Product liability

Product liability litigation is on the rise in Australia. This is partly attributable to growing public awareness about consumer rights; more involvement among consumer watchdog groups; an active plaintiffs’ bar; and increasing activity by the main product safety regulator, the Australian Competition and Consumer Commission (ACCC). A number of high-profile product safety cases – involving pharmaceuticals, contaminated food, medical devices, motor vehicles and homewares – have also influenced litigation rates.

Last updated: October 2018

Introduction

Product liability litigation is on the rise in Australia. This is partly attributable to growing public awareness about consumer rights; more involvement among consumer watchdog groups; an active plaintiffs’ bar; and increasing activity by the main product safety regulator, the Australian Competition and Consumer Commission (ACCC). A number of high-profile product safety cases – involving pharmaceuticals, contaminated food, medical devices, motor vehicles and homewares – have also influenced litigation rates.

How product liability litigation is conducted

In Australia, product liability litigation is typically conducted in the Federal Court, or in the Supreme, District or County / Local courts of one of Australia’s states or territories. Most significant actions are commenced in a state capital; for example, Sydney, Melbourne, Brisbane and Perth have been the centres of much multi-plaintiff product liability litigation.

Australian courts operate on an adversarial basis. The Australian legal system has its origins in the English legal system. As a result, there are a number of fundamental differences between the procedures in Australia and those in the US.

Australia does not have any procedure for depositions before trial; instead the system places greater emphasis on documentary discovery – producing documents that are relevant to determining the issues in dispute.
Although the courts of the states and territories have provisions for jury trials in civil actions, juries are rare in most jurisdictions other than Victoria, and there are no jury trials in the Federal Court.
A successful party to litigation will usually recover a proportion of the costs of the litigation – including lawyers’ fees and disbursements – from the unsuccessful party.

Class actions

Australia has a well-developed and increasingly active class action environment. In some respects, the Australian rules are friendlier to plaintiffs than those in the US.

The Federal Court’s class action procedure allows proceedings to be commenced by one or more applicants representing a class of seven or more persons who all have a claim against the same person or entity, and the claim:

arises out of the same, similar or related circumstances
gives rise to a substantial common issue of law or fact.

An action commenced in this way is described as a ‘representative proceeding’.

In product liability litigation, class actions allow persons who have each allegedly suffered an injury by reason of their use of a particular allegedly defective good to sue the manufacturer or manufacturers in a single action brought on behalf of all represented parties.

In contrast to the US, the court is not required to certify that the case is a representative proceeding. Rather, the onus is on the defendant to seek an order that the proceedings no longer continue as representative proceedings because they do not meet the requirements of the rules, or because the procedure is otherwise unsuitable. Such orders have proven difficult to obtain.

Since the introduction of a class action regime in the Federal Court of Australia in 1992, more than 500 have been commenced. The Victorian Supreme Court adopted a class action procedure in 2000, the New South Wales Supreme Court in 2011 and the Queensland Supreme Court in 2016.

In the context of product liability, class actions have been commenced in relation to financial products or services, pharmaceuticals, medical devices, motor vehicles and a wide range of consumer products.

Litigation funding

Litigation funding from third parties provides plaintiffs with the means to prosecute actions they would not otherwise have the finances to pursue. Although previously viewed as an ‘abuse of process’, the Australian legal system now recognises litigation funding as a vehicle for 'access to justice’ (a view endorsed by the High Court of Australia in Campbells Cash and Carry Pty Limited v Fostif Pty Limited (2006) 229 CLR 386).

IMF Bentham Ltd is Australia’s largest litigation funder and was the first to be listed on the Australian Securities Exchange. Australia now has a mature market of litigation funders, some of which are publicly listed and regularly involved in class action activity. Traditionally, litigation funders in Australia focused on financial services and shareholder class actions, but they are now becoming involved in a wider range of cases.

Litigation funding has been subject to some scrutiny of late. The Australian Law Reform Commission recently released a discussion paper on its Inquiry into Class Action Proceedings and Third-Party Litigation Funders, which is currently in a consultation phase. The Attorney-General is scheduled to deliver the Inquiry’s final report in December 2018.

Sources of liability

Actions regarding product quality or safety are likely to be based in one or more of three areas of Australian law:

the Australian Consumer Law (ACL)
the common law of contract
the common law of negligence (now partially codified in most Australian jurisdictions).

For completeness, various additional statutes and bodies at the federal, state and territory level govern the supply of certain categories of consumer goods, including food, pharmaceuticals, medical devices, electrical articles and automobiles.

