§ 4.7 p.m.
§ Lord FRASER of TULLYBELTON rose to move, That this House takes note of the report of the European Communities Committee on product liability.
§ The noble and learned Lord said: My Lords, my purpose today is to invite your Lordships' House to take note of the latest report of the Select Committee on the European Communities—the 50th Report of this Session—dealing with the liability for defective products.
§ This report is of somewhat limited scope. In particular, it does not go into the main principles of defective liability, and I feel that perhaps I ought to say one word as to why that is so. The explanation is contained in the opening paragraphs of the report, and the reason is just this: this ground has been gone over a great deal in recent years. There was a previous report on this very subject presented by the Committee in November 1976, at a time when the question of product liability was under consideration in various places. Since that report in November 1976 we have had a joint report by the Law Commission for England and Wales and the Scottish Law Commission. They made a joint report in 1977; and of course there has also been the report by the Royal Commission presided over by the late Lord Pearson. All these bodies came down in favour of the principle of product liability.
1394 Since then there has also been the revised directive which is the immediate subject of this report; and there has also been the draft convention produced by the Council of Europe.
§ The result of all that is that three bodies within the United Kingdom and two bodies in Europe have examined this subject, and have all unanimously come down in favour of the principle of product liability. In those curcumstances, the Select Committee did not think it would be profitable or useful to go over the ground again and to investigate the principle of product liability. They therefore started from the assumption that the principle is to be accepted, and they have considered the present draft directive from the point of view of whether it gives effect to that principle or whether there are points in it which ought to be improved or corrected.
Without going into it, therefore, may I remind your Lordships once more of what exactly is the principle? It is stated in the first article of the draft directive, and it is as follows:
That the producer of an article should be liable for damage caused by a defect in the article whether or not he knew or could have known of the defect".
A great deal of the criticism which is directed against this draft directive centres on the words, "or could have known", for it means that, even if, in the state of knowledge at the time the article was produced, the producer could not have made himself aware that it was defective, he is nevertheless liable. Your Lordships will have seen that in a debate on 4th November in another place an indication was given by the Minister for Consumer Affairs that the Government were inclined to modify that liability and that they favoured modifying it by introducing the defence known as the "state of the art" defence; that is to say, putting it loosely, that, if at the time when the product was made the producer could not have been aware that it was defective, that should be a defence. That was not a matter considered by your Lordships' Select Committee and it is not a matter on which I wish to express the view (and I have no authority to do so) of the Select Committee. It may be that my noble and learned friend Lord Scarman, who I am glad to see is to take part in this debate, and who has had
experience of this matter as chairman at one time of the Law Commission, may wish to say something about it.
§ It follows from what I have said that this report is of somewhat limited scope and that my remarks in support of it are also going to be limited in scope. I feel that, while that may be a good thing for those of your Lordships who are kind enough to listen to me, it may cause some I disappointment outside to many bodies which have written to me and, I am sure, other noble Lords, raising what are really points of principle upon this draft directive. So far as I am concerned, I do not propose to deal with them at all but to confine myself entirely to what is in the draft report. Within that field, I wish to direct attention to only three particular points which I consider to be of importance.
§ The first is this. By Article 7 of the draft directive, a global limit is placed on the amount of compensation to be paid for all personal injuries caused by identical articles having the same defect, That is to say, there is a total limit to the amount to be paid out for all injuries arising from the same article. The limit, so far as personal injuries is concerned, is provisionally fixed at 25 million European units of account which, I believe (and I am subject to correction) is about £15 million or £16 million. There are also limits placed on the total amount of compensation payable for damage to movable and immovable property; and they do not raise separate principles so far as this is concerned. The proposal to put a global limit on the amount of compensation was considered by the Select Committee with some care and we came to the view that this was a serious defect in the draft directive.
§ We considered how it could work. It is possible that it might mean that the first claimant to make a claim within the global limit would be paid in full and that others would go on getting paid so long as the limit was not exceeded, but that once the sum was exhausted later claimants would get nothing; so that it would be "first come, first served". That would obviously be inequitable. The Select Committee did not spend much time on the point. We regarded it as quite clear that that was not what was 1396 intended. However, if that is not what was intended, the only other alternative seems to be that if a claim were made it could not be met, negotiated about or settled until all possible claims arising out of that particular article had been received, and then, when they were all in, added up. If the claims were still within the limit, all would be paid. However, if, in total, they amounted to more than the global limit, then the sum would have to be apportioned between the claimants in proportion, presumably, to the value of the claims.
§ That is quite a complicated process because we assume that the limit is intended to apply to the whole Community, so that all claims throughout the Community would have to be aggregated. There is the further consideration that claims can be received for a period of 10 years from the date when the product was put into circulation; so, until the cut-off period of 10 years has been exhausted and until some further time has been exhausted for the claims to come to fruition, one could not be sure that there would not be more claims. The practical result of that would seem to be that a claim made in the first year after an article had been put into circulation could not be paid or settled until at least 10 years later. The delays of the law are notorious but if a delay of that sort was inevitable then it seemed to the Select Committee that that would be wholly unsatisfactory.
§ It may be that this sort of limit of total compensation is appropriate where one is dealing with compensation for a single event—say, a single accident to an aeroplane or a vehicle. It may be quite right then to have a total which can be divisible among the claimants injured in that accident because it all happened at one time. But where you have the position, as in this directive, of claims which may mature over 10 years or slightly more, then it seems to the Select Committee to be unworkable. For that matter the Commission took the same view. They said that an equitable division was impossible without unacceptable delay if any global limit was to be applied. Your Lordships will see that the recommendation of the Select Committee, which is in paragraph 47 of their report, is that the article in its present form is unworkable and should be deleted.1397
§ I should say that, as I understand it, the justification which is put forward in support of the article which introduces the limit is that it will facilitate insurance because it is said to be very difficult, if not impossible, to insure for unlimited liability. That may be so, but unlimited liabilities exist in other fields and those who wish to be covered against them are able to insure by taking the sensible measure of insuring up to the maximum amount that they think they are likely to be liable for, and they stand at risk to bear any excess. It does not seem to lead to great difficulty in practice. That happens in employers' liability and must happen for retailers who may be liable under the Sale of Goods Act for selling defective goods. So the existence of an unlimited liability is not in practice a very great difficulty. That is the first point: that the global limit as at present proposed is unacceptable. There are various drafting infelicities in this article, one of which is the optional form in which the global limit is expressed; but I shall not dwell on that for I think it is clear enough what is really intended.
§ My Lords, the second point is a less serious one, which also arises on Article 7. It is the question of what is meant by "identical articles". As I mentioned, the limit applies to claims for injuries caused by identical articles having the same defect. This difficulty is explained in paragraph 44 of the report and the question is this: when does an article which is subject to slight changes cease to be identical to one not having those changes? If I may take a hypothetical example, suppose there were a motor car made which was called the Fraser motor car. I am sorry that there is not; but suppose there were and that the 1980 model of that car had a defect in the steering which was dangerous and liable to lead to claims. Suppose that, halfway through the year, the Fraser motor car 1980 was modified by making changes not in the steering but perhaps in the springs or the engine or something of that nature. Would that article still be identical to those produced at the beginning of the year? It will have the same defect in the steering and probably be as dangerous; but is it identical? In the literal sense, plainly it will not be so. It seems to the Select Committee that that could raise difficulties. I have put forward a rather 1398 crude and simple example to explain what I mean, but it seems that this raises a real difficulty, and some definition ought to be provided as to the meaning of "identical articles".
§ The third and last point to which I want to draw attention is that it is proposed to exclude liability under this directive if the defective article is a primary agricultural product, a craft or an article produced not industrially. I wish to concentrate attention mainly on the primary agricultural products. This is dealt with in paragraphs 16 and 17 of the report. This has been added by amendment to the latest draft of the directive; and it was added, we understand, because of the proposal made in the European Parliament that it should be added.
§ This raises a point which could be a matter of dissension and could be slightly embarrassing, I suppose, because the Law Commission for England and Wales did not favour making an exception for primary agricultural products. The Scottish Law Commission, however, did favour that exception. If we are to count heads, in favour of the Scottish Law Commission's view there is the directive, or those who drafted it; and the European convention. The Strasbourg convention also has an optional clause allowing individual states to exempt agricultural products. On the counting of heads, there is a slight preponderance of votes in favour of exempting agricultural products. Your Lordships will not be surprised to hear me say that my sympathies are naturally in favour of exempting them, that being the view of the Scottish Law Commission.
§ I will attempt to explain why the matter arises and why it is thought to be difficult. The underlying theory of product liability altogether, as I understand it, is that liability should rest upon the person who creates the risk and who also is in the best position to exercise control over its quality and its safety, and also to insure against the risk. In the ordinary case, the manufacturer of a product is in control of its quality and he can insure against the risk of defects.
§ Agricultural products and fishery products also are in a different position—to some extent, at any rate—because, if an agricultural product is defective, it is 1399 very likely that the blame rests not upon the farmer who grew it but upon those who polluted the atmosphere or the water in which it was grown or perhaps upon natural causes, the stress of weather. Those are matters outside the control of the farmer, the producer, and it was therefore thought that it might be unreasonable and unfair to put upon the producer the normal liability for a defective product which goes out from his hands.
§ There is also the further point that the basis of the directive is that the producer is presumed to have sent out the product in its defective state unless he can prove the contrary. In the case of primary agricultural products—and this applies to other food products, also—it may be difficult to do that because they tend to be perishable in nature, and it may be difficult for the farmer to show that the article which was defective when it was consumed by the housewife or her children left his hands in perfectly good order, and the defective condition was due to delay, hot weather or bad storage in the shops. That was an additional reason why it was thought unfair to put this burden upon the farmer producer.
§ This is a matter which will have to receive attention one way or the other. The present draft directive comes down in favour of exempting the primary agricultural products. Speaking entirely for myself—I cannot say I have the authority of the Select Committee—that seems to me on the whole probably reasonable. The Select Committee drew attention to the fact that the whole question of food products may require further consideration because of the risks which I have mentioned already, that the defective condition of a food product when it is consumed may be due to some fault which is not that of the producer at all.
§ That is all I am going to say about particular points in the draft directive. No doubt many other noble Lords wish to draw attention to other defects in the drafting and the proposals. I would only say this in conclusion: the principle of product liability having been accepted, as I have said, by so many bodies who investigated it, I suggest that it is right that one should accept that principle and concentrate attention now upon trying to 1400 improve the relatively detailed proposals in the draft directive, to remove ambiguities and to remove serious defects such as those that I mentioned first about the global liability. Possibly one should try to go further, as the Select Committee would wish, and secure, so far as one can, that the draft directive fits in exactly with the Strasbourg convention, so that the proposals which we are considering today may without great difficulty be adopted by the wider European community to whom the convention is open for signature. I beg to move.
§ Moved, That this House takes note of the report of the European Communities Committee on product liability (50th Report, H.L. 236).—(Lord Fraser of Tullybelton.)
§ 4.26 p.m.
§ Lord AIREDALE
My Lords, we are indeed grateful to the noble and learned Lord, Lord Fraser of Tullybelton, for giving us the opportunity to discuss this interesting report, and for having given us his advice upon it. It is a subject which bristles with difficulties, to several of which the noble and learned Lord has already referred. He referred to but did not criticise the 10-year cut-off period. This is one of the overwhelming difficulties that seems to me to present itself. How a 10-year cut-off period can apply to an aircraft, a tin of beans and every other product under the sun seems to me quite incomprehensible. That is one of the extraordinary difficulties with which this topic is beset. However, that is by the way, and I had better go back to the beginning of what I had proposed to say.
Some years ago Lord Chief Justice Goddard was trying a case of a claim for damages for personal injuries. It did not seem a very strong case. Lord Goddard was never one for concealing the way that his mind was working and he intervened in the case to say that the idea seemed to be gaining ground that whenever somebody suffered some misfortune, somebody else ought to be made to pay for it, but that this was no part of the law of England. It still is no part of the law of England, my Lords. Of course, it could become so. The law is not immutable, and if this directive were accepted we should have gone a very long way down that road.
1401 It is said that a strict liability can be justified because of the situation which obtains under the Sale of Goods Act. It is said that under the Sale of Goods Act a purchaser enjoys a claim for strict liability against the seller for an unlimited amount, whereas everybody else has to prove negligence in order to establish a case against the supplier.
What surprises me—and I say this with great respect of course to the Pearson Royal Commission and the Law Commissions—is that nobody ever puts this question the other way round. Nobody ever says: "Since everybody in the world except one has to prove negligence if they wish to succeed in a claim against a supplier, why is there one person (the purchaser) who is put in a vastly superior and privileged position over everybody else?"
It is said, of course, that negligence is difficult to prove, and so it is; but let it not be thought that under a law of strict liability plaintiffs are going to escape the difficulties of establishing proof. Take, for instance, the case of a "Fraser" motor car which is nine years old and breaks down because of a fault in a component. I suppose it must be beyond human ingenuity to design a car in which all the components are going to fail at the same time. However, after nine years a component fails and the car is defective. I can think of four possible reasons why a defect occurs. It may be due to a design defect, or a fault in the manufacture of the component; it may be caused by a failure of maintenance by the car owner during those nine years, or it may be due to pure and simple wear and tear. Any proposed plaintiff is going to have to do a good deal of sorting out of the burden of proof among those possibilities before he can establish a case against the supplier. No wonder that in a recent paper the Consumers' Association said:It will still be necessary, as under the present law, to prove a causal connection between a defect in a product and the accident which caused the injury: very difficult in practice".Do we achieve justice in singling out the producer, who may be without fault, rather than society as a whole, in order to pin the blame? If the producer is a huge corporation we achieve rough justice because a huge corporation, I suppose, is a microcosm of society as a whole. 1402 But consider the case of the small producer. Supposing there is a small firm in a market town which makes step ladders and it sells a step ladder to a company chairman who lives in the manor house. His wife uses the ladder to go apple-picking and the ladder collapses under her; she falls and breaks her hip and becomes permanently disabled so that she then has an enormous claim against the small firm.
