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The Product Liability in the Legal System of the Islamic Republic of Iran

Guiding Principle

These days, the necessity of protecting consumers rights by approving some rules regulating the relationship between producers and consumers is felt. Product Liability is the body of law which solves this problem and provides compensation for physical injuries and property damage resulting from defective and unreasonably dangerous products, and from the failure of a manufacturer or seller to warn the consumer of product dangers. The issue of product liability had been forthcoming in the Iranian Civil Code ratified during 1927-31 and the Law on Protection of Consumer Rights of 2009.

I. Introduction

People these days are inundated with choices. The variety of options and choices in goods and services is vast to the extent that some products may have dangerous and complex combination, so their manufacturer and producers are required to use highly technical and professional skilled employees. Most consumers have no idea about the combination, quality and safety of products they consume. Apart from the price which is considered as a determining criterion in selecting special goods or services, the promotion offered by producers of goods and provider of services plays a significant key role in this respect. Actually, consumers make their decision according to their need and their trust on producers’ marketing and promotion.

The issue is if supplier of goods and provider of services misuse consumers’ negligence and trust and provide them with defective goods or inappropriate services who is responsible and liable for compensating probable loss. Therefore, the necessity of protecting consumers’ rights by approving some rules regulating the relationship between producers and consumers is felt. Product liability is the body of law which solves this problem and provides compensation for physical injuries and property damage resulting from defective and unreasonably dangerous products, and from the failure of a manufacturer or seller to warn the consumer of product dangers. In particular, product liability refers to the liability of any or all parties along the chain of distributor of any product for damage caused by that product. This includes the manufacturer of component parts (at the top of the chain), an assembling manufacturer, designer, formulator, constructor, rebuilder, fabricator, producer, compounder, processor, seller, the wholesaler, and the retail store owner (at the bottom of the chain).

II. Evolution of Product Liability Law

The issue of product liability had been forthcoming in the Iranian Civil Code (abbrev. IR-CC) ratified during 1927-31 by the Iranian Parliament. Some part of this code encompasses regulations on the liability of seller/provider of product and services towards consumers and provides for compensation where consumers’ rights are violated. Although the Iranian Civil Code is rich, it has many shortcomings and deficiencies especially in the area of product liability. Generally it does not contain appropriate solutions in response to our problems today in an industrial life. Hence, the need for a new Act was felt very strongly. Therefore, the Law on Protection of Consumer Rights (abbrev. IR-PCR) was enacted on 07.10.2009.

Furthermore, there are a number of laws which expressly or impliedly provide some regulation in respect of product liability, most of which are found in criminal set of laws imposing specific obligation on manufacturers, distributors and importers to give consumers warranty regarding quality and quantity of goods and services. These laws also adopt punitive measures against any disobedience or violation of laws as well. The following laws are some of the most important ones:

  1. The Executive By-Law on Registration and Attestation Industrial and Commercial Marks on Medicines, Food and Cosmetic Products dates 23.04.1949. The said regulation imposes some rules like labelling products including the following information:
    •  Warnings if the product is dangerous or bears any risk;
    • Type, nature, components/ingredients of product;
    • Date of production or packaging;
    • Expiration date;
    • Country of origin;
    • Method of use.
  2. The Law on Establishing Consumer Protection Fund dated 1974; The Fund aims to i) protect consumers against inflation and changes in cost of production in local and international markets; and ii) provide reasonable protection for manufacturers.
  3. Repressive Law on Penalizing Monopoly dated 12.04.1988. The said law promotes fair competition and prevents monopoly behaviors and protects consumers against distributing unsafe, fraudulent and non-original products. According to this law, misleading or deceptive conducts by any person in advertising products is prohibited. Prices must be displayed in a noticeable manner. All sellers and service providers must provide the consumers with the price list of their products. Supplier must provide an invoice for products.

III. Theories, Approaches and Legislative Documents

A.  Definition

Products containing inherent defects that cause harm to a consumer of the product, or someone to whom the product was loaned, given, etc., are subject to products liability suits.

A product in IR-CC and IR-PCR refers to any movable property, can be bought and sold, used separately or installed in other movable or immovable properties. The product liability refers to both goods and services, but neither Civil Code nor IR-PCR provides definition for “Services”. In economics and marketing, a service is the non-material equivalent of a good. It has been defined as an economic activity that does not result in ownership; generally it can be offered to a market and might satisfy a want or a need.

B. Types of Defects

In general, there are three types of product defects that incur liability in manufacturers and suppliers: design defects, manufacturing defects, and defects in marketing (Duty to Warn). Many legal systems clearly set specific provisions in respect of these three types of defect. While the Iranian legal system in Art. 426 IR-CC provides the determination of a defect shall take place in accordance with common usage and custom, and therefore may vary with time and place. IR-PCR defines defect as an excess, shortcoming or transformation which reduces the economical value of goods or a service.

IV. The Strict or Tortuous Liability of Manufacturer and Supplier of Products

Generally, civil liability is grouped into strict liability for breach of express or implied warranty and strict liability in tort.

