Consumer Protection Bill [H.L.]

HL Deb 20 January 1987 vol 483 cc818-48

3.5 p.m.

Lord Lucas of Chilworth

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord Lucas of Chilworth.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

Clause 4 [Defences]:

Baroness Burton of Coventry moved Amendment No. 39: Page 4, leave out lines 6 to 10.

The noble Baroness said: In rising to move Amendment No. 39, I recall with real pleasure three points made on Second Reading. First, with one exception, all speakers welcomed the Bill; secondly, it was stated more than once that this was a non-party measure; and thirdly, that we wanted the Bill on the statute book as soon as possible. Apart from, or additionally to, your Lordships' House, consumer organisations feel strongly that there is a major flaw in the Bill. That was my opinion and the opinion of many Members, of all parties and none, in this place. The Committee will have noted that the amendment is signed by the noble Baroness, Lady Elliot of Harwood, and the noble Lords, Lord Williams of Elvel and Lord Allen of Abbeydale. That gives me the satisfactory feeling that what we are asking for represents an all-party attitude.

I said on Second Reading (col. 1014 of Hansard) that I believed that a major flaw in the Bill is what is termed the development risks defence". That is what our amendment seeks to delete from the Bill. Before embarking on what I would call the debit side of this measure, I think it only fair to say that consumer organisations welcome the provision that under the proposed new law all the consumer has to prove is that there was a defect in the product and that the defect caused the damage complained of. Previously, as the Committee will be aware, the injured party had to prove that the manufacturer was negligent in allowing the defect to happen.

Having expressed appreciation, I move on to our major worry. That is the let-out that has been given to producers. Put simply and succinctly, it is: if producers can show that given the state of scientific knowledge at the time the product was designed they could not have foreseen the problem. This is the development risks defence contained in Clause 4(1)(e) lines 6 to 10 which we seek to delete.

As the Committee will be aware, France, Belgium and Luxembourg do not intend to allow the development risks defence and the Federal Republic of Germany will not permit the defence in cases involving pharmaceuticals. I am sure that the noble Lord, Lord Lucas, is aware of that fact. I trust that the noble Lord, Lord Peyton, will also note the action taken by those four countries.

The CECG (Consumers in the European Community Group) feel that in the case of drugs there is a clear though unquantifiable risk that a product could be thoroughly tested in line with best current scientific practice and still result in injury, perhaps coming to light after some years. In such a case the manufacturer could show that if it had done all it could to ensure that there were no defects, no fault or blame could attach to it. However, if injury did result, the manufacturer is in a better position than the victim to meet the costs arising from the injury.

The National Consumer Council do not accept that strict product liability will harm manufacturers, stating that they will be able to insure their liability, while representatives of the insurance industry have made it quite clear that the effect of the new law on insurance premiums will be insignificant. I remember that fact was stated by the noble Lord, Lord Lucas of Chilworth, last night.

The council stresses the conclusion of both Law Commissions, supported by the Bar Council, which said: Where the product turned out to be unsafe we think the injured person should be compensated by the producer however careful he had been". The Consumers' Association believe that the development risks defence should be dropped. It provides a gap in the law which might leave future victims of a thalidamide-type disaster without compensation. The association puts forward the point, with which I agree, that the costs of insuring against a defective produce ultimately paid by all the purchasers of that produce is a better way to deal with compensation for a product defect than individual victims having to bear the loss uncompensated. I have mentioned these three consumer organisations because all are well known to Members of the Committee, and their conclusions are much respected by experts and public alike.

During Second Reading the noble and learned Lord the Lord Advocate made a statement that I noted at the time. He said: We —that is the Government— believe that without the development risks defence, innovation would be stifled."—[Official Report, 8/12/86; col. 1004.] With due respect that is nonsense. I thought so at the time and I have thought so since, having read various material that was sent to me. I should like to quote from two sources on this point: the Economist and the Consumers' Association. The Economist of 29th November states: The Confederation of British Industry is adamant that the burden should not fall on the producer: if it did, the argument runs, fear of damages would stifle innovation and make products uninsurable. They point to America, where underwriters have lost so much money on product-liability insurance that they are now loath to take on new risks. Yet Britain is different. It does not have the American system of punitive damages, generous juries in civil cases, and contingency fees—where lawyers take a slice of the compensation if they won and nothing if they lose. And even though the regime is much stricter there than it would be in Britain, American companies can hardly be accused of a lack of innovation. The Consumers' Association, also speaking of the United States (where strict liability has been in force for over 20 years), says that industry has shown no signs of having been inhibited in its research and innovation. Adding to its argument, the Consumers' Association declares that in France strict liability for defects in products already exists, as it does in Germany for drugs. Neither country is backward in terms of industrial innovation and neither has sought to protect its industry from strict liability by introducing a development risks defence.

I return to the CECG—Consumers in the European Community Group—who declare that in opinion surveys the majority of consumers say they are willing to pay slightly higher prices if it means that injured users will be compensated. After all, manufacturers put goods on the market for financial gain and in fairness they should bear responsibility for that product. They can insure against such risks; consumers cannot. It must be accepted that suppliers can pass on their insurance premium costs to their customers while the victims cannot share the injury or the costs, financial and personal, arising from it.

In the summer I attended a seminar on product liability at which the Deputy Director General of the European Insurance Committee was one of the speakers. Mr. John Cowell, who is stationed in Paris, sent me a copy of his speech. I should like to take a few short points from it in the hope that the Committee would be interested. What disturbed Mr. Cowell in particular was the attempt at scaremongering by producers who claim, without any justification whatsoever, that unless the limited protection offered in this Bill is interpreted in a way favourable to industry we can expect to see in the United Kingdom the kind of crisis which is said to be rocking the United States. I think that the Committee would agree with Mr. Cowell that such a view simply failed to take account of the origins of the directive—which are to be found in Europe and not America. I suggest that we remember that. I would make the same point as Mr. Cowell. The absence of development risks defence in France, Belgium and Germany has not led to an American-style epidemic of litigation or to product liability rates rising sky high. Why then should the United Kingdom be any different, especially since the aggravating factors in the United States are wholly absent in the United Kingdom?

We are speaking of the insurance of the producer in respect of products circulating within the European Community, and not insurance in respect of European firms exporting to or operating in the United States. However much some pessimists may protest, it cannot be denied that industry in France and Germany has long learned to live with liability for development risks and is certainly far from being at a competitive disadvantage compared with the United Kingdom. Furthermore—I thought that this was important for the Committee—the insurance industry must accept that there are no serious indications of any serious differences in insurance costs between France and Germany on the one hand and the United Kingdom on the other.

I should like to stress again that this is a European product, not an American import. All consumer organisations, as well as the three major ones that I have quoted, believe that the cost of insuring against a defective product ultimately paid by all the buyers of that product is a better way to deal with compensation for a product defect than individual victims having to bear the loss uncompensated.

There is much more to say and many respected and qualified speakers to say it. I beg to move.

Lord Williams of Elvel

I should like to support the noble Baroness in the amendment she has just moved. For the convenience of the Committee I should like to speak also to Amendment No. 54. Perhaps I ought to point out to the Committee that there is a small printing error in Amendment No. 54. I am advised that in Amendment No. 54 subsection (2)(b) should read: "In Scotland to the Court of Session" rather than "in Scotland to the Court of Sessions" in the plural. I apologise for that error.

I have no intention of repeating the arguments that the noble Baroness deployed so very eloquently in support of Amendment No. 39. I make one point. As the noble Baroness said, France, Belgium and Luxembourg intend not to avail themselves of the derogation under the directive, and whereas yesterday the Government had a fair point in the debate on agricultural produce—that we should not be out of line with the rest of the Community—in this case the onus of proof is on the Government to demonstrate why we should be out of line with the rest of the Community.

I should like to address myself specifically to the insurance matters which members of the Committee raised in a debate on another amendment yesterday and which are the object of Amendment No. 54. If Amendment No. 39 is accepted, Amendment No. 54 will be moved in its proper place. However, I must assure the Committee that if Amendment No. 39 is not accepted, Amendment No. 54 will not be moved. I believe that that is the proper procedure.

The noble Baroness made certain observations about the insurance problem in relation to development risks, and I shall not go over the ground that she has already covered. However, in view of the discussion that took place yesterday and discussions that have taken place since our Second Reading debate, I think that it is appropriate to look a little further at what I described yesterday as being the insurance problem, if indeed there is one.

The reason for insurance is to enable a balance to be struck between proper consumer protection and the promotion of research and development and proper innovation in the United Kingdom. It is clear that such a balance has to be struck. I think that it would be quite wrong for my party, or any noble Lord, to say that the balance has to come down very strongly one way or the other. The whole point is to strike this balance. We accept that there are certain high-risk areas which have been identified—notably aerospace and pharmaceuticals—which may in the future cause a problem. I say "may" because we are here dealing with hypothetical problems. We are asking ourselves the question: what will happen if the development risk defence is allowed or if the development risk defence is excluded from the legislation?

