In brief - A company can be liable for defects in goods even if it had no role in their manufacture
In certain circumstances a supplier can be deemed to be a "manufacturer" of goods manufactured by others and face the same liability for problems with the goods as the actual manufacturer. Particular issues arise where the actual manufacturer cannot be identified or is located overseas.
National framework for consumer protection
The Australian Consumer Law (ACL) provides a national framework for consumer protection in the supply of goods and services. Among other things, the ACL regulates product safety and liability for defects and provides for guarantees that goods or services are of "acceptable quality".
Who is a "manufacturer" under Australian Consumer Law?
The definition of a "manufacturer" of goods under the ACL is broader than just the enterprise that makes the goods - it is defined as including (i.e. this should not be considered a prescriptive list) a person who:
- extracts, grows, produces, processes or assembles goods
- holds themselves out to the public as the manufacturer of goods
- allows their name to be applied to goods
- allows another person to hold them out to the public as a manufacturer
- imports goods where the actual manufacturer does not have a place of business in Australia at the time of importation
A "person" for the purposes of the ACL includes both a company and a partnership.
Actual manufacturer not relieved of liability if there is a deemed manufacturer
The definition of a manufacturer under the ACL means that a person can be deemed to be a manufacturer, and therefore potentially liable for problems or defects in the goods, even if they had no role in or control over their manufacture. A person can also be both supplier and manufacturer (deemed or otherwise).
The categories within the definition are not mutually exclusive and, importantly, the actual manufacturer of the goods will not be relieved of liability because there is also a deemed manufacturer.
Consumer permitted to sue both actual and deemed manufacturers of faulty parachute
For example, the case Leeks v FXC Corporation (2002) involved a reserve parachute manufactured by a company with a principal place of business in the USA. Mr Leeks purchased the parachute from an Australian importer and used it twice before it malfunctioned, deploying without activation and causing him injury upon landing.
Mr Leeks commenced proceedings against the manufacturer on various grounds, including unmerchantable quality and unsuitable goods, under the precursor to the ACL, the Trade Practices Act. He also claimed against the importer as a deemed manufacturer. The court allowed Mr Leeks to sue both the actual and deemed manufacturers.
What happens when there is an unknown manufacturer?
Another deeming provision in the ACL aimed at protecting consumers operates where there is an unknown manufacturer. A consumer wishing to institute a defective goods action against a manufacturer can approach the supplier for information regarding the identity of the manufacturer.
If, 30 days after making the request, the consumer still does not know the identity of the manufacturer (even if the supplier through no fault of its own was unable to assist), the supplier is deemed to be the manufacturer for the purposes of the defective goods action.
This means that if a consumer claims that goods are defective or not of acceptable quality, their supplier may be held liable to the consumer, despite the existence of an Australian or foreign manufacturer. So what can you do to protect your business?
Know the manufacturer of the goods you are supplying
The first issue is to know your manufacturer: their identity, location, reputation, whether there have been problems with the product in the past.
Secondly, keep control over how the goods are presented. If you are only supplying them, be wary of anything (for example in the packaging or advertising) that suggests that you manufactured them.
If a consumer asks about the manufacturer's identity, have systems in place to ensure that the query is dealt with within 30 days.
Reimbursement where goods are not of acceptable quality
In the case of breach of a consumer guarantee (i.e. that the goods are of acceptable quality), the ACL requires a manufacturer to reimburse a supplier for amounts paid to the consumer, including any compensation for reasonably foreseeable consequential losses. You cannot contract out of this obligation.
There are time limits on claiming such reimbursement and, where the goods in question were not used for personal, domestic or household purposes and it is fair and reasonable to do so, the manufacturer can limit the reimbursement to the lesser of the costs of replacement, repair or the provision of the equivalent of the goods.
Your contract with the manufacturer and your insurance cover
Nevertheless, you should ensure that your contract with the manufacturer contains appropriate warranties and indemnities.
Finally, check the wording of your insurance cover, in particular whether the description of your business includes situations where you may be deemed to be a manufacturer.