Product Liability: Complementing Substantive Law Reforms to Enhance Incentives to Supply Safe Consumer Goods

[The following is an un-footnoted draft of a second Policy Digest (also omitting Figures) prepared for a Sydney Southeast Asia Centre joint research project and an ASEAN Secretariat conference on consumer protection law in Hanoi over 8-9 December 2014. The footnoted final version is available at:]
1. Overview
Consumer product safety failures continue to occur ASEAN states. However, many reported cases involve product sectors that already involve some public regulation (Part 2). For other product types, many states have enacted strict product liability (PL) statutes, aimed at making it easier for harmed consumers to claim compensation and thus providing an additional incentive for manufacturers to supply safe goods (Part 3). Yet PL litigation and claims remain very limited, as in Europe (Parts 4-5). The incentive effect needs to be bolstered by other measures, including improvements in access to justice (Part 6).

2. Persistent Consumer Product Safety Failures
ASEAN member states continue to experience serious safety failures involving various consumer goods, as evident from the ASEAN Committee on Consumer Protection’s ‘Product Alerts’ as well as media coverage. Voluntary recalls of motor vehicles, for example, are widely reported. In mid-2013, Kanebo recalled around half a million skin whitening cosmetics in North and Southeast Asia. In 2009, Vietnamese authorities began testing baby talcum powder after German NUK brand products in Korea were found to contain asbestos.
Foods and beverages are another concern, including items from Taiwan containing plasticisers. Some food companies in ASEAN are taking more seriously the potential reputational and legal risks associated with dealing with defective foodstuffs. Malaysia’s Danone Dumex, for example, recalled some baby milk products in 2013 after its supplier (Fonterra in New Zealand) alerted buyers of milk powder that some batches might have a bacteria causing botulism. Although further testing revealed that the products were safe, large claims have recently been filed against Fonterra for the costs associated with such recalls.
The ACCP’s ‘Product Alerts’ also report a few voluntary and/or mandatory recalls of other goods potentially used by babies or children (such as toys, strollers and bicycles) as well as some electrical goods (such as Bose home theatre equipment).
One reason for official and/or ‘voluntary’ attention to actual or potential safety problems in these product categories is a heightened regulatory regime and public enforcement capacity. In general, it is easier (politically) and more appropriate (economically) to mobile the political system to enact legislation regulating product safety if there is a high probability of harm, especially if the consequences of a product failure are severe. Hence, most countries – including ASEAN states – have long had quite strict legislation regulating foods (and pharmaceuticals), as well as more recently products such as cosmetics, motor vehicles, electrical goods, and products used by infants and children (who are at greater risk in harming themselves compared to adults). Such public regulation incentivizes manufacturers to produce safe goods, and to recall promptly any (potentially) defective goods. They have further incentives from market forces, if they are multinational companies trying to maintain a global reputation (such as automobile or high-end electrical goods manufacturers).
However, suppliers have less incentive to provide safe goods if there is low probability of harm, even if the potential harm is high. Attention from the political system and media is lower, resulting in less public regulation and/or actual enforcement by regulators. Thus, the private law system must encourage suppliers to maintain minimum safety standards for general consumer goods, by making it more feasible for consumers to claim compensation for any harm suffered by defective products. Accordingly, countries have increasingly imposed strict liability on manufacturers and others for product ‘defects’, usually defined in terms of a lack of safety that ought to be expected, in addition to or alongside traditional remedies such as the tort of negligence (requiring plaintiffs to prove negligence by the supplier).
3. The Spread of Strict Liability Statutes to ASEAN
Strict PL regimes have become well established not only in major developed countries (beginning in US state-based case law from the 1960s, spreading through the European Union pursuant to a 1985 Directive, then taking root in countries like Japan and Australia from the early 1990s), but also increasingly in developing countries (including in Asia). In particular, PL statutes inspired by the EU model have now been introduced in the Philippines (1992), Indonesia and Malaysia (1999), Cambodia (2007) and Thailand (2008), as summarised in the following Table:
Year of enactment (& enforcement) / Country or Jurisdiction/ Statute / Significant differences from European Directive
1985 (domestic law by 1988) European Union PL Directive (85/374/EEC)
1992 PHILIPPINES Consumer Act Only for unsafe ‘consumer’ (purpose) goods, but also services; intermediate suppliers liable as well; no ‘development risks’ defence; manufacturer must prove goods were safe
Australia Trade Practices Act Pt VA Representative actions by regulator (ACCC)
1993 New Zealand Consumer Guarantees Act Only for certain consequential property loss (personal injury claims are covered instead by a state no-fault compensation scheme)
China Product Quality Act Consumer must prove causal link between abnormal performance and harm; double damages
1994 Taiwan Consumer Protection Act Triple damages for wilful misconduct; consequential loss to non-consumer goods; manufacturers must prove goods were safe
(1995) Japan PL Act Consequential loss to non-consumer goods; extended limitation period for toxic torts
1999 INDONESIA Consumer Protection Act Including services
MALAYSIA Consumer Protection Act Linked to manufacturer’s liability for violating implied guarantee of ‘acceptable quality’
2000 Korea PL Act Consequential loss to non-consumer goods
2007 (2011) CAMBODIA Civil Code (Art 751) Consequential loss to non-consumer goods
2008 (2009) THAILAND PL Act Minister may exempt products; consumer need only prove harm from product used normally (then manufacturer must prove goods were safe); triple damages; defence if consumer knew the goods were unsafe; no (express) ‘development risks’ defence; extended limitation period for toxic torts
