Introduction

Chapter 1

Product Liability in Hong Kong

1.1 Despite the efforts of the Government, the Consumer Council and other bodies in promoting the importance of product safety, incidents of injury and damage caused by unsafe or defective products have been incessant. Some of these incidents had even caused death. The number of cases concerning unsafe products reported to the Consumer Council were 125, 183 and 131 in 1993, 1994 and 1995 respectively. Some of the more illustrative cases were published in the Consumer Council’s ‘Choice’ magazine. The published cases showed the wide range of products which could cause injuries and deaths. The following data is updated as of July 1996:-

Product Folding table Folding bed Table lamp Washing machine Baby crib Baby pushchair Tape recorder cleansing fluid Luggage trolley Pressure cooker Arm-wrestling machine Freon (a refrigerant) LPG Cassette Cooker Air-rifle

Injury/Death Eight children trapped and killed One old woman trapped and died of heart attack One student died of electrocution An eighteen-month old child drowned A twelve-month old child died of suffocation as head was trapped between the railings A twenty-one month old child died of asphyxiation. Five incidents of injuries caused by structural defects A six year old child died of accidental poisoning Three incidents of injuries to face, and serious or permanent eye injuries Four incidents of explosions causing injuries to two persons Five incidents of broken arm Two incidents of explosions causing injuries to four persons One incident of serious injury caused by explosion One incident of permanent eye injury

1.2 Other products which the Consumer Council found inherently unsafe include:-

Product	Unsafe Feature
Hair-dryer	Hair trapped in air inlet and got burnt; wiring may cause fire
Water pump in fish tank	May cause fire
Plug socket	May cause fire and electrocution
Adaptor	May cause fire and electrocution
Electric food-mixer	May cause fire and wounds
Condom	Leakage cause exposure to sexually transmitted diseases including AIDS
Lipstick	Suspected to contain carcinogen
Hair-spray	Suspected to contain carcinogen
Hair-dye	Contain irritants, heavy metal ingredient and suspected to contain carcinogen
Chair	May collaspe and cause injury
Steam iron	May cause electrocution
Rice cooker	May cause fire
Heating rod in closet	May cause fire and electrocution

1.3 The above figures are likely to be just a fraction of the actual number of incidents of injury and damage caused or partly caused by unsafe or defective products, because not every such case would be reported to the Consumer Council. It is difficult to ascertain the actual number of injuries and deaths caused by unsafe or defective products due to the fact that data compiled by the Department of Health and the Hospital Authority do not categorize information in this manner. According to the Hospital Authority Annual Report 1994 - 1995, there were over 1.7 million cases of Accident & Emergency attendances (including follow up attendances). This figure inevitably covers also injuries caused by traffic accidents, industrial accidents, assault, etc. In one study conducted in the United Kingdom,⁸ it was estimated that about one per cent of all injuries may be caused by defective products including drugs. If we also assume one per cent of the 1.7 million cases of injuries in Hong Kong were caused by unsafe or defective products, and taking account of the fact that some of the injury cases would be treated by private doctors, the number of injuries caused by unsafe or defective products would be considerable. Although one would expect the majority of these injuries and damage to be minor in nature, product liability injuries and damage have the potential to cause serious injuries affecting a large number of people.⁹

1.4 There are not many known legal actions of product liability in Hong Kong. We believe there are multiple reasons for this phenomenon:-

(a) If the injury or damage is suspected to have been caused by misuse, then the user would refrain from making any claim.

(b) It could be due to the reserved nature of Asian culture, such that instead of making a claim, people would merely stop using the product. It is believed by some, however, that the reserved attitude is gradually eroded due to influence of Western culture.

(c) It could be due to the fact that the majority of the injuries or damage are minor, and could be settled expeditiously by the parties involved without legal action. This coincides with the findings of a study that product liability claims tend to be disposed of at an earlier stage than other claims.¹⁰

(d) The lack of claims could be due to the fact that the average citizen would find the complexity of the existing law and the costs involved prohibitive, even if they have a valid claim.

