Helmut Koziol, Wien/Graz 

I. General remarks

Discussing “product liability” on a comparative basis offers lawyers a wonderful opportunity to learn a great deal about other legal systems, about differences in legal cultures and largely diverging habitual ways of legal thinking. In so doing, it enables them to understand each other better. The effect of this is that comparative lawyers will also be in a position to recognise common bases of individual legal systems as well as the lack of uniformity. They will be variously stimulated. Inspired by alternative solutions and the discovery of new tools to solve problems, their minds will become more open to different ideas and this in turn will increase our understanding of fundamental ideas from various perspectives.

However, they will without doubt also gain the experience that to reach these goals they have to overcome quite some difficulties. First of all, it is obvious that there are language barriers as Codes, Acts and court decisions are drafted in different languages and comparative lawyers from different legal systems communicate in different mother tongues. It is highly difficult to tackle this hurdle by nominating only one language and translating all materials into it. 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 terminology used by lawyers is marked by the whole legal system. Therefore, even private 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. Scholars who speak English as a mother tongue can provide similar examples. Therefore, if lawyers want to understand each other, they have to undergo the difficult and strenuous procedure of always defining 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. Just the discussion of product liability will show the inseparability of tort law from contract law. Further I refer also to fundamental divergences in the overall legal systems[1], e.g. including the social security system, administrative law and criminal law. Such 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.

I feel that product liability is a very suitable area in which to gain experience of nearly all the difficulties and learning how to overcome them, but on the other hand this topic has the advantage that it is a notion well-known worldwide since 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, one is exposed to the danger of getting lost.[2]

Nevertheless, in my view product liability is an excellent starter as it gives us 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 establishing 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 consequences? As far as tort law is concerned: do the special rules fit into a consistent system 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 establishing a legal system which complies with the idea of justice and can be called a legal order and must not to be considered a legal disorder.

It may be that such questions sound slightly strange to common law lawyers, 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 impression that ultimately there is nearly no difference to continental European text books and that even the courts – although maybe in a more hidden fashion – do take regard of an overall system. I think that they do so as it is unavoidable: if, e.g., English courts have to consider whether a case has to be decided in accordance 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, therefore, they have to design a more general rule on the basis of the preliminary decision 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 overemphasise 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 overestimate the general rules of the overall system and to neglect the specific features of the case at hand. Nevertheless, in substance they have to do the same.

II. The interplay of contract law and tort law

First of all, the range of product liability problems teaches us that we can’t restrict our look towards tort law but have to include at any rate contract law into our research. That has been pointed out clearly by quite some 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 system 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 Rogers underlines, 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, that means for the difference in value. But 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 Rogers points 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, other persons than the purchaser, i.e. 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 USA[6] as the courts and the Uniform Commercial Code developed exceptions to the privity rule[7]; therefore the purchaser and even his household were allowed to claim the manufacturer. Further, contractual limitations of the manufacturer’s responsibility were ignored[8]. Of course, the main problems with strict liability under an implied-warranty theory was recognised: the term itself implies a contractual liability with privity and further contractual limitations. Therefore the manufacturer’s strict liability was shifted to tort law[9]. Australian Consumer Law goes even further in providing that producers of goods and services 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.

But solving the problems of product liability by a contractual warranty seems to be fascinating under many legal systems; France gives a wonderful example: Art 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 defect. This rule is of highest practical importance as the courts created for consumer sales contracts the irrefutable presumption that the professional has had knowledge of the latent defect, even if the defect was undiscoverable. Thus the consumer has always a claim on 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 astonishing 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 on those legal systems, e.g. the German and Austrian, 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 or rescission of sale[10]. Further, because of the privity rule, the purchases 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 filled undoubtedly a gap.

But I have to point out that Austrian courts and scholars tried to supply the need of the purchasers – not of innocent bystanders – already before the introduction of special strict liability rules, but not by contract law but an instrument between tort and contract[11]: because of the purchaser’s special reliance in 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 far reaching liability regime similar to that under contract law. German lawyers rejected such 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[12]: producers are liable irrespective of fault for damage caused by defective products they put into circulation. These stricter rules on product liability originate from the USA[13], but the concept spread rather quickly worldwide. It inspired, 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[14]; eg also for the new Chinese Tort Law[15]. 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 liability[16]. The widespread tendency to provide for strict product liability as well as the countermovement in the USA raise fundamental questions.

