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October 2013 – edition 6

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Françoise Snape T 0121 634 6665 E [email protected]

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Jim Sherwood T 0207 865 3376 E [email protected]

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You have been sent this material because you have previously registered your interest in receiving information from Berrymans Lace Mawer LLP.If you no longer wish to receive the mailing, please unsubscribe. This document does not present a complete or comprehensive statement ofthe law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of Berrymans Lace Mawer LLP.Specialist legal advice should always be sought in any particular case.

Berrymans Lace Mawer is a trading name of Berrymans Lace Mawer LLP, a limited liability partnership registered in England under numberOC340981, authorised and regulated by the Solicitors Regulation Authority. The registered office is at King’s House, 42 King Street West,Manchester M3 2NU where a list of members is available for inspection. Berrymans Lace Mawer, Ireland, is affiliated to Berrymans LaceMawer LLP and the partners are members of Berrymans Lace Mawer LLP. Berrymans Lace Mawer LLP is certified to Information SecurityStandard ISO 27001 (BSI certificate IS589484), Quality Assurance Standard ISO 9001 (LRQA certificate 4006645) and Lexcel, the LawSociety’s Practice Management Standard.

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The product liability team at Berrymans Lace Mawer aredelighted to bring you the latest edition of Product focus, ourregular round-up of recent developments and practical adviceon emerging issues. As usual, this edition aims to help ourclients across the insurance, manufacturing and retail industriesdeal with the challenges they face.

We welcome our guest contributor Neil Moody QC who joinsour regular contributors in looking at the impact of recent cases.Andrew Layton-Morris takes a look at insurance coverage andthe recent decision in Adana which highlights some of the greyareas in product liability cover.

The perils of social networking sites are hardly new to our clientshence Rachel Donoghue discusses the potential impact of theDefamation Act 2013 which will require companies to provethey have ‘suffered financial loss’ before they can show astatement is ‘defamatory’. The risks of seeking redress throughlegal means in relation to media publicity are clear and it doesseem that the test required by the courts will make such stepseven less feasible.

This edition coincides with our seminar on the risks and liabilitiesin the food and drink sector, hitting the news again with foodfraud high on the EU agenda following the horsemeat scandal.If you have been unable to attend our seminar but would likethe speakers’ papers, please contact us.

We hope you find this edition interesting, informative andhelpful. As ever we welcome comments and discussion of ourviews. Please do not hesitate to contact any of the authors if youwish to discuss the points they have raised.

Jim [email protected]

Welcome to the 7th editionof Product focus

Page 2 - Spotlight on public and product liability

- When are goods not ‘goods’

Page 5 - Test case: liability of electricity distributors for fire

Page 7 - Don’t get your fingers O’Byrned

Page 10 - Only skin deep?

Page 12 - Outlining possible reforms to come?

Page 12 - Brand and reputation management in the digital age

Page 14 - Mitigating loss and claiming damages

Page 15 - Product liability and secondary victims: policy and pragmatism

Editorial

Contents

Berrymans Lace Mawer page 1

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‘A’ were sub-contractors responsiblefor the construction of a crane base.The purpose of the base was totransfer the load from the crane oncein situ, to load-bearing piles below.This was to be achieved by theconnection of the crane base to thepiles by the use of high tensile steelrods. The crane collapsed in July2009, causing significant personalinjury to the operator and damage toa block of flats.

The HSE prosecuted the maincontractor and the designer of thecrane structure, but not A. All theexperts agreed that the collapse wasdue to the failure of the connectionbetween the crane base and the piles,and all the experts (except for thatcalled by the designer) agreed thatthe design was inadequate, such thatthe connections would have failedregardless of any issues in theworkmanship by A.

The crane driver brought a claim forpersonal injury against the maincontractor and the designer, to whichA was joined. A claimed under itscontractors all risks policy. Insurersissued a claim seeking a negativedeclaration that it was not liable toindemnify A, and A counter claimedfor a declaration that it was covered.

The court found in A’s favour, and thefollowing points seem particularlyworthy of note:

a The judge agreed with A that theproceedings were premature, inseeking a negative declaration inrelation to cover on the basis ofassumed facts. The judge notedthe court’s general caution ingranting negative declarations inthese circumstances. The claimalso left A in the unfortunateposition of needing to postulateloss circumstances to bring anypotential claim within the termsof the policy, but in so doingpotentially assisting those partiesseeking to make A liable in theunderlying claim. It is not entirelyapparent from the judgment whyinsurers brought the proceedingsat all, particularly as theyadmitted that there was littlechance that A would be foundliable in the underlying claim.

b The insurer called expertevidence to seek to prove thatthere was a conventional marketunderstanding as to the divisionbetween public and productliability cover, namely that thelatter was exclusively applicableonce the works had beenhanded over. Courts areincreasingly prepared to acceptsuch evidence as part of thefactual background in assistingwith issues of interpretation (seeThomas Crema v CenkosSecurities PLC [2010] EWCA Civ1444). However, the evidence

was rejected as inadmissiblebecause the expert accepted thatthe issue depended on his owninterpretation of the policywording.

c The judge approached thequestion of interpretation on apurposive basis, noting that thepolicy was ‘described as coveringthe full range of liabilities that abuilding services contractor willface … The parties would expectthere to be cover where theinsured incurs liability fordefective work and also where itprovides a defective product’.This illustrates the difficulties foran insurer in seeking to assertthat a particular claim effectivelyfalls between a gap in cover,notwithstanding the expressed‘all risks’ nature of the policy.The judge also appears to haveconsidered the nature of theinsured (a medium size, familybusiness) to be relevant.

d The insurers’ case was that thebase constructed by the insured,and all its constituent parts, were‘products’ for the purposes of thepolicy, and therefore the publicliability cover was excluded.Further, any liability of A wasliability arising from the failure ofa product to fulfil its intendedpurpose, for which there was anexclusion within the product

page 2 Berrymans Lace Mawer

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Spotlight on public and product liabilityAspen Insurance UK Ltd v Adana Construction [2013]EWHC 1568 (Comm)

This recent judgment, which on the face of it is highlydependent on its own facts, nevertheless considers anumber of issues of interest to insurers providingpublic and product liability insurance.

www.twitter.com/blm_law

liability cover. Notwithstandingthat the definition of ‘product’was wide, the judge decided thatthere was no ‘product’, drawinga distinction between A’s contract‘for work’, and a contract forsupply of a product, ie, such asa boiler, that can be ordered andcan be delivered. This is aninteresting distinction, and notwithout potential difficulty. Somewordings expressly include‘contract works’ within thedefinition of a product. Thejudge considered that anyliability of A was for defectiveworkmanship, and thereforepointing to public liabilitycircumstances.

e The judge then considered obiterthe question of whether, if he waswrong on the issue of whetherthere was a ‘product’, whetherany liability of A was because ofthe failure of a product to ‘fulfilits intended purpose’. The judgedecided that there was no suchfailure, interpreting this clausenarrowly and concluding that thebase had transferred the load tothe piles as intended, and thatany failure was within the pilesand their design. It is generallythe case that courts will attemptto interpret this type of exclusionnarrowly, as they can potentiallyseverely restrict the scope ofcover available.

