§ [Document R/611/77 is also relevant.]3.40 pm
§ The Minister for Consumer Affairs (Mrs. Sally Oppenheim)
I beg to move,That this House notes Community Documents Nos. R/2237/76 and 9427/79 relating to the draft Directive on the approximation of laws, regulations and administrative provisions of the Member States concerning liability for defective products; and urges the Government to ensure that during further consideration full account is taken of the arguments that people injured by defective products should be entitled to adequate and prompt compensation and that undue burdens should not be imposed on industry.
§ Mr. Speaker
I have selected the amendment in the name of the hon. Member for Northampton, North (Mr. Marlow).
§ Mrs. Oppenheim
The 22nd report of the House of Commons Select Committee on European legislation recommended that the important matters of policy and principle arising from the amended draft directive should be debated by the House. I am pleased that time has been made available for this important debate and for the opportunity of stating the Government's position.The Government are sympathetic to this proposal and believe that it would be an important and widely welcomed reform in civil law. However, in the light of the many rep-repsentations made … they are also aware of the anxiety in industry about the possible effect of this change on competitiveness and the introduction of new products, about the possible burden on small firms and about the special problems for some product sectors. Before reaching any final decision, therefore, I am arranging further detailed consultation with industry in order to assess these potential problems and to examine how the principle of strict liability might be implemented in such a way that the interest of the consumer and of industry are equitably balanced."—[Official Report. 2 August 1978; Vol. 955, c. 347.]Much as I would like to claim the approbation of my hon. Friends—and, indeed, the disapproval of Labour Members—for that statement, it is not my own; it is a statement by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), the former Secretary of State for Prices and Consumer Protection, in a Written Answer referring, among other matters, to the subject of product liability.
§ Mr. John Smith (Lanarkshire, North)
Will the right hon. Lady reflect that all that was wrong with that joke was that no disapproval was shown on the Opposition Benches?
§ Mrs. Oppenheim
All the better, for, by the time we assumed office in May 1979 no further statement had been made, from which it will be seen that no firm line on the subject had been taken by the previous Government when we took over. The position of this Government is somewhat less equivocal. It is as follows: we have taken careful note of the support that many of our partners have given to the principle underlying the draft directive. We accept that there are advantages in establishing a common system of liability throughout the Community.
To this end, we are willing to negotiate constructively with our partners on the basis of the Commission's present draft. But in our view the draft does not strike a proper balance between the interests of injured victims and the interests of producers and cannot be accepted as it stands. Indeed, it is clear that none of our partners is prepared to accept the draft in this way. For this reason, one of the most important improvements that we shall be seeking is the incorporation of the "state of the art" defence. A major objective will be the achievement of a common regime.
This means that, subject to our getting satisfaction on a number of important conditions, we would accept the introduction of a Community regime for strict liability. However, it follows naturally that we cannot take a final view on this matter until the precise nature of that regime has been clarified in further negotiations.
As the House will be aware, product liability has been the subject of consideration and recommendation by the Strasbourg convention, by the Royal Commission and by two Law Commissions, so the draft directive does not break entirely new ground. However, it is right that the House should be given the opportunity to debate this important issue, and I shall listen carefully to the views of hon. Members. I note the absence of Labour Members. No doubt they are engaged today in what they regard as much more important business.
1108 It is natural that, as the Minister for Consumer Affairs, my first consideration is the position of the injured victim.
I believe, as I am sure does the whole House, that consumers have the right to expect that products that are bought and are used correctly will not kill or injure them. At the same time, I am aware of the need to strike a balance wherein the burdens on industry are not excessive, inhibiting or outweighing the benefits to consumers.
§ Mr. Tim Sainsbury (Hove)
In the light of what my right hon. Friend has just said about the injured victim and the safety of the victim, is she implying that she is in favour of only physical injury being covered, or pecuniary injury, as is proposed in the directive?
I shall be returning later in my remarks to the question of negotiations on the directive. I hope, with the leave of the House, that I shall be able to reply briefly to the debate. I can then deal with points raised in the debate. At present, I should like to concentrate chiefly on the two important issues to which we draw particular attention in the motion.
I know that a number of my hon. Friends and others are deeply concerned at the implications of the draft directive and feel that the costs, to which I shall return later, will place an unbearable burden on industry and will inhibit innovation and efficiency.
I say to my hon. Friends that I am aware of these concerns, and to a certain extent I share them. I have consulted very widely indeed, and I can assure my hon. Friends and those in industry that no directive would be acceptable to the Government—nor would it be in the interests of consumers—which had those consequences.
As for their concern that the burdens of a new product liability regime are not acceptable, in particular at a time of recession and other pressures on industry, I can again reassure them that no directive is likely to be imposed in the near future. Inevitably, as a result of the complexity of the negotiations, to some aspects of which I shall refer later, which reflect concerns not only of this Government but of many other member States, the negotiations will inevitably be protracted, and it is likely to be years and 1109 not months before the directive is adopted, let alone implemented.
To those who may call upon the Government to reject outright either the principle or the directive, I point out that this would be neither possible nor wise.
If the Government were to reject the principle—as some want us to do—which the Government do not, or if we were to press ahead with our own legislation as others want us to we would be left with a disastrously weakened negotiating position in relation to the draft directive, over which we would have little or no influence, and we would miss the opportunity of a common product liability regime throughout the Community, which both industry and the consumer groups agree is a highly desirable prerequisite to any advance in product liability legislation—not only for the obvious practical reasons, or because of the obvious disadvantages of a fragmented approach, but also to ensure that British industry is not placed at a competitive disadvantage with other member States.
To those who fear that the directive may be in conflict with or replace existing law in this country, I can also give reassurance. Our law is continually developing. The draft directive represents not a basic alteration in our law but a complement to it.
For years, consumers in this country have had the benefit of strict liability against the supplier under the Sale of Goods Act, recently strengthened by the Unfair Contract Terms Act, under which there is no state of the art defence. This right, however, does not extend to third parties—those who are injured by goods but who did not purchase them in the first place.
Alongside the Sale of Goods Act rights, consumers have also had the right of redress through common law—the tort of negligence. Increasingly, the interpretation of this by the courts has been that negligence is assumed, as in the celebrated snail in the ginger beer bottle case.
§ Mrs. Oppenheim
There have been more recent cases, and I shall come to them later. But the absence of negligence 1110 is still, in theory, a defence. Therefore, a consumer injured by a new product with, for example, a design fault—a product he or she had not personally purchased—might be left with no compensation.
There was a fairly recent case, I believe in Scotland, where a person fell off the platform of a newly designed bus because there was no central pillar which he could hold for safety. The case was not successful in the courts. This vacuum would be filled by the draft directive, or by the final directive, which would provide a complementary but not radically different third alternative of redress to consumers and third parties injured by defective products.
In no way would I wish to see any regime that undermined the law of tort in this country, which is part of the fabric of our society, depending as it does on the philosophy of duty and personal responsibility.
Naturally, I speak of these legal matters with due diffidence, since I am aware that a number of hon. and learned Members with far more expertise in the matter than I, based on years of experience in the field, will wish to contribute to the debate and will no doubt be able to regale the House with a number of anecdotes from their experience.
I fear that the only example of which I know from personal experience contributes nothing to the legal arguments. It concerns a friend of mine who, not long ago, discovered a slug in a bottle of Guinness which she was served across a counter. As an animal lover, she was far more concerned about the condition of the slug than the state of the Guinness, so any redress that she may have sought would have been through the RSPCA rather than the courts.
I turn now to the importance that the Government attach to the inclusion of a state of the art defence in the final directive, as do a number of other member States. The European Parliament has said that it would be wrong to impose this burden on manufacturers and has voted for a state of the art defence, but that was subsequently overturned by the Commission.
The Solicitor-General in the previous Labour Government appeared to make it clear that the Labour Government also 1111 supported that view. In a debate on civil liability and personal injury on 17 November 1978, in answer to an intervention by my hon. and learned Friend the present Solicitor-General, referring to his earlier intervention in favour of a state of the art defence, the right hon. and learned Gentleman said that the previous Government not only agreed that there should be a state of the art defence but that the directive should so be amended. His words were:With that I wholly agree, and with that the Government"—the previous Labour Government—are certainly in agreement."—[Official Report, 17 November 1978; Vol. 958, c. 874.]Therefore, this Government are by no means alone in seeking this change in the draft directive.
The Government have considered this problem very carefully. We are conscious of the need to protect the consumer, particularly the innocent victim of a defective product that he or she has not purchased. At the same time, we recognise the benefits that consumers as a whole derive from innovation. We also recognise the importance of encouraging British industry to innovate, because it is on innovation that our industrial success has been based. We believe that it is important, therefore, that a state of the art defence should be included in any product liability directive, and we shall seek to persuade those of our partners who do not already do so to accept such a defence.
§ Mrs. Oppenheim
I return also to the burden of costs and who shall bear them. No one knows precisely what the costs will be—no insurer can be expected to quote insurance rates until the final directive is determined—but we know that the costs will vary from industry to industry and within industries according to the reliability of the company concerned, and also if and when new precedents are set in the courts. This is a matter about which industry is very concerned, and I can understand that concern.
However, international companies exporting to or operating in the United States already know what premiums they 1112 pay. Everybody accepts that the premiums occasioned by the directive will be much less than those paid in relation to the American market, first, because the draft directive, even as it stands, does not propose a regime like the disastrous American experience—I hope that we have all learnt lessons from that experience—and, secondly, because our courts are very different from the American courts in the absence of punitive damages and the scale of damages awarded, and our legal profession is very different from the American legal profession, where lawyers sometimes share in the benefits of the damages won.
Naturally, industry is concerned, as are we, to ensure that whatever costs are incurred are not crippling, not least because these increased costs are bound to be passed on to consumers in increased prices to a greater or lesser extent, depending on the competitive forces operating at the time. Therefore, all consumers will be contributing through the prices that they pay for the compensation to a few unfortunate injured victims. I do not think that anyone would quarrel with that concept.
§ Mrs. Oppenheim
I spoke earlier of the many matters which will be inevitably the subject of protracted negotiations on the draft directive. I cannot mention them all, but they include a number of important issues—some recommended by the Law Commission—such as the definition of the state of the art defence, the definition of "defect", the application to primary and processed foods, the problem of components and many others. There is the question of the financial limits for liability and of the 10-year period.
§ Mr. Latham
Perhaps my right hon. Friend will give way afterwards to the hon. and learned Member for Leicester, West (Mr. Janner). Will my right hon. Friend consider one other matter among the many others, namely, the state of the printing industry? Does she agree that 1113 it would be intolerable if printing companies, such as those in my constituency that have written to me about this matter, were to be saddled with responsibility for repeating the words given to them by the writers of books?
§ Mrs. Oppenheim
My hon. Friend, as always, is extremely prescient. because I shall be coming to that point later.
§ Mr. Janner
I thank the right hon. Lady for her chivalry. Earlier, she referred to the support that she had received in various quarters for retaining or introducing the state of the art defence. Also, she referred to the Law Commission in another context. Is it not right that the Royal Commission on civil liability—the Pearson Commission—and both the Law Commissions considered this matter and said that, if we included the state of the art defence, it would destroy the very root of the product liability legislation, as it is needed to protect ordinary people who cannot afford to go to the courts in this country?
§ Mrs. Oppenheim
The hon. and learned Gentleman has just demonstrated how right I was not to give way to him in the first place. No doubt he will raise this important point in the debate if he catches Mr. Speaker's eye. As I said, with the permission of the House, I hope to wind up the debate. I shall then deal with points that may be made in the debate. It is true, as the hon. and learned Gentleman said, that many people have supported the state of the art of defence—many of the member States, the European Parliament and the Solicitor-General in the previous Labour Government. I point that out in balance.
I come to the point that I was about to mention before the intervention—the financial limits for liability and of the 10-year period during which manufacturers are liable. Both these matters are bound to raise considerable problems during the negotiations on the draft directive. Then there are the questions of contributory negligence and recall, which also have to be resolved, and to which the report of the Select Committee has drawn special attention. There is the very 1114 vexed problem of imported products from outside the Community, where no adequate insurance is carried. There is the question of damage to personal property. The Government at present take the view that this should not be included, since people can reasonably be expected to insure their own property. There is the question of liability for printers' errors—referred to by my hon. Friend the Member for Melton (Mr. Latham) and a number of hon. Members—and bookbinding. It would clearly be absurd if either were included, but at present, perhaps inadvertently, they may be. Therefore, my hon. Friend the Member for Melton is quite right to express disquiet.
§ Mr. Patrick Cormack (Staffordshire, South-West)
It is not a question of printers' errors; it is a question of printers printing what they are actually given to print. They reproduce it accurately. So far as they are concerned, they have got it right. They may then find themselves in a very invidious position.
§ Mrs. Oppenheim
My hon. Friend is absolutely right. This is the situation that makes the present inclusion of printers even worse. As I have said, it is manifestly absurd. It will obviously be the subject of negotiation.
There is also the need to avoid undermining the professional position of doctors and ancillary medical services, and of pharmacists, and the relationship between doctors and patients. I have listened patiently to the cases of both, and I am convinced that this is a matter of concern to the profession which we shall clearly need to examine in considerable detail.
These are just some of the matters that will be the subject of negotiations on our part and on the part of other member States, from which it will be seen that the final outcome cannot be for some considerable time. We have considered carefully the views of the Law Commission, of the Royal Commission on civil liability and compensation for personal injury, of the several hundred representative bodies that replied to our invitation to comment on the draft directive last year, and of the numerous trade associations, companies and individuals who have written to my colleagues and to me and to hon. Members on both sides of the House over the past year.
1115 I believe that, if there is a sensible move towards strict product liability, it will not only provide consumers with redress that is denied them at present but will gradually influence companies in the right direction, which is to strive for higher safety standards, higher quality and better quality control, which will be of benefit both to consumers and to the economy as a whole. But innovation and efficiency must be safeguarded, and costs cannot be crippling. As I have said, we shall play a constructive and not an obstructive part in the negotiations, in order to get the best possible directive. We shall seek to amend the draft directive so that it reflects a fair balance between the interests of consumers and producers, which the terms of the motion set out.
It is a delicate balance that must embody both justice and fairness, both worthy objectives, for which we shall strive.
§ 4.4 pm
§ Mr. John Smith (Lanarkshire, North)
In her speech, the right hon. Lady, as I understood it, gave a tentative and rather tepid welcome to the principle of extending the liability of manufacturers of defective products, but in her statement that the Government would press for a state of the art defence I think she did a great deal to erode the concept of strict liability for defective products. As the Law Commisions pointed out in their careful reports on this subject, it is extremely hard to have a state of the art defence and the principle of strict liability running side by side if it is to mean anything in practice.
What I think the House has to do in this debate is to consider both the general question whether there ought to be an extension of the liability of manufacturers of defective products, either on a national basis or on a Council of Europe or EEC basis, and to look in particular at the documents from the EEC Commission which are referred to in the motion and give some guidance to the Government in their negotiations with other member States on how these matters should be proceeded with.
For my part, I think that the question of principle that underlines this must be faced by all those who take part 1116 in this debate. Are they in favour of extending the liability of a manufacturer of a defective product to a person injured on the lines that are generally regarded as product liability? It has sometimes been advertised as a major new departure. I do not think that it is of such major consequence as some of its opponents make out. As the right hon. Lady mentioned, strict liability is not a novel concept in law. Indeed, it is a familiar concept in many areas in which actions for damages for personal injuries are brought.
I come down basically in favour of the principle of there being product liability. That was the view not only of the Pearson commission but of the English and Scottish Law Commissions, as well as of the Council of Europe and the EEC Commission. As I understand the proposition, it involves the imposition of strict liability upon the manufacturer of a product for defects in the product. As I also understand the present position, if one buys an article one has protection. If Mr. A buys an article from shopkeeper B and there is a defect from which he sustains injury, he may well be able to sue the shopkeeper, and probably will be able to sue him, on the basis of the law of contract. But if he gives over the defective object to his wife and she suffers the same injury, she will not be able to sue the shopkeeper who sold Mr. A the product because she has no contractual relationship with the shopkeeper.
We have to ask ourselves whether it is fair that Mr. A has a remedy in that situation when his wife does not, when they have suffered the same injuries from the same defect in the same product. I find very little difficulty in answering that question on the lines of saying that Mr. A's wife ought to have a remedy. If the law does not provide a remedy for her in that situation, it is time that we set about finding a means of law reform that gives her a remedy.
§ Mr. Greville Janner
In fact, the wife has a remedy. She can sue in tort or in negligence. She cannot sue in contract. But the trouble with suing in tort or in negligence is that one has to prove fault. That is almost impossible for the ordinary person who cannot command either legal aid or a vast amount of money and who, therefore, cannot get justice without strict liability.
§ Mr. Smith
I am obliged to my hon. and learned Friend for his intervention, but I was assuming in the course of these examples that it was not possible for either Mr. A or his wife to bring an action on the basis of either tort in England or delict in Scotland. My hon. and learned Friend is quite right. If it were open for people to take an action on the basis of tort, that would be fine, but in this area we are talking of cases in which it is difficult for people to establish a liability based upon fault. In this situation, we ought to consider whether we ought to reform the law. In my opinion, we ought to do so.
If we think about the most relevant case, which gave rise to much of the consideration by the Law Commissions and others, I think that we see the argument demonstrated clearly in the case of the Thalidomide children. Those Thalidomide children would, it was thought, find it difficult to establish a liability based on fault against the Distillers Co. Ltd., which manufactured the product. I think that most people would agree that that was a most unfortunate result. As a result of press campaigns and political pressure, the Distillers Co. Ltd. entered into a voluntary arrangement with the injured people to make an ex gratia out-of-court settlement with them. At least, that is how I understand the position. It would be very unfortunate if no such ex gratia offer had been made and those children had had no compensation.
Therefore, we ought to examine whether the law ought to be amended to give such people the right to compensation. That is the first point. It is a strong argument for introducing strict liability in the manufacture of defective products. That example also illustrates problems about having a state of the art defence. If the company had said in an action based on strict liability that it was a defect that it could not reasonably have known about at the time—it is highly likely that that is what it would have pleaded in its defence——
§ Mr. Smith
In that situation, and at first sight, strict liability would seem to offer a remedy to the Thalidomide children, but that remedy would be snatched 1118 from them by the application of the state of the art defence. That is an apt illustration of how that defence, which the Government say they will promote in the discussions, takes away a great deal of the advantage that would be achieved by reforming the law on the lines of strict liability.
If injury arises from a defect in a product, on whom should the loss fall? Who should bear the loss? Should it be the person who manufactured the product, who put it into circulation and who presumably gained some profit by so doing? Should he bear the loss and share the loss, as it were, by taking out insurance, the cost of which would no doubt be reflected in the price that consumers would pay for the product, or should the person who suffered the injury alone bear the loss?
