Reform of product liability in the EU: new report finds general satisfaction: the study, conducted by the law firm Lovells for the European Commission, consists of expert studies, survey of participants, and results.

• Author: Meltzer, John

EUROPEAN Economic Community Directive 85/374 on product liability introduced into the European Union a common basis of liability on which persons in all member states could seek compensation for "defective" products. (1) The directive has remained substantially unchanged since its adoption in 1985, but the possibility of reform has been on the European Commission's agenda for some time. In 2002, Lovells was appointed by the commission to carry out an extensive study into the functioning of the directive and other product liability laws operating throughout the EU, and to consider the need for reform. The results of that study are contained in a report to the commission published in June 2003, and its conclusions are discussed in this article. (2)

THE DIRECTIVE

The product liability directive has been a controversial piece of legislation. It sought to reconcile the seemingly conflicting interests of consumers, who wanted a ready means to seek redress for harm caused by unsafe products, and producers, who were concerned about the directive's potential to stifle innovation and increase costs. There were certainly many people who felt that the directive did not properly take account of these different interests. This might explain why it was decided that the European Commission would keep the functioning of the directive under review and, at regular intervals, present a report to the Council of the European Union with any recommendations for reform. In fact, Article 21 of the directive requires reports on the application of the directive, initially after ten years and then every five years.

The commission's first report to the council was presented in 1995. It was based on an impact study conducted by the law firm McKenna & Co. At that time, the directive had not been implemented in all member states, and even in those states where it had been implemented, the experience of the directive was limited. (3) The commission concluded that there was insufficient experience under the directive on the basis of which to make any proposals for reform.

Before the commission presented its second report in 2001, it obtained views from a wide variety of groups on the various "options" for reform set out in its Green Paper on Liability for Defective Products? These included:

* Modifying the burden of proof to make it easier to establish liability in certain circumstances;

* Removing the development risks defence;

* Extending the 10-year long stop;

* Introducing class or representative action procedures in respect of product liability claims;

* Providing compulsory insurance cover for manufacturers.

The commission made it clear in the 2001 Green Paper that it was committed to maintaining what it believed was the essential balance in the product liability directive between the interests of producers and those of consumers. This balance was said to be rooted in certain principles, in particular that:

* The producer's liability is (1) "objective" in that it is based on the defectiveness of the product, rather than any fault on the part of the producer; (2) "relative" in that it does not extend, for example, to development risks; and (3) limited in time in that, for example, it does not extend beyond the period of the 10-year long stop.

* The consumer can establish liability only if there is proof of (1) defect; (2) injury; and (3) a causal connection between defect and injury.

Perhaps it is not surprising that, given the nature of the reform "options," the responses to the Green Paper from consumer representatives were generally supportive of the proposals, and those from industry in favour of maintaining the status quo. In its second report to the council in 2001, the commission reviewed the responses to the Green Paper and concluded that (1) there remained a need to maintain a balanced framework of liability; (2) the Green Paper consultation process had failed to produce the factual information necessary to enable any "firm conclusions" to be drawn on the options for reform; and (3) in order to fill the "information gaps," some follow-up studies were needed. In particular, the follow-up studies should include insights into the practical operation of product liability systems throughout the EU, including the directive, as well as into the economic impact of abolishing the development risks defence.

Lovells was commissioned to conduct the first of these studies. The second is under way and was completed by the end of 2003.

THE STUDY

1. Objectives

   The main purpose of the study was to provide the European Commission with information about the practical effects of product liability laws in the EU to enable it properly to assess the need for reform. To this end, the study sought to:

   * obtain evidence of the practical operation of product liability systems throughout the EU, including that of the directive, from persons or organisations most closely affected by those systems;

   * assess the need for reform of the provisions of the directive; and

   * assess the need for further harmonisation of product liability laws in the EU and, in particular, the possibility of abolishing Article 13 so as to make the directive the sole and exclusive basis of all product liability claims. (5)

2. Methodology

   The study was divided into three stages.

   1. Country-specific Reports

      In the first, reports were prepared by experts in each member state of the EU (either academic lawyers or practitioners) on the product liability systems in those states. These reports provided the background needed to be able to plan the second stage.

      What became apparent from a review of the country-specific reports was that the national liability systems throughout the EU rest on a common basic framework. Consequently, producers or suppliers can be liable under one or more of three systems of liability:

      * The directive itself. The directive has now been implemented in all member states.

      * Contract. In almost all member states, the law of contract can come to the aid of a consumer injured by a product if the injury results from a breach...