The purpose and the scope of this note

As previous works in the Common Core of European Private Law series show, the treatment in the English language of the law of the Member States of the European Union is fraught with terminological problems. At first sight, these problems seem to originate essentially from the desire to express in English a number of legal concepts that do not have their roots in English law. The truth of the matter is that the same problems arise whatever natural language is employed to frame and present cross-border research on the law of several European jurisdictions. To be sure, a book on the English law of trusts written in French would have to make some shrewd terminological bets to render in that language key concepts of English law.

In any case, considering the use of English for the purposes of comparative legal research, the language obstacle would pose a tremendous challenge only if we were to ignore the fact that English as a legal language has a life of its own, not necessarily related to English law. Happily, nobody requires us to ignore that fact. In Europe, the law of Scotland is a monumental example of how the English language can express legal concepts unknown in England. Outside Europe, there are civil codes largely indebted to the civilian tradition which are in force in English.

Case

Jacob is managing Esther's assets with full power to sell them. One of the assets he holds on her behalf is an undeveloped piece of land called Blackacre.

Alternative 1

While exploring investment possibilities for Esther, Jacob learns that the zoning rules for the area that includes Blackacre are likely to change in a way that will make land in that area more valuable. A month before the change is announced, Jacob uses his own money to buy Greenacre, an undeveloped piece of land in the same area. When the zoning change is announced, the value of both Blackacre and Greenacre increases by 100 per cent. When Esther becomes aware of what has happened, she seeks an amount corresponding to the increased value of Greenacre from Jacob. She claims that this increase is a wrongful gain from a transaction that created a conflict of interest and duty, since Jacob's duty involves using the information he acquires in managing Esther's assets for her benefit and not for his own gain. Will Esther's claim succeed?

Alternative 2

Jacob owns Greenacre, an undeveloped piece of land in the same area as Blackacre, in his personal capacity. Jacob sells Blackacre to Bill, a member of the zoning board responsible for the planning of the district including both Blackacre and Greenacre. The transaction is at market value.

Case

A company, ABC Ltd, lends money on the security of mortgages/hypothecs on immovables. It now wishes to raise money in the financial markets. It wants to use its portfolio of secured loans as security for the transaction. The goals will be that ABC Ltd will not itself become liable on the transaction, and moreover that investors will not be adversely affected by any subsequent insolvency of ABC Ltd. How can the transaction be structured so as to isolate the portfolio of secured loans from the general business of ABC Ltd?

Discussion

AUSTRIA

There are only a few articles on securitisation in the Austrian literature, and no court decision at all. The following remarks therefore have only a preliminary character.

In principle, Austrian law provides all the legal instruments required to structure securitisation transactions. First, it will be necessary to set up a new company, a special purpose vehicle (SPV). In a second step, ABC Ltd shall transfer its secured loans to the SPV. In exchange for them, the SPV shall pay a certain sum to ABC Ltd. To raise the money necessary for this payment, the SPV shall issue bonds to investors. If those investors are the only creditors of the SPV, then the security of the claims assigned to the SPV will also secure the investors' claims. As there is no direct relationship between the investors and ABC Ltd, this company will not be liable for the SPV's debts towards the bondholders.

Case

The facts are as in Case 5, except as detailed below. The following alternatives occur:

Alternative 1

Without authority, Roberto uses all of the money in Simon's account (€1,000) to buy a painting. When Simon learns of this, the market value of the painting has risen to €2,000. Roberto is still solvent. Simon wants to terminate the relationship and take the painting. Can he do this?

Alternative 2

The facts are the same as in Alternative 1. However, before Simon learns of the transaction the painting is destroyed. It is insured for its market value. By the time Simon learns of this, Roberto is personally insolvent. Simon wants to terminate the relationship and take the insurance claim. Can he do this?

Alternative 3

Without authority, Roberto buys a painting with all of the money in Simon's account (€1,000) and €1,000 of his own money. By the time Simon learns of this, the market value of the painting has fallen to €1,000 and Roberto is personally insolvent. Simon wants to terminate the relationship and take the painting. Can he do this?

Alternative 4

Roberto has an unsecured overdraft facility (revolving loan facility/line of credit) with his bank, in his personal capacity. He borrows €100,000 from this facility and uses it to buy a piece of land in his personal capacity. Later, without authority, he uses all of the money in Simon's account (€100,000) to pay the debt he owes to the bank.

Introduction

The face of European products liability may be about to change considerably. The first places where change probably will occur are in the procedural and funding areas. Though the density of European products cases has been and probably will continue to be slight compared to that in the United States, it is of note that a growing trend within the European case law is a shift to multi-party actions. Proposed procedural rule changes are about to fuel this shift. At the same time, fundamental changes in the way civil litigation is funded within European Union Member States have disproportionately encouraged group actions. They have also shifted greater risk, responsibility and power to plaintiffs' lawyers.