Like all hypothetical problems there are hypothetical answers, and like all hypothetical answers there are very many versions of the answer. A number of people believe that there will be no particular problem with either the availability of cover or the cost of cover if the development risk defence is not allowed in the legislation. On the other hand, others believe that there will be such a problem. I do not think that any noble Lord can be entirely confident of what will be the practical outcome either way when the legislation is in place as to exactly what amount of cover will be available and what rates will be charged for that cover. However, even if these are hypothetical problems, they are nevertheless problems, and we must address ourselves to them.

Amendment No. 54 was drafted on the basis of what I take to be the Government's position after the debate of yesterday. It was summarised by the noble Lord, Lord Lucas, when he quoted the brief from the Association of British Insurers which said that, provided the development risk defence was allowed under the legislation, there would be no significant problem in insuring product liability in the Bill as it is at present drafted. I take that to be the Government's present view on the matter.

This view was challenged by a number of Members of the Committee in debate yesterday. A number of them said that they were very much more pessimistic about the availability of insurance even under the Bill as at present drafted, if it is passed in its present form. Therefore I think that the Government have a problem to satisfy the Committee that even under the present arrangements as proposed there is sufficient insurance cover available, and would be sufficient insurance cover available, without some other arrangements being made.

The suggestion that we make in Amendment No. 54 is designed to produce an insurer of last resort. Given that the problem is hypothetical, given that it may not exist, given that the commercial market may be able to cover all risks, including development risks, at reasonable rates, then of course there is no problem. As I said yesterday, I think that this is a moving target because one can never tell for all time whether necessary insurance cover will be available. Given that it is a moving target, in our view arrangements have to be made to make sure that insurance can be provided even if the commercial market does not do so.

Since drafting this amendment, and since listening to the comments of some Members of the Committee yesterday, if I had had the opportunity I might even have left out the words in line 3 of Amendment No. 54, in respect of development risks". If it is true that even under the Bill as drafted there will be an insurance problem, then all the more reason why there should be some standby provision in those cases. Therefore, the Government have to demonstrate, first, that the ABI position is right and that they are satisfied that there will be cover in the Bill as drafted. Secondly, they must demonstrate that the arguments of the noble Baroness are wrong, and that if the development risk defence is excluded from the Bill there will be a significant uplift in premiums or a significant reduction in insurance capacity.

The hypothetical problem of course becomes very real when one considers that France, Belgium and Germany in respect of pharmaceuticals and Luxembourg, as the noble Baroness pointed out, will not be allowing the development risk defence. Therefore, when the directive is implemented in national law by those countries, any United Kingdom company wishing to do business in those countries will have to have development risks insurance. It is not an option that is confined only to the United Kingdom. It will have to happen anyway, as indeed any United Kingdom business doing business in the United States must have such liability insurance. If there are doubts about the capacity of the insurance industry in the United Kingdom, or indeed in the world, to satisfy producers, then it is fair that these doubts should be addressed in very real terms now, because whatever the Committee says about Amendment No. 39, this will become an issue in the future when the directive is fully implemented.

There are certain noble Lords who I believe would argue that this solution should be left to the free market; that there is a price at which insurance is available—there is a price at which insurance is available for anything. There is the famous case of the legs of Miss Betty Grable which, as I understand it, were insured by Lloyd's at the appropriate time and for the appropriate sum. It is the appropriate sum which is important, because here we are dealing not with a distinguished pair of legs and limited liability but, as was said by the noble Lord, Lord Airedale, with unlimited liability. My question is whether the free market is able to cope with problems of unlimited liability. I suspect that the noble Lord, Lord Airedale, was right when he said that no underwriter in his right mind would write a policy involving unlimited liability.

Some of us do not believe in the free market solution, but believe that the free market will on some occasions simply dry up. Indeed, I think that the thrust of remarks made by a number of Members of the Committee yesterday was that the insurance capacity would simply not be available; in other words, the free market would dry up. There is no price at which cover is available.

Our suggestion is that there should be an insurer of last resort. This is analogous to the position in New Zealand where there is a government-sponsored arrangement which provides insurance in respect of product liability. Perhaps I may pursue an analogy. I would point to the export credit arrangements which exist in the United Kingdom. This is partly to answer noble Lords opposite who may be tempted to say that it is no business of government to become involved in guaranteeing or insuring liabilities. Export credit arrangements, through the Export Credits Guarantee Department, are such that business is done by X companies exporting to countries and unless it is insured by the Government or through a government agency that business would otherwise not be done. There has been an insurer of last resort.

Now, before Members of the Committee jump up and down to say that the ECGD itself is in some form of trouble or difficulty and not a very good example, I would simply point to Coface in France, Hermes in Germany and other institutions in other parts of the world which perform the same function and which are joint ventures between government and private sector insurance interest.

Amendment No. 54 is, first, based on the Government's own position and addresses itself to what would happen if Amendment No. 39 were accepted. I repeat that if I were to draft this amendment today I might not be accepting the Government's position and would draft it somewhat wider. The amendment is designed to meet the problem if the development risk defence is removed, and this it does.

The amendment would also be designed to make sure that no producer suffers in the event of the commercial market being unable to offer cover at a rate which in all circumstances is reasonable. The exact mechanics of how this would operate would take up too much of the Committee's time and it is not something that I would wish to dwell on today. Nevertheless, I believe that the principle of Amendment No. 54 is one which the Committee should find acceptable because it closes this circle and arrives at the proper compromise between allowing proper research and development and product innovation in cases where there is no commercial insurance cover.

Lord Bruce-Gardyne

If I may—

Lord Williams of Elvel

Perhaps I may just finish. At the same time we believe it will come anyway because until the Government show us why, we do not at present accept the view that in all cases there will be proper cover even under the Bill as drafted if it becomes law.

3.30 p.m.

Lord Bruce-Gardyne

I apologise for interrupting the noble Lord but I had a suspicion that he was coming towards the end of his remarks. I had hoped that before he did he would comment on the assumption of the noble Baroness, Lady Burton, that in this country we were in no danger of the American experience with contingency views—so-called ambulance chasing—which could have a dramatic impact on the cost of accepting Amendment No. 54.

Lord Williams of Elvel

I am grateful to the noble Lord. He is repeating a remark he made in his intervention of yesterday. Indeed, I did say that I was somewhat doubtful about the possibility of avoiding such developments. I was sternly reproved by my noble friend Lord Morton of Shuna, and indeed others, both in the Scottish Law Society and the English Law Society. They sternly reproved me for my remarks that it could not possibly happen here. My mind is open on the subject, but certainly my friends who are members of those two societies have reproved me for the remarks that I made.

Lord Denning

At Second Reading I was in favour of strict liability even for these exceptional products. After further thought I have come round to the other view and would not accept this amendment. The first reason is that it is most important that the law of every country in Europe should be the same upon this matter because these companies which research into drugs and the like operate in Germany, England and Italy, and therefore the law and the liability ought to be the same for every country in the European Community.

After canvassing the opinions of, I presume, all the countries in the European Community, the directive has allowed the state of the art defence, and in those circumstances it has put in Article 7: The producer shall not be liable as a result of this directive if he proves", that the defect did not exist at the time. The directive goes on: the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of the defect to be discovered". That is the provision which is put forward. I have no doubt it was as a result of or was influenced by the American experience.

What brought me round more than anything else is a report in The Times today about a drug which has been produced by a United Kingdom company in regard to AIDS. The article says: An advisory panel has recommended the sale by prescription of a drug developed by a British-owned pharmaceutical company which has so far proved to be the only one effective in fighting AIDS". This is by a well known company, Burroughs-Wellcome. But Burroughs-Wellcome, when producing and putting this drug on the market, warn of the dangers of the side-effects which it may have, and it should be used only under the most careful consideration by doctors and the like. The article deals with the various side-effects which the drug may have but which are not known at the moment until it has been further investigated. It has been recommended that the drug should not be given to sufferers of illnesses where benefit has not yet been proved.

So far clinical trials have tested tolerance of the drug over a certain time. The article says that about 80 million dollars—it may be even more than that but I cannot read my handwriting nowadays—an enormous sum has already been put in to develop this drug.

Is that scientific experiment, that testing of the drug, not of the first importance to humanity? It may cause defects and side-effects in some patients. Is this company which is doing such valuable research, and is testing the drug in this way, to be strictly liable to a person who suffers side-effects in the course of it?

