Consumer law: liability of manufacturers for goods with safety defects

References to legislation

  • References to the ACL are to the Australian Consumer Law, which is schedule 2 of the Competitition and Consumer Act 2010 (Cth).
  • References to the TPA are to the Trade Practices Act 1974 (Cth).

Background

  • According to Galitsky, ‘Manufacturer’s Liability: An Examination of the Policy and Social Cost of a New Regime’ (1979) 3 New South Wales Law Journal 146, 147, there are four possible theoretical models for liability of manufacturers:
    • liability in negligence;
    • strict liability;
    • strict liability with a ‘state of the art’ defence; and
    • no fault schemes.
  • Australia adopted strict liability with a ‘state of the art’ defence: ACL pt 3-5 div 1:
    • Consumers who suffer loss or damage may recover compensation from the manufacturer.
    • Liability can be escaped if it is proved that the defect could not have been discovered with current scientific and technological knowledge (the ‘state of the art’ defence).
    • The ACL provisions are a restatement of TPA pt VA.
      • TPA pt VA was introduced by the Trade Practices Amendment Act 1992 (Cth).
      • The provisions are modelled on Council Directive 85/374/EEC of 1985 on Approximation of the Laws, Regulations and Administrative Provisions of the Member States Concerning Liability for Defective Products [1985] OJ L 210/29: se Australian Law Reform Commission, Product Liability, Report No 51 (1989).
  • Compensation can be obtained from manufacturers for loss or damage resulting from a safety defect, including:
    • injuries suffered by an individual: ACL s 138;
    • loss or damage suffered by a person other than the injured individual: ACL s 139;
    • loss or damage suffered because other consumer goods have been destroyed or damaged as a result of the defect: ACL s 140; and
    • loss or damage that has been suffered if land, buildings or fixtures acquired for private use are destroyed or damaged as a result of the safety defect: ACL s 141.

Actual and deemed manufacturers

  • ACL s 7 gives ‘manufacturer’ a broad definition that includes:
    • persons who grow, extract, produce, process or assemble goods;
    • persons holding themselves out to the public as the manufacturer;
    • persons who cause or permit (with a rebuttable presumption) their name, brand or mark by which they carry on a business to be applied to the goods, such as where:
      • woven in, impressed on, worked into or annexed or affixed to the goods; or
      • applied to a covering, label, reel or thing in or with which goods are supplied;
    • persons who permit others to hold them out to the public as manufacturers in connection with the supply or possible supply or promotion of goods; and
    • importers (including persons who arrange importation) where the actual manufacturer has no place of business in Australia.
  • The definition also applies to component manufacturers.
  • The definition is based on the definition of ‘manufacture’ in TPA s 47, so cases dealing with TPA s 74A may remain relevant.
  • Where the retail supplier is in liquidation, the importer may be considered the manufacturer: Rasell v Cavalier Marketing (Australia) Pty Ltd [1991] ATPR 41–152.
  • An oyster farm that grows, harvests, cleans, depurates and packs oysters is a manufacturer: Ryan v Great Lakes Council [1999] APTR (Digest) 46–191.
  • Concurrent liability is available if there are several deemed manufactures and an actual manufacturer.
    • The applicant does not need to choose which to pursue: Leeks v FXC Corporation (2002) 118 FCR 229.
  • Repairers who do not supply goods are not manufacturers: Spittles v Michael’s Appliance Services Pty Ltd (2008) 71 NSWLR 115.

Unidentified manufacturers

  • If a person wishes to sue a manufacturer but does not know who the manufacturer is, they may contact the supplier(s) for the relevant details: ACL s 147.
    • A supplier has 30 days from written notice to comply, otherwise they will be deemed to be the manufacturer.
  • The limitation period for actions against manufacturers is 10 years: ACL s 143.
    • Suppliers should retain appropriate records to avoid liability.

Meaning of ‘supplied’

  • It is not necessary for the manufacturer to have supplied the goods directly to the plaintiff — it is sufficient that the manufacturer supplied the goods to someone in the contractual chain: Spittles v Michael’s Appliance Services Pty Ltd (2008) 71 NSWLR 115.
  • The extended meaning includes:
    • sale, lease, hire or hire-purchase: ACL s 2; and
    • non-promotional donations: ACL s 5.

Meaning of ‘goods’

  • The meaning of ‘goods’ extends to include gas, electricity, computer software, and component parts and accessories.

Meaning of ‘in trade or commerce’

  • Expressly includes business and professional activities, but not private sales or garage sales.

