It is necessary to examine whether Megahard and Floppydisc are liable under the Product Liability Directive of the European Community which was implemented into the Consumer Protection Act of 1987. The following sections refer – if not stated differently – to the Consumer Protection Act of 1987.
Section 1 of the Act “imposes strict liability on producers of goods which prove defective and which cause damage to persons or, in some circumstances, property, subject to certain defences”. Therewith Megahard and Floppydisc are only liable if they are the producers who have manufactured a defected good which caused damage to Jim’s daughter and his property. These features will be examined in the following.
Under s. 1(2)(a) the ‘producer’ is described as the person who manufactured the product. Section 1(2) states that the term ‘product’ includes products which are part of the finished good.
Megahard installed the visual display unit of Floppydisc in the personal computer Jim purchased. It is therefore seen as (part of) the product which was manufactured by Megahard. Megahard is consequently the producer of the personal computer Jim purchased.
The basis of producer’s liability under the Consumer Protection Act I is that the product is defective. Section 3(1) provides that a product is defective if it is not as safe as persons generally are entitled to expect.
‘Safety’ in this connection refers to the safety of the products which are part of the entire product as well as to possible risks for the property, personal injury or even death.
S. 3(2)(a & b) explain the term ‘expect’ as “[…] the manner in which, and purposes for which, the product has been marketed […]”.
While Jim switched on the new computer, the visual display unit exploded. This reaction could not have been expected by any means. Therewith the product is definitely not safe in the context of s. 3(1) since this reaction could have been expected in no way. The product’s purpose is to work after it has been switched on.
The next step is to examine who might be liable for a damage which has been caused by a defective good. Under s. 2(2)(a)&(c) possible liable parties are the producer of a product (with regards to s. 1(2)(a)) and any person who has imported the product into a member State of the Community from a place outside the member States.
Floppydisc’s exploding visual display unit was imported into the Community by Megahard and then installed in their own personal computers. With regards to s.1(2) the visual display unit is a major part of the computer. Megahard is therefore liable for the damage caused by Floppydisc’s defective visual display unit.
However, s. 4(1)(d) is a defence that the defect did not exist in the product at the relevant time which is concerned with the time when the product is supplied to someone else. Then the supplier could get away from liability.
This means that Megahard has to show that the visual display unit was not defect at the time it was supplied to Dixol in order not to be ‘exonerated’ from liability.
Section 5 is concerned with the damage which could give rise to liability. The term ‘damage’ covers personal injury, death and loss or damage to property.
It states that a person can neither be liable for the loss or the damage of the product itself (s. 5(2)) nor the loss or damage to a property which is at that time not primarily private use (s. 5(3)(a)). S. 5(4) includes that if the claim for the loss or the damage to the property is less than £275, there should be no award of damages.
The explosion of the visual display unit caused damage to a chair and a table, but also serious injury to Jim’s young daughter Sally. Since the equipment was set up at home, both chair and table were during that time at private use. Megahard is not liable for the computer itself but for the damaged chair and table unless the amount Jim claims for is not beyond £275 (with regards to s. 5 (4)). Furthermore, Megahard is liable for Sally’s injuries regarding to section 5.
The following paragraph examines the liability Megahard could likely have regarding the economic loss Jim suffered through the damage of the personal computer itself.
The Sale of Goods Act 1979, section 14(2), states that a product has to be of ‘merchantable quality’ (see Wilson v Rickett Cockrell & Co). This section has been improved by the Sale and Supply of Goods Act 1994 which amongst others describes ‘quality’ as the condition of being safe. If the purchased product is not safe it does not reach the required quality standard and the retailer will be liable for its lack of safety. The harm is remediable in an action for damages against the retailer. However, even if the retailer is liable due to a breach of the statutory rights in the Sales of Goods Act, he can seek indemnity from his immediate supplier for the same reason. This supplier can then claim indemnity against his supplier and so back through each level in the chain of distribution to the manufacturer (see Godley v Perry).
The computer Jim purchased from the electronics retailer Dixol was not of ‘merchantable quality’ in the sense of the Sales of Goods Act, who is therewith liable. As consequence Jim can claim for the damages to his property (which includes also chair and table) against the retailer. But since Dixol may apply the same reason for a right against Megahard, the company is in spite of s. 5(2) of the Consumer Protection Act (indirect) liable for the computer and additionally for the chair and the table.
Frost v Aylesbury Diary Co. shows that once a breach of implied terms has been proved, liability is strict. This means that the trader has no defence even if he can prove that reasonable care had been taken. Consequently Megahard is strictly liable for the defect visual display unit.
On the 1st of March the Spanish computer hardware company Genta complained to the European Commission that the agreement Megahard and Floppydisc completed on the 3rd of was in direct contravention of European legislation. It has to be examined whether the two companies have any liability under the Competition Law of the European Union which aim is to protect free competition.
