Product safety and liability

Safety and environmental

What are the most relevant automotive-related product compliance safety and environmental regulations, and how are they enforced? Are there specific rules for product recalls?

Product compliance safety

Under German law, general product safety aspects are primarily governed by the German Product Safety Act (ProdSG). It implements the EU’s General Product Safety Directive 2001/95/EC (GPSD). However, while the GPSD only applies to consumer products (eg, to passenger cars, but generally not to B2B supply parts exclusively intended for the production of passenger cars by professional car manufacturers), the ProdSG generally applies to both consumer and non-consumer products.

Environmental aspects are primarily in the line with EU type approval requirements, particularly with Framework Directive 2007/46/EC (which will generally be repealed by Regulation (EU) 2018/858 on 1 September 2020), Regulation (EC) 715/2007 and Regulation (EC) 661/2009. Regulations are particularly codified in the EG-FGV.

Regarding enforcement in Germany, the competent market surveillance and product safety authority for motor vehicles and motor vehicle parts (including B2B supply parts) is the German Federal Motor Transport Authority (KBA). In addition, the KBA is the competent type approval authority. The KBA’s headquarters is based in Flensburg. It is a federal authority that is generally controlled by the German Federal Ministry of Transport and Digital Infrastructure. The KBA is structured into several departments with individual subject groups. Regarding product safety, subject group number 512 ‘Product Safety’ in department number 5 ‘Market Surveillance’ is generally in charge. As the competent enforcement authority in Germany, the KBA has also issued an official codex regarding the implementation and interpretation of the ProdSG (the KBA Codex). In doing so, the KBA’s intention was to provide car manufacturers and suppliers with additional guidance on certain product safety aspects, particularly on the KBA’s expectations towards automotive companies. Moreover, the KBA Codex outlines the KBA’s approach towards certain product safety issues including best practices and internal procedures.

Regarding the enforcement of the EU’s Rapid Exchange System for unsafe products (RAPEX), the competent German RAPEX contact point authority is the German Federal Institute for Occupational Safety and Health (BAuA). The BAuA’s headquarters is based in Dortmund, with branches in Berlin, Dresden and Chemnitz. It is a federal governmental research institution generally controlled by the German Federal Ministry of Labour and Social Affairs.

One of the most important features is the implementation and enforcement of the notification obligation. In Germany, notification aspects are generally in line with EU requirements, particularly with the GPSD. Section 6 paragraph 4 ProdSG implements the European authority notification obligation of article 5 paragraph 3 GPSD into German law. In doing so, the producer of a consumer product ‘shall immediately inform’ the KBA if it ‘knows or ought to know’ that the consumer product ‘poses risks to the consumer that are incompatible with the general safety requirement’.

The KBA generally decides on a case-by-case basis whether and what kinds of notifications or corrective actions are necessary and reasonable. In doing so, the KBA generally drafts a risk assessment pursuant to the RAPEX risk assessment guidelines in Commission Implementing Decision (EU) 2019/417 (repealing Commission Decision 2010/15/EU) to assess potential product safety risks.

If deemed necessary due to the result of the risk assessment, the KBA generally has the power to order a corrective action (eg, a withdrawal or a recall as well as certain publications). However, depending on the respective case, the KBA often trusts the car manufacturer or supplier to voluntarily carry out a suitable corrective action. In doing so, the KBA often refrains from issuing a formal order but closely monitors the case, particularly by asking for update reports. However, there is a recent trend that indicates that the KBA is now taking a stricter view (ie, that the KBA is increasingly relying on formal recall orders instead of a company’s voluntary actions). This trend significantly increases a company’s legal risks in the event of a product crisis.

As a general rule, companies should consider a proactive and cooperative approach when it comes to the German authorities. Proactively approaching and properly cooperating with the authorities is often crucial to solve a product crisis as well as to reduce potential legal risks.

Environmental regulations

Many environmental regulations are harmonised on an EU level, but enforcement of such EU environmental regulations is generally done on a national level. As a general rule, non-compliance with environmental regulations in Germany will mainly entail withdrawal of relevant licences, mandatory corrective measures and administrative fines, though there may be specific, and even criminal, sanctions depending on the subject matter.

Please see the following examples for important automotive-­related environmental regulations and, if applicable, their German implementation.

