EU Court Ruling on PIP/TÜV Rheinland case raises more questions regarding Notified Body liability

ECJ delivered the much anticipated decision on the interpretation of Directive 93/42/EEC regarding Notified Body liability in relation to the EC declaration conformity procedure.

Key take-away

On 16 February 2017, the European Court of Justice (ECJ) concluded, in a preliminary ruling requested by the Bundesgerichtshof (Federal Court of Justice, Germany - BGH) under Article 267 TFEU within the scope of a litigation initiated against TÜV Rheinland by an end user of breast implants manufactured by Poly Implant Prothèse (PIP), that notified bodies (NB) may be held liable towards end users of medical devices.

The Court however indicated that conditions under which culpable failure by the NB to fulfil its obligations under the directive 93/42/EEC (Directive) may give rise to liability on its part vis-à-vis end users are governed by national law of the Member States, subject to the principles of equivalence and effectiveness.

Regarding the extent of the diligences that can be expected from NBs in connection with their obligations ‎linked to the procedure for EC declaration of conformity, the Court states that, NBs must, in the face of evidence indicating that a medical device may not comply with the requirements laid down in the Directive, take all the steps necessary to ensure that it fulfils its obligations. According to the Court, this is the case even though NBs are not under a general obligation to carry out unannounced inspections, to examine devices and/or to examine the manufacturer’s business records.

The ruling from ECJ, which is the latest episode of a six-year judiciary saga, raises uncertainty over its impact on the need for NB to perform unannounced audits. More importantly, it should also lead to a multi-faceted liability of NBs across Europe, depending on Member States and the regime of liability that can be applied very differently from one to another. NBs and manufacturers should pay close attention to further decisions coming from national courts in this respect.

Background of Schmitt v. TÜV

The impact of PIP on medical devices in Europe has been two-fold: on the one hand, it has been a triggering event leading to a significant revision of the European regulation; on the other hand, courts litigation initiated by end users of PIP implants help defining, up to the highest jurisdiction of the European Union, the nature and extent of the liability of NBs linked to possible failure in complying with their duties.

To fully appreciate the significance of the ECJ judgement, one must remind the facts at stake:

An individual, Mrs Schmitt, had breast implants fitted in 2008 in Germany. The manufacturer of those implants, PIP company, had appointed TÜV Rheinland to assess its quality system. In 2010, the competent French authority (AFSSAPS) established that PIP company had produced breast implants using industrial silicone which did not comply with quality standards. Mrs Schmitt had the implants removed in 2012. Since the manufacturer was insolvent at that time, and asserting that TÜV Rheinland had not satisfactorily fulfilled its obligations under the Directive, Mrs Schmitt claimed indemnification for non-material damage from that notified body before the German courts. She also sought a declaration that TÜV Rheinland was liable for any future material damage.

The claimant put forward that, in the course of its involvement in the assessment of the quality system of the manufacturer during the period 1998 to 2008, TÜV Rheinland had made only eight visits to the manufacturer’s premises, all of which announced in advance. During that period, TÜV Rheinland never inspected business records or ordered that the devices be inspected.

The claims of Mrs Schmitt were dismissed at first instance and also by the appeal court in Germany. Both courts had concluded that there could be no liability on the part of TÜV Rheinland for infringement of an obligation under a contract for the benefit of third parties, as the contract concluded between the NB and the manufacturer in relation to the EC declaration of conformity fell to be assessed exclusively by reference to private law and did not include Mrs Schmitt. The inclusion of a third party within the scope of the contract, contrary to the intention of the parties to the contract and in the absence of any legitimate interest in that regard, would have the effect of extending the NB’s liability indefinitely. Moreover, the appeal court found that TÜV Rheinland was not liable under civil liability law either, as the purpose of the NB’s activity was not to protect patients since the activities connected with certification serve only to ensure compliance with the requirements for placing medical devices on the market. Moreover, the appeal court found that no fault could be established as TÜV Rheinland had made regular announced visits, which must be deemed sufficient in the absence of any suspicion of improper production practices.

Mrs Schmitt appealed on a point of law to the BGH.

