Australia: PLC Multi-Jurisdictional Guide 2012: Life Sciences - Part 3

PRODUCT LIABILITY

31. Outline the scope of medicinal product liability law.

Legal provisions

Australia's product liability laws are a mixture of common law and various federal, state and territory statutes. The ACL (effective 1 January 2011) replaced the previous legislative provisions of the Trade Practices Act for product liability and product safety.

The majority of product liability claims are based on a number of causes of action:

• The common law tort of negligence, which is fault-based.
• Breach of the ACL provisions, which include:
• • product safety and notification obligations;
  • provisions prohibiting misleading and deceptive conduct (except not for personal injury actions);
  • statutory guarantees imposed on manufacturers;
  • liability for unsafe products.

Substantive test

The substantive tests include negligence and contract.

Negligence. The common law test of negligence is fault-based. A manufacturer has a duty of care to take reasonable steps to prevent foreseeable harm to consumers. This duty of care manifests itself in obligations relating to product design, testing, manufacture, distribution and, in some cases, recall from the market. It also imposes a duty to give adequate warnings of risks associated with the uses of a product to enable users to adjust their use of the product to avoid or minimise danger, or to make an informed decision about whether or not to use the product.

To establish liability, a claimant must prove all of the following:

• That loss or damage has been suffered.
• That the manufacturer's conduct is in breach of the common law duty of care.
• That the loss or damage was caused by the manufacturer?s breach of duty.

Contract. Contractual liability for harm caused by faulty goods arises if there is a breach of an express contractual warranty or of a warranty implied under statute. Breaches usually relate to:

• Merchantable quality.
• Fitness for purpose.

ACL. The ACL provisions below impose a form of strict liability. Under Part 3-5, manufacturers are directly liable to consumers for injury or property damage suffered as a result of a defective product. Goods are considered to be defective 'if their safety is not such as persons generally are entitled to expect'.

The ACL also introduces a regime of statutory guarantees under Part 3-2. Manufacturers are directly liable to consumers for:

• Goods that do not correspond with their description.
• Goods of unacceptable quality.
• Goods that do not conform to a sample.
• Goods that are unfit for a stated purpose.
• Non-compliance with express warranties.

A manufacturer is liable if it engages in misleading or deceptive conduct, or conduct that is likely to mislead or deceive (section 18, ACL). This conduct can be express or implied, and silence can also be a breach in some circumstances. However, misleading conduct is no longer available as a cause of action in personal injury claims.

Liability

The elements of each cause of action differ.

Negligence. Generally, the manufacturer of goods owes a duty of care to the buyer and user to safeguard them against the foreseeable risks of injury when using the product as intended. A duty of care may exist in relation to anyone involved in supplying pharmaceuticals, including wholesalers, retailers, doctors or pharmacists.

A non-manufacturing distributor of goods who is ignorant of a dangerous defect in those goods, does not owe the same duty of care as that of a manufacturer. There must be something more, that is, knowledge of or reasonable grounds to suspect the risk. Retailers, importers and distributors are not expected to test or inspect products that the manufacturer delivers in sealed containers, which would not normally be opened until they reach the ultimate consumer.

If any party in the supply chain adds to or modifies a product, including packaging or labelling, that party also owes a duty to the buyer and user in respect of those changes.

Contract. Contractual remedies are only available to parties to the contract. Since, in most circumstances, the retailer has a contractual relationship with the buyer, the retailer bears the liability for any defect or fault according to the express and implied terms of the contract of sale.

ACL. Manufacturers of goods can be held liable under different Parts of the ACL, including Part 3-3 (product safety) and Part 3-2 (consumer guarantees). The legislation broadly defines manufacturer. Apart from the actual manufacturer, it includes any company that:

• Holds itself out to be the manufacturer.
• Applies its name or brand to the goods.
• Permits someone to promote the goods as those manufactured by the company.
• Imports the goods in circumstances where the actual manufacturer has no presence in Australia.

32. How can a product liability claim be brought?

A product liability claim can be brought by commencing proceedings in either of the relevant courts of each jurisdiction. Under the ACL, claims are most commonly brought in the Federal Court of Australia, commenced by either a writ or a statement of claim.

Limitation periods

This is a difficult question given the diversity of causes of action and jurisdictions that can be involved in product liability claims. However, some general observations can be made:

• For most causes of action and most jurisdictions, the limitation period is three years.
• For most causes of action and most jurisdictions, the three years start running when some appreciable (that is, more than negligible) damage occurs.
• Some jurisdictions have a discoverability test to determine when time starts running.
• Most jurisdictions have provision to obtain an extension of time, often based on a discoverability test.
• There are some statutes of repose under the ACL.

