Whether you sell, supply or purchase goods, product liability issues are becoming increasingly relevant. European directives protect consumers and can impose significant liabilities upon parties responsible for supplying defective goods.
The recent European Court of Justice Decision in the case of O'Byrne v Aventis Pasteur MSD Limited (case C-127/04) 9 February 2006, looks at the period of time for which producers of goods can be at risk of claims and serves as a reminder of the types of businesses which may be liable.
Article 11 of the European Product Liability Directive
Article 11 allows an injured party to bring a claim against a producer in respect of defective products for up to 10 years from the date upon which that product was put into circulation.
According to Article 11, 'producer' is not only a 'manufacturer of a finished product', but also any person putting his name, trademark or other distinguishing feature on the product and any supplier who, where a producer cannot be identified, does not inform the injured party within a reasonable time of the identity of the producer.
The claim can be put briefly in these terms. On 13 November 1992 a child, Declan O'Byrne, was vaccinated with a dose of anti-haemophilus vaccine at his general practitioner's surgery. Following that vaccination he became severely brain damaged. He claims that his injury was caused by the vaccine, on the basis that the vaccine was defective. The issue of liability was not before this court.
The producer of the vaccine was Aventis Merieux Serums et Vaccins SA, a French company which subsequently became Aventis Pasteur SA (APSA).
The UK distributor of the vaccine was Merieux UK Ltd, an English company and a wholly-owned subsidiary of APSA Merieux UK Ltd, which later became Aventis Pasteur MSD (APMSD).
On 18 September 1992 APSA sent to APMSD a consignment of the vaccine, which was received on 22 September 1992. APMSD paid APSA's invoice for the consignment. At a later unknown date, APMSD sold the consignment to the Department of Health UK, who instructed APMSD to deliver directly to a nominated hospital. The hospital then supplied the vaccine to the surgery where the boy was vaccinated.
On 22 November 2000 Declan O'Byrne brought proceedings for compensation against APMSD in the mistaken belief that APMSD was the producer of the vaccine. It was not until 7 October 2002 that separate proceedings were brought against APSA as the producer of the vaccine.
APSA argued that the boy's claim was brought outside the 10 year legal time limit for bringing such claims. The boy's legal team argued that the date the vaccine was 'put into circulation' was not until the distributor supplied the vaccine to the Department of Health and, as this was within 10 years of his commencing proceedings, his claim was not out of time.
APSA contended that the vaccine was 'put into circulation' either on the date it was sent to the distributor (18 September 1992) or the date the distributor received it (22 September 1992). It argued that, as proceedings had been commenced on 7 October 2002, the claim could no longer be brought because it was out of time.
The matter was referred to the European Court of Justice (ECJ) which was asked to consider whether a product is 'put into circulation':
- when it leaves the producer, or
- when it reaches the subsidiary distributor, or
- when it leaves the subsidiary distributor, or
- when it reaches a third party receiving the product from the subsidiary distributor
The ECJ stated that the directive does not define what is meant by 'put into circulation'. Objective criteria must be applied, and the ECJ accordingly decided that 'a product must be considered as having been put into circulation when it leaves the production process operated by the producer and enters a marketing process in the form in which it is offered to the public in order for it to be used or consumed'.
The ECJ held that 'it is for the national courts to establish, having regard to the circumstances of each case, whether the links between the producer and another entity are so close that the concept of producer also includes the latter entity and that the transfer of the product from one to the other does not amount to putting it into circulation'.
Impact for producers
Because the longstop of 10 years prevents claims being brought after that date, it is vital for businesses, when assessing contingent risks, to know where they stand with potential claims. Working out when a product is 'put into circulation' is therefore important in assessing precisely when the strict liability of producers ceases. Having some certainty allows for a more reasoned assessment of the risk of future claims to the business.
Previously, if products had been placed into the distribution process, that alone might have been considered sufficient to demonstrate that the products had been 'put into circulation' thus starting the clock for the limitation period.
After this case, if the producer and distributor are regarded as so closely related that the distributor 'is in reality involved with the manufacturing process of the product concerned' then products may not be considered as 'put into circulation' until a later date. The effect of this is that the limitation clock starts at a later date. A typical example of where this might apply (as in this case) is where the distributor is a subsidiary of the producer, or some other close relationship exists between the parties, which may have a bearing upon that position.
Unhelpfully, the court did not define what it meant by the close relationship of the parties, leaving it to national courts to decide its meaning and relevance in a particular case.
Raising the spectre of looking at parties' relationship to determine issues of limitation is, in my view, unnecessary, unhelpful and a cause of additional uncertainty to businesses. There is no obvious need to look at the relationship between parties to determine whether a product is 'put into circulation:' that is a matter which can be determined by looking at the history and progression of the product's life cycle. If as, a matter of fact, a court decides that a company was involved in the production process, that is an answer in itself.
Any artificial constructions of the limitation period designed to help a particular party or otherwise, will lead to all sorts of exceptions and anomalies, and that can only lead to the one thing no business (nor indeed consumer) wants, which is uncertainty at the outset.
The policy point is clear. The directive and other consumer legislation will be interpreted in such a way as to give effect to the intentions of the legislators. This means that consumers will generally get the benefit of the doubt in the interpretation of consumer legislation.
This is potentially very significant, given that the purpose of the directive is to apply strict liability in respect of defective goods across all the member states in European Economic Area (EEA).
The prevailing uncertainty after this case does not help, but knowing that the risk of claims against producers may last longer than previously anticipated does allow for some planning.
Provided that the product has left the production process and entered the marketing process, it will be regarded as having been 'put into circulation'.
This may not be easy to define, as manufacturing and marketing may occur simultaneously, but once the product is complete and in its final form (after branding and packaging) the liability period is likely to commence.
This may be before the product reaches the consumer.
Where possible producers should (whether or not within a group company structure) consider whether they can establish clearer divisions of responsibility between the production and marketing functions with supporting documentation available to demonstrate the distinction. Of course, this will not be conclusive on the issue of limitation (all facts are looked at) but it may help.
This case will not cause producers to halt in their tracks, nor should it. Rather, the issues and risks on limitation should be assimilated into the business planning process and action taken to minimise these risks and costs. Businesses and individuals alike require certainty about limitation periods. Unfortunately, this case does not provide it.
- James Haddleton is a partner at DLA Piper, Tel: 0113 369 2705