Product Liability: class actions, product liability and product safety

United Kingdom

Multi-party actions

The past year has seen multi-party actions (MPAs) expand from the products arena into the financial and consumer sectors, with actions such as those involving Lloyds' names, Equitable Life and Claims Direct. Environmental MPAs may not be far behind. Two of the juggernaut product liability cases have been ended by the courts, oral contraceptives and organophosphates in sheep dip, both of which are discussed in a later article in this publication, "Scientific evidence, causation and law".

Defendants may take some comfort from the confirmation that if claimants are to receive the benefit of being part of a group litigation, they will also incur the burdens of the outcome of that litigation. The organophosphate Court of Appeal judgment affirmed the principle in AB & Others v John Wyeth that the court could consider the "overall viability" of the claims and carry out a broad cost benefit analysis. This was also extended to bar the progress of new cases without the benefit of radically new and compelling evidence. This provides defendants with some protection against weak group litigation claims which have not been expeditiously progressed and which have incurred disproportionate costs, a situation with groups of claims which can cause defendants particular prejudice.

Problems over funding remain the principal difficulty for claimants' lawyers in getting group litigation off the ground. State funding for the impecunious litigant is still, in theory, available from the Legal Services Commission (replacing legal aid since 1999), and special budgets are available irrespective of whether claimants are impecunious for MPAs or cases which are in the wider public interest. However, the budgets remain small and are not as readily available as legal aid was. Three old-style product liability MPAs continued to be funded by legal aid: unlike the oral contraceptives and organophosphates claims, the MMR/MR vaccines case continues for the present.

It remains difficult for lawyers to fund large cases or MPAs themselves on a conditional fee basis. Even though the House of Lords in Callery v Gray has permitted a 20% uplift in fairly straightforward cases, the Court of Appeal in Halloran v Maloney has only allowed a 5% uplift for cases which settled before issue of proceedings.

In November 2002 the EU states reached political agreement on a draft Directive which would require all member states to have mechanisms that achieve proper access to justice in both civil and commercial cross-border matters, either by state-funded legal aid or some other mechanism. This opens up the possible introduction of contingency fees, and hence the spectre of uncontrolled, expensive, speculative US-style litigation.

Product recall and liability

Nevertheless, the implications of the revised Directive 2001/95/EC on general product safety of consumer products, which is to come into force by January 2004, mean that producers and distributors must anticipate an increase in product quality and liability claims. They must certainly ensure that they have robust post-marketing systems to collect and assess information on product safety, so as to be able to fulfil the requirement to report to the authorities if they have placed dangerous products on the market, whether or not the products have caused injury. That information will be published by the authorities and acted on by consumer lawyers.

Companies will also need to have robust recall systems in place, as the authorities will expect recall to occur more often, and to have sound risk assessment mechanisms. The sequence of decisions by the Court of Appeal in the Britvic/Bacardi Breezer benzene contamination litigation shows the importance of scrutinising the wording of contractual indemnities for coverage and reasonableness. There is also a need to check the coverage of product and recall insurance, particularly given the decision that products supplied as ingredients cease to exist once manufactured into the final product and it is the final product which is defective.

Producers are having to come to terms with the particularly strict interpretation of "defect" under the Consumer Protection Act in the 2001 decision in the Hepatitis C case. The decision has not gone uncriticised in academic circles. A similar adverse blow was the House of Lords' decision on causation in Fairchild, where they recognised an exception to the normal "but for" rule in McGhee and permitted a claimant to jump the evidentiary gap on causation-in-fact in certain circumstances of multiple exposure, based on a "material contribution" approach. Subsequent academic work has opened up possible arguments to mitigate the severity of this approach, based on arguments of apportionment.

A judgment of the Austrian Supreme Court highlights ambiguities in the provisions of the Product Liability Directive that deal with the secondary liability of suppliers where the producer cannot be identified. The secondary liability is only supposed to arise if the supplier fails within a reasonable time to identify either the person who supplied him, or the producer of the product. The uncertainty arises over when the reasonable time starts to run from and until the European Court clarifies matters, the moral is that suppliers may need to make the identification to a prospective claimant very quickly and voluntarily, without waiting to receive a request to do so.

It remains unclear whether the European Commission will propose any change in the Product Liability Directive. A study on the working of the Directive has been progressing in 2002 and another study is starting on the "development risks" defence. The Danish EU Presidency recently proposed a change in the Directive, on liability of suppliers, which raises the chances of other amendments being put forward. Some companies are seriously considering how best to ensure that they are able to make a balanced voice properly heard in debate about prospective reforms such as on liability, funding, class actions rules, punitive or other damages.

For further details please contact Christopher Hodges at [email protected] or on +44 (0)20 7367 2738.