Emissions

Regulation (EC) 715/2007 on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) and on access to vehicle repair and maintenance information and its implementing Regulation (EU) 2017/1151 establish common technical requirements for the type approval of light passenger and commercial vehicles with regard to their emissions and set out specific emissions limits. Potential sanctions for non-compliance in Germany include, for example, administrative fines, withdrawal of type approval, prohibitions on putting the relevant vehicles on the market, and order other appropriate measures (such as recalls). As of September 2020, Regulation (EU) 2018/858 also entitles the European Commission to initiate EU wide enforcement and remedial actions in addition to the approval authorities of the member states.

Carbon dioxide

Regulation (EC) 443/2009 setting emission performance standards for new passenger cars as part of the Community’s integrated approach to reduce carbon dioxide emissions from light-duty vehicles establishes mandatory carbon dioxide emissions reduction targets for new vehicles. These targets do not apply to individual vehicle models or manufacturers but relate to the entire European fleet average. It is not necessary for each individual manufacturer to comply with the European fleet value. However, each individual manufacturer is allocated a manufacturer-specific value depending on the products it sells. If a manufacturer’s average emissions levels are above this value, the manufacturer will have to pay an excess emissions premium. The more a manufacturer goes above the target, the higher the premium. Since 2019, the first g/km per vehicle registered costs €95.

Waste

Directive 2000/53/EC on end-of-life vehicles, which is implemented into German law by the German Regulation on End-of-Life Vehicles, lays down measures that aim, as a first priority, to prevent waste from vehicles. In addition, they aim at promoting the reuse, recycling and other forms of recovery of end-of-life vehicles and their components to reduce the disposal of waste, as well as at the improvement in the environmental performance of all economic operators involved in the life cycle of vehicles and especially the operators directly involved in the treatment of end-of-life vehicles. The Regulation on End-of-Life Vehicles provides for administrative fines in the event of non-­compliance with certain obligations.

Product liability and recall

Describe the significance of product liability law, and any key issues specifically relevant to the automotive industry. How relevant are class actions or other consumer litigation in product liability, product recall cases, or other contexts relating to the automotive industry?

Under German law, there are numerous provisions that generally allow product liability claims, particularly claims under contract or warranty, general tort law as well as strict product liability law.

In doing so, most consumer claims in the automotive industry are brought under the strict liability regime of the German Product Liability Act (ProdHaftG), implementing the European Product Liability Directive 85/374/EEC. In doing so, a ‘producer shall be liable for damages caused by a defect in his product’. A product is generally defective ‘when it does not provide the safety that a person is entitled to expect’. This test generally takes into account ‘all circumstances’, particularly ‘the presentation of the product, the use to which it could reasonably be expected that the product would be put and the time when the product was put into circulation’. Potential defects can particularly be linked to design, production and instruction aspects as well as certain product monitoring shortcomings. However, the burden of proof for the (alleged) defect, the damage and the causal relationship between defect and damage is generally upon the claimant. Besides, a producer’s liability is generally limited to €85 million per case (pursuant to section 10 ProdHaftG).

Please note that there is a great deal of automotive product liability case law in Germany. Many courts, including the German Federal Court of Justice, have ruled on alleged vehicle defects. In doing so, German courts are particularly deciding cases by appointing independent technical court experts to assess whether a vehicle - design, production and instruction alike - had a defect. The courts typically ask the technical expert to apply a state-of-the-art test (ie, taking into account the respective date when the vehicle was placed on the market).

Particularly in the event of a recall, there can be substantial follow-on litigation. To mitigate risks, it is crucial to take effective and sophisticated measures to prevent unnecessary risks (eg, by avoiding unnecessary acknowledgement or by creating an incorrect impression as to the scope and meaning of a recall).

Under German law, there is generally no class action system regarding consumer litigation in automotive product liability cases. Hence, lawsuits generally have to be brought individually before the respective courts.

However, in 2018, a collective redress system - called Verbandsklage - was established to strengthen consumer protection rights. This collective redress system generally allows certain consumer protection associations to file collective redress lawsuits against automakers, suppliers, dealers, etc. As a result, individual consumers will generally be able to approach automotive companies based on the outcome of the collective redress lawsuit. Therefore, automotive companies should consider implementing proper defence mechanisms.