Dr Dominik Moser specialises in national and international corporate transactions, particularly in the areas of M&A, private equity, joint ventures and venture capital, with a particular focus on the IT, technology, biotechnology and pharmaceutical industries. Beyond that, he has extensive experience in the area of search fund transactions. Dominik Moser also regularly advises on general company law (in particular limited liability company and stock corporation law), corporate governance, compliance, and national and international transformation processes. In addition to his legal training in Germany, Spain, England (Oxford) and Singapore, he also holds a degree in business administration.

"The Corporate/M&A practice, with a particular focus on private equity, is a key growth area for our firm. In Dominik Moser, we are not only gaining an outstanding lawyer, but also a strong entrepreneurial personality. His in-depth industry knowledge and strategic vision are an excellent addition to our partnership," says Dr Guido Krüger, Managing Partner of ADVANT Beiten.

As recently as early September, ADVANT Beiten expanded its visibility on the European market and its advisory services for cross-border transactions by opening a new office in London with Sebastian Diehl. The addition of Dominik Moser is a further step in the consistent implementation of ADVANT Beiten's growth strategy, namely to invest specifically in future-oriented areas of consulting and to strengthen the partnership with proven market personalities.

Dominik Moser on his transfer: "I am looking forward to further expanding the M&A practice, with a particular focus on private equity and search fund transactions, and to working with my colleagues to deepen ADVANT Beiten's international advisory services. In my view, the excellent professional environment and broad expertise offer an ideal starting point for these goals."

PR

Frauke Reuther
Manager Communication
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

These tariffs affect all sectors, but one of the most affected in Europe is the automobile sector, particularly in Germany: cars will now be taxed at 25%. The most affected sector in France are aeronautics, with 7.9 billion euros of exports in 2023, pharmaceuticals with 4.1 billion euros in 2023 and alcohol (especially wine) with 3,9 billion.

In addition, differentiated and higher tariff rates will apply on goods from the French overseas territories: Guadeloupe, Mayotte, Guyane and Martinique will be subject to a 10% tax in addition to the 20% levied on the rest of France, while Réunion will be subject to a total tax of 37%. Tariffs of 50% will be imposed on products from Saint-Pierre-et-Miquelon and 10% on those from French Polynesia, as these islands have not been considered part of the EU by Trump.

Commission President Ursula von der Leyen said she was ready to negotiate but was also ready for confrontation if necessary to assert the EU's interests and values. She said that the Commission is working on countermeasures. Several European heads of state are also working on measures to be adopted.

ADVANT has a team of international trade and national security attorneys, and government relations professionals ready to help European companies. Our dedicated team has decades of experience supporting clients across a range of industries – ranging from steel, chemical, rubber, mining, and agricultural products.

Prof. Dr Rainer Bierwagen
Christian Hipp
Dr Dietmar Reich
Gábor Báthory

The Forced Labour Regulation is explicitly not intended to create any additional human rights due diligence obligations for economic operators that are not already provided for in Union or national law. Rather, the Forced Labour Regulation is intended to complement the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D), which is to be transposed into national law by mid-2026, and the human rights due diligence obligations for certain (large) EU and non-EU companies to be introduced by mid-2027 at the latest (cf. our German blog post from March 18, 2024: EU Supply Chain Act: Agreement and agreement text | ADVANT Beiten) or alongside the German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG, see the commentary on the LkSG by Depping/Walden). In contrast to the aforementioned "due diligence laws", the Forced Labour Regulation contains a general ban on products made with forced labour (see our German blog post from 14.03.2024 EU Regulation banning forced labour is coming (and EU Supply Chain Act perhaps still?) | ADVANT Beiten). In order to avoid the sanctions that could be imposed in the event of a breach of the ban, the companies concerned have an economic incentive to ensure that the products they sell are not made with forced labour.   

