Does the law imply any terms into B2B or B2C contracts which could impose liability in a situation where a product has caused damage? If so, please summarise.

Product Liability

India Small Flag India

The SGA governs the relationship of a seller and buyer of movable goods in India, for both B2B and B2C contracts. The SGA specifically provides for implied conditions or warranties undertaken by the seller with respect to fitness and merchantable quality of the product sold; and there is an implied warranty for the goods sold to be free from defects. A breach of such an implied warranty entitles the purchaser the right to sue for damages.

Japan Small Flag Japan

The Consumer Contract Act (Act No. 61 of May 12, 2000, ‘CCA’) applies to the interpretation of the B2C contracts. For example, consumer contract clauses that totally exempt a manufacturer, etc. from compensating a consumer for damages arising from a product defect, etc. will likely be invalid (Article 8 and 10 of the CCA).

In a B2B contract, the Commercial Code (Act No. 48 of March 9, 1899) applies. Article 526 (2) of the Commercial Code sets forth that if a buyer, as a result of an inspection discovers a defect or shortfall in the quantity of the object of the sales transaction, it may not cancel the contract nor demand a reduction of the purchase price or compensation on the grounds of said defect or shortfall unless it immediately issues notice of the defect or shortfall to the seller. The same applies if the object of a sales transaction has a defect that is not immediately obvious that the buyer discovers within six (6) months.

As such article is not necessarily appropriate or practical to current business practices, companies almost always set forth detailed clauses with regards to defects or other lack of specifications.

In addition, in some industries and B2B contracts for original equipment manufacturer products, parties sometimes agree to a contribution rate of recall costs in advance.

Turkey Small Flag Turkey

For B2B contracts it is possible to impose liability when a product causes damage. But the regulations are totally different for B2C contracts. Article 8 of the Regulation on Liability in Damages Caused by the Defective Goods clearly indicates that clauses which limit or eliminate the obligations of the manufacturer or producer arising from Law on Consumer’s Protection are invalid.

South Korea Small Flag South Korea

(1) Implied warranty

If there is an effective sale and purchase agreement between the parties, warranty liability may be found regardless of whether the seller is at fault if (i) there was already a defect in the product at the time of purchase, and (ii) the purchaser entered into the transaction in good faith and there was no fault on part of the purchaser in regard to the defect at the time of the purchase (Civil Act, Articles 580 and 581).

(2) Liability for breach of contract

If (i) a party fails to perform its contractual obligations and (ii) the failure to perform is attributable to the fault of that party, liability for breach of contract can be established (Civil Act, Article 390). Delivering a defective product can be viewed as incomplete performance of the seller’s contractual obligations. Court precedents clearly state that warranty liability and liability for breach of contract are two separate concepts that are different from each other in terms of their elements and effects, and in the case of special (extended) damages, damages can only be claimed as liability for breach of contract.

Australia Small Flag Australia

The importance of contract as a cause of action in product liability claims, in particular B2C contracts, has diminished in recent times as a result of the statutory causes of action which overcome privity of contract.

The ACL has affected the relationship between contract and product liability by introducing provisions which render void any unfair term in a standard form B2C contracts, and the “statutory guarantees” discussed above exist independently of any contract of supply. These statutory guarantees have replaced the previous regime which implied terms into B2C contracts.

France Small Flag France

The Civil Code provides for a duty to deliver and guarantee the sold good. Pursuant to case law, the seller therefore has an obligation to provide the purchaser with a product that complies with the agreed contractual specifications.

In addition, the purchaser benefits from a warranty against hidden defects. As such, the seller can be held liable where the defect, not apparent at the time of the sale, renders the product unfit for the use for which it is intended, or reduces this use to the extent that the purchaser would not have acquired it, or would have paid a lower price for the product, had he been made aware of the defect.

In B2B contracts, clauses limiting the guarantee against hidden defects are permitted. Nevertheless, this clause may be considered void, (i) if the seller is acting in bad faith and knew the defect at the time of the sale or, if (ii) the purchaser is a professional, not working in the same field and in the same speciality as the professional seller.

The burden of proof lies with the professional purchaser, who must prove that the defect was present at the time of purchase. The purchaser’s knowledge of the product is considered.

Clauses limiting the compliance of the product with the agreed contractual specifications are also allowed in B2B contracts provided that the professional purchaser works in the same field and in the same speciality as the professional seller.