1.5 We shall in the next two chapters review whether the existing law is adequate for product liability claimants, which are not restricted to consumers alone. A claimant under Part I of the United Kingdom Consumer Protection Act 1987, for instance, need not be a purchaser or even a direct user of the defective product. Hence, our terms of reference will affect the community at large, as well as consumers.

Chapter 2

Product Liability Law in Hong Kong

2.1 The terms of reference should be considered in the light of the existing legislation on product liability and it is essential first of all to examine the extent of protection afforded by the existing law before determining what changes in the law are appropriate. The existing law on product liability for personal injuries and damage to property, both civil and criminal, is comprised of both case law and legislation. Although this Consultation Paper is concerned with the review and reform of civil liability, the existing position on criminal liability will also be briefly set out.

Criminal Liability

2.2 Our review of the existing law begins with a recent enactment which imposes criminal liability for unsafe products. Section 6 of the Consumer Goods Safety Ordinance (No. 84 of 1994) stipulates that a person shall not supply, manufacture or import into Hong Kong consumer goods unless the consumer goods comply with the general safety requirement or the applicable approved standard for the particular consumer goods. The general safety requirement is an objective test requiring consumer goods to be reasonably safe having regard to all the circumstances including the manner in which the goods are presented and promoted, the instructions or warnings given, reasonable safety standards published by a standards institute, and the existence of any reasonable means to make the goods safer taking into account the cost, likelihood and extent of any improvement. Defences for contravention of section 6 of the Consumer Goods Safety Ordinance include:

1. a person took all reasonable steps and exercised all due diligence to avoid committing the offence.¹¹

2. a person reasonably believed that the consumer goods would not be used or consumed in Hong Kong.¹²

3. a person supplied the consumer goods as a retailer and he neither knew nor had reasonable grounds for believing the consumer goods failed to comply with the general safety requirement.¹³

4. the consumer goods were not supplied as new goods.¹⁴

2.3 A person found guilty is liable to a fine at level 6 and to imprisonment for 1 year on first conviction, and a fine of $500,000 and to imprisonment for 2 years on subsequent conviction.

2.4 The scope of the Consumer Goods Safety Ordinance should be noted in that it is not applicable to a range of goods specified in the Schedule to the Ordinance. These include food, water, pleasure craft and vessels, motor vehicles, gas, electrical products, pesticides, pharmaceutical products, traditional Chinese medicines, toys and children’s products, and any other goods the safety of which is controlled by specific legislation.

2.5 There are also various ordinances dealing, inter alia, with criminal product liability of specific products, including:-

(a) Toys and Children’s Products Safety Ordinance (Cap. 424)

- which provides for safety standards in relation to toys and children’s products.

(b) Part V of the Public Health and Municipal Services Ordinance (Cap. 132), and the subsidiary legislation

- which makes it an offence to sell for human consumption, any food rendered injurious to health by the use of adulterants, and any drug injuriously affected in its quality, constitution or potency by the use of adulterants.

(c) Pharmacy and Poisons Ordinance (Cap. 138) and the subsidiary legislation

- which controls the sale and possession of certain poisons and pharmaceutical products.

(d) Antibiotics Ordinance (Cap. 137) and the subsidiary legislation

- which controls the sale and supply of certain specified antibiotic substances.

(e) Electricity Ordinance (Cap. 406) and the subsidiary legislation

- which provides safety requirements for electrical products.

(f) Dangerous Goods Ordinance (Cap. 295) and the subsidiary legislation

- which regulates the possession, manufacture, shipment, storage, sale and use of dangerous goods such as explosives, compressed gases, petroleum, poisonous or corrosive substances, readily or spontaneous combustible substances.

(g) Gas Safety Ordinance (Cap. 51) and the subsidiary legislation

- which regulates the importation, manufacture, storage, transport, supply and use of gas in the interests of safety.

(h) Nuclear Material (Liability for Carriage) Ordinance (No. 45 of 1995)

- which regulates liability in respect of injury or damage caused by the carriage of nuclear material in Hong Kong.