That is the problem and that is the reason why I have been coming round. It seems to me that this British company ought to be able to develop this drug, ought to be able to experiment with it and ought to be able to test it on patients without being liable to any patient who happens to have unforeseen side-effects.

It is the experience of that British company which has brought me round to thinking that we ought not to put strict liability on this because it may hamper most valuable research and most valuable tests in regard to drugs which ought to be taken for the benefit of humanity as a whole. I gather that is the defence which has been accepted, or put forward, in the United States because they have enormous problems. They have been holding strict liability for years and it has become an enormous problem. The burden which has been placed on insurance companies and the community as a whole by reason of these liabilities may be partly due to the juries, contingencies and so forth, but undoubtedly in the United States it would be right to limit strict liability to allow the defence of the state of the art.

I return to the point concerning insurance and Amendment No. 54. Is it right that the state should bear the burden and be the insurer if a person is under a strict liability? Ought the state to pay for any of the side-effects and so forth? I would suggest not. If it is the case that the insurance premiums would be so high that the insurance were virtually unobtainable by these people doing research, then I say that is a ground for not having strict liability at all but for having this exception which has been put in for the moment in the directive. It is allowed in the directive and there are provisions for further consideration by other countries so that the desirable result of uniformity of liability throughout the Community can be achieved. So at this moment I would not be in favour of the amendment.

3.45 p.m.

Lord Peyton of Yeovil

The fact that the noble and learned Lord, Lord Denning, should have changed his position in this matter, as he has just said, is a development which could hardly be more welcome to those who, like myself, see in the amendment a very great source of danger not only to British industry but also to the consumer. I apologise to the Committee if I repeat some comments which I made yesterday, but when this high-sounding cause of protecting the consumer from all and every possible danger is pursued too far, then there is at least the possibility that the consumer himself will suffer: (a) in having to pay a higher cost than would otherwise be the case, and (b) from the possibility that he may not have made available to him the goods or commodities which he seeks.

May I just remind the Committee that the defence which it is sought to remove from the Bill is one of very limited application? It only covers those defects which were not known and could not have been known at the appropriate time. Any knowledge of such a defect, any awareness of the possibility of one, would defeat the defence. May I remind the Committee that the liability which would be imposed upon manufacturers, if this amendment were accepted, would be unlimited and unquantifiable?

Reference has been made by the noble Baroness, Lady Burton, in moving the amendment, to the experience in other countries. It is quite difficult for those who are not learned in the law to state with any precision what the law is in our own country. To say in a few sentences what it is in Germany, France and the United States—and not just in the United States, but in every state of the United States—is a little more difficult, and it might, I suggest, be very misleading indeed. In point of fact, I understand that in Germany special arrangements have been made for insurance and also total liability and individual liability are limited. There is no proposal of that kind incorporated in or accompanying this amendment.

The aim here is to impose strict liability. The purpose of it is, I suggest, at least as much to punish as to compensate, and in any event, whether that is accepted or not, I have absolutely no doubt that the effect will be to deter. It has been said that manufacturers produce for their own good and therefore if something goes wrong they must pay. I suggest that that is a slightly simplistic and naive view. Of course, manufacturers—like others in the community—are influenced in regard to their own good and the good of the businesses they run. But I think most manufacturers would claim, and would be proud to claim, that they render a service to the community. The more burdensome their task is made, the less likely they are to be willing to pursue it.

I detect in this country only too often an ambivalent attitude towards industry. We wish to encourage industry, we wish to encourage innovation, we say how important employment is and yet, when it comes to the crunch, it seems to me that we are in very grave danger indeed of imposing yet another burden upon industry which will certainly, in my view, have the effect of curtailing people's willingness to engage in areas where there can be no certainty of eliminating all defects. This applies particularly in areas of high technology.

I ask the Committee, in deciding the fate of this amendment, to consider how important are research and development. How often have we heard in your Lordships' House the lamentation going up that British industry is woefully deficient in its performance in research and development? I would beg the Committee to appreciate that it is very easy to remember the things that go wrong, but the Committee should recall the great benefits which are conferred upon the public by new and advanced products.

I was in the United States recently when some new cancer drug was announced at a very early stage of development, when I understand it could not possibly be made available to the public. But immediately there was, very understandably, a demand from many people, because they were suffering the agonies of cancer, for the drug to be made available to them. They said they were prepared to take the risks. There have to be some precautions before drugs and other new products are released upon the market; no one challenges that. But to impose, lightly and in a facile manner, further obstacles to innovation I think would be a very great error and one which the Committee would regret.

Much has been made, I think quite rightly, of the question of insurance. I must admit to being a director of an insurance company. I have not sought the advice of that company on this issue at all and perhaps I should have. But I wonder how much research the British Insurance Association has done on this matter before tendering the rather glib, smooth advice that it has done. "Oh, adequate cover will be available."

This brings me to Amendment No. 54 which has been mentioned by the noble Lord, Lord Williams of Elvel. I entirely share the doubts expressed by the noble and learned Lord, Lord Denning, as to whether it would be right to put this kind of liability upon the state. But leaving that aside, the two questions of how much insurance would be required and how much it would cost are left unanswered. In my view, the question of whether cover would be available can only be answered with great uncertainty. What can be said with some certainty is that the cover would be much more costly and that it would also be limited in its effect. Those two points will be much in the minds of industrialists who are embarking upon new products.

May I remind the Committee that we are not necessarily concerned with huge industrial companies which, it could be suggested, might be their own insurers—though I think they would probably be reluctant—but that in many instances innovation comes from small companies. This should be encouraged, and they should not be left facing a pressure of this kind which would in fact almost certainly make them think again.

I go back to where I started. I think it very easy to be led down the road of consumer protection without considering adequately the cost not only to producers but also to the consumers themselves. I hope that the Committee will think long and hard before accepting an amendment, moved with great eloquence and conviction, as one would expect, by the noble Baroness, but I believe mistaken and, in its consequences, much more serious than has been suggested.

Lord Ezra

I have been involved in industry all my working life, in the public and then in the private sector. I fully support the view that we should do everything possible to regenerate industry in this country and give every opportunity for innovation, development and skill to be stimulated. On the other hand, we are here concerned with the Consumer Protection Bill. Therefore, as the noble Lord, Lord Williams, said in his address, we have to find the right compromise.

We are here at one of the crucial issues that this Bill raises, and for the consideration of which the Committee, with its combination of experience and talents, is well suited to debate before reaching a conclusion: how do we reconcile the need to stimulate and facilitate innovation in industry with the need to protect the consumer? That is what we are talking about and what is heightened by this particular amendment so effectively moved by my noble friend Lady Burton.

There are ways in which this could be done. We must reflect on those ways. The noble Lord, Lord Peyton, said that innovation is not necessarily restricted to the larger enterprises but is done by a number of smaller enterprises. That is perfectly true. But we are basically talking here, where the risk is largest, about two major sectors of industry: the pharmaceutical industry and the aeronautical industry. These are dominated by very large concerns.

Let me mention my experience in the coal mining industry, with which I have some association. The thing that we knew was uncertain in our affairs was whether we were likely to have a mining disaster or not. That is something which could not be forecast any more than the problems arising from innovation can be forecast. We decided at an early stage that this was something on which we had to bear the insurance responsibility.

Naturally that cost had to be recovered from the price of the product, and that we did. In the time that I was in the industry, which lasted for many years, when we totted up the burden that we had to carry in dealing with that problem—and unfortunately we had a number of mining disasters—we decided that we had taken the right step. We had dealt with that internally and passed on the cost, which would have been less than if we had dealt with it an any other way.

I believe that we should seriously consider possibilities of compromise between these two interests; the interests of industrial innovation on the one hand, and consumer protection on the other. My noble friend Lady Burton mentioned that she had the impression that the view was that consumers of pharmaceutical products, for example, would be quite prepared to pay a little more if they felt that they would be protected against some unforeseen, unforeseeable development. In other words, it is a question of whether we feel that the risks of innovation should be spread or not spread. That is the issue that we face. Should we spread the risk among the multitude of consumers who ultimately have to pay, or should it be concentrated on those who are unfortunate enough to suffer from some innovation which has gone wrong? I believe that that is the big issue that we have to face in our consideration of this problem today.

I would submit to the Committee that, before we come to a decision here, we consider this important social and moral aspect: should the risk be spread, or not? Of course if we spread it, then everybody has to contribute towards it. But if the risk is concentrated then the unfortunate few will suffer immeasureable damage. That is the probem we have to face.

The noble Lord, Lord Williams, suggested another way of doing it by an insurance system of last resort, which has been tried out in New Zealand with some success. We need to consider all these aspects seriously in the Committee before we decide on this important issue. I am prepared to say, before I conclude, that if we were to decide in favour of what the Government propose, the time will nevertheless come at some future date when, under public pressure, we should have to revise that position.

