- •Commercial Law
- •Contents
- •Preface
- •Abbreviations
- •Table of Statutory Provisions
- •Table of Cases
- •1 Introduction
- •1 Introduction
- •2 What is agency?
- •3 Nature and characteristics of agency
- •4 The different types of agency
- •5 Conclusion
- •6 Recommended reading
- •1 Introduction
- •2 The authority of an agent
- •3 Agency by ratification
- •4 Agency of necessity
- •5 Conclusion
- •6 Recommended reading
- •1 Introduction
- •2 Duties of an agent
- •3 Rights of an agent
- •4 Commercial agents and principals
- •5 Disclosed agency
- •6 Undisclosed agency
- •7 Termination of agency
- •8 Recommended reading
- •Introduction
- •1 Introduction
- •2 Background
- •3 Development of the sale of goods
- •4 Equality of bargaining power: non-consumers and consumers
- •5 Impact of the European Union
- •6 Contract of sale
- •7 Contracts for non-monetary consideration
- •8 Contracts for the transfer of property or possession
- •9 Recommended reading
- •1 Introduction
- •2 Background
- •3 Sale of Goods Act 1979, section 12: the right to sell
- •4 Sale of Goods Act 1979, section 13: compliance with description
- •5 Sale of Goods Act 1979, section 14(2): satisfactory quality
- •6 Sale of Goods Act 1979, section 14(3): fitness for purpose
- •7 Sale of Goods Act 1979, section 15: sale by sample
- •8 Exclusion and limitation of liability
- •9 Acceptance
- •10 Remedies
- •11 Recommended reading
- •1 Introduction
- •2 Background to the passage of property and risk
- •3 Rules governing the passage of property
- •4 Passage of risk
- •5 The nemo dat exceptions
- •6 Delivery and payment
- •7 Remedies
- •8 Recommended reading
- •1 Introduction
- •2 Background
- •3 Provision of Services Regulations 2009
- •4 Supply of Goods and Services Act 1982
- •5 Recommended reading
- •1 Introduction
- •2 Background
- •3 Electronic Commerce (EC Directive) Regulations 2002
- •4 Distance selling
- •5 Recommended reading
- •Introduction
- •1 Introduction
- •2 CIF contracts
- •3 FOB contracts
- •4 Ex Works
- •5 FAS contracts
- •6 Conclusion
- •7 Recommended reading
- •1 Introduction and background
- •2 Structure and scope
- •3 UNIDROIT Principles of International Commercial Contracts
- •4 Conclusion
- •5 Recommended reading
- •1 Introduction and background
- •2 Open account
- •3 Bills of exchange
- •4 Documentary collections
- •5 Introduction to letters of credit
- •6 Factoring
- •7 Forfaiting
- •8 Conclusion
- •9 Recommended reading
- •1 Introduction
- •2 Hague and Hague-Visby Rules
- •3 Charterparties
- •4 Time charterparty
- •5 Common law obligations of the shipper
- •6 Common law obligations of the carrier
- •7 Bills of lading
- •8 Electronic bills of lading
- •9 Conclusion
- •10 Recommended reading
- •Introduction
- •1 Introduction
- •2 Background
- •3 Development of negligence
- •4 The move to strict liability
- •5 Types of defect
- •6 Developments in strict liability
- •7 Recommended reading
- •1 Introduction
- •2 Personnel
- •3 Meaning of ‘product’
- •4 Defectiveness
- •5 Defences
- •6 Contributory negligence
- •7 Recoverable damage
- •8 Limitations on liability
- •9 Recommended reading
- •Introduction
- •1 Introduction
- •2 Background
- •3 Enforcement strategy
- •4 Criminal law controls
- •5 Civil law enforcement
- •6 Recommended reading
- •1 Introduction
- •2 Scope of the 2008 Regulations
- •3 Prohibition against unfair commercial practices
- •4 Codes of practice
- •5 Misleading actions
- •6 Misleading omissions
- •7 Aggressive commercial practices
- •8 Commercial practices which are automatically unfair
- •9 Offences
- •10 Recommended reading
- •1 Introduction
- •2 Background
- •3 Controls over misleading advertising
- •4 Comparative advertising
- •5 Promotion of misleading or comparative advertising
- •6 Recommended reading
- •1 Introduction
- •1 Introduction
- •2 History of banking regulation: early policy initiatives
- •3 New Labour and a new policy
- •4 The Financial Services Authority
- •5 The Coalition government
- •6 Conclusion
- •7 Recommended reading
- •1 Introduction
- •2 What is a bank?
- •3 What is a customer?