The defect is found to be in one of the metal fittings; there is a crack in the metal which has been painted over and cannot be spotted by any ordinary inspection, and so the small firm goes to the local builders' merchant—who also may be a small firm—and says: "Can you tell us who supplied that metal fitting?" The builders' merchant says: "Several firms in Birmingham supply these standard fittings and we deal with all of them from time to time. We usually deal with the one whose traveller arrives first after we need to restock. We could not possibly say which manufacturer made this standard fitting". According to the way this directive is going to emerge finally, the bill is going to have to be met either by the firm which sold the ladder or by the builders' merchant, or both of them together. It will remain to be seen—and they may face financial ruin.
Of course, it is said that they can insure against this risk. The noble and learned Lord referred to insurance. It is not easy to insure for an open-ended commitment in respect of some gigantic claim. Even if you can find an insurer to take on the risk the premium is going to be very high. I cannot help thinking that some small firms will say: "We can afford to pay moderate claims out of our profits but when it comes to huge claims the risk is very remote and the premium extraordinarily high, so we will take a chance and bear the risk ourselves". The outcome may well be that the biggest claims, which are the most serious from the point of view of the consumer, will be the claims that cannot be met.
In singling out producers, irrespective of fault, we are embroiling ourselves in appalling difficulties in matters of detail, some of which the noble and learned Lord mentioned. Take, for instance, this difficult matter of development risks, about which I believe the Council of Ministers and the European Parliament 1403 cannot agree. The best illustration would be to consider pharmaceutical products. A firm may produce a new drug. They put it before what used to be called the Dunlop Committee—I believe it is now called the Committee on Safety of Medicines. The committee, when they pass the drug, presumably are not saying to themselves, "We are satisfied that this drug is absolutely safe in every possible circumstance". Presumably they are saying, "The side effects may in some cases be very severe and there may be somebody who is perhaps so allergic to this drug that if it is administered to that person his health will be impaired rather than improved. Nevertheless, we say that the evident benefits of this drug are so overwhelming, and the disadvantages so small by comparison, that we think it is in the public interest that this product should be put on the market".
If the firm producing the product continue to hold back and continue their safety tests, they will come up against appalling pressure. It will be asked: "How much longer do people have to die who might be saved if only this wonderful new drug was available?" I should have thought that a firm marketing a drug in those circumstances would be entitled to say: "That amounts to a good defence, because we have done what is regarded overwhelmingly as being in the public interest through the committee officially given the task of satisfying themselves on this aspect of safety".
I have dealt with the question of insurance, but there are other ways besides insurance of spreading the risk among the community as a whole. Already the National Health Service goes a very long way towards reinstating the victims of personal injury. There is the criminal injuries compensation scheme, whereby a fund is provided by monies voted by Parliament, and money is awarded to the victims of violent crime. It might be that a scheme along those lines could be adapted for this purpose.
Of course, industry might well be required to contribute to any such fund, and in passing I might say that industry already does so by means of VAT. I know that hypothecation of tax revenues is very much frowned upon in some quarters, but I would imagine that a 1404 Minister proposing the allocation of a fund which amounted to a small fraction of 1 per cent, of the VAT revenue would probably find favour with Parliament.
There are industrial training levy schemes, which are well known to those who sit on the Joint Committee on Statutory Instruments. A levy among manufacturers and producers might well be a solution. One might have a licensing system, with manufacturers licensed upon payment of a fee to manufacture particular products, the licence fees to be paid into the fund to provide compensation. Of course, if there appears to be a prima facie case of negligence against a producer, let that case be proceeded with in the court and, if the case fails, it might well be that the unsuccessful plaintiff's costs might be a charge upon the fund, as well as the compensation to which he would otherwise be entitled.
Spreading the risk, without first pinning the blame on probably innocent producers, avoids some of these appalling difficulties which the noble and learned Lord has mentioned and which I, too, have tried to mention. I am thankful that, before a final directive is issued from Europe, there has to be unanimity, as I understand it, at the Council of Ministers. What I would ask Her Majesty's Government to do is to urge upon the Council of Ministers the advantage of proceeding along the lines of spreading the risk among the community at large, rather than pinning the blame upon a particular producer who might be entirely without fault.
§ 4.42 p.m.
§ Lord SAINSBURY
My Lords, this is a very complex subject for the layman. I hesitate to intervene, particularly after hearing the opening speech of the noble and learned Lord, Lord Fraser of Tullybelton. The draft directive is also of great concern to industry and we will be fortunate to hear the views of the noble Lord, Lord Plowden, with his great industrial experience, later in the debate. I hope, therefore, that it will not be amiss if I state the views of the consumer, as expressed by the consumers in the European Community group—an umbrella organisation—without necessarily endorsing all that they say. They believe that the draft directive should be supported.
1405 Product liability involves many difficult legal concepts. In their view, the present system which is in operation in the United Kingdom is illogical and complicated. To illustrate the current situation, I should like to quote the example that they use, which, incidentally, was also used by the noble Lord, Lord Allen of Abbeydale, in our earlier debate on product liability last November, and which was also used a few moments ago by the noble Lord, Lord Airedale.
If a man buys a defective ladder which causes him injury, the retailer is strictly liable, under the Sale of Goods Act 1979, and must compensate him. If somebody else—for example, his son—suffers similar injury, he has to prove that the manufacturer has been negligent before he can receive compensation. To many people this seems unjust and illogical. In the first place, responsibility should lie with the person who created the risk; namely, the producer. In the second place, it seems unfair that the injured party, if he is not the purchaser, has the burden of proving the negligence of the manufacturer—a process that can be lengthy, costly and difficult.
As the consumers see it, the draft directive proposes to make manufacturers more liable for their defective products which cause injury, only to ensure that the minority who are injured have more adequate and prompt compensation. Certainly, strict liability would increase a producer's insurance costs, but many think it would be a small cost for a more just system of compensation. In any case, it would be included in the final cost of the product.
While I am not qualified nor able to enter into the legal arguments, I do not think I would be wrong in saying that the aim of the draft directive is to achieve justice for the victim. The Government and manufacturing interests, by seeking the exclusion of development risks, are, in the view of the consumer organisations, making the achievement of this laudable objective more difficult. The Pearson Commission concluded,To exclude development risks from a régime of strict liability would be to leave a gap in the compensation cover, through which, for example, the victims of another thalidomide disaster might slip".1406 I A tiny percentage of products cause injury or damage. When they do, victims should be easily and adequately compensated. As The Times so aptly put it in a recent article,Compensation is not intended as a punishment for manufacturers producing faulty goods, but a redress for those injured as a consequence".May I end by saying that I sincerely believe, fully conscious of my lack of legal knowledge, that the Government should have second thoughts before excluding all development risks from a régime of strict liability.
§ 4.49 p.m.
§ Lord SCARMAN
My Lords, first I should like to express gratitude to my noble and learned friend Lord Fraser of Tullybelton for giving the House the opportunity to consider this very difficult though unfortunately very complex, problem. Secondly, I must make a personal apology both to my noble and learned friend and to the House. Owing to a public engagement, I shall not be able to attend for the whole of what promises to be a very interesting debate.
Like my noble and learned friend, I am a member of the Select Committee which produced this report and I conceive it my duty to the House to convey, if I can, the message which the Select Committee was seeking to convey. As I understand it, the Select Committee, in very broad terms, has reached very much the same conclusion as it would appear Her Majesty's Government have reached. Opening a debate last week in another place, the Minister for Consumer Affairs said that the Government intended to negotiate constructively with their partners in the Common Market on the basis of the Commission's draft directive which we are now considering. The Select Committee goes along with that completely. The Minister also said that, in the view of the Government, the draft directive did not yet strike a proper balance between the interests of the consumer and the interests of manufacturing industry. I think broadly, although perhaps for different reasons, the Select Committee of your Lordships' House reached the same conclusion.
I should like to put in very broad terms, avoiding if I can legal complexities, what was the view of the Select Committee. First, the Select Committee was by 1407 no means sure that the draft directive is, as we lawyers say so unpleasantly, intra vires the treaty—in plain English, within the powers conferred upon the institutions of the Community by the Treaty of Rome. I do not intend to develop that point but I think that your Lordships' House should bear it in mind. The argument would be: does a draft directive, the intention of which is to bring about an approximation of the relevant laws relating to product liability among the member states, directly affect the functioning of the Common Market? I say no more than that there are strong arguments that it does not. There are equally strong arguments—which might, I think, the world being what it is, be more likely to prevail in the European Court of Justice—that it does. I mention the point in passing.
The draft directive was not the first effort of the Commission to do some work in this field; they produced an earlier draft in 1976 which, as my noble and learned friend said, was the subject of the Select Committee's report in that year. The broad object which the Select Committee would like to see achieved is to secure a number of amendments to this draft so as to bring it very much more in line with the Council of Europe's convention, the so-called Strasbourg convention on the same subject—product liability. If your Lordships will allow me, I will spend just a moment or two saying why the Select Committee thinks that the Strasbourg convention is a useful model and one to which the Brussels Commission should perhaps pay a little more attention than they have so far done.
First, the convention has an advantage which no amount of work in Brussels can give to a Common Market draft directive. If the convention were to be ratified and come into force, it would be an international obligation to bring the law into line with the convention in some 21 European countries. A directive of the Common Market can apply only in the member states. I have seen representations—very valuable representations, I thought—prepared by the CBI in which they said, speaking no doubt on behalf of manufacturing industry, that if you are going to have some uniform system of strict liability for defective products without proof of 1408 fault, then the wider that approximation of laws is spread the better. And one can see why. The Select Committee took that point and it is one of the reasons why, if one can get an "approximation", to use the treaty word, between the draft directive and the convention this would be a most desirable object.
Secondly, the convention in some of its detail has, I venture to suggest to your Lordships, more attractive features—I cannot go into all of them this evening—than are to be found in the draft directive. The convention would limit the damages recoverable without proof of fault to death or personal injuries. That is to say, the law would be focused upon protecting the consumer who buys a defective product and finds himself personally injured by it. The convention would exclude from the recoverable damages in this class of case damage to property and economic loss. I think it relevant for the House to bear in mind that when the Law Commissions of the Kingdom considered this problem, as they have done recently, they also were in favour of limiting damages in this field to damages for personal injuries.
There are a number of reasons why that is desirable. First, even ordinary citizens are in the habit of insuring their property—their houses and so forth. Secondly, one does not know what the insurance problem would be for manufacturing industry if damages were recoverable in this field for anything like economic loss or ordinary property loss. It is essential, and in this respect the draft directive recognises it, that the remedy we are considering in this field should be one available to consumers and not to businesses. Again, that is clearly an extremely important limitation if one is to have any chance of resolving the insurance problem.
Again tackling it, if I may, broadly, because I think that is perhaps the most helpful way in which I can discuss this matter in your Lordships' House, what is this draft directive about? It is a measure intended for the protection of the consumer. The noble Lord, Lord Sainsbury, was absolutely right to stress that this measure of consumer protection, which is known as product liability or liability for defective products without proof of fault, has been considered in the last 10 years 1409 again and again by a number of bodies, both European and national. As my noble and learned friend Lord Fraser of Tullybclton said, those bodies have come out in favour of the principle. For that reason, the Select Committee did not go into the question of principle, but I venture to say to your Lordships' House that after that highly expert, elaborate consideration over a period of something like 10 years, we should really be putting the clock back quite unreasonably if we were now to call in question the principle.
If that is so, what is our task? I suggest that our task now is to look at the problems of manufacturing industry and to ask ourselves how far can we go to meet their undoubted difficulties without fatally undermining the principle of consumer protection which the draft directive is intended to enshrine. If one does that, one finds at once that the problems of manufacturing industry are threefold; they fear that product liability of this sort may undermine their competitiveness; they fear it may add to the cost of their goods; they fear it may increase, to a formidable extent, the cost of insurance.
I will say just a word or two about each of those. If, of course, one can get an approximation of the relevant laws over the member states, and particularly, when the Common Market is extended, over quite a large European membership, then the argument based upon the competitiveness begins to diminish in importance; and if, of course, it could be extended to the convention countries, then I suggest there would be very little left in the competitive argument.
When one comes to the cost of goods, this has been examined. It can be fairly described as a corner of the problem not fully illuminated. The European Commission seems to think that this objection has been overrated. I as a mere lawyer would not express an opinion. It is not my field. But the objection has been there all these 10 years and has not seemed insuperable to the various bodies that have considered it. The cost may go up; but it may not. I just would not wish to say anything, except that this is a matter which we must examine if we desire to be sure that we are affording manufacturing industry the safeguards which, undoubtedly, it is entitled to have.
1410 When one comes to the insurance difficulty, the European Commission clearly thought, when they prepared this draft directive, that there was no insuperable insurance problem. That is not the view of the British Insurance Association, nor is it the view of many others. I think this has got to be looked at. Of course one way of dealing with the insurance problem would be to ensure that the directive includes a sensible provision for limitation of liability. Unfortunately, as my noble and learned friend Lord Fraser said, it does not. I myself like the comment made by the Law Society of England and Wales on Article 7 of the draft, which is the article dealing with its proposal for some sort of global liability in this field. The Law Society said that the earlier provision—that is an earlier draft—was impracticable; now by amendment it has been made unintelligible. With the greatest of humility, I completely agree. I do not understand how it can work, But my Lords, the Strasbourg convention has a very sensible approach to the limitation of liability. First, it makes it optional that signatory states may introduce such a scheme or not, as they wish. Secondly, it suggests that there should be a limitation upon each claim. I think the figure is 70,000 units of account. It does not matter—I am speaking from memory and I may have the figure wrong, but that is a sensible approach which could work. Thirdly the convention suggests that if we wish, in any signatory state, to relieve the burden upon manufacturing industry, there is no objection to the state or some other body setting up a guarantee fund that would look after the damages in this field.
