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And it all came tumbling down

Small mistakes in health and safety law can prove very expensive for the channel. Adam Bernstein explores the legal issues surrounding product recalls

This article can also be found in the Premium Editorial Download: MicroScope: MicroScope: July 2016

In an ever complex world it’s not unsurprising that products in all areas of life are being recalled. Computing and IT is no exception and the risks posed by products in the channel are great. The law in this area is detailed and places burdens on all levels of the supply chain. Mistakes in health and safety law can prove very expensive.

So consider the product recalls that are detailed on the website of Electrical Safety First. Recent recalls include a good number of battery packs from Sony (March 2016 – risk of overheating), Toshiba (January 2016 – fire hazard), and Fujitsu (August 2015 – fire hazard). But there are also reported problems with an unbranded wireless-N mini router (April 2015 – electric shock risk) and a Tenvis wireless network camera (March 2015 – electric shock).

Looking further afield, the EU runs the Rapex notification system which lists and details all relevant EU-wide product recalls. It featured another eight allied products that were subject to a recall notice.

As Peter Shervington, a senior associate at Eversheds specialising in product safety and crisis management, notes, the fact that these recalls could happen to such well-established household names should focus minds across the industry. “No producer is immune, however robust their failure mode analysis and however punctilious their quality control procedures.” But he casts his net further and says: “While producers may bear the brunt, traders should reflect as to how well prepared they are to respond to major product safety issues, comply with their own legal obligations and handle consumer concerns.”

But what obligations do traders have? Who is ultimately responsible, and what practical steps can be taken to manage the risks?

Let’s start with the initial response to safety concerns. Shervington says when it comes to product safety, EU law places the primary obligations on the manufacturer, brand-owner or first importer into the EU. “Under the General Product Safety Regulations 2005 (GPSR), they bear the main responsibility for ensuring that any product intended for or likely to be used by consumers is “safe”, meaning that under normal or reasonably foreseeable conditions of use it presents either no risk, or only the minimum risks compatible with the product’s use.” He adds that responsibility also means ensuring compliance with other legislative requirements including national legislation.

But while the primary obligations around product safety are placed on producers, and regulators typically look to them to take the lead in resolving product safety concerns, Shervington says traders also have obligations under GPSR, “including a requirement not to supply any product which is known to be or should have been presumed to be dangerous, and an obligation to participate in post-sales monitoring of safety, including by passing on information as to the risks posed by the product.”

The important part of this, for traders at least, is that where they become aware that a product it has supplied is unsafe, they also have an obligation to notify Trading Standards. “That means,” says Shervington, “at the very least, that traders who receive complaints from consumers about the safety of a product should pass these on the producer without delay.” He reckons that in the vast majority of cases, the producer (if they are not already aware of the issue) will promptly take the lead in investigating, liaising with Trading Standards and identifying the appropriate action to protect consumer safety.

Problems start to accumulate for the trader if, however, the producer refuses to initiate appropriate action or notify the authorities – they will then need to engage directly with Trading Standards and consider what other steps might need to be taken to protect the safety of consumers. “A failure to take these issues seriously has consequences as non-compliance with many obligations under the GPSR is a criminal offence, and the negative publicity associated with a regulatory investigation or prosecution often has a disastrous impact on brand image,” says Shervington.

Aside from regulatory obligations, traders caught up in product safety crises may face civil claims from consumers. Claims for personal injury (or damage to personal property other than the product itself) will often be brought against the brand-owner under the strict ‘no-fault’ liability regime in Part 1 of the Consumer Protection Act 1987. And it doesn’t take much to find lawyers who will act for aggrieved individuals – one network of lawyers makes great play of the claims it has taken on that include burns caused by electrical goods breaking or catching fire. And another firm, Leigh Day, says it is investigating potential claims relating to fires caused by laptop computers with a lithium battery.

But while there may be no injury caused by a faulty product, a consumer may wish to reject the product and claim a replacement or refund. Eve England, a principal associate specialising in consumer law at Eversheds says that these claims will often be directed at the trader, on the basis of a breach of the implied terms of satisfactory quality and fitness for purpose, inserted into the contract by law. “Under new rules brought in by the Consumer Rights Act 2015, consumers have a right to demand a repair or replacement where they fail to meet these standards. If the trader fails to repair or replace defective goods within a reasonable time and without significant inconvenience, the consumer has the right to reject them and receive a full refund without any deduction to reflect the use they have had of the goods, if they do so within six months of receiving them.”