Meaning of ‘safety defect’

  • There is a safety defect if the safety is not such as persons generally are entitled to expect: ACL s 9(1).
  • Regard is given to all relevant circumstances (such as marketing, packaging, use of marks, certifications, instructions, warnings, reasonable uses and time of supply): ACL s 9(2).
  • The test is objective and based on the reasonable expectations of the community.
  • The goods do not need to be entirely free of risk, but merely acceptably safe.
  • ‘Safety’ is not limited to risk of personal injury.
  • Safety defects include design defects, manufacturing defects, and instructional defects.

Marketing of goods

  • Courts must consider the manner in and purpose for which the goods are marketed: ACL s 9.
    • The level of warnings could be expected to be less where goods are marketed for trades or professions with specialist knowledge if it is reasonable for the manufacturer to assume that such knowledge is pre-existing.

Presentation of goods

  • Courts must consider the presentation of goods, including packaging: ACL s 9.
    • Manufacturers of potentially hazardous goods ought to carefully draft instructions to avoid liability.
  • Warnings must be adequate to convey the risk involved in using the product, especially where there is a conceivable hazard: ACCC v Glendale Cleaning Products Pty Ltd (1998) 40 IPR 619, affd Glendale Cleaning Products Pty Ltd v ACCC (1998) 90 FCR 40.
  • Instructions must be adequate so as to properly alert any reasonably conceivable user or installer of a product: Skerbic v MacCormack [2007] ACTSC 93.
    • If injury is suffered due to poor installation instructions the manufacturer will be liable: ACL s 138.
  • Information that is known and ought to be supplied by an installer (such as a heart surgeon for a pacemaker) will not need to be supplied to the consumer, so long as the product is only supplied to and installed by persons with that knowledge: Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd (2004) ATPR 42-014.
  • Failure to warn in materials provided after the transaction is complete will not give rise to a cause of action (such as by an information booklet after surgery had already been agreed to): Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd (2004) ATPR 42-014.

Reasonably-expected uses

  • Courts must consider the uses to which the product could reasonably be put, including potential misuses: ACL s 9(2)(e).
    • If misuse contributes to injury this may reduce the amount of damages (contributory damage).
      • This does not relieve the manufacturer of the duty to warn.

Time of supply

  • Goods that meet community expectations of safety at the time of supply are not defective if those expectations change later.

Other relevant circumstances

  • Other circumstances considered may include:
    • the nature of the product;
    • community knowledge;
    • the likelihood of risk appreciation; and
    • the price of the goods.
  • Inherently dangerous goods are not necessarily defective unless the danger is not well-known to the general community.
  • Intermediaries in the sale or supply of goods may be liable if responsible for the marketing and packaging: Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53 (Rothman J).
  • A product will not be defective merely because a safer product is subsequently provided for sale: ACL s 9(3).
  • An inference that goods have a safety defect is not to be made only because there was compliance with a Commonwealth mandatory standard for them, and that standard was not the safest possible standard having regard to the latest state of scientific or technical knowledge when they were supplied by the manufacturer: ACL s 9(4).
    • This issue may be considered by the Court, but must not be the sole basis for finding a safety defect.

Action for personal injury

  • ACL s 138(1) provides a cause of action for personal injury where:
    • a manufacturer supplies goods in trade or commerce;
    • the goods have a safety defect; and
    • the individual suffers injuries as a result.
  • The manufacturer is liable for the amount of the loss or damage suffered: ACL s 138(1)–(2).
  • In the case of death, state or territory law applies: s 138(3).
  • Owners of goods, as well as innocent bystanders, can claim if injured by goods.

Causation

  • A causal link must be established.
  • There is a rebuttable presumption that a defect is present at the time of supply if it caused the injury: Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd (2004) ATPR 42-014.
    • The link between the defect and the injury must be established by the plaintiff.
    • It is inferred, unless the manufacturer proves otherwise, that the defect was present at the time of the injury.
  • If the injured party would not have acted on the dangerous advice of a third party had there been adequate warnings on the product, causation can be established: ACCC v Glendale Cleaning Products Pty Ltd (1998) 40 IPR 619, affd Glendale Cleaning Products Pty Ltd v ACCC (1998) 90 FCR 40.
  • Causation should be considered along with ACL s 142.

Measure of damages

  • Damages should be assessed the same as negligence at common law: Skerbic v MacCormack [2007] ACTSC 93.