- •4 Bank accounts
- •5 Cheques
- •6 Payment cards
- •7 Banker’s duty of confidentiality
- •8 Banking Conduct Regime
- •9 Payment Services Regulations 2009
- •10 Conclusion
- •11 Recommended reading
- •1 Introduction
- •2 European banking regulation
- •3 The Financial Services Authority
- •4 Financial Services Compensation Scheme
- •5 Financial Ombudsman Scheme
- •6 Financial Services and Markets Tribunal
- •7 The Bank of England
- •8 Bank insolvency
- •9 Illicit finance
- •10 Conclusion
- •11 Recommended reading
- •1 Introduction
- •1 Introduction
- •2 Evolution of the consumer credit market
- •3 Consumer debt, financial exclusion and over-indebtedness
- •4 Irresponsible lending
- •5 Regulation of irresponsible lending
- •6 Irresponsible borrowing
- •7 Ineffective legislative protection for consumers
- •8 A change of policy
- •9 Lessons from the United States
- •10 Conclusion
- •11 Recommended reading
- •1 Introduction
- •2 Crowther Committee on Consumer Credit
- •3 Consumer Credit Act 1974
- •4 Formalities
- •5 Cancellation of agreements
- •7 Documentation of credit and hire agreements
- •8 Matters arising during the currency of credit or hire agreements
- •9 Credit advertising
- •10 Credit licensing
- •11 Unfairness test
- •12 Other powers of the court
- •13 Financial Ombudsman Service
- •14 Enforcement
- •15 Consumer Credit Directive
- •16 Conclusion
- •17 Recommended reading
- •Bibliography
- •Index
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5â Types of defect |
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liability has arisen. Strict liability has supposed advantages over negligence |
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liability, of which the most obvious is that the claimant no longer needs |
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to establish whose negligence is to blame for the defective product. Rather, |
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the claimant needs to demonstrate that the product was ‘defective’ within the |
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statutory meaning of that word and that there is a causal link between the |
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defective product and the injury or damage he has suffered. In this respect, |
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it can be argued that strict liability has some of the same weaknesses as neg- |
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ligence in that the claimant still needs to identify a potential and viable |
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defendant22 and doubts have been raised as to whether strict liability is |
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really a significant improvement in this area. A further advantage claimed |
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for strict liability is an economic one; namely, that it facilitates risk spread- |
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ing through the use of product liability insurance, the premiums for which |
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can be recouped via an added factor to the costs of production and thereby |
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spread among all of the purchasers of the product via the price. The poten- |
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tial danger attached to the practice of risk spreading through insurance is |
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that insurance premiums may become prohibitively expensive, with some |
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manufacturers being forced to ‘go bare’ and not have product liability insur- |
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ance at all. This argument underpinned the so-called insurance crisis in the |
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United States but the Presidential Interactive Task Force23 found that there |
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was no evidence of any real emergency and thus it seems that this risk had |
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been overstated. |
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Negligence claims revolve around the alleged negligent behaviour of the |
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defendant while, in product liability, it is the defective nature of the product |
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that is key to the potential liability of the defendant. If liability is truly strict the |
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actions or intentions of the defendant are irrelevant. Naturally, this change of |
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emphasis requires a much closer scrutiny of the types of defect that may arise |
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and what will constitute a defective product. |
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Q5 Analyse the supposed advantages of strict liability over negligence. |
5â Types of defect
Defects can generally be divided into three main categories: manufacturing defects, design defects and ‘duty-to-warn’ defects.24 While this is the simplest categorisation of defects, other commentators have developed more sophisticated analyses.
22 This is not necessarily the case in some US jurisdictions where the claimant can sue anyone who manufactured the product, who will then be held liable for a percentage of the claim equivalent to their percentage of the market. See Sindell v. Abbott Laboratories, 26 Cal. 3d 588 (1980).
23 Set up by President Ford to consider this issue.
24 For a very comprehensive analysis of types of defects see C.J. Miller and R.S. Goldberg, Product Liability (2nd edn, Oxford University Press, 2004). See also M. Griffiths, ‘Defectiveness in EEC product liability’ (1987) Journal of Business Law 222.
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Negligence and the rise of product liability |
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(a)â Manufacturing defects
At its most basic, a manufacturing defect is the easiest to spot for it exists when an item ‘deviates from the norm’ of products being produced according to that design or on that production line. It can be proved statistically that a percentage of products, however minimal, in a production run will contain a manufacturing defect irrespective of the production method used or the efficiency of the quality assurance system employed during the manufacturing process. As the statistical frequency of such rogue products can be calculated accurately, the manufacturer can adopt a suitable quality control system to limit the occurrence of such rogues and recoup both the cost of the system and the cost of any injuries caused by defective products that reach the market via the price of the product.