Questions raised by the BGH

The Federal Court of Justice decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

  1. "Is it the purpose and intention of Directive 93/42 that, in the case of Class III medical devices, the notified body responsible for auditing the quality system, examining the design of the product and surveillance acts in order to protect all potential patients and may therefore, in the event of a culpable infringement of an obligation, have direct and unrestricted liability towards the patients concerned?
  2. Does it follow from Sections [3.3, 4.3, 5.3 and 5.4] of Annex II to Directive 93/42 that, in the case of Class III medical devices, the notified body responsible for auditing the quality system, examining the design of the product and surveillance is subject to a general obligation to examine devices, or at least to examine them where there is due cause?
  3. Does it follow from the aforementioned sections of Annex II to Directive 93/42 that, in the case of Class III medical devices, the notified body responsible for auditing the quality system, examining the design of the product and surveillance is subject to a general obligation to examine the manufacturer’s business records and/or to carry out unannounced inspections, or at least to do so where there is due cause?"

These questions were raised because the BGH considered that it was unclear as to how the Directive should be interpreted. The wording of the Directive appears to keep distance from increased auditing requirements. The European Commission has therefore already responded to the PIP scandal and issued a recommendation in 2013. The Recommendation 2013/473 / EU, (Recommendation) was intended to remedy the "deficiencies" of the interpretation of the provisions (see recital 3 of Recommendation) and to ensure a "uniform" interpretation of the requirements for the fulfillment of NB. It is noteworthy that Annex III of the Recommendation pleads at least for unannounced audits every three years and more frequently audits in the case of high-risk products or where is a lack of conformity. In addition, the NB should carry out product tests in case of doubts as to the conformity of the products to be evaluated (Annex I, point 2). The basic concept of this Recommendation has also been incorporated into the new European Medical Devices Regulation (MDR). The final version of the MDR is expected to be adopted in early spring of 2017 and will become directly applicable in the EU Member States after a transitional period.

Although the European Commission apparently took a clear position, the Recommendation has no impact on the case for two reasons: Firstly, it cannot develop a retroactive effect on a matter which took place before its issue and secondly, Article 288 §5 of TFUE stipulates that recommendations and opinions shall have no binding force. Also the MDR, which incidentally had not yet entered into force at the time of the ECJ decision in its final version, has no retroactive effect and cannot be a decision-making basis in Schmitt v. TÜV.

The decision of the ECJ was consequently necessary to create legal clarity.

NBs involvement in the EC declaration of conformity procedure aims at ensuring protection to end users of devices

By relying mainly on the opinion issued by the Advocate General Sharpston, the Court clarifies the purpose of the Directive, and consequently, the role given to the NBs: “While it is incumbent on the manufacturer, in the first place, to ensure that the medical device complies with the requirements laid down in Directive 93/42, it is clear that that directive also imposes obligations to that end on the Member States and notified bodies.” The Court also states that it infers from the wording and overall scheme of the Directive that the purpose of the NBs’ involvement in the procedure relating to the EC declaration of conformity is to ensure protection for the health and safety of persons (§ 53).

As actors involved in the safety of persons, NBs can therefore be liable, along the manufacturer of the device at stake and the competent authorities from Member States, towards end users of the medical devices they control and survey in the event of a culpable failure, even if the Directive does not impose such liability (§ 62).

NBs are under no general obligation to carry out unannounced audits

Once the principle of liability towards end users confirmed, the Court clarifies the extent of the surveillance and control imposed by the Directive on NBs.

On this point, once again, the Court follows the Advocate General. The ECJ thus indicates that "the provisions of Annex II to Directive 93/42 do not impose a general obligation on the notified body to carry out unannounced inspections, to examine devices and/or to examine the manufacturer’s business records" (§ 40).

This assertion was not self-evident. Admittedly, § 5.3 and § 5.4 of Annex II of the Directive provide a clear distinction between what is mandatory for NBs and what is a possibility: § 5.3 indicates that “The notified body must periodically carry out appropriate inspections and assessments to make sure that the manufacturer applies the approved quality system and must supply the manufacturer with an assessment report” while § 5.4 provides that “In addition, the notified body may pay unannounced visits to the manufacturer. At the time of such visits, the notified body may, where necessary, carry out or ask for tests in order to check that the quality system is working properly. It must provide the manufacturer with an inspection report and, if a test has been carried out, with a test report.”