I find little difficulty in answering that social and political question. It seems manifestly unfair that the Thalidomide children should bear uniquely the loss that they sustained and not those who manufactured the product that gave rise to their injuries. Perhaps the product has to be increased in price to cover the cost of insurance. That is another way of saying that all consumers should pay the price of the injury that the Thalidomide children suffered rather than the Thalidomide children themselves.
§ Mr. R. A. McCrindle (Brentwood and Ongar)
I accept what the right hon. Gentleman says about the Thalidomide case. Will he turn his attention to the deterrent effect that absolute liability would have on the production of successful pharmaceutical products such as penicillin?
§ Mr. Smith
I shall turn my attention to that aspect. I hope that the hon. Gentleman will allow me to use the Thalidomide case to illustrate—I believe it does so meaningfully—the concept of strict liability and the difficulty of a state of the art defence. As a noble Lord said in another place, "Whatever be the arguments for and against, I cannot get the Thalidomide children out of my head." I am sure that we all find that a difficulty when considering the subject.
On grounds of social and political policy as well as legal principle, we would be wise to adopt the concept of strict 1119 liability and apply it to the manufacturers of defective products. In their joint report, the Law Commissions dealt with the issue fully and advanced a number of persuasive reasons why there should be a change in the law. It is not an earth-shattering change. It is an extension of the principle of strict liability.
Surely it is unfair that the injured party alone should have to bear the loss. Having enunciated the principle and agreed to a change in the law, we must consider whether the directive and the amended directive are documents to which the Government should assent or whether there are any changes that should be made to them.
Before dealing with those considerations, I return briefly to some of the matters that the Law Commissions raised on general principle. They commented that in the case of a person who suffered injury in a situation where he cannot prove fault, the loss should lie primarily on the person who created the risk, namely, the manufacturer. That seems to be largely self-evident. Secondly, they stated that liability should be imposed on those in the chain of manufacture and distribution, who are in the best position to exercise control over the quality and safety of the product. Again, that seems to be self-evident. That points towards the manufacturer being saddled with liability.
The Commissions also said that it is desirable that the risk of injury from defective products should be borne by those who can most conveniently insure against it. There is a great deal of sense in that as well. Again, that points to the manufacturer. They advanced another argument which may not be as powerful but which has some validity, namely, that public expectation should be taken into account in determining where a loss should lie. Some surveys appear to indicate that the public think that manufacturers, especially those of branded products, should carry the responsibility. That is not such an important aspect.
The Commissions believed that is was desirable to remove difficulties of a procedural or evidential character that impeded rather than assisted the course of justice. There is nothing worse than claimants running into great evidential difficulties 1120 in pursuing their case, as those acting on behalf of the Thalidomide children might have faced if they had gone to the courts to have their case tried. The Commissions considered that it should be the policy of the law to discourage unnecessary litigation. The clearer the law is, the more that can be achieved.
The Commissions considered the effect on industry of these policies. That is a matter that we all have to take into account. They felt that if such a change in the law placed an undue competitive disadvantage on British industry, that would have to be weighed in the balance. They felt that the inhibition of technical innovation should similarly be weighed. The Commissions had to bear in mind that, if the law were especially strict in the United Kingdom, companies might cease to manufacture in this country.
Two of the difficulties are removed by the fact that we are dealing with a wider basis than national law reform. If the directive comes into force for EEC member States, the manufacturers of the Nine will all be in the same position as regards liability. There can hardly be much competitive advantage or disadvantage.
Having agreed with the principle, does the directive help us? In general terms it does, but there are a number of issues that require further elucidation in the discussions that no doubt will take place. Should liability extend to personal injuries only or to damage to property? I contend that it should not extend to damage to property for some of the same reasons that I have advanced why it should apply to personal injury. It is reasonable to expect manufacturers to insure themselves against personal injury, because people do not normally insure themselves against that sort of happening. However, it is reasonable for the owners of property to insure themselves against damage that might happen to it. That is the conclusion to which the Law Commissions came. The case has not been made out for extending liability to damage to property. No doubt a theoretical case can be made out for such an extension, but I wonder whether it will have much social and political justification.
Another reason why it might be wiser to confine liability to personal injury is that the convention of the Council of Europe so confines itself. There is a 1121 great deal to be said for the EEC directive and the Council of Europe convention coming together. Apart from anything else, the Council of Europe covers 21 countries, while the EEC at present covers only nine countries. There is a great deal to be said for that in terms of the desirability of the approximation of laws and in avoiding competitive advantage and disadvantage to our manufacturers.
Most of the difficult legal problems that we have found in recent years have involved personal injuries. It might be of some assistance to those who are worried about manufacturers that the burden of insurance would be greatly diminished if liability were limited to those who sustained personal injuries. The potential damage to property must be high, and that would be reflected in the contingent liability envisaged by insurance companies and in the premiums that would be charged.
The Government came to their view before this debate. It might have been better for them to listen to the views that will be expressed this afternoon and evening before announcing their decision. However, we shall seek to persuade them that they are wrong. The state of the art defence does a great deal to diminish the value of some acceptance of the principle of product liability.
Defences should be available to manufacturers. That is only fair. I hope that the right hon. Lady will confirm that the Government believe that it would be open to manufacturers to claim that the person voluntarily assumed his risk, or to claim the defence of contributory negligence in any actions that were brought. I think that it is the case, but I hope that the right hon. Lady will confirm it.
Several provisions in the directive require further clarification. In article 4, there is a definition of the word "defective". That definition is different from that devised by the Law Commissioners at an earlier stage of consideration. I do not wish to go into the technicalities involved—which largely turn on the words used—but the Government should consider the definition carefully.
Article 7 puts a global limit on the amount of compensation that can be claimed. It says that if a manufacturer's 1122 product causes damage and if that damage age is caused by identical articles having the same defect, there will be a global limit on the amount for which he is liable. That limit is defined as 25 million European units of account, which is approximately £15 million, a European unit of account being roughly equivalent to 60p.
That creates a problem. If a global limit is put on the liability of a manufacturer, how will he be able to settle any case? How will he know how many cases there will be? How will he know whether the amounts that he pays out will eventually exceed the global amount? Theoretically, one would know whether the global limit had been exceeded only if one had gone through all the cases that could possibly be brought, and if one had seen the amounts to be paid out. It is difficult to understand how a global limit could work. That is also the view of the two Law Commissions which considered this issue. The Government should remove the global limit. However, there is one argument in favour of it.
§ Mr. Michael Latham
I seek guidance on that point. In a later article, there is a 10-year time limit. If there is no global limit, how is the risk to be insured?
§ Mr. Smith
The hon. Gentleman has anticipated what I was about to say. There is a difficulty as regards insurance. An insurance company is unlikely to enter into a commitment for unlimited liability. It will want to put a ceiling on the amount that it has to pay out under the policy if a manufacturer has unlimited liability but is able is insure only up to a certain amount. He will have to make his own assessment of what that amount should be. Certain manufacturers may want to insure higher amounts than others. The manufacturer will have to carry the risk for anything that is in excess of his insurance cover.
However, the hon. Gentleman should not think that that is so terrible. It already happens with fault liability. All employers take out insurance against employers' liability. Potentially claims against them are unlimited. No insurance company will give them unlimited cover and so they insure for the maximum that they think they might 1123 have to pay and bear the cost themselves of any additional cover. It is not such a difficult theoretical or practical problem. The Government should remove the global limits completely.
A question was raised about the cut-off date. The draft directive proposes that there should be no claims 10 years after a product has gone into circulation. There was an interesting dispute between the English Law Commission and the Scottish Law Commission on this issue. The English Law Commission agreed with the 10-year cut-off date, but the Scots thought it wrong in principle that somebody who suffered as a result of a defective article should be denied redress if the article were still in circulation after 10 years.
Although I have a slight national bias, I am not particularly concerned whether there is a 10-year cut-off date. There are practical difficulties about having unlimited liability as regards time, but I accept that an injustice might arise if someone were to suffer from a defect immediately after the cut-off period had come into effect. If it proved necessary to reach agreement on other matters in order to concede the cut-off period, I should have no objection. It would have some practical advantages in relation to insurance and people would be aware that the claim period ended at a particular time.
I have made our position clear. The Council of Europe seeks to establish a convention which might be adhered to by 21 European countries. At the same time, the EEC is proceeding with a draft directive that applies to nine of those countries. Both have put forward detailed proposals containing major differences. The Council of Europe excludes damage to property, while the EEC directive includes it. There are several other significant differences. However, both bodies agree that there should be a European approach to introducing such an important reform.
It is unfortunate that EEC and the Council of Europe have not been able to get together and find a common modus vivendi. If Britain were to adhere to the EEC directive, it would be impossible for us to adhere to the convention. If the directive were passed, we should have to adhere to it, and that would mean that it was impossible for 1124 us to sign the convention. One of the convention's rules is that no member State can derogate from any of the rights conferred under the convention. In some respects the EEC directive would have that effect and we should be prevented from signing the convention or from ratifying it. That would be most unfortunate.
Some effort should be made to reach the widest possible agreement in order that there may be the broadest area for the approximation of laws. The obligation on producers will then be much the same over a wider area and will go some way towards diminishing their fears. I hope that the Government will consider taking some initiative. The Select Committee in the other place asked whether this directive was intra vires of the treaty. It seems to be based on article 100 of the treaty and on the footing that the Commission believes that distortions of trade arise from the failure of the laws of the member States to approximate. I wonder whether distortions of trade arise. One does not know.
§ Mr. Charles Fletcher-Cooke (Darwen)
Does the right hon. Gentleman know that, when this matter was debated in the Legal Affairs Committee of the European Parliament, the Commission could not produce a single case that involved distortion? I am not saying that I am not in favour of the principle, but to base it on article 100 is dangerous, because it may be challenged in front of the European Court as being ultra vires.
§ Mr. Smith
I am grateful to the hon. and learned Gentleman for that helpful intervention. It has enlarged my knowledge and, I hope, that of other hon. Members. It is unfortunate that the Commission should strain at the provisions of the treaty in order to introduce a policy. It may be desirable for the member States of the European Community to reach an approximation of the laws if they so wish, just as it is desirable for member States of the Council of Europe to do so. If so, they should proceed on that basis and not try to force the provision through by means of one of the treaty's articles. That damages the treaty and creates apprehension about the way in which the Commission interprets its role.
If a widening of the functions of the European Community is involved, it 1125 should be made plain. Some procedural differences might be involved, but it would be a more honest way of dealing with the situation. Although the Government have taken an unfortunate decision about the state of the art defence, I hope that some agreement within the European Community will be reached, so that the reform is embodied within our national laws. Our producers will then have the advantage of similar laws being imposed on their competitors in the other countries. At the end of the day, the issue must be considered from the point of view not only of the EEC or the Council of Europe but from that of the injured person, who, through no fault of his own, is injured as a result of a defect in a manufactured product. Unless we say at this stage of the twentieth century that the loss must lie upon the injured person, which is a barbarous conclusion, we must seek to reform the law to give him adequate redress for a justified complaint.
§ Mr. Cranley Onslow (Woking)
I am sure that, among those who have made representations to my right hon. Friend the Minister for Consumer Affairs, she will recall the Society of British Aerospace Companies, which will welcome what she says on the state of the art defence. It is essential that for certain high-risk industries that defence should be available. That does not mean that we cannot proceed at all, but, if we recognise that at the outset, we stand a chance of proceeding sensibly.
My right hon. Friend may recall that the SBAC drew her attention to an interesting paper put up to the Commission in Brussels by the American Chamber of Commerce in Belgium. The United States in recent years has been the cradle of modern consumerism. We should therefore pause to take account of what has happened in legislation that the United States has practical experience of in the past 20 years. The paper is a moderate and reasonable document. It states:In the United States, the establishment of the principle of strict liability for damage caused by defective products has resulted in divergent and inconsistent decisions of the Courts in different State jurisdictions and the development of a body of law which does not fairly balance the interests of both the opposing parties in a product liability suit.1126 The paper goes on to say that it fearsthat, unless certain major changes are incorporated in the proposed Directive, the same weaknesses in the substantive law will be implanted here in the Community, with the same unfortunate consequences.Those of us who are aware of what has happened in America share that view. The paper continues:The Chamber is convinced that, in the area of substantive law, there are very important lessons to be learnt from the American experience, which is therefore highly relevant to the development of product liability law in the Community.The paper makes one important point that my right hon. Friend will be able to turn her attention to with her European ministerial colleagues. A failure has been identified in the United States which may well be reproduced here. It isthe failure … to identify clearly four distinct functions undertaken by the producer in relation to his product, and to deal separately with the standards of responsibility which the producer ought to fulfil in relation to each of those functions. The four functions concerned are the design of the product, its manufacture, the provision by the producer of warnings or instructions about its characteristics or use, and the giving by the producer of express warranties relating to it.If we clear our minds on some of those areas, it may be easier to proceed, although I share my right hon. Friend's doubt that we shall be seeing a directive approved within a matter of weeks.
American experience in the aerospace industry has been almost horrendous. The most extreme case that I have heard of is of an aircraft that was manufactured for the United States Navy during the war by a manufacturer still in business. After passing through a great many hands, and thereby presumably giving testimony to its durability, it came into the hands of a private citizen who had the misfortune, when flying over water, to fail correctly to turn the tap from one petrol tank to another, because all the markings on the quadrant had been rubbed out by the successive hands of the many pilots who had flown the aircraft in the intervening 35 years. He was unfortunately unable to maintain air speed, fell into the sea, and was drowned. His widow sought to bring an action against the original manufacturer on the ground that the product was defective because the wear and tear should have been foreseen.
1127 I do not know what became of that case. One does not know what becomes of many cases launched in the United States. Here we have the second undesirable feature of the practice of consumer legislation in America. The defence of individual cases often rests not on the merits at law but on the pockets of the insurance companies. They decide whether they will launch a defence or settle out of court. I do not believe that we should necessarily fall into that trap.
The SBAC is not alone in its views. My right hon. Friend may have seen a letter to the Commission from the French Directorate General of Civil Aviation on that very subject. It states:There is one aspect of the … draft directive, concerning the manufacturer's objective liability, which I feel is particularly worrying for the aeronautical industry: the manufacturer is held liable for his product 'even where the item in question could not have been deemed defective on the basis of the scientific and technological development prevailing when the item was marketed' (article one of the draft directive). The European Parliament had proposed excluding the 'development risks', but this proposal was rejected by the Commission to safeguard the consumer from risks unknown. The Commission was backed in this stand by the European Insurers' Committee, who held that this risk should not result in insurance costs being appreciably higher than those resulting from the introduction of objective liability, irrespective of the defect. This statement should be viewed with caution insofar as aeronautical products are concerned.That statement puts me in mind of the notorious comment, "They would say that, wouldn't they?" I have the suspicion that insurance companies are by no means necessarily the best guides to what will happen should some of the proposals behind the draft directive ever be embodied in the equivalent of the European statute book.
The letter continues:the principle of development risk liability would doubtless have a stultifying effect on an industry such as the aerospace industry, where research and development are so vital.It is relevant to consider the ability of manufacturers of such products to cover themselves by insurance. The insurance market does not operate, as the right hon. Member for Lanarkshire, North (Mr. Smith) reminded us, on an open-ended basis. It would be unlikely that any insurance company would be willing to provide a manufacturer with cover for as long 1128 as 10 years against the kind of risks that would be open if the state of the art defence did not exist.
A fundamental incompatibility exists which I hope hon. Members will understand. Probably many of us flew in Comets before all the accidents took place. Most of us recall the tragedies and remember that they were established as being due to a type of defect that nobody had any reason to anticipate—metal fatigue caused by constant pressurisation and depressurisation, which is familiar now but was unknown then. If that is not a state of the art situation, I find it difficult to identify what is.
We are dealing with industries that must innovate if they wish to retain their markets, and risks have to be taken in order to make progress. It is impossible to reconcile that human desire with the other human desire that all persons should, if possible, be protected against everything if accident befalls them through no fault of their own. In proceeding, my right hon. Friend should consciously identify the areas where the risks are so much higher and the need for progress is recognised as being greater and separate them from other areas of industry where risks are lower and innovation is perhaps less of a compulsion.
If I am to find fault with the motion before us at all, it is in the last few words. It would have been reasonable to sayundue burdens should not be imposed on high-risk industry",rather than on all industry, although then one has to deal with the problem of defining what is and what is not an undue burden. It is a desirable objective, for which we should all strive as best we can, but I want to enter this strong caution on behalf of one high-risk, high-technology industry. I trust and hope that my right hon. Friend will not, in any proposals that she may subsequently feel inclined to endorse, do anything that will inhibit the progress of that vital industry.
§ Mr. Gordon Oakes (Widnes)
My constituency includes the sort of high-risk industries to which the hon. Member for Woking (Mr. Onslow) referred, namely, the chemical, agrichemical and pharmaceutical industries. They are most perturbed about many of the provisions of the draft directive.
1129 I may be the only Oppositon Member to do so, but I congratulate the Minister on including the state of the art defence. She said that my right hon. and learned Friend the Member for Warley, West (Mr. Archer), who was Solicitor-General in the Government of which I was a member, had agreed with the provision. I believe that it is important for the future of British industry that the defence should be provided.
Our law is different from that of many other European States. It has always been tempered by provisions of equity as well as of law. It is easy to point to the Thalidomide tragedy, or to the difficulties of a consumer who finds himself or herself at loss, but it has never been a principle of our law that a person who conducts exhaustive tests on an article that is safe when it is put on the market should subsequently find himself responsible for paying compensation and damages when he could not have known that there was a defect in the product. That would be alien to our concept of equity and law. On that principle alone, it is right to preserve the state of the art defence.
The hon. Member for Woking made a valid point when he said that the proposal could be a dead hand on any innovative product coming on to the market. That will be so if a manufacturer fears that he may have to pay premiums on, or be sued for, a defect that he could not have known about. It could certainly be a damning factor against the bringing of new products on to the market by the chemical industry.
Other matters in the draft directive cause considerable concern. One is the definition of a defective product. There are many loose definitions in the draft directive about which industry is concerned. It does not know what the draft directive means. A defective article is defined as one thatdoes not provide for persons or property the safety of which a person is entitled to expect.I know that the reductio ad absurdum of the argument is the probably apocryphal case of the American matron who bought a microwave oven and tried to dry her poodle in it. The poodle died. That probably did not happen, but the case is often quoted in relation to strict liability.
