within the first ten years of its use. Could it really then be possible that ‘persons generally would be reasonably entitled to expect’ that every one of the manufacturer’s toasters should have a less than one in a million chance of igniting within the first ten years of its use? It would seem not. But that suggests that the Act’s requirement that the product be defective may be no less strict than the common law’s requirement that the manufacturer have been negligent (unless, perhaps, if the consumer expectation was that a toaster would not burn down a house). Consider next the Act’s definition of a ‘failure’ in sec 53(1)(b). According to the definition, a product has ‘failed’ if it is unable ‘to perform in the intended manner or to the intended effect’. If this definition were to be taken literally, the Act’s requirement that a product have failed would be considerably less strict than the common law’s requirement that its manufacturer have been negligent. For, just as it is possible for me to fail to carry out my intention to visit my granny without negligence (because I am stranded by a once-in-a-hundredyears flood), so it is possible for a manufacturer to make a product that does not meet its intentions, even though it acted reasonably throughout. But it is not clear that the definition could be taken literally, as that would lead to some ridiculous outcomes. Here is one of them: The best hand-held fire extinguishers are capable of putting out a fire of magnitude x. A company designs and constructs a new extinguisher, with the intention that it should be capable of putting out a fire of a magnitude twenty per cent more than x. Through no negligence on its part, the company fails to carry out its intention: it only manages to produce extinguishers capable of putting out fires of a magnitude ten per cent more than x. A home owner, who installed one of the new extinguishers in his kitchen, has a fire in it of a magnitude fifteen per cent more than x. The extinguisher fails to put out the fire, with the result that the home burns down. According to sec 53(1)(b), if taken literally, the new extinguisher has ‘failed’. According to sec 61(1), if the failure of a product causes harm, the manufacturer is liable for it. It follows – if sec 53(1)(b) is taken literally – that the company is liable to the home owner. To avoid the absurdity of an outcome like this one, sec 53(1)(b) will have to be interpreted in a way that adds further conditions, such as that the manufacturer represented its intentions to the public, and that it was this representation (or the manufacturer’s failure to live up to it) which caused the harm. How much closer the addition of conditions like these will move the requirement that the product have failed, in the Act, to the requirement that the manufacturer have been negligent, in the common law, remains to be seen.

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___ Consider, in the third place, the definition of a ‘hazardous’ product in ___sec 53(1)(c) and of an ‘unsafe’ product in sec 53(1)(d). The former requires for a ___product to be hazardous, that it present a ‘significant risk’ of harm. The latter ___makes it a necessary condition, for a product to be unsafe, that it present an ___‘extreme risk’ of harm. The concept of risk employed in the two definitions is ___nowhere explained. Nor is the threshold of risk set by each: ‘significant’ for a ___product to be hazardous, ‘extreme’ for a product to be unsafe. Clearly, the two ___definitions require interpretation. Equally clearly, that interpretation may have ___the result that, in terms of the outcomes each yields, there is very little ___difference between the Act’s requirement that the product be hazardous and its ___requirement that the product be unsafe, on the one hand, and the common ___law’s requirement that the manufacturer have been negligent, on the other. ___ After all, conduct is negligent if it poses an unreasonable risk of harm to ___others. As was stated earlier, in the South African common law the reasonable___ness of a risk depends, among other considerations, upon its magnitude. The ___greater the risk, the more likely it is to be unreasonable – and the more likely ___the conduct posing that risk is to be negligent. And vice versa. It follows that, ___while it is possible for a ‘significant’ risk of harm to others to be reasonable, that ___will not often be the case. If a risk is not of such magnitude that it usually ___outweighs the benefits of the risk-bearing conduct, could it really be regarded ___as ‘significant’? By the same logic, it will be an even rarer occurrence for an ___‘extreme’ risk of harm to others to be reasonable. So it is likely that most cases ___in which harm is caused by a hazardous product, and almost all cases in which ___it is caused by an unsafe one, will also be cases in which the harm was caused ___by negligence on the part of its manufacturer. The convergence may not be ___perfect, but it will be substantial. ___ To conclude this discussion of the five properties, one of which has to be ___possessed by a product in order for its manufacturer to be liable under the Act ___for harm caused by it, something more needs to be said about the property of ___being ‘unsafe’. According to sec 53(1)(d), for a product to be ‘unsafe’ it must ___present an extreme risk of harm. But that is not sufficient. In addition, the pro___duct must do so ‘due to a characteristic, failure, defect or hazard’. However, ac___cording to sec 61(1), it is already a sufficient condition, for a manufacturer to be ___held liable for harm done by one of its products, that the product failed, or was ___defective, or was hazardous. And, according to sec 53(1)(c), it is a sufficient ___condition, for a product to be hazardous, that it have a characteristic presenting ___a significant risk of harm. ___ So, a product that is ‘unsafe’ will necessarily be hazardous, be defective, or ___have failed. But a product that is hazardous, or is defective, or has failed will be ___‘unsafe’ only if, in addition, it presents an extreme risk. And it is enough, for a

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manufacturer to be held liable for harm done by one of its products, that the product was hazardous, was defective, or failed. It follows, on the one hand, that it is superfluous for the Act to have included being ‘unsafe’ as a property in addition to the properties of being hazardous, being defective, or having failed. It follows, on the other hand, that it would be irrational for a harmed party ever to invoke the property of being ‘unsafe’, rather than to invoke one of the other three properties – doing so could only serve to diminish his prospects of success.

2. The law applied to the facts Given the many interpretive questions raised by secs 61 and 53 of the Consumer Protection Act, and the fact that as yet those questions are unanswered by the South African courts, the application of these sections to the stated case is no easy matter. The remarks that follow are therefore tentatively made. For the reasons stated above, the question whether X Ltd is liable to A and B, on the ground that the bicycles incorporating the new brake-pad material were ‘unsafe’, is best put to one side. The bicycles incorporating the new brakepad material were ‘unsafe’ only if they in any event were hazardous, defective, or failures. But if the bicycles were any one of the latter, X Ltd would in any case be liable. And it will be much easier for A and B to prove that the bicycles were one of the latter, than to prove that they were ‘unsafe’. The bicycles incorporating the new brake-pad material could be said to have ‘failed’ only if they were unable to perform in the manner or to the effect that X Ltd intended. There is nothing in the facts stated that would suggest that this was the case. Quite the opposite, in fact. Whether the bicycles incorporating the new brake-pad material were ‘defective’ depends on whether they fail to meet the standard of quality, utility or safety that ‘persons generally would be reasonably entitled to expect in the circumstances’. As was explained earlier, this may (or could be interpreted to) be a roundabout way of re-introducing negligence on the part of the manufacturer – here X Ltd – as a necessary condition for liability. If so, the observations about X Ltd’s possible negligence in the previous section apply here too. Were the bicycles incorporating the new brake-pad material ‘hazardous’? That depends on whether they had a characteristic presenting a ‘significant’ risk of harm. So did the use of the new brake-pad material present a ‘significant’ risk of harm? The word ‘significant’ is a particularly vague one. And, to date, its meaning in the context of the Consumer Protection Act has not been clarified by any court. However, even in the absence of a judicial interpretation clarifying the meaning

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___of ‘significant’ in this context, it is arguable that X Ltd’s use of the new brake-pad ___material may not have presented a ‘significant’ risk of harm. The reasons are ___suggested by the earlier discussion of X Ltd’s possible negligence. Nothing in the ___stated case precludes the following two possibilities: (a) that, even though the ___new brake-pad material might in certain circumstances fail completely, they will ___do so less often than traditional brake-pad materials; (b) that, whether or not the ___new brake-pad material will completely fail more often than traditional materials, ___they nonetheless will cause less harm than the traditional materials – because ___they will partially fail less often or to a lesser degree than the traditional ___materials. If either possibility obtains, X Ltd’s use of the new brake-pad materials ___reduced, rather than increased, the risk of harm. That being so, the use of those ___materials could hardly be said to present a ‘significant’ risk. ___ That leaves one more property, namely the failure to provide ‘adequate 12/102 ___instructions or warnings’. Whether X Ltd’s ‘statement about the possibility of ___failure’ constituted an adequate warning is impossible to say without having ___actual sight of it. However, if, for the reasons stated immediately above, X Ltd’s ___use of the new material does not present a ‘significant’ risk, and therefore also ___does not constitute a hazard, it may be impossible – whatever that statement ___looks like – for X Ltd to be liable on the ground that it failed to provide an ___adequate instruction or warning. For, according to sec 61 of the Act, it is not any ___failure to provide an adequate instruction or warning that will ground a manu___facturer’s liability for harm done by its product, but only a failure to provide an ___adequate instruction or warning ‘pertaining to any hazard’. ___ ___ ___D. Variations ___ ___According to the South African common law, an employer is vicariously liable 12/103 ___for a delict committed by an employee if and only if the employee committed ___the delict while acting in the course and scope of his employment. Whether an ___employee who committed a delict did so while acting in the course and scope of ___his employment is to be determined by application of the following two rules: ___ The ‘discharge-of-duty’ rule: an employee’s delict was committed in the 12/104 ___course and scope of his employment if he committed it while discharging a duty ___imposed upon him by his employer and defining his employment, even if he ___was breaching a duty circumscribing the manner wherein that employment___defining duty was to be carried out.43 ___ ___43 See Mkize v Martens 1914 AD 382; Estate van der Byl v Swanepoel 1927 AD 141; Union Gov___ernment v Hawkins 1944 AD 556; Feldman (Pty) Ltd v Mall 1945 AD 733.

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The ‘intention/connection’ rule: the fact that an employee’s sole intention in committing a delict was to promote his own interests is a reason to conclude that he committed the delict while acting outside the course and scope of his employment but it is not a conclusive reason; notwithstanding the fact that an employee’s sole intention in committing a delict was to promote his own interests, he nonetheless committed the delict while acting in the course and scope of his employment if his delict was sufficiently closely connected to his employment to justify the imposition of liability for that delict on his employer.44 Whether the employed researcher in variation (1) would have committed a delict when he ‘covered up the risk that the new brake-pad material might fail’ depends on the same considerations as were discussed in section B, when discussing X Ltd’s possible liability under the South African common law. But assuming that he would have, it is almost certain that he would have done so within the course and scope of his employment – if not by virtue of the discharge-of-duty rule, then by virtue of the intention/connection rule. X Ltd would therefore almost certainly be vicariously liable. As for the independent research contractor in variation (2), according to the South African common law, an employer cannot be vicariously liable for a delict committed by an independent contractor. Nor can the employer be held liable on the basis that it has breached a ‘non-delegable duty’ to ensure that the independent contractor acts without negligence. The employer may however be directly liable for harm done by an independent contractor, provided the employer satisfies the usual requirements of delictual liability. 45 The critical enquiry will usually be whether the employer acted negligently.46 This, in turn, will depend on a large number of factors: the nature of the work assigned to the contractor – including the risks that it may pose to others if not done properly or if done without certain precautions, the relative expertise of the employer and the contractor, the process by which the contractor was selected and appointed, whether the employer has in place procedures for monitoring the contractor’s performance of the assigned work, and so on. The stated case and its variations contain almost no information in respect of any of these factors. It is impossible to say, therefore, whether, if the independent research contractor in variation (2) had acted negligently when he ‘covered up the risk that the new brake-pad material might fail’, X Ltd would also have been negligent.

_____ 44 See K v Minister of Safety and Security 2005 (6) SA 419 (CC); F v Minister of Safety and Security 2012 (1) SA 536 (CC). 45 See Langley Fox Building Partnership (Pty) Ltd v De Valence 1991 (1) SA 1 (A); Chartaprops 16 (Pty) Ltd v Silberman 2009 (1) SA 265 (SCA). 46 Ibid.

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___ As far as X Ltd’s liability under the Consumer Protection Act is concerned, it 12/108 ___is not clear that either variation will have any impact at all. ___ ___ ___E. Concluding Note on Contractual Liability ___ ___The analysis in the previous sections has proceeded on the assumption that, 12/109 ___since the stated case does not say that X Ltd sold the bicycle in question directly ___to A, A purchased the bicycle from an intermediary who in turn purchased it ___from X Ltd or another intermediary. In other words, it was assumed that there is ___no contract between X Ltd and A. On that assumption, since South African law ___accepts the doctrine of privity of contract, A has no contractual remedies ___available to him. ___ ___ ___Case 2: Infected Blood (Ronen Perry) ___ ___ A is infected with Hepatitis N as the result of a blood transfusion conducted in X Hospital in 2005. The source of the infection was blood supplied to X Hospital by Y Ltd, who had ___ collected it from a donor, Z. Unknown to himself, Z was a carrier of the Hepatitis N virus. ___ At the time, the risk of Hepatitis N in donated blood had been identified in a single pub___ lished paper in a scientific journal, but only a handful of research laboratories in the ___ world had the capacity to test for its presence in specific quantities of blood. Furthermore, ___ the majority of the scientific community did not believe that the condition (Hepatitis N) really existed. It was only subsequently that the condition’s existence came to be gener___ ally accepted and that a test was developed that allowed hospitals and blood suppliers to ___ screen out infected parcels of blood. ___ What is the liability to A of X Hospital, Y Ltd and Z? Pay particular attention to the va___ rious possible bases of liability (a general tortious liability for fault, vicarious liability, ___ contractual liability, or a special strict liability regime?). Would it make any difference to ___ your analysis if A contracted the virus as the result of a blood transfusion conducted in 2001, but her condition only manifested itself in 2012? (In this context, consider in particu___ lar differences in the time limits applied to the various possible bases of liability.) ___ ___ ___ ___A. Introduction ___ ___This report discusses the liability of X, Y, and Z, considering various possible 12/110 ___bases of liability, such as special product liability regimes, general fault-based ___tort liability, vicarious liability, and contractual liability. It further discusses ___whether the analysis might change if A contracted the virus as the result of a ___blood transfusion conducted in 2001, and her condition only manifested itself in

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2012. Finally, the report discusses policy implications: what does the analysis demonstrate about the reasons for introducing special product liability regimes? In particular, why are ordinary principles of fault-based, vicarious, and contractual liability considered insufficient? What does the analysis demonstrate about the justifications that may be given for strict product liability? Do these justifications apply where (as in the present case) the injury is caused by a non-standard product and results from a failure to identify a pre-existing defect in the individual product? This part of the report was written by an Israeli tort law professor, and modified following valuable feedback from the other members of the ‘Rest of the World’ group in the World Tort Law Society: Enrique Barros (Chile), Anton Fagan (South Africa), and Mark Lunney (Australia). Thus, while the main emphasis is on Israeli law, references are made to the other three jurisdictions where available and relevant. Note that a combined and coherent analysis of the four jurisdictions is highly problematic given the variance in legal tradition: Australia is a common law jurisdiction, Chile is a civil law jurisdiction, Israel is a mixed jurisdiction, but its tort law derives mostly from common law sources, and the mixed nature of the South African jurisdiction is reflected even within its tort law.

B. The Manufacturer 1. Product liability scheme a) The statutory framework The Israeli parliament enacted the Liability for Defective Products Liability Act in 1980, five years before the approval of EU Council Directive 85/374/EEC on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products. Academic literature demonstrates that in crafting the Act the legislature did not rely on the relatively developed American law. Rather, it intended to fall into line with European unification attempts, then manifested in the 1977 Convention on Products Liability in regard to Personal Injury and Death (the Strasbourg Convention). The Act imposes strict liability on manufacturers for bodily injuries caused by defective products that they manufactured.47

_____ 47 Defective Products Liability Act § 2(a).

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___ Australia has a specific product liability regime which was introduced in the ___early 1990s and is now contained in Part 3-5 of the Australian Consumer Law, ___set out in Schedule 2 of the Competition and Consumer Act of 2010. This scheme ___largely mirrors that of the European Union (the original legislation was modeled ___on Directive 85/374). The Law provides that ‘[a] manufacturer of goods is liable ___to compensate an individual if: (a) the manufacturer supplies the goods in trade ___or commerce; and (b) the goods have a safety defect; and (c) the individual suf___fers injuries because of the safety defect.’48 ___ South Africa also has a specific product liability regime, within the Con___sumer Protection Act of 2008. Section 61 provides that the producer or importer, ___distributor or retailer of any goods is strictly liable for any harm (not only to life ___or limb) caused as a consequence of (1) supplying unsafe goods; (2) a product ___failure, defect or hazard in any goods; or (3) inadequate instructions or warn___ings provided to the consumer about hazards arising from the use of these ___goods. There can be no liability under this Act in our case, because sec 61 only ___applies to goods supplied on or after 24 April 2010.49 In the following sections, ___however, I will refer to the Consumer Protection Act irrespective of this techni___cal qualification. ___ Chilean law does not have a general product liability regime. The Chilean ___Consumer Protection Act includes some rules about product safety,50 but they ___are inapplicable to our case, because health services and other services subject ___to special regulation, such as blood banks, are excluded from its scope of appli___cability.51 More importantly, the Act provides traditional consumer protection ___remedies, namely, repair, replacement, or full refund, but does not provide ___compensation for injuries caused by defective products. ___ ___ ___b) Product ___ ___The first question is whether blood products are in fact ‘products’ or ‘goods’ for ___purposes of the special product liability legislation. While this may seem to be ___a trivial question at first glance, its answer is far from clear. Whole blood, ___plasma, and blood cells of human origin are ‘moveables’ and therefore fall ___ ___ ___48 Australian Consumer Law § 138. 49 Consumer Protection Act, Sched 2, items 1, 2(1), 3(4). The reference to a commencement ___ date of 31 March 2011 reflects the fact that different parts of the legislation had different com___mencement dates. ___50 Consumer Protection Act §§ 23, 45. ___51 Ibid § 2.

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within the broad definition of the term ‘product’ in the EU Product Liability Directive.52 Thus, for example, in the United Kingdom blood products are denominated as ‘products’ under the Consumer Protection Act of 1987, which implements the Directive.53 However, in many jurisdictions, mostly in the United States, procurement, processing, distribution, and use of blood or blood products are considered provision of services rather products, and in some jurisdictions, the legislature explicitly excluded them from the definition of ‘product’ on public policy grounds.54 Thus, in defining the term ‘product’, the Restatement of Torts (Third): Products Liability provides that its rules do not apply to ‘human blood and human tissue, even when provided commercially.’55 The question has not arisen in the surveyed jurisdictions yet (although an Australian court held with respect to an action against a hospital that a blood transfusion is part of the medical service56). If the American interpretation is endorsed, special product liability legislation, which covers only products/goods, and not services, does not apply.57

c) Manufacturer The second question is whether Y is a ‘manufacturer’ or a ‘producer.’ The Israeli Act defines a ‘manufacturer’ as ‘a person who manufactures or assembles products for commercial purposes.’ In addition, the term encompasses (1) the

_____ 52 Product Liability Directive art 2: ‘product means all movables, with the exception of primary agricultural products and game, even though incorporated into another movable or into an immovable’; L Gormley, European Community Action on Good Manufacturing Practice: Consumer Protection and Product Liability, in: CTS Sibinga/PC Das/HJ Heiniger (eds), Good Manufacturing Practice in Transfusion Medicine (1994) 59, 59. 53 A v National Blood Authority [2001] 3 All ER 289; see also M Brooke/I Forrester, The Use of Comparative Law in A & Others v National Blood Authority, in: D Fairgrieve (ed), Product Liability in Comparative Perspective (2005) 13, 22-23. 54 JS Allee, Product Liability (2005) § 2.04[4]; MA Geistfeld, Principles of Products Liability (2006) 80; LB Leveton/HC Sox/MA Stoto, HIV and the Supply of Blood: An Analysis of Crisis Decisionmaking (1995) 48-49; MS Shapo, On the Law of Products Liability (2013) § 12-191; MJ Miller, Strict Liability, Negligence and the Standard of Care for Transfusion-Transmitted Disease, 36 Ariz L Rev (1994) 473, 488–491; see also Zichichi v Middlesex Memorial Hospital 528 A 2d 805, 810 (Conn 1987) (‘[Blood shield statutes] reflect a legislative judgment that to require providers to serve as insurers of the safety of these materials might impose such an overwhelming burden as to discourage the gathering and distribution of blood.’). 55 Restatement of Torts (Third): Products Liability § 19(c) cmt c (1998). 56 E v Australian Red Cross Society 1991 FCA 603, 105 Australian Law Reports 53, paras 18, 22. 57 North America no 11/76 ff.

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___person who represents himself as the manufacturer, by giving his name or ___trademark, or in any other way; (2) the importer of a product manufactured out___side the country; and (3) the supplier of the product – when the identity of the ___actual manufacturer or the importer is unknown.58 The Australian Act similarly ___provides that the term ‘manufacturer’ encompasses a person who (1) grows, ex___tracts, produces, processes or assembles goods; (2) holds himself or herself out ___to the public as the manufacturer; (3) causes or permits its name, brand or ___trademark to be applied to goods it supplies; (4) imports the goods.59 The South ___African Act uses a slightly different technique. It imposes strict liability on the ___producer or importer, distributor or retailer, and then defines a ‘producer’ as ___one who ‘grows, nurtures, harvests, mines, generates, refines, creates, manu___factures or otherwise produces the goods’. ___ Assuming that Y Ltd is a private company supplying blood products to hos- 12/118 ___pitals, the answer to the question set forth above seems simple. Whether Y manu___factures blood products, represents itself as the manufacturer, or imports these ___products, Y is the ‘manufacturer’ for the purposes of the Australian and Israeli ___legislation, and a ‘producer or importer’ for purposes of the South African Act. ___ At this point, a caveat is in order. In many countries, blood banks cannot be 12/119 ___profit seeking companies, selling blood products in the course of their busi___ness.60 In Israel, blood products are not supplied by private companies at mar___ket-determined prices. Blood is generally collected, tested, and stored by Magen ___David Adom (Red David Shield, hereinafter MDA). MDA is a statutory medical ___emergency corporation, recognised by the International Committee of the Red ___Cross as the national aid society for the purposes of the Geneva Conventions. ___MDA operates in accordance with the Magen David Adom Act of 1950. Section ___3(c) states that MDA is responsible for providing blood bank services for the ___public good. According to sec 50(4) of the Articles of MDA, the association pro___duces and supplies blood products. It collects blood from donors, and provides ___various blood products to hospitals and medical institutes across the country in ___fulfilment of its statutory obligations. There are no contractual relations be___tween MDA and any of the recipients. MDA is subject to regulation and supervi___sion by the Ministry of Health. Inter alia, the Ministry determines which tests ___must be carried out to secure the quality of the blood. Thus, for example, all ___blood donations are currently tested for HIV and Hepatitis C.61 This means that ___ ___ 58 Defective Products Liability Act § 1. ___ 59 Australian Consumer Law § 7. ___60 See eg Wis Stat § 146.31 (2012). ___61 MDA has been testing blood donations for Hepatitis C since 1991, in accordance with Minis___try of Health regulations.

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in Israel, the identity of the producer in Case 2 is known and constant. Y is not a limited liability company, it does not produce blood products for ‘commercial purposes’ and, therefore, it is not a ‘manufacturer’ and cannot be liable under the Defective Products Liability Act. Because Case 2 presents Y as a private entity, I will continue the analysis in this light. But the reader must understand that the factual assumption is inconsistent with reality in Israel. Presumably, the situation in Australia is similar. Although a ‘manufacturer’ is not defined as ‘a person who manufactures products for commercial purposes’ the liability rule provides that a manufacturer must compensate the consumer only if it ‘supplies the goods in trade or commerce.’ Thus, the requirement of commercial production is present, although it is an independent prerequisite to liability rather than an element in the definition of ‘manufacturer.’

d) Defect The third question is whether the blood product used in this case was ‘defective’. Under traditional American product liability law, as well as under the EU Directive a product is ‘defective’ if it does not provide the safety a person is entitled to expect.62 The Australian Consumer Law similarly provides that ‘goods have a safety defect if their safety is not such as persons generally are entitled to expect.’63 Put differently, the conceptual focus is on the consumer’s expectations. Arguably, a consumer cannot reasonably expect blood products, or any other products, to be perfectly safe.64 Moreover, we cannot say that a person is ‘entitled to expect’ a reasonable level of care by the manufacturer, because this would reintroduce a requirement of negligence into a no-fault regime. But the consumer may expect the product not to generate risk above a certain acceptable level, irrespective of the manufacturer’s level of care. This definition of defectiveness seems plaintiff-friendly in the infected blood context, although it is doubtful whether a consumer can reasonably expect a product to be free from unknown or undetectable risks. A second approach is that a product can be deemed defective if it is unreasonably dangerous, applying a riskutility test. This definition is more defendant-friendly than the former alternative.

_____ 62 Product Liability Directive art 6(1); Restatement (Second) of Torts § 402A cmt i (1965). 63 Australian Consumer Law § 9. 64 H Biltoft-Knudsen/MY Knudsen, Product Liability, in: RH Folsom/RB Lake/VP Nanda (eds), European Union Law after Maastricht: A Practical Guide for Lawyers Outside the Common Market (1996) 133, 143.

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___ Under the Israeli Act a product is ‘defective’ in one of two cases: (1) it is ___likely to cause bodily injury due to a defect; (2) a warning or operating in___structions are required for safety reasons under the circumstances, and they ___have not been provided or are inadequate in light of the danger.65 Having a flaw ___is therefore insufficient; the product must also be ‘likely to cause bodily injury.’ ___This definition of defectiveness is formally different from that employed by the ___EU Directive. Yet, Israeli case law does not provide a conclusive interpretation. ___ Seemingly, the fact that a product actually caused bodily injury may indi___cate that it was likely to cause such injury in the first place. But this interpreta___tion is unconvincing, because it makes causation of harm adequate evidence for ___defectiveness. An alternative interpretation might be that a product was likely ___to cause injury if the manufacturer could reasonably foresee that it would cause ___injury (which would seem inconsistent with a state of the art defence, discussed ___below). In a way, an interpretation which builds on the defendant’s foreseeabili___ty of harm undermines the nature of the Act as a strict liability regime. A third ___interpretation would be that a product is ‘likely to cause bodily injury’ when the ___objective risk of such harm exceeds a certain judge-made threshold. The next ___question is whether the risk should be examined in light of all information ___available to the court at the time of the decision, or in light of the information ___available at the time of the injury, at the time of production, or at another stage. ___ Under the ‘causation of harm’ test, the blood used in this case was defec___tive. On the other hand, under a foreseeability of harm test, the product was not ___defective, because prior to the injury the risk was not foreseeable. Only a single ___paper identified the risk, and it was contested by the scientific community. An ___objective ‘real risk’ test applied in light of the scientific knowledge available at ___the time of the injury or at the time of production would yield a similar result to ___the foreseeability test. At these early stages, the risk was recognised by one dis___puted paper, and was therefore too farfetched to satisfy the legal requirement. If ___we apply the objective real risk test in light of currently available knowledge, we ___may conclude that a real risk existed, making the product likely to cause injury. ___ In Israel, a product is presumed to be ‘defective’ if the circumstances of the ___case are more consistent with its being defective than with the opposite conclu___sion.66 The causation of injury, along with additional circumstances, may at ___times be more consistent with the product’s defectiveness than with the contra___ry conclusion. In this case, however, the concrete facts are known, so there is no ___need to use the statistical presumption. The interpretation of the phrase ‘likely ___to cause bodily injury’ will determine the outcome. ___ ___65 Defective Products Liability Act § 3(a). ___66 Defective Products Liability Act § 3(b).

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Under the South African Act, the producer is liable for harm caused as a consequence of supplying any unsafe goods; a product failure, defect or hazard in any goods; or inadequate instructions or warnings provided to the consumer about hazards arising from or the use of goods.67 The terms ‘failure’, ‘defect’, ‘hazard’, and ‘unsafe’ are defined in sec 53 of the Act. A ‘failure’ is ‘the inability of the goods to perform in the intended manner or to the intended effect.’ A ‘defect’ is ‘any material imperfection in the manufacture of the goods… that renders the goods less acceptable’ or ‘any characteristic … that renders the goods … less useful, practicable or safe than persons generally would be reasonably entitled to expect in the circumstances.’ A ‘hazard’ is a characteristic that ‘presents a significant risk of personal injury to any person … when the goods are utilised.’ In my view, the main question here is whether the relevant inability, imperfection or characteristic should be examined in light of all information available to the court at the time of the decision, or in light of the information available at the time of the injury, at the time of production, or at another stage. This is critical because Hepatitis N was unknown and undetectable at the earlier stages.

e) Causation The fourth question is whether bodily injury was actually caused by the defective product. Assuming arguendo that the blood used was legally ‘defective’, it may be safe to conclude that the defect caused the reported injury. Note, however, that as the infection mechanism is unclear from the facts, it is possible that exposure to infected blood is insufficient for infection, and that something done or omitted at the hospital facilitated the infection or increased the risk significantly, thereby severing the causal link between the defect and the injury.

f) Defences Under the Israeli Act, even if the elements of the cause of action are established a manufacturer may invoke one of five defences: (1) the defect arose after the product was no longer in the manufacturer’s control; (2) the state of scientific and technical knowledge at the time when the manufacturer put the product into circulation was not such as to enable the manufacturer to know that the

_____ 67 Consumer Protection Act § 61.

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___product did not comply with reasonable levels of safety; (3) the product left the ___manufacturer’s control without his consent, and he took reasonable precautions ___to prevent this, and warned the public about the risk; (4) the victim knew about ___the defect and the ensuing risk, and willingly exposed himself to that risk; (5) in ___the case of severe contributory negligence, the court may reduce the amount of ___damages awarded to the victim.68 ___ Two defences may be relevant in cases of blood infection. First, a manufactu- 12/129 ___rer is not liable if the defect arose after the product was no longer in its control.69 If ___the manufacturer proves that the specific product went through reasonable safety ___tests before leaving its control, there is a presumption that the defect arose when ___it was not in the manufacturer’s control. In Israel, blood donations are ___individually tested for possible infections. If a specific test is reasonably available ___and conducted properly, and the result is negative, the presumption applies. For ___example, all blood donations in Israel are currently tested for HIV and Hepatitis C. ___To the extent that the supplier performs the required tests properly and keeps ___track of the blood parcels, it can invoke this defence in the case of HIV or Hepa___titis C infections. If a test is reasonably available and carried out improperly, ___generating a false negative, or not carried out all, the presumption does not ap___ply. In our case, the blood was not tested at all, because no test was reasonably ___available. More importantly, we know that the blood was contaminated at the ___time of donation. Thus, the defence does not apply. ___ Second, a manufacturer is not liable if the state of scientific knowledge 12/130 ___at the time when the manufacturer put the product into circulation was not such ___as to enable the manufacturer to know that the product did not comply with ___reasonable level of safety (the ‘state of the art’ defence).70 This defence perfectly ___fits the case at bar. Y could not know that the blood product did not comply with ___reasonable levels of safety for two reasons: the risk of infection by Hepatitis N ___was generally unknown to the scientific community (only a single paper ___contested by the majority of scientists recognised it), and even if it were known ___– there was no way to determine whether blood parcels were actually infected. ___ The Australian Consumer Law provides similar defences. For example, the 12/131 ___manufacturer is not liable if ‘the safety defect in the goods that is alleged to ___have caused the loss or damage did not exist… at the time when the goods were ___supplied by their actual manufacturer.’71 As explained above, this defence may ___be relevant in blood infection cases, but not in the specific case discussed here. ___ ___ 68 Defective Products Liability Act § 4. ___69 Defective Products Liability Act § 4(a)(1). ___70 Defective Products Liability Act § 4(a)(2). ___71 Australian Consumer Law § 142(a)(ii).

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The legislation also provides that ‘[i]n a defective goods action, it is a defence if it is established that the state of scientific or technical knowledge at the time when the goods were supplied by their manufacturer was not such as to enable that safety defect to be discovered.’72 In contrast, the South African Act does not contain a ‘state of scientific knowledge’ defence.

g) Damages Damages under the Israeli Defective Products Liability Act are capped. In determining the scope of damages for loss of earnings and loss of earning capacity the court cannot take into account any income above three-times the average wage. If the award is exempt from tax, damages for lost income should be calculated in accordance with the after-tax income, provided that the deduction from the pre-tax income would not exceed 25% of it.73 Non-pecuniary damages under the Act cannot exceed NIS 150,000 (€ 30,000).74 In contrast, the South African Act imposes no cap on damages.

2. General tort law a) Applicability Where special product liability regimes do not exist, as in Chile, blood banks’ non-contractual liability may derive solely from general tort law principles. Formally, general tort law can also be used when a special product liability regime exists but is inapplicable, either because no cause of action can be established under this legislation (eg, in Israel, when the product was not ‘likely to cause physical injury’) or because one of the particular defences applies (eg, given the scientific knowledge available, the manufacturer could not know of the risk). As I will show below, however, if a person is physically injured by a faulty product and cannot sue under strict product liability legislation, it will be very difficult to establish a cause of action under the general principles of tort law. According to the Israeli Defective Products Liability Act, the fact that it provides a remedy does not exclude any other claim.75 The South African Act simi-

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Australian Consumer Law § 142(c). Defective Products Liability Act § 5(a). Defective Products Liability Act § 5(b). Defective Products Liability Act § 10.

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___larly stipulates that ‘[n]o provision of this Act must be interpreted so as to preclude ___a consumer from exercising any rights afforded in terms of the common law’76 and ___in Australia the legislation also preserves other statutory and common law rights.77 ___Thus, a person injured by a defective product may resort to the general law of torts ___in addition to or instead of an action under the specific product liability le___gislation, provided that there is no double recovery. In Israel, the main advantage ___of an action in torts from the plaintiff’s standpoint is that neither pecuniary dam___ages nor non-pecuniary damages are capped; their scope is determined in ac___cordance with actual harm. In South Africa there is no similar cap. ___ ___ ___b) Negligence ___ ___In common law jurisdictions, a person injured by a defective product can 12/135 ___frequently sue the manufacturer in negligence. Israeli negligence law is a codifi___cation of the landmark English House of Lords decision in Donoghue v Steven___son,78 which dealt with bodily injury caused by a defective product. Australian ___negligence law also has similar origins. ___ To establish a cause of action in negligence the plaintiff first needs to show 12/136 ___that the defendant owed the plaintiff a duty of care. A person owes a duty of ___care to another if under the circumstances a reasonable person ought to have ___foreseen that unreasonable conduct might injure that other.79 Not all harm ___which could be foreseen (as a factual matter) ought to have been foreseen (as a ___normative matter): if a particular harm could be foreseen it presumably ought to ___have been foreseen, unless special considerations justify restricting or exclud___ing the duty of care despite the ability to foresee.80 On the factual level we have ___already explained that Y could not truly foresee the injury to A. At the relevant ___time the risk was not scientifically known: only a single paper identified the ___risk, and the majority of the scientific community rejected this finding. More___over, even if a single disputed paper is sufficient for establishing factual fore___seeability, the reluctance of the scientific community to endorse this paper may ___serve as a special consideration which justifies a finding for the defendant ___manufactuter. A manufacturer cannot be held accountable for risks that most of ___the scientific community rejects. ___ ___ 76 Consumer Protection Act § 2(10). ___ 77 Competition and Consumer Act 2010 (Cth) s 131C. ___78 [1932] AC 562. ___79 Civil Wrongs Ordinance § 36. ___80 Civ App 243/83 Municipality of Jerusalem v Gordon, 39(1) PD 113, 129 (1985).

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Next, a plaintiff in negligence must show that the defendant deviated from the required standard of care, that is, the level of care that a reasonable person would exercise under the circumstances. To establish this level of care, courts usually compare the size and probability of the foreseeable risk (or the expected harm) and the cost of precautions necessary to avoid it.81 In the current case the expected harm was at most very small. At the same time we know that ‘only a handful of research laboratories in the world had the capacity to test for [the] presence [of Hepatitis N] in specific quantities of blood.’ Put differently, the test was neither common nor readily available; this implies that the cost of precaution was significant. Had manufacturers of blood products been required to test blood donations for Hepatitis N, they would have had to test all parcels, imposing a significant burden on blood bank activities to the detriment of the public at large. I would conclude that Y did not deviate from the required standard of care. As mentioned above, blood donations in Israel are individually tested for possible infections. If a specific test is reasonably available and conducted properly, and the result is negative, the blood bank will not be found negligent. For example, all blood donations in Israel are currently tested for Hepatitis C. To the extent that the blood bank performs the required tests properly and keeps track of the blood parcels, it will not be found negligent in the case of Hepatitis C infection.82 This is so not only where the infection was presumably caused by another person,83 but also where the test is known to have a slight chance of false negative results, and such an error occurred.84 If a test is reasonably available and carried out improperly, generating a false negative, or not carried out at all, the blood bank is negligent. In our case, the blood was not tested at all, because no test was reasonably available. In some cases, the plaintiff in a negligence action can rely on the res ipsa loquitur doctrine,85 which shifts the burden of proof with respect to unreasonableness from the plaintiff to the defendant. This doctrine applies if the circumstances of the case are more consistent with the conclusion that the defendant

_____ 81 See fn 27, above. 82 Civ Case 011190/01 (Magistrate Court Haifa) Chartouk v Rambam Hospital and MDA (11.2.2007) (holding that MDA tested all blood donations for Hepatitis C, and that the same donors’ more recent donations were also tested and not found to be infected; thus MDA was not negligent). 83 See eg Civ Case 010217/98 (Magistrate Court Herzliya) Hoeing v Assaf HaRofe Hospital and MDA (11.6.2001) (the plaintiff contracted Hepatitis C following a blood transfusion, but it was shown that MDA re-tested the blood donors and found that none was infected, leading to the conclusion that it was not at fault). 84 Civ Case 011190/01 (Magistrate Court Haifa) Chartouk v Rambam Hospital and MDA (11.2. 2007). 85 Civil Wrongs Ordinance § 41 (Israel).

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___was negligent than with the opposite conclusion. The fact that a person was in___fected by any form of Hepatitis following a blood transfusion might normally ___shift the burden of proof to those providing the blood or the medical treatment. ___In this case, however, the defendant can establish by a preponderance of the ___evidence (the standard of proof) that it was not negligent. The relevant facts ___were analyzed above. ___ In South Africa, a delictual claim may be brought against the manufacturer 12/140 ___under the lex Aquilia. Despite its Roman origin, the lex Aquilia is comparable to ___the Anglo-American tort of negligence, having four elements: wrongfulness, ___fault, patrimonial loss, and causation.86 To establish wrongfulness, the consu___mer must show that the producer owed him or her a duty of care, the existence ___of which is determined on a case by case basis, mainly by asking whether, as a ___matter of policy, it is desirable to impose liability.87 The consumer must also ___establish fault. As explained above, policy considerations and the need to prove ___fault pose an almost insurmountable barrier to any tort action against Y. ___ In civil law jurisdictions, blood banks’ liability may derive from general 12/141 ___principles of tort law, such as sec 2314 of the Chilean Civil Code. Courts interpre___ted sec 2329 of the Civil Code as shifting the burden of proof to the defendant (1) ___in cases of damages caused by hazardous activities, and (2) when the rules of ___experience indicate that the defendant, who was in control of the circum___stances, was negligent (res ipsa loquitur). Such an interpretation relieves the ___victim from the burden of proof of substandard conduct and causality, and is ___more generally applied to product liability.88 The difficulties in establishing ___negligent conduct in the current case were discussed above. ___ ___ ___c) Breach of statutory duty ___ ___An alternative cause of action is breach of statutory duty (which is an inde- 12/142 ___pendent tort in Israel and in other jurisdictions).89 This can be used if the manufac___turer violated manufacturing, marketing or advertising standards set by statutes, ___regulations, and the like. It seems that in our case there was no regulatory duty ___to test blood donations for Hepatitis N, so this cause of action is irrelevant. ___ ___ ___86 PQR Boberg, The Law of Delict, vol 1 (1991) 24–25. 87 Ibid, 30–34, 104, 146; Freddy Hirsch Group v Chickenland 2011 (4) SA 276 (SCA). ___ 88 Corte de Apelaciones de Valparaíso, 2 December 1948, confirmed by Corte Suprema, ___4 August 1952, RDJ vol XLIX, sec 1ª, 281. A similar interpretation can be found in Corte de San___tiago, 7 September 2000, RDJ, vol XCVII, sec 2ª, 65. ___89 See eg Civil Wrongs Ordinance § 63 (Israel).

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3. Contract law In many cases there is no contractual privity between the manufacturer of a product and the end consumer. Consequently, the former will not be liable to the latter in contracts. This general observation is subject to several exceptions. First, where the product is sold by its manufacturer to the end consumer, a contract exists between the two, and if the product is defective and harm ensues the consumer may often sue for breach. Second, a direct contractual link may be established between the manufacturer and the consumer without direct interaction between them through a warranty, although this usually covers only pure economic losses (ie, the cost of repair or replacement). Third, when the very strict conditions for recognizing a contract for the benefit of a third party are met, the consumer can have a contractual right against the manufacturer despite the absence of privity. In Israel, none of the exceptions apply to the current case, because blood products are not sold but provided based on need by their sole nonprofit manufacturer. There are no contractual relations between MDA and any of the recipients of blood products. However, let us assume arguendo that Y is a private manufacturer of blood products. The first exception cannot apply because the product is provided to X rather than directly to A. The second exception can theoretically apply if a warranty covers unforeseeable risks of infection, but this is extremely unlikely. Manufacturers do not normally assume responsibility for risks of which they are not aware. The third exception does not apply, because according to Israeli contract law a third party can sue under a contract only if a specific obligation was intended for the benefit of a third party and the contracting parties also intended to enable the third party to personally enforce the obligation. This framework is too restrictive to be of any practical value in the current context. This does not mean that the contractual option is generally unavailable in blood infection cases. In some cases one of the exceptions outlined above may apply. For example, a Chilean court held that a contract between a hospital that performed a transfusion and a blood bank that supplied the blood contained a stipulation for the benefit of the patient who received the transfusion. Put differently, the patient was a third party beneficiary of the contract under art 1449 of the Chilean Civil Code. However, in this particular case the blood bank was informed in advance of the specific patient’s identity. 90 These exceptional circumstances do not exist in our case.

_____ 90 Corte de Apelaciones de Santiago, 28 April 2000, rol no 6956-2000.

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___4. Special legislation ___ ___In Israel, blood products are manufactured by a statutory corporation 12/146 ___supervised by the state. On some occasions in the past the state also imported ___blood products from other countries, making it a ‘manufacturer’ for purposes of ___the Defective Products Liability Act. In 1992, the Israeli parliament (the Knesset) ___enacted the Compensation to Blood Transfusion Victims (AIDS Virus) Act.91 Sec___tion 2 provides that the State will compensate every person infected by HIV fol___lowing a blood transfusion in the public health care system between 1981 and ___1987, and that person’s spouse and children, if they were infected through con___tact with him or her. An experts’ committee determines whether a causal link ___exists between the transfusion and the infection. 92 A person who claims ___compensation under the Act is not entitled to sue in torts. There are no ___equivalent compensation schemes for other types of infection. ___ ___ ___C. The Hospital ___ ___1. Product liability scheme ___ ___The hospital X cannot be regarded as the manufacturer of the infected blood 12/147 ___product. The blood transfusion is a service provided by the hospital, not a sale ___of a product.93 Moreover, the blood parcels were not manufactured by X. Thus, X ___cannot be liable under the Israeli Defective Products Liability Act or the Austra___lian Consumer Law. Its liability should be analyzed in accordance with general ___principles of tort law and possibly contract law.94 ___ The South African Consumer Protection Act, on the other hand, imposes 12/148 ___liability not only on manufacturers, but also on retailers. Arguably, X Hospital ___may be regarded as a ‘retailer.’ A retailer is defined as one who ‘in the ordinary ___course of business, supplies those goods to a consumer.’ But even if X is a ___retailer, it enjoys a defence in accordance with sec 61(4)(c), whereby liability ___does not arise if ‘it is unreasonable to expect the distributor or retailer to have ___ ___ ___91 Sefer HaHukim 1993, 7. ___92 Compensation to Blood Transfusion Victims (AIDS Virus) Act §§ 3-4. 93 See Miller, 36 Ariz L Rev (1994) 473, 483–485, 488-489. ___ 94 In most jurisdictions the victim may choose between an action in torts and an action in ___contracts. In Chile this choice may be excluded only under a specific provision in the contract. ___See, in Chile, Corte de Concepción, 10 August 2000, GJ 259, 38; Corte de Concepción, 20 May ___2002, GJ 268, 93, and; Corte de Santiago, 19 January 1993, GJ 151, 54.

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discovered the unsafe product characteristic, failure, defect or hazard, having regard to that person’s role in marketing the goods to consumers.’

2. General tort law An action for negligence in cases of blood infection may be based on one or more of the following allegations: (1) the hospital was negligent in using unsafe blood products; (2) the hospital was negligent in contaminating safe blood products; (3) the hospital was negligent in exposing the patient to other sources of infection, such as contaminated equipment or bodily fluids of other patients or medical staff. In our case, the blood was already contaminated when supplied to hospital X. Therefore, the second and third allegations are inapplicable. They should, however, be remembered in other blood infection cases. With regard to the first allegation, one should distinguish between cases in which infection tests are available and cases in which they are not. If tests are available at a reasonable cost, using untested blood products is negligent. Yet, if the products were tested for specific infections by the manufacturer, and the results were negative, the hospital can rely on these results and is not required to perform additional tests. Requiring additional tests would impose an unreasonable burden on hospitals. Thus, a hospital will not be found negligent for using infected blood products, if tests performed by the supplier yielded false negative results.95 If, as in the current case, a particular infection is unknown or undetectable at a reasonable cost, so that providing blood products with the particular infection cannot be deemed negligent on the manufacturer’s part, using such products cannot be deemed negligent on the hospital’s part either. Put differently, if we cannot expect the manufacturer to test the product for a specific risk, because a test does not exist or is too costly, we cannot expect the hospital to perform such a test. The plaintiff in a negligence action may sometimes utilise the res ipsa loquitur doctrine, which shifts the burden of proof with respect to unreasonableness from the plaintiff to the defendant. This doctrine applies if the circumstances of the case are more consistent with the conclusion that the defendant was negligent than with the opposite conclusion. In Hoenig v Assaf HaRofe Hospital and MDA 96 and in Eldad v Ramat Marpe Hospital (Ramat Gan)

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95 Civ Case 5213/90 (Magistrate Court Tel Aviv) Estate of Rachel Melamed v Rotem Insurance Co Ltd (27.4.1995). 96 Civ Case 010217/98 (Magistrate Court Herzliya) Hoenig v Assaf HaRofe Hospital and MDA (11.6.2001).

