Product recall: how to handle reports of a defective product

Posted: 12/12/2018

Corrective action, including product recall, is one of the toughest challenges facing manufacturers, distributors and retailers in today’s increasingly complex global product supply chain. Although no sector is immune from safety incidents affecting its products, in the past decade the automotive sector has unquestionably generated the vast majority of “serious” safety defects, requiring “immediate” notification to the relevant authorities. This upward trend is driven mainly by more sophisticated engineering processes, rising cost pressures and reduced product testing times.

In addition to various sector-specific rules, the General Product Safety Regulations 2005 (GPSR) require producers of consumer goods to:

• place only safe products on the market;
• notify an enforcement authority when it knows that a product it has placed on the market or supplied poses safety risks; and
• be prepared to take "appropriate action" to deal with unsafe products, including warning consumers about the risks, withdrawal from the supply chain and / or a full recall from consumers.

However, the GPSR is silent on determining precisely what “appropriate action” means and it will depend on the particular circumstances of each incident arising.

Recent cases of note 

BMW
BMW is now recalling around 312,000 BMW 1 Series, 3 Series, Z4 and X1 models made between March 2007 and August 2011 due to numerous reports of total electrical failures. The recall came after Narayan Gurung was tragically killed on 25 December 2016, having swerved to avoid a stranded BMW (affected by the fault) on an unlit country lane, crashing into a tree.

Although BMW AG learned of this defect in 2011 and notified the UK’s Driver and Vehicle Standards Agency (DVSA), it wrongly determined the risk of a “fatal injury” arising from the fault to be “low”, using the EU’s rapid exchange of information (RAPEX) risk assessment methodology and DVSA agreed to suspend the investigation until later on in the year, based on that erroneous assessment. Both BMW and DVSA were criticised heavily for their management of the risk assessment process in the coroner’s report which stated that “…the evidence from the DVSA raises serious concerns as to … [how it]… responds to Vehicle Safety Defect Reports highlighting safety related issues when the manufacturer or the distributor does not agree there is a safety related problem."  Despite that finding, however, the coroner held there was insufficient evidence to support a charge of corporate manslaughter.

Vauxhall
Vauxhall’s Zafira B models were also recalled recently due to concerns over their blower motors, heating and ventilation systems leading to fires. Although the first fire was reported in 2009, the first recall was not issued until 2015. Thankfully no deaths have been reported to date but the DVSA has launched a criminal investigation against Vauxhall due to its slow response to issue a recall.

What does this mean for you and your business?

Both cases emphasise the need to address safety issues promptly, especially as a failure to take appropriate action to avoid the risks associated with a product can result in an unlimited fine, up to three months' imprisonment or both. 

The immediate financial impact of the recall process and product liability litigation that can accompany it is typically high; however, the hit to a brand’s reputation can drive the cost even higher.

Risk assessment 
When a safety concern arises, a proper and timely “risk assessment” should be carried out to assess whether a genuine safety issue exists. You should consider the following factors in particular when dealing with a defective product:

• the nature of the product and hazard (eg obviousness of risk);
• how widespread the issue is (eg are only specific products affected? Is it possible to trace certain batches / date codes?);
• the abilities and behaviour of the consumer at risk (eg vulnerable consumers such as children or the elderly should be considered);
• the severity of the potential harm (eg death or serious injury to life); and
• the likelihood of that harm occurring.

Accepting responsibility and dealing speedily with a product recall is the safest way to save your business and brand reputation. Although it can be very expensive, insurance is available to cover the risks arising. Given the increasing use of separate component part manufacturers globally, a single recall could affect Original Equipment Manufacturers across an entire industry. For example, Takata’s defective airbag was one of the largest recalls to date, affecting around 100 million vehicles across at least 11 car manufacturers worldwide. Costs were estimated at close to $20 billion.

Rebuilding consumer trust in your business takes time, money and effort. For multi-billion pound companies, a product recall is an expensive lesson, but for smaller companies, it could easily result in insolvency. Therefore, spending more money on enhanced product testing, to avoid a product recall, is a wise choice. It is always best practice to seek legal advice early on to assist you and your business on how to deal with defective products and the multiple liabilities arising from them.

This article has been co-written with Sabrina Bernard, a trainee solicitor in the commercial dispute resolution team.

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