Producer's liability for a defective product incorporated in another product: the manufacturer's nightmare?

What is the responsibility of the producer of a defective component, which in turn makes the whole product defective? 

The defective product is subject to the special regime of liability for defective products resulting from European directive of 25 July, 1985. The composite product, because it is made up of one or more components, one of which is defective, poses serious difficulties in terms of liability.

This particular responsibility was not foreseen by the European directive. In French law, however, certain rules incorporated in the civil code provide guidance:

• Article 1245-7 of the Civil Code states that “in case of damage caused by the defect of a product incorporated in another, the producer of the component part and the one who made the incorporation are jointly and severally liable”.
• The last paragraph of Article 1245-10 of the Civil Code states:
  “The producer is automatically responsible unless he proves:
  (...)
  The producer of the component part shall also not be liable if he establishes that the defect is attributable to the design of the product in which the component part was incorporated or to the instructions given by the producer of that product.”

1. Opportunities for professionals to take legal action

The Court of Justice of Luxembourg considers that, although compensation for damage to goods for professional use does not fall within the scope of the directive, it specifies that the directive does not preclude the interpretation of a national law, or the application of established domestic case law, according to which the victim may claim compensation for damage caused to an item intended for professional use, as long as the victim provides proof of the damage, of the defect in the product, and of the causal link between this defect and the resulting damage (CJCE. 04 June, 2009, engine Leroy Somer against DALKIA France – Dalloz 2009 – page 1731).

The Court of Cassation has determined that, in the absence of a limitation under national law, Article 1245-1 of the Civil Code applies to damage caused to property intended for professional use (Cas. 1ère Civ., 11 July, 2018, n°17-20154 – Dalloz 2018 – page 1840).

Thus, the provision of the Civil Code allows for the compensation of damages to property used for professional purposes, even if these are not within the scope of the directive. 

2. Condition of exteriority of the damage

According to Article 1245-1 of the Civil Code, the only damages that can be compensated are those resulting from an injury to a property other than the defective product itself.

This notion of externality, or more precisely, of the impossibility of obtaining compensation for the product itself, has been criticised since it implies the initiation of one action for compensation of the damage caused by the product, and a separate action for compensation of the damage caused to the product itself.

This distinction is not favourable to professionals since compensation of the product can represent a significant cost.

If the defective product is incorporated into a finished product, should the incorporated product be considered to benefit from the application of the concept of damage to property other than a defective product itself, within the meaning of Article 1245-1 of the Civil Code?

The distinction is not simple.

Case law has held that it is possible to obtain compensation for the damage caused by the defective product to the property in which it is incorporated, if it is possible to identify or circumscribe the defect which does not affect a structural element.

Thus, the Commercial Chamber of the Court of Cassation ordered the manufacturer of defective alternators incorporated in a generating set to compensate for the material damage affecting the transformer. It approved a Court of Appeal which upheld a ruling that the damage had been limited to the transformer alone because the Court had distinguished the property for which compensation was sought from the defective alternator (Cas. Com. 26 May 2010, Bull Civ. IIII, n°100).

3. Incorporation: Is it necessary to distinguish whether the incorporated product is a structural element or not?

Only when it is not materially possible to distinguish between the defective product and the product into which it is incorporated does case law exclude compensation for damage to property caused by the incorporated product.

Court judges will reject a claim when they consider that the incorporated product and the finished product should be considered as a single product, the former being a structural element of the latter.

In reality, the victim acts against the manufacturer of a component only when the defect of the component has led to the loss of the complete or integral product, and its value is high.

Of course, this research implies the implementation of judicial expertise in which the distinction between component products and composite defective products is highlighted.

Most frequently, it is the producer of the finished product that is exposed to victims' claims.

4. Recourse between co-responsible parties

Article 8 of the directive on defective products provides that “the producer's liability towards the victim shall not be reduced by the act of a third party who contributed to the damage”. The courts have derived a specific rule for composite products.

It is up to the producer of the product to compensate victims of damages and, in turn, to seek action against the manufacturer of the integrated component that caused the defect.

Article 1245-7 of the Civil Code provides that in the event of damage caused by the defect of a product incorporated in another, the producer of the component part and the one who carried out the incorporation are jointly and severally liable.

The system must allow easy and complete compensation of victims who, let us recall in the spirit of the drafters of the directive, are consumers. The manufacturer, a professional, must for his part, initiate warranty claims against the manufacturer of the incorporated product.

The directive does not make any specific provision for the division between the manufacturer of the composite product and the manufacturer of the product as a whole.

The classic rules of the Civil Code, in particular Article 1317, indicate that each joint and several debtor contributes to the debt for his share.

It is therefore the importance of the fault and the causal role in the damage that will determine this “share”, and therefore the substance of recourse between co-responsible parties. This distribution can result from the conclusions of an expert who will examine the role of the incorporated product in the appearance of the disorders which created the defect of the integral product.

In the event that the producers are all deemed liable due to a product defect, without any fault being attributable in particular to any one of them, there is an equal distribution of the contribution to the debt that is chosen by the case law (Cass. Civ. 26 November, 2014 – Bull. Civ. I n°198).

The producer of the finished product must take personal recourse against the producer of the defective component product. In addition to the subrogatory recourse provided for by Article 1346 of the Civil Code, when the manufacturer of the finished product compensates the victims, there is a personal recourse, first of all contractual, since the manufacturer of the finished product will necessarily be in a contractual relationship with the manufacturer of the component.

Is such an action possible on the basis of Article 1245-1 of the Civil Code, which makes the application of the special regime of liability for defective products conditional on the existence of a harmful defect in the product that causes injury to the person or damage to property?

In fact, the producer of the finished product who compensated the victim did not directly suffer any damage to his property or person.

However, the Court of Cassation has admitted that property damage within the meaning of Article 1245-1 of the Civil Code includes economic and commercial legal evidence (Cass. 1ère Civ. 01July, 2015 – Bull. Civ I n°70).

But can the compensation of damage to the victim be considered as an economic or commercial loss? There are few decisions regarding this issue.

The manufacturer of the finished product may be confronted with the application of a limitation or exclusive liability or warranty clause, which he will have signed with the producer of the composite product.

However, the manufacturer has the option of taking action based on the lack of delivery conformity or non-conformity (Civil Code Article 1604), or to act on the basis of the legal guarantee of hidden defects (Civil Code Article 1641 and following), or on the basis of general contractual responsibility.

The question arises as to the prescription of these different actions and their specific characteristics.

We know the pitfalls of the need to act within a short period of time in the context of the warranty for latent defects. The subrogatory recourse, which borrows its regime from the action of the direct victim, imposes a limitation period on the subrogated party identical to that applicable to the action of the subrogator – that is to say three years from the date on which the victim had or should have had knowledge of the damage, the defect, and the identity of the producer according to Article 1245-16 of the Civil Code.

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