Product liability of suppliers: The notification trap

The Austrian Supreme Court filed a decision (see footnote 1) on 23 September 1999 which is of considerable importance to any supplier of consumer products, and concerns the circumstances in which a supplier can escape strict product liability if the product causes injury to a consumer. However, various aspects of the decision, and of similar legislation in other member states, give rise to concern and reveal a confused position.

European Community national laws implementing Directive 85/374/EEC provide that strict liability for personal injury, death or damage to personal property rests primarily with the producer of the product (see footnote 2). The mechanism under which a supplier may be liable is as follows (see footnote 3):

"Where the producer of the product cannot be identified, each supplier of the product shall be treated as its producer unless he informs the injured person, within a reasonable time, of the identity of the producer or of the person who supplied him with the product. The same shall apply, in the case of an imported product if this product does not indicate the identity of the importer .., even if the name of the producer is indicated."

As has been pointed out before (see footnote 4) and was repeated by the Court, a number of uncertainties arise over interpretation of this provision. It is clear that the liability of producers (including importers into the European Economic Area) is primary and as such is not extinguishable, and that suppliers' liability is secondary in the sense that it only arises where the condition precedent occurs where the producer of the product cannot be identified. Thus, the purpose of the legislation is to ensure that liability to compensate for injuries caused by defective products is channelled primarily towards producers rather than suppliers, but there may be some situations in which producers cannot be identified, in which case the consumer is not to be left without a remedy, and a secondary, default liability arises of all suppliers of the product.

Identifying the producer

One area of uncertainty concerns who it is that cannot be identified. The legislation, quoted above, states that the suppliers' liability arises where "the producer of the product" cannot be identified. But there can be more than one person who qualifies as producer of the same product (see footnote 5). Does this mean that the suppliers' liability arises when only the actual manufacturer of the product cannot be identified (even if own-brander(s) or the importer can be identified), or when no-one who qualifies as producer can be identified? The latter must be correct, since the main purpose is for the injured party to be able to claim compensation from anyone who qualifies as a producer, and the injured party's choice and number of compensators has been extended by expanding the definition of "producer" so as to include also importers and own-branders. As long as one of this wider class of producers can be identified, the liability should be channelled to him, rather than being transferred to a supplier.

A second issue is that one might inquire by whom the producer cannot be identified: should such identification be possible from the available evidence (i.e. on an objective basis), whether from the product labelling or advertising, (and should the producer's identity be identifiable from reasonable enquiries, including a requirement for the claimant to exercise some due diligence?), or is it enough for the claimant to assert simply that he cannot identify the producer (i.e. a subjective test)? These points may be fruitful for academic consideration, but it is likely that courts will adopt a pragmatic approach to these questions which will generally favour consumers.

Various differences appear in the implementing laws of member states on this issue. Liability arises under the Danish legislation where "the claimant" cannot identify the producer (see footnote 6) but, in contrast, under the Swedish legislation liability arises where it is not apparent "from the product" who is liable (see footnote 7). In Norway, liability arises where the manufacturer cannot be identified "without difficulty", and in Ireland the plaintiff must make enquiries by "taking reasonable steps" (see footnote 8). In the United Kingdom, liability arises where "it is not reasonably practicable for the person making the request to identify all" those liable as producer (see footnote 9). It will be noted that the trigger in the UK and Irish (see footnote 10) legislation is that all those liable as producer must be unidentifiable, whereas the wording in the Directive merely refers to "the producer" being unidentifiable, which is somewhat artificial in that, as the UK and Irish legislation recognises, a number of individuals may qualify to be producer of the same product.

Is liability based on a request mechanism?

The practical purpose behind the liability mechanism for suppliers is that a consumer who is not able to identify a producer may make a request of any supplier in the chain of distribution of whom he is aware, and this will usually be the retailer from whom he bought the product, to identify a producer or the person who supplied the recipient of the request with the product. If the recipient fails to identify one of the relevant people within a reasonable time, he will then be liable. As the Austrian court noted, the Austrian legislation (following the Directive) does not in fact refer to or contemplate such a demand by the injured person. Instead, the Court held that the default liability of a supplier arises simply, as the Directive says, where a producer cannot be identified. It is not necessary, therefore, that the injured person should in fact make any specific request of the supplier for him to identify someone else, since the default liability has in fact already arisen before any such request could be made and is independent of any such request.

