Federal Supreme Court ruling on classification as a manufacturer and distributors’ duties to safeguard traffic
By Judgment of 21 March 2023 (Case No: VI ZR 1369/20), Germany’s Federal Supreme Court granted an appeal by a farmer who had brought an action seeking damages against a waste disposal company. The court’s ruling essentially dealt with the question of whether the defendant qualifies as a manufacturer and the duties of a distributor to safeguard traffic within the context of producer’s liability in accordance with § 823(1) of the Civil Code.
Facts of the case
The starting point of the case was an action filed by a farmer against a waste disposal company (the defendant). In the course of its commercial activities, the defendant had acquired a phosphate- and potassium-based fluid which was contaminated with herbicides from a third party as “waste,” which it then renamed “EC fertilizer for farming,” preparing associated product information which identified the fluid as fertilizer. It then sold the fluid as fertilizer to a distributor, through which it ultimately reached the farmer. Use of this contaminated fluid, which was labelled as fertilizer, caused damages to the farmer’s rape plants. The plaintiff asserted claims against the defendant seeking compensation for assessment and rectification of the damages.
Duties of distributors
The decisive question in terms of producer’s liability in tort law in accordance with § 823(1) of the Civil Code, which is the form of liability which comes into consideration in the present case, is whether a person engaged in the manufacture or distribution of a product breached its duties to safeguard traffic. Whether such a person had duties to safeguard traffic, and if so which ones, depends on the capacity in which that person acted. Product manufacturers are naturally subject to the most extensive duties to safeguard traffic (e.g. duties relating to design and fabrication). Distributors, on the other hand, have only limited duties to safeguard traffic; in particular, they have no duties with respect to design and fabrication. As a result, distributors are generally excluded from producer’s liability for design and fabrication defects.
Distributors with the status of manufacturers
But in certain cases, in the course of their activities, distributors may be considered as manufacturers in terms of § 823(1) of the Civil Code, a status which comes with more extensive duties to safeguard traffic. This may be the case, for example, if the distributor makes changes to the product.
In the present case, the Higher Regional Court of Koblenz ruled that the defendant did not qualify as a manufacturer because it did not make any changes to the fluid. But the Federal Supreme Court found that it did qualify as a manufacturer after all. As ground for this finding, the Federal Supreme Court cited the fact that defendant itself acquired the fluid as “waste” and then resold it as “EC fertilizer for farming,” with product information to match. In so doing, the court found that the defendant had created an entirely new product, despite the fact that it made no changes to the fluid itself. As a result, the court found that the defendant should be classified as the manufacturer, and is therefore required to comply with more extensive duties to safeguard traffic.
Whether and to what extent ascertaining that the fluid was contaminated (and consequently avoiding its use) was part of the defendant’s more extensive duties to safeguard traffic must now be determined by the appellate court (Higher Regional Court of Koblenz), which is now required to retry the case in light of the Federal Supreme Court’s judgment and issue a new ruling. It is clear, however, that a stricter standard must be applied with regard to the defendant’s duties of due care, contrary to the previous ruling by the appellate court.
The judgment will have a practical impact, in that distributors should be aware of the fact that they may be classified as manufacturers in terms of product liability law even if they make no actual changes to the product, if the other circumstances of the case justify such an assumption. This may occur, as e.g. in the present case, if the purpose of the product is altered, resulting in the creation of an entirely new product.
Even if they do not qualify as manufacturers, distributors should keep in mind that they may have duties of inspection with respect to the products they distribute. Examination of the products by the distributor may be required if there is specific cause for an inspection, e.g. if damages from use of the product have already been reported or if the circumstances of the individual case suggest the need for review (cf. e.g. Federal Supreme Court, Judgment of 11 December 1979 –Case No. VI ZR 141/78, NJW 1980, 1219).back