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I.  -  ECONOMIC IMPORTANCE OF SERVICES
The services sector occupies a strategic position in Europe:
- more   than   half   the  value  added  produced   each   year   in   the
 European Community stems from services.  Between 1970 and 1985 the growth
 rate  of  value added produced in market services reached  69%  (118%  in
 Japan and 71% in the United States), as against only 28% for industry;
- in  1985  60%  of the active population in Europe  was  employed  in  the
 services sector, including 2/3 in market services;
- in  terms  of international trade in services the  European Community  is
 indisputably the world's leading exporter.
II.  -  JUSTIFICATION OF THE COMMUNITY INITIATIVE
The  positive  balance in extra-Community trade confirms  the  capacity  of
services  companies  to adapt their commercial strategies  to  the  demands
imposed  by the internationalization of markets.  At intra-Community  level
the  different  national legal provisions and regulations  provide  serious
obstacles to companies looking for new markets.
- Legal reasons connected with the promotion of consumer interests
 The  disparities  found between the Member States in the  system  of  the
 liability of the suppliers of services are at several levels: legal basis
 of  liability,  burden of proof, causal relationship  and  protection  of
 injured persons. These disparities cause inequalities.
 A  consumer  having  to  deal  with  suppliers  of  services  when  in  a
 Member State other than his own expects to benefit from a high degree  of
 protection.  Alignment of the systems of protection will encourage him to
 take up cross-frontier offers of services.
                                  - 2 -
- Reasons  connected  with  the  existence of a  system  of  liability  for
 defective products
 The grounds of distributive justice put forward for the introduction of a
 Community system of objective liability for defective products justify  a
 similar system for accidents connected with the provision of services  to
 consumers.
- Economic reasons connected with the completion of the internal market
 The  absence of minimum harmonized regulations relating to the  liability
 of the supplier of services for a defective service holds the sector back
 by keeping in check the potential for expansion offered by the  abolition
 of frontiers within the European internal market.  A supplier of services
 wishing to set up business in a Member State other than his own would  be
 well  advised  to choose a Member State that offers the consumer  a  less
 advantageous system of protection.
- Reasons connected with the common features of services
 A horizontal directive (which does not rule out special provisions  being
 applied  at Community for one of the specific sectors) is  effective  and
 suitable  because  all  the services have common  aspects  which  can  be
 covered  by a text limited to laying down the basic elements of  consumer
 protection  (few  written contracts, technical nature  of  the  services,
 disappearance  of  the  cause  of damage  during  the  provision  of  the
 service).
III.  -  CONTENT OF THE PROPOSAL
This draft establishes the liability of the supplier of services for direct
damage caused (by his fault in the provision of the service) to the  health
and  physical  integrity of persons or their property.  It applies  to  any
transaction carried out on a commercial basis or by a public body and in  a
dependent manner, whether or not in return for payment, which does not have
as its direct and exclusive object the manufacture of goods or the transfer
of rights in rem or intellectual property rights (see specific examples  in
the Annex).
The draft proposal for a directive does not upset the system currently most
widely used of liability for fault.  However, it embodies and  standardizes
changes in legislation in the principle of reversal of the burden of  proof
of the fault of the supplier in favour of the injured parties, who, without
technical  knowledge, are defenceless against a professional  party.  Under
the  terms  of the draft proposal for a directive the  injured  party  must
provide  proof  of  the  damage  and  a  causal  relationship  between  the
performance  of  the  service  and the  damage.    To  defend  himself  the
supplier of the service must provide proof that he has committed no fault.
To  take  account  of trends in national legislation  this  fault  will  be
assessed  in  relation to a conduct of the supplier of  services  who  must
guarantee,  under normal and relatively predictable conditions, the  safety
that can be reasonably expected.
                                  - 3 -
The  draft  concerns the safety of private persons  and  private  property.
Thus,  only services which compromise this safety, i.e. services which  can
damage the health or physical integrity of private persons or property, are
concerned, and not services causing only financial damage, services already
covered  by  other regulations (package travel, waste) or  public  services
designed  to  maintain  public safety. Specific  directives  providing  for
exceptions  from this general rule will be prepared by the  Commission  and
must  be adopted by 31 December 1992 in the medical and  legal  professions
and in the construction sector.
The  draft  proposal also provides for joint and several liability  of  all
parties  responsible  for  one  and  the same damage  as  well  as  of  the
franchisor and the franchisee when the service is provided by a  franchised
supplier of services.
The  directive does not provide for limits on the compensation  for  direct
damage suffered by the injured persons, but it does provide for  limitation
periods and termination of liability.
IV. - ANSWERS TO A NUMBER OF QUESTIONS
1.    Will risk services not disappear once this Directive is adopted?
 In  the  proposal for a directive the liability of the  supplier  of  the
 service  presupposes  that  the  latter has  committed  a  fault  in  the
 provision  of  that  service. Furthermore, this fault  is  based  on  the
 concept of reasonable expectations as regards safety.
 These two points will allow risk services to continue.