Baroness Elliot of Harwood

May I add one word from these Benches. I am speaking now for myself, as I have been associated with consumer activities and the Consumers' Association for so many years. I agree entirely with what has been said by the noble Baroness, Lady Burton, and also by the noble Lord, Lord Williams of Elvel. We have here a matter that we have to look at in an unbiased and unpolitical way.

Of course we are all in favour of enterprise. Of course we are all in favour of giving as much assistance as possible to enterprising people for what they do and for what they discover, and in the pharmaceutical industry in particular. But I do not think that it is right that when something goes seriously wrong, as we all know it did over the thalidomide business, that then there should be no resources that the consumers can call upon to help them with their disaster. Here we have an opportunity, as the noble Lord, Lord Ezra, said, which is of vital importance.

According to what I have been told—and I have here a brief from the consumers—it is not going to hamper enterprise; it is not going to stop people from inventing new things. As the noble Lord, Lord Ezra, said on the aircraft industry—about which I really do not know anything except what I have read in the newspapers—it will not hamper that.

In all other countries that have it, such as Japan, the United States and Germany, these regulations do not hamper their interests. The Japanese, as we know, are inventing things the whole time, and therefore it obviously cannot have a serious effect. From the consumer point of view, I am sure that the noble Lord, Lord Ezra, and the noble Baroness, Lady Burton, are right in saying that this is something about which, if we do not make this gesture now, we shall have to make it at some other time. This is an opportunity to do it in this important Bill that we are all supporting, and I hope that the Government will accept this amendment.

4 p.m.

Lord Bruce-Gardyne

I hope very much, unlike my noble friend Lady Elliot of Harwood, that the Committee decides to reject this amendment by a sufficient majority to ensure that we never hear of it again. I have great sympathy with the arguments advanced by my noble friend Lord Peyton. I confess I find it impossible to share the conviction of my noble friend Lady Elliot that the passage of this amendment would not impede the delivery of products to the consumer, let alone the impact that it would have on the cost of such products.

I listened carefully to the eloquent speech of the noble Baroness, Lady Burton, in introducing the amendment. I think I understood her to say—I do not believe there is any dispute—that the effect of approving this amendment would be that a product would be thoroughly tested in line with current product testing, but subsequently could prove to have deleterious side-effects and that, thanks to the passage of this amendment, those who suffered from the deleterious side-effects would still have remedy against the manufacturer or supplier. I do not believe there is any dispute that that is the purpose of the amendment.

I am led to understand, though I do not know whether it is true—Members of the Committee who are more learned in these matters will correct me if I am wrong—that aspirin would not be permitted on the market today under the current testing procedures. I suppose it is theoretically possible that the manufacturers or the suppliers of aspirin would be faced by potential liabilities under the passage of this cause, because, as I understand it, it most certainly is a drug that can have quite deleterious side-effects. The noble Baroness might prefer not to have aspirin on the market. It is about the only drug that I ever take, and I should be sorry to be without it.

The noble and learned Lord, Lord Denning, mentioned the relevant point of the development of an AIDS drug which might be effective against the disease but which almost certainly could have serious side-effects. If I were a sufferer from AIDS I should settle for the side-effects if that enabled prolongation of life, which is presumably the purpose of the drug. It horrifies me that we should be invited to contemplate putting on to the statute book legislation which might make it impossible for drugs of the type to which the noble and learned Lord, Lord Denning, referred to be available to the customer.

Lord Williams of Elvel

Will the noble Lord accept that, in the case of the drug mentioned by the noble and learned Lord, Lord Denning, and by himself, the side-effects are known? So we are not talking about development risks which are covered by this defence.

Lord Bruce-Gardyne

I am not sure that that is necessarily true, with great respect to the noble Lord, Lord Williams, because some of the side-effects may be known. It is possible that there are other side-effects which are not known. I should not dream of putting words into the mouth of the noble and learned Lord, Lord Denning. But his point, as I understood it, was that here is a drug which could help to prolong life for people whose expectation of life is otherwise very small, but which might have deleterious side-effects that one could not accept with some other drugs. Yet it be caught by the nature of the amendment were we to accept it.

There has been much understandable reference to the thalidomide experience. I suggest that there is another side to that quandary. I was told some years ago—again, noble Lords far more experienced in these matters will correct me if I am wrong—that following the thalidomide experience, the length of time involved from the discovery of a drug to its availability for sale is three times what it was previously. As my noble friend Lord Peyton pointed out, we need effective safeguards against the marketing of dangerous products or drugs with dangerous side-effects. What we tend to overlook is that during the extra eight years that the development of drugs may now take, many times the number of people who suffered from the thalidomide drug are denied the benefit of access to a drug which might have saved their lives or at least saved them from great discomfort and misery. If we were to approve this amendment, it seems logical to conclude that the preparation, the timelag between the identification of an effective drug and its marketing, would be further prolonged. I cannot believe this to be in the interests of consumers.

Lord Donaldson of Kingsbridge

I am not quite clear on this point. Is the noble Lord saying that the time taken to make sure that a drug is safe should be reduced? He suggested that people might die if it were reduced longer than necessary. Of course that is true. But equally, if it were reduced too quickly, people might die from it. I do not think there is an argument that the noble Lord has used which makes any sense.

Lord Bruce-Gardyne

I think it was the noble Lord, Lord Ezra, who referred to the need to strike a balance. I am saying that discussion on issues such as thalidomide sometimes seems to be exclusively concerned with those who have been found to suffer from the side-effects of a drug which has been produced and which has proved subsequently to have deleterious side-effects. Not, seemingly, put into the balance are those who, because of the prolonged period now required for satisfying conditions before a new drug can be marketed, are denied for many years access to a drug which might have relieved their suffering or even prolonged their lives. That is a logical consideration in the context of this amendment, one of the likely effects of which—if it was passed—is that it would take longer for manufacturers in the pharmaceutical industry to satisfy themselves that they could cover the potential hazards that marketing a new drug could involve.

Finally, I want to say a brief word about costs which has been slightly cavalierly dismissed by the promoters of the amendment. The noble Baroness, Lady Burton, said that we were assured by the insurance industry that insurance cover would be available. I do not want to go over the ground we discussed last night. But the noble Baroness referred to the comments of Mr. John Cowell. I received, like other noble Lords, the communications from the Consumers' Association in which reference is made to the comments of Mr. John Cowell, the deputy secretary-general, Comité européen des Assurances, which the noble Baroness quoted. What I did not hear her quote, which seems to me to be crucially important, is that the availability of this assurance would be subject to appropriate premium loading. Indeed, it would. And in many instances we can be sure that the appropriate premium loading would be quite material in terms of the end product. I note that the message we have received from the Consumers' Association ends by saying: We think that consumers should be prepared to accept that additional cost, and urge Parliament to exclude the development risks defence". I am not sure that the Consumers' Association is entirely entitled to make such assumptions on behalf of the generality of consumers. I am not sure what research it has done to satisfy itself that consumers share its views in these matters.

In conclusion, I want to refer briefly to what the noble Lord, Lord Williams, said in support of Amendment No. 54. I agree with him that it would be essential to have some such device, if the amendment were accepted. However, I do not find it particularly attractive that we should pass the burden of this additional expenditure from the users of the end product to the generality of taxpayers, which is what is involved in the amendment. I cannot think of a surer way of bringing the contingency fees experience from the United States to this country than ensuring that all the lawyers have the taxpayer behind them.

Lord Mottistone

I should like to add only briefly to what my noble friends Lord Peyton and Lord Bruce-Gardyne have said because they have covered most of the ground. To re-emphasise one point, innovation provides innumerable benefits to society and the consumer benefits from that. These benefits are produced by large and small companies. If the amendment is accepted, the small companies in particular will be frightened away from trying the advanced research upon which this country's benefits depend entirely.

The noble Lord, Lord Ezra, said that we do not need to bother about them; there are only a couple of big companies that we are concerned with. He went on to compare them with the coal industry. It is not quite like that. On the one hand the small companies often start something good, and maybe the big companies will take it on later. The big companies in research and development are not one large mass of business; they are a lot of separate projects within a business. One project may be dropped and another adopted, but it is the projects about which we are concerned and not the total activity of the business. The noble Lord, Lord Ezra, and the coal industry had to produce coal and so they had to risk people. They had to take the risk; they could not stop.

Research and development within a big or small company can be stopped, and the danger of the amendment is that it will be. Whether or not the insurance cover is there, there is the danger all the time of being held liable.

The noble Baroness, Lady Burton, said that the consumers were prepared to pay slightly higher prices. It is a question of whether the prices would be only slightly higher. We have heard of evidence that they might be a great deal higher. Even if they were, what the noble Baroness, Lady Burton, omitted to take into account is the fact that the consumers will pay slightly higher prices perhaps for less valuable products—I am talking not just about jobs but any sort of product—in the sense that they will not be as advanced as they otherwise would have been because the research and development will have been shied away from as a result of passing the amendment.

