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Friday, 5 May 1989
Page: 1934

Senator BISHOP(2.55) —In supporting this matter of public importance put forward by Senator Short, I want to look at the actual proposals that the Law Reform Commission outlined in its latest paper-paper No. 37; the implications of how those proposals compare with the directive of the European Community; the situation in the United States; and the consequences for the Australian economy. I begin by drawing attention to the terms of reference given to the Law Reform Commission for its discussion paper and its subsequent draft legislation. The Commission was to have regard to `the cost to individuals and the community arising from injuries and damage caused by defective or unsafe goods'. The point is made by the specific reference to `defective or unsafe goods' that there is a standard. Senator Powell assumes that somewhere out there in the community there are vast numbers of people who are deterred, because of cost, from taking action in respect of damages. That is a totally unsubstantiated and very emotional claim. Although the Law Reform Commission is directed to pay attention to that matter, there is no evidence in any of its discussion papers that it has done so.

The Commission was to have regard to `the cost to business and the community, and any effects on the cost and availability of insurance and on product innovation and availability, of any increase in the liability of manufacturers, distributors and retailers in relation to defective or unsafe goods'. It was also to have regard to the relevant law and experience of other countries. I would like to quote from research paper No. 2, entitled Product Liability: Economic Impacts which was put-out by Mr Richard Braddock, a Senior Lecturer in Economics at Macquarie University and a consultant to the Commission. I feel that this reasonably thick tome is almost without worth at all in terms of what it contributes to the real meaning of what costs would be incurred in the community. The conclusion in this tome states:

Finally, to conclude-

to begin with, note the tautology-

on the effects of the ALRC's proposed changes to the product liability laws, these are essentially marginal changes to the existing system, and are not likely to have a significantly larger impact than the shift to manufacturer and importer liability of the 1978 Fraser government amendments.

That is clearly unsustainable. It continues:

The gainers will be those who previously have been inhibited from claiming just compensation for product related loss or injury, including bystanders. In particular, to the extent that higher care levels mean fewer injuries-

that is an implication that care is not presently being taken-

the community is also better off. Any reduction in child injuries, since the rules of `buyer beware' can hardly apply to children, will be welcomed by everyone. The community will also gain from the more efficient delivery of compensation to victims and lower burdens on taxpayers in this respect.

This is completely without substantiation. It continues:

Australian goods are also likely to benefit from their enhanced quality at home and on foreign markets, especially as the Europeans have adopted similar policies.

Specifically on that point, numbers of Australian exporters have been interested in exporting manufactured Australian products into the United States only to find that the importers in the United States will insist that the Australian manufacturer in fact indemnifies them against product liability suits and, as such, the export becomes uneconomic. The conclusion continues:

Harmonisation with the European standards may convey significant advantages in trade. The losers will be the less responsible firms, the supplier of inherently unsafe goods, and certain categories of small business. This latter group warrants some special attention, especially in regard to the provision of appropriate insurance.

That was something that this Commission was supposed to have investigated. It continues:

Over all, the impact on the total community is likely to be a net benefit, especially for adults and children who are potential recipients of product related injuries.

In all those statements there is an implied concern about unsafe goods or the quality of goods. Yet the proposed regime-and I use the word `regime' deliberately because that is what the Commission itself talks about imposing-gets rid of the concept of any standard of any duty of care of any defence which would rest on the need to prove that goods were either unsafe or of unacceptable quality. For the report to say that these changes are marginal to the system is, to put it mildly, an untrue statement.

Let me give one example of a particular manufacturer in this country which has a sister organisation in the United States of America, where product liability does exist. In Australia, in terms of manufacturers, the cost of insurance to this particular firm is 0.9 per cent of turnover, 0.9 per cent of sales. In the United States, because of the cost of product liability insurance, the cost is 2.09 per cent. In other words, the difference is 2 per cent of sales. As most manufacturing businesses work on a return of something like 8 per cent, it is one-quarter of profits. If that is compared to other expenditure that is used in the manufacturing sector, top firms engaged in first grade research and development to improve their products usually spend something like 2 per cent of turnover. We are looking at adding a cost into this system in Australia. We are trying to be cost competitive in export goods, yet we have a non-productive cost of some 2 per cent.

