Chapter 6.

Product Liability and Consumer Protection

6.1. Product Liability
A legal topic of growing importance to business entities concerns their liability for injuries resulting from the use of products they manufacture and sell. Assume, for example, that a company operating out of Mumbai manufactures televisions for sale in Africa, Japan, Europe and USA. If several of those televisions are defective and explode, causing serious injury to the persons who ultimately purchased and used the televisions, can the Mumbai-based company be judged liable for those injuries and be required to pay damages? The answer differs from one legal system to another. In Europe and in the USA, the answer is almost surely yes the company could face enormous financial liability. The trend in many countries around the world over the past few decades has been toward providing more and more protection to consumers by placing more and more liability on the manufacturers or sellers of consumer products. Traditionally, these issues were typically handled under normal rules of the law of obligations, divided in some systems, especially common-law ones, between contract obligation and tort1 obligations. Under contract obligations law, the predominant rule was stated in the Latin phrase caveat emptor, which means let the buyer beware!. In other words, the seller of goods generally was not liable for any problems in the goods, or injury caused, unless a specific provision in the contract imposed that liability on the seller. Instead, the buyer was responsible for inspecting the goods for defects or for suitability to the purpose that he had in mind for those goods. Today things changed almost completely in some countries, like the USA for example, where the rule might more accurately be described as caveat vendor let the seller beware!. Other countries have witnessed similar developments.
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The term tort as used in common law countries may be defined generally as a wrongful act, outside the context of a contractual relationship, by which one person causes some injury to another person, thereby triggering an obligation to compensate the injured person. The notion of tort is closely related to the notion of delict as used in many civil law countries.

Under tort obligations, in most legal systems people have a duty to exercise ordinary care in conducting their affairs, so as to avoid undue injury or damage to other people or their property. If, through negligence, a person violates that duty, commits a tort, then compensation is due. In other words, persons are held liable for the results of their carelessness and disregard of the health, safety, or property of others. On that basis, if a manufacturer of a product acts negligently in making it and thereby injures or endangers a consumer, compensation is due. In some legal systems, however, the responsibility of a manufacturer extends much further: he can be liable to pay compensation for any injury, even if there was no negligence involved at all. Where this strict liability or absolute liability approach is taken, it sometimes applies only to specific kinds of products those that are considered to be inherently dangerous. The three bases of liability contract, negligence and strict liability appear in different contexts in different legal systems. Most states, including Japan and most states of the developing world, use only the first two of these. The common law countries, USA and the British commonwealth countries, use all three. The European Union relies principally on the last of these three bases of liability. Another topic falling into the area of product liability relates to defenses arguments that can be raised by a business entity that has been accused of being liable for injury of damage as a result of products it made or sells. These defenses also vary from one legal system to the other. They can be classified as follows: defenses claiming that the injured consumer was in fact the primary cause of the injury. This is sometimes referred to as contributory negligence because the consumer contributed by his or her negligence to the injury. This can sometimes serve as a complete defense or can sometimes serve to lessen the compensation that a business entity has to pay. defenses claiming that the injured consumer was fully aware of the risks involved in using the product and did so anyway. This assumption of risk argument might not apply if the consumer in fact had no choice but to use the product and if the product could have been made safer.

defenses claiming that the state of scientific or technical knowledge at the time the product was made or distributed was not advanced enough to permit a defect to be discovered.

defenses claiming that adequate warnings or disclaimers were provided to alert the consumer of the risks involved in using the product and the restricted responsibility that the maker or seller of the product was accepting.

Business entities need to be aware of the rules relating to product liability, negligence, strict liability and other possible grounds on which they might be found financially responsible for injury or damage that results from the use of products they make or sell. In some markets, a business entity can be held liable for injury or damage even if it cannot be proven that the injury or damage resulted from the use of that business entitys products. As long as the business entity id the producer of some of the articles of a particular type in that market and as long as the injury resulted from use of that type of article, all producers might share liability. Thus, the risks of such liability must be taken into account in a decision whether or not to sell goods into a particular market.

6.2. Consumer protection

Product liability is an especially important aspect of consumer protection law. In many legal systems, governments are increasingly involved in a variety of efforts to protect consumers. The European Commission issued a Green Paper on consumer protection, which summarized the EUs consumer protection objectives but recognized that many of the objectives had yet to be fully achieved in its member nations. In both Canada and the USA, laws on consumer protection are enacted by legislatures and the provincial (or state) level as well as at the federal level. Government agencies also adopt rules regulating consumer protection. This trend toward increasing government involvement in consumer protection might reflect in part the globalization of the world economy. Increasingly more consumer transactions are conducted with

business entities that are not personally known to the consumers and many of those business entities have vastly greater bargaining power than the consumers do. A list of efforts at consumer protection would include the following: - laws imposing fairness requirements on standard-form contracts. If Mr. Smith hires a car from a car-rental company at Heathrow (London) international airport, he has virtually no bargaining power regarding the terms of the contract. Thus, in order for him to be legally protected against unfairly treatment from the car-rental company, statutory rules or government agency regulations might require that the contract include a variety of provisions to protect Mr. Smith - such as a promise by the company to provide a replacement automobile of the one first given to Mr. Smith is defective, or a guarantee that disputes or complaints could be brought before a government agency in the UK. - laws prohibiting deception and fraud in consumer transactions. The term deception would carry different specific meanings in different legal systems, of course, but in many cases the term would apply to a practice that is likely to mislead consumers who are acting reasonably (they do not believe everything they read or they are told) and who are materially injured as a result. By contrast, fraud is typically more serious and more difficult to establish. For example, in English and American common law, fraud consists of five elements: a false representation, the defendants intentional making of that false representation, the defendants knowledge of the falsity of the representation, reliance on that false representation by the plaintiff, injury to the plaintiff as a result of that reliance. - laws requiring disclosure of product information to consumers. These might stipulate that companies engaged in financial products and services (banking, insurance etc.) provide specified types of information about the safety or liquidity of financial products they sell or about the full range of fees applicable to certain types of services. Other such laws might require labeling of the ingredients included in food products or providing instructions and warnings with kitchen appliances etc. - laws prohibiting specified sales practices. These might disallow, for example, a provision in an insurance contract stating that the insurance policy is automatically canceled if the insured person is even one day late in paying the premium.

- laws guaranteeing consumers access to financial information relating to business or themselves. These might include requirements that a business makes available to consumers financial and other information about the business, to assist the consumer in deciding whether to enter into a transaction with that entity or to buy one of its products. Such laws might also require that consumers have access to information about them kept by business or government entities regarding their personal finance. Lastly, consumer protection could also be seen as including certain rules of court. Increasingly, courts in various countries are accepting cases brought jointly by a large number of individual claimants against a particular business entity. These actions are called representatives actions, class actions or mass actions and they are important because they tend to overcome the natural advantage that such an entity has in such cases.