Product Liability in Austria – Current Situation

In Austria, the Austrian Federal Act on liability for a defective product ‒ Product Liability Act (Produkthaftungsgesetz) (PHG), the Austrian Federal Act on Protection against Dangerous Products ‒ Product Safety Act (Produktsicherheitsgesetz) (PSG) ‒ the PSG transposes Directive 2001/95/EC on general product safety into Austrian law – and the Austrian General Civil Code – Allgemeines Bürgerliches Gesetzbuch (ABGB) regulate product liability and product safety.

The PHG presupposes that damage has occurred in order for liability to apply, whereas the PSG regulates the obligation to market safe products. 

In contrast to the PHG, the PSG is intended to have a preventative effect. It is intended to prevent people from being put at risk by dangerous products by obliging manufacturers and importers to only place safe products on the market. Safety is assessed according to use, among other things. Particular attention must be paid to “vulnerable” consumer groups such as children, the elderly and people with disabilities. Non-compliance with the rules in the PSG can have negative consequences, even if no harm is caused. Violations of the PSG are punishable by administrative penalties. 

The safety of products and the associated liability play an important role for various reasons. A company’s products are its link to its customers and the public. Product safety and liability issues have a direct impact on a company’s image and reputation. 

In the event of liability claims, the consequences can be severe depending on the type of product or defect. Measures to avoid liability due to defective products are therefore important. 

Liability Under the PHG

Liability under the PHG does not depend on the fault of the contractor against whom a claim is made. It is therefore “independent of fault”. It is not necessary that the entrepreneur be accused of negligent or intentional behaviour. The only decisive factor is whether there is a product defect within the meaning of Section 5 PHG that caused the damage. An “objective” liability, an atypical form of “strict liability”, is thus imposed on those liable under the PHG.

Companies are liable even if they are not responsible for the error that has occurred (liability for the safety risk).

Liability under the PHG also does not require a direct contractual relationship or a connection via a sales chain between the person injured by a defective product and the person responsible for it. As a non-contractual liability, it applies in principle to anyone who is injured by a defective product. 

Companies along the distribution chain that manufacture or sell goods in the broadest sense can be held liable for defective products. Within a company, product liability affects various areas such as production, management, purchasing and sales. Purchasing and sales, for example, must ensure that their own company’s liability is minimised and that defective products can be traced in the event of an emergency. 

Only pure service providers or consulting companies are least affected by product liability. However, this assumes that such a company does not actually place any products on the market (including the sale of promotional items). 

Product liability is not about the defect in the product itself, but about the damage caused by the defective product to another object or person. The protective effect covers not only the individual contracting parties, but also innocent bystanders.

In principle, the manufacturer, quasi-manufacturer or importer is liable for damages if they have placed a defective product on the market and the product has caused damage. The term “manufacturer” within the meaning of the PHG is very broadly defined and by no means only refers to those companies where the product came off the assembly line.

Dealers are only liable if the manufacturer or importer cannot be identified by the injured party. However, the retailer can exempt themself from liability if they can provide the injured party with the name of the manufacturer or their supplier within a reasonable period of time (approximately one to two weeks).

Product liability claims must therefore be asserted against the manufacturer and only in exceptional cases against the retailer.

Parts manufacturers or raw material manufacturers are only liable for the defective products they have manufactured if this partial product or the basic material is the cause of the damage. The manufacturer of end products is also liable for the defects of base materials or sub-products (however, the parts manufacturer has a right of recourse)

A product is deemed to have been placed on the market if it has been removed from the manufacturer’s/importer’s power of disposal by the manufacturer’s/importer’s own volition (value principle). It does not depend on whether or not it is for payment.

The PHG defines the term “product” as any movable physical object, even if it is part of another movable object or has been connected to an immovable object. Energy is also considered a product within the meaning of the PHG by express statutory order. A “thing” is defined as anything that is not a person and is intended for human use. An object is considered movable if it can be moved from one place to another without damaging its substance. An object is considered physical if it “falls into the senses”, while rights are considered non-physical.

The law does not specify how a product is to be manufactured. The type of production is irrelevant: whether industrial, mechanical, manual or by other means; this does not determine liability. It is also not decisive what ultimately happens to a product. Even the installation of a product does not change the original product characteristics. 

Whether a product is defective depends on the respective contractual content. The concept of defect therefore differs from the concept of defect under warranty law. Compensation for material damage under the PHG is therefore only due if the damage has occurred to a physical object other than the product. This means that the damage caused by the defect to the item itself is not eligible for compensation (so-called further damage). This also applies if an individual part of a part manufacturer destroys other parts of the overall product.