This is a rare judgment in the field ofproduct liability insurance. Whilst itturns on its own facts, it offers aninteresting insight into variousconsiderations of potentialimportance to insurers offeringproduct and public liability insurance,and also to insurers generally in theway in which the court addressed theissue of expert evidence. There arealso lessons to be learned about theappropriate timing of proceedings fordeclarations of non-liability. Weunderstand that the case is the subjectof an application for permission toappeal, so it may be that usefulfurther guidance on some of these

issues may be forthcoming from theCourt of Appeal in due course. Giventhe scarcity of decisions in this field,that might be welcome.

Andrew Layton-MorrisAssociate

When are goodsnot ‘goods’

Trebor Bassett Holdings Limited and(2) The Cadbury UK Partnership vADT Fire and Security Plc [2011]EWHC 1936 (TCC)

The above case has attractedconsiderable attention and continuesto do so following the outcome of theappeal ([2012] EWCA Civ 1158).This is largely because of the range ofdifferent significant contractual andother issues the case involved. Theseincluded:

1. Incorporation of contractualterms.

2. The applicability and availabilityof contributory negligence.

3. Whether terms as to satisfactoryquality and fitness for purposeshould be implied into thecontract in question

Background facts

This dispute arose out of a fire whichoccurred in June 2005 whichdestroyed a popcorn factory ownedby Trebor and used by Cadbury,causing a claimed £110 million worthof damage/losses. The defendant,ADT, had been engaged to design,supply and install in the factory whatwas described as a ‘fire suppressionsystem’. The fire that occurred wasnot suppressed and went on todestroy the factory, and a claim wasbrought against ADT for the failure ofthe system.

Incorporation of terms and ‘battle ofthe forms’

This issue was dealt with by Coulson Jat first instance. BLM commented onthis in Product focus edition 4, May2012 (Contract terms: bewareincorporation by reference). CoulsonJ’s findings on incorporation were notchallenged on appeal.

Contributory negligence

The claim against ADT was broughtin contract and in tort on the basis,among other things, that the firesuppression system was not ofsatisfactory quality or fit for purpose.At first instance, Coulson J held thatADT had failed to exercise reasonableskill and care in its design of the firesuppression system, in breach of itscontractual and tortious duties, butreduced Cadbury’s damages by 75%by reason of its contributorynegligence. Cadbury appealed.

Cadbury relied upon the guidelinesset out in the decision inForsikringsaktieselskapet Vesta vButcher [1988] 3 WLR 565 whichclassified contractual duties underthree headings:

1. Where a party’s liability arisesfrom breach of a contractualprovision which does not dependon a failure to take reasonablecare.

2. Where the liability arises from anexpress contractual obligation totake care which does notcorrespond to any duty whichwould exist independently of thecontract.

3. Where the liability for breach ofcontract is the same as, and co-extensive with, a liability in tortindependently of the existence ofa contract.

It is only in category 3 cases thatcontributory negligence is available.

Cadbury’s case was that the duties


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owed to it by ADT pursuant to theexpress terms of the contract and toterms implied into the contract by theSupply of Goods and Services Act1984 (SGSA) extended beyond ADT’stortious duty to exercise reasonableskill and care, and therefore this wasnot a category 3 case, andcontributory negligence should not beavailable to the defendant.The express contractual term Cadburyrelied upon in this argument wasclause 3(a) of its own terms andconditions, which was in the followingterms:

(3) Qualities and Defects

(1) a All Goods supplied and/orServices carried out shall beof good quality…

The specific provisions of the SGSAthat Cadbury relied upon weresections 4 and 13.

Section 4 SGSA provides:(1) Except as provided in this section

… there is no implied condition… about the quality or fitness forany particular purpose of goodssupplied under a contact for thetransfer of goods.

(2) Where … the transferor transfers… goods in the course of abusiness, there is an impliedcondition that the goodssupplied … are of satisfactoryquality…

[(3)]

(4) Subsection 5 … applies where,under a contract for the transferof goods, the transferor transfers… goods in the course of abusiness and the transferee,expressly or by implication,makes known … to the transferor… any particular purpose forwhich the goods are beingacquired

(5) In that case there is … animplied condition that the goodssupplied … are reasonably fit for

that purpose, whether or not thatis a purpose for which suchgoods are commonly supplied.

Section 13 SGSA provides:

In a contract for the supply of aservice where the supplier isacting in the course of abusiness, there is an implied termthat the supplier will carry out theservice with reasonable skill andcare.

The Court of Appeal (CA) rejectedCadbury’s argument, and in so doingdiscussed the extent to which, if at all,terms as to satisfactory quality andfitness for purpose were implied intothe contract by the provisions of theSGSA, specifically sections 4 and 13.

Implied terms under the SGSA

Rather than supplying Cadbury with asimple ‘product’ in the form of anobject, ADT had been engaged todesign and install the fire suppressionsystem, as well as supply thenecessary materials. In this context,the CA found that section 4 SGSA didnot imply into the contract any termsas to satisfactory quality or fitness forpurpose because these provisionsapplied to the supply of ‘goods’, andthe court found that the firesuppression system could not properlybe described as ‘goods’ within themeaning of the SGSA.

