What Should A Product Recall Clause Say?

Mia runs an online baby products store from Melbourne. One morning, a customer emails to say a clip on one of Mia's bestselling prams snapped while they were using it. A few hours later, another customer reports the same issue.

Mia bought the prams from an overseas supplier and sold them through her Shopify store. She has purchase orders, invoices and product photos - but no clear supplier contract that says who investigates the safety issue, who pays for the recall, or who contacts customers.

That's exactly where a product recall clause can save a lot of stress. If you sell physical products online, your contracts should connect what your supplier promises to do with what your business may need to do under Australian product safety laws.

What Is A Product Recall Clause?

A product recall clause is a contract term that explains what happens if a product is unsafe, defective, non-compliant or needs to be removed from sale.

For an ecommerce brand, this clause usually sits in your supplier agreement, manufacturing agreement, distribution agreement or wholesale terms. It can also be supported by your website terms and conditions, product safety policies and internal recall process.

A good product recall clause should deal with practical issues like:

• when a recall, withdrawal or safety investigation is triggered
• who decides whether a recall is needed
• who must notify the other party, and how quickly
• who pays for testing, refunds, replacements, freight and disposal
• what records and evidence each party must keep
• how customer communications will be handled
• whether the supplier must indemnify your business for losses caused by the product issue

This matters because ecommerce recalls move quickly. Once you have customers emailing, social media comments appearing and orders still being packed, you need a clear process - not a debate with your supplier about whose problem it is.

Do Ecommerce Brands Have Product Recall Obligations In Australia?

Yes, ecommerce brands can have product recall obligations in Australia if they supply consumer goods that are unsafe, banned, defective or non-compliant.

The main law to know is the Australian Consumer Law, which sits in Schedule 2 of the Competition and Consumer Act 2010. The Australian Competition and Consumer Commission, or ACCC, has a key role in product safety and recalls.

Even if you don't manufacture the product yourself, you may still be a supplier under the Australian Consumer Law if you sell the product to Australian customers. Depending on the circumstances, you may also have extra exposure if you import the products or if the manufacturer is difficult for Australian customers to identify.

Your obligations may include:

• not supplying products that are unsafe
• complying with any mandatory safety standards that apply to your product category
• complying with any information standards, warning labels or safety instructions
• not supplying products that are subject to a ban
• reporting certain serious product safety incidents
• conducting an effective recall if one is needed
• providing remedies to customers where the Australian Consumer Law requires it

If you voluntarily recall a consumer product because it may cause injury, doesn't comply with a safety standard, or is banned, you generally need to notify the Commonwealth Minister through the ACCC's Product Safety Australia process within 2 days after taking recall action.

There's also a mandatory reporting rule. If you become aware that a product you supplied may have caused a death, serious injury or serious illness, you generally need to submit a mandatory report within 2 days of becoming aware of the incident.

The practical point is simple: your customer-facing legal duties don't disappear just because the defect came from your supplier. Your supplier contract and product recall response plan should help you recover costs and get support, but you still need a plan for what your business will do with customers, regulators and stock.

What Should Your Supplier Recall Clause Cover?

Your supplier recall clause should cover triggers, cooperation, costs, notices, customer communications, evidence and indemnities.

Templates often deal with recalls in one or two vague lines, so careful clause drafting can be risky for ecommerce brands because recalls are operational as much as they're legal. You need wording that fits how your products are sourced, stored, shipped and sold.

Recall Triggers

Your clause should say when the recall process starts. This could include:

• a product safety complaint from a customer
• a suspected defect, contamination, fault or design issue
• a failed test or audit
• a breach of an Australian mandatory safety standard
• a regulator inquiry or notice
• a supplier recall in another country
• a product being banned, withdrawn or flagged as unsafe

It can help to separate a full recall from a product withdrawal or stop-sale. For example, you might pause sales while testing is underway, even if you haven't yet decided that customers need to return the product.

Supplier Cooperation

Your supplier should agree to cooperate quickly and provide the documents you need. This might include:

• batch numbers and production dates
• test reports, product specification records and compliance certificates
• ingredient, component or material details
• factory audit records
• shipping and distribution records
• details of similar complaints overseas
• technical help to assess the defect

For example, if Mia's pram clips came from three different production batches, she needs to know whether the problem affects one batch or every pram sold. Without that information, she may need to take a broader and more expensive approach.

Indemnities And Liability

An indemnity is a promise that one party will cover certain losses of the other party. In a supplier recall clause, you might ask the supplier to indemnify your business for losses caused by defective, unsafe or non-compliant products.

The wording should be specific. A useful indemnity might cover losses linked to:

• the supplier's breach of product specifications
• failure to comply with Australian product safety laws
• manufacturing defects or contamination
• incorrect labelling, warnings or instructions supplied by the supplier
• third party claims caused by the supplier's products
• recall, withdrawal, testing, transport and disposal costs

Your supplier may push back, especially if they're overseas or have their own standard terms. That doesn't mean you should give up. It means the clause needs to be negotiated carefully so the risk sits with the party best placed to control it.

Who Pays For Recall Costs?

It depends on your contract, but if your supplier caused the defect or compliance issue, your supplier agreement should make them responsible for the recall costs connected to that issue.