1. Rules for economic operators, the Commission and the Member States

The ban is aimed at economic operators. This is any natural or legal person or association of persons who places or makes available products on the Union market or exports products, regardless of their registered office, company size, sector or similar. In future, the authorities designated by the Member States or the Commission will monitor whether economic operators comply with the obligations under the Regulation - i.e. not placing on the market, not making available and not exporting the relevant products.

For cooperation and communication between the authorities and the Commission, the Commission coordinates the work on the Union network. The Commission provides a website, the forced labour single portal. In particular, helpful information is to be published on this portal. This includes, for example, guidelines still to be drawn up by the Commission (including with regard to due diligence obligations in relation to forced labour), a database still to be set up for areas and products with a risk of forced labour and notifications in connection with inspections and bans. The monitoring authorities are going to use these, for example, to transmit data in connection with investigations.

2. Official investigations

In future, economic operators must be prepared for preliminary and main investigations and field inspections by the competent monitoring authorities. As part of the preliminary investigation, they must provide the competent monitoring authority with documentation on their measures to identify, prevent, mitigate or even end the risk of forced labour in their operations and supply chain at short notice. If there are reasonable grounds for suspicion, the authority will initiate a main investigation, which is accompanied by in-depth inspections. The authorities should apply a risk-based approach to the investigations. They use information from various sources and apply the following criteria:

• the scale and severity of the suspected forced labour, including whether forced labour imposed by state authorities could be a concern.
• the quantity or volume of products placed or made available on the Union market.
• the share of the part of the product suspected to have been made with forced labour in the final product.

The lead competent authority may respond differently if it determines that the product under investigation was produced with forced labour. Depending on the product and the type of violation, it can, for example, prohibit the placing on the market or making available of the product or request the economic operator to prove that forced labour in the supply chain has been eliminated within a certain period of time. Fines can also be imposed.

The Commission is responsible if the suspected forced labour takes place outside the EU. If the forced labour takes place on the territory of a member state, the authority there has lead responsibility. They may cooperate with other competent authorities and request information.

3. Challenges for economic operators

All economic operators should (also) take a critical look at the supply chain of their products with regard to the EU Forced Labour Regulation and the sanctions that may be imposed in the future for violations of the ban on forced labour (in addition to fines, in particular the ban on further distribution of the products in question). To this end, they can also make use of the tools provided by the Commission. In future, companies should monitor their supply chain and document this in order to prepare for investigations. They must be able to make their findings available within a few working days in order to be able to refute the suspicions of the respective authority that justify the preliminary investigation as far as possible. In particular, companies that are subject to the Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) can draw on their already established risk management measures and supplement them accordingly.

4. Outlook

The Forced Labour Regulation is intended to open new possibilities for the authorities to intervene in EU law, such as the detention of products, and thus take a further step towards combating forced labour. Once the Regulation has been signed by the President of the European Parliament and published in the Official Journal of the European Union, the Forced Labour Regulation will enter into force on the day after publication. It will apply three years after its entry into force, i.e. probably at the end of 2027.

Dr Daniel Walden
Prof. Dr Rainer Bierwagen
Dr André Depping

^{1 See the press release of the Counsil and the English version of the Regulation}

1. What are the risks under the Product Liability Directive?

1.1 Draft Product Liability Directive

On 28 September 2022, the European Commission published a proposal for a new product liability directive (Product Liability Directive). The proposal foresees stricter rules for manufacturers, quasi-manufacturers, importers, authorised representatives, fulfilment providers, retailers, and operators of online marketplaces in the EEA. You can find a detailed introduction to the Directive in a post by André Depping and Katharina Pöhls.

1.2 Wider scope

The new Directive will extend the personal and material scope of the current Directive and apply the thumbscrews much more tightly for entrepreneurs.

