Who’s bought something recently?

Chances are, you’ve bought some kind of product today, or at least this week.

Our consumer behaviour is great for Aussie business – it opens up opportunities to start a store, online or offline.

But what happens if something you sell is broken or defective? Who’s fault is it? Who has to pay?

This is where it helps to understand product liability.

What Is Product Liability?

Product liability basically means that manufacturers, distributors or suppliers are legally responsible if they:

  • Make defective products available to the public; and
  • Cause loss or damage as a result.

Is This The Same As Manufacturer’s Liability?

Yes – you can think of Manufacturer’s Liability as a type of Product Liability.

Australia’s product liability laws are made from a mixture of state and federal law.

The Australian Consumer Law (‘ACL’) is the federal law that generally applies to manufacturers supplying consumers goods in trade or commerce.

This is normally called ‘manufacturer’s liability’, but it falls under the umbrella of product liability.

Why Does Product Liability Exist?

These laws are in place to protect the public from products that are faulty and could be dangerous.

Which makes sense, because a lot could go wrong if there are defects in a product.

There could be all manner of injuries, financial loss and, in the worst scenarios, death. It’s serious stuff.

But don’t worry, there are things you can do about it.

The obvious one is not to sell defective products. Quality control is important!

We get it though – you can’t always be 100% sure nothing will go wrong. Which is why you want to limit the business risk of a product liability claim as much as you can.

Who’s Liable?

You’re probably wondering, is my business the one who has to worry about this?

Whether you are manufacturer, wholesale or retail – product liability is relevant at all levels.

To keep it simple, let’s think about 3 potential scenarios.

Scenario 1 – You’re the manufacturer:

You are the manufacturer of a product in Australia. You create a defective product and sell it to a consumer. In this case, you may be liable and the consumer may have a claim against you.

Scenario 2 – You sell goods manufactured in Australia:

You run a shop selling products that are manufactured by a different Australian company. You sell a defective product to a consumer. In this case, you AND the manufacturer may be liable and the consumer may have a claim against you both.

If the consumer makes a claim against you as the shop, you may be able to make a claim against the manufacturer to recover the costs.

Scenario 3 You sell goods manufactured overseas:

You run an online shop selling imported products that are manufactured by a different international company. You sell a defective product to a consumer. In this case, you may be liable and the consumer may have a claim against you.

If the manufacturer is not in Australia, the ultimate product liability falls to the importer of the products.

How Do You Prove Product Liability?

If a consumer thinks they have a product liability claim, how do they prove it?

As we mentioned at the start of this article, under the ACL a consumer can seek compensation from a manufacturer who has supplied a defective product, and the consumer has experienced ‘loss or damage’ as a result.

A consumer has 3 years from the date they become aware of any loss or defect, or the identity of the manufacturer, to make a claim.

So first, the consumer needs to prove there was a defect with the product.

Second, the consumer needs to prove that they suffered loss or damage.

‘Loss or damage’ may include:

  • Injuries suffered by the person making the product liability claim
  • Injuries or death of another person, other than the person making the claim
  • Economic loss caused by the defective product

What Happens If There Is A Product Liability Claim?

A consumer can take action by:

  • Bringing an action against the manufacturer in court
  • Making a complaint to a consumer protection agency (like the ACCC)

In the event that someone has been injured or has died as a result of a defect, any dependents of that person can also claim for losses they suffered.

If the consumer makes a successful claim against the responsible business, then the court decides how much compensation needs to be paid.

What Isn’t Covered By Product Liability?

Some types of loss do not fall under product liability. These include:

  • Any damage to commercial property
  • Losses incurred from a business relationship (like loss of profits)
  • Losses incurred from claims for workers’ compensation
  • Losses that fall under international agreements

Product Liability Insurance – What Is It And What Does It Cover?

If you’re feeling a bit nervous about product liability, that’s understandable.

Luckily, you’re not alone.

Dealing with a product liability claim is a commercial risk that many businesses face. Limiting your liabilites in your standard T&Cs is a good start, but for extra piece of mind, you might want to look into getting product liability insurance.

Product liability insurance helps your business cover legal fees associated with defending a product liability claim.

This safeguards business owners and directors by helping them cover various instances where a product has caused damage or harm. After all, who wants to be thinking about worst case scenarios all day?

You should speak to an insurance specialist to find out if product liability insurance is right for your business, and the level of cover required.

Can I Avoid Product Liability?

The number one way to avoid product liability claims is to make safe products!

From the beginning, it’s a great idea to have a culture of safety and quality assurance processes in your business.

The next thing – particularly if you’re not a manufacturer – is to be aware of who your manufacturers are. For example, the ultimate manufacturer may not be your immediate supplier, so it’s important to do proper due diligence. Do you know which company creates your products and where they are based?

Some other practical tips are:

  1. Product testing – a thorough testing of your product can help bring to light any defects in the manufacture or design. This will also help you prove that your business took all reasonable steps to avoid defects.
  2. Provide warnings on dangerous goods – this is pretty straightforward. Warnings should be appropriate and effective in notifying consumers of any potential dangers.
  3. Review suppliers – retailers or distributors should review their supplier’s procedures to see if there are any red flags.

Finally, you can minimise the commercial risks of a product liability claim by looking into product liability insurance.

What to Take Away….

Any business that is manufacturing, distributing or otherwise selling products should be aware of how product liability impacts them.

You should try your best to have safe, good quality products. But at the end of the day, every time you are providing some sort of product to the public, there’s at least a small risk that something could go wrong.

This doesn’t just apply to dangerous products – even the most safe looking products could be defective and cause harm!

At the end of the day, the product liability laws in Australia are designed to protect consumers, not business. Which is actually great for all the times you are a consumer!

As a business, you want your T&Cs to be bulletproof and may want to look at getting product liability insurance as another way to minimise the commercial risks of a product liability claim.

If you want some extra clarification on how product liability applies to your business, or other information about complying with the Australian Consumer Law, feel free to get in touch with us at Sprintlaw. We’re happy to help!

About Sprintlaw

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