An increasing risk for manufacturers, importers and retailers
The recent plight of car manufacturer Toyota’s billion dollar recall campaign due to defective brakes in several of its brands makes one thing plain: product liability has become an increasingly significant subject in Europe. Since the introduction of European Directive 85/374/EEC on January 31, 2001, which sought to impose a liability for defective products at a national law level, manufacturers, quasi-manufacturers, importers and retailers of consumer products have been increasingly confronted with product liability claims, product returns and recall campaigns.
In consequence, the recent years have seen businesses (especially manufacturers) making considerable efforts to instigate preventative measures, particularly in the fields of research and development, production, and quality. Increasingly procedures have been implemented, and changed, enabling businesses to warrant appropriately their products’ safety, following § 4 GPSG (German Device and Product Safety Law) and the corresponding national laws of other EC countries. Primarily their measures were meant to minimise the risk of a product causing damage, when subjected either to its intended use or a foreseeable mis-use. This process of measures starts with a product’s design and planning; already at this stage the manufacturer has to take objectively necessary and reasonable measures to avoid danger (see Federal Court of Justice Germany, decree dated June 16, 2009, file no. VI ZR 107/08). Safeguards, which are technically possible but may (subjectively) require significant additional work and expense, still cannot be ignored. In fact, any and all safeguards scientifically and technically possible according to state of the art technology at the time the product is distributed, which are considered suitable and sufficient in order to avoid damage, are required.
Moreover, when testing a product’s safety, all of the standards and technical specifications applicable to the product must be considered. For a globally active business this may translate into considerable additional expense, since it may need to ensure conformity to a multitude of different national standards and specifications. Such additional expenditure can make it a lot more difficult for smaller businesses to enter certain markets, and so can have a restrictive affect on competition.
At least within the European Union, the presumption of conformity according to the principle of the so-called `new approach´ provides relief. It is based on the European Parliament’s and Council’s decision no. 768/2008/EU of July 9, 2008, published in the European Union’s Bulletin L 218 on August 13, 2008 on a joint legal framework for the distribution of products. By applying generally accepted technical standards stated therein, the conformity of a product to certain safety requirements may be presumed, provided that the applicable standards have been completely fulfilled. In practice this presumption of conformity does, on the one hand, lead to a considerable simplification of testing procedures. However, on the other hand it does not presume the reverse conclusion, namely that a product will not cause damage when subjected to its intended use or a foreseeable mis-use; this risk has to be minimised by taking special quality assurance measures.
Also affected: importers and retailers
Beside manufacturers, the importers and retailers merely distributing a product are also, increasingly, taking similar preventative measures to ensure that a product satisfies relevant health and safety requirements. The Federal Court of Justice in Germany has explained the requirement for preventative measures by importers in its decree dated March 28, 2006 (file no.: VI ZR 46/05). The decree provides that importers are obliged to spot-check a product not only prior to commencing its distribution but also thereafter, so as to assess whether a product’s quality corresponds to the standards which should ensure its safe use. The importer must consider the type and extent of tests to perform on a case by case basis. Undoubtedly for reason of the Court’s decree, such testing has seen an increase.
A heightened relevance, in practice
Despite businesses’ preventative measures, Germany has seen a rise in the number of product liability claims issued, according to a 2008 publication by the DIHK (German Chamber of Industry and Commerce). Businesses may face these claims from aggrieved end-users (the consumer), or third parties. In such cases the damage has already occurred. Amongst other questions, it must be ascertained whether the damage was caused by a defect (as defined by article 3 of the German Product Liability Law) and – insofar as product liability is shown – whether further measures must be taken to protect other parties from the potential hazards.
However, often enough a product liability claim comes about without any “damage” being sustained, for example, because of internal company control mechanisms or information provided by other market players regarding the possible risks attaching to products already on the market. In these cases a question regularly arises about the measures which should be taken, and particularly, whether (and if so, which) relevant authorities should be informed.
Pursuant to § 5 sec. 2 GPSG manufacturers, their authorised representatives and importers must without delay inform the relevant authorities about a product’s general safety (in line with Annex I of the European Directive 2001/95/EU dated December 3, 2001) if it has become known to them or if they have information or clear indications that a consumer product circulated by them poses a hazard to others’ health and safety.
What amounts to a clear indication of a product’s potential hazard – obliging a manufacturer (say) to inform the relevant authorities – is often subject to interpretation and cannot always be answered with certainty. It is helpful to perform a risk evaluation and assessment, heeding Annex II of the Commission’s December 14, 2004 decision on determining guidelines for the notification of relevant authorities of member states regarding hazardous consumer goods by manufacturers and retailers (see also article 5 section 3 of the European Directive 2001/95/EU dated December 3, 2001). The practical guidance in this Annex can help businesses to assess a product’s risks, their obligation to notify, and the need for further measures. In critical cases – those with a high liability risk attaching to them – it is recommended to have the risk assessment performed by an independent expert; an inadequate assessment may lead to serious adverse consequences on a business’s well-being.
On balance, it is evident that the protection afforded to end-users and third parties has matured in recent years into something which increasingly is in a business’s best interest to observe and take account of, if for no other reason (but of course there are many) than mitigating the adverse financial affects of product liability claims.