No matter what industry you are engaged in, you will no doubt have experienced the stress associated with the purchase, production, re-sale or use of defective goods or materials. It is a common issue, even where goods have been certified compliant with Australian Standards. In addition to the logistical challenges associated with the repair, replacement or refunding of such goods, defective products can carry serious liability risks, particularly where safety becomes a concern. Many businesses struggle to know, who exactly is liable for defective goods?
The Australian Consumer Law (ACL) has gone some way to demarcate such responsibility in relation to consumer goods. The basic (and rather obvious) principle is that the buck stops with the party to whom the fault can be attributed. Usually the manufacturer will bear the ultimate liability for the rectification costs, as well as compensation for any resulting loss and damage (including injuries, death or economic loss) (sections 138–149, ACL).
The ACL definition of “manufacturer” is broad and can extend to product retailers. If you or your business makes, imports the product (where the maker does not have an Australian office), uses its own brand name in relation to the product or holds itself out as the product manufacturer, you may be deemed to be the manufacturer (section7,ACL).
It is a concern for many businesses, particularly the building and construction industry where the burden is often borne by those at the very end of the supply chain; the builders, installers and building owners.
Under the ACL, consumers are entitled to certain ‘guarantees’ that ensure goods supplied are of an acceptable and defect-free quality (section 54, ACL). If you supply/install defective goods you will usually be responsible for a refund, repair or replacement (sections 123-124, ACL). That said, if the defect was caused by a manufacturing fault, you may be entitled to pursue and recover those costs directly from the manufacturer.
Liability for defective goods can be mitigated, to some extent, by the terms of your commercial contracts. Businesses should review their contract indemnity provisions and insurance policies and seek legal advice on their exposure.
If you discover a safety defect in a good that you supply or have supplied, notify the manufacturer/distributor immediately and, if you believe the defect presents a direct risk to persons or property, you should contact the Australian Competition & Consumer Commission.