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Monday, 30 May 1994
Page: 880

  The ACTING DEPUTY PRESIDENT (Senator Herron)—Pursuant to the resolution of the Senate of 13 February 1991, I present the government's response to the Standing Committee on Legal and Constitutional Affairs report entitled Product Liability—Where should the loss fall? which was presented to the President on 19 May 1994. With the concurrence of the Senate, the response will be incorporated in Hansard.

  The response read as follows—

Government Response to the Report on the Senate Standing Committee on Legal and Constitutional Affairs: Product Liability—Where Should the Loss Fall?

Background

1.  In May 1992 the then Minister for Justice and Consumer Affairs, Senator the Hon Michael Tate, introduced the Trade Practices Amendment Bill 1992 (the Bill) into the Senate. This Bill inserted a new Part VA into the Trade Practices Act 1974 (the Act) establishing a strict liability regime for product liability claims for personal injury and property damage. It was based on the 1985 European Community Directive on Product Liability (the EC Directive), the emerging international standard for product liability legislation.

2.  An earlier "exposure draft" of the Bill, which had been introduced in Parliament in December 1991, differed from the EC Directive in three important areas:

overseas consumers were given the right to sue Australian manufacturers of defective products (extraterritoriality);

the statute of repose, that is the period within which an action must be brought after the goods have been supplied, was extended from 10 years to 20 years in the case of personal injuries (statute of repose); and

a provision was designed to ensure an injured person had his or her day in court where it was reasonable to infer from direct or circumstantial evidence that a defect in the product caused the loss (the burden of proof).

3.  Opposition to these elements threatened to delay the introduction of the legislation, so the Bill omitted these three elements and was enacted without change. The Government then referred these matters to the Senate Standing Committee on Legal and Constitutional Affairs for consideration. The terms of reference of the Committee were:

With reference to the Trade Practices Amendment Act 1992 ("An Act to amend the Trade Practices Act 1974 to provide for the compensation of persons who suffer loss caused by defective goods, and for related purposes") and having regard to the need to ensure that consumers have reasonable and cost effective access to compensation for injury or damage caused by defective goods, and that producers and suppliers of goods are treated fairly, whether the Trade practices Act 1974 should be amended to:

    (a)give to Part VA of the Act the same extraterritorial application as is currently given to Parts IV and V;

    (b)delete or amend the provisions dealing with the statute of repose (subsection 75AP(2)); and

    (c)assist plaintiffs in the discharge of the burden of proof.

4.  The Committee's report Product Liability—Where should the Loss Fall? was published in December 1992 and was tabled in the Senate on 4 May 1993. The Report made four recommendations:

(1)That Australia should adhere to the same position as adopted by the European Community. It has no provision for extra-territorial liability.

(2)That the period of repose for actions taken under Part VA of the Trade Practices Act 1974 remain at 10 years with one exception. A court should be able to extend the period of repose if it is shown that, on or before the date it was supplied, the manufacturer knew or ought to have known that the product was defective.

(3)That the development of evidentiary principles applicable to matters arising under Part VA of the Trade Practices Act 1974 be left to the Courts.

(4)That the Committee review the operation of Part VA of the Trade Practices Act 1974 in 1998.

5.  In developing these recommendations the Committee was guided by its view that the EC Directive represented a desirable balance between the competing interests of justice for consumers and economic competitiveness for industry. The Committee therefore considered that the EC Directive should be the standard adopted by Australia unless there was strong evidence that consumers who were injured by defective products would be significantly disadvantaged if Part VA was not amended. The Committee also expressed particular concern about impacts on small business and about the American experience with product liability litigation being repeated in Australia. The Government shares these concerns and has borne them in mind in formulating its response to the Committee's report.

Recommendation 1—Extraterritoriality

That Australia should adhere to the same position as adopted by the European Community. It has no provision for extra-territorial liability.

6.  Section 5 of the Act extends the application of Parts IV, IVA and V to conduct outside Australia by Australian companies or Australian citizens or residents. Section 6 of the Act gives additional operation to certain parts of the Act through the incorporation of other heads of Commonwealth power, including the trade and commerce power which covers trade or commerce between Australia and places outside Australia. It was initially proposed that section 5 be amended to include Part VA.

7.  The Committee was presented with the competing views of two senior counsel, Mr R. Ellicott QC and Mr Dennis Rose AM, QC, as to whether section 6 gives Part VA of the Act extraterritorial operation independent of section 5. Professor Pryles of the Australian Product Liability Association has expressed the view that the regime established by Part VA will be classified by the courts as a tort regime and the usual conflict of laws principles will apply when an overseas consumer seeks to bring an action against an Australian manufacturer in an Australian court.