Notwithstanding the wording of the Directive, the Court could have considered that the overall scheme of the Directive was to impose an obligation, for NBs, in the long-haul and within the scope of their mission to control and survey the manufacturer’s quality system, to carry out unannounced inspections and to examine the manufacturer’s business records. In excluding a general obligation in this respect, the Court correlatively excludes any culpable failure from a NB that would have merely failed to carry out unannounced audits.

NBs must carry out appropriate measures taking into account evidence of possible non-compliance of a device

However, the freedom granted to NBs in relation to the powers they can use ceases, according to the Court, in front a general duty of vigilance and diligences - that is, a duty to act - resulting from the obligation of NBs to establish if EC declaration of conformity can be maintained. In other words, the Court refers to the notion of audits for cause. In this regard, the Court emphasizes that NBs may pay unannounced visits to the manufacturer during which they may, if they deem it necessary, carry out or ask for tests in order to check that the quality system is working properly.

Consequently, according to the Court, “in the face of evidence indicating that a medical device may not comply with the requirements laid down in Directive 93/42, the notified body must take all the steps necessary to ensure that it fulfils its obligations under Article 16(6) of the directive and Sections 3.2, 3.3, 4.1 to 4.3 and 5.1 of Annex II to the directive” (§ 48). And for the Court to add: “the obligations laid down in Article 16(6) of the directive and those set out in paragraph 41 above would be a dead letter if the degree of discretion knew no limits. The notified body would not be able to fulfil its function under the procedure relating to the EC declaration of conformity if it were free not to take any steps in the face of evidence indicating that a medical device might not comply with the requirements laid down in Directive 93/42.” (§ 45)

One can be puzzled by such dichotomy, which seems contradictory: (i) if there is no general obligation for NBs to carry out unannounced inspections, (ii) NBs remain bound by an general obligation of vigilance whose implementation must allow them to collect evidence indicating that a medical device may not comply with the requirements laid down in the Directive, (iii) in which case NBs will have to use unannounced audits to fulfil their obligations. In theory, the implementation of the general obligation of vigilance should entail the use of investigation measures granted by the Directive eg unannounced inspections… To sum it up, a culpable failure cannot be inferred from the mere fact that the NB did not carry out an unannounced audit or did not examine the manufacturer’s business records. The culpable failure is characterised when the evidence commanded to carry out such measures. This means that the available evidence of non-compliance of a medical device shall be collected by NBs through other measures.

Conditions of liability on the part of NBs shall be governed by national law

Also, the Court added that: “The conditions under which culpable failure by that body to fulfil its obligations under the directive in connection with that procedure may give rise to liability on its part vis-à-vis those end users are governed by national law, subject to the principles of equivalence and effectiveness.” (§ 60) In other words: European law does not provide for NBs liability; it is thus for the national law of Member States to define the contours and conditions.

As regards European Law and given the wording of the questions raised by the BGH, it is difficult to take offense in the reasoning of the Court in this respect. However, the analysis of the Court goes half-way and remains quite unsatisfying. Indeed, the freedom left to NBs in determining the relevant and necessary measures is imprecise, and the contours and conditions of the NBs’ liability will have to be defined on a case-by-case basis, following an analysis of facts comparing the measures carried out by the NB on the one hand, and those it should have carried out taking into account the evidence (real or assumed) the NB had collected during the period of time at stake. But NBs shall make no mistake: The freedom of choice that they have re the selection and implementation of the relevant measures granted by the Directive has a downside, ie the margin of judgement granted to the courts of Member States (i) to characterise the evidence of non-compliance of the device that the NB had at the time and (ii) to evaluate the behaviour of the NB in response to these evidence.

Similarly, it will be for the courts of the Member States to assess the causal link between the alleged culpable failure of the NB and the damage alleged by end users. Yet, the assessment of the causal link will have to take into account the behaviour of the competent authorities that can also, in this context, fail by inaction. Indeed, evidence supposedly available to the NB could, to a certain extent, be available also and at the same time, to the competent authorities. One can think of tools provided by the MDR such as EUDAMED, PSUR, etc that are accessible to both the NB and the competent authorities.

