Product Liability Claims in the UK - Essay Example

Legal report The firm that manufactures optic transistors is likely to find itself in a fix. To a great extent, this dispute may be seen to arise from the differences in Government support as provided by Japan and the U.K. Rebates on value added tax are provided to Japanese firms but are not available to UK firms, which impacts upon their competitiveness in the market. Japan has also been traditionally criticized for closing its markets and making the process of imports difficult to execute. A recent example that may be cited in this regard is the case of Case No. Heisei 7(wo)1988 (www.okuyama.com) which in effect, negates the effect of the EU Competition law. However, such inequities cannot be redressed through the law, since they arise from political and judicial differences that exist in the U.K. and Japan. As compared to Western law systems, especially in the U.K. which is governed by the EU and UK Competition law that prohibits any interference with competition, in Japanese law systems traditional theories still predominate and the only remedy available is to introduce litigation to annul an administrative act, unlike the U.K. where there are five kinds of remedies: mandamus, certiorari, prohibition, injunction and declaration (www.iias.nl).In a class action case dealing with UK tax treaties with Japan and other countries, the UK Court found bilateral treaty discrimination and reached a similar decision as in Metallgesellschaft/Hoechst v. CIR(European Court of Justice), where the EU treaty prohibits such discrimination to In the case of NEC Semi-Conductors Ltd, et al. v. CIR (November 24, 2003), the UK Court’s conclusions about discrimination were based upon the freedom of establishment principle, under Article 43 of the EU Treaty (www.bnatax.com). However, as opposed to this case law of U.K. Courts deciding in favor of establishments outside the U.K. being protected from discrimination, recent Japanese decisions on product liability claims reveal an opposite trend. The decision of the Nagoya District Court on 30th June 1995 went against MacDonalds and they were held liable for damages revealing that Japanese courts do not impose a burden of proof in civil proceedings (Nottage, 2000). In the current atmosphere of free trade and the prohibition of restrictive practices that has been introduced into the European Union with the EU Competition law, there can be little doubt that Japan’s restrictive practices are aiding and abetting the country’s manufacturers in gaining a competitive advantage in the European nations. Government sops provide an additional boost to Japanese manufacturers and help them to price their products competitively, even in foreign markets like the U.K., which ensures that they enjoy a high level of sales. But the question that arises is: Can companies in the U.K. take effective legal action against unfair Japanese trade and law practices without the assistance of their Governments and a reframing of EU law? Under Article 2 of the EC Treaty (www.paemen.com), the goals of the Treaty are established, which also include the establishment of the common market and a high degree of competitiveness, together with the maintenance of harmony, equality, economic growth and social balance. Article 81 of the EC Treaty specifically lays out the things prohibited as incompatible with the Common Market: “(a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.” (www.paemen.com) The UK Competition Act of 1998 is also closely aligned with Articles 81 and 82 of EU law in this aspect. As Sayer at al point out; “Article 81 of the EC Treaty and Chapter I of the Competition Act 1998 both prohibit, subject to respective jurisdictional thresholds, agreements between undertakings, decisions of associations of undertakings or concerted practices which have as their object or effect the prevention, restriction or distortion of competition” Therefore as far as the Japanese optic Company is concerned, restricting its free operation in the marketplace other than that of being subject only to the forces of competition, would be in violation of EU Law and also the UK Competition Act. Further, Japan and the European Union have also entered into an agreement in regard to cooperation on anti-competitive activities (www.europa.eu.int). This agreement would be fully enforceable in the event of any practice that may be construed as a violation of anti-competitive practices. Since the place of operation of the fibre optic companies are within the borders of the U.K. which is governed by the principles of the EU Treaty and U.K. Competition law of 1998, there is no effective legal recourse available to U.K. manufacturers against the Japanese imports, unless the U.K. Government imposes restrictions on imports from Japan. Besides, in specific reference to trade between the UK and Japan in the fields of technology and telecommunications, the Mutual Recognition Agreement governing the application of controls and improved transparency in procedures. It is not likely that any remedies will be available under EU law as far as retaliatory steps are concerned and this is a direct result of the EU Competition law under Articles 81 and 82, which are meant to foster competition and do not support anti trust measures or unfair trading practices such as price fixing and/or manipulation of markets. As long as Japanese goods are being sold in the UK, they come under the purview of UK law or EU law. Therefore, all such activities which are currently being considered by the U.K. firms, like requiring distributors not to act on behalf of Japanese manufacturers beyond 10% of their overall trade volume or agreeing not to compete with each other in terms of price, would be construed as price-fixing, or limiting production – all in direct violation of Articles 81 (a) (b) and (d) of the EU Treaty. However, the UK manufacturers can certainly offer discounts to loyal customers in the EU, since this would comprise promotions through marketing and would not be subject to any kind of penalization. The case with the Fibulan Government: In this instance, it may be noted that the jurisdiction of the case is not the U.K. but is subject to international jurisdiction. Therefore instituting legal action in England is not likely to be successful, since the only legal document in existence is the