Nevertheless, the legislation provides a mechanism under which a supplier may avoid this default liability attaching to him, and this is by informing the injured person within a reasonable time of the identity of the producer or the person who supplied him with the product. The key issues in the Austrian case were whether this notification had been given within a reasonable time (and it was held that it had not been) and what the effect might be of late notification.

If it is correct, as the Directive and Austrian legislation says and the Austrian court has confirmed, that the default liability of suppliers arises as soon as the producer (or one or all of the producers) of the product cannot be identified, it is also logically necessary to imply further wording into this mechanism in order for it to make sense. It is necessary to imply some further triggering event for the start of the reasonable time period (within which the supplier may escape his now vested dependant liability). This is necessary because a literal reading of the wording of the Directive would mean that the reasonable time runs from the moment at which the producer cannot be identified. This cannot be correct, since it would not be possible for a supplier to know either that damage has occurred to a particular potential claimant or that it is not possible for that claimant to identify the producer of the product, and therefore it is not possible for that potential defendant's supplier to escape his liability by making the notification. It would not be just to impose on a person a liability unless he does something within a reasonable time after an event of which he does not have any knowledge. It also follows that the default liability can only arise after the damage has occurred, so the fact of damage might also be considered to be a condition precedent. However, the 3 essential questions under the strict liability legislation (that the claimant has suffered damage, that the product was defective, and that the product caused the damage) remain to be determined by a court and accordingly afford potential lines of defence for a defendant, whether he be producer or supplier.

Although the Austrian court held that it is not necessary that the injured person should make a specific identification request of the supplier, it held that the time period begins with the assertion of a claim for compensation against the supplier, provided the supplier can tell from the request that the injured person is claiming under the strict liability legislation. The rationale given by the court for this decision was that the supplier can only protect himself from being the point of recourse in respect of a claim where the producer cannot be identified through being able to examine at that stage the documentation that he has concerning the origin of the goods in question.

In practice, although a potential claimant may make a specific request of a potential defendant supplier to identify a producer, he does not have to do so, and it would seem entirely permissible for a potential defendant voluntarily to make the relevant notification to a potential claimant, thereby extinguishing his default liability as long as he does so before the expiry of the relevant time period. If the Austrian Court is correct that the time period does not begin until the assertion of a claim, it might be argued that no effective voluntary notification can be given by a supplier before then. That would be an absurd result, and inconsistent with the policy of the Directive in providing claimants with information as to the identity of producers.

National variations

In contrast to the position under the Directive that the claimant is not required to make any request and that the suppliers' liability arises as soon as the producer cannot be identified, the United Kingdom, Irish, Italian, German and Portuguese laws (see footnotes 11 – 15 respectively) are inconsistent with the Directive in requiring the claimant to make a pre-action request of the supplier, and in providing that the supplier's liability does not arise until such a request has been made and not complied with within a reasonable time (see footnote 16) This would logically have the effect of rendering irrelevant and inoperative any voluntary identification by a supplier, and of affording a defence to any claim where the claimant has not made an identification request before commencing proceedings.

By way of example of such national provisions, for comparison with the text of the relevant extract from the Directive quoted above, the liability of a supplier under the legislation in the United Kingdom and Ireland only arises if (a) the injured person makes a request to the supplier to identify a person who qualifies as producer of the product, (b) such request is made within a reasonable period after the damage occurs and at a time when it is not reasonably practicable for the person making the request to identify all such persons as are the product's producers, and (c) the supplier fails, within a reasonable period after receiving the request, to identify either a producer or the person who supplied that supplier.

These inconsistencies between national laws and the Directive obviously raise questions as to whether the former have correctly implemented the latter and are invalid, or whether they are in fact correct or, if incorrect, preferable as mechanisms.

What is a reasonable time?

What is a reasonable time for the notification to be given? No further elucidation is given on this point within the Directive or guidance issued by the European Commission. Some states have implemented this provision with particular although differing, specificity. The supplier will escape if he provides the information in Germany within one month of receiving a request to do so (see footnote 17), in Portugal within three months of receiving a written request (see footnote 18), and in Sweden within one month of the putting forward of a claim.

In Austria, explanatory notes issued with the legislation refer to a two week period but only for "average cases". The Austrian Court held that the length of time for notification:

"must be established in actual individual cases and the reasonableness of the time for notification but be assessed against, in particular, the type of product, the seat of the primarily liable party or previous supplier, and the number of necessary enquiries and further enquiries by the supplier under the identification obligation .."

