Retailers that operate online or from a physical premise should know about product liability laws, not only to manage their relationship with customers but also, help choose the right manufacturers. A retailer’s brand reputation hinges on the quality and safety of the goods they have on offer. If a retail business sells products that are deemed unsafe or defective, the retailer’s business may be negatively affected. We simplify the product liability issues retailers encounter and how they can protect their business.

Consumer Protection Laws

Under the Australian Consumer Law (ACL), consumers can seek compensation from manufacturers if the product they purchased causes loss or damage. These losses or damages can range from economic loss to physical harm such as an injury to a person who has used the product. Under the ACL, an affected consumer can make a claim within three years of experiencing the loss or damage.

Undertaking Due Diligence of Manufacturers

Retailers should undertake thorough due diligence of any prospective manufacturers. Depending on the product that you intend to sell, due diligence steps can vary. A retail business should:

  1. Get to know the manufacturer – this may include visiting the location where the specific goods are made, requesting details of their safety and testing process or reviewing the end products yourself; and 
  2. Obtain contractual protection – negotiate your contract to include warranties and guarantees concerning any goods you or your customer purchase as well as the process for returning faulty products. 

Undertaking thorough due diligence will help to ensure that you sell only quality-tested and safe products through your business.

Being Aware of the Definition of ‘Manufacturer’

The ACL also defines a ‘manufacturer’, which includes businesses involved in the following activities:

  • making or assembly of goods;
  • importing goods where the manufacturer does not have an Australian office;
  • uses their brand identity to sell the goods; and
  • promotes their business as the manufacturer of the goods or allows another business to promote their business as the manufacturer of the goods.

In certain circumstances, a retailer may also be considered a manufacturer according to this definition. For example, if you were to operate an online store and purchase electronic devices from China and marked them with your brand logo when selling to Australian consumers, you may be covered under the definition of a manufacturer.

Using the above example, a consumer that were to experience any loss or damage from a good purchased from your online store may be able to go directly to you, as opposed to the manufacturer, for compensation. It’s critical for retailers to have trust in the manufacturers they do business with, particularly if they want to use their brand image to sell the products to consumers.

Managing Customer Expectations

As a retailer, you have a direct relationship with purchasers of your goods – you are responsible for clearly explaining appropriate use. This will allow you to manage your customer’s expectation and will limit your risk in the goods causing loss or damage.

This also ties back to your relationship with the manufacturer as it is possible you will need to receive from them information, instructions and guidelines.

Insurance

It’s important you are appropriately insured for product liability. Retailers are not always immune to product liability claims and should ensure that they take this into consideration when reviewing a potential manufacturer. Choosing the right insurance for your business and the products you make or sell is crucial.

Key Takeaways

If you are a retailer, both on and offline, you have a strict duty to comply with the Australian Consumer Law, specifically in regards to product liability. Familiarise yourself with the provisions in the ACL that apply to you or your products, and revise your understanding of the definition of manufacturer. Also, speak with an insurance broker about product liability insurance to protect your business.

Questions? Get in touch with our consumer lawyers on 1300 544 755.

Kristine Biason

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