I want to touch briefly also on the question of other nations and what they are doing. I think that this needs looking into. In the case of West Germany there is strict liability, particularly in relation to drugs, and the necessary legislation was passed in 1976. There are individual and total limits of liability, and cover is provided partly by domestic insurers and partly by a re-insurance pool, known as the Pharma pool, of domestic and foreign insurance.

All that is a special arrangement, and no doubt the noble Lord, Lord Williams, will think that Amendment No. 54 would go towards that end. The point is that this arrangement was already in existence before the directive came to be discussed. It is something with which we should have to agree if we traded with Germany, but it would then govern whether we traded with Germany. Cermany is not the only country in the world in this position. There are others that do not have these protections. The German position is therefore a special case.

France, it is sometimes claimed, already excludes development risk defence, but the situation in France has always been unclear. The French equivalent of the CBI has always taken the view that the French system for tort actions is based on fault for unforeseeable risks and the absence of case law makes the issue at least open to genuine doubt; and so that is not firm.

If I may turn to the United States without going into a lot of detail and come back to my original point, there is evidence that an increasing number of companies, small and large, because of the present legislation are not taking risks with the high development new projects to the extent that the country as a whole would like. As I understand it, the Americans are therefore moving to restore a uniform product liability law based on fault for design and failure to warn cases, which is very different from what we are talking about here. Thus there are tendencies for the United States to move away from the extreme product liability position in which it now is.

Finally, there is Japan, which is really the competitor. Japan is not in any case likely to prejudice its competitive position by introducing liabilities to development risks. Its position is very much looser, if that is the right phrase, than our legislative position will be without the amendment or, indeed, than the present legislative position is in this country.

That is the competition in the world that we have increasingly to take into account. In this area of high risk research and development, the world is a very small place and we are utterly dependent on success in exporting anything and everything that we can, because that is how we exist as a country. I implore the Committee to bear that in mind and the fact that the consumer's risk in the end is oh, so small. It is important not to discourage people from trying to do things that improve our lives and give us drugs and other facilities that will make them better than they are now.

I therefore implore the Committee, if this amendment is unfortunately taken to a Division, to vote against it.

4.15 p.m.

Lord Donaldson of Kingsbridge

Will the noble Lord expains what he means by saying that the consumer's risk is "oh, so small? The consumer's risk is death—that is what we are talking about.

Lord Mottistone

The consumer's risk is death, but so is it if he walks across the road outside this building. In the last resort one must accept the fact that we are all at risk whatever we do. If we walk out of the Chamber we may trip over another noble Lord and break our necks. It is ridiculous to carry this to such a narrow point that one does not allow anything for development and improvement.

Lord Auckland

I believe that we are in danger of having a consumer versus the rest altercation in the Committee. I have sat through the consideration of at least a dozen consumer Bills during the time I have been in your Lordships' House and, as I think I said on Second Reading, this is undoubtedly one of the most important.

When we look at product liability we have to consider one overriding matter; that is, whether the consumer will always take note of what the producer of the product says on the product itself. This is germane to the amendment.

I want to say a word or two on the insurance aspect, which I think is covered in Amendment No. 54. I declare an interest, completely non-financial, as president of the Institute of Insurance Consultants and as an honorary vice-president of the RoSPA, so in a sense I have a foot in both camps.

I can see substance in the amendment of the noble Baroness, Lady Burton, except, I think, as the old test of product liability, for reasons which I gave just now. I wonder what research has been done into the fact that product liability insurance is unobtainable in the insurance market. It may be expensive. My mind goes back to the early 1950s, when I practised in Lloyd's of London. I was on the claims side of the syndicate and I remember then, particularly in the United States, some of the horrendously expensive claims arising from the workman's compensation Acts, product liability and so on.

I believe here that the insurance industry has a duty to consult with the producers themselves and see whether some arrangement can be made to keep premiums at a reasonable rate. That is done in other branches of insurance. Of course one must sympathise with the smaller companies who may find that they are having to pay premiums much in excess of what they can afford for these risks, but I think it is very important for the consumer as well as for the producer that this consultation should take place. It should have taken place already and, if it has not, now is the time for it to be done. On that basis I am bound to say that it is a fact that research is much more advanced than it was say, 20 years ago. Twenty years ago this amendment would have been extremely relevant, but I am not at all sure that it is now.

Lord Jacques

All my life I have belonged to a consumer movement, and naturally I believe that if a consumer suffers because of defects in a product he should be compensated, whether there is negligence or not and whether it could have been foreseen or not. I also believe that the manufacturer and the whole body of consumers, who ultimately pay, should not have unlimited liability. I believe there should be a great limit on their liability. I therefore not merely support Amendment No. 39 but I also strongly support Amendment No. 54. Indeed I would go much further than Amendment No. 54. I believe that the limits of liability should be far greater than they are in that amendment.

We have a habit of following America, probably more than other countries of Europe, perhaps because we are using the same language. I can therefore see that in the future we would have some huge claims for compensation arising out of this legislation. Accordingly, I should like to see limits of liability and I believe, with the noble Lord, Lord Ezra, that if we do not limit liability more strictly than we are proposing now, we shall be obliged to do so at some time in the future. Let us do it before we are obliged to. I should like to see the Government accept this amendment and say that they will come forward with another clause which limits liability even more strictly than Amendment No. 54. I would support that.

I am sorry that the noble and learned Lord, Lord Denning, has left the Chamber because I wanted to reply to some points that he raised. In the course of changing his mind about Amendment No. 39, he made two statements. Today he said that he wanted this to be consistent with the rest of Europe. That was his main point. On other occasions I have heard the noble and learned Lord saying that he was not prepared to accept directives hook, line and sinker. He apparently does it at his pleasure—sometimes he will and sometimes he will not—and not because he wants consistency with Europe. He said yesterday that to limit liability was to go against the whole policy of English law. If to limit liability is against the policy of English law then English law needs altering, and Parliament is the proper place to make the alteration.

4.30 p.m.

Lord Allen of Abbeydale

As a supporter of this amendment, I should like to say a few words backing up the proposals made what now seems a long time ago by the noble Baroness. I was very glad to hear the noble Lord, Lord Peyton of Yeovil, in an admirable speech (with practically all of which I disagreed) begin by reminding us that this is an issue which in practice will arise very rarely indeed. It is also worth bearing in mind that the Minister has more than once been on record as saying that the best estimates are that there will be no excessive rise overall in the cost of insurance as a direct consequence of the directive being implemented.

There are these two particularly difficult areas of drugs and aerospace, and although I think personally that the risks here have been greatly exaggerated, there is an argument for having some contingency reserve, some insurance arrangement of last resort, as the Pearson Commission itself rcognised what now seems to be many years ago.

I will not repeat the very forceful arguments which the noble Lord, Lord Williams, put to us but I should like just to emphasise one of the points he made: that, whatever we decide on this Bill, industry in this country cannot just opt out of getting itself covered for development risks for export to those countries where that defence is not, and will not be, allowed. The CBI have done their level best to explain away what is going on in the rest of the world but, I fear, not very successfully. We have already touched on West Germany, which after thalidomide did legislate about drugs and will have no intention of revoking that legislation. I would remind the noble Lord, Lord Peyton, that the limits set there are very high.

For their part, the French find some difficulty, from my personal knowledge, in understanding what the development risk argument is all about. The test will be whether they derogate from this provision in the directive which this Bill is implementing. We have not heard much today—in fact nothing at all—about the provision in Article 15 allowing for countries to derogate from this position. I think that France will not be the only country to take advantage of that power. That, I fear, answers the point the noble and learned Lord made in his speech when he said that he wants to see the same law for Europe. So do I, but we shall not get it unless we all go for derogation. At present some countries will and some will not.

Going on from there to the argument about which people feel so passionately—the matter of innovation and the suggestion that the abolition of this defence would put an end to it—one does wonder a bit how the countries which do not have this defence have ever managed to struggle along and put up a performance which we in this country can hardly claim to have excelled.

The CBI said in their circulated papers that to dismiss the argument about innovation in a cavalier way is irresponsible, and we have heard today suggestions that it is facile. Yesterday I was told I was looking at the agricultural problems through narrow blinkers. I am tempted to reply to some of these epithets but I shall content myself with the very mild comment that, for my part, I see some sign here, I fear, of the reluctance of industry to recognise what is going on elsewhere—something which I hoped was becoming a thing of the past. While we have heard a lot about the interests of industry, what about the individual members of the community who will have to carry the whole weight if things go wrong and the manufacturers themselves can escape liability? The trouble is that the individuals are not organised. They do not have a CBI to represent their interests and most people do not worry too much about compensation for injury, unless and until it happens to them or to their families when, all of a sudden, it becomes extremely vital.