Manufacturing defects can be evidenced in a variety of ways. The defective product may look different from others in the production run or might not perform in the way intended or have all of the characteristics of a perfect product. Equally, it may be that the product is adulterated by the presence of a foreign object such as a caterpillar in a tin of peas25 or an explosive detonator in a delivery of Coalite.26 Finally, a defective container is integral to the definition of a manufacturing defect, as, for instance, when a defective bottle containing carbonated drink explodes.
(b)â Design defects
A design defect is much more significant than a manufacturing defect and has potentially far wider-reaching consequences due to the fact that it involves not merely a small, statistically identifiable percentage of the production run but, rather, involves the whole of it. The contention is not that the product deviates from the legitimate specifications used by the manufacturer but rather that those specifications or design are themselves defective and present a hazard. The assessment of defectiveness in a design case is much more difficult as it involves considering viable alternatives, the utility of the product, the costs of changing the design, a risk-utility analysis of whether the benefits of the product outweigh the risk and severity of potential injury,27 and whether the state of scientific and technical knowledge prevailing at the time of production was such as to allow the producer to realise that the design posed unacceptable risks. This raises the vexed question of the unknowable defect which even the most diligent manufacturer cannot identify. The issues of the state of the art and of the availability of a development risk defence is of particular concern
25Smedleys v. Breed [1974] 2 All ER 21.
26Wilson v. Rickett, Cockerill & Co. [1954] 1 All ER 168.
27Thus, the Pasteur Rabies vaccine is an acceptable product as, although it causes serious side-effects, the alternative would be to allow the patient to die from rabies.
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5â Types of defect |
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in industries such as pharmaceuticals, which depend heavily on research and |
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development to develop new products and to which there is likely to be a risk |
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attached. A prime example of a development risk was the drug Thalidomide, |
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which, when used by pregnant mothers, caused limb damage to the foe- |
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tus resulting in a large number of children born with deformed or shortened |
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limbs.28 In the event, their plight acted as a driving force in the demand for |
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strict product liability,29 as a claim in negligence, the legal regime prevailing |
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at the time, would have failed.30 Somewhat naturally, manufacturers, particu- |
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larly in industries such as pharmaceuticals, feel the need for a development risk |
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defence, both to protect them from liability for injuries caused by unknowable |
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defects and also to encourage the research and development of new products. |
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By contrast, consumer bodies argue that such a defence should not be allowed |
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and that a manufacturer who produces a product should be liable for all injuries |
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caused by using it irrespective of whether the manufacturer could have known |
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of the underlying defect. Their argument is that the injured user deserves com- |
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pensation either way and that if the manufacturer takes the profits from the |
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product, he should also be prepared to accept liability for any injuries caused by |
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it. Needless to say, there is no easy solution to this difference of opinion. It is no |
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surprise that the debate about whether to allow a development risk defence in |
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the EC Directive continued for some years and was ultimately resolved only by |
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allowing Member States the option to choose whether they wished to adopt the |
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defence into their national legislation.31 |
(c)â Duty to warn defects
The third type of defect is the so-called ‘duty to warn’ defect, which occurs when a producer has failed to provide appropriate instructions for the safe use of the product and appropriate warnings about any known risks that the product may
28 We will return to the issue of development risks when we consider the defences permitted under the EU Product Liability Directive.
29 When establishing the Royal Commission on Civil Liability and Compensation for Personal Injury, the then Prime Minister, Edward Heath, stated ‘The Government has been considering proposals made from time to time in the past, which are now particularly relevant in the light of the Report of the Robens Committee on Health and Safety at Work and in connection with the recent concern over the thalidomide cases, that there should be an inquiry into the basis of civil liability in the United Kingdom for causing death or personal injury.’
30 The Thalidomide victims in the United Kingdom received an out-of-court settlement of £20 million in respect of their claim.
31 Only Luxembourg and Finland decided against a development risk defence and thus producers in those countries have liability for all products. In Spain, manufacturers are liable for development risks in food and pharmaceutical products, while in France producers are liable for development risks in products derived from the human body. In Germany, producers are liable for development risks in pharmaceutical products as a consequence of the Thalidomide issue. Germany was the country worst affected by this drug, which was known there as Contergan. See Report from the Commission on the Application of Directive 85/374 on Liability for Defective Products, COM(2000)893 final and also G. Howells and S. Weatherill, Consumer Protection Law (2nd edn, Ashgate Publishing Ltd, Aldershot, 2005).