8.  The Government's view has been that while its primary concern is to ensure that Australian consumers are compensated for injuries caused by defective products, Australia also has a moral obligation to ensure that overseas consumers, injured by Australian products, have the same rights to compensation as Australian consumers. The availability or otherwise of reciprocal rights for Australian consumers does not detract from this moral obligation.

9.  The Government accepts the advice of Mr Dennis Rose AM, QC that the Act in its present form, that is without an amendment to section 5, does not give Part VA an extraterritorial operation However, in the light of concerns expressed about possible detrimental effects on Australia's trade of an explicit extraterritorial application for Part VA, the Government accepts the Committee's recommendation that the question of whether an overseas consumer can bring action in an Australian court be left to conflicts of laws rules as applied by the courts. The Government also notes that, to its knowledge, no applications have been brought by overseas consumers under the product warranty provisions of Division 2A of Part V of the Act.

Recommendation 2—Statute of Repose

  That the period of repose for actions taken under Part VA of the Trade Practices Act 1974 remain at 10 years with one exception. A court should be able to extend the period of repose if it is shown that, on or before the date it was supplied, the manufacturer knew or ought to have known that the product was defective.

10.  There are two limitation periods prescribed in section 75AO of the Act. An injured consumer has to commence action within three years of becoming aware of the loss suffered, the defect in the goods, and the identity of the manufacturer. This provision identifies the time at which an action accrues and sets the time within which an action must be brought after it has accrued. In addition an action must be commenced within 10 years of the supply by the manufacturer of the particular goods which caused the injury. This is the statute of repose. It operates to remove any right of action under the legislation after 10 years from supply. The chief concern about such a provision is that in cases where injury does not become evident until well after 10 years from supply, that is where the injury has a long latency period, the consumer's right of action is abolished before it even accrues.

11.  The evidence to the Committee and the discussion in the Report focused on this problem of injuries with long latency periods or "toxic harm" cases. It was recognised that any change to accommodate these cases would impact most heavily on the chemical and pharmaceutical industries as it is their products which are most likely to cause this type of harm. The Committee appeared to be concerned about the disadvantage suffered by consumers who suffer these injuries but it also gave some weight to evidence from defendants' lawyers that these difficult cases should continue to be brought in negligence.

12.  The solution recommended by the Committee, that a court be able to extend the period of repose if it is shown that, on or before the date of supply, the manufacturer knew or ought to have known that the product was defective, was based on oral evidence given by Justice Vincent of the Supreme Court of Victoria on the last day of hearings. Justice Vincent stated that he favoured "almost a half way house" between negligence and strict liability. He said "You may reach a point at which you say `If there is knowledge of the existence of the defect'—and that might be short of negligence—`then you do not have your cut-off period at all'." (Evidence 27 October 1992 p.343.) There was no discussion before the Committee of how such an exception would operate, nor has there any discussion there, or in the report, of alternative means of addressing the problem.

13.  This recommendation presents a number of difficulties for the Government. The first of these is technical. The nature of limitation periods has been the subject of recent decisions in the High Court, usually in the context of conflict of laws questions about whether such provisions are purely procedural so that the law of the state in which the action is being heard applies, or whether they are substantive so that the law of the state where the cause of action arose applies. In McKain v Miller (1991) 104 ALR 257, the Court split on this question of the nature of limitation periods, but even those judges who saw some as being procedural agreed that where a limitation period is annexed by statute to a right which the statute creates, the limitation period will generally be of the essence of the right, that is substantive. The right to sue is both conferred and extinguished by the statute. The statute of repose is a limitation period of this type. It is doubtful therefore that it could be extended at the discretion of the court as if it were a procedural limitation period of the usual sort. If an exception is to be made to the 10 years the basis of the exception should be in the legislation.

14.  As noted above, the discussion by the Committee focused on the problems presented by toxic harms caused by chemical and pharmaceutical products. However, its exception to the 10 year rule is expressed in general terms and would theoretically apply to all products where harm might be caused after the 10 years had elapsed. Though such cases might be limited to more complex manufactured goods, for example cars or aeroplanes, the Committee's formulation has the potential to extend the repose period for harms other than toxic harms and goods other than chemicals or pharmaceuticals. There is no evidence of any intention on the part of the Committee to extend the repose period in this way.