I certainly recognise that a good deal has happened since the Pearson Report and—taking up a point made by the noble Lord, Lord Bruce-Gardyne—I do not think that if we were reporting now we should say that to exclude development risks would leave a gap through which the victim of a thalidomide disaster might easily slip. I think that we would withdraw the word "easily". But, as the Minister himself accepted on Second Reading, the possibility of such a disaster cannot be ruled out altogether and the existence of such a risk, however remote, leaves a gap which simply ought not to exist.

The Government, as I understand it, think it absolutely vital that the development risk defence should be allowed, but at the same time they hope that by reversing the burden of proof and making it very difficult to run the defence it will never be practicable to raise it; and if there is anything in the insurance point I would have thought that what they have already done would have some impact on premiums. But the possibility of a thalidomide disaster is left open. As the noble Lord, Lord Young of Dartington, pointed out on Second Reading, if a company run this defence they will be put to great expense in parading the necessary evidence, so that those who seek to disprove the defence and establish negligence would be faced with such a horrific bill if they lost that they might well never start.

Before I leave that point, I should like to refer to something that has been raised by the noble and learned Lord and by someone else. If a drug is put on the market with warnings about side-effects and what have you, I personally do not see how it can be caught by the Bill in view of the provisions of Clause 3, or as Clause 3 will be when the Government have succeeded in making it intelligible. As chairman of MENCAP, I know a bit about the plight of families, when, for example, a child suffers brain damage, and, although money can do only so much, it can help to improve the quality of life for the individual and his family.

I confess that I was a shade surprised, although I have almost lost the capacity for being surprised, to read that in exchanges in another place on 10th December—this is in the Commons Hansard at col. 325—the Parliamentary Under-Secretary of State for Trade and Industry said he did not accept that the thalidomide victims would not have received compensation under the development risks clause, as a legal decision was never reached on the liability of the manufacturers.

This seems to me an attempt by the Government to stand the conclusion of the Pearson Commission on its head. That commission was set up in part as a consequence of the thalidomide disaster, and the reasoning underlying the conclusion that it came to was that under present law it is essential for the victims to establish negligence, that in that case some of those concerned had no prospect of doing so and that it was wrong in such circumstances for individuals to be excluded from a régime of strict liability applying to those whose defective product caused harm. That conclusion, to my mind, holds good today.

Those who prepared this directive must have felt some uncertainty about the defence since, as I have pointed out, Article 15 provides for powers of derogation and, furthermore, it provides for the operation of this defence to be reviewed after 10 years. Clause 8 of the Bill that we are discussing has been very wisely drafted in a way which would enable the defence to be repealed if that review goes against retaining it, as I expect it will. It is just conceivable that we shall lose the vote today although I hope not. But the battle will continue and, in the end, we shall prevail.

Lord Hacking

As the good Cross-Bencher that I try to be, I delayed intervening in this debate until I had had an opportunity to hear the arguments. I believe that we remain, one-and-a-quarter hours after the noble Lord, Lord Williams, intervened, in the same position, although perhaps a great deal better informed. I say that because the noble Lord, Lord Williams, argued, as I argue now, that it is a question of balance—a balance between the interests of some plaintiffs who may be prevented from gaining compensation by this provision being included in the Bill, and the interests of society that there should not be a curb in the development of new drugs or other new inventions which run to our benefit.

Nobody has challenged the benefits which society has gained from the development of new drugs and other innovations in, for example, the aerospace industry. In my short lifetime—and I believe that I am still in the latter days of my youth—I have witnessed the extermination of such diseases as polio, diphtheria, and tetanus by means of vaccine. When the noble Lord, Lord Donaldson, intervenes and talks about the "death" of the consumer, may I remind your Lordships that many consumers—many men, women and young children—would have died but for the extermination of those horrible diseases which existed in my youth. It is indeed exactly this risk factor that is before any parent who has to make a decision about the whooping-cough vaccine. There have been a few known tragedies due to that vaccine, but there have also been many benefits including the saving of the lives of very young children.

Now we are told, against the argument of that benefit, that the imposition of absolute liability would impose upon the pharmaceutical industry and other industries a curb on research and development. As the noble Lord, Lord Williams, said, it does not really matter how real is the problem. What matters is that the problem is perceived, because if that problem is perceived there will be a cutback on research and industry which will run to our detriment. It is within that context that the balance should be looked at—the balance of what disadvantages are being placed upon plaintiffs by the inclusion of this provision in the Bill. It is a very limited disadvantage.

As the Government's consultative paper stated the burden of proof on the producer will be a severe one. It will not be necessary for him, to show that he has done as many tests as his competitor nor that he did all his tests required of him by Government regulation". These are not tests directed to the law of negligence, nor even to the "state of the art". What it means is that if this provision is included in the Bill, producers can only successfully use this defence when a producer proves that he had no way of knowing or discovering the defects or, in the words of the noble Lord, Lord Peyton, the producer did not know and could not have known at the time of the defect in the product. Faced with that balance, I have no hesitation in coming down in favour of innovation and the further benefit to our society of research and development.

Lord Lucas of Chilworth

Since I have had the responsibility for answering from the Government Front Bench on consumer matters I have come to have an extremely high regard for the consumer movement, and in particular for the noble Baroness, Lady Burton, who diligently and rightly pursues the proper interests of the consumer lobby, if I may call it that. I have a very high regard, too, for the views held by the noble Lord, Lord Allen of Abbeydale, who has brought to the Committee this afternoon the arguments that he has deployed over a number of years.

The Government recognise that the development risks defence has an effect on the protection of the consumer, but that defence is part of the Community product liability directive which we are impelementing in this part of the Consumer Protection Bill. It is not something that this Government in isolation wish to add to the directive. It is part of the directive, and has been since 1976 when the directive was first proposed. The Government then agreed to and supported the adoption of the Community's liability directive in its present form because it represents a fair balance between the interests of industry and the consumer. The development risks defence is part of that important balance.

I should perhaps remind the Committee that it is a central part of my department's function to secure a climate which is favourable to industry and innovation. That climate must be nurtured in many ways. I hope that all noble Lords will agree that having a climate that encourages innovation is fundamental to the future prosperity of this country, its industries and its people. I have not heard any noble Lord say otherwise. Indeed, my noble friends Lord Mottistone and Lord Peyton, and the noble Lord, Lord Ezra, from the Liberal Benches, recognise this point. As I say, I do not believe it is denied anywhere across the Committee.

The primary question before us is how the development risks defence or its absence could effect that climate for innovation. The first thing we must do is listen carefully to the views of those who would be most directly affected by not making the defence available. Noble Lords opposite may deride this approach with cries of, "Well, they would say that"; but this Government listen seriously to industry, and listen in particular when industry says something very firmly, with complete unanimity and great consistency over a long period.

As evidence of what I have just said, I turn to the briefing paper put before most of us by the Confederation of British Industry. I should like to draw the attention of the Committee to the first paragraph of that paper which says: The Consumer Protection Bill raises issues of the greatest importance for industry. If framed correctly it will reinforce industry's drive to produce the better designed, high quality, high technology products needed in today's fiercely competitive market place. If not, it could jeopardise our competitive position by producing a climate in which innovative research and development of new products is inhibited, while our competitors suffer no corresponding constraints. It is vital in the interests of society as a whole that the development risks defence is retained". I certainly do not propose to ignore a warning like that.

But it is not just the CBI which is saying this. A briefing paper was produced by the Association of British Pharmaceutical Industries. The paper is very extensive, but perhaps I may quote one sentence. In referring to the development risk, it says: The risk may be small, but is a significant factor when embarking on speculative research without any guaranteed return". We ignore what our industrialists are telling us at our peril.

It is some 90 minutes since the noble Baroness reminded us, quite correctly, exactly what the development risks defence actually means. Noble Lords have talked about a number of matters but I should not like the Committee to lose sight of that point. Perhaps I may remind the Committee of its meaning. The producer of the defective product will have to prove—and I underline that it is for the producer of the defective product to prove, not the person injured by the product—that the state of scientific and technical knowledge at the time that the producer supplied that produce was such that no producer of products of that type might have been expected to have discovered that defect.

Do noble Lords suggest that this will be an easy defence to prove? It will be of no help to the producer to plead how difficult or how expensive it had or it might have been for him to have found the answers to that defect. If other producers of products of that type had the knowledge available to them, then the defence is of no use to the producer of the product. Neither will it necessarily be of any use to that producer if he shows that he manufactured the products to an accepted national or international safety standard. Neither can that producer point to what other producers of products like his are doing in the manufacture of their products. Only if the producer can prove to the court that he took all the steps that a producer of products of that kind might reasonably have been expected to take, and that the state of scientific and technical knowledge would have allowed him to take, will this defence be of any value.