The Australian Consumer Law

The ACL includes a range of consumer protection provisions that impose obligations on all parts of the consumer goods supply chain, including suppliers, importers, manufacturers and those responsible for advertising consumer goods in Australia.

The consumer protection provisions may provide the basis for actions such as those regarding:

a breach of a safety or information standard – the minimum mandatory standards for particular consumer goods
misleading or deceptive conduct, usually by advertising or in the information that accompanies a product. Many product liability claims for property damage or economic loss include an allegation that the manufacturer, importer or seller of the product engaged in misleading or deceptive conduct
a breach of a statutory ‘consumer guarantee’, which is actionable against a supplier of consumer goods, and includes guarantees that goods will be of acceptable quality, be fit for purpose and meet the description of products sold in that manner
loss or damage suffered because goods had a ‘safety defect’. The ACL sets out a strict liability regime for manufacturers and importers of defective goods, broadly based on the Council of the European Union’s Product Liability Directive, stating that a person who suffers loss because of defective goods can recover damages from the manufacturer of those goods without proving fault on the part of the manufacturer. Goods are deemed to have a ‘safety defect’ if their safety is not what persons generally are entitled to expect.

Certain rules govern how these claims may be made, including whether they may be commenced by an individual, by a regulator on behalf of one or more individuals, or by a regulator for civil or criminal penalties. For example, personal injury damages are not payable for misleading or deceptive conduct claims, and the Australian law (both within the ACL and in the state and territory civil liability legislation) sets limits on compensation for personal injury damages in product liability claims.

There are a number of specific defences to an action based on a claim that goods have a safety defect:

the defect alleged did not exist when the manufacturer supplied the goods
the goods were defective only because of compliance with a mandatory standard
the state of scientific or technical knowledge at the time the goods were supplied was not such as to enable the defect to be discovered
in the case of the 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 to a defect in the component.

Recent activity by the ACCC – using its wide powers to obtain documents and information, as well as in court penalty proceedings – suggests that the regulator is being increasingly proactive in taking action to intercede in product safety and product quality issues.

At the beginning of 2016, a large Australian retailer received a penalty of A$3 million regarding allegations by the ACCC that the retailer engaged in misleading or deceptive conduct by offering for sale certain consumer products after it became aware that those products were associated with personal injury, and by making certain express representations as to the characteristics of certain consumer goods.
In 2018, a manufacturer and distributor of electrical cooking appliances received pecuniary penalties of over A$4.5 million regarding similar contraventions, and for positive statements to the media and customers that goods were ‘absolutely safe’, notwithstanding a product recall and having received reports of injury.
Also in 2018, a car manufacturer agreed to consent orders regarding unconscionable conduct arising from its handling of customer complaints about particular vehicles with product quality (rather than product safety) issues. The company agreed to pecuniary penalties of A$10 million.

In addition, the outcomes of the 2016 - 2017 Australian Consumer Law Review are still being addressed, and proposed legislative reforms are continuing to work through Parliament. Most recently, new legislation substantially increased the maximum financial penalties available under the ACL, bringing them in line with penalties for breaches of competition law.

The ACL also imposes requirements relating to the supply of consumer goods involving notification of product-related death, serious injury or illness; and product recalls.

Mandatory product reporting

Pursuant to section 131 of the ACL, a supplier must within two days provide written notice of the incident to the Minister if the supplier becomes aware of the death, serious injury or illness of any person and:

considers that incident was caused or may have been caused by the use or foreseeable misuse of the consumer goods, or
becomes aware that a person other than the supplier considers that the incident was caused by the use or foreseeable misuse of the consumer goods.

The ACL defines serious injury or illness as “an acute physical injury or illness that requires medical or surgical treatment by, or under the supervision of, a medical practitioner or a nurse (whether or not in a hospital, clinic or similar place)”. Property damage in the absence of death or serious injury or illness is not a trigger of the mandatory reporting requirement. Mandatory reporting under section 131 is not required if there are other reporting obligations such as under the therapeutic goods legislation or public health legislation.

Although it is often difficult to discern whether or not a report is required, there is a heavy penalty for suppliers that fail to report a death, serious injury or illness in accordance with the requirements of this section.

Product recall

A supplier may initiate a voluntary product recall at any time, upon discovery and appropriate investigation of a product safety or product quality issue.

At common law, manufacturers and suppliers of consumer products have a duty to take reasonable care to ensure that their products do not injure consumers. This duty extends beyond the production and sale of the product; a manufacturer must act if a hazard is revealed once the product is on the market or in use.

When deciding what action to take, the manufacturer should have regard to:

the seriousness of the potential harm involved
the probability of such harm occurring
the expense, difficulty and inconvenience of the proposed remedial action.