Civil Liability for Breach of Statutory Duty

2.6 While the provisions of the Consumer Goods Safety Ordinance provide a criminal sanction for non-compliance, they do not automatically enable the consumer to claim compensation. Case law shows that when construing legislation the court is reluctant to imply civil rights for victims. The rationale seems to be that the legislation is for the protection of the public generally and is not intended to afford a civil remedy to individual members of the public. In Square v Model Farm Dairies (Bournemouth), Ltd.,¹⁵ a consumer who suffered illness from contaminated milk brought a civil action for damages for breach of statutory duty. The Court of Appeal rejected his claim because the consumer had a remedy for breach of contract under the Sale of Goods Act. However, in Buckley v La Reserve,¹⁶ a consumer who suffered severe food poisoning but was taken to a restaurant as guest and therefore had no contractual claim, still had her civil claim for breach of statutory duty dismissed by the court. Other cases which show the court’s restrictive interpretation include Phillips v Britannia Hygienic Laundry Co., Ltd.¹⁷ and Badham v Lambs Ltd.¹⁸

2.7 Hence a civil claim for breach of statutory duty can be brought only if the legislation expressly provides for this. If the legislation is silent on the point, the presumption is that it gives no civil remedy. Given the above, whilst the existence of the Consumer Goods Safety Ordinance as well as the legislation set out in paragraph 2.5 above offer protection to consumers by imposing standards and criminal sanctions and fines on manufacturers and suppliers, consumers cannot claim compensation by civil action for breach of statutory duty (except under Nuclear Material (Liability for Carriage) Ordinance (No. 45 of 1995)), and must instead sue for breach of contract or for breach of duty of care in tort.

2.8 Similarly, the Toys and Children’s Products Safety Ordinance (Cap. 424) deals with only criminal but not civil product liability. The Ordinance requires toys and children’s products to meet internationally recognised standards as well as the “general safety requirement”¹⁹ which means a duty to ensure that the product is reasonably safe having regard to all the circumstances. Failure to comply with the safety standards will attract fine and imprisonment. However, there is no provision relating to civil liability in this Ordinance and compensation can be claimed only by instituting legal action in tort or contract.

Civil Liability

2.9 Civil product liability law in Hong Kong can be found in the law of contract and the law of negligence which will be examined in turn.

Law of Contract

2.10 Provided the consumer has a direct contractual nexus with the seller, the consumer is entitled to damages if the other party has broken an express or implied term of the contract. For persons dealing as consumer, the Sale of Goods Ordinance (Cap. 26) comes into play by implying into the contract certain terms which are examined below. The seller would be liable for any breach of the terms of the contract even though he has taken all reasonable care and is in no way to blame for the defect. The question lies in quantifying the claim and deciding for what items of loss the seller is liable and on what principles should compensation be assessed.

2.11 Provided the damage satisfies the requirements of remoteness of damage, then subject to the consumer’s duty to take reasonable steps to mitigate loss, the general principle of compensation is that compensation should, so far as possible, place the injured party in the same position as if the contract had been performed properly. Hence the consumer would be compensated for any harm to the person, property and his economic position. However, to compensate a claimant for all loss which flows from a breach of contract would often lead to undesirable results. The law has therefore developed certain rules on remoteness of damage for the purpose of limiting damages.

2.12 Case law governing remoteness of damage dates back more than 100 years to Hadley v Baxendale.²⁰ The case involved the plaintiff sending a piece of equipment to the manufacturers to serve as a sample for the production of a new one. The manufacturers delayed its delivery so that there was a stoppage of work of several days at the plaintiff’s mill. The plaintiff sought to claim damages for their loss of profit during the stoppage period. The court laid down certain principles:

“The damages ... should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach.”²¹

2.13 Apart from injury to person and damage to property, the consumer is also entitled to compensation for mental distress under common law. The leading case on compensation for mental distress is Jarvis v Swan Tours²² which concerns breach of holiday contracts. The first sale of goods case in which mental distress compensation was awarded was the Court of Appeal case of Jackson v Chrysler Acceptances,²³ in which the claimant made it clear that the car was bought for a family holiday, and hence, a spoilt holiday was held to be a foreseeable consequence of the breach of contract. A claim for mental distress compensation was, however, disallowed in a purely commercial dispute because the object of the contract was not to provide peace of mind or freedom from distress.²⁴ It seems that the claim can be sustained more easily if the aggrieved party is dealing as a consumer.