1.    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 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 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 countries[17] as well as for the United Kingdom[18], France[19] and the Scandinavian countries[20], in contrast to the much less exhaustive American social security system. 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 comprehensive compensation under tort law less urgent in such countries[21]. 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? Don’t we have to take also regard of the fundamental ideas of 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 than to shift the financial burden from the tortfeasor to the social security system[22]? At any rate, such discussion shows us that the interplay of tort law and social security law is of high 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.

2.    The justification for strict product liability

Therefore, we must emphasise 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[23]; 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 ordinances – 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 means self-evident and neither does it present itself from the genesis of the rules[24]. In fact, the Directive was neither based on a well-thought out and recognised overall concept for producer-liability nor on any theory-based, understandable 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 provided 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 production. This could indeed be justified 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, the problem of the so-called “Ausreisser” or “runaways”. The wording of the directive, however, drops the limitation to industrial products so that the liability set out also applies to 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[25]. 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 dangerous thing or he who carries out dangerous activity should not only enjoy the advantages but also bear the risk. However, the producers’ stringent liability 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 substantially 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 B.C. Steininger^[26], 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^[27]. 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^[28]. 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 heard[29] suggestions in favour of a more stringent enterprise liability cannot on their own justify such strict non-fault 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^[30]. Specifically, the 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 accepted, it would on its own not be enough to justify the very strict producers’ liability.

Therefore, we have to ask whether the extremely stringent liability for defective 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 buyers[31]: 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 purchasers 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^[32]. This means that all purchasers bear the disadvantages jointly as a kind of risk community. 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 legal 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 economic perspective end up bearing the costs of the provisions for liability risks on the part of the entrepreneur^[33]. But this rationale does not justify the liability 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 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, Michael Green[34] points 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’s objections are justified: His argumentation is convincing only if you solely take regard of one and the same product; but usually rich persons buy products which are more expensive and I assume that they therefore pay all i, , , n 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 underlined, as it seems to be able 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’t be understood as a warranty in favour of the purchaser it is at least an information for all potential buyers which aims to influence their decision[35]. On the other hand the buyer will and often has to rely on such declarations as he will be not able to inform himself[36]. These are exactly the prerequisites in establishing the so called Vertrauenshaftung (liability based on principles of reliance) which has been designed above all by C.W. Canaris[37] and enjoys widespread acceptance at least in the German speaking countries. This theory is insofar of importance as because of the special contact between the declaring and the relying party far reaching duties of care are established and vicarious liability is as strict as under contract law. Of course, I have to confess that such liability based on reliance is nevertheless a fault based liability. But it seems worth of 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 believer in mono causal theories – but a bundle of reasons is able to justify the producers strict liability at least partly, we should not omit also to discuss arguments against such result, eg the ideas of David Owen[38]. 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. But I feel that this argument is not convincing, as those who are injured by a defective product suffer damage to high ranking interests, i.e. body, health, property; whereas the shareholders suffer pure economic loss. Further the victim would have to bear his loss alone, whereas the burden of product liability is spread to a great number of shareholders and other consumers. Owen underlines further 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 Europeans really come to the conclusion that the product liability rules provided by the EU can be justified – if at all – only in part, as their strictness appears unreasonable and there is no justification for including innocent bystanders 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 immoveables, 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 and in the end will the discourse will pave the way for a reasonable and therefore compelling solution for the area of product liability. As to my opinion, I think that there are not enough convincing reasons to burden the producer with strict liability. Rather the producer should be treated in accordance with the rules on enterprise liability. Such liability should be a liability for misbehaviour, but it ought to be 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: “(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 Austrian Tort Law Draft 2007 follows this line of thought by providing: “§ 1302. (1) A person who operates an enterprise out of commercial or voca-tional interests is also liable for damage caused by a defect in the enterprise or its products or services. The entrepreneur is not liable if he proves that the care necessary to avert the damage was exercised.”