Class actions

Class actions for product liability claims are expressly permitted where seven or more persons have claims against the same person and both (Federal Court of Australia Act 1976 (Cth)):

• The claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances.
• The claims of all those persons give rise to a substantial common issue of law or fact.

If these requirements are met, any one of those persons can begin a representative action in the Federal Court of Australia. A similar statutory procedure for class action exists in the state of Victoria. Other group action procedures exist in the other states and territories under their respective Rules of Court.

A significant number of product liability class action suits have been brought since the introduction of the procedures in 1992.

Foreign claimants

Provided a claimant fits within the jurisdiction of a ?consumer? under the ACL, the claimant is entitled to bring an action in Australia.

33. What defences are available to product liability claims?

The available defences depend on the cause of action relied on.

Negligence. The following defences may be available:

• Voluntary assumption of risk.
• Contributory negligence.

A number of statutory defences also exist, although these differ between jurisdictions.

ACL. There are a number of specific defences to an action brought under different Parts of the ACL.

Under Part 3-2 it is a defence if:

• Goods are not reasonably fit for purpose or are not of acceptable quality because of an act or default of a third party or a cause independent of human control occurring after the goods have left the control of the corporation.
• In the case of goods not reasonably fit for purpose, the consumer did not rely or it was unreasonable for the consumer to rely on the manufacturer.
• In the case of goods not of acceptable quality, defects were drawn to the consumer's attention or if the consumer examines the goods as regards defects that the examination ought to reveal.

Under Part 3-5 there are four defences:

• The defect did not exist when the goods were supplied by the manufacturer.
• The goods were defective due to compliance with a mandatory standard.
• The state of scientific or technical knowledge at the time the goods were supplied did not enable the defect to be discovered.
• In the case of a manufacturer of a component used in the product, the defect is attributable to the design of the finished product or to any markings, instructions or warnings given by the manufacturer of the finished product, rather than a defect in the component.

34. What remedies are available to the claimant? Are punitive damages allowed for product liability claims?

Australia has undergone a process of significant civil liability reform that has resulted in caps, thresholds and other limitations being placed on the amount of pecuniary damages that can be recovered. These limitations apply to any claim for personal injury, regardless of whether the claim is brought at common law, under contract or under the ACL. The limitations are not uniform.

At common law (tort and contract), remedies include:

• General damages, including for pain and suffering, loss of amenities and loss of expectation of life.
• Special damages, including for loss of wages and earning capacity (both past and future), and medical and hospital expenses.

Under the ACL, the main remedy for breach is compensation. Exemplary, punitive or aggravated damages can be awarded by the courts in very limited circumstances in a claim for negligence, although not in relation to claims brought under the ACL. They have also been abolished for personal injury in some jurisdictions (as a result of reform).

REFORM

35. Are there proposals for reform and when are they likely to come into force?

The Australian and New Zealand Governments have decided to proceed with a joint scheme for regulation of therapeutic goods. The scheme is set to be administered by a single regulatory agency, the Australia New Zealand Therapeutic Products Agency (ANZTPA), which will absorb the current regulators, that is, the TGA and New Zealand's Medsafe. The ANZTPA is expected to be operational within five years. At present, the TGA remains the relevant regulator in Australia.

The Review to improve the transparency of the TGA was released in June 2011 and made 21 recommendations enabling the TGA to communicate its processes and decisions to both pharmaceutical companies and the community more effectively in an attempt to maintain the community's confidence in the TGA. Several of the recommendations suggested by the Review will require amendments to both the Therapeutic Goods Act and Therapeutic Goods Regulations. These are yet to occur.

The 2009 Australian Government Health Technology Assessment review recommended increasing the rigour of the regulatory assessment of higher risk medical devices and technologies by 2011. Nine recommendations have been proposed by the TGA and will be implemented by 1 July 2012. Some recommendations require the amendment of the Therapeutic Goods (Medical Devices) Regulations 2002 (Cth), which has not yet occurred.

The Revised Arrangements for the Efficient Funding of Chemotherapy Drugs came into effect on 1 December 2011. These changes are designed to minimise waste and reduce costs for patients, requiring prescribers to write dose specific prescriptions using milligrams, without specific reference to forms and strengths. Additionally, payments will be made to approved suppliers/pharmacies for the combination of vials that most (cost) efficiently makes up the required patient dose.