A product is considered defective if it does not offer the level of safety that can be expected under all circumstances. Design defects, production defects (“runaway damage”) and instruction errors (“instructions for use”) can be considered as types of defects.

Attempts are often made to restrict the area of use of products in the instructions for use in order to reduce safety expectations. However, what matters is safety for all reasonable expected uses.

The packaging, the offer and the advertising are also relevant in connection with the normally expected use of the product. The standard for safety expectations can be raised by advertising claims or special guarantees.

It is not impermissible, but frequently common practice, for potentially liable parties under the PHG to endeavour to manage the safety expectations of product users and consumers by means of “warnings”, “instructions for use” and “product declarations” as part of the “presentation of the product” in such a way that a product cannot be qualified as defective.

Product liability covers personal injury and damage to property caused by defects in the product when it was placed on the market by the liable party. Personal injury is compensated without distinction between consumer and entrepreneur (no deductibles). The property damage must have occurred to an object other than the defective product, whereby only privately used objects are compensated under the PHG.

However, not all consequential material damage is compensated, as mere financial loss, loss of profit and so-called further damage that arises as a result of the defect in the item itself (eg, defective water hose destroys the rest of the engine). The general law on damages may apply here.

With regard to private property damage, there is a deductible of EUR500 for the injured party.

Claims for damages arising from product liability expire three years after knowledge of the damage and the damaging party, and in any case ten years after the product causing the damage is placed on the market.

It is prohibited to exclude or limit the obligation to pay compensation under the PHG “in advance”. Also, a contractual exclusion of liability is not permitted. The aim is to ensure that injured consumers of defective products are effectively protected: in the entrepreneur/consumer relationship, any attempt to limit or even exclude liability from the title of product liability through contractual clauses is inadmissible. Product liability claims cannot be limited or excluded in the relationship between the party liable for product liability and the injured party, even in the relationship from entrepreneur to entrepreneur, although liability in this relationship is only for personal injury in any case.

The PHG grants the claimant (within narrow limits) a number of statutory relief options, as set out below.

• The manufacturer or importer proves that the product was not placed on the market by them (eg, the product was stolen from the factory). Note: in the case of dealers, the injured party must prove that the defective product was placed on the market by this dealer.

• The manufacturer, importer or distributor can prove that the product was not defective at the time it was placed on the market, although full proof (probability is sufficient) is not required.
• The defect in the product is due to compliance with mandatory legal requirements that were in force at the time the product was placed on the market.
• The product corresponded to the state of the art at the time it was placed on the market, so that the defect could not be qualified as such at that time.

Under the PHG, liability can be excluded if the customer can be proven to have acted with gross negligence or wilful misconduct. Gross negligence is not sufficient.

Differentiation From Warranty and General Tort Law

Warranty

Warranty is the legally binding and no-fault liability of the seller for ensuring that an item was free of defects at the time of delivery. A defect can either be rectified or replaced. The buyer can choose between the two options. Only if improvement or replacement is not possible or would involve disproportionately high costs does the warranty remedy of the second stage come into consideration, namely price reduction or termination of the contract. However, termination of the contract is only an option if the defect is significant.

General tort law

In general tort law, the tortfeasor’s fault is a prerequisite for liability. Only those who have caused damage intentionally or negligently are responsible for it. In the context of product damage, this fault may lie, for example, in the production process (eg, a screw is not tightened correctly) or in the fact that specific product regulations were not observed (eg, the screw should have been more stable in accordance with the applicable standard). In the latter case, it is a violation of a protective law. 

Limitation of liability through general terms and conditions (GTC)

It is also possible to limit compensation claims (B2B, B2C) and warranty claims (B2B). This is possible within the framework of general terms and conditions. It can be considered on a case-by-case basis whether liability for damages and/or warranty should be limited in the terms of delivery. 

In this respect, limits must be observed in terms of content, as not all limitations of liability are permissible in every case. For example, the limitation of liability for personal injury is generally inadmissible. Such limitations should therefore be considered and tailored to the individual case.

Plaintiff's burden of allegation and proof

Anyone wishing to claim damages on the basis of the PHG must generally prove that they have suffered damage caused by a product defect for which the claimant is responsible.