Tomlinson LJ found that:

If what was offered couldproperly be described as aproduct at all, which I doubt, itwas at best a bespoke product inrespect of which what was ofimportance was not so much theinherent quality of the constituentparts (which was of courserequired to be good) but rathertheir selection as being suitablefor the task and the manner inwhich they were to be combined,

located and installed in suchmanner as ‘to suit the specificrequirements of the risks to beprotected…

In these circumstances, I find itwholly artificial to regard ADT ashaving contracted to supply asystem which can be equatedwith ‘goods’ and of which it cansimply be asked in the abstract,was it or was it not of goodquality … the system does nothave any inherent characteristicswhich can be independentlyassessed as indicative that, as afree-standing system, it is or isnot of good quality. Furthermore,there are no purposes for whichthis system is commonlysupplied. It is a one-off bespokesystem, designed for oneparticular application.

All this tends to support my viewthat it is not a natural oraccurate use of language in thiscontext to regard ‘the system’ assimply ‘goods’ attracting withoutmore the well-known statutoryincidents of quality and fitness forpurpose. What ADT wasagreeing to supply was primarilydesign skills and care inexercising them, not goods, andthe goods which they did supplywere of good quality … Theshortcoming in the system werematters of design, not theinherent quality of the goodswhich were also supplied …

It follows … that Cadbury cannotin my view pray in aid thestatutory implied terms …’thesystem’ cannot be equated withor is not to be regarded withoutmore as ‘goods’…

The court therefore found that s4SGSA did not operate to imply anyterms as to satisfactory quality orfitness for purpose into this contractbecause it did not regard the systemsupplied by ADT as ‘goods’. The court also found that Cadburyhad not specified a ‘purpose’

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sufficiently to enable it to rely uponany term as to fitness for purpose thatmay have been implied by section4(4) SGSA, Tomlinson LJ finding that:

Cadbury cannot, for thepurposes of s4(4) of [SGSA]show that it made known to ADTa particular purpose for whichthe system was being acquired.Cadbury did not sufficientlyexplain the process or itshazardous nature.

This finding may be consideredsurprising given that it might bethought that the purpose of a ‘firesuppression system’ in a popcornfactory was clear.

The CA rejected Cadbury’s relianceon clause 3(a) of its standard termsand conditions, on the same basis,saying that ‘the shape of [the] Clause… suggest … the same approach.The clause clearly distinguishesbetween goods supplied and servicescarried out’.

Section 13 SGSA, on the other hand,was applicable and implied into thecontract a term that ADT would usereasonable skill and care in designingthe system it supplied to Cadbury.This was co-extensive with the tortiousduty owed by ADT, which existedindependently of the contractual duty;and ADT had failed to exercisereasonable skill and care in thedesign of the system.

As a consequence, the CA upheld thefinding of contributory negligenceagainst Cadbury.

Transactions which involve not onlythe supply of a simple tangibleproduct, but also the design andinstallation of a product or a systemof which the product is part, are verycommon. This judgment suggeststhat, depending on the circumstances,courts will be willing to draw adistinction between circumstanceswhere only ‘goods’ are being

supplied and when they are beingsupplied together with ‘services’ whenit comes to application of the impliedterms as to satisfactory quality andfitness for purpose under the SGSA,particularly where this is part of abespoke system.

It will be important to bear this inmind when considering claims forbreach of contract in such cases andthe availability or otherwise ofcontributory negligence as a defence.

Michael HarveyPartner

Test case: liabilityof electricitydistributors for fire

Smith v Eastern PowerNetworks [2012] EWHC 2541

In this case the Technologyand Construction Courtconsidered five test casesrelating to the liability ofelectricity distributors for firescaused by defects in theirequipment installed incustomers’ premises.

Background

Since privatisation the electricityindustry has been divided betweendistributors (who are responsible forthe power supply including the wiresand cables through which the supplyis drawn), and electricity suppliers(who charge customers for thesupply to individual premises).Where the mains electricity supplyenters premises it generally passesfirst through a cut-out assemblywhich has one or more fuses in it,then to the meter and onward to theconsumer’s distribution board. Thecut-out fuses are the responsibility ofthe distributor.

Smith focused on the liability ofelectricity distributors for defects inthese cut-out fuses. There aremillions of cut-out fuses installed inpremises in the UK. Many of themare at least 30, if not 60, years old.As with all electrical equipment,there is a risk of fire arising fromdefects in the cut-outs.

However, distributors have neveradopted a system of regularinspection, maintenance orreplacement of cut-outs. Rather, thedistributors have taken the view thatthe equipment is essentially reliableand requires no maintenance. Theyconsidered that there were very fewreported fires relative to the numberof installations, and that positivemaintenance of the equipment couldeven provoke failures (by disturbinga sound installation). They relied onmeter readers to identify any obvioussigns of incipient failure (ie,discolouration or heat). Anecdotalevidence suggests that previouscases brought by customers againstdistributors have been settled,perhaps reflecting an unwillingnesson both parties to have the liabilityof distributors tested before a court.

However, the issue could not beavoided for ever. Property insurerswere pressing for a determination ofthe point; and distributors wished toestablish that they were not requiredto inspect their equipment on aregular basis. Indeed somedistributors are considering movingto ‘smart’ (ie, remote) metering. Insuch cases there would not even beregular visits by meter readers.Distributors also wanted to establishthat there should be no programmeof regular replacement because sucha programme would bedisproportionately expensive. Thusfive test cases were chosen fordetermination by Akenhead J.

Five test cases

The common facts were that in allfive cases fires had occurred whichwere attributed to resistive heating at

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the cut-out. None of the cut-outshad been subject to regularinspection and maintenance,although regular meter inspectionswould have given the opportunity forany overt signs of failure to beobserved.

The judge considered first the natureof the duty owed by the distributors.Electricity supply and distribution hasbeen subject to statutory regulationsince at least the 1920s. Nowadaysthe responsibilities of distributors areset out in the Electricity Safety,Quality and Continuity Regulations2002. In particular, Regulation 24(1)requires that a distributor shallensure that where its equipment ison a consumer’s premises, suchequipment shall be ‘installed and, sofar as is reasonably practicable,maintained so as to prevent danger’.

However, it was made clear by theSupreme Court in Morison SportsLimited v Scottish Power [2010]UKHC that a distributor does notowe private law duties of care underthe regulations, and is thus not liablefor an action for breach of statutoryduty. Accordingly the claimants’ casecould only be brought in negligence,although the regulations were

obviously relevant to the scope ofthe duty.

