CLVPartners

CLV-02
Menu

directive

Product liabilty rules are changing

Commercial Law, Competition law and consumer protection, News / / , , , ,

Reading time: 4 minutes

Considering modern technological developments, it has become necessary to rethink product liability regulations, as a result of which the European Parliament and the Council have adopted Directive 2024/2853 (“Directive“) on liability for defective products and repealing Council Directive 85/374/EEC. The aim of the Directive is to promote a balance between the responsibility of economic operators and a high level of consumer protection. To comply with the Directive, whose provisions must be implemented by Member States into their national legislation by 9 December 2026 at the latest, the Ministry of Justice has drafted amendments to private law, including a comprehensive review of the product liability rules of the Act V of 2013 on Civil Code (“Civil Code“). In this article, we present the new rules on product liability.

What is a product?

The comprehensive reform of EU regulations was prompted by technological developments: the spread of digital and smart devices has brought new risks, which are addressed by the Directive and, through its implementation, by Hungarian regulations. One of the most significant innovations is that, based on the Directive, the Civil Code extends the concept of a product: Under the new provisions, any movable item is considered a product, even if it is incorporated into or connected to another movable item or immovable property, including electricity, digital manufacturing files, raw materials, and software. This means that the new liability rules will apply to products placed on the market or put into service after 9 December 2026, including digital manufacturing files and software, whether they are sold as stand-alone products or integrated into other devices.

However, free and open-source software developed or made available in the course of non-commercial activities is exempt from these regulations.

Who bears the responsibility?

The basic principle of product liability is that, to protect consumers, it imposes obligations on economic operators who are responsible for damage caused by defective products. Under the new rules, the scope of persons who can be held liable is expanded, meaning that product liability may be imposed on the following economic operators:

The manufacturer of the product is primarily responsible for any defects in the product, i.e., the party who develops, manufactures, produces, labels the product as the manufacturer, or develops, manufactures, or produces the product for their own use.

If the defect is caused by an integrated component, the manufacturer of that component shall also be liable if the component was incorporated into a product under the manufacturer’s control.

If the product or its component parts originate from a manufacturer operating outside the European Union, responsibility lies with the company importing the product into the EU, i.e. the company placing the product on the EU market, and the manufacturer’s authorized representative.

If the importer or the manufacturer’s authorized representative is also not based in the EU, then the logistics service provider is responsible, i.e. anyone who offers at least two of the following services in the course of their commercial activities: storage, packaging, addressing, and shipping of a product, without owning the product in question.

The distributor shall also be liable if the person responsible cannot be identified and, at the request of the injured party, does not identify the economic operator or distributor listed above.

In addition, if a natural or legal person substantially modifies a product without the manufacturer’s knowledge or control and then distributes or puts it into service, that person is also considered a manufacturer under the law and may be liable for product damage.

A new provision is that the manufacturer of a defective product is jointly and severally liable for product damage with other economic operators cooperating with it, such as the component manufacturer or importer, so that the consumer can claim full compensation from any of them. The economic operator providing compensation to the injured party may then recourse against the other responsible economic operators.

When is a product considered defective?

A product is considered defective if it does not provide the level of safety that is generally expected of that type of product or that is required by EU legislation or relevant domestic regulations. When assessing the level of safety, factors such as the reasonably foreseeable use of the product, the date of placing on the market, and the reasonable expectations of consumers must be considered. At the same time, the mere fact that a more advanced or modern version becomes available after the product’s release—whether in the form of an update or a completely new product—does not in itself render the previous model defective. The basis for assessing a defective product is therefore not its comparison with the latest technological standards, but rather whether it provides the level of safety that could be expected at the time of its manufacture.

When can the manufacturer, importer, or other economic operator be exempt from liability?

Economic operators may be exempted from product liability under certain conditions if they can prove that the defect causing the damage did not arise within their sphere of responsibility or was not foreseeable.

The manufacturer or importer shall be exempt from liability if they can prove that they did not place the product on the market or put it into service. The distributor may be exempt if they can prove that they did not make the product in question available on the market.

Any economic operator may be exempted from liability if they can prove that the defect in the product was not likely to exist at the time of placing on the market, putting into service or distribution, or that it only arose after that time. However, this provision shall not apply if the defect of the product is related to a service associated with the product under the manufacturer’s control, to software accompanying the product (including software updates or upgrades), to the absence of software updates or upgrades necessary to maintain safety, or to a material modification of the product.

Liability shall also be excluded if the defect of the product results from compliance with legal requirements (e.g., adherence to a mandatory technical standard that caused the defect), or if the defect could not have been detected based on the state of scientific and technical knowledge at the time the product was placed on the market or put into use, or while the product was still under the manufacturer’s control.

Unchanged provisions

The manufacturer and other liable parties are subject to product liability for a period of 10 years. The injured party must still prove the defect in the product, the damage suffered, and the existence of a causal link between the defect and the damage. There is a three-year limitation period for asserting claims, which begins from the date on which the injured party became aware or could reasonably have become aware of the occurrence of the damage, the defect in the product, and the identity of the responsible economic operator.

Summary

The Directive and its domestic implementation bring significant changes to product liability regulations. With these amendments, both the definition of “product” and the scope of parties who may be held liable for damages caused by defective products are expanded. The concept of a product now includes software, digital manufacturing files, and related services, meaning that the liability framework also applies to modern, digital, and complex technologies. This implies that economic operators will need to act with greater caution and awareness in the design, manufacture, distribution, and modification of products in the future.

