Effects of Product Liability Laws on Small Business: An Introduction to International Exposure through a Comparison of U.S. and Canadian Law

Journal of Small Business Management, July 1998 | Go to article overview

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.

The Similarities

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).

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Effects of Product Liability Laws on Small Business: An Introduction to International Exposure through a Comparison of U.S. and Canadian Law
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