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Businesses operating in the life sciences sector, whether they are manufacturing medical products for onward supply or selling medical products to consumers, must ensure that such products are safe and comply with the relevant regulations.
In the UK, product safety is governed by a wide legal and regulatory framework, with certain high-risk products, such as medicines, being subject to additional rules.
For medicinal products, failure to comply with such laws and regulations can lead to:
- Civil liability based on:
- strict liability under the Consumer Protection Act 1987 (the CPA);
- negligence under the common law of tort, and
- Breach of contract (where there is a contractual relationship between the parties);
- Criminal liability:
- Under the General Product Safety Regulation, SI 2005/1803 (the GPSR), which provides that it is a criminal offence to place an unsafe product on the UK market or
- Under the Human Medicines Regulations 2012 (the HMR), which, among other things, set out specific rules for the advertising of pharmaceuticals, breach of which can result in fines and imprisonment.
Therefore, businesses should have a clear understanding of their legal responsibilities to the end users of the products they manufacture and bring to market and other entities in the supply chain.
Understanding those responsibilities will allow businesses to mitigate their exposure to civil (and potentially criminal) liability and minimise the risks of reputationally damaging product recalls or high-profile claims.
This article summarises some key aspects of the product liability regime relevant to the life sciences sector before considering how appropriate provisions in contracts can help manage the risks associated with product liability claims.
Product liability: summary of key aspects of the regime
Statutory liability for defective products: The CPA is the principal UK legislation governing liability for defective medical products.
Under the CPA, a claimant must prove that:
- The products were ‘defective’ - this occurs when the safety of the product is not as expected, taking into account a number of factors such as the marketing of the product, the instructions for use or warnings provided, and what might reasonably be expected to be done with the product).
- They have suffered damage – this can include death, personal injury or damage to property caused by the defective product.
- A causal link between the defective product and the damage suffered.
In light of the above, businesses should consider:
- Which entities in the supply chain can incur liability? Under the CPA, producers, importers, and any entity that puts its name on the label of the product or uses a trademark in relation to the product can be potentially liable. Claimants will generally pursue the manufacturer as a priority or the importer or supplier if they are based overseas.
- What defences (if any) are available in response to a product liability claim – under the CPA, there are several defences available, including, for example, the defence that the defect did not exist in the medical product at the time of supply.
Other bases for a claim in respect of defective medical products
Alongside the statutory regime governed by the CPA in respect of defective products, liability can also be incurred in respect of products under a common law claim in negligence – which would be based on the argument that the manufacturer had failed to satisfy a duty of care to the user of the product – or a claim for breach of contract brought by the buyer of the product.
Who can enforce: Legal action can be taken by enforcement agencies or consumers themselves. In the UK, Trading Standards are responsible for the majority of safety enforcement, but medicines and medical devices have their own enforcement body in the Medicines and Healthcare Products Regulatory Agency (MHRA). The MHRA possess a wide range of powers under the UK Medical Devices Regulations 2002 and the Medicines and Medical Devices Act 2021, including the power to:
- Enter and inspect premises, examine manufacturing procedures and testing arrangements, and to inspect and take copies of relevant documents;
- Order corrective action including recalls, retrofit of a device, safety alert device and forfeiture and can impose civil sanctions for non-compliance; and
- Impose immediate enforcement actions where necessary to protect public health.
Using contracts to manage product liability risks
Since product liability risks are a consideration for all of the entities involved in the supply chain of medical products, it is important for any business entering into a contract relating to the manufacture and/or supply of medical products to ensure that the contractual provisions on this issue provide for an acceptable allocation of risk and exposure.
Key issues to bear in mind from the outset when considering such arrangements include:
- Product warranties – in any manufacturing contract, the manufacturer will have an interest in limiting the warranties it provides in respect of the medical products (or, where it provides more extensive warranties, ensuring that it prices the product accordingly and is confident that the warranties will be satisfied), whereas the customer will seek to ensure that the contractual warranties are sufficiently robust;
- Caps and exclusions of liability – the manufacturer of a product is likely to seek to control its exposure to claims from its customer using contractual caps and exclusions of liability. These provisions should be carefully drafted/reviewed since a range of legal considerations are relevant to deciding whether they will be effective if a party seeks to rely on them in response to a claim, including those set out in the Unfair Contract Terms Act 1977;
- Indemnities – since product liability claims can be brought by the end user of the product against one or more of a range of entities involved in the supply chain, indemnities in the contracts between the different supply chain participants can be used to ensure that liability for such claims rests with the entity responsible for the relevant defect. For example, the distributor of a product may wish to obtain an indemnity from the manufacturer to ensure that, should the distributor suffer a product liability claim as a result of a defect arising from the manufacturing process, it can back that liability off in full against the manufacturer. The manufacturer may want to negotiate any such indemnity to ensure that it covers only those matters giving rise to the defect for which the manufacturer is itself responsible;
- Insurance – a customer is likely to seek assurance from the manufacturer of a product that the manufacturer holds appropriate product liability and public liability insurance policies to cover its potential liability to the customer (including, for example, liability under any indemnities which the customer has been able to negotiate). At the same time, any party committing to hold specified types or levels of insurance in a contract will need to ensure that the commitments it gives in the contract are, in fact covered by the policies it holds;
- Product recall – it is prudent for parties to a manufacturing contract to consider their respective roles and responsibilities (including any responsibilities undertaken in respect of third parties) in the event that a product recall becomes necessary as a result of a serious consumer safety issue.
The contractual measures discussed above can be used to mitigate product liability risks (and allocate those risks between the parties), complementing other measures used by manufacturers to control exposure, such as the use of insurance and, of course, the implementation of operational quality assurance measures to ensure that defects do not occur in the manufacturing process, and are swiftly identified and managed if they do.
How we can help
We have experience in preparing model forms of agreement for use by businesses operating in the life science sector and by entities at each level of the supply chain and in negotiating such contracts for clients.
We can also advise on the obligations of manufacturers (and other supply chain participants) under the product liability and safety regimes and on handling product liability claims.