contract which stipulates that any disputes arising out of the agreement will be governed by the ICSID. Thus, unless both parties have agreed to come under the purview of jurisdiction according to EU law, it will not be possible for the firm to take any action against the Government of Fibula relying upon the provisions of UK law. In this instance, any legal remedies that are to be obtained must be sought through the ICSID and through the provisions of the Vienna Convention of which the country of Fibula may be a signatory. (Vienna Convention, 1980). According to the provisions of the Vienna Convention, the seller has a responsibility to deliver goods which are of quality and according to the requirements of the contract. This the Company has done and therefore there is no breach of contract from the side of the Seller. The Vienna Convention further stipulates that the buyer will have the option to avoid the contract only if the seller’s failure to perform may be construed as a “breach of contract” as laid out under Article 49 (1) (a) for which a definition is provided under Article 25.However, in this case, the Seller can clearly establish that there is no breach of contract from its side and further, there is no complaint that can be entertained under Article 49 (1) (b) which spells out late delivery as grounds for a buyer to refuse to honor the contract. There can be no doubt that in this case, the Government of Fibula can be successfully sued under the provisions of the Vienna Convention in an EU or international Court of law and legal remedies may be sought for fair and adequate compensation for the value of the goods delivered to the Government, including punitive damages for breach of contract from the Buyer’s side. Another significant point that may be noted in this case is the fact that the Buyer has demonstrated its mala fide intentions clearly in the series of steps it has taken: (a)defaulting on payment (b) refusing to return the goods and (c)withdrawing its consent to ICSID jurisdiction after having signed a contract agreeing to be bound by its provisions. All these three steps have been taken after receiving the goods, therefore, there is a clear indication of mischief and the Government of Fibula will be liable, if not under English law then most certainly under the Vienna Convention and/or EU law. While it may not be possible to invoke English law in this case and put a freeze on the Government’s accounts in English banks or seize the contents in the private warehouses, nevertheless it may be possible to achieve the same effect through the international provisions of the Vienna Convention which would mandate compliance with the law for international sale of goods. The contract between the Company and the Fibulan Government may also be prosecuted under the provisions afforded to CIF contracts. Since the goods have been received by the buyer and there is no report of damage or flaw in the goods, the buyer is obliged to pay up the designated price that has been agreed upon for the goods and cannot default on the payment. Moreover, once the goods have passed into his possession, he most bear all the risks for damage or loss to the consignment according to the CIF contract and cannot claim any damages or refuse to pay the seller for the goods. Since the expiry period for the shipment has passed and the goods have been appropriated to the contract, the onus of payment is upon the buyer, so the Company may have a good case in this regard under the CFI contract provisions in international commercial law. Seller in this case is nor responsible for any of the risks associated with the delivery and the onus of it is upon the buyer, once the goods have been handed over to the first carrier. (Clout, case 360) Buyers in Germany, Estonia and the Phillipines: Buyers in Germany and Estonia would be subject to the provisions of EU law and therefore, it would be far easier for the Company to deal with such companies. Moreover, for a CIF type of contract, selecting buyers in these countries would mean that the Cost, Insurance Freight would be less as compared to Malaysia. The reason for this lies in the fact that according to the CIF type of contract, the seller must procure marine insurance against the buyer’s risk of loss or damage during carriage. It is the seller who must contract for the insurance and pay the premiums which are likely to be a substantial amount if the value of the goods is high. This means that shipping to Malaysia would present the highest expense for the Company, as opposed to shipping goods to Germany or Estonia where the CIP term would be more appropriate since goods would be transported as roll-on and roll-off container traffic. Evaluating credit worthiness of the buyer is also an important part of the process. In today’s modern age of technology, it is not a difficult task to evaluate the credit worthiness of businesses in Germany or Estonia through the use of credit risk analysts who specialize in this area of business. There are Companies that have been set up specifically for the purpose of analyzing the credit worthiness of Companies, such as for example, Skyminder(www.inder.com). Moreover European firms make their financial statements available to the public. Through an intelligent analysis of the financial statements, it is possible to evaluate credit worthiness. It is possible to hire independent financial analysts on a private basis in order to perform confidential evaluations of financial risk. In the case of Malaysia which is not subject to EU law, there are also organizations that assess credit worthiness of firms such as the Bursa Malaysia Derivatives Clearing Board (www. mdex.com.my). The best sources for information on the financial status of companies with which the Company desires to carry on business is through employing financial analysts. It is also necessary to maintain an extensive list of contacts to pick up rumors about financial weakness of foreign countries. However, when the Companies are governed by EU law, it is possible to apply the remedies available under EU law to any violations that may occur while dealing with businesses incorporated within the European Union, since the establishment of the European Common Market has facilitated the ease with which transactions are able to occur over European territory, eliminating many of the legal