(P.436) (b) The eec competence for the Product Liability Directive and its lasting significance

If the European Commission had little difficulty in finding draft provisions for its intended directive on product liability, it should have found rather more in identifying an appropriate competence under which to enact the requisite legislation given the absence at the time of any provision in the Treaty of Rome providing for the protection of consumers.⁴³ Nothing daunted, the Commission and the Council turned to article 100 of the Treaty of the time (now article 94 EC), by which directives were to be issued ‘for the approximation of such legal provisions as directly affect the establishment or functioning of the Common Market’. This vires had two key consequences for the substantive impact of the ensuing Directive of 25 July 1985: it meant that the Directive required unanimous agreement (which in its turn led to further compromise); and it required the Directive’s purposes to be skewed towards the functioning of the common market rather than the protection of consumers (which led in its turn to the European Court’s decisions of 2002 holding that in the matters regulated by it, it required ‘complete harmonisation’ of the law).⁴⁴

First, reliance on article 100 of the Treaty as the legal basis of the Directive meant that it required the unanimous agreement of all Member States,⁴⁵ and of course, unlike a Convention of the Council of Europe, a directive left much less room for choice in its implementation by a Member State. This requirement of unanimity was the root cause of the important substantive compromises in the Directive both in the substantive balancing between the interests of ‘victims’ and ‘producers’ and as regards the extent to which it required the harmonisation of laws in the Member States.

The extent to which the Directive itself qualified its own purported purpose in harmonisation is quite remarkable, even given its own acknowledgement that ‘harmonization resulting from this cannot be total at the present stage, but opens the way towards greater harmonisation’.⁴⁶ For Member States were explicitly able to decide whether or not to include within their implementing legislation: (a) liability for ‘primary agricultural products and game’;⁴⁷ (b) the so-called ‘development risks’ defence for producers (said to be a condition of the agreement of the UK);⁴⁸ and (c) a ceiling of liability for a producer of no less than 70 million ECU for death or personal injury caused by identical items with the same defect.⁴⁹ Moreover, the Directive explicitly referred a number of questions to the laws of the Member States, including whether or to what extent the producer’s liability should be reduced on the ground of the fault of the injured party;⁵⁰ the applicable rules regulating the suspension or interruption of the limitation period of three years which it required;⁵¹ the rules governing the right of contribution or recourse of a person held liable under the Directive against (p.437) another person also liable for the harm, whether under the Directive or not;⁵² and the question whether liability should extend to the recovery of ‘non-material damage’.⁵³ As regards other issues (such as the interpretation of the causal relationship between defect and damage,⁵⁴ the meaning of ‘burden of proof’,⁵⁵ and the appropriate rules regarding the assessment of damages) in principle the European Court is left with a choice as to whether to take an autonomous European interpretation or instead leave these to be decided by the laws of the Member States, or something in between.⁵⁶

It is also in this light that the important provision in article 13 of the 1985 Directive dealing with the relationship between liability required by it and on other legal bases should be viewed. Here, the European Convention was more explicit, providing (i) that contracting States shall not adopt rules derogating from the Convention, even if more favourable to the victim;⁵⁷ but also providing that the Convention ‘shall not effect [sic] any rights which a person suffering damage may have according to the ordinary rules of the law of contractual and extra-contractual liability including any rules concerning the duties of a seller who sells goods in the course of his business’⁵⁸ and permitting States to ‘replace the liability of the producer, in a principal or subsidiary way, wholly or in part, in a general way, or for risks only, by the liability of a guarantee fund or other form of collective guarantee, provided that the victim shall receive protection at least equivalent to the protection he would have had under the liability scheme provided for by this Convention’.⁵⁹ So, while the Convention’s scheme of liability was to remain intact, other traditional bases of liability could remain and could even be replaced by a compensation scheme resting on a basis other than on liability as long as it gives the consumer its minimum protection. This last caveat reflects nicely the Convention’s focus on the effectiveness of an injured person’s compensation rather than with a producer’s liability.

Article 13 of the 1985 Directive retained only one element of these provisions, stating 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 liability or a special liability system existing at the moment when this Directive is notified.

The second half of this provision is relatively straightforward, allowing those Member States which possessed an existing ‘special liability system’ to retain it, the preamble giving the example of the German law governing liability for pharmaceuticals, itself a particular response to the impact there of Thalidomide.⁶⁰ The first half of article 13 clearly allows a Member State to retain its existing general laws (whether of contract or non-contractual liability) even where the regime of liability required by the Directive applies, but does it require them to do so? The language is imperative (‘[t]his Directive shall not affect…), but this seems to fly in the face of the Directive’s overriding purpose of harmonisation which would prefer the abrogation of existing bases of liability in favour of the ‘harmonised’ system required by the Directive. The original purpose of article 13 appears to have been to allow those Member States whose existing laws affecting liability for products were more generous to victims to maintain their existing level of (p.438) protection, while at the same time agreeing to the introduction of a parallel system of liability at least in some respects less generous to victims.⁶¹ As I shall explain, however, the European Court of Justice has taken a narrow interpretation of article 13 in the interests of limiting its inroad into the ‘completely harmonious’ nature of the regime which it declares that the Directive intended, thereby coming to a position as if the Directive had contained a provision expressly preventing any alteration of its scheme of liability even in favour of the victim as was actually provided by the Convention.⁶²

