Criminal sanctions and civil actions - a safe bet?

The intention of the new regulations, which came into force on 1 October and implement the General Product Safety Directive, is to impose a general safety requirement on producers and distributors of goods.

At the heart of the regulations is an obligation not to place a product onto the market unless it is safe - i.e., presents no or minimal risk in normal use - compatible with a high level of consumer protection. Brokers should consider whether their clients' involvement with a particular product warrants a reconsideration of their traditional insurance arrangements.

Producers and distributors that have marketed or distributed an unsafe product are now obliged to notify the enforcement authorities and explain what action they have taken to remove the risk to consumers. There is no question of sitting back - the statutory obligation is to take prompt and clear action. Brokers may find they face an upsurge in demand for broad-based recall cover as clients seek indemnity for the costs of such exercise.

Although self-regulation is key, there are various methods of enforcement open to the authorities, including market suspension, withdrawal or recall notices and compulsory product warnings. Trading standards officers will be able to apply to the court for forfeiture and destruction orders.

This new power to issue a recall notice is significant. If the producer served with such a notice fails to comply with it, the enforcement authority may carry out the recall itself and recover its costs, in which event the producer and its insurer will have lost any hope of controlling the implementation and costs of the exercise or of mitigating loss of market share or damage to reputation.

Breach of the safety obligations may have significant commercial impact in terms of the costs of recall and damage to commercial relationships or corporate reputation. Criminal sanctions (which include imprisonment of officers and fines of up to £20,000) ought, in most cases, to be avoidable through prompt action and transparent dialogue and co-operation with the authorities. Additionally, nothing in the regulations affects the right of a consumer, who has suffered loss because of an infringement, to seek civil redress under the Consumer Protection Act or the rights of corporate customers to pursue recovery along the contractual chain. No doubt such affected parties will redouble their efforts, on the back of regulatory action, to secure compensation from manufacturers, distributors and their products liability insurers.