Under the current Directive, only manufacturers, quasi-manufacturers, and importers active in the EEA are strictly liable for defective products. The new draft extends the potential defendants to include authorised representatives of the manufacturer, fulfilment providers, retailers, and, under certain conditions, even operators of online marketplaces. Companies that substantially modify a product will also be liable when the modified product is defective and causes damage. In this case, the statute of limitations will restart. 
The proposal expands the scope of products covered by the Directive to include software and digital production files, such as data for 3D printers. It will also include products integrated into another product (such as navigation systems).

1.3 Defectiveness and digital components

In addition, products will be considered defective when they fall short of the safety standards the public expects. That is why product safety law standards will be taken into account when determining whether a product is defective. Increasingly, the focus is on cybersecurity. As a result, software may need updating where possible. 

1.4 Start of the Statue of Limitations

The proposal also changes the start of the statute of limitations under product liability law. In the future, placing the product on the market will not alone be decisive; the possibility to control the product after it is placed on the market will also be considered. This meshes with the relevant monitoring and maintenance obligations. The M&A process must give special consideration to this change to the statute of limitations particularly when performing due diligence.

1.5 Relaxing the burden of proof and discovery

Further, the burden of proof is extended to help claimants with presumptions when there is an obvious defect in the product under normal use. In addition, there is an obligation to provide any evidence the claimant needs to assert their claims, such as construction documents or documentation about the monitoring of the product placed on the market.

1.6 Extension of the type of compensatable damage

Further, an important aspect of the draft is the expanded definition of damage, which now includes the loss and corruption of data and removes the thresholds for maximum liability and excess. Liability for digital products will continue to apply where the software was defective when it was placed on the market and can later be remedied by a software update.

2. Which protective instruments are there?

Product liability can play a significant role, especially in the automotive, food, and consumer goods industries due to the high level of damages and the effect on the company’s reputation. The risk is extremely industry-specific and depends on both product and location. The increasing impact of the Product Liability Directive on the digital sector should not be underestimated either.

The following outlines the options available in M&A transactions to protect against claims under product liability law.

2.1 Provisions in the sale and purchase agreement (or share purchase agreement)

The vendor’s representations and warranties (“guarantees”) are a central element of the sale and purchase agreement and are often the focus of negotiations. The interests here are essentially clear: while the vendor would prefer to provide as few guarantees as possible, the purchaser has an interest in obtaining as many guarantees for as many aspects as possible from the vendor so that the purchaser can turn to the vendor for any undisclosed risks.

As product liability can present a significant risk for companies – depending on the sector –vendors normally provide guarantees for claims under product liability law in the contract. However, guarantees usually protect against unknown risks, while specific indemnities distribute known risks. Any circumstances relevant to the guarantees the vendor discloses to the purchaser prior to the conclusion of the contract are typically excluded from the warranty.

A far-reaching product liability guarantee, which ensures the economic risks for all products produced and distributed up to closing remain with the vendor, would protect the vendor against such risks under product liability law.

Variations are also conceivable, where the vendor only guarantees that there are no further product liability cases other than those known and disclosed. In so doing, the risk of dormant product liability claims would transfer to the purchaser. This is then a variation of a limited product liability guarantee.

To the extent that the parties negotiate a product liability guarantee, it is advisable to agree to a longer limitation period for product liability because such cases generally only arise after a delay.

The target company’s reserves for product liability cases must also be considered. The amount of any reserves influences more than the purchase price; where the built-up reserves are appropriate, the vendor may not assume a guarantee in product liability cases.

Where specific indemnities are provided, the question is to what extent they cover product liability claims. Specific indemnities generally only release the vendor where the parties are aware of all the risks of the target company, but there are uncertainties concerning the claims arising and the amount of any claims. Normally, the vendor will indemnify the purchaser against all tax claims and environmental damage. In contrast, such indemnification rarely – in fact, almost never – applies to product liability.

