Effects of Product Liability Laws on Small Business: An Introduction to International Exposure through a Comparison of U.S. and Canadian Law
The law of strict product liability was originally developed in the United States (Greenman vs. Yuba Power Products, Inc. 1962) and has long been considered a severe impediment to product development (S.2670 1986) that has placed U.S. businesses at a competitive disadvantage with their international counterparts. Although historically this may have been true, the current trend throughout industrialized nations is to move toward U.S.-style strict liability methods of consumer recovery'. The European Union's directive concerning liability for defective products, enacted in 1985, includes most of the concepts found in U.S. law (Hurd and Zollers 1993), and in 1995, similar provisions became effective in Japan (Japan Product Liability Law 1994). True, certain defenses and procedural advantages not available to U.S. businesses soften the impact of these laws, but even in more conservative legal systems, such as Canada's, the differences with U.S. law are shrinking and are nearly imperceptible when compared to the laws of the European Union and Japan. The diminishing differences between the product liability, laws of the countries of the developing world can be graphically demonstrated by comparing the requirements for recovery in the U.S. and Canada.
Although in theory the Canadian consumer must prove all of the elements of negligence (Farro v. Nutone Electrical Ltd. 1990; Ontario Law Reform Commission 1979; Thomas 1989), most Canadian courts allow injured consumers to use a procedural aid known as res ipsa loquitur to prove their cases (Nicholson v. John Deere Ltd. 1986; McMorran v. Dom. Stores Ltd. 1977). Under res ipsa loquitur, plaintiffs must only prove that they were injured in a way that would not ordinarily occur without the defendant's negligence. It is then the responsibility of the defendant to prove that he was not negligent. As proving the negative is extremely difficult, this Canadian reversal of the burden of proof usually results in an outcome functionally equivalent to strict product liability' (Phillips v. Ford Motor Co. of Canada Ltd. 1971; Murray 1988). This concept is reinforced by the principal that a Canadian manufacturer does not have the right to manufacture an inherently dangerous product when a method exists to manufacture that product without risk of harm. To do so subjects the manufacturer to liability even if the safer method is more expensive (Nicholson v. John Deere Ltd. 1986).
In the U.S., any commercial conveyor of goods that cause injury - whether manufacturer, wholesaler, retailer, or lessor - is liable to the consumer (Martin v. Ryder Truck Rental, Inc. 1976; Restatement 1974). In Canada, the res ipsa loquitur/strict product liability type of recovery has not been applied to casual sellers. Therefore, we can assume that the defendant must be a commercial seller. However, the range of potentially liable parties has been significantly narrowed. First, if a contractual relationship exists between the parties, the injured party is expected to base his recovery on contract, not tort. Therefore, a retailer might be liable under warranty but not strict product liability (Hart v. Dom. Stores Ltd. 1968). Second, wholesalers in Canada are generally not liable under contract or tort unless they are expected to make an intermediate inspection of the goods (McMorran v. Dom. Stores Ltd. 1977; Saccardo v. Hamilton 1971) or they are an importer of the goods (Phillips v. Ford Motor Co. of Canada 1971). If a wholesaler is an importer of goods and the manufacturer has no regular place of business in Canada, then in order to provide the injured plaintiff with a meaningful source of recovery, the importer/wholesaler will be held liable as if it were the manufacturer of the goods. This makes manufacturers and importers the major targets of product liability litigation. For simplification, both will be referred to as manufacturers. The laws of Japan and the European Union reflect a similar position (Japan Product Liability Law 1994; Hurd and Zollers 1993).
At the time the goods cause injury, they must be in the same condition in which they were sold. This is true in both the U.S. and Canada (Restatement 1974; Martin v. T. W. Hand Fireworks Co. 1963). Canada has recognized that direct proof of the condition in which the goods are sold may be unreasonably difficult to attain. Therefore, it has concluded that the consumer's burden is merely to show that it was more likely than not that the injury-causing defect existed at the time the product left the manufacturer's control (McMorran v. Dom. Stores Ltd. 1977). For example, in McMorran, the plaintiff could only show that a defect in the crown of a soda bottle had caused it to blow off and injure the plaintiff's eye and that the bottle had apparently not been subject to any rough or unusual handling. This was considered sufficient evidence to require the manufacturer to prove that the defect had occurred after the bottle left the manufacturer's hands. Since the manufacturer was unable to do this, it was found liable for the injury.