constraints that were previously imposed upon trade due to barriers created by the boundaries of the member states. In view of the problems that are created due to foreign exchange and the differences in currency exchange rates, the establishment of the European Union and the common currency of the Euro has further facilitated business within the European Union. Therefore, it would not be difficult for the Company to enter into transactions with companies in Estonia or Germany. However, in the case of Malaysia the currency factors would pose a problem. Thus the Letter of Credit is the best method that could be sued to secure payments. However, it must be borne in mind that in some cases, there is also the possibility that buyers may prefer to approach another source if they are not able to negotiate the letter of credit. Therefore, the Company need not be bullish about getting the Letter of Credit if it assesses the potential Company with which it wants to do business a san excellent credit risk, after an evaluation of its financial status. Generally, it is the credit worthiness of the Company which would prove to be the pivotal factor upon which the decision to modify/waive the Letter of Credit would be made and alternative arrangements may be considered. For a Company that is not considered a good credit risk, it is not safe to go with any other option than a firm Latter of Credit and advance payment of some deposit if possible. In formerly communist countries such as Estonia or in semi-dictatorships as in Malaysia, it may be advisable to always seek a letter of credit to ensure that payments are made for the goods. However, Germany affords an excellent credit risk and it is also easy for an English seller to be able to recover payments for goods sold. Therefore, Germany is the only country where the Company could consider providing goods without a Letter of Credit, in view of the fact that recoveries may be more easily made. Within the borders of the European Union, it is possible for the Company to not only enforce CIF international law, but it can also resort to English law and EU law in order to recover if there is any default. Since most international and/or inter-state business transactions involve the transfer of large amounts of funds, many buyers may agree to issue Letters of Credit but may also prefer to have more time to make their payments. In such cases, the documentary draft option can be used, which specifies payment after a particular period that has been spelt out in the draft. When the facility of time is provided to a buyer Company, it is more likely to enter into negotiations and place large orders. Alternatively, if the Company would like to present itself as an excellent option as compared to other Companies offering the same services and lure the buyers into conducting their business with the Company, then yet another option may be considered. This is through the use of methods known as “factoring” for forfeiting which are in essence a discounting of the accounts receivable, in order to encourage a foreign business to enter into business with the Company. Malaysia poses a particular problem in that it is subject to risk of theft and piracy of goods. In this regard, U.S. Customs is working in coordination with Customs administrative officials of the Asian Pacific Economic Cooperation belt in order to inculcate good customs practices within these countries as well. It would be necessary for the Company to ensure that the Company that it contracts with is also bound by international cargo handling rules, in order to ensure that there is some means available for redressal in the event of a piracy of goods. In addition, the Company may also consider sending some of its security representatives along on trips that are made to transport cargo in order to make sure that it arrives safely at its intended destination. The Company must exercise special care in drafting the CIF contract, and must take steps to limit its liabilities. The contract must clearly designate carriage and the CIF contract is helpful to designate the manner of the carriage. According to Article 67(1) of the U.N. Convention on the International Sale of Goods specify that the seller may also retain the documents that control the disposition of the goods and therefore the Company may also take steps to retain documentation in the event of any litigation arising out of damage or losses to the goods. In view of the fact that goods shipped to Malaysia run the additional risk of loss or theft at sea, it is especially important to specify carriage and clearly demarcate the location where the goods are to be delivered. If no specific location is desired by the buyer, then the terms of the contract will mean that seller’s obligation to deliver the goods would have been completed when the goods are handed over to the first carrier(Clout, case 360). Risk must pass without regard to transport or insurance, according to case law (Clout Case no: 247) and this must also be clearly be spelt out in the contract, so that Seller’s liability is reduced as much as possible in spite of the tough provisions of the CIF contract. The CIF contract between the Company and its buyers in Malaysia should specify that all costs are to be borne by the buyer once the goods have been delivered by sea and that further transportation on land, including unloading, lighterage and wharfage charges are to be paid by buyer. This is essential to specify in the contract, in order to avoid later claims from buyers in Malaysia for any losses that may occur during transportation on land, since the incidence of pilferage is much higher as compared to Germany where it is less. Microchips from China: In the matter of importing microchips from China, a visit by the Company’s lawyer is definitely to be recommended before entering into any agreements. Technical experts and engineers would indeed be necessary on the trip, in order to evaluate the quality of the product. Technical people will be able to critically examine the production processes, methods of manufacture and the quality of materials used in the production of the microchips and would also be able to identify the potential for flawed products. If these technical people are not included on the trip, then the Company will be purchasing products on a blind note and will be unable to spell out the