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___Ltd97 the courts held that this doctrine applies in an action against a hospital if a ___patient was not infected by Hepatitis C when hospitalised, but left the hospital ___with said infection. The doctrine may therefore apply in the case at bar. In the ___Eldad case the hospital was ultimately found negligent because it failed to ___positively prove that it used blood parcels that were actually tested and found ___non-contaminated, and that the infection did not originate in the hospital’s ___equipment. Still, in our case we know that the specific blood parcel provided by ___Y was contaminated; so the hospital can easily prove that the infection should ___not be attributed to its employees’ fault. ___ ___ ___3. Contract and sales law ___ ___If X is a private hospital, the harm to A may arguably be attributed to a breach of 12/152 ___contract between A and X. This, however, is a dubious theory, because hospitals ___do not normally offer a no-risk guarantee. Rather, they commit to comply with a ___certain standard of medical treatment. This commitment was not breached in our ___case. ___ The applicability of sales of goods legislation may once again require 12/153 ___classification of blood transfusions. To the extent that blood transfusions are ___classified as a provision of service, rather than a sale of goods, sales legislation ___is irrelevant, as at least one Australian court has held with respect to a local ___statute.98 ___ ___ ___4. Consumer protection law ___ ___The Israeli Consumer Protection Act of 1981 provides that the seller and the 12/154 ___manufacturer of a product or a service owe a duty to the consumer not to mislead ___him with respect to any matter material for the transaction,99 and a duty to dis___close any defect, inferior quality, or other feature which diminishes the product’s ___value.100 Violation of any of these duties constitutes an actionable tort. According ___ ___ ___97 Civ Case 059372/99 (Magistrate Court Tel Aviv) Eldad v Ramat Marpe Hospital (Ramat Gan) ___Ltd (13.11.2006). 98 E v Australian Red Cross Society, 1991 FCA 603, 105 ALR 53, paras 18, 22, noted in RV Miller, ___ Australian Competition and Consumer Law Annotated (35th edn 2013) § 1.S2.2.30 (holding that ___a blood transfusion administered by a hospital during an operation is a supply of services). ___99 Sec 2. ___100 Sec 4.

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to the case law these provisions are applicable not only where the actual value of the product is lower than the perceived value, but also where the defect causes a bodily injury or emotional harm (such as disgust ensuing from the undisclosed addition of polydimethyilsiloxane to UHT milk by a large dairy). The Israeli legislation applies to both products and services, so the classification of blood products seems irrelevant. However, the Consumer Protection Act is limited to cases of misrepresentation, so it does not apply to the case at bar. The Australian Consumer Law provides that where a person supplies, in trade or commerce, goods to a consumer; and the supply does not occur by way of sale by auction, there is a guarantee that the goods are of acceptable quality.101 In E v Australian Red Cross Society, however, the court held that ‘[t]he essence of the contract between the [patient] and the [hospital] was one for services, namely, the provision of hospital, medical and nursing services for the purpose of treating the [patient] for his medical problem and restoring him to health. To the extent that goods were provided to him… they were provided as an incident to the contract for the provision of services. There was no contract for the supply of goods.’102 Finally, as mentioned above, the Chilean Consumer Protection Act is inapplicable here, because health services and services subject to special regulation, such as blood banks, are excluded from its scope of applicability.103 Moreover, the Act provides traditional consumer protection remedies, and not compensation for injuries caused by defective products.

D. The Donor The blood donor, Z, is not a manufacturer and cannot be liable under product liability legislation. Can Z be liable in negligence? Because Z was unaware of the fact that he was a carrier of the Hepatitis N virus, and because at the time of the donation this condition was identified by only one disputed article, Z cannot be said to have foreseen the possibility of infecting others. Thus, Z did not owe a duty of care to potential receivers. Moreover, even if he had known or had been able to know about the infection, he would not have been expected to do more than disclosing the relevant information when donating blood. A blood donor cannot be obliged to undergo various tests at his own expense prior to performing his altruistic act. Finally, even if the donor had been negligent in not disclosing relevant information, the supplier’s negligence in not performing the

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101 Sec 54. 102 E v Australian Red Cross Society 1991 FCA 603, 105 ALR 53, para 22. 103 Consumer Protection Act § 2.

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___required tests could have severed the causal link between the donor’s negligen___ce and the ultimate injury. ___ ___ ___E. Statute of Limitations ___ ___Assume now that A contracted the virus as the result of a blood transfusion in 12/158 ___2001, but her condition only manifested itself in 2012. In this part we focus on ___Israeli law. To address the modification systematically we need to distinguish ___between an action under the Israeli Defective Products Liability Act and an ac___tion in torts. Section 6(a) of the Defective Products Liability Act provides that ___the limitation period for proceedings under the Act is three years. Section 8 of ___the general Israeli Limitation Act, which applies to actions under the Defective ___Products Liability Act,104 stipulates that if the plaintiff was unaware of the facts ___forming the basis of the action, then the limitation period should start when the ___plaintiff became aware of these facts, provided that the lack of awareness ___ensued from reasons that the plaintiff did not cause and could not reasonably ___prevent. Because bodily injury is one of the elements of the cause of action ___under the Defective Products Liability Act, and because A’s harm transpired ___only in 2012, the limitation period does not begin to run until that date. ___However, the Defective Products Liability Act limited the applicability of poten___tial extensions of the limitations period with a statute of repose, providing in ___sec 6(b) that no action can be brought more than ten years after the product left ___the manufacturer’s control. The transfusion was conducted in 2001, so the ___blood product was manufactured at the latest in 2001. No action under the De___fective Products Liability Act can be brought after 2011. ___ Similar rules apply in Australia. The limitation period for product liability 12/159 ___claims is three years; but this period begins only when the victim became ___aware, or ought reasonably to have become aware, of the damage, the defect, ___and the identity of the manufacturer.105 However, as in Israel, a defective goods ___action must be commenced within ten years of the supply by the manufacturer ___of the goods to which the action relates.106 So if the blood was indeed supplied ___in 2001, no action can be brought in 2012. ___ In Israel, an action under the general principles of tort law must be brought 12/160 ___within seven years of the occurrence of the harm.107 Section 8 of the Israeli Limita___ ___ 104 Rehearing 36/84 Teichner v Air France – French Airlines 41(1) PD 589, 600-601 (1987). ___105 Australian Consumer Law § 143(1). ___106 Australian Consumer Law § 143(2). ___107 Sec 5(1) of the Limitation Act in conjunction with sec 89(2) of the Civil Wrongs Ordinance.

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tion Act, which also applies to ordinary tort actions, stipulates that if the plaintiff was unaware and could not reasonably be aware of the facts forming the basis of the action, then the limitation period starts when the plaintiff becomes aware of these facts. Because harm is one of the elements of negligence and breach of statutory duty, and because A’s harm transpired only in 2012, the limitation period is tolled. According to sec 89(2) of the Civil Wrongs Ordinance, if the harm manifests itself only after it is caused, the limitation period runs from the time of manifestation, but an action cannot be brought more than ten years after the actual occurrence of the harm. However, in HaMeiri,108 the Israeli Supreme Court held that the ten-year limitation applies only to late discovery of the harm, while if causation produces harm at a later stage, the limitation period extends in accordance with sec 8 without this qualification. Because the plaintiff cannot normally be aware of causation before being aware of the harm, this ruling practically nullifies the qualification. In the current case, A is unaware that her harm was caused by Y’s or X’s negligence until 2012, so her tort action is not time barred.

F. Commentary Strict product liability may serve several purposes. The first possible rationale for strict liability may be that defective products frustrate consumer expectations with respect to safety.109 In protecting consumers’ expectations, product liability law may be perceived as an extension of contract law (or, more specifically, of implied warranty law). While contract law is the traditional tool for protecting expectations, it has a fundamental weakness in the defective products context: in many cases there is simply no contractual privity between the manufacturer and the end consumer. Consequently, the former will not be liable to the latter in contracts. This general observation is subject to several exceptions mentioned above. First, where the product is sold by its manufacturer to the end consumer, a contract exists between the two. Second, a direct contractual link may be established between the manufacturer and the consumer through an express warranty. Third, when the conditions for recognizing a contract for the benefit of a third party are met, the consumer will have a contractual right against the manufacturer despite the absence of privity. Fourth, if the harm may be attributed to a breach of contract between the consumer and the retailer, the consumer may sue the retailer in contracts.

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108 Civ App 1254/99 HaMeiri v Hachsharat HaYeshuv – Insurance Co Ltd 54(2) PD 535, 547, 550 (2000). 109 MA Geistfeld, Principles of Products Liability (2006) 3.

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___ A second possible rationale is that defective products are frequently the ___result of producers’ fault, either in design or in production, and that because of ___information asymmetry between producers and consumers it is unreasonable to ___require consumers to establish fault. Put differently, the justification for strict ___liability may be that producers of defective products are presumably at fault and ___consumers are incapable of establishing this fault. Strict liability ultimately ___imposes the burden on the ‘right’ party.110 Yet, this justification is inapplicable ___where, as in the current case, the absence of fault is evident. ___ A third possible rationale is the distributive concern. It is commonly said ___that enterprises should fully pay for the materialisation of risks associated with ___activities from which they derive a significant profit.111 Confining strict liability ___to commercial manufacturers – as is the case in Australia and in Israel – seems ___compatible with this theory. It is reasonable not to impose strict liability on in___stitutions which confer a huge benefit on the public rather than on their owners ___or operators. Hospitals and blood banks, especially to the extent that they are ___nonprofit organisations, may serve as a good example. It may be argued that the ___law may similarly incentivise the establishment and operation of for-profit ___corporations which confer a significantly greater benefit on the public than on ___their shareholders by exempting them from strict liability regimes. ___ A fourth possible rationale is that strict liability may help reduce accident costs ___and maximise social welfare. To begin with, producers are regarded as either the ___cheapest cost avoiders or the ‘best bribers’.112 They can better assess the risks and ___the costs of reducing risks, and are better equipped to take the necessary measures ___to reduce risks. Moreover, producers can better spread losses through pricing and ___insurance mechanisms than consumers.113 Finally, a strict liability regime entails ___lower administrative costs.114 Of course, imposing liability – either strict or fault___based – cannot incentivise producers to avoid risks that are unknown, undetect___able or unavoidable at the time of the underlying decision. Indeed, the current ___case demonstrates that liability is not imposed in such instances. ___ Blood products are unique in two respects. On the one hand, they may pose ___significant yet unknown or undetectable risks to many individuals. On the other ___hand, their production and use are extremely beneficial to society at large. ___These features entail special legal treatment. Failure to identify a pre-existing ___ ___ ___110 D More, Re-Examining Strict Products Liability’s Goals and Justifications, 9 Tel Aviv U Stud L (1989) 165, 197. ___ 111 Ibid. ___112 Ibid 184. ___113 Ibid 193. ___114 Ibid 185.

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defect in one of the components of the product, or even the principal component, should lead to liability only if the risk was recognised and detectable. The reason is that manufacturers cannot adapt to risks that are unknown or undetectable ex ante. Imposing liability when such risks materialise has no riskreducing effect. Moreover, imposing liability under such circumstances cannot be justified by consumers’ expectations or by a presumption of fault. The problem is exacerbated where the production and use of the products in question are extremely beneficial to society at large, as in the case of blood products. Imposing liability for the materialisation of unrecognised or undetectable risks may curtail these activities. Blood banks and hospitals will fear unexpected and burdensome liability, and reduce production and use to the detriment of society. Geistfeld demonstrates this point using the HIV example: a test for detecting this virus became available only in 1985, and almost half of America’s hemophiliacs were HIV positive because of blood product transfusions that predated the tests.115 Strict liability ‘would have a potentially devastating effect on the financial viability of the blood-products industry.’116 Note that these features may also be relevant in deciding fault-based tort claims against suppliers. Thus, in an HIV infection case, an Australian court held that the Red Cross was not negligent in not introducing a specific blood test earlier, because ‘the loss of blood that was otherwise harmless and which would be lost by surrogate testing was thought by many to be too great a loss and would endanger the blood supply to blood banks.’117

Case 3: Bridge Collapse (Enrique Barros Bourie and Mark Lunney) A, a pedestrian using a public right of way, is injured by the collapse of a bridge constructed by X Ltd on land belonging to Y, who commissioned the construction, on the basis of a plan drawn up by architect Z, whom Y also commissioned directly. It transpires that Z’s plan was defective and caused the collapse. Y incurs the cost of instructing a different architect to redesign the bridge. Under the terms of its initial engagement, X Ltd is obliged to construct the new bridge for no additional remuneration. What is the liability to A of X Ltd, Y and Z? Is the architectural plan itself a ‘product’, and so subject to strict product liability, or does it merely represent the performance by Z of a service, to which some alternative liability regime applies?

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115 MA Geistfeld, Principles of Products Liability (2006) 78. 116 Ibid. 117 E v Australian Red Cross Society 1991 FCA 603, 105 ALR 53, paras 76, 81.

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What further liability, if any, does Z have to X Ltd and Y, whether on the basis of a di___ rect claim or a recourse action? ___ ___ ___ ___A. Introduction ___ ___There are a variety of actions that could arise from this scenario. These are 12/168 ___actions by A, the pedestrian who is lawfully on the land, against Y as the occu___pier of the land, against X Ltd as the contractor who built the bridge, and ___against Z as responsible for the negligent design of the bridge which resulted ___in the collapse. A would sue for the physical injury he or she has suffered. Y will ___want to sue Z for the additional costs of instructing another architect. There ___might also be an action by X Ltd against Z for the economic loss that X Ltd ___has suffered by having to construct the new bridge at no additional remuner___ation.

___ ___ ___B. General Principles ___ ___This combined study allows for the legal responses to the above scenario to be 12/169 ___considered from the different perspectives of common law and civil law systems ___(Australia being the common law system and Chile being the civil law system). ___The primary areas of law which could provide remedial assistance to the ___potential plaintiffs in this scenario are the law of tort (or delict) and the law of ___contract. Some background on how the two systems treat these areas of law is ___required before the law can be applied to the facts. ___ ___ ___1. Chilean law ___ ___a) General ___ ___The relative effect of contracts. A general principle in civil law tradition is that a 12/170 ___contract only gives rise to binding obligations for the parties that have agreed to ___it. The idea of privity of contract in common law is equivalent to but is not identi___fied as a doctrine of the relative effect of contracts. However, there have been efforts, especially in comparative civil law, to 12/171 ___ ___broaden the reach of contracts in order to address certain restrictions of tort ___liability. What follows is a brief reference to the doctrines which, applied to the ___case at hand, could expand the effects of the contracts entered into between the

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landowner, the contractor, and the architect, in favour of third parties. We also address the necessity of such expansion of contractual limits in assessing the liability of the participants under Chilean law. Chain of contracts. The chain of contracts doctrine is applied to cases in which the victim suffers damages due to a breach of a contract to which he is not a party, but nonetheless is linked through another contractual bond with a party to the breached contract. The chain of contracts is an exception to the relative effect of contracts principle; therefore, it tends to be applied in limited circumstances only when the claimant requires special protection.118 This theory was born in French case law (groupe de contrats). In situations of chains of contracts the victim of damage could bring his action for compensation based on the breach of a contract to which he is not a party. The defendant may raise all defences he could have raised if his contractual counterparty in the contract was the plaintiff (for instance, resorting to a contractual clause which limits defendant’s liability).119 Analogous results have been achieved in German law through the application of contractual liability in favour of a person who is not a party to the contract, by way of including a liquidation of that third party’s’ damages (Drittschadensliquidation). Under this doctrine, in exceptional situations a party to a contract may impose contractual liability on his counter-party not for the party’s own damages, but for damages suffered by a third party who does not have any contractual bond with the defendant.120 There is an important technical difference between these doctrines: while the chain of contracts theory aims to make available to a third party contractual actions against the perpetrator of the damage, the liquidation of damages suffered by third parties confers upon the contracting party a contractual action for damages suffered by a third party, to which he or she is liable. The application of the chain of contracts theory to the case at hand would provide, for instance, the contractor with a direct action against the architect, on the basis of his or her defective design. This confers upon the contractor the contractual action held by the landowner against the architect. The purpose of this action would be to redress damage consisting of the costs the contractor has to incur to construct a new bridge, as well as purely pecuniary expectation damages (lucrum cessans), ultimately consisting of the contractor’s lost earnings during the time devoted to the reconstruction task.

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118 G Viney, Traité de Droit Civil. Introduction à la Responsabilité [Civil Law Treatise. Introduction to the Liability] (1995) §§ 189, 338. 119 Cass civ 1, 21 June 1988, Bull civ I, 202. 120 H Kötz, The Theory of Privity of Contract (1990) 10 Tel Aviv U Stud L 195.

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___ Although the chain of contracts is frequently applied to professionals who ___are involved in construction activities,121 and in spite of the fact that the same ___has been argued by some Chilean scholars,122 there are strong grounds not to ___apply it to the case at hand. ___ First and foremost, its formulation has been vague,123 especially in Chile, ___where its treatment is incipient.124 Secondly, it is thought of as applying to sub___contracting and not for laterally related contracts as in this case, given that no ___special provision in that sense has been agreed by the parties. As a matter of ___fact, when contracts between different parties overlap, it is preferable to resort ___to the well-established principles of tort liability.125 ___ It is interesting that French case law, where this theory was formulated, has ___held that the architect’s liability towards the contractor is of a non-contractual ___nature; the Cour de cassation has overturned judgments which asserted that this ___action ought to be instituted under a contractual regime.126 This reasoning ___would find favour with Australian courts where the remedy in this situation, if ___any, would be found in the law of tort. ___ Contracts entailing protection duties in favour of third parties. To extend the ___contract in favour of third parties presupposes that the obligatory relationship is ___not restricted to the other party, but also establishes protection duties for the ___benefit of persons who have not given their consent for its execution. These du___ties, complementary to the main consideration, may be inferred from the under___standing of the binding relationship as an ‘organic and complex structure’.127 In ___addition, it presupposes that in case of breach of the protection duties, under ___ ___ 121 G Viney, Traité de Droit Civil. Introduction à la Responsabilité (1995) §§ 211, 390. ___ 122 J López, Las Cadenas de Contratos o Contratos Coligados [Chains of Contracts and Colliga___ted Contracts] (1998) XIX Revista de Derecho de la Universidad Católica de Valparaíso 159. ___123 H Kötz, (1990) 10 Tel Aviv U Stud L 195, 208; G Viney, Traité de Droit Civil. Introduction à ___la Responsabilité (1995) §§ 191, 348. ___124 C Pizarro, El Efecto Relativo de los Contratos: Partes y Terceros [The Relative effect of con___tracts: parties and third parties], Fundación Fernando Fueyo accessed 24 April 2013. ___ 125 G Viney, Traité de Droit Civil. Introduction à la Responsabilité (1995) § 212-1, 393 ‘Il arrive ___alors qu’au cours de l’exécution des contrats juxtaposes, l’un des professionnels cause un ___dommage à un autre ou que, par sa défaillance, il mette obstacle à l’exécution d’un autre ___contrat il n’est pas partie. Parfois, il peut également, par sa faute, contribuer à la réalisation ___d’un préjudice don’t répond également un autre fournisseur de services (...) La jurisprudence admet alors qu’il peut utiliser, pour obtenir réparation de ce dommage, les principes de la res___ ponsabilité délictuelle.’ ___126 Cass civ 3, 1 March 1983; Cass civ 1, 16 February 1994, Bull civ III, 51 (Mégacode civil D ___2009, art 1165, para 33). ___127 K Larenz, Lehrbuch des Schuldrechts (1979) 24 ff.

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the contractual regime, the third party may directly bring a suit to claim compensation for the damage he might have suffered. In Latin America, legal doctrines seeking to extend the effects of contracts through protection duties have gained supporters. For instance, in Colombia, a judgment issued by the Supreme Court seems to apply the German theory of contracts having protective effects towards third parties.128 Some similar development has occurred in Chile by means of the extensive application of the old provisions on stipulations made in favour of another party (art 1449 of the Chilean Civil Code) (no 28).129 For example, the Court of Appeals held that between a patient (‘ɑ’), a hospital (‘þ’) and a blood bank (‘ɣ’), there was a contract for the benefit of ɑ who received a blood transfusion conducted in þ. The blood was supplied to þ by ɣ. In this case, ɑ was deemed to be a beneficiary of the stipulations agreed upon by þ and ɣ. Also, the stipulation in favour of another party was applied, amongst other reasons, because ɣ was informed of the identity of ɑ.130 However, there are a number of reasons why under Chilean law it is not necessary to resort to said hypotheses of a contract in favour of third parties. First, in Chile, the principle of the full redress of damage under tort law is well accepted. Courts have held that art 2329 of the Civil Code requires that all damage that may be attributed to fraud or negligence of another person ought to be redressed by the latter. Even though this rule originally had a different meaning, it has enabled case law to establish the full redress of damage since early in the last century.131 This full compensation includes pure economic loss (lucrum cessans) and pain and suffering (praetium doloris). Second, there is a preference towards delimiting the contract scope to the parties only. The contract is generally understood as a valid convention to create obligations by means of reciprocal commitments. Thus, expanding the contractual scope to those who have not consented thereto is questionable, or at the very least, requires particularly justified grounds. This concept is consistent with precedents as to the delimitation of the contractual scope to the parties in European Community law. Finally, it is not necessary to resort to contractual liability in order to improve the victim’s position in product liability cases as in other groups of situations. Traditional differences between contractual and tort liability have been

_____ 128 Corte Suprema, Cass Civ, 1 July 2009; see J Olmos, Deberes de protección aún frente a terceros en la dogmática alemana [Contracts entailing protection duties in favor of third parties in the German doctrine] (2010) 20 Rev Der Priv 301 ff. 129 Corte de Apelaciones de Santiago, 28 April 2000, rol no 6956-1996. 130 Corte de Apelaciones de Santiago, 28 April 2000, rol no 6956-2000. 131 Corte Suprema, 18 December 1926, RDJ vol XXIV, sec 1ª, 567

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___diminished. Examples of these developments in tort law are the extension of the ___presumption of fault and the personal liability of the entrepreneur for ‘organiza___tional’ defects.132 Moreover, there are similarities between a functional approach ___to contractual liability for breach of obligations to produce a benefit and the ___application of tort liability for presumed fault, or even strict liability regimes ___qualified by the concept of defect. ___ ___ ___b) Statutes of tort liability applicable to the case at hand pursuant to Chilean ___ Law ___ ___(i) Irrelevance of the distinction between the product and the service to decide ___ upon the case in light of Chilean law ___ ___In order to decide the case in light of the Chilean legal framework, the distinc___tion between whether the design and construction of a bridge is a product or a ___service is irrelevant, since, unlike South African and Australian law, there is no ___special liability regime, either for defective products or for defective services.133 ___ Only the Consumer Protection Act (LPC) includes some provisions on ___defective, hazardous or nonconforming products and services: ___ Information duties regarding hazardous products and risky services. The ___statute establishes information duties seeking to inform consumers about the ___hazards of a product or the risk of a service, consisting in warnings and indica___tions so that the product may be used or the service provided safely (art 44 ff). ___ Legal guarantee in case of nonconforming products or defective services. The ___consumer of a nonconforming product is entitled to demand gratuitous repair, ___replacement or return of the amount paid therefor (art 20 c). The repair may be ___requested from the seller, the manufacturer or the importer. In case of defective ___services, the consumer may request a new provision of the service without addi___tional cost, or, in lieu thereof, the return of the amounts paid to the supplier ___(art 41).134 It must be noted that redress does not extend beyond the value of the ___defect itself and is not intended to repair damage suffered by the consumer or ___ ___ ___132 E Barros, Tratado de Responsabilidad Extracontractual [Torts Law Treatise] (2006) 126 ff. ___133 There is one provision of the Statute on Consumer Protection that does institute a special liability, applicable solely to the particular case of damage caused by products or services pre___ viously declared (by the courts) to be highly toxic or hazardous, and establishing joint and sev___eral liability of the importer, manufacturer and distributor or service provider (art 47). ___134 The rule gives the consumer the option of a civil action for damages, according to the gen___eral rules on torts (art 2314 of the Chilean Civil Code).

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by third parties. Recourse action. The LPC provides a recourse action for the vendor against the manufacturer, when the former has been obliged to hold the customer or third parties harmless for damage caused by defects that may be causally attributable to the manufacturer (art 22). The LPC contains civil and administrative rules. Particularly, the LPC establishes fines to be imposed on the supplier that negligently delivers a defective product and the service provider that negligently renders a defective service (art 23). These fines are payable to the state (art 61). In any case, and although it is not explicitly established, it is unquestionable that a breach of a statutory administrative duty, giving rise to an administrative sanction, can be considered per se as negligence in the civil liability case. In Case Study 3, the LPC would only be applicable to the contractor and not to the architect, because the latter rendered his services independently to a client and therefore he does not qualify as a supplier (art 1 no 2).135 The scope of application of the LPC is restricted to the relationship between suppliers and consumers (both defined widely in art 1 LPC). X Ltd did not render its service as an independent professional, but as a company; therefore X Ltd qualifies as a supplier. Indeed, construction is included in the definition of that term (art 1.2). In any case, the provisions addressing defective services are not relevant here, because they do not establish a special civil liability regime. In consideration of the lack of a specific statute on liability for defective products or services, civil liability has been built on the basis of the general presumption of negligence set forth by art 2329 of the Chilean Civil Code. Although this provision does not explicitly set forth a presumption, both doctrine and case law have deemed that there is a reversal of the burden of proof regarding the harm that results from dangerous activities, or when the circumstances (according to experience) suggest, prima facie, that the defendant acted negligently.136 This presumption is applicable to defective products

_____ 135 LPC excludes persons holding a professional title (which is exercised in the provision of the services) from its definition of service providers (art 1.2). 136 Rulings have been issued applying this interpretation ‘referenced art. 2329 does not dogmatize with regard to the need of the subjective elements of malice or negligence in order to allocate liability, but rather anticipates the existence of the necessary elements in order to impose said liability each time that a person suffers damage that is a reasonable consequence of the execution of an act or the failure to comply with a duty, and such action or omission is likely to damage third parties’, Corte de Apelaciones de Valparaíso, 2 December 1948, confirmed by the Corte Suprema, 4 August 1952, RDJ, vol XLIX, sec 1ª, 281. A similar interpretation is evidenced by the ruling issued by the Corte de Santiago, on 7 September 2000, RDJ, vol XCVII, sec 2ª, 65. Note that the common law has sometimes adopted a similar approach: Grant v Australian Knitting Mills Ltd [1936] AC 85.

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___liability cases because the defect suggests negligence per se. Diligence, as a de___fence asserted by the manufacturer or supplier is, in practice, subject to a con___clusive diabolical proof.137 ___ Moreover, as detailed below, Chilean law sets forth a special liability regime ___for defects and wreckage of buildings, which has been explicitly qualified by ___case law under the tort liability regime.138 The statute applies to claims for dam___ages against the landowner and the professionals involved in construction. ___ ___ ___(ii) Special liability rules regarding the wreckage of buildings and ___ construction defects ___ ___Construction defects and the wreckage of buildings may result in liability of ___both a contractual and non-contractual nature. Liability for the wreckage of ___buildings in the Chilean Civil Code is addressed in art 2003 (referring to con___struction contracts) and in art 2323. The latter makes applicable, in matters of ___tort liability, the contractual liability rules of art 2003. ___ Moreover, the liability of the landowner and professional as a result of a ___defective design or construction is also covered by art 18 of the General City ___Planning and Constructions Act (LGUC). This special regulation is more general ___than the one set forth in the Civil Code, which only regulates liability for the ___wreckage of buildings. It has been a comparatively effective preventive instru___ment within the context of the serious earthquake affecting the most populated ___areas of Chile in early 2010. ___ LGUC specifically sets forth civil liabilities for damage due to building ___defects and does not make a distinction between contractual and non-contrac___tual relationships. Consequently, injury suffered by the person that commis___sions the work as well as harm experienced by third parties are subject to the ___same liability statute. ___ The overlapping requirements and effects of contractual and non-contrac___tual liability regimes for construction make it unnecessary to employ contrac___tual rules, because there is no disadvantage in the direct application of tort ru___les. ___ However, rules of the Chilean Civil Code and the LGUC display differen___ces when addressing liabilities for construction. First, the scope of applica___ ___ 137 ‘Probatio diabolica’: a legal requirement to achieve an impossible proof. ___138 Corte de Santiago, 20 August 2007, rol no 4318-2002. Even with regard to the first seller ___owner, the Supreme Court has stated that it is an obligation directly established by the statute ___and not by the contract (Corte Suprema, 21 January 2009, rol no 5905-2007).

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tion of the rules of the LGUC, at least in its wording, is broader than that of arts 2003 and 2323 of the Civil Code. In effect, the latter provisions only refer to the wreckage of buildings, while the LGUC is applied to defects in construction in general.139 Second, the statute of limitations with regard to the actions is different.140 Third, and most importantly, while the Civil Code sets forth a negligence presumption (arts 2323 and 2329 no 3), the LGUC establishes a strict liability regime based on a defect, which is applicable to the real estate developer (first owner seller, pursuant to the terms of the LGUC). With regard to the contractor and architect, both the Civil Code (art 2323, in relation to arts 2003 rule 3ª and 2004) and art 18 of the LGUC establish a strict liability regime that is qualified by the defective result (see Annex).141 Case law has established that the victim of the damage may choose between either of the two regimes.142 Thus, rather than determining the difference between product and service, it must be determined whether the bridge is a building in the sense of art 18 of the LGUC and Civil Code rules on construction contracts.143 The answer is affirmative. Both doctrine and case law support a broad definition of building or works

_____ 139 Doctrine and case law are aligned in interpreting the concept of wreckage set forth by the Civil Code as including both the total and partial wreckage, A Alessandri, De la responsabilidad extracontractual en el derecho civil chileno [Chilean Tort Law] (1943) 424; H Corral, Daños causados por ruina de edificios y responsabilidad civil de empresario y de los profesionales de la construcción [Damages caused by buildings wreckage and the liability of the employer and the professionals in construction] (1996) RDJ, vol XCIII, 48. 140 The LGUC sets forth a special and differentiated regime for the statute of limitations (art 18). In the event that the defect causing the accident affects the building’s structure, the action shall expire in ten years as of the date of the Municipality’s definitive approval of the building (see Annex). The statute of limitations in the general tort liability regime set forth in the Chilean Civil Code is four years from the date of perpetration of the act; case law has interpreted said term as running from the time of manifestation of the harm. Corte Suprema, 1 January 1967, RDJ, vol XIV, sec 1°, 265; Corte de Apelaciones de Santiago, 1 September 2004, GJ 291, 129. 141 C Pizarro, Daños en la Construcción, Fuerza Mayor y Terremotos [Damages in construction, force majeure and earthquakes] (2010) Revista de Derecho de la Pontificia Universidad Católica de Valparaíso XXXIV, 161 ff. Strict qualified liability requires an objective appraisal of the qualities of an asset or service, pursuant to the standard that would be expected by the public in general, S Shavell, Strict Liability versus Negligence (1980) JLS 9, 59. 142 Corte Suprema, 13 July 2010, rol no 3499-2010. In this same sense: Corte de Concepción, 22 July 2009, rol no 738-2008. 143 If the bridge had been part of public infrastructure – built by command of the State – the claim would have to be treated as state liability, in which case Decree-as-Law Nº 850 which institutes the Ministry of Public Infrastructure would be the relevant regulation rather than art 18 of LGUC.

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___that does not exclude any type of real property.144 Consequently, with regard to ___the contractor and the architect, the qualified strict liability regime set forth by ___art 18 of the LGUC and arts 2003 and 2004 of the Civil Code would be applicable. ___The liability regime applicable to the landowner will be discussed below. An ___amendment to LGUC approved in 2005145 suggests that the owner of a work or ___building would also be subject to a strict liability regime, but such conclusion ___does not seem justified and there is no relevant precedent. ___ Pursuant to the LGUC, businessmen and professionals involved in the 12/201 ___construction of buildings are subject to a strict liability regime qualified by the ___concept of defect. The strategic advantages due to an asymmetry in access to ___proof and risk control justify supplementing the general liability regime based ___on negligence. These reasons were considered during the legislative discussion ___of the statute. With respect to the owner of a building that conducts real estate ___business and orders construction to be sold to the public, the extension of the ___strict qualified liability regime has been justified because the owner is in a ___position to generate expectations in the market with regard to the standard of ___the works. ___ ___ ___2. Australian law ___ ___a) The law of negligence ___ ___The law of negligence in Australia, which forms part of the law of tort, is derived 12/202 ___from the law of negligence in England and Wales although there is now signifi___cant variation between English and Australian tort law as well as between the ___various state and territory jurisdictions within Australia. However, the basic ___structure of this tort is common throughout Australia.146 A successful action re___ ___ ___144 S Urrejola, La responsabilidad profesional de los agentes de la construcción [Professional Liability in Construction] (2004) 10; H Corral, Daños causados por ruina de edificios y respon___ sabilidad civil de empresario y de los profesionales de la construcción (1996) RDJ, vol XCIII, ___46 ff. ‘Article 1 of the General City Planning and Construction Act sets forth the provisions that ___address city planning, urbanization and construction, and the ordinance that in this regard is ___issued by the President of the Republic shall be applicable within all the national territory, ___which means that no work, construction, urbanization or site is exempt from complying with such provisions, regardless of the location within national territory in which they are located’, ___ Corte Suprema, 26 March 1998, rol no 632-1998. ___145 Law No 20016, Official Gazette of the Republic of Chile, 27 May 2005. ___146 In another comparator jurisdiction, the analysis is broadly applicable to that of the Aus___tralian system although there has been some dispute about the nature of the ‘breach’ require-

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quires a plaintiff to establish that he or she is owed a duty of care, that the duty has been breached, that the duty has caused legally-recognised damage, and that the damage suffered falls within the scope of liability for consequences for which the defendant is responsible. Each element requires further elaboration.147

(i) Duty of care The duty of care sets the outer limits for recovery in the tort of negligence. The precise juridical nature of the duty of care is contested; some see it as a co-relative of the rights of the plaintiff that are protected while others see it as a more openended mechanism for determining the limits of the protection for injury caused by carelessness.148 Whatever approach is preferred, there are some observations that can be made with relative confidence. The first is that whether a duty of care will be owed will depend in large part on the nature or type of harm that the plaintiff suffers. Put simply, the law is more willing to impose a duty of care where the plaintiff has suffered physical injury or damage to property. In this category of case, and assuming that there is no additional complicating factor (such as that the defendant is a public body and the negligence alleged is the failure to exercise statutory powers), a duty will be owed by a defendant when it is reasonably foreseeable that negligence on the defendant’s part may result in physical harm to the plaintiff or damage to his or her property. Where the plaintiff suffers other kinds of harm (such as purely financial losses), although it is still necessary that harm to the plaintiff be a reasonably foreseeable outcome of the defendant’s negligence, additional factors are required. This issue has recently been considered by the High Court of Australia in Barclay v Penberthy149 where the court, following earlier authority, held that the vulnerability of the plaintiff to suffering economic loss was an important factor in determining whether a duty of care should be owed.150 Vulnerability in this context refers to the steps that the plaintiff could have taken ex ante (before

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ment: see A Fagan, Rethinking Wrongfulness in the Law of Delict (2005) 122 SALJ 90; idem, Blind Faith: A Response to Professors Neethling and Potgieter (2007) 124 SALJ 285; idem, The German Origins of a South African Dogma about Delict (2012) 76 RabelsZ 967. 147 See generally K Barker/P Cane/M Lunney/F Trindade, The Law of Torts in Australia (5th edn 2012) chs 8–10. 148 For example, compare A Beever, Rediscovering the Law of Negligence (2007) with J Stapleton, Duty of Care Factors: A Selection from the Judicial Menus, in: P Cane/J Stapleton (eds), The Law of Obligations: Essays in Celebration of John Fleming (1998). 149 [2012] HCA 40. 150 Ibid, [42]–[47].

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___the negligence) to protect its economic interests.151 Whether this is present or not ___will depend in many cases on whether it was possible for the plaintiff to enter ___into a contract, either with the defendant or with a third party, where the plain___tiff was able to freely allocate the risk of economic loss arising from negligence. ___Other factors that have been recognised as being relevant to whether a duty of ___care was owed to avoid pure economic losses include the potential indetermi___nacy of claims if a duty of care was recognised, the potential adverse impact on ___individual autonomy if a duty was owed, and whether the defendant had actual ___knowledge that the plaintiff would suffer pure economic losses.152 ___ ___ ___(ii) Breach of duty ___ ___A defendant is only liable in negligence if the duty of care has been breached. In 12/205 ___Australian jurisdictions this is usually now determined by applying a statu___tory153 test (itself based on the common law) as follows: ___i) Was the risk of harm to the plaintiff foreseeable?; ___ii) Was the risk of harm ‘not insignificant’?; ___iii) Was the risk one against which a reasonable person would have taken ___ precautions? ___ ___ In answering (c), a number of factors must be considered: the probability of 12/206 ___the risk materialising, the seriousness of the harm if the risk does materialise, ___the cost of taking precautions against the risk materialising, and the reason why ___the risk is being taken (referred to as social utility of the activity that creates the ___risk of harm).154 In the context of product liability cases, there are well-known ___examples where this element has been established on little evidence.155 In other ___words, by requiring the plaintiff to produce little evidence of fault before a find___ing of breach of duty is made; the liability of the manufacturer tends in practice ___toward strict liability even though in theory the liability remains fault-based. ___ ___ 151 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515. ___152 Ibid. ___153 See, for example, Civil Liability Act 2002 (NSW) sec 5B(1)(a)-(c). ___154 Ibid, sec 5B(2)(a)-(d). ___155 See, for example, Grant v Australian Knitting Mills Ltd [1936] AC 85. Here the plaintiff alleged that the underwear produced by the defendant was defective in that it had a corrosive ___ residue left on it. Despite the fact that the defendant had strict procedures in place to remove ___residues from its products, and despite the fact that over four million garments had been pro___duced without a single complaint, the manufacturer was still held to have been careless in its ___production process.

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(iii) Causation and scope of liability for consequences A defendant is only liable for damage which is factually caused by his or her negligence. The test adopted in Australian jurisdictions is now enshrined in legislation and requires the plaintiff to establish that the defendant’s negligence was a ‘necessary condition’ of the harm that the plaintiff has suffered.156 However, proof that the defendant’s negligence was a necessary condition of the harm is not sufficient to make the defendant liable. It is still necessary to show that it is appropriate that the scope of the defendant’s liability extends to the harm caused to the plaintiff.157 Scope of liability is a broad ranging concept that allows the court to consider factors such as whether the type or kind of harm was a reasonably foreseeable consequence of the defendant’s carelessness (conventionally considered as the ‘remoteness of damage’ enquiry), whether some event intervened between the defendant’s negligence and the plaintiff’s harm that makes it inappropriate that the defendant bear the responsibility for that harm (for example, where the defendant’s negligence allows a third party the opportunity to act in a deliberately wrongful manner which causes harm to the plaintiff) or a variety of other factors which are relevant to the extent to which the defendant should be liable for harm factually caused by their wrongful conduct.158

b) The law of contract Of primary relevance to this scenario are the rules relating to privity of contract. It remains the case in Australia that only in exceptional circumstances can a person who is not a party to a contract sue for a breach of that contract. At common law, there are a number of exceptions, the most radical being the exception created by the High Court of Australia in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd for liability insurance contracts.159 A number of Australian jurisdictions have now passed legislation which allows for contracts for the benefit of third parties to be enforced by the third party, effectively abolishing privity in this category of case.160

_____ 156 Ibid, sec 5D(1)(a). 157 Ibid, sec 5D(1)(b). 158 See the recent discussion by a unanimous High Court of Australia in Wallace v Kam [2013] HCA 19. 159 (1988) 165 CLR 107. 160 See, for example, Property Law Act 1974 (Qld) sec 55.

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___c) Strict liability for defectively manufactured goods ___ ___Apart from the common law, Australia has a statutory form of strict product li___ability. This is now contained in Part 3-5 of the Australian Consumer Law161 and ___applies in all states and territories of Australia. ___ Part 3-5 re-enacted earlier legislation162 which effectively adopted the Euro___pean Union’s approach to strict product liability set out in Directive 85/374. ___ There are a number of reasons why strict product liability would not apply ___to Case Study 3. First, it is unclear whether the bridge could be considered as ___‘goods’ under the Australian Consumer Law (ACL). The definition provided is ___only inclusive163 but some guidance can be gained from art 2 of Directive 85/374 ___which suggests that a product means all movables. Although minerals, trees ___and crops attached to land can be considered as goods, it is difficult to see that ___the construction of something that forms a permanent part of a road could be ___considered to be a good.164 ___ Another possibility is that strict liability could attach to the architect’s plans ___– ie that the plans themselves are a good. There is no specific authority on this ___point but it seems unlikely that they would be considered a good under the ___Australian Consumer Law. Both goods and services are defined under the ___Australian Consumer Law. ‘Services’ are defined as ‘a contract for or in relation ___to the performance of work (including work of a professional nature) whether ___with or without the supply of goods’.165 This definition clearly envisages that the ___contract under which the professional services are performed is something dif___ferent from any goods that are manufactured as a result of the contract being ___performed. Hence, while the bridge itself may be a ‘good’ (although note the ___commentary above), the contract by which the plans were drawn up, and the ___plans themselves, represent the supply of professional services and not the ___manufacture of goods.166 ___ ___ ___161 The Australian Consumer Law is a schedule to the Competition and Consumer Act 2010 (Cth). ___ 162 Trade Practices Act 1974 (Cth) Part VA. ___163 ACL sec 2. The term includes ships, aircraft and other vehicles; animals, including fish; ___minerals, trees and crops, whether on, under or attached to land or not; gas and electricity; ___computer software; second-hand goods; and any component part of, or accessory to, goods. ___164 In the same way that a house on land would not be a good: SG Corones, The Australian Consumer Law (2nd edn 2013) para 3.225. ___ 165 ACL sec 2. ___166 Although ‘computer software’ is included in the definition of ‘goods’, the software may be ___regarded as the end product of the supply of professional services that created them (in the ___same way that the bridge may be regarded as the end product of the architectural plans). In the

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Second, liability attaches only to the manufacturer of the good.167 The only party in this scenario who could be considered a manufacturer is X Ltd Z (as the designer of the bridge) and Y (as the owner of the land on which the bridge was built) are not manufacturers of the product.168 Third, damages are only available to parties who have suffered physical injury and certain kinds of damage to property.169 The only party who satisfies this requirement is A, who has suffered physical injury.

d) Consumer guarantees Under the Australian Consumer Law, a consumer may be the beneficiary of a number of guarantees that are created where goods and/or services are supplied.170 A number of points can be made about these guarantees. First, they apply to the supply of both goods and services. Broadly, where goods are supplied, there are guarantees by the supplier as to 1) the supplier’s title to the goods; 2) undisturbed possession of the goods; 3) no undisclosed security over the goods; 4) the goods are of acceptable quality; 5) the goods are fit for any disclosed purpose; 6) where the goods are sold by description, the goods correspond to that description; 7) where goods are supplied by reference to a sample or a demonstration model, that the goods correspond to the sample or demonstration model; 8) that the manufacturer of goods will make reasonable efforts to ensure there are facilities for the repair of the goods and that spare parts are available for a reasonable period after which the goods are supplied; and 9) that the manufacturer of goods will comply with any express warranty given by the manufacturer in respect of those goods.171 Where there is a supply of services, the following guarantees are made: 1) the services will be rendered with due care and skill; 2) the services are fit for

_____ absence of judicial decisions, however, the matter must be regarded as open to debate. For discussion on the meaning of ‘goods’ see Russell V Miller, Miller’s Australian Competition and Consumer Law Annotated (33rd edn 2011) para 1.S2.2.30; SG Corones, The Australian Consumer Law (2nd edn 2013) para 3.225. 167 ACL secs 138–141. ‘Manufacturer’ is defined in the ACL sec 2 in similar terms to that found in Directive 85/374. 168 The same analysis would apply for the Defective Products Liability Act 1980 under Israeli law. 169 ACL secs 138–141. In limited circumstances a claim may be made by a person for the economic loss associated with the physical injury to another resulting from a defective product: ACL sec 139. 170 See generally ACL Part 3-2. 171 ACL secs 51–59.

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___any disclosed purpose; and 3) the services will be supplied within a reasonable ___time.172 ___ The guarantees only apply in respect of the supply of goods and services to 12/217 ___a consumer. Goods are acquired as a consumer if the amount paid or payable for ___the goods did not exceed AU $ 40,000, or the goods were of a kind ordinarily ___acquired for personal, domestic or household use or consumption, or the goods ___consisted of a vehicle or trailer acquired for use principally in the transport of ___goods on public roads. Services are acquired as a consumer if the amount paid ___or payable for the services did not exceed AU $ 40,000 or were of a kind ___ordinarily acquired for personal, domestic or household use or consumption.173 ___ The consumer guarantees are owed primarily by a supplier to a consumer. A 12/218 ___supplier is a person who – for most of the guarantees174 – supplies in trade or ___commerce goods by way of sale, exchange, lease, hire or hire purchase, or in re___lation to services, is a person who in trade or commerce provides, grants, or ___confers those services.175 It is apparent that in relation to goods the manufac___turer of goods is unlikely to be a supplier unless it directly deals with members ___of the public (consumers). Rather, the supply by the manufacturer will be to the ___supplier – usually a retailer – and as this supply will not be to a consumer, the ___statutory guarantees will not apply. However, an important exception is pro___vided in that a direct remedy for a consumer against the manufacturer is pro___vided if the goods fail to meet a number of the consumer guarantees. If the ___goods are not of acceptable quality, or if there is a sale of goods by description ___endorsed by the manufacturer and the goods do not correspond to that descrip___tion, the manufacturer may be liable even though the manufacturer has not ___supplied the goods to a consumer.176 Only ‘affected persons’ are entitled to sue ___the manufacture for such breaches: these are a consumer who acquires the ___goods, a person who acquires the goods from a consumer (other than for the ___purpose of re-supply), or a person who derives title to the goods through or un___der the consumer.177 ___ ___ 172 ACL secs 60–62. ___ 173 ACL sec 3. ___174 The guarantees as to title, undisturbed possession and undisclosed securities apply irre___spective of whether the supply was in trade or commerce. Paradoxically, the enforcement pro___visions for breach of the consumer guarantees only apply to goods or services provided in trade ___or commerce, which suggests that there is no remedy available for breach of the three guarantees mentioned above where the supply is not in trade or commerce: JW Carter, Contract and ___ the Australian Consumer Law – A Guide (2011) para 2.15. ___175 ACL sec 2. ___176 ACL Part 5-4 Division 2 (secs 271–273). ___177 ACL sec 2.