So I think, as I believe Her Majesty's Government think as well, that with goodwill we could enter into a negotiation with our partners in the Common Market which would go some way towards meeting the problems of cost competitiveness and insurance which legitimately bother manufacturing industry.
My Lords, there is so much detail in the draft directive that of necessity I have to be like my noble and learned friend Lord Fraser of Tullybelton—eclectic; I must just choose one or two. I have mentioned the problem of damage; let me mention, also, since the noble Lord, Lord Sainsbury, mentioned it and so indeed did the noble 1411 Lord, Lord Airedale, the "state of the art" defence. The "state of the art" defence merely amounts to this: If, at the time the product which has been proved defective was put into circulation, nobody could reasonably have known, in the state of scientific and technological knowledge at that time, that it was defective, that should be a defence. Plainly Her Majesty's Government are impressed with the cogency of the case for introducing that defence which the Commission in this draft directive has rejected. The European Parliament were in favour of it. The Select Committee of your Lordships' House has sat on the fence.
Expressing a purely personal opinion, on the whole I would be against allowing the defence in; I think it is nicely balanced and I certainly would not wish your Lordships to think that this was a matter on which one could not change one's mind. The reason I do it is the reason which appealed to the Pearson Commission in the passage which the noble Lord, Lord Sainsbury, quoted and which appealed to the Law Commission. If you introduce the "state of the art" defence, you are really reintroducing negligence or fault by the back door.
It there is anything in the principle of consumer protection—and I have indicated to your Lordships why, in the broadest possible terms, I think we must accept that there is—then this particular defence, if introduced, would really be like a torpedo hitting the ship below the water line. Having said that, my Lords, there is something to be investigated. As your Lordships will see, I do not wish to take sides. I have been like a lawyer, taking no sides at all and therefore giving no guidance. That is an endemic error of our profession. But I am bound to tell your Lordships—because it does not appear in the committee's report; neither do I think it was mentioned in the debate in the other place—that the Americans (that is, those who live in the United States of America, because there are other parts of America as well), who have been the champions or in the forefront of developing a strict liability for defective products, have now produced a model uniform product liability Act which the States may or may not accept. There is also a federal Bill at the moment in Congress, which reintroduces the "state 1412 of the art" defence. I think they have found that damages, which of course are awarded by juries in America, have risen so astronomically that something must be done to limit this field of liability.
I do not accept that there is really a close enough comparison between the legal and social and economic world of the United States and that of this country and Europe to draw any too facile an inference from the American experience; but I think it is a matter that should be borne in mind by those who will have the task of negotiating on the basis of this draft directive. On the whole, I suggest to your Lordships that you can welcome this draft directive. It is a great improvement on an earlier draft. It has moved a long way towards the recommendations of our own Law Commissions and of the Pearson Commission. It has taken note, I hope, of the strong assertion in this House in 1976 that contributory negligence—that is negligence of the purchaser or the person who suffers—should be a defence. It was not in that first directive; it is there now.
I can see absolutely no objection at all to giving the draft directive a welcome, congratulating the European Commission on the work they have done, and seeking to improve it, not by undermining consumer protection but by seeing what we can do to protect the legitimate, and so far very moderately expressed, objections of manufacturing industry.
§ 5.12 p.m.
§ Lord MOTTISTONE
My Lords, it is indeed an honour to follow such a brilliant exposition of the purposes of the directive and the points which we need to observe which have been stated to us by the noble and learned Lord, Lord Scarman. I feel somewhat hesitant, because I shall endeavour to put to your Lordships another point of view on some of his points in due course. We must indeed welcome this debate and be most grateful to the noble and learned Lord, Lord Fraser of Tullybelton, for initiating it. It is of interest that it is barely a year since we had a similar debate, initiated at that time by the noble Lord, Lord Allen of Abbeydale, who I am delighted to see will speak later in this debate.
1413 Before addressing your Lordships further I should declare an interest, in that I work for a trade association in the food manufacturing industry and my remarks will to a certain extent be biased in that direction. Indeed they were largely so in the debate of 28th November last year to which I referred. I then gave at some length the points which I shall in a minute briefly summarise to your Lordships. I do hope that my noble and learned friend on the Front Bench, when he seeks to have the debate looked at by his advisers, will invite them also to look at col. 435 in the Official Report of 28th November 1979. It will save a lot of your Lordships' time for me not to go through it all over again. Surprisingly, I found the speech one which I really could recommend. So often when one makes a speech it does not read very well a year later. This time it seemed to me that it did.
To summarise the points about the food industry to which I gave such weight, and really in relation to the particular point in the draft directive seeking to exclude primary agricultural products which have, as they describe it, clearly not been industrially produced, I would seek to persuade your Lordships, the Government, and indeed in due course the European Commission, that all food, not just primary agricultural products, should be excluded from the terms of the directive.
There are two main reasons for that. One is that there is extremely comprehensive legislation covering food and its relationship to consumers, some of which is of great antiquity. I was reading the 1938 Food and Drugs Act of this country recently and discovered it repealing parts of Acts passed during the reigns of King Henry VIII and Mary Tudor, not to mention practically all the monarchs in between. The point of saying that is to show that Europe—because, after all, our sister members of the European Community are at the same level of development in this sort of general area as ourselves—has been bothering about protecting its consumers from being either deceived or poisoned by food for many centuries, and it would seem that that is a good reason for not entering into the complications of including food within this product liability field.
1414 The second reason is the difficulty of identifying at what point in what is called the food chain strict liability, if it is to be applied, should be applied. One can show, for example, that the food on the farm has been subjected to chemicals, and indeed has been manufactured, or at least harvested, with machinery which is no more potentially harmful or no less potentially harmful than the chemicals and the machinery with which the later processing takes place. It is, therefore, extremely difficult to pin it down to any one particular sort of food and say, yes, the fault should normally be said to lie there.
Another factor is that food, being perishable, unlike the vast amount of the goods I am sure the writers of the draft directive had in mind, has a limited life; whether it is going to be suitable to eat in due course depends to a great extent on the purchasers themselves. It is so easy for the purchaser to be the main cause of fault if the food is unpalatable or even possibly harmful at a later stage. So, unlike many other products, food is in a special category. Indeed the report which we are considering recognises this point both in paragraph 16 and in paragraph 17, and in the latter paragraph draws the attention of the Goverment to special consideration being necessary in this area
While referring to paragraphs in the report, I should like to refer to paragraph 10, although the noble and learned Lord, Lord Scarman, has already referred to it. It questions the vires of the draft directive or the revised draft directive as a fundamental point. It would seem to me that, with the points I have made, which are emphasised in paragraph 17, the basic legal point made in paragraph 10 and, indeed, all the other points in paragraph 56, there is, if this directive is not amended in a pretty massive way, potential for an absolute field day for lawyers. There are very many points on which decisions taken under the directive could be challenged, points which are quite readily seen by your Lordships' House and indeed by the committee chaired by the noble and learned Lord, Lord Fraser of Tullybelton, which consists very largely of the best lawyers in the land.
It would seem to me, therefore, that the fundamental point, which the Government have picked up, is that the draft 1415 directive itself needs most thoroughgoing consideration, much deeper than that which, clearly, was given to it by the Commission between the original directive and this revised draft which we are considering today. My experience now with the Commission is that I do not think that they have either the inclination or possibly the ability to consider draft legislation of this type—which is a minefield of potential trouble—in the depth required. The much maligned parliamentary draftsmen, who so often get stick in your Lordships' House, really could help the Commission greatly on many features. I do not know whether it would be appropriate to ask the Government to offer the parliamentary draftsmen to the Commission so that they could have a rather better chance of doing the fundamentals of improving this draft directive. Perhaps we could not spare them, but that is a thought which my noble and learned friend on the Front Bench could bear in mind.
Therefore, having welcomed the Government's intention to press for revision of the draft, I also welcome—although the noble and learned Lord, Lord Scarman, rather warned against this—their intention of seeking to incorporate the state of the art. I shall come in a moment to the consumers' attitude to this matter, but, as I see it, basically the Government are saying that there is not a fair balance of emphasis within the draft directive as between the provider and the consumer and they seek to put that right. It seems to me a point of fairness that, if one really did not know when one was making something that it would be harmful in the long run, because one just had no means of knowing, then it is not fair that one should be held responsible for what happens, unless it can be proved that one has in some way been negligent.
The other point is that if the state of the art defence is not included in the directive, there will unquestionably be a slowing down of the development of all sorts of means of benefiting the human race as a whole. If the people who carry out the studies and try to put on the market place the types of things which benefit mankind at large—the consumers in not only this country but countries overseas and the third world, the people who really require very many more benefits than we 1416 require—are to be limited in the way in which they can risk putting new products on the market because of the implications of what might happen in 10 years' time, then they will not do so nearly as readily and we shall all be the losers in that respect.
The noble and learned Lord, Lord Scarman, said that it was a neat balance and he tended to come down on the side of the view put forward by the consumers. I would not say that he came down on the side of the consumers—he came down on the view put forward by the consumer organisations, which is slightly different because I think that the consumers themselves will suffer if we have this restraint. I come down very firmly on the other side of the fence and I am delighted to see that the Government have put this in their proposal.
My Lords, I hesitate to intervene, but I think I am right in saying that they do not have this defence in West Germany. If that is so, I am sure that the noble Lord would not suggest that West Germany has been weak in industrial or commercial innovation.
§ Lord MOTTISTONE
My Lords, I am not sure about that because there are all sorts of areas in which original, basic research and basic thinking has come more from this country than from many others. It could well be that, on looking into this matter rather more thoroughly, we should find that the West Germans have tended to develop new concepts which other people have tried out first. I would not like to pursue that point too far, but it may be that that is the case.
I should like to take up the point which the noble Lord, Lord Sainsbury, made—a point which is worth taking and is important. He referred to the awful shadow which rests over the whole of this debate of the thalidomide disaster, and it certainly rested over the setting up of the Pearson Commission. I remember the noble Lord, Lord Allen of Abbeydale, making a great point about this during the debate last November. I would suggest that that kind of disaster—which is so terrible and which the insurance world called catastrophic—is one which was solved, and solved no doubt by some very I thorough, if possibly very courageous, 1417 journalistic work to ensure that it was solved. It involved vast sums of money being put aside, sums of money as regards which it would be extremely difficult to make a guess as to whether they would have been provided to a similar level if the possible terms of this draft directive were put into effect with its limit to liability included.
What I am trying to say is that this particular disaster—hopefully a similar one will not occur in anything like the immediate future, because obviously all the pharmaceutical firms will be doubly careful not to risk it for humanitarian reasons quite apart from anything else—can be said to have been dealt with. Therefore, we do not want to have our view of this draft directive—which is one that has wider ramifications than special cases in the catastrophic areas of pharmaceutical disasters—too coloured by it, because it was dealt with and there are other factors which, as I suggested, make it highly desirable that we should allow the state of the art defence. It would surely, on balance, be in the best interests of the European Community to follow the intentions that my right honourable friend the Minister of State for Consumer Affairs said on 4th November that she was going to follow in seeking to have this draft directive amended in a way in which it would be fair and balanced and meet the needs of all the persons concerned. I commend that approach to your Lordships.
§ Lord AIREDALE
My Lords, before the noble Lord sits down, I should like to raise one matter regarding West Germany. The Minister told another place, at column 1196 of the Official Report for last Tuesday, that:Germany does not have strict liability. It has a state of the art defence, except for pharmaceuticals".
§ 5.29 p.m.
§ Lord BESWICK
My Lords, I was going to say that I was glad to follow the noble Lord, Lord Mottistone; I suppose I might add the words "at last". I am particularly glad to be able to follow him because I find myself so much in agreement with his general attitude and approach. Of course, I should also like 1418 to join with him in thanking the noble and learned Lord, Lord Fraser of Tullybelton, for the way in which he presented this report. The noble Lord, Lord Mottistone, said that he had an interest to declare and probably, in view of one or two of the things that I will say later on, I should say that I do not any longer have an interest to declare.
Paragraph 1 of the committee's report tells us that the directive relates:to the approximation of laws, regulations and administrative provisions of the Member States concerning liability for defective products".In other words, again we are up against our old friend, harmonisation. I believe that the case for harmonisation in this area is not conclusively made out. I understand that the directive is based on Article 100, which declares that there shall be no distortion of competition within the Community; it is thought by some people that there is a distortion because of the differences in the legal provisions with regard to defective products. However, as I say, this case has not been conclusively made out and, indeed, despite what the noble and learned Lord, Lord Scarman, said, in paragraph 10 the committee itself states that no evidence was furnished by the Commission which proves that competition is distorted. The noble and learned Lord, Lord Scarman, said that there were strong arguments on both sides. I can only say that I have not heard them.
In any case, if there were distortions in some areas of Community activity, it would seem to me that, as the noble Lord, Lord Mottistone, said, we should be very careful indeed before applying legal provisions equally and inflexibly across all the industries and all the services within the Community. Life is much too complicated for that. The noble and learned Lord dealt with some of these complications, but I confess that I was not convinced by him that it will be possible easily to find a solution which would sort out the various complexities and complications that exist within given industries, let alone between one industry and another and between one service and another within the Community. There are these special features and factors and many of them can be justified—they are well founded. I suggest that we should not easily override them by some directive from Brussels.
1419 I have in mind the effect that the directive, unamended, could have on the aerospace industry. Few, if any, industries spend a greater proportion of effort and resources in research, innovation and change. Few industries—and I can think of only one—have a greater potential for doing damage if anything did go seriously wrong. But I would also say with confidence that few, if any, industries take greater care than the aerospace industry in testing, checking, rechecking, quality control and certification. Certainly there are committees in the case of the drugs industry, but so far as I know there are no established certification bodies in any other industries as there are in the aerospace industry.
