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Court announces £20 million payout in sofa litigation - how to protect against 'toxic' damage to your brand?
30 April 2010
The ‘toxic sofas’ litigation has generated a large amount of
negative publicity for the retailers (including Argos, Homebase,
Walmsley Furnishing, and Land of Leather) who sold these sofas.
The sofas, which were manufactured in China, contained sachets
of the antifungal chemical dimethyl fumarate (DMF), which was
intended to stop the furniture from going mouldy during storage.
However, when the sachets were broken this chemical vaporised,
causing seeping skin rashes to the unfortunate sofa owners. DMF has
since been included on the list of substances explicitly banned by
the European Union (though it is in any event an offence to sell
unsafe goods).
This has given rise to what is believed to be the largest
consumer group litigation in British legal history. On 26 April,
the High Court announced that up to £20 million could be paid out
to consumers. More than 1,500 victims are expected to receive
between £1,175 and £9,000 each. Resolution of around 3,000 more
severe cases is still outstanding.
In recent months, we have seen a sharp rise in requests for
advice on compliance with EU safety legislation. We are also being
asked for practical advice about how to minimise the risk of
adverse publicity arising from the sale of unsafe goods, in
particular goods imported from China. EU statistics show that goods
originating from China accounted in 2006 for 48% of reported
product safety issues, and importers often encounter difficulties
in holding manufacturers from outside the EU accountable for their
products.
Some companies take up insurance cover against these risks, but
insurance alone is not the answer. Insurance does not cover damage
to your brand’s reputation, nor any fines resulting from selling
unsafe goods. Such fines can be substantial – for instance, Toyota
have recently received a $16.4 million fine for failing to notify
the US authorities for four months about safety issues of which
they were aware.
Reassurance against these risks can be found by having a robust
scheme of supplier terms and conditions, plus specific written
instructions, a detailed quality control and due diligence system
in line with the correct standards, and a product recall policy in
line with the recently updated EU guidance. We recommend that you
review these matters now to avoid future damage.
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