My noble friend Lord Peyton of Yeovil made the point very clearly that we should also consider the impact that the removal of this defence would have on all types of research and development in British industry. We must certainly avoid needlessly inhibiting product development. Perhaps I may remind the Committee of the First Report (Session 1986–87) of your Lordships' Select Committee on Science and Technology. I quote from paragraph 7.40, which points out, the gravity of the United Kingdom's prospects in R & D". That is a warning to us this afternoon from our own Select Committee which has looked at the great problems of research and development. Research leads to new products, and new products mean new jobs. British industry needs to make those products and Britain needs those jobs. I do not think that noble Lords who have spoken for the amendment want anything different.

Perhaps I may turn now to the question of insurance which was raised in the amendment of the noble Lord, Lord Williams of Elvel. The noble Lord put before us a new clause, the purpose of which is to ensure that insurance for development risks will always be available. I shall have something to say about the mechanism he has used in a moment or two. The noble Lord argued that once the insurance problem is solved, industry will not be concerned by development risks. Perhaps at this time I should respond to the noble Baroness, Lady Burton, who suggested that I said that there was no insurance problem. I think she said that I said that the problem was insignificant. When I said last night that insurance cost increases would have a marginal effect on the cost of production, I made it quite clear that the comments referred to the Bill as it is before the Committee this afternoon; that is, with the defence. The Association of British Insurers made clear that it expects capacity problems in high risk sectors if the defence is not retained.

Here I should perhaps comment on something that the noble Lord, Lord Williams, said when speaking about insurance for unlimited liability. Surely people face many unlimited liabilities already in their day-to-day and week-to-week lives—for example, under the existing law of negligence—and of course the insurance that is available is only up to fixed limits. That is a fact of life in many fields and there is nothing special in that regard about product liability.

Even if the insurance problem—if it is a problem—could be solved, then I believe that the absence of the development risks defence would still be a serious blow to the climate for innovation. The existence of insurance against a risk does not make us indifferent as to whether or not the event occurs. Let me take a simple example. Even though I insure my car, I would still rather avoid crashing it. It makes the disaster less catastrophic, certainly, but it is the risks inherent in driving that determine my behaviour, not the adequacy or otherwise of my insurance cover. I believe that it is precisely the same with development risks. Removing the defence would still deliver a blow to the climate for innovation.

My noble friend Lord Mottistone, the noble Lord, Lord Williams of Elvel, and others including the noble Lord, Lord Allen of Abbeydale, drew some comparisons with what is happening in the Community. Perhaps I should for a moment turn to consider what other member states are doing. Some noble Lords have made much of the fact that in France and Belgium there is at present no such defence. They have also mentioned the strict liability system that operates for pharmaceuticals in West Germany.

One thing that we cannot be sure about this afternoon is how in the end all the other member states of the Community will implement the directive or seek the derogation that is provided. The debate we are having will be produced all over Europe. The Committee should not assume that French industry will simply accept that it should be burdened with no development risks defence when much of Europe is going in the opposite direction. Indeed, it was the noble Lord, Lord Allen of Abbeydale, who said that the French may take advantage of the development risks defence, and I was encouraged to hear that he recognised that the French, often quoted as an example of where absolute strict liability exists, might be considering the directive as we are—without development risks defence.

Two member states—Denmark and the Netherlands—have introduced into their parliaments legislation which, like ours, includes the defence. The directive itself is drafted to include the defence and it is a specific derogation from it to remove the defence. While clearly I cannot be definitive until that European debate is finished, it seems to me from my discussions with many of the consumer Ministers in those states that the majority will retain the defence.

I return to the proposed new clause on insurance. Much has been said about insurance costs and availability. Not all of it has been consistent. I believe that ultimately time will tell. We should turn to the words of those who know and in its brief for Second Reading to which I referred last night the Association of British Insurers made clear that there may be reductions in capacity for insurance on development risks in certain high risk areas. There is no suggestion that with the defence there will be a paucity of cover. I do not believe that it is for me to prove the capacity of the industry. Its capacity for risk—certainly as the Bill stands before the Committee this afternoon—is not in doubt, any more than the insurance industry's capacity has been in doubt for cover across the world for an extraordinary number of risks.

The noble Lord opposite explained that the purpose of his clause is to ensure that insurance will be available. The proposed new clause sets up an elaborate mechanism whereby a producer, unable to obtain insurance, convinces the High Court of that fact. The Secretary of State then has to find the insurance or provide insurance himself. In practice, that means that the Secretary of State would have to provide the insurance himself since I do not see why he would be any more successful in finding it on the open market than the producer himself; assisted, of course, by an insurance broker or the industry itself.

There are further reasons why I am not prepared to accept this new clause. First, it is an unacceptable state intervention in the insurance market. Secondly, it will not achieve the result that the proposers seek. It is a fundamental tenet of this Government that goods and services are best produced by private bodies operating in a free market. The Committee will be well aware that a major part of our policy has been to extend the market and extend the area where goods and services are provided by private capital. The reasons why we wish to reduce state intervention are very well known. As we have seen, prior to this Administration coming into government in 1979, the state provision of goods and services was inefficient, costly, and often did not provide consumers with the kind of choice to which they are entitled. Against that background I do not believe it is right for the Secretary of State to enter the product liability insurance business.

Lord Airedale

If the noble Lord is pausing for a moment, may I put to him this point concerning insurance? Let us suppose the producer in the tragic thalidomide case had envisaged the possibility that such a tragedy might occur, with the full extent of the amount of claims that would arise, and did arise, in that tragedy, and the producer had gone to the insurance market. Does the Minister really believe that the insurance market would have been able, at any price, to have insured against that disaster to the extent that it occurred?

Lord Lucas of Chilworth

The noble Lord, Lord Airedale, has asked me what my beliefs are against a hypothetical situation set in itself against a situation which was never determined by the courts. With all the noble Lord's reasonableness, I do not think that he would expect me to lay my beliefs before the Committee this evening against that background.

On this issue of insurance I want finally to point out to the noble Lord, Lord Williams, what I think is an astonishingly cumbersome and bureaucratic method that he has chosen to achieve the end he seeks. Every producer unable to obtain insurance must separately convince the High Court of that fact. Such insurance will, by and large, either be available or it will not. If the insurance is available the clause is unnecessary. If it is not available it seems that British industry will be able to make use of the new facility granted by the Secretary of State only if each company makes its own case to the High Court. I do not think that there is a greater waste of time and money than that.

I ought now to sum up the argument as the Government see it and as I have sought to put it before the Committee. We wish to retain this fundamental part of the directive because it is essential to help in maintaining the climate of innovation upon which British industry depends. We hope and believe that most other member states in Europe will follow us and we shall not risk putting our companies at a disadvantage in the Community or indeed the world.

We do not believe that the problem can be solved by the provision of insurance alone, and we cannot contemplate the state becoming involved in the insurance market in the manner suggested. We are not prepared to ignore the very genuine concerns of British industry, nor indeed the views of the consumer. We have considered the matter most carefully and I have listened very carefully to everyone who has taken part in this very interesting debate. However, I believe that the Bill as it is before the Committee represents the balanced view. I invite the Committee to reject the amendment that is before us.

5 p.m.

Lord Allen of Abbeydale

Before the Minister sits down, perhaps I may say that I am sorry that he did not touch on the point that the directive allows for review in 10 years' time. If the matter is so clear cut, I wonder what was the thinking that lay behind putting that provision into the directive. What was the motive or the intention in ensuring that this particular defence should be looked at again, the way in which it worked should be observed and then a decision taken as to whether it should be repealed?

Lord Lucas of Chilworth

In fact I was not a party to all the discussions that went on but certainly one of the thoughts present in our minds on the two occasions on which I took part in those discussions was the pace of technology and that it might be a good idea to review all the articles of the directive in about 10 years' time.

Lord Allen of Abbeydale

I am sorry to pursue this matter; but there is a specific reference not to the articles in general but to this particular defence.

Baroness Burton of Coventry

We have had a long debate and it is not my intention to inflict myself on the Committee for more than a few moments. First, with regard to a matter about which great play has been made by the noble Lords, Lord Lucas, Lord Peyton and others—namely, the innovation and the innovative nature of British industry—I really cannot see why this question should keep coming up time and again. It only means that I refer back to France, Belgium, Germany, Luxembourg and the USA and say that I have not noticed any lack of innovation in those countries. It is quite wrong to say that such a thing will happen to us if we have the same rule as they have on the risks defence. That is the first point I should like to make and I think it is a matter of common sense.