I understand that on behalf of the industry the Society of British Aerospace Constructors have stated that they are prepared to accept the principle of the reverse burden of proof. I should have thought that that was a very considerable concession. But to go further than that and to say that in all circumstances, whatever the fault and whatever the care taken, strict liability should attach to the aircraft manufacturer, is surely to go too far. I would suggest that it is going too far for a number of reasons. The possibilities of insurance in this field are especially limited. The noble Lord, Lord Airedale, mentioned some of the difficulties, but they are particularly so in the case of the aircraft manufacture and operating industries. An aircraft with an operating life of 15 or 20 years could not be insured against the risks which we are talking about for more than one year or possibly two years at a time, and even then not on an open-ended insurance of the kind which strict liability would entail.
I believe—as noble Lords have said and the noble Lord, Lord Mottistone, made this point particularly impressively—that the question of the ultimate consequential cost to the consumer in many industries is important; and it possibly outweighs the probable benefits of the extra protection which this directive would make available. That cost should be taken into account when decisions are taken. But in the essentially innovative industries, like aerospace, I suggest that the consequences could go further, and the possible penalties or the risks facing 1420 the producer if strict liability was applied could mean a serious slowdown—if not a halt—to further developments. Again, I would emphasise the special position of the aerospace industry in this respect. Strict liability could put a blight not only on the development of aircraft but on the whole range of products in which hitherto aerospace research has spearheaded progress.
The doctrine of spin-off is not so fashionable now as it used to be, but it should not be ignored. I recall many years ago the enthusiasts at BAC drawing up a list in alphabetical order of the advances, to us all that had taken place as the result of research in the manufacture of new types of aircraft. Perhaps I could refer to them just very briefly. Modern adhesives, which we all enjoy, owe quite a lot to the work that was done on the old wooden Mosquito aircraft. Going from A to B, if we look at modern bearings, again there have been great advances as the result of research in the aerospace industry. The lightweight carriages on the Victoria Line today are mainly the result of the work that was done on materials for aircraft. I could go on right through the alphabet, from tyres and textiles, right through to x-ray testing techniques and fire-resisting yarns at the end of the alphabet. It would be a penalty for the consumer and for society as a whole if that sort of work was discouraged. I suggest that we should be very careful before we appeared to be discouraging it.
I understand that the proposed directive has been the subject of a communication by the French Government to the EEC. My understanding is that the French Government have said that if it is applied unamended, without taking into account the "state of the art" argument, it would have a stultifying effect on the aerospace industry. They have asked that the industry should be excluded from the provisions of the directive. I very much hope that the noble and learned Lord who is to reply for the Government will be able to give an assurance that Her Majesty's Government will take a similar line to that taken by the French.
I should like to ask the noble and learned Lord two incidental questions, which he may be kind enough to answer. Given strict liability, what is the position 1421 of the Government in this matter if a Government agency—for example, the Civil Aviation Authority—has given a certificate of airworthiness for a particular aircraft type?. Is that certificate to have any weight? Are we to recognise it as being, as we have always thought it to be, just about as authoritative a judgment on the aircraft as it is possible to get? Or will that be disregarded if strict liability was to be applied to the products of this industry? Then I would also ask the noble and learned Lord about the Warsaw Convention and the limits placed upon liability by that convention. Would they be overridden if the directive was applied? I gather that speedy action is unlikely but in the meantime I should be grateful if the noble and learned Lord could answer those two specific questions.
§ 5.41 p.m.
§ Lord PLOWDEN
My Lords, the noble and learned Lord, Lord Scarman, said that this was a difficult and complex subject. If it is difficult for the noble and learned Lord, how much more so for the layman and the industrialist. But as an industrialist I welcome the statement on Her Majesty's Government's policy made in another place last week. It was right to take time to come to a conclusion. Industry in general, and the CBI in particular, are glad that their representations have been taken into account in spite of the persuasive and lucid arguments against them in various official reports—those of the Law Commissions and the Pearson Commission.
If I understand it rightly, the Government have decided to seek a régime which would be common throughout the Community and would be based on strict liability, and which would incorporate a "state of the art" defence. It has reserved a final decision until the precise nature of the régime has been clarified in further negotiations. We are still, of course, in the early stages of negotiation in the Community. Therefore, I would seek only to elucidate two major points in the Government's policy; namely, "strict liability" and the "state of the art" defence. I believe that if these points are properly and adequately dealt with, then the many detailed points such as the 10 year cut-off period, the limits of liability, the position of component manu- 1422 facturers, and so on, will be comparatively easy to deal with.
Strict liability, so I am advised, means "liability without proof of fault". It does not mean that the question of fault is irrelevant. Yet the draft directive, as I understand it, is based on the concept of "liability irrespective of fault", in which case the question of fault quite clearly is irrelevant. Some of the admitted absurdities in the probable consequences of the directive arise from this approach. The problems of printers were extensively ventilated in another place last week. It is possible—no one quite knows—that a printer, if he exactly reproduced information which was incorrect due to the fault of another, would himself be liable under the terms of the directive.
Again UNICE, which is the organisation representing industry at the EEC level, to which the CBI belongs, was told by no less a person than Commissioner Davignan of another example. A component manufacturer who makes to the exact specification laid down by the person ordering it a component which subsequently turns out to be defective because of a defect in those instructions would himself be held to be liable despite the fact that he had done everything that could be expected of him. That is something which seems contrary to justice and equity.
These two examples I have given show that liability irrespective of fault can have the result of transferring liability from someone who is at fault to someone who is not. Surely that cannot be right, nor indeed acceptable. But I do not believe that it can be satisfactorily corrected by introducing a whole series of special rules for printers, for component manufacturers, or for the aircraft industry, as the noble Lord, Lord Beswick, has suggested. It must, I submit, be put right by getting the approach of the directive changed. I should like to know, when the noble and learned Lord replies to the debate, whether that is what the Government mean when they say they will aim at achieving a strict liability system.
Now let me turn to what has been described as the "state of the art". That is a phrase which seems to convey different meanings to different people. I hope that the Government share my understanding and that of the CBI, which 1423 is that a defence based on "state of the art" would have two important aspects. First, it would prevent any element of retrospection, of liability for the unknowable, which is the single most objectionable feature of the present draft directive.
Secondly, it would enable the definition of "defect" or of "defective" to recognise that an element of judgment, or of compromise, is always present in cases concerning the design of a product or the warnings and instructions which accompany it. It would always have been possible, looking back, to have made a product safer, or to have provided more comprehensive warnings or instructions. However, to have done so might have introduced other dangers, it might have put up the price of the product unreasonably.
The noble and learned Lord, Lord Scar-man, suggested that if all the members of the convention were to have a common law then this would not matter. But to the best of my belief there are 21 countries in the convention—or is it 25?—but there are many other manufacturing countries in the world, notably the United States. Therefore, I do not think that that is an argument which carries much weight. Indeed, if we go back to the question of instructions, it might have resulted in a formidable body of instructions so long that in practice few people would have read them.
I submit that this element of reasonable compromise must be recognised in any eventual legislation, as the United States Model Uniform Law recognises. The noble and learned Lord, Lord Scarman, seemed to suggest that it was different in the United States. It would be different here and we need not worry about what has happened in the United States. But any industrialist who has sold things in the United States is well aware of the full horrors of what has happened with this product liability legislation that exists there now. As a result, the US Model Uniform Law intends to modify it. I hope that the noble and learned Lord will say that the Government have this point firmly in mind.
Finally, last week in the other place the CBI was alleged to have given details of the estimates of what insurance would cost. I asked them for details of those costs, and 1424 they assured me that no estimates had in fact been made by them since there are no firm bases from which to start. Insurance premiums for a fixed amount of cover are based on turnover and, of course, on the products involved, so that a premium figure which will buy one manufacturer a certain amount of cover is of no great relevance to another manufacturer.
Again it is possible, working on the basis of the estimates which insurers have made on possible increases in premiums which would follow the enactment of the draft directive, to make some estimates of the extra insurance premiums which would result for industry as a whole. But these figures are highly speculative, and, of course, relate to only one part of the extra costs which industry might have to incur. Industry and the consumer organisations do, of course, accept that extra costs, for instance for record keeping, monitoring, and so on, will be involved in any move towards a stricter form of liability than that which exists at present. If the law is a reasonable and balanced one, then the costs should also be reasonable.
The Government have decided to seek to achieve a reasonable balance and as an industrialist speaking on behalf of the CBI, I welcome that decision. I wish them every success in persuading our European partners to take the same view and I hope they will resolutely stick to the two main points in their announced policy, namely strict liability and the "state of the art" defence. Industry in general and the CBI in particular is very ready to take part in any consultations aimed at a successful outcome of the Brussels negotiations.
§ 5.51 p.m.
§ Lord ALLEN of ABBEYDALE
My Lords, I wish to add my thanks to the Select Committee and to the clear exposition we had from its chairman, the noble and learned Lord, Lord Fraser of Tullybelton. This is a very important topic. We debated it about a year ago and no doubt we shall be debating it again in future Novembers. I spoke at what I now see was some length when we debated the matter last November and I certainly do not propose to say all over again what I said then, but there are a few comments I wish to make speaking in the main as a member of the Pearson Royal Commission.
1425 We on the Royal Commission had quite a lot to say about the operation of the system of tort or delict and about how some of its deficiencies might be tackled, and ever since we reported I have been hoping there would be some evidence that someone had actually read our report, but that hope is diminishing with the passage of time. Whatever the arguments about tort in general, all of us felt in no doubt that the protection of the consumer injured or killed by defective products was far from satisfactory and that one did not have to be a rampant consumerist to reach any such conclusion.
The housewife who buys a tin of salmon and then suffers from botulism poisoning can probably establish her rights under the law of contract. But the members of the family who eat the stuff at the same meal have to depend on establishing an action in tort and have to embark on the hopeless task of proving that somewhere along the road someone was negligent. The Royal Commission thought this position was quite indefensible and welcomed the approach in the draft EEC directive and the Council of Europe convention in the direction of strict liability subject to certain specified defences. I would explain to the noble Lord, Lord Airedale, that we contemplated that the injured person would still have to show that the product was defective, that the injury was caused by that product and that the defendant was the producer of the product.
I was glad that the noble and learned Lord, Lord Scarman, placed such emphasis on the desirability of doing nothing which would preclude our acceding in due course to the Council of Europe, the Strasbourg convention and, for reasons I shall come to shortly, it is a matter of great regret to me that the Government seem to be set on a course which would achieve precisely what the Select Committee recommended should not be achieved, and that is to make it impossible for us to accede to the Strasbourg convention.
The debate has shown clearly that there are a variety of points on the draft directive. Like earlier speakers, I propose to be eclectic and pick out for brief comment four points before coming to what I regard as the main issue and difficulty, the one of development risks. 1426 First, for what my views are worth, I agree that the article about putting limits on the amount of damages which may be awarded against a producer is both defective in its drafting and I think also in its principle and could produce inequitable results. I should like to see it out or at any rate dealt with on the lines it is dealt with in the Strasbourg convention. Secondly, I go along with the view that the convention should not apply to property. This was an issue, as it happened, outside the terms of reference of the Royal Commission, but that need not preclude me from expressing the view that such a provision should not have a place in the directive and that the Strasbourg convention is here in the right.
Thirdly, taking up a point touched on by my noble friend Lord Plowden, I still think that, in spite of all the problems, the producer of components should remain strictly liable, and I would go along with the directive and the convention on this issue, although in view of the opposite line taken by the Scottish Law Commission, it will be interesting to hear what the Lord Advocate has to say on this when he speaks. Fourthly—a point which has not been touched on much—it seems to me very important not to underrate the significance of the responsibility which should rest on importers of products which prove to be defective and cause injury or death. The poisoned tin of salmon to which I referred—the case was not altogether hypothetical—came from Canada. The point about importers is one about which I feel fairly strongly at the moment because of the frustration one experiences in finding articles in the shops which are actually produced in this country and not in, say, Taiwan.
But the most important issue, to which a number of noble Lords have referred, and the one on which I think in the end the directive will stand or fall, is the issue of what the Royal Commission and the Select Committee describe as "development risks". I cannot bring myself to use the phrase "the state of the art", which seems to me a singularly unfortunate phrase, although I realise it is now becoming a bit of accepted jargon. On this question of development risks, the Select Committee, as the noble and learned Lord, Lord Fraser—who I hope did not arrive in this Chamber in a Fraser Nash— 1427 made clear, was sitting on the fence, and the noble and learned Lord, Lord Scar-man, said the matter was very finely balanced, though he went on to give his personal view that that was a defence that should not be allowed. I propose to take the plunge and say I am not sitting on the fence at all; I do not think the arguments are finely balanced and I come down firmly on the side opposite that on which the noble Lord, Lord Mottistone, came down.
When we debated this topic a year ago the Minister, the noble Viscount, Lord Trenchard, said at column 451 on 28th November thatit is not Conservative Party policy that we shall accept the state of the art defence".We understand from what was said in another place last week that everything is now different and that it is indeed Government policy to do just that, and to seek to get the EEC directive amended accordingly. But there is the difficulty that some other members of the Community already have strict liability without any defence for development risks. There has been reference to West Germany, and I will not argue about the statement made about its position overall because I do not know enough about it. What I do know is that West Germany introduced this strict liability, without such a defence, specifically for pharmaceutical products, which perhaps is the most difficult area of all, with all respect to the noble Lord, Lord Beswick, following the thalidomide tragedy.
What I do not know is whether the Government are expecting France, Germany and Luxembourg to turn back the clock to meet our convenience or whether they expect that the British view will prevail for the directive but that the defence of development risks will still not be made available under the domestic law of certain of our partners. If the Government are proceeding on the latter assumption there seems to me to be a distinct probability that this country, with perhaps Italy, might in the end become the sort of testing ground for new products and the British, as The Times put it the other day, be turned into the guinea-pigs of Europe. But, on any basis, I cannot see at the moment any escape from the conclusion that the decision taken by the Government in this regard means that they 1428 have determined that we are not going to accede to the Council of Europe convention since that convention, as I read it, does not allow such a defence. This seems to me a decision of very considerable significance.