I direct the Minister's attention to a situation that it is thought could arise 1130 under the legislation. I hope that she will be able to satisfy us that the situation could not arise. In my constituency, ICI makes Paraquat, which is probably the most effective weedkiller in the world. It has probably saved farmers hundreds of millions of pounds, and it has been of inestimable aid to gardeners as an effective weedkiller. Unfortunately, if Paraquat is taken by humans, it is lethal. There is no known antidote.
The producers go to infinite pains to make clear to any consumer or purchaser that Paraquat is a lethal chemical, but, even after the company has done all that and has spent considerable sums in trying to find an antidote, Paraquat is sometimes drunk, usually by children who have no connection with the purchaser of the chemical. They may have broken into a garden shed, seen the chemical in an attractive bottle used by the purchaser—not the bottle supplied by the manufacturer—and drunk the liquid.
What will be the position of ICI on strict liability if, even though the chemical is not made for internal consumption and every effort is made to point out that it is poisonous, it is consumed? Could the manufacturer be liable, even though the product is effective in its intended use as a weedkiller? There is doubt in the minds of many manufacturers on that point.
There are other problems, arising from the draft directive. I declare an interest as a consultant to the Pharmaceutical Society of Great Britain, which is worried about some of the provisions. It is concerned about strict product liability, under which, when a person is damaged by a defect in a product the producer should be automatically liable to provide compensation.
Who is the producer of what is dispensed by a pharmacist? Is it the manufacturer of a medicine, which normally comes in a package, or is it the pharmacist who makes up a prescription? That is a matter of concern to pharmacists, because the package from the manufacturer is often of a different quantity from what is required on a prescription. What records will have to be kept in case an action is brought subsequently because the manufacturer of a product seeks to shift responsibility on to the pharmacist?
§ Mr. Fletcher-Cooke
Article 2 provides that, in the instance quoted by the right hon. Gentleman, both the person supplying the materials and the person who makes them up are producers.
§ Mr. Oakes
That leaves the pharmacist in a difficult position. The injured party may decide to proceed not against the manufacturer but against the pharmacist. Considerable record-keeping will be necessary for pharmacists so that they can prove their point if an action is taken by a customer.
A further point to consider is the question of primary products. As usual in EEC legislation, primary agricultural products are excluded. Only manufactured products are included in the draft directive. I do not know why that is so, though the EEC has a predilection always to protect agriculture, no matter what the Community may do to manufacturing industry.
One has to ask what is a primary agricultural product. For example, when milk comes from the udder of a cow, it is a primary agricultural product. When the milk is part of the constitution of a cake, it is a manufactured product. If the milk became dried milk through a manufacturing process, it would cease to be a primary agricultural product and would become a manufactured product. At what stage does a product cease to be a primary agricultural product and become a manufactured product? Milk in this country is a manufactured product, because it is pasteurised and put into a bottle. Does that mean that it ceases to have its status as a primary agricultural product? These are not niggling legal points. They are matters of great and deep concern to the whole food processing industry, caused by the loose wording of the draft directive and what it means.
All hon. Members admire what my right hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) did for the Thalidomide victims. It is right that consumers should be protected. Sometimes, however, it is possible to take consumerism too far. I think especially of those who work in industry and become injured either by a product or the making of the product. No absolute strict liability exists. My own union, the Transport and General Workers Union, has been trying to persuade successive Governments for 15 or 20 years that a phenomenon known 1132 as Raynauds phenomenon, where the hand goes white, is palsied, and shakes as a result of using a particular type of machinery, should be classified as an industrial injury. The consumer has an advantage over the person considered by many hon. Members, including myself, to be more entitled to absolute strict liability.
The draft directive bristles with difficulties. I hope that the Minister will be able to provide some answers. I, for one, on the Opposition side of the House, am grateful that the state of the art defence will continue to be provided.
§ Mr. Peter Lloyd (Fareham)
I beg to move the amendment standing in the name of my hon. Friend the Member for Northampton, North (Mr. Marlow), myself and others, at the end of the question, to add:'and further believes that if such conditions are not met, further legislation on this topic should be left to the Parliament of the United Kingdom '.This directive changes fundamentally the law of product liability as it is known in this country. That law can, and should, be improved. There are, however, large differences of opinion between hon. Members on both sides of the House, and certainly on this side of the House, and some of our partners in Europe about how it should be done. My right hon. Friend will no doubt ensure that all the worries, concern, fears, doubts and criticisms expressed during the debate will be put clearly and forcefully in Brussels. In the nature of these matters, it is likely that it will be a compromise that emerges. No such compromise having such a fundamental effect on manufacturers and consumers in this country should be imported into United Kingdom law without further thorough consideration by this House, especially when, as my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) pointed out in a cogent intervention, the treaty foundation on which this directive is based is legally very flimsy.
I do not wish to develop all the doubts and criticisms that have been and will be expressed on the Government side of the House, but I hope that my right hon. Friend will take on board and sympathise with the point contained in the amendment and will be able to give some assurance that these matters will be brought 1133 back to the House before they become a part of United Kingdom law.
§ Mr. John Tilley (Lambeth, Central)
I support fully the spirit of the directive as a major step forward in consumer protection. I take that attitude as a Member of this House sponsored by the first consumers' organisation in this country, the Co-operative movement, which was set up 150 years ago to protect working men and women from defective products, mainly adulterated food. Today, the Co-operative movement welcomes the directive for the protection that it affords to the present generation of consumers.
I hope that the Government will pay particular attention to the reservation that has come from one section of the Cooperative movement, the Co-operative Press. The effect on the printing industry has already been mentioned by Conservative Members and also by the Minister. The view of the Co-operative movement is that it is beyond the powers of the Co-operative Press to check the accuracy of the material printed, including liability for textual error of a technical kind. Sometimes, material is printed in a foreign language. In the case of Russian, for example, the society has no facility for checking the text.
A printer in my constituency has echoed the complaint. He points out the special problems that the directive presents for the printing trade, and writes to say that he is horrified by its implications. I have a special interest in that printer's welfare, not only as one of the few small firms in my constituency which have managed to survive the Government's economic policy but also as the printer of my last election address who will still be in business, I trust, to print my next address.
The nature of defects in printed material is more complex than those in other manufactured goods. A physical defect can occur in a book that falls to pieces when it is opened, just as a car may not start or a piece of furniture can collapse. No one suggests that printers or book-binders should not be equally as liable as any other producer of artefacts in that situation. But printed material can also contain a defect in the actual text. This point was explained 1134 well in a circular issed by the British Printing Industries Federation, which says that, as "producers", printers and bookbinderswould be strictly liable for defects in books and other printed matter. This could have serious implications, assuming that an error in the text would be regarded as making an item defective.I have established, as I think the federation has established, in correspondence with the Minister, that no assurances on that ground can be given at the moment. The textual error might be the addition of a nought in a medical textbook that resulted in a drug being taken, or prescribed, at 10 times the safe level. A case is quoted last year of a publisher recalling copies of an A-level textbook on organic chemistry due to a serious misprint in the description of an experiment. In such cases, the printer would not have the specialist knowledge that could be expected of an author or publisher. It would be most unreasonable to expect a printer to spot a textual error of a technical nature. Where a printer receives camera-ready copy from a customer, he would not have to read the text in the course of the work and would not be reimbursed by the customer for doing so. Where the copy had been pre-set in a foreign language, he would not be able to read the text, anyway.
That view echoes what is felt by the Co-operative Press. The printer in my constituency says that he often has printed material pre-set in Arabic. It is as ludicrous to suggest that the Co-operative Press should have Russian readers at hand as it is to suggest that a small printer in my constituency, or any other constituency, should have Arab proofreaders to avoid liability under the legislation.
The position of book-binders will be equally unsatisfactory. They receive printed sheets for binding and have no control over the textual matter. The directive seems to ignore the careful division in British practice and in law—the division between labour, responsibility, and liability in the printing industry in Britain. It would seem that the only way for a printer to avoid falling foul of the directive is for him to insist that the publisher and the author checks every item in proof form before it is printed and sent out. Even if that was practicable, 1135 it would be prohibitively expensive and would put large and small printers out of work.
I do not dare to guess how the directive will interlock with British laws of defamation. As a former journalist, I believe that newspaper printers, particularly when they are not the owners or publishers, could be at an even greater risk from the directive than the printers of books, who have more time to check texts. I am surprised that Fleet Street is not already up in arms about the directive. If journalists read the directive fully, it might do a lot to dampen their enthusiasm for the Common Market and some might regret campaigning for a "Yes" vote a few years ago.
I ask the Government to press for the complete exclusion from the directive of printers and binders of the printed word. Already the Commission has agreed to the exclusion of craft and artistic material on the ground that that normally involves production item by item and not of serial production. There is a comparability with the wide variety of tasks undertaken by small jobbing printers, who fear the effects of the directive.
I was grateful to the Minister for mentioning the issue. She used fairly strong language and said that the position was absurd. I have had experience, as a journalist and as a Member of the House, of the European Commission and the Council of Europe. I noted that she did not say that it was intolerable, nor did she say that it would not be agreed by the Government. The danger is that the Government will be willing to compromise on the issue. I hope that that is not so. I hope that the Minister will give a categorical assurance that the British tradition—that responsibility lies with the publisher and/or author and not with the printer or binder—will be followed. If that does not happen, we shall lose a valuable principle which has long protected printers, bookbinders and publishers. The Government have said that they will bear the problem in mind. They have said that the proposal is absurd. I should like them to say that it will not be adopted.
§ 5.2 pm
§ Mr. Charles Fletcher-Cooke (Darwen)
I begin by mentioning my worries about the constitutional position and the amend- 1136 ment. We are discussing a directive, and not a regulation. If the directive is passed by the Council of Ministers, the House will have to translate it into law in a form that British courts can interpret. Once the directive is passed, we are obliged to observe its substance and principles. We cannot divert or modify the substantial matters in it. We are obliged, either by means of primary legislation in the form of an Act or in an order, to translate the verbiage of the directive into statutory material suitable for interpretation in United Kingdom courts.
The amendment appears to go further than that. It implies that if the conditions, which I support, are not met by the directive and the directive is nevertheless passed, we should refuse to observe it and pass our own initiatory primary legislation. We cannot do that without being in breach of the Treaty.
However, my hon. Friends who support the amendment need not worry too much about that because, under article 100 of the Treaty, a directive must be passed unanimously. There might be doubt about that, and different views have been expressed to me. However, from reading article 100, I am convinced that what I say is correct. I have with me the bible, the great purple book. The article states:The council shall, acting unanimously on a proposal from the Commission, issue directives for the approximation of such provisions laid down by law, regulation or administrative action in Member States as directly affect the establishment or functioning of the common market.My hon. Friends fear that the directive might be passed without the reservations to which the Government attach such importance, but that is unlikely. If there is no unanimity, there is no directive. If there is unanimity, it means that the Government have not dug in their toes as they say that they will.
§ Mr. Tony Marlow (Northampton, North)
Does my hon. and learned Friend agree that, in the nature of the Common Market, it is possible that a series of measures will be discussed together and that, although the terms and conditions that the Government might wish for this measure are not met, they may agree unanimously with the measure in order to get agreement on another measure?
§ Mr. Fletcher-Cooke
The Government may do that. If they do, the House can do nothing further without turning out the Government. If the Government agree to a directive, it is not open to the House to veto or negative that directive. Once a directive is passed, all that the House can do is to translate into law suitable for interpretation by our courts the substance of the directive. In that I include all exceptions such as the state of the arts, defence, the crafts defence, and the question whether it applies to property as well as to personal injuries. If a Government have agreed to such a directive, they cannot even provide time for a Bill or resolution to negative that substance. That is as I understand the constitutional position.
When my hon. Friends say that further legislation on the topic should be left to the United Kingdom Parliament, I imagine that they refer to the position that will exist if we cannot achieve the conditions that the Minister says we should insist upon, that we shall not agree, and that the directive will not be passed. My hon. Friends say that in such circumstances the United Kingdom Parliament should translate into action its own domestic legislation, based, no doubt, on the Pearson report and the reports from the English and Scottish Law Commissions.
I turn to the substance of the matter. I have had my doubts about the vires of the directive. I am delighted to have the support of my old colleague in these matters, my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith), who was in the Chair during the battles so long ago. At one period, we convinced the legal committee to throw out the whole directive on the ground that it was not truly based on article 100, since there was no evidence that the, market was being distorted by the differences in the laws of the Nine countries relating to liability for defective products.
That, of course, evidence, the basis of article 100, but if there is evidence, for example, that someone is setting up a factory in one State rather than another because the law there enables him to avoid liabilities to which he would otherwise be subject, one could say that competition was being distorted. No such example could be produced. The argument was entirely 1138 theoretical. Therefore, at that stage it seemed dangerous to proceed on article 100 alone.
The Treaty does not provide for consumer protection. Perhaps it should, but in strict law it does not. That was not within the remit or concept of the founding fathers, and it was not an issue in the negotiations, the renegotiations or the re-renegotiations in respect of the entry of the other three countries. To proceed in that way is straining the Treaty. It is possible that, when the directive comes into force, someone who feels injured by its provisions may take the matter to the European Court, which may rule that the directive is outwith the powers of and not truly based upon article 100. I doubt whether that will happen.
§ Mr. Peter Lloyd
If it did happen, would it mean that, the matter having passed through the United Kingdom Parliament in the way that my hon. and learned Friend suggested, it would become proper law in the United Kingdom? Then, whatever the basis of the directive, would it still be law here and, therefore, would any appeal in this country fall to the ground?
§ Mr. Fletcher-Cooke
No, it would not be law here. If it were struck down by the court at Luxembourg, it would be struck down throughout the Nine and would have no effect. I think that that situation is highly unlikely to arise. I would not suggest that we contemplate it or proceed on that basis. I should be sorry if that happened, because I accept what the right hon. Member for Lanarkshire, North (Mr. Smith) said. It is desirable, if we are to move into the realms of strict liability, that it should be done on a wider than national basis. That is right because, in so far as it becomes a burden on our industry, it is not fair that it should not be an equal burden upon the industries of our competitors.
§ Mr. John Fraser (Norwood)
Is it not advisable to draw a distinction? If, as with parts of the Employment Protection Act, one translates a directive into domestic law by an Act of Parliament, it does not matter whether the directive is ultra vires. If, however, one uses section 2 of the European Communities Act to translate the directive into domestic law, it may be challengeable on the ground that the original directive was ultra vires. Does 1139 the hon. and learned Gentleman accept that distinction?
§ Mr. Fletcher-Cooke
I accept that distinction. I perhaps gave my hon. Friend the Member for Fareham (Mr. Lloyd) a somewhat summary answer. The issue depends on the manner in which the directive is translated into our domestic law. If it is translated by primary legislation here, that legislation then has a life of its own, which would survive a striking down by the European Court. It would not survive if the directive were implemented by the more summary method.
I accept the principle adumbrated by the right hon. Member for Lanarkshire, North that strict liability should be implemented on as wide a basis as possible. I agree with him that it is a thousand pities that the convention of the Council of Europe, which was anterior to the EEC's taking the matter up, was not adopted, because that would have given a wider spread and a more realistic incidence of liability, particularly as regards damage to property.
In these matters, which are largely going through uncharted seas, one ought to proceed with a certain amount of caution. I do not think that we appreciate the legal difficulties that will arise, some of which were touched upon by the right hon. Member for Widnes (Mr. Oakes). In those circumstances it would be far better to confine this new form of strict liability to injury or to death of persons. After all, that was the motivation behind this movement. The injury to the Thalidomide children put the steam behind it. That is why we are all so concerned about it. That was the primary trigger for the whole great debate on the subject. It would be wrong for us, until we have seen how matters progress, to extend strict liability to damage to property. Even if that were excluded from the directive, those people whose property was damaged by defective goods would not be denied all remedy. They would still have action in tort, and, with the modern development of tort, with the development of the doctrine of res ipsa loquitur, the standard of proof that must be produced by the plaintiff whose property is damaged is relatively low in the first instance. It is thrown back in most 1140 cases upon the manufacturer or the person who is responsible for putting the defective article on the market, and the onus is upon him, in practice, whatever the law says, to disprove negligence, and to show that he took every possible precaution to prevent the defect arising.
Therefore, to exclude damage to property from this directive will not prevent the owners of property having their remedy in 99 cases out of 100, and I think it would be far better to proceed one step at a time in that matter.
I should like to see other matters included. I am sorry that there is not an exception in the case of the doctrine of recall. If a manufacturer has discovered something wrong with his product and he takes every step possible to recall it and is prepared to pay compensation for the work, at least after the date of his action of recall he ought to be allowed a defence. I think that that is where I quarrel with the right hon. Member for Lanarkshire, North. I have been thinking about the matter since he spoke. He has laid down a principle that is good, but it must not be driven so far that it damages our industry and the consumer. If it is driven very far, the consumer will be damaged in his pocket. All prices will rise, I do not think that the consumer associations will be pleased by that. That will be the result, because manufacturers are obliged to insure, and, if the risks against which they are insuring are too great, the premiums will be enormous. If that happens, the prices of all goods will explode.
Although I am in favour of embarking upon this venture, therefore, I do not want to see the principles driven to hard. In one respect the directive observes that, and that is in the case of craftsmen or, as it is sometimes put,goods that are not produced industrially",whatever that means—it is not defined—there shall be no strict liability for injury to the person or property of the consumer. What is the logical justification for that? A child who is injured—perhaps seriously—by a toy that is defective and is produced by a craftsman is just as entitled to sympathy and compensation as a child injured by a toy that has been produced industrially, but not so according to the directive as it stands.
1141 The Commission is beginning to realise that there must be exceptions to the great statement of moral principle adumbrated by the right hon. Member for Lanarkshire, North. That is probably right. Let us make no bones about the fact that the reason for that is the politics of the matter. The exception was insisted on by, I think, the German Christian Democrats, because a great many craftsmen support them with their votes. There was a more obvious balance of political power than when some of us sprang to the defence of the hated multinationals, or some other non-OK personages.
The idea that there is a tremendous moral principle behind the exceptions is not always true. It was certainly not in evidence in the exception for goods that are not industrially produced. I do not know what that phrase means. It appears to be capable of wide exploitation, as does a great deal of this very short directive. For example, the definition of a defect strikes me as being most extraordinary. It states:A product is defective when it does not provide for persons or property the safety which a person is entitled to expect.That is an argument in a circle. Presumably people are entitled to expect protection and safety up to a reasonable amount. The definition puts it in a subjective form. It does not say whether it should be a reasonable person, a sophisticated person, or what sort of person. The arguments about what is a defective product, with such a definition, could be endless—and so on throughout the articles that are remarkably short and would be quite incapable of immediate translation into the law of England under our present system of drafting laws.