1. Strict Liability for Breach of Express or Implied Warranty (Contractual Liability)

Strict liability for breach of express or implied warranty comes from a contract and is arisen in case of failure to perform a contract. Upon concluding a contract, the contracting parties have an obligation towards each other to meet their contractual commitments. The seller is obliged to provide the purchaser with goods or services and any failure will result to a breach of contract. Art. 219 IR-CC provides that contracts made according to the law are binding on the parties or their substitutes, unless they have been cancelled by mutual agreement or for some legal reason

Contractual liability is objective, breach of contract imposes liability. The obligor will not be discharged of his obligation, even it is proved that he did his commitment with due care and in conscientious manner except in force majeure cases. Moreover, there is no need that the promisee proves the failure of obligor to be in breach of contract although the following factors should exists:

  • A valid contract which was concluded between a person sustaining a loss and a person causes loss; and
  • The loss should be resulted of breaching the provisions of such contract.

If a person purchased factory machinery for producing cloth, then an accident occurred and the purchaser sustained heavy damages as a result of manufacturing defect, the manufacturer has to compensate for the damages, since both parties concluded a purchase contract which include express or implied warranty. In case of including no express warranty in the contract, according to Art. 220 IR-CC, the contract itself gives such guarantee to purchaser, since the purchaser paid a purchase price in consideration of perfect and safe machinery. Meaning, in case of sustaining any damage, the purchaser has the right to seek for compensation. Besides that, the purchaser of machinery has two other options according to IR-CC. Art. 422 IR-CC provides that if it appears, after the transaction, that the thing sold was defective, the purchaser has the option either to accept the defective thing together with compensation for its defect, or to cancel the transaction. Due to Art. 424 IR-CC, the purchaser still has such options, even if the defect was evident at the time of transaction, but the purchaser did not realize that fact. Thus, the purchaser could refund the machinery or could exercise his option of receiving compensation because of the existing defect in the sold product.

According to Art. 2 IR-PCR, if the subject of transaction includes Universitas facti goods (fungibles or unascertained goods), and in case of observing a deficiency or disconformities of goods with distinct situations, the customer is entitled of claiming an intact exchange and the seller must ensure that.

2. Strict Liability in Tort (Tortuous Liability)

Strict liability in tort is arisen in the instances of causing damage or injury by negligence. It comes when somebody illegally causes damages to another person, so law and public policy makes a person in default compensate for the loss. Such liability is the obligation towards public comparing with contractual liability which protects contracting parties. In general, tortuous liability, determined mainly by law, is imposed when neglect occurred and the burden of proof lies on a person sustaining a loss.

The doctrine of privity in contact law provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it. As per Art. 231 IR-CC, undertakings or contracts are only binding on the two parties concerned or their legal substitutes. This seems to make adequate sense, that only parties to contracts should be able to sue and to enforce their rights or claim damages as such. However, the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties. If a third party gets a benefit under a contract, it does not have the right to go against the parties to the contract beyond its entitlement to a benefit. An example of this occurs when a manufacturer sells a product to a distributor and the distributor sells the product to a retailer. The retailer then sells the product to a consumer. There is no privity of contract between the manufacturer and the consumer.

This problem has gradually been solved in common law courts. In the Iranian legal system, in case of having no contractual relationship, the only alternative is seeking compensation based on the causation theory. Pursuant to Art. 331 IR-CC, anyone who causes some property to be destroyed must give back its equivalent or its value, and if he causes a defect or damage to it he will be held responsible for any depreciation in value. Art. 1 of Civil Liability Code of Iran of 1960 provides that any one who injures intentionally or due to his negligence, the life or health or property or freedom or prestige or commercial fame or any other right established for the individuals by virtue of law, as a result of which another one sustains materially or spiritually losses, shall be liable to compensate the damages arising out of his action.

Nevertheless, still there is a practical problem in this respect. The burden of proof is on the consumer sustaining a loss. The consumer has to prove the manufacturer’s negligence and dereliction of his duty in causing damages which is required having technical skills or expertise. Unfortunately most lawsuits filed based on causation theory before Iranian courts, are not successful because of the difficulty of proving the manufacturers’ negligence.

Nevertheless, Art. 2 IR-PCR somehow solves this problem. Art. 2 provides that the manufacturers/distributors of goods and services, individually or severally, are responsible for distribution of safe goods and render perfect services in accordance with determined conditions and standards in laws and/or relevant concluded contract or common law. The manufacturers/ distributors shall be liable to compensate all losses resulted from their defective goods or incomplete services.

Moreover, according to Art. 3 IR-PCR, manufacturers and service providers are required to give warranties for their goods and services. Such warranty must contain all necessary information concerning the kind, the quality, the quantity, the pre-consuming information, the production date and expiration date.

V. Conclusion

Product liability has been a dynamic issue in many legal systems, while Iranian legislation touched this issue in the Civil Code in 1927 but left it silent for many years until 2009. The Law on Protection of Consumer Rights does not support consumers strongly and it crucially needs to be reviewed and amended.

One of the main reasons for adopting such a delaying and non-efficient tactics is that Iran has a newly established and vulnerable industry. Because of the significant increase in foreign import, the local manufacturers find it difficult to compete with foreign production. Therefore, it is government’s legal and economic policy to provide appropriate means for promotion and protection local entrepreneur and investors in a way of industrialization. By considering an unfair supply and demand, manufacturers have been preferable to consumers.

January, 2013 Zahra Tahsili
Meyer-Reumann & Partners, Tehran Office
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