Finally, a due diligence assessment of the target company can help identify existing or imminent product liability risks. The results of the assessment form the basis of product liability representations and warranties and/or indemnities in the sale and purchase agreement. While it is not always possible to predict the extent of product liability from the technical assessment of the products produced or placed on the market, legal due diligence of customer agreements can help better assess the product liability risks. Primarily, the assessor identifies the contracts with the most important customers and analyses the relevant contractual clauses. The following aspects are of particular importance:

• Is the description of the product or service sufficiently specific to avoid uncertainty in cases of breach of contract?
• Do customer contracts contain a limitation of liability?
• Have any clauses limiting liability been effectively agreed and would they withstand judicial scrutiny in the case of dispute?
• Has the target company assumed strict liability product guarantees and, if so, for what period?
• Does the contract cover serial damage?
• Special attention should be paid to the general terms and conditions of the target company, as their effectiveness is subject to strict legal requirements. If the target company has concluded numerous consumer contracts, the hurdles for any limitations of liability in the general terms and conditions to be effective are particularly high. 
• With respect to the extension of the scope of personal use, the Product Liability Directive will also need to be assessed to see whether any significant adverse differences between the risks of liability borne by the target company and possible third-party claims exist.

2.2 Minimisation of liabilty through an asset deal

If the due diligence assessment reveals significant product liability risks facing the target company, an asset deal could be an alternative way to transfer the company. In this case, not the shares but the assets of the target company are transferred (e.g., the ownership in immovable and moveable property of the fixed and current assets). The contractual relationships do not automatically transfer. This can be an advantage where there are potentially serious risks under product liability law for the purchaser.

2.3 Product liability insurance

If the vendor is not willing to provide any guarantees, the purchaser can take over the product liability insurance of the target company or conclude new product liability insurance to ensure sufficient protection.

To minimise claims for product liability, companies can take out appropriate insurance policies to cover product liability and the costs of product recalls. The product liability model provides insurance protection for damage, caused in particular by products manufactured or supplied by the policyholder. This covers claims under the product liability law and damages for manufacturer liability under tort law.

Product liability insurance is an extension of business liability insurance and has been available since 1970. It is constantly adapted to market circumstances (1987, 2000, 2002, and 2008). These adjustments were necessary to account for developments in jurisprudence related to product liability and the modernisation of tort law. It remains to be seen whether product liability insurance will be adjusted again to account for the changes introduced by the Product Liability Directive.

Product liability insurance builds on the Insurance Contract Act (§ 102 of the VVG) and covers both damages to persons and property and consequential loss (unechte Vermögensschäden). The product liability model is just a separate insurance model, which is why the general conditions of third-party liability insurance (AHB) might apply where there are insurance law issues. Accordingly, in addition to the special provisions for product liability insurance, the special rules on exclusions in the AHB should be considered as they could affect product liability insurance.

The production programmes and activities covered by insurance protection should be recorded in as much detail as possible in the insurance policy. This helps both the policyholder and the insurer because it will be clear which production risks the insurer assumes. The detailed description should leave enough room for developments in the operational activities of the policyholder.

As regards guarantees and insurance, it is important to ensure an existing warranty does not diminish the purchaser’s interest in sufficient insurance protection for the target company. However, the guarantee in the sale and purchase agreement is subsidiary to existing insurance protection.

As a rule, the vendor normally provides a guarantee for the existence of the insurance policy disclosed during the due diligence investigation. It is therefore customary to list policies in detail in an annexe to the sale and purchase agreement. In addition, the vendor should guarantee the policies offer the level of protection customary in the sector, the premiums have been paid, there are no (unobserved) conditions which could jeopardise the insurance protection, and no other conditions which could cause the insurance protection to lapse.

In the case of group structures, the target company will generally not be insured directly but under an umbrella insurance policy that applies to various companies within the group. Where this is the case, the purchaser should pay special attention to whether the group insurance (subject to short transitional periods) ends with closing and ensure appropriate follow-on insurance is concluded.

2.4 W&W insurance

2.4.1 What is warranty and indemnity insurance?

In certain circumstances, W&I Insurances (Warranty and Indemnity) can provide a remedy in the case of claims under product liability law in M&A transactions. This insurance provides cover for the parties involved in the transaction for unknown risks because of the past activities of the target company.