I now well understand the motives of my hon. Friends' amendment, but I do not think that in practice they have very much to fear. I have no doubt that the House will keep a sharp eye on the Government during the negotiations. Not only tonight but at subsequent times we shall make it clear that, before they agree to the directive, we require——
§ Mr. Marlow
In what way will the House be able to influence the Government in coming to a decision with the European Parliament?
§ Mr. Fletcher-Cooke
I do not think that my hon. Friend had the advantage of listening to my right hon. Friend the Minister's close and charming introduction to the matter. She made it clear that it is a matter not of weeks but of years. If those who are interested in the matter follow the negotiations, table questions and apply themselves to all the opportunities open to hon. Members in a long and continuous programme, I am sure that they will be able to make their views felt, and that the Government, who are so sensitive to opinion, will hoist them in.
The state of the art is the crux of the matter. I agree with the right hon. Member for Lanarkshire, North about that. However, in my step-by-step approach I take a different view from his. It is wrong to make people pay when no amount of knowledge, other steps or actions could have led them at the time to realise that there was a defect. That would inhibit the inventiveness and the development of the human race too much. People will think twice about putting forward new products, new drugs, new methods. and all the things that we hope will spring from our industry and commerce which, unfortunately, is shackled in many cases to old industries.
§ Mr. Alexander W. Lyon (York)
Surely it is not an argument about where moral blame lies. There is no moral blame on the poor consumer who suffers. The real issue is who is best able to insure himself against risk. It cannot be right to say that, because the manufacturer should do that, the premium must be passed on to the consumer, and that the poor innocent consumer who suffers should receive no compensation but must live with the consequences of an inadvertent act—which everyone agrees is not the fault of anybody, but was designed by the manufacturer.
§ Mr. Fletcher-Cooke
I doubt whether insurance would be available. One can obtain insurance about observing the state of the art as it is at any given time, but to obtain insurance against defects that have not yet been dreamt of is an impossible position——
Mr. Lyon rose——
§ Mr. Fletcher-Cooke
I shall not give way again. The hon. Gentleman may 1143 disagree with me, but, even if one could obtain insurance, the premiums against future, hypothetical, unknown risks would be so great that they would seriously inhibit the development of our industry. It is a matter of personal judgment, and that is my opinion. That is why I think that the hon. Gentleman and the right hon. Member for Lanarkshire, North are driving the principle too far when not supporting my right hon. Friend the Minister in seeking to have a state of the art defence included in what otherwise is a step in the right direction.
§ Mr. Greville Janner (Leicester, West)
The hon. and learned Member for Darwen (Mr. Fletcher-Cooke) spoke about going into uncharted seas. I did not feel that he was an intrepid mariner anxious to step into new protective territory. That is somewhat surprising, because by no means has consumer protection legislation been the prerogative of any one side of the House. I had hoped that right hon. and hon. Members on the Government Benches would advance a more positive and understanding point of view.
The seas are not really uncharted. Strict liability for products exists not only in the United States but in France and the Federal Republic of Germany. The charts are available. People do not go uninsured in those countries. There is strict liability. A person can insure, provided he is prepared to, pay. The more dangerous the product is for those who use it or may be submitted to it, the higher the premium. Surely that is correct.
§ Mrs. Jill Knight (Birmingham, Edgbaston)
In contemplating what happens in other countries, will the hon. and learned Gentleman bear in mind the enormous sums of money that doctors and chemists in America have to pay out in insurance, and that that has its consequences on the patient and the buyer?
§ Mr. Janner
That is correct, but it is not due in the main to product liability. The American system is entirely different from ours. It involves a different legal administration. It is a State without legal aid. The nation has 52 or 53 jurisdictions, each of which is different. The .amount of damages awarded not only 1144 in this sort of case but in almost every other case is regarded as wildly extravagant by our courts. The entire administration is different from ours. What matters is that the United States rules on product liability have now been in action in a large number of its states, and federally, for many years. We have much to learn from them, but we have equally much to learn from France.
§ Mr. Ivan Lawrence (Burton)
I am not sure that the hon. and learned Gentleman is strictly correct in his facts with regard to the United States. Having had the experience of a 26-fold increase in insurance premiums following the introduction of product liability, I believe that the law has been changed to reintroduce the concept of fault.
§ Mr. Janner
The hon. Gentleman is wrong. I spent a year studying at Harvard, and I was in America last year looking into product liability. The Federal Government produced a draft which States were invited to incorporate but which they have not done because they recognise that the overriding consideration is the protection of the ordinary citizen. In their country, it is possible for any citizen to take his case to court if he has a good case. This is because of a system we dislike, which is that the lawyer takes a share in the winnings if the case is successful. That is regarded in this country as a corrupting and unhappy practice.
On the other hand, I sometimes wonder whether it is not better for a person to be able to go to court and to pay his lawyer a percentage of the proceeds than not to be able to go to court at all. The real problem in this country is that there is no justice for most people. If one suffers an injury that has been created and caused by a drug, a machine or equipment which was built, manufactured and marketed by a great concern, one's only hope of going to court and obtaining justice is if one is either very poor and can get legal aid or very rich and does not need it. If a person is from a middle income group, there is no hope in this country of obtaining justice, not even the hope of contingency arrangements, which exist in the United States. The problems created by this for ordinary folk who suffer troubles, who are injured by defects in products, are very real and in most cases insoluble here.
1145 There was an answer in respect of the Thalidomide cases because some of the children came from poor families and could get legal aid. There were test cases. The cases moved forward towards trial, but at that stage it became quite clear that there was a reasonable chance that the cases would fail. There was a reasonable chance that the manufacturers would succeed in showing that in the state of the art, they having taken all the precautions that reasonable people would have taken, and even though damage and the defect in the product was clear, no negligence could be proved against them. Had that been so, all these children would have lost their cases and got nothing. Therefore, the state of the art defence having been raised, and negligence having to be proved, so far as I know all the cases were settled and the children got very much less than they would have received had they been able to go to court and win their cases.
What we are talking about here is not the imposition of unreasonable burdens on people who should not have to bear them, but the imposition on people who, in the course of their business, put on to the market goods which damage, destroy, maim or kill and who must then bear the responsibility for innocent people who would otherwise have no remedy. Again, this is not uncharted territory. My right hon. Friend the Member for Lanarkshire, North (Mr. Smith) indicated that in industry employees do not have these rights. In one case they do, because the Employer's Liability (Defective Equipment) Act imposes strict liability on employers who do not cause injury to property but death or personal injury resulting from equipment or plant which they supply for use at work.
If an employee is injured at work by defective equipment, he or his widow can get their damages without proof of fault. That is not the end of the trail, either, because if the employer of the person who suffered death or personal injury can show that he acquired the plant and equipment from someone else and that it was not his fault, he can seek contribution or indemnity from the people really at fault. He can bring the manufacturers, the erectors, the installers and, indeed, the designers into the 1146 action and seek a remedy. At that stage, insurers will decide whether or not to fight the case.
The hon. Member for Burton (Mr. Lawrence) said that the position in the United States is different from what it is here because insurers decide whether to fight a case. It is not different at all. In nearly all cases here the insurers decide whether to fight the case, not the unfortunate insured. He would like the insurers to pay up quick, get him out of it, avoid the publicity and not incur the nastiness and the agony of having to go into the witness box and be cross-examined. But it is the insurers who step into the shoes of the insured and decide whether the case is to be taken to court.
It is not correct to say that insurance is unavailable or that one cannot insure indefinitely or even 10 or 15 years ahead. One can, but the insurance market in this country is in a state of fascinating turmoil because this is a new area for it. It does not know what to charge, and anyone who wants to insure against product liability, even today and without strict liability except in the area of defective equipment, must shop around and get the best arrangements he can. A wide area of insurance is available, but, alas, in the Unfair Contract Terms Act insurers were excluded from the rules so that their exclusion clauses bite. My advice to anyone looking for this sort of insurance is to be careful that he gets what he pays for, because he may pay for it, think that he has got it and find that his rights have been excluded. There is insurance which is available at a price, and it depends upon contract.
There are rights for people who suffer if there are rights in contract—if they bought. There are rights in negligence if negligence can be proved. There are no rights if negligence cannot be proved. One may not be able to prove it because one cannot afford to take one's case to court. It may be that one cannot qualify for legal aid because one earns a modest income, and that is all that is necessary to put someone outside the rules. One certainly cannot afford to lose a case. It is an expensive process.
When these anxieties came before the Royal Commission on Civil Liability, the 1147 Law Commissions for England and Wales and the Scottish Law Commission, they considered whether the state of the art defence should be inserted. They said "No", because that would destroy the basis of what they were trying to do, which was to give protection to ordinary people. These Commissions were not staffed by militants on the far Left of some extremist group. In the main, they were fairly central legal gentlemen who believed that this was a new protection which people required.
At this stage, I pay tribute to the late Lord Pearson, who was not only a great lawyer but a great gentleman and a very kind and lovable man. He fought bitterly against the introduction of this kind of legislation with the state of the art defence in it. He believed that it would kill off the basis of any legislation. Shortly before he died, I heard him say so to a public gathering. He was a lovely man, and I should like to take this opportunity—I am sure that the House would—in the first debate of this sort after his passing to pay tribute to him.
All these Commissions have said that we need changes in the law in order to protect people. We all have constituents who manufacture dangerous goods such as aircraft and machinery. Innovation continues in the United States. It has not died in France. Germany does not seem to be totally bereft of it because it has strict liability legislation. Indeed, I went to inspect a system in France, which is administered by a department which rejoices in the name of "Département de Consommation" and which apparently consummates the rules for the protection of consumers. They work perfectly well. They manage within these areas of restraint and constraint, and manufacturers know that, if they put goods on the market which cause death or personal injury, they or their insurers will have to pay the sufferer. I suggest that that is a form of conception in law which requires consummation in a directive and which should be introduced into our laws as soon as possible.
The amendment suggeststhat if such conditions are not met, further legislation … should be left to the Parliament of the United Kingdom.I veer in favour of that, not because of the risks that have been outlined by the 1148 hon. and learned Member for Darwen but because the previous Labour Government declined to bring in legislation until they knew what Europe would do. That constant putting-off of protection for our people because we cannot get the Europeans to agree on what they want is a restraint on our efforts, which is wrong. I should like legislation for strict liability, with the state of the art defence excluded. We should not have to wait until the internal quarrels within the Community have been resolved for a decision on whether it is intra vires or ultra vires for us to bring in legislation. We should bring in our own legislation to protect our own people.
The hon. and learned Member for Darwen said that if we did so, prices would go up. That is the argument that we have heard used against all legislation that is designed to protect consumers. I am sure it was used in 1893 against the Sale of Goods Act. It was used against the Supply of Goods (Implied Terms) Act 1973. It was certainly used against the Unfair Contract Terms Act 1977, against removing the anomaly that printers and publishers were responsible for the contents of their documents, and against removing the anomalies that exist as a result of the sort of damages that are awarded in the United States. We should plant our feet firmly on the sensible soil that strict liability has found in France and Germany, and we should give people in this country who suffer through no fault of their own and who have no access to the courts and to justice, the rights that they enjoy in other countries, whether through the force imposed by European directives or the good sense that we should impose through our own legislation.
§ Mr. Peter Griffiths (Portsmouth, North)
I welcome any extension of protection for the consumer, and I recognise that there is a need to maintain the balance between the resources of individual consumers and those of manufacturers. I also welcome the intention of these directives to bring about an element of standardisation, a common system throughout a wide area of manufacturing in Europe.
Nevertheless, we cannot move from the general to the particular. My welcome 1149 for legislation for the protection of consumers in general does not necessarily imply an acceptance of the principle that underlies these directives—the principle of strict liability. It may be that what is a valuable addition to protection for the consumer of simple household articles is irrelevant, or probably damaging, to firms which operate on the fringes of the most advanced technology and whose customers are not normally individual members of the public. We should therefore look closely at any proposals that will widen the concept of liability irrespective of fault if they are likely to damage the prospects of particular firms whose position is to the advantage of this country in our present economic circumstances.
I should like to give an example from my constituency. Although there are a large number of firms which have misgivings about these directives, there is one that particularly epitomises the sort of difficulty that is glossed over when we talk about the need to protect individual consumers. In my constituency, there is a relatively small firm which is the acknowledged world leader in research, design, development and production of flexible self-sealing tanks for petrol and other liquids. That firm supplies flexible petrol tanks and tanks for other liquids throughout the world. It has an acknowledged lead. which is entirely dependent on its ability to utilise the most modern technology to seize opportunities that its own research gives it and which would be lost if there were any elements of delay. I shall return to the point about the size of the firm later.
These products are normally sold to customers who purchase them as components of further production. They are not dear old ladies buying in supermarkets but highly sophisticated, well-advised technically able firms which intend in turn to incorporate the tanks into products which may themselves then become part of a further complex structure, creating a chain of responsibility in which the control of the ultimate use of flexible tanks is extremely limited in the case of the company that made the original item. This is a case where the introduction of the principle of strict liability would undoubtedly have damaging effects.
§ Mr. Douglas Hogg (Grantham)
I listened carefully to my hon. Friend. But 1150 does he not agree that, if the directive were adopted, the producer, namely the gentleman in his constituency, would be liable only if the flexible tank was defective?
§ Mr. Griffiths
With respect to my hon. Friend, it would depend entirely on the definition of "defective". To be defective, it does not necessarily have to be shown that the manufacturer could have known that his product would prove to be defective in the conditions in which it was used. If he knew of a defect, he would clearly be at risk in law.
I wish to make clear the effect of such legislation on a relatively small producer. Much has been said about the cost of insurance. The situation of a small producer is different from that of a section or division of a large producer or conglomerate. When a large firm is seeking insurance it may, because of the effectiveness of the business that is offered to the insurance company, be able to get favourable quotations to cover those activities which may be thought to be dangerous under these directives. But the company about which I am talking produces nothing but flexible self-sealing petrol tanks, which are obviously produced from the latest materials and the latest products from the chemical industry. It would need to obtain insurance for this product alone. It may be said that the risks of the product could be insured against at a price, but to a relatively small firm that could be crippling and might mean that that firm would not proceed on the basis of modern technology but would subordinate its production decisions to the commercial decisions of an insurance company which had no expertise in that area.
§ Mr. Douglas Hogg
I think that my hon. Friend is misunderstanding the position at common law at the moment. I am sure he will appreciate that his constituent will be liable to the person to whom he sells his product if that product is not reasonably fit for the purpose for which it was sold. That is the result of the Sale of Goods Act 1893, as amended. His constituent will almost certainly already have insured against that risk. The directive carries that liability only a slight degree further forward.
§ Mr. Griffiths
It would depend very much on how one defined the words "a 1151 slight degree further forward". Here we have a position in which items which are produced basically for military use are frequently used for civil purposes. For example, they are used as flotation tanks for helicopters, both military and civil.
The scale of a potential claim arising, from use in the civil sector of the aircraft industry, of a product originally designed for the military sector has to be considered, because there could be an unacceptable increase in the scale of the risk. It is not simply a minor step forward. It is calculated to multiply the cost of insurance several fold.
At the moment, it is not possible to obtain estimates of what the premiums will be under the legislation if it is applied to this country. Firms are, therefore, justified in their alarm that the premiums may be so high that small businesses operating on the fringes of technology will have to give way to the giants. In the case that I am quoting, those giants are not in this country. It would, therefore, result in a loss not just to my constituency but to the country as a whole.
The consumer must come to recognise that he benefits from the use of advanced technology and from having it at the earliest possible moment. It is the consumer who wants products to be made available to him, and he has to accept that, in demanding this, there is an element of risk which can reasonably be placed on his shoulders. The way in which the balance is to be achieved arises from the most welcome comments made by my right hon. Friend the Minister in her introduction. First, there are to be further detailed consultations. This is essential, and firms with specialist problems will wish to make them perfectly clear to the Minister and to ensure that they are represented in the negotiations in Brussels.
Secondly, we shall welcome an element of further delay during which the matter can be given more detailed consideration. But most important of all—this is the point at which I came to the conclusion that I must suport the Government this evening, despite earlier misgivings—there is the firm assurance concerning the state of the art, which is the ability of the firm to recognise the poten- 1152 tiality of a problem at the point at which a product is created. That will be a great comfort to many firms.
New ideas have in this country frequently been brought forward, taken through the design stage to the very brink of production, and then not been exploited. If the state of the art defence is not permitted to genuine and responsible firms, this may happen all too often in the future.
I find myself, therefore, in agreement with the draft directive, and I welcome the assurances that the Minister has given.
§ Mr. John Sever (Birmingham, Lady-wood)
Those hon. Members who are not lawyers will have been fascinated by the wranglings of those who are. The nicer and finer points of the law contained in the directive—and, indeed the whole of the legislation surrounding these matters—are fascinating, but, for those who are not lawyers, the arguments are somewhat difficult to understand.
I hope that the Minister, when she replies, will be able to address herself specifically to the point raised by one hon. Member—and referred to by her when she opened the debate—concerning the effect of the directive and the legislation on the printing industry. I am aware that a number of representations have been made to Ministers on this point, but it needs to be emphasised here.
I am sure that those who are anxious about the matter have sought to draw it to the attention of the Minister during the preceding few days.
A substantial printing company in my constituency has written to me. It is my belief, on the evidence given to me and on the argument placed before me, that a number of other companies, not only in Birmingham but across the country, will be faced with a dilemma if the directive is not argued against in a forcible fashion by the Government.
The company is concerned about a number of points, but paramount among them is the worrying aspect of the proposals to the effect that a printer could be held liable for errors in the work that he produces—thereby possibly becoming defined as a producer—although he may have no way of detecting those errors 1153 because of a mistake in the original manuscript from which he is supposed to print. The content of the material may well be of a technical, scientific or medical nature, so that the printer is unable to detect in the manuscript any particular error and prints the material in good faith.
In some cases, the printer may even have the work presented to him in a typeset fashion and may simply be asked to produce the type-setting that has already been prepared for him. In such circumstances, again he would have no idea whether the original type-setting contained mistakes. That would be a potentially dangerous position for him. Unless we can iron this matter out—we have had some assurances that that may happen—printers may find themselves in very considerable difficulty.
In none of these instances has the printer any control over the textual matter, in the sense that it is perfecly understandable to him or to members of his work force. He will therefore go ahead and print the material in good faith, and then possibly find himself the victim of the provisions of the directive.
If a printing company produces technical publications—as does my constituent company—for the motor car industry, it can in no way efficiently detect whether an error is contained in the material that it is asked to print. If something goes radically wrong in the future as a result of that technical publication, a suit may follow against the printer. In my view—and I hope also in the Minister's view—that would be unfair and unreasonable. Therefore, the protection that the printing industry is seeking from the Minister should be forthcoming.
