Australia: The Australian Consumer Product Safety System - if it ain´t broke, should we fix it?

Australia has a sophisticated system of consumer product safety. In light of the strict liability provisions^[1] contained in the Trade Practices Act 1974 (Cth) ("the Act"), manufacturers and other entities involved in any part of the supply chain must be vigilant to ensure that reasonable care is taken to ensure that consumers do not sustain injuries or loss as a result of their products.

In light of Australia's relatively highly evolved system, one may ask why the Ministerial Council of Consumer Affairs ("MCCA") and the Productivity Commission ("PC") conducted a review of Consumer Product Safety. MCCA proposed a number of reforms in August 2004^[2] and, on 7 February 2006, the PC released its final report in relation to the productivity implications of those proposals. During the process, the PC received 63 submissions from a range of governmental, public and private organisations. The final report contains 21 recommendations over nine areas of focus. In this article, we have focussed on the recommendations which, in our view, will be of most interest to business.

Manufacturers have increased efforts to produce safe products since the introduction of Part VA of the Act in 1992. The review has repeatedly confirmed that there is no widespread problem within the current system of consumer product safety. The PC's research has revealed that the number of injuries and deaths caused directly by consumer products is small (but not insignificant), relative to other causes. Moreover, even when consumer products are involved in accidents, genuine product fault seems to be less of a factor than consumer behaviour and the environment in which the product is used. Despite these observations, the PC has recommended that MCCA conduct a study of consumer product related injuries and deaths.

It is worth bearing in mind that the Australian legal landscape has undergone significant changes over the past four years as a result of the tort law reform process. The PC has observed that it is premature to fully assess the impact of these changes but has suggested that they are likely to lessen the incentive to produce safe products. This observation may further fuel current pressure to wind back aspects of tort law reform.

General Safety Provision ("GSP")

The MCCA proposed the introduction of a GSP, similar to that which prevails in the European Union, which would require businesses to only place "safe" products on the market. Action could be taken against a producer/supplier if it was determined that a product was "unsafe", irrespective of any accident, injury or loss being suffered. This concept will be familiar to many Australian businesses as some more hazardous sectors have sector-specific safety standards or particular occupational health and safety regimes.

The impact of a GSP on business would depend on how it is designed, defined and implemented. What does "safe" really mean? The PC has concluded that there does not seem to be a significant problem associated with "unsafe" products reaching the market and causing injuries. However, from a commercial standpoint, before considering whether we need a GSP, don't we need to consider whether the current system is failing its users? There is a genuine debate as to what additional valuable protection a GSP would provide over and above the protections already contained in the Act.^[3]

While not supporting the introduction of a GSP, the PC concluded that it is often imported products which are seen to be unsafe and cause injuries. Therefore, it has proposed that consideration should be given to requiring importers of consumer goods (commercial imports for resale) to certify that the goods meet any applicable Australian mandatory safety standards and that regulators should have the power to impose financial penalties on manufacturers once a ban has been implemented. These proposed reforms are said to be sensible, practical and would have a positive impact on consumer safety without law-abiding businesses experiencing any significant associated cost burden.

It is not yet safe to assume that this issue is concluded. The GSP proposal is still at an embryonic stage. Its parameters are undefined and a number of its critical aspects will require more careful consideration. These include:

• how would the benchmark level of safety be defined?;
• what products (and perhaps services) should be covered?;
• which businesses in the supply chain should be subject to the GSP?; and
• how should the GSP be enforced, including who would have a right of action and what penalties should apply?

It is premature for businesses to concern themselves with the likely impact of a GSP. There are many hurdles yet to jump if a GSP is to become a reality in Australia. The debate is likely to continue.

Warning notices^[4] and compulsory product recalls may be issued by the relevant Minister when it appears that goods "will or may cause injury." It is currently unclear whether this test includes cases where goods are unsafe because of foreseeable use (including foreseeable misuse). The PC's recommendation responds to research which has shown that the manner in which products are used, rather than defects within the product, seems to be a more significant cause of accidents.

