27 February 2007
Sydney, 27 February 2007: Don't ignore product liability risks in Asia, but don't be unduly alarmed about becoming embroiled in litigation. That's the message for manufacturers and insurers following a benchmark survey of product liability risks in the Asia Pacific region.
Over the past three years, Dr Jocelyn Kellam[1] a partner at Australian law firm Clayton Utz, has been investigating the issue of whether a decade of product liability reform throughout the region has created the conditions for litigation in the area to take off.
Notwithstanding a slow start, product liability litigation has become quite well established in several jurisdictions. In Australia, there are more than 25 judgments regarding the product liability reforms to the Trade Practices Act introduced in 1992.
In Japan, there are at least 21 reported (as well as many unreported) decisions under the Product Liability Law. Elsewhere in Asia, there have been at least two cases of prominence. In Phillips v Ciba-Geigy (HK) Ltd in 1997 a timpanist with the Hong Kong Philharmonic Orchestra was awarded in excess of $HK18 million damages, excluding interests and costs, after exposure to a chemical at the Hong Kong Academy for Performing Arts.
More recently, in Singapore, the case of Andrea Heidi De Cruz v Guangzhou Yuzhitang Health Products [2003] achieved attention when a prominent actress suffered liver failure after consuming Slim 10 capsules, a popular brand of slimming capsules.
Despite these cases and some anecdotal 'hot spots', Dr Kellam says the survey results suggest that neither manufacturers nor insurers need be unnecessarily concerned that the burgeoning middle class of Asia is about to mirror their US and Australian counterparts by being quick to litigate over defective products.
Dr Kellam says that while greater awareness of consumer rights has certainly contributed to a growing litigation culture in the region, there has not been the explosion in claims that some commentators had predicted.
"The survey indicates a creeping rise in product liability litigation throughout the region but only some jurisdictions are potential liability hotspots," says Dr Kellam. "Overall most companies don't face an imminent threat even though there are reports that insurance premiums have increased to reflect the changes and the conditions and exclusions of cover have been tightened. However these trends, as well as an increase in rates of settlement, are not so much a result of the reforms but rather are due to other factors such as increased awareness by consumers of their rights."
Dr Kellam says what the survey does show is that the Asian experience with product liability litigation is likely to follow that of Europe, as revealed by a survey of European companies concerning their views on litigation and product safety conducted by international law firm Lovells between 2001 and 2003 on behalf of the European Commission.
"As with the European survey, the increase in claims is measured. While the insurers canvassed in my survey had a greater sense of an increasing trend in both claims and settlements, manufacturers were less clear. In fact, 78% of the manufacturers who responded to the survey reported that they had not experienced any claims.
"However insurers did report a greater focus on monitoring manufacturers' risk management strategies and quality checks as a result of the increased potential exposure."
Dr Kellam says the results of the two surveys suggest that the US must be considered on a stand alone basis when it comes to assessing product liability risk. "One conclusion that can be drawn from our survey and that conducted by the EC is that the US experience is not being replicated in either the Asia-Pacific or Europe so the US remains the global product liability anomaly."
Dr Kellam says although the results of her survey suggest that manufacturers and insurers operating in the region can breathe more easily, they still sound a note of caution. "While a claims increase of under 20% despite widespread law reform probably indicates that the majority are doing the right thing and taking adequate steps to manage their potential risk, the potential for claims still exists so it is not a risk that can be ignored," says Dr Kellam. She also notes that the small increase reflects the fact that a change in the law does not change the number of accidents.
"For example, insurers report an increase in the number of claims alleging defective design, manufacturing defects and 'failure to warn' following the reforms.
"With an increased awareness of rights, attitudes to litigation are also changing."
Dr Kellam says the survey revealed Japan and Korea as the 'hotter' spots for claims "and we continued to hear that a rising trend is expected to emerge in China".
"My feeling is that in terms of the maturation of the product liability cycle in the Asia Pacific region, we could argue that currently it is in its adolescence - or a 'little bit pregnant' - with all of the unpredictability that that can bring."
Dr Kellam says although certain claims and jurisdictions are perceived to carry more risk, that risk can be managed with careful planning. "There is no doubt that insurers are learning from their US experience elsewhere and factoring in a more stringent regime already in the region."
[1] Dr Jocelyn Kellam is a commercial litigator with a particular interest in insurance, product liability and product regulation. Holding a PhD in comparative product liability law, Jocelyn has a significant litigation practice defending and settling product liability suits (including class actions) and regulatory prosecutions. She is also one of Australia's leading regulatory lawyers, particularly in the food and pharmaceutical areas. She has unique experience in relation to product recalls having been centrally involved in some of Australia's largest recalls.