The essential allegations advancedby the claimants at trial were that thedefendants should have carried outregular inspections of the cut–outsand should have replaced them as amatter of routine after 25 years. Thedefendants admitted that they didnot routinely inspect cut-outs, insteadrelying on meter readers to reportsigns of damage, and ‘opportunistic’inspections when called in to do so.They argued strongly that aprogramme of replacement wasunnecessary and would be verycostly. Figures of £3-4 billion werequoted.

The judge was not convinced thatthe risk of fire was as low as thedistributors contended. This waspartly because the distributors didnot maintain reliable information asto the incidence and causes of firesin their equipment. He was alsoconcerned that the risk of fire wouldincrease as cut-outs and metersbecame older.

Akenhead J held that the distributorswere in breach of duty in failing tohave any programme of inspectionor maintenance of their equipment.He held that they should haveinstituted a system of biennialinspections. He also held that thedistributors were ‘broadly’ in breachof duty in failing to put in place asystem for the replacement of cutouts. The judge did not specify aperiod for replacement butsuggested that it might be closer to50 years than 25 years.

However, the claimants were unableto show that regular inspectionwould have led to the discovery ofthe faults in these five cases. Norwere they able to show that the cut-outs should have been replacedalready as part of a programme ofroutine replacement. Accordingly allfive cases failed on the ground ofcausation. The result may therefore be regarded

as a score-draw. The claimantsestablished the principle of theliability of distributors, but it is likelyto be a rare case where a propertyowner is able to establish acausative breach on the part of thedistributor. This is because, in orderto succeed, a customer will have toshow that inspection would haveidentified the fault and prevented thefire, but such faults usually developwithout obvious outward signs untilshortly before the final failure. Unlessan inspection was missed shortlybefore a fire, causative negligencewill be hard to prove.

Summary

As for the distributors, they will bepleased that the case hasdemonstrated the difficulty ofestablishing causation. The findingthat distributors need to inspect theirequipment every two years is acurious one since the judgeaccepted that cut-outs are essentiallyreliable and “it is pointless frequentlyinspecting something which isessentially sound.” However,distributors are now faced with adecision which requires them to putin place a system of regularinspections, and indeed to considera programme of wholesalereplacement of older units. Thejudge commented that thedistributors may feel “that they needactively to consider what the impactof ageing generations of cut-outs willbe as time marches on.” That couldbe very expensive.

Neil Moody QC 2 Temple Gardens




Don’tget

your fingersO’Byrned

Recovery actions under theConsumer Protection Act

The 10 year longstop limitationperiod under the ConsumerProtection Act 1987 (CPA) providesproducers with the certainty ofknowing that their CPA liability inrelation to defective products islimited to those products which theyhave put into circulation in the lastdecade, but it can throw updifficulties for defendants who maybe contemplating recovery actions.This article explores the difficultiesencountered in this area, andprovides practical suggestions as tohow these issues may beaddressed.

Reason for longstop

In order to strike abalance betweenthe interests ofproducers andconsumers, alongstop limitationperiod wasimposed toextinguish rights ofaction under theCPA after a periodof 10 years from thedate on which theproduct was put intocirculation. Thislimitation period is notaffected by the age ormental capacity of aclaimant. The purpose of thelimitation period was explained bythe European Court of Justice (ECJ)

in O’Byrne v Aventis Pasteur SA [2010] 1WLR 1375 (onreference by the Houseof Lords) which statedthat:

The ten year upperlimit for the producer’s liabilityin article 11 [of the relevantDirective implemented into UKlaw by the CPA] must thereforebe regarded as a counterweightto the non-fault basedcharacter of this productliability.

Correct defendant

A claimant often has the option ofpursuing a number of differentdefendants, potentiallyencompassing different causes ofaction, in respect of the same loss.Although a party may face a claim in contract or negligence, it maybe necessary or advantageousfor it to pursue recovery byway of a claim forcontribution from anotherperson liable in respectof the same damage,ie, against a party whocould be liable to theclaimant under theCPA.

There can bedifficulties in identifyingthe appropriate entity,as illustrated byO’Byrne.

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The claimant issued a claim againsta party who it believed was the producer of the relevant product, forthe purposes of the CPA. This isimportant because only ‘producers’as defined in the CPA can be liableunder the CPA, although there isprovision for mere suppliers to beliable if they fail to identify theproducer within a reasonable time.It later transpired that the party ithad identified was in fact only adistributor, and that the correct partywas the distributor’s parentcompany.

By the time that the claimantrealised this, the 10 year limitation period had expired,leading to lengthy litigation to

determine whether the claimantcould legitimately substitute oneparty for another following theexpiration of the 10 year longstopdate. It is clearly advisable toascertain (by querying directly withthe relevant parties) at the earliestpossible stage the precise liabilitieswhich attach to each party and theirrespective roles in the supply chain.

When does time start running?

Under the CPA the 10 year longstopstarts running when the product is‘put into circulation’. In O’Byrne theECJ provided guidance on when aproduct is considered to be ‘put intocirculation’ and stated:

a product is put into circulationwhen it is taken out of themanufacturing processoperated by the producer andenters a marketing process inthe form in which it is offered tothe public in order to be usedor consumed.

In essence, a product will thereforeordinarily be regarded as being putinto circulation from the time whenthe producer transfers it to asupplier, unless the supplier is soclosely connected to the producerthat the producer retains control ofthe product. If that is the case, the10 year limitation period does not

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begin running until the supplierprovides the product to a third party.

Consequences for recovery actions

Different limitation periods apply inrespect of contractual or negligenceclaims, particularly in casesinvolving an injury and/or a minor,which can cause a disparity betweenthe position of different defendants.In a reversal of the usual situation, adefendant may find himself in theposition whereby it is in his interestsfor the claimant to issueproceedings at an early stage toensure that a claim against adefendant under the CPA is notextinguished. If the claimant fails to

issue proceedings prior to theexpiration of the 10 year period, butmaintains a valid claim in eithercontract or negligence, this mayprevent the defendant from seekinga contribution from the CPA thirdparty.