2.14 Legislation, such as the Sale of Goods Ordinance (Cap. 26), the Sale of Goods (Amendment) Ordinance (No. 85 of 1994) and the Control of Exemption Clauses Ordinance (Cap. 71), has supplemented the protection offered by the common law concerning claims for compensation for breach of contract. Section 16 of the Sale of Goods Ordinance offers protection to persons dealing as consumer by implying into contracts for supply of goods, a condition that the goods are of merchantable quality. Following amendment of the Sale of Goods Ordinance in 1994, the definition of merchantable quality has been expanded and now one of the requirements is that the goods should be as free from defects (including minor defects) and as safe as it is reasonable to expect having regard to the description, the price (if relevant) and all other relevant circumstances. It should be noted that there is strict liability in respect of merchantable quality; the seller will not be able to avoid liability by proving he neither knew, nor ought to have known, of the defect.

2.15 To ensure that the consumer can enjoy the implied term of merchantable quality, section 11(2) of the Control of Exemption Clauses Ordinance (Cap. 71) stipulates that liability for breach of the said implied condition of merchantable quality cannot be excluded or restricted by a contract term as against a person dealing as a consumer. Apart from regulating exclusion of liability for breach of contract, the Control of Exemption Clauses Ordinance (Cap. 71) covers also liability in tort for negligence so that a person in business cannot validly exclude liability for negligence causing personal injury or death.

Law of Negligence

2.16 If the claimant does not have a contractual relation with the supplier of the goods, he will have to bring proceedings in tort for compensation. The onus is on the claimant to prove negligence by establishing:

1. that the defendant owed a duty of care to him - The prevailing approach in determining whether a duty of care exists is summarized by Lord Bridge in Caparo Industries plc v Dickman:²⁵

“What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist ... a relationship characterised by the law as one of ‘proximity’ or ‘neighbourhood’ and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope on the one party for the benefit of the other.”²⁶

This is the so-called three-stage approach of foreseeability, proximity, justice and reasonableness test.

2. that there was a breach of that duty of care - this is a question of law, not fact, and the standard of care is that of the reasonable man, taking into account factors including the likelihood of harm, the seriousness of the risk, the utility of the act of the defendant, the cost of avoiding harm, etc.

3. that the defendant’s breach of duty resulted in the claimant’s loss or injury - the damage must not be too remote a consequence of the breach, a question which can be complicated by a particularly vulnerable victim (“egg-shell skull rule”), or some intervening acts or events.

Res Ipsa Loquitur

2.17 The onus of proving negligence can be formidable, especially in the case of a highly complex piece of equipment or where chemicals are involved. Yet the burden of proof remains with the claimant. In some cases the facts themselves point to negligence and under the doctrine of res ipsa loquitur, the onus on the claimant to prove negligence is shifted so that the defendant will have to adduce evidence in order to rebut the inference of negligence. An illustrative explanation of res ipsa loquitur can be found in Erle CJ’s famous statement in Scott v London and St Katherine Docks Co.:²⁷

“There must be reasonable evidence of negligence. But where the thing is shown to be under the management of the defendant or his servants, and the accident is such as in the ordinary course of things does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of explanation by the defendants, that the accident arose from want of care.”

If res ipsa loquitur can be successfully raised, the onus is shifted to the defendant to rebut inference of negligence. However the defendant will not be liable if he can show reasonable care has been taken.

2.18 Case law shows that res ipsa loquitur has been applied to a barrel of flour falling from a buildings,²⁸ a motor vehicle mounting or overhanging the pavement²⁹ and accidents resulting from defective machines or apparatus.³⁰ On the other hand, the doctrine was held inapplicable where a fire was left unattended by a lodger in his grate, and neighbouring rooms were damaged by fire spreading from that room.³¹ The reasoning was that fires can occur through accidents without negligence on anybody’s part, and the judge found that the lodger had not left any ‘improper’ or ‘larger than usual’ fire in his room. It is certainly debatable whether leaving a fire unattended and without any fire guard or iron fender can amount to negligent conduct. However, circumstances where res ipsa loquitur has been applied cannot be treated as principles on points of law and can merely be used for reference. Hence, a claimant should not expect that res ipsa loquitur can be invoked with ease and certainty.