On the other hand, simply showing that a defect existed at the time of the injury may not be sufficient to shift the burden to prove when the defect occurred. In Phillips v. Chrysler Corp. (1962), the plaintiff was injured when the steering on his automobile malfunctioned. The automobile was eighteen months old. In addition, the steering had been serviced at least once subsequent to purchase. Due to the passage of time and the subsequent repair, the court found that it could not say that on the balance of probabilities the defect must have existed at the time the car left the manufacturer's hands. Without exact proof of the nature of the defect and the time of its creation, the consumer lost.
However, other Canadian cases (Nicholson v. John Deere Ltd. 1986; Smith v. Inglis Ltd. 1978) expand the manufacturer's liability well beyond that normally expected in the U.S. In Smith v. Inglis (1978), the defective product was a used refrigerator. At the time of the injury, the refrigerator was three years old and had been serviced several times. The defect that caused the injury was a wire-like capillary tube that came into contact with the electric terminals on the switch. This contact caused an electrical current to pass through the refrigerator and electrocute the plaintiff. The contact of the capillary tube with the switch was caused either by improperly installing the tube at the factory - the most likely event - or by improperly moving the tube during a service operation. In addition, even if the capillary tube and switch came into contact, they could not have caused the plaintiff's injury except that the ground prong had been cut off the original three-prong electrical grounded plug supplied by the manufacturer. This was done so that the grounded plug would fit into the original purchaser's two-prong electrical wall outlets. The court found that the altering of the grounded plug and the possible damage caused by shipment and handling were uses that reasonably should have been anticipated by the defendant. Therefore, they were not the type of substantial changes in the product that would relieve the defendant of liability. Such cases raise questions as to whether the reticence of Canadian courts to expressly recognize strict product liability provides manufacturers selling in Canada any greater protection than sellers in the U.S.
The central premise in strict product liability is that an unreasonably dangerous product causes the plaintiff's injury. Because this is the major question regarding recovery, a good definition of what constitutes an unreasonably dangerous product should exist. Unfortunately, in contrast to the U.S. (Restatement 1974), the European Union (Hurd and Zollers 1993), and Japan (Japan Product Liability Law 1994) where a product is defined as defective if it does not meet the ordinary level of safety expected by the normal user, this is not the case in Canada. Perhaps this is due to the fact that Canadian courts still engage in the legal fiction that Canada does not have strict product liability in tort. Perhaps it is so obvious that the product must be unreasonably dangerous that little discussion is given to the philosophical underpinnings of this point, and the emphasis is placed on the factual analysis of the product. For whatever reason, the Canadian definition of an "unreasonably dangerous product" must be ascertained from numerous sources and is still incomplete.
It is clear that the unreasonably dangerous nature of a product may arise from at least two different circumstances. The first of these is from the inherently dangerous propensities of the product itself. In these circumstances, there is a high degree of risk in spite of the fact that the product was properly manufactured as designed and was used as intended, or at least as reasonably anticipated. In Ruegger v. Shell Oil Co. (1964), a herbicide was properly applied to a crop for which it was intended. No damage was caused to that crop, but during the night a vapor rose from the treated field and floated onto adjacent crops. These latter crops were seriously damaged. The court based liability on the inherently dangerous nature of the product and not on any defect within the product. It has even been held that in order to find the manufacturer liable, the injury complained of must have resulted from such an inherently dangerous condition (Ivan v. AOCO Ltd. 1980).
However, most cases have based liability on defects similar to those set out in the Comments to the Restatement of Torts (1974). This second type of "unreasonably dangerous product" has dealt with foreign substances found in food (glass in bread, Arendale v. Canada Bread Co. 1941; mouse in a bottle of Coca-Cola, Mathews v. Coca-Cola Co. 1944), packaged products containing inappropriately substituted items (dangerously more powerful roman candle in a prepackaged fireworks display, Martin v. T.W. Hand Fireworks Co. 1963), improper and dangerous packaging (exploding pop bottles, Cohen v. Coca-Cola Ltd. 1967), defective manufacture (bare wires leading to a fuse box, Shields v. Hobbs Mfg. Co. 1962), faulty design and product development (battery placed too close to the gas tank of a lawn mower, Nicholson v. John Deere Ltd. 1986), faulty inspection procedures by a lessor (Matheson v. Watt 1956), and inadequate warnings placed on the product's label or container (Buchan v. Ortho Pharmaceuticals Ltd. 1984).