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If a supplier is liable to pay damages to a consumer, and the manufacturer would also be liable to the consumer because it is in breach of an extended consumer guarantee it owes to the consumer, the supplier is entitled to seek an indemnity from the manufacturer for any damages it pays to the consumer.178 Most of these provisions would not affect Case Study 3 although it must be admitted that much doubt still surrounds their operation. Although Z did supply services, whether they were supplied to Y as a consumer will depend on whether the value of the services was less than AU $ 40,000 or whether the architectural services in question could be considered as ordinarily being acquired for personal, domestic or household use. Even if they were to be so considered, the only person who could sue would be the person to whom the services were supplied (Y) and it is not clear that the statutory action would add anything to the actions for breach of contract and in the tort of negligence that are available to Y under the common law. However, while the consumer guarantees are unlikely to be relevant in Case Study 3, the consumer guarantee regime as a whole has important ramifications for liability for defective products. This is because certain of the guarantees extend beyond suppliers to manufacturers, the most important being the guarantee that the goods are of acceptable quality.179 It will be remembered that ‘affected persons’ can sue for breach of this guarantee and this includes (broadly) the consumer and anyone who derives title to the goods through the consumer. How do the extended consumer guarantee provisions interact with the product liability provisions set out earlier in this section? Take the following scenario: A purchases an electronic device from B Ltd (a retailer). This would be a supply of a good in trade and commerce. The device was manufactured by C Ltd. For unknown reasons, the device explodes when A is using it, causing him physical injury. What actions could A bring under the Australian Consumer Law? First, assuming the device was valued at under AU $ 40,000 or was acquired primarily for personal, domestic or household use, A could sue B Ltd for breach of the guarantee by the supplier that the goods were of acceptable quality. Second, A would be able to sue the manufacturer, C Ltd, because the consumer guarantee of acceptable quality applies against the manufacturer where goods were supplied to a consumer and an affected person (which includes A as the consumer) suffers injury. Finally, A could sue C Ltd as the manufacturer of a product with a safety defect which has caused physical injury to A (strict product liability).

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178 ACL sec 274. 179 ACL sec 271.

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___ It will be seen that the extended consumer guarantees create a potential 12/223 ___overlap in the actions that the consumer may have against the manufacturer ___because it is very likely that a product that has a safety defect (the requirement ___for strict product liability) will also not be of acceptable quality for the purposes ___of the consumer guarantee. There is little direct authority on the point but it ___may be that it is easier to show that goods were not of acceptable quality than ___that they had a safety defect.180 Accordingly, where the plaintiff is a consumer or ___derives title from the consumer, it may well be preferable to rely on actions ___based on breach of the consumer guarantees rather than on strict product liabil___ity although both actions would be available. ___ There is an additional reason why actions based on breach of the consumer 12/224 ___guarantees may be preferable to actions based on strict product liability. Apart ___from a limited exception, strict product liability provides protection against ___physical injury and damage to property. It does not provide protection against ___purely economic losses. Conversely, breach of the consumer guarantees – ___which have their roots in implied terms in contracts for the sale of goods – allow ___recovery for certain kinds of economic losses. Accordingly, where the guaran___tees are owed directly by the manufacturer to an affected person (the consumer ___or persons deriving title through the consumer), the affected person may re___cover for, among other things, any reduction in the value of the goods resulting ___from the failure to comply with the guarantee to which the action relates, below ___either the price paid or payable by the consumer for the goods or the average ___retail price of the goods at the time of supply, whichever is the lower.181 Unlike ___strict product liability, that does not allow recovery for any loss or damage to ___the defective product itself, the action for breach of the consumer guarantees ___allows recovery for the economic loss associated with the goods themselves not ___being of a particular quality. ___ ___ ___ ___ ___ ___ ___ ___ ___ 180 This was the finding of the trial judge in Peterson v Merck Sharpe & Dohme [2010] FCA 180, ___ but on appeal the Full Court of the Federal Court of Australia held that neither strict product ___liability nor liability for breach of the then equivalent of consumer guarantees had been ___breached: [2011] FCFCA 128. ___181 ACL sec 272.

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C. Liability of the Various Parties Involved in Case Study 3 1. Liability of the landowner with regards to the pedestrian a) Chilean law The pedestrian used the bridge by virtue of a right of way created for public benefit; in this regard, there is no contractual relationship between the pedestrian and the landowner. Hence, the pedestrian’s remedies for harm suffered in the accident are non-contractual (tort). This is the same as under Australian law. The LGUC sets forth a strict liability regime regarding the first owner seller of a construction, that is, the person that constructs a building with the purpose of subsequently transferring it to third parties (see Annex with transcription and free translation of art 18). After the amendment of 2005, the same liability was established for the owner of the construction for harm suffered by third parties caused by a defective building whose transfer is still pending . Although the literal sense of the LGUC could be understood as imposing strict liability on the landowner, such does not seem to be the best understanding of the LGUC. Strict liability is justified in relation to the businessman who builds to subsequently sell. Indeed, strict liability is established to protect expectations that are generated regarding the quality of the offered assets in the real estate market.182 While the purpose of the provisions seems to be the protection of the purchaser’s reliance, it cannot be predicted if case law will extend it to all types of owners and buildings (for cases related to the earthquake of 2010, none has yet been decided by the Supreme Court). In the event that the special provisions of the LGUC are not applicable, the landowner would be subject to the general liability regime set forth by the Civil Code. Pursuant to art 2323 of the Civil Code, the owner of a building has a duty of care to ensure that the building is in a fit condition to be inhabited without causing damage to third parties. However, if the damage is caused by a construction defect, this is attributable to the contractor (art 2324 in connection with art 2003 rule 3rd of the Civil Code). In the event of application of art 2323 of the Civil Code to the case, the defence for Y should not be difficult, particularly if the architect’s negligence has

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182 Such is confirmed by the goal of the reform of the year 2005 (fn 145), which did not have the purpose of establishing strict liability of any owner, but rather covering a void in the legislation providing protection to third parties during the period in which the building has not yet been sold.

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___been proven and culpa in eligendo (negligence in hiring the architect) may not ___be attributed to the landowner. With regard to new buildings, case law has es___tablished that the landowner is not subject to any sort of preventive duty of care ___according to art 2323.183 ___ Although the presumption of art 2323 of the Civil Code is not applicable to 12/230 ___the landowner, it is still possible to resort to the general presumption of fault for ___own acts set forth by art 2329 of the Civil Code. The third exemplary provision of ___said article establishes that the presumption is to be applied to ‘the person who, ___obliged to do the construction or repair of an aqueduct that crosses a road, ___keeps it in a condition that may damage those who travel through it’. Therefore, ___to avoid liability, the landowner must be able to produce evidence to discharge ___the presumption of fault created by art 2323. ___ Considering that the landowner commissioned the construction of the 12/231 ___bridge, a possible defence in this regard, as acknowledged by case law, is the ___hiring of a qualified and specialized company.184 However, it must be appreci___ated that for a long time case law has built the hypothesis of liability only on the ___basis of culpa in eligendo and in vigilando vicarious liability.185 This is similar to ___the position in Australian law where a landowner may escape liability in negli___gence if it was reasonable for him to discharge any duty imposed on him by hir___ing a competent independent contractor. ___ ___ ___b) Australian law ___ ___The cause of action would be negligence. We are told that Y is an occupier of 12/232 ___land and we have assumed that A is a lawful entrant on A’s land. In Australia, ___the liability of an occupier is treated as part of the general law of negligence and ___an occupier owes a duty of care under the law of negligence to exercise reason___able care to ensure that the entrant is safe in using the premises for the pur___ ___ 183 Corte Suprema, 1 August 1932, RDJ, vol XXIX, sec 1ª, 542. ___ 184 Ibid. ___185 Ancient and consolidated case law establishes that: ‘[F]ounded in the liability of busi___nessmen in connection to the acts of their dependents and in the natural obligation of the ___former to choose adequate employees for the execution of the tasks entrusted to them, ___who shall carefully comply with their duties, such businessman may be exonerated of liability only by proving that he has chosen his dependents or employee with the care of a good pater ___ familias, investigating their preceding conduct and aptitude for the rendering of services, ___instructing them in the duties of their trade and conveniently supervising the’, Corte de ___Apelaciones de Valparaíso, 6 December 1901, Gazeta de los Tribunales, 1901, 2ºsem, no 3025, ___1174.

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poses for which they were on the land.186 While there seems no doubt a duty of care would be owed, it is difficult to see that there has been any breach of that duty. An occupier only needs to exercise reasonable care to discharge the duty of care. Assuming that Y has exercised reasonable care in choosing the architect Z (eg, has taken steps to ensure that Z is competent to undertake the task which he/she is being asked to undertake), then it is hard to see how Y has breached the duty of care. It would not have been reasonable, for example, for Y to have hired a second architect to check the design of Z. Although the exercise of reasonable care may sometimes require the occupier to check that work delegated to another has been carried out properly (for example, a visual inspection that a contractor has not left the premises in a dangerous state), this will not be the situation where the work can only be checked by incurring unreasonable additional expense.

2. Liability of the architect with regard to pedestrians a) Chilean law There are two relevant questions for the purposes of defining the relationship between the pedestrian and the architect: (i) is the pedestrian protected by the contract between the architect and the landowner? and (ii) are the general tort liability provisions applicable or is any special liability statute relevant? Professionals involved in construction are subject to a strict liability regime (art 18 LGUC). This statute is applicable to the architect,187 as it is a fact that the bridge collapsed as a consequence of a defective design delivered by the architect. In order to enforce the architect’s liability towards the pedestrian, it shall only be necessary to identify the design defect and the damage that was caused by such defect.188 Alternatively, the pedestrian may bring an action against the architect based on the Civil Code; art 2004 of the Civil Code extends to the architect the rules applicable to the contractor’s liability. Both art 18 of the LGUC and the

_____ 186 Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479. 187 The LGUC does not explicitly name the architect in art 18; however, the latter is considered included under the broad concept of designer. Corte de Santiago, 4 December 2007, rol no 3995-2003. 188 Case law has stated that ‘[H]aving evidenced the damage and the cause and effect relationship between the damage and the construction flaw or defect, payment of such damages shall proceed’, Corte Suprema, 13 July 2010, rol no 3499-2010.

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___Civil Code establish a strict liability regime (based on defect) for contractors and ___architects, but both laws differ as to the statute of limitations of claims ___associated therewith.189 ___ ___ ___b) Australian law ___ ___The action here would be in the tort of negligence.190 An architect in Z’s position 12/236 ___would owe a duty of care to A. It is reasonably foreseeable by a person in Z’s ___position that if he or she is careless in the design of the bridge so that it is struc___turally unsafe when built, someone in A’s position (a pedestrian on the bridge) ___might suffer physical injury when the bridge collapses. Because A’s harm is ___physical injury, the duty of care is usually established merely by showing that ___the harm was a reasonably foreseeable consequence of the defendant’s negli___gence. ___ Is it relevant that the only reason that Z performed the work was because 12/237 ___she was under a contractual obligation to Y to do so? Because A is not a party to ___the contract between Z and Y, A cannot sue Z for breach of the contractual ___obligation to exercise reasonable care in performing the contract. Even in those ___jurisdictions that allow for non-parties to enforce contracts made for the benefit ___of a third party, A could not sue because the contract between Z and Y was not ___made for A’s benefit. ___ However, the fact that Z performed the obligation to design the bridge only 12/238 ___because she was contractually obliged does not prevent Z from owing a duty of ___care in the tort of negligence, at least where A has suffered physical injury. This ___was established by the High Court of Australia in Voli v Inglewood Shire Coun___cil.191 However, there remains some doubt as to whether the contract under ___which the defendant is acting can determine whether the defendant is in breach ___of duty. For example, if the contract between Z and Y had directed that Z only ___carry out a certain number of soil inspections before commencing the design, ___ ___ 189 Art 2003 rule 3rd grants a five-year term starting from the handing over of the finished ___building by the contractor. There is discussion as to the nature of said term – guarantee or ___statute of limitations of liability. It seems reasonable to deem it a term defining the duration of ___the guarantee obligation, where, if the building is wrecked within said five years, a right for ___claim is born on the date of the wreckage, lasting for the ordinary statute of limitations. See E Barros, Tratado de Responsabilidad Extracontractual [Torts Law Treatise] (2006) 785. ___ 190 This would also be the position under Israeli law. Under Israeli law, the architect’s liabil___ity to the pedestrian is based on the general tort of negligence (secs 3-5 of the Civil Wrongs Or___dinance), which is similar in structure and content to the Anglo-American tort of negligence. ___191 (1963) 110 CLR 74.

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could A in a tort action of negligence against Z argue that reasonable care required further inspections beyond the number Z was required to carry out under the contract? In Voli, Windeyer J made the following comment: ‘[N]either the terms of the architect’s engagement, nor the terms of the building contract, can operate to discharge the architect from a duty of care to persons who are strangers to those contracts. Nor can they directly determine what he must do to satisfy his duty to such persons. That duty is cast upon him by law, not because he made the contract, but because he entered upon the work. Nevertheless, his contract with the building owner is not an irrelevant circumstance. It determines what the task was upon which he entered. If, for example, it was to design a stage to bear only some specified weight, he would not be liable for the consequences of someone thereafter negligently permitting a greater weight to be put upon it.’192 This is not an easy passage to interpret. While a non-party to a contract cannot sue on the contract, the non-party is also not bound by any terms of the contract that would limit liability to the other contracting party. But the terms of the contract have some effect as they determine the scope of the task engaged in by the architect.193 However, it is unlikely that the ‘task’ of the architect can limit the steps that would be required to ensure that the building or construction is safe for its intended purpose. For example, if an architect is designing a house and the contract provides that the design should be of a house without foundations, the architect would remain liable in the tort of negligence to a person visiting the house who was injured when the walls collapsed. The protection that the law gives to physical integrity prevents the lesser contractual obligation from trumping the more onerous tort duty. However, the position is more complicated where the plaintiff suffers only purely economic harm. In Woolcock Street Investments Pty Ltd v CDG Pty Ltd, a majority of the High Court noted that there would be ‘evident difficulty’ in holding that the defendants owed a duty of care to avoid economic loss to a subsequent owner if performance of that duty would have required the defendants to do more or different work than the contract with the original

_____ 192 Ibid, 85. 193 Prompting the authors of a leading text to comment that in the current state of the law, ‘the most we can say is that relevant contractual rights will sometimes bar the imposition of a duty of care in tort to guard against pure economic loss – and at other times not!’: K Barker/P Cane/ M Lunney/F Trindade, The Law of Torts in Australia (5th edn 2012) 485. The position is perhaps less equivocal in South Africa where the terms of the contract may limit the liability for any kind of loss, including physical harm.

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___owner required or permitted.194 Although these comments were obiter, they ___implicitly suggest that where a defendant is under a contractual obligation to ___perform a task, the contract may have the effect of limiting the steps that the ___defendant must take to discharge any duty of care owed in negligence arising out ___of the same task, at least in a case where the plaintiff suffers pure economic loss. ___ ___ ___3. Liability of the contractor with regard to pedestrians ___ ___a) Chilean law ___ ___Pursuant to the LGUC, the contractor is subject to the same liability standard as 12/240 ___the architect. Considering that it is a regime of strict liability requiring only a de___fect, courts have determined that each professional is liable only for the damage ___caused by the defects that result from their own intervention.195 An important ___purpose of art 18 LGUC was to facilitate the victim’s recovery in the event of ___wreckage of buildings and to absolve the victim from having to identify who, ___among all those that intervened in the construction process, caused the dam___age.196 The application of such criteria to the case may result in exempting the ___contractor from liability only if he or she can prove that the defect is not attrib___utable to a construction defect.197 ___ A question remains with regard to the eventual contractor’s lack of 12/241 ___attention to a serious design flaw. If it were proven that the contractor should ___have identified such defect based on the standard of care in the profession, X ___Ltd would be liable for its own acts pursuant to the general rules for liability ___based on negligence. ___ The liability of the contractor is also regulated by art 2003, rule 3rd of the 12/242 ___Civil Code. However, the application of this provision requires a flaw in the con___ ___ ___194 Woolcock Street Investments (2004) 216 CLR 515 [28]. 195 Corte Suprema, 4 April 2012, rol no 0021-201. Case law stated that ‘article 18 of the General ___ City Planning and Construction Act establishes that the manufacturers, designers and contrac___tors shall be liable for damage compensation, understanding that designers shall be liable for ___design flaws while contractors shall be liable for construction defects of the works. Therefore, if ___there is not sufficient background information to unequivocally establish that the defects of the ___building’s common assets or apartments are attributable to design flaws, but rather they may be attributable to construction defects, only the construction company shall be bound to pay ___ compensation’. In the case at hand we see the opposite, however, the principle is the same. ___Corte of Santiago, 4 December 2007, rol no 3995-2003. ___196 Corte de Apelaciones de Concepción, 16 April 2013, rol no 1331-2012. ___197 The burden of proving the defect falls to the plaintiff.

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struction, materials or terrain, none of which appears to have occurred in this case, because it can be proved that the flaw is attributable only to the architect’s design.198

b) Australian law There would be no liability. Although X Ltd would owe the pedestrian A a duty of care, there is no evidence on the facts that this duty has been breached. The only possible basis for liability would be if the defect in the plans was obvious and ought to have been discovered by X Ltd. This is the same basis on which any liability would be imposed under Chilean law.

4. Liability of the architect with regard to the landowner a) Chilean law The landowner may sue the architect under contract. The purpose of this action is to recover for the damage represented by the expenses and costs of hiring a new architect for the design of the new bridge. Although it might be claimed that, as a professional, the architect could have infringed a tort duty of care, under Chilean law the architect’s liability vis a vis the landowner is limited to contract, because where there is a contract in place, courts generally make the contract prevail.199 In this case, assuming the

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198 ‘From the provisions stated it is possible to infer that in order to decide if the construction businessman’s liability applies or not, it is necessary to analyze the quality of that which has been built and that the damaging effect (regarding which compensation is claimed) is a result of a defect that relates to the construction, materials or the land.’ Corte Suprema 30 January 2013, rol no 1083-2010. Although theory has considered that design defects are among construction defects (H Corral, Daños causados por ruina de edificios y responsabilidad civil de empresario y de los profesionales de la construcción [Damages caused by buildings wreckage and the liability of the employer and the professionals in construction] (1996) RDJ, vol XCIII, 61), in this case such are not attributable to the contractor, pursuant to rule 3rd of art 2003. Effectively, the contractor shall only be liable for the defects that relate to the activities in which it intervened. Therefore, regarding defects related to the land, the contractor shall only be liable if it should have identified the defect in consideration of its trade; on the other hand, and regarding materials, the contractor shall be freed of liability if the owner of the works was the one that contributed said materials. 199 Corte Suprema, 18 April 1950, RDJ, vol XLVII, sec 1º, 127; Corte Suprema, 30 July 1991, RDJ, vol LXXXVIII, sec 1º, 40; Corte de Apelaciones de Santiago, 8 September 1992, RDJ, 2 August

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___contractor’s contractual duty to rebuild the bridge, the landowner could claim ___contractual damages from the architect for the expenses and costs of hiring a ___new architect to design another bridge. ___ Liability will depend on the definition of the architect’s obligation as an 12/246 ___obligation to provide means or to produce a benefit. Effectively, if the contractual ___obligation is to produce a benefit, the owner will only have to prove the flaw in ___the design of the bridge in order to prove the architect’s breach. If the obligation ___of the architect is to provide means, there may arise the issue of whether he or ___she acted negligently; proof of an error would be deemed evidence of ___negligence. ___ As a general rule, the architect is obliged to display a reasonable amount of 12/247 ___care in the elaboration and development of the design (for example, with regard ___to the interior distribution). However, certain basic features of his activity are ___subject to an obligation of guarantee, so that the architect owes to the owner a ___certain result (whether expressly stated in contract or not). It is an obligation of ___that type that the building must be designed in such a manner that it does not ___suffer wreckage under ordinary circumstances (per the place and time where it ___is built). In Chile, case law has established that a building has to resist a strong ___earthquake.200 In this sense, liability is justified when the design is susceptible of ___causing wreckage: the landowner has the right to demand that the design ___protects the building from said wreckage. The same standard is applicable in ___respect of third parties. ___ ___ ___b) Australian law ___ ___The actions here would be in both contract and tort as Australian law recognizes 12/248 ___concurrent liability.201 In contract, the claim would be for breach of an express ___or implied contractual term that the design be carried out with reasonable care. ___In tort, the action would be in negligence. The relationship between an architect ___and client would give rise to a duty of care on the part of the architect not to ___ ___2004, rol no 21088. Exceptionally, the courts allow the victim to choose between a contractual ___action and a torts claim in cases dealing with medical liability, unless a provision in the contract ___regulates liability, making it necessary for either party to resort to contractual liability in order to ___make such provision effective. Corte de Concepción, 10 August 2000, GJ 259, 38; Corte de Concepción, 20 May 2002, GJ 268, 93 ; and Corte de Santiago, 19 January 1993, GJ 151, 54. ___ 200 Corte de Apelaciones de Concepción, 16 April 2013, rol no 1331-2012. ___201 Astley v Austrust Ltd (1999) 197 CLR 1, [44]-[48]. Note the uncertain position in South Af___rica, where the better view seems to be that there is no concurrent liability in respect of pure ___economic loss: Wassenaar and Partners v Pilkington Brothers 1985 (1) SA 448 (A).

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cause the client pure economic loss as a result of the architect’s carelessness. Z’s carelessness was a necessary condition of the harm suffered by Y (the costs of instructing a different architect) and it is appropriate that the scope of Z’s liability extend to this kind of harm. This was a type or kind of harm that was a foreseeable consequence of Z’s carelessness.202

5. Liability of the architect with regard to the contractor a) Chilean law Two legal relations connect the contractor with the architect. First, if the contractor is obligated to compensate the pedestrian, the LGUC grants the former a reimbursement action against those responsible for the accident (art 18). However, in the given case this action is factually unlikely, because the contractor’s defences against a claim are strong enough. Second, the contractor may claim compensation for damage from the architect for being put in the situation of having to build a new bridge (as the collapse of the bridge allowed the landowner to enforce a contractual guarantee against the contractor as well as the purely pecuniary damages). An action of the contractor to obtain compensation from the architect by application of the theory of the chain of contracts has been rejected under Chilean law. In Chilean law, it is not necessary to assign a special duty of care to the contractor in order to impose such liability. The material issue is whether the economic loss suffered by the contractor is direct or reasonably proximate; that is, whether the defect in the architect’s plan may, in the ordinary course of events, result in damage to the contractor (the cause must be adequate or sufficiently proximate to the effect). The response would be positive: under normal circumstances the contractor is economically affected by the wreckage of the building. Therefore, a claim of the contractor against the architect would succeed. Even though X Ltd took over all costs associated with a defective design – including the construction of a new bridge without the right to additional remuneration – that is only a distribution of risk between the contractor and the landowner, but it does not imply that the former may not claim those costs from one who negligently caused the bridge collapse.

_____ 202 Wallace v Kam [2013] HCA 19.

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___b) Australian law ___ ___There is no contract between X Ltd and Z so any action would need to be in 12/253 ___the tort of negligence. The difficulty here would lie in establishing a duty of ___care. First, is it reasonably foreseeable by Z that negligence on her part may ___cause pure economic loss to X Ltd? Much would depend on the evidence of the ___terms of building contracts of this type: is it common knowledge that con___tractors are under an obligation to rebuild defective work even if the reason the ___work was defective was because of the need to comply with architectural ___drawings? Note here a general difference from countries with civil law regimes, ___including Chile, where restrictions on the recovery of pure economic loss are not ___made through any ‘duty of care’ concept but through applying limits through ___causal notions (such that the damage must be the ‘direct’ consequence of the ___negligence). ___ Assuming this requirement is satisfied, are the further requirements for 12/254 ___imposing a duty of care met on the facts of the case? In Woolcock Street ___Investments, the High Court placed considerable weight on whether the plain___tiff was vulnerable in determining whether a duty of care was owed.203 There ___were some similarities to this case: the defendant was a firm of civil engineers ___conducting soil and other tests for the owner of land on which commercial ___premises were being constructed. The plaintiff was the party who had pur___chased the completed building from the original owner and who was the owner ___when it was realized that remedial work needed to be conducted because of ___structural problems with the building. The plaintiff alleged that the defendant ___owed it a duty of care in the tort of negligence when deciding what soil tests ___should be carried out and that the defendant was careless because it did not ___carry out sufficient tests to ensure the building would be free from structural de___fects. The plaintiff’s loss was purely economic: the costs of carrying out reme___dial work to ensure the building was safe. Relying on a case where the subse___quent owner of a domestic dwelling had successfully recovered from a builder ___the pure economic losses associated with defectively constructed foundations of ___the dwelling,204 the plaintiff in Woolcock argued that the same reasoning should ___have applied to it as in the case of a domestic dwelling. This was rejected by ___a majority of the High Court: unlike the purchaser of a domestic dwelling, the ___plaintiff here was not vulnerable. In particular, the plaintiff failed to show ___that it could not have protected itself against the losses it had suffered by in___serting an appropriate clause in the contract between itself and the original ___ ___203 Woolcock Street Investments (2004) 216 CLR 515. ___204 Bryan v Maloney (1995) 182 CLR 609.

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owner.205 This ability to bargain for ex-ante protection of its interests meant it was not vulnerable in the necessary legal sense and no duty of care to avoid pure economic loss was owed. However, the most recent High Court authority, Barclay v Penberthy, appears to adopt a more generous approach as to whether a plaintiff is vulnerable. Here the plaintiff was a company a number of whose employees were killed or injured in a plane crash due in part to the negligence of the defendant’s employee. One issue for the High Court was whether the defendant’s employee owed a duty of care to protect the plaintiff’s economic interests (adversely affected by the injuries to its employees). Such a claim was rejected in the Western Australian Court of Appeal: the plaintiff was not vulnerable as it could have protected itself against these losses by bargaining with defendant. In a very different approach to Woolcock, the majority in the High Court rejected this argument: ‘In response, counsel for Nautronix (the plaintiff) pointed to the absence of evidence that it could have negotiated successfully for the inclusion of such a term in the charter agreement. Further, in order to establish the existence of a duty of care owed to Nautronix for which Fugro (the defendant) was vicariously liable, it was not incumbent upon Nautronix to establish that it could not have bargained with Fugro for a particular contractual provision. The presence or absence of a claim in contract would not be determinative of a claim in tort.’206 It is not at all clear what we are to make of this passage but given that the court in Barclay cited Woolcock as representing the applicable law in this area207 it may be that it should be regarded as an unusual case turning on the fact both that there was in existence a contractual relationship between the plaintiff and defendant and that the defendant’s employee (the pilot) had actual knowledge of the harm that would be caused to a known plaintiff.208 The discussion of pure

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205 Woolcock Street Investments (2004) 216 CLR 515, [31]-[32]. It was also held that there was no evidence that the defect could not have been discovered by appropriate tests or searches which the plaintiff could have carried out before the purchase. 206 Barclay v Penberthy (2012) 246 CLR 258 [47]. 207 Ibid [42]. However, there was a clear difference between Woolcock and Barclay because in the former there was no contract between the parties and it remains something of a mystery as to why in Barclay a simple claim for breach of the implied term that the contractual service be provided with reasonable care and skill did not form the basis of the claim. 208 Although the claim for breach of contract was pursued (unsuccessfully) at trial, it was not pursued on appeal. While the existence of the contract was not mentioned by the majority, it

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___economic loss is short, and until the approach in Woolcock is more definitively ___rejected or modified it should be regarded as representing the correct approach ___to cases of this kind. ___ Applying the Woolcock reasoning to the case of X Ltd v Z, it is unlikely that Z 12/257 ___would be held to owe a duty of care to X Ltd. X Ltd would have had the oppor___tunity to bargain with Y over the allocation of risk in the event that there was a ___problem with the bridge. Like the position in English law,209 where there are a ___chain of commercial contracts (here, between Y and Z, and between X Ltd and ___Y) and the parties have allocated their respective rights and obligations under ___those contracts, the law of tort will not intervene to reallocate those alloca___tions.210 Because of this, it is unlikely that X Ltd would be seen to be sufficiently ___vulnerable so as to be owed a duty of care in relation to the pure economic loss ___it has suffered. ___ Note that in a comparator jurisdiction, Israel, it seems that liability would 12/258 ___be governed by the law of tort. The architect will be liable for the contractor’s ___financial losses under the theory of negligent misrepresentation – developed in ___the case of Weinstein v Kadima.211 Although this theory derives from the general ___provisions concerning negligence, the courts developed special preconditions ___for liability, due to the special features of the case (pure economic loss, caused ___by representation rather than an act).212 In Australian law, such an analysis as is ___adopted in Israel is unlikely, as the conduct of the architect would not be seen ___as making a representation to the contractor; rather, any representation would ___have been made to the landowner, Y. ___ ___ ___D. Conclusion and Overview ___ ___There are a number of comparative conclusions to be drawn from the above 12/259 ___analysis. First, in both jurisdictions, the primary remedy for parties who suffer ___loss and who are not in a direct contractual relationship is provided not by an ___extension of the law of contract but by the law of delict or tort. However, the ___ ___was in the concurring judgment of Kiefel J where the presence of an implied contractual duty ___was seen as important in establishing the tortious duty in negligence (see [177]). A later High ___Court decision has interpreted Barclay as based on the presence of a contract between the par___ties: Brookfield Multiplex Ltd v Owners-Strata Plan 61288 (2014) 254 CLR 185, 233. 209 Simaan General Contracting Co v Pilkington Glass Ltd [1988] QB 758. ___ 210 RP Balkin/J Davis, Law of Torts (5th edn 2013) para 13.14. ___211 Motion 106/54, 8 PD 1317 (Supreme Court). ___212 Under Chilean law Z’s liability to X Ltd would be governed by tort law too, but under the ___general rules on torts, and not under the theory of negligent misrepresentation.

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systems differ in that in Chilean law there are situations where contractual protections may be extended beyond the parties to the contract itself. These situations are not frequent because it has not been seen as necessary to expand the limits of contractual liability to address cases of defects in construction or wreckage of buildings, because tort liability is sufficient to secure full remediation in matters that in other legal systems have led to the expansion of contract law. However, even the theoretical expansion of possible contractual remedies that have been contemplated in Chile are much broader than the situations in which this is allowed under Australian law, where the traditional strictness of the privity rule is largely enforced. Hence in Australia it is the law of tort (through the tort of negligence) that will most likely provide a remedy for A against Z. The law of tort (negligence) and the law of contract will most likely provide a remedy for Y against Z for any losses – including purely economic losses – that Y suffers because of Z’s performance of the contract with Y. It is unlikely that any further actions – in tort, contract, or under statutory provisions relating to strict product liability or for breach of consumer guarantees – are available. Interestingly, however, it has recently been recognised that some of the conditions that lead to the existence of a duty of care in respect of pure economic loss are similar to the grounds that have led to an extension of the protection of contractual duties under German law beyond the parties to the contract. Commenting on the recovery of pure economic loss, Kiefel J in Barclay v Penberthy213 states: ‘The courts in Germany extend that protection to a third party plaintiff if the promisee had a clear interest in bringing them within the ambit of the contractual protections and the defendant, the promisor, had some knowledge of the likelihood of harm to the plaintiff. Duty under a contract arises where there is a close relationship between the plaintiff and the promisee and the promisor could foresee that the plaintiff might suffer damage. In the latter respect, this approach bears some similarity to the approach taken by the common law to identifying a duty of care. It has been pointed out, in the context of negligent misstatement, that German and English law both raise questions as to the identity of the plaintiff and how definite that identity was when the defendant prepared the statement.’ More generally, there are a number of features of the above analysis that are worthy of note from a comparative perspective. First, neither system adopts a

_____ 213 Barclay v Penberthy (2012) 246 CLR 258, [169].

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___single liability regime for application to defectively produced goods and ___services. In Australian law, apart from the common law of contract and tort, ___there are statutory provisions that provide remedies to consumers (in the case of ___consumer guarantees) and to both consumers and non-consumers for certain ___kinds of harm caused by defective products. Although the Australian Consumer ___Law may in the end produce uniformity in the statutory protections that apply ___to consumers in Australia, at the time of writing there remain in force provisions ___in a number of Australian jurisdictions that effectively mirror the protections in ___the Australian Consumer Law and although it is planned that these provisions ___will be repealed, it will take some time before there is uniformity in practice. ___Under Chilean law, there are no systematic provisions that address liability for ___defective products. There are only some non systematic provisions in the LPC; ___but there is no liability statute that is independent from that set forth by the ___Civil Code. This legal void has been compensated for by establishing a general ___non-contractual (tort) presumption regarding own acts around art 2329 CC, ___pursuant to the case law of almost a century. There are also a number of special ___regimes that deal with liability for construction defects, and wreckage of ___buildings is subject to a special regime. Damage to victims caused by the ___wreckage of buildings may choose between basing their actions in the rules of ___the Civil Code or those set forth by the LGUC. ___ Second, for reasons that are yet to be fully explored, in Australian law the 12/261 ___alternative liability regimes for imposing liability in respect of defective goods ___and services have been under-used. It is too early to say whether actions for ___breach of the consumer guarantees against manufacturers will be more widely ___used than the similar provisions they replaced,214 but strict product liability has ___been in existence in Australia for over twenty years. Evidence produced before ___the Productivity Commission215 for a report on product safety and consumer pro___tection laws in 2008 indicated that there had been only 27 reported cases on the ___strict product liability provisions between 1992 and 2007.216 Even at the time the ___introduction of strict product liability laws was being contemplated, it was es___timated that there were only 500 product-caused accidents that would warrant ___legal action.217 Figures such as these raise the question of why it has been felt ___ ___214 These were contained in a mixture of state and Commonwealth legislation (see, eg, Trade ___Practices Act 1974 (cth) Part V Div 2). ___215 The Productivity Commission is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of ___ Australians. ___216 K Barker/P Cane/M Lunney/F Trindade, The Law of Torts in Australia (5th edn 2012) 658 ___fn 138. ___217 Ibid.

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necessary to provide for a special liability regime for defective products. Traditional tort and contract remedies, together with implied terms in contracts for the sale of goods (now the consumer guarantees) arguably provide a satisfactory solution to the problem of defective products. It is worth noting that civil suits for defective products are also rare in Chile. However, consumer protection rules are now increasing the propensity to litigate due to the pro-active stance of the specialist administrative agency dealing with consumer affairs and the right of consumer associations to sue representing collective rights. Finally, if separate liability regimes for defective products and services are to be in place, they need to fit together in a coherent manner. This is a potential problem for both systems. Under Australian law, for example, why should there be a strict liability for defective products but not strict liability for defective services when a complaint that a good is defective is usually in effect a claim that a service has been performed defectively?218 And why should the person who derives title through a consumer recover for economic losses from a manufacturer because a good is not of acceptable quality when a non-consumer who suffers the same economic loss as a result of defectively-produced goods cannot?219 Under Chilean law, are the reasons that justify the special liability regimes that deal with construction defects and damage caused by the wreckage of buildings unique to these sources of danger or are there other spheres of activity where these same reasons would justify strict liability? Within both systems, the greater the number of alternative liability regimes, the greater the risk that ad-hoc and inconsistent results will be produced.

Annex Article 18 General City Planning and Constructions Act (LGUC) (Chile) Article 18. – The owner first seller of a building will be liable for all damages due to defects in it, either if the victims have suffered damage during its construction or after its completion, and without prejudice to the right of the owner first seller to recover damages against those responsible for the building defect. If the building is not sold to another person, the owner will be liable regarding third parties who suffer damage due to the failure or defects in it.

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218 Ibid, 657. 219 This result is reached because of the differences between the types of loss recoverable and the liability standards applicable to consumer guarantees and strict product liability discussed earlier.

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___ The designers are responsible for the defects brought about by them, if ___these defects cause damages. ___ Without prejudice to the provisions of No 3 of the art 2003 of the Civil Code, ___the contractors will be responsible for the failures, errors or defects brought ___about in the construction of a building. The contractor will also be responsible ___for the acts executed by its subcontractors, including the use of defective ___materials or supplies and without prejudice to the recourse actions that it could ___bring in turn against the suppliers, manufacturers and subcontractors. ___ Corporations shall be jointly responsible with the professionals who act for ___them as contractors or builders. ___ The owner first seller must include in the deed of sale a list with the ___designers and builders who could be responsible under this article. Corpora___tions should also identify their representatives. The conditions offered in adver___tising shall be incorporated into the contract. The final plans, the technical ___specifications and the ‘Book of Works’ referred to in art 143, should be kept in a ___file in the Department of Municipal Works to be available for interested parties. ___ In respect of corporations that have been dissolved, the liability set out in ___this article must be asserted against those who were the corporation representa___tives at the moment of the signing of the contract. ___ The actions to enforce the liabilities referred to in this article shall expire: ___(1) within ten years, in case of defects affecting the supporting structure of the ___building; (2) within five years, in case of construction materials or facilities ___defects; (3) within three years, in case of defects affecting building finishes. ___ In case of defects not explicitly included in the preceding paragraphs, ___actions shall expire within five years. ___ The statute of limitation begins to run on the date of definitive approval ___issued by the Municipality, with the exception of the action indicated in ___section 3, which statute of limitation begins to run on the date of the re___gistration of the building in favor of the purchaser in the respective Department ___of Real Estate. ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

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___Helmut Koziol* ___ ___ ___ ___Helmut Koziol Product Liability: Conclusions from a Comparative Perspective https://doi.org/10.1515/9783110547559-015 ___Contents ___ I. A Comparative Law Overview | 501 ___ II. Preliminary Remarks: The Relevance of the Notion and ___ Tasks of Tort Law for this Analysis | 502 ___ III. Shortcomings of Fault Based Liability when it ___ Comes to Producers? | 510 ___ IV. Disadvantageous Consequences of Over-Strict ___ Producer’s Liability? | 511 ___ V. Is Strict Product Liability in Accordance with the Overall ___ System of Liability Law? | 513 ___ VI. Searching for the Reasons Behind Stricter Liability ___ for Producers | 517 ___ VII. Proposal for a Solution and its Scope | 536 ___ VIII. Summary | 551 ___ These concluding remarks are neither a comparative report, as they are not ___ the summary of the country reports, nor are they an official conclusion of ___ the World Tort Law Society as they are not accepted by all members. Rather, ___ the following comments present – on the basis of the country reports – only ___ my personal ideas on how product liability should be designed to be in ___ harmony with a consistent liability system. I do hope that my ideas will be ___ useful as a basis for fruitful discussions which are getting us further. ___

Product Liability: Conclusions from a Comparative Perspective

___ ___ ___I. A Comparative Law Overview ___ 1 ___It is true that a cursory worldwide comparative overview shows that in most le- 13/1 2 ___gal systems producers are subject to special liability regimes which appear ___ ___* I am very much obliged to Michael D Green for many valuable comments. Further I have to ___thank Johannes Angyan and David Messner for their valuable support. 1 For more details see M Ebers/A Janssen/O Meyer (eds), European Perspectives on Producers’ ___ Liability (2009); M Reimann, Liability for Defective Products at the Beginning of the Twenty___First Century: Emergence of a Worldwide Standard? 51 Am J Comp L 751 (2003). ___2 Asia and Russia nos 9/2 ff, 9/21 ff; Europe nos 10/1 ff, 10/15 ff; Rest of the World nos 12/3 ff ___(Australia), 12/10 ff (Israel), 12/16 ff (South Africa).

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much stricter than the fault based liability regimes that apply in general:3 producers are liable irrespective of fault for damage caused by defective products they put into circulation. However, this is far from true of every legal system: Chilean law does not have a specific product liability regime;4 Canadian courts have never adopted strict product liability in tort, only the Province of Quebec has provisions imposing strict liability for defective products5 and the legal systems in the USA are moving away from strict liability.6 This latter development is particularly interesting as the USA originally took a pioneering role in establishing stricter rules on product liability.7 With their product liability regime, the USA have influenced the whole world, in particular the European Union. The EU enacted the Product Liability Directive (Council Directive 85/374/EEC of 25 July 1985),8 which in turn was also influential outside of Europe, eg in China.9 It remains to be seen whether the counter-movement in the USA will again influence different product liability regimes around the world. In order to assess how far a strict product liability regime is necessary, we must examine not only where fault based liability falls too short in this respect, but above all the reasons which support making producer’s liability more stringent and how far these extend, as well as the compatibility of non fault based liability with the overall system.

II. Preliminary Remarks: The Relevance of the Notion and Tasks of Tort Law for this Analysis Critical assessments of the existing rules and also proposals for a consistent product liability law which fits harmoniously into overall liability law are char-

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3 For a comparative overview see eg S Wesch, Die Produzentenhaftung im internationalen Rechtsvergleich (1994); G Brüggemeier, Haftungsrecht: Struktur, Prinzipien, Schutzbereich (2006) 395 ff. 4 Rest of the World no 12/6 ff. 5 North America no 11/7 ff. 6 North America no 11/23f; DB Dobbs/PT Hayden/EM Bublik, The Law of Torts II (2nd edn 2011) 897 f. 7 See MS Shapo, On the Law of Products Liability (2012) §§ 7.01 and 02. 8 On the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products [1985] OJ L 210/29. Cf eg G Brüggemeier, Tort Law in the European Union (2015) 166 ff; D Fairgrieve, Inception of the Product Liability Directive, in: P Machnikowski (ed), European Product Liability (2016) 19 ff. 9 See art 41 Chinese Tort Liability Law and H Koziol/Yan Zhu, Background and Key Contents of the New Chinese Tort Liability Law (2010) 1 Journal of European Tort Law (JETL) 328, 350 ff.

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___acterized by fundamental views, in particular on the tasks and goals of tort law. ___This is shown clearly by the country reports: In the report on North America, ___great importance is attached to the priority of the function of deterrence,10 in ___Continental Europe but also in other countries the compensatory function is ___underlined,11 and European common law takes an interim position.12 The follow___ing statements in these Comparative Conclusions take as a starting point that ___compensation is the primary task of liability law; nevertheless I will make an ef___fort to take regard of the different North-American approach and its implica___tions. ___ That I am taking the compensatory function as a starting point not only 13/4 ___goes back to the fact that – at least still at present – this is the leading opinion ___worldwide and that the legal systems in my home country and in other Conti___nental European jurisdictions undoubtedly accept compensation as the primary ___function, but above all to my firm belief that this idea is preferable at least for ___the systematically more fathomed civil law systems. Of course, these remarks ___require justification, but it can only be a short one as this research is devoted to ___another topic and preliminary remarks should not aim at solving a general and ___fundamental problem. ___ First of all, I have to point out the very different starting positions under 13/5 ___civil law and common law: The meaning of the German word Schadenersatz___recht (the law of compensation of damage) and the corresponding terms in other ___Continental European legal systems, on the one hand, and the ‘law of torts’ in ___the common law on the other hand, are extremely different and point to funda___mentally different underlying concepts.13 The Continental laws of compensation ___of damage are somewhat homogenous legal areas based on the relevant basic ___prerequisites – be it fault or another reason – and the resulting legal conse___quence, namely claims directed at compensation for damage. The notion of the ___compensation function is not aimed at providing insights into the grounds for ___imputation but simply at establishing what the compensation claim should ful___fil if and when the grounds for imputation are given. In any case, the notion of ___compensation expresses the aim of the law of damages and at least provides a ___ ___10 North America nos 11/18 and 11/41. ___11 See H Koziol, Prevention under Tort Law from a Traditional Point of View, in: L Tichý/ ___J Hrádek (eds), Prevention in Law (2013) (translation into Chinese: [2014] 54 Civil and Commer___cial Law Review 101 ff; a translation into Russian was published in: Civil Law Review [Moscow] 2014, issue 5, 196 ff) 133 ff. ___ 12 K Oliphant, England and Commonwealth, in: H Koziol (ed), Basic Questions of Tort Law ___from a Comparative Perspective (2015) no 5/57 f. ___13 In more detail H Koziol, Schadenersatzrecht and the Law of Torts. Different terms and dif___ferent ways of thinking (2014) 5 JETL 257.

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guideline for the extent of the compensation claim and thus precludes the possibility, eg, of disgorgement of profit in the framework of the law of damages or the imposition of penalty payments. Under which conditions this compensation should be required can only be determined taking into consideration commutative and distributive justice aspects14 and therefore having regard to a multitude of grounds – fault or non fault – for imputation. In contrast, common law proceeds on the basis of a multitude of individual ‘torts’15 with very different prerequisites but also completely different legal consequences. It is highly significant for our purposes here that by no means all torts require that damage has occurred and while ‘damages’ are frequently provided for as a legal consequence, this is not always the case, as law of torts equally well concerns claims for surrender of property, cease and desist injunctions and disgorgement of profits. Finally, damages too are of the most various types and by no means always directed at compensating damage. Rather, this applies only to ‘compensatory damages’, which are aimed at compensating damage, but not to restitutionary, exemplary or punitive, nominal or contemptuous damages. The ‘law of torts’ is thus an extremely inhomogeneous area of law that only serves the compensation of damage to a certain extent. Only the law of those torts that provide for compensatory damages thus corresponds to the law of compensation of damage in the Continental legal systems. As common law countries – especially the USA,16 but also to a lesser degree England,17 Ireland18 and Israel19 – accept punitive damages, amounting to a multiple of the loss suffered by the victim, it seems that in the common law countries the door is generally open to considering goals of the law of torts other than compensation of damage, in particular deterrence. But Continental European countries reject – as will be discussed in more detail later on – punitive damages.20

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14 On these terms, see also EJ Weinrib, Corrective Justice (2012). 15 See K Oliphant, General Overview, England and Wales, in: B Winiger/H Koziol/BA Koch/ R Zimmermann (eds), Digest of European Tort Law II: Essential Cases on Damage (2011) 1/12 no 1. 16 A Sebok, USA, in: H Koziol/V Wilcox (eds), Punitive Damages: Common Law and Civil Law Perspectives (2009). 17 V Wilcox, England, in: H Koziol/V Wilcox (eds), Punitive Damages: Common Law and Civil Law Perspectives (2009). 18 E Quill, Torts in Ireland (3rd edn 2009) 569 ff. 19 But I Englard, Punitive Damages – A Modern Conundrum of Ancient Origin (2012) 3 JETL 1, 18 ff, advocates a very restrictive approach to punitive damages: ‘the joining of ideas of retribution and deterrence into the compensatory process by means of punitive damages should be practiced only in exceptional circumstances and to a very limited extent’. 20 See below no 20. An overall view is provided by the country reports in H Koziol/V Wilcox (eds), Punitive Damages: Common Law and Civil Law Perspectives (2009); L Meurkens/E Nordin (eds), The Power of Punitive Damages: Is Europe Missing Out? (2012).

