What is Product Liability?

If your business provides products to the public then you have a responsibility to ensure your products are safe. In short, you need to comply with product liability laws.

Product liability is an area of law in which those who make products available to the public are held legally responsible for injuries caused by those products.  This includes businesses that manufacture, distribute, supply or otherwise make the product available to the consumer.  Product liability therefore affects businesses at every stage of the production and sale process, including manufacturers, distributors, suppliers and retailers.

In Australia, consumers are protected in respect of product liability by the provisions of the Competition and Consumer Act 2010 (formerly the Trade Practices Act 1974), in particular Parts 3 to 5 of the Australian Consumer Law.  These provisions enable consumers to seek compensation or damages from product manufacturers, distributors, suppliers and retailers for personal injury or loss caused by a product.

Generally, the manufacturer or importer will be liable for its products (particularly if they are unsafe or do not meet Australian standards). If the manufacturer and/or importer cannot be identified, no longer exist or any action against them is likely to be unenforceable (for example, if they are located overseas, do not have a presence in Australia and/or no longer supply their products to Australia) then the retailer of a product may be held liable for personal injury or loss caused by the product.

How can you Protect your Business?

There are a number of ways a business, regardless of whether it is a manufacturer, distributor, supplier or retailer, can protect itself from product liability claims by reducing its exposure to such claims.  These ways include:

  • Pass on risk in your contracts – no matter where your business operates in the supply chain, you should try to minimise your risk exposure through your contractual arrangements with other parties in the supply chain.  For example, include a clause in your contracts where the other party indemnifies your business against any product liability claims.
  • Internal policies – each business should have in place policies regarding product reviews and quality assurance in order to minimise the risk of problems emerging with its products.  Such policies should be implemented and updated from time to time and should include regular product testing and reviews to ensure the products meet Australian standards.
  • Marketing and packaging – each business’s marketing of its products should be targeted so those products are purchased by the correct user groups and the packaging and product instructions should be clear, detailed, include appropriate direction as to how a product should be used and warn consumers of dangers associated with improper product use.
  • Taking swift action if a problem arises – if a business becomes aware that there is a problem with a product (for example, a product defect or safety risk) then the business should take steps to warn consumers about the problem and if necessary institute a product recall.
  • Insurance – insurance companies offer products and public liability insurance or business pack insurance that includes product liability insurance.  Subject to the exclusions in any particular policy, product liability insurance should protect a business against product liability claims.
  • Record-keeping – an injury may not be sustained by, or damage caused to, a consumer for many years after your product has been supplied to them.  It is therefore critical that you maintain your business records for many years, including copies of contracts with other businesses in the supply chain so that you have all the information you need to defend a claim (if one arises) and hopefully pass on the risk of the claim to another business.

Conclusion

There is no magic to these things, but if your business is organised and well structured then you should be able to minimise the risk of product liability and protect your business against such claims, whenever they arise.

Lachlan McKnight

Next Steps

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