Pursuant to Section 7 of the Product Liability Act, the party against whom a claim is made may exonerate itself by either proving that it did not place the product on the market or did not do so with entrepreneurial intent, or that the product defect causing the damage did not exist at the time the product was placed on the market. Thus, exoneration from liability can be achieved if the party against whom a claim is made proves that the defective and therefore damaging product was stolen or otherwise removed from their power of disposal against their will.

Proof that the product was at least “probably” free of defects at the time when the person against whom a claim is made placed it on the market also exempts the product from liability in accordance with Section 7 (2) PHG. 

If damage is attributable to a design defect, the Supreme Court regards the proof that the product was state of the art at the time it was placed on the market can lead to exoneration pursuant to Section 7 (2) PHG: a qualitatively reduced burden of proof is regulated by Section 7 (2) PHG, which merely requires the judge to weigh probabilities based on the circumstances of the case when forming their conviction of the truth of the allegation. 

The judge has a wide margin of discretion, which they must fill in accordance with the Act. “Circumstances to be taken into account” are above all:

• the type of product;
• its specific service life and resistance to wear and tear;
• the technical possibility of checking the product for any defects; and, in particular
• the duration of its use. 

Section 8 PHG provides further possibilities for exoneration. However, it would have no exonerating effect if the manufacturer, importer or retailer were merely to prove that the damage occurred through no fault of their own. In product liability law, it is not a question of whether someone is at fault. Section 8 PHG provides for several grounds for exoneration known as “liability exclusions”.

A party against whom a claim is made can escape liability in accordance with the Section 8 (1) PHG if it can prove that the product defect is “attributable to a legal provision or official order with which the product had to comply”. The practical significance of this ground for exclusion of liability is limited.

However, if the defect of the product only becomes apparent at a later date due to a lack of marketability, the manufacturer’s liability can at best be justified under the aspect of a culpable breach of the duty to observe the product in accordance with general rules. However, as the Supreme Court has stated, the product monitoring obligation “cannot be derived from the Product Liability Act” and the dogmatic justification can be found “in the doctrine of the duty to maintain safety”.

Recent Developments in Product Liability Law/Forecast

The increasing digitalisation of the economy and society brings with it new technologies that pose challenges for product liability law. These include intelligent products and systems with AI, which, due to their complexity, networking and data dependency, go beyond previous legal concepts and requirements. Therefore, the EU has reached a political agreement to amend the Product Liability Directive. These are far-reaching for software manufacturers. The reform is intended to incorporate these products into European product liability law and adapt or expand the traditional legal concepts. In future, software will be a “product”. Liability for damages under product liability law will then be independent of fault, and products must be continuously monitored. Security updates must also be provided in good time if “common vulnerabilities and exposures” become known.

The Directive will bring the following changes

The scope of the Directive will be extended: in future, software and digital production files (eg, for 3D printers) will also be explicitly covered as “products”. This applies both to software that is integrated into another product and to stand-alone software that can directly cause damage. 

In future, significantly more economic actors will be subject to product liability. In addition to traditional end manufacturers, parts manufacturers, quasi-manufacturers and importers, liability will be extended to include authorised representatives of the manufacturer, fulfilment service providers (ie, storage, packaging and shipping service providers) and ‒ under strict conditions ‒ even retailers and operators of online marketplaces. Furthermore, according to the Directive, companies that make significant changes to a product that has already been placed on the market outside the control of the original manufacturer will also be considered manufacturers.

A new definition of defect is also to be implemented

This takes even greater account of modern product safety law. For example, the lack of software updates under the control of the manufacturer, which are necessary to maintain (cyber) security, can lead to a product being defective and thus to liability. 

New possible features for proceedings

It is expected that the plaintiff will be granted significant simplifications in the presentation of evidence. Among other things, it should be possible in future to (rebuttably) presume both the defectiveness of the product and the causal link between the product defect and the damage if it is excessively difficult for the plaintiff to provide evidence due to technical or scientific complexity (eg, in the case of an innovative technology) and the plaintiff can prove at least a probability that the product was defective or that the defect caused the damage. In addition, a defendant may be obliged to disclose evidence. This should only apply if the claim for damages appears plausible and if the disclosure is proportionate. If business and trade secrets are involved, their protection must be ensured.

Loss and falsification of data that is not used exclusively for professional purposes will now also be considered as compensable damage. The previous deductible of EUR500 will no longer apply.

In March 2024, the EU Parliament adopted the new Product Liability Directive. Following formal confirmation in the EU Council, member states will be obliged to implement the Directive accordingly ‒ probably by mid-2026. It is currently unclear how the Austrian government will implement the Directive.