The possible downside to the judgement of the ECJ is significant: a multifaceted liability of NBs across Europe, depending on Member States and the regime of liability that can be applied very differently from one to another. Case law issued by French courts in relation to PIP litigation is a potent example: in its decisions dated 20 January 2017 the Commercial Court of Toulon declared TÜV Rheinland liable towards end users. According to the judges, the NB had not carried out any unannounced audit on the one hand, and on the other hand had failed to review the business records of the manufacturer, which would have allowed, according to the court, “to evidence the purchase of products that was not part of the manufacturing process of the device anymore.” The very same reasoning had been quashed by the Court of Appeals of Aix-en-Provence on July 02, 2015 notably because it was not possible to impose to the NB to carry out unannounced audits that were not provided by regulation. And the decision issued by the Administrative Court of Toulon on October 22, 2015 contributes to the confusion in a case where an end user had launched a claim against the French State (AFSSAPS) considering that the competent authority had failed to use its powers in a timely fashion: if the court confirms the possibility to engage the State’s liability in this respect, the judges exonerate the State from liability since, at the time the implants were fitted to the claimant (2006), the AFSSAPS had no specific information to evidence a fraud from the manufacturer or a non-compliance of the device.

Although the judgement from the ECJ is still very much imprinted from the specifics of PIP case, the Court more generally sketches out a pan-European judiciary work in progress on liability of the NBs. Between the lines, the ECJ takes also a stand on the liability of competent authorities - which the Court has usefully reminded that they remain also bound by obligations towards end users - and manufacturers with a possibility to result in shared liability between NBs, manufacturers and competent authorities.

Outlook

On the basis of the answers provided by the ECJ, the BGH will now resume Schmitt v. TÜV pending proceedings. The application of the judgement to the case currently at stake before the BGH will likely indicate relevant contours of TÜV Rheinland’s liability and could, perhaps, draw criteria to be used in future cases at least under German law.

In this context, the following considerations could be important: According to German law, two possible legal bases regarding end users’ compensation are discussed. On the one hand, contractual claims on the basis of a contract with protection in favor of third parties, and on the other hand tort claims.

Contractual claims

The right to demand a compensation on the basis of a contract with protection in favor of third parties requires the existence of four essential prerequisites: the close “proximity” of the third party to the performance, the interest of the creditor in the integration of the third party, the recognisability of these conditions for the debtor and the need for protection of the third party.

To date, German case law has refused the inclusion of patients in the contract between NBs and manufacturers because of a lack of the will of the parties to the contract to involve third parties. The legal relationship between a manufacturer and a NB must be qualified as a purely private-law service or expert contract on a basis of a free selection and commissioning. According to the appeal judgment in Schmitt v. TÜV, solely the manufacturer bears the responsibility for compliance with the essential requirements and, therefore, the marketability of the medical device declared with the affixing of the CE mark (see only section 2 of Annex II of the Directive). Correspondingly, according to the current regime, the obligatory involvement of the NB and its appraisal service shall be carried out solely against the manufacturer in the framework of the EC declaration of conformity. According to the prevailing opinion, the NB is thus characterized as the "companion" of the manufacturer in the conformity assessment for which the manufacturer is responsible, but not as a general market surveillance authority which has to uncover deliberate infringements by the manufacturer in the interests of consumer protection.

It is questionable whether this view can persist after the ECJ ruling. In this context, it is very important to note the fact that the ECJ judgment highlights that the purpose of the NB’s involvement in the procedure relating to the EC declaration of conformity is to protect the end users of medical devices (see above).

On the basis of the requirements of the contractual claim, the following picture results:

The patient's “proximity” to the NB’s performance is given. According to case law from the BGH, “proximity” of the third party to the performance is always given when the third party intentionally comes into contact with the benefit from the contract and is exposed to the dangers of the contract as well as the creditor himself. Persons who accidentally or illegitimately come into contact with the performance are therefore excluded from the outset.