In an M&A transaction, the vendor will provide certain guarantees with respect to the target company. These guarantees give the purchaser information about the status of the company and the possible liability risks. To secure both parties and accelerate the M&A process, it can make sense to conclude W&I insurance. The purchaser profits from the additional protection and having a solvent opposing party, while the vendor may be able to obtain a higher sale price for the target without assuming liability.

Generally, the W&I insurance policy is adjusted to suit the transaction. The premium will depend on the size and complexity of the deal. So-called purchaser insurance is now popular.

For the purchaser, guarantees should cover major risks. As W&I insurance works on the basis of the balance sheet on the effective date, forward-looking warranties (such as specific target turnover) are exempted. In addition, liability in the case of purchaser knowledge of disclosed circumstances, penalties and fines, pension obligations, environmental damage, and tax matters are excluded as a standard. In practice, most W&I insurance also excludes damages from product liability on a “deal-specific” basis (considering the specifics of the sector and product).

Take particular note of the definition of “product liability” in the insurance policy. Often, insurers will define “product liability case” as broadly as possible to exclude their liability in such cases. The definitions of product and product liability in the new Directive reflect such a dynamic definition, which is also used as a basis for insurance policies. This can sometimes disadvantage the policyholder if they are not vigilant.

2.4.2. W&I insurance and product liability

As explained above, W&I insurance often does not cover product liability. This is due to the nature of W&I insurance and the fact that purchasers often perform no or insufficient technical due diligence. A strategic investor will carry out such an assessment to conclude an appropriate, tailored W&I policy with the insurer in their own interests, based on the information gained.

Nonetheless, W&I insurance can offer an additional safeguard against product liability law claims. One possibility lies in taking out “top-up cover” as part of the W&I insurance. In this case, the top-up cover will be connected to an existing product liability insurance and increase the sum insured under that basis insurance. This will account for a possible breach of warranty resulting in an insurance claim under product liability insurance with damage exceeding the sum insured under the product liability insurance. W&I insurance will cover that amount of the claim which exceeds the sum insured under product liability insurance.

2.4.3 Litigation buyout insurance

Another way to insure against product liability risks in an M&A transaction is litigation buyout insurance. This allows the parties to distribute risks from potential or ongoing legal disputes. The risks can relate to the outcome of a dispute or the sum of damages and compensation awarded, and to known legal disputes or a “package” of possible legal disputes or demands. Legal costs, including lawyers’ fees, can also be insured. It is also possible to take up appeal hedges, which allow the policy-holding purchaser to insure the advantages of a favourable judgment against the possible annulment on appeal when, at the time of the deal, the judgment has only been rendered at first instance.

3. Summary

The risks of a claim under product liability law will significantly increase with the implementation of the new Product Liability Directive. There are various ways to protect against such risks in an M&A process. In addition to thorough legal and technical due diligence, which should form the basis for a transaction with a high-risk target company, the purchaser can also ask for guarantees or take out product liability insurance. W&I insurance, with top-up cover or litigation buyout insurance, can be a sensible addition to the insurance suite.

Tassilo Klesen
Olga Prokopyeva

Strict liability means product liability is a significant risk for companies. On 28 September 2022, the European Commission released a draft for a new EU product liability directive, which could significantly increase this risk for companies. The new EU directive reflects the increasing number of digital products on the market. Accordingly, the scope is expanded in several ways. For example, the directive clarifies that software is a “product” under European product liability law. Until now, this has been subject to dispute. The scope of liability for personal use has also been expanded. In the future, companies will face product liability risks where they would not have previously. The elimination of both the limits of liability and the excess increases this risk.

You must identify imminent risks and take action to safeguard against them in the best way possible. Any safeguard should have multiple levels: when drafting contracts, you should include appropriate specifications and rights of control, and allocate liability. Careful design and documented production and quality controls are essential. Above all, companies should ensure they are adequately insured and regularly review their insurance coverage, making adjustments where necessary.