The liability could arise under Article 81(1) of the Treaty of Rome (previously 85) which “deals with anti-competitive agreements and concerted practices between two or more undertakings”. This Article prohibits “[…] all agreements between undertakings […] which have as their object or effect […] the restriction or distortion […] of competition within the common market” and section 2 states that all these agreements are automatically void. It has to be examined whether the agreement between Megahard and Floppydisc falls under this Article.
According to Polypropylene (see e.g. SA Hercules Chemicals NV v Commission), the term ‘undertaking’ covers any entity which was engaged in commercial activity. Since both Megahard and Floppydisc are businesses, they are involved in commercial activity and so undertakings analogous Article 81(1).
“The provisions of Article 85(1) are intended to act against even the most informal forms of ant-competitive business relationship. The notion of an agreement is broadly interpreted, to include oral contracts and ‘gentlemen’s agreements’”. Article 85(1) forbids both the object of an agreement to restrain competition (see WEA-Filipacchi Music) as well as (even if there is not the objective but) the effect of competition restriction (see Société Technique Minière v Maschinenbau Ulm). In order to analyse whether this is the case, the European Commission and the European Court of Justice will take into account the current as well as future effects an agreement might have.
If one of the following possibilities is correct, Megahard and Floppydisc cannot be made liable with regards to Article 81(1).
An agreement can be valid even if it falls under 81(1) when it is covered by 81(3). Therefore, the following conditions must be applicable: improvement of the production or distribution of goods or promotion of technical or economic process, allowing consumers a fair share of the resulting benefit, the contained restrictions are necessary in order to achieve the agreement’s objectives and there is no elimination of competition. There are two ways in which an exemption can be granted: either on individual basis (see Métropole Television SA v Commission) or with regards to block exemptions.
Megahard and Floppydisc may seek to get individual allowance for their agreement by the European Commission. Furthermore, since Megahard obligated itself to purchase the visual display units for its computers exclusively from Floppydisc it exists exclusive purchasing (see Consten and Grundig v EC Commission) according to Regulation 1984/83, which is one of the block exemptions. Consequently the agreement will not fall under Article 83(1) and will be valid. In this case there would arise no liabilities for the two companies.
However, it is important to mention that “the regulation provides the maximum period for any exclusive purchasing agreement is 5 years”. The companies have to pay attention to this fact if they do not want to become liable under Article 81.
Furthermore, if an agreement falls under the de minimis doctrine, which means that it neither has a significant impact on inter-state trade (see Erauw-Jacquery Sprl v La Hesbigonne Société) nor on competition, it is not covered by Article 81(1). This doctrine points out that if the market share of two undertakings which operate on the same level of both marketing and production does not exceed 5%, then they do not fall under Article 81 (see Volk v Vervaecke).
Megahard and Floppydisc produce both computer hardware and additionally they are at the same stage of distribution, so their agreement is on horizontal level. As long as their joint market share is beyond the 5% of the whole market, they cannot be made liable under Article 81.
On the 5th of March Floppydisc dismissed in America 15 employees, all over 45 years, for the reason that their services ‘were no longer required’. It has to be examined whether there could arise any legal liability for Floppydisc regarding this event out of American Employment Discrimination law.
Generally an employment contract in the United States can be terminated by both employer and employee without any reason but “at will”. So Floppydisc could actually dismiss the employees by stating the given cause.
However, the Age Discrimination in Employment Act (ADEA) of 1967 prohibits any kind of discrimination where an employee is treated in a different way due to his age. ADEA applies to employees who are over the age of 40. If an employee is supposed to take legal action against the company, he has to demonstrate several conditions: he is within the age group covered in ADEA, his work is adequate, he is discharged and that either his job is now filled by people who are younger than him or that he was treated less favourably than any younger employee.
If the dismissed employees can show that these prerequisites are correct, then Floppydisc may be liable accordingly to the Age Discrimination in Employment Act of 1967 – unless the company cannot prove that the decision to dismiss exactly these 15 employees is not based on the reason of their age.
Bibliography
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Agnew, J. (1985), Competition Law, Allen & Unwin
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Barnard, C. (1995), EC Employment Law, John Wiley & Sons
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Craig P., and De Búrca, G. (1998), EU Law – Text, Cases and Materials, 2nd ed, Oxford University Press
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Department of Trade & Industry, (1993), The DTI Euro Manual - Linking EC law to UK business functions – Volume 2, CCH Editions
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- Lecture handouts of module International Business Law
- Internet: http//:www.cyberscribe.com
O’Neill and Coppel, p.179
O’Neill and Coppel, p. 168
O’Neill and Coppel, p. 149
O’Neill and Coppel, p. 152