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___ Following the same line, it is predominantly acknowledged under Conti- 13/7 ___nental European, but also eg the Japanese and Chinese legal systems, that the ___law of compensation of damage primarily does not aim at deterrence but has a ___compensatory function.21 This is frequently apparent from the statutory regula___tion, which is founded on the compensation of damage caused in a manner that ___is imputable to the liable party. Besides this, Weinrib22 points out that restricting ___the legal consequence to compensation of the damage inflicted upon the victim ___corresponds with the principle of commutative justice. Therefore, the notion of ___deterrence as an aim of the law of compensation of damage is sometimes ac___corded no importance and predominantly ascribed merely secondary signifi___cance in that the threat of having to compensate exerts a certain, general deter___rent effect.23 The primary implementation of the deterrence notion is left to ___public law, above all criminal law.24 ___ However, it must be underlined that all the arguments against the deterrent 13/8 ___function of ‘Schadenersatzrecht’ – the law of compensation – in the Continental ___European sense are directed solely against the idea of a primary or even only de___terrent function, but not against a secondary function:25 as already mentioned, it ___is broadly accepted that tort law also – as a side effect – has a deterrent func___tion; this is true for fault based as well as strict liability. The threat of a duty to ___compensate in the event of damage being caused undoubtedly provides a gen___eral incentive to avoid inflicting damage. With respect to the specific tortfeasor ___who has already caused harm and thus been held liable for compensation, it ___provides some motivation to avoid causing damage as far as possible in future. ___ Reasons for deterrence being the sole or at least the primary task of tort law 13/9 ___are provided by the economic analysis26 which has been developed in the USA. ___ ___21 See on this with detailed references Koziol (fn 11) 133; id, Comparative Conclusions, in: ___H Koziol (ed), Basic Questions of Tort Law from a Comparative Perspective (2015) no 8/146 f; ___Jinrui Liu/Jianyuan Cui, The Compensatory Function of Tort Liability Law, in: H Koziol (ed), The ___Aims of Tort Law. Chinese and European Perspectives (2017) no 1. ___22 Weinrib (fn 14) 91 f. 23 See O Moréteau, France, in: H Koziol (ed), Basic Questions of Tort Law from a Comparative Per___ spective (2015) nos 1/7 and 1/68 ff; K Yamamoto, Japan, in: H Koziol (ed), Basic Questions of Tort ___Law from a Comparative Perspective (2015) nos 7/71 ff, 277 ff; and the references in Koziol (fn 11) 135. ___24 B Askeland, Norway, in: H Koziol (ed), Basic Questions of Tort Law from a Comparative Per___spective (2015) no 2/31; K Ludwichowska-Redo, Poland, in: H Koziol (ed), Basic Questions of ___Tort Law from a Comparative Perspective (2015) no 3/49 ff; A Menyhárd, Hungary, in: H Koziol (ed), Basic Questions of Tort Law from a Comparative Perspective (2015) no 4/52; Yamamoto ___ (fn 23) nos 7/80 f, 7/280 ff. ___25 See Moréteau (fn 23) no 1/7; Koziol (fn 11) 135 ff. ___26 The most recent report on economic analysis of product liability comes from M Faure, Econo___mic Analysis of Product Liability, in: P Machnikowski (ed), European Product Liability (2016) 619 ff.

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Although the starting position is – as explained above – quite different under common law and under civil law, the theory of law and economics won the recognition of some Continental European scholars.27 On the other hand, the theory met with fierce disapproval in Continental Europe28 and Oliphant29 points out in respect of England: ‘modern law and economics has not gained much of a foothold amongst tort lawyers in England or elsewhere in the Commonwealth.’ Green/Cardi30 point out that the sole validity of economic analysis is hardly supported in their home country any more either; however, they stress the importance of economic analysis in relation to its emphasis on the notion of deterrence. As to my point of view,31 I have to underline that according to centuries-old European legal thinking corrective and distributive justice32 as well as the principle of equal treatment are the bases of the European codified law of compensation of damage. As the historical European legislators by no means only pursued the aim of economic efficiency and our present legal system is thus not onesidedly directed only at the economic goal, the recognised methods of historical, systematic and teleological interpretation of European codes cannot lead to the exclusive decisiveness of the concept of efficiency.33 This result is supported by the following consideration: if the legal system accepts individual rights and interests, it has as a consequence to protect the owner of these goods in a sufficient way against misbehaviour of others in awarding him a claim to compensation of the damage caused by the interferer.

_____ 27 H Kötz, Ziele des Haftungsrechts, in: JF Baur/KJ Hopt/KP Mailänder (eds), Festschrift für Ernst Steindorff (1990) 643 ff; HB Schäfer/C Ott, Lehrbuch der ökonomischen Analyse des Zivilrechts (5th edn 2012); G Wagner, Prävention und Verhaltenssteuerung durch Privatrecht – Anmaßung oder legitime Aufgabe? AcP 206 ( 2006 ) 352, 453 ff; idem, Präventivschadensersatz im Kontinental-Europäischen Privatrecht, in: P Apathy/R Bollenberger/P Bydlinski/G Iro/E Karner/ M Karollus (eds), Festschrift für Helmut Koziol (2010) 931 ff. 28 Cf F Bydlinski, Fundamentale Rechtsgrundsätze (1988) 283 ff; J Taupitz, Ökonomische Analyse und Haftungsrecht – Eine Zwischenbilanz, AcP 196 (1996) 114; F Rödl, Gerechtigkeit unter freien Gleichen (2015) 84 ff. 29 Oliphant (fn 12) no 5/58. 30 Green/Cardi, USA, in: H Koziol (ed), Basic Questions of Tort Law from a Comparative Perspective (2015) nos 6/61 and 6/63. 31 See, in: more detail, H Koziol, Basic Questions of Tort Law from a Germanic Perspective (2012) no 3/15 ff (in the following: Basic Questions I); id (fn 11) 133 ff. WH van Boom, Statement from a Continental European Perspective no 16/1, describes the way I see the economic analysis as too negative, cf below no 21. 32 Cf K Oliphant, Promoting Social Harmony and Stability as an Aim of Tort Law, in: H Koziol (ed), The Aims of Tort Law. Chinese and European Perspectives (2017) no 7 ff. 33 Cf H Eidenmüller, Effizienz als Rechtsprinzip (4th edn 2015) 414 ff.

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___As long as no other proper instrument exists, the only legal instrument for com___pensation in the legal systems is provided by the law of torts under common law ___and the Continental law of compensation of damage respectively. ___ Using this legal instrument solely for the purpose of deterrence would make ___it unsuitable for providing the owner of legal goods or interests sufficient pro___tection: the scholars of law and economics are looking solely at potential of___fenders and are only interested in the question of how these people can be pre___vented from lessening social welfare in the future. Thus, the remedy does not ___take regard of the loss already caused; as a consequence, the remedy can be ___much higher than the loss suffered by the victim, but it is also emphasised that ___the compensation does not have to cover the entire damage as long as there is ___still sufficient incentive for people to avoid negligently inflicting damage. ___ However, the law of damages concerns those cases in which the preventive ___measures have failed and looks at the injured victim. If the victim would not be ___awarded full compensation because this is not required for the purposes of de___terrence, this would contravene the notion of corrective justice that has been ___accepted for centuries. Neither would it be possible adequately to justify why ___the specific victim should have to bear part of the damage himself merely be___cause potential tortfeasors do not require any additional incentive to conduct ___themselves duly and properly in the future. In the relationship between damag___ing party and victim, which is the decisive relationship from the perspective of ___private law, all arguments speak in favour of having the damaging party bear ___the attributable damage and an individual cannot be expected to bear the dam___age for general social reasons. Imposing such a burden on the individual would ___undoubtedly also contravene the principle of equal treatment. ___ Likewise, excessive compensation on grounds of deterrence leads to results ___that contravene a fundamental principle of private law, namely that of bilateral ___justification:34 in the event that the victim receives more than indemnification of ___the damage he suffered, while there may be reasons to impose such payment ___duties on the damaging party, there can certainly be no justification for why ex___actly the victim receives such windfall payments. All this shows that there is an ___incompatibility between the punitive and the compensating function. ___ Further, if the main goal of tort law is deterrence of the tortfeasor and not ___the compensation of the victim, how can it solve in a reasonable fashion the ___ ___ 34 See F Bydlinski, Die Maxime beidseitiger Rechtfertigung im Privatrecht, in: P Apathy/ ___ R Bollenberger/P Bydlinski/G Iro/E Karner/M Karollus (eds), Festschrift für Helmut Koziol ___(2010) 1355 ff; Koziol, Basic Questions I (fn 31) no 2/59 with additional references. This principle ___in this respect is also supported by Weinrib (fn 14) in particular 2 ff, 15 ff, 35 f; cf also N Jansen, ___Die Struktur des Haftungsrechts (2003) 112 f.

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problem of contributory negligence, as deterrence is needed in respect of the tortfeasor as well as the injured party? A similar problem arises with multiple tortfeasors.35 Another question: if tort law is really such an extremely costly way of compensating the loss, is this not also true with regard to reaching deterrence? And is the claimant’s risk in relation to litigation not even higher if only deterrence is at stake as in the end he runs – even if he succeeds – the risk of not even receiving full compensation if it turns out there is nearly no need for deterrence? In addition, three more general objections still hinder traditional lawyers from growing very fond of the economic analysis: The exclusive reference by the theory on law and economics to the ratio of costs and benefits in the interest of social welfare and the dismissal of the legal allocation of the goods to another person seems to lead unavoidably to a farreaching disregard for the allocation of goods under the legal system. If namely the costs of avoiding the damage or society’s gain from the interference in thirdparty rights are greater than the damage sustained by the owner of such, then according to the economic analysis of law, the interference in third-party property is admissible. Allowing interference in third-party property because of greater profits would mean a negation of property, indeed of all subjective rights, to the extent that the owner is deprived of defensive rights and the decision on how to use his property. A similar disregard for the allocation of goods and the ranking of interests, in particular of life and health, seems to be underlying the idea that society has to prevent crimes only as far as the measures of prevention are not more expensive than the disadvantages of the crime. Economic analysis also raises concerns as it arouses the suspicion that it proceeds on the basis of models that are remote from real life in putting emphasis on the steering function of tort law, assuming that the parties involved are comprehensively informed about the costs caused by their conduct and the advantages from society’s perspective. As a rule, nobody will be able at the time of acting to even come close to calculating the total costs and advantages of the effects of his actions for society, and that thus the duties of care can only be determined ex post – which does not make sense if the preventive aim is to create incentives for certain behaviour. This also applies to the famous Learned-Hand formula.

_____ 35 Cf on both areas MF Grady, Multiple Tortfeasors and the Economy of Prevention, 19 JLS 653, 669, 672, 676 (1990). To avoid the dilution of the deterrent effect, each tortfeasor would be obliged to pay the victim full compensation. However, this would result in the latter receiving a windfall. Therefore, from a deterrent perspective, law and economics cannot solve the problem of multiple tortfeasors in a satisfactory manner.

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___ Neither is the starting point that every member of society is exclusively ori- 13/19 ___ented by economic aspects very close to reality – perhaps not even in the USA. It ___can further hardly be assumed that – for instance in the field of non fault based ___liability – everyone will observe the standard of care that is optimal in societal ___terms, since experience shows that very often it is the individual’s own personal ___advantage that is accorded priority. It has also been established that people ___over-estimate their own abilities and the means of avoiding risks, but on the ___other hand under-estimate the probability of damage manifesting. ___ Last but not least, it has to be pointed out that awarding punitive or preven- 13/20 ___tive damages under tort law is contrary to the separation of criminal law and pri___vate law which is thought to be an achievement of modern legal culture. The re___lapse into the archaic mixture of punishment and compensation also violates ___fundamental principles of modern penal law, which pursues mainly preventive ___aims and provides the defendant with a much higher degree of protection than ___private law. There are important differences between criminal and private law36 ___regarding distribution of the burden of proof, different standards of proof, the ___admissibility of prima facie evidence, the subjective standard of fault under ___criminal law at least in contrast to private law under nearly all legal systems, ___the rules on reimbursement of litigation costs, etc. Above all, it must be taken ___into account that the principle nulla poena sine lege,37 the requirement peculiar ___to criminal law of certainty of the criminal offence and the extent of the penalty ___and the ban on analogy linked with this, has no counterpart in civil law and ___thus – as shown in particular by American examples – the door is thrown open ___to arbitrariness in determining the penalty. Naturally, all these rules cannot be ___circumvented simply by transplanting penalties to private law. ___ Despite all these objections, the focus on economic considerations deserves 13/21 ___significant credit for having brought into focus the expediency principle, which ___can play a role, not on its own, but certainly besides other, fundamental and ___higher-ranking fairness criteria. Thus, I think that economic analysis may be ___helpful but is not superior to other legal methods and is not able to justify deter___rence as the sole or primary task of tort law. ___ ___ ___ ___ ___36 On all these arguments see Weinrib (fn 14) 96 ff, and Koziol, Comparative Conclusions (fn 21) no 8/157 f. ___ 37 Article 7 European Convention on Human Rights and arts 23 and 24 Rome Statute of the In___ternational Criminal Court; art 9 American Convention on Human Rights; art 15 International ___Covenant on Civil and Political Rights; art 103(2) German Basic Law (Grundgesetz); § 1 Austrian ___Criminal Code (Strafgesetzbuch).

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III. Shortcomings of Fault Based Liability when it Comes to Producers? With respect to general fault based liability, we must ask why it is often assumed to be insufficient when it comes to the liability of producers. In this connection, the North American report points out that ‘some courts and commentators believed that negligence and warranty law often created unjustified obstacles to suits for injuries caused by dangerous products, that the situation could be improved by the adoption of strict products liability’38 and further perceive ‘an “overlapping consensus” that common-law rules ought to be changed to make it easier for some victims of product-related injuries to hold product manufacturers and sellers liable.’39 The main complaints about the fault based liability system are that negligence law could in practice place an excessive evidentiary burden on certain plaintiffs suing for product-related injuries;40 that certain judges are unwilling to allow jurors to decide the issue of the manufacturer’s carelessness; that, in principle, negligence law does not adequately vindicate consumers’ rights and finally, that negligence and warranty law failed consistently to provide appropriate levels of compensation and loss-spreading, and in that sense failed adequately to protect consumers41 from the harmful consequences of productrelated injuries. The truth of these allegations remains dubious, however, as long as it has not been proven that there are especial difficulties precisely when it comes to as-

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38 North America no 11/27. 39 North America no 11/20. Cf also Rest of the World no 12/161 ff. 40 To avoid such difficulties A Fagan, Statement from the Perspective of the Rest of the World no 17/14 ff, considers the idea that ‘the 100% probability that the production of the 100 000 articles would injure 67–133 consumers’ makes that production wrongful. Supposing that the difficulties mentioned really exist, I think that Fagan’s interesting idea could not be helpful: wrongfulness not only depends on the probability of causing harm, rather the interest of society in producing such goods and the severity of potential harm also have to be taken into account. Therefore, the production of cars in general is lawful and cannot be prohibited by injunctions, although it is known that some of the cars will inevitably be defective and endanger persons or property. This is true in principle in respect of all useful goods albeit they are not dangerous in an unreasonable dimension. 41 The European Product Liability Directive underlines the aim of protecting consumers and even tends to differentiate between victims who are consumers in a narrow sense and entrepreneurs. This is shown by art 9, according to which damage to property has to be compensated only if ‘the item of property is of a type ordinarily intended for private use or consumption and was used by the injured person mainly for his own private use or consumption.’ See on this in more detail no 75 f.

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___serting claims for damage that was caused by defective goods. Problems associ___ated very generally with fault based liability certainly cannot justify a special ___rule for product liability in particular. Furthermore, it must be taken into ac___count that some problems are not rooted in substantive law but in the particu___larities of the US American jury system.42 ___ Besides this, it must be considered that there have been many attempts in 13/25 ___common law to solve the difficulties inherent in fault based tortious liability ___systems when it comes to asserting claims by resorting to contractual and thus ___non fault based means; certainly a very interesting approach, which will be dis___cussed in more detail later on (no 43 ff). ___ As already mentioned in the introduction,43 in answering the question of 13/26 ___whether there is an eminent need for strict liability provisions, one also has to ___have regard to the interplay of tort law with other legal areas, in particular with ___social security law: In the area of personal injury – and product liability rules ___cover primarily such harm, insufficiencies in tort law under many legal systems ___are levelled out largely by the social security systems. The fact that most legal ___systems provide for the victim’s extensive compensation for losses caused by ___personal injuries via the social security systems makes the provision of com___prehensive compensation under tort law less urgent in such countries. From ___the victim’s perspective in this area, intensive protection under tort law is re___quired only as far as social security does not provide full compensation. It is ___probable that such loopholes do not concern primarily the most important ___interests of the victim and therefore strict producer’s liability does not seem ___urgently needed. ___ ___ ___ IV. Disadvantageous Consequences of ___ Over-Strict Producer’s Liability? ___ ___ ___Besides the question of whether general fault based liability regimes do not pro- 13/27 ___vide sufficient protection in the field of product liability, the possibly negative ___consequences brought about by implementation of a strict, non fault based li___ability regime for producers also have to be taken into account. Generally speak___ing, the duty to compensate damage already caused and the risk of becoming ___liable in the case of causing damage serves the protection of other persons as ___well as their property and protected interests. In addition, liability may also be ___ ___42 Cf North America no 11/14 f. ___43 Introductory Lecture nos 1/4 and 1/17.

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of public interest, serving the interests of society and the economy as such by sanctioning unfair competition. However, besides this positive protective function, liability may trigger negative consequences: if liability should be too strict, it causes over-deterrence:44 Obviously, entrepreneurs are used to calculating the costs of production and thus have a great incentive to avoid risks when they are confronted with a liability system which is too strict. However, risks need not be negative per se. They might also be regarded as a chance. Many products, which are part of our daily life today, are the result of risky investments. In our globalised world, taking risks is frequently necessary in order to remain competitive with companies from other countries. In the case of over-deterrence, however, innovations will not take place due to the fact that businesses are not willing to assume the risk of becoming liable and paying ruinous damages; this can in particular be the case if entrepreneurs are held responsible for unforeseeable and thus incalculable harm. Consequently, liability systems which are too strict also act as a damper on the economy as a whole. On the other hand, if liability is too lenient, it reduces the preventive function and leads to under-deterrence. This also causes unsatisfactory results for the economy; in particular it may result in a loss of product quality. If entrepreneurs are not held liable for damage caused by their products, they will try to cut costs by reducing product quality. Therefore, the damage potential is much higher in countries which have a rather lenient liability system. On a global economic scale, the problems of over and under-deterrence may lead to additional negative consequences in the case of cross border transactions and the applicability of different legal systems.45 Severe competition distortions may arise due to the fact that the extent of product liability can vary significantly between countries as companies who are producing under a very strict liability regime will not be able to sell their expensive goods well in a country with low level product liability where producers can produce more cheaply. On the other hand, companies may be seduced into exporting goods of minor quality to countries with low level product liability, while products of high quality will be exported to countries which have a strict product liability law. Obviously, this is not only disadvantageous for consumers in countries

_____ 44 Cf M Geistfeld, Products Liability, in: M Faure (ed), Tort Law and Economics (2009) 304 ff; I Gilead, On the Justification of Strict Liability, in: H Koziol/BC Steininger (eds), European Tort Law 2004 (2005) 32 f, 43; G Howells, Purpose and Effect of the Directive, in: P Machnikowski (ed), European Product Liability (2016) 25, who points out that the US showed how the burden could be so high as to make some products uninsurable. 45 See more profoundly Faure (fn 26) 622 ff.

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___with rather lenient product liability laws, but might even have a detrimental ef___fect on them due to the increased damage potential posed by defective prod___ucts. ___ In order to avoid the problems caused by over and under-deterrence as well 13/30 ___as other negative effects, it is necessary to ensure that liability law is reason___able. Reasonableness is not only important for the tortfeasor and the victim, but ___it is also vital for society and the economy as a whole. Reasonableness depends ___on whether legislators and courts take into consideration all the interests in___volved: the victim’s interest in protection of his goods and in receiving compen___sation, everyone’s interest in freedom of action and the interests of society. In ___this sense, burdening entrepreneurs with very strict liability appears to be a ___problematic issue. Directors have either to reduce the profits of their company ___and distribute a lower dividend to their shareholders, which are very often pen___sion funds, or, to pass on the increased risk of paying compensation to all con___sumers buying from the company as a sort of risk community, a measure which ___will be reflected in higher prices; in fact, strict product liability is a form of very ___expensive insurance because of the transaction costs involved in tort cases. The ___‘deep pocket argument’, according to which rich entrepreneurs should almost ___always cover losses and which is often publicly discussed, is consequently ___rather short-sighted. Furthermore, overstretching the entrepreneurs’ duties of ___care will cause an incentive for everyone else to neglect his own responsibility ___and, therefore, in the end all careful clients of a company will have to pay for ___compensating the careless consumers and other persons. ___ Summarizing this brief and far from complete overview: it has been established 13/31 ___that both over-deterrence and under-deterrence may have severe negative conse___quences, which have to be avoided. Further, in order to ensure reasonableness in ___the area of liability law, it is absolutely necessary to balance all the interests in___volved and not to neglect everyone’s personal responsibility in his own affairs. Be___cause the law of torts as well as contractual liability law may influence entrepre___neurs in several ways, it should be the aim to find a balancing approach in order ___to minimise the negative impacts of liability law on the economy as such and to ___ensure that the positive effects – compensation and prevention – prevail. ___ ___ ___ V. Is Strict Product Liability in Accordance with ___ the Overall System of Liability Law? ___ ___ ___Independent of the problem of how to find a reasonable balance when it comes to 13/32 ___product liability law as just addressed above, there is also the fundamental ques-

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tion of whether and how such strict liability fits in with general liability law. Discussing this question runs into difficulties insofar as to some extent the same ideas and arguments have to be addressed when searching in the next chapter for the reasons behind strict liability. Therefore, I will try to keep this section rather brief. Insofar as extra-contractual product liability is non fault based, it is manifestly not in harmony with the general liability rules of delict, since these require misconduct as the ground for liability. Furthermore, strict product liability rules do not fit into the system of the keepers’ liability for damage caused by his dangerous things either. As already pointed out,46 product liability proceeds on the basis that the damage is brought about by a defect of the product. Such dangerousness cannot in general be classified as very high since many products are not likely even in a defective state to bring about extensive damage or to substantially increase the frequency of damage occurring. Therefore, unlike the general, abstract dangerousness presented by things or facilities, the specific dangerousness of defects required under the product liability rules is not enough to justify a liability completely regardless of any misconduct.47 Neither does Gilead48 present a convincing justification for non fault based product liability when he writes: ‘Strict product liability for manufacturing defects may also be justified on the grounds of non-rebuttable presumptions of fault.’ Laying down a non-rebuttable presumption cannot by itself serve as a justification but rather requires in itself a justification. According to Gilead, however, this could consist in ‘the fact that rebuttal may simply be too costly’. This, however, is not persuasive as it seems inept to seek to protect the defendant from presumed excessive costs in this sense if proof would in fact be easy to present or if the costs of presenting evidence would at least be lower than the liability threatening. Finally, it is also an open question why such non-rebuttable presumptions should apply only to the producers of goods but not to other entrepreneurs. It does not really help either in justifying strict producers liability when Gilead49 points out that in the case of outcome-based strict liability the reciprocal nature of causation50 does support harm sharing on grounds of fairness and as an example refers to ‘strict product liability that raises the price of products and in this way apportions the costs of harms between consumers and producers.’ Specifically, the reference to the after all very vague term ‘fairness’ cannot

_____ 46 Introductory Lecture no 1/21. 47 These arguments will be elaborated further under no 54 ff. 48 Gilead (fn 44) 34. 49 Gilead (fn 44) 38 f, 42. 50 The harm is caused jointly by colliding activities: production on the one hand and consumption on the other.

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___provide any explanation or justification either, as it does not answer the crucial ___questions of what exactly is to be understood by fairness, what criteria apply to ___assess fairness and why precisely in the case under discussion a particular re___sult should be fair. ___ Thus, in summarising it must be underlined that liability for products 13/36 ___regardless of fault fits neither with the general, fault based extra-contractual li___ability regime, nor is it in accordance with other strict liability regimes, which ___are based on the concept of the abstract dangerousness of things involved. ___ It has therefore to be established, whether product liability can be regarded 13/37 ___as some kind of contractual liability. In the common law countries, for instance, ___the producers’ strict liability would comply under contractual liability with the ___general rules: on the basis of an implied warranty, the seller is strictly liable if ___the goods do not come up to the required standard, even for consequential ___damage to other property and for personal injuries. However, because of the ___privity rule, persons other than the purchaser, ie his family members, donees ___and innocent bystanders, do not enjoy such protection (see no 43 ff). Thus, strict ___product liability which also protects such persons is equally out of harmony ___with the rules of contractual liability. ___ In addition to the problem of classifying product liability under existing 13/38 ___types of liability – either contractual or extra-contractual liability – further ___questions arise with regard to the legal structure of strict product liability re___gimes: why are fellow-entrepreneurs not protected to the same extent as con___sumers or why does strict liability not arise in cases of damage caused by defec___tive services or why are only movables subject to strict liability and not ___buildings or bridges or why have some legal systems a different regime for ___medicines, or why does immaterial loss not have to be compensated in some ___countries. The EU Product Liability Directive51 does not provide any insight either ___into why product liability, contrary to the original intention, is not limited to ___special risks associated with industrial mass production but likewise lays out ___the liability of craftsmen, landlords, farmers and artists. In the same manner, ___liability for damage deriving from defective design or insufficient instructions ___does not seem reconcilable with the overall system.52 ___ ___ ___51 Council Directive 85/374/EEC [1985] OJ L 210/29 (fn 8). It is quite astonishing that scholars ___accept that the concept of product is interpreted extensively, without so much as a question whether there are any convincing reasons for such extension; see eg G Straetmans/ ___ D Verhoeven, The Content of the Product Liability Directive, in: P Machnikowski (ed), European ___Product Liability (2016) 43. ___52 On the contradictions within the European Product Liability Directive see nos 54 ff and ___74 ff.

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At least at the first glance, it would seem that the present-day strict, non fault based product liability regime, which also protects victims other than the relevant contractual partner, does not fit harmoniously into either the general extra-contractual or the contractual liability rules, without any further ado. Moreover, the limitation of the strict liability to the producer of goods, thus disregarding the makers of bridges and buildings as well as entrepreneurs who provide services,53 is by no means clearly logical and implies a distinction which is not objectively justified. However, all this does not yet conclusively establish that non fault based product liability as it is presently constituted is inherently contradictory and does not fit in with the overall system. Rather, it must be examined more closely on the basis of the country reports whether this first impression does not deceive. After all, it might be that new aspects come to light in relation to product liability or that a combination of criteria – as yet unconsidered – justifies the liability in such a way that it must be deemed compatible with the overall system. However, if this is not ultimately the case, then a modification of the existing liability rules must be proposed, in order to obtain a consistent overall liability system. As already pointed out in various ways,54 this would be essential in order to arrive at an overall legal system that complies with the fundamental principle of equal treatment and thus a basic requirement for justice. Besides this, the establishment of whether a provision is in conflict with or harmonious with the overall system is also material when it comes to construing it and applying it analogously: objectively problematic rules must be construed as narrowly as possible and not applied analogously.55 Very much in tune with this, in common law – though it seems to have much less regard to the overall system – this apparently is a material criterion for whether a precedent may also be applied to resolve an issue with somewhat different facts, or not. Proceeding from this impression that non fault based product liability does not seem to fit harmoniously into the overall systems and product liability in itself also seems inconsistent, the following arguments will be presented in order to show how stricter liability for producers can nonetheless be justified – at least in one sub-category.

_____ 53 On this question see in detail Case 3 (in the individual country reports). 54 Introductory Lecture nos 1/7 f and 1/18 ff. 55 F Bydlinski, Juristische Methodenlehre und Rechtsbegriff (2nd edn 1991) 440; EA Kramer, Juristische Methodenlehre (5th edn 2016) 107 f.

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___ VI. Searching for the Reasons Behind Stricter ___ Liability for Producers ___ ___ ___A. Contractual Liability ___ ___It may be assumed that in all legal systems contractual liability offers the victim 13/43 ___substantial advantages over extra-contractual (delictual) liability. These may ___consist in strict duties of care, setting of the burden of proof in favour of the in___jured creditor, pure economic loss being recoverable without limit or the fact ___that liability for the misconduct of auxiliaries is further-reaching.56 All of these ___rules, however, only lead to stricter liability for one’s own or third-party mis___conduct. Above all in common law, however, contractual liability offers – based ___on the idea of implied warranty – a much more meaningful advantage in that it ___is non fault based57 and that this strict liability also covers consequential dam___age.58 Obviously, the purchaser benefits from contractual liability with all its ad- 13/44 ___ ___vantages when he acquires the good from the producer – this constellation be___ing rather the exception than the rule nowadays, however. If the good is ac___quired from a distributor, on the other hand, the purchaser has no contractual ___relationship with the producer, and hence it would appear that the producer ___does not have any direct contractual liability towards the purchaser. Nonethe___less, there are various different approaches to resolve the issue by attempting to ___expand the actual, narrow scope of contractual liability.59 According to Chilean law,60 in cases of a chain of contracts the victim can 13/45 ___ ___claim for compensation based on the breach of a contract to which he is not a ___party. On the other hand, the defendant may raise all defences he could have ___raised if his contractual counterparty in the contract had been the plaintiff. This ___would be of practical importance in case of contractual clauses which limit the ___producer’s liability. ___ ___ ___ ___ ___56 Koziol, Basic Questions I (fn 31) no 4/4 ff. ___57 K Zweigert/H Kötz, Introduction to Comparative Law (3rd edn 1998) § 36 IV, § 42 V (p 672). 58 E Peel/J Goudcamp, Winfield and Jolowicz on Tort (19th edn 2014) nos 11.001 and 002. ___ 59 See on this also Reimann, 51 Am J Comp L 751, 793 ff (2003); F Werro/VV Palmer/A-C Hahn, ___Synthesis and Survey of the Cases, in: F Werro/VV Palmer (eds), The Boundaries of Strict Li___ability in European Tort Law (2004) 435 f. ___60 Rest of the World no 12/172 ff.

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More far-reaching was the above-mentioned importation of the theory of implied warranty in the USA,61 as exceptions to the privity rule were developed on this basis;62 thereunder the purchaser and his household were allowed to sue the manufacturer, even for compensation of pure economic loss. Further, contractual limitations of the manufacturer’s responsibility were ignored.63 However, as such departures from the rules are not really convincing, the manufacturer’s strict liability was shifted to tort law.64 Australian consumer law65 goes even further in providing that producers of goods and services can not only be held liable for damage caused by their products or services, but are also subject to an implied guarantee that the goods or services meet certain quality standards. It is clear that a failure to meet some of these standards is actionable not only by the consumer who purchases the goods or services but also by ‘affected persons’; this includes persons who acquire title to the goods through the consumer. In contrast to this far-reaching liability regime for producers in Australia, the privity rule is still respected in South Africa66 and in Canada.67 This is also true for England. Aside from the Contracts (Rights of Third Parties) Act 1999, which is unlikely to apply in product liability cases, the general rule remains that only the parties to a contract may claim for contractual damages.68 However, especially if the contractual partner is insolvent or cannot be sued because of a valid exemption clause, exceptions to the privity doctrine have sometimes been made. Yet although a few scholars have expressed the view that in spite of the absence of a contract in the narrower sense, the basis for such direct actions could be found in an expanded concept of contractual liability,69 the courts have so far preferred to extend tortious liability for that purpose.70 The differences just referred to in the various product liability regimes show that contractual law structures do not seem to provide any satisfactory solution

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61 See North America nos 11/13 and 11/63 ff; further Shapo (fn 7) § 3; M Geistfeld, Principles of Products Liability (2006) 10 ff. 62 See Shapo (fn 7) §§ 3.03, 5.03. 63 See with more details Dobbs/Hayden/Bublik (fn 6) § 450; cf also North America nos 11/10 ff, 11/65 ff. 64 See Restatement Second of Torts § 402A; Geistfeld (fn 61) 14 ff. 65 Rest of the World nos 12/26 ff and 12/215 ff. 66 Rest of the World nos 12/49 and 12/109. 67 North America no 11/8. 68 Europe no 10/47. 69 JG Fleming, Comparative Law of Torts (1986) 4 OJLS 235, 240 f; B Markesinis, An Expanding Tort Law – The Price of a Rigid Contract Law (1987) 103 LQR 354, 371; S Whittaker, Privity of Contract and the Tort of Negligence: Future Directions (1996) 16 OJLS 191, 192. However, Whittaker suggests leaving product liability in particular to the legislator. 70 See E Peel, Treitel on Contract (14th edn 2014) no 11-044 ff; Introductory Lecture no 1/9.

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___for producer’s liability that could find international consensus: this can be sur___mised just by looking at how even some common law jurisdictions react scepti___cally to such contractual law structures because of course there is no contractual ___relationship between the producer and the consumer personally and even more ___obviously no such relationship to third parties; moreover, the extension of liabil___ity to consequential damage does not seem one hundred percent convincing. Ul___timately, outside of the common law field, in which contractual liability is non ___fault based,71 it seems highly questionable whether and how far a presumed ___promise could justify non fault based liability; this would in fact require a proper ___warranty, which also covered consequential damage, but which cannot really be ___inferred to have been duly given according to all rules of interpretation. ___ Interestingly, the approach taken by courts in France72 somehow goes in the 13/49 ___direction of an implied warranty. Article 1641 Code civil provides that the seller ___is bound to warrant against latent defects, which render the item sold unfit for ___the use for which it was intended. According to art 1645, the seller is liable to___wards the buyer for all damage caused by the defect if he knew of the defect. The ___courts try to overcome this hurdle by creating the irrebuttable presumption that ___the professional did have knowledge of the latent defect, even if the defect was ___undiscoverable. The lay purchaser can therefore always claim damages from a ___commercial seller on the basis of art 1645 when the thing’s latent defect has ___caused damage to the purchaser’s person or to any item of property. And thanks ___to the possibility of action directe, the purchaser may bring this contractual ___claim for damages grounded on art 1645 not only against the retailer, but also ___against the distributor, the manufacturer or any other professional seller along ___the sales chain. I assume that lawyers from other countries will not really be ___convinced by a solution which is based on such an astonishing presumption. ___ With regard to claims for damage caused by products, the situation under 13/50 ___German and Austrian law is once again different to the approaches just men___tioned: the purchaser who buys from a seller who is not the manufacturer will ___usually not succeed with a claim under extra-contractual liability law against the ___producer as he bears under tort law the burden of proving fault and will as a rule ___fail; in addition, the rules on vicarious liability under tort law are rather restrictive. ___Austrian courts and scholars – German lawyers rejected such a way out – have ___tried to find a way to avoid the restrictions set by the privity rule: because of the ___purchaser’s special reliance on careful production as well as control by the manu___facturer and because of the special contact between purchaser and producer by a ___chain of contracts, it is argued that there is a special relationship which establishes ___ ___71 See Europe no 10/47. ___72 See Europe no 10/51.

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special duties of care as well as a shift of burden of proof and an extensive vicarious liability similar to that in a contractual relationship. Thus, the purchaser – but not the innocent bystander – at least enjoys a fault based liability regime similar to that under contract law. As producers and retailers are allowed to include a disclaimer excluding consumers from the protective effects of their contracts, the value of the concept of the contract with protective effects towards third parties (‘Vertrag mit Schutzwirkungen zugunsten Dritter’) is seriously diminished in practice.73 The correct interpretation, however, would be to see the agreement between producer and distributor stipulating an exclusion of liability towards the purchaser as ineffective: the protective duties the producer has towards the customer exist between producer and purchaser independently of the will of the contract partners, ie the producer’s and distributor’s intentions, since they exist simply on the basis of the law; therefore, the parties to the contract cannot eliminate these legal duties toward a third party at the expense of such third party without his consent.74 This only applies to the producer’s liability toward buyers of his products, however; innocent bystanders remain dependent on extra-contractual compensation claims. Any comprehensive liability of the producer for damage which results from the defectiveness of his products thus cannot be construed on the basis of a contract with protective effects towards third parties. In the field of contractual compensation claims relating to liability for defective products, there are thus significant differences between the various legal systems. This is shown up in particular when attempts are made to overcome the problems that arise due to the lack of any contractual relationship between victim and producer. While the theory of implied warranty is resorted to in the Anglo-American sphere, bringing with it non fault based contractual liability, this does not seem to be a suitable approach for the civil law countries, as it would require a proper warranty to be given and the prerequisites for this are not fulfilled. In these jurisdictions, attempts are sometimes made to find a balanced solution by means of quasi-contractual, but still fault based liability. Very generally speaking, the efforts to use either approach to extend contractual liability to consumers and innocent bystanders indicate that there is a perceived need to call producers to account for the products they produce. Whether this, however, can really be accomplished on the basis of contractual liability appears dubious when the above, very different approaches are taken into consideration; likewise, it is uncertain whether this would even be objectively justified. In particular, it cannot be right to construe contractual liability of the

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73 Europe nos 10/41 f, 10/109. 74 E Karner/H Koziol, Mangelfolgeschäden in Veräußerungsketten (2012) 78 f with additional references.

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___producer at any price. In the following, therefore, extra-contractual liability ___claims will be looked at in more detail. ___ ___ ___B. Non-Contractual Liability ___ ___1. Liability based on misconduct ___ ___Misconduct, which can be qualified as wrongful and culpable, is without ques- 13/52 ___tion the oldest and most widely accepted ground for imputation in the law of ___damages. Fault based liability still constitutes the core of the law of damages in ___all legal systems. However, misconduct on the part of the injuring party cannot ___justify strict liability as such is based precisely on being independent of any ___blameable conduct, although it may overlap with wrongdoing. Hence, insofar ___as product liability is strict liability, other grounds for liability must be sought. ___ This also applies to the rule introduced for the EU by the Product Liability 13/53 ___Directive,75 providing for liability independent of any contractual relationship ___between victim and producer and regardless of any fault, ie strict liability.76 This ___is sometimes called into question it is true,77 but ultimately it cannot be denied: ___it does not hinge upon any failure to take care when manufacturing or inspect___ing the product, but only on the defectiveness of the good; the producer can ___only invoke the narrow legal grounds for exemption from liability (in particular ___compliance with a statutory provision or official order; non-discoverability of ___the defect given the state of the art of science and technology). The conclusion ___that the EU Directive provides for non fault based liability is also supported by ___the wording of the second recital where the intention of the legislator is clearly ___stated, even emphasising: ‘Whereas liability without fault on the part of the ___producer is the sole means of adequately solving the problem, peculiar to our ___age of increasing technicality, of a fair apportionment of the risks inherent in ___modern technological production’. Besides the content of the rules, the will of ___the legislator thus clearly indicates that this is a non fault based liability. ___ ___ ___75 Council Directive 85/374/EEC (fn 8). ___76 Thus, A Grau, Produktfehler (2002) 50 ff; H Koziol, Grundfragen der Produktehaftung (1980) ___53 ff; HC Taschner, Produkthaftung – Noch einmal: Verschuldenshaftung oder vom Verschulden unabhängige Haftung? ZEuP 2012, 560. ___ 77 See H Kötz, Ist die Produkthaftung eine vom Verschulden unabhängige Haftung? in: ___B Pfister/MR Will (eds), Festschrift für Werner Lorenz (1991) 109; H Kötz/G Wagner, Deliktsrecht ___(13th edn 2016) no 614; cf also G Wagner in: Münchener Kommentar zum Bürgerlichen Gesetz___buch V (6th edn 2013) ProdHaftG Einl no 14 ff.

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2. Liability based on the dangerousness of the products Many legal systems provide for strict liability based on dangerousness in a kind of second lane alongside fault based liability. These strict forms of liability derived from the concept that the keeper of a particularly dangerous thing or plant but also the person who engages in a dangerous activity, should not only enjoy the corresponding benefits but also bear the risk.78 Since producer’s liability derives from the defect of the product and the manifestation of the risk posed by the defectiveness, dangerousness also appears to play a material role here. This impression is reinforced by the wording of the very influential provision in Section 402A of the Second Restatement of Torts;79 it states that a commercial seller is subject to liability for physical harm caused by a product that, at the time of sale, was ‘in a defective condition unreasonably dangerous80 to the consumer or to his property.’ This is certainly true but – as already mentioned above81 – it must be remembered that this is a different sort of dangerousness than in those cases in which the legal systems have already recognised strict liability based on dangerousness up until now.82 In respect of product liability it is decisive that the defectiveness of the product leads to a dangerousness that in general is not inherent in such products; a product is, after all, only defective if it does not offer the safety that one is entitled to expect. The specific dangerousness proceeding from such a defect can, however, usually not be considered particularly high: many products are unlikely even when defective to bring about very serious damage or to increase the frequency of damage by any considerable degree. Neither is it the case that the dangerousness is such that even if reasonable care is used to control the products, they might still escape and cause harm. This is what very clearly distinguishes the dangerousness posed concretely by defects

_____ 78 See Koziol, Basic Questions I (fn 31) no 6/139 ff with additional references; H Koziol/P Apathy/ BA Koch, Österreichisches Haftpflichtrecht III (3rd edn 2014) A 1 no 1 f; B no 22; M Schermaier, New Law Based on Old Rules: Antecedents and Paragons of the Modern Law on Producers’ Liability, in: M Ebers/A Janssen/O Meyer (eds), European Perspectives on Producers’ Liability (2009) 87. 79 Cf North America no 11/21. 80 A commentary to this provision stated that a defect renders a product ‘unreasonably dangerous’ only when the product is ‘dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community of its characteristics.’ 81 See already no 33. 82 Thus, also very clearly North America no 11/36 f. Cf further BA Koch, Product Liability in Austria, in: P Machnikowski (ed), European Product Liability (2016) 116 f.

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___in products from the high abstract degree of dangerousness,83 which is required ___as a condition for strict liability based on dangerousness and which for instance ___is deemed to exist in the case of nuclear power plants, aircraft, railways, motor ___vehicles or pipelines. Therefore, the dangerousness specifically brought about ___by product defects cannot or at least not by itself provide sufficient justification ___for a strict liability completely regardless of any duty of care, which offers the ___producer hardly any defences. A further consideration84 is that the general ab___stract dangerousness, which for example emanates from the high speed of mo___tor vehicles serves the interests of the keeper of such vehicle. Now, for non fault ___based liability based on dangerousness, it is material that the person who en___joys the benefit also bears the risk.85 The specific dangerousness brought about ___in the individual case by a defect, on the other hand, is typically in no way ad___vantageous for the producer: the defectiveness in fact runs contrary to his inter___ests. ___ Furthermore, it must be considered that in the context of product liability 13/56 ___the connection with the sphere of the liable party works differently than in ___cases of genuine liability based on dangerousness. Specifically, the difference is ___the following: motor vehicles and railways, for example, are attributed to the ___sphere of the keeper; this is the party whose interests the thing at issue serves ___and also the party that has the means to exert influence upon the thing and thus ___control the dangers.86 None of these criteria are fulfilled in the case of a pro___ducer as soon as he has brought the product into circulation. He can only – and ___this is the reason why the product must be defective at the time sold by the pro___ducer – influence the production process prior to this and within the bounds of ___reasonableness ensure that the goods enter the market as free from defects as ___possible. If this is taken as a basis, then it is no longer the dangerousness of the ___product that is decisive but the risk involved in the production process, which is ___of a different nature as will be dealt with in more detail below.87 ___ These differences show that today’s generally accepted grounds for imputation 13/57 ___in relation to strict liability based on dangerousness are not applicable or at least not ___to the same extent for non fault based liability for products, since strict product li___ability cannot be based on the idea of the party being the one who derives the bene___ ___83 See on European law C Oertel, Objektive Haftung in Europa (2010) 286 ff. ___84 BC Steininger, Verschärfung der Verschuldenshaftung. Übergangsbereiche zwischen Ver___schuldens- und Gefährdungshaftung (2007) 35 ff. 85 Cf R Müller-Erzbach, Gefährdungshaftung und Gefahrtragung, AcP 106 (1910) 309, 365 ff; ___ J Esser, Grundlagen und Entwicklung der Gefährdungshaftung (1941) 97 ff; H Koziol, Österrei___chisches Haftpflichtrecht I (3rd edn 1997) no 6/11. ___86 See Koziol (fn 85) no 6/11. ___87 See below no 58 ff.

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fits from a highly dangerous thing. Thus, further grounds must be sought that – possibly in combination – are weighty enough to justify strict liability.

3. Liability based on the risks inherent in industrial production The European Product Liability Directive88 and its reasoning do not, however, take such abstract dangerousness as the premise, but instead a different type of dangerousness. As already mentioned, the non fault based liability provided for by the Directive for defective movables ‘which have been produced industrially’ was initially only intended to offer the purchasers protection against ‘the risks inherent in modern technological production’ and therefore the special risks of ‘anomalies’ associated with industrial mass production. This seems justifiable by the argument that in spite of all reasonable measures, product defects can never be absolutely excluded when it comes to mass production nor can inspection always prevent defective products from being placed on the market. However, neither the provisions of the directive itself nor the legal systems of the Member States of the European Union nor of other states have limited product liability to industrial products. Therefore, the reason given by the European Union is not sufficient to justify the whole area of strict product liability as it does not apply to liability for defective products of craftsmen, landlords, farmers and artists. Moreover, the idea of the inevitable risk of anomalies in the case of industrial mass production does not justify the liability for damage deriving from defective design or insufficient instructions.89 However, it remains to be said that the rationale given by the EU Directive could well be worth considering whether it could be – besides others – an important factor for justifying the originally conceived scope: the abstract, overall risk of the so-called ‘Ausreisser’ or ‘runaways’ in the case of industrial mass production could be after all at least in some cases high enough due to the frequency of damage and the theoretically possible extent of the damage that one might speak of a special source of danger. As highlighted by the Japanese report,90 taking the dangerousness of the production process as the premise certainly corresponds with the basic concept of liability based on dangerousness and therefore it is assumed that liability under art 3 of the Product Liability Act is based on the risk-liability theory: ‘any creator of the source of risk’ and ‘any

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88 Council Directive 85/374/EEC (fn 8). 89 See regarding the objections on strict liability in this area in the USA Dobbs/Hayden/Bublik (fn 6) § 450 p 897. 90 See Japan nos 3/12 and 3/16 f.

