Defective Products: Could Your Business Be Liable Under the Australian Consumer Law?

What is a safety defect?

Under the ACL, a safety defect exists where the safety of goods is not such as persons are generally entitled to expect.

The law does not require goods to be absolutely free from risk; however the level of safety required is that which the community is entitled to expect.

Therefore, whether a product contains a safety defect may be obvious, but may also depend on factors including:

1. how the product was marketed;

2. any instructions, warnings or packaging provided with the product;

3. the purpose for which the product was supplied; and

4. the time at which the product was supplied.

A safety defect may arise from a design flaw, manufacturing issue, inadequate warning or failure in quality control processes.

Who is liable?

One of the most commonly misunderstood aspects of the ACL is the broad definition of “manufacturer”.

The term extends beyond the business that physically produced the goods and may include:

1. businesses that assemble, process or manufacture products;

2. importers of overseas-manufactured goods;

3. businesses that apply their branding or trade mark to products; and

4. entities that otherwise hold themselves out as the manufacturer.

Where the actual manufacturer cannot be identified, a supplier may also be deemed to be the manufacturer for the purposes of the legislation.

As a result, multiple parties within a supply chain may be exposed to liability arising from the same product defect.

Why does this matter?

Importantly, the ACL imposes a strict liability regime for safety defects. This means that a person who suffers loss or damage is not required to prove that a manufacturer acted negligently. Instead, liability may arise simply because a product contained a safety defect that caused harm.

Claims may relate to:

1. personal injury or death;

2. damage to property; and

3. economic loss resulting from the defect.

Managing product liability risk

Liability for safety defects generally cannot be excluded by contract.

As such, businesses should take practical steps to identify and manage product risks, including:

1. implementing robust quality assurance and testing procedures;

2. ensuring product instructions and warnings are accurate and up to date;

3. reviewing supplier, manufacturing and distribution arrangements;

4. maintaining appropriate insurance coverage; and

5. establishing product recall and incident response procedures.

For many businesses, product liability is not simply a legal issue - it is a governance, compliance and risk management issue.

Key takeaways

Product liability exposure under the ACL extends beyond traditional manufacturers. Importers, brand owners and suppliers may all face liability where defective products cause harm.

Businesses should regularly review their products, supply chain arrangements and risk management processes to ensure they are appropriately managing potential exposure before issues arise.

How we can help

Our Commercial Law team assists businesses to identify and manage product liability risks. We advise on ACL compliance, review supply chain arrangements, prepare and negotiate commercial agreements and assist in responding to product defect issues.

If you would like advice on product liability or product safety risks, please contact:

Paul Gray
Principal
T: 03 5225 5231 | M: 0414 195 886
E:pgray@ha.legal

Hugo Le Clerc
Senior Associate
T: 03 5225 5213 | M: 0438 089 334
E: hleclerc@ha.legal

Jemimah Fitzgerald
Lawyer
T 03 5225 5219
Ejfitzgerald@ha.legal

This article was prepared with the assistance of Charlotte Newman, paralegal.