Effective management of product liability risk in the United Kingdom.

• Author: Evans, John C.

The public's demand for heightened accountability of corporations and consumer claim psychology have made risk management paramount

THE MANAGEMENT of product liability risk by United Kingdom companies selling or supplying products has developed over the last 20 years into an integral part of their operations. The perception of the scope of that risk is continually evolving as a result of trends that have fuelled a number of legal developments, among them the intensification of companies' accountability to the public, the desire for public and corporate bodies to be more transparent in their dealings with the public, the e-commerce revolution and an increasingly pervasive consumer claim psychology. Those trends are reflected in the legal environment facing product-producing companies.

U.K. manufacturing or distributing companies do business in many different countries and in a multiplicity of markets, a situation that creates a multitude of risks. The effective management of product liability risk depends on an understanding of the different legal systems across the jurisdictions in which these companies operate and on the idiosyncrasies of laws relevant to the chosen markets in each of those jurisdictions. While those national differences and idiosyncrasies because vary and are rooted in the laws of the various jurisdictions, there are some principles of general application to U.K. companies and to their directors that affect the management of product liability risk in the U.K.

THE LAW

Companies and their directors are exposed to the risk of two categories of liability for the products they produce or distribute--civil and criminal. Civil liability arises from the breach of obligations or duties in contract or in negligence under the so-called "strict liability" provisions of Part I of the Consumer Protection Act 1987 (1987 Act) and for breach of statutory duty, where a product is supplied which does not meet specific obligations imposed by statute.

One of the principles behind the 1987 Act, which implemented the 1985 European Product Liability Directive, was to provide a compensatory regime for consumers in respect of defective products that, unlike negligence, did not require proof of fault by the producer. Under the 1987 Act, consumers still have to prove damage and that the damage was caused by the defect. In practice claimants usually pursue product liability claims alleging both negligence and liability under the 1987 Act.

The terminology of risk in a civil liability context reflects whether the product is the subject of a business sale, in which case the issue is whether the product is of satisfactory quality, or a consumer sale, in which case the issue is whether the product is defective. The concept of a defect in consumer sales is further defined by reference to its nature and level of safety. The concept of level of safety is enshrined in the 1987 Act: by level of safety is meant the level that persons generally are entitled to expect, taking into account a number of factors, which are set out in Section 3, such as the labeling and information supplied with the product.

In the case of a business sale, managing the risk of an unsatisfactory quality of product is an adjunct of contract management and can be catered for in negotiations of limitation clauses in the contract or, absent negotiation, in terms that prevail. The element of negotiation is absent from the case of a sale to a consumer, and liability for defective products cannot be excluded.

Insurance also is an obvious component of managing such risks, whether in a business or consumer context, and is bound up with the nature of the quality control procedures in place and the manufacturer's adherence to good manufacturing practices.

Criminal liability arises under Part II of the 1987 Act, under the General Product Safety Regulations 1994 (1994 Regulations), the Health and Safety at Work Act 1974 (HSAW Act), and under many other specific statutory provisions regulating the manufacture and supply of particular products --for instance, food. The 1994 Regulations all but replaced the "general safety requirement" defined in Part II of the 1987 Act and for most practical purposes, the 1994 Regulations embody the substantive criminal law on product safety, except in relation to those products directly subject to specific legislation governing their safety, which are not covered by the 1994 Regulations and are unlikely to be covered by the 1987 Act either.

Since the HSAW Act is concerned principally with safety in the workplace and the operational activities of employers, it might be thought not to relate to product liability risk, but Section 6 imposes a general duty on those who supply articles for use at work to ensure, as far as is reasonably practicable, that the articles are designed and constructed so as to be safe and without risk to health when properly used. This requires appropriate testing to be carried out, and suppliers are required to ensure the availability of adequate information about the safe use of their products. The HSAW Act also is highly relevant to broader risk management issues and to the personal liability of directors for breaches of statutory duties imposed by that act.

The terminology of risk in criminal...