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___manager of the source of risk’ shall assume liability for any harm arising from ___such source of risk. As the manufacturer is the creator of the source of risk, it ___seems a weighty argument to impose no-fault liability on him, however it will ___not generally be sufficient to establish strict liability all alone as the dangerous___ness of many industrial mass production processes is rather low. ___ The other prerequisite that is always presupposed in the accepted cases of ___liability based on dangerousness, namely that the danger is not completely con___trollable by reasonable care, is fully met: ‘That manufacturing defects continue ___to arise even with massive technological change perhaps suggests that they are ___inevitable features of mass production and, as such, their costs are appropri___ately born by manufacturers.’91 ___ All these arguments could justify solely strict liability in the field of mass ___production. Since product liability as it stands is not limited to such production, ___however, these arguments can only justify it in a sub-category. Therefore, a ___limitation of strict producer’s liability merely to all manufacturing defects – but ___not so far-reaching as to apply only to industrial manufacturing – goes in the ___right direction but would not be sufficient. Thus, the step that is taken in the ___USA is in my opinion very welcome but still not enough. The report for North ___America92 establishes: ‘Most notably, a number of courts, along with the Prod___ucts Liability provisions of the Third Restatement of Torts (1998), have insisted ___that, particularly for claims of design defect, the standard of liability is really ___not strict after all, but instead hinges liability on negligence, defined as a failure ___to adopt a reasonable product design given the foreseeable benefits and risks ___associated with that design as compared to an alternative safer design.’ How___ever, strict liability still covers all and not only industrial manufacturing de___fects. ___ As the argument that industrial mass production is associated with especial ___dangers cannot on its own justify strict product liability, the following is in___tended to give supplementary reasons for why non fault based liability for de___fective industrial products might possibly be justified. ___ ___ ___4. Enterprise liability ___ ___One possible ground for justification of producer’s liability might be found in ___the idea of enterprise liability. It is material in respect of the many times advo___ ___ ___91 North America no 11/38. ___92 North America no 11/40.

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cated93 stricter liability for enterprises, on the one hand, that benefits and risks be borne by the same party and thus be concentrated in an enterprise;94 and on the other hand, that the victim when faced with an enterprise as injuring party faces a complex organisation and thus typically encounters substantial difficulties when proving such circumstances as are material in respect of any failures to fulfil the duties of care.95 Naturally, the victim has no insight into the organisation, the use of auxiliaries, the technical equipment, the maintenance of machines and the inspection mechanisms, nor into possible changes of the production process that would result in greater product safety. Unlike in the case of a high degree of general, abstract dangerousness of things and plants, all these circumstances do support reversing the burden of proof in this respect, but not strict liability independent of fault. This is also the stance taken by art 4:202 of the Principles of European Tort Law: ‘(1) A person pursuing a lasting enterprise for economic or professional purposes who uses auxiliaries or technical equipment is liable for any harm caused by a defect of such enterprise or of its output unless he proves that he has conformed to the required standard of conduct.’ The report on the legal situation in North America supports to some extent the value judgment that the fundamental idea of enterprise liability cannot justify any strict liability totally divorced from any misconduct. It specifically states:96 ‘Finally, it is not clear that there is in fact a “strong trend” in the US toward more stringent liability for entrepreneurs or business enterprises. Indeed, one can fairly observe that, since about 1980, the overall trend in US law has been to scale back on the most aggressive applications of strict products liability law in order to protect enterprises from the perceived threat of excessive or unfair liability.’ It is pointed out that particularly for claims of design defect, the standard of liability is really not strict after all. Later on,97 the report underlines that ‘the idea of enterprise liability can certainly support the adoption of strict products liability’, but also points out: ‘whatever the merits of enterprise liability as a normative theory of what tort liability ought to be, there is only modest

_____ 93 On this Koziol, Basic Questions I (fn 31) no 6/192 ff with additional references; further N Jansen (fn 34) 626 ff. For common law see D Brodie, Enterprise Liability and the Common Law (2010); for the USA Dobbs/Hayden/Bublik (fn 6) 895; Shapo (fn 7) § 7.02 [E]. However, see also the reticent position taken in North America no 11/40 ff. 94 Koziol, Basic Questions I (fn 31) no 6/166 ff with further references; cf also Japan no 3/16 ff. 95 BA Koch/H Koziol, Comparative Conclusions, in: BA Koch/H Koziol (eds), Unification of Tort Law: Strict Liability (2002) 411; BA Koch, Enterprise Liability, in: European Group on Tort Law (ed), Principles of European Tort Law (2005) 94 f; MünchKomm/Wagner (fn 77) § 823 no 83. 96 North America no 11/40 ff. 97 North America no 11/42 f.

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___support for the idea in existing tort doctrine. Many domains of activity that, ac___cording to enterprise liability theory, would seem to call for a rule of strict liabil___ity—including medical malpractice committed in hospitals, and injuries caused ___by transportation companies—are in fact governed by a fault standard.’ The report ___summarizes convincingly: ‘Certainly, it would be an overstatement to suggest that ___US tort law has generally embraced the idea of enterprise liability, which again ___raises the question of why injuries caused by enterprises that produce and sell ___products should be treated by rules consistent with enterprise liability theory, ___whereas other injuries caused by other sorts of enterprises should not.’ ___ Apart from the fact that the grounds listed are not weighty enough to justify 13/65 ___non fault based liability, the ideas that apply for all enterprises cannot explain ___either why only producers of goods are subject to a strict liability independent of ___fault, but not all other enterprises, above all not such firms as construct build___ings or render services, eg hospitals.98 ___ A decisive role in providing the reasoning for a more stringent though still 13/66 ___not strict enterprise liability is, moreover, the idea of a risk community.99 When ___consumer goods are produced there are necessary economic considerations ___which conflict with the application of the highest technical safety and quality ___standards; at least insofar as the economically feasible standards are complied ___with, this does not represent any breach of a duty of care. Failure to observe the ___highest standards makes the goods affordable, albeit along with an increased ___risk of damage. This, however, would leave the consumer that is injured by a ___defective product burdened with the resulting harm, while the other consumers ___merely reap the benefits because they have been able to buy the goods at low ___prices due to the lower safety requirements. If all buyers enjoy the benefit of the ___low prices, then the few buyers who suffer damage due to the defects in the ___goods, should not be left alone with their damage. The harm they suffer should ___be compensated by the producer because such is basically in a position to shift ___the expense – insofar as it can be calculated – to all customers via the prices ___and thus to all those who benefit from the prices.100 This means that all buyers ___must bear any harm together as a risk community and that the enterprise’s non ___fault based liability for products also puts such into the position of an insurance ___provider: the risks of liability are taken into account by businesses when calcu___ ___ ___98 This is also pointed out in North America no 11/43; on how product liability is not applicable to building works and services, see also Case 3. ___ 99 On this North America no 11/44; further Koziol, Basic Questions I (fn 31) no 6/179 ff with fur___ther references; Oertel (fn 83) 291 ff. ___100 See I Gilead, Israel 194 und 197, as well as BA Koch/H Koziol, Austria 20, both in: ___BA Koch/H Koziol (eds), Unification of Tort Law: Strict Liability (2002).

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lating their prices, so that in economic terms all the customers bear the expense of the producer’s liability, this also takes up on the idea of loss spreading.101 It must also be taken into account that the entrepreneur is in a better position to insure against the risk of damage,102 to provide for the distribution of risk in this manner and to make the expense easier to calculate. However, the enterprise still bears the risk of whether it is feasible in the market to shift the costs of liability, meaning it still has a substantial incentive to avoid damaging anything with its products as far as possible and to avoid having its products damage anyone as far as possible. This incentive is reinforced by the fact that the more the costs exceed the corresponding expenses of competitors, the less possible it will be to shift the liability costs to the customers. Not seldom therefore, it is not possible to shift (all) these costs to the market, so the liability costs reduce the profits of the enterprise or the shareholders and thus possibly also the salaries of the employees. Furthermore, it must be noted that when it comes to calculating prices, only the typical and otherwise foreseeable risks can be taken into account, but not unforeseeable or unforeseeably extensive future costs of bearing damage. Not infrequently, therefore, extensive, unexpected payments for damage must ultimately be borne by the enterprise, leading to economic ruin as such damage is not or at least not fully covered by insurance. The idea of enterprise liability can thus, however, as already mentioned, by itself at most justify more stringent liability but not strict product liability in its present form:103 firstly, the idea of a risk community can only explain the increased protection of the customer under liability law, but not innocent bystanders. Furthermore, it does not address why in the usual present-day form of producer’s liability, only the customers of those who produce goods but not, for instance, of service providers, should benefit from stringent enterprise liability; the very general idea of enterprise liability does not present any indications for such different treatment. In sum, therefore, it must be emphasised that more stringent liability for entrepreneurs is advocated but that nonetheless only – subject to there having been a defect in the enterprise – liability for breach of duty of care with reversal of the burden of proof and extended vicarious liability for auxiliaries seems justified.104

_____ 101 K Wantzen, Unternehmenshaftung und Enterprise Liability (2007) 84 ff; see also North America no 11/111 ff; Brodie (fn 93) 3 f; Geistfeld (fn 44) 288; Gilead (fn 44) 41 f. 102 North America no 11/112; Brodie (fn 93) 4; Koziol, Basic Questions I (fn 31) no 6/174. 103 Thus, very clearly North America no 11/42 f. 104 On this Koziol, Basic Questions I (fn 31) no 6/192 ff with further references; Koziol/Apathy/ Koch (fn 78) B no 23 ff.

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___5. Liability based on principles of reliance ___ ___Another idea is also worth taking into consideration in connection with the 13/70 ___above-described arguments supporting product liability, namely the principle ___ of reliance. A look at the above-discussed (no 43 ff) contractual basis for claims ___and in this respect above all the common law and French law highlights the ___following aspect: the widely understood warranty that the goods delivered are ___free of defect – this being at least the silently assumed premise of contrac___tual agreement – leads in common law to non fault based liability for da___mage caused by defects.105 This contractual approach to strict liability – which ___met with no resonance in Canada106 – may provoke scepticism, precisely be___cause any existence of a binding contractual declaration by the producer to ___the consumer seems dubious and in any case does not apply in respect of in___nocent bystanders, and the extension of liability to consequential damage ___also seems questionable.107 Moreover, it would be doubtful, outside of the ___common law areas in which non fault based contractual liability is recog___nised, to what extent a merely assumed promise might justify non fault based ___liability. ___ Nevertheless, it must be recognized that this construction at least contains a 13/71 ___persuasive idea that also played a pivotal role in the drafting of section 402A of ___the Second Restatement of Torts:108 ‘By linking the idea of a defective product to ___consumer expectations rather than lack of care on the part of the seller, while at ___the same time eliminating the requirement of contractual privity, section 402A ___brought together elements of negligence and warranty law to create a new form ___of tort liability’. This is also supported by a similar conclusion in a further re___port:109 ‘The first possible rationale for strict liability may be that defective prod___ucts frustrate consumer expectations with respect to safety. In protecting con___sumers’ expectations, product liability law may be perceived as an extension of ___contract law (or, more specifically, of implied warranty law).’ Behind this is the ___recognition, certainly true, that producers of goods regularly – in particular via ___advertising and brochures – give customers the expectation that the goods at ___least fulfil the safety expectations usual in the market. Even if this cannot be in___ ___ ___105 See Winfield and Jolowicz (fn 58) nos 11.001 and 002; Geistfeld (fn 61) 12 ff. ___106 North America no 11/8. 107 Winfield and Jolowicz (fn 58) nos 1.004 and 11.001, point out that the purpose of develop___ ing such warranty at common law was to allow the buyer a remedy for the financial loss he suf___fered in acquiring goods of inferior quality, ie only for the difference in value. ___108 See North America no 11/21. ___109 Rest of the World no 12/161.

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terpreted as a warranty towards third parties,110 it could be seen as an explicit or implicit declaration to the customers, aimed at inspiring their confidence and influencing the dispositions they make.111 Customers often trust in these communications and must often necessarily – for lack of other sources of information – believe them. Thus, all the necessary conditions for so-called liability based on reliance are fulfilled. The theory developed above all by Canaris112 on liability for reliance enjoys wide acceptance today in the German speaking countries. It is of substantial significance insofar as it assumes far-reaching duties of care based on the special relationship between the declarer and the circle of people relying on the information and also adapts the rules on vicarious liability for auxiliaries to the contractual standards. The fact that the EU Product Liability Directive is strongly influenced by the aspect of reliance is shown clearly in several provisions: under art 3 the producer is also ‘any person who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer’; this is also based on the premise that purchasers rely on this entrepreneur regarding the quality of his products.113 The unequivocal basis for art 6 is also the reliance on the safety of the good: ‘A product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account.’ Nonetheless, it must be stressed that liability based on reliance is – according to the prevailing Continental European opinion114 – based on misbehaviour and therefore on fault and thus cannot – at least on its own – justify the strict liability of producers of goods. However, this aspect may be a way to explain strict product liability at least for a sub-category in connection with other criteria supporting liability.

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110 Unlike the common law, see Winfield and Jolowicz (fn 58) nos 11.001 und 002; Shapo (fn 7) § 3. 111 This idea presumably also played a role when it comes to the rule in § 922 (2) Austrian Civil Code (ABGB); see on this S Augenhofer, Gewährleistung und Werbung (2002); ead, Bedeutung von Werbeaussagen – sowohl des Verkäufers als auch des Herstellers – für die Begründung von Gewährleistungsrechten, JBl 2001, 82; O Riss, Die Haftung des Veräußerers für öffentliche Äußerungen Dritter – insbesondere durch Werbung – nach § 922 Abs 2 ABGB, JBl 2007, 156; id, Inhaltlicher Widerspruch zwischen Allgemeinen Geschäftsbedingungen und öffentlichen Äußerungen (Werbung), ÖBA 2008, 188; H Koziol, Freiwillige Selbstverpflichtung von Banken gegenüber der Öffentlichkeit, ÖBA 2013, 91 ff. 112 CW Canaris, Die Vertrauenshaftung im deutschen Privatrecht (1971); id, Die Vertrauenshaftung im Lichte der Rechtsprechung des Bundesgerichtshofs, in: CW Canaris/H Andreas/ KJ Hopt/C Roxin/K Schmidt/G Widmaier (eds), 50 Jahre Bundesgerichtshof I (2000) 129. 113 Cf Koziol/Apathy/Koch (fn 78) no 51 ff. 114 See Canaris, Vertrauenshaftung (fn 112); Canaris, Die Vertrauenshaftung im Lichte der Rechtsprechung des Bundesgerichtshofs (fn 112) 129.

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___6. Consumer protection as the basis for strict liability? ___ ___The North American report115 informs us that some courts and commentators 13/74 ___maintain ‘that strict products liability is consistent with a broad principle of ___consumer protection, according to which consumers are entitled to look to ___manufacturers to ensure that products are safe for everyday use’. Likewise, ___manufacturers are said to be under duties to provide such products. More so ___than negligence and warranty, a strict liability regime arguably better ensures ___that consumers’ rights are vindicated and manufacturers’ duties are heeded. ___ The recitals to the EU Product Liability Directive also refer repeatedly to 13/75 ___‘protection of the consumer’116 with the declared aim being ‘to protect the physi___cal well-being and property of the consumer’.117 However, this very clearly does ___not invoke the narrow definition of consumer,118 as it is used in the consumer ___protection rules regarding contracts but addresses all purchasers of goods and ___even innocent bystanders regardless of whether such are entrepreneurs or ___not. This is clearly to be understood from art 9, according to which ‘damage ___caused by death or by personal injuries’ must always be compensated and only ___in the case of damage to property are limitations stipulated, specifically ‘that ___the item of property is of a type ordinarily intended for private use or consump___tion and was used by the injured person mainly for his own private use or con___sumption.’ ___ It would undoubtedly be absolutely unacceptable if the bodily integrity of 13/76 ___entrepreneurs was to receive less protection than that of consumers in the nar___rower sense. However, the present rule is also very dubious in that the property ___of consumers in the narrower sense is afforded greater protection than that of ___entrepreneurs. This can surely only be explained by the narrow-minded fixation ___so common today on consumer protection which neglects the fact that the pro___tection of small enterprises, for example craftspersons, would often be signifi___cantly more necessary than of consumers in the narrow sense, as the former ___may be faced with ruinous interruptions of operations or even the destruction of ___their livelihood as a result of a defective product (deliveries or machines). Why ___should a hobby carpenter enjoy better protection if a fire is caused by a machine ___than a professional carpenter, who earns his living by this activity? Neither can ___ ___ ___115 North America no 11/17; cf also Geistfeld (fn 44). 116 Cf R Sack, Probleme des Produkthaftungsgesetzes unter Berücksichtigung der Produkt___ haftungs-Richtlinie der EG, JBl 1989, 701. ___117 In the report Europe no 10/13 f, however, it is pointed out that the Product Liability Direc___tive to an extent leads to a limitation of protection rather than an extension of it. ___118 Cf Koziol/Apathy/Koch (fn 78) B nos 35, 156, 254.

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this be justified by reference to the usually varying insurance cover, since household insurance policies are taken out just as often as business insurance policies. Incidentally, the EU Directive does not rely primarily on the purchaser being a consumer as such but on the good acquired, specifically whether ‘the item of property is of a type ordinarily intended for private use or consumption’. However, this does not change the fact that the purchaser who acquires the thing for his work is less favourably treated than the private user; moreover, distinctions are also drawn between private users in a manner that is not entirely clear, according to the type of thing used. Apart from this, the introduction of strict liability cannot be justified solely by the slogan consumer protection. It is hard to imagine how it could be argued convincingly why a consumer specifically when purchasing goods, ie physical things, needs non fault based claims contrary to all other areas of consumer protection. Hence, consumer protection cannot serve as the (sole) argument for why there should be non fault based product liability in its present form.

7. Deterrence as rationale for strict liability BA Koch119 opens the chapter on ‘Prevention’ with the sentence: ‘Probably the by far most over-estimated effect of tort law is deterrence’ and he adds many weighty reasons and references for his opinion which enjoys broad acceptance in Europe. In contrast, the report on North America120 points out that according to the currently prevailing opinion121 in the USA, the threat of tort liability can incentivize firms and individuals to change their behaviour. It continues: ‘If one assumes that negligence law’s ‘ordinary care’ standard requires manufacturers to adopt any safety measure that costs less than the harm expected to result from not taking the precaution – and if one further assumes that manufacturers are rational actors with perfect information […] – there is no difference between the deterrence signal sent by negligence and strict liability. (Under a strict liability rule, a manufacturer will not take precautions beyond ordinary care because the cheaper solution is to pay expected losses.) In practice, however, there are

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119 Why Tort Law Seems to Fail Sometimes, in: H Koziol/U Magnus (eds), Essays in Honour of Jaap Spier (2016) 145 ff. Cf also SR Göthel, Funktionen des Schmerzensgeldes. Gedanken am Beispiel des US-amerikanischen Rechts (2005) 69 RabelsZ 255, 295 ff. 120 North America no 11/18, cf also no 11/104 ff. 121 Sceptical however eg G Schwartz, Reality in the Economic Analysis of Tort Law. Does Tort Law Deter? 42 UCLA L Rev 393 ff (1994) (particularly also in respect of product liability); SD Sugarman, Doing Away with Personal Injury Law (1989) 3 ff; M Polinsky/S Shavell, The uneasy case for product liability, 123 Harv L Rev 1438 (2010).

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___reasons why strict liability might consistently generate more deterrence than ___negligence. For example, insofar as negligence law’s placement of the burden of ___proving carelessness on the plaintiff produces “false negatives”, a rule of strict ___liability may be preferable from a deterrence perspective.122 With a lessened abil___ity to fend off claims for product-related injuries, manufacturers should invest ___more in safety, other things being equal.’ ___ Firstly, it must be noted that this proceeds once again from an assumption 13/79 ___that does not tie in with everyday reality, namely ‘that manufacturers are ra___tional actors with perfect information’: entrepreneurs do not always act ration___ally either;123 above all however, they are not in possession of perfect informa___tion, as the risk of damage being caused and the amount of the compensation ___payable is hardly possible to assess; even if they know the insurance premiums ___for the risk they do not know whether the whole damage incurred will be cov___ered by the insurance. Further, if ‘negligence law’s placement of the burden ___of proving carelessness on the plaintiff produces “false negatives”’, the ade___quate reaction would be to shift the burden of proof124 but not to provide strict ___liability,125 because changing fault based liability into strict liability is going ___far beyond ironing out the difficulties of proving the prerequisites of fault ___based liability – a fundamentally different liability would be established and ___the defendant does not have even the chance to defend himself by proving ___that he has taken all reasonable, or even all possible, measures for avoiding ___harm. ___ Apart from this, I must point out that in the codifications it is regularly the 13/80 ___compensation function that is recorded, and also independently of this that in ___most legal systems – rightly in my view126 – compensation is seen as the primary ___and deterrence as merely the secondary task of the law of damages. Under civil ___law it is very important to avoid seeing the law of damages as a kind of melange ___in which the most various aims, all requiring extremely different conditions and ___ ___ ___122 See, eg, Geistfeld (fn 61) 23 f. 123 This is shown impressively eg by Volkswagen’s exhaust emission scandal. See on all that ___ BA Koch (fn 119) 146 with further references. ___124 In the discussions, the objection was made that ‘this ignores the difficulty of proving a ___negative’, but at the same time surprisingly providing for strict liability was advocated. Such a ___suggestion ignores the undeniable fact that under strict liability the defendant does not have ___even the chance to ward off liability by proving his correct behaviour, whereas under fault based liability with reversal of burden of proof, the defendant still has such a chance. ___ 125 There seems to be a tendency in the USA to put providing a shift of the burden of proof ___and providing for strict liability in the same category (see Geistfeld [fn 61] 20 ff); nevertheless ___the difference should not be neglected. ___126 See in more detail Koziol, Basic Questions I (fn 31) no 3/1 ff; id (fn 11).

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the most various legal consequences, are mixed with each other indistinguishably and thus, long overcome, archaic states reawakened. Further: The notion of deterrence alone is – similar to the notion of compensation – certainly not enough to justify the strict liability of the injuring party: it is still essential to give the reason why a particular behaviour should be prevented as of course not each and every behaviour which may cause harm must be avoided. As to our topic, it would remain forever mysterious why such stringent liability should be imposed specifically for damage caused by defective products but not in numerous other cases when damage caused by entrepreneurs other than manufacturers of goods, eg those providing services or erecting bridges and buildings, is at stake. Different liability rules for entrepreneurs and thus for similar cases without sufficient reasons seems to violate the principle of equal treatment.

8. Risk community The idea of a risk community has been addressed above (no 63 ff) in the context of enterprise liability, in which respect it plays a very important role as part of the rationale. This idea will be discussed here outside of the context of enterprise liability, in principle by looking at the other side; it is not those liable but the victims which are the starting point for the following considerations. In fact, these are just two different perspectives on the same idea. This is shown very clearly in the North American report.127 It discusses whether strict liability to customers or users injured by products could be justified by the notion that the customers or users are a community that collectively shares the benefits and costs of the manufacturer’s products. Correctly, the report points out that it is not clear whether recognition of such a community of interest supports an argument for strict liability, as opposed to negligence: ‘Indeed, one might argue that a rational consumer or user would want the manufacturer to take only those precautions against injury that are cost-efficient, and that it would be suboptimal, so far as each member of the community is concerned, to require the manufacturer to pay for losses resulting from the failure to take a precaution that cost more than the expected cost of the injuries prevented by the taking of that precaution. This is particularly so, one might argue, given the costs that are incurred in litigating tort claims, as compared with the costs of first-party insurance. Finally, as the question notes, this rationale

_____ 127 North America no 11/44.

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___would not explain why non-customers and non-users would be entitled to a rule ___of strict liability for injuries caused to them.’128 There is hardly anything to add ___to this, except perhaps the remark that the risk community idea cannot explain ___either why purchasers of goods should be treated any differently than purchas___ers of buildings or customers of service providers. ___ ___ ___9. Loss spreading ___ ___The idea of loss spreading was also addressed in the context of enterprise liabil- 13/84 ___ity129 and is, moreover, closely connected with the idea of the risk community, as ___it involves a distribution of the damage among all members of the risk com___munity. The North American report130 specifically addresses the aspect of loss ___spreading: ‘When a product causes an injury, the victim must at first bear all of ___the economic and noneconomic costs that attend the injury. However, tort li___ability can enable the victim to shift some or all of those costs to the manufac___turer. And strict liability, relative to negligence, shifts more costs. Moreover, ___when the claim is against large or well-insured manufacturers, liability not only ___shifts costs, it can spread them. If the manufacturer can simply increase the ___price of its products to reflect those costs then, in effect, it has acted like the vic___tim’s insurer, with all customers of the manufacturer bearing a tiny fraction of ___the victim’s loss in the form of slightly higher prices.’ The loss spreading ration___ale – it is pointed out – rests on the assumption that the manufacturer will be in ___a better position than individuals to insure against losses.131 The report further ___refers to a court decision emphasising that loss spreading would be the only ___policy consideration conceivably served by strict liability, but that factor alone ___could not justify imposing liability without fault.132 Furthermore, it must be ___pointed out once again that the loss spreading idea cannot explain either why ___purchasers of goods should be treated differently to purchasers of buildings or ___customers of service providers. ___ Having discussed these grounds, which – as shown – each for themselves 13/85 ___cannot justify strict product liability in its present form, we now turn to whether ___ ___128 The argument that they have a better claim to compensation since they suffer the costs ___but do not receive the benefits of the product, would not be very convincing: There is no gen___eral rule that every victim who suffers a loss without receiving benefits can claim compensation. ___ 129 See no 66 ff. ___130 North America nos 11/19, 11/112 ff. ___131 Geistfeld (fn 44) 297. ___132 North America no 11/113.

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an interplay of these grounds could support such liability. Moreover, a proposal for how producer’s liability could fit in with the overall system will be attempted.

VII. Proposal for a Solution and its Scope A. Proposal for Producer’s Liability that Fits in with the Overall System 1. Introduction Even an interplay of all the above-discussed possible grounds for liability cannot either justify the strict product liability under the Product Liability Directive for all goods in respect of customers and innocent bystanders alike or explain why precisely producers of goods in contrast to all other enterprises should be faced with such strict liability. The specific dangerousness of defects in products does not on average by any means meet the high degree of dangerousness that is otherwise predominantly required by legal systems before they impose strict liability based on dangerousness. Likewise, the idea of enterprise liability leads in the case of defects within the sphere of the enterprise or its products, as rightly pointed out, not to strict liability but merely to liability made more stringent by the reversal of the burden of proof for breaches of duties of care within the enterprise either by the entrepreneur personally or his auxiliaries. Finally, neither does liability based on principles of reliance provide a basis for strict non fault based liability. No persuasive grounds can be found for why innocent bystanders should be included in the circle of persons worthy of special protection: they do not belong to the risk community of the good producer’s customers nor can they be counted among the persons that relied in particular upon the producer in making their dispositions. Furthermore, this negative result is not balanced out by a especial worthiness for protection because the personal injuries primarily concerned are in any case widely covered by other liability rules, or at least by social security, so that strict liability by far most often only benefits the social security entities via their claims for recourse, though their especial worthiness of protection in this context is certainly rather dubious.

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___2. Dangerousness of industrial mass production ___ ___Nonetheless, in my opinion arguments can be found in favour of strict liability 13/87 ___for producers in one sub-category. When looking through the arguments made ___in the above discussion for strict producer’s liability, the most sustainable ___seemed to be that aspect referred to as the characteristic risk of the producers’ ___enterprise,133 which is not based on the dangerousness of the defective product ___but on the particular, not fully controllable dangerousness of industrial mass ___production. The risks inherent in technological production, which on the one ___hand manifest relatively frequently, and on the other hand do repeatedly lead to ___very serious damage, cannot be fully avoided either even if greatest care is exer___cised, thus corresponding most to those sources of danger that in many jurisdic___tions already are associated with non fault based liability. Very much in this ___sense, the report for North America134 explains: ‘Manufacturing defects were at ___the center of early strict products liability law, and today remain there. What___ever disputes continue to rage about the existence and desirability of strict li___ability for defective designs and failures to warn, strict liability for manufactur___ing defects remains uncontroversial. That manufacturing defects continue to ___arise even with massive technological change perhaps suggests that they are in___evitable features of mass production and, as such, their costs are appropriately ___born by manufacturers.’ ___ This perspective also corresponds to the original intention of the European 13/88 ___legislator, which then, however, without giving any rationale, deviated from ___this position. If one accepts this perspective, then non fault based liability ___would apply only to the production and inspection defects associated with the ___risks of industrial, technological production, ie the actual ‘runaways’, but not ___the – easily distinguishable – design and instruction defects as these usually ___derive from human conduct.135 ___ One difficulty might be that it seems hardly possible to define exactly what 13/89 ___industrial, technological production is and thus delineate the scope of the strict ___liability. However, it ought to be sufficient to establish that besides fault based ___liability and vicarious liability for auxiliaries, the entrepreneur is also strictly li___able for damage brought about by ‘runaways’. Such are defective goods that en___ ___ ___133 Brodie (fn 93) 7, 10, 27 ff; see above no 63 ff. 134 North America no 11/35. ___ 135 See on this Geistfeld (fn 44) 311 f. Very much along this line, W Posch in: Schwimann, ___ABGB Praxiskommentar VII (3rd edn 2005) Einleitung PHG no 37 writes that it would not have ___been necessary to depart from the liability rule based on the requirement of fault in respect of ___covering damage caused by design and instruction errors.

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tered the market although there was no human misconduct and despite no faults to be found in the organisation136 of the production and inspection, in other words because of the risk unavoidably associated with technological production methods. A recognised basic principle already supports the introduction of strict liability in cases of non-controllable risks, in this context associated with the technological production means; this is the principle of more stringent liability in case of particularly dangerous activities,137 ie the principle that it is more appropriate to impute the damage to someone whose interests are served by the special, permitted source of danger at issue. This is in line with the widespread conviction that in general those who derive the benefit should also bear the harm. If the risks of industrial production are taken as the basis, then it also seems fair not only to apply this liability to the producers of goods but also to entrepreneurs that render services via computer or other technical equipment (machines) in such a way that they are no longer controllable by people but instead could be said to replace such. It has often been advocated in recent times138 that entrepreneurs should also be subject to non fault based liability for disturbances of hardware and software when they use computers or robots. Nonetheless, at this point it should be mentioned that service contracts do not contain a promise of a result. Thus, a service is normally only defective when duties of conduct have been breached, which is why a strict liability independent of any misconduct does not come into question. For this reason, strict liability will only be possible within a very limited scope in respect of services.139

3. Supplementary liability An additional consideration also seems helpful when it comes to the arguments for non fault based liability: it can be observed that legal systems often impose liability on persons although the otherwise generally applicable grounds for liability are not fulfilled, but it is the case that these persons are more likely to be

_____ 136 On this problem area, see WH van Boom, Inherent Risk and Organisational Design in European Tort Law, Z Vgl RWiss 108 (2009) 118 ff. 137 Müller-Erzbach, AcP 106 (1910) 365 ff, 413 ff; Esser (fn 85) 97 ff; Oertel (fn 83) 284 ff; further the Comparative Conclusions of BA Koch/Koziol (fn 95) 412 with additional references; Koziol, Basic Questions I (fn 31) no 6/139 ff. 138 Koziol, Basic Questions I (fn 31) no 6/136 ff. 139 This aspect will be elaborated further under no 13/105 ff.

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___in a position to take recourse claims against others who ultimately will have to ___bear the burden.140 One very obvious example is presented by the EU Product ___Liability Directive of 1985: According to art 3, without prejudice to the liability of ___the producer, any importer shall be responsible as a producer and also each ___supplier of the product, where the producer cannot be identified, unless the ___supplier informs the injured person, within a reasonable time, of the identity of ___the producer. The idea behind this provision is that it is much easier for the im___porter or the supplier to identify the producer and that he is in a position to en___sure he knows the identity or at least to find it out; on the other hand, it will ___very often be more or less impossible for the buyer to find out the identity of the ___actual producer. Naturally, such quasi-producers have a right of recourse ___against the manufacturer. A similar example is set by Chinese law and Yang ___Lixin141 speaks of ‘joint liability with indemnity’: In order to protect the interest ___of victims of defective products they can claim compensation from both the ___manufacturer and the seller, even though they are not held responsible for the ___defect of the product and are not the final bearers of liability. The one who paid, ___but who is not responsible for the defect, has recourse against the other. ___ These examples show that a liability is thus established, which burdens the 13/93 ___party subject to it solely in that he must advance funds for the real offender and ___also bear the insolvency risk, although none – or nearly none – of the general ___requirements for establishing liability are met. Outside of the context of product ___liability too, we can find examples for this sort of liability, such as the liability of ___the principal for his auxiliaries in those legal systems in which the principle of ___‘respondeat superior’ applies: Liability is imposed upon the principal, although ___there are only relatively weak grounds for imputing the damage to him. A some___what old-fashioned example, which can be traced back to Roman law, is offered ___by § 1318 Austrian Civil Code which provides: ‘If a person is harmed by a dan___gerously suspended or positioned object falling down, or through something be___ing thrown or poured out of an apartment, the person out of whose apartment it ___was thrown or poured, or from which the object fell, is liable for the damage.’142 ___Zeiller143 explains this rule explicitly with the idea that the tenant has to take ___care to prevent such conduct and because the tenant is commonly in one or the ___ ___ ___140 See on this H Koziol, Concluding Remarks, in: H Koziol (ed), Comparative Stimulations for ___Developing Tort Law (2015) Topic IV C no 25 ff; idem, ‘Supplementary’ Liability, in: H Koziol/ U Magnus (eds), Essays in Honour of Jaap Spier (2016) 161 ff. ___ 141 Statement from an Asian Perspective no 12/11 ff. ___142 Translation by BC Steininger, Austria, in: Oliphant/BC Steininger (eds), European Tort ___Law: Basic Texts (2011) 5. ___143 Commentar über das allgemeine bürgerliche Gesetzbuch III/2 (1813) 747.

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other at fault, he is – even if in rare cases he is not careless – burdened with the compensation at least insofar as he has to find out the offender – which should be easier for him than for the victim – and claim against him for recourse. In all these cases, we can talk of ‘supplementary liability’. The subsidiary liability for suppliers and importers under product liability law thus seems to fit in well with the overall system. But in fact the idea of ‘supplementary liability’ can be taken even further, since in truth the producer must not ultimately bear the damage either. This is also touched on in the North American report:144 ‘If the manufacturer can simply increase the price of its products to reflect those costs then, in effect, he has acted like the victim’s insurer, with all customers of the manufacturer’. Therefore, one might say that the liability of the producer for damage caused by defective products de facto is simply an intermediary or supplementary liability: The producer can take the liability into account when calculating the prices and thus ultimately the purchasers of the goods will bear the expense of the compensation. Insofar, this idea corresponds to the risk community idea. However, it must also be remembered that producer’s liability is different from actual cases of supplementary liability where there is a claim for recourse insofar as he does not have any legal claim against a party that is ultimately responsible, rather he simply de facto is able to shift the costs of bearing the damage. How realistic this option really is, depends on economic conditions, in particular also the competitive situation on the market and it will not be realistic if his goods turn out to be frequently defective or cause more serious damage than those of his competitors. Therefore, in the case of producers as in the case of every other entrepreneur, it can merely be said that in principle and especially in the case of industrial mass production, there is this possibility of shifting the costs of bearing the damage – fully or partially – to the purchasers. This difference to real cases of supplementary liability is, however, not so substantial as it might at first seem: in the other cases too, the party, who at first is merely ‘formally’ liable, de facto bears the risk of asserting the claim, since he often cannot find or sue the party who ultimately ought to bear the damage and besides this, he in any case must always bear the risk of payment. Hence, the different cases are more similar than they might at first appear. The idea that the risk of liability can be largely shifted to others is thus a strong additional argument for the recognition of strict liability for the particular risks of production. Entrepreneurs who do not engage in the industrialised production of goods and services should be treated in accordance with the rules on enterprise liabil-

_____ 144 North America nos 11/16, 11/109 ff.

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___ity. Such liability should be – in my opinion – a liability for objective miscon___duct, in particular also of the employees, but it ought to be made stricter than ___general fault based liability by reversing the burden of proof in cases where ___there is some defect in the entrepreneur’s sphere. This idea complies with ___art 4:202 Principles of European Tort Law. ___ ___ ___4. Risk community ___ ___I also wish to add that the strict liability for producers and other equivalent entre- 13/97 ___preneurs for the industrial or technological production of goods or rendering of ___services should only apply in respect of the customers and the persons that be___long to the customers’ sphere, but not in respect of innocent bystanders. These do ___not belong to the risk community, which also – by paying the price – contributes ___to the bearing of the damage; furthermore, they do not make their dispositions in ___reliance on the goods being free from defects. Accordingly, the report on North ___America145 also states: The ‘principle holds that the costs of such accidents should ___not be concentrated on the particular person or persons who inflicted the injury. ___Instead, they should be borne by all those who systematically benefit from the ac___tivities that generated the risk of injury – among customers, employees, suppliers ___and shareholders of a business, for example.’ Innocent bystanders certainly do ___not belong to this group of persons (see below under no 114 ff). ___ ___ ___5. Summary ___ ___In sum, therefore, it can be said that there are sufficient grounds for imputation 13/98 ___to justify the strict liability of producers of industrially produced goods and ser___vices: the not fully controllable dangerousness of industrial mass production; ___the idea of ‘supplementary liability’; the idea of risk community and to some ex___tent – because of the proximity to contractual liability – also the principle of re___liance. ___ A limitation of this liability to producers of goods seems as unreasonable as 13/99 ___extending it to entrepreneurs who, for instance, only produce their goods by ___hand and not industrially. Neither can the solution proposed here for product ___liability justify liability to innocent bystanders. In the following, some special ___aspects of producer’s liability will be highlighted and discussed in more detail. ___ ___ ___145 North America no 11/38.

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B. Development Risks Defence Article 7 (e) of the EU Directive provides for exclusion of liability for the producer if he proves ‘that the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of the defect to be discovered.’146 The same is true under Israeli law:147 a manufacturer may invoke the defence that the state of scientific and technical knowledge at the time when the manufacturer put the product into circulation was not such as to enable the manufacturer to know that the product did not comply with reasonable level of safety. Article 41 of the Chinese Product Quality Law provides for a similar development defence if the defects cannot be discovered due to scientific and technological reasons at the time of putting the goods into circulation.148 Thus, the argument that producer’s liability for undiscoverable development risks would lead to an incalculable and almost uninsurable burden and therefore inhibit innovation prevailed.149 The European Report150 rightly points out ‘that this so-called “development risks defence” could well have prevented any claim by the Thalidomide children whose plight was so instrumental in bringing about the change in the law.’ Nevertheless, the defence seems to be reasonable as the development of new products, and in particular of new medicines, is in the interest of society and should not be prevented by incalculable and very often ruinous strict liability. Nonetheless it must be acknowledged that it does not seem fair that society as a whole enjoy the advantages of product development while a limited number of victims should bear the damage. These concerns are taken into account at least in relation to personal injury, which is always accorded particular weight, in those legal systems – especially European ones – with a good social security net: the victims receive extensive cover for their damage from the social security system, which in turn can take no recourse claim against the faultless producers so that ultimately the general public bears the expense of such damage. Since the damage involved is caused by activities that are in the interest of the general

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146 Member States were given the option of not including this defence, but only Finland and Luxembourg chose not to include the defence at all, while the defence is excluded in relation to human body products in France; see Europe nos 10/14 fn 6, 10/14 ff, 10/111 fn 87, 10/130 ff; further M Mildred, The development risk defence, in: D Fairgrieve (ed), Product Liability in Comparative Perspective (2005) 167 ff; Werro/Palmer/Hahn (fn 59) 441 f. 147 Cf Rest of the World nos 12/12 and 12/128 ff. 148 China no 2/18 ff; Asia and Russia no 9/13. 149 See on this also Schäfer/Ott (fn 27) 385 f; Werro/Palmer/Hahn (fn 59) 441 ff. 150 Europe no 10/14.

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___public, the victims’ compensation should be as full as possible, which means ___that improvement of the social security net in this respect seems worth recom___mending. Legal systems which allow the development risk defence without pro___viding for an adequate social security net, must at least confront the accusation ___that they follow the general interest at the expense of individuals and thus fail ___to observe the tenet of fairness.151 ___ ___ ___C. Liability of Sellers and Importers Besides the Producer ___ ___In the US, all sellers in the chain of distribution, thus also retailers, are subject 13/103 ___to the rules of product liability, but the non-negligent retailer who compensates ___the victim has a right of reimbursement against the manufacturer or intermedi___ate distributor.152 In this sense, Chinese law also provides that the retailer of a ___product is always liable in addition to the producer.153 According to art 3 of the ___EU Directive, without prejudice to the liability of the producer, any person who ___imports into the Community a product for sale or any form of distribution in the ___course of his business shall be deemed to be a producer and shall be responsi___ble as a producer. Further, where the producer of the product cannot be identi___fied, each supplier of the product shall be treated as its producer unless he in___forms the injured person, within a reasonable time, of the identity of the ___producer or of the person who supplied him with the product. Australian and ___Israeli law also follow the same line as the EU Directive.154 ___ It must be said that none of the accepted general requirements for establish- 13/104 ___ing strict liability are fulfilled regarding the persons who import or retail but do ___not manufacture products. Nevertheless, they are thought to be strictly liable; ___moreover such ‘quasi-producers’ have a right to recourse from the manufac___turer. As already elaborated above (no 92 f), the idea behind this provision is ___that it is much easier for the importer or the supplier to identify the producer, ___that due to his position, he should know the identity or at least be able to find it ___out; on the other hand, it will very often be quite impossible for the buyer to ___find out the identity of the producer. Therefore, the legislator provides for the ___liability of importers and sellers, though they are not burdened with final liabil___ity but only with formal or supplementary liability as they have a recourse claim ___against the producer. Nonetheless, one has to take into account that the import___ ___ 151 Cf North America no 11/112 (Canada). ___152 Dobbs/Hayden/Bublick (fn 6) § 477. ___153 China nos 2/3 ff and 2/10. ___154 Rest of the World nos 12/5 (Australia) and 12/15 (Israel).

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ers or sellers not only have to advance funds for the real, responsible producer but also have to bear the insolvency risk. Therefore, such supplementary liability is still a serious burden which is independent of fault on the side of the importer or seller. Therefore, it seems questionable whether such liability is reasonable, though on the other hand one can argue that the risk of the producer being insolvent or out of reach is more likely under the control of or known to the importer or seller than the buyer since the former can make sure of these aspects before concluding the contract with the producer. In this sense, a supplementary liability of importers and suppliers seems to be justified in order to ensure the enforceability of the victim’s claims.

D. Services The EU Directive155 – as already pointed out156 – only covers the purchase of goods but not the provision of services.157 As already addressed in the introductory lecture,158 in the discussion about injury by blood contaminated with disease159 and in the case of a defective building plan being drawn up by an architect,160 the EU Product Liability Directive leads to considerable contradictions within the legal system as the Directive was neither based on a well-thought out and recognised overall concept for producer liability nor on any theory-based, understandable justification: If, on the one hand, the Directive covers all defective goods, then the question is how it can be justified that industrial mass produced products are treated the same as those produced by craftsmen, landlords, farmers and artists.161 If, on the other hand, only goods – ie tangible movables – are covered, and this regardless of whether the defect derives from construction, design or instruction, then this leads inevitably to a conflict in value judge-

_____ 155 Likewise Japanese law, see Japan no 3/50 (the reporter is not persuaded by the rationale); Chinese law, see China no 2/115 f (the reporter sees persuasive grounds for the different treatment of purchasing and service contracts) and the US legal systems, see North America no 11/113 ff. For Australian law the distinction is seen as questionable, see Rest of the World no 12/262. Solely under Taiwanese law (art 7 Consumer Protection Law) are operators providing services put under the same regime as operators manufacturing goods; see Taiwan no 8/24 ff. 156 See already above no 38 f. 157 On possible approaches to strict liability in the case of service provision contracts in England, see Europe no 10/157. 158 No 1/20 f. 159 See on this Case 2. 160 See on this Case 3. 161 See on this above already nos 38 f and 58 ff.

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___ments if those entrepreneurs who offer services or who design or build im___movables, eg skyscrapers or bridges, are not burdened by strict liability. On the ___one hand, the rule seems to go too far, and on the other, not far enough. The same ___can be said in all the other jurisdictions that were ‘infected’ by the unripe concept ___underlying the EU Directive, or independently of this have similar rules. ___ However, a consistent overall system can only be achieved if the mate- 13/106 ___rial ground for introducing strict liability is seen as being the risks posed by in___dustrial, technological production and this line of thinking is followed not by ___limiting the scope to goods but also extending it to performance other than ___goods:162 ___ Firstly, non fault based liability of producers must be limited to defective 13/107 ___goods that are brought into circulation despite production being duly and prop___erly organised and despite due and proper inspection, ie to cases where damage ___is caused by ‘runaways’; however, this liability does not cover defective design ___or insufficient instructions. The strict liability is thus to be limited to damage ___caused by goods that are defective due to the typical, uncontrollable special ___risks of industrial, technological production having manifested. ___ Secondly, it would seem logical also to extend non fault based liability to 13/108 ___other entrepreneurs who render work or services in an industrial-technological ___manner – ie in particular by using machines, robots or computers, but are not ___involved in the manufacture of tangible things.163 Nonetheless, a very significant ___difference between purchasing and work contracts, on the one hand, and ser___vice contracts, on the other, must be observed here: in the case of the former, ___the debtor of the performance promises to render a certain result, specifically ___the delivery or production of a thing with certain features. If the deliverable ___does not match the explicit agreement or the legitimate expectations – in par___ticular safety expectations – of the purchaser, then the performance is objec___tively defective. Service contracts, on the other hand, are typically not aimed at ___a result but simply contain an obligation to make efforts; thus, it is not possible ___to assess objective defectiveness by whether a certain result was attained or not. ___The service is thus only defective usually when the duties of conduct are not ob___served;164 this means that almost always only misconduct can be taken as a ___ ___162 See on this no 58 ff. ___163 Taiwanese law excludes medical services from the strict liability regime, see Taiwan ___no 8/62. South African law provides for equal treatment of purchasing and service contracts, see Rest of the World no 12/18. B Gilcher, Produkthaftung für Dienstleistungen (1994) advocates ___ a general conformity of product liability for goods and services. ___164 See on this, eg F Bydlinski, Zur Haftung der Dienstleistungsberufe in Österreich und nach ___dem EG-Richtlinienvorschlag, JBl 1992, 347 f, 354 f; Werro/Palmer/Hahn (fn 59) 446 ff; C Wende___horst, Das Vertragsrecht der Dienstleistungen im deutschen und künftigen europäischen Recht,

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premise, so that strict liability independent of misconduct165 does not come into question.166 Nonetheless, it must also be remembered that service contracts can also contain promises of a certain result to a certain extent, by setting out certain actions that will be taken.167 For instance, if a medical examination of a patient or a financial audit of an enterprise is promised, then although no specific result of such investigation has been promised, at least there is a promise to carry out the necessary examinations, so that as far as this goes it can be said that a result has been promised. Moreover, ancillary obligations can also be result-based, the obligation to carry out a medical examination also involves the duty to make a record and the obligation to perform a surgical procedure involves the duty to ventilate or arrange a blood transfusion. Thus, if the ventilation machine fails, strict liability would be possible if it failed despite due and proper maintenance, operation and checks. In all of these cases, there are promises of certain results alongside the obligation to make certain efforts, which constitutes the service provision, and thus in principle strict liability could be applied. Nonetheless, it must be borne in mind that, according to the views endorsed here, such liability only comes into question when the risks that manifest are those that correspond to those of industrial mass production when it comes to goods. For example, we could say that an architect’s contract for the drawing up of plans168 is definitely based on a promise of a result.169 In order to justify non fault based liability though, the failure to produce the result must derive from precisely these afore-mentioned risks of industrial-technological mass production. This, however, is not usually the case with an architect’s contract since the defectiveness originates from the individual, cognitive work of the architect and therefore cannot be assessed as the consequence of an inevitable ‘runaway’. This makes it clear that in the context of service contracts, it is important to first filter out the elements that are based on promises of results since only these can justify liability independent of any misconduct. Subsequently, however, it must also be examined whether the

_____ AcP 206 (2006) 205 ff, 231; K Tillmanns, Strukturfragen des Dienstvertrages (2007); E Karner/ H Koziol, Zur Anwendbarkeit des UN-Kaufrechts bei Werk- und Dienstleistungen (2015) nos 59 ff, 65 ff. 165 This applies even if the fault is also understood as objective. 166 This is why the Proposal for a Council Directive on the liability of suppliers of services (1990) OJ C 12/8 18.1.1991, 11 proceeds on the basis of liability based on fault coupled with a rebuttal burden of proof; cf Werro/Palmer/Hahn (fn 59) 445. 167 See W Schrammel, „Gewährleistung“ für schlechte Dienste? in: C Fischer-Czermak/ A Kletečka/M Schauer/W Zankl (eds), Festschrift für Rudolf Welser (2004) 985 f, 987 ff. 168 These facts were the basis for the third constellation of cases. 169 Cf only Austrian Supreme Court (OGH) 6.3.2001, 10 Ob 31/00g with additional references.