I would like to examine how the product liability concept has grown up in the United States, how it is now developing in the United Kingdom, what the present position is here and how the regime will alter fundamentally the way in which the law operates here. Firstly, the United States system is a common law based system. It does not have a legislative base. It grew out of the concept of strict liability. Various writers in text books will tell us this arose out of the concept of enterprise based legislation which spread the risk for industrial damage to the employers who were the most able to pay. The concept finally came to its present position in about 1972 when Justice Traynor in the case of Escola and Coca Cola changed the test for foreseeability and the duty of care owed from intended use of the produced good to one of reasonably foreseeable use.

In the decade preceding 1988 and the 15 years following that decision the number of product liability cases that have come before the courts in the United States has tripled. It is still growing. It has had dramatic effects on particular industries. In newspaper articles and the like one finds many people writing of individual cases, one-off cases. I think it perhaps is more useful to look at whole industries. I would cite the light aircraft industry, which has been virtually destroyed in the United States by product liability actions. In 1978, for instance, 18,000 light aeroplanes were produced in the United States. In 1988, 600 were produced. The reduction in number was simply because of the number of product liability law suits. The result is that the safety margin in light aircraft-and perhaps one could say large aircraft also-has diminished because now the planes which are being sold are not new planes with upgraded technology but are old aircraft. They are constantly being repaired and are consequently less safe and have no new improvements in technology. Thus the aircraft flying now are less safe and that is directly attributable to product liability legislation. Even the component part manufacturers for the light aircraft industry could not afford to face the law suits for product liability.

In the United Kingdom the position up until now has been the same as it has been in Australia-that is, that liability for unsafe or unmerchantable quality has lain in two areas: actions brought in tort and actions brought in contract. The history of the law is such that the common law does develop to meet needs. In 1932 we saw a particularly important development in the law of tort with the development of Donoghue v. Stevenson-that well-known case of the decomposed snail in the bottle of ginger ale, where somebody bought the bottle of ginger ale and gave it to a friend who drank one glass of the ginger ale before the decomposed snail arrived. She suffered shock and gastroenteritis and sought a remedy. There was no contractual relationship. The question was whether the manufacturer of the bottle of soft drink owed a duty of care to the person who drank it-that is, the consumer, who had no opportunity to examine the contents.

The House of Lords finally decided in favour of the plaintiff. An important new development in the common law was established-that is, that the concept of the duty of care was broadened to include people who were in a relationship of close proximity to the manufacturer so that a duty of care lay. Had the Law Reform Commission chosen to develop the theory of maintaining a tortious base to product liability we would have had a totally different set of outcomes. It has chosen to develop the strict liability concept, which means that the question of fault, the question of unsafe or unacceptable quality, becomes irrelevant.

The test is then this. I will give an example which I think it is quite possible we could see under this proposed regime. We have all become familiar with the case in the United Kingdom right now of baby foods having razor blades, drawing pins, needles and the like placed into that food in a way which cannot be detected. Under the proposed regime, to be introduced by the Law Reform Commission, the person who is liable for any injury suffered because of the behaviour of the goods is the manufacturer. It specifically provides that the manufacturer is to be the prime defendant. He cannot abrogate that defence. If the case occurred here and this regime was in place, any baby or person who swallowed part of those razor blades or whatever could sue the manufacturer despite the fact that the person who is clearly inserting those harmful objects is a would-be blackmailer who is trying to get the firm to pay extortionate amounts in order to try to keep its good name. The only right that the manufacturer would have would be one of recovery against the person or persons who inserted the dangerous goods into its product. Even that could be at doubt, because most of the remedies for contribution or for recovery rest on the basis of being a tortfeasor, which in turn relies on the concept of fault which is being abolished by those proposals. Mr Hawke, in addressing the Business Council of Australia, made this rather splendid statement in 1984:

I am convinced that after 84 years of federation, we have accumulated an excessive and often irrelevant obstructive body of laws and regulations. We seek your assistance in removing from this accumulation as many as possible of those laws and regulations which serve no clear and useful purpose. We see the removal of unnecessary regulation contributing significantly to improved economic growth performance.

If we want to see this country remain competitive, to gain that competitive edge, to increase our number of exports, to enable the consumer-and that means all of us-to enjoy reasonably priced products, then we will reject the concept of product liability as outlined in the Law Reform Commission's paper, the latest one which has just come to hand. It is not a question which can be ideologically resolved. The ideological thrust behind the proposal is that the cost of manufactured goods should reflect any possible damages which may result from any damage that flows from the act of those goods. As I said, that is an ideological base. It is one that this country cannot afford. We are at a crisis point and if our manufacturing sector is to have a chance, then we must reject this proposal.