It is suggested that the Court's views are entirely correct. It may be easy or difficult for the supplier to identify the producer or his supplier, and it may be reasonable for him to carry out further enquiries, for example by requesting the claimant to give further details of the product or its marking. Indeed, the Italian legislation provides that the claimant's request must be made in writing and must indicate details of the place and time of purchase, and make an offer for the product to be viewed if it still exists.

Application to the facts of the case

In the particular Austrian case, the facts were that the claimant's lawyers wrote to one supplier within two months of the injury and he replied identifying the person who had supplied him, also giving the correct address but incomplete name of the manufacturer. The lawyers then wrote, on 14 May, to the second supplier who had been identified by the first, indicating that a claim would be made against him under the relevant legislation. The second supplier replied on 20 May denying the claim on the basis that he was an intermediate supplier. On 28 May, the lawyers replied requesting him to name the importer of the product into Austria as well as the producer. The supplier replied on 2 June that the product had been acquired from a named company (for which he gave an incomplete name) which had gone into liquidation some seven years previously, and that the information from his agent was that the named firm had acquired the product from another firm with a similar name that he again incorrectly named. The lawyers replied that his declaration was inadequate and requested proof about the delivery of the product and the name and address of the company from whom he had acquired it. On 20 June, the defendant replied that the named supplier to him had not existed since 1990 and that its supplier had been the firm that he had also named previously, which he said was apparent from a copy of an enclosed invoice. The invoice, which was largely in Italian, in fact correctly identified the name, address, telephone and fax number of the supplier.

The Court held that the defendant should have identified the producer or his supplier within a reasonable period from the first letter to him from the lawyers of 14 May. He had failed to do this until 20 June, and that period was unreasonably long, so he did not escape his secondary liability. The defendant argued that the claimant would already have known the name and address of the manufacturer because the first supplier had given a name which was almost correct and given the correct address in his response of 1 April, but the Court rejected this because that response had not indicated that a particular company was in fact the manufacturer.

The effect of late notification

Although the defendant had not made a sufficient declaration to exonerate himself within a reasonable time, he had done so later (on 20 June). What, if anything, is the effect of a late notification? The Austrian court noted a range of academic writing on this point, ranging from a view that any late notification is irrelevant, to a view that rectification is permissible where the injured person has not suffered any disadvantage, to a view that rectification is permissible if the notifier compensates the injured person for the expenditure the latter has incurred in pursuing any claim for compensation after expiry of the initial identification period.

The Austrian Supreme Court chose to decide that a supplier may escape liability in the event of late notification but only if the delay can be proved not to have caused any disadvantage to the injured person. The Court noted that the purpose of suppliers' subsidiary liability was only so that the injured person was not left without legal redress in the absence of knowledge of one of the primarily liable persons. It should be noted that where notification is given late, the claimant is in the advantageous position of having an option of proceeding against either or both of the producer (or a previous supplier) as well as the initial supplier. This option may be advantageous in providing a choice of defendants who may be more or less attractive, and also permit a choice to be made if one of the potential defendants cannot be pursued for example where it has gone into liquidation. The claimant still has to prove damage, defect and causation against his chosen defendant(s) and it may be more advantageous in this respect to proceed against a supplier than against a producer, where the former may have insufficient information about the product and less inclination to defend its product or brand in an individual case. The Austrian court also based this decision on the following policy:

"Also, the assertion of his rights by the injured person should be as simple as possible. In contrast, where he knows - even if only on account of late identification – the primarily liable person, he stands in many cases no differently than with timely identification. If the supplier were to be made liable in every case, this would result in the injured person's rights being extended unnecessarily widely. A final release of the supplier through late identification may, however, only occur if the delay itself has led to no disadvantages for the injured person. In opposition to the general taking into consideration of the restoration process favoured by [two academic commentators] Zankl and Harrer (….) is that here, it is not a matter of disturbing (contractual) equivalence, but a matter of who (injured person or supplier) is referred with his claims to the ("previous suppliers") (see footnote 19). Also, in opposition to the restoration process is that identification of damage caused by the delay cannot be so easily carried out whereas, it is acknowledged, the Produkthftungsgesetz generally seeks to simplify and to make more easy the assertion of claims for compensation for the injured person. If one were to require the injured person to put himself to the trouble of claiming and proving the damage caused as a result of the non-identification, the purpose of simplified compensation for damage achieved through supplier's liability would be ignored. The supplier's escape from liability in the event of late identification therefore only falls to be considered if the delay can be proved not to have led to any disadvantage to the injured person (P Bydlinski …). It cannot be said in the present case that the late identification of the producer can be proved to have had no disadvantage for the claimant, because the (further) letters of claim from the claimant's lawyers of 28.05.1997 and 13.06.1997 led to further costs for the claimant."