Who is the producer under the Product Safety Act?

To assess the risks, it is important to identify the producer under the Product Safety Act. The term “producer” is defined more widely in the Act than one would assume from the way the term is used in everyday language. The manufacturer of the product, but also the manufacturer of any component part built into the product are both considered producers under the Act. In the future, under product safety law, a company will even be liable as a producer if they make “substantial modifications” to a product.

European importers will also be liable as if they were a producer, even if they only put their logo or brand on the imported product (so-called quasi-manufacturer). In this respect, quasi-manufacturers need to consider whether they should put their trademark or brand on a third-party product.

Manufacturers, importers, and quasi-manufacturers should ensure that, where they acquire (part)products from a supplier, their contracts contain appropriate limitations of liability and quality assurance obligations. Where the parties agree to an assumption of costs in the case of liability, the supplier should also be required to provide proof of appropriate insurance.

If numerous parties are liable to pay compensation for the same damage, e.g., manufacturer and importer, they shall have joint and several liability. The injured party can choose to seek damages from the party they prefer and will generally choose the party best placed economically. The party from which the injured party seeks damages can, in turn, demand compensation from the other responsible party(ies). In the case of international supply chains, importers can have difficulty enforcing claims against foreign manufacturers.

A distributor can even be held liable if the manufacturer can’t be identified, or the distributor fails to provide the name of the manufacturer or the manufacturer’s supplier within one month of an incident. In order to be able to provide this information in an emergency, a distributor should maintain a list of the relevant information about the manufacturer or importer. Above all, they should not distribute any products without knowing the identity of the manufacturer.

In the future, in addition to the manufacturer, quasi-manufacturer and importer, the manufacturer’s authorised representative and fulfilment service providers within the meaning of product safety law will be liable for defective products in the same manner as the manufacturer. This means economic actors, which were previously not confronted with such direct or indirect liability, must now also prepare for significant product liability risks. It remains to be seen whether the authorised representative model established under product liability law has a future in its current form if the new rules are adopted.

Definition of product

A product is a moveable that is placed on the market. Medicines expressly fall outside the scope of the directive. If moveables, such as construction materials, are integrated into a building, they will continue to be a product under the directive.

Increasing digitalisation has also impacted product liability law. In the future, European product liability law will not only apply to moveables but will also expressly apply to digital manufacturing files and software. The term software includes artificial intelligence (AI) systems. This change significantly increases the scope of product liability law.

When is a product “defective”?

A product is defective within the meaning of the Product Liability Act when it doesn’t provide the safety an average customer would expect, justifiably considering all circumstances. This will not change in the future, although new aspects, such as cybersecurity, will be added. In contrast to the definition of “defective” under commercial warranty law, the safety aspect is the sole element for a product to be “defective” under product liability law.

The proper legal safety standard for a product depends on the seriousness of the risk, i.e., the likelihood that damage will occur, as well as the expected extent of damage, the status of the legal asset concerned, and the intensity of the damage.

If the product is designed to be used by different groups of users, the safety standard must be based on the weakest user group. The price of the product can also influence safety expectations. However, even cheap products must comply with basic safety.

The product must be safe to use in any manner that can be reasonably expected: this includes the proper use, as well as any predictable or usual incorrect use. For example, children will put toys in their mouths. When conducting product monitoring, manufacturers should therefore watch for any incorrect use of their product. Normally, the manufacturer will not be liable for improper use, where that use is considered reckless in the circumstances.

Whether a product is defective under the Product Liability Act must be assessed on a case-by-case basis and will often only become clear after an expert has prepared a report for the insurer or as part of legal proceedings. In many cases, this will involve independent proceedings for the taking of evidence.