15.  The Committee's recommendation also raises questions about how it would interact with other elements of the regime as enacted in Part VA. For example, subsection 75AK(I)(c) allows defendant manufacturers to argue in their defence that the state of scientific or technical knowledge at the time when the goods were supplied was not such as to enable the effect to be discovered (the state of the art defence). The onus of proving this is on the defendant. The Committee's formulation appears to move the onus to the plaintiff to prove that this defence did not apply, and to do so before being able to bring his or her substantive case. Similarly, there may be interactions with the consideration of warnings given with the goods as an element of proving defect under section 15AC. In practice it might eventuate that much of the substance of the case has to be argued, at cost to all parties, before a decision can be made on whether the repose period may be extended.

16.  A further problem is that the recommended formulation appears to move away from strict liability towards negligence by requiring the plaintiff to show, when seeking an extension, that the defendant knew or ought to have known that the product was defective. The Government's intention in introducing a strict liability regime was to impose liability irrespective of any wrongdoing or knowledge on the part of the defendant. When referring the three particular questions on aspects of the regime to the Committee, there was no intention on the part of the Government that the basic nature of the regime be changed in any way.

17.  The Government accepts the Committee's recommendation that the 10 year repose period should remain for most personal injury and all property damage claims. It appears from American statistics and evidence presented to the Committee that most claims will fall within the 10 year period and industry will benefit from knowing with some certainty the extent of its liability. The Government also accepts the Committee's intention to assist those Australian consumers who would be significantly disadvantaged by the statute of repose provisions as enacted in Part VA. However, it cannot accept the exception as formulated by the Committee, for the reasons set out above.

18.  The Government's view is that a cleaner solution to the problem is to have any exception set out in the legislation and to make that exception depend upon the type of harm suffered rather than upon any action, knowledge or intent on the part of the plaintiff or the defendant. The question of whether a case fell within the exception or not would then arise as a threshold issue, distinct from the substantive issues to be argued to determine liability. These issues would then be determined in the same way for these plaintiffs as for plaintiffs whose claims arose within the repose period. The Government now accepts that a blanket 20 year repose period would not be satisfactory in that it would increase costs for all manufacturers while not addressing the specific problem of toxic harm cases.

19.  An exception to the 10 year repose period, which allowed consumers suffering from injuries with long latency periods to bring claims under Part VA, could be achieved by defining toxic harms. The Federal Bureau of Consumer Affairs suggested this approach in its submission to the Committee, adopting a definition from proposed legislation for uniform product liability laws then before the United States House of Representatives and Senate. None of the proposed reforms were subsequently implemented. Toxic harm was defined as:

. . . harm which is functional impairment, illness or death resulting from exposure to an object, substance, emission, mixture, raw material, or physical agent of particular composition.

20.  Alternatively, the exception to the 10 year period could be based on the Australian Law Reform Commission's formulation to cover cases where "the loss or damage caused by the way the goods acted was not, and could not reasonably have been discovered within that period" (ALRC Report No. 51 Product Liability 1989 at p. 120). Another option to be considered is the formulation in the US Model Uniform Product Liability Act which excludes cases where "the harm caused within the 10 year period did not manifest itself until after that time". The Government will take further advice from the Office of Parliamentary Counsel on the appropriate approach.

21.  As noted by the Committee, this change will impact almost exclusively on the pharmaceutical and chemical industries. Both industries, particularly the pharmaceutical, are characterised by large, international corporations. As there is no repose period for claims brought in negligence, the removal of the repose period in the Act for harms caused by their products is unlikely to add significantly to the insurance or record keeping costs of these industries.

22.  Chemicals are also used in a vast range of applications in a wide range of industries of varying sizes and there may be some increased costs in some of these enterprises. A claimant may take action against either or both the component manufacturer (who has a defence under section 75AK(l)(d)) or the manufacturer of the final product. Where there is more than one defendant, liability is joint and several (section 75AM). If only the smaller business, which used chemicals as components in its own product, is sued and held liable, it would be open to it to take third party proceedings against the manufacturer of the defective chemical. The impact of the change on small businesses would thus, to some extent, be limited.

23.  In coming to this decision the Government has also borne in mind the evidence of the Office of Regulation Review (ORR) within the Industry Commission. In its written submission to the Committee, ORR argued that "provided that the essential elements of the product liability law promote efficiency and equity, it should apply irrespective of how long, after production, the goods cause loss or injury: that is, there should be no statute of repose" (p.4). ORR's submission went on to recommend that the statute of repose should be repealed.