Interestingly, as in other Asia-Pacific countries listed above, ASEAN states have introduced strict liability statutes that mostly expand the scope of the liability of product manufacturers (and importers), compared to the 1985 European Directive. For example, in the Philippines and Thailand (as in China and Taiwan), the consumer does not have the full burden of proving that the goods were unsafe. The supplier, which typically has much better access to relevant information, must prove goods were safe, to avoid liability.
In Thailand (similarly to Taiwan and China), additional (‘punitive’) damages may be awarded to plaintiffs. In Cambodia (as in Japan, Taiwan and Korea), plaintiffs can claim for personal injury and all forms of consequential property loss; in the EU (and eg Australia) plaintiffs can only be awarded losses to property that is ordinarily and actually intended for personal or household use. In other words, other firms can sue under these PL statutes for business losses caused by defective goods.
The Philippines and Thailand also omit the ‘development risks’ defence, found in almost all EU member states (and eg Australia and Japan). This exempts manufacturers and importers from liability where the state of scientific or technical knowledge did not permit the defect to be discovered when the goods were put into circulation. The Philippines also extends strict liability for certain consumer services (as does Indonesia), as well as to intermediate suppliers (as under some US case law).
In theory, such comparatively pro-plaintiff features of the enactments in most ASEAN and Asian jurisdictions should encourage their importers, and exporters from abroad, to take extra measures to ensure goods supplied into those marketplaces are not prone to cause personal injury and other harm. These firms should be incentivized to do so anyway, due to the heighted risk of damages claims from those harmed by any defective goods they supply, because of the lesser burden imposed on plaintiffs claiming for such losses compared to traditional tort regimes requiring plaintiffs to prove fault in the manufacturing or supply process.
4. The 2005-7 Survey of PL Act Effects in Asia
Empirically, however, there is little evidence of a strong incentive effect on suppliers due (solely) to these new strict PL laws. Over 2005-7, a large-scale mail survey of suppliers, insurers and lawyers active in Asia asked for their impressions of the impact from the regional enactments. The results were consistent with similar questions posed not long before by a survey conducted for the EU into the impact of the 1985 Directive in Europe.
For example, respondents in Asia confirmed there were some increases in risks and claims, but not large overall increases. They also mentioned that only a few jurisdictions (such as Japan) had recorded significant, but still small, numbers of court judgments. When asked what factors encouraged claims to be brought under the new strict liability statutes, rather than traditional causes of action, the subset of lawyer respondents emphasised ‘less expense’ (arguably associated with a lower burden of proof for plaintiffs) and a (perceived) ‘higher success rate’:
[Figure – omitted]
Also paralleling survey results from Europe, most respondents in Asia reported more out-of-court settlements. Yet they highlighted the following factors additional to the PL law reforms, especially ‘greater access to legal advice’ and broader changes in the media and general culture:
[Figure – omitted]
5. Subsequent Developments in Thailand
Similar trends are apparent in Thailand after its PL Act was enacted in 2008. Professor Sakda Thanitcut notes that at least three of four claims involving various beverages were promptly settled, while two others involving automobiles were also under pressure to settle. His preliminary conclusion is that implementation of ‘the Act has clearly incentivized manufacturers to negotiate and mediate with injured consumers and, as such, injured consumers have a better chance to receive more adequate and fairer compensation’. In turn, such heightened risk exposure should encourage Thai suppliers to undertake greater product safety activities. This will add to pressures from business partners abroad to raise the safety of Thai consumer goods.
Nonetheless, a total of six claims reported since the new Act was implemented since 20 February 2009 is not large, even if many more claims probably remain unreported. The number seems quite low in light not only of its pro-plaintiff provisions compared to the European Directive. Thailand also enjoys various mechanisms encouraging consumer access to justice, including enactment that year of the Consumer Case Procedure Act. That provides for court officers to assist plaintiffs who claim under the PL Law, waives costs of litigation, and requires the court process to conclude within three months. However, Professor Thanitcul notes that calls to establish a specialist consumer court has not yet been successful. The Office of the Consumer Protection Board (OCPB) also pressed for enactment of the Law and generally plays an active role in mediating consumer disputes. The OCPB announced that it would file suit on behalf of a consumer injured in one of the six post-2009 claims (against a Japanese car manufacturer), but ultimately did not so, probably because the parties then reached a settlement. Private consumer organizations also facilitate approaches to the OCPB to resolve disputes, with some even having legal departments ready to sue on behalf of consumers. Yet so far this has not occurred either, perhaps because of the costs involved.
6. Policy Implications
This empirical evidence suggests that enacting strict PL law is a necessary but not sufficient condition for incentivising manufacturers to deal in safe consumer goods, especially in areas where sector-specific public regulation and/or media attention is reduced because there tends to be a low probability of harm even if the potential harm suffered is high. Strict PL laws should be introduced in the remaining ASEAN member states, and reviewed periodically. But they should be complemented by broader measures to improve access to justice for harmed consumers, including:
– specialist consumer courts or tribunals;
– representative actions by regulators (especially for test cases);
– ‘opt-out’ class actions (especially useful for efficiently aggregating smaller claims), for example by accredited consumer groups (as eg in Taiwan)
– legal profession reform (increasing numbers and scope of practice, including advertising; facilitating networking among plaintiffs’ lawyers, as eg in Japan; liberalization of rules on contingency fees or third-party litigation funding, as eg in Australia).
Such multi-pronged reforms can also underpin official efforts to increase media and community awareness of potential compensation caused by product safety failures, and thereby make it more likely to improve public regulatory regimes.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.

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