I hope that the Minister's remarks earlier this afternoon will be expanded on a little, because the problem that I have mentioned is giving rise to a great deal of concern across the printing industry. The people to whom I have referred are printers, not engineers. They are printing a great deal of material for the engineering and motor car manufacturing industry which is of a highly sophisticated technical nature, and this may cause them some difficulty in the future if the directive is enacted without proper consideration being given to the point at issue.
1154 My hon. Friend the Member for Lambeth, Central (Mr. Tilley) referred in passing to the difficulties which publishers of newspapers might face. Perhaps the Minister will be able to refer to that in her reply. From my reading of the directive, it seems possible that if a newspaper publisher were to print, let us say, details of how to operate some particular machinery or some particular product—this might appear in advertisements or elsewhere in the newspaper—and it were to be found later that the instructions given in the newspaper were, through no fault of the printer, incorrect, and this resulted in a substantial accident, there could be a substantial claim for damages against the producer of the articles. The Minister should tell us whether in that sense publishers would find themselves liable to prosecution.
I seek only to emphasise serious and worrying points to the printing and bookbinding industry in the proposed legislation, to ask the Minister for her support for its argument, and to make sure that its fears are allayed and that legislation which might place the industry in this difficulty is avoided.
§ 6.1 pm
§ Sir Graham Page (Crosby)
What has emerged from every speech so far is that we are dealing with difficult concepts of law that will be difficult to bring within the law of England and of Scotland, and therefore presenting considerable difficulties in drafting. The phrases and terms used, even in the comparatively small amendments in the last directive—phrases such asthe state of the art defence",the liability of producers of components not industrially produced to be incorporated in immovable propertyand particularly the meaning ofdefective—will need extremely careful drafting.
I shall assume for the moment that this directive comes within article 100 and can be valid, although I have grave doubts about that. However, let us assume that at some stage the directive receives unanimous approval and that we are obliged to put it into our law. It will then be in the discretion of the Government how it will be introduced into our law. If the European Communities Act is used for this purpose, it could be brought in by administrative action, but I doubt whether any Government 1155 would dare to do that. However, there is the discretion to bring it in by any kind of order. It can be done by an affirmative resolution order—or by an order made subject only to annulment by a prayer in the House.
I ask my right hon. Friend to assure that House that that method of legislation will not be used to bring this law into operation, because, if it is, the House will not have an opportunity to go through the law line by line and word by word as it does with primary legislation. I hope that my right hon. Friend will agree that, in introducing some new concept of the law, we should use a primary legislation—our process of a Bill and an Act of Parliament—so that the House can read it line by line and shape it.
If we are to have primary legislation, I come to the amendment and ask: why not get on with it now? Germany has done so, and so has France to some extent. If we are to have primary legislation to bring in the directive, why should we be shackled by the directive? Let us produce our own law on this matter, the principle of which almost every speaker in the debate has accepted. If, when the directive comes into operation some years hence, we do not have to amend our law, well and good, but we shall have debated it fully in the process of legislation in this place and formed our own concept according to our own law.
I was a little worried when my right hon. Friend said that this directive did not change the law very much. It changes the law basically. Therefore, we need primary legislation. I hope that we shall have the undertaking that, if this has to come into our law, we shall do it by means of a Bill and an Act of Parliament.
§ 6.5 pm
§ Sir Albert Costain (Folkestone and Hythe)
When I first studied this directive, it seemed a good idea in theory. However, when I considered it in practice, it seemed acceptable only if there were a number of exceptions. I listened to the whole of the debate, and the more I heard the more convinced I became that there would be more exceptions than reality.
No one has drawn attention to the building industry, my connections with which are not unknown to the House. If 1156 the architect or the engineer designs a product and the contractor manufactures it, who is to blame for any fault? If the contractor is under a contract to do as the architect tells him, it is virtually impossible for him to alter the specification. If a contractor is to be told "Before you tender for work, you must check that the architect has properly designed the product", I should point out that not many contracting companies have the staff with the ability to do that. If the directive is approved, there is a strong possibility that architects will go out of business and the construction industry will end up with contractors, or the engineers will be absorbed by the contractors.
Copper fittings are used in building. Certain copper fittings depend on solder to be effective. In 90 per cent. of cases, those copper fittings are satisfactory, but in the remaining 10 per cent. soft water will in time dissolve the solder and cause lead poisoning and a defective system. Who will be to blame in those cases? Will the water company be to blame for allowing that type of fitting to be used? Will the manufacturer be to blame for failing to specify where copper fittings should or should not be used?
Another difficulty is that if a company is to have a liability for 10 years, how can it close its accounts? How can it produce a balance sheet showing profits when, under the Companies Act, it must disclose the whole of its liabilities? Some hon. Members may say that companies must insure against future liability. However, many insurance companies will not accept an open-ended liability. For example, as an underwriter, I know that Lloyd's closes its accounts every three years. It will be extremely difficult for Lloyd's to cover any risk for more than three years. We are talking here of a 10-year risk. Companies can reinsure, but, by the time they have reinsured three times what will be the cost of the product?
§ Mr. Douglas Hogg
I do not want to dissent from what my hon. Friend is saying, but I have some difficulty in following him. Under the Sale of Goods Act 1893, there is a six-year liability. That is the limitation period for breach of contract. The big suppliers cover their liabilities under the Sale of Goods Act. That implies insurance cover that lasts throughout the six-year limitation period.
§ Sir A. Costain
My hon. Friend is right about big companies. They have reserves which they reckon to carry over for a period of time. I am interested in the small manufacturing company which has not got the reserves and which may, for its own purposes, wish to keep its profits low. It may not want to pay tax. It will have to say "We cannot declare a profit because we have this unknown liability". It might affect taxation, and the Treasury would not be pleased about that.
I hope that my right hon. Friend will assure the House that before any final decision is taken she will enter into consultations with architects, engineers and contractors in the civil engineering and building industries.
§ 6.9 pm
§ Mr. lain Mills (Meriden)
I welcome the opportunity of speaking tonight as one who, until election to this honourable House, spent 18 years in manufacturing industry, in the car components sector. It was therefore with considerable interest that I heard much of the discussion and argument tonight. It is sad, to some extent, that there has been so little real manufacturing industry experience dictated on the Floor of the House this evening, but I shall do what I can to try to make up for that.
First, I welcome the remarks of my right hon. Friend the Minister, particularly on the state of the art defence and the other points concerning the length of time available for further discussions. Those in manufacturing industry will be very pleased to hear that. However, one has to recognise that society in the Western economic areas has moved to a point at which there will be an increasing difficulty in deciding how our communities' interests can be guarded against the balance of the very real problem of the effect of this guardianship on our international ability to compete, on the prices of our products, and on our ability to innovate. To create a society, however protective and however beneficial that might seem, through an increasingly complex structure of bureaucratic controls will lead to the very stagnation in industrial development and competiveness that we are trying to prevent.
We debate today a very significant change, perhaps the most significant change that has been seen in the United 1158 Kingdom, in the responsibilities to the consumer of those who produce. The measure that we are debating will move the task of proving fault from the aggrieved consumer to the manufacturer. Although under existing law there is an essence of strict liability, this change will be quite fundamental.
In essence, the change seems to be attractive and admirable, as one can presume that the consumer is an individual without resource or with scant resource, and that he has been up against the huge resources of companies and industries. The truth, however, is that this is not always so. In my many years in manufacturing industry, I have learnt that in general United Kingdom manufacturers have considerable social responsibility and that the very disciplines of the market place themselves demand that products that are defective are not produced. The huge growth in quality control and in the use of techniques designed to ensure that products are reliable and are not defective come from this essence of the market place. If one's product does not perform, one does not sell it; and, if it is a competitive market, that could easily mean sudden and not slow death for a manufacturer.
The amount of time, trouble and effort that responsible companies in this country have gone to in resolving problems is considerable. One is anxious, therefore, not to load them further with unnecessary bureaucratic controls. Indeed, one could go further and say that the real difficulty lies with smaller firms that do not have the same capability as larger firms both to fund payments to obtain the right level of insurance and—this is a point that has been made by a previous speaker—to face the difficulty that small firms have in negotiating in the complex insurance market.
Many big companies have insurance managers, insurance departments, and legal departments, all of which know which brokers to go to. One would see, for example, a small innovatory company growing up—just the very seed corn that we wish to encourage—battling with an unscrupulous insurance broker for a form of cover that was quite inadequate and without the skills needed to know what to go for. So to add to the problems of the small manufacturer who is presently under the extreme pressures of the poor 1159 economic situation would make things very difficult.
In looking at the directive in detail, I should say, first of all, having been fairly critical at the onset of my speech, that I recognise that, in meeting the social and community expectations of the Community, the fundamental change from the existing negligence system to strict liability is inevitable. Much of what I have said about increasing bureaucracy and the increasing problems of firms can still be achieved if one accepts this inevitable change through the details contained in this slightly complex document. I am not saying that I oppose the acceptance of the principle. Like most speakers tonight, I feel that it is inevitable. It is part of society's change. In an increasingly sophisticated society, the requirement for more liability or more protection will arise. But it is the way in which we do it or the way in which this fundamental change applies in certain areas that will be important.
Other speakers tonight have mentioned the experience in America. I should like to touch briefly on that before going on in more detail on the points in the motion. I am informed that in the United States of America and in Canada the lessons are rather interesting. Both liability claims and cases increased from around 50,000 annually in 1960 to 500.000 in the early 1970s. In 10 years, they rose 10 times. The estimate that I have been given for 1977 is that claims are approaching about 1 million. The average loss per product liability claim has increased in the United States and Canada at a much higher rate than inflation. In 1965, the average claim was about $12,000. This compares in 1973 with $100,000, against an inflationary increase in that period of about 60 per cent. So the cost of claims in the United States and Canada increased by about 700 per cent., whilst inflation rose by about 60 per cent.
Obviously there are fundamental differences in our legal systems, not the least of which is the lawyer's share in the profits, as it were, of the claims. One is very glad that this is so. But there is a word of warning tonight. If one allows loopholes to exist in the detail of this document which are unfair to those who are fundamental to our process of 1160 manufacture in this country, experience elsewhere shows that these loopholes will be found. It is therefore vital that we make sure that we avoid the use of terms and wording that may be interpreted by courts too liberally or in any other way to mirror the American experience.
I touch again upon the cost consequences of the strict liability legislation, if and when it comes. Although the inevitability of this change is acceptable to me—in fact, one can claim considerable benefits from it—the net consequence, if one is to give people a better and fairer system which will cover those who are apparently at present not getting fair compensation must be that the money has to come from somewhere. The simple answer is that the money will come from the consumer's pocket, through various means, and it will have to do that through price increases for products, which will not, as some organisations have claimed, be small.
I am again told by some companies that, if the legilsation goes through as planned, they anticipate an increase in their insurance premiums of between 100 per cent. and 200 per cent. for relatively safe products—safe in the sense that they are not high-risk products. In high-risk products in, say, the aviation industry, these insurance increases could be as much as 500 per cent., so I think that we should be realistic tonight in reckoning that the extra cost of doing what we believe is socially and politically correct will hit the consumer's pocket, and that will be both inflationary and result in an increase in the purchase price of such products as are affected.
It may be possible for some firms with relatively low-risk products to try to absorb the costs of this, but in the end one must say that not only will the consequences be higher costs but the other effects cannot be absorbed. For example, companies will have to consider further research and development costs of the defence of nature, so in addition to higher insurance costs, will not the companies about which we are talking say to themselves "If we produce product A and we are to face these claims, why do we not develop product A so that we shall not get the claims?"
That area of development might not be to produce a better product, a more energy-efficient product, a product that 1161 does the job better, or a lighter product. It will be a product developed to avoid claims. One might almost say that if one has a beam carrying weight, one may use a 6 in. RSJ instead of a light wooden beam. My hon. Friend the Member for Folkestone and Hythe (Sir A. Costain), who is involved in the construction industry, would know more about that than I. However, it means that the stultification of development and the change of resources away from positive development to negative and defensive development could be quite considerable, and the sterility of that form of development could be quite dangerous.
I also thank my right hon. Friend's colleagues in the Department of Trade for their kindness to me on the many occasions on which I have contacted them about counterfeiting. I apologise to my right hon. Friend for raising this matter tonight. It seems that, in the United Kingdom, many products—especially in my area of expertise, the motor car industry and the car components industry—will not be subject to the strict procedures that we are proposing to apply to United Kingdom and European companies. For example, it may be extremely difficult to trace the producers of cardboard brake linings in some back-street part of Hong Kong or Korea. How will strict liability apply to what one might describe as back-street imported products?
I understand that it may be possible to apply strict liability to imported products that come through regular channels and regular retailers, but many retailers who deal with cardboard brake shoes would prefer to go into liquidation than settle claims. If that happens, what will the consumer do who has crashed his car and injured himself badly as a result?
I am sure that my right hon. Friend is aware of the concern among manufacturing industrial companies of the increase in counterfeits, especially those that are being sold under brand names. The source of manufacture of such products is not easily identifiable. When famous British names are stamped on the boxes of such products, there is great difficulty in proving that the used product came from elsewhere. That difficulty adds to manufacturers' problems.
The most important part of the debate must be the state of the art defence.
1162 In my 18 years of industrial experience, I was for a time chief designer of a department. I know how closely and critically it is necessary to control designs and how easy it is to restrain the innovative initiative of individuals and companies by restrictions. As one who sat at the drawing board and designed products and who later in his career was responsible for the claims made for marketed products, I know how lengthy, cumbersome and detailed the process is, under existing law, to decide whether to claim that the product can fly, go under the ground or go to the moon. It is against that claim that product liability cases will be held.
I must congratulate my right hon. Friend on her decision to ensure that the state of the art argument is included in the directive. The state of the art can be described as the technical and scientific knowledge available to the manufacturer at the time when the product is being designed. Development risk is the risk that a manufacturer takes when he introduces to the market a potentially hazardous product. In the past, there must have been manufacturers who said "It is quicker and cheaper to get the public to do our development work". In these days, the markets for such firms must be few and far between.
The objections to the present wording of the directive come from the majority of manufacturing and industrial companies in the United Kingdom and throughout Europe. I am sure that my right hon. Friend will find that the debates in Parliaments in Europe in which members with industrial interests take part will aid her efforts to ensure that all the member States of the EEC allow progress to be made on the directive.
Article 5 has been extended since the appearance of the orginal document to include a reference to contributory negligence. That is a vital protection, especially in the automotive industry, where car maintenance by the owner has a special importance. I cannot resist the temptation to ask my right hon. Friend what would be the position under contributory negligence if the owner of a car was not wearing his or her seat belt at the time when he or she had an accident.
§ Mr. Mills
It is a difficult question. If he or she is using the seat belt at the time of the accident, injuries will be restricted. I happen to think that it is sensible to wear a belt. I should like to see the use of seat belts made compulsory by law. If a person is not wearing his or her seat belt when an accident takes place, what will happen? Will the car manufacturer be liable under strict liability for all the damages resulting from the injuries, or death, that could have been prevented had the seat belt been worn?
In the automotive industry, it is felt that there is almost an inevitability that the MOT test will have to be reexamined. A car that is nine and a half years old may pass the MOT test, having had three, four or five owners, without a brake inspection. No one takes off the shoes. It is not necessary to do so under the terms of the present test. The brakes are checked on a drum, or on the road.
There are many factors that give rise to great apprehension among those in the automotive industry about the MOT test. The present test is far better than not having anything but, under strict liability, the industry will have to live for 10 years with the possibility that, if the motorist does not maintain his car, the industry may be liable. The extension of article 5 to include contributory negligence is especially important to the industry.
I turn to article 6, and the private use category concerning company cars and hire cars used on business. Will a motorist driving a car provided by his company, or driving a car that has been hired for the use of business, come within the private use category? Will he be excluded from it in some way? I shall be most grateful if I receive my right hon. Friend's advice.
Article 7 refers to injuriescaused by identical articles having the same defect".That subject has attracted some discussion. We must ensure that the article is worded carefully. If there is a maximum limit—I am sure that there should be—and if there are thousands of products 1164 involved, a clever lawyer might say "Those articles are not identical". For example, would a Ford Cortina 1300 saloon be classed as a product different from a Ford Cortina 1600 station wagon? Would a lawyer claim that those cars were different products, although they were fitted with identical components and were otherwise of similar design?
Many products made by the plastics industry might have variations of weight, because the process is not absolutely accurate. Tolerances are a way of life in many industries. It may be claimed that one product is fractionally larger or heavier than another. Such a variation might enable a lawyer to push up the damages claimed. I shall be grateful to have my right hon. Friend's comments.
Article 8 gives a claimant three years to bring proceedings when he has become aware of the damage caused by defective products and to identify the producer. Is it in the interests of all concerned to have the three-year provision? I understand that cross-frontier negotiations cause lengthy proceedings.
Having accepted that we want strict liability, the manufacturer will have to carry the can. Surely he should be able to take that responsibility and pay damages to the customer within a relatively short period. Are we to see manufacturers having ever-larger legal offices filled with highly paid staff who can spend up to three years on negotiations? Surely one year or two years would be sufficient to enable proceedings to be brought when all the facts are known. I shall be grateful to hear my right hon. Friend's views on why three years are needed.
Strict liability for the producer will be extinguished on the expiry of 10 years. I know that under the present law there is no limit. The 10-year provision will cause problems for those manufacturing consumer durables, such as motor cars. After 10 years, the average motor car will have travelled many miles. Components will probably have been changed. They may have been subject to many forms or no form of maintenance. If a component fails, it will become increasingly difficult to establish whether the failure is due to an original defect—some form of design failure—to lack of maintenance, or to wear and tear. Legal colleagues may 1165 appreciate this difficulty more or less than colleagues with engineering backgrounds. If we could be sure that we could identify the cause of failure in a car nine and a half years or 10 years of age, we would be pleased. There have been many court cases on that issue.
I appreciate my right hon. Friend's comments about the state of the art and the length of time involved. The automotive and engineering industries would greatly appreciate a step-by-step approach, with as much consultation as possible. In that way, justice and fairness would be achieved.
§ Mr. R. A. McCrindle (Brentwood and Ongar)
I declare an interest, as I am the parliamentary adviser to the British Insurance Brokers Association. Among the members of that association are many of those intermediaries who have arranged product liability cover under the present law. Indeed, many manufacturers will turn to them for product liability cover if and when the directive is implemented.