The options available to adefendant in such circumstances arerelatively limited. A defendantordinarily has the option of eitherissuing an additional claim to join aparty who it considers to be liable inrespect of the same damage, oralternatively to pursue a claim forcontribution or indemnity within twoyears of settlement being reached orjudgment handed down. Neither ofthese options will remain viableagainst a CPA third party if the 10year long stop period has passed,and the right of action isextinguished. The Civil Liability(Contribution) Act 1978 (on whichrecoveries following settlement orjudgment are often based) providesthat a party will not be liable tomake contribution if a period oflimitation has expired andconsequently extinguished the rightof action against it.

If the issue is identified earlyenough, it may be possible topersuade the other party to agree toa stay in contribution proceedings,pending a resolution to the mainclaim. The parties will, however, beat the court’s mercy. If theseproceedings are issued protectively(and before proceedings have beenissued in the main claim), they areliable to be struck out by the courtgiven that the defendant to the mainaction would not have suffered anyloss at this point (and is also notentitled to pursue the claimant’sCPA claim unless he is doing sohaving settled the claim or hadjudgment awarded against him,under the Civil Liability(Contribution) Act 1978).

Whilst it is clearly far from ideal topush the claimant into issuing

proceedings, the threat ofhighlighting a limitation date to theclaimant’s solicitor may persuadethe CPA third party that agreeing astay in protectively issuedcontribution proceedings would bepreferable. This does of coursedepend on obtaining the court’sapproval of a proposed stay, whichmay be difficult on a long termbasis, but is potentially possible ona short term basis if both of theparties are in agreement. There isalso the option to settle the claimand thereafter pursue a recoveryagainst the CPA third party prior tothe expiration of the 10 yearlongstop date, depending on themerits of the claim.

It is evidently of crucial importanceto identify any potential recoveryactions, and the relevant cause ofaction, at the earliest opportunity. Ifthis recovery action involves apotential co-defendant/third partywho is liable under the CPA,identifying the date on which the 10year longstop limitation period willexpire should be an early priority. Itis then possible to consider theaction required to protect yourposition so far as possible. If, on thecontrary, you are facing a claimunder the CPA, identifying therelevant longstop limitation date isequally essential to allow you tomonitor the possibility of raising theappropriate limitation defence in theevent that proceedings are issuedafter the limitation period haselapsed.

Emma TindallSolicitor




Only skin deep?

With two government reviews into thecosmetic surgery industry recentlycompleted, this article explains whythose looking to follow Lord Sugar’sfootsteps by tapping this market mustlook beneath the surface.

Leah Totton, winner of this year’sseries of The Apprentice, secured a£250,000 investment from LordSugar in her non-surgical cosmetictreatment business. She aims to raisestandards in the industry – the timingcould not be any better.

There has been a huge upsurge inthe number of people undergoingcosmetic treatments and, despite theeconomic climate, there seems littleindication of a drop-off in the amountof individuals willing to pay for moreyouthful looks. Non-surgicaltreatments account for around 90%of a total market worth millions. Andyet, concerns were being raised about

a perceived lack of regulation withinthe industry even before the PIP breastimplants scandal made front pageheadlines. This culminated in twogovernment-commissioned reviews.The first, led by minister for qualityLord Howe, sought to establish howevents unfolded when the UKregulator first became aware of thereported problems with PIP breastimplants.

Subsequently, NHS medical directorSir Bruce Keogh led a wider reviewinto regulation of the cosmetictreatment industry as a whole. Theaim was to ensure that those whocarry out cosmetic procedures have

Specialfeature






the appropriate skills and those whoundergo the procedures are givenadequate information, along withappropriate redress if things gowrong.

Professor Keogh’s final reportcontained 40 recommendations,including a new focus on indemnityand redress, to include considerationand development of new insuranceproducts, such as risk-poolingarrangements, withan emphasis onadequaterecourse andredress forconsumerssuffering anadverse event.

Whether therecommendationsare implementedin full – and, ifso, the timescalefor achieving that– will depend onthe government’sresponse to thereport, but earlyindicationssuggest thepolitical willexists. Healthminister Dr DanPoulter MPstated:

The independent panel hasmade some far reachingrecommendations, the principlesof which I agree withentirely.

The minister’s agreement, hiscommitment to respond, and anexisting requirement to implement aEuropean Union directive coveringaspects of medical insurance andindemnity by October 2013, allappear to suggest progress shouldbe made. If this analysis is correct,we would advise those interested in

the legal and insurance aspects ofcosmetic products and interventionsto follow this issue closely during thenext few months.

Potential liabilities

As for Lord Sugar, this fast-evolvingindustry presents businessopportunities for those whoindemnify product suppliers,importers and healthcare

professionals.However, they willinevitably facesome degree ofuncertainty and it isvital that they arefully appraised oftheir clients’businesses andpotential liabilities.

This is particularlyrelevant wheregovernment andregulators showmisunderstandingof the coverinvolved, whether itbe liability coveraddressingsituations whereinjury/loss may becaused by aproduct, orpotentially recall orguarantee cover.

There may also be issues whereproviders seek cover for productliability and clinical negligencerespectively. Where a singleinsurance programme is arranged,there is unlikely to be a gap in thatcover.

However, it is conceivable that issuesmay arise where cover is agreed withdifferent insurers and brokers needto be alive to the application ofpotential exclusions.

Claims by consumers relating toproduct safety issues in this sectorusually follow the contractual route

of going against the (medical)practitioner or use the consumerprotection legislation to seekcompensation from the producer orimporter.

A core premise, or objective, statedin the report is that:

Patients should have recourse tofinancial compensation if theyhave been harmed by apractitioner, provider or product.The insolvency of the provider,practitioner or manufacturershould not leave patientsunsupported financially.

While it may be difficult to arguewith this premise, quite how a legalregime of that nature, supported byinsurance, is to be achieved may beopen to discussion.

Lord Sugar expressed reservationsabout an industry with which he isunfamiliar and which has had amixed press, but still decided thefinancial opportunities wereworthwhile. Insurers may share hisenthusiasm but must also ensurethey understand the risks and liabilityregime associated with fast-developing or new products.

Jim Sherwood Partner

Greg McEwenPartner

This article first appeared in theAugust/September 2013 edition ofThe Journal.

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ÊWhat this means for youn The government appears set on

implementing regulatory reform.

n There will be tighter regulationof products and serviceproviders in this fast-evolvingindustry

n There will be a new focus onindemnity and redress, toinclude possible new insuranceproducts such as risk-poolingarrangements

n Insurers should monitordevelopments and considerwhether the changes willprovide increased certainty asto potential liabilities in alucrative but developing sector.