Following the September 2010 Memorandum of Understanding between the Department of Health and Ageing and Medicines Australia, on 1 January 2011 parallel process from listing with the TGA and PBAC was introduced. Under the TGA-PBAC parallel process, a submission to the PBAC can be lodged at any time from the date of the lodgement of a TGA registration dossier. As the PBAC registration process is often quicker than the TGA process it has been recommended the PBAC process begin during the fifth month of the TGA registration process.

Australia's intellectual property laws are currently undergoing considerable reform and review, much of which has the potential to impact on life sciences companies.

The Intellectual Property Laws Amendment (Raising the Bar) Bill 2011 is pending before the Senate. This Bill proposes amendments to the Patents Act, the TM Act, the Copyright Act 1968, the Designs Act 2003, and the Plant Breeder's Rights Act 1994. The Bill includes the following proposed amendments to the Patents Act:

• The removal of the current requirement of the inventive step analysis to show that the relevant skilled person would have 'ascertained, understood and regarded as relevant' an item of prior art information before it can be considered as a starting point for the inventive step analysis. This will raise the standard set for inventive step in Australia to a level that is more consistent with standards set in Australia's major trading partners.
• The bolstering of the requirement that a patented invention be useful by:
• • adding the requirement that unless a specific, substantial and credible use for the invention (so far as claimed) is disclosed in the complete specification, it will not satisfy the usefulness requirement; and
  • stating that the disclosure in the complete specification must be sufficient for that specific, substantial and credible use to be appreciated by a person skilled in the relevant art.
• Requiring that a provisional specification contain an enabling disclosure.
• Requiring that a specification enable claims across their full scope.
• Abolishing the 'fair basis' requirement and replacing it with a requirement that the claim or claims must be 'supported by matter disclosed in the specification'.
• Expansion of the grounds that the Commissioner can consider in deciding whether to grant a patent, and the application of a consistent standard of proof across all grounds, so that the Commissioner is not obliged to grant patents which would not pass scrutiny in a court challenge.
• The introduction of infringement exemptions for research and experimental activities relating to patented inventions and for activities undertaken solely for the purpose of gaining regulatory approval to market or manufacture a patented technology (this expands the existing exemption for pharmaceutical inventions to all technologies).
• Refining opposition proceedings.
• Tightening the timeframes within which divisional applications can be filed.

The Bill includes the following proposed amendments to the TM Act:

• Refining opposition proceedings.
• Bolstering the penalties for trade mark infringement and improving the system for confiscating counterfeit goods.

THE REGULATORY AUTHORITY

Therapeutic Goods Administration (TGA)

www.tga.gov.au

Main areas of responsibility. The TGA:

• Regulates medicines and medical devices.
• Administers the TG Act.
• Carries out assessment and monitoring activities to ensure that all medical products are of acceptable standard.

Many provisions of the Bill, if enacted, will come into force 12 months after the Bill receives Royal Assent. The new higher standards of patentability will apply to both:

• Applications filed after the Bill?s commencement.
• Applications or patents that have been filed before commencement, but where examination has not been requested at commencement.

The new exceptions to patent infringement will come into force on the day after Royal Assent.

The Patent Amendment (Human Genes and Biological Materials) Bill 2010 is also pending before the Senate. The Bill initially proposed an amendment to the Patents Act that would exclude from patentability 'biological materials, including their components and derivatives, whether isolated or purified or not and however made, which are identical or substantially identical to, such materials as they exist in nature'. 'Biological materials' were defined as including DNA, RNA, proteins, cells and fluids.

The Senate Legal and Constitutional Affairs Committee has recommended that the Senate not pass the Bill. However, a number of Senators dissented from the Committee's report and recommended that the Senate pass an amended version of the Bill that would seek to ban the patenting of 'biological materials, whether isolated or not and however made, which are identical to such materials as they exist in nature'. 'Identical' was defined to mean structurally and functionally identical.

Reviews are also underway in relation to post-grant enforcement strategies, the innovation patent system and patentable subject matter.

*The authors wish to thank Wayne Condon, Colin Loveday, Jocelyn Kellam and John Collins for their earlier contributions to previous editions of this chapter.

Related Articles

• PLC Multi-Jurisdictional Guide 2012: Life Sciences - Part 1
• PLC Multi-Jurisdictional Guide 2012: Life Sciences - Part 2

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