 Thus,  a supplier of services will not be liable for damage if it  cannot
 be reasonably expected that this damage will not occur, given the  nature
 of the subject and the extent of the service:
 -   e.g. risk surgery: it cannot be reasonably expected that these  risks
     will not materialize, given the nature of the service;
 -   repair  of  part X on a car but not part Y: it cannot  be  reasonably
     expected  that damage due to party will be avoided, given the  nature
     and extent of the service;
 -   dry  cleaning of a delicate garment: the supplier of  services  draws
     attention to the risk of tear. It cannot be reasonably expected  that
     this garment will not tear, given the nature of the service.
 The  supplier of the service would be well advised to state  clearly  the
 nature and extent of the service.
2.    Might  this  not  lead to an often excessive  situation  such  as  is
     experienced in the United States?
     No,  because  the legal system and the system of paying  lawyers  are
     very  different  in  Europe.  Europe,  for  example,  does  not  have
     "punitive damages" which allow enormous amounts to be awarded to  the
     injured party in addition to repair of the damage.
                                  - 4 -
3.    Will it not create defensive medicine?
 The  directive  enshrines the principle of liability for  fault  and  the
 concept  of  reasonable  expectation.  The  obligations  of  doctors  are
 generally obligations to perform a given task and not to achieve a  given
 result.
 The  patient  can reasonably expect to recover in any event, to  have  no
 secondary effects and not to run certain risks during an operation, etc.
4.    Will insurance costs not increase excessively?
     According  to an economic study carried out for the  Commission,  any
     increase  in insurance premiums should be small.  In any  case,  this
     increase  would be reflected on the price of services that  consumers
     are   prepared  to  pay.  Nor  would  there  be  any  distortion   of
     competition,  since  all these suppliers of services will be  in  the
     same situation, which is not the case right now.
     N.B.:   SMEs have an insurance policy of third party liability during
             work  and third party liability after work. The premiums  are
             expressed  as  a percentage of salaries. Current  rates  vary
             between 0.2% and 2% of total SME salaries.
5.    Pain and suffering
     Compensation  for pain and suffering was initially provided for in  a
     preliminary draft directive.
 However, given the diversity of national legislations and the  conditions
 of  compensation for this type of damage, it seemed preferable  to  leave
 present  national provisions and the judicial practice arising  therefrom
 as they are. The proposal for a directive has thus deleted any  reference
 to this type of damage.
 Nonetheless, the Commission is examining a study recently carried out  by
 the EBCU on this subject.
                                                     ANNEX
      EXAMPLES OF SERVICES COVERED BY THE PROPOSAL FOR A DIRECTIVE
1.    Heating engineer
A new central heating system is installed in house X by heating engineer Y.
A few months later the boiler explodes.
X will have to prove:
- the damage suffered due to the explosion,
- the  causal relationship between the damage and the installation  of  the
 heating system.
Y will have to prove:
that he did not commit any fault in the installation of the heating system.
He  will prove, for example, that the explosion was due to a defect in  the
boiler  of  which he could not be aware; that he installed  the  system  in
accordance  with  the state of the art and took all  the  precautions  that
could reasonably be expected; that the explosion was due to improper use of
the boiler, etc.
2.    Electrician
The  firm of electricians Y wires living room X. Shortly afterwards a  fire
breaks out.
X will have to prove:
- the damage suffered due to the fire,
- the  causal  relationship between this damage and the  electrical  wiring
 done  by Y. He will prove, for example, that the fire began at the  place
 where the wiring was installed.
Y will have to prove:
that he did not commit any fault. He will prove that he acted in accordance
with  the  state  of  the  art and took  all  the  precautions  that  could
reasonably  be expected for electrical installations and that the fire  was
due to another cause.
3.    Garage owner
X  has  the brakes of his car repaired by Y. On travelling home  X  has  an
accident.
X will have to prove:
- the material and physical damage suffered,
- the  causal  relationship  between this damage and the  repair.  He  will
 prove, for example, that the accident happened because the brakes did not
 work.
                                  - 2 -
Y will have to prove:
that  he  did  not commit any fault. He will prove, for  example,  that  he
worked in accordance with the state of the art and took all the  provisions
that  could  be reasonably expected; that the accident was not due  to  the
brakes but to the malfunctioning of a different mechanical part.
4.    Fire in a hotel
X  stays at hotel Y. A fire breaks out during the night, X is  badly  burnt
and his luggage is destroyed.
X will have to prove:
- the damage suffered,
- the  causal  relationship between the hotel service, his  burns  and  the
 destruction of his luggage.
Y will have to prove:
that  he did not commit any fault. The hotel will prove, for example,  that
it  took all the precautions that could be reasonably expected in terms  of
safety;  that the emergency exits could be opened; that the automatic  fire
extinguishers worked; and that the fire spread rapidly and unpredictably.
5.    Dry cleaning
X  hands in his clothes at dry cleaner's Y. When he gets the  clothes  back
they are discoloured.
X will have to prove:
- that  his  clothes  were  in good condition to start  with  and  are  now
 unwearable,
- that his clothes were discoloured during dry cleaning by Y.
Y will have to prove:
that  he did not commit any fault. He will prove, for example, that he  had
warned X of the risks of discolouring given the flimsiness and poor quality
of the garment and that X had accepted this risk.

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