The research headquarters of May and Baker, the pharmaceutical and agrochemicals concern, is in my constituency. My experience leads me to one conclusion, namely, that the simplistic approach must be put on one side. It is difficult to agree with those who speak on behalf of industry and say that any movement towards the acceptance of absolute liability would be so crippling in terms of cost that we should stay where we are. On the other hand. I do not find it any easier to respond favourably to those consumer groups which believe that absolute liability should be pursued irrespective of the cost to manufacturing industry.
As with most aspects of life, I have come to the conclusion that a balance is the only solution. I understand the concern of manufacturers about the possible cost of insurance. They are concerned mainly about the effect of costs on the public. Manufacturing industry feels that anything approaching absolute liability of an unqualified type would have an adverse effect on new invention. Perhaps that is more important. It might act as a deterrent to the development of products that were in the public interest.
It is impossible to debate such a subject without mentioning Thalidomide.
1166 We must gain some perspective. No one could disagree with the points raised by the right hon. Member for Lanarkshire, North (Mr. Smith) about Thalidomide victims, but can we be certain that the manufacturers of products that might have been beneficial to the public for many years would not have been deterred from the necessary research and development if they had thought that they might be held absolutely liable for anything that went wrong? A balance must be retained.
The directive tries to get away from the concept of absolute liability by introducing such qualifications as limits of liability and time limits. Although I welcome those qualifications, they are not the only solution. We must proceed carefully. I regret that I must tell those who are anxious for the provisions to be implemented, after such a long period of discussion, that we must ensure that we have found the right balance.
Much has been said about the availability and cost of insurance. Although I have listened to most of the debate, I have not heard any hon. Member ask whether, if absolute liability were introduced, the insurance market would have the capacity to provide the necessary cover. It is easy to rush head-on into acceptance of absolute liability without posing that fundamental question. When this issue was first discussed, it was doubtful whether insurance companies and Lloyd's could have found the necessary capacity. A sizeable additional capacity has built up on the London market since the discussion on this subject began.
I am not authorised to speak on behalf of the insurance industry, but the capacity exists to provide the necessary cover. However, that capacity will be available only at a cost. I am as close to the insurance industry as are most hon. Members, but I have never heard any suggestion that the product liability premium might be increased five times in some high risk areas. Until we know what the qualifications will be, it is impossible to give such figures.
I understand from my friends in the insurance world that the capacity is there "at the right price". When one probes what the right price might be, one finds that it is not considered that the price is excessive in comparison with the product liability premiums paid for a 1167 policy giving cover under the existing law. Emotive figures such as those given for the premium for key risks, or a supposed doubling of the premium for relatively minimal risks, cannot be known. Such statements might give the wrong impression to those manufacturers who are concerned, and who do not want estimates that cannot be proved added to that worry.
I have heard suggestions to the effect that it will be impossible to obtain cover for unlimited liability. Under product liability, general public liability or third party liability, it has long been possible to obtain a policy with limited liability in respect of one accident, or a series of accidents arising from one cause, but with unlimited liability in terms of the total amount payable in any one year. I believe that that approach will continue. If a policy holder is covered for an indemnity of £500,000 now, it would be wrong to assume that, if he wished to increase it to £l½ million, it would necessarily involve tripling the premium. In practice, that is not so. In those circumstances, the premium would probably rise by no more than 25 per cent., although it would probably depend upon the risk and the insurer. That figure should put into perspective some of the fears that have been expressed.
It is suggested that contributory negligence should remain a defence. It will reduce the likely cost of insurance cover. I agree with the majority of speakers who have said that, if we cannot move towards acceptance of unqualified liability, qualification of that liability by the state of the art is as good a solution as anyone has put forward.
I believe that an equally strong point to be pursued was raised by the right hon. Member for Lanarkshire, North, namely, do we minimise—and that is what we are considering—what would come under a cover for absolute liability by saying that property damage would not be included and only personal injury should be covered? The right hon. Gentleman said that most people tended to effect insurance on their property. I am not sure that statistics entirely bear that out, but certainly there are more who do that than those who effect an insurance cover against personal injury. It we are trying to move towards general acceptance of 1168 this matter within the manufacturing industry and consumer groups, I believe that that is a reasonable and acceptable qualification to absolute liability.
Like most other hon. Members, I believe that there is an inevitability about this and that we must move towards an acceptance of a greater degree of liability than is accepted at present. But we should stop short of absolute liability, and we should consider some of the qualifications that I have outlined as a reasonable method of moving the matter forward.
§ Mr. Tam Dalyell (West Lothian)
I ask the House to acquit me of discourtesy in not having been here since the opening speeches. The House expects hon. Members to take part in the EEC legislation Committee, which in a sense straddles the subject. When one has Ministers coming before the Committee, it is equally a discourtesy to them not to turn up at the Committee. One has to make a decision. I hope that I shall be excused, because the point that I make will be extremely short.
My main point concerns the vexed problem of homologation, which is of great importance to the motor industry. I declare my interest, in that I represent the British Leyland truck and tractor division at Bathgate. Like other sectors of the motor industry, it is extremely worried by this problem. When it comes to exports from the Community to this country, we are very efficient and quick about making quite clear what standards we expect. Often, the documentation can be completed in 10 days or a fortnight for vehicles coming from the Community to this country. That applies also to vehicles coming from other countries abroad, including Japan.
However, there appears to be a very different position with our exports. Time and again, there is great difficulty in meeting all the demands not only of insurance but of standards, and it is more than a suspicion that these delays on the part of our partners and other countries are not just simple inefficiency. There is a growing amount of evidence that many of the delays are a matter of policy to ensure that while the delay is taking place, it becomes easier for the industries in the countries of import to meet any requirements that may have been laid down by 1169 the Community. I think that I detected a nod from my hon. Friend the Member for Norwood (Mr. Fraser), who is on the Front Bench.
This is a problem that can be extended beyond the motor vehicle industry, but I only know about that industry. Is it not time to look at this whole morass of documentation and delay when it comes to exporting reasonably sophisticated vehicles from this country? We are really disadvantaged, and I speak as an hon. Member who was pro-EEC. We are disadvantaged by purposeful delay by others—it is in fact a hidden form of protection of the industry of other countries to the disadvantage of ours.
Finally, I ask the Minister to undertake—possibly not off the top of her head—to look into this problem. It is well known to Ministers in the Scottish Office. It was put in detail to the Under-Secretary of State for Scotland, so he and his office know all about it. I hope that this matter will be taken on board as one of great importance. There is no easy answer, and I certainly do not expect one tonight, but I wish to register that this is a matter of great concern to the motor industry, both management and trade unions.
§ Mr. Tony Marlow (Northampton, North)
I start by apologising to my right hon. Friend for not being here when she opened the debate with what I understand was a first-class speech. I had a constituency engagement, and this debate came on at short notice. I apologise profusely. I am also rather sorry that so few hon. Members from the Opposition are present for a very important debate. I find it hard to understand why they are not here in more force this evening [Interruption]. I am told that they are upstairs.
One Labour Member made a point about many lawyers speaking in this debate. I am sure that what I am about to say is not the reason why they spoke in this debate, but I believe that, if the legislation were passed, it would be an absolute gold mine for the legal profession.
I wish to say a few words about the principle involved and then a few more words about some of the details. As 1170 hon. Members have already said, there is some doubt about the competence of the European Commission to introduce directives in this area. I believe that this is the case. Rather than support my right hon. Friend in the principle of the legislation, we should suggest to her that she fights the rights and privileges of the European Community to introduce this legislation so that we can introduce our own legislation here, rather than get secondhand laws from Brussels. I know the reason why this is brought from Brussels: it is thought that in Europe we should all have the same industrial cost structure and that we should harmonise our costs so that no one country has an unfair competitive advantage over another within the EEC. Important though this matter is, I submit that its effect on costs between the different countries of Europe, if we had different legislation, would be very limited compared with some of the other factors, which cause far greater cost differences and competitive differences within Europe at present.
I refer briefly to what has happened to the value of sterling. It was 3.7 against the Deutschemark in February 1979. It is now virtually 4.7—a change of 30 per cent. at a time when our rate of inflation and our cost increases have been even higher than those of Germany. In France, in the same period there has been a change of 25 per cent. There has been an increase of 30 per cent. against the Italian lira. If we are trying to trade fairly and equitably across the Market, these factors have a far greater effect than the competitive differences of such legislation as we are now discussing. It may be said that this is our currency and we can do something about it, but the fact of North sea oil makes that very difficult.
There are other aspects on which other European countries are now acting unfairly with a far greater effect. For example, there is the matter of fuel prices. In the United Kingdom, the price per therm of natural gas is 23.6p. In France, it is 15.2p per therm, and I understand that we have more natural gas than the French. Will this not have a far greater effect on the competitive and fair trading position vis-a-vis France than the legislation that we are now considering?
1171 We still have a positive budget contribution of £370 million. We are required to buy European food at enhanced prices. Added together, that amounts to an additional cost of £1,000 million, which is equivalent to £2 a week added to the cost of every worker in manufacturing in this country. That is a massive burden for the country to sustain. Why are we talking about harmonisation in this area when we have much larger burdens in others? We should get the beam right before we start talking about the mote.
Turning to the detail, the present law in this country is unsatisfactory. If I get injured by a swing that I have bought for my child, I can take the matter up against the shop that sold it, but, if my child is injured by it, I may have to take the matter up against the manufacturer. That is wrong. We should do something to rectify it.
The proposal will mean a massive increase in cost for industry. To our chagrin, we have introduced fire precautions and health and safety at work precautions that have caused concern to and additional cost for commercial enterprises. Is now the time to place further burdens on our industry?
Printing has been mentioned. The printer sometimes receives a copy from the advertiser in a camera-ready state or on a tape. If the wrong information is provided in the advertisement, who is to blame—the printer or the person who provided the copy? The legislation proposed offers great scope for legal argument and litigation. An article could be described incorrectly in a catalogue for electrical goods, toys, photographic materials, clothing or footwear. A garment could be described as pure wool, whereas it is later manufactured in artificial fibre, which could cause skin disorder. Who is liable? All these points will have to be cleared up.
Let me give one further example concerning the retrospective technical problem, although it is not directly applicable as it concerns agricultural produce, which is not covered by the legislation. It was once suggested that cancer could be caused by eating tomatoes. If a product that is perfectly acceptable now is proved 1172 in three years' time to be carcinogenous, will people suffering from cancer be able to sue the nurseryman for damages, even though the goods were produced in advance of the legislation? That would be absurd.
With regard to the amendment, the routine is for the House to take note. Having done so, the Government will discuss the directive in the Council of Ministers. We are told that eventually the directive will be agreed unanimously. We have an excellent Government, who will fight an excellent battle and do their best to ensure an excellent directive. However, in a late night session, the Government may feel inclined to compromise with a view to getting a more satisfactory result on another issue. We wish to reserve the position of the House.
Unamended, the motion urges the House to meet certain conditions, but the judgment whether those conditions are met lies with the Government. In effect, by the amendment, if the House believes that those conditions are not met, the take-note motion that we are discussing will not have taken place and no notice will have been taken of the motion. Therefore the directive, which we would be bound by Community law to pass, would be in doubt, as the House would not previously have taken note of the content that it would be then disapprovine.
§ Mr. David Crouch (Canterbury)
Only last week, in the debate on procedure, we failed to agree to an amendment that would have taken care of the very matter that my hon. Friend the Member for Northampton, North (Mr. Marlow) is concerned with, namely, that the Government should not proceed to orders without reference to the House. We wanted a chance to debate a decision if it was made without an order coming before the House. We wanted the opportunity to hear a statement and ask questions. I do not go all the way with my hon. Friend's emphasis, but he has raised an important point.
I am much concerned with product liability, as I am involved in the chemical and pharmaceutical industries. I congratulate my right hon. Friend the Minister for Consumer Affairs on her cautious step forward in the way that the motion 1173 is worded. It is a beautifully conservative approach, of which I thoroughly approve. We urgethe Government to ensure that during further consideration full account is taken of the arguments that people injured by defective products should be entitled to adequate and prompt compensation and that undue burdens should not be imposed on industry.That is a nice and right balance.
The matter is not new. It has been considered over at least 10 years. We have had two Law Commissions and one Royal Commission, and the Strasbourg Convention of the Council of Europe. The EEC Commission came forward with the draft directive proposals four years ago. I am particularly indebted to the Legal Affairs Committee of the European Parliament for its thorough and in-depth study, about which my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) spoke. He was a member of that committee when he was in the European Parliament. That document is extremely valuable and illustrates how this Parliament can and does interact with the European Parliament. The study by the House of Commons Select Committee on European Legislation &c. provides an essential safeguard in spotting dangers and referring them back to this House. I am also indebted to the other place for its Committee's fiftieth report, on the study of liability for defective products.
As well as being grateful to my right hon. Friend for having proceeded slowly, I am grateful to her for her imagination in introducing the state of the art into article 1 and including that reservation. I am sure that she has had many representations, not least from lawyers and those who say that the state of the art does not obtain in some other countries, but she has decided wisely to advance that case to the House.
It is necessary to take account of the recall action by the producer of a product which was proposed by the Legal Affairs Committee of the European Parliament, which said thatthe producer shall not be liable where, as soon as he has become or ought to have become cognisant of the defect, he has taken adequate and timely steps to inform the public and adopted furthermore all measures, which, having regard to the circumstances of the case, might reasonably help to eliminate the injurious effect of the defect.1174 The Strasbourg convention and the Royal Commission did not take that view.
A move towards stricter liability is inevitable, but the proposal in the draft directive to introduce a system of no-fault liability, which has been proved to be unsatisfactory and unwise economically in other countries, should be avoided. The hon. and learned Member for Leicester, West (Mr. Janner) referred to the United States law on strict liability. I take issue with him, because I am advised that recent proposals to introduce a mandatory federal product liability law in the United States has shown up the disadvantages of the proposals in the draft directive. The United States law specifically allows the defence for a producer who, in the light of scientific and technical knowledge at the time the product was put into circulation, could not have been aware that it was defective. The state of the art defence has been accepted in that law.
If development risks were not allowed as a defence, certain special provisions for compensation could be required in industries of high innovative risk, in order to compensate for widespread damage resulting from unforseeable side effects. Such situations might have needed separate financing if my right hon. Friend had not decided to include the state of the art defence.
The sort of legislation that could result from the directive would have the effect, but for the state of the art defence, of discouraging innovation and investment. It would be detrimental to the progress of society and the health of the economy, and it would be to the disadvantage of the consumer.
§ Mr. Douglas Hogg
My hon. Friend is suggesting that a state of the art defence should be incorporated in the directive. Does he accept that the state of the art defence is not a defence to an action under the Sale of Goods Act for a breach of sections 13 or 14?
§ Mr. Crouch
I am left in the air by my hon. Friend's intervention, and I am not able to cope with it at this stage. He may seek to catch your eye, Mr. Deputy Speaker, and explain in more simple terms exactly what he means. In the meantime, I refuse to be deflected.
If we were to have the directive without the modification suggested by my right hon. Friend, it would produce a 1175 system of no-fault liability, with inadequate defences. Such a system has already been found to be unworkable in the United States. It would be a backward step and could prove disastrous to our economic progress in the new scientific world that lies ahead. It would greatly restrict innovation and would lead to the practice by doctors of what is called safety-first medicine.
Drugs are made by manufacturers, but are prescribed by doctors. As was observed before the Pearson Commission, a system of no fault liability would lead not only to a restriction of innovation, invention and investment in the pharmaceutical industry but to doctors guarding themselves against any possibility of a side effect, perhaps not yet thought of. That is not the way to help sick people.
I hope that my right hon. Friend can help me on article 4. The EEC document states:The word 'apparently' means that the use is determined by public opinion and not by the producer himself.That must be clarified. The acceptable use of, for example, a medicine must be the purpose for which it has been placed on the market by the producer or, indeed, the purpose for which it has been authorised by the competent authority, and not whatever use public opinion thinks that it ought to be for.
The document from the European Parliament states on article 5:The producer shall not be liable if he proves that he did not put the article into circulation or that it was not defective when he put it into circulation.That Parliament said, in effect, that further amendment was needed to ensure that a product should not be regarded as defective if, when put into circulation, it complied with, or exceeded, mandatory standards of safety or quality as laid down by the Government and/or the EEC.
On article 7, I am not happy with the concept of limitation of total liability. That may sound strange when I have been arguing as one concerned with industry rather than insurance or as a lawyer, which I am not. But, some injured persons may remain under-compensated or not be compensated at all if we have a total sum available. The setting of 1176 a limit in insurance matters is normal practice, so perhaps it is necessary. However, in that case it should also be flexible.
There might be a need for the provision of State assistance when there is a catastrophe. State funds could be used to top up what is available under the limits prescribed by the directive from the producer and his insurers. The State should be ready to assist the individual, without putting impossible shackles on industry.
I welcome the approach of my right hon. Friend the Minister. It has been a helpful debate, and it is important to consumers, individuals, our society and our manufacturing industry. Of course, it is also important that our lawyers should be satisfied that we will get good law coming out of Europe, based on the right legal assumptions.
As we rush through the closing stages of the debate, I take the point made by my hon. and learned Friend the Member for Darwen that the concept of introducing the doctrine of product liability was probably based on the wrong article in the Treaty of Rome. Whether that is true, one can understand a general move towards product liability. Even manufacturers accept that. They have a responsibility towards society, and they do not intend to shirk it, but there are sometimes limits.
§ 7.8 pm
§ Mr. Ivan Lawrence (Burton)
I declare an interest, since the only certain beneficiaries from the directive are likely to be lawyers. But before we rush through the closing stages, I should like to speak against that interest.
There has been a substantial measure of common ground in the debate. There is wide agreement that the existing law is no longer to be considered adequate to provide a remedy for someone who is injured or suffers loss from a defective product, whether because of the doctrine of privity of contract, the frequent inability of a small retailer to pay for loss, or the difficulty of suing a manufacturer for negligence.
Secondly, it is agreed that a degree of further protection for the consumer is necessary. That much agreed, two questions follow. First, how shall the law be 1177 made more adequate? Secondly, how far is it practicable to go in providing a remedy?
As to how the law should be made more adequate, the draft directive is clearly not a sensible way, since it is doubtful whether it is intra vires article 100, as is claimed and therefore it will give rise to long legal wranglings. Since there has been no response to requests from such quarters as the House of Lords Select Committee for figures showing how the strict liability in force in, for example, France, Belgium and Luxembourg gives rise to distortions of competition, the vires point seems to be extremely doubtful. If the law is to be changed, it should be done by way of a convention outside the Treaty or by way of the amendment suggested by my hon. Friend the Member for Fareham (Mr. Lloyd) and by statute in the House, as requested by my right hon. Friend the Member for Crosby (Sir G. Page) It should certainly not be done by way of this directive.