Pure Economic Loss

2.19 The controversy over claims for pure economic loss should be noted. Pure economic loss refers to financial loss suffered by a plaintiff which is unconnected with, and does not flow from, damage to his own person or property.³² The courts have found it necessary to place some limit on the liability of a wrongdoer towards those who have suffered economic damage as a consequence of his negligence.³³ Hence, pure economic loss is normally irrecoverable in negligence save in some limited circumstances. In the light of decisions after Junior Books Ltd. v Veitchi Co. Ltd.,³⁴ the scope of the duty to avoid economic loss has been more restrictively defined. In the Court of Appeal case of Muirhead v Industrial Tank Specialities Ltd.,³⁵ the plaintiff devised a plan to buy lobsters in the summer when the price was cheap, and store them until December for sale on the Christmas market to reap high profits. The lobsters were stored in tanks with sea-water pumps which proved to be defective. The plaintiffs sued the manufacturers of the pumps in negligence for:- (1) loss of lobsters which died in the tanks; (2) expenditure on attempts to correct the faults; and (3) their loss of profit on the whole enterprise. The Court of Appeal decided that the plaintiff was entitled to damages for loss of the dead lobsters and the financial loss in respect of the dead lobsters. But the wasted remedial expenditure and the general loss of profits were irrecoverable.

2.20 The Muirhead case clarified that:-

“a manufacturer of defective goods could be liable for economic loss suffered by the ultimate purchaser if there was very close proximity or relationship between the parties, and the ultimate purchaser had placed real reliance on the manufacturer rather than the vendor. ... there was nothing to distinguish the plaintiff’s situation from that of an ordinary purchaser of goods who, having suffered financial loss as a result of a defect in those manufactured goods, could only look to the vendor and not to the ultimate manufacturer to recover damages for purely economic loss.”³⁶

2.21 The decision of the House of Lords in Peabody Donation Fund (Governors) v Sir Lindsay Parkinson & Co. Ltd.³⁷ further confirmed the prevailing uncertainty and difficulty to claim for pure economic loss arising from negligent conduct. It was held that in determining whether or not a duty of care of particular scope (i.e. referring to economic loss) was owed by the defendant, the test was whether it was just and reasonable that it should be so.

Damage to Other Property

2.22 Another restriction is that claims for damage to property are allowed only for damage to property other than the negligently manufactured item. Hence, if the negligently manufactured goods are expensive items, the claimant’s inability to claim for the cost of the defective item itself may represent a serious loss to the consumer. It should be noted, however, that where a defective component causing damage to the structure into which it is incorporated was separately installed, this damage to the structure ‘may’ be recoverable as damage to ‘other property’.³⁸

Damage already suffered

2.23 A further point to note in relation to negligence claims is that the loss and damage must be already suffered. This requirement can be illustrated by the recent Hong Kong case of Sunface International Ltd. v Meco Engineering Ltd.³⁹ The plaintiffs were owners/occupiers of houses. The defendant was the subcontractor responsible for electrical wiring and circuits which were defectively installed. The defects were discovered and replaced at some considerable cost to the plaintiffs including the cost of demolition of certain structures to effect the repair works. The plaintiffs sought to rely on Anns v Merton London Borough Council⁴⁰ and claimed that the defects created a situation of ‘imminent harm’ and therefore the costs of making the premises safe were recoverable. This argument was rejected by the court by applying certain dicta of Lord Oliver in D & F Estates Ltd v Church Commissioners.⁴¹ The fact that the law does not allow recovery in negligence for replacement of the defective part itself was also a relevant consideration. It was also opined that, as no ‘damage’ had yet been suffered, to award damages would be tantamount to granting a warranty of quality which should be the province of contract law.