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___defective performance derives from a danger that can be equated to a risk of in___dustrial mass production. ___ The scope of strict liability for service will thus not be very big. Moreover, it 13/110 ___will be further limited in that very often only pure economic interests are dam___aged and, according to the principles of product liability, pure economic inter___ests do not enjoy the same extensive protection from strict liability which the ___high-ranking interests in bodily integrity and property are granted. Services are ___ultimately often rendered directly by the service-provider to the client without ___the involvement of any interim parties – who would correspond to the distribu___tors of goods – so that the client in any case has contractual claims, which are ___often more favourable to the client than extra-contractual claims.170 In those le___gal systems that provide for non fault based contractual liability, therefore, any ___strict extra-contractual liability on the part of the service provider is not impor___tant in respect of personal injuries and property damage, except insofar as it ___cannot be waived. In the other legal systems, on the other hand, the strict pro___ducer’s liability would certainly have considerable practical significance along___side fault based contractual liability, insofar as it could be asserted parallel to or ___instead of contractual liability.171 ___ With regard to damage to innocent bystanders, however, the introduction of 13/111 ___strict liability for service providers would not change anything, since according ___to the view represented here, these persons could not rely on such liability of ___the entrepreneurs: neither are they connected to the producer by a chain of con___tracts nor have they placed any special reliance in the goods or services being ___free from defects.172 Innocent bystanders would therefore have to continue rely___ing on the general extra-contractual compensation claims whether or not there ___was strict liability for services. ___ In sum, therefore, product liability that completely excludes liability for 13/112 ___services from its scope does not seem either appropriate or logical. Nonetheless, ___it must be remembered that service contracts do not normally contain a promise ___of a result and defectiveness is frequently not traceable to the risks of industrial, ___technological mass production, which is why, in a practical sense, such liability ___for service providers will seldom apply. ___ ___ ___170 This is emphasised by the Chinese report, see China no 2/115. ___171 It would be necessary to examine how far, in accordance with the rule in art 9 of the EU Directive under which damage to the deliverable itself cannot be claimed for under the product ___ liability rules, the liability of the service provider would also have to be limited, eg in the case ___of damage to or loss of the thing to be transported. ___172 On the problem with including innocent bystanders in product liability see nos 86 ff and ___114 ff.

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E. Immovables In many legal systems, non fault based producer’s liability is limited to damage brought about by defective goods, ie tangible, movable things.173 In general, however, it can be assumed that the property law qualification of something being purchased as either movable or immovable can have no significance for the liability rules of the law of damages, since this does not correlate with any imputation criteria. Sample Case 3 of our project, which concerns defective bridges, clearly shows up the inappropriateness of having different liability according to whether the thing at issue is movable or immovable, with the contrast between a prefabricated bridge that constitutes a movable mounted on the street and a bridge constructed on site. While product liability would apply to the former, the latter is excluded from its scope. Therefore, producer’s liability should not be fundamentally limited to movables. Nonetheless, strict producer’s liability will in fact also be fairly insignificant in practice when it comes to immovables. Firstly, there is usually no interim trader in the chain between the producer of the works and the buyer, meaning that the buyer who suffers damage will in any case have contractual compensation claims, and thus – as with services – have no need to resort to extra-contractual claims which most often are no more favourable. Secondly, there will be fewer cases of ‘runaways’ and thus fewer defects that are brought about by the uncontrollable risks of industrial, technological production; mostly, as in Case 3, cases will concern planning defects.174 In the case of prefabricated houses or windmills, that are sold via a dealer after being erected, producer’s liability could, however, certainly play a relevant role, since in this context such ‘runaway’ damage due to industrial mass production is certainly conceivable.

_____ 173 See China no 2/107 ff; art 2 EU Directive; however, under Taiwanese law movable and immovable merchandises are treated as equivalent (Taiwan no 8/85 ff) and in the Netherlands for example there is a largely similar rule for defective immovables, see Europe no 10/282. The situation is the other way around in Chile, where there is no strict liability for the producer of movable goods but there is non fault based liability for damage caused by defective immovables, see Rest of the World no 12/195 ff. 174 However, just because planning defects are the most common, this does not mean that more stringent liability for manufacturing and inspection errors should be fundamentally excluded; cf nonetheless China no 2/112.

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___F. Innocent Bystander ___ ___In most legal systems,175 the so-called innocent bystander176 is also covered by 13/114 ___strict, non fault based product liability. Nevertheless, it is obvious that none of ___the arguments which play a role in relation to strict product liability also sup___port including innocent bystanders in the circle of protected persons: they do ___not belong to the risk community formed by the customers of the producer; they ___do not make any contribution to cover the costs of the liability and neither do ___they in any special way rely on the producer; according to widespread opinion, ___product liability law aims at the protection of the consumers (see no 74 ff), but ___the bystander is not the consumer, eg in respect of the car that runs over him. ___Further, even if accepting that the risks inherent in industrial mass production ___endanger also innocent bystanders, one has to take into account that this factor ___in itself is not sufficient to establish strict liability even to the purchaser and – ___according to the general rules on strict liability under nearly all legal systems – ___all the less to anybody else. The inclusion of innocent bystanders in the circle of ___protected persons thus constitutes a clear break with the system, which should ___be remedied.177 ___ Geistfeld178 shrewdly works out why bystanders have to be distinguished 13/115 ___from consumers: ‘Unlike other tort doctrines, product liability involves a con___fluence of the implied warranty and general negligence principles. Each pro___vides a sufficient justification for strict products liability, with the implied war___ranty yielding the consumer expectations test for liability, and negligence prin___ciples yielding the risk-utility test. As applied to the consumer, these two ___doctrines are substantively equivalent: The ordinary consumer reasonably ex___pects the amount of product safety that maximizes consumer welfare, and that ___amount of safety is required by the risk-utility test. The product transaction does ___not create any safety expectations for those who are complete strangers to the ___transacting parties. The implied warranty no longer applies, and the liability ___rule does not have to protect the reasonable safety expectations of the ordinary ___consumer. The distinctive feature of products liability is missing in cases involv___ing bystanders, making it necessary to protect bystanders with a general rule of ___ ___ ___175 In Taiwan, see no 8/26, there is still discussion among scholars as to whether or not it is ___proper to impose strict liability for injuries caused to non-consumer third parties. 176 This term only refers to those persons who do not belong to the sphere of the purchaser, ___ eg family members, guests and employees; see below. ___177 See already nos 86 ff and 111; but I also have to draw attention to the extremely sceptical ___remarks of WH van Boom, Statement from a Continental European Perspective no 16/39 f. ___178 Geistfeld (fn 61) 258.

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tort law, rather than any rule specific to products liability.’ Therefore, Geistfeld rightly complains about treating the bystander similarly to the consumer. Having in mind these arguments, it is rather astonishing that courts and also academics179 do not recommend restricting the producers’ liability vis-à-vis innocent bystanders but expanding it. The Supreme Court of California argues:180 ‘Consumers and users, at least, have the opportunity to inspect for defects and to limit their purchases to articles manufactured by reputable manufacturers and sold by reputable retailers, whereas the bystander ordinarily has no such opportunities. In short, the bystander is in greater need of protection from defective products which are dangerous, and if any distinction should be made between bystanders and users, it should be made, contrary to the position of defendants, to extend greater liability in favor of the bystanders.’ Undoubtedly, something can be said for that, but I do not think it is ultimately convincing. First of all, as a rule liability to the partner in a relationship is stricter as compared with liability to others outside this relationship; this is shown by a comparison of contractual and tortious liability. In addition: not each and every purchaser or user enjoys better information and thus has the opportunity to protect himself. Therefore, I doubt whether a general rule that bystanders deserve more intensive protection than purchasers is reasonable. Naturally, I do not deny that sometimes a purchaser deserves less protection as he can be accused of contributory negligence or of acting on his own risk, but such defence will be available solely in single cases. Further, as Geistfeld points out, since the distinctive feature of products liability is missing in cases involving bystanders, they have to be protected with a general rule of tort law, rather than any rule specific to products liability. In general – and this is in particular true for common law – no one is strictly liable to anyone, not even every entrepreneur; one must also bear in mind that strict liability does not always step in in case of evidentiary difficulties. Therefore, one must ask: on the basis of which general rule of tort law is just the producer of movables strictly liable just to the innocent bystander? One gets the impression that by including the innocent bystander into the special protection, strict product liability is misused to weed out some shortcomings of the US legal system, such as the absence of general rules on strict liability for dangerous activities or things,181 maybe also of sufficient social security systems. Even if deterrence is considered to be the primary aim of product liability, the reference to this aim is not sufficient to explain why innocent bystanders are

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179 See to this North America no 11/64; Geistfeld (fn 61) 257 f. 180 Elmore v American Motors Corp, 451 P 2d 84, 89 (Cal 1969). 181 Cf Geistfeld (fn 44) 318.

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___also covered by strict liability: As not each and every person who causes dam___age and not even every entrepreneur is strictly liable but only the producer of ___movables, what sufficient reason can be given that he of all persons is burdened ___with strict liability in regard of each and every person? Is it not also astonishing ___that under common law the keeper of a car is not strictly liable if damage is ___caused to ‘bystanders’, whereas the producer of a car, a bicycle or even of a ___pedal car for children is liable to such persons without fault? Further, why does ___the producer’s strict liability to the purchaser not provide sufficient deterrence? ___ Furthermore, it must be taken into consideration that in such cases in 13/120 ___which there is an abstract dangerousness emanating from the product, most le___gal systems outside common law already apply non fault based liability based ___on dangerousness anyway. This applies in particular to motor vehicles. Finally, ___all countries with a good social security net offer far-reaching protection when it ___comes to personal injuries, so that the need for protection in this sense is sub___stantially reduced. In the context of personal injuries, the current inclusion of ___innocent bystanders within the framework of product liability thus leads to a ___largely redundant and costly accumulation of numerous systems for protection. ___ However, it could be argued that the special protection under the law of dam- 13/121 ___ages not only applies to the buyer himself but also to such persons as belong to his ___sphere, in particular members of his family. This would address those persons to ___whom the buyer has special protection duties. In this respect, an analogy could be ___drawn to the doctrine developed in the German legal family regarding contracts ___with protective effects towards third parties.182 Insofar, the producer’s liability ___would not be limited to the individual who bought his products, which would of___ten lead to inappropriate results, but also include persons close to him who also ___came into contact with the product in a foreseeable manner, so that they could as___sert claims based on strict product liability. Innocent bystanders, who as unin___volved third parties cannot be counted as belonging to any sphere, would, how___ever, still be excluded from the scope of product liability. ___ ___ ___VIII. Summary ___ ___The general strict liability for damage caused by defective goods which is so of- 13/122 ___ten imposed upon producers does not fit at all harmoniously into a consistent ___overall system; as a result, it does not comply with the fundamental principle of ___equal treatment and thus with justice. On the one hand, it goes much too far be___cause this strict liability can only be justified insofar as it hinges on the typical ___ ___182 On the contract with protective effects towards third parties, see above no 50.

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risks associated with industrial mass production. On the other hand, the strict liability is too narrow since the risks associated with industrial mass production are not confined to the production of goods but can also arise with the production of immovables and the performance of services and thus would also justify strict liability in these contexts. The strict liability of the distributor who cannot identify the producer and also of the importer is a supplementary liability, which can be justified by the fact that the liable party has recourse claims against the party ultimately responsible, ie the producer, and thus the former only bear the risks of enforceability of the victim’s claims. Strict liability of entrepreneurs towards innocent bystanders cannot be explained, it stands in conflict with the general rules.

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___Yang Lixin* ___ ___ ___Yang Lixin Statement from an Asian Perspective https://doi.org/10.1515/9783110547559-016 ___Contents I. Legislation for No-fault Liability Applied to Product Liability | 554 ___ II. Proposal for a Solution and its Scope | 555 ___ III. The Harmonization Between the Development Risks ___ Defence and Post-sale Duties | 556 ___ IV. Whether Immovable Property can be Considered a Product | 557 ___ V. Whether Product Liability Applies to the Harm Caused ___ by Service | 558 ___ VI. Further Study Desirable on the Position and Function of ___ Punitive Damages in Product Liability | 558 ___ ___ ___ ___Product Liability: Comparative Conclusion written by Professor Koziol, Chairman 14/1 ___of the World Tort Law Society, draws conclusions from the reports of all juris___dictions contributed at the first WTLS Conference in 2013 (Harbin, China). It ___provides a global vision that helps to review product liability laws from the per___spective of comparative law, highlights the problem associated with applying ___fault-based liability in product liability, the adverse consequences caused by ___overly strict liability for manufacturers and the consistency between strict prod___uct liability and the overall system of tort liability law, and explores the under___lying reasons for imposing much stricter liability in respect of manufacturing of ___goods. It proposes methods and scope for solving these problems and finishes ___with a concise conclusion of these issues. We are delighted to see that this ex___cellent report on product liability from the perspective of comparative law is ___supported by abundant evidence with precise, rigorous and logical argumenta___tion and clear, specific conclusions. Given the development trends in product liability law in Mainland China 14/2 ___ ___and other jurisdictions in Asia, I would like to add the following comments for ___further consideration. ___ ___ ___ ___ ___ ___* This report was originally written in Chinese, and translated into English by Prof Wang Zhu ___and Prof Dong Chunhua.

Statement from an Asian Perspective

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I. Legislation for No-fault Liability Applied to Product Liability In terms of product liability, most jurisdictions in Asia apply no-fault liability, or strict liability. Since Professor Koziol’s report focuses more on the comparison between the legislations of Europe and North America, and mentions less about Asian countries, I think it is necessary to make some additional comments. In Mainland China, strict product liability was established in the 1987 General Principles of Civil Law, with art 122 stating: If a substandard product causes property damage or personal injury to another, the manufacturer and seller shall bear civil liability according to the law. If the transporter or storekeeper is responsible for the matter, the manufacturer or seller shall have the right to claim for compensation for its loss. Article 122 establishes strict liability that is applicable in product liability cases. The 1993 Product Quality Law further clarifies this rule, and Chapter V of the 2009 Tort Liability Law is Products Liability. In Taiwan, the strict liability rule applied in product liability cases and established by art 7 of the Consumer Protection Law is in conflict with art 191-1 of the Civil Code which prescribes that the principle of presumptive fault applies. In practice, the ‘Consumer Protection Law shall enjoy priority’, which means strict liability is the applicable rule.1 In Macao, the 1999 Commercial Code of Macao is the result of research findings of Portuguese law studies, which adopted a theory of product liability as a kind of risk liability. In other words, product liability means risk bearing, requiring the manufacturer to take up strict liability for risk in their products that cause harm. The idea is that this will motivate them to develop the safest products, so that the harm caused to consumers by defective products can be minimized.2 Part X of the 1999 Malaysia Consumer Protection Law establishes strict liability for product liability. This is a major development, making it consistent with the international trend in product liability law.3 The 1994 Japanese Product Liability Law singled out product liability from the general fault liability. A special law was designed for product liability because it was believed that it was inappropriate to apply liability based on negli-

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1 See Taiwan no 8/19. 2 See Macao no 5/2. 3 See Malaysia no 6/8.

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___gence in cases where harm was caused by defective products, and strict liability ___should apply instead.4 ___ The 2001 South Korea Product Liability Law establishes the principle of 14/9 ___strict liability, or liability based on danger. It has changed the practice of apply___ing the general principles of tort liability to address liability for harm caused by ___defective products.5 ___ ___ ___II. Proposal for a Solution and its Scope ___ ___In the section ‘Supplementary Liability’ in ‘Proposal for a solution and its 14/10 ___scope’,6 it is considered that legal systems often impose liability on persons ___when the otherwise generally applicable grounds for liability are not fulfilled, ___but it is the case that these persons are more likely to be in a position to assert ___recourse claims against others who ultimately will have to bear the burden. ___ Such liability is called joint liability (with indemnity) in Chinese law. In or- 14/11 ___der to protect the interest of victims of defective products, product liability law ___in Mainland China emphasizes such liability, so that victims can obtain com___pensation through various means. First, it is established that both the manufac___turer and the seller are each liable for the harm, so the victim can choose to ___claim compensation from either, and neither can evade such liability. To be ___specific, art 43 of the Tort Liability Law states: ‘If a product defect causes harm, ___the victim may claim compensation from the product manufacturer, and may ___claim compensation from the seller.’ ‘If a product defect is caused by a manu___facturer, after the seller pays compensation [to the victim], it has the right to ___claim indemnity from the manufacturer.’ ‘If a seller’s fault causes a product de___fect, after the manufacturer pays compensation [to the victim], it has the right to ___claim indemnity from the seller.’ Secondly, it also prescribes that the victim can ___claim indemnity directly from the manufacturer or the seller even though they ___are not held responsible for the defect of the product and are not the final bear___ers of liability since a third party is ultimately liable. The third party may, for in___stance, be a transporter or warehouseman. This principle is clearly stated in ___art 44 of the Tort Liability Law: ‘If a transporter, warehouseman, or other third ___party's fault causes a product defect, [which] causes harm to another, after the ___product manufacturer or seller pays compensation [to the victim], it has the ___right to claim indemnity from the third party.’ ___ ___4 See Japan no 3/11. ___5 See Korea no 4/1. ___6 Comparative Conclusions no 13/92.

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The product liability law of South Korea stipulates that the manufacturer shall compensate for harm caused by defective products. If the manufacturer of a defective product cannot be identified, the distributor shall be liable for any damage the defective product causes, unless the distributor informs the victim of the identity of the manufacturer or the supplier within a reasonable period of time.7

III. The Harmonization Between the Development Risks Defence and Post-sale Duties Part VII.B of ‘Product Liability: Comparative Conclusions’8 discusses the development risks defence. It is emphasised that the development risks defence helps the development of products that may bring more benefits to society, and it is necessary to harmonize the development risks defence with a legal system which provides adequate social security. The report also mentioned art 41 of the Chinese Product Quality Law, which provides a defence similar to the development risks defence. What I want to add is that in Mainland China, although art 41 of the Product Quality Law provides a development risks defence to exempt the manufacturer or the seller from liability, art 46 of the Tort Liability Law also addresses cases in which a defective product protected by the development risks defence causes harm because the manufacturer or seller has failed to fullfil its post-sale duties. Such provision dovetails well with the development risks defence and serves to protect the interests of the consumers. Article 46 of the Tort Liability Law states: ‘If a defect is discovered after the product is put in circulation, the manufacturer and seller should take timely measures to warn, recall or take other remedial measures. [The manufacturer or the seller] who fails to take timely or adequate remedial measures, [and] causes harm, shall bear tort liability.’ However, the above-mentioned stipulations in Mainland China are not perfect in that: First, there is a gap in coverage despite the post-sale duties. If product risks are undiscoverable because of the state of scientific and technical knowledge at the time, presumably they will not become known until the product causes harm. Yet those who are initially harmed by such products would not be successful in a suit against the manufacturer either for a defective product, because

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7 See Korea no 4/17. 8 No 13/100 ff.

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___of the development risks defence, or in respect of the post-sale duties, because ___the defect had not been discovered by the time they were injured and therefore ___no post-sale duties had yet attached. ___ Second, so far, Mainland China has not established an adequate social 14/17 ___security system, in particular, a social security system that indemnifies the ___victims of the harm caused by products covered by the development risks ___defence. Given the situation described above, such social security system is ___severely defective, because in cases that damage caused by the product before ___it is determined to be defective or while it is not yet subject to post-sale du___ties where the development risk defence is applied, the victim can not claim ___based on liability due to post-sale duties, nor can he/she be indemnified by the ___social security system, ie it is clear that he/she cannot obtain any compensa___tion. ___ ___ ___ IV. Whether Immovable Property can be ___ Considered a Product ___ ___ ___In Asian countries, almost all jurisdictions define product as movable property, 14/18 ___and different solutions have been designed for the harm caused by the immov___able property. For example, art 86 of the Chinese Tort Liability Law states: ‘If a ___building, construction or any other facilities collapses, [and] causes harm to an___other, the builder and the constructor shall bear joint and several liability. After ___the builder or constructor compensates [the victim], if there is any other liable ___persons, [the builder or constructor] has the right to claim indemnity from the ___other liable person.’ ‘If for the reason of any other liable persons, a building, ___construction or any other facilities collapses, [and] causes harm to another, the ___other liable person shall bear tort liability.’ It is clear that in Mainland China ___product liability does not apply to harm caused by immovable properties, and ___immovable property does not fall within the scope of product. ___ However, there is also an exception. In Taiwan, the legislature has catego- 14/19 ___rized immovable property as products. In other words, the concept of product ___includes not only movable properties, but also immovable properties, making ___strict liability applicable. Article 4 of the Taiwanese Implementation Rules ___of Consumer Protection Law provides that the term commodity includes im___movable and movable properties which are the object of a transaction, to be ___specific, the final product, semi-finished product, raw material and com___ponents. The reason why immovable property is considered a product is that ___there were many sea sand houses and radiation houses in Taiwan at that

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time.9 However, according to Professor Jung-Lung Chen from Fu Jen Catholic University at the first conference of WTLS, it was also felt inappropriate to apply product liability law in the cases where harm was caused by immovable properties.

V. Whether Product Liability Applies to the Harm Caused by Service In the Part entitled ‘Proposal for a Solution and Its Scope’, Professor Koziol particularly emphasizes in his report the question of whether services should be considered subject to product liability. He points out that if there is a promise in the form of contractual clauses that lead to a certain consequence, then in principle, strict liability is applicable. At the same time, Professor Koziol also argues that strict liability can only be considered in cases where the risk that materialised is the same as the risk that might be incurred in the product produced in the generally accepted production scale. I agree with him. In Taiwan, the Consumer Protection Law regulates service liability. The business operator who provides services shall guarantee the services provided to meet the expected security level facilitated by the state of scientific and technical knowledge at the time. If the business operator fails to do so and harm is suffered by the consumer or a third party, then the business operator shall bear joint and several liability regardless of the types of the service he/she provides. In these cases, strict liability shall apply, except in the case of medical services.10

VI. Further Study Desirable on the Position and Function of Punitive Damages in Product Liability It seems that ‘Proposal for a Solution and its Scope’ in Professor Koziol’s report neglects the position and function of punitive damages in product liability. Although the product liability laws of most continental countries do not adopt the

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9 See Taiwan no 8/110. 10 See Taiwan no 8/112.

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___principle of punitive damages, not only the product liability laws of Anglo___American legal systems but also those of Mainland China and Taiwan that adopt ___continental systems have admitted that punitive damages have played a bigger ___and more important role in the remedy for harm caused by defective products. ___Therefore, additional emphasis should be given to this part. ___ Article 47 of the Chinese Tort Liability Law states: ‘Despite knowledge that a 14/23 ___product is defective, [the manufacturer or the seller] still manufactures or sells ___[the product], [and] causes death or serious harm to the health of another, the ___victim has the right to claim corresponding punitive damages.’ This provision ___does not regulate how to determine the amount of punitive damages. Para___graph 2 of art 55 of the 2013 Consumer Protection Law further states, ‘Where ___business operators knowingly provide consumers with defective commodities or ___services, causing death or serious damage to the health of consumers or other ___victims, the victims shall have the right to require business operators to com___pensate them for losses in accordance with arts 49 and 51 of this Law and other ___provisions of laws, and have the right to claim punitive compensation of no ___more than twice of the amount of losses incurred.’ Paragraph 2 of art 148 of the ___2015 Food Security Law states, ‘Where manufacturer or seller produces or sells ___food that does not meet the food security standard, the consumer can claim ___from the manufacturer or seller compensation of the amount ten times of the ___price of the product or three times of the loss in addition to the compensation to ___the loss; where the additional compensation is less than RMB 1000, it shall be ___counted as RMB 1000, except if the defect is caused by labels or a directions ___booklet that does not affect the safety of the food or mislead the consumer.’ In ___practice, these provisions which are of great value have played a remarkable ___role in the protection of legitimate interests of consumers. ___ Article 51 of the Taiwan Consumer Protection Law provides that where the 14/24 ___harm is caused by the intent of the business operator, the consumer can claim ___punitive damages in an amount no more than three times the loss; where the ___harm is caused by negligence, the consumer can claim punitive damages in an ___amount no more than one time of the loss. This provision is of a great value and ___remarkable significance in Taiwan. ___ ___ ___ ___ ___ ___ ___ ___

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___Ken Oliphant* ___ ___ ___ ___ ___Ken Oliphant Statement from a European Common Law Perspective https://doi.org/10.1515/9783110547559-017 ___Contents I. The Nature of Product Liability (Is it really a ‘strict’ liability?) | 562 ___ II. Justifications for a Special Product Liability Regime | 566 ___ III. Koziol’s Further Thoughts | 570 ___ ___ ___ ___In this statement, I shall try to draw some links between the ideas and sugges- 15/1 ___tions that Helmut Koziol first set out in his inspiring Introductory Lecture on the ___occasion of the Society’s inaugural meeting,1 and further elaborated and devel___oped in his Comparative Conclusions in this volume,2 as well as linking them to ___the lively and extremely interesting discussion of the hypothetical cases in the ___panel sessions of the inaugural meeting. I want in particular to address two is___sues: first, the nature of the liability owed under the special regimes dealing ___with what we refer to as ‘product liability’ (to what extent is this truly a strict li___ability rather than one which rests ultimately on notions of fault?); secondly, ___what is the justification for adopting a special, stricter liability in respect of the ___harm caused by defective products, as compared with the liability applying ___generally in tort law? The latter question was highlighted by Helmut Koziol in ___his remarks,3 and my analysis will refer to the possible justifications discussed ___by him there and in the questionnaire that was distributed in advance of the ___conference to all participants.4 My own presentation seeks to reflect, in particu___lar, the perspectives of Society members from Europe, but no doubt betrays my ___common law background. ___ ___ ___ ___ ___* This paper combines the author’s two statements at each of the two WTLS conferences on ___product liability, with certain revisions. The conversational style has been maintained. The au___thor thanks David Messner and Kathrin Karner-Strobach for their help in the preparation of this paper for publication. ___ 1 Introductory Lecture no 1/6 ff. ___2 Comparative Conclusions, no 13/22 ff. ___3 Comparative Conclusions, no 13/32 ff. ___4 It is included at the beginning of this volume.

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I. The Nature of Product Liability (Is it really a ‘strict’ liability?) In inquiring, first, into the nature of product liability, the main question to answer is whether this is really – as it is very commonly suggested – a strict liability (meaning: a liability independent of fault). Indeed, even an ‘extremely stringent’ liability, as Helmut Koziol put it.5 Some have disputed this characterisation. Bruce Feldthusen, for example, said in his presentation that the liability ‘collapses into negligence’ and is ‘largely identical’ with liability for fault; JeanSébastien Borghetti said that product liability is ‘more or less the same’ as liability for fault.6 One obvious, but rather banal, point is that the producer is not liable for harm caused by all its products but only those of a particular kind – namely, products that are defective. This may be conceded without precluding one from continuing to argue that the liability in respect of defective products is nevertheless strict. However, it then remains to find some justification for applying the special rules on product liability only to defective products and not to ‘ordinary’ products which, for whatever reason, cause harm. That is one aspect of the question of justification that I shall address in the second half of my contribution. But it remains to demonstrate that product liability – construed as liability for defective products – really does have a strict or at least stricter character than the ordinary liability for fault recognised in all legal systems. A conceptual framework for analysis of the question is provided by the now-classic distinction between three types of defect: manufacturing (or non-standard) defects, design defects and marketing (or informational) defects. To see how these three categories are understood in the various legal systems represented in our proceedings here, I proposed three hypothetical cases for discussion which raised distinct issues relating to each of the three categories of defect.7 Case 1 concerned a design defect: bicycle brake pads were constructed using a new material that the manufacturer, X Ltd, believed on the basis of its testing to be a cheaper, longer lasting and generally more effective alternative to traditional materials; however, X Ltd was aware of a very small risk that – given a combination of particular circumstances (temperature, surface water, oil, etc) – the new brake-pad material might suddenly be rendered ineffective; X Ltd nev-

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5 Introductiory Lecture no 1/22. 6 Proceedings of the World Tort Law Society (14 September 2013); see also Europe no 10/111. 7 They are included at the beginning of this volume.

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___ertheless decided to use the new material because it considered that the risk of ___brake failure was likely to eventuate only very rarely and did not outweigh the ___general advantages of the new material; the facts suggest that X Ltd considered ___it sufficient to include a warning about the possibility of brake failure in the ___product instructions supplied with its bicycles. Whether that warning was suffi___cient introduces the distinct category of marketing or informational defects. ___ The remaining category of defect – manufacturing or non-standard defects – 15/6 ___was the focus of Case 2. In fact, in this particular instance, ‘non-standard defect’ ___is the preferable term, because the product in question (blood supplied for ___transfusion) is not really ‘manufactured’ at all, but only collected from a donor. ___In the hypothetical case – which closely matches real cases that have come be___fore the courts in England8 and the Netherlands,9 and perhaps elsewhere – the ___blood is defective (as most reporters seemed inclined to agree)10 because it con___tains the (fictitious) Hepatitis N virus. This is a non-standard defect because the ___standard product that is intended for use in transfusion is not infected by the vi___rus. Case 2 raises the further issue of the well-known development risk defence, ___which – if broadly construed – has the capacity to dilute significantly the strict___ness of the prima facie liability for product defects. The issue arises on the facts ___of Case 2 because, at the time of the supply,11 the very existence of Hepatitis N ___was denied by the scientific community generally and even those few scientists ___who accepted it existed would probably have been unable to test for its pres___ence in specific quantities of blood, only a handful of research laboratories in ___the world having the technology to conduct such tests. ___ ___ 8 A v National Blood Authority [2001] 3 All ER 289. ___ 9 District Court of Amsterdam, 3 February 1999, NJ 1999, 621 (Scholten v Sanquin Bloed___voorziening). ___10 See Asia and Russia no 9/68 f; Europe no 10/133 f; North America no 11/90 ff; Rest of the ___World no 12/124 f. But note the special rules adopted in some jurisdictions whereby blood is not ___considered a product for the purposes of the law of product liability: see North America ___no 11/68 (Restatement of Torts (Third): Products Liability § 19(c) (1998): ‘Human blood and human tissue, even when provided commercially, are not subject to the rules of this Restate___ ment’). In fact, 49 US states have enacted ‘blood shield’ laws that immunise blood providers ___from strict liability or breach of warranty actions for injuries caused by contaminated blood ___products: North America no 11/86. It seems to accepted generally in Europe that blood can be a ___product under the Product Liability Directive (Directive EEC/85/374): Europe no 10/123. Which ___approach will be followed in Australia, Chile, Israel and South Africa is yet to be determined: Rest of the World no 12/171 ff, but it may be noted in Israel that blood products are not supplied ___ commercially and the state supplier consequently cannot be liable under the Defective Prod___ucts Liability Act: no 12/119. ___11 Ie the (presumably commercial) supply by Y Ltd, which had collected the blood from ___donor Z.

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Let us now consider how these issues were addressed in the report submitted from Europe on the hypothetical cases, with one or two nods to how they were addressed elsewhere. So as to highlight specific points, I shall focus for now on the questions of non-standard product defects and defects of design, addressing the development risks defence only briefly, and passing over the question of informational defects without further comment.

A. Non-Standard Product Defects First, as regards non-standard products, there is a large measure of consensus that a danger arising only in specific products, in consequence of some deficiency of the production process, constitutes a product defect.12 The infected blood in Case 2 is thus defective and triggers the application of strict liability (as noted above). In Europe, this results from the application of the test of legitimate expectations which is prescribed by the Product Liability Directive (PLD): ‘A product is defective when it does not provide the safety which a person is entitled to expect ….’13 Similar tests apply in Australia, Israel and South Africa.14 This differs from the ‘consumer expectations’ test that has generated controversy in other parts of the world in two respects: first, it refers to the expectations of persons generally, and thus includes the expectations of producers and fair-minded observers as well as those of consumers; secondly, it is a test of legitimate or reasonable expectations (what a person is entitled to expect) rather than actual expectations (which may be unreasonably inflated). There is perhaps some residual doubt whether, in an appropriate case, the risk of product variation might be so well known that it is regarded as generally accepted, with the consequence that the unsafe non-standard product passes the legitimate expectations test and is not regarded as defective. Some legal systems in Europe definitively preclude any analysis along those lines by stating that a danger present in particular non-standard products necessarily constitutes a defect.15

_____ 12 Asia and Russia no 9/12; Europe nos 10/125 ff, 10/133 f; Rest of the World no 12/121 ff. But Ronen Perry notes (Rest of the World no 12/121) that ‘it is doubtful whether a consumer can expect a product to be free from unknown or undetectable risks’. 13 Art 6(1) PLD. 14 Rest of the World nos 12/3ff, 12/121 ff. In South Africa, ‘defect’ is only one of five triggers for the statutory strict liability regime: ibid, no 12/16 ff. Unlike the other jurisdictions covered by the Rest of the World submission, Chile does not have a specific product liability regime: no 12/6 ff. 15 Europe no 10/130, referring to legislation in Italy and Spain.

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___ Does this approach to non-standard defects differ in substance from the ap- 15/9 ___plication of the test of fault applied in general tort law? It is sometimes said that ___the presence of a non-standard defect in a product in any case creates a strong ___presumption that there must have been fault in the production process, and one ___may concede that, where liability arises under the special product liability re___gime, it would very likely arise concurrently on the basis of producer fault. But ___this will not invariably be the case. Case 2 in fact illustrates a situation where ___there appears to be no fault on the part of the producer – whose product is so___cially beneficial and presents only a statistically small risk that cannot practi___cally be eliminated – and yet it appears that liability would probably arise on ___the basis of the defect.16 ___ ___ ___B. Design Defects ___ ___Turning now to the question of design defects, it is widely accepted (though 15/10 ___perhaps not universally)17 that the test under the Directive collapses here into a ___risk-utility comparison. In Case 1 (the bicycle accident case), it would therefore ___be for the court to decide whether the advantages of using the new material for ___the brake pad outweighed the additional risks thereby posed. Though ulti___mately the question is one for the court to resolve, there was a strong feeling in ___the European submission that the court would in practice come down in favour ___of the injured accident victims.18 ___ Again, one might ask whether the risk-utility test applied here is materially 15/11 ___different from that applied in inquiring into fault in general tort law. Where the ___risks are known, it appears there is no such difference: a product is defective if ___its risks outweigh its utility, and supplying such a product knowing those risks ___also amounts to fault. But, and it is a large ‘but’, there is a difference in the ap___plication of the two tests where the product risk is not known and is not rea___sonably discoverable, or where it is reasonably underestimated. In such a case, ___the production and supply of the product may not be culpable but the product ___may still be regarded as defective – at least, if one assesses the risk with the ___benefit of hindsight, looking at what is known now rather than what was known ___at the time. Not all jurisdictions accept that hindsight may be taken into account ___– I gather, for example, that this may be problematic in the USA.19 But extending ___ ___ 16 Assuming there is no other obstacle to the imposition of liability (eg a blood shield law). ___17 Cf Europe no 10/111. ___18 Europe nos 10/91 ff, 103 ff. See also North America no 11/54 f; Rest of the World no 12/97 ff. ___19 North America no 11/56.

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the producer’s liability to such a case has two significant advantages. First, it avoids the need for any invidious distinction between the initial victims of a defective product, before its risks were reasonably known, and subsequent victims, in respect of whom the producer ought to have been aware of the risk and to have guarded against it. Secondly, it avoids the need for costly litigation about the precise date at which the producer ought to be regarded as ‘on notice’ of the risk in question. I therefore incline to the view that there may be a significant difference in the risk-utility test as applied to the question of defect and the risk-utility test applied to the question of producer fault. The former establishes a materially stricter liability than the latter – provided that hindsight is taken into account.20 To what extent that strict liability is then diluted by the application of the development risk defence (where recognised) is a large topic that I do not dare to address here, but suffice to say that – at least in Europe – the defence is construed rather narrowly, and is precluded even where (as in Case 1) the risk is recognised by only a very small section of the scientific community – and even if it cannot realistically be eliminated.21 In Israel and Australia, according to the written reports submitted, the legislative wording is nearly identical, but the defence seems to be construed more broadly, and hence to apply in Case 1.

II. Justifications for a Special Product Liability Regime My analysis to this point has demonstrated, I hope, that the liability imposed in respect of product defects is materially stricter than that arising in general tort law in respect of fault. My focus now turns to the question whether a stricter liability of this nature is justified. In his typically thoughtful and challenging opening remarks, Helmut Koziol surveyed a number of possible justifications for strict product liability and pointed out that these are open to criticism in that they prove either too little or too much.22 On the one hand, they fail to account for all the circumstances in

_____ 20 See further Abouzaid v Mothercare (UK) Ltd, The Times, 20 February 2001 (English Court of Appeal), discussed in A Mullis/K Oliphant, Torts (4th edn 2011) 194. 21 ECJ C-300/95, Commission v United Kingdom [1997] ECR I-2649; Europe no 10/144 ff. 22 Introductory Lecture no 1/19 ff. See also Comparative Conclusions no 13/54 ff, listing, among others, the following possible justifications for strict product liability: (a) control of a dangerous thing; (b) protection against the risks inherent in industrial production; (c) enter-

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___which strict product liability is in fact applied. On the other hand, they justify ___the imposition of a liability that is not restricted to defective products but ex___tends more broadly – for example, to defective buildings and defective services. ___The hypothetical cases that Society members were asked to discuss were de___signed to highlight some of these issues of justification. ___i) A first possible justification is that a defective product constitutes a danger- 15/15 ___ ous thing over which the producer has sufficient control to warrant the im___ position of strict liability. As Koziol points out in his opening lecture, this ___ does not account for the application of strict liability to product defects pre___ senting no greater danger than minor cuts or grazes or an upset stomach ___ – which fall far short of the exceptional or very serious risks to which strict ___ liability is normally applied. Case 1 raises the additional issue that strict ___ product liability applies to products that are not themselves the source of ___ risk, but only a means of controlling risks generated by other products – as ___ was the case with the bicycle brake pad used as the example. As the various ___ reports make clear, no legal systems excludes strict product liability from ___ products of that nature, which perhaps casts further doubt on control over ___ dangerous things as a rationale for the special liability. ___ii) A second possible justification is the perceived need to provide protection 15/16 ___ against the risks inherent in industrial production. Again, the hypothetical ___ cases sought to probe test the sufficiency of the argument. In Case 2, the ___ product in question was blood infected by the Hepatitis N virus, which was ___ supplied by Donor Z to Y Ltd, which supplied it in turn to Hospital X, which ___ used it for Patient A. It cannot be said in such circumstances that the origi___ nal risk arose from any industrial process at all; on the contrary, it was ___ naturally occurring. Yet most legal systems – at least in Europe – would see ___ this as a fit case for product liability.23 As the same also applies to artisanal ___ and agricultural products, it seems clear that the proposed justification ___ cannot provide a complete justification for strict product liability of such ___ scope as is presently recognised. Further, to the extent that the argument ___ rests on the risk of anomalies inherent in industrial production, liability ___ would be limited to manufacturing defects only – which again contradicts ___ the generally accepted view. ___iii) A third theory to consider is enterprise liability: the idea that an enterprise 15/17 ___ that profits from an activity involving risk to others, and is well-placed to ___ distribute the loss through insurance or product pricing, should bear the ___ ___prise liability; (d) a risk community. I shall not address all the possible justifications here, but ___only those that seem most important. ___23 See fn 10 above.

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burden rather than taking the benefit alone. The theory does not fit well with the potential imposition of liability on those engaged in not-for-profit activities, which may include the hospital in Case 2, and possibly the bloodsupply agency Y, at least insofar as European legal systems are concerned. Under the EU Directive, it is a defence that the product was not supplied in the course of business, but business is construed broadly to cover the delivery of public services.24 iv) The theory of a risk community has been proposed as an alternative justification for strict product liability, treating producer and consumer as part of one economic system in which the purchase price charged by the former may be seen as incorporating a heightened degree of protection of the latter from risk. But this cannot justify the strict liability owed Patient A in Case 2, at least if A gets the blood transfusion for free, and neither can it justify the strict liability owed in Case 1 to the injured passer-by, B. None of the mooted theories therefore seems to warrant a strict liability of the scope implemented in current product liability laws, at least in Europe, and seemingly also in many other countries. At the same time, the third and fourth considerations mentioned would point to the recognition of a corresponding strict liability for defective services where performed for commercial gain, but Case 3 (bridge collapse) demonstrates very clearly that no such liability arises in most countries; the services provider’s liability – except where contractually guaranteed – is fault-based. Indeed, a proposed EU Directive seeking to impose strict liability on service providers was ultimately rejected. Case 3 also raises the question of liability for defective building works, which attracts strict liability in some legal systems, but falls outside the scope of the Product Liability Directive and requires the proof of fault elsewhere. What this demonstrates, I think, is that there is no single, coherent theory that underpins strict product liability as it is today to be found around the globe. The four theories I have examined are all significantly under-inclusive in that they cannot explain the full range of existing applications of existing regimes. However, a further possibility has been suggested by Helmut Koziol, who tentatively suggested in his opening lecture that a better justification for strict product liability may lie in the consumer’s reliance upon reasonable expectations of safety generated by the marketing of the product.25 This idea seems to me to have much to commend it.

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24 ECJ C-203/99, Veedfald v Århus Amtskommune [2001] ECR I-3569; Europe no 10/138 ff. 25 See Koziol, no 1/24, discussing the German concept of Vertrauenshaftung (liability based on principles of reliance), though noting that in current German law this is a fault-based liability.

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___ In my view, product liability is a sui generis liability that falls between tradi___tional liabilities in contract and tort, and embodies something (but not every___thing) of the reliance-based justifications that are typical of consumer law. The ___liability resembles contractual liability in that the producer is held to owe an ob___ligation amounting to a guarantee of safety – contracts of guarantee being ___known in all jurisdictions, I think. But it departs from traditional contractual li___ability in extending to third parties who are not linked to the producer even by a ___chain of contracts. Devices such as collateral warranties, network contracts and ___contracts for the benefit of third parties alleviate this problem to some extent, ___but they too have their limits. In any case, it is important to recognise that ___product liability is independent of the existence of any breach of contract at all. ___For example, if I pay you to construct an unsafe item according to my own de___sign, your compliance with your contractual obligation to me is no defence in a ___claim brought against you by an injured third party. ___ Conversely, product liability shares the generality of scope of ordinary li___ability in tort – there are no ‘privity’ limitations – but differs from the latter in ___the standard of liability applied – specifically, in recognising liability independ___ent of fault. ___ Product liability further resembles certain consumer laws, insofar as it re___quires businesses to guarantee the quality (or, more specifically, the safety) of ___the product they put into circulation, but the protection of these guarantees is ___not limited to consumers as such but extends to all persons injured because the ___product is defective.26 ___ The protection of this broader class of persons may, I think, plausibly be ___justified by the idea that ordinary people have a reasonable expectation that ___goods sold on the market or otherwise put into circulation are free from safety ___defects, and rely upon that expectation in their daily affairs. Admittedly, this is ___not the ‘specific reliance’ that is normally required to imposed liability based on ___misrepresentation or assumption of responsibility, but rather what may be ___termed ‘general reliance’. It is the same idea that underpins much consumer ___law, and justifies the application of the strict warranties of quality and safety ___typical of the consumer law field. ___ This account provides a justification for many otherwise hard-to-justify as___pects of product liability law – for example, strict liability for design defects or ___naturally occurring risks (eg in blood or agricultural produce). However, it fails ___to account for the continued application of fault-based liability in other areas ___where one might equally argue that ordinary people rely upon a general expec___ ___26 And their remedy extends to compensation for their losses, not merely recovery of the pur___chase price, as under classical consumer law.

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tation of safety – for example, the provision of services. To interject a controversial note: it may well be that the ‘defect’ here – meaning, the defect in the law – is not one internal to product liability law, but rather the failure to extend the same strict liability across to other areas to which the underlying justification applies in equal measure.