standards and requirements properly, which may prove to be a liability for the Company later on in the quality of the product hat it receives. A CIF contract incorporated in this regard would involve the clear designation of the liabilities of the Chinese company. It is vital that when the manufactured microchips are shipped to the Company, the Seller must assume all risks that may accrue from loss or damage along the way in the vent of piracy or theft of the finished goods at sea. The Chinese company must also procure marine insurance and must be responsible for the goods until the documents have been received by the Company. It would be advisable for the Company to clearly draft out the CIF agreement in accordance with the provisions of Para 2 of Article 67, which designates the passage of risk, in order to avoid the possibility that the Chinese company might identify lost or damaged goods after casualty. It is better for the CIF contract to be drafted in such a manner that the goods are delivered “frei Hause”, wherein the Chinese company would have to arrange for delivery of the goods without damage to the Company’s offices, which would have to be spelt out in the shipping documents attached to this contract. A lawyer would be very helpful in determining the exact provisions of the contract and in clearly spelling out the legal responsibilities and liabilities of the buyers and sellers. Apart from manufacturing and shipping costs, other factors which must be taken into consideration are (a) Does the Chinese firm have the wherewithal to ensure desired production levels? Will the firm ensure timely and prompt delivery? Will the quality of the product be consistently reliable and without flaws? It is important to spell out the clause in the agreement that will enforce this requirement, as follows: The firm (Chinese) undertakes to maintain a consistent level of quality in the microchips that it supplies. The firm also undertakes to replace any damaged or defective microchips at its own cost and if an entire consignment is found to be defective, the firm will be liable to pay punitive damages for losses incurred due to delays. The Company must ensure that the agreements drawn up between the two Companies are in accordance with EU law. In spite of the fact that the EC treaty fosters competition, nevertheless the text of the EU’s regulations regarding intellectual property rights reads as follows: “The achievement of the Internal Market entails eliminating restrictions on freedom of movement and distortions of competition, while creating an environment conducive to innovation and investment. In this context, the protection of intellectual property is an essential element for the success of the Internal Market.” (www.peamen.com). Since the Company cannot guarantee the extent of the reliefs and remedies that may be available to it in the event of a default by the Chinese company, it is better that the agreement is made in accordance with UK law and/or EU law. It is vital that patent protection exists for the Company’s products. However, in spite of the existence of IPR on the Company’s products, there is still an element of risk that the U.K. Company would incur when it enters into business with the Chinese Company, since piracy is rampant in the Asian countries and it is difficult to achieve remedies against these Companies. Therefore, it is up to the Company to decide whether it is prepared to accept the element of risk that is involved vis a vis the advantages in costs that will be gained from outsourcing. It may be possible to effectively prosecute the Chinese Company under the provisions of the EU IPR provisions if sufficient cause of action can be firmly established. Sri Lanka: The Company’s operations in Sri Lanka may be very successful since it will be able to achieve the manufacture of its products at very competitive prices. When a subsidiary of the Company is established in a different country but reports to its parent company in the U.K., the subsidiary Company will be in a position to avoid taxes on the dividends that are paid out from it. Being a joint venture that is operated in accordance with Sri Lankan law, the Company stands to benefit financially from such setting up of establishment in this country and can avoid the payment of taxes. However, the Company needs to be aware of the recent legislation published by the U.K. Government under Finance (No: 3) bill 2005, whereby the fact that the subsidiary Company is eligible for tax deductions does not necessarily render the parent Company eligible for tax deductions according to UK law (Krupsky, 2005). In view of the fact that the Company is keen to pursue fair employment policies and refrain from exploitation of workers, the Company would do well to realize that in countries such as Sri Lanka, there are rampant instances of child labor, exploitation and corruption. Therefore the Company would do well to be guided by the provisions of the Universal declaration of Human Rights set out in 1948 (www.amnesty.org.uk). The Company may also be guided by the conventions of the International labor organization and the ILO tripartite declaration of principles concerning Multinational enterprises and social policy. In fact, on June 27, 2000, the ILO issued a revised set of OCED guidelines for multinational enterprises, whereby higher standards have been set on labor, including the prohibition of child and slave labor. Transparency in business operations and an eschewing of corruptive practices are also spelt out in this revised documents which was endorsed by Governments from 33 countries (www.us.ilo.org, n.d.). It is possible for the Company to work in association with voluntary organizations such as Amnesty International to ensure that any violations in operation are promptly corrected and that the joint venture is conducted within strict limitations of the provisions set out by international human rights standards. It is up to the Company to ensure that in its eagerness for profits, it does not violate the standards of fair practice and labor equity that are practiced in its home territory and constitute decent standards that are internationally applicable. Works cited: 1. Bursa Malaysia Derivatives Clearing Board: Retrieved 8/16/2005 from URL: http://www.mdex.com.my/mdch/mdch.htm 2. Consolidated version of EC Treaty, accessible at URL: Read More