Recall costs can be much broader than the price of the products. You may need to budget for:

• refunds, repairs or replacements for customers
• customer service staff time
• emails, SMS notifications and website notices
• return freight and reverse logistics
• warehousing, quarantine and stock handling
• testing and expert reports
• destruction, disposal or rework of stock
• marketplace fees, chargebacks or payment processing costs
• lost margin on products you can no longer sell
• PR or communications support if the issue is serious

If your contract only says the supplier will replace defective stock, that may leave you out of pocket. Replacing stock doesn't cover the cost of contacting thousands of customers, paying return postage, dealing with refund requests or preparing regulator notifications.

There are a few common ways to deal with recall costs in supplier contracts:

• Full supplier indemnity: the supplier covers all losses caused by their defective or non-compliant products.
• Shared costs: the parties share costs where both contributed to the issue, such as where your business changed packaging or instructions.
• Fault-based approach: the party responsible for the cause of the recall pays the related costs.
• Caps and exclusions: the supplier may try to cap their liability or exclude indirect losses, which should be reviewed carefully.

Be careful with broad liability caps. If your annual spend with a supplier is $20,000 but a recall could cost $150,000, a cap at the amount paid under the last purchase order may not give your business much protection.

Also be careful with standard form contracts and unfair contract terms. Since changes to the unfair contract terms regime that started on 9 November 2023, unfair terms in standard form consumer and small business contracts can attract penalties. If you use standard supplier or customer terms, they should be balanced and tailored to how your business actually operates.

What Notice Duties And Records Should Your Contract Require?

Your contract should require fast notice of safety issues and clear record keeping, because delays and missing evidence can make a recall much harder to manage.

A product safety issue often starts with incomplete information. A customer complaint may be vague. A supplier may say they're checking with the factory. Your warehouse may still be picking orders. Your contract should give everyone a clear path to pause, investigate and document what happened.

Notice Duties

Your supplier agreement should say that each party must notify the other promptly if they become aware of:

• a safety complaint or incident
• a defect or suspected defect
• a failed product test
• a regulator inquiry or warning
• a non-compliance issue with labelling, warnings or safety standards
• a recall, withdrawal or investigation affecting the same product overseas

For high-risk products, you may want a specific timeframe such as immediate notice by phone and email, followed by written details within 24 hours. The right timing depends on the product, industry and risk level.

Your contract should also say who inside each business receives notices. Sending a safety issue to a generic inbox that no one checks over the weekend isn't good enough for products like baby goods, electrical products, cosmetics, supplements or products used by children.

Evidence And Records

Your contract should require the supplier to keep and provide records that help identify affected products. This can include:

• batch, lot and serial numbers
• manufacturing dates and locations
• quality control reports
• test certificates
• raw material or component records
• packing, labelling and instruction versions
• shipment records

Your own business should also keep records of what you sold, when you sold it and who received it. For ecommerce brands, this usually means keeping accurate order data, product SKUs, batch tracking where possible, customer contact details and fulfilment records.

If you sell through marketplaces as well as your own website, make sure you can still contact affected customers or work with the platform to send recall notices. A recall plan that only works for your own website may fall short if half your sales came through a marketplace.

Stop-Sale Rights

Your contract should let you stop selling affected products while the issue is investigated. You don't want to be forced to keep selling stock because the supplier hasn't admitted there's a defect yet.

A practical stop-sale clause can let you:

• quarantine stock in your warehouse
• remove product listings from your website
• pause marketplace listings
• stop pending orders from being shipped
• request urgent technical information from the supplier

This protects customers and gives you breathing room to work out the next step.

Can Your Website Terms And Conditions Help With Product Safety?

Yes, your website terms and conditions can help with product safety, but they can't remove your Australian Consumer Law obligations.

Your customer terms aren't a substitute for a supplier recall clause. They play a different role. They help set expectations with customers, support your customer contracts and give you permission to contact them about safety issues and explain how your business handles product information.

For ecommerce brands, product safety terms and conditions may cover:

• that customers should follow product instructions, warnings and age recommendations
• that customers should use products only for their intended purpose
• how customers can report safety issues or defects
• that you may contact customers about safety updates, recalls or product notices
• how returns, refunds, repairs and replacements work
• that nothing in your terms limits non-excludable rights under the Australian Consumer Law

You should avoid terms that try to make customers give up rights they can't legally give up. For example, saying all products are sold at the customer's risk or that you never provide refunds for faulty goods can create Australian Consumer Law problems.

Your privacy practices also matter. If you need to contact customers about a recall, you'll usually rely on the customer contact details you collected when they ordered. Your privacy policy and internal processes should support responsible handling of that information under the Privacy Act 1988 where it applies to your business.

Customer communications during a recall should be clear, calm and practical. A good recall notice usually explains:

• which product is affected
• how customers can identify it, including batch numbers or photos if helpful
• what the safety risk is
• what customers should stop doing
• what remedy is available
• how customers can contact you
• what happens to affected stock

Don't bury a recall notice in fine print or make customers chase you for basic information. If the issue is serious, a clear message can protect customers and reduce confusion for your team.

Key Takeaways

• A product recall clause helps your ecommerce brand respond quickly if a product is unsafe, defective or non-compliant.
• Under the Australian Consumer Law, your business may still have customer and regulator obligations even if the issue started with your supplier.
• Your supplier recall clause should cover triggers, stop-sale rights, cooperation, evidence, notices, costs and indemnities.
• Recall costs can include refunds, freight, testing, disposal, customer service time and customer communications - not just replacement stock.
• You should keep accurate order, batch and supplier records so you can identify affected products quickly.
• Your website terms can support product safety communications, but they can't take away customer rights under the Australian Consumer Law.

If you'd like help with your supplier agreements, product recall wording, ecommerce terms and customer safety processes, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.