NEWS EXTRA
RISKY- BUSINESS? P
roduct liability is creeping ever higher up the list of boardroom priorities for businesses across multiple sectors. Increased media attention on product safety incidents brings the potential for a badly managed crisis to kill off a brand entirely. Growing consumer awareness is translating into more civil claims and ever closer scrutiny by regulatory authorities in the wake of scandals such as ‘dieselgate’ and Grenfell Tower is partnered by dizzying fines where serious failings are identified.
In the light of all this it is critically important that all businesses involved in product supply chains understand their responsibilities and manage risk.
Peter Shervington, a senior associate at Eversheds Sutherland LLP, says it’s interesting that merchants, retailers and others in the supply chain who do not actually make a product often regard themselves as immune from product liability issues. “Unfortunately, many regulatory regimes place responsibilities not only on the manufacturer, but also on others in the supply chain, particularly, but not exclusively, those withtheir brand on the product.”
And with the rising trend of merchants putting their names on products the issue of product liability is becoming very acute.
Your name, your risk Shervington gives an illustration of the risk. “Most products likely to be used by consumers fall within the scope of the General Product Safety Regulations 2005 (GPSR) which implements the EU General Product Safety Directive. These place a strict and onerous obligation on ‘producers’ to ensure that the product is ‘safe’ – meaning that under normal or reasonably foreseeable conditions of use it presents either no risk or only the minimum risk compatible with the product’s use.” What this means for merchants is that “for the purposes of the GPSR, a producer is any person who manufactures a product, or a person who presents himself as the manufacturer ‘by affixing to the product his name, trademark or other distinctive mark’”. In other words, the obligations placed on producers are also applicable to retailers, merchants and distributors when they place their own brand on a product. This all makes perfect sense because if a business sells a product as its own, it should be seen to be taking responsibility for the safety of that product. However, this catches out those
businesses who are attracted to the idea of a product being associated with their brand, but do not appreciate the responsibilities which come with such a move.
Those applying their own brand to products need to ensure that they are satisfied with the safety of those products. “This means not only that they are designed and manufactured in accordance with technical requirements and industry standards, but also, that adequate warnings and instructions for use are provided.” Critically, it needs to be understood that placing an unsafe consumer product on the market is an offence. “Regardless of whether or not a producer knew about a potential defect, there is a requirement to notify the regulatory authorities promptly where a producer becomes aware that a product he has placed on the market poses risks to a consumer that is incompatible with the general safety requirement under the GPSR.” He adds that merchants also need to have in mind other regulations including the Construction Products Regulations 2013, and the Electrical Equipment (Safety) Regulations 2016 which place numerous other onerous duties on merchants. And then there’s Section 6 of the Health and Safety at Work Act 1974 (HSWA) which seeks to ensure that products are designed and constructed so that they will be safe in the workplace. Fines for breaches of the HSWA have recently been scaled up dramatically.
No blame,still a claim Shervington cautions merchants that they could become potential targets of civil claims for damages under the Consumer Protection Act 1987, legislation which implements the Product Liability Directive that covers the event of an injury or damage to personal property caused by a defect. “Crucially, a failure to warn of non-obvious risks or the provision of inadequate instructions can render a product just as defective in the eyes of the law as a situation where a safety risk is presented by a defect.” Unfortunately for merchants, liability here is strict. Shervington says he’s seen claimants looking to recover damages following an injury target the business which placed its brand on the product as it’s easier than identifying the underlying manufacturer or component supplier. It is then left to the business whose brand is applied to recover damages paid out through strict liability claims through its contracts with suppliers.
September 2018
www.buildersmerchantsjournal.net
When stuff goes wrong, who is to blame? BMJ asks an expert on product liablility about what risks merchants should be aware of in the future.
As Shervington points out, resellers and distributors who deal directly with consumers could face further claims under the Consumer Rights Act 2015 (CRA): “The CRA has the effect of implying terms into an agreement in favour of a consumer.” He says that these terms cannot be excluded and that under the CRA, a consumer is provided the right to reject, or have goods repaired or replaced.
Managing the risk
“There are a number of practical changes that businesses can take to protect themselves. Firstly, steps should be taken to ensure that allocation of risk is given proper consideration when entering into agreements with manufacturers.” In essence, he thinks merchants must seek warranties (guarantees) and indemnities regarding the product specification. It’s just as important for merchants to be able to verify the quality of manufacturing and design processes, by having the right to inspect manufacturing processes or through a paper- based audit. Ultimately, Shervington thinks that “traceability is crucial in terms of managing product safety crises. By pinning down manufacturing dates/times/batch numbers, the scale of any recall is reduced and affected products can be recovered quickly.” As we’ve seen with situations such as Grenfell, the risks to a firm from a product mean that any business selling goods under its own brand should create a crisis management plan. This should address, amongst other things, how communications with customers and regulators will be handled, management of press communications, risk assessment and decision-making processes and logistical aspects of recovering and replacing affected product in the market.
Lastly, Shervington says that those importing products into the EU should be particularly alert to the fact that, “even if their branding is not applied to a product, they may be treated as a producer and assume responsibilities and liabilities as a first importer.” Of course, this may well change come March 2019 when the UK formally leaves the European Union.
To conclude
The benefits of own-branding are compelling, but businesses should do so with their eyes open, understanding that by placing their name on a product they may be increasing the legal and reputational risks which they bear. BMJ
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