Brexit and COVID-19 create a new landscape
Departure from the European Union, and a global pandemic, have caused many changes for product liability and recall.
In 2020 we saw numerous UK producers, distributors and retailers put in place alternative supply chains in preparation for disruption from Brexit. Even now, the central concept that trade with the European Union is tariff free is incorrect; as exemplified by the media surprise over a tariff on M&S Percy Pigs (manufactured in Germany, stored in the UK, sold in Ireland). Producers, particularly in the food & drink sector, are grappling with the complex rules around origin and processing.
The departure from the European Union also means a need, for regulated products, to bear a UKCA mark if sold in the UK, as well as a CE mark if sold in the European Union. At present, UK and European standards are aligned; but may diverge as time passes, requiring producers to comply with two different regimes if selling in the UK and EU. In addition, those importing products into the UK from the European Union will be fixed with 'producer' status and therefore subject to greater regulatory requirements and liability exposure, when they would otherwise have been mere 'suppliers'. Greater complexity for UK businesses selling into the EU may result in a greater proportion of trade to other countries e.g. the US; diversifying (and potentially amplifying) product liability exposure.
Three areas of product liability law bear scrutiny in 2021:
- Wilkes v DePuy, Gee v DePuy, and the Bailey & Ors v GlaxoSmithKline judgments demonstrate a transfer of the risk from producers to consumers under Part I of the Consumer Protection Act 1987 ("CPA"), enabling producers to defend claims by introducing risk/benefit analysis arguments. Part I of the CPA should no longer be perceived as imposing strict liability. Legislating against this seems unlikely, at a time when the UK seeks to foster a welcoming, entrepreneurial environment for business post Brexit, particularly for novel technology such as autonomous vehicles.
- The ability of parties, particularly commercial claimants, to pursue strict liability claims under Part II of the CPA (s41), based on breach of statutory duty e.g. the Electrical Equipment (Safety) Regulations, is uncertain. Clarity on the scope of this from the court would be welcome. It is arguably an irony that non-consumer claimants enjoy an advantage over consumer claimants, under legislation ostensibly intended to protect consumers.
- With the UK no longer directly subject to the European Court of Justice ("ECJ"), will we be more likely to depart from the ECJ's rationale in Boston Scientific, that where some products in a batch are defective, the risk of other products in that batch being defective is such as to render them actually defective?
The fitness for purpose of the Product Liability Directive (on which the CPA is based) has been under scrutiny for the last three years or so as part of a routine review, with the primary focus being its ability (or not) to deal with novel and/or intangible products. That scrutiny will continue, at least at a European level.
What about COVID-19? At present, there is huge demand and inadequate supply of vaccines; despite the extraordinary emergency legislation allowing fast-tracking of product approval. This exemplifies the rapid production of products to fight the pandemic. 2020 saw a glut of poorly manufactured, inadequately (and in some cases fraudulently) certified products such as face masks. To some extent this was an inevitable consequence of rapidly scaling up production, producers having to find new supply lines for raw materials, and businesses turning their hand to the production of new types of product (e.g. Brewdog shifting from beer to hand sanitiser to help the national effort). Unfortunately, for some others, it was unscrupulous profiteering with a disregard for safety. No doubt this will perpetuate through 2021.
Bricks and mortar stores were already struggling in some sectors pre COVID-19. The lack of footfall on high streets has accelerated the decline of traditional high street businesses (e.g. Arcadia group entering administration), but conversely, we have seen the growth of online retailers (e.g. Amazon posting record revenue). Consumers now buy directly from a wider range of producers through online sales channels, including sellers based in China and the Far East. Consumer groups are likely to continue to examine the self-regulation of these sales channels. However, the positive of such sales is vastly increased traceability of affected consumers in the event that product safety issues require corrective action, compared to e.g. cash purchases by anonymous customers in high street stores. Online sellers typically see much higher response rates from consumers notified of corrective action.
Liability and recall exposure shifts with the quantity of products purchased. During lockdown, our retail clients report a significant shift in popularity of product lines (e.g. jewellery and designer clothes – down; home gym equipment and gardening tools – up).
The UK product regulatory body, the Office for Product Safety and Standards, described by a House of Commons committee as a "toothless regulator" was meant to be a central hub for consumers for the registration of products and the publication of product recall information. It has been slow to achieve its stated goals, but positive indications come from increasing output on specific product sectors and deep understanding of novel technology, such as a recent 96 page paper on risks arising from 3D printing of spare parts for consumer appliances. However, a budget of more than £34.9M (as at 2019/2020) is likely to be needed to make it a truly effective regulator.
The development of novel technology continues apace. Despite Brexit, the UK should remain interested in the significant EU activity around AI, robotics and connected devices. Autonomous vehicles, as well as e-bikes and e-scooters, continue to pave the way in novel technology, though the ability to use trials to forecast and quash potential safety issues arising from mass adoption is hampered by the fact that road usage patterns are not 'normal' at the moment. Will COVID-19 delay product launches, mass adoption, and the ability to devise effective insurance?
Lastly, even before COVID-19, a hard market in insurance was developing. A reduction in capacity and a reduced appetite for risk increases the need for policyholders and insurers to work together, to enable underwriters to thoroughly understand and be comfortable with the risk they are writing, and offer premiums that are affordable. Insuring the risk arising from novel products is difficult in this climate, but crucial in order to enable the production of technology of tomorrow, and be profitable for those insurers who invest in understanding it.
Read our full report 'Looking Ahead in the Insurance Sector'.