The question arises how far it is practicable for this reform to go. Hon. Members have drawn attention to so many problems raised by the directive as to make it impracticable for it to operate in Britain. My right hon. Friend would doubtless exercise the right of veto in the Council of Ministers.
The National Consumer Council has produced a well thought-out and well expressed argument. I should like to know, however, how the consumer would benefit if the directive deterred development in high-risk technological industries or in the pharmaceutical industry. How will it protect the consumer if the cost of insurance is so great that no one can afford to produce the product, thereby depriving the consumer of a competitive product and depriving him of choice?
I am delighted that the Government will insist on the state of the art defence. Nothing could do more to inhibit innovation and enterprise or seriously increase costs than to make manufacturers liable for injury caused by defects existing at the time but whose existence could not have been discovered by anyone, given the technical and scientific knowledge then existing. That is most definitely not an anti-consumer point of view. It was, after all, none other than Mr. Gordon Borrie, Director General of Fair Trading, who said in April this year that 1178 liability to development risks might well inhibit innovation and that potentially valuable advantages in technology and pharmaceuticals might not even be attempted.
While it would be misleading to cite the experience of the United States of strict liability as proof of what would happen here, the American experience is not without interest and should perhaps serve as a warning for us. My hon. Friend the Member for Meriden (Mr. Mills) gave figures of a tenfold increase in claims following the introduction of product liability. I believe that my hon. Friend understated the effect on premiums. My figures show that there was a 26-fold increase in insurance premiums
Juries trying civil actions with lawyers on contingency fees doubtless have much to do with this development, but it cannot possibly explain the entire 26-fold increase. The result was that the United States Department of Commerce introduced a Model Uniform Product Liability Bill in October 1979. My hon. Friend the Member for Canterbury (Mr. Crouch) understated its effect. Its main effect was to reintroduce the doctrine of fault. It is too early to say whether it will be adopted by state legislatures. We should however, take warning from that trend and tendency.
The right hon. Member for Lanarkshire, North (Mr. Smith) played down the additional cost argument. The right hon. Gentleman said that the additional costs would face all countries and that no unfair competition would therefore result. That attitude displays a confidence in the working of the Common Market that I am not sure the right hon. Gentleman himself always shares when it comes, for example, to the possible use of illegal subsidies in some industries in some other countries which are our partners. I should like to read to the House a comment by Mr. John Ireland, director of one of the leading tyre producers in the world, based in my Burton constituency. I refer to Pirelli. After stating that it is impossible at present to get any worthwhile estimate from the insurance industry of what insurance costs might be involved, except the statement "considerable", he says:Another area of considerable cost increase and open to great differences between 1179 competing companies is the meticulous record which will have to be kept in great detail to ensure component and material trace for up to ten years. Voluminous representations have been recorded indicating our industry's concern over many lesser details such as unclear liability chain where multiple components or materials may have contributed to a defect, the time limitations and the inadequacy of enforcement of similar liabilities on importations.I mention them in that they could be important to our particular competitive position if, as unfortunately has often proved the case with other directives, the degree to which directives and their subsequent legislation in member countries are enforced varies widely between the same member countries, with our own setting the example for observing the letter of the law.Should this happen in this case our industry in the United Kingdom and therefore our own company of Pirelli Ltd.—already pressurised by cheap and sometimes inferior imports—could be put at a serious competitive disadvantage and forced to reduce its level of activity with consequent effects upon employment levels and indeed even to the extent of our total viability.In addition, the CBI has estimated that insurance cover on a £10 million risk would cost about £200,000 and that the cost of the directive to industry could amount to £200 million. What this would do to profit margins, viability and eventually employment, one can only guess.
When one adds to the cost objections the long catalogue of further objections heard this afternoon, it is obvious that there can be little support in the House for the directive, however strong our wish to extend consumer protection. Why should damage to property be included whose only effect would be to lead to double insurance and additional cost? Is not "defective" a term, as defined, so hopelessly wide as to be ridiculous? Does the scope of damage extend beyond pain and suffering to purely economic loss? Would printers in my constituency and elsewhere be liable for printing errors? What is the point of including accidents at work within the directive when these are already subject to comprehensive legislation?
What protection exists under this directive for the pharmaceutical manufacturer when it is difficult to distinguish between illness caused by medical treatment and the acquired condition that the patient may have achieved? If a producer takes adequate and immediate steps to prevent potential damage from a defective pro- 1180 duct in circulation, why should there be no defence of recall? If the producer is complying with the statutory requirements, for example, in safety standards and injury results, why should that not be a defence?
Is it any wonder that this measure has had such a chequered history since the first draft directive was published in August 1974? Is it any wonder that so few hon. Members have had a good word to say for the directive? I believe that most hon. Members would say to the Council of Ministers about this directive. "Reject it, please, as it stands", and would say to the Commission "Take it away, consider it yet again, and bring it back to us for further consideration this day several years hence".
§ Mr. Douglas Hogg (Grantham)
I shall not detain the House for long. I support the directive and regard it as a valuable extension of consumer rights.
I should like to comment on a number of misapprehensions 'under which my hon. Friends are labouring. The first relates to the Sale of Goods Act. My hon. Friend the Member for Portsmouth, North (Mr. Griffiths) stressed the difficulties that the directive would cause to manufacturers within his constituency, and particularly to one small manufacturer, but he has failed to appreciate the impact of the Sale of Goods Act and amending legislation upon that manufacturer. If the manufacturer sells goods that are not reasonably fit for the purpose for which they are sold, or, alternatively, are not of merchantable quality, he will be liable to the person who buys those goods from him, not merely for the value of the goods in question, but for any consequential loss that the purchaser may suffer.
Reference has been made to the state of the art defence. As hon. Members will know, the state of the art defence is no answer to an action for breach of sections 13 and 14 of the Sale of Goods Act 1893, which provide that goods shall be reasonably fit. This is a step forward, though not a large one. We are working on established precedent.
My hon. Friend the Member for Folkestone and Hythe (Sir A. Costain) said that the insurance industry would find it difficult to meet liability because the 1181 liability might extend for some time. With respect to my hon. Friend, he misunderstands the position. Actions in contract, that is, in breach of the Sale of Goods Act, can be brought at any time within six years of the breach, and in certain circumstances for significantly longer. Most manufacturers insure their liability for breach of the Sale of Goods Act. It follows that insurers are already covering the type of liability, in terms of length of time, that is contemplated by the directive. I see no essential difference.
Hon. Members have spoken about the limitation period for the bringing of actions and the rules covered by articles 8 and 9. Hon. Members fail to understand the impact of existing legislation. Under article 8, the action must be commenced within three years of the date that the person realises that he has a cause for action. Under existing legislation, the limitation period is double that—six years, and frequently longer. Under article 9, the directive provides for a cutoff period of 10 years, whereas under existing English legislation it is possible for an action to be commenced years after the date at which the cause of action occurred. I support the directive. Hon. Members who criticise it fail to appreciate the impact of existing domestic legislation.
§ Mr. Bob Cryer (Keighley)
I shall not detain the House for long. I have received a number of representations about the proposal, and I believe that I should air them. It is often difficult to reach a correct judgment about reasonable standards of protection for the consumer with which we can all agree completely and at the same time ensure that manufacturers are not placed in an unreasonable position which means that they might not dare go ahead with a process or product because they are frightened of their liability. That might seem unreasonable in relation to the directive, but some manufacturers believe that that is the position. I hope that the Minister will anwer my questions.
It is awkward to deal with legislation at second hand. We have to sift through several explanatory and badly duplicated documents. It would be better if we could deal with legislation independently, make our own judgments and impose our own standards. The present procedure 1182 is the result of the way in which the House deals with legislation arising from our membership of the Community.
I have received representations about importers. Article 3 of the directive provides for joint and several liability for a product. It gives the injured person the opportunity to claim against the person in the production chain who, because of his economic position, is most able to pay compensation for the damage.
In practice, that means that the person who is injured will reach for the United Kingdom importer rather than for the manufacturer in South Korea, Hong Kong or elsewhere. That could place the indigenous British manufacturer at a disadvantage. Importers can provide cheap goods with an indemnity against the manufacturer which is worthless, because the manufacturer can wind up his business, disappear and possibly form another corporate body in Hong Kong or elsewhere in order to escape liability. Such a manufacturer could not be reached through an action in Great Britain.
Importers should not be placed in that position. They should not be singled out and be disadvantaged in legal actions. I prefer prevention to cure. We are speaking of accidents occurring after goods have been purchased and used. It would be better if section 6 of the Health and Safety at Work etc. Act 1974 were applied. Under that Act, both importers and manufacturers of goods in Britain must provide a standard of health and safety, so far as is reasonably practicable. They are subject to criminal sanctions if they do not apply such standards.
Goods coming into Britain are not inspected. We operate lax standards for imports. If an accident occurs, we examine the goods involved. We do not check them at ports of entry. West Germany operates a different system. If a British manufacturer exhibits goods in West Germany and they are found to be defective, they are inspected on the stand, a defective label is placed upon them and they must be removed. That does not happen in the United Kingdom. Prevention should be aplied more effectively, instead of relying on a person being injured as a result of defective goods which have not been inspected.
Legal actions are always difficult. They are frequently expensive, and that puts 1183 people off. The Health and Safety Corn. mission could use the Act far more effectively, given facilities by the Government, so that the strain and pain of legal action was avoided.
I am also worried about the exclusion of nuclear products. I cannot understand the exclusion of damage arising from nuclear accidents. The explanatory document states:there are in force in all Member States similar special rules governing these risks based on liability criteria which are as strict as those of this directive. It has therefore been possible to exclude damage of this type from the scope of this directive.I am not sure that that is true. The strong possibility is that, because nuclear power is unknown in many respects, the consequences cannot be quantified easily, and therefore it is excluded from the directive for that and no other reason.
Two firms in my constituency have made representations to me. One is Sun Street Printers, a busy jobbing printers which uses advanced techniques, including the reproduction of material which is handed to the firm as negatives or matrices. The firm is worried in case it is liable for material which is defective and which is handed to it. Sometimes two or three firms are involved in a chain. Two could be small firms and the third a large firm. It might not be clear which firm was responsible for the fault but the wealthiest firm would have to take responsibility according to article 3, and it would suffer the action though blameless.
Sun Street Printers seems to have a valid fear. I hope that the Minister will be able to explain the precise position to the satisfaction of my constituents. If a printing material fault is composed by firm A and it is printed by firm B in good faith, will firm B be open to an action as a result of any defect arising from that product?
Secondly, I have representations from a firm called Trico, which does vitreous enamelling in Keighley. It provides a service in part-finishing products. It, too, is> concerned lest it should be placed in a similar position. It has expressed its reservations to me. Will the Minister clarify the position and say whether, if this company carries out instructions which result in a defect in the product, it becomes liable even though it has 1184 carried out the instructions in good faith?
This whole business shows how we are placed in a difficulty when we deal with EEC legislation in the absence of the ordinary legislative processes to which we in this country are used. There is no Committee stage during which we can make representations, move amendments and consult interested parties. There is no Report stage during which we can table amendments. It is entirely unsatisfactory that the House should have imposed upon it legislation in this shape and form. This procedure gives rise to fears, justified or not, that we cannot easily eradicate because the source of the legislation is at one stage removed.
We know what we can do with legislation here at Westminster. We know that we can straighten it up and that, if we cannot, we can explain it clearly to people outside. That is one of the unfortunate aspects of this type of legislation.
§ Mr. John Fraser (Norwood)
I hope that the result of this debate will be that a majority of the House will support, not only in appearance but in reality, the central thrust of the directive to introduce the principle of product liability. It is possible to give these directives support that is so lukewarm and so qualified that it does not amount to support at all and can sink them. I was particularly worried that the Minister had the support of the hon. Member for Burton (Mr. Lawrence). If she is in favour of this proposal, she ought to worry about that sort of support and disavow that particular hon. Gentleman.
I favour the principle of compensating people who have been injured by defective products, whether the product be a drug, an aircraft, machinery or any other manufactured item. If I have to find a philosophical basis for that, it islove thy neighbour as thyself".All this arose from the Thalidomide tragedy. When that happened, the overwhelming Christian and proper feeling of people in this country was that those children should be compensated because, if one had to choose between who was to bear the loss—the child or the manufacturer—the overwhelming view of public opinion and, I think, of this House, was that it should be those who 1185 manufactured the drug for a profit. That is the philosophical basis. If it had happened to my child, I would have wanted him to be compensated. It has happened to someone else's child and I want to see that child compensated. It is the principle oflove thy neighbour as thyself".There has been much reference to the Thalidomide tragedy. There was a similar case in my constituency. It illustrates the inadequacies of the law and the unfairness as between one type of transaction and another. A constituent of mine who was a blacksmith was prescribed a quinine-based drug manufactured by May and Baker, a company that was mentioned by the hon. Member for Brentwood and Ongar (Mr. McCrindle). The drug was prescribed for a skin disease. After taking it for some time, he lost his sight. It was a tragedy. He had no claim against the doctor who prescribed it because the doctor had available to him the state of the art of defence. He had no claim against the manufacturer because there was no negligence—that is admitted. He had no privity of contract.
If my constituent had purchased that drug across the counter of a chemist's shop—if he had not received it through the National Health Service—the chemist would have had absolute liability in respect of the effects of it under the Sale of Goods Act and, as a result of the subsequent legislation, he could not have contracted out of that liability. It would have been likely that he could have followed a chain of privity of contract back to the manufacturer of the drug.
Why should the right to obtain compensation differ according to the legal basis of the transaction or the course of conduct? That cannot be right. It was a revulsion against those distinctions that informed the Thalidomide case and presented us with the proposition of product liability in this country and throughout Europe. Other countries have not waited for the directive. Germany has introduced product liability in respect of drugs with certain qualifications directly as a result of the Thalidomide tragedy.
§ Mr. Crouch
I do not know when the tragedy involving the hon. Gentleman's constituent occurred, whether it was be 1186 fore or after the Thalidomide catastrophe. After the Thalidomide tragedy, the Government set up a committee on the safety of drugs, and it is obligatory for all drugs to be tested and approved by that committee. It is impossible for drugs to be offered through the National Health Service or through any other prescription without having undergone that process.
§ Mr. Fraser
The Pearson committee was set up as a result of the Thalidomide tragedy, and that committee stated that, even if there were official certification of a product, including a drug, nevertheless a claim should lie on the basis of product liability against the manufacturer.
That is my philosophical basis for supporting product liability. I think that it has the overwhelming support of informed public opinion, and the result of any surveys conducted on the matter come down in favour of product liability. It does not impose a great burden on industry. Ultimately, the burden is borne by consumers in increased prices to pay for increased insurance costs.
It is right to go ahead with this proposition because it is anomalous not to do so. I have already illustrated the distinction, as have many hon. Members, between absolute liability which exists under the Sale of Goods Act and the absence of liability where there is no privity of contract between the injured person and the manufacturer. That was illustrated well in relation to the example given by the hon. Member for Portsmouth, North (Mr. Griffiths). If the manufacturer in the hon. Gentleman's constituency sells his flexible tanks, he has absolute liability towards the purchaser. However, the hon. Gentleman is arguing that if they are incorporated in another product and they prove to be defective, there should be no liability. That is an illogical distinction that ought to be removed, and its removal has the support of public opinion.
There are other inconsistencies. The Consumer Safety Act that was passed by this House and came after the Consumer Protection Act 1961 contains the principle of absolute and strict liability in respect of certain defective matters where they are in breach of consumer safety regulations which impose absolute requirements in respect of goods, where the state of the art defence does not apply, 1187 and where a claim is not based solely upon negligence.
Absolute liability exists in many areas, and the purpose of product liability is that that rule should become universal and should not become dependent on the nature and legal basis of the transaction. As hon. Gentlemen have said, it is inevitable. It is coming, but not initially as a result of legislation. It was introduced by the courts in the United States. It obtains in some EEC countries, and there is pressure from the Council of Europe—and now from the EEC Commission—to make it more widespread. I therefore think that we would be moving in the right direction by supporting this measure.
There have been a lot of tales about the United States. Many of them are apocryphal. Another argument that is put forward is that the cost of insurance in the United States has gone up astronomically. That has nothing to do with product liability. The same thing has happened in respect of negligence claims. Because of the way in which damages have been awarded and what appears to be the litigious nature of the American public—I am talking here only about doctors—it is said, probably with more truth than can be found in some of the tales about product liability, that a doctor who comes upon a road accident and is not on duty will not be prepared to attend to that accident because of the risk of being sued for negligence.
Premiums for negligence policies for doctors and lawyers in the United States have risen astronomically—but it has to do not with product liability but with the nature of the legal system. It is not helpful to quote the American example for damages on insurance costs. I prefer to rely upon the memorandum submitted by the Minister. It is a more reliable document. I prefer to have the word of the Minister on those matters than the words of people quoting apocryphal stories from the United States. The right hon. Lady is right to say that such insurance costs constitute a very small proportion of production costs. That is the beginning and the end of the matter.
We can dismiss the argument about cost that is advanced every time this sort of reform comes forward. It was advanced against reforms in the Supply of 1188 Goods (Implied Terms) Act 1973 and against the Unfair Contract Terms Act 1977. It has been proved to be a myth. It should not delay us in the implementation of the matter before us. It is not as though the matter comes to us fresh. It has been examined by two Law Commissions and by the Pearson committee. All came down in favour of the principle of product liability.
I was disappointed that the Minister supported the state of the art defence. Once there is a defence of the state of the art, people are forced to rely upon the law of negligence. It is a contradiction to talk about liability for defective products and then to introduce the defence of the state of the art. The prospect of success depends on whether somebody might reasonably foresee, in the state of knowledge at the time, whether injury would result. I think that Pearson had the last word on the matter in paragraph 1259 of his report, which considered both sides of the argument. He stated:It is further argued that this responsibility, and the cost of insuring against the risks involved, might severely deter the development of new products, particularly those small developments which might lead cumulatively to a major advance … On the other hand, to exclude development risks from a regime of strict liability would be to leave a gap in the compensation cover, through which, for example, the victims of another thalidomide disaster might easily slip. We recommend that the producer should not be allowed a defence of development risk.That is the same as the defence of the state of the art.
§ Mr. Lawrence
Is the hon. Gentleman aware that when the Pearson report was debated in the House on 17 November 1978, his right hon. and learned Friend the then Solicitor-General agreed that the state of the art defence should be part of any legislation on product liability?
§ Mr. Fraser
I am aware of that, but I do not take the same view. There is another matter that needs serious attention—not the development of risk, but the balance of risk. There will be circumstances, especially in relation to drugs, in which somebody may have a short lease of life which can be extended by a drug that aids his heart but, predictably, will have severe side effects. In those circumstances, there should be a defence of balance of risk provided that the person 1189 taking the drug knew that there would be a likelihood of a side effect but, nevertheless, wanted to take that risk to achieve some countervailing benefit. That is not the same as a development risk. It simply assums a certain risk of side effects.
