Product Liability 2009 - Arnold & Porter LLP

52
Chapter 7
Product Liability and
Product Recall Insurance
in the UK- Practical Issues
Herbert Smith LLP
Introduction
The potential liability and cost consequences associated with
placing unsafe products on the market has made product liability
and product recall insurance a commercial necessity for many
manufacturers, distributors and retailers operating in the UK.
Before we consider the scope and nature of product liability and
recall insurance, it may be instructive to explain the tenor of the
underlying UK regulatory and legal position.
Regulatory position
The main product safety statutory instrument in the UK is the
General Products Safety Regulations 2005 (SI 2005/1803) (“the
Regulations”) which entered into force on 1 October 2005. The
Regulations implement the EC General Product Safety Directive
(2001/95/EC) and complement the existing product specific
regulations which continue to apply where there is a gap in the
regulatory framework.
The range of products covered by the ambit of the Regulations is
fairly wide. “Product” is defined in broad terms and covers items
which are sold or provided freely to consumers, as well as those
goods which are not intended for consumers but are likely to be
used by them. It is irrelevant whether or not the product is new, as
used or reconditioned items are also covered under the scope of the
Regulations.
The Regulations set down three main obligations on producers and
distributers of products:
to ensure that products are identifiable and traceable;
to monitor the safety of products; and
to take appropriate and speedy action (including instigating a
recall) in circumstances where an unsafe product is placed on
the market.
Plainly, the concept of product safety is integral to the Regulations
and there is a general obligation (referred to as the “general safety
requirement”) which prohibits producers or distributors from
placing or supplying (or offering or agreeing to offer) a product on
the market, or exposing or possessing a product for placing on the
market which is unsafe. Placing a product on the market, making it
available or supplying can happen in many ways, for example:
selling, leasing, hiring it out or lending it;
entering into a hire purchase or other credit agreement for it;
exchanging it for any consideration other than money;
giving it as a prize or otherwise making a gift; and
providing it in the course of the delivery of a service.
The Regulations provide a list of the factors which should be
considered in determining whether or not a product is safe. They
include the characteristics of the product (including its composition,
packaging, instructions for assembly), maintenance, its effect on
other products, presentation of the product (such as labelling,
instructions for use or warnings) and any consumers (e.g. children
and the elderly) who are particularly at risk when using it. The
European Commission has also produced guidance which echoes
the factors contained in the Regulations. This includes the severity
and probability of the potential health/safety damage and factors
relevant to the risk level (e.g. the type of user, adequacy of warnings
and the obviousness of the hazard).
Producers and distributors who contravene the general safety
requirement can be served with a notice by an enforcement
authority. This notice can require them to suspend or halt the
offending action, to withdraw or recall the product in question, label
the product or otherwise warn consumers who are at risk of the
dangers posed by it. Contravention of the regime can also lead to
criminal liability in the form of a custodial sentence and/or a fine.
Legal position
Anthony Dempster
Howard Watson
A product manufacturer or retailer may also be exposed to other
forms of liability under English law, namely, (1) liability for breach
of contract, (2) liability in tort, and (3) statutory liability pursuant to
the Consumer Protection Act 1987.
Contractual liability may arise in a number of ways. A contract for
sale or supply may include express terms as to the nature or
character of the product (i.e in the form of a warranty or a
guarantee). Terms will also be implied into contracts for the sale of
products by the Sale of Goods Act 1979 (as amended) and the
Supply of Goods and Services Act 1982 (as amended). These
statutes imply terms as to the description, quality and fitness for a
particular purpose of products and arise in all contracts of
sale/supply. Strict liability is imposed and the buyer does not need
to demonstrate fault on the part of the seller, merely that the
products were ill-fitting with their description, of unsatisfactory
quality or otherwise unfit for their purpose. Contractual liability
may also attach to pre-contractual statements which refer to the
qualities of the product. Such statements can be incorporated into
contracts as terms or, alternatively, form the basis of a separate
contract between the buyer and seller or the buyer and a third party.
For breach of contract claims the buyer will be able to claim
damages. In some cases a buyer will be able to reject the goods and
terminate the contract.
The tortious liability upon a manufacturer under English law was
established in the landmark decision of Donogue v. Stevenson
WWW.ICLG.CO.UK
ICLG TO: PRODUCT LIABILITY 2009
© Published and reproduced with kind permission by Global Legal Group Ltd, London