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Article

For Free? Product Replacement, Refitting and Repair Under German Product Liability Laws

1 September 2009
Mayer Brown Article

Issue
The German Federal Supreme Court (Bundesgerichtshof, BGH)recently issued a ruling which attracted quite some attention in the German business community. It relates to the product safety obligations of manufacturers under German tort law.1 The judgment is of significant practical importance for manufacturers of potentially dangerous products. It provides further clarification whether a manufacturer is obligated to replace, to refit and/or to repair dangerous products free of charge under the German law of tort. Whereas the Court does not completely rule out such an obligation, it is unlikely that such obligation arises in practice.

The case
The claimant was a statutory nursing insurance which provided special nursing beds to its insureds. The claimant bought the beds which had been manufactured by the defendant from medical supply stores. For protective purposes, the beds had side bars and some electronic devices for better handling. In some cases people were harmed when the beds caught fire because the electronic devices came into contact with liquids, and some people were clamped in the side bars of the beds. However, no incidents were known that involved beds manufactured by the defendant. After having learned of these incidents, the competent public authorities informed the claimant about safety risks and asked it to check the nursing beds provided to its insureds and if necessary to have them refitted, i.e. to replace the electronic devices and side bars. The defendant offered to do the refitting at the expense of the claimant. The claimant, however, took the position that it was only the defendant who was obliged to bear the costs for the replacement. When the defendant did not share this view the claimant decided to refit the beds itself (by using another company) in order to minimize any risk. Eventually, the claimant asked the defendant to reimburse the refitting costs. The defendant rejected. Then, the claimant brought an action against the defendant for some EUR 260,000. Both the Regional Court (Landgericht) of Bielefeld2 and the appellate court, the Higher Regional Court (Oberlandesgericht) of Hamm,3 dismissed the claim for reimbursement. In the appeal on points of law (Revision) the BGH upheld the decision of the Oberlandesgericht Hamm.

The justification
1.The BGH clarified that the claimant could not claim damages pursuant to the law of contract. There was no contractual relationship between claimant and defendant because the claimant had bought the beds from medical supply stores and not from the defendant.
It should be noted that the safety risk of a product commonly constitutes a defect within the meaning of the statutory provisions on contracts concerning the sale of goods. Pursuant to the law of contract the purchaser has the right against the seller to have the defective product being refitted or repaired at the seller’s expense. These rights are time-barred two years after delivery unless the parties agreed on a different prescription period.

2. The BGH held that the claimant had no claim against the defendant to be reimbursed for the costs of the refitting because the defendant was not obliged under the law of tort to refit the beds, i.e. to replace the electronic devices and the side bars.

2.1The Court held that the product safety obligations of a manufacturer do not expire after the product has been marketed. Even then the manufacturer is obliged to do anything which is reasonable in order to avert risks that may emanate from its product. The manufacturer has to observe the product in order to detect potential risks that were unknown at the date of marketing. If such risks occur the manufacturer is obliged to react appropriately. These obligations may include to warn the users of the product. The content, extent and timing of the warning depends on the nature of the protected legal right which is at risk and in particular on its scope. The Court held that these obligations are in particular applicable if a manufacturer becomes aware of a design fault of the product for which it is responsible. Further, the Court held that it might not be sufficient to warn the users. The manufacturer may be obliged to secure the withdrawal of dangerous products from the market as effectively as possible or to recall them in their entirety. The Court ruled that this might be the case if it is likely that the users of the product are not able to correctly assess the risks and to act accordingly. Further, the Court argued that a warning might not be sufficient if there are reasons for the assumption that the users will not respect the warning and will endanger third persons.

2.2 The Court furthermore held that under the law of tort an obligation of the manufacturer to eliminate the safety risks by refitting or repairing the product at the manufacturer’s own expense may only exist if such a step is really necessary in the specific case to effectively eliminate the risks for the legal rights. Unsurprisingly, the Court held that all the circumstances of the specific case must be taken into consideration to determine the extent of the manufacturer’s obligation. It further laid down that it will very often and even in cases of a significant risk be sufficient if the manufacturer informs the purchasers about the risks and the necessity of a refitting or a repair, and to offer its assistance to take the necessary steps at the expense of the users. As the case may be, it may also suffice to ask the users that the products are no longer used, and if necessary to publicly warn the users or to call in the competent public authorities.

