A problem of their own making?

When balancing the cost of the recall against the risk of damage to the brand should a faulty product result in a fatality, more than strictly legal issues come into play.

Ford North America faced that problem back in the 1960s and decided not to recall their compact saloon, the Pinto, despite knowing there was a serious chance of fire should the car be involved in a rear-end collision; their decision was to cost them dearly both in adverse publicity and in meeting claims over fatalities.

What, then, is a strict position on refunding customers for default products, and how does one help a client who is a manufacturer faced with that issue to ensure it does not have wider repercussions?

The initial response of
most manufacturers when approached by a dissatisfied consumer is to say that the contractual relationship is between the consumer and the retailer, not the manufacturer, and that the consumer’s right of recourse lies in that direction. However, recognising that we operate in an ever increasing litigious world, in what circumstances might manufacturers actually find themselves directly liable in
law, and how should they
address that possibility?

Direct liability

One possibility is that a manufacturer may have created a direct liability by way of a collateral contract with the consumer, having offered a
‘free manufacturer’s guarantee’.

Manufacturers often insist
on some form of registration, whether online or by return
card, requesting the customer’s personal details and sometimes additional information, such as their shopping preferences. It could be argued that providing such data is sufficient consideration to create a contract. If that requirement is satisfied, then the terms of the guarantee come into effect. But what if it could be said that those terms are, per se, unfair or unreasonable. What if they suggest that, even if the reply card is not completed, the manufacturer’s guarantee should still come into play because the consumer made the purchase knowing the manufacturer offered, for example, a four-year guarantee?

Exclusion clauses

Does it entitle a consumer to argue, under the Unfair Contract Terms Act, that any exclusions or restrictions within the guarantee are unenforceable? While it is recognised that no exclusion clauses are going to be valid if they seek to exclude liability for death or personal injury, what about if it is stated that the guarantee does not apply to ex-showroom displays? Or that the manufacturer has discretion over whether to repair or replace a broken item, but will not reimburse or compensate a consumer, even in circumstances where the customer has perhaps understandably lost faith in the product (for example, a collapsing pushchair), fearful of the chance that the problem might reoccur?

Manufacturers need to avoid falling foul of regulation 2 of the Sale and Supply of Goods to Consumers Regulations 2002. Also, might a manufacturer not find itself coming within the provisions of the General Product Safety Regulations 2005? Most manufacturers
are conscious of their responsibilities, for example to ensure products are suitably CE marked and certified. Should, then, their response to a consumer complaint simply
be limited to complying with
the directions of the trading standards officer, or is that
too limited a view to take?

Contract terms

Manufacturers must, of course, give proper consideration to protecting their position contractually, since doubtless they have obligations to other stakeholders in the business.

Importantly, they need to ensure that when dealing with sales to distributors or retailers, their terms and conditions protect them against unscrupulous suppliers trying to simply return unsold products on a whim, alleging unproven defects. Equally careful thought needs to be given to preparing consumer guarantees as to the contractual terms upon which the manufacturer agrees to supply trade customers.

Moreover, with an increase
in web sales made directly by manufacturers, it should not be overlooked that the trade terms on which they supply may not be suitable for consumer sales, and appropriate differentiation needs to be made on the website to ensure the correct terms and conditions are applied to the relevant contract.

Likewise, where a manufacturer buys in components, consideration needs to be given to purchasing terms to ensure any liability can be passed up the chain.

When advising manufacturers, consideration needs to be given to the eventuality that if something does go terribly wrong, leading to a fatality, this could result in a prosecution for corporate manslaughter. SJ