As set out in Comment (h) of the Restatement of Torts (1974), if the manufacturer has reason to anticipate that danger may result from a particular use, the manufacturer should give an adequate warning of the danger. In U.S. law, "inadequate warning" is sometimes found to be a dangerous defect in itself. At other times, the inadequacy of a warning has been important in that it failed to mitigate the otherwise dangerous propensities of an inherently dangerous product (Restatement 1974). The Canadian law regarding warnings fits these parameters (Buchan v. Ortho Pharmaceuticals Ltd. 1984; Ruegger v. Shell Oil Co. 1964).
In Lambert v. Lastoplex Chemical Co. (1971), the leading Canadian case on duty to warn, the plaintiff, an engineer with some professional knowledge of inflammable materials, was applying a floor sealer labeled "Caution Inflammable! Keep away from open flame!" and further "Keep Away From Fire, Heat, and Open-Flame Lights." To reduce the risk of injury, the plaintiff opened windows for cross ventilation and turned down the thermostat on the furnace so that it would not come on. However, he forgot to turn off the pilot lights on the furnace and water heater. These ignited vapors from the sealer, and the plaintiff was injured in the resulting explosion. The court found that the warning on the can of sealer was too general to adequately apprize the plaintiff of the dangers associated with its use. The court further stated that in order lot a manufacturer to avoid liability based upon the adequacy of a warning, the manufacturer must anticipate the surroundings in which the product is likely to be used and must word the warning so clearly that the plaintiff who does not heed it is making a "conscious choice" to ignore the danger and incurs a "voluntary, assumption of the risk of injury." Therefore, in spite of the fact that Lambert v. Lastoplex presumes to base its conclusion entirely on negligence rather than on strict liability, the ruling's near identity to such well-known U.S. strict liability cases as Smith v. U.S. Gypsum (1980) is inescapable. Subsequent Canadian cases (Nicholson v. John Deere Ltd. 1986; Smith v. Inglis Ltd. 1978) have made it even clearer that just as in Smith v. U.S. Gypsum (1980), the manufacturer must anticipate all reasonably foreseeable misuses.
The types of persons protected under Canadian product liability law are even more extensive than under U.S. law. In the United States, the ultimate user or consumer is protected under the Restatement (1974) and case law has extended this protection to innocent third party bystanders (Martin v. Ryder Truck Rental Inc. 1976). This is also true in Canada (Martin T. W. Hand Fireworks Co. 1963). In addition, Canada has added a significant additional class - middlemen, including employees of retailers (Cohen v. Coca-Cola Ltd. 1967).
If the technical aspects of product liability law are functionally similar in the U.S. and Canada, why does Canada have a reputation as a more business-friendly legal environment? A number of factors may either limit the number of product liability cases filed in Canada or mitigate their impact upon business. Whatever effect the following factors may have, it is clear that far fewer product liability cases are filed in Canada than in the U.S.
Canada has essentially all of the defenses to strict product liability that exist in the United States plus a few others. In Rae v. T. Eaton Co. Ltd. (1961), the court discussed two defenses. The first was that the product was "not unreasonably dangerous," and the second was that the accident was due to an "unforeseeable misuse." In Rae, a little girl was banging a can of Christmas snow against a concrete sidewalk to get more snow from the can. The can exploded; one end flew off and blinded the child in one eye. The defendant was not found liable. However, the court did not make it clear whether the manufacturer was not liable because the impact from the explosion was so minor that it would not have caused injury had it struck the child anywhere except in the eye or because the explosion only occurred due to the child's misuse of the can by banging it against the concrete. In any event, both defenses do exist in Canada. However, caution must be used in relying too heavily on either. In McMorran v. Dom. Stores (1977), a pop bottle cap flew off and struck the plaintiff in the eye. The explosion was so minor that no damage would have occurred if the plaintiff had been struck anywhere except in the eye. Still, the product was found unreasonably dangerous and the plaintiff won. In Lambert v. Lastoplex (1971), the court found that although the engineer's failure to turn off the pilot light was a mis-use, it was a foreseeable misuse and therefore the engineer could recover.