One hon. Member said that there was a danger that there would be more safety first medicines. I give not an informed view on that, simply an instinctive view. There may be times when we could do with a little more safety first medicine, especially when I think of the number of prescriptions for Valium and barbiturates. Perhaps safety first medicine would not be such a bad thing.
Perhaps the Minister will make it clear when she replies whether she is in favour of extending the product liability regime to drugs. She did not say that they should be excluded, but I know that, when she attends a Cabinet meeting to deal with those matters, her reviews as Minister for Consumer Affairs will not be matched by the views of the Secretary of State for Industry, the Secretary of State for Social Services and others. One of the things about Governments is that sponsoring Departments do not always govern their industries—sometimes the industries have an effect in governing the sponsoring Departments. I am sure that that was so in relation to the exemption for natural products and the pressure applied by farmers via the Minister of Agriculture, Fisheries and Food. That is the way that life works. Perhaps the Minister will make it clear that she believes that drugs should be included.
In practical terms, it is almost impossible to have a limit for product liability. Claims in respect of a product have to be delayed in order to know how many people are encompassed by the defects. There is also the practical problem of whether the saloon car is one product and the estate version another product. One must not make the best the enemy of the good. As with the Warsaw convention and other conventions, there may be an argument in favour of having a maximum liability for the claim of any one person rather than for the product. Those matters are open to debate. I am not in favour of limits, but, if one has to compromise, it might be in that direction rather than in the direction of a total limit for a single product.
1190 Many hon. Members asked whether a printer was liable for mistakes in the text of a book. It is preposterous to suggest that the directive should cover the contents of books. It is not the book as a physical thing that has created the injuries, but the content of the book—the intellectual property—that has created the danger. Perhaps the Minister will make it clear that it is her view that it is preposterous to suggest that the directive covers those matters, and that, it might cover those matters, that that is simply an oversight and that we would not, under any circumstances, tolerate a directive that extended to the contents of books.
I turn to the defence of purpose. My right hon. Friend the Member for Widnes (Mr. Oakes) raised the question of Paraquat. Other hon. Members raised the question of components. The problem of components is dealt with if there is available to the component manufacturer the same defence as is available to the producer of the total object, namely, that the component was fit for the purpose for which it was supplied and designed. If one accepts that defence, the component manufacturer has very little to worry about. It is left to the judgment of those who assemble components whether the components are safe when used in certain circumstances that are only under the control of the manufacturer of the whole object. The defence of purpose is adequate in respect of Paraquat. It would avail those who manufacture glues which are sniffed by people in and around my constituency with tragic results. A manufacturer of glue cannot be held responsible for the consequences of somebody sniffing it and using it for a purpose for which it was not intended and of which consequences the recipient must have been aware.
§ Mr. Dalyell
The motor industry is extremely concerned about the import of substandard components from such places as Taiwan. That not only constitutes a danger but is damaging to the image of the safety of British products abroad.
§ Mr. Fraser
Those matters are not directly relevant to the directive. I hope that the Minister will take on board the point made by more than one hon. Member about the need to have a form of import control and a safety check at our 1191 ports. I know that it is extremely difficult—I have faced the problem myself—to do that. It would involve a great deal of extra public expenditure to have safety checks at our ports. But some of the evidence of defective products is now so appalling that it changes one's judgment on the matter. It is a question of protecting our manufacturers as well as our consumers. There is certainly an argument for taking a fresh look at that problem.
§ Mr. Crouch
The question of components has not been raised in the debate. However, drugs can be taken by a pharmacist in a hospital pharmacy and mixed into a medicine. Although the components of such drugs may be sound, mixed in a certain way they could be harmful. In that case, it is my contention that the hospital becomes the producer.
§ Mr. Fraser
I think that is right. It is a matter of common sense that a person who prescribes a particular mixture of drugs becomes the manufacturer; and negligence then arises in any case.
I was surprised that the right hon. Lady did not respond promptly to the intervention by one of her hon. Friends about whether the directive ought to apply to damage to property as well as to injury to persons.
§ Mr. Fraser
I am sorry. Perhaps I was not listening properly. The right hon. Lady would certainly have our support in saying that the directive ought not to apply to property, because there the risk ought to be insured by the owner of the property rather than be extended to the manufacturer of a product and in such a way, perhaps, defeating the chance of success.
There were some imagined circumstances in which there would be midnight settlements at Councils of Ministers where we would give in on the product liability directive and they would give in on certain other matters, perhaps a contribution to the CAP. I assure hon. Members that nothing of the sort is likely. I do not think that a Minister has ever met another Minister officially in the European Community to discuss this directive. That is a pity.
1192 One of the best things would be for Ministers responsible for consumer affairs in the Nine to come together, discuss the principle of this directive and reach political decisions on these matters rather than leaving it to civil servants to discuss, as they have done hitherto. That would be a healthy development. It is what I wanted to see as a Minister, and I hope that the right hon. Lady will press for the same kind of political discussion which, at the end of the day, will bring about an improvement in consumer rights as well as an improvement in consumer and general safety standards throughout the Community. I hope that the right hon. Lady will support vigorously the broad principle embodied in the directive and that she will take note of this debate. I am glad that we have had the opportunity to discuss these matters.
Let me make it quite clear that the Opposition would not support any use of section 2 of the European Communities Act to translate any directive into law. We wish to see primary legislation, with all the stages of discussion and debate that that involves.
§ Mrs. Sally Oppenheim
With the leave of the House, I shall endeavour to reply as briefly as possible to what has been a long and important debate.
I think that it is generally agreed that the debate has been of a high standard. The House is notable for rising to such occasions as this, and on this occasion it has not disappointed. Nearly every hon. Member—in fact, I think every hon. Member—has drawn attention to one technical difficulty or another—in some cases to numerous technical difficulties—arising out of the present draft directive, and has thus supported the Government's case that, while the principle is accepted, the draft directive as it stands is not. I believe that that was agreed without exception.
I was particularly gratified that nearly all the problems to which I referred in my opening remarks were taken up and supported by hon. Members on both sides of the House and that there was practically universal support for the principle of the incorporation of the state of the art defence. I am pleased at the support that that received, although I am not surprised, because of the number of 1193 letters that I received from hon. Members, I received no fewer than 100 letters from Opposition Members about one aspect or another of the directive that concerned them.
The right hon. Member for Lanarkshire, North (Mr. Smith) accused me of being tepid. If that was the case, he was absolutely freezing cold, and certainly ambivalent. First, he questioned the vires of the directive. He then expressed a preference for the Council of Europe's solution, and went on to complain about the Government's state of the art defence requirement. He was far more critical of the directive than I was and less than lukewarm—as I said, freezing cold.
He spoke, as did nearly every other right hon. and hon. Member, about the terrible Thalidomide tragedy, which must be in the minds of all hon. Members when a debate of this nature takes place. That is why we need to extend the present law—to make sure that people are not excluded in those circumstances. But, even with a state of the art defence, it is likely that at least half the Thalidomide victims would have been protected under the directive, because it was alleged by a number of people during the painful proceedings that took place—incidentally, not court proceedings—that the company had known, had been warned and was still selling the drug. Therefore, the state of the art defence would not have protected that company in a majority of those cases.
My hon. Friend the Member for Woking (Mr. Onslow) spoke of the problems in the aerospace industry, which I appreciate is particularly sensitive. The right hon. Member for Widnes (Mr. Oakes) made a courageous intervention, in which he supported the Government's stand on the state of the art defence. He was entirely realistic and honest in his approach. He was right in saying that there would be no negilgence if companies could not possibly have known, in the state of knowledge that pertained at the time the goods were going on the market, and that this would be an unfair and damaging provision, particularly to innovation, which is so important to British industry.
The right hon. Member raised the question of Paraquat. That would certainly not have come under the provisions of 1194 the draft directive, even as it stands. The use of a product that carried a warning in a way that caused injury, which was not the prescribed way in which to use it, would not be covered by the draft directive, even as it stands, and certainly not with the state of the art defence. It is right to draw attention to the role of parental responsibility in these matters. One cannot cover every aspect of these things by law, and parental responsibility must be brought in.
I turn to the amendment, moved by my hon. Friend the Member for Fare-ham (Mr. Lloyd) on behalf of himself and my hon. Friend the Member for Northampton, North (Mr. Marlow). He complained about a distortion of United Kingdom law. Here again, I must take issue. If the draft directive were amended to the satisfaction of the Government along the lines that I laid out in my opening remarks, I do not see that that would be a distortion. It would be a complement to United Kingdom law, not a distortion.
I can give my hon. Friend the assurance, which other hon. Members have sought and to which, understandably, they have attached a great deal of importance, namely, that any new product liability regime arising out of an EEC directive will be the subject of primary legislation. I say that as far as we are able to promise into the future, because we are now looking considerably into the future with regard to this legislation.
§ Mrs. Oppenheim
Perhaps I can finish this point, because it may provide an answer to my hon. Friend. The Government's decision to accept the principle but not the directive as it stands does not mean that we are committed to a product liability directive. Indeed, the present text is clearly unacceptable because it does not achieve the proper balance between the interests of the various parties concerned. I think that that has been the opinion of the whole House during the debate.
In Brussels, therefore, we shall maintain our general reservation on the directive as a whole. We shall suggest that the draft be amended in a number of respects in order to achieve a proper balance 1195 between the conflicting interests. We shall also consider the suggestions of other member States who have anxieties of their own.
I hope that my hon. Friends will feel able to ask leave to withdraw their amendment. I can give them the assurance that it is manifestly in the interests of manufacturers and consumers in this country that we should have a common European initiative rather than a national initiative. If we start talking about a national initiative at this stage, our negotiating stance will be undermined seriously and we shall get a worse, not a better, directive at the end of the day.
§ Mr. Marlow
Will my right hon. Friend clarify two points? First, is she saying that if the directive is not amended sufficiently to fit in with the Government's purposes, the Government will on no account agree to it, whatever other pressures there are? Secondly, my right hon. Friend has graciously given an undertaking to the House that any measures on product liability that are brought forward in the future will be brought forward by primary legislation. Is it possible that a measure such as this, of such wide-ranging importance, could have been brought forward in any way other than by primary legislation?
§ Mrs. Oppenheim
With regard to my hon. Friend's first point, I reiterate the position of the Government. It is essential that the draft directive, as amended, is renegotiated on the lines that I laid out in my opening remarks. There are many areas of negotiation that are still open to us, and there are many difficulties in many areas. Unless an acceptable directive is finally negotiated, it will not be accepted by the Government. In answer to the second point raised by my hon. Friend, I give an undertaking that there will be primary legislation in this matter—to the extent that it is possible to give such an undertaking so far in advance of the likelihood of such legislation. There are other ways in which the legislation could be introduced, but I hope that that will not be the case.
The hon. Member for Lambeth, Central (Mr. Tilley) drew attention, as did a number of hon. Members, to the situation of printers and printing materials. In my 1196 opening remarks, I said that the situation that might pertain under the directive—we are not sure that it does—in relation to printers and bookbinding was absurd. The hon. Gentleman asked me to go further, and to say that it was intolerable. I do indeed go further and say that, if it is—as it appears to be—covered by the draft directive, it is intolerable. I hope that that reassurance will satisfy him.
My hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) brought his great expertise to bear on the debate and on the discussion on the amendment. He performs a great service to the House in these debates, and we are fortunate to have him here. He made important points about the need for unanimity on the directive, and we are indebted to him for his lucid explanation of the constitutional position of the directive if it is unanimously approved. He also dealt with property, recalls and vires, an issue that was raised by many hon. Members. I reiterate that it would be unwise for us to pursue the matter, even if it were possible for us to challenge the vires. I am not convinced that it would be possible, but, even so, it would not mean that the substance of the directive would go away, and the implications of such a challenge would be unfortunate, to say the least.
It was clear when the hon. and learned Member for Leicester, West (Mr. fanner) intervened, that all my predictions about lawyers taking part in the debate were fulfilled. I accept the sincerity of his contribution, which I am sure was valuable. I should like to correct two of the points he made about Germany and France. Germany does not have strict liability. It has a state of the art defence, except for pharmaceuticals. France has strict liability, but, under the French civil code, cases must be brought within a very short time, which some people may look upon as an exclusive provision.
The hon. Member for Birmingham, Ladywood (Mr. Sever) also mentioned the question of newspaper publishers being liable. Editors and publishers are already liable for errors in their newspapers if they have been negligent in any way.
My right hon. Friend the Member for Crosby (Sir G. Page) brought his usual expertise to the debate. He properly 1197 referred to redrafting the directive on a number of important issues to which I have referred. I reiterate the assurance that this measure will be introduced by primary legislation.
§ Mr. Nicholas Baker (Dorset, North)
I understand the undertaking given by my right hon. Friend about the primary legislation, but is she saying that, in the event of any draft directive being agreed in a form that is satisfactory, she will then bring that draft directive back to the House for further consideration?
§ Mrs. Oppenheim
No, the draft directive cannot be brought back to the House for further consideration. If the form of the final directive is acceptable to the Government, it will be implemented by primary legislation, which will then have to be brought before the House. The House will then have an opportunity to discuss and amend the primary legislation.
My hon. Friends are pressing me hard on the matter, and it is right that they should do so because it is an important issue, affecting many interests.
My hon. Friend the Member for Folkestone and Hythe (Sir A. Costain) dwelt on the difficulties that would be faced by the building industry, and also drew attention to the question of small companies. That matter is causing the Government anxiety, both in the context of the draft directive and in many other contexts. We want to make sure that undue burdens are not placed on small businesses, and it was never intended that they should be.
My hon. Friend the Member for Meriden (Mr. Mills) drew attention to the question of components, sometimes known as counterfeit components or components that come from other countries outside the Community. He mentioned one of the great difficulties that we shall face in negotiating a satisfactory draft directive, because there is no means under the draft directive or under our law at present of redress in the case of imported, uninsured components and goods. There is no solution to the problem at present, but a solution must be found before the directive will prove acceptable, otherwise the gateways and loopholes will be immense, and consumers will not have the sort of coverage 1198 that we hope for as a result of the implementation of this directive.
The question of contributory negligence has been raised by a number of hon. Members. This is now included in the redrafted directive so that contributory negligence would either reduce or expunge liability.
§ Mr. Douglas Hogg
When my right hon. Friend considers that particular article, will she also consider suggesting to her colleagues that, where a person consents to run the risk of the injury, it is proper to reduce the compensation payable?
I shall certainly beat that useful point m mind and take note of it.
My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) raised an important issue about costs, to which I shall return later.
The hon. Members for West Lothian (Mr. Dalyell), Keighley (Mr. Cryer) and Norwood (Mr. Fraser) raised the question of standards and obstacles at points of import. They all know that those matters have nothing to do with the draft directive, but my Department is concerned about the issue of standards and the way in which they are imposed by other countries. I assure hon. Members that the matter is under active consideration by my Department at present.
My hon. Friend the Member for Canterbury (Mr. Crouch) made a very helpful and responsible contribution. He raised the issue of recall, which I had already dealt with in passing in my opening remarks. The question of recall and the effect it would have on liability would depend on the nature of recall and how widespread it was. If someone printed a tiny advertisement recalling goods which was likely to be seen by very few people, I do not think that would reduce liability, but if it was shown that a great deal of trouble had been taken to recall goods, the extent of liability would almost certainly be very reduced.
My hon. Friend the Member for Burton (Mr. Lawrence) raised questions about articles 4 and 7. With his permission, I should like to write to him about both matters. Time is short, and he raised some important issues.
1199 My hon. Friend the Member for Grantham (Mr. Hogg) stressed some important points of law, in particular the impact of the strengthened Sale of Goods Act, which perhaps has been underestimated by a number of hon. Members. I am pleased to say that I had a hand in strengthening the Sale of Goods Act—through the Unfair Contract Terms Act 1977—and I shall not brook any accusations from the hon. Member for Norwood that I am tepid in my approach. He resisted my amendments, which he eventually accepted.
§ Mr. John Fraser
In case there should be any doubt about it, let me congratulate the right hon. Lady and say that it would not have been possible for the Bill to go through Parliament unless it had had her support. I am sure that the country is very grateful for that. I hope that she will be equally enthusiastic about product liability, on which she may be got at a little more by her fellow Ministers than she was by Opposition Front Bench spokesmen on that previous legislation.
§ Mrs. Oppenheim
I thank the hon. Gentleman for his gracious remarks. I have noted his concern about my being got at. I have also noted that he is far more defiant in opposition than in Government. He expressed his defiance of his right hon. and learned Friend the previous Solicitor-General [Interruption.] All right, his disagreement. I wish he had shown a little more of that defiance when he was a member of that Government but, of course I understand his position entirely.
The hon. Gentleman emphasised the importance of covering third parties who might be excluded by existing legislation from the right of redress, and that is the main purpose of the draft directive. There is, I accept and agree with him, a moral obligation to these people, but that moral obligation being accepted, as it is, we should not pretend that it will not involve costs that all consumers will have to bear. We should all accept that this is the price that will have to be paid to protect the minority of injured victims. This has always been recognised.
1200 We have to ensure at all costs that cost is not inequitable in relation to industry, to consumers or to small companies. In addition, it must not be inequitable in relation to the medical matters which the hon. Gentleman properly raised—the relationship between doctors and patients and the relationship between other ancillary medical professions and patients. There is also the doctor's judgment in various matters. If I may say so with respect to the hon. Gentleman, there is the doctor's judgment whether patiens should be told about side effects. That must be a matter for the doctor's judgment. Most important of all, the cost in terms of innovation should not be too great. The Government's responsibility is one of achieving the right balance, as I said earlier, between justice and fairness. We intend to negotiate for an eventual directive which achieves that balance. There must be justice for the innocent victim and the avoidance of undue and unfair burdens on industry at the same time as guarding against the imposition of excessive costs. It is the achievement of this balance that will guide our negotiations and influence the form of the final directive.
§ Mr. Peter Lloyd
My right hon. Friend has given some very welcome assurances, particularly her undertaking that any revised directive will come back to this House in the form of primary legislation. With these assurances in mind, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Main question put and agreed to.
§ That this House notes Community Documents Nos. R/2237/76 and 9427/79 relating to the draft Directive on the approximation of laws, regulations and administrative provisions of the Member States concerning liability for defective products; and urges the Government to ensure that during further consideration full account is taken of the arguments that people injured by defective products should be entitled to adequate and prompt compensation and that undue burdens should not be imposed on industry.