Recommendation 3—Burden of Proof

That the development of evidentiary principles applicable to matters arising under Part VA of the Trade Practices Act 1974 be left to the courts.

24.  In Australia the general proposition on who bears the burden of proving any element of a case is, he or she who asserts must prove. The plaintiff bringing an action under Part VA must prove that there was a defect in the goods at the time of supply, that the defect caused harm and that as a result he or she suffered loss or damage. Removing the need to prove negligence does not lessen the burden of having to prove the presence of the defect and causation. This burden becomes harder to discharge the more time has elapsed. Thus, though extending or removing the statute of repose will allow toxic harm claims to be brought under the legislation, problems will still be encountered by the claimant in proving the case.

25.  These problems arise from the fact that the defendant will almost always have sole possession of the information relating to defect and usually of the information relating to causation. The process of discovery to gain access to this information is costly, time consuming and often unsatisfactory. The problems can be ameliorated by assisting the plaintiff to discharge the burden of proof or by reversing the burden of proof so that the defendant would have to show, for example, that the product was not defective.

26.  The Committee took the view that it was unwise to enshrine any change to evidentiary rules in legislation and recommended that developments in the law of evidence applicable to matters arising under Part VA should be left to the courts. It also expressed the view that perhaps a litigant in sole possession of evidence should produce it or have an inference drawn against it. The Government understands from plaintiffs' lawyers that the courts have shown little inclination to draw such inferences in negligence cases.

27.  Despite these difficulties, the Government has decided to accept the recommendation of the Committee that no provision be made within Part VA to assist the plaintiff discharge the burden of proof. The absence of any consensus among the proponents of change as to how or to what extent the plaintiff should be assisted was an important factor in this decision. It appears to the Government that it ought not attempt to overcome the problems experienced by plaintiffs in the context of this legislation at this time. Rather the issue of whether the legal system has adequately responded to society's need for speedy and cost effective justice should be addressed as one part of a comprehensive reform package for the legal system.

Recommendation 4—Review of the Legislation

That the Committee review the operation of Part VA of the Trade Practices Act 1974 in 1998.

28.  The Committee's recommendation for a review of the legislation in 1998 appears to have been prompted partly by the information that the operation of the EC Directive is to be reviewed in 1995. The Committee also expressed concern about the conflicting evidence presented on both extraterritoriality and the burden of proof questions, especially as some of this evidence, in the absence of experience, could be hypothetical at best.

29.  The Government agrees that a review of the use and operation of Part VA should be conducted but doubts that sufficient evidence will be available by 1998 to make a review worthwhile. In light of the argument put to the Committee about the burden of proof, the Government proposes to make a reference to the ALRC for a wider study of the difficulties experienced by plaintiffs bringing product liability actions in negligence or under the Act. The study would include examination of how the rules relating to discovery of documents and to burdens of proof disadvantage plaintiffs, the difficulties associated with disentangling highly complex corporate structures to identify the correct defendant and how these problems might be addressed.

30.  Such a study will involve the type of research which the ALRC is particularly well equipped to conduct and will build on the expertise it acquired in its earlier reference on product liability. The matters to be referred under this reference were not dealt with in any detail under the earlier reference.

31.  This study should be commenced within five years and incorporate an assessment of Part VA in its later stages as more evidence of cases brought or settlements made under those provisions becomes available.

Conclusion

32.  The Government thanks the Committee for the work it has done in clarifying the issues arising from these three aspects of the product liability scheme and accepts the major thrust of the recommendations made by the Committee. The questions of extraterritoriality and burden of proof will be left to the courts to work out in the particular fact situations which are brought before them. The statute of repose will remain at 10 years with one exception—to allow claims for compensation to be brought when harm manifests itself only after a long latency period, the so-called toxic harm cases. There will be a review of Part VA as recommended by the Committee but this will be part of a wider study by the ALRC into the problems experienced by plaintiffs in both negligence and strict liability regimes.

33.  The Government's policy goals when enacting Part VA of the Trade Practices Act were to ensure justice to consumers without imposing undue costs on industry. The balance between these competing interests reflected in the EC Directive was accepted by the Government as a solid foundation for a strict liability scheme in Australia. However, it is not acceptable that consumers suffering a particular type of harm should be excluded from the improved access to justice provided by the scheme, especially where those consumers are the ones who face the greatest difficulties in securing compensation under the existing law. The Government believes that the economic efficiency of the scheme is maintained and the economic equity of the scheme enhanced by removing the statute of repose for toxic harm cases.