Death

2.24 Where the defective or unsafe goods cause death, a claim for tortious compensation may be brought under both the Fatal Accidents Ordinance (Cap. 22) and the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23). Section 3 of the Fatal Accidents Ordinance enables an action to be brought for the benefit of the dependants of the deceased person against a person who wrongfully caused the death. Although the action is brought for the benefit of the dependants,⁴² only one action can be brought and it must be brought in the name of the executor or administrator of the deceased.⁴³ The executor or administrator is required to deliver to the defendant full particulars of all persons on whose behalf the action is brought.⁴⁴ An action under the Fatal Accidents Ordinance may include a claim for damages for bereavement, the sum of which is now fixed at $70,000. Apart from bereavement damages, dependants may claim compensation for pecuniary loss suffered by the dependants as a result of the death,⁴⁵ including funeral expenses. Pursuant to the Law Amendment and Reform (Consolidation) Ordinance, dependents may also claim for loss of accumulation of wealth by the time that the deceased would otherwise have died.⁴⁶ The court would look at any established savings pattern, and if there is none, would consider factors like the deceased’s lifestyle, his thrift, his age at death, his family circumstances and how he was coping with them financially, and his employment situation and prospects.⁴⁷

Chapter 3

Limitations and Anomalies of the Existing Law

3.1 In the course of reviewing the existing law in the previous chapter, certain limitations and anomalies have been identified.

Law of Contract

3.2 Privity of Contract - In relation to actions for breach of contract, the existing ‘strict liability’ protection given by legislation to consumers is considerable. It is irrelevant that the retailer is morally not subject to blame and may lack the opportunity to discover the defect. The consumer is also entitled to claim compensation for mental distress and for losses including personal injury, damage to property, subject to the normal rules of remoteness of damage. The major lacuna of contract law as a means of protection against unsafe or defective goods arises from the rules of privity of contract under which the purchaser’s family, passers-by or donees from the buyer would not be afforded the protection given by contract law. The device of agency has been used to get around the privity of contract rules. However, the circumstances which allow an inference of agency will be strictly limited. In Priest v Last,⁴⁸ a mother buying goods for her child cannot be said to act as the child’s agent. She may be able to recover any loss to herself caused by injury to the child. So if a small child is scalded by a faulty hot water bottle purchased by his mother, the mother may sue on her contract with the retailer and recover the cost borne by her for taking care of the injured child. The child however will be unable to recover in contract for his pain and suffering, and must sue in negligence instead.

3.3 Multiplicity of litigation - Another drawback relating to contract law is that it is necessary for each party in the chain of distribution to claim against his immediate supplier for breach of contract. There may be one or several distributors between the retailer and the manufacturer, thus causing a multiplicity of litigation. Besides, the contractual recourse will be lost if any valid exemption clause comes into play, or if any party involved is insolvent, untraceable or has closed down its business. The loss would hence fall on a relatively innocent intermediate distributor instead of the manufacturer.

Law of Negligence

3.4 Difficulty of Proof - In relation to actions based on negligence, it can be seen that the scope of liability for negligent manufacture and distribution is potentially large in that manufacturers, assemblers, wholesalers and retailers may be held liable. It is in the formidable task of proving negligence which is fraught with technicalities and uncertainties. Unless the claimant can invoke res ipsa loquitur which is itself a technical hurdle, the onus is on the claimant to prove all the elements of negligence. Given the complexity of today’s household items and pharmaceutical products, legal proceedings are likely to involve expensive battles between expert witnesses. Since success can depend on hair-splitting distinctions, the remedies and compensation available to claimants are by no means certain. Consideration should be given as to whether the availability of a claim in negligence is sufficient protection to the public at large against defective or unsafe products. Since the rules of negligence are mainly made up of case law and courts are bound to follow previous judicial decisions, it seems that appropriate changes are unlikely to occur swiftly from judicial decisions.

Anomaly in the Law - Retailer bearing heavier burden than manufacturer

3.5 The case for reform rests on the anomalies in the structure of the law. If a legal system is to choose one standard of liability for the manufacturer of a defective product, and another standard of liability for the retailer who is often just an innocent distributor of a product with a latent defect, it would seem rational to impose the heavier burden on the manufacturer.⁴⁹ However the existing laws have done precisely the opposite. It is the retailer who bears the burden of strict liability whereas as against the manufacturer, negligence must be proved. It is true that the retailer can try to seek indemnity from its supplier, but if the chain of litigation breaks down, the retailer will have to bear the brunt of strict liability.

