The Supreme Court thereby rules (once again) that damage to the actual defective product (self-damage) is not damage caused by a defective product within the meaning of product liability law. In the judgment, the Supreme Court has specified the more detailed framework for the principle on self-damage within product liability law.
WHEN IS A DAMAGE COVERED BY THE RULES ON PRODUCT LIABILITY?
Application of the rules on product liability is conditional on damage to something else than the actual defective product. It is therefore not possible to obtain compensation for loss as a consequence of damage to the actual defective product (the so-called self-damage situation) under the product liability rules. This limitation appears from section 2 (2) last sentence of the Product Liability Act, and the same principle applies according to the product liability rules developed under case law.
In a self-damage situation, it is a clear principle that the injured end-buyer may therefore only raise a contractual claim against its contracting party. However, this main principle was challenged during the above action.
J. Lauritzen A/S and J. Lauritzen Singapore Prte. Ltd (“Lauritzen”) concluded an agreement with a shipyard concerning purchase of gas carriers. In connection with the purchase, the shipyard concluded an agreement with the marine engine manufacturer MAN Diesel & Turbo (“MAN”) concerning delivery and installation of marine engines in the new ships. The engines were equipped with a special cylinder oil system, the Alpha Lube system. The agreement involved a new model of the Alpha Lube system which - as opposed to the original system - could be used in small marine engines. The new model of the Alpha Lube system was manufactured, marketed and delivered by MAN.
Lauritzen noted an unusual wear of the engines which resulted in several components having to be replaced sooner than expected. The wear damage was apparently caused by a defect in the Alpha Lube system.
Material limitations of liability were included in Lauritzen’s contract with the shipyard. Consequently, Lauritzen raised a claim for compensation against Man for loss as a consequence of the wear damage to the marine engines. There was no contractual relationship between Lauritzen and MAN, and Lauritzen could therefore not raise a contractual claim against MAN. It was decisive whether MAN was liable to pay compensation to Lauritzen for the loss as a consequence of the wear damage to the marine engines according to the product liability rules developed under case law or the principles concerning direct claims.
The primary dispute in relation to the product liability rules was whether the Alpha Lube system was to be considered an independent product or a part of the product sold, the marine engines. This consideration was decisive as to whether damage had been caused to something else than the defective product or whether this was a self-damage situation.
THE MARITIME AND COMMERCIAL HIGH COURT GAVE DECISIVE WEIGHT TO THE MARKETING OF THE ALPHA LUBE SYSTEM AS AN INDEPENDENT PRODUCT
The Maritime and Commercial High Court found that the Alpha Lube system could be considered an independent product and gave weight to the circumstances at the time when the engines were subject to negotiation. In that period, MAN had actively marketed the new Alpha Lube system for small engines in separate campaigns and as an independent product which could be selected when purchasing new engines and be purchased separately for installation in used engines.
On this basis, the Maritime and Commercial High Court concluded that MAN was liable to pay compensation for the loss as a consequence of the wear damage to the engines under the product liability rules developed under case law as the system had caused damage to something else than the system itself, i.e. the engines. MAN lodged an appeal against the judgment with the Supreme Court.
THE SUPREME COURT GAVE DECISIVE WEIGHT TO THE FACT THAT THE PRODUCTS HAVE BEEN SOLd AS ONE UNIT
The Supreme Court found that, when assessing whether damage had been caused to something else than the defective product, it should be taken into account whether the defective product is part of a product which was sold as one unit. Further to this, the Supreme Court referred to the grounds of the Masnedø judgment (UfR 2010.1360) where the Supreme Court found that, when assessing whether it involved a self-damage situation, it should be taken into account which product the end-buyer has purchased from its contracting party.
In the marine engine case, MAN had not made an allegation that the product purchased by Lauritzen should be taken into account as in the Masnedø judgment. On the contrary, MAN claimed that damage had not been caused to anything else than the product sold by MAN to the shipyard, i.e. an aggregate engine, including the Alpha Lube system. The Supreme Court then made a specific assessment as to whether the product sold by MAN constituted an aggregate unit/product, and the Supreme Court concluded that this was the case. Consequently, the Supreme Court found that damage had not been caused to anything other than the sold product, and that the wear damage to the engines did therefore not constitute damage caused by a defective product within the meaning of product liability law.
Further, the Supreme Court found that Lauritzen has not proved that MAN had acted in a manner giving rise to liability according to the principle on direct claims. The Supreme Court therefore ruled in favour of MAN.
In the judgment of 13 September 2017, the Supreme Court determines, referring to the Masnedø judgment, that the assessment as to whether damage has been caused to something else than the defective product must be based on how the situation appears from the point of view of the end-buyer. The principal rule providing that the assessment should be based on the end-buyer’s purchase is also in accordance with the judgment of the Maritime and Commercial High Court in the Opel case (H-57-04). For more information, see the article in UfR 2013B.417 “Product liability - Components and self-damage”.