Action for loss or damage suffered by dependents

  • ACL ss 139(1)–(2) provides a cause of action identical to s 138(1), but applying to where a dependent of the injured party suffers its own loss as a result of the relationship (except where the relationship is a business relationship).
  • The cause of action is only available to natural persons (not corporations) who sustain injury or loss due to a non-business relationship with the first-injured party: Steneger v J Corp Pty Ltd [1999] ATPR 41-695 (Deane J).

Action for consumer goods destroyed or damaged

  • ACL s 140(1) provides a cause of action in almost the same terms as ACL s 138, but applies where the defect causes damage to or destruction of other consumer goods intended for personal, domestic or household use.
    • This excludes damage to the defective goods themselves.
  • The inclusion of a defective component in finished goods will render the whole defective.
    • This can produce inconsistent results: see Kellam, ‘Liability for Manufacturers and Importers of Defective Products in Australia under Part VA of the Trade Practices Act’ [1994] Consumer Law Journal 87, 93.
      • An original battery that explodes and damages a car will not cause damage to or destruction of other consumer goods, but a replacement battery that has the same effect will.
        • Other actions can still exist for breach of guarantee under other provisions, such as guarantees of acceptable quality or fitness for purpose.

Action for damage to land, buildings or fixtures

  • ACL s 141(1) provides a cause of action in almost the same terms as ACL s 138, but applies where the defect causes destruction of or damage to land, buildings or fixtures.
  • The land, buildings or fixtures must be of a kind acquired for private use and must have been used or intended for use for a private purpose.

Defences

  • ACL s 142 provides four defences:
    • that there was no defect at the time of supply;
    • that the defect was caused by compliance with a mandatory standard;
    • the state of the art defence; and
    • the component defence.

No defect at time of supply

  • A manufacturer can avoid liability by demonstrating that the safety defect did not exist at the time of supply.
    • In the case of electricity, this is at the time of generation rather than transmission or distribution.
  • If the manufacturer can show on balance of probabilities that the goods were defect-free at the time of supply, this will be sufficient.
    • If the defect is of a particular nature, evidence of the manufacturing and quality-control processes may be useful: see, eg, Carey-Hazel v Getz Bros & Co (Aust) Pty Ltd (2004) ATPR 42-014.
      • It is not necessary to prove that the defect occurred at a later point.
    • If it is possible, even though unlikely, that the defect occurred during manufacturer, and the manufacturer cannot demonstrate that the defect occurred after it was supplied, the manufacturer may still be liable: Effen Foods Ltd v Nichols [2005] NSWSC 332.
      • It must be more than possible that the defect occurred after supply — it must be probable that it did.

Compliance with a mandatory standard

  • A manufacturer will not be liable if the safety defect was a result of compliance with a mandatory standard.
  • Mandatory standards are standards relating to the goods that must be complied with under a state, territory or Commonwealth law: ACL s 2.
  • The defence must be considered in conjunction with ACL s 148.
    • The manufacturer must give the Commonwealth, as soon as possible:
      • notice of the action being brought against the manufacturer;
      • notice about the defence the manufacturer intends to rely upon; and
      • a copy of the manufacturer’s intended defence.
    • The Commonwealth is joined as a defendant.
    • The Commonwealth will be liable if it is found that the defect is a consequence of that standard.
      • Cost orders will also be available against the Commonwealth.
  • Compliance must be the sole cause of the defect.

State of the art defence

  • The state of the art defence is available where the manufacturer demonstrates that the defect could not have been discovered in the light of the state of scientific and technical knowledge at the time of supply.
    • This is intended to avoid limiting innovation.
    • The objective state of science and technology is considered rather than any individual’s knowledge.
      • Manufacturers must consequently keep up-to-date: the time considered is the time of supply rather than manufacturer.
  • The defence is available where there is a possibility of a safety defect, but to discover the defect would require the destruction of the goods (such as hepatitis in oysters): Ryan v Great Lakes Council [1999] ATPR (Digest) 46-191

Component defence

  • Component manufacturers are liable for safety defects: ACL s 2 (definition of ‘goods’).
    • This is only if the component is inherently defective — if the defect is caused by the act or omission of the final manufacturer, liability can be avoided: ACL s 142(d).

Individual’s share of responsibility

  • Damages are adjusted where the injured party has contributed to the loss: Competition and Consumer Act 2010 (Cth) s 137A.
  • If the injury had occurred regardless of any act or omission of the injured party, the apportionment is unlikely to apply: ACCC v Glendale Cleaning Products Pty Ltd (1998) 40 IPR 619.

