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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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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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