On another point, quite a lot has been said about the cost of insurance. I do not really want to add very much to what the noble and learned Lord, Lord Fraser, and the noble and learned Lord, Lord Scarman, have already said, but perhaps I could put on record that the Royal Commission, for their part, thought that the fears of excessive cost were much less justified than some of our witnesses had suggested. Not very long ago the Director General of Fair Trading said he thought that the concern of British industry in this regard was largely unfounded, and the Minister for Consumer Affairs herself said in another place on 16th June—column 1107 of the House of Commons Hansard—that she was certain that some of the estimates of insurance costs had been greatly exaggerated. One or two noble Lords have said there is an absence of figures, but at any rate we do have one figure from West Germany. The insurance industry there calculated that the cost of introducing strict liability for pharmaceutical products added a cost of five pfennig in every 10 Reichmarks of turnover; this is a percentage of one-half of 1 per cent.
There have been one or two references to the USA. I think the problem of drawing analogies is extremely difficult, given the very real differences which exist between us in our legal and social systems, including the facts of the lawyers acting on a contingency fee basis and the award of damages by juries, although I can well understand the concern of any industrialist who has to trade a good deal in the United States. But I would make the point that, although it is perfectly true that the federal Government have produced a new model Bill and commended this Bill to the states, and although as I understand it there is currently a federal Bill in the House of Representatives, it is equally true, as far as I know, that not a single state legislature has so far touched the draft Bill.
Coming nearer home, we should not forget that in recent legislation we have already gone some little way down the road of strict liability, especially under the 1429 law of contract, without the defence of development risks and without the skies falling in. Obviously it would be absurd not to recognise that there are powerful arguments to be advanced on behalf of industry, in particular perhaps the risk of putting a brake on innovation, although I have seen those who have been unkind enough to suggest that perhaps people here may be not quite so keen on using novel products once they realise that they are not going to get any compensation if things go wrong. But in the end, and it looks as though this is a long, long way ahead, the question is whether these arguments on behalf of industry are not outweighed by the counter-argument that it is wrong that it should be the individual consumer who is not covered by the law of contract who is required to bear, without remedy, without compensation, injury caused by defects in products which were bought in the full expectation of reasonable safety.
The Royal Commission—we were unanimous on this—concluded that the balance was clearly on the side of putting the burden on the manufacturer who is, after all, marketing the products for profit and can muster the resources needed to insure, if need be, by small price increases spread over the whole body of consumers. The Government, alas, prefer to put the whole burden on the ordinary citizen who has no such resources and, as the writer of a letter in The Times today puts it, is not really in a position to produce expert witnesses in court to counter the expert witnesses produced by the manufacturer.
On reading the winding-up speech by the Minister for Consumer Affairs last Tuesday—in particular, I am looking at column 1193 of the debate on 4th November—I am not sure whether the hope is to alter the directive so that the defence of development risks will be available but also to legislate here so as not to exclude from compensation victims of a tragedy like that of thalidomide, even at the stage of that tragedy when no woman who took the drug had any reason whatsoever to suspect that there was any risk. If that is what is intended I hope that when the noble and learned Lord comes to speak he will be able to tell us how such a miracle of reconciliation can be achieved, because I for one believe that the two aims are fundamentally irreconcilable and that, 1430 with this defence allowed, the whole purpose of the directive to get away from the need to prove negligence is seriously undermined.
The Royal Commission was set up very largely because of the thalidomide tragedy, and I wonder if the parents who settled for some percentage of what they could have obtained in court proceedings, if the court proceedings had been successful, would altogether go along with the noble Lord, Lord Mottistone, in regarding the matter as having been satisfactorily disposed of. I wish, too, I could share his optimism that no tragedy on similar lines—though heaven knows we hope not on the same scale—is likely to recur. After much thought the Royal Commission made proposals aimed at avoiding a possible repetition. I fear that I can say only that it is a matter of great regret to me that the Government's considered decision that such victims ought not in law to be entitled to be compensated by the manufacturers means that we have failed.
§ 6.10 p.m.
§ Lord AUCKLAND
My Lords, I should like to join in the thanks extended to the noble and learned Lord, Lord Fraser of Tullybelton, for having enabled your Lordships to discuss this very important subject. It is a highly technical subject for someone who has been to the EEC countries only once and who is not a member of the Select Committee. However, I have a small interest to declare in that I have spent most of my working life in the insurance industry, though with very little experience of product liability itself, and I suppose that if one is looking at the matter from the insurer's point of view there can be fewer more contentious items in the field than product liability and the amount of litigation which can ensue therefrom.
From reading the report it seems to me that we must strike a balance between the very great care taken by most manufacturers, whether of chemicals, pharmaceuticals, aircraft, or other products, and the risks that are applicable to the consumer in these advanced technological times; and the subject of consumer protection has been debated in your Lordships' House on many occasions.
I should like to say a few words about the chemical industry. I have no interest 1431 to declare as to being employed by the industry, but for several years I have been a member of the all-party parliamentary chemical industries group and I have attended a number of seminars addressed by authorities from the United Kingdom and from Europe. In the chemical industry products are subjected to considerable market research and an extensive amount of further development. I think it is quite right that the Government—as I understand from the debate in the other place on 4th November—have accepted the premise that if genuine efforts have been made to recall a product suspected of being, or known to have been, defective, a claim in law will not be constituted. I realise that that is a very technical point. Whether it be in the chemical industry or in any other industry, bearing in mind the degree of sophisticated research and the proliferation of new products on the market these days, it is essential that the closest possible researches are made.
Reference has been made by the noble Lord, Lord Allen of Abbeydale, to the thalidomide tragedy, of which many of us have very sad memories—and always shall have. I think that the lesson learnt from that tragedy is that where a drug is produced in a country other than that in which it is marketed most, the research carried out on it must be very careful indeed. I hould have thought that with, the advent of the medicines Act and other legislation a repetition of the thalidomide tragedy, and all the problems emanating from it, is not likely to occur.
Of course, consumer protection is of major importance, but there is the problem as to how far one can protect, no matter how many directives are issued. So often when a product is marketed and retailed the consumer does not bother to read the large print, let alone the small print, and it seems very unfair that in that event the producer of the product should be made liable. Here again the chemical industry has taken all conceivable precautions to ensure that inherent dangers are highlighted. There is the example of road transport. There was a terrible tragedy a few years ago involving a woman who got out of her car, and unfortunately a lorry carrying a very powerful chemical came to a halt, or did 1432 something of the kind, and the woman met a terrible death. But since then a number of very important protections have been put into force.
This debate is very much for the expert and very much for those, unlike myself, who understand EEC law and the law as a whole. It is a subject of major importance and anyone who is concerned with industry or commerce, which is likely to be involved with the subject of product liability must regard a debate of this kind as very important; and surely it is to be warmly welcomed.
§ 6.18 p.m.
§ Lord HALE
My Lords, so much has been said, and said so ably and so fully, that there is little left to add, except some doubts of my own. But I can give the noble Lord, Lord Allen of Abbeydale, the assurance for which he asked: I have read the Pearson Report. I have read it with admiration. I have read it, believe it or not, my Lords—and this I think for the first time in my life—almost with enjoyment. It is extremely well written. It has a special clarity. It is extremely expensive, and one always feels a little better of an expensive book if one has not had to pay for it; and I doubt whether a better job has been done. We all regret that its principal author is no longer with us.
I agree with the noble Lord, Lord Allen of Abbeydale, in his querying the term "state of the art". I think that it is one of those expressions that came from the United States of America, and which seem to have their own characteristic defects. After all, we are talking about the sale of black puddings, and I do not think the "state of the art" necessarily refers to the skill of a meat boiler in Bury, Lancashire, according to Mr. Stanley Holloway, who has composed a complete record about it; but there are, I think, real doubts as to how it is going to work.
The noble Lord, Lord Airedale, introduced the familiar ladder, and with the familiar ladder there is only one advantage so far as I am concerned and that is that it introduces for the first time in eight years the only subject on which I feel more fully informed, probably, than any other Member of the House. I have fallen off them in my youth and I have clung 1433 desperately on to them through the last eight years of my life, until my son and daughter laid down an absolute ban upon the procedures. But the present difficulties about the ladder, the special defect under the Sale of Goods Act, which would have delighted Charles Dickens, really have got to be understood with some qualification, and the question of defect does, I think, need rather more definition in this special case.
To start with, ladders which were customarily made of wood and varied considerably with the nature of the wood, the state and age of the wood, and indeed with where it was stored, how long it had been rained on, whether the wood had swollen, and so on, now are being very rapidly replaced by aluminium ladders. Aluminium is, I believe, cheaper than wood, though I am not sure that the retail price reflects that difference at the moment. Aluminium is light, it is usable, and it has the defect that it is perhaps a little more liable to blow over in the wind, and if you happen to be on it when it blows over in the wind your fate is very similar to when you break a rung or a lower rung comes out. An accident can be an extremely unpleasant thing. But I do not think that really can come in, except under defined circumstances, as a liability. If the defect is there at the time of the sale and if the defect does its deadly work, and within a very limited period, then I think it will come within the Act.
Other speakers have expressed their apprehension at the fact that some few details and some few specifications have been available for special cases within the Bill. I see no difficulty in that, I see no objection to that, and if anyone can get over it by collective drafting, so much the better.
My Lords, it was unfortunate, perhaps, as I think happened even in another place last week, that many Members were thinking in terms of thalidomide, which is not a very good example from either point of view. It is an imported product. It was said that an action for damages for negligence could not succeed. I find it very difficult to think that that was true all along the line. I can well understand people coming to the conclusion that that might be the position. I can well understand the solicitors of the Distillers' organisation advising them to fight, if 1434 we are dealing solely with liability and I without emotion; but the accumulated evidence, the accumulating facts, really, I think, meant that that action could succeed and could have succeeded under our own interesting law. In the event, of course, it is a remarkable case.
My Lords, may I refer, from memory, to a case I had not intended to refer to and do not intend to bear on—indeed, one which is still a matter of dispute. In Michigan—and this is a precise example, dealing with the case of agricultural products—a rather small firm, not very impressive either in its appearance or in its record, was producing two forms of drug, two of those many hundreds, or even thousands, of drugs that can now be produced on the basis of quantative rather than qualitative analysis; and, of course, there was the discovery of the man I have frequently referred to in this House as the real man on the Clapham omnibus. One of these drugs was being sold for the purpose of making, or claiming to make, woods fireproof, really for the fireproofing of furniture, of which there was some evidence of success. The other was something to add to the corn products of the area to make them more palatable—a more useful and beneficial food for cattle and everything, for most farm animals and birds.
All went moderately well until one day the producing firm ran out of the sacks that were specially made to house the product. They rapidly improvised paper packages, rather like concrete bags, and wrote on them a protective description giving a certain amount of warning to whoever used them; but they forgot that the protective description would not help the negro worker who could not read or write, who had defective sight and who was being directed to put these notices in the appropriate bags. He did not do it. They were distributed round a considerable area of the State of Michigan, and within a week or two men, women, children, animals and birds were suffering from a form of wasting poisoning which the highest medical opinion now says is one of the rare poisons that are proof against the normal metabolism and which can operate throughout one's life and pass to one's children, who will quite likely inherit the same inability to profit physically by the normal metabolic changes.
1435 That is what happens when people decide to put things on the market early. I beg your Lordships to reconsider these observations—the noble Lord, Lord Airedale, I am afraid, for once, was guilty of them—that many people may well be tempted to put drugs on the market early.
My Lords, I had not intended to say more about drugs but, of course, penicillin is the other example. I had the privilege of a rewarding acquaintance with Sir Alexander Fleming. I have said this before, I know, and I do not want to bother the House again; but what I have not said is that the real tragedy with penicillin came in the way in which it was used long after it was proved. The benefits to mankind of penicillin were largely destroyed by the wholesale administration of it for everything, until men, women and animals acquired a resistance. I see the noble Lord, Lord Plowden, nodding his head; I thought it was in dissent. Surely he recalls how this affected the war against malaria, for example. In our reaction against penicillin there was the development (I am not quite sure what the right word is) of the antibodies, or whatever they are, which meant that penicillin ceased to effect its purpose—and that history is undoubted, and proven.
Again, of course, in the area of this particular proposal we are dealing with the very special circumstances which prevail in connection with the making of poisonous drugs—drugs to destroy vegetation, either in war or in peace, but stronger in war than in peace—and these are problems which cannot be cured by the suggestions contained in the observations of the last speaker about small print and large print. Many houses today, and particularly houses that have lawns, gardens and so on, have a considerable variety of fairly deadly poisons which carry no warning and carry no analysis. I venture to say on a personal basis that anyone who has fought, as I have all my life, on the question of industrial disease, on industrial accident, and on the claims against producers that we are now discussing, will know the strength and the power of the resistance which is there—Dow Chemicals in America, and the great Swiss firm which we found in the 1436 end (it is not fair to say "in the end"; we found a little after the accident) owned the factory at Sevres are examples. They have very great powers of propaganda; they have very great influence; they can send out glossy pamphlets by the dozen. We had it, too, in the way of asbestos.
The noble and learned Lord, Lord Scarman, talked of contributory negligence. We have to remember that, at the time when I was a boy, contributory negligence was an absolute defence. Damages were not then shared out between two guilty parties; contributory negligence was a defence. I can understand some arguments for a plea of contributory negligence; but I agree entirely with the noble Lord, Lord Allen of Abbeydale, that there is really only one way of doing this effectively. The noble Lord, Lord Mottistone, referred, in terms which are quite familiar to me, to a harvest for lawyers. The harvest for lawyers comes when there are doubts in the Act, when there are matters for argument, and when there are obvious matters left not dealt with in the provision and the drafting. That is why I think it is extremely important that we should do this.