III. Koziol’s Further Thoughts Subsequent to the presentation of his ideas in the opening lecture of the Society’s first meeting (2013), Helmut Koziol presented a fresh perspective on product liability law in his concluding remarks at the Society’s second meeting (2015), producing a bold and strikingly original proposal to reshape the contours of product liability law in dramatic fashion. Naturally, his new analysis is based on a detailed consideration of the justifications that have been posited for it. As one expects from such a master of comparative law, it reflects a profound knowledge of the literature. His conclusions flow apparently inexorably from his premises on the basis of carefully developed argumentation. And yet, I am not sure that his analysis is wholly convincing, or that his prescription will appeal broadly to the legal community in Europe, or in the rest of the world, for reasons I wish to explore in this Statement. Let us first recap some key elements of Koziol’s analysis: No single justification can be provided for strict product liability. The oftcited policies of deterrence and loss distribution, in particular, must be rejected. However, a justification for strict product liability can be found in the idea of the risks inherent in industrial mass production, combined with considerations of risk community and reliance. Yet this interplay of factors is only sufficient to justify a strict liability for defective products that is narrower than that commonly found in legal systems around the world today. Only manufacturing defects, and not design defects, are typical risks of industrial mass production, so only the former should attract strict liability. A further implication of the justification being framed in terms of risks of industrial mass production is that artisanal (and other non-industrial) products should also be excluded from strict liability. Lastly, the protective scope of strict liability should extend only to members of the risk community as only such persons contribute to its costs: producer and consumer are treated as part of one economic system in which the purchase price charged by the former may be seen as incorporating a heightened degree of protection of the latter from risk. Liability should thus be limited to consumers (and possibly members of their family sphere) and should not extend to third parties (bystanders).

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___ This narrow view of strict product liability is underpinned by an express ___concern that, too widely construed, strict liability potentially leads to economic ___ruin: ‘Not infrequently … extensive, unexpected payments for damage must ul___timately be borne by the enterprise, leading to economic ruin as such damage is ___not or at least not fully covered by insurance.’27 ___ Despite the rigour and the elegance with which Koziol develops his argu___ment, I believe that it can be challenged at a number of distinct stages. ___ First, though I agree with Koziol that no single consideration on its own can ___justify strict product liability, and that its justification must therefore rest on the ___combined weight of a number of factors, I feel that he is too quick to reject the ___twin policies of deterrence and loss distribution. ___ It is perfectly possible to see deterrence (prevention) as providing some jus___tification for strict product liability, even if it cannot provide its exclusive justi___fication. Though fault liability also deters, the advantage of strict liability is that ___it impacts on activity levels, and not just levels of care. It must be acknowl___edged, however, that the law’s pursuit of deterrence as a policy must be limited ___by side constraints such as (corrective or distributive) justice. That tort law has a ___deterrent function is very widely (though not unanimously) accepted in Europe, ___in China (and other Asian countries) and indeed across the globe. ___ Loss distribution is another factor which I feel provides a partial, though ___certainly not complete, justification for strict product liability. It is to be distin___guished from the crude loss-shifting that Koziol rightly decries as no more than ___the search for a convenient deep pocket. Loss distribution entails not just, as a ___first step, the shifting of the loss from the injured person to the producer, but ___also, as a second step, the spreading of that loss among an appropriate class of ___others, typically through insurance and consequential product pricing ad___justments. In this context, Koziol very properly notes the role played in some ___countries by the social security system as an alternative mechanism of loss dis___tribution. However, only liability law can effect both loss distribution and deter___rence, and these are for me the general justificatory aims that thus underpin ___strict product liability. ___ (I note in passing that these aims no doubt justify strict liability in other ar___eas too – for today I am content to argue that strict product liability is one area ___in which strict liability can be justified.) ___ Second, Koziol’s own preferred justification for strict product liability ___– based on the risks inherent in industrial mass production – is not entirely un___problematic either, at least to a lawyer trained in the common law world. ___ ___ ___27 Comparative Conclusions no 13/68.

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Koziol’s reasoning seems to be that such risks are analogous to those which justify strict liability for dangerous things generally – at least in Germanic legal systems. In the Common Law (at least, in the UK and Commonwealth) there is no such liability and its justification is far from self-evident. Many medical procedures are highly dangerous, and yet (almost) no one calls for strict liability for the doctor performing them. Something more than dangerousness is required. For me, following George Fletcher28 and others, it is the non-reciprocal nature of the danger that justifies strict liability in this context. The risk flows one way. The producer imposes risks on the consumer and the potential by-blow victim, but is not at risk from them. Strict product liability thus has a stronger justification than, for example, strict liability for motor vehicle accidents. Another relevant consideration, which Koziol also highlights, is that the producer derives utility from the activity that gives rise to the risk. This is a plank of the theory of enterprise liability as it is understood in the Common Law (though not perhaps as it is understood in Germanic legal systems). Third, Koziol’s view of what constitutes a typical risk inherent in industrial mass production strikes me as overly narrow, and hence to overly restrict the scope of the liability he proposes. He sees only the risk of manufacturing defects (‘runaways’), and not design (or instruction) defects, to be characteristic of industrial mass production. However, it seems to me that industrial mass production, far from increasing the risk of manufacturing defects, serves to decrease that risk –and the latter therefore cannot be seen as ‘typical’ or ‘characteristic’ thereof. Further, strict product liability limited to manufacturing defects would have very limited practical utility as it is precisely in such cases that a breach of the required standard of care in production can most easily be established; fault-based liability is thus an adequate legal response to this problem (except perhaps in the US, where the vagaries of the jury system may call this into question). Conversely, it is in fact design defects which may be regarded as typical risks of industrial mass production: with modern production methods, a defectively designed product has the capacity to injure thousands, even hundreds of thousands, perhaps millions, and to do so on a global scale. That was the very real impetus for strict product liability, as witnessed by the decisive role played at least in Europe by the public outcry at the fate of the victims of Thalidomide (Contergan). Fourth, a further consequence of Koziol’s focus on risk inherent in industrial mass production is that it leads him to exclude strict liability for the makers of artisanal and other non-mass-industrial products. This again seems to me to be

_____ 28 G Fletcher, Fairness and Utility in Tort Theory, 85 Harv L Rev 537 (1972).

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___questionable. Though it was mass produced products (notably Thalidomide, ___also known as Contergan) that highlighted the issue in the public domain, the ___general justifying aims of strict product liability (deterrence and loss distribu___tion) and the considerations of distributive justice that warrant its imposition ___(non-reciprocal risk creation for private utility) apply also to artisanal produc___ers. Further, to restrict strict product liability to industrial mass producers con___fers a competitive market advantage on the artisanal sector. This may or may ___not be desirable in itself. I express no opinion. But whether it is or not is a mat___ter of broad social policy, not private law. ___ Fifth, the question of who should benefit from the regime of strict product 15/38 ___liability. Koziol would limit its protective effects to consumers (and perhaps ___others in their sphere, eg family members), excluding liability to third parties ___(‘bystanders’). He justifies this restriction with reference to the idea of a risk ___community. Only those who contribute to the pool from which damages are ___paid should benefit. It is somewhat mysterious why the idea of a risk commu___nity should play this restricting role. After all the typical risks of mass industrial ___production are not only risks to the consumer but also risks to third parties. If ___anything, the idea of the risk community seems to point the other way: those ___who choose to purchase the product have at least the notional possibility to pro___tect themselves (by contract with the seller or a collateral warranty), but those ___exposed to risk without any prior choice of this nature have no independent re___course. They are the ones who stand in greatest need of protection. The general ___justifying aims of the liability (deterrence and loss distribution) favour their pro___tection, and not the protection only of members of the risk community. ___ I would thus defend a broader conception of strict product liability than 15/39 ___that which Helmut Koziol finds justified. I do not believe that it has had or will ___have the ruinous consequences that he fears. In my opinion, such fears – ___though often expressed – are not backed up by hard facts and are greatly exag___gerated. However, I have no hesitation in admitting that Koziol has presented a ___strikingly original, tightly argued and boldly provocative thesis on the occasion ___of the World Tort Law Society’s first meeting in Europe, and even those such as ___myself who resist some of the implications of his argument can see that he had ___significantly enriched the debate on the future of product liability through his ___comparatively informed and innovative contribution. ___ ___ ___ ___ ___ ___NEUE SEITE QQQ

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Willem H van Boom

Statement from a Continental European Perspective Willem H van Boom Statement from a Continental European Perspective https://doi.org/10.1515/9783110547559-018

Contents I. Introduction | 574 II. Issues to Consider | 575 III. Search for Justification and Coherence | 583

I. Introduction This contribution offers some brief reflections on the thought-provoking chapter ‘Comparative Conclusions’ by Helmut Koziol. The author does two things in his contribution. First, he more or less argues that theories of law and economics are of no use to the legal analysis of tort law. Since I am not a law and economics scholar, I feel no need to defend the economic analysis of law (assuming I were able to do so) but I do want to share my impression that law and economics is not always adequately represented in the comparative conclusions. More to the point, however, is that it seems that some of the concepts and arguments used by Koziol are completely in line with mainstream positive economic analysis. Indeed, he uses concepts such as internalisation of externalities, loss spreading arguments,1 and behavioural consequences of under-deterrence and over-deterrence in ways similar to law and economics literature. For instance, Koziol acknowledges that product liability may have unwholesome effects on corporate behaviour, eg over-deterrence and under-deterrence, where the former may stifle innovation and the latter may decrease product quality.2 This is not to say that Koziol is a law and economics scholar in disguise. What it does mean, however, is that we need to focus on the substance of his narrative rather than the appearance. The second and main issue that Koziol addresses concerns the ‘ideal product liability regime’. He underlines the need for a coherent and balanced system of product liability and attempts to develop a logical rationale for the introduction of strict liability, on the basis of which he then distinguishes the types of cases which should fall inside the scope of product liability from those which should not. Particular emphasis is also on the position of ‘innocent bystanders’

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1 Comparative Conclusions nos 13/30 and 13/66. 2 Comparative Conclusions no 13/27 ff. https://doi.org/10.1515/9783110547559-018

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___in relation to the ‘risk community’ of manufacturer and (indirect) buyers. More___over, Koziol explicitly asks whether certain services should not be included in ___the ideal regime for product liability. ___ My contribution mainly focusses on the second issue raised by Koziol, con- 16/3 ___cerning his ideas on a coherent and balanced system of product liability. First, I ___present an outline of the general issues that have to be considered when ad___dressing the objectives and functions of product liability (section II). Then I ___summarize Koziol’s position and review his attempt at developing foundations ___for a coherent and balanced system of product liability (section III). For the fact ___that my reflections are at times sketchy and sometimes outright Eurocentric, I ___apologise in advance. Before I turn to the heart of the matter, let me state one ___limitation of the scope of this chapter. As I see it, the emphasis in the compara___tive conclusions is mostly on ‘consumer damage’ (ie, death, personal injury and ___property damage suffered by natural persons not acting in a professional or ___business capacity).3 Business to business damage is hardly discussed. ___ ___ ___ II. Issues to Consider ___ ___ ___A. Objectives and Functions of Product Liability ___ ___When the judiciary or the legislature introduce rules on product liability, they do so 16/4 ___with one or more particular fairness objectives in mind. Whether a highest court ___decides to beef up the general duty of care standard of tort law when manufactured ___products are involved or the legislature decides to introduce a dedicated victim___friendly regime for particular products, there is always a fairness objective at play. ___The objective may be to remedy the low probability of success for deserving claim___ants under the pre-existing fault-based liability regime. Or it may be to eliminate or ___reduce obstacles to proving what happened and why it happened or to restore ___some imbalance between end user and manufacturer or simply to intervene after a ___particularly salient incident failed to be resolved fairly. The bottom line is that the ___introduction of legal rules, however open-textured, vague or strict, marks the aspi___ration of the rule-maker to reach certain fairness objectives in society. ___ ___ 3 See also the definition of ‘damage’ under art 9 of the European Product Liability Directive ___ (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, ___amended by Directive 1999/34/EC of the European Parliament and of the Council of 10 May ___1999, [1985] OJ L 210/29).

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Such fairness objectives of a particular product liability regime may be analysed by positive (descriptive) analysis and by normative (prescriptive) analysis. A positive analysis merely asks: • what are the chosen policy objectives of the rules or regime introduced • what legal instruments (tools such as remedies) does it use to reach these objectives, and • how effective are these legal instruments in achieving these objectives and at what cost? If not, are there alternative instruments available which are more cost-effective? The first question concerning the chosen objectives seems simple enough: one ‘merely’ needs to assess what the institution introducing the new rule or regime had in mind. Yet, in reality several complications may arise. What if the legislature did not spell out the overriding objectives of the regime introduced? What if the objectives are literally spelled out and seem to point in one direction but all the other evidence (eg, the instruments chosen to attain the objective) points in another direction? And what if the objectives are ambiguous, contradictory or irreconcilable? In such cases, a legal scholar could truthfully report that the stated objectives are obscure or unintelligible and conclude that a next step is in order. This next step may be the construction of a hypothetical scenario: what if the objectives were so and so? When looking more closely at the possible objectives of a product liability regime, there are roughly two opposing views: • liability as an instrument for prevention of injury by defective products • liability as an instrument of compensation, that aims at offering pecuniary redress to victims for suffering injury from defective products These two positions will be referred to as prevention vs compensation. Obviously, these concepts need further specification. For instance, what does prevention in the particular context actually entail? Does the objective of prevention have a specific scope or does it also aim at general deterrence? Does it mean to completely eradicate all accidents involving (defective) products or to optimise the number of accidents involving products (that is to say: by minimising the avoidable and societally unacceptable accidents at acceptable costs to society)? The latter approach chimes well with those who see a liability system as a ‘tax’ forcing tortfeasors to internalize the ‘negative externalities’ of putting defective products on the market. And what instruments are used to achieve this objective of prevention: ex ante monitoring and injunctions, ex post punitive damages? Mere optimisation may imply the use of monetary incentives for manufacturers to internalize negative externalities

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___whereas the objective of complete eradication may imply the use of harsher ___sanctions. ___ In Europe, I think that in the eyes of legislative policymakers and courts the 16/9 ___main objective of product liability is compensation. Indeed, there is a culture of ___reliance on state-run public authorities supervising markets and a culture of us___ing both criminal and administrative law sanctions for steering corporate be___haviour, regulating product quality and warranting consumer product safety. ___This goes a long way in explaining the fundamental difference between the ___European Union and the USA as far as the role of product liability is concerned. ___Product liability in Europe is in many ways a far less important instrument for ___attaining prevention objectives than it seems to be in the USA.4 ___ There are multiple factors that explain these differences.5 In some cases, the 16/10 ___financial rewards for lodging a product liability claim – if and when awarded or ___settled – seem to be much larger in the USA given the possibility of punitive ___damages. These are awards not for compensatory purposes but purely for deter___rence purposes. In Europe, ‘punitive damages’ as a concept is virtually non___existent. Instead, in European legal thinking the deterrence function of ‘puni___tive damages’ is usually considered to be part of criminal and administrative ___law sanctions (eg, fines and incarceration). Furthermore, the role product liabil___ity actually plays in compensating victims depends greatly on the national con___text in which the liability regime operates. In some countries, public health in___surance schemes and social security may be more important sources of ___‘compensation’ than is liability law. Contextual factors such as thresholds for ___access to justice (eg, availability of mass litigation instruments, court fees, con___tingency funding of claims) also influence the relevance of liability as a com___pensation system. For instance, the existence of a class action procedure allows ___the amalgamation of product liability claims and offers victims of defective ___products increased leverage to vindicate their rights. Also, a factor that may ___well explain a lower frequency of product liability cases in Europe is the exis___tence of social security arrangements fulfilling the basic financial needs of vic___tims of defective products. Obviously, the extent of these arrangements varies ___from Member State to Member State but on average there is some form of ‘safety ___net’ for the unemployed, the injured and incapacitated. For example: most ___European countries have a more or less comprehensive state-run medical care ___ ___ 4 Cf M Polinsky/S Shavell, The Uneasy Case for Product Liability (2010) 123 Harv L Rev ___ 1437 ff. ___5 Among the many differences are the absence of juries in (most) European civil court li___tigation and – in some countries – the prohibition of contingency fee remuneration for solici___tors.

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system which is either fully regulated and state-funded or at least fairly accessible to all citizens (eg, through mandatory state insurance coverage) irrespective of income or the cause of the need for medical treatment. Thus, the necessity to use the liability system to cover essential medical expenses in case of injuries caused by a defective product is less pressingly felt in Europe than in the USA.6 Thus, Koziol rightly points out that, de lege lata, product liability in the USA has deterrence and compensation as primary objectives whereas the European approach is mostly focussed on compensation. Moreover, the USA legal system makes use not only of punitive damages but also applies a number of powerful instruments such as the class action procedure and discovery procedure which, combined with substantive product liability, may also boost the chances of compensation for deserving cases. This is not the place to review the evidence on how the USA product liability system actually plays out in practice, but it seems that the chances of obtaining compensation in deserving cases may be higher there than in European legal systems. In part, this is caused by the unappealing prospect presenting to manufacturers of going to court in clear-cut product liability cases. Settling may be wiser. For instance, USA consumers caught up in the 2016 Volkswagen emission software fraud scandal have been offered compensation far quicker and more profusely than consumers anywhere else in the world. What does this tell us about the effectiveness of tort systems which focus on compensatory goals? Besides the prevention vs compensation debate, there is the question of whether product liability serves other, less straightforward functions such as fact-finding, learning lessons for the future or as regards attributing moral reproach or public accountability concerning past behaviour. For example, the law may consider it relevant that liability procedures can be used to identify causes of unnatural death and accidental injury and disease. If finding out what caused injuries to victims is one of the aims of the legal system, it needs to address the fact-finding procedure: does the law ensure that the objective truth is put on the table, does it allow in-depth analysis of company records by use of a discovery procedure or does it allow litigants to rely on one-sided rules on burden of proof or even to withhold or destroy key evidence without substantial consequences?

_____ 6 Cf Jane Stapleton, Restatement (Third) of Torts: Products Liability, an Anglo-Australian Perspective (2000) 39 Washburn LJ 363 ff. Please note that this does not mean that all European countries have a ‘free-for-all system’ which covers medical expenses or that (long-term) care costs are fully borne by the state, the collective or the taxpayer. There is variation, obviously, but my assessment is that on the whole, European states offer more in terms of a ‘safety net’ to their citizens than the USA does.

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___B. Instruments and Modelling Effects ___ ___In the positive analysis of the legal regime on product liability, a further ques- 16/13 ___tion is how (cost-)effective the legal instruments used are in achieving the set ___objectives. At this stage, some sort of empirically informed theory of corporate ___and human behaviour is indispensable. Law and economics tries to provide ___such theories. From a lawyer’s perspective, the limitations of such theories lies ___in the fact that they reduce complexity by modelling. To an economics scholar, ___this attempt at reduction is in fact the strength of the model. ___ In some versions of the economic analysis of law, the model of human and 16/14 ___corporate action is an approximation of reality at best. According to rational ___choice theories,7 actors are presumed to have a clear intransient understanding ___of their preferences and to deliberately act upon these preferences in light of ___consciously collected and perfectly processed information. Also, these theories ___tend to ignore nuances and details by focussing on the main drivers of delibera___tive action: striving for attaining preferences at lowest cost. For a model of cor___porate action this may mean that cost minimisation and profit maximisation are ___the main drivers. Such a model may well be accurate to predict behaviour as ___long as the correct parameters ‘costs’ and ‘profits’ are used: however, ‘costs and ___benefits’ to individuals and companies may mean so much more than just the ___direct pecuniary costs and profits. ___ Looking at the instruments for achieving the objectives behind product li- 16/15 ___ability can be an enlightening exercise. For instance, imagine a product liability ___regime which has prevention of avoidable product defects as the main objective ___but at the same time only allows the award of compensatory damages in case of ___injury. In a crude economic analysis the expected business costs of accident ___avoidance are offset against the expected cost of compensating potential vic___tims and if the former costs are higher than the latter, the manufacturer will not ___have any incentive to incur the extra costs of avoidance. Here, the prediction ___may be that the instrument of compensatory damages will not effectively steer ___corporate behaviour towards prevention as long as the expected cost of com___pensating victims is lower than the cost of prevention. This is nothing more ___than a behavioural analysis: it models the behaviour of the actors involved and ___how law influences (or not) their behaviour. It should be noted, however, that ___models of behaviour are just that: models. And as the expression goes, all mod___ ___ 7 Far from being a monolith, rational choice theories come in different forms and shapes with ___varying degrees of abstraction from real-life behaviour. See, eg, RB Korobkin/TS Ulen, Law and ___Behavioral Science: Removing the Rationality Assumption from Law and Economics (2000) Cal ___L Rev 1051–1144.

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els are wrong but some are useful.8 A model can be useful as long it adequately predicts behaviour. So, what if manufacturers in practice do not merely take the mere pecuniary cost of compensating victims into account but also the expected reputational cost of negative publicity surrounding liability proceedings? If in practice these additional costs tip the balance towards prevention, then the predictive accuracy of the model is low. My personal conviction is that this does not tell us that the approach of modelling itself is inferior. What it tells us is that the analysis can benefit from the refinement of the parameters used in the model.

C. The Need for Regulatory Context From this brief overview it becomes apparent that product liability could be defined in broader terms including issues of prevention, deterrence, attribution and accountability. However, according to mainstream European legal thinking, product liability mainly serves as a gateway to monetary compensation for inflicted injuries. In this view, other branches of the law such as criminal law and administrative regulations are concerned with regulating the minimum safety requirements of products and with punishing deviance. Indeed, if one looks at the current European legal landscape one can see that liability is merely one leg of the legal environment relevant to manufacturing of products. There are extensive rules and regulations at both national and EU level on ‘high trust, high risk’ products such as foodstuffs, pharmaceutical products, chemicals, cosmetics, machineries and toys. In that respect, the existing liability regimes are to be seen as a small cog in the bigger wheel of EU products regulation.9 As an example, product liability needs to be read in conjunction with the General Product Safety Directive (GPSD 2001).10 The GPSD lays down general principles of responsible manufacturing practices and places manufacturers under a duty to ensure that the products they place on the market, are safe (art 3 GPSD). In art 2, the Directive defines ‘safe product’ as:11 ‘any product which, under normal or reasonably foreseeable conditions of use including duration and, where applicable, putting into service, installation and maintenance requirements, does not present any risk or only the

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8 George Box/Norman R Draper, Empirical Model-Building and Response Surfaces (1987) 424. 9 See on the interplay between tort and regulation generally WH van Boom/M Lukas/C Kissling (eds), Tort and Regulatory Law, Tort and Insurance Law Series vol 19 (2007). 10 Directive 2001/95/EC on General Product Safety [2002] OJ L 11/4. 11 Cf art 3 (1) Draft Consumer Product Safety Regulation (COM(2013) 78 final).

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___ minimum risks compatible with the product's use, considered to be accept___ able and consistent with a high level of protection for the safety and health ___ of persons, taking into account the following points in particular: ___ (i) the characteristics of the product, including its composition, packag___ ing, instructions for assembly and, where applicable, for installation ___ and maintenance; ___ (ii) the effect on other products, where it is reasonably foreseeable that it ___ will be used with other products; ___ (iii) the presentation of the product, the labelling, any warnings and in___ structions for its use and disposal and any other indication or informa___ tion regarding the product; ___ (iv) the categories of consumers at risk when using the product, in particu___ lar children and the elderly.’ ___ ___ Moreover, art 3 (3) GPSD provides that the conformity of a product to the 16/18 ___general safety requirements shall be assessed by taking into account, eg, the ___state of the art and technology, and the reasonable consumer expectations con___cerning safety.12 Thus, the GPSD explicitly builds on the concept of defective___ness used in art 6(1) EU Product Liability Directive.13 The obvious difference is ___that the GPSD is mostly enforced by means of administrative and criminal law ___whereas the national implementation of the EU Product Liability Directive is ___mostly considered to be part of the national tort law systems. ___ The relevance of this regulatory context is that a breach of a statutory duty 16/19 ___concerning product safety in itself may already constitute a ground for liability, ___apart from any specific rules on product liability. Presumably, a number of civil ___law jurisdictions acknowledge that the breach of a statutory duty constitutes a ___wrongful act which is imputable in case of fault. This means that the regulatory ___regime provides the backbone for evaluating manufacturer behaviour in tort ___and that any additional rules on product liability may become relevant only ___when such regulatory rules were complied with. ___ ___ ___D. Normative Analysis of Product Liability ___ ___So far, we have only dealt with the positive (descriptive) analysis of product li- 16/20 ___ability regimes. As it turns out, the objectives of such regimes range between the ___ ___12 Cf art 6 (2) Draft Consumer Product Safety Regulation (COM(2013) 78 final). ___13 ‘A product is defective when it does not provide the safety which a person is entitled to ex___pect, taking all circumstances into account (...).’

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outer extremes of pure compensation and full deterrence objectives. The legal instrument used for attaining either objective is mostly a form of damages – compensatory, restitutionary or punitive. We also noted that the context of the substantive rules on product liability should not be ignored. The context of civil procedure and the regulatory framework for product safety standards and product recall need to be considered as well. The normative (prescriptive) analysis of product liability concerns itself with the question of which product liability regime is ‘the best for society’. If we refer to ‘the best’, we may mean the most fair, equitable and balanced system. Therefore, this label ‘the best’ presumes an external standard of evaluation. We must first agree on what constitutes ‘the best’ before we can perform a normative analysis.14 Koziol takes a firm position on what he feels should be the objectives of product liability. He rejects the idea of prevention as primary objective and instead focusses on compensation of damage as the main objective. In his view, prevention may be a welcome side effect but it certainly is not the core objective. Also, Koziol argues that the law of damages should not be abused to serve all sorts of regulatory goals: damages should merely compensate not steer, deter or punish.15 According to Koziol, the level of liability should be reasonable (no 13/30): not too strict and not too lenient, taking all interests involved into account such as victim protection, freedom of enterprise and society’s interests.16 Reasonableness requires that overstretching of responsibilities is avoided since it may cause incentives to shirk responsibilities (and, I hasten to add, an incentive to cover up, deny, commit fraud and leave no witnesses). Reasonableness also includes, so Koziol argues, a duty for users to take responsibility for their own actions. I suspect that here a balance is envisaged between the manufacturer’s responsibility not to produce defective products and the end user’s responsibility not to act carelessly in using products. On an abstract level, this call for reasonableness and a balance between the legitimate interests of end users, manufacturers and society at large, sounds appealing. It may even chime well with law and economics scholars. However, the devil is in the details of what actually constitutes ‘reasonableness’. In fact, I

_____ 14 The difference between a normative and a positive analysis is that with the latter we do not apply an external theory of fairness, equity or societal efficiency but merely look at what the policymaking legislature or judiciary itself formulated as ‘the best for society’. 15 Comparative Conclusions no 13/78 ff. 16 Comparative Conclusions no 13/30 f. In the abstract, this position seems to be in line with the EU Product Liability Directive which alludes to the ‘fair apportionment of the risks inherent in modern technological production’ (preamble recital 2).

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___find it hard to identify factors that constitute reasonableness without having a ___firm understanding of why compensation is an objective in itself rather than ___merely an instrument of achieving the objective of prevention. Ultimately, we ___cannot escape the question of the objective that underpins the compensatory ___remedy. Since product liability regimes do not simply offer compensation to ___everyone who suffers injury while using a product, there is a need for a further ___criterion. This is usually found in the requirement of defectiveness of the prod___uct, which may mean that the product is ‘unacceptably dangerous’, falls below ___a ‘reasonable safety expectation’ or a similar standard. It is this requirement ___that clarifies the normative foundations of product liability. An example may ___clarify this point. Imagine a pharmaceutical product which is used to inoculate ___children against a debilitating disease. There is an extremely small risk that the ___product causes an allergic reaction and there is no way in telling beforehand ___who will suffer this reaction. Is this a defective product, assuming there was no ___safer alternative available, there was ample warning for the risk of allergic reac___tion and the societal benefits of the product by far exceed the burden on the al___lergic individual? If the liability system finds that the product is not defective, it ___uses a straightforward risk-utility test for evaluating defectiveness. If it finds ___that this excessive burden on the allergic victim should be shifted onto the ma___nufacturer – who can spread this risk among the risk community – then the ___word ‘defectiveness’ starts to mean something entirely different. Then it has be___come an instrument of distributive justice rather than ‘mere’ corrective justice. ___ ___ ___ ___III. Search for Justification and Coherence ___ ___A. Fitting Product Liability into the Legal System ___ ___In his search for a coherent foundation for a product liability system, Koziol 16/25 ___rightly identifies several anomalies and unjustifiable differences in the treat___ment of seemingly similar cases. To mention just a few: why does strict liability ___not apply to B2B claims? Why are defective services not included? Why are ___small entrepreneurs (craftsmen, home farmers, C2C claims) not excluded? Why ___are only movable products included and not buildings and bridges? Why are ___there different regimes for pharmaceuticals, medical products etc? Why does it ___not include liability of designers, contractors, wholesale sellers?17 Obviously, ___ ___ ___17 Comparative Conclusions no 13/38.

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there can be historical explanations for these anomalies and differences. Koziol is less interested in explanations than in justifications. Therefore, he understandably relies on principles of equal treatment and logical systematization instead of an historical legal analysis.18 In his quest for coherence, Koziol reviews potential foundations for product liability such as consumer protection, a contractual approach towards product liability, a strict liability approach and enterprise liability. Koziol dismisses ‘consumer protection’ as a firm justification for product liability.19 I agree that ‘protection’ as such cannot be considered a serious contender since there is little logic in finding the justification for protection in protection itself. The concept of protection begs the question: protection of whom against what and for what reason? Koziol also addresses the interplay between product liability and contract law. Here, we find that there is quite some variation between the legal systems.20 Some legal systems attach great value to the doctrine of privity while others happily extend the contractual relationship to include indirect buyers with such sales contract doctrines as ‘implied warranty’ and ‘latent defects’. Again others effortlessly blend contractual and extra-contractual doctrines.21 On a side note, it may be relevant to take into consideration that the classical distribution channels via contract chains (from manufacturer to distributor, wholesale seller and retailer to end user) are making way for modern business practices used by some manufacturers to directly tie in consumers. Take, for example, the sale of a new motor vehicle or a computer device. The end user is more often than not connected directly to the manufacturer (or its national distributor subsidiary) by accepting maintenance provisions, registering in guarantee schemes, acceding to customer schemes, accepting terms and conditions of licences and even by signing up for software updates. This development confirms the need for a robust product liability regime which bridges the contract/tort divide. Koziol proposes to include services in the framework for defective products so that manufacturers of industrially produced goods and services are treated the same.22 On an abstract level, it makes good sense to develop an all-encompassing

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18 Comparative Conclusions nos 13/40 f, 13/78 ff. 19 Comparative Conclusions no 13/74. 20 Comparative Conclusions no 13/51. 21 Comparative Conclusions nos 13/43 ff, 13/70 ff. See on ‘implied warranty’ as a source of strict liability (in contract) also Introductory Lecture no 1/9 ff. Koziol refers to the ‘warranty approach’ a reliance-based liability but from the context I deduce that the word ‘expectation’ is more apt; in that sense, art 6 EU Product Liability Directive is also geared towards the protection of consumers’ ‘reasonable expectations’ concerning safety levels in the product. 22 Comparative Conclusions no 13/98.

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___framework since in modern society it is becoming more and more difficult to dis___tinguish between injuries caused by physical objects on the one hand and ‘non___material objects’ such as defective software and business processes generally on ___the other.23 On closer inspection, however, this may turn out to be easier said than ___done. What should an overarching framework for defective services and products ___look like and how would it interact with contract law, notably the law of (con___sumer) sales and services? And how should the defectiveness requirement be ___formulated? ___ Koziol works from the starting point that physical objects are sold on the 16/29 ___basis of obligations of result and that services are rendered on the basis of obli___gations of means.24 He is quick, however, to put these differences in a nuanced ___perspective: in practice, they may be more gradual rather than fundamental. ___Koziol advocates the inclusion of strict liability for defective services in cases ___where the aspect of the defective service relates to an obligation of result. Here, ___an example is given which concerns a defective medical appliance used by a ___physician in performing his duty vis-à-vis the patient. For this example to work, ___we first have to imagine that all kinds of practical obstacles in various jurisdic___tions do not exist. We need to assume that this is a case governed by private law ___and indeed by tort law. Then, we need to see that Koziol probably treats con___tractual obligations of result and extra-contractual strict liability as inter___changeable. This may be more apt for some civil law systems than for others. In ___some civil law systems there is a strict difference between contractual and ___delictual imputation and concurrence of contract and tort are not allowed. Also, ___the imputation of non-performance of contractual obligations of result to the ___debtor may rest on distinct grounds, eg fault, statutory grounds for imputation ___or an open standard of reasonableness, fairness or good faith. This may or may ___not coincide with grounds for (statutory) strict liability in tort. Furthermore, in ___the context of the medical appliance example, solutions under either a contract ___law regime or a delictual liability regime are concerned with the attribution of ___responsibility for defective objects. In some jurisdictions, there may be (strict) ___liability of either (or both) the manufacturer or the keeper or professional user of ___the defective object involved, which makes coordination between rules of prod___uct liability and concurring strict liabilities all the more important. In short, ___treating tangible objects and services on a par with each other may in terms of ___challenge be equivalent to entering a swamp … ___ ___ ___23 To go even one step further, one could even argue that a product liability regime should ___include protection against unreasonably unsafely designed financial products. ___24 Comparative Conclusions no 13/107 ff.

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B. Fault, Risk or Enterprise As far as the choice between fault-based and strict liability25 is concerned, Koziol postulates that misconduct is the rule and the strict liability is the exception.26 Problems with fault-based liability per se do not justify the introduction of a special regime dedicated to consumer damage by defective products.27 In fact, strict liability for products protecting anyone other than the direct counterpart in contract is at odds with the foundations of tort and contract law, or so Koziol argues, since it does not fit harmoniously in either the contractual or delictual liability system.28 Koziol goes on to investigate whether strict product liability is justified. One of the stops he visits is enterprise liability. The main idea of enterprise liability – which as such, I should add, is non-existent in some civil law systems – is that the enterprise should bear the risks concomitant with the prospect of profitmaking. Article 4:202 PETL embraces this concept by setting forth a combination of liability for corporate breach of duty of care with a reversal of burden of proof and an extended vicarious liability for ‘auxiliaries’. In the opinion of Koziol, enterprise liability constitutes a so-called ‘risk community’ where the enterprise is presumed to be at fault and which allows the loss befallen on a small portion of the end users of the product to be spread over all consumers.29 Koziol essentially argues that in a adequately working market, the enterprise thus has an incentive to minimize the frequency and cost of accidents.30 Thus understood, enterprise liability goes a long way to underpinning product liability but nevertheless Koziol finds that it cannot serve as a justification for strict liability, nor can it justify the inclusion of third, non-contracting parties (‘innocent bystanders’) as protected under product liability.

_____ 25 The concept of strict liability (‘non fault-based liability’) is defined as ‘liability independent of any contractual relationship between victim and producer and regardless of any fault and based on defectiveness of goods’ (Comparative Conclusions no 13/53). Note that the concept of strict liability is sometimes also used to denote contractual liability without fault and without recourse to the ‘force majeure’ defence. 26 Comparative Conclusions no 13/32 ff. See also Introductory Lecture nos 1/16, 1/22 ff. 27 Comparative Conclusions no 13/24. 28 Comparative Conclusions no 13/37 ff. 29 See also Introductory Lecture no 1/22. 30 Comparative Conclusions no 13/67.

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___C. What do we Mean when we use the Word ‘Defective’? ___ ___Although the European Product Liability Directive merely refers to reasonable 16/32 ___safety expectations of consumers, in legal doctrine there is a tendency to use the ___threefold distinction derived from the American Restatement on Torts (Product ___Liability) between design defects, manufacturing defects and warning defects.31 ___This taxonomy is highly enlightening for didactic purposes; moreover, it forces ___us to distinguish between: ___• manufacturing defects where specific items for some reason do not comply ___ with the overall level of safety that the design offers (the infamous ‘Aus___ reißer’, outliers, lemons, runaways); ___• (deliberative) choices in design where the residual risk is inherent to the en___ tire product series; ___• a lack of relevant instruction and warning which could adequately prevent ___ certain inherent risks from materializing. ___ ___ This threefold categorisation is appealing and could easily be fitted into the 16/33 ___‘reasonable consumer expectation’ test, if we assume that consumers may rea___sonably expect runaways not to occur and should reasonably expect product de___sign not to be completely accident-proof. This makes ‘runaway’ cases easy to de___cide: we merely assess the intended design and anything that deviates from that ___design is a defective item. The design defects are more difficult to assess since ___they are in need of an objective standard which distinguishes between accept___able and unacceptable inherent product risks. Consumer can fall from bikes, cut ___someone with a knife, choke on toys, suffer allergic reactions from dyes and ___crash their cars. The risk is inherent and perhaps alternative design could reduce ___or remove the risk. But at what cost? And are these costs reasonable? Should the ___user of the product not be left the autonomy to act more or less carefully? Can ___courts demand alternative design? Are they equipped to assess the societal costs ___of current design and the benefits of alternative designs? These are typically the ___issues that come to the fore when discussing design defects. ___ Although the European Product Liability Directive does not refer to any test 16/34 ___other than the consumer expectation test, it is sometimes argued that within ___this expectation framework, a cost-utility test needs to be applied when evaluat___ing the safety of the design. This test bears resemblance to the Learned Hand ___ ___ 31 See, eg, U Foerste/F Graf von Westphalen et al, Produkthaftungshandbuch (3rd edn 2012) ___§ 48, no 22 ff; J-S Borghetti, La responsabilité du fait des produits (2004) 445 ff; H-W Micklitz/ ___J Stuyck/E Terryn (eds), Cases, Materials and Text on Consumer Law, Ius Commune Casebook ___Series (2010) 461 ff.

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formula.32 In essence, the Learned Hand formula states Burden < Probability * Damage → Negligence. Hence, a product design is defective if the overall Risk (= Probability * Damage) outweighs the (societal) Burden of Precaution, and the manufacturer nevertheless does not take these precautions. In essence, judging design revolves around the following factors: the source of danger to health or safety, the magnitude of the chance that this danger will materialize, the feasibility and burden of taking precautionary measures or using an alternative, the benefits of the alternative, and the acceptability of the overall risk. In previous publications, I have argued that this factor-approach in design evaluation is not limited to product design but should also be applied to basically all deliberative design activity, be it for products, services or procedures.33 On a side note, it is worth mentioning that the definition of defectiveness under the European Product Liability Directive was substantially widened in a ground-breaking 2015 ruling.34 The ruling concerned the medical cost of replacing pacemakers and implantable cardioverter defibrillators. Experts had decided that the product series at hand suffered from a latent condition which might or might not become manifest in individual devices. Obviously, if experts decide that a whole series of vital medical devices is too dangerous to remain in the human body, even when it is uncertain whether an individual device will actually fail, the only gateway through which the series can be declared ‘defective’ is by deciding that a potential defect in (unidentified) individual items constitutes a defect in the entire series. This is exactly what the CJEU did. First, it declared that the safety requirements with regard to such medical devices are particularly high in the light of their function and the vulnerable situation of patients using such devices.35 The potential lack of safety which would give rise to liability stems from the abnormal potential for damage which those products might cause to the person concerned. Against this background the CJEU held: ‘Accordingly, where it is found that such products belonging to the same group or forming part of the same production series have a potential defect, it is possible to classify as defective all the products in that group or series,

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32 United States v Carroll Towing Co, 159 F 2d 169, 173 (1947). 33 WH van Boom, Structurele fouten in het aansprakelijkheidsrecht – inaugural lecture Tilburg University (2003); cf WH van Boom, Inherent Risk and Organisational Design in European Tort Law, Z Vgl RWiss 108 (2009) 118–133. See also Erdem Büyüksagis/WH van Boom, Strict Liability in Contemporary European Codification: Torn Between Objects, Activities, and Their Risks, 44 Georgetown Journal of International Law 2 (2013) 609–640. 34 CJEU 5 March 2015, C-503/13 and C-504/13, Boston Scientific Medizintechnik GmbH v AOK Sachsen-Anhalt — Die Gesundheitskasse und Betriebskrankenkasse RWE, ECLI:EU:C:2015:148. 35 CJEU 5 March 2015, ECLI:EU:C:2015:148, no 39.

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___ without there being any need to show that the product in question is defec___ tive’ (no 41). ___ ___ So, this essentially means that the risk of defectiveness in itself may consti- 16/36 ___tute defectiveness under the Directive. The patient does not have to prove that ___‘his’ device is defective but merely that the series as a whole carries a potential ___defect which causes an unreasonably high manifestation risk. Since the CJEU ___also classified the ‘recall cost’ for consumers (the costs relating to the replace___ment of the defective product) as damage under the operation of the Product Li___ability Directive, the scope of this decision is quite wide.36 ___ Koziol proposes a different taxonomy of defects. He arrives at his taxonomy 16/37 ___via a classification of various sources of strict liability. Strict liability in his view ___is mostly based on inherent dangerousness: strict liability for inherent dangers ___of nuclear installations, aircraft, railways, motor vehicles, pipelines etc.37 Koziol ___calls this the ‘general abstract dangerousness of things and facilities’ where the ___inherent danger is not controllable by reasonable care. Here, the liable party is ___considered to enjoy the benefits of the object and should therefore also bear the ___risk.38 Koziol argues that the risk of runaway product defects is effectively also ___an inherent uncontrollable risk of modern production: things may go wrong, ___even if the manufacturer does his utmost to produce his products carefully.39 ___ Koziol argues that the dangerousness from a defective product may usually 16/38 ___not be considered very high since it is unlikely that many defective products in fact ___bring about serious damage or increase the frequency of such damage considera___ ___ 36 CJEU 5 March 2015, ECLI:EU:C:2015:148, no 50. ___ 37 Comparative Conclusions nos 13/33 ff, 13/55. ___38 See also Introductory Lecture no 1/20. I must confess that I am somewhat sceptical about ___the ‘profit principle’ as a foundation for strict liability. The question is whether this ‘principle’ ___is a genuine justification for strict liability or an opportunistic and hollow catchphrase. For in___stance, legislative proceedings may allude to this ‘profit principle’ as the foundation for intro___ducing strict liability for a particular source of danger but may at the same time resist calls to introduce strict liability for comparable sources posing a similar risk. In fact, the introduction ___ of legislation in this area may be the result of a dreadful incident and the absence of legislation ___may be the consequence of stakeholder lobbying. So, however fancy the words used by the leg___islature when introducing a particular strict liability regime for a particular risk, they do not ___mean that equal risks will be treated identically. The political trade-offs may vary, as may the ___influence of political pressure groups or the available capacity in the insurance markets. So, disheartening and perhaps even cynical as it may sound, whenever strict liability lies within ___ the legislature’s realm, we should not expect much from ‘profit principles’ and equal treat___ment. The ugly truth is that strict liabilities in any given jurisdiction may well be a mixed bag of ___historical accidents rather than a well-considered set of coherent and balanced rules. ___39 Comparative Conclusions no 13/87 ff.

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bly. However, in some cases the ‘runaways’ exceed the threshold and thereby constitute defectiveness.40 I am not convinced that the frequency of injuries due to design defect is lower than those due to ‘runaways’. In any event, the Koziol proposal leads to a narrow scope for strict liability: ‘runaways’ (a risk unavoidably associated with technological production methods) are included in the regime but distinguishable design and instruction defects are outside the strict liability regime. These latter defects derive from human conduct and are therefore avoidable. They should be judged according to normal fault-based standards of liability, or so Koziol argues. I have my doubts as to the ‘avoidable’ versus ‘unavoidable’ dangers. At a general level, most accidents would be avoidable if we adopted more stringent processes and procedures and invested a lot more resources in avoidance than we currently do. Avoidability is a matter of priority-setting. My guess is that this ‘theoretical avoidability’ applies to both design and manufacturing defects. Nevertheless, the distinction that Koziol makes resonates with § 2 of the American Restatement 3d on Torts (Product Liability) and comparable approaches, according to which the failure to adopt a reasonable product design given the foreseeable benefits and risks associated with that design as compared to a safer alternative leads to liability.41 With the test as proposed by Koziol, courts would test the reasonableness of the design and thereby the acts and actions (behaviour) of the manufacturer rather than the runaway nature of an object. If this is what the proposal is about, I have no fundamental objections against this approach. Yet, I see little additional benefits in the proposed twofold categorisation as compared to the threefold distinction between design defects, manufacturing defects and warning defects. More importantly, however, I would still need further information on how the criteria for fault-based liability for faulty design would play out. On balance, I think it would not make much difference whether we called a test for unacceptably dangerous design a test for strict liability for a defective object or fault-based liability for making the design unacceptably dangerous. In both approaches, the main focus is on the reasonableness of the choices made in the design process. Thus, whether we apply some form of cost-utility balancing or the Learned Hand approach under the heading of fault-based liability, strict liability or even the ‘reasonable consumer expectation’ test, I feel it should not change the outcome itself. That is why I agree that product liability rules should try to distinguish (although it may not always be easy in practice) between design defects and ‘runaways’ due to the manufacturing errors. I could imagine that the evidentiary burden would be placed on the manufacturer: if someone suffered injury due to a product, such

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40 Comparative Conclusions no 13/55 ff. 41 Comparative Conclusions no 13/61.

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___injured person would only need to submit that the product was defective. Then, ___it would be up to the manufacturer to prove that the specific product at hand ___was not a ‘runaway’, that the cause of the injury lies in the manufacturer’s con___scious choice of design and that, on balance, this design choice was reasonable. ___ ___ ___D. Who is in and who is out? ___ ___A key issue in Koziol’s proposal is the distinction he makes between the end 16/40 ___user who is part of the chain of contracts between himself and the manufacturer ___and the so-called ‘innocent bystander’, defined as someone who suffers injury ___due to a defective product but who was not the (indirect) buyer of the product. ___This ‘bystander’ is not part of the so-called ‘risk community’, that is the com___munity of actors involved in the commercial chain from manufacturing to con___sumption. These actors collectively ‘pay’ into the ‘fund’ for product liability. The ___‘fund’ can be relied upon by this community but there is no convincing reason ___to let others profit, so Koziol argues. Bystanders have no reasonable ground for ___expecting manufacturers to provide safety as a buyer would have and should ___therefore not be offered the protection of product liability.42 Bystanders would ___only be allowed to claim on the basis of the general principles of tort law. Koziol ___does accept, however, that individuals close to the buyer/end user, such as fam___ily members, should benefit from the protection of product liability.43 ___ I do not find the ‘risk community’ an appealing concept to demarcate who is 16/41 ___in and who is out. Strictly speaking, there is no justification for including family ___members into the risk community. Also, practically speaking, for an injured per___son to prove (s)he was part of the risk community, there would need to be evi___dence of some contractual relationship with, eg, a retailer. Absent this evidence, ___strict liability would not be applicable. This may lead to deserving claimants who ___cannot prove the existence of such a contract being turned away. Moreover, the ___use of the ‘risk community’ concept as a founding principle for strict liability ___forces us to consider the contractual nature of the liability. If contributing to the ___‘risk fund’ through a contractual relationship is the gateway to strict liability, we ___would somehow base the liability on a contractual involvement. That raises the ___question of whether parties should not be left free to exclude this liability alto___gether, for instance as a quid pro quo for a lower price. Furthermore, would the ___concept of risk community in effect not lead to an indemnity insurance arrange___ment? And if so, are there no cheaper options than the tort law system for such an ___ ___42 Comparative Conclusions nos 13/97, 13/114 ff. ___43 Comparative Conclusions no 13/121.