The Court therefore held that late notification is only effective if the notifier can prove that his delay has not led to any disadvantage whatsoever, however small, to the injured person. Many English lawyers, at least, will question whether the acceptance of late notification is permissible at all under the Directive. It is somewhat surprising, given the importance of this issue, that the case was not referred to the Court of Justice by the Austrian Supreme Court, whether of its own volition or at the request of the parties.

Practical implications

What are the implications of this case for claimants, defendants and their lawyers? Claimants and their lawyers should consider whether or not to make an identification request. In some countries such as Germany, Ireland, Italy, Portugal and the United Kingdom, national legislation requires them to make an identification request before starting proceedings, but such legislation appears inconsistent with the Directive. In other states, there is no need to make a request and it may be tactically advantageous to proceed straight to issuing proceedings or, if any prior contact is made by letter, for it not to make an explicit notification request. In many jurisdictions, it may be advantageous for claimants simply to write a letter that identifies the product, gives details of the injury and states an intention to make a claim under the strict liability law, but does not make a reference to the recipient's ability to avoid liability by identifying anyone else. It may also be advantageous for claimants and their lawyers to enter into a sequence of correspondence with suppliers that asks for more information about any matters that are referred to in response, again without referring to the notification mechanism.

In contrast, it is clearly very important for suppliers to respond quickly as soon as any information is received by them that a claim might be made. It may be advantageous to request clarification of as many details as possible from the claimant relating to the product, the injury, causation and whether there is an intention to make a strict liability claim. In those states where the legislation requires a claimant to make a pre-action identification request, it can be argued that liability does not arise, and can be successfully denied, where the claimant fails to make a proper request, but this argument is subject to being overruled by the Court of Justice, which might declare the national legislation invalid.

The result is a situation of considerable uncertainty for claimants, defendants and their lawyers. The position needs to be clarified.

For further information please contact:

Christopher Hodges
Partner, CMS Cameron McKenna, London
Honorary Research Associate, New College, Oxford
Email: christopher.hodges@cms-cmck.com
Phone: +44 (0)20 7367 2738

Footnotes

Footnote 1
ecolex 2000/12; Rdw 2000/54.

Footnote 2
Directive 85/374/EEC, Article 1.

Footnote 3
Directive 85/374/EEC, Article 3.1; the provisions of the Austrian implementing legislation were considered in the case rather than the Directive, but they are identical to the provisions of the Directive, and have the same effect in virtually every member state, including under the Consumer Protection Act 1987 in the United Kingdom.

Footnote 4
C Hodges, Product Liability: European Laws and Practice, (Sweet & Maxwell, 1993), 2-027 et seq.

Footnote 5
its manufacturer, the importer into the Community (or European Economic Area), or a person who presents himself as if he is its producer by placing his name, mark or logo on it; see Directive 85/374/EEC, Article 3.1.

Footnote 6
Lov om produktansvar 1989, Act No. 371 of June 7, 1989, s4(4).

Footnote 7
Produktansvarslag SFS 1992: 18, s7.

Footnote 8
Lov om produktansvar av 23.12.1988 nr. 104, endret ved lov av 27.11.1992 nr. 112, s1-3(1)(c).

Footnote 9
Consumer Protection Act 1987, s2(3).

Footnote 10
Liability for Defective Products Act 1991, s2(3).

Footnote 11
Consumer Protection Act 1987, s2(3).

Footnote 12
Liability for Defective Products Act, 1991, s2(3).

Footnote 13
Infortuni sul lavoru e igiene (prevenzione degli) DPR, No 224 of May 24, 1988, s.4.

Footnote 14
Produkthaftungsgesetz 1989, s4(3).

Footnote 15
Decreto-lei No 383/89 de 6 de Novembro, s2(2)(b).

Footnote 16
See further C Hodges, Product Liability: European Laws and Practice: (Sweet & Maxwell, 1993) paras 2-027 et seq.

Footnote 17
Produkthaftungsgesetz 1989, s4(3).

Footnote 18
Decreto-lei No 383/89 de 6 de Novembre, s2(2)(b).

Footnote 19
literally "men before".