Brazil Small Flag Brazil

As long as the commercial contracts signed between companies (B2B) is not governed by the Consumer Protection Code, they are allowed to established clauses to determine liabilities and its limitation. But this kind of provisions will not be enforced against the consumers.

According to the Consumer Protection Code, the consumer is the weak party of the relationship and law grants full protection to them, especially in the product liability cases. The liability is established by the law, which determines that the supplier possesses strict liability before consumers and third parties affected by the defective product. Any provisions that would try to mitigate that will be consider null and void.

China Small Flag China

The Contract Law provides for a producer/seller’s general obligation to guarantee the product sold under the contract is free of defects and conforms to the agreed quality standard. In the event that the parties’ agreement is ambiguous, the Contract Law provides that the national standards and industrial standards should be applied to determine the products’ quality.

On top of the general principles provided in the Contract Law, some special laws provide for heightened obligations in their specific fields of application. For instance, the Consumer Rights and Interests Protection Law provides that the seller has an obligation to notify consumers of the correct ways of using the product, and failing such obligation would generally result in product liability even if the damage is caused by the consumer’s misusing the product..

United Kingdom Small Flag United Kingdom

Yes. the Consumer Rights Act 2015 (CRA) implies the following terms into contracts for the sale of goods with consumers:

  • goods must be of satisfactory quality (which is wider than "defective" under the CPA);
  • if a buyer makes known to the seller a particular purpose for buying the goods, the goods must be fit for that particular purpose. In addition, the goods should be fit for the purpose they are supplied for; and
  • goods must correspond with any description or sample.

The CRA sets out factors that are relevant in determining the quality of goods. These include safety, fitness for all the purposes for which goods of that kind are usually supplied, appearance and finish, freedom from minor defects, and durability.

A similar regime is applicable in contracts between two businesses, under the Sale of Goods Act 1979.

Terms may also be implied into a contract by common law. For example, specialist suppliers of particular products will be subject to an implied term that they will advise purchasers of problems which are or reasonably ought to be known about the product.

Germany Small Flag Germany

Yes, § 280 Section 1 of the German Civil Code foresees that the party of a contract who breaches a contractual duty is liable to the other party for any damages caused thereby. The breach of duty can be the delivery of a defective product that caused damage to the other party. Therefore, this contractual provision may become relevant for the distributor of the product (as opposed to § 1 of the German Product Liability Act and § 823 of the German Civil Code which generally apply to the manufacturer only). However, the provision applies only if the breach of duty has been due to fault (negligence or wilful intent); it rarely happens, however, that a distributor culpably delivers a defective product.

United States Small Flag United States

Generally, “[i]mplied warranties arise by operation of law without regard to the expressed intention of the parties . . . .” See Carney v. Sears, Roebuck & Co., 309 F.2d 300, 303 (4th Cir. 1962).

Denmark Small Flag Denmark

No, neither as regards B2B, nor B2C. There is in general freedom of contract under Danish law.

B2C contracts will as a general rule be interpreted to the detriment of the business in case of ambiguities. In addition, the Products Liability Act cannot be derogated from by prior agreement to the detriment of the claimant or any entity subrogated to the claimant's rights.

Russia Small Flag Russia

Generally, such terms would relate to the role of the commercial party to the contract. Namely, should it follow from the contract that such party may be defined as the producer of the goods, it shall bear the producer’s risks of product liability.

Austria Small Flag Austria

The Austrian General Civil Code provides for a fault-based liability system. All relevant aspects are covered by statutory law. This statutory law can – to some extent – be modified by contracts. Those possible changes are however not unlimited (the law is more favorable to consumers in a B2C setting than to businesses in a B2B setting).

Traders selling consumer goods in the European Union (EU) are obliged to remedy defects which existed at the time of delivery and which become apparent within 2 years. EU rules guarantee consumers a minimum level of protection, especially if the goods do not meet the standards promised.

The product has to confirm to the sales contract. That is the case if it complies with the sales description, is fit for the purpose for which the good was intended and demonstrates the quality and performance that can reasonably be expected.

Sellers are responsible for any incorrect installation if that forms part of the contract, be it that the seller himself undertook to install the product or that the instructions were faulty. Consumers have a right to ask for a repair of faulty goods free of charge within a reasonable time and minimum inconvenience. They may ask for an appropriate price reduction if the repair or replacement is not done on time or without significant inconvenience to the consumer.

Sellers, who are liable to consumers for the goods they sell, then have a claim against producers if the fault is found to lie with them.

Updated: April 11, 2019