Generally, a distinction is made between the following three categories of defects:

• Production defect:
  The product differs from the standard specifications for the product series. The manufacturer will almost always be liable for production defects. They will even be liable for “outliers” which are very unlikely to occur due to elaborate quality control measures. In any case, full control of all products supplied, with careful documentation, can be enough in some cases to prove there was no production defect when the product was placed on the market.
• Construction defect:
  In the case of a construction defect, the question is whether, when the product was placed on the market, an alternative construction would have prevented the damage from occurring. From a construction perspective, therefore, the generally accepted rules of technology should be determined, observed, and documented. Where necessary, any construction changes in later series should also be assessed to limit the identified product risk or implement new technology standards. Generally, a cost/use analysis can be conducted as part of this assessment.
• Instruction defect:
  An instruction defect occurs when the consumer is not or not sufficiently informed about the method of use and related dangers. This requires an analysis of the potential hazards of a product. The manufacturer should therefore provide clear and appropriate instructions for use. In some cases, it may be necessary to place warnings (pictograms) on the product. Product packaging should also be carefully planned as the manufacturer can be liable for any misuse of the packaging. The same applies to advertisements about the product.

Where serious risks are later discovered, manufacturers must subsequently warn users about the product risks in an appropriate manner.

In any case, manufacturers are generally not required to provide warnings when the product is clearly or generally known to be dangerous, such as alcohol, tobacco, and sweets (for the risk of diabetes), unless specific laws require such warnings. The tendency in the US legal system to provide warnings for everything has so far had little influence on the European liability system.

Time of assessment

At present, the decisive point in time for the evaluation of whether the safety expectations were fulfilled is when the product was placed on the market. A product placed on the market without defects will not subsequently be defective. However, new safety standards can establish additional information and recall obligations.

In the future, placing on the market will not be the only decisive time. The manufacturer will also be liable when they can control the product after it has been placed on the market (e.g., through software updates).

Easing the burden of proof for injured parties

Generally, injured parties must prove the defect, the damage, and the causal link. They will benefit from an easing of the burden of proof: for example, prima facie evidence of the typical course of events, including life experience, will be deemed to be true. In the future, the burden of proof for injured parties will be further eased. The necessary causal link between the product defect and the damage will be assumed in favour of the injured party where the damage arose because of an “obvious malfunction of the product under normal conditions of use.” In addition, companies will be forced to provide the injured party with copies of any evidence (e.g., construction documents, documented findings from product monitoring) the company has in their possession which the other party needs to establish their claim. If the manufacturer fails to (completely) comply with this requirement, they could lose a lawsuit because the defective nature of the product will then be assumed under statute. A “disclosure of documents” inspired by the Anglo-American model, would be an innovation for German civil procedure law.

Exculpatory evidence

• The manufacturer must prove all circumstances that could exclude their liability. The Product Liability Act provides various scenarios in which a manufacturer would not be liable, despite the defect, if they can prove the relevant facts: the manufacturer did not manufacture or distribute the product for sale to make money or within the framework of professional activity.
• The manufacturer, importer or quasi-manufacturer did not willingly put the product into circulation; instead, an unauthorised third party did so.
• The product is only defective because of an unforeseen change to the established state-of-the-art technology after the product was placed on the market.
• The defect was not yet recognisable, despite the state-of-the-art science and technology when the product was put in circulation.
• The product is only defective because it was produced in accordance with mandatory legal requirements.
• If a supplier supplied a defective component and the defect only occurred during the production of the end product, the supplier of the component part shall not be liable for the damage.

These already very narrow exclusions of liability will be even narrower in the future. For example, the fact a defect is not recognisable when the product is placed in circulation will no longer exclude manufacturer liability if a software or security update could have remedied the defect. The tech industry will not be the only industry that will have to consider whether it can afford to cease security updates for older products after just a few years.