Secondly, we all know that the CBI has been working very hard on the Government. The noble Lord, Lord Lucas, mentioned two organisations (if I may call them that) which have advanced such views, and those were the CBI and the pharmaceutical industry. I can only use the immortal phrase, "Well, they would, wouldn't they?" Those are the two bodies that I should have picked out anyway.

I was very surprised at the noble Lord, Lord Peyton, who had a good fling over on the right talking about this measure being an act of punishment. That is really complete nonsense. I am not seeking to punish anybody. I am merely trying to ensure a fair deal for the consumer as well as industry. I cannot see that there should be any question about that.

I want to come now to my next point. I could not follow the noble Lord, Lord Bruce-Gardyne, but I did not interrupt him. He seemed to be complaining that in the thalidomide case emphasis had been put on those who suffered. I thought that his was such a strange attitude that possibly I had misheard him. I should have expected the emphasis to be put upon those who suffered. I could not sort out his argument at all; but I shall read in Hansard exactly what he said.

The noble Lord, Lord Lucas, said that we should wait to see what the other countries in the Community will do. I hesitate to bring air fares into this discussion, but other countries in the Community have acted very differently from the way we expected, and I can only say that he may be wrong on this matter.

Finally, I deplore very much indeed the great difference of opinion in the Committee. I think that the noble Lord, Lord Ezra, really put his finger on the problem. He was supported by the noble Baroness, Lady Elliot, and by those who agree with this amendment. It is a question of whether individuals who suffer grievous hardship and illness and who undergo terrible suffering shall have to bear their suffering alone and uncompensated, or whether the rest of us, who are more fortunate and have to buy the same products, should not contribute. I take a higher view of human nature. I think that people will be prepared for the risk to be spread.

I should also like to say that I think it is very regrettable, that if our amendment is agreed—and the noble Lord, Lord Lucas, emphasised this point—then the research and development side of British industry might suffer. I think much more highly than that of the research and development side of British industry. Why on earth should British industry pull back from what it is doing simply because we wish the risk to be spread, and we do not want individuals to have to suffer from risks which they themselves cannot spread.

I thank the noble Lord, Lord Lucas, for his comments, even though he does not agree with me, and I thank everybody who has taken part in this very long debate. I hope that when we divide the Committee many Members will agree with us that the individual should not suffer unduly compared with the rest of us.

5.6 p.m.

On Question, Whether the said amendment (No. 39) shall be agreed to?

Their Lordships divided: Contents, 91; Not-Contents, 154.

DIVISION NO. 1
CONTENTS
Allen of Abbeydale, L.	Hughes, L.
Amherst, E.	Hunt, L.
Ardwick, L.	Irving of Dartford, L.
Attlee, E.	Jacques, L.
Banks, L.	Jeger, B.
Birk, B.	John-Mackie, L.
Bonham-Carter, L.	Kearton, L.
Bottomley, L.	Kilbracken, L.
Briginshaw, L.	Kilmarnock, L.
Brockway, L.	Kinloss, Ly.
Burton of Coventry, B. [Teller.]	Kirkhill, L.
	Llewelyn-Davies of Hastoe, B.
Carmichael of Kelvingrove, L.	Lloyd of Hampstead, L.
Chitnis, L.	Lloyd of Kilgerran, L.
Cledwyn of Penrhos, L.	Lockwood, B.
Cudlipp, L.	Longford, E.
David, B.	Lovell-Davis, L.
Dean of Beswick, L.	Mackie of Benshie, L.
Denington, B.	McNair, L.
Diamond, L.	Mar, C.
Donaldson of Kingsbridge, L.	Merrivale, L.
	Mishcon, L.
Dowding, L.	Morton of Shuna, L.
Elliot of Harwood, B.	Mulley, L.
Elwyn-Jones, L.	Nicol, B.
Ennals, L.	Paget of Northampton, L.
Ewart-Biggs, B.	Phillips, B.
Ezra, L.	Pitt of Hampstead, L.
Fitt, L.	Ponsonby of Shulbrede, L. [Teller.]
Foot, L.
Gallacher, L.	Prys-Davies, L.
Galpern, L.	Raglan, L.
Gladwyn, L.	Rathcreedan, L.
Glenamara, L.	Ritchie of Dundee, L.
Graham of Edmonton, L.	Robson of Kiddington, B.
Grey, E.	Seear, B.
Grimond, L.	Serota, B.
Hampden, V.	Shackleton, L.
Hampton, L.	Stallard, L.
Hanworth, V.	Stedman, B.
Harris of Greenwich, L.	Strabolgi, L.
Houghton of Sowerby, L.	Taylor of Blackburn, L.

Tordoff, L.	Whaddon, L.
Turner of Camden, B.	Williams of Elvel, L.
Underhill, L.	Wilson of Langside, L.
Wallace of Coslany, L.	Winchilsea and Nottingham, E.
Walston, L.
Wells-Pestell, L.

NOT CONTENTS
Abercorn, D.	Kintore, E.
Abinger, L.	Knollys, V.
Alexander of Tunis, E.	Lane-Fox, B.
Arran, E.	Lauderdale, E.
Auckland, L.	Layton, L.
Bauer, L.	Lloyd -George of Dwyfor, E.
Beaverbrook, L.
Belhaven and Stenton, L.	Long, V. [Teller.]
Belstead, L.	Lucas of Chilworth, L.
Bessborough, E.	Lurgan, L.
Birdwood, L.	Macleod of Borve, B.
Blyth, L.	Manton, L.
Brabazon of Tara. L.	Margadale, L.
Braye, B.	Marley, L.
Brougham and Vaux, L.	Maude of Stratford-upon-Avon, L.
Broxbourne, L.
Bruce Gardyne, L.	Melville, V.
Butterworth, L.	Mersey, V.
Caithness, E.	Middleton, L.
Cameron of Lochbroom, L.	Milverton, L.
Campbell of Alloway, L.	Molson, L.
Carnegy of Lour, B.	Montague of Beaulieu, L.
Carnock, L.	Montgomery of Alamein, V.
Cathcart, E.
Cawley, L.	Morris, L.
Chelwood, L.	Mottistone, L.
Clitheroe, L.	Mountgarret, V.
Colville of Culross, V.	Munster, E.
Cornwallis, L.	Nathan, L.
Cottesloe, L.	Newall, L.
Cawley, E.	Noel-Buxton, L.
Cox, B.	Norfolk, D.
Craigavon, V.	Northbourne, L.
Cullen of Ashbourne, L.	Nugent of Guildford, L.
Davidson, V. [Teller.]	Onslow, E.
De La Warr, E.	Orkney, E.
Deedes, L.	Orr-Ewing, L.
Denning, L.	Pender, L.
Derwent, L.	Peyton of Yeovil, L.
Dilhorne, V.	Porritt, L.
Elliott of Morpeth, L.	Portland, D.
Elphinstone, L.	Radnor, E.
Elton, L.	Reay, L.
Faithfull, B.	Renwick, L.
Forbes, L.	Ridley, V.
Forte, L.	Rochdale, V.
Fortescue, E.	Rodney, L.
Gainford, L.	Rootes, L.
Gardner of Parkes, B.	Rugby, L.
Geddes, L.	St. Aldwyn, E.
Gibson-Watt, L.	St. Davids, V.
Glanusk, L.	Saint Oswald, L.
Glenarthur, L.	Saltoun of Abernethy, Ly.
Gray, L.	Sanderson of Bowden, L.
Gray of Contin, L.	Sandford, L.
Greenway, L.	Savile, L.
Gregson, L.	Seebohm, L.
Grimthorpe, L.	Selkirk, E.
Hacking, L.	Shannon, E.
Haig, E.	Shaughnessy, L.
Hailsham of Saint Marylebone, L.	Sherfield, L.
	Shrewsbury, E.
Halsbury, E.	Simon of Glaisdale, L.
Harris of High Cross, L.	Skelmersdale, L.
Henderson of Brompton, L.	Stanley of Alderley, L.
Hesketh, L.	Stodart of Leaston, L.
Hives, L.	Strange, B.
Hooper, B.	Strathcarron, L.
Howe, E.	Sudeley, L.
Hunter of Newington, L.	Terrington, L.
Hylton-Foster, B.	Teviot, L.
Kaberry of Adel, L.	Teynham, L.
Kimball, L.	Thorneycroft, L.

Torrington, V.	Vickers, B.
Tranmire, L.	Vinson, L.
Trefgarne, L.	Whitelaw, V.
Trumpington, B.	Wilberforce, L.
Ullswater, V.	Wise, L.
Vaux of Harrowden, L.	Ypres, E.

Resolved in the negative, and amendment disagreed to accordingly.

Lord Beaverbrook

This may be a convenient moment to take the Statement. I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.