I come finally to an observation that I make tentatively and with hesitation. This is an EEC directive. I was on the EEC Committee of this House for several years, from its inception. I had the opportunity to see the wonderful work that was done by Lady Tweedsmuir, as chairman, which I regarded as one of the greatest Parliamentary performances I have seen in my lifetime. From the start, we were having difficulties about directives. In the initial stages a directive was something that we did not have to follow in absolute detail but which we had to follow. It involved a peremptory request for legislation. It was not quite so peremptory later on because delays became a very considerable feature of the matter, and one can well understand that.
My Lords, do the advantages of a series of directives in the Common Market, with all its difficulties today, outweigh clear and unequivocal legislation, especially when the Council of Europe's own convention already meets with many of the difficulties? I feel doubtful when I compare the observations of the Law Commission and the observations of the 1437 Pearson Committee with the rather scrappy bits of paper that come through from Brussels, the curious way of drafting amendments by issuing sheets of foolscap paper, and so on. However, I have spoken too long already. I do not regret it and I do not apologise, because this is a matter on which I have waited a long time to speak and on which I was anxious to raise at least some points that I propose to pursue.
§ 6.38 p.m.
§ Viscount HANWORTH
My Lords, I think this is a very difficult subject indeed, and I hope that we can keep it out of the emotional and party political field. First of all, I should like to pay tribute to the Royal Commission's report, which am sure most of your Lordships will know is a very worthy document at least two inches thick; but it has considered very carefully and without bias all the problems that this legislation raises. I should also like to say how excellent I think is the report of our Select Committee. I think it might be useful at this stage to look at what our present legislation is, and why we really must make some change—or logically should make some change.
We have first of all the law of negligence, and to date it has been necessary, in the case of a firm, to prove that they were negligent before one could claim damages. That has been virtually impossible, because one could not get the evidence—and do not forget for a moment that a firm can pay in a big way for the best legal advisers and, of course, can take the case to higher courts. But a more common or garden example is if you are riding as a passenger in a car. If you have an accident and are badly hurt, then, if you can prove that the driver was negligent, you can very often get immense damages; but if you cannot prove negligence you get absolutely nothing. So this in fact is a lottery as far as the consumer is concerned. It is like the pools. It does not do the average consumer any good and he probably never gets anything out of it. What are we trying to do? Are we trying to punish the manufacturer? Maybe that is part of it, but from any other point of view this is wholly unsatisfactory and largely historical. It is how our law has grown up.
1438 Let us take the Sale of Goods Act. This is very interesting because you have not got to prove any negligence at all; it is a question of contract. If I climb up a ladder on which one of the rungs is faulty and I fall down, I can sue and, if I am badly hurt, get substantial damages. On the other hand, if my family is climbing up the ladder—nothing. So there again we have a case of complete (or almost complete as far as the purchaser is concerned) liability—without any question at all, strict liability. So one can see that from almost any point of view that the law is not very satisfactory. I would maintain that what we are really trying to do is to take out an insurance for the consumer so that the people who are injured get compensation where they are injured in the sort of way which is bad luck. New Zealand has gone the whole distance on this and if you are injured there you get compensation. I do not think we should move too quickly because there are always side effects and, unless one has to move quickly, it is a good thing to see what they are.
I should have mentioned earlier, logically, another area where we have almost strict liability. That is the old Workmen's Compensation Act and, following on that, the regulations today. So we have accepted this principle in a number of fields. I can see that there is a problem in compensation and, because I am thinking of the consumer, I believe that one cannot accept the excessive damages which are sometimes awarded—and certainly not at the moment when, as I say, it is just a lottery. We have to consider insurance, and insurance must be able to assess the risks, so that we do not want something utterly open-minded. I think that here we might look at what happened in America where negligence has been pushed to an extreme by the courts so that a doctor who gives a wrong diagnosis or treatment which maybe could have been better is claimed to be negligent. According to our meaning of the word "negligent", he was not negligent at all. But the damages there are so enormous that it is costing the consumer something like 25 per cent, on the doctors' fees; and I am not sure that it is not a good deal more.
A word about the defence of the state of the art. This, I know, is questionable, but I think the manufacturers are tending 1439 merely to say, "Rule this out of court straightaway". But if you look at it my way, which is primarily that of the insurance policy for the consumer, I do not think you should rule it out. There are several arguments for not allowing a defence of the state of the art. If other European countries do not have it then we, as members of the EEC, could well become the guinea-pigs of Europe. We do not want that. Then I think we must come back to the question of thalidomide. Nearly everyone says, "Yes, they were right; compensation had to be paid". All right, but then you have to find an answer. You cannot simply sit back and say, "State of the art" and all the rest. That sort of thing might occur.
Then, of course, it negatives my personal feelings (and I think I am utterly logical) about the benefit to the injured person. What we are really doing in many cases if we do this is restoring once again this ridiculous idea of negligence. So, on balance, I am not in favour of giving this to the manufacturers but I am in favour of limiting their liability. In the case of a new product there might be exceptions. I was impressed by the speech by the noble Lord, Lord Beswick, about the aircraft industry, and it could be that some other arrangements would have to be made. It needs thinking about. But I do not believe we should go forward and give this straight away as a defence.
Once again I would say that in all this we must at every stage look at the likely side effects. We can do this by looking perhaps in Europe to countries that have had rather similar legislation to what is now proposed and see what the effects are there. I will give one rather minor, unfortunate side effect, in my opinion, of the state in America. When you read the instructions supplied with a product they are umbrella instructions. You will get, as I got, with a rotary grass cutting machine, some 15 warnings of what you should not do, including, "Do not get off the machine when it is moving" and "Do not take a light near the battery just after it has been charged". All right, all those warnings could go in the instruction book. But what you want is three major warnings in bold type. If you give 15 what is the chance of the most important ones being observed? That is a small side effect that has come from America.
1440 All importantly, in my opinion, we must prevent this area becoming a lawyers' paradise. I am sure that people on this side of the House, at least, would say that what they want is that the consumers shall get their due compensation. And the more we complicate the law, the harder it is for them to do it. I think at every stage we should try to see whether we can make the legal situation clearer than it is at present. Every exception we make, particularly, of course, with regard to the state of the present art, I can see could result in days of useful debate for the lawyers.
§ 6.49 p.m.
§ Baroness SEEAR
My Lords, may I first apologise sincerely to the House because, owing to a prior engagement from which I cannot escape, it will be impossible for me to stay to the end of the debate. I apologise particularly to the noble and learned Lord the Lord Advocate who is to reply. Clearly we are at the beginning and not at the end of a discussion of this very complicated and important subject. Some of us certainly see the issue primarily as an issue to improve the position of consumers needing a defence in a complicated and developing economy.
I echo and for a moment develop the point made by the noble Viscount, Lord Hanworth. We are very much today, in regard to the defence of the consumer, in the position that we were in relation to the defence of the worker a hundred years ago. Your Lordships will remember that a hundred years ago we were moving from the situation in which the only defence the worker had against injury incurred at work was the plea under the 1880 Act of employers' liability that the employer was negligent. We know that that provided virtually no protection at all.
We therefore moved to the situation of the Workmen's Compensation Act 1896, under which there was no question that the employer was to blame in any way; blame was not being attributed to the employer. But the employee injured was entitled to compensation simply by virtue of the fact that his injury arose out of and in the course of his employment. That is the position that we are in for the consumer today. The consumer cannot be adequately protected if he is only to be protected 1441 where the employer can be shown to be at fault, because there are so many things that can happen which cannot be properly held to be the fault of the manufacturer or blameworthy in terms of what the manufacturer has done. But they none the less constitute a risk and can lead to serious damage to the consumer.
That is what we are trying to deal with. This is why I do not accept—and I agree with noble Lords who do not like the English grammar—the "state of the art" defence. The state of the art defence really is bound up with the idea that there should be no liability unless there is blame attached, however modified that blame may be. That is what we are arguing about, whether we are saying that we are looking for a way—recognising that it is extremely difficult to find—which will give adequate protection to consumers. Of course the answer that we get—and I understand this very well—is that in trying to give adequate protection to the consumers we are dealing unfairly with the manufacturers.
The issue appears to be: How can we I meet the primary aim of protecting the consumer while not putting the manufacturer at undue risk? Here surely there is room for considerable discussion and negotiation with those people, the Commission, who are drafting the directive. Considerable discussion has still to take place about this before we get a really acceptable directive. I know that the noble Lord, Lord Allen of Abbeydale, suggested that this would not be equitable, but I suppose if we can get rough justice in this matter we are doing pretty well. So rarely does one get justice of any kind that rough justice is usually an advance. Some limitation to the absolute liability would not be something unreasonable to propose; that the sky should not be the limit. We certainly do not want the ridiculous claims and settlements that have characterised the American application of the principle of consumer protection.
Another way in which the manufacturer surely could have a strong defence and a mitigation of his liability could be where it has been shown that he has applied recognised standards. Here I speak with an interest because I have a close connection with the British Standards Institution (which, incidentally, has come out in 1442 favour of this approach to consumer protection) that if recognised standards have been applied, this should be argued by the manufacturer as some mitigation of his liability, that this would encourage the introduction of standards and the improvement of the level of safety work that is undertaken. This may not be entirely compatible with the idea that the employer is not to blame. I think that is what the Minister is going to say. But surely we want to use this legislation as an instrument for encouraging the better application of higher standards in manufacturing than we have had up to the present time.
The only other point that I want to make is this. I am most surprised that it has been suggested—and I say this humbly because I think it was the noble and learned Lord, Lord Scarman, who made the suggestion—that certainly there was some doubt as to whether this was an appropriate subject for an EEC directive. But surely if one country is going to apply this kind of legislation, if one country in mitigation of the liability of the employer, for instance, is going to encourage as we want them to encourage the spreading of the risk and therefore insurance costs, then this affects the competitive position of that particular country. Anything that affects the competitive position of the country—which giving greater protection to the consumer is undoubtedly going to do—is something which should be the subject of an EEC directive in order to ensure fair competition between manufacturers in different countries of the Community.
Therefore for this reason it seems to me that this is an appropriate subject for a directive; that the objective of protecting the consumer without blame to the manufacturer is something that we must pursue because, as other noble Lords have made clear today, the present position of consumer protection is no longer acceptable. But the directive as it stands is not really adequate and a great deal more work and negotiation needs to be done in connection with it.
§ Lord MISHCON
My Lords, I join with others who have paid tribute to the noble and learned Lord, Lord Fraser of Tullybelton, for his introduction of this Motion, and for the clarity of his exposition 1443 of some of the problems involved in this draft directive. I have the privilege—although I do not speak in that capacity this evening—of being a member of the Law Sub-Committee of your Lordships' Select Committee which is responsible for the report now before us. I therefore add to what I have already said a word of personal thanks to a most efficient and ever-courteous chairman. If I may say so, the sub-committee indeed deserves well of your Lordships.
Both noble and learned Lords who have spoken in this debate have drawn attention to specific points out of the many made in the report in regard to this draft directive. They are very important points and they merit the closest attention. I have counted well-nigh 30 of them. They include questions of intra vires, briefly referred to by the noble and learned Lord, Lord Scarman; the definition of the word "article"; what is or is not supposed to be a primary agricultural product; who is or is not supposed to come within the definition of "producer"; whether or not the safety of property is meant to be included in the definition of "defective"; the defence of "assumption of risk"; the appearance now in the directive of the defence of contributory negligence; the query as to whether Article 6(c) can be construed as including damage for pure economic loss; very practical questions arising on the limitation of liability which the noble and learned Lords, Lord Fraser and Lord Scarman, developed; the concern over the precise meaning of "identical articles", which the noble and learned Lord, Lord Fraser, dealt with; and the urgent need for a full revision of Article 7, in regard to which the noble and learned Lord, Lord Scarman, quoted with approval the stringent comments of the Law Society, of which I am privileged to be a member.
Then there was reference to the difficulties posed by the proposed cut-off period, and a look in this connection at the United States model act to which the noble and learned Lord, Lord Scarman, referred in broad terms; its provision of "usual safe life"; the divergencies between the directive and the convention and the relative advantages of the convention, again referred to by the noble and learned Lord, Lord Scarman; and the 1444 possible advantages of introducing a guarantee scheme to which I think the noble Lord, Lord Airedale, was possibly referring; and various—to use Lord Fraser's elegant phrase—"drafting infelicities".
Most of these matters have been referred to in the course of this debate in which some of your Lordships, including the noble Lord, Lord Plowden, and others, who are distinguished experts in various fields of our national life and industry, have made such worthwhile contributions. They will, I am sure, be taken on board by the noble and learned Lord the Lord Advocate.
In attempting to sum up this excellent debate on behalf of the Opposition, as I had the honour to do from this Dispatch Box precisely a year ago when we were debating the Pearson Report on a Motion of the noble Lord, Lord Allen of Abbey-dale, whose contribution then was as notable as his speech this afternoon, I feel I should concentrate on a few important items which arise from our own consideration of the draft directive.
The first point is—and this is my comment on the contribution made by the noble Lord, Lord Airedale—taking it for granted that we have the definitions right, the language clear and the practicalities ironed out, ought the Government to go ahead and in the Council of Ministers support the broad principle of strict product liability as generally propounded by this directive? It has been said again and again—and this report emphasises it—that over a period of years the English and the Scottish Law Commissions and the Pearson Commission have separately examined this issue in the greatest possible detail and have said unequivocally that our law is defective and that the consumer, not being the direct purchaser, safeguarded as that purchaser is by the law of privity of contract, the Sale of Goods Act and other statutory enactments, is unfairly and wrongly disadvantaged in having to prove fault in addition to defect and damage.