The aim of the new regulation is to strengthen consumer protection against modern product risks, while at the same time imposing greater liability on economic operators. In light of these changes, it is essential for the affected companies to review their operations, internal processes, contracts, and liability insurance practices.

Photo source: pexels.com, Lukas

Product liabilty rules are changing Read More »

Legislation implementing the Whistleblowing Directive is published

News / / , , , ,

On 25 May 2023, Act XXV of 2023 on Complaints and Whistleblowing and on the Rules Relating to the Reporting of Abuses (“Complaints Act” or “Act“) was published in the Hungarian Gazette, implementing the Directive 2019/1937 on the protection of persons reporting violations of EU law, i.e., the “Whistleblowing” Directive (“Directive“) into the Hungarian law. The Act has introduced the internal whistleblowing system, which allows employees (including future and former employees), contractors and owners to report information on any abuse to the system in place at the company.

Who is required to set up an internal whistleblowing system and when?

The Complaints Act will be introduced in two steps.

From 24 July 2023, the following companies will have to comply with the rules:

  • companies with at least 250 employees;
  • service providers covered by the AML Act, such as estate agents, accountants, auditors, tax advisors, lawyers, head office service providers.

Companies with at least 50 but no more than 249 employees will have to comply with the provisions of the Act from 17 December 2023. An additional relief for such medium businesses is the possible creation of a common internal whistleblowing system, reducing the administrative burden.

What are the basic obligations for employers when setting up internal reporting channels?

  • Appointment of a responsible person: companies that set up an internal whistleblowing system must designate an impartial person or department, or contract with an external organisation, a whistleblower lawyer, to operate the system.
  • Making a policy: in view of the Act, it may be essential to review existing policies and possibly amend related internal procedures (e.g. the data protection policy).
  • Disclosure: To ensure that persons entitled to report abuse are aware of the internal whistleblowing system, companies should provide adequate information on the procedures.
  • Record keeping: in order to enable the company to decide whether to disregard a notification on the grounds that it has already been examined or that it was received after the time limit specified in the Act, it is necessary to keep accurate records of all notifications received.

What are the consequences, if someone does not meet the requirements?

Compliance with the obligations related to the operation of the whistleblowing system will be monitored by the Hungarian employment supervisory authority. The authority may take the following decisions:

  • issue a warning,
  • oblige the employer to remedy the infringement, the shortcoming or the failure to fulfil the employment obligation,
  • prohibit the continued employment of an employee who has committed an infringement until the infringement has been corrected, if the infringement or its likely consequences are serious and the infringement cannot be remedied within a short time.

When setting up and operating an internal whistleblowing system, all businesses should pay particular attention to strict data protection rules. Failure to comply with data protection rules can result in financial penalties in the event of action by the national authority for data protection.

What are the potential challenges of the new requirements?

Studying the Act raises a number of practical questions, but we believe that solutions can be found. Below are a few issues that every company should consider.

Not all notifications must be checked by the employer, and there may be several cases where an investigation can be waived, such as:

  • the notification was made by an unidentified notifier,
  • the notification was not made by the person entitled to do so,
  • a repeated application was handed in by the same applicant with the same content as the previous application, or
  • the harm to the public interest or to an important private interest would not be proportionate to the restriction of the person’s rights concerned by the notification resulting from the investigation of the notification.

The employers also have to question, whether it is necessary to notify another authority or to take any further action, either when a criminal offence is suspected or in a less obvious case where a request to the competition authority is justified.

Companies must be prepared for the challenges of protecting trade secrets and data protection when registering and recording whistleblowers and incident reports. Too little information collected can impact the success of an investigation, while too much information can raise privacy concerns. So there is a need to find a middle path where sufficient, but not too much information is available to companies. The quality of the information flow should also be taken into account in the communication with the whistleblower and the persons affected by the notification, as the Act imposes a number of information obligations on companies, but the detail level of the notification issued is not indicated.

Under the Complaints Act, companies are obliged to refrain from taking any detrimential action to the whistleblower, if it is related to the complaint. Such adverse action may include, inter alia:

  • termination;
  • a demotion or refusal to promote;
  • delegation of tasks;
  • negative performance assessment or job references;
  • failure to renew or early termination of a fixed-term employment contract.

If a company applies any of those measures to an employee and the employee challenges them in court, the company must be able to prove that there was another legitimate reason for its decision.

Several groups, mainly with an international background, have already set up internal whistleblowing systems following the entry into force of the Directive. As the published text of the Act sets out requirements that are stricter, Hungarian subsidiaries that already have a whistleblowing regime in place will need to review their procedures.

If you have any questions about the above, please do not hesitate to contact us.

Legislation implementing the Whistleblowing Directive is published Read More »

The draft Hungarian legislation transposing the Whistleblowing Directive has been adopted

News / / , , ,

On the last day of February, the Government submitted a new draft law transposing Directive 2019/1937 on the protection of persons who report violations of EU law, i.e. the “Whistleblowing” Directive (the “Directive”) into domestic law. The aim of the legislation is to allow employees and contractors in companies with 50 or more employees to report abuses and breaches of law in the company without fear of retaliation and to ensure that these reports are investigated by companies according to a pre-defined procedure.

If passed by Parliament, the Bill will enter into force 60 days after its publication, so there is likely to be a short timeframe for compliance to be developed.

The draft Hungarian legislation transposing the Whistleblowing Directive has been adopted Read More »

CLVPartners
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.