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arrangement? Finally, if we embrace the risk community concept, we should also pause and stop to think of the context of product liability in a particular legal system. Would it mean that ‘bystanders’ would look for other (strict) liabilities in tort or contract? If the legal system involved allows the injured party to claim in contract from the retailer irrespective of his fault, would this not let the manufacturer go off the hook without good reason? All in all, I think that the exclusion of bystanders is neither preferable nor practically feasible.

E. Final Observations I much enjoyed reading the comparative conclusions by Prof Koziol. Yet, I was not sure whether I was reading a genuine positive analysis of the various legal systems or a guidebook for building a normative framework for the ideal structure of product liability. I suspect mostly the latter. When reading the taxonomy offered by Koziol, I was reminded by earlier work I undertook on Dutch tort law some years ago.44 There, I tried to synthesize seemingly disparate types of tort liability into one concept of liability for ‘flawed organisational design’, whereby legislatures and courts would assign liability for the products, services, processes, protocols and procedures that make up the deliberative behaviour of organisations (loosely defined as corporations, public authorities and state entities). Note that in this analysis the concept of ‘product’ defined as a tangible (manufactured) object was transposed into the underlying (organisational) behaviour of planned action. I found that the common denominator with distinct sources of liability was that organisations were held liable for risks caused to health and safety by deliberative decisions in the designing and developing of property, products, protocols, processes and procedures or any other structured process within an organisation. I argued that these distinct doctrines of liability for ‘unacceptably unsafe’ products, services, processes, protocols and procedures could be unified in an overarching theory of liability for defective organisational design which more or less ignored the traditional bifurcation of faultbased and strict liability. In some respects, Koziol embarks on a comparable exercise by reformulating the product liability framework and by introducing different classifications of forms of defectiveness. This exercise provides ample food for thought. I personally found the idea of risk community vs bystanders a challenging concept; the fact that I remain unconvinced naturally does not affect my appreciation. NEUE SEITE QQQ

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44 See fn 33.

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___Anton Fagan ___ ___ ___ ___Anton Fagan Statement from the Perspective of the Rest of the World https://doi.org/10.1515/9783110547559-019 ___Contents ___ I. Introduction | 593 ___ II. Summary of Approaches to Product Liability | 593 ___ III. The Theory of Enterprise Liability | 595 ___ ___ ___I. Introduction ___ ___This statement provides a response to Helmut Koziol’s conclusions about product ___liability, from the perspective of the ‘rest of the world’, that is, from the perspec___tive of the following four jurisdictions: Chile, South Africa, Australia, and Israel. The response has two parts. The first summarises the main ways in which ___ ___the approaches to product liability in the four ‘rest of the world’ jurisdictions co___incide and differ. The second takes a closer look at one of the possible justifica___tions for strict product liability which Koziol discusses in his conclusions, ___namely the theory of enterprise liability. ___ ___ ___II. Summary of Approaches to Product Liability ___ ___To keep this summary of the approaches to product liability in the four ‘rest of ___the world’ jurisdictions as brief as possible, it is presented in point form: ___i) Among the four ‘rest of the world’ jurisdictions, Chile is the outlier. Chile ___ has only a fault-based product-liability regime, located in the general law of ___ tort. By contrast, Australia, Israel and South Africa each have both a fault___ based product-liability regime, located in the general law of tort, and a ___ strict product-liability regime, created by a specific statute. ___ii) The fault-based product-liability regimes in Australia, Israel and South Af___ rica are essentially the same. According to each, a manufacturer will be li___ able for loss caused by one of its products if it caused the loss by its care___ lessness and if it owed the person suffering the loss a duty of care. In all ___ three jurisdictions, it is presumed that a manufacturer is under a duty not to ___ cause physical harm to person or property by its carelessness. Where a ___ product has caused physical harm to person or property, the manufac___ turer’s liability therefore tends to turn only on whether it was careless.

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17/6 ___ iii) The strict product-liability regimes in Australia, Israel and South Africa – all

created by statute – have much in common.1 But there are some important ___ differences: ___ • First, whereas the Israeli statute imposes strict liability only for bodily 17/7 ___ injury, the Australian and South African statutes impose strict liability ___ also for damage to property. Moreover, while the Israeli statute caps the ___ recoverable damages, the Australian and South African statutes do not. ___ • Secondly, all three statutes impose strict liability on: actual manufac17/8 ___ turers, those who hold themselves out to be actual manufacturers, and ___ importers. However, while the Australian statute leaves it more or less ___ at that, the Israeli statute goes a step further. It imposes strict liability ___ also on suppliers – but subject to the condition that the identity of the ___ actual manufacturer or importer is unknown. The South African statute ___ goes two steps further. It imposes strict liability also on ‘distributors ___ and retailers’, but with no further condition attached. ___ • Thirdly, the Israeli and Australian statutes stipulate a single ground for 17/9 ___ liability, namely that the product was ‘defective’, in the former case, ___ and that it had a ‘safety defect’, in the latter case. The South African sta___ tute, by contrast, specifies five alternative grounds: either that the good ___ was ‘unsafe’, or that it had a ‘defect’, or that it presented a ‘hazard’, or ___ that it constituted a ‘failure’, or that ‘inadequate instructions or warn___ ings’ were provided with it. Moreover, while the single grounds stipu___ lated by the Australian and Israeli statutes require that the product po___ sed a risk of harm, two of the five grounds stipulated by the South ___ African statute (namely ‘defectiveness’ and ‘failure’) do not require this. ___ • Fourthly, while both the South African and the Australian statutes pro17/10 ___ vide a list of ‘goods’, the South African list is far more inclusive, as it in___ cludes ‘anything marketed for human consumption’, and ‘any [other] ___ tangible object’, as well as any ‘intangible product written or encoded ___ on any medium’. It further includes not only gas and electricity, but ___ also water. ___ • Finally, though all three statutes provide for certain defences, the South 17/11 ___ African statute omits an important defence that the Israeli and Austra___ lian statutes include, namely lack of ‘scientific or technological knowl___ edge’. ___ ___ ___ ___ 1 Australian Competition and Consumer Act 2010, Schedule 2 The Australian Consumer Law; ___ Israeli Liability for Defective Products Act of 1980; South African Consumer Protection Act 68 of ___ 2008.

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___iv) The upshot of this is that, of the four ‘rest of the world’ jurisdictions, South ___ Africa has the most victim-friendly product liability law. It is more victim___ friendly than Chile, because it supplements tortious fault-based liability ___ with statutory strict liability. It is more victim-friendly than Israel and Aus___ tralia, because its statutory strict liability encompasses more kinds of harm, ___ more extensive loss, a bigger pool of defendants, more and weaker grounds, ___ and a larger variety of products, while at the same time making available ___ fewer defences. ___v) That said, the statutory provisions which created South Africa’s strict prod___ uct-liability regime have not been subjected to much judicial interpretation. ___ Though the provisions came into effect in 2011, they have been applied in ___ only one case, decided in June 2015.2 If the judgment is anything to go by, ___ the South African courts are going to be giving a generous interpretation ___ to already-generous provisions. The judgment held the national electricity ___ provider strictly liable for burns suffered by a cyclist when he inadvertent___ ly came into contact with a low-hanging power line spanning a footpath ___ in a rural area. This, it seems, is the equivalent of holding a dairy com___ pany strictly liable to a pedestrian who cut her foot on a broken milk bottle, ___ after one of the company’s delivery trucks turned over and spilled its ___ cargo. ___ ___ ___ III. The Theory of Enterprise Liability ___ ___ The best account of the theory of enterprise liability is that developed by Greg___ ory Keating in an article in the 1997 Michigan Law Review.3 The essence of ___ Keating’s account is most easily explained using an example: ___ A manufacturer produces 100,000 articles which are distributed to 100,000 ___ consumers. Each article has a 1 in 1000 chance of containing a defect which will ___ cause injury to its consumer. Necessarily, therefore, 67–133 of the 100,000 arti___ cles will contain the defect and will injure their consumers. The manufacturer ___ knows this. But it does not and cannot know, in advance, which of the articles ___ contain the defect. ___ ___ ___ 2 Halstead-Cleak v Eskom Holdings Ltd 1.6.2015, High Court of South Africa (Gauteng Divi___ sion). ___3 Gregory C Keating, The Idea of Fairness in the Law of Enterprise Liability, 95 Mich L Rev 1266 ___(1997). See also Gregory C Keating, Distributive and Corrective Justice in the Tort Law of Acci___dents, 74 S Cal L Rev 193 (2000).

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•

•

In respect of this example, we can distinguish two risks: On the one hand, there is the 1 in 1000, or 0.1%, probability, pertaining to every one of the 100,000 consumers individually, that he or she will be injured. On the other hand, there is the 100% probability, pertaining to all of the 100,000 consumers collectively, that 67–133 of them will be injured.

Now imagine that, as it turns out, 100 of the articles do contain the defect and do cause injury to their consumers. Imagine also that one of those consumers wishes to hold the manufacturer liable for her injury – on the basis that the manufacturer caused her injury by committing a wrong. Keating supposes that, to the question whether the manufacturer committed a wrong which would justify holding it liable to the injured consumer, only the first of the two risks that I set out matters. That is, he supposes that what matters, to the alleged wrong, is only the 0.1% probability, in respect to every one of the 100,000 consumers, that he or she would be injured, and not the 100% probability, in respect of all of the 100,000 consumers, that 67–133 of them would be injured. Keating’s supposition is most plausible if one accepts the ‘relational’ understanding of wrongdoing so clearly expressed by Cardozo J in the Palsgraf case.4 According to Cardozo J, the plaintiff, Mrs Palsgraf, could succeed in holding the defendant railway company liable for her injury only if she managed to show that its employee had committed a wrong against, or ‘personal to’, her. Whether that was the case depended on the probability that the employee’s conduct would cause harm to Mrs Palsgraf. The probability that it might cause harm to someone else, such as the man carrying the package of fireworks, was altogether irrelevant. As Cardozo J put it: ‘The passenger far away, if the victim of a wrong at all, has a cause of action, not derivative, but original and primary. H[er] claim to be protected against invasion of h[er] bodily integrity is neither greater nor less because the act resulting in the invasion is a wrong to another far removed.’5 Let us assume that the benefit of producing the 100,000 articles in our example, and the harm done by one of those articles if defective, are such that a 0.1% probability of that harm is too low for the production of the articles to con-

_____

4 Palsgraf v Long Island Railroad, 162 NE 99 (NY 1928). 5 Ibid 100 f.

Statement from the Perspective of the Rest of the World | 597

___stitute a wrong in the relational sense required by Cardozo J. In other words, let ___us assume that, while each of the 100,000 consumers had an interest in not suf___fering the harm caused by a defective article, that interest was insufficient to ___make it unreasonable for the manufacturer to have subjected him or her to only ___a 0.1% chance of suffering that harm. ___ What follows? According to Keating, it follows that the imposition of liabil- 17/22 ___ity on the manufacturer towards the injured consumer cannot be justified on the ___ground that the manufacturer committed a wrong. But it does not follow that ___the imposition of such liability cannot be justified at all. It can be, according to ___Keating, but on a different basis, namely fairness. ___ Adapted to our example, Keating’s fairness argument goes as follows: 17/23 ___i) It is certain that the manufacturer’s production of the 100,000 articles will ___ cause injury to 67–133 consumers, and the manufacturer knows this. ___ii) Since the manufacturer knows this, it also knows the total cost that its pro___ duction of the 100,000 articles will impose on the consumers of those arti___ cles. ___iii) It follows that, if the manufacturer knew that it would be held liable for all ___ the injuries caused by its production of the 100,000 articles, it would be ___ able, with reasonable precision, to factor the total cost of those injuries into ___ the pricing of the articles. ___iv) It further follows that, if the manufacturer were to be held liable for all the ___ injuries caused by its production of the 100,000 articles, the total cost that ___ its production of those articles imposed on their consumers would not be ___ concentrated on the 67–133 unlucky consumers who happen to be injured, ___ but would instead be dispersed, in equal but considerably smaller shares, ___ across all 100,000 consumers. ___v) This, concludes Keating, is what fairness requires. As he puts it: ‘Fairness ___ requires that those who benefit equally from the imposition of a risk share ___ equally in the burden of that risk – the loss of life, limb, and property that is ___ its cost.’6 ___ ___ You will have noticed that Keating’s fairness argument gives a central place 17/24 ___to the risk which he thought irrelevant to the question whether the manufac___turer committed a wrong, namely the 100% probability that injury would be suf___fered by 67–133 consumers. This raises two questions worth exploring further: ___• First, why could the 100% probability that the production of the 100,000 ar___ ticles would injure 67–133 consumers not make that production wrongful? ___ ___ ___6 Keating, 74 S Cal L Rev 193 (2000) 209.

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•

Second, if the production of the 100,000 articles could be wrongful on that basis, why could that not justify the imposition of liability on the manufacturer towards all of the consumers who are in fact injured by that production?

When considering the first question, it is worth bearing in mind that, given the 100% probability of injury to 67–133 consumers, there is a sense (which Keating acknowledges) in which the manufacturer intends to cause those injuries. Of course, the manufacturer does not intend to cause injury to any particular one of the 100,000 consumers. But neither does a terrorist who throws a bomb into a crowd of 100,000 football fans intend to injure any particular one of them. Yet we would not, for that reason, hesitate to condemn the terrorist’s act as wrongful. It may be that Keating is not assuming that a 100% probability that the production of a large number of articles will injure a certain number of consumers can never make that production wrongful. Perhaps he is only assuming that it ordinarily will not do so, because the benefits of the production ordinarily will be greater than the harm it is certain to cause. And perhaps his fairness argument is only meant to apply to these ordinary cases. However, unless we assume, improbably, that benefit and harm are to be understood in purely financial terms, cases like these may be less ordinary than Keating’s account seems to assume. As Philippa Foot argued almost 50 years ago, and as Judith Jarvis Thomson eventually came to accept, it is usually worse to kill one than to fail to save five.7 Likewise, it is generally worse to cause physical harm to the person and property of a few than to fail to confer a benefit upon many, even if the benefit is the protection from some or other harm. Imagine that the 100,000 articles in our example were luxury goods. Given that their production is certain to cause injury to 67–133 consumers, is it really possible that their production could not be wrongful? That leaves the second question. Even if we accept that the production of a large number of articles could be wrongful because of the inevitability that it will cause a certain number of injuries, could wrongfulness, so established, ever justify the imposition of liability on the manufacturer towards those who are injured? Andrews J’s Palsgraf dissent leaves little doubt but that he would not have had much difficulty with this notion. Nor would many South African

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7 Philippa Foot, The Problem of Abortion and the Doctrine of the Double Effect, in: eadem: Virtues and Vices and Other Essays in Moral Philosophy (1978) 19; Judith Jarvis Thomson, The Trolley Problem (1985) 94 Yale LJ 1395 and eadem, Turning the Trolley (2008) 36 Philosophy and Public Affairs 359.

Statement from the Perspective of the Rest of the World | 599

___judges. For there are several South African judgments, concerned with emo___tional shock and other forms of relational loss, which could be understood to ___employ a conception of wrongdoing that is closer to Andrews J’s than Cardozo ___J’s. ___ In any event, it is not clear that Cardozo J’s Palsgraf judgment, properly un___derstood, really does entail that, if the production of a large number of articles ___is found to have been wrongful because of the inevitability that it would cause ___certain injuries, that finding could not justify the imposition of liability on the ___manufacturer. Imagine that it had been shown that the railroad employee in ___Palsgraf had known, for certain, that his conduct would cause injury to one, but ___only one, of 1000 people – including Mrs Palsgraf – standing some distance ___down the platform, but had not known which one. Does anything in Cardozo J’s ___judgment entail that, in that case, the imposition of liability towards Mrs Pals___graf would have been unjustified – because she then would not have suffered a ___wrong ‘personal to’ her. It seems unlikely. ___ Similarly, imagine that a shopkeeper were to supply 1000 sweets to 1000 ___children, knowing that one of her disgruntled employees had laced one of the ___sweets with poison, but not knowing which one. Who would doubt that, in this ___case, the shopkeeper would have committed a wrong, and that that wrong ___would justify holding her liable to the child who ended up being poisoned? ___ The conclusion reached in this statement, namely that, where the produc___tion of a large number of articles makes injury inevitable, liability could be ___based on wrongdoing, needs shoring up. But that will have to be left to another ___occasion. Instead, this statement finishes with a question that seems to arise if ___that conclusion is sound, namely what purpose the introduction of strict prod___uct liability then serves. ___ Of course, even if the conclusion reached above is sound, the introduction ___of strict product liability still would make a difference in cases where a manu___facturer has produced only a small number of articles, and one of them causes ___harm. But it is by no means clear that the difference which the introduction of ___strict product liability would make in these cases is a desirable one. ___ It is possible, however, that the introduction of strict product liability serves ___another purpose, namely to let the law off the moral hook. For the introduction ___of strict product liability enables the law to avoid the very hard question of ___when, if ever, a manufacturing activity which is, and is known to be, certain to ___cause harm to the person or property of a small number of individuals can be ___morally justified on the basis that it will enhance the lives, or even just the life___styles, of a far larger number. ___ ___

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___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

NEUE RECHTE SEITE

List of Contributors | 601

___ List of Contributors ___ List of Contributors List of Contributors ___ ___Asia and Russia ___ ___Chen, Jung-Lung ___Fu Jen Catholic University, Taiwan [email protected] ___ ___Ismail, Rahmah ___University Kebangsaan Malaysia, Malaysia [email protected] ___ ___Leong, Cheng Hang ___University of Macau, Macau [email protected] ___ ___Ngah, Anisah Che ___University Kebangsaan Malaysia, Malaysia [email protected] ___ ___Petrol, Olesya ___Lomonosov Moscow State University, Russia [email protected] ___ ___Shiomi, Yoshio ___University of Kyoto, Japan [email protected] ___ ___So, Jae-Seon ___Kyung Hee University, Korea [email protected] ___ ___Song, Jung-Eun ___Kyung Hee University, Korea [email protected] ___ ___Tong, Io Cheng ___University of Macao, Macao [email protected]

602 | List of Contributors

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Yagelnitskiy, Alexander Lomonosov Moscow State University, Russia [email protected] Yang, Lixin Renmin University of China, China [email protected] Yang, Zhen Heilongjiang University, China [email protected] Yusoff, Sakina Shaik Ahmad University Kebangsaan Malaysia, Malaysia [email protected]

Europe Borghetti, Jean Sébastien Université Panthéon-Assas (Paris II) [email protected] Ehlers, Andreas Bloch University of Copenhagen [email protected] Karner, Ernst Institute for European Tort Law, University of Vienna [email protected] Koziol, Helmut Institute for European Tort Law, European Centre for Tort and Insurance Law [email protected] Nolan, Donal Worcester College, University of Oxford, United Kingdom [email protected]

List of Contributors | 603

___Oliphant, Ken ___University of Bristol [email protected] ___ ___Scarso, Alessandro ___University of Bocconi [email protected] ___ ___Ulfbeck, Vibe ___University of Copenhagen [email protected] ___ ___van Boom, Willem H. ___University of Leiden [email protected] ___ ___Wagner, Gerhard ___Humboldt University of Berlin [email protected] ___ ___ ___North America ___ ___Feldthusen, Bruce ___University of Ottawa, Canada [email protected] ___ ___Goldberg, John C.P. ___Harvard Law School, USA [email protected] ___ ___Green, Michael D. ___Wake Forest University, USA [email protected] ___ ___Sharkey, Catherine M. ___New York University, USA [email protected] ___ ___

604 | List of Contributors

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Rest of the World Barros Bourie, Enrique University of Chile, Chile [email protected] Fagan, Anton University of Cape Town, South Africa [email protected] Lunney, Mark University of New England, Australia [email protected] Perry, Ronen University of Haifa, Israel [email protected]

NEUE RECHTE SEITE

Index | 605

___ Index ___ Index Index ___ action directe see direct action ___administrative supervision 2/112; 5/36, 7/13, ___ 7/16, 7/39; 10/211–227; 11/79–82, 11/115; 12/190; 16/9, 16/16 ___ ___aims of tort law 13/3–21, 16/4–12, 16/20–24 assumption of risk 3/34; 11/12; 12/12 ___ ___breach of statutory duty 12/38, 12/143; 16/19 ___burden of proof 1/11–12, 1/21; 2/59, 2/69, ___ 2/88–89, 2/101, 3/5, 3/20, 3/60; 4/12–13; 5/28; 6/25, 6/27; 7/6, 7/10, ___ 7/16, 7/41, 7/75–76; 8/20–23, 8/38, ___ 8/43, 8/54, 8/67; 10/41, 10/51, 10/57, ___ 10/62, 10/70–71, 10/88, 10/107–109, ___ 10/122, 10/179, 10/223–227, 10/244, ___ 10/253, 10/257, 10/267; 11/14–15, 11/58, 11/100, 11/105–106, 11/126; ___ 12/30, 12/32, 12/39, 12/139, 12/141, ___ 12/151, 12/162, 12/192–193; 13/34, ___ 13/50, 13/63, 13/79, 13/86, 13/96; ___ 16/12 ___ ___case law 1/7; 6/2–3; 7/14–16; 9/2–3, 9/5; 10/22, 10/25–26, 10/43, 10/51, 10/58; ___ 11/2; 12/33; 16/4 ___ chain of contracts 10/82, 10/85–86; ___ 12/172–178, 12/253, 12/260; 13/45, ___ 13/50, 13/111 ___commercial property 3/14; 6/22; 8/26–28; 10/49, 10/62; 13/38, 13/76; 16/3, ___ 16/25 ___ concurrence of claims 2/25, 2/42, 2/75; ___ 4/70; 5/3; 7/58–59; 8/53; 9/20–27, ___ 9/82–85; 10/9, 10/40–83, 10/92, ___ 10/97, 10/202; 11/62, 11/64; 12/37, ___ 12/43, 12/52–53, 12/83–84, 12/134, 12/146, 12/222–226, 12/245, 12/248; ___ 16/39 ___ consequential damage 1/7; 2/24; 12/12; ___ 13/70 ___constitution 5/2, 5/5; 11/2; 12/3 ___consumer expectations test 3/18, 3/27; 5/9, 5/19–20, 5/29–31: 6/17–19, 6/64; 7/61; ___ 8/30–31, 8/68; 9/14; 10/76–79, ___

10/92–93, 10/105, 10/113, 10/116, 10/118, 10/125, 10/131; 11/21, 11/47, 11/51, 11/54, 11/61; 12/88–89, 12/100, 12/121, 12/161; 13/72, 13/115; 15/8–9; 16/24, 16/27 FN 21, 16/33–34, 16/39 consumer protection 1/15–16; 2/28–30, 2/114; 4/24; 5/1, 5/5, 5/8, 5/36; 6/4–8, 6/47, 6/67, 7/57; 8/1, 8/7, 8/26–29, 8/50; 9/21, 9/103; 10/12–14; 11/17; 12/3–5, 12/7, 12/16, 12/144–146, 12/155–157, 12/188–192; 13/74–77, 13/114; 15/22, 15/24; 16/3, 16/26 contracts for the benefit of third parties 10/47, 10/206–208; 12/143–145, 12/161, 12/208, 12/237; 15/22 contracts with protective effects for third parties 1/13; 7/2; 10/41–42, 10/64, 10/109, 10/160–161, 10/183, 10/240, 10/249, 10/253; 12/180–185, 12/259 contractual liability 1/3, 1/8–13; 2/38–43, 2/72, 2/80, 2/82, 2/91–97, 2/113; 3/34, 3/44, 3/57, 3/68, 3/73–75; 4/19, 4/29–30, 4/65–66, 4/68–70; 5/3–5, 5/23, 5/37–46; 6/4–7, 6/47–63, 6/80–81; 7/2–6, 7/31–32, 7/58, 7/69–70, 7/86, 7/94; 8/2–5, 8/11–14, 8/36, 8/40, 8/45, 8/49–50, 8/60, 8/63, 8/71, 8/83, 8/95, 8/101, 8/105–107; 9/24–25, 9/43–45, 9/84–85, 9/95, 9/106; 10/41–42, 10/44, 10/46–47, 10/51–53, 10/60, 10/64–66, 10/75, 10/82, 10/85–90, 10/107–110, 10/156–161, 10/179–180, 10/183, 10/202, 10/206–208, 10/211, 10/233–235, 10/237, 10/244, 10/249, 10/253–254, 10/257–258, 10/266; 11/8, 11/31, 11/63–64, 11/123–124; 12/26–29, 12/40–41, 12/44–49, 12/109, 12/161, 12/170–185, 12/208, 12/244–247, 12/260; 13/25, 13/37, 13/42–51, 13/110, 13/113; 15/22; 16/27 contributory negligence 6/41; 7/27, 7/62–64; 10/7, 10/118; 11/55 FN 36; 12/12; 13/15, 13/117

606 | Index

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

cost of litigation 5/9–10; 6/27; 11/28, 11/44; 12/164; 13/15, 13/34, 13/120; 15/11; 16/5, 16/13 damage to the product itself 2/22–27, 2/48, 2/107, 2/110; 3/21; 4/2, 4/19; 5/22–23; 6/22, 6/66; 8/19, 8/23, 8/34–35, 8/56; 9/43–45, 9/101; 10/23, 10/26, 10/96; 12/24, 12/73, 12/224 dangerous things 1/20; 3/5; 7/45, 7/91; 10/58–60, 10/102, 10/273; 11/36–37; 13/33; 15/15; 16/29 defectiveness 2/17, 2/31–33, 2/57–62, 2/78, 2/110; 3/16–20, 3/40–42, 3/45–48, 3/62; 4/7–11, 4/20–23, 4/45–49; 5/18–21, 5/28–34; 6/20, 6/26, 6/64–65, 6/76; 7/39, 7/60–61, 7/98; 8/32–33, 8/54, 8/80–81; 9/12–15, 9/34–37; 10/5, 10/29, 10/33, 10/87, 10/92–95, 10/104–105, 10/110–116, 10/119, 10/125–134, 10/174, 10/196, 10/204, 10/207; 11/21–25, 11/46–47, 11/50–57; 12/11, 12/20, 12/88–96, 12/111–126; 13/54, 13/108–109, 13/112; 15/3–12; 16/18, 16/24, 16/28, 16/32–39; 17/9 defences 1/18, 1/22; 2/18–21, 2/34, 2/70–71, 2/111; 4/14–15, 4/50–51; 5/25, 5/54; 6/28–38, 6/77; 7/27; 9/46; 10/7–8, 10/14, 10/49, 10/138, 10/273; 11/76, 11/91–92; 12/12, 12/128–131; 13/53, 13/58; see also development risks defence design defects 1/19; 2/17, 2/88, 2/92–94; 3/17, 3/73–75; 4/9, 4/20–23, 4/48; 5/25; 6/37–38, 6/64; 7/608/32; 9/12, 9/15, 9/34–37; 10/87, 10/111, 10/119, 10/126–129; 11/24, 11/47, 11/50–55, 11/75, 11/93–95; 12/186, 12/241–242, 12/244–247; 13/38, 13/64, 13/88, 13/105–107; 15/4–5, 15/10–12, 15/36; 16/32–39, 16/42 deterrence 2/68, 2/110; 5/9; 6/9; 7/16, 7/57; 8/8, 8/62; 10/167; 11/16, 11/41, 11/105, 11/107–110; 12/164–165; 13/3–21, 13/27–31, 13/78–81, 13/119; 15/31–32, 15/37; 16/1, 16/7–16, 16/22

development risks defence 1/18; 2/19, 2/34, 2/61–62; 3/22, 3/32, 3/41; 4/14, 4/50–51; 5/25; 6/35–36; 7/42, 7/72; 8/68–70, 8/78, 8/120; 9/34–36, 9/69; 10/8, 10/14, 10/16, 10/18, 10/21, 10/24, 10/27, 10/37, 10/52, 10/97, 10/111, 10/140, 10/150, 10/176–177, 10/195, 10/209, 10/232, 10/234, 10/237; 12/12, 12/130–131, 12/165–167; 13/100–102; 14/13–17; 15/6–7, 15/12; 17/10 direct action 1/11; 10/41–42, 10/47, 10/51, 10/64, 10/68, 10/85; 12/28, 12/171–185; 13/49 disclaimers 1/9; 8/4; 10/42, 10/93, 10/109; 13/46–47 drugs see medicine economic analysis 7/60; 13/9–21; 16/1, 16/13–15 enterprise liability 10/171; 11/40–43; 12/163; 13/63–69, 13/86, 13/96, 15/16, 15/35; 16/30–31; 17/14–33 EU Product Liability Directive see Product Liability Directive evidence, lack of ~ 2/114; 8/6, 8/50–51; 10/169; 11/35, 11/100, 11/105–106; 13/23; 16/12 federal law see federal system federal system 11/2–6, 11/7–9; 12/3–4 food 1/20; 2/8–9, 2/29; 11/76, 11/91 FN 91; 14/23; 16/16 general tortious liability 1/9, 1/24; 2/3, 2/6, 2/44–49, 2/59, 2/73–75, 2/83–84, 2/86–90, 2/113; 3/5, 3/8–9, 3/35–37, 3/44–51, 3/70–75; 4/26–28, 4/31, 4/39–42; 6/40–44, 6/68–69, 6/78–79; 7/7–12, 7/31–32, 7/45, 7/66, 7/69–70, 7/79–80, 7/96–97; 8/6, 8/15–18, 8/37, 8/41, 8/46, 8/51, 8/61, 8/64, 8/72, 8/84, 8/90, 8/95, 8/102, 8/108–109; 9/22–23, 9/26–27, 9/31–33, 9/66–67, 9/75, 9/84–85, 9/89, 9/95–99; 10/10, 10/41–42, 10/48–49, 10/54–57, 10/61–74, 10/76–86, 10/97–100,

Index | 607

10/107–115, 10/117–119, 10/152–155, ___ 10/168–169, 10/181–182, 10/184, ___ 10/201–205, 10/209, 10/211–227, ___ 10/235, 10/237, 10/240–242, 10/248, ___ 10/252, 10/255–256, 10/272, 10/275; ___ 11/8, 11/10–15, 11/21, 11/24–25, 11/34–35, 11/53, 11/62, 11/83–85, ___ 11/86–89, 11/116, 11/118–120, ___ 11/125–126; 12/8, 12/30–36, 12/38–39, ___ 12/43–44, 12/53–80, 12/133–142, ___ 12/149–151, 12/157, 12/192–194, ___ 12/202–207, 12/228–233, 12/236–239, ___ 12/248, 12/253–258; 13/22–26, 13/50–53, 13/61, 13/64, 13/71–73, ___ 13/111; 14/1; 15/1, 15/9–11, 15/23; ___ 16/39; 17/4, 17/14–33 ___ ___immovables 1/26; 2/86–90, 2/99–112; 3/3, ___ 3/14, 3/52–63, 3/70–71; 4/59–66; 5/17, 5/63; 8/87–88, 8/111–112; 9/7–8, ___ 9/17–18, 9/44, 9/86–94, 9/101–102; ___ 10/43, 10/243–245, 10/246, 10/251, ___ 10/259–264, 10/267, 10/282; 11/60; ___ 13/38–39, 13/65, 13/81, 13/105, 13/113, ___ 13/122; 14/18–19; 15/14; 16/25 ___independent contractor 3/37, 3/71; 4/35–36; 5/43–46; 6/46; 7/67–68; 8/45, 8/52; ___ 9/56–63; 10/90, 10/101, 10/106, 10/ ___ 108, 10/117; 11/73, 11/118; 12/107–108 ___ informational defects see warnings ___innocent bystander 1/13, 1/22; 2/49–51; ___ 5/15–16; 6/43, 6/67; 7/31, 7/35; 9/38–42; 10/109, 10/118; 11/65–69; ___ 13/75, 13/86, 13/97, 13/111, 13/114–121, ___ 13/124; 15/38; 16/2, 16/31, 16/40–42 ___ instruction defects see warnings ___insurance 2/69; 5/9; 8/10, 8/59; 12/164; ___ 13/30, 13/84; 16/41 ___– first party ~ 11/44; 13/83; 16/41 ___– liability ~ 10/146; 11/41, 11/112–114; 13/76; 15/17, 15/33 ___ intermediate liability 2/6, 2/11–14, 2/65; ___ 9/32; see also supplementary liability ___ ___lapse of time 2/85; 4/57–58; 5/26–27, 5/55–57; 6/69; 7/26, 7/81–82, 7/85; ___ 8/5, 8/75–76, 8/82; 9/76–78; 10/49, ___

10/51–60, 10/62, 10/71, 10/81, 10/89, 10/96, 10/100, 10/112, 10/162–164, 10/186–187, 10/206, 10/236; 11/101–103; 12/14, 12/34, 12/158–160 legislation 1/14; 2/1, 2/8–9, 2/86–90; 3/2, 3/10–12; 4/1; 6/4–8; 7/17–30; 8/1, 8/20–29; 9/1–5, 9/33, 9/89; 10/1–39, 10/91, 10/173; 11/9; 12/2–24, 12/82–103, 12/113–133, 12/147, 12/263–265; 14/4–9; 16/4; 17/4 liability – based on reliance see reliance – fault-based ~ see general tortious liability – for buildings 2/86–90; 3/4, 3/60–63, 3/71; 4/59–64; 7/88–95; 8/90–92; 9/17, 9/89–91, 9/101; 10/251, 10/273, 10/276; 12/9, 12/194–201, 12/226–228, 12/234, 12/240–242, 12/262; 13/93; 14/18 – for land 2/100; 9/17; 11/119 – for others 3/8, 3/12, 3/37, 3/71; 4/31–36; 5/39–46, 5/59–62; 6/45–46; 8/41–42, 8/45–46, 8/84; 9/17; 10/41, 10/108, 10/109, 10/117, 10/179–180, 10/183, 10/222, 10/249–250, 10/253, 10/257; 11/32, 11/70–73, 11/118, 11/124; 12/103–108, 12/231; 12/255; 13/50; 16/31 – joint and several ~ 2/65, 2/67, 2/87–90, 2/94, 2/101; 4/18, 4/33–34, 4/52–53; 5/62, 5/67; 7/38; 8/41–42, 8/88; 9/50–55; 10/32, 10/34, 10/117, 10/254, 10/279; 12/181 FN 132; 11/124 – proportional ~ 11/54 FN 36, 11/124 loss spreading 8/10, 8/59; 10/166; 11/16, 11/41, 11/105, 11/112–114, 11/126; 13/23, 13/66–67, 13/84–85, 13/94–95, 13/97– 98; 15/30, 15/33–34, 15/37; 16/31 manufacturing defects 2/17, 2/110; 3/17; 4/8, 4/46–47; 9/12; 10/126–132, 10/144–146, 10/150; 11/25, 11/38–39, 11/46, 11/75, 11/93–95; 13/61, 13/87; 15/4, 15/6–9, 15/36; 16/32, 16/38 medicine 3/9, 3/40; 10/29, 10/94, 10/158; 11/2, 11/76–77; 13/38; 16/16, 16/25

608 | Index

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

non-pecuniary loss 2/22–27, 2/72; 7/22, 7/42, 7/50, 7/52, 7/79–80, 7/88–91; 10/63, 10/96; 12/13; 13/38 non-standard products see manufacturing defects personal injury 1/16, 1/25; 2/23–27, 2/63; 3/34; 4/19, 4/24–25; 5/22; 6/22; 10/6, 10/50, 10/54, 10/62–64, 10/74–75, 10/81, 10/96, 10/105; 11/49; 12/10, 12/122–123, 12/203, 12/214; 13/75–76, 13/102, 13/120; 17/7 prescription see lapse of time presumption of fault see burden of proof privity of contract 1/9–13; 2/113; 6/1, 6/37, 6/63; 7/18; 8/2–3; 9/103; 10/47, 10/82, 10/107, 10/160, 10/244–245; 11/8, 11/13, 11/65–69; 12/40–41, 12/49, 12/109, 12/143–145, 12/161, 12/170–185, 12/208, 12/237–239, 12/259; 13/37, 13/44–51; 15/23 procedure 2/25–27; 7/47; 11/4–6, 11/7; 12/35–36; 13/23–24; 16/12, 16/20 producer (definition) 3/15; 4/16–17; 5/11–14; 6/12–14, 6/74–75; 8/25, 8/73–75; 10/4, 10/30, 10/35, 10/136–137, 10/175, 10/178, 10/197–199, 10/231, 10/240; 11/116, 11/117; 12/11, 12/117–120, 12/147, 12/157, 12/213 product (definition) 2/9, 2/54–55, 2/103–104; 3/14, 3/38–39; 4/3–5, 4/37–38, 4/43–44, 4/67; 5/17, 5/47–48, 5/63–65; 6/15, 6/73, 6/76; 7/33, 7/83, 7/98; 8/55, 8/78; 9/6–11, 9/17–19, 9/30, 9/65–67, 9/86–100; 10/3, 10/34, 10/123, 10/174, 10/238–239, 10/259–265, 10/278, 10/280–281; 11/94, 11/96–100, 11/121; 12/11, 12/116, 12/153–154; 14/18–19; 15/8; 17/10 Product Liability Directive 1/14, 1/18–19; 3/11, 3/56; 6/8; 7/33, 7/83, 7/98; 9/14; 10/1–40, 10/63, 10/92–97, 10/99, 10/103–106, 10/116, 10/121–151, 10/173–178, 10/231–232, 10/238–240, 10/243–247, 10/259–271; 12/5–6, 12/15, 12/19, 12/112–114, 12/116, 12/210–211; 13/38, 13/53, 13/58–59,

13/75–76, 13/88, 13/92, 13/100, 13/103; 15/8; 16/18, 16/34–36 product safety law 2/8–9, 2/59; 5/31–32, 5/36; 7/39–40; 9/14; 10/31–32, 10/74; 12/7; 16/9, 16/16–20 professional liability 6/72–73; 11/122; 12/214 property damage 2/23–27; 3/13–14; 4/19, 4/24–25; 5/22; 6/22; 10/6, 10/19, 10/23, 10/26, 10/28, 10/42, 10/50, 10/62, 10/75; 11/49; 12/75, 12/203, 12/214; 13/75–76; 17/7 punitive damages 2/9, 2/28–30; 7/55; 9/24, 9/28–29; 11/2, 11/71; 13/6, 13/20; 14/22–24; 16/10–11 pure economic loss 1/25; 3/12; 6/42; 8/16–19, 8/23, 8/34–35, 8/108, 8/110; 9/44, 9/106; 10/50, 10/62, 10/73, 10/240–241, 10/265, 10/275; 12/22, 12/39–40, 12/204, 12/239, 12/251–252, 12/254–258; 13/110 raw goods 3/14; 4/14; 6/15; 8/66; 9/8, 9/87; 10/34, 10/137; 11/91 FN 91, 11/94; 12/11; 15/16, 15/26 reasons for strict product liability 2/87; 3/23; 5/5; 6/9–11; 7/57; 8/7–10, 8/57–59, 8/78–79; 10/10–14, 10/165–172; 11/11–20, 11/26–35, 11/36–44, 11/45; 12/24; 13/1–12; 15/13–39; 16/4–31 reliance 1/13, 1/24; 3/25; 6/51; 7/162; 10/240–241, 10/255; 13/70–73, 13/86, 13/111, 13/114; 15/21–22, 15/25–28; 16/27 FN 21 Restatement of Torts, Second 11/8, 11/21–22, 11/51, 11/66, 11/76; 12/19; 13/71 Restatement of Torts, Third 7/117; 11/40, 11/52, 11/68 FN 53, 11/77–78; 13/61; 16/39 retailers 2/3–16; 7/36–38, 7/83; 9/32, 9/50–55; 10/136–137, 10/199; 11/32, 11/39; 12/17, 12/114, 12/161, 12/148, 12/219–221; 13/44, 13/92, 13/103–104, 13/123; 14/10–12; 17/8 risk of impending harm 10/29, 10/39; 16/35 risks and benefits allocation 1/20–23; 3/24, 3/26, 6/9; 8/9–10, 8/58; 11/41–44; 12/163; 13/30, 13/35, 13/54–69, 13/86,

Index | 609

13/90, 13/94–95, 13/97–98, 13/114, ___ 15/18, 15/28, 15/35, 15/37; 16/2, ___ 16/40–41 ___ risks of industrial mass production 1/19–21; ___ 2/114; 3/23–26, 3/31, 3/54–55; 8/112; ___ 9/101; 10/170; 11/38–39; 13/38–39, 13/58–62, 13/87–91, 13/98, 13/105–109, ___ 13/112–114, 13/122; 14/20; 15/16, 15/28, ___ 15/35–37; 16/37 ___ risk-utility test 3/19, 3/30; 7/60; 10/87, ___ 10/94–95, 10/105, 10/115–116, 10/118; ___ 11/47, 11/52–53, 11/55–57, 11/62, 11/64, ___ 11/74–75; 12/121, 12/206; 13/115; 15/10–11; 16/24, 16/34 ___ ___ services 1/26; 2/9, 2/91, 2/113–114; 3/8, ___ 3/65–68; 4/3–4; 5/64–65; 6/72–75, ___ 6/84–85; 7/18–21, 7/24–27, 7/33, 7/39, ___ 7/68, 7/83, 7/98; 8/62, 8/100, 8/103, 8/110, 8/113–119; 9/67, 9/95–100, ___ 9/103–105; 10/157–158, 10/240, ___ 10/243–245, 10/247, 10/259–262, ___ 10/265; 11/96–100, 11/121, 11/126; ___ 12/116, 12/147, 12/153–154, ___ 12/186–193, 12/212, 12/264; 13/38, ___ 13/65, 13/81, 13/91, 13/105–112, 13/122; 14/20–21; 15/14, 15/19; 16/2, 16/25, ___ 16/28–29 ___ social security scheme 1/3, 1/16, 1/26; ___ 2/69; 7/13, 7/16, 7/77–78; 8/120; ___ 10/228–230; 11/44, 11/115; 13/26, ___ 13/86, 13/102, 13/118, 13/120; 14/13, 14/17; 15/33; 16/10 ___ ___software 3/14; 4/4; 10/278, 10/281; 12/211 FN 162; 13/91; 16/27–28 ___ standard of care 2/73; 3/72; 4/40–42; 8/30; ___ 10/76–80, 10/114–115, 10/252, 10/258; ___ 11/88–89, 11/119–120; 12/56, ___ 12/63–72, 12/137–138, 12/205–206, 12/246–247; 13/18–19; 17/14–23 ___ ___standard products see design defects standards 2/31–33, 2/59, 2/73–74, 2/112; ___ 8/30–31; 11/80, 11/89; 12/27, 12/38; ___ 16/20 ___state law see federal system ___state of the art defence see development risks defence ___

statute of limitations see lapse of time statute of repose see lapse of time strict liability 1/6, 1/9, 1/12, 1/14; 2/1–7, 2/10–36, 2/49–51, 2/56, 2/71, 2/76–79, 2/81, 2/113–114; 3/2–4, 3/6–8, 3/10–12, 3/16, 3/23–27, 3/45–48; 4/12, 4/32; 5/15–36, 5/48, 5/52–54; 6/9–11, 6/23–28, 6/66–68, 6/85; 7/14–30, 7/42–46, 7/56–65, 7/72–74, 7/88–95, 7/98; 8/1, 7–10, 8/24–35, 8/39, 8/44, 8/48, 8/53–59, 8/62, 8/68–70, 8/74, 8/77, 8/84, 8/87–88, 8/99, 8/103–104, 8/111, 8/119; 9/21–23, 9/26–27, 9/31–63, 9/65, 9/68–74, 9/87, 9/90–91, 9/97, 9/100, 9/102, 9/104; 10/10–14, 10/43, 10/46–47, 10/58–60, 10/66, 10/92–97, 10/99, 10/111–113, 10/121–151, 10/157–160, 10/165–204, 10/222, 10/231–232, 10/237–240, 10/244, 10/251, 10/259–271, 10/273, 10/276; 11/8, 11/11–25, 11/27–35, 11/36–45, 11/50–61, 11/63–69, 11/74–75, 11/76, 11/85, 11/90–100; 12/9–10, 12/21, 12/49, 12/81–102, 12/112, 12/121–126, 12/146, 12/161–167, 12/199, 12/201, 12/209–214, 12/234–235, 12/261–262; 13/1–2, 13/22–43, 13/52–124; 14/1–21; 15/1–39; 16/25–42; 17/4, 17/6–13, 17/33 supplementary liability 2/10–16, 2/65–66, 2/81, 2/90, 2/93, 2/101–102, 2/114; 3/61; 9/32, 9/52, 9/55; 13/92–96, 13/98, 13/103–104, 13/123; 14/10–12 unprocessed goods see raw goods Vertrag mit Schutzwirkungen zu Gunsten Dritter see contract with protective effects for third parties vicarious liability see liability for others warnings 2/17, 2/32, 2/34–36; 3/34, 3/42; 4/10, 4/22, 4/49, 4/54–56; 5/30, 5/33–34; 6/17, 6/56, 6/65; 7/62–64; 8/13–14, 8/34, 8/49; 9/36, 9/46–49, 9/101; 10/77, 10/126, 10/153, 10/173,

610 | Index

10/182, 10/254; 11/50, 11/54, 11/57, ___ 11/62, 11/76, 11/119; 12/11, 12/20, ___ 12/69–72, 12/74–80, 12/122; 13/38, ___ 13/58, 13/88, 13/105–107; 15/4–5; ___ 16/32 ___ warranty 4/19, 4/29–30, 4/65–66, 4/68; 5/3–5; 6/61–62; 8/32–33, 8/57; 10/51, ___ 10/84–90, 10/161, 10/206; 12/46, ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

12/49, 12/143–144, 12/161, 12/215–224; 13/48; 15/22 – implied ~ 1/10–11, 1/24; 11/10, 11/13, 11/31, 11/63–64, 11/69; 12/26–29, 12/161; 13/37, 13/46, 13/49, 13/70–71, 13/115; 16/27 wrongfulness 3/19; 7/5–12, 7/73–74, 7/87; 8/15–19; 10/76, 10/277; 17/14–33