It is important for manufacturers, importers and retailers to understand that they can be liable for safety defects in their products. Everyday items can cause a lot of damage, from contaminated food to exploding cell phone batteries. If your business provides products with safety defects, you will be vulnerable to legal claims. You may need to pay compensation for the damage or injury that your product caused. This article will discuss manufacturer’s liability and the different ways that consumers can enforce their rights against manufacturers and other suppliers. It will also include some tips for how to reduce the risk of being taken to court over a product liability claim

What is Product Liability?

Product liability is an area of law that ensures those who make products available to the public are held legally responsible for injuries that those products cause. It is relevant to anyone involved in a commercial supply chain. This includes businesses that manufacture, distribute, supply or otherwise make the product available to the consumer.

If you are sued for damage caused by your defective product, then the court will consider factors such as:

  • the product’s quality;
  • how you represented the product (i.e. through its packaging, warnings or instruction booklet); and
  • loss or damage arising from the product (i.e. physical injury or damage to private property).

How Does a Consumer Make a Product Liability Claim?

Consumers have strong rights in this context and have multiple ways to sue someone over damage caused by a safety defect. Typically, there are three options for consumers to bring a claim.

Option 1: Breach of Contract

A consumer won’t necessarily need to have a direct contract with you to take you to court. If you are part of a series of contracts that govern the product’s journey from the assembly line to the shop floor, you may still be liable.

In principle, a consumer can only take action against the other party in the contract. Since the contractual relationship in these circumstances will generally be between the retailer and the consumer, the consumer will typically be able to take action against the retailer. However, the retailer can then seek a remedy from its contractual partner. This continues up the chain of suppliers and distributors to the original manufacturer.

It is common for businesses to pass on risk through their contracts. Therefore, no matter where your business operates in the supply chain, you could potentially include an indemnity clause in your contracts (i.e. a clause that states that another party will absorb your legal costs if you are sued). As a result, liability could fall on the party who simply wasn’t able to negotiate a good deal.

Option 2: Negligence

Product liability is determined by more than contractual relationships. The law states that the original manufacturer of goods owes a duty of care to members of the public using their product. This means that if the manufacturer breaches that duty of care, a member of the public may be able to skip the retailer they contracted with, and sue the manufacturer directly.

There is a famous English case which established this principle (known as the tort of negligence). Ms Donoghue had the misfortune of drinking a ginger beer contaminated by a decomposing snail, and the court agreed that she had grounds to sue the bottler, Mr Stevenson, directly. The court determined that the bottler, Mr Stevenson, owed a duty of care to Ms Donoghue to safeguard her against foreseeable risks of injury. The court held him liable for her consequent illness.

It is generally accepted that other parties in a supply chain (whether retailers, importers, distributors) which add to or modify a product including packaging and labelling will also owe a duty of care to the consumer. On the other hand, you are not expected to test or inspect products in sealed containers which would not normally be opened until they reach the end user.

Option 3. Australian Consumer Law

In Australia, the Australian Consumer Law (ACL) further protects consumers.

Under the ACL, a ‘consumer’ is a person who has acquired goods that are:

  • $40,000 or less;
  • generally used for personal, domestic or household use or consumption; and
  • not purchased for resupply.

The term ‘manufacturer’ is broadly defined and includes the actual manufacturer as well as people who:

  • produce goods;
  • import goods into Australia; or
  • allow their brand or name to be applied to goods.

For example, if another business manufactures chemical cleaner in Bangladesh and you sell it in Australia under your own brand, you may still be considered a manufacturer.

With these broad definitions, it is often easier for a consumer to make a claim over a defective product under the ACL than under the previous two options (contract law or negligence). The ACL also has a regulatory component. It provides a mandatory safety standard for products and gives the government the power to issue product bans or recall consumer goods that could cause injury. Therefore, you need to be aware that it is not just consumers that can hold you responsible for safety defects.

Manufacturer’s Defences

If a consumer sues you for product liability, you may be able to avoid liability. However, you will need to prove that the:

  • safety defect did not exist at the time of supply;
  • product that you produced was merely a component of the finished product, and the safety defect arose due to the overall design of the finished goods or the packaging, instructions or warnings in those finished goods;
  • you could not have discovered the safety defect when you supplied the goods because there was insufficient scientific or technical knowledge at the time; or
  • safety defect only existed because you complied with a mandatory standard (in which case the government may have to pay any compensation).

Practical Steps for Manufacturers to Protect Themselves

Rather than waiting for a defect to occur and defending yourself in court, all manufacturers and suppliers should proactively take steps to reduce the risk of an accident occurring.

Contracts As mentioned above, you can negotiate indemnity clauses into your contracts. These clauses pass risk on by requiring another party to absorb legal risks. However, it is important to note that you cannot contract out of negligence (i.e. your duty of care).
Quality Assurance You should have in place policies for product reviews and quality assurance in order to minimise the risk of problems emerging with products in the first place. These policies should comply with safety standards under the ACL.
Packaging Ensure that your marketing and packaging includes clear and detailed descriptions, assembly instructions and warnings.
Insurance Insurance companies offer products and public liability insurance or business pack insurance that includes product liability insurance.
Keep Records Under the ACL, consumers can take action within ten years of the time you supplied the goods with safety defects. Therefore, it is important to keep good records and to manage your contracts. This will make it easier to find information necessary to defend the claim.
Product Recall If you become aware of an issue, you should have a procedure in place to warn consumers and recall products to reduce the risk of further injuries.

Key Takeaways

Product liability affects businesses at every stage of the production and sale process, including manufacturers, distributors, suppliers and retailers. Consumers are granted wide protections for goods with safety defects and businesses should proceed with caution. While there are defences for manufacturers to raise if a consumer takes you to court, it is important to put in place practical steps to protect yourself from being sued. If you would like to discuss the steps you can take to minimise the risks of claims arising in these circumstances, or have an issue with product liability, you can contact LegalVision’s competition lawyers on 1300 544 755 or fill out the form on this page.

Simon Hillier
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