Of course in the context of a major recall with a significant waiting list for remedial works traders may find themselves in a difficult position. They are reliant on their supplier to provide an engineering fix, but having to tell consumers that the remedy may not be available for a considerable time. England notes: “Whether the costs associated with consumer complaints and claims can ultimately be recovered from the producer will depend on the contractual terms on which the trader purchased the affected items.” Clearly this could prove expensive for the sector especially if consumers exercise their s75 Consumer Credit Act rights which makes banks as liable as traders which then leads to a bank initiated chargeback.

With the stage set, what practical steps can traders take to manage the risk?

In the first place, Shervington suggests they think carefully about who they buy stock from. It may be a far cry from the world of IT, but there are valuable lessons to learn here from the recent debacle over ‘hoverboards’: a boutique firm gets the right celebrity endorsement and within weeks, thanks to a side-effect of the information revolution, millions of consumers are demanding a product they had never heard of the month before. He worries about fakes – “the sheer scale of global demand spawns a host of copy-cat manufacturers, and traders under pressure to keep up with the market start selling products without robust quality checks. Many [hoverboards] were then shown to pose significant fire risks.” The IT sector is not immune – there are many examples of faked batteries and third party power supplies alone.

Anyone with a modicum of commonsense knows, consumer confidence and trust is a precious commodity, and as Shervington puts it, “traders need to upscale their quality monitoring if they want to retain it.” He says they should ask themselves a number of questions such as how important is product safety for buying teams? Are they incentivised to protect consumer safety? Do they rely on assurances or (often self-certified) CE marking from suppliers, or do they carry out independent checks? Do contracts give audit rights, and if so, are those rights actually exercised?

Like most crises, those relating to product invariably occur when they’re least expected. As such, planning is everything. Shervington says every trader should have a crisis management plan in place to ensure that they are ready to “respond in a swift, measured and comprehensive way while communicating a clear, consistent message to customers.” He adds that traders need to engage with their suppliers at an early stage to ensure that they are dealing with safety concerns promptly and thoroughly, and that they have notified the regulator as appropriate. “If they have not, or you are not satisfied with the steps your supplier has taken, you may need to take action yourself to protect your position and ensure consumer safety.” And naturally customer facing staff should be properly briefed so that they can provide clear guidance to customers, including directing them to the producer where appropriate.

Unlike consumer-facing contracts, in cases where a business buys goods, the supplier can exclude the implied terms of satisfactory quality and fitness for purpose (subject to a test of reasonableness which applies when dealing on standard terms, although not in international supply contracts). Even so, traders should also look to incorporate clauses requiring prompt notification by suppliers of safety concerns, and express provisions requiring compliance with all applicable legislation, in addition to warranties/indemnities over workmanship and quality. Careful records should be kept as such costs are accrued so that they can be recovered once the initial crisis is over.

Shervington makes one last observation: “Careless admissions or unhelpful comments in internal emails have changed the course of many substantial commercial claims. Both internal and external communications relating to the safety issue are potentially disclosable to regulators and in civil litigation. Ignorance about this issue remains widespread - staff should be made aware of the dangers and instructed to be particularly careful about document creation.”

Panel: Electrical Safety First

Martyn Allen, head of the Electrotechnical Department at Electrical Safety First, says the safety record of electrical products in the UK is general good but with the increasing complexity of the supply chain comes significant traceability issues. “This is a major concern, as almost half of all domestic fires arise from electricity and most of these are caused by electrical products. But the problem of tracing a product to the end user is compounded by consumers’ reluctance to register electrical items.” Allen says traders have a significant part to play in improving this situation, as they have a direct relationship with consumers.

Interestingly Allen doesn’t believe the current recall system is fit for purpose. “As the recently published Review of the UK System for the recall of Unsafe Consumer Products has indicated, the problem is not with the legislation itself but with its enforcement and the need to improve communications around recalls.”

Electrical Safety First issued a major report – Consumer Voices on Product Recall – late in 2014. It found that recalls have a limited success rate (rarely more than 10-20%) and that a major factor in consumers’ not registering electrical products is the worry that their information will be used for marketing. Allen adds: “Our research also found that 77% of people would respond to a recall if they were clear on the potential danger – which can be dealt with by clear and efficient communication.”

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