3. The obligation of the manufacturer to take the appropriate steps arises if a serious suspicion of risks of the legal rights protected under tort law (such as life or physical health of the users) exists. It is not necessary that the risk is already tangible. The manufacturer must not wait until significant incidents causing harm to the protected legal rights occurred.

Having pointed out to this the Court laid down the reasons why in the case at hand the defendant was not obliged to refit or to repair the nursing beds at its own expense. Taking into account the specific circumstances of the case the Court held that it was not necessary to do so in order to effectively eliminate the safety risks for the insurants using the nursing beds. The claimant was undoubtedly informed about the risks and the possibilities to eliminate the risks, i.e. by refitting the beds, by the public authorities as well as by the defendant. The defendant additionally offered to refit the beds against compensation. The Court further argued that the claimant being a statutory nursing insurance had an obligation under social security law to protect the insureds using the nursing beds from risks emanating from the beds. The Court held that there were no reasons to assume that the claimant would not comply with these statutory obligations. Thus, the Court said that it was not necessary in order to effectively eliminate the safety risks that the defendant refitted the nursing beds. Further, the Court explained that the defendant was not obliged pursuant to tort law to provide beds that were free of defects and usable. The Court clarified that it was not the function of the German law of tort to protect the interest of the buyer in the unfettered functioning and the value of the product itself (so-called Nutzungs- und Äquivalenzinteresse) but that this interest was only protected by the German law of contract.

Conclusions
1. Even though the circumstances of the case were quite special one conclusion can be drawn from the judgment of the BGH: Under German tort law a manufacturer under normal circumstances is not obliged to replace, refit or to repair dangerous products at its own expense. While the Court decided that this obligation may exist if it is necessary to effectively eliminate the risk, it is hard to imagine any circumstances which might lead to such an obligation in practice. It appears that it should normally be sufficient to effectively eliminate the risks emanating from the product if the manufacturer unambiguously informs and warns the users that the use of the products is risky and therefore has to be stopped. Having complied with this the manufacturer may normally reasonably expect that the users will respect the warning and will not endanger themselves or third persons by the continued use of the product. As the case may be the manufacturer may combine its warning with information how to remedy the safety risks and the offer to remedy the safety risk e.g. by refitting (at the expense of the user). In any case it will virtually always be sufficient in order to effectively eliminate the safety risks if the manufacturer ensures, as the case may be with the cooperation of the public authorities, that the product is recalled.

2.The judgment is important regarding the existence and scope of the safety obligations of a manufacturer under German tort law and accordingly for the relationship between the manufacturer and the user. But even more important it is for the relationship between the manufacturer and its supplier which delivered a dangerous part that the manufacturer built into the end product. The question whether an obligation to refit or to repair the dangerous product or parts of it exists is relevant for the prospects of a claim by which a manufacturer seeks damages from the supplier which supplied the dangerous part after the manufacturer had recalled and refitted or repaired the product at its own expense. In the absence of claims based on the law of contract which may be time-barred the manufacturer may only claim damages from the supplier if this obligation exists pursuant to the law of tort. As described, such an obligation will virtually never exist.4

3. Notwithstanding legal obligations to do so it is clear that a manufacturer will in many cases voluntarily recall and replace, refit or repair dangerous products at its own expense in order to show its willingness to the users and to safeguard that its reputation is not harmed (in particular by potential incidents that occur because users do not respect the clear warning to stop the use of the product). Further, in practice the risk to be obliged to recall and/or to replace, refit or repair the dangerous product can be insured by specific product recall insurers. However, under the insurance contract the insurer will possibly only have to bear the costs of such measures if the manufacturer is legally obliged to take these measures. Manufacturers are therefore recommended to closely cooperate with their insurers in order to agree on the handling of potential recalls and the replacement/refitting or repair of their products.


Endnotes:

1. Judgment of 16 December 2008 – File number VI ZR 170/07, Neue Juristische Wochenschrift 2009, p. 1080.
2. Judgment of 8 November 2005 – File Number 18 O 23/05.
3. Judgment of 16 May 2007 – File Number 8 U 4/06, BetriebsBerater 2007, p. 2367.
4. For a case in which the manufacturer’s action against its supplier for reimbursement of refitting costs was dismissed and in which the Court argued almost in the same way as the BGH see Landgericht Frankfurt am Main, Judgment of 1 August 2006 – File Number 2-19 O 429/04, BetriebsBerater 2007, p. 2368.

Authors

  • Dr. Mark C. Hilgard
    T +49 69 7941 2271

Related People

  • Dr. Mark C. Hilgard
    T +49 69 7941 2271

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