Time for commencing actions

  • Under ACL s 143 the limitation period is three years after a person becomes aware of all of the following:
    • the alleged loss/damage;
    • the safety defect of the goods; and
    • the identity of the manufacturer.
  • Notwithstanding, the action must be commenced within 10 years of supply.

Joint and several liability

  • Liability is joint and several if two or more persons are responsible for the same loss or damage: ACL s 144.

Representative actions by the regulator

  • The regulator (the Australian Competition and Consumer Commission (‘ACCC’)) can bring defective goods actions on behalf of persons who suffer loss or damage with prior written consent of the affected persons: ACL s 149.

Application of statutory provisions not to be excluded or modified

  • It is not possible to exclude liability for a cause of action under ACL pt 3-5: ACL s 150.
    • The term of exclusion must be express or inconsistent with ACL s 150: ACL s 150(2).
  • Attempts to exclude liability may give rise to:
    • civil liability: ACL s 29(1)(m); or
    • criminal liability: ACL s 151(m).

Scope for overlap

  • Conduct that breaches ACL pt 3-5 will not contravene any other provision merely because of that fact: ACL s 15.
    • There may be other surrounding circumstances that bring it under other provisions such as:
      • misleading promotional material as to safety may breach ACL s 18; and
      • misleading representations as to performance characteristics may breach ACL s 29(1)(g);
  • By undertaking a voluntary product recall, the supplier may be taken to acknowledge (expressly or impliedly) that the goods are unsafe, contrary to the guarantee of acceptable quality.
    • The supplier cannot elect to repair or replace goods — the consumer is entitled to a refund.
    • The supplier may also be acknowledging the presence of a safety defect.
  • The pre-ACL position was described as a ‘legal morass’: Kellman and Nottage, ‘Happy 15th Birthday! Australia’s Product Liability Morass’ (2007) 15(1) Competition and Consumer Law Journal 26, 64.
    • The situation has not improved under the ACL.

Examples of claims with overlap

  • Claims for compensation for damage caused by defective produces can be formulated in a number of ways:
    • If the manufacturer makes false or misleading representations about performance characteristics (safety) of the goods on packaging or labelling or in advertising, this may be a breach of ACL ss 18, 29(1)(g).
      • The corresponding cause of action is in ACL s 236.
    • The manufacturer may be in breach of the guarantee of acceptable quality (ACL s 54) or guarantee of fitness for purpose (ACL s 55).
      • Damages are calculated according to ACL s 272(1)(a).
    • Any of the ACL ss 138–141 causes of actions may apply against the manufacturer.
    • A consumer may also have a claim for breach of implied conditions as to merchantable quality or fitness of purpose implied into a contract under the Sales of Goods legislative regime: ACCC v Glendale Cleaning Products Pty Ltd (1998) 40 IPR 619; Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53; Drew v Makita (Australia) Pty Ltd [2009] Qd R 219.
    • A consumer may also have a claim in negligence for breach of a duty of care: Donoghue v Stephenson [1932] AC 562; Grant v Australian Knitting Mills (1935) 54 CLR 49; Wyong Shire Council v Shirt (1980) 146 CLR 40, 47.

Advantages and disadvantages of safety defect claims

  • ACL pt 3-5 div 2 claims for defective goods have advantages over negligence:
    • they are strict liability, so there is no need to establish actual negligence; and
    • representative actions can be brought by the regulator.
  • The principal disadvantage of the ACL causes of action are the imposition of caps on damages, thresholds for liability, and proportional liability via Competition and Consumer Act 2010 (Cth) s 87E, pt VIB.
  • Misleading and deceptive conduct claims for failure to comply with acceptable quality or fitness for purpose guarantees may be more attractive as they are strict liability and do not have a state of the art defence.
    • Peterson v Merck Sharpe & Dohme (Aust) Pty Ltd (2010) 184 FCR 1: safety defect claim failed due to successful use of the state of the art defence, but the respondent was held liable because the product was determined to be not of merchantable quality.
  • Strict liability and lack of state of the art defence pose problems for pharmaceutical manufacturers where negative side effects may be impossible to avoid:
    • A small statistical chance of injury will not by itself mean the goods are defective: Explanatory Memorandum, Trade Practices Amendment Bill 1992 (Cth) 8 [21].
  • Courts have not yet determined whether ‘reasonably fit’ in the context of fitness for purpose imports a similar defence to the state of the art defence.
  • Facts known at the time of trial can be considered, even if they were not known or appreciated at the time of manufacture: Medtel Pty Ltd v Courtney (2003) 126 FCR 219.