Product Liability

Introduction

It is important as a seller and as a buyer to understand the laws relating to product liability. This is because disputes often arise between the seller and the buyer as to the quality for the goods supplied and whether it meets the requirements under the contract. A good grasp of the law governing liability regarding faulty and defective products will allow sellers to understand what they might be liable for and what remedies the buyers may take.

This article will cover the major laws relating to product liability, including (1) the law of contract (2) the tort of negligence, as well as (3) other regulations under statute.

1. Breach of Contract

A contract is an agreement between two parties that sets out each parties’ obligations. A typical supply contract may involve Party A supplying 100 barrels of apples to Party B in exchange for $10,000. If either party fails to perform their duties under the contract, the other party may sue for breach of contract and claim for damages (compensation).

There are five main elements to prove in a breach of contract claim:

A. Existence of Contract

The parties must first prove that there is a contract (agreement) between the parties. However, not all contracts need to be in writing and signed by the parties. It is perfectly possible to have an agreement orally or even an agreement by conduct. For example, if you buy a drink at a vending machine, the act of paying with the octopus card will establish a contract between you and the company operating the vending machine.

B. Terms of Contract

Most written contracts would include terms describing the product to be provided, the date of delivery, the purchase price, as well as the manner of payment. Sometimes, the contract would lack certain terms: in this case, the courts will look at statements made in the course of negotiations (for example, product brochures) and examine the intentions of parties before the contract was entered. For additional terms that will be implied into consumer contracts, see our article on Consumer Protection under SOGO and CECO [link].

C. Performance

If a party is claiming that other party has breached the contract, they must show that they have upheld their side of the bargain. In a sale of products contract, this generally means that the consumer has paid for the goods, or that the seller has made the goods available for collection.

D. Breach

A contract is breached when a party does not comply with the terms of the contract. Common instances include late delivery, delivery of goods of wrong quantity or substandard goods.

E. Damages and Causation

In Hong Kong law, it is not enough to prove that there is a breach of contract: the party claiming breach must also show that he has suffered some loss. The law the party suffered is called “damage”. The most common way to show damage would be that the buyer had to purchase the same/similar product at a higher price because of the seller’s breach. In this case, the buyer would be able to claim the difference in price as compensation.

On the other hand, even if the breach caused damage to the customer, the customer has the duty to prove that the damage is actually “caused” by the breach. If the customer is a manufacturer, late delivery of raw materials might have caused delay in production and subsequent sale. But if it is found that at that time of delivery the manufacturer did not have the machine for processing ready at all, the late delivery might not have “caused” the damage.

2. Tort of Negligence

In some cases, contract law may not help a party that has suffered loss. Suppose Tom is treated to a meal by his friend Jerry at a restaurant and subsequently gets food poisoning. Tom does not have a claim against the restaurant in contract because the contract was between Jerry and the restaurant (Jerry was the person paying for the food). In that case, Tom’s best remedy would be in the tort of negligence, arguing that the restaurant was negligent in supplying unhygienic food.

There are four elements to prove in a tort claim:

A. Duty of Care

A duty of care is formed when two parties act in a way where one person should “take care” for the safety of the other. For example, a restaurant would have the duty to ensure that anyone that eats in their restaurant has food free from defects. A doctor would have the duty to ensure that the patients are treated in a manner consistent with a professional doctor’s standards.

B. Breach of Duty

There is a breach of duty when the party with a duty of care fails to take the care required by law. For a restaurant, the food supplied needs to be of a reasonable standard. What amounts to reasonable is highly fact-specific, but generally it is reasonable to expect the food is safe for consumption for customers with normal health conditions.

C. Damages, Causation, and Remoteness

The rules relating to damages and causation are similar to those in contract (see above); there must be some loss that is caused by the tort. Furthermore, the claim cannot be too remote: this means it cannot be too unforeseeable. Taking the example of a restaurant that supplies food causing food poisoning to customers: the hospital fees incurred by the customer would likely be a foreseeable consequence of the restaurant’s negligence. However, if the customer was an Olympic athlete and would miss a competition as a result, he is unlikely to be able to be compensated for his lost opportunity as it is not foreseeable.

3. Statutory Protection

Contract and negligence claims are primary ways for the buyer to claim compensation for the delivery of faulty products and goods. However, the law also provides indirect protection to customers by imposing criminal liability for the supply of defective products. That means customers can bring these substandard products to relevant enforcement authorities for government to bring the claim. Compared to claims by consumers, the consequences of a faulty product claim by the government are more serious as they may range from suspension of licenses, fines, to imprisonment.

A. Consumer Goods Safety Ordinance (Cap. 456):

The Consumer Goods Safety Ordinance imposes general safety requirements to the supply of consumer goods and regulates the promotions and marketing good such goods. The Ordinance requires the placement of marks and warnings on certain products. Manufacturers are also required to comply with approved product standard of goods required by the relevant authorities.

The relevant authority to govern products is the Commissioner of the Custom and Excise and Secretary for Commerce and Economic Development. They have the power to:

  • Set the product standard for various goods;
  • Order laboratory and safety testing of products; and
  • Recall products deemed to be unsafe.

B. Other Ordinances

Some goods such as drugs and toys for children are subject to government regulations because of their nature. For more on these goods, sellers are advised to examine the:

  • Pharmacy and Poisons Ordinance (“PPO”) (Cap. 138);
  • Dangerous Goods Ordinance (Cap. 295); and
  • The Toys and Children’s Product Safety Ordinance (Cap. 424).
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