Safe conduct

Product liability claims are on the rise as consumers, backed by tougher EU laws, are increasingly exercising their rights. By Jeanette Harwood and Gwendoline Davies

In an environment of increasing legislation, effective risk management is, more than ever, becoming crucial to dealing with product liability claims. Such claims are on the increase. Consumers are more aware of their rights and new EU legislation is designed to tighten up on producer, distributor and retailer liability. Product liability claims may not just cost time and money – at worst, they could destroy corporate reputations.

The legal position

Civil liability for damage resulting from a defective product can arise under contract law, negligence and under the Consumer Protection Act 1987 (the 1987 act). The Sale of Goods Act 1979 implies terms into sale of goods contracts regarding quality and fitness for purpose, which if breached may give rise to a claim for breach of contract. The aggrieved customer will pursue the person who sold him the goods, but because of the privity of contract rules they will not usually be able to pursue the manufacturer.

To pursue a claim of negligence successfully, the customer must show that they were owed a duty of care by the manufacturer/retailer of the goods, that the duty was breached and that the breach caused the damage complained of. The damage caused must have been reasonably foreseeable.

The 1987 act implemented the Product Liability Directive into our national law, and in doing so it introduced a system of no-fault liability that runs alongside the existing common law remedies. It is not possible to contract out of liability under the act. The act enables consumers to claim compensation for death, injury or damage to property, caused by virtually all types of defective product. Liability falls on the producer, brand owner, importer or any supplier who has failed, within a reasonable time of being requested to so, to identify the person who supplied to them.

The focus of the act is civil liability rather than product safety. However, under Section 3(1) of the 1987 act, a product is defective if its safety is not such as persons generally are entitled to expect. This has prompted an improvement in the existence and adequacy of accompanying warnings and instructions. However, this is not the same thing as a statutory obligation to ensure the safety of products.

The 1992 General Product Safety Directive introduced the concept of a ‘general product safety obligation’, which required producers to keep only safe products on the market. Producers were obliged to provide consumers with relevant information to enable them to assess any risks inherent in the product and to warn them against non-obvious risks. Producers were also required to operate procedures to enable them to withdraw unsafe products from the market. Despite this the directive was criticised for not going far enough to ensure consumer safety. This culminated in the drafting of a second directive, which came into force in 2004.

The second General Product Safety Directive (2001) imposes more obligations on suppliers of consumer products to EU markets than its predecessor. The directive extends to all products that are made available to customers and also to products used by consumers in the course of delivery of a service (for example hairdryers at hairdressing salon).

A product that does not meet the definition of a ‘safe’ product is a ‘dangerous’ product. Suppliers must reduce the risk of placing dangerous products on the market and ensure that they have the necessary procedures in place to be able to conduct a product recall if necessary. There is a statutory obligation to ensure that instructions and warnings are communicated to consumers.

When it is discovered (or when it ought to be known) that a product on the market poses unacceptable risks, producers and distributors must notify the competent authorities immediately. The European Commission has produced guidance to facilitate compliance with the notification requirement. ‘Immediately’ means without delay and in any case within 10 days of the relevant information becoming available. In cases of serious risk, this reduces to three days. In an emergency the company must inform the authorities immediately and by the fastest means available. Compliance with these time-scales may be difficult, especially where information about the risk is still emerging.

National authorities are obliged to take positive steps to ensure adequate market surveillance of consumer products. Importantly, they can initiate product recalls, although this should always be a last resort. Authorities should share information about ‘serious risks’ with the Commission, which in turn can share that information with other member states. The information can then be made available to the public.

With the penalties in the UK being fines of up to £20,000 and/or 12 months’ imprisonment for the more serious offences, and up to £5,000 and/or three months’ imprisonment for other offences, companies must ensure that they have procedures in place to identify product risks to prevent dangerous products being placed on the market and to prepare for a product recall, should the worst happen.

The ‘New Approach Directives’ have developed alongside the more general safety regime contained within the General Product Safety Directives. These stipulate essential requirements for product manufacture in respect of a specific category of product (for example toys or household appliances) mainly concerning safety. The guidance published by the Commission has done little to clarify how the directive interacts with the New Approach Directives.

Risk management

Effective risk management is crucial to ensuring that, as far as possible, products are safe and that problems can be dealt with effectively. Steps include:

  • Monitoring the safety and performance of the product throughout its lifetime, paying particular regard to the likely users and the probability (and severity) of injury – for example through sample testing and maintaining a register of customer complaints;
  • Establishing an efficient system of tracing products so it is easy to identify ‘dangerous’ products to facilitate a product recall, should the need arise. Product packaging should contain product references/batch numbers or other information to enable the products to be traced back up the supply chain. Retaining comprehensive and up-to-date records of distributors, retailers and customers is needed so they are equipped to act quickly should a product recall be necessary;
  • Establishing and training a team to handle a crisis in the event of one arising. Ideally it will include a lawyer (internal or external), as well as suitably qualified sales, purchase, risk management and technical personnel;
  • Reviewing terms and conditions to ensure they apportion risk fairly between manufacturers, distributors and retailers;
  • Reviewing product packaging and documentation/instructions to ensure consumers are provided with sufficient information to assess the risks of the product;
  • Retaining information that shows how the company has discharged its obligations under the directive. A retention policy and document management plan should be implemented so that any documents are kept for a sensible period of time. To limit the scope for misinterpretation of documents, companies should instruct employees to avoid speculation or exaggeration in documents, particularly emails; and
  • Considering product liability risks when obtaining insurance. It is not standard for policies to cover the costs of a product recall, and so a company may wish to extend its insurance to cover this.

    Jeanette Harwood is head of regulatory services and Gwendoline Davies is head of commercial dispute resolution at Walker Morris