On the legislative front, the reform of the separate European products liability doctrine, set out in the 1985 European Directive on Product Liability, is on hold. Following both a Green Paper and a White Paper, the European Commission (the Commission) concluded that it had insufficient evidence to advise on the future of the Directive at present, and thus, it has both set up an expert advisory committee and funded two major research studies on products liability in Europe. These studies are to collect information, particularly on the costs that might result from any future repeal of the most controversial defence in the Directive.

The aim of this book is to examine the law of product liability from a comparative law standpoint. It is now ten years since the publication of Comparative Product Liability, edited by Professor C. J. Miller and published by the British Institute of International and Comparative Law in association with the United Kingdom National Committee for Comparative Law. The time was thus ripe to examine the topic again.

The origin of this book is a research project undertaken by the Tort Law Centre at the British Institute of International and Comparative Law. Many of the contributions to the book have emerged from the Institute's work on product liability, whilst other chapters were originally presented by their authors at Institute events.

It is also appropriate to mention here the role of the Product Liability Forum, which, as well as generously supporting the work of the Institute in this area, has provided a stimulating arena for discussion of product liability issues.

Many thanks also to the staff of Cambridge University Press who have overseen the production process.

The Law is as stated on 1 March 2004.

Introduction

The preamble to the 1985 European Directive on Product Liability declares that harmonisation of national rules is necessary in view of the fact that disparities are liable to distort competition, to affect the free movement of goods and lead to differences in the level of protection offered to consumers against physical injury and damage to goods caused by a defective product.

The interaction between Community law and the national laws of the Member States has been a complex process. The purpose of this paper is to analyse the reception of this aspect of European law in one system, that of France.

The French law on product liability has traditionally adopted a pro-consumer approach, engineered mainly by the intervention of the courts. Professor John Bell has noted that the French law of product liability is essentially a creature of judicial and doctrinal interpretation of the Napoleonic Code. Professor Malinvaud has also described how the judiciary have been active in shaping the law:

It will be shown in this chapter that following the chronic delay on the part of the French legislator to implement the European Directive, the French courts themselves acted, and moulded the case law in a way inspired by the themes underpinning the European provisions.

Comparative law in the courtroom

Comparative law has figured prominently in recent high profile English tort cases; none more so than in the judgment of Mr Justice Burton in A v National Blood Authority. This was particularly striking for it was a first instance decision and might signify that comparative law in the future will not be the sole preserve of the appellate courts. Admittedly it was an important case and a decision of a High Court judge. Comparative law will probably not be cited too frequently in fast track cases in the county court. Nevertheless it is something practitioners may have to grapple with more often than they might have anticipated a decade ago. Burton J's analysis was also unique because of its extensive analysis of academic literature, both from England and other jurisdictions. The striking feature of the judge's use of comparative law was the impression one gained that he really did use comparative law. It was not merely added on to the reasoning, or used to support a conclusion. The judge seemed genuinely to be looking for guidance from the comparative sources.

A combination of factors might explain the use of comparative law in this way. The case concerned the application of Part I, Consumer Protection Act 1987, which implemented the European Product Liability Directive. Thus the way the European Court of Justice (ECJ) and courts in other Member States had interpreted the Directive might have special relevance.

Introduction: the application of the Spanish Product Liability Act by the courts

Until 2003 the judgments of the Spanish Supreme Court were referring to the Spanish Product Liability Act (Ley de responsabilidad civil por los daños causados por productos defectuosos (hereafter, Product Liability Act or LRPD)) only obiter dicta, as a sort of reminder of its existence. They dealt with facts that had taken place before the new regulation implementing the Product Liability Directive was applicable and, therefore, they applied the rules of the General Act for the Protection of Consumers and Users (Ley general para la defensa de consumidores y usuarios (hereafter, Consumer Protection Act or LGDCU)), an Act which had governed product liability in Spain since 1984.

Errors and omissions excepted, STS 21.2.2003 (RJ 2003\2133) was the first judgment where the Supreme Court applied the Product Liability Act implementing the Directive. In this case, a bottle of white lemonade exploded while the claimant was putting it into his shopping basket in the supermarket. The splinters of glass injured both his face and one eye, and caused him the partial loss of sight in his left eye. The victim filed a claim against the soft-drink and the bottling companies seeking a damages award of 36,520,000 Pta (approx. €220,000). The Court of First Instance decided in favour of the claimant, but awarded the substantially lesser sum of 7,720,000 Pta (approx. €46,000), and this judgment was confirmed by the Court of Appeal and, finally, by the Supreme Court.