Outliningpossible

reforms to come?

The formal group litigation order(GLO) procedure is used by courts inEngland and Wales to managemultiple claimant disputes, such asmight for example arise as result fromuse of an allegedly harmfulpharmaceutical product. The currentGLO provisions have been around for15 years, having been introduced inthe 1998 Civil Procedure Rules.

The GLO is an ‘opt in’ mechanism,requiring that each individualclaimant must elect to take part in thelitigation. This contrasts with thestereotypical US class action -pursued by attorneys taking a share inthe damages via a contingency fee -in which a class of claimants isdefined and any individuals caught bythe definition are included unless theyactively ‘opt out’ of it. If an ‘opt out’claim succeeds, it then follows thataggregate damages, for the wholeclass, would be awarded; as opposedto the individualised awards made ina successful ‘opt in’ GLO.

The European Commission andParliament have been debatingpossible approaches to multipleclaimant disputes for a number ofyears under the ‘collective redress’heading. The two targets of this workwere consumer issues and marketabuse/antitrust. National solutionswere examined and ideas for possiblehorizontal cross-EU approaches werecanvassed. In early stages, businessand insurers raised concerns aroundthe adverse risks of European classactions and aggressive litigationimpacting on the economy.

Around the same time, the Office ofFair Trading had consulted on avariant of collective redress for claimsin the UK financial services sector andthe resulting draft legislation enteredParliament. Despite this fairly solid

policy grounding, the legislativeproject was to founder in the run upto the 2010 general election.

Some three years on, this topic seemsto have found some renewed traction.The Commission’s June 2013communication Towards a EuropeanHorizontal Framework for CollectiveRedress sets out some principleswhich Member States should adopt,but it does not recommend cross-EUharmonisation. The approach is acautious one and recognises the needto improve access to justice forEuropean citizens while avoiding aUS-style system of class actions andthe potential risks of frivolous claimsand abusive litigation. The pace ofchange is still fairly leisurely, withMember States having two years totake action.

How group claims are funded hasalways been of central importance inEngland and Wales, with Legal Aidsupport for many high-profile drugand other product group claims at theend of the 20th century being notableexamples. Funding the legalrepresentation and the potentialliability for the other side’s costs maypresent serious difficulties for potentialclaimants. The Jackson reformssought to broaden access to justiceby authorising Damages-BasedAgreements (DBAs), which areessentially a variant of contingencyfees. And in personal injury claims atleast, liability for adverse costs hasbeen all but removed with theintroduction of Qualified One-wayCosts Shifting (QOCS).

Despite that, there is still a good dealof concern in practice about the finedetail of the rules and regulationswhich sit behind these changes ofprinciple. Hence there has been no‘big bang’ of mass product claimsfunded using DBAs and protected byQOCS. However, if the DBAregulations are made more workable- as seems fairly likely - then we maywell see contingency fee litigationtaking a hold in product liabilityclaims in England and Wales (as well

as in other types of case).

Other areas for claims

Cuts in legal fees arising from moremainstream injury work - road trafficand employers’ liability claims - couldcause firms affected to look to otherareas perceived as more lucrative,such as product liability cases. So, asthe latest round of reform to costsand to litigation funding bite, thesubtle drivers involved in pursingproduct claims generally and grouplitigation in particular will change. Inthis post-Jackson world, the range ofsuccessful approaches to defendingclaims will also have to evolve.

Alistair KinleyPartner and head of policydevelopment

Brand andreputation

management in thedigital age

Social networking sites, forums,comparisons sites and other onlinespaces provide ample opportunity forcompanies to communicate theirbrands. The fast and global methodsof communication facilitated by theweb mean that damage to a brand’sreputation can be swift and far-reaching. This article considerswhether the law of defamation affordscompanies a meaningful remedywhen their brand’s reputation hasbeen damaged online.In the UK the law as it currentlystands provides that a company canonly sue for defamation if the wordscomplained of reflect on its tradingreputation or on the way of itsbusiness. At present there is norequirement for a company to provethat it has suffered financial loss as aresult of the defamatory publication.This will change when the Defamation




Act 2013 (the Act) comes into forcein late 2013. Section 1 of the Act willintroduce a requirement that astatement must have caused seriousharm to a business for it to bedefamatory. In order to meet the‘serious harm’ requirement, abusiness, defined in the Act as a‘body that trades for profit’, will haveto show that the statement hascaused or is likely to cause it ‘seriousfinancial loss’. Meeting thisrequirement will involve eitherestablishing an unbroken chain ofcausation between the defamatorycontent and a subsequent loss ofincome, or proving that the value ofthe company or its assets has sufferedas a result of the statements made.

The UK courts take a straightforwardapproach to jurisdiction. Under UKlibel law, the tort is committed in theplace where the publication isreceived by the hearer, reader orviewer. This means that if material isposted on a blog in Mozambique, butaccessed by a person in England, thetort is committed in England (see thecase of Dow Jones & Co Inc vGutnick [2002]).

So, who to pursue?

In terms of identifying your opponent,it is possible to sue anyoneresponsible for publishing thedefamatory statement, including theauthor, editor, publisher and, incertain circumstances, the distributor.The host of the website on which thematerial has been posted, the internetservice provider (ISP), is treated as apublisher of the defamatory statementand is often the first port of call whentrying to identify an anonymous posterof defamatory material. If the ISPdoes not co-operate, it is possible toapply to court for an order that theISP reveals the poster’s details.

Historically, Section 1 of theDefamation Act 1996 and Regulation19 of the Electronic Commerce (ECDirective) Regulations 2002 havemeant that ISPs could not be directlyliable for defamatory user-generated

content provided they did notparticipate in its initial publication. Ifa complaint was made, the ISP couldchoose to remove the offendingmaterial, thereby avoiding liability. Ifthe material remained on the websitefollowing notification of a complaint,the ISP assumed responsibility forpublication and could face a claimfor defamation. In Tamiz v Google Inc[2013] the Court of Appeal held thatGoogle would not necessarily havean unassailable defence undersection 1 of the Defamation Act 1996and that it was arguably a publisherat common law once it had beennotified of the comments that hadbeen posted on Google Inc’sblogging platform. Ultimately theappeal failed on the grounds that anypotential liability was so trivial as notto justify the maintenance of theproceedings (Jameel v Dow Jones &Co Inc [2005]) but the decisionconfirms that it is possible tosuccessfully sue an ISP in relation todefamatory user-generated content.

