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Manufacturers have a number of responsibilities they owe to consumers and suppliers. If the manufacturer breaches their obligations, such as by selling suppliers defective products, they may trigger a product recall. For businesses engaging directly with manufacturers, a vital business consideration should be the possibility of your manufacturer’s products being recalled. This article sets out the obligations of manufacturers and clauses which businesses should consider including to minimise their liability during product recalls.

What Are Product Recalls?

Product recalls are requests to remove products from sale on the market and can include returning the product to the manufacturer. Generally, product recalls are undertaken to protect consumers from potential harm. Examples of events prompting product recalls include:

  • cars with defective airbags;
  • contaminated food; and
  • products containing excessive amounts of dangerous chemicals such as lead.

What Are a Manufacturer’s Responsibilities?

Manufacturers must ensure the goods they produce are of an acceptable quality and have spare parts or repair facilities available. Further, the goods provided by manufacturers must comply with the description of the goods, the promises the manufacturer made and the Australian product safety standards. Therefore, you may wish to ensure that manufacturers comply with their obligations by requiring them to perform certain acts, including:

  • undertaking ongoing product testing;
  • ensuring the products are free from error; and
  • requiring the manufacturer to review their procedures and safety protocols on a regular basis.

Goods are of acceptable quality when they: 

  • operate as the good is expected to. For example, swimming goggles should not leak;
  • contain no defects; and
  • are safe and durable.

How to Detect Safety Issues or Product Defects

Safety issues or product defects can be made known in a number of ways, including:

  • through issues being discovered throughout the supply chain. For example, a manufacturer imports ingredients from a business that previously had a product recall overseas;
  • through customer complaints; or
  • through notification by the Australian Competition and Consumer Commission (ACCC), safety regulators, consumer organisations or industry bodies.

Initiating Product Recalls

A product recall may be initiated by:

  • the manufacturer recalling products voluntarily;
  • the ACCC or another regulator requesting that a product recall take place by negotiating with the manufacturer; or
  • the ACCC recommending the relevant minister initiate a compulsory product recall.

Additionally, the manufacturer must inform the Minister for Consumer Affairs and anyone overseas who received their goods if a product recall is initiated.

The Product Recall Process

To complete a product recall, the manufacturer will need to remove the product from the marketplace. This is will require the manufacturer to take initiatives such as:

  • ceasing the manufacturing of the product;
  • ceasing the ongoing distribution of the product;
  • notifying any relevant distributors to remove the product from sale;
  • notifying the public and any other relevant parties, including regulators or international purchasers of the product;
  • accepting the return of the product from consumers;
  • storing and disposing of the product in a safe manner, especially with defective chemicals and foods; and
  • maintaining adequate records to demonstrate the product recall process.

There may be additional required actions which are specific to the product in the question. As such, you or the manufacturer may need to conduct risk analysis  before commencing the recall process.

What Should You Include in a Manufacturing Agreement?

If you sell a manufacturer’s products, consumers may be able to bring an action against you for selling defective products. Therefore, your manufacturing agreement should include clauses which guarantee the products provided to you are safe. This may include elements such as:

  • a guarantee that the manufacturer provides products that are safe and work as intended;
  • a guarantee that the manufacturer will undertake safe practices in the manufacturing process;
  • a clause requiring the manufacturer to undertake product and quality testing regularly, such as with vehicle airbag testing; and
  • depending on the product you are creating, a clause setting out the process for collecting and approving of samples.

What Should You Include in a Product Recall Clause?

Manufacturing agreements should include a product recall clause. This clause should set out the terms of your relationship with the manufacturer such as their obligation to:

  • cooperate with you;
  • undertake your reasonable instructions; and
  • comply with the requirements of a product recall.

The agreement should also specify that the manufacturer should notify you of any issues in the supply of the product. Additionally, the clause should cover who will be liable for the costs of any recall. For example, if the manufacturer caused the recall, they should be liable for costs relating to the product recall and losses which arise from any business you potentially lose in the process.

Key Takeaways

Overall, businesses which engage manufacturers should remember that:

  • even though manufacturers create the product, you may still be liable for supplying defective or unsafe products; and
  • including robust clauses in your manufacturing agreement is essential to ensure the manufacturer takes responsibility for providing you with defective products.

If you require assistance drafting or reviewing a manufacturing agreement or product recall clause, get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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