Extent of liability and insurance

The damages companies must pay in product liability cases can quickly run to several tens of millions of euros. If a product causes injury to numerous individuals, the maximum total amount of damages is EUR 85 million. There is no maximum limit for property damage, but the injured party must pay up to EUR 500 in excess. Under the new EU directive, national legislators may no longer establish maximum limits for damages or self-participation for injured parties.

The obligation to indemnify cannot be contractually excluded or limited in advance. A waiver or limitation of the obligation to indemnify can only be agreed upon with the injured party after the damage has occurred.

Claims under the Product Liability Act become time-barred three years after the injured party should have become aware of the damage, the defect in the product, and the identity of the party liable to pay damages. The claim expires ten years after the product which caused the damage was put into circulation unless measures that stop the limitation period were introduced.

Overall, despite all precautions, there is still a high long-term risk of claims under product liability law, especially for dangerous products. Such claims can even threaten the continued existence of the company. This risk will be even greater in the future. It is therefore vital your contracts shield you as much as possible from these risks. In addition, you must closely monitor both production and the products sold and carefully document all control measures. Even with the best preventative measures in place, it is not always possible to avoid product liability. Sufficient insurance against this risk is, therefore, essential. Every company that could be liable should therefore regularly assess whether the insured sum and the subject of its product or business liability insurance correspond to the existing product liability risks. As soon as you become aware of a possible liability case, you should inform the insurer or the insurance agent and agree on the next steps. It also makes sense to obtain legal advice at this early stage – insurers will often bear these costs with their approval - as this prevents mistakes which are difficult to rectify or cannot be rectified later.

Dr André Depping
Katharina Pöhls

Both objects are in central locations and are leased to German grocery retailer REWE on a long-term basis.

Glenrock International Limited is a Guernsey-based real estate investment business that focuses on property investments in Europe. Glenrock has been investing in commercial, industrial, and retail properties in Europe since 2014, partnering with institutions, high-net-worth individuals, and family offices.

Volker Szpak has been providing legal and tax advice to Glenrock International's German real estate portfolio since 2014, and already provided legal and tax advice on the purchase of the two grocery retail markets back in 2015.

Adviser to Glenrock International:
ADVANT Beiten: Volker Szpak (Corporate / M&A and Tax).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Volker Szpak
Lawyer and Tax Advisor
ADVANT Beiten
+49 69 756095-471
Volker.Szpak@advant-beiten.com

In the judgement, the 20th Civil Chamber of the Regional Court of Bonn agreed with the defendant's argument that a withdrawal from the contract could not be made without first setting a deadline.

The defendant supplier had participated in the open-house procedure of the Federal Ministry of Health for the procurement of protective equipment in the corona pandemic and delivered 2 million protective masks. According to the opinion of the 20th Civil Chamber of the Regional Court of Bonn, the defendant is entitled to the purchase price for all protective masks. According to the court, it was irrelevant whether the protective masks were defective, as the defendant was entitled to subsequent performance. However, the plaintiff had not set the defendant such a deadline for subsequent performance, so that it could not subsequently withdraw from the purchase contract for the protective equipment. Furthermore, the plaintiff could also not invoke a transaction for delivery by a fixed date. In return, according to the opinion of the 20th Civil Chamber of the Regional Court of Bonn, the defendant is entitled to the outstanding part of the purchase price, which was asserted by way of counterclaim by the defendant.

The clear ruling of the Bonn Regional Court should also strengthen the position of the other suppliers in the open house proceedings, whose claims are still pending before the Bonn Regional Court. ADVANT Beiten represents a large number of medium-sized companies in the enforcement of claims against the Federal Republic of Germany arising from contracts for protective equipment.

Advisor to Supplier:
ADVANT Beiten: Moritz Kopp (in charge, Munich), Juliane Schöttler (Frankfurt), Dr. Philipp Sahm (Frankfurt), Alexander Braun (Munich), (all Commercial/Litigation).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Moritz Kopp
Lawyer
ADVANT Beiten
+49 89 35065-1303
Moritz.Kopp@advant-beiten.com