Introduction

Fifteen years after the implementation of the European Directive on product liability no more than ten cases have been decided by Italian courts. Trying to explain the EC Directive's impact on the Italian legal system, I will first describe the former liability regime engineered by the courts and by the scholars on the matter: usually, when a new social problem arises requiring a legal solution in a civil law system, the courts intervene before the legislator. Therefore, since the EC Directive has been enforced, it has started to interact with the solution previously adopted by the courts. I will then examine the application of the new law, pointing out in particular how the open-ended definition of ‘defect’ is interpreted and applied. The applications are not exempt from incoherence due to the ambiguous nature of product liability law, constantly shifting between tort law and contract liability. After comparing the former and the latter regime, we find that the EC Directive does not give any further advantage to consumers; on the contrary it provides several limitations to their right of claim. This makes other regimes more attractive. In particular, the EC Directive missed the opportunity to face the procedural problems arising from a mass tort case in order to improve access to justice. Consequently, whenever the consumer chooses to sue someone other than the manufacturer under a concurrent regime, or chooses not to sue any one, the product liability law fails to achieve its functions.

On the 19 May 1998, ten years after the deadline for transposition, France finally enacted legislation incorporating the 1985 Product Liability Directive into national law. These provisions have been added to the Code Civil as articles 1386–1 to 1386–18. The aim of this chapter is to consider to what extent French and English product liability laws have been harmonised by the incorporation of the Directive, but it will restrict itself to examining one aspect of this question, namely whether incorporation has had the effect of harmonising the rules relating to the acts generating liability in the two systems.

The preamble to the Directive declares that harmonisation of national rules is necessary in view of the fact that disparities are liable to distort competition, to affect the free movement of goods and lead to differences in the level of protection offered to consumers against physical injury and damage to goods caused by a defective product. The Directive also aims to find ‘a fair apportionment of the risks inherent in modern technological production’. It is the difficulty in reconciling differences at national level in the conception of the apportionment of the risks between industry and the victim which led to the final version of the Directive being a compromise measure that includes a number of opportunities for divergence between national laws. Such differences in conception are clearly revealed in a comparison between French and English product liability laws.

Product liability is the attempt to answer the question of to whom the risk of damage resulting from modern machine-guided mass production should be allocated. Should it be allocated to:

• the victim, as the price for his participation in the advantages of the industrial development, but to be borne as an inevitable Act of God,

• to the state, this means to all taxpayers in solidarity, or

• provisionally to the producer having provided the cause of damage by manufacturing a product which did not meet the safety requirements that the public at large expects – provisionally to the producer, because he alone can distribute his expenses to the rather limited group of product users by incorporating them into his sales price?

The answer to this question seems to be one of perspective: the traditionalist prefers the first choice, a citizen believing in state-organised solidarity the second, and the person devoted to state-free liberal convictions the last one. There are no other solutions than these three. One has to decide.

Good arguments exist for each of these solutions. The Product Liability Directive, issued by the Council of Ministers in 1985, has opted for the third one. This has now been implemented by the fifteen EU-Member States, the ten applicant states, and seven other European states outside of the EU and followed by many non-European states in Asia, South America and by Australia, altogether by nearly forty states.

Introduction

Rather than discussing whether harmonisation of product liability is desirable or practical or debating how best it can be achieved, this chapter deals with a topic (product liability), which has in fact, since 1985, been the subject of a harmonising directive. This chapter seeks to focus on three issues. First, what has the product liability experience taught us about the need for harmonisation and particularly about the degree of harmonisation required for internal market reasons? Second, how has the Community monitored its legislation and determined whether it needs to be amended? Finally, we will use the central concepts of defect and development risks to consider whether the courts (both national and European) have been able to develop a harmonised approach to interpretation and what can be done to enhance a common development of European principles.

How much harmonisation is necessary?

The Product Liability Directive was introduced as an internal market measure under art. 100 of the Treaty. The drafter of the Directive, Professor Taschner, has on many occasions subsequently spoken of his firm belief that the measure is an internal market and not a consumer protection measure. Thus the first recital to the directive states that ‘the existing divergences may distort competition’, although it does go on to note that this may entail a differing degree of consumer protection.

One unfortunate side effect of this has been that product liability has not been within the sweep of directives for which the consumer protection Directorate General (DG-SANCO) is responsible.

Introduction

The editor of this publication has invited two of the claimants' advocates instructed in an important case presenting both comparative law and Community law questions to describe how the case came to judicial attention, and the legal and factual challenges presented by arguing broad principle-driven doctrines before an English court during a trial lasting forty-nine court days. We represented 112 individuals who were infected with hepatitis C as a result of blood transfusions in England. This chapter, written with the consent of the claimants' solicitors, is extended with a postscript by counsel for the defendant and completed by an afterword from the trial judge. The claimants were successful, but it was a ‘close-run thing’.

The problem of contaminated blood transfusions is not new to medicine or to litigation, especially in the United States. The United Kingdom avoided the excesses of the United States by having a non-commercial blood-bank system. The claimants had certainly been injured but it was questionable whether they had a good cause of action under conventional negligence principles. It is intrinsically difficult to establish liability on the part of a public authority performing a valuable public service. A case based on negligence would need to demonstrate considerable levels of breach of duty.