New Law - Proposed reforms to the Product Liability Directive

New Law - Proposed reforms to the Product Liability Directive

Chris Hodges considers the implications of the proposed reforms for future of claims

The European Commission's proposal to modify the 1985 Product Liability Directive to include primary agricultural products and game has not proved too controversial. However, the European Parliament has put forward a number of other proposed changes to the Directive which are extremely wide-ranging, and are causing great concern within the insurance and manufacturing industries.

On 1 October 1997, the Commission issued a proposal to modify the 1985 European Product Liability Directive ("the Directive") so as to provide that individuals throughout the EEA may seek compensation for damages caused by defective primary agricultural products which are marketed after 1 January 1999.

The Directive originally provided that primary agricultural products (i.e. products of the soil, stock-farming and of fisheries) and game are not covered by its provisions. However, products which have undergone initial processing are covered. Nevertheless, member states were given the option of providing for liability on the part of agricultural producers for defective primary products. This derogation was enacted by Greece, Luxembourg, Sweden and Finland.

When the Directive was being drafted, there was strong pressure from the agricultural sector to exclude agricultural products from the scope of the Directive. It was argued that strict liability for defective agricultural products might be too great a burden if these products were not industrially manufactured. This was accepted by the European Parliament.

In deciding to revive the original proposal to include all agricultural products, the Commission was influenced by the following factors:

• an increase in public expectations of greater protection of health, particularly arising out of fears raised by BSE. A survey in 1997 found that 35% of EU citizens consider that food is not safe;
• the fact that liability for agricultural products exists under the national laws of Greece, Luxembourg, Sweden, Finland, and France (as considered by GŽrard Honig at page 8), and that such liability is viewed as a more efficient compensation system;
• the absence of irreversible negative effects being observed on agricultural economies and insurers in general, in the Commission's 1995 report on the Directive;
• uncertainty as to the scope of the exclusion resulting from the definition of the concept of "initial processing";
• imperfect harmonisation of the law governing the liability of farmers, leading to a distortion of competition and impedance of the free movement of agricultural products.

The Commission stated that its objectives in this proposal are to increase the level of consumer protection against damage caused to consumers' health and property by a defective product, and to further the approximation of national laws with regard to liability for defective products. The Directive will not have retroactive effect but will apply to primary agricultural products and game put into circulation from 1 January 1999.

If adopted, this measure would introduce liability of farmers for their products. Liability would, in addition, continue to rest with the processor who produces a finished product, or with a person who presents himself as if he were the producer of the product by putting his name or trademark on it. Where one or more producers of the same product exist, or it can be said that a farmer and then a processor are responsible for a product which can legally be defined as being two separate products, the consumer has an option of which defendants to sue.

Parliament's proposals for radical reform of the Directive

The proposed amendment relating to primary agricultural products and game is relatively uncontroversial. However, in the course of the consideration of this proposal by the European Parliament, a number of other changes to the Directive were proposed and were adopted on 23 September by its Environment Committee, which were extremely wide-ranging and caused the greatest concern to the insurance and manufacturing industries.

• Burden of proof: in "typical situations" it would be possible for a court to infer the existence of a defect or of a causal relationship between defect and damage, shifting the burden of disproving these points onto the producer. The plaintiff would merely have to prove damage. The circumstances in which this presumption might operate (i.e. what would be a "typical situation") is quite unclear.
• The "development risks" defence would be deleted. The defence provides that a manufacturer can rely on this where his product contains a defect which he could not have discovered prior to marketing, based on the existing state of scientific and technical knowledge. The defence is, therefore, of considerable importance to defects arising out of products which contain innovations.
• The lower threshold of ECU 500 for cases of material (i.e. property) damage.
• The 10 year period of repose for all claims would be deleted. This provision currently provides the certainty of a finite cut-off period. The recent Law Commission proposals on limitation supported the introduction of a cut-off period for all claims in English law.
• Mental damage would be included as being specifically claimable.

The proposals have not arisen as a result of any practical problem with the Directive or its operation - they were not called for in the Commission's 1995 review nor in any case relating to the Directive.

They are simply a consumer "wish list". They take no account of the balance which it is necessary to achieve between consumers and industry, nor the effects which would inevitably flow if the careful balance provided for in the Directive were to be upset. That balance would in fact be completely upset if any or all of the amendments were accepted. There would be the spectre of increased litigation and increased insurance costs.

Considerable lobbying was undertaken by industry on these proposals and when they were considered by the full Parliament on 5 November 1998, the only ones accepted were on agricultural products, mental injuries and the 500 ECU deductible, with two new variations in that the 10 year cut-off should be extended to 20 years where a product had a hidden defect and the cap on liability should be doubled to 140 million ECU. Fortunately for industry, on 7 December the Council of Ministers decided not to accept any amendments other than the original extension to agricultural products. The matter now reverts to the Parliament and it will be interesting to see whether the process ends in a negotiated compromise in 1999.

The Commission believes that there is no data on which to base any of the Parliament's amendments.

The Commission wants to evaluate possible changes to the Directive strictly on the basis of hard evidence: how many claims are made, how many fail because of a defect in the law, and what would be the effect and cost of any change in the law? The Commission wants to gather relevant information and consider it in a transparent manner: it intends to issue a Green Paper on the subject during 1999.

Whilst it may be that the Parliament's attempts to amend the Directive will not succeed this time, the issue of reform will clearly be around for the next couple of years. Manufacturers and insurers should ensure that they are well informed on this issue and continue to lobby the Council of Minsters, Parliament and Commission. We have been working closely with industry and trade associations on this issue.