Why business won’t cheer for (more) liability

It all started with a drink. It will end in the European Court of Justice (ECJ) with a judgement that could have far-reaching implications for all European manufacturers and retailers of food and drink. The ECJ is scheduled to announce a ruling tomorrow (24 November) on the case of Lidl Italia Srl v Comune di Arcole (VR).

The case began in 2003, when the Italian authorities discovered that a traditional, aromatic, herbal liqueur - made in Germany and sold in Lidl Italia - was incorrectly labelled. The alcoholic strength by volume of this after-dinner drink was 35% lower than the label stated. Therefore it failed to comply with an EU directive on labelling, presentation and packaging of "pre-packaged foodstuffs". Under this directive, alcohol content can only vary from the label in a range of 0.3%. The issue the ECJ must decide on is whether "distributors" - in this case, the retailer - can be held responsible for the misleading information on the label.

In the Italian courts Lidl argued that it had not broken the rules. The company believes that a retailer should not be held responsible for the content and labelling of products that it does not make. The Italian courts referred the matter to the ECJ. The opinion of the advocate-general suggests that the court may extend liability to retailers. Advocate-general Christine Stix-Hackl argued that limiting liability to producers would be contrary to "the spirit and the purpose of the directive", which aims to protect the consumer. She observed that in view of the "ever closer and increasingly complex relationship between manufacturers, producers and distributors, responsibility ought in principle to be joint rather than individual". This means that retailers can be held responsible, but it does not mean that they will be held responsible in every situation. According to the advocate-general, responsibility depends on whether they are in a position to "undertake supervision" of the manufacturing process.

The court’s judges are not bound to follow the opinion of the advocate-general, although in roughly seven out of ten cases, the court arrives at the same conclusion as the advocate-general albeit not always following the same reasoning. Darren Abrahams, a barrister at the Brussels office of Steptoe & Johnson, has been following this case. He thinks that if the ECJ follows the advocate-general’s opinion, it could lead to "a game of contractual pass-the-parcel", where every player in the supply chain tries to pass on its liability to someone else. It is also likely that contracts will become more intricate and explicit, as firms try to draw clean lines of liability around their own business.

Some retailers are concerned about the case. Alisdair Grey, director of the British Retail Consortium in Brussels, thinks this case could have far-reaching implications. "Supermarkets and small stores are spending money to manage their own brand. This case means they could be spending money to manage somebody else’s brand," he says. Grey predicts that in 10-15 years’ time, some food retailers might just stock their own branded products, to avoid the legal and managerial headache of managing the risks of another firm’s brand.

But the impact is likely to vary among different member states. Some retailers think the case could have less impact in the UK, which has the distinctive feature of "due diligence" in its legal system. This puts a duty of care on retailers that does not exist in many other European countries. The ability to write contracts with indemnity clauses, thus limiting liability, will also vary between different member states.

If the ECJ does extend liability, it could mean better protection for consumers. But businesses that manufacture and sell food and drink will face increased legal complexity. Few of them will drink to that.

• Jennifer Rankin works for The Economist in Brussels.

It all started with a drink. It will end in the European Court of Justice (ECJ) with a judgement that could have far-reaching implications for all European manufacturers and retailers of food and drink. The ECJ is scheduled to announce a ruling tomorrow (24 November) on the case of Lidl Italia Srl v Comune di Arcole (VR).