Direction of reform

3.6 Since the existing law is unsatisfactory in a number of ways, changes of some kind should be made. The question remains in what direction should changes be made:

(a) whether it is appropriate to extend the law of contract to provide additional rights and remedies to persons who are not parties to the contract;

(b) whether it is appropriate to change the law of negligence concerning the requirement to prove failure to take reasonable care;

(c) whether it is appropriate to establish a set of product liability rules without reference to any contractual link and any breach of duty of care in addition to the existing contract and negligence law.

3.7 With regard to (a), the position of consumers bringing contractual claims has been greatly improved by recent legislation, and the major remaining drawback is the restriction due to the privity of contract in that only purchasers, and not necessarily users, are protected. The idea that the user of a defective product should be given contractual remedies against sellers with whom he did not have a contractual nexus is too drastic and uncalled for. A less radical solution is to improve the law by other available means. The contract/tort boundary should be preserved as it is logical to keep the spheres of consensual relations separate from relations regulated by public policy especially in relation to commercial as opposed to consumer transactions. Another objection to (a) is that it would be placing the risk on the wrong person; the right of redress should be directed at the producer instead of the retailer. Hence (a) has received little support from law reform bodies in other jurisdictions which have examined the issue of product liability.

3.8 With regard to (b), changing the general requirement to prove failure to take reasonable care in negligence claims may be too sweeping. Apart from product liability, the law of negligence is relevant to claims arising from defective buildings, professional negligence and employer’s liability etc. Hence (b) would not be appropriate as it would impinge on areas other than product liability.

3.9 With regard to (c), it seems that (c) is worthy of further consideration and in fact, the law reform bodies in a number of other jurisdictions have favoured reform in this direction. As we shall see in the next chapters, (c) is the option preferred by, among others, the Strasbourg Convention, the European Community Product Liability Directive, the English and Scottish Law Commissions, and the Pearson Commission.

Chapter 4

Product Liability Law in Other Jurisdictions

Introduction

4.1 The preceding chapters have outlined the existing law in Hong Kong and its shortcomings. Our terms of reference enjoin us to recommend appropriate changes in the law. Before attempting to make such recommendations, it would be helpful to examine the law in other jurisdictions and to review the implementation of relevant legislation in those jurisdictions.

Strasbourg Convention 1977

4.2 The first international convention aimed at harmonizing product liability legislation is the Strasbourg Convention 1977.⁵⁰ In 1970, the Council of Europe⁵¹ established a panel of experts to make proposals to, inter alia:-

(a) achieve greater unity in product liability law between its members; and

(b) ensure better protection of the public and at the same time, to take producers’ legitimate interests into account.⁵²

4.3 On 27 January 1977, the Strasbourg Convention, formally named the ‘European Convention on Products Liability in regard to Personal Injury and Death’, was presented for signature by member states. The preparatory work of the European Community Product Liability Directive ran parallel to the formulation of the Strasbourg Convention.⁵³ The scope of the two documents is similar but not identical - the Strasbourg Convention is confined to personal injury and death whereas the Product Liability Directive covers personal injury, death and damage to personal property.⁵⁴ Both documents provided for members’ adoption, strict product liability on the part of producers of defective or unsafe products. Differences between the Strasbourg Convention and the Product Liability Directive will be examined later in this chapter. The Strasbourg Convention was signed by four states,⁵⁵ but member states were not bound to accede to it.⁵⁶ In fact, the Strasbourg Convention has not been ratified by any state.⁵⁷ On the other hand, the Product Liability Directive is implemented by 14 member states,⁵⁸ as of February 1995.⁵⁹ Hence, the Strasbourg Convention is effectively superseded by the Product Liability Directive.