And, how to defend?

The extent to which ISPs will be liablein these circumstances will changedramatically when section 5 of theDefamation Act 2013 comes intoforce (which is predicted to be later in2013). Section 5 provides that wherean action is brought against theoperator of a website in respect of astatement posted on a website, it willbe a defence for the operator to showthat it was not the operator whoposted the statement on the website.

The defence can be defeated if theclaimant can show that it was notpossible for them to identify theperson who posted the statement, theclaimant gave the operator a noticeof complaint in relation to thatstatement and the operator did notrespond to the notice of complaint inaccordance with the Defamation(Operators of Websites) Regulations2013. These regulations are currentlyin draft form and are the subject of aconsultation. Once enacted, it ishoped that they will provide certaintyfor prospective claimants and websiteoperators alike.

The introduction of the ‘seriousfinancial harm’ test is likely to make itharder for companies to bringdefamation proceedings. It is alsoworth remembering that a courtcannot compel the defendant topublish an apology or a retraction. As an alternative to bringingdefamation proceedings, somecompanies are finding inventive waysin which to counter negative brandsentiment. For example, when Coca-Cola was targeted by a site calledKillerCoke, alleging that it mistreatedits workers in Columbia, the brandused pay-per-click advertisements todirect users to a specially constructedsite giving its side of the story. Othercompanies have sought to enter intoa collaborative dialogue withbloggers and social network users,via brand-owned or third-party socialmedia platforms.




Mitigating lossand claiming

damages

Manton Hire & Sales v Ash ManorCheese Co Ltd [2013] EWCA Civ548

The above case demonstrates that aclaimant has a duty to take allreasonable steps to mitigate its lossand it is debarred from claimingdamages in respect of any loss whichis due to his failure to take suchsteps.

Background

Manton Hire & Sales supplied aforklift truck to Ash Manor Cheese CoLtd under a financing arrangement atsome point in 2010. Prior to theagreement, a representative ofManton attended the Ash site in orderto take measurements of the rackingarrangements within which the forkliftwould be required to work. Manton

then recommended two models ofwhich Ash chose the cheaper option.

Manton purchased the truck from aseparate manufacturer and then soldit to Albury Asset Rentals Ltd who inturn let it to Ash for a period of 60months. However, upon using thetruck for the first time Ash found thatit did not fit within the rackingarrangements and therefore Ash tookthe view that it was not fit forpurpose. There followed somediscussion between Manton and Ashas to potential remedies and,importantly, Manton offered to modifythe truck to make it fit for purpose(essentially by reducing thedimensions of the truck). Ash declinedManton’s offer and accordingly itrejected the truck and stopped allpayments.

As a result, Albury brought a claimfor the amount due under thecontract and relied, rightly, on anexclusion of liability clause within itsagreement with Ash. It was acceptedthat Albury was entitled to the full

amount under the contract. ThereforeAsh joined Manton into theproceedings and sought from it anindemnity in respect of its liability toAlbury.

Judgment

It was accepted that (1) Manton hadimpliedly represented that the truckwas fit for purpose, (2) Ash wasentitled to rely on this representation,and (3) Ash had entered into the hireagreement in reliance on suchrepresentation. The only issue to bedetermined by the Court of Appealwas whether Ash had failed tomitigate its loss by refusing to acceptManton’s offer to have the forkliftmodified.

On this point the trial judge had heldthat Ash had not been unreasonablein refusing to accept Manton’s offer.Manton, the appellant, appears tohave accepted that its first and onlyoffer of modification was imperfect;the extent of the modification wasunclear and there was noconfirmation that the proposal wouldcomply with the relevant legislation orstatutory regime or that Manton hadAlbury’s consent as the owner of thetruck. Hence, the Court of Appealagreed that Ash had not actedunreasonably in rejecting such anoffer.

Manton, however, argued further thatAsh should have at least invited afurther more detailed offer or shouldhave permitted Manton to make one.The Court of Appeal did not agreewith this argument. It was notunreasonable for Ash to viewManton’s unparticularised proposalswith scepticism. The proposals wereinadequate and unconvincing.Manton was the expert so it was forManton to satisfy Ash that theproposed modifications wereadequate in all respects. Further, thetone of Manton’s correspondence was‘combative’, which perhaps excusedAsh’s ‘apparent intransigence’ in itsown correspondence.


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SummaryReputation risk is a complex issue,

increasingly so in the digital age.

Companies of all sizes should seek to

manage reputation risk proactively by

engaging their legal, communications

and operational teams before a crisis

hits. Every individual in the organisation

should understand why and how to

identify a threat to corporate reputation.

Ideally, the issue would then be

escalated to a dedicated reputation risk

manager to determine the most

appropriate response. Protecting

reputation through defamation law is

therefore only one component of what

should be a broader strategic approach.

Rachel Donoghue

Solicitor


Importantly, the court found that Ashhad not shut the door to the makingof any other or better proposal andthere was nothing to stop Mantonputting forward a more detailedproposal. It ‘behoved Manton to putforward a properly formulatedproposal which Ash could notreasonably refuse’.

Comment

There will be times when there is anobligation on a claimant to take theinitiative to take all reasonable stepsto mitigate its loss since it can onlyrecover such part of his loss which hehas not failed to mitigate. As above,it is debarred from claiming damagesin respect of any loss which is due toits failure to take such steps.

Each case will of course turn on itsown facts but in some circumstancesa claimant might be expected toinitiate and to continue negotiations,albeit there was not such anobligation in the present case (since,among other things, Manton was theexpert, not Ash).

The above decision shows us at theleast that if a defendant puts forwarda sufficiently detailed proposal then itmight be unreasonable for a claimantto reject such an offer. If it does rejectthe offer then it may have failed tomitigate its loss and would not beentitled to part, if not all, of its claim.Any such proposals should thereforebe considered carefully before beingput forward.