Government agencies and consumer organisations supported this recommendation but the private sector was concerned about how such a test would be expressed and regulated.^[5] Why should Australian business be responsible for negligent or reckless misuse? In response to one submission,^[6] the PC proposed that the use must be reasonably foreseeable or predictable and that the use must itself be reasonable. This is a useful starting point. However, consideration needs to be given to how "the reasonableness of the use" will be interpreted so that business can be assured that products presenting known and acceptable risks are not withdrawn from the market. Of course, manufacturers will continue to exert influence over what is deemed "reasonable" by placing warnings on products; promoting safe use and taking other cost-effective risk management measures.

The reality is that there may already be sufficient incentive for business to voluntarily recall products which expose consumers to unreasonable risks (due to reasonably foreseeable use). The continuing area of concern is a potential expansion of manufacturers' liability in relation to misuse, whether reasonably foreseeable or otherwise.

Business will be acutely aware of the inconsistencies between the Commonwealth, State and Territory product safety systems, especially if you supply products in a number of Australian jurisdictions. These inconsistencies impose unwarranted cost on businesses and create unnecessary confusion for consumers. This recommendation is to be applauded.

If this recommendation is not implemented, the PC recommended uniform product safety regulations across all jurisdictions or, at the very least, a core set of provisions, such as mandatory standards, recall powers, and notification requirements. Moreover, it recommended co-operative arrangements amongst all jurisdictions regarding enforcement.

There is overwhelming level support for a single law and single regulator. Whilst State governments and State regulators were not entirely supportive,^[7] indicating possible resistance by State governments to agree to dilute their powers, the Victorian government has offered some initial support, stating it supports "eliminating unnecessary inconsistency and duplication between jurisdictions as this may lower compliance costs for business and also benefit consumers."

The PC's recommendations in relation to "improved information for hazard identification and risk assessment" are likely to be of interest to business but raise the spectre of yet more business regulation.

The good news for business is that the PC concluded that the benefits associated with requiring suppliers to notify the government of products which are 'under investigation' for possible safety risks, or formally requiring suppliers to monitor the safety of their products, are unlikely to justify the associated costs.

The PC has recommended the establishment of a hazard identification system, co-ordinated by the ACCC, which would collect and analyse information regarding consumer product incidents and distribute it to all jurisdictions. The mechanics of this system have not yet been determined. Business is likely to be concerned about this recommendation as manufacturers and distributors may find themselves with little or no control over the product information which reaches the market.

Also of concern to business are regulatory recommendations:

• for the establishment of a national electronic system for collecting and distributing consumer complaints information; and
• that suppliers should be required to notify government of products which have been associated with serious injury or death; or, alternatively, suppliers should be required to notify governments of products which have been the subject of a successful product liability claim or multiple out of court settlements. Of course, the latter recommendation ignores the reality that a claim may have been settled because it makes commercial sense to pay out on a claim rather than launch a full-scale defence on liability issues. An obligation to disclose all settlements has the real potential to fuel further unmeritorious product liability litigation.

The PC recommended that the current recall guidelines need to be reviewed and improved. It has adopted the ACCC's submissions regarding improved processes for recalls which included improved advertising (incorporating product photographs in advertisements), buyer registration cards for high risk products and identification and highlighting of particularly high risk products which have been recalled.^[8] This is likely to be an area of sustained activity by the ACCC in the future.

There is inconsistency between Australian jurisdictions regarding how product safety legislation applies to services. Some, (but not all), States have enacted consumer safety legislation relating to services but the product safety provisions^[9] in the Act (which is a Commonwealth Act) do not cover services. In relation to second-hand goods, the PC recommended that intergovernmental policy should clarify that second-hand goods are covered by existing consumer product provisions. Moreover, it recommended that standards and bans should state whether they apply to second-hand goods or not to prevent uncertainty for business and consumers.

Consistent or uniform, and clear, legislation across all Australian jurisdictions is a centrepiece of the proposed reforms that will be welcomed by business and consumers alike.

The formal review process has almost reached a conclusion. The PC's recommendations will now be reviewed by the MCCA although a formal timeframe for this final review has not been publicised. If the history of the uniform Corporations Law in Australia is any guide, a single or even uniform system will require a substantial degree of legislative will (and goodwill) if it is to succeed. That is, without doubt, a worthwhile aim for all Australian legislatures to achieve out of this current product safety review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.