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 qualityof the garment and that X had accepted this risk.