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August 19, 2016

Product Liability: Recalls and Business Impact

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Bangkok Post, Corporate Counsellor Column

A number of well-known companies have recently recalled their products from the market to fix problems or defects. Whenever a recall occurs, business suffers. First, there is the cost of implementing the recall. Second, the company’s reputation is damaged. Both of these factors result in a decreased volume of product sales.

To successfully navigate these pitfalls, companies should be aware of their legal rights and obligations. Thailand’s main laws governing product recalls are the Consumer Protection Act, the Consumer Case Procedure Act, and the Product Liability Act which is officially known as the Liability for Damages Arising from Unsafe Products Act.

Product recalls can be broadly grouped into two categories: voluntary recalls and compulsory recalls. As the name implies, voluntary recalls involve a seller or manufacturer willingly taking the products back. Compulsory recalls involve government entities forcing the seller or manufacturer to recall a product. This article discusses both types of recalls.

Voluntary Recalls

If a manufacturer or seller finds that their products have a problem or defect, they may initiate a recall to resolve the issue. They have a number of options to recall the products. This includes issuing a general announcement to the public and their customers advising on the recall, or issuing a letter directly to their customers asking them to bring the product in to be fixed.

If the defect is minor, and not too many products were sold, the seller can usually ask its customers to bring the product in to be fixed during a stated period. However, the expenses to fix the product will usually be absorbed by the manufacturers or the sellers if the products clearly show the defect because of a production or design flaw. In some circumstances, the product may have deteriorated faster than the warranty period because of customer use. In this case, some manufacturers or sellers ask customers to be responsible for paying some of the expenses to fix the products (e.g., the labor costs).

Whether to voluntarily recall products also depends on the manufacturers’ or sellers’ policies and other factors such as the market situation, a company’s budget, the image of the product, and the potential business impact. In general, a voluntary recall shows the manufacturers’ or sellers’ good faith. A manufacturer or seller is voluntarily taking their products out of the market because of a possible issue, even though the public may not be aware of the defect. Indeed, a voluntary recall generally paints the seller in a more positive light than sellers who are forced to recall goods under a compulsory recall.

Compulsory Recalls

Under Thailand’s Consumer Protection Act, Consumer Case Procedure Act, and Product Liability Act, if consumers find that the products they have purchased are unsafe, they can lodge a complaint with the Consumer Protection Bureau (CPB). They can also file a court case. In general, a potentially liable party under the law can be any individual or entity that manufactures (or authorizes the manufacturing of); assembles; imports (including any seller of goods where the manufacturer, hirer, or importer cannot be identified); uses the name, trade name, trade mark, or statements; or acts in any manner that can cause them to be seen as a manufacturer, hirer, or importer; and who sold goods after February 20, 2009 (the effective date of the Product Liability Act).

In addition, the Product Liability Act defines a “product” as any kind of tangible good that has been manufactured or imported for sale, including agricultural products and electricity, but excluding those ruled out by the ministerial regulations. Real estate and services are excluded. Therefore, real estate buyers are protected by the Civil and Commercial Code or the Consumer Protection Act.

The Product Liability Act defines “unsafe products” as being any product that actually causes or may cause damage or injury due to a manufacturing defect, design defect, lack of clear warning, instruction or other information about usage, and/or maintenance or preservation of the product.

Consequently, if any unsafe product causes damage or injury to a consumer who purchased it, regardless of whether the damage was caused intentionally or negligently by the potentially liable party, every potentially liable party will be jointly liable for the damages sustained by the consumer, with few exceptions.

Under the law, plaintiffs only need to prove that they were damaged or injured by the potentially liable party’s product, and that they had used and maintained the product properly. The plaintiff does not need to prove which potentially liable party caused the damage or injury.

If a consumer lodges a complaint to the CPB, the CPB will investigate and give both parties the chance to present evidence. If the alleged defect is related to a technical problem, the CPB will appoint an expert to consider the evidence. The expert will conduct product tests. The manufacturer or seller must absorb the costs for these tests.

If, after an investigation, the CPB finds that the product is an “unsafe product” under the law, the CPB will issue an order to force the manufacturer or seller to stop selling the product within a specific time period until they can prove that the products are not unsafe. The CPB has a policy to encourage both parties to negotiate and settle if the CPB considers that the problem is minor. The CPB may also state some additional conditions to the manufacturer or seller such as proving that the minor defect is not dangerous to consumers, etc.

If a consumer party files a lawsuit, the court fees are waived. If the court determines that the consumer party was damaged by an unsafe product, it will award damages which are not restricted to those damages stated in the Civil and Commercial Code. The court is entitled to consider other forms of compensation that are unusual in Thai law, such as damages for mental pain and suffering, etc.

In addition, the courts can order business operators to recall, destroy, or cease selling any unsafe product if the business operator fails to proceed with requirements under the law. The court may also impose conditions for those measures, such as a specific period to recall, a specific model of a product to recall, etc.

Given the potentially huge negative business impacts associated with recalls, business operators should ensure that they have in place robust quality-control measures for their production processes and their products.

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