Daniel WestSolicitor

Product liabilityand secondaryvictims: policy andpragmatism

If a claimant suffers physical injury asa result of the defendant’s breach ofduty then as well as compensation forthe physical injury, the claimant canalso recover for any emotionaldistress resulting from it. But whatabout members of the injuredclaimant’s family? They might phonefor an ambulance, accompany theclaimant to hospital or see theclaimant in distress and undergoingtreatment. What if, as a result ofseeing a loved one’s suffering causedby the defendant’s defective product,the family member himselfexperiences mental suffering? Canthe family member also bring aclaim? This article considers whetherany principles can be discerned.These principles are likely to be thesame in claims in common lawnegligence and under the ConsumerProtection Act 1987 (CPA).

Step one – injury

In common law negligence,compensation can be awarded fortwo categories of mental distress:

1 Where there is physical injury.The claimant can recover formental distress flowing from thephysical injury. This does notneed to constitute a recognisedpsychiatric injury;

2 Where there is no physical injury.The mental distress must amountto a recognisable psychiatricillness.

Step two – liability and controlmechanisms

In Alcock v Chief Constable of SouthYorkshire Police [1992] 1 AC 310, theclaimants were relatives or friends ofspectators involved in theHillsborough football stadiumdisaster. For Lord Oliver proximity waskey:

In my opinion, the necessaryproximity cannot be said to existÂ




where the elements ofimmediacy, closeness of timeand space, and direct visual oraural perception are absent.

In White v Chief Constable of SouthYorkshire Police [1999] 2 AC 455,Lord Hoffmann summarised theAlcock control mechanisms:

1 The plaintiff must have close tiesof love and affection with thevictim. Such ties may bepresumed in some cases (egspouses, parent and child) butmust otherwise be established byevidence.

2 The plaintiff must have been

present at the accident or itsimmediate aftermath.

3 The psychiatric injury must havebeen caused by direct perceptionof the accident or its immediateaftermath and not upon hearingabout it from someone else.

Walters: a seamless tale

In North Glamorgan NHS Trust vWalters [2002] EWCA Civ 1792, theclaimant suffered a psychiatric illnessas a result of witnessing theconsequences of the negligenttreatment of her son. The son sufferedan epileptic seizure. The followingday the claimant was told that the

son’s brain damage was so severethat he would have no quality of life.The claimant decided that thedeceased’s life support should beterminated. The deceased died in theclaimant’s arms approximately 36hours after the seizure. At firstinstance, the judge held that theclaimant was entitled to recoverdamages for psychiatric harm. Thedefendant appealed on the groundthat the 36-hour period could not inlaw amount to a single horrifyingevent. The Court of Appeal dismissedthe defendant’s appeal. Ward LJconcluded that:


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Ê


… there was an inexorableprogression from the momentwhen the fit occurred as a resultof the failure of the hospitalproperly to diagnose and thento treat the baby, the fit causingthe brain damage which shortlythereafter made termination ofthis child's life inevitable and thedreadful climax when the childdied in her arms. It is aseamless tale with an obviousbeginning and an equallyobvious end. It was played outover a period of 36 hours,which for her both at the timeand as subsequently recollectedwas undoubtedly one drawn-outexperience.

Taylor: distinguishing the event fromits consequences

In Taylor v A Novo (UK) Ltd [2013]EWCA Civ 194, the claimant’smother was injured when a stack ofracking boards fell onto her. Aboutthree weeks later she collapsed anddied due to deep veinthrombosis/pulmonary embolismcaused by injuries sustained in theaccident. The daughter witnessed themother’s death and suffered PTSD.At first instance, the judge held thatthe claimant daughter was entitled toclaim damages as a secondaryvictim. The Court of Appeal found inthe defendant’s favour. In order tosucceed, the daughter had to showthat there was a relationship ofproximity between the defendant andherself. Lord Dyson MR consideredthat there was a single event (thefalling of the stack of rackingboards) which had twoconsequences: 1. the deceased’sinitial injuries; and 2. her death.

If the daughter had been in physicalproximity to her mother at the timeof the accident and had sufferedpsychiatric illness as a result ofseeing the accident, she (thedaughter) would have qualified as asecondary victim. But to allow the

claimant daughter to recover here‘would be to go too far’.

If the mother had died at the time ofthe accident, and the daughter didnot witness the death, but sufferedshock when she came on the sceneshortly after the ‘immediateaftermath’, the daughter would nothave been able to recover becauseshe (possibly only just) would fail tosatisfy the physical proximity controlmechanism. The death of theclaimant’s mother was not therelevant event for the purposes ofproximity. Lord Dyson explained theparadigm example of secondaryvictim claim: an accident which:

1 more or less immediately causesinjury or death to a primaryvictim, and

2 is witnessed by the claimant.

In such a case, the relevant event isthe accident. It is not a laterconsequence of the accident.

Principles

Consider:

1 Has the claimant suffered apsychiatric injury (rather thanmere distress)?

2 There must be reasonableforeseeability. But reasonableforeseeability is not enough. Thecontrol mechanisms also apply.

3 The control mechanisms:

n What is the relationship betweenthe injured claimant and thesecondary victim/familymember? Are they close enoughthat a close relationship can bepresumed?

n When did the breach of dutyoccur? Identify the relevantevent. What was the secondaryvictim’s proximity to the relevantevent? Can the consequences ofthe relevant event be separated

into two distinct elements suchas in Taylor? Or is the casemore like Walters, were thebreach of duty, the claimant’ssuffering and the secondaryvictim/family member’spsychiatric injury all belong toone seamless tale?

n Was the secondary victim/familymember present in theimmediate aftermath?

Cases in which relatives of theinjured claimant seek damages fortheir distress are likely to be factspecific. The jurisprudence which hasgrown up has tended to focus onsingle accidents or clinicalnegligence. Fault which results in adisease or harm, such as foodpoisoning, do not easily fit into theparadigm. In considering liability,identification of the relevant event,and examining the family member’sproximity to it, are likely to be key.The common element appears to bethe prominence of policy. As LordDyson MR said:

the concept of proximity dependsmore on the court’s perceptionof what is the reasonable areafor the imposition of liability thanany process of logic.

Malcolm KeenSolicitor

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Welcoming Macmillan also means that we come to the end of a three yearpartnership with Barnardo’s. Together, we have raised around £100,000, had a lotof fun with events like Store Wars and most importantly helped them reach some ofthe most vulnerable children. We wish them all the best with their vital work.

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