On a broader front, the European voice has spoken through the European Convention—the Strasbourg Convention as it is known—and the draft EEC directive, and has said the same. As the report I says, and as the noble and learned Lord, 1445 Lord Fraser, emphasised in his opening speech, there is surely no point in going again into that general issue. The concept to us and in our law is in no way revolutionary since, as has been said so frequently this afternoon, we already have strict product liability where there is privity of contract and a direct relationship of vendor and purchaser. The noble Lord, Lord Airedale, will forgive me if, sitting where I do, I am not anxious, to use the phrase of the noble and learned Lord, Lord Scarman, to put the legal clock back in this case for about 100 years, but rather concerned to set it for the future.
One moves to a rather more difficult issue when seeking to apply this principle of strict liability, of liability irrespective of being able to prove "fault" or "negligence", where there is a defect resulting in damage. We owe a duty to act justly and equitably to consumers—right as it may be that they should be protected, as innocent sufferers, from a defective product—but we must also sensibly balance this with a duty to be fair and reasonable to our industries, and to all industries, whether it be the aerospace industry in regard to which my noble friend Lord Beswick spoke with the authority he always commands and, if I may say so, always will command, or the food industry where the noble Lord, Lord Mottistone, speaks with such knowledge and experience, or in the pharmaceutical and medical fields referred to by the noble Lord, Lord Mottistone, and by my noble friend Lord Hale.
We must not over-penalise our industries, if "penalise" be the correct word, or overburden them so that they cannot fairly compete with their foreign competitors, least of all in a recession. We must not endanger initiative and innovation. None of us would sensibly want to do these things if this was really the effect of these proposals. But we must be sure that we are not being misled, however honestly, by those who would have us create exceptions or whittle down the strict liability concept by exaggerated claims as to the burdens which would be imposed.
In this context, I specifically refer to the defence for which the plea has in various places been made this afternoon: that of "state of the art" or, as the noble Lord, Lord Allen, so rightly said, to use a more 1446 homely phrase, "development risks". I would say to your Lordships that in the district of London in which I was born the use of the term "state of the art" would presumably indicate either a very serious medical condition or a very warm romantic disposition. But on the question of development risks, I would certainly tell the noble Viscount, Lord Hanworth, that he need have no fear in regard to the matter to which he specifically referred.
There seems to be no fixed political position in regard to the admission or not of this defence. The Solicitor-General in the last Labour Government said that he favoured the inclusion of this defence. The Government, in the debate on 4th November in another place on this directive, said that they similarly favoured this defence. The Opposition spokesman in another place, Mr. Fraser, indicated that he thought it wrong to include it. His honourable friend the Member for Widnes, Mr. Oakes, from the Opposition Benches, spoke in favour of including the defence. The honourable Member for Grantham, Mr. Douglas Hogg, whose relationship to a most distinguished and learned Member of your Lordships' House is not unknown, spoke from the Government Benches against the inclusion of the defence and he based his view on the natural evolution of our existing law.
If we are to make a balanced judgment on this issue it seems to me that we must have the facts. What really is the likely extent of the burden which would be placed on industry by the absence of this defence? In my submission, we would have to be satisfied that there would be a very heavy and unfair burden indeed before we admit a defence which, as the Pearson Report said and as the noble Lord, Lord Sainsbury, quoted so effectively, would—and I am quoting, just as he did—leave a gap in the compensation cover through which, for example, the victims of another thalidomide disaster might easily slip",and a defence which our Law Commission examined and would not admit, as indeed is a position of the Strasbourg Convention and this directive. The European Commission, in turning down a recommendation of the European Parliament in this connection said—and these are words which are quoted in the report before us—such risks are in any event extremely rare";1447 and I quote again:the effect would be to require the consumer to bear the risk of the unknown".My Lords, what is the likely additional cost of insuring against this particular risk? Would not many of us be convinced, whatever be the special, if sincere, pleading by those who represent various industries, if we found that the extra insurance cost could reasonably be borne and if necessary passed on to consumers generally, all our EEC competitors being in the same boat, that the balance must be tipped in that event in favour of the consumer? We know that otherwise the consumer will be met with very considerable difficulties and the possibility in any event of very expensive litigation in trying to disprove a producer's defence of the "state of the art". He may, most unfairly in the event, be left without a remedy, as so many of the thalidomide children would have been had it not been for the pressure on the Distillers of public opinion through the media.
As a contributor wrote in The Times this morning—the noble Lord, Lord Allen, referred to this in the course of his speech and, with your Lordships' permission, I will read it: it is only a few sentences and I think it ought to be read—If, however, the producer can plead state of the art in his defence he will have readily available a number of experts to show that there was no way in which he could have discovered the defect. The plaintiff will fail unless he has with him on his Clapham omnibus more convincing experts to show that the plaintiff's experts are wrong.This would reverse the reversal of the burden of proof and so remove the basis of strict liability, or at least emasculate the whole concept".A year ago, in the debate on the Pearson Report, the noble Viscount, Lord Tren-chard, replying on behalf of the Government, said—and I am reading from the Official Report of 28th November, 1979, at col. 453—I would say to him"—he was referring to a contribution by the noble Lord, Lord Hayter—and to other industrialists that I hope they will talk to insurance brokers and try to give information to the Department of Trade, perhaps with their insurance firms, on what the situation might be under the various proposals we are considering. That would be extremely helpful and I say that to industry in general and to the CBI".I ask the noble and learned Lord the Lord Advocate, when he follows me, to 1448 be good enough to tell us what information he has received in reply to the request of the noble Viscount, Lord Trenchard, about the likely insurance costs which would be added if the development risks remained both for industry in general and for those with specially high risks, such as we have heard of this afternoon. If the reply be "None", surely we may be entitled to be somewhat suspicious that this answer has not been given. I suspect that other Members of your Lordships' House are as misinformed about this as I am.
I suggest that we get little or no help from the American experience, in spite of what the noble Lord, Lord Plowden, said so persuasively. American juries award very much higher damages than do our judges. Americans are much more litigious as a people. As a legal practitioner I say that with, perhaps, some envy. Their medical expenses and expert fees are astronomically high. They also have an unfortunate system—as we professionally see it in this country—of lawyers often being paid a fixed proportion of the damages recovered by way of fees. Such evidence as I have been able to look at in Europe, however, leads me to believe that the cost would not be oppressive—certainly not in general cases.
The report before us has the following quotation at page 7, on which it is fair to say the British Insurers Association have raised a query, so far as it relates to insurance in respect of products with a heavy development risk potential. The European Committee of Insurers apparently told the commissioners,that insurance cover for these risks"—obviously, I am referring, as they did, to development risks—is not likely to lead to appreciably greater costs of insurance than those payable following the introduction of a liability irrespective of fault".
§ Lord BESWICK
My Lords, I wonder whether my noble friend will allow me to intervene for one moment? He has obviously gone into this very carefully. He has dealt with the question of cost, and he is rather suggesting that it is not a very important consideration. Can he now deal with those cases where I suggested it would be quite impossible to get insurance?
§ Lord MISHCON
My Lords, I hope that what I am about to quote will be of some assistance to those of us who really are trying to inquire into this matter, in order to obtain a proper judgment on this very important issue. I hope that my noble friend Lord Beswick will find this quotation of some assistance. Furthermore, I see from a document which I received yesterday—as no doubt did other noble Lords—from the national Consumer Council that,Given that the change in the law is not a considerable one, it follows that the costs, to be faced first by manufacturers and then by the consumers who buy their products, will not be large. And indeed all the available evidence suggests that they will be very small. European insurers gave evidence to the European Parliament of the expected additional costs. In every case but one they were a fraction of 1 per cent, of turnover. The only exception—where the cost of insurance might go as high as 1 per cent, exception—was explosives. In America—where awards of compensation are much higher than here—the Final Report of the Federal Government 'Task Force' noted that the average estimated cost of product coverage barely exceeded 1 per cent, in 1976 for firms operating in the high risk category".I pause there, because that was obviously the part of industry to which my noble friend was referring.
The document continues:The German insurance industry"—and I believe that the noble Lord, Lord Allen, referred to this—has estimated that the actual cost of introducing strict liability for pharmaceutical products, probably the most difficult area, amounts to 5 pfennigs in every 10 D.marks of turnover, again half of 1 per cent. In all of the conferences about product liability the message from insurers has been the same; it is difficult to estimate the precise extra cost until there is a precise piece of legislation, but all suggest that the extra costs are unlikely to have serious effects on the price of products and commonly it is suggested that any increase in insurance premiums for general engineering products is likely to amount to 0.1 per cent, of turnover. Such costs are tiny when compared to the amounts spent on advertising and promoting the same products".This may be right or it may be wrong, but I feel that unless and until the Government are satisfied beyond doubt that the costs incurred by and the burdens imposed on industry by not including the "state of the art" defence are prohibitive, they would be quite wrong to advocate the inclusion of this defence of the "state of the art", especially in general terms. Indeed, they will be flying in the face of the recommendations of our own commissions and their reports and will be 1450 asking for another thalidomide-like outcry in future years should—Heaven forfend!— another such tragedy occur.
Finally, I turn by way of comment to the, to me, frightening delays which occur, apparently of necessity, in the formulation and agreement of these EEC directives, and thereafter in regard to the date when they become effective. The Minister in another place seemed to be taking some comfort for herself and for industry from her statement to Parliament—and I quote from the Commons Official Report of 4th November 1980 at cols. 1108 and 1109—the negotiations will inevitably be protracted, and it is likely to be years and not months before the directive is adopted, let alone implemented".This means that justice for consumers here will be substantially denied them in law for several years to come.
We have already waited several years since the thalidomide disaster highlighted a scandalous vacuum, and indeed anomaly, in our law. The commission, which was set up largely because of that disaster, has reported long since and has recommended the alteration of our law to one of strict liability. So have our Law Commissioners. It is not one of the most acceptable aspects of our membership of the EEC that, because of that membership, consumers in this country will now, presumably, have to wait several years more before they have a proper right of redress. The noble Lord, Lord Allen of Abbeydale, concluded his final address in this House a year ago—and he was speaking as a member of the Pearson Commission—Our concern has been that the debate has been so slow in starting … At the end of the day, my Lords, I still cannot get out of my mind those thalidomidechildren".—[Official Report, 28/11/79; col. 459.]Apparently, those children will be middle-aged before there is legislation to deal with the unsatisfactory legal position to which their case drew attention. Is that not regrettable in the extreme and can we really be satisfied with such delays?
§ 7.20 p.m.
§ The LORD ADVOCATE (Lord Mackay of Clashfern)
My Lords, as has been made clear from the debate, this is a matter of great public importance and it has already been the subject of a number 1451 of investigations. I would draw attention particularly to the examination of the problem by the Law Commission and the Scottish Law Commission, following on a reference made to them in 1971. I was privileged to participate in the latter part of that exercise as a member of the Scottish Law Commission. Although there were differences in detail between the commissions, they agreed that the existing law, both in England and Scotland, was inadequate in this field and recommended therefore that an additional right should be created under which a victim injured by a defective product should be entitled to obtain compensation from the producer. They rejected the concept of a "state of the art" defence—that is their phraseology, so perhaps I may be permitted to use it, even though I remember that it could be open to misinterpretation in some quarters—partly at least because they thought that the producer would already escape liability in many cases as a result of the definition of "defective", while their recommendation was broadly but not exactly on the lines proposed in Article 4 of the latest draft directive.
Both commissions recognise the advantages which would accrue from the adoption of a common product liability régime over as wide an area as possible. Neither of them felt able, however, to recommend acceptance of the EEC draft directive as it stood. The Law Commission felt that the Strasbourg convention met all the main points which they would like to see in a product liability régime. We in the Scottish Law Commission, however, while acknowledging the value of the work done in Strasbourg, felt unable to recommend accession to the convention, which failed to meet our recommendations on a number of important issues.
The revised draft EEC directive meets many of the criticisms which both law commissions made about its predecessor. We should, I am sure, have been far less critical of the present draft than we were of the first draft, but I am reasonably satisfied that we should have shared the Government's view that the present draft as it stands remains unacceptable.
Apart from this, as we have heard, the Royal Commission, under the distinguished chairmanship of the late Lord 1452 Pearson, examined this matter very fully indeed. I should like to join in the very felicitous way in which Lord Hale expressed his regret that we do not have the advantage of the presence of Lord Pearson now. We regret his passing and pay tribute to the very distinguished work which he did as chairman of that commission. I was privileged to appear before it as a witness and I therefore pay particular tribute to Lord Pearson's courtesy to rather nervous witnesses. I should say that it was Lord Allen of Abbeydale who asked me the questions then, so perhaps that contributed to my state at that time.
The point of principle raised by the noble Lord, Lord Airedale, has therefore been examined by at least three commissions. I am sure that the House would not like me now to recite the reasons which led them to their conclusion upon this matter. However, I would commend the Pearson Commission's report upon the matter, and also of course the joint report of the two law commissions as expressing good reasons for wishing a change from the present system.
The Government's position on the directive was set out by my right honourable friend the Minister for Consumer Affairs during the debate on the draft directive in the other place on 4th November. A good deal of reference has already been made to that. Noble Lords from all parts of the House are aware of the Government's position and have referred to it during the debate. I believe the Government will take considerable encouragement from the expression of the noble and learned Lord, Lord Scarman, that the select committee of your Lordships' House has reached a view broadly in line with the Government position—not of course in detail but broadly in line with the Government position.
It may be convenient if I remind your Lordships of what that position is. In the first place, the Government have taken careful note of the support which a number of other member states have given to the principle underlying the draft directive. I emphasise that the support has been given to the principle rather than to the existing text. No member state, so far as I am aware, is prepared to accept the draft directive as it stands. The Government also readily accept that there 1453 would be many advantages in establishing a common system of product liability throughout the Community. It would clearly, for example, be helpful to manufacturers if the product liability régime was the same throughout the Community. The Government cannot take a final view on the introduction of a Community régime for strict liability until the precise nature of that régime has been clarified in further negotiations. Therefore, if I may, I would accept what the noble Baroness, Lady Seear, said about this—that we are not at the end of this matter; there is a good deal of negotiation still to be done. Until we can take a final view, we shall be willing to negotiate constructively with our partners on the basis of the Commission's present draft.