Product Liability Directive 1985

4.4 The preparatory work of the European Community Product Liability Directive started in the mid-1970’s and after protracted debates and negotiations, the Product Liability Directive, formally named the ‘Approximation of the Laws, Regulations and Administrative Provisions of the Member States Concerning Liability for Defective products’,⁶⁰ was finally adopted on 25 July 1985.

Main features of the Product Liability Directive 1985

4.5 Basis of liability - A new basis of liability is devised independent of any contractual link and any breach of duty of care on the part of the producer, and it should be noted that the new basis of liability is in additional to, and will not affect, the existing contractual or tortious liability.⁶¹ According to the Directive, the producer is liable for any personal injuries, death or damage to personal property⁶² caused by a defect in the product.⁶³ A product is considered defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including the presentation of the product, the use to which it could reasonably be expected that the product would be put, and the time when the product was put into circulation.⁶⁴ A product shall not be considered defective for the sole reason that a better product is subsequently put into circulation.⁶⁵ Hence the safe nature of the product would be judged at the time the product was put into circulation instead of the time when the damage occurred.

4.6 Onus of Proof - The onus is on the injured person to prove the damage, the defect and the causal relationship between defect and damage.⁶⁶

4.7 Persons liable - Persons principally liable are the manufacturer of the finished product and component parts, the producer of any raw material, the importer, and any persons who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer.⁶⁷ The latter group would include franchisors, licensors, and own-branders. Other suppliers of the product, including distributors and retailers, would bear subsidiary liability only if they fail to divulge the identity of the party principally liable or of the person who supplied the product to the supplier.⁶⁸ Parties liable will be jointly and severally liable for the damage.⁶⁹

4.8 Claimants - In the absence of a definition, and given the wording of Articles 1 and 4, any injured person, whether he is party to a contract or not, and whether he is the user of the product or a mere bystander, is covered by the strict liability system.⁷⁰

4.9 Products - Immovable property, game and unprocessed primary agricultural product, meaning products of the soil, of stock-farming and of fisheries are excluded from the definition of ‘product’.⁷¹ However, member states have the option to include unprocessed primary agricultural products and game in their own legislation. All moveables, primary agricultural products which have undergone initial processing, and electricity are within the scope of the Directive.

4.10 Defences - A producer or manufacturer cannot limit or exclude liability by any exemption clause.⁷² He will not be liable only if he can prove any one of the following defences:-

(a) the product has not been put into circulation by him;⁷³

(b) the defect did not exist at the time the product was put into circulation;⁷⁴

(c) the product was not manufactured for sale or distribution for economic purposes, nor was it manufactured or distributed in the course of his business;⁷⁵

(d) the product complies with mandatory regulations issued by public authorities;⁷⁶

(e) 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;⁷⁷ (member states have the option to exclude this defence in their own legislation) and

(f) in the case of a manufacturer of a component, the defect is attributable to the design of the product or to the instructions given by the manufacturer of the product.⁷⁸

4.11 Compensation for damage - Compensation is recoverable under several heads of damage, namely:-

(a) damage caused by death;

(b) damage caused by personal injuries; and

(c) damage to property, other than the defective product itself, subject to a lower threshold of 500 ECU and provided that the product (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.⁷⁹

4.12 Whilst the lower threshold is not an optional clause, member states may choose whether or not to impose a maximum cap on a producer’s total liability resulting from the same defect; provided however if such a cap is imposed, it should not be less than 70 million ECU.⁸⁰

4.13 Limitation period - A claimant for compensation must initiate the legal proceedings within a limitation period of three years from the day on which the claimant became aware, or should reasonably have become aware, of the damage, the defect and the identity of the producer.⁸¹ In addition, the rights conferred upon the injured person under the Directive shall be extinguished upon the expiry of a period of ten years from the date on which the particular product was put into circulation unless legal proceedings have in the meantime been instituted against the producer by the injured person.⁸²

Differences between the Strasbourg Convention and the Product Liability Directive

4.14 The provisions of the Strasbourg Convention are in many aspects similar to those of the Product Liability Directive. There are, however, three substantive differences⁸³ between the two documents:-

(i) whereas it is an optional provision that primary agricultural products and game are not covered by the Product Liability Directive, such products are covered by the Strasbourg Convention;