End users will be in contact with the performance of the NB, assuming that they are end-users of the products which the NB is required to examine. According to the new interpretation of the NB’s activity by the ECJ, which it classifies as in favour of patient protection, the patient's “proximity” to the performance is to be interpreted as intended.

Generally, the involvement of a third party requires the interest of the creditor in doing so. The new interpretation by the ECJ leads to an interesting presumption: If, in the ECJ’s view, the performance is intended - without the involvement of the parties - to protect patients, the creditor's interest in the involvement of the third party is presumed.

The above-mentioned criteria of “proximity” and the interest of the creditor in the inclusion must be subjectively recognisable for the debtor. The liability risk can only be tolerated by the debtor if he can somehow limit the possible liability. In doing so, the number or names of the potential claimants need not be established, but it must be a manageable group of people. This seems questionable for the wide range of patients who are potentially concerned. The NB cannot limit the number of people to be included. Not least, therefore, German case law tends to decline the recognisability in similar cases. For example, German courts have rejected a so-called third effect of contracts between building contractors and developers for work on power cables in favor of electricity collectors. It seems therefore very likely that the liability of NB resulting from the contract with protection in favor of third parties will fail because of the missing recognisability of the involvement for the debtor.

Finally, there are further considerations at the level of legal consequences. In the event of a fault on the part of the creditor with regard to the damage, according to §§ 334, 253 II, 254 German Civil Code (Bürgerliches Gesetzbuch - “BGB”) the third party is also held accountable for any failure of the creditor. The third party shall not be treated better than in the case of the legal contract in favor of third parties pursuant to §§ 328 ff. BGB. As a result, in the event of a deliberate intentional action by the manufacturer as creditor in relation to the NB, a contributory fault of a rate of 100 % would be assumed and the third party came away empty-handed. However, in accordance with the German case-law, one could argue that the nature of the hedging, i.e. the nature of the contract between the manufacturer and the NB, leads to an implicit exclusion of the imputation of the fault (see for example BGH decision of 10.11.1994 – III ZR 50/94). It could be in the interest of the end user that his confidence in the proper performance of the NB’s functions is protected if the manufacturer tends to conceal the non-conforming nature of his products. However, this reasoning leads to a circular closure as, in turn, it is questionable again whether an increased verification obligation of the NB existed in this case at all.

Tort claims

The tort liability is ultimately dependent on an existing obligation of the NB. Here too, the ECJ ruling can initiate changes. So far the obligation has always been rejected, since German courts did not assume increased monitoring and control obligations of the NB under the Directive and consequently came to the conclusion that a breach is not possible.

This outcome could probably not persist after the ECJ finds that, in the face of evidence indicating that a medical device may not comply with the requirements laid down in the Directive, the NB must take all the steps necessary to ensure that it fulfils its obligations under the directive.

For these reasons it is necessary to consider if the NB may be liable on a basis of its obligation as set out by ECJ. The central question is whether there has been a reason for the NB to initiate further measures at the PIP production site. At least, this could lead to a problem of evidence since the indications for the necessity to take measures must be proven. It would have therefore to be shown by the claimant that the manufacturer had given rise to increased control and monitoring by TÜV. The claimant may perhaps benefit from an easing of the burden of proof if the obligation of the NB can be qualified as a special duty to maintain safety (safety duty). To this end, the NB's activities would have to be subsumed under the extensive case-law of German courts. The safety duty in fact creates someone’s responsibility for risk areas and arises for example by taking over a task or exercising a profession.

The question is how far the legal classification of the activities of the NB can go. If the existence of a safety duty would be affirmed, it will be difficult to distinguish between the different obligations of the parties. Furthermore, this view ignores the fact that the NB does not have any influence on the actual production, so that the risk areas of the parties would be completely blurred.

The lower courts in the case Schmitt v. TÜV have not accepted the fault of the TÜV Rheinland on a basis of profound arguments, so it is also questionable whether this will be assessed differently by the BGH. In particular, it will be difficult to justify the fact that the NB acted deliberately or was negligent. Negligence means the ignorance of a necessary diligence and would require in this case that there have been indications of infringements which the NB has not taken into account.

After all, there is much evidence that the BGH will reject the liability of the NB in spite of the ECJ judgment under national law.

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