A defense that can be used to reduce the amount for which a defendant is liable is what the Canadians call "contributory negligence." This is analogous to the American defense of pure comparative negligence and is similar to defenses found in the European Union (Pincus and Belohlav 1996). That is, if the plaintiff's negligence has been partially responsible for his own injury, the court may take this factor into account and reduce the plaintiff's recovery proportionately (Contributory Negligence Act 1967; Smith v. Inglis Ltd. 1978). However, it should be noted that in some leading cases the courts have been very generous in interpreting what does not constitute contributory negligence. A classic example is found in the Lambert v. Lastoplex Chemical Co. (1971) case, in which the court found that the warning did not adequately inform the plaintiff of the potential dangers and therefore contributory negligence could not be used to reduce damages.
Perhaps the most important defense available to the Canadian defendant is the "state of the art" defense. This defense is not generally accepted in the U.S. but does exist in both Japan (Japan Product Liability Law 1994) and the European Union (Hurd and Zollers 1993). Brunski v. Dominion Stores Ltd. (1981) illustrates this concept. In Brunski, a Coke bottle manufactured prior to the practice of coating such bottles with plastic exploded. By the time of trial, the new plastic coating had eliminated this type of injury. The plaintiff was denied recovery because such technology was not available to the defendant at the time the bottle was manufactured.
Canada has several procedural limitations that afford small businesses in Canada even greater protection than the classic defenses set out above. Among the most important of these is the amount of damages that can be awarded by Canadian courts. In 1978, the Canadian Supreme Court decided three cases (Andrews v. Grand and Toy 1978) that put an absolute upper limit (Lindal v. Lindal 1981) on the amount a plaintiff could receive for pain and suffering, loss of enjoyment of life, anticipation of shortened life span, and other damages that are not directly measurable in money. The limit was set at $100,000 and was subsequently adjusted for inflation (Hatton v. Henderson 1981).
It is clear that these non-pecuniary damages are only intended to provide solace and what amelioration of life style such damages can provide. They are not intended to punish the defendant or to make the plaintiff or the plaintiff's heirs wealthy (Smithson v. Saskem Chemicals Ltd. 1986). Therefore, the plaintiff cannot anticipate receiving the entire $100,000, as adjusted, except in the most extreme cases. In Smithson v. Saskem Chemicals Ltd. (1986), the plaintiff was left totally blind, severely disfigured, and had to undergo 40 surgical operations prior to trial. However, the court found that the plaintiff was only entitled to 90 percent of the existing limit on non-pecuniary damages. In Knutson v. Farr (1984), the plaintiff was left in a vegetative state with no psychologically meaningful awareness. The trial court awarded the plaintiff 50 percent of the then existing cap. However, on appeal, the award was cut back to 10 percent of the existing cap. According to the appellate court, the 10 percent was justified only because there was some evidence that the plaintiff might develop limited awareness in the future. The court reasoned that without mental awareness there could be no amelioration of the lifestyle, and therefore non-pecuniary damages served no purpose.
A second limitation that Canadian courts have effectively placed on damages involves the granting of punitive damages. Punitive damages may only be granted in extreme cases of wanton conduct by the defendant that shows actual maliciousness or utter contempt for the plaintiffs rights (Jodrey v. Dhalla 1985). Such situations are so rare that it has been stated that no court has ever allowed punitive damages in a product liability case (Thomas 1989).
Although not dealing with product liability, a case that demonstrates the difficulty of obtaining punitive damages in a Canadian court is Kraft v. Lee (Campbell 1985). In Kraft, the defendant, an anaesthetist, was working a crossword puzzle during a surgical operation. This conduct resulted in the plaintiff being severely and permanently injured. However, the court found that working a puzzle during an operation was not an act that demonstrated the kind of maliciousness, intent to harm, or disregard of every principal of decency that warrants an award of punitive damages. Obviously, this represents a much higher threshold for punitive damages than exists in the United States.
Other factors may also tend to limit liability in Canadian product liability cases. For example, in Canada (Thomas 1989) as in the European Union (Hurd and Zollers 1993), contingency fees are not allowed for attorneys. This may discourage potential plaintiffs from entering into high-risk litigation. Also, the parties are not guaranteed a jury trial. Although either party has a right to request a jury, the other party has a right to move to dispense with the jury on the grounds that the issues are too complex for the jury to understand. Since many product liability cases do involve complex issues regarding design and manufacture, it is fairly common for Canadian judges to dismiss the jury and have the issues tried to the court.