In our view, the draft does not strike a proper balance between the interests of producers and those of injured victims. One important improvement which the Government will be seeking is the incorporation of a state of the art defence so that a producer will not be liable for damages caused by a defect which could not have been detected in the light of scientific and technological knowledge at the time it was put on the market. It may seem strange that the Government are seeking a state of the art defence when both law commissions and the Royal Commission recommended against such a defence. The European Parliament, however, has taken the contrary view and argues that if manufacturers were liable for such defects, innovation would be impeded, to the detriment of the consumer as well as of industry. A considerable number of trade associations which the Department of Trade consulted last year argued strongly on these lines.
The Government have considered the problem very carefully indeed and have certainly not lightly departed from the views of the law commissions and the Royal Commission. They are conscious of the need to protect the consumer, particularly the innocent victim of a defective product that he or she has not purchased and who will therefore need to establish negligence if he is to obtain compensation under the present law. However, we recognise the strength of the argument on innovation. Our industrial success has been based on innovation and we must encourage British industry to 1454 innovate in the future in order to maintain our competitive position in world markets. We recognise also the benefits that consumers as a whole derive from innovation. We believe therefore that it is important that a state of the art defence should be included in any product liability directive and shall seek to persuade our partners to accept such a defence.
It has been suggested, for example by the noble and learned Lord, Lord Scarman, that one must be careful not to reintroduce a fault by the back door. He says that this is a matter of considerable difficulty. His view is, as he expressed, at present rather against it, although he said, which is of considerable comfort to me personally, that it is a matter upon which one could well change one's mind in the light of the evidence available.
Reference was made to the United States experience. I agree of course that one must be cautious in drawing lessons for us from that experience. Equally, however, it would be wrong to ignore it. The noble Lord, Lord Beswick, gave us an impressive list of examples. He indicated that he could readily go on to fill the whole alphabet, if we should wish it, with the innovations which have resulted in very considerable benefit to consumers as a whole from very difficult development work in the aerospace industry. Accordingly, it is in the light of these considerations that the Government decided to take the stand on this position that they have.
§ Lord AIREDALE
My Lords, if the noble and learned Lord is leaving the subject of the state of the art defence, can he say whether the Government will consider establishing a public fund for the limited purpose of compensating the victims whose claims fail purely on a successful plea of the state of the art defence?
§ Lord MACKAY of CLASHFERN
My Lords, as the noble Lord will be aware, that is a proposal which has been made to cover this situation. Certainly it is a proposal which is worthy of consideration.
§ Viscount HANWORTH
My Lords, may I also ask the Minister how he would deal with a thalidomide case, having once accepted a state of the art defence?
§ Lord MACKAY of CLASHFERN
My Lords, that depends upon the facts which are established. Certainly there is some doubt about the precise state of knowledge as the thalidomide difficulty developed and I certainly accept that some of the thalidomide victims might have been deprived of a remedy by a state of the art defence on the lines which I have just indicated—I think that is reasonably clear—but by no means all of them.
§ Lord MACKAY of CLASHFERN
My Lords, it is the only answer that I was proposing to give at the moment. As I have said, this is a matter which will be the subject of negotiation and this is the position as we go forward in these negotiations. The effect of the Government's decision is that we shall maintain our general reserve on the draft directive during the discussions in the Council working party. We shall seek to persuade our partners to accept a state of the art defence and we shall seek a number of other changes where we feel that the existing text is defective. A number of these have been mentioned, and perhaps I may briefly indicate our attitude to them at this moment.
§ Lord ALLEN of ABBEYDALE
My Lords, I am sorry to cause a further interruption but, if the Minister is leaving the state of the art defence, can he say whether the decision means that we cannot accede to the Strasbourg convention?
§ Lord MACKAY of CLASHFERN
My Lords, since the Strasbourg convention does not have a state of the art defence I certainly think it means that the decision of the Government on this matter is incompatible with accession to the Strasbourg convention. Of course at the moment that is a hypothetical question. So far as I know no one has ratified the Strasbourg convention yet. In any event it would be necessary for us to follow out the negotiations on the directive and it is only then that the question of acceding or not to the Strasbourg convention would become a realistic issue.
In my submission, my Lords, it is a question of examining the situation as it develops in the light of the text as it 1456 emerges from the negotiations. If it is acceptable, my right honourable friend the Minister for Consumer Affairs has indicated that the Government would implement the directive through primary legislation. If, of course, the final package is not acceptable we shall have to consider whether to seek to reopen negotiations or to reject it. I hope, however, that, as is generally the case, careful and detailed negotiations in Brussels will achieve a solution which is acceptable, not only to the United Kingdom but to all member states.
I have indicated that certain of the problems which have arisen in relation to the directive are matters on which we have preliminary views, and perhaps I may deal briefly with some of them. First, the noble and learned Lord, Lord Fraser of Tullybelton, mentioned the global limit provided in the present Article 7. We respectfully agree with him that the present draft is quite unworkable, but it is a very important provision of the present directive and has a very important bearing on, for example, insurance costs. I am sure the noble Lord, Lord Mishcon, appreciated that when he asked me about costs. There is no point in trying to get reliable estimates of cost until one knows what one is seeking to insure. The question of a limit on the claim in some shape or form is fundamental to that, as I am sure your Lordships will appreciate.
It has been suggested that one way of dealing with this is to put a limit on individual claims. As the noble Baroness, Lady Seear, mentioned, that immediately introduces an element of rough justice in relation to the very badly injured person. A person badly injured from a single defect might be very badly hit by such a provision. So the matter is by no means easy. It is fundamental to the whole question of the practicability of this régime and therefore I think it indicates the wisdom of looking at the thing as a whole in the result, as the Government would seek to do.
The same point arises in relation to the 10-year cut-off period and the difficulties mentioned by the noble and learned Lord, Lord Fraser, in regard to that, taken along with a global limit. The reference to identical articles clearly requires some elucidation. Is a blue Cortina an identical article to a red Cortina, for example?
1457 The question of primary agricultural products and food products generally is a difficult one and, if one retains that sort of distinction, there is a difficult definition required when one passes from the primary agricultural food products to manufactured food products. Then there is the question of whether damage under the directive should include damage to property and economic loss. Our present view is that the text requires amendment in respect of those points. A difficult question arises on components, and the noble Lord, Lord Allen of Abbeydale, drew particular attention to that. It is a difficult question on which negotiations will require to proceed. The "producer" should be defined to include an importer into the EEC. That is the way that Article 2 at present defines it.
Some attention was drawn to the side effects and the noble Viscount, Lord Hanworth, particularly referred to this matter. One has to take account of side effects if one of the results of a directive of this sort is to multiply warnings, not so much with a view to people who get the products acting on the warnings, but with a view to covering legal liability. We should be in the sort of exercise which used to be a difficult one—and perhaps it still is—of trying to draw up exclusions of liability for contractual purposes. That is a side effect of a directive like this or a régime of this kind which certainly has to be taken into account.
The noble Baroness, Lady Seear, also referred to the possibility of making some reference to standards and the desirability of standards having some effect in this field. I think insistence on that is probably incompatible with a complete rejection of the state of the art defence but I believe that form of the state of the art defence is certainly one possible form and a compliance with standards might be regarded as important.
That brings me to answer the questions posed by the noble Lord, Lord Beswick. First, there was the one about the Civil Aviation Authority and the airworthiness certificate. The position is that an airworthiness certificate is a very important certificate indeed but even under our present law it does not relieve the producer of any liability he may have, for example, for defective manufacture, and the same 1458 would arise in relation to the new régime, subject to the point I have just made about it being possibly relevant to some form of the state of the art defence and a reference to standards for judging that.
So far as the Warsaw convention point is concerned, I can perhaps deal with that also conveniently now. The Warsaw convention limits the liability of the carrier. This directive is concerned with the liability of the producer—in this case the producer of the carrying machine—and the Warsaw convention would have no effect on that, so the two would coexist, if I may use that expression.
The other questions which have been raised relate to the position in some other countries. I have already mentioned the United States of America and I shall not repeat that. The noble Lord, Lord Beswick, gave some indication of what he understood to be the attitude of the French Government to this directive and, so far as I know, the French Government have not challenged the directive on the grounds stated by the noble Lord, Lord Beswick. Indeed they say that there is already strict liability in France, with no state of the art defence. We understand that the views described by the noble Lord, Lord Beswick, may be those of the French aerospace industry, who may not accept that French law already implies strict liability. I am really not in a position to give a very cear answer on this matter; there seems to me some vagueness about it. But certainly we have not been able to ascertain with absolute precision what the bearing of the French law, particularly on the aerospace industry, might be at the present time.
That brings me to say a word about the situation in West Germany, because I think there may be some misunderstanding about that. As I understand the present position in West Germany, there is no strict liability régime generally and the law there in general is not dissimilar to our own. However, in 1978 West Germany did introduce strict liability with no state of the art defence for pharmaceuticials, but it is obviously too early to say what the effect of that will be on the innovation, or the innovative success or the success in innovating, of the West German pharmaceutical industry. The law in this matter has changed a good deal.
1459 The noble Lord, Lord Airedale asked some questions about the effect on small businesses of particular accidents. I think it would be right to say that many of the difficulties that he raised for a strict liability régime would arise under the present law in some circumstances. There would certainly be a question, for example, whether the person who supplied the ladder should have detected the defect notwithstanding that it was painted over, depending on how obvious the workmanship was in the repair. I know that these questions were raised primarily in relation to this matter of principle. My main answer on that is to invite the noble Lord again to look at the Pearson Commission Report, and possibly also, if he has time after studying that exhaustively, to look at the joint report of the two law commissions.
Some reference was made by the noble and learned Lord, Lord Scarman, to the question of whether this directive is empowered by the terms of Article 100 under which it is supposed to be made. I am very grateful, as I am sure the Government will be, to have Lord Scarman's own view on that matter. It is a view which is shared, I know, in a number of quarters.
If I may sum up the position, I believe that this has been an extremely useful and helpful debate to Her Majesty's Government. During the forthcoming negotiations in the Council working party the Government will take full account of the views which have been expressed by noble Lords today. The widespread support for the general line of the Government's policy both in this House and in the other place will clearly strengthen the hands of our negotiators in Brussels, and will, I hope, enable them to achieve what we all seek to achieve, a final text which meets the Government's objective of a directive which will provide proper and adequate compensation for people injured by defective products without imposing undue burdens on industry. Perhaps, in view of my profession, I ought to join very heartily also in the wish that whatever emerges it will not produce a field day for lawyers.
I think it would also be right that I should record my thanks to the noble and learned Lord, Lord Fraser of Tullybelton, 1460 for introducing this matter, to the noble and learned lord, Lord Scarman, for his valuable contribution, and to all noble Lords who have taken part for their very thoughtful and useful interventions, which I am sure will prove very valuable to our negotiators. I would also like to take this opportunity of paying tribute to the work that has preceded this debate in order to enable us to reach this position. I know that Lord Allen of Abbeydale feels sometimes that people do not pay the right sort of attention, as full attention as they should to the report of the Pearson Commission. I can assure him that the Government have certainly paid a great deal of attention to it, and I know that among the Government there are quite a number who have read the report very thoroughly. I hope, therefore, your Lordships will feel that this debate has been well worth while.
§ Lord MISHCON
My Lords, before the noble and learned Lord sits down—and I am sure the House is very grateful to him for a very fine exposition—can he comment at all upon the rather dreadful delays which occur with these EEC directives? One appreciates that they have to have the agreement of a number of states, and indeed, in the Council of Ministers I believe, unanimous agreement, before the directive can be effective. But when we are dealing with such vital rights as these, have the Government decided that no intermediate legislation, such as Western Germany has, for example, is appropriate, and that we have to wait for this directive?
§ Lord MACKAY of CLASHFERN
My Lords, the attitude of the Government on this point is that this matter ought to proceed, if at all possible, by agreement. As the noble Lord says, under Article 100 agreement is required. It is a very difficult area, and I think this debate has demonstrated that; there are very different views found to be held in various parts of the House; they do not divide on any political basis. They are views genuinely held having regard to people's individual appreciations of these very difficult problems. It is surely better, if at all possible, to proceed by way of agreement. The object of a directive under Article 100 is to achieve harmonisation, and surely, if that is what we are aiming at, it is very wise to attempt to proceed by agreement. If the delays became unacceptably long 1461 then a different situation might arise, but for the present our view is that this is the way to proceed.
§ Lord FRASER of TULLYBELTON
My Lords, I should like, if I may, to thank the noble and learned Lord, the Lord Advocate, for the very full reply he has given to the points raised. I am glad to notice that the Government's view seems to be in exact coincidence with that of the Committee, that all the points mentioned in the report do require consideration at any rate by the Government in the course of negotiation. As I expected, the debate has ranged a good deal beyond the boundaries of this particular report, and I am not going to make any attempt to deal with the points raised, except one, and that is the question of whether this draft directive is within the vires of the Community. Something was said about that by my noble and learned friend Lord Scarman, and rather more by the noble Lord, Lord Beswick. What the Committee said in their report, as you will see in paragraph 10, was a very carefully modulated sentence; they said:The Committee are not convinced that the draft Directive is intra vires of Article 100".That is quite right; they were not convinced because they had had no evidence. But, speaking for myself, I do not think it would be at all difficult to be convinced, because I find it very difficult to think that if you had strict liability in one country in the Community and not in another there would not be unfair competition between those two countries. I think that must underlie the view of the CBI, which is, I know, that they are in favour of reaching agreement on as wide an international front as possible. The vires point, while it is alive, seems to me to have very little real substance in it. Subject to that, I do not propose to take up any further time. I hope in a modest way this debate will have been a useful and constructive part of the process of consideration which the Government must now be engaged upon in relation to this draft directive.
§ On Question, Motion agreed to.