This interpretation of article 13 by the European Court is directly related to the second consequence of use of article 100 EEC of the time as the 1985 Directives legal basis, as it required it to be tied to the ‘functioning of the Common Market’ rather than simply the need to promote harmonisation in the interests of facilitating compensation for the victims of products or legal certainty for producers by the substantive reform of the law of product liability throughout the Member States of the European Community. So, the first recital of the preamble to the Directive asserts that the ‘approximation of laws of the Member States concerning the liability of the producer for damage caused by the defectiveness of his products is necessary because the existing divergences may distort competition and affect the movement of goods within the common market’. The first and necessary justification for the enactment of the Directive was therefore economic rather than social or technically juristic; and this economic justification is fundamentally centred on the position of producers rather than claimants, as it is tied to the need to approximate the financial burden of their liability for defective products (whether borne directly or indirectly through the costs of insurance) in the interests of a ‘level playing field’.

Tacked onto this economic justification asserted by the Directive’s preamble, however, are arguments from the need for consumer protection, whether generally or in relation to particular provisions. So, its first recital continues that the approximation of laws is also necessary because divergences in liability ‘entail a differing degree of protection of the consumer against damage caused by a defective product to his health or property’. The protection of consumers is further relied on by the preamble as the reason for requiring the imposition of what an English lawyer would see as joint and several liability on ‘all producers involved in the production process’, on Community importers and on all those persons ‘who present themselves as producers’;⁶³ for its definition of defectiveness in terms of ‘legitimate expectation’; for its inclusion of compensation for damage to ‘consumer property’;⁶⁴ and for its rules preventing the exclusion of its protective effect either by exemption clause or by choice of law.⁶⁵

On the other hand, the justification for its central decision to impose ‘liability without fault’ on the producer is said to be because this is ‘the sole means of adequately (p.439) solving the problem, peculiar to our age of increasing technicality, of a fair apportionment of the risks inherent in modern technological production’.⁶⁶ The idea of the ‘fair apportionment of risks’ is also used by the preamble to justify the ‘certain exonerating circumstances’ (six in all) available to defendants under the Directive.⁶⁷ It appears to do little other than express in the language of fairness and risk allocation a fundamental decision of policy without any real explanation as to its more concrete reasons for coming to this view. Other aspects of the regime of liability which the Directive requires are justified merely on the basis of their ‘appropriateness’ or even ‘reasonableness’ for one reason or another or none in particular.⁶⁸ The creation of ‘a uniform period of limitation for the bringing of action for compensation’ (sic) is justified on the basis that it is ‘in the interests both of the injured person and of the producer’.⁶⁹ Other details are imposed simply because they ‘should be’ the case, for example, the possibility of reliance by an injured party on claims for damages ‘based on grounds of contractual liability or on grounds of non-contractual liability provisions other than that provided for in this Directive’.⁷⁰ All in all, the preamble is rich in assertion and poor in articulate justification for the positions which it reaches.

Nevertheless, we can see that in this way the European legislature pegged this directive’s imposition of liability very loosely onto the economic justifications required by article 100 of the Treaty, but then used consumer protection (representing the interests of ‘injured persons’) and the ‘fair apportionment of risks’ (the interests of injured parties balanced against the interests of producers) as the basis for the rules which it requires. Even at the time, though, serious doubts were expressed as to the legitimacy of pegging harmonisation of producer liability to the Community’s concerns with fair competition and free movement of goods, even if it is accepted that the Directive does indeed harmonise the law of liability within its own designated ambit.⁷¹ For while differences in rules governing the liability of producers in respect of personal injuries and death caused by their products certainly existed, there was little evidence to suggest that these differences were reflected in differences in costs for producers of a significance to support the assertion that they ‘directly affected the establishment or functioning of the internal market’.

For a number of years, it could be thought that this intellectual legerdemain had worked and that the European Commission and Council had managed to finesse the latter’s competence to issue a directive so as to promote a reform of the law in the interests of EC citizens, had created a consumer dimension to EC law before its recognition in the Treaty and had achieved a new degree of juristic integration by its effect on the heartland of national private laws. However, the legal foundations of the (p.440) Directive in the need to remove distortions in competition and more generally in the needs of the internal market later exacted their revenge in the decisions of the European Court in 2002 which held that in principle its new law of product liability created not merely a minimum set of requirements for Member States, but also set a maximum beyond which they were not entitled to go.⁷² As a result, the tying of competence to the economics of the internal market led to a formal (if not a substantive) limitation on the possible protections which Member States can create for consumers.