In addition to the above legal factors, social factors such as governmental health plans, income assistance, and subsidized housing and education may also substantially reduce the exposure of small businesses to product liability litigation in Canada (Thomas 1989), just as they do in Europe (Hurd and Zollers 1993).
Clearly there is less difference between the substantive laws of strict product liability in Canada and the United States than is frequently supposed. The real protection for the small business in Canada and other developed economies seems to lie in the limitations on damages and in intangible social factors that may discourage litigation. U.S. businesses selling internationally should anticipate that the severity, not the frequency, of litigation may be the critical difference in their foreign legal exposure. Although this lesser severity is certainly a tremendous benefit, U.S. businesses selling abroad should continue to produce their products with great care and maintain insurance coverage adequate to meet all reasonable contingencies.
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Arendale v. Canada Bread Co. . 2 D.L.R. 41.
Brunski v. Dominion Stores Ltd. . 20 C.C.L.T. 14 (Ont. H.C.).
Buchan v. Ortho Pharmaceutical Ltd. . 8 D.L.R.4th 373 (Ont. H.C.), aff'd, on other grounds , 25 D.L.R.4th 658 (Ont. C.A.).
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Cohen v. Coca-Cola Ltd. . 62 D.L.R.2d 285.
Contributory Negligence Act, N.S. Rev. Stat. 1967, c. 54, 5.1 (1).
Farro v. Nutone Electrical Ltd. . 68 D.L.R.4th 268.
Greenman v, Yuba Power Products, Inc., 377 P. 2d 897 (Cal. 1962).
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Hatton v. Henderson . 126 D.L.R.3d 50.
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Ivan v. AOCO Ltd. . 5 Sask. R. 78, reversing , 1 Sask. R. 198.
Japan Product Liability Law (Law No. 85, 1994).
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Knutson v. Farr . 12 D.L.R.4th 658.
Lambert v. Lastoplex Chem. Co. Ltd. . 25 D.L.R.3d 121.
Lindal v. Lindal . 2 S.C.R. 629.
Martin v. Ryder Truck Rental Inc., 353 A.2d 581 (Del. 1976).
Martin v. T.W. Hand Fireworks Co. . 37 D.L.R.2d 455.
Matheson v. Watt . 5 D.L.R.2d 437.
Mathews v. Coca-Cola Co. . 2 D.L.R. 355.
McMorran v. Dom. Stores Ltd. . 74 D.L.R.3d 186 (H.C.).
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Nicholson v. John Deere Ltd. . 34 D.L.R.4th 542.
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Phillips v. Chrysler Corp. . 32 D.L.R.2d 347.
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Rae v. T. Eaton Co. Ltd. . 28 D.L.R.2d 522 (N.S.).
Restatement (Second) of Torts 1974.
Ruegger v. Shell Oil Co. . 41 D.L.R.2d 183.
S. 2670, 99th Cong., 2d Sess. (1986).
Saccardo v. Hamilton . 20.R. 479, 18 D.L.R.3d 271.
Shields v. Hobbs Mfg. Co. . 34 D.L.R.2d 307, affirming , 32 D.L.R.2d 273.
Smith v. Inglis Ltd. . 83 D.L.R.3d 215.
Smith v. U.S. Gypsum Co., 612 P. 2d 251 (Okla. 1980).
Smithson v. Saskem Chemicals Ltd. . 1 W.W.R. 145.
Thomas, Bruce (1989). "A Canadian View of the Product Liability Aspects of Innovation," Canada-United States Law Journal 15, 93-98.
Tipton F. McCubbins Oklahoma State University Stillwater, Oklahoma
Gregory C. Mosier Oklahoma State University Stillwater, Oklahoma…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Effects of Product Liability Laws on Small Business: An Introduction to International Exposure through a Comparison of U.S. and Canadian Law. Contributors: Not available. Journal title: Journal of Small Business Management. Volume: 36. Issue: 3 Publication date: July 1998. Page number: 72+. © 2002 Journal of Small Business Management. COPYRIGHT 1998 Gale Group.
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