The manufacturer must balance these considerations but must place emphasis on the safety of consumers and recognise that it is not simply a cost–benefit exercise. If the consequences of the harm materialising are death or serious bodily injury, there are good reasons for conducting a recall.

There is limited legislation governing the conduct of voluntary recalls. Under the ACL, the person taking action to recall goods in relation to a safety issue must notify the Minister within two days of doing so. The legislation does not define what constitutes an ‘action to recall goods’, but the phrase is likely to include conducting product modifications or improvements for safety reasons, as well as removing products from the market.

Federal, state and territory legislation and guidelines relating to specific categories of products – including food, pharmaceuticals, medical devices, electrical goods and automobiles – must also be considered when conducting a product recall.

Although legislation does not govern the conduct or progress of a voluntary recall, the ACCC and specialist federal, state and territory regulators have their own powers to recall or stop supply of an unsafe product. In general, those compulsory recall powers will only be exercised if the goods will or may cause injury to a person, and it appears that the supplier has not taken satisfactory action to prevent them from doing so.

State and territory laws also impose reporting obligations for certain instances concerning intentional contamination or tampering.

The common law of contract

When a manufacturer supplies a product to a supplier, or a supplier supplies a product to a consumer, there is a contract between the two parties, the terms of which will govern the relationship between them. However, because of the rules governing privity of contract, contract law will not enable a third party – someone who is not a party to the contract but is injured by goods – to recover against a supplier.

State and territory sale of goods legislation implies terms about product quality into contracts for the supply of goods. In some instances, these conditions cannot be excluded or modified. If these implied terms are breached, the party that received the product will have an action for breach of contract.

Statutory guarantees (such as those of acceptable quality) also apply to the supply of goods to a consumer under the ACL.

The common law of negligence

In Australia, the common-law tort of negligence remains an important source of legal rights and remedies in relation to product liability claims. Under the law of negligence, a plaintiff may recover damages from a manufacturer if:

the manufacturer (as defendant) owes the plaintiff a duty of care at law
the defendant breaches that duty by failing to meet the standard of care required by the law, and
the plaintiff suffers damage because of the breach of duty.

In Australia, it is well settled that the manufacturer owes a broader duty of care to the purchaser or user than does the supplier.

The common law provides that the manufacturer ought to reasonably have the user in contemplation when considering the design, manufacture, safety and distribution of goods.

A supplier is under a duty not to supply defective goods, and to pass on warnings about particular goods. In some cases, statutory duties have been used to impose what is, in effect, strict liability, such that the supplier need not be negligent or have intent to harm in not passing on the warning.

In 2003, in response to community concern over the size of personal injury awards and rising insurance premiums, the state and territory governments undertook an extensive program of civil liability reform. The reforms made it more difficult for plaintiffs to commence and succeed in personal injury negligence claims, and also limited the award of damages recoverable.

The reforms are not identical in each jurisdiction, but broadly speaking they:

partially codify the law of negligence
create special defences in relation to some categories of claim (although product liability – excluding cases involving asbestos or other dust diseases – is not one of these categories)
introduce caps and thresholds for the award of damages, and in some jurisdictions, a compulsory pre-court claims resolution procedure.

One of the more contentious issues arising from the reforms is whether the partial codification of the law of negligence substantially changed the law and, if so, whether it has made it easier or harder for plaintiffs to pursue claims. Although the immediate effect of the reform was a decrease in the volume of all personal injury litigation, personal injury litigation is certainly still prevalent.

Remedies

Monetary compensation is available for both pecuniary and non-pecuniary loss. Courts may also grant injunctions to restrain some breaches or attempted breaches of the consumer protection provisions. The courts have a very broad power to make such orders as it thinks appropriate against a person involved in a contravention.

Damages

There are a number of technical differences between the calculation of damages in contract and negligence, and under the statutory causes of action. In broad terms, a successful plaintiff in a product liability action will be able to recover:

compensatory damages for any pain and suffering
damages for any expenses incurred in treating an injury, including medical expenses, or repairing damage to property
compensation for any loss of income because of injury or damage
an amount in respect of any costs that will be incurred in the future to treat an injury or repair damage to property
compensation for any loss of life expectancy or ongoing impairment of earning capacity.

The courts may award exemplary, punitive or aggravated damages, although not in relation to claims brought under the ACL and, in some Australian jurisdictions, not in negligence actions where the plaintiff is seeking damages for personal injury.

In relation to negligence claims for personal injury, civil liability reforms limit the amount of damages recoverable. Furthermore, the laws of contract and statute both provide the courts with a range of alternative remedies, enabling them to order manufacturers and suppliers to undertake remedial actions.