What is a Defective Goods Action?

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Table of Contents

• Who is a Manufacturer?
• What is a Safety Defect?
• How Can Consumers Take Action?
• Can Manufacturers Raise a Defence in a Defective Goods Action?
• Key Takeaways

As a business, you may encounter instances where a customer complains about defective goods. Under the Australian Consumer Law (‘ACL’), consumers can pursue an action against a manufacturer for product safety defects where they suffered an injury, loss or damage. You might be familiar with the consumer guarantees the ACL provides your customers and the standard for product safety expected of manufacturers in Australia. However, the ACL can hold you legally responsible for product safety defects. This article explains how consumers can bring a defective goods action and what defences a manufacturer can rely on when consumers initiate such an action.

Who is a Manufacturer?

It is essential to understand who is a manufacturer under the ACL. If you think about the consumer goods that your business sells, you will see that their packaging indicates that multiple corporate entities are involved in the making of the product. For example, there are often different parties involved during branding, importation, packaging and distribution. This raises the critical question of whether all parties that have dealt with a product with a safety defect will be regarded as the manufacturers. 

Under the ACL, a person is a manufacturer if they:  

• manufacture goods;
• hold themselves out to the public as the manufacturer of goods;
• allow another party to represent to the public that they are the manufacturer;
• cause or allow their business name, brand or mark to apply to the goods; and
• import goods to Australia where the manufacturer does not have a business in Australia.  

If a consumer does not know who manufactured the goods, a consumer is entitled to request the manufacturer’s name from the supplier, who is often the retailer. If the supplier is unable or unwilling to provide details of the manufacturer, after 30 days, they will be deemed the manufacturer for a defective goods action.

What is a Safety Defect?

To pursue a defective goods action, a consumer must prove that the goods contained a safety defect. As a general rule, the law recognises that goods will have a safety defect if their safety is not at the standard that a consumer is generally entitled to expect. When determining the appropriate safety standard of the goods, the law considers:

• the way the product has been marketed;
• the packaging;
• the use of a mark in relation to the goods;
• any safety warnings or instructions in relation to the goods;
• the reasonable use and purpose of the goods; and
• the time in which the goods were supplied to the market.

How Can Consumers Take Action?

Under the ACL, consumers can pursue an action against a manufacturer for product safety defects where they suffered an injury, loss or damage. There are four defective goods actions consumers can take against a manufacturer. 

1. Defective Goods Causing Loss

Manufacturers are liable to compensate individuals if:

• they supply goods in trade or commerce; and
• the goods have safety defects that cause injuries or lead to death.

In other words, individuals can seek recovery for their losses through legal action.

2. Defective Goods Causing Injury to Another Person

A manufacturer is liable to compensate a person if the:

• goods have a safety defect, causing injuries to person A; and 
• person B suffers loss or damage due to person A’s injuries or death.

Person B can pursue such action provided there is no business or professional relationship between them and person A.

3. Defective Goods Causing Loss to Other Goods

A manufacturer is liable to compensate a person if: 

• they supply goods that have a safety defect that leads to the destruction or damage of other goods typically used for personal, domestic, or household purposes; and 
• the person incurs loss or damage due to this destruction or damage, entitling them to recover the amount through legal action against the manufacturer.

4. Defective Goods Causing Damage to Land, Buildings or Fixtures

A manufacturer can be liable where defective goods damage land, buildings and fixtures. However, a consumer can only pursue such action if the damage applies to land, buildings and fixtures acquired for personal use only. This means that a manufacturer cannot be liable where defective goods cause damage to commercial premises. 

Can Manufacturers Raise a Defence in a Defective Goods Action?

There are four defences a manufacturer of a defective good can rely on in the event that a consumer pursues legal action. Namely, the manufacturer can argue that the defect: 

• did not exist at the time of supply;
• occurred as a result of compliance with a mandatory standard;
• could not have been uncovered by the manufacturer due to the state of technical and scientific knowledge at the time; and
• is contained in the finished good and is connected only with the design, markings or instructions of the goods.

Key Takeaways

The ACL imposes strict obligations on manufacturers to supply goods that are safe for the community and do not cause injuries or loss to consumers. When a manufacturer has failed to comply with lawful standards of care, a consumer may bring a defective goods action. By taking measures to avoid a defective goods action, manufacturers reduce their legal liability and establish a good relationship with consumers. After all, a defective goods action has the potential to damage a manufacturer’s brand and associated goodwill significantly. 

If you are facing a defective goods action, our experienced disputes lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.