Importing from China & Product Liability

[fab4]

I am thinking of importing products (electronics, unbranded) from China (e.g. transistors, breadboards, LEDs etc).

It seems likely that as the importer I will be held responsible for any damages caused by these products (e.g. if containing hazardous materials or faults).

How can I protect myself?

The options that come to mind:

1. Insurance. Probably tons of paperwork and extremely expensive?
2. Trading as a limited company.

Which options do you recommend, maybe I should use both? Also, would the limited company really provide sufficient protection, or could the company director be held responsible in a separate claim (because he did not test the products with enough rigor?).

 

[IANL]

I am thinking of importing products (electronics, unbranded) from China (e.g. transistors, breadboards, LEDs etc).

It seems likely that as the importer I will be held responsible for any damages caused by these products (e.g. if containing hazardous materials or faults).

How can I protect myself?

The options that come to mind:

1. Insurance. Probably tons of paperwork and extremely expensive?
2. Trading as a limited company.

Which options do you recommend, maybe I should use both? Also, would the limited company really provide sufficient protection, or could the company director be held responsible in a separate claim (because he did not test the products with enough rigor?).

You would be wise to do both!! If a product was faulty and you were sues you would want the insurance. The Limited company would protect your personal assets.

I would think if you knowingly sold products that were dangerous and a risk to someone's health and safety you would not find protection of the Ltd company much use. You would also be wise to have directors liability insurance that would cover your legal fees if someone was to try and sue you personally.

I assume all the imports would have to CE tested?

 

[Andrew46]

In answer to your enquiry, I think the steps to take are:

1. Do thorough research and due diligence. You need to know whether the products are covered by existing regulations, e.g. 'CHIP' - see http://www.hse.gov.uk/chip/index.htm Also are the products covered by CE marking requirements, and by the waste regulations applying to electronic products; see e.g. https://www.gov.uk/product-safety-for-manufacturers
Under EU and UK law there is strict civil law liability for importers of defective products, with only very limited defences. Therefore apart from the protection you can get as per 2. and 3 below, the best thing is obviously to minimise the risk. If a limited company is liable for such a defect, it is possible for a director of a limited company to be held liable jointly with his company if his act or omission caused the problem.

There are also general and specific product safety regulations, breach of which is a criminal offence. There is usually a 'due diligence' defence if the company can show it took all reasonable steps and exercised all due diligence to avoid committing the offence.
It is possible for a director of a limited company which committed a product safety offence to be found guilty as well, if the offence was caused by the director's neglect.
For this reason it is important not only to carry out due diligence, but also to document the steps taken.

2. You need to have so far as possible terms included in your purchase agreement whereby you will have recourse to the supplier if it turns out the products are defective. Admittedly this may be easier said than done. But do not simply accept the suppliers standard terms of sale.

3. Certainly you should take out product liability insurance. It may not necessarily be expensive as you fear. I know there are insurance brokers on this forum. The first two steps above will be more or less of a requirement under the insurance.

Trading as a limited company does provide protection normally against personal liability (although that is not the only factor to be considered). However it is unfortunately possible for a director to be personally liable for both civil wrongs and criminal offences committed by the company, particularly in one-man band companies and small companies where the directors tend to have active participation in day to day business. This is where due diligence and insurance comes in...

There may be more sophisiticated ways of reducing liability, e.g. forming a separate company to import the products concerned. But for that you need specialist advice.

 

[fab4]

Sounds rather daunting. Seems that if I'd be buying from a UK supplier I might have lower margin but wouldn't have to deal with product liability to that extent.

 

[inclinesourcing]

Well done looking to enter this market. Its extremely competitive but exciting if can succeed.

Regarding the question of certification

Depending on what you are buying, if you are the importer then you are responsible to ensure that the products you are importing are safe and legal for use in the UK. Safety certs for products you are looking to import include:
LVD - for products with power supplies
EMC - any electronic product
RoHS - Hazardous material declarations
RTT&E - Any product using wireless (bluetooth, FM transmitters, Wi Fi etc)
E-mark - Any product designed for use in a car

The list goes on..

Now I may sound like a party pooper but this is important. Many importers can get away with ignoring these and nearly all get away with it. But if you are looking at bringing in good volumes of product, selling in the public domain, selling products of potential risk, I would strongly advise that the least you do is ask your suppliers to provide these documents. If they can't you need to ask yourself why they can't. Is it because they won't pass? Is it because you are their first customer asking for it?
At least if you have some documentation you can conduct your business with piece of mind.

The details of your products are listed as product descriptions in the invoice paperwork and I have known product being cross checked for RoHS in the past.
Whilst I do not want to put you off trying new business ventures I would advise that you take some of these points on board so even if you wish to ignore them you have them in your mind should your business grow.

Good luck.