Product Liability – Considerations for Manufacturers

Phil Black - PII Editor 29/06/2023

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Manufacturing businesses that produce goods for distribution have legal obligations towards end users and entities within the supply chain.

Understanding these responsibilities allows manufacturers to reduce their exposure to civil and potentially criminal liability, while also minimizing the risks associated with reputation-damaging product recalls or high-profile claims.

Myerson Solicitors presents a summary of crucial aspects within the product liability regime, followed by an exploration of how appropriate contractual provisions between manufacturers and supply chain partners can effectively manage the risks associated with product liability claims.

Summary of Key Aspects of the Product Liability Regime

Statutory Liability for Defective Products: The principal legislation governing liability for defective products in the UK is the Consumer Protection Act 1987 (CPA).

The CPA, along with relevant case law, addresses important matters such as:

• Determining a product defect involves considering relevant factors that assess whether the safety of the product falls below what individuals generally expect.

• Liability for defective products can entail civil responsibility, including the obligation to pay damages for death, personal injury, or property damage, as well as potential criminal liability for non-compliance with consumer safety requirements.

• Entities within the supply chain, such as the original manufacturer, ‘own branders' who supply the product under their own name or trademark, and importers of the product into the UK, can be held primarily liable. Additionally, other entities in the supply chain may face liability if they receive a claim but cannot identify the party with primary liability within a reasonable timeframe.

• Defences against product liability claims include arguments that the defect did not exist in the product at the time of supply, among other available defences.

Other Grounds for Claims on Defective Products: In addition to the statutory regime under the CPA, manufacturers may also face liability for defective products through common law claims based on negligence (failure to meet a duty of care to the product user) or breach of contract claims brought by buyers of the product.

Statutory Liability for Breaches of Product Safety Requirements: The General Product Safety Regulations 2005 (GPSR) in the UK establish a separate statutory regime for product safety, running parallel to the CPA. The GPSR sets out criminal offenses for supplying consumer products that do not meet the statutory definition of being ‘safe' and other breaches relating to consumer safety.

Some product categories, such as drugs, medical devices, food, electrical equipment, and toys, have their own specific regulatory safety regimes, which apply alongside the GPSR unless the GPSR requirements exceed those of the specific regime.

Utilising Contracts to Manage Product Liability Risks

Given that product liability risks affect all entities within the supply chain, it is crucial for businesses engaging in manufacturing or product supply contracts to ensure that the contract provisions address risk allocation adequately.

Important considerations at the outset of such arrangements include:

Product Warranties: Manufacturers seek to limit warranties provided for the product, while customers aim for robust contractual warranties. The warranties should be carefully assessed to ensure pricing, satisfaction, and robustness.
Caps and Exclusions of Liability: Manufacturers often employ contractual caps and exclusions of liability to control exposure to claims from customers. These provisions must be drafted and reviewed carefully to determine their effectiveness when relied upon in response to a claim, considering legal considerations outlined in the Unfair Contract Terms Act 1977.
Indemnities: Indemnities in contracts between supply chain participants can be used to assign liability for product liability claims to the responsible entity. For example, distributors may seek indemnities from manufacturers to protect themselves against product liability claims arising from manufacturing defects. Negotiations may determine the scope of indemnities to cover only the defects for which the manufacturer is responsible.
Insurance: Customers often require manufacturers to hold adequate product liability and public liability insurance policies to cover potential liability, including indemnities negotiated with the customer. Parties committing to specific insurance provisions must ensure that the commitments align with the coverage provided by their policies.
Product Recall: In the event of a serious consumer safety issue requiring a product recall, parties in a manufacturing contract should consider their roles and responsibilities, including any obligations towards third parties.

These contractual measures, when combined with insurance coverage and operational quality assurance measures, can effectively mitigate product liability risks and allocate them appropriately between parties.