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Trade Practices Amendment Bill (No. 2) 1991

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House: Senate Portfolio: Attorney- General

Purpose To provide that corporations will be liable for damages and injuries arising from the use of defective goods they have manufactured, imported or, in certain cases, supplied.


Current product liability laws: Prior to 1974, claims for compensation for damage caused by defective goods could only be brought as claims against the seller of the goods for a breach of contract, or as actions in tort (i.e. negligence) against the manufacturer or a person involved in the manufacture or supply of the goods, or against a repairer of the goods. Since 1974 most states have introduced legislation providing for consumers to get compensation from manufacturers or importers of goods where he/she suffered a loss because of the failure of the goods to comply with standards of fitness or merchantable quality.

Divisions 2 and 2A of Part V of the Commonwealth Trade Practices Act 1974 (the Principal Act) contain provisions dealing with product liability. Division 2 allows a person to claim compensation for damage caused by defective goods

* "against the supplier of goods that did not comply with the requirements of implied terms that the goods be fit for purpose or of merchantable quality

* against the supplier of goods that did not comply with prescribed standards relating to safety or information". 1

Basically, Division 2A establishes a right of action against manufacturers or importers of goods where the goods do not comply with implied terms of fitness for purpose, merchantable quality, or with express warranties made in respect of the goods. The Principal Act provides a defence to manufacturers or importers of goods where: the producer could not reasonably have known or was not in a position to know of the breach of consumer product safety or information standards or for misleading or deceptive conduct; or the defendant acquired the goods from an Australian company for the purpose of resupply. These defences are also available under New South Wales, Western Australian and Australian Capital Territory laws. 2

Deficiencies in current product liability laws: The Australian Law Reform Commission (the Commission), in its June 1989 Report titled Product Liability, found the current product liability law deficient in a number of respects, including: * the existing law did not ensure that those who manufacture and supply goods bear the risk of losses caused by what the goods do; * under the it is costly to identify the proper defendant, particularly in negligence actions, and even in contract and, under the Principal Act successive actions may be required before the proper defendant is identified; and * the existing law is not economically efficient because reliance on standards which are vague and indeterminate, and thus not effective standards at all, for deciding liability will generally produce inefficient allocation of resources by persons involved in the manufacture and supply of goods. 3

The Industry Commission (IC), in its July 1990 report titled Product Liability, found the current product liability law deficient in a number of respects, including: * not all losses caused by defective products are compensated; * actions for breach of contract in product liability cases make no general provision to reject or discount plaintiffs' claims where improper use of products has contributed to loss suffered; and * in the assignment of liability, the onus of proof should generally lie with the party in the best position to gather information relevant to the question in issue. 4

The Commission and IC proposals: The Commission's proposal, in the form of amendments to the Principal Act, was intended, as one commentator has noted, to establish an essentially national private scheme of compensation for loss or damage caused `by the way goods acted'. 5 In so doing, the Commission's proposal: * reduced a plaintiffs' burden of proof, shifting it away from the consumer to the manufacturers and distributors of goods; * diluted the availability of defences; and * increased the range of potential plaintiffs by making defendants potentially liable to all people - the owners, users and innocent bystanders injured in an accident involving a faulty product.

The Commission's proposals have been attacked vehemently by business groups on a number of grounds, principally, that the Commission's proposals were an over reaction and would be economically disastrous.

The IC recommended against implementation of the Commission's proposals, concluding that whilst they would avoid some inequities in current laws, they would create others, and that a better outcome could be achieved by making relatively minor amendments to current laws, an approach, which in the IC's opinion, would avoid any of the costs of the Commission's proposals. The Commission, based on what it had learnt on the positive and negative aspects of current product liability laws, considered that any revised scheme should have regard to a number of matters, including: * efficiency and equity objectives would be served by making producers and consumers fully liable for their actions; * a regime should incorporate both `acceptance of risk' and `development risks' defences; * in the case of loss associated with product deterioration, producers should be liable only for losses from deterioration caused by defects in the product; and * the case for reversing the onus of proving a breach of a product standard or standard of producer behaviour should be considered further. 6

The 1985 European Community Product Liability Directive: In a Media Release of 13 May 1991, the Minister for Justice and Consumer Affairs, announced new product liability laws. According to the Minister, the new regime is to be based on the 1985 European Community Product Liability Directive, which the Minister describes as an emerging international standard for product liability laws. The European Community Product Liability Directive is based on the concept of strict liability, specifying that a producer shall be liable for damage caused by a defect in his/her product. A product is judged to be defective when it does not provide the safety which a person is entitled to expect, taking all the circumstances into account. The onus is on the plaintiff to prove that there is a defect in a product that caused the damage. Originally, the Government proposed adopting the European Community Product Liability Directive with a modification that the onus of proof be on the defendant, not the plaintiff. Following pressure from business and further examination of the product liability laws overseas, the Minister announced that the Government would revert to placing the onus of proof on the plaintiff.

Criticism of this Bill: Dr Ellen Beerworth, a specialist in product liability law, is reported as having said: "After four years of extensive inquiries and debate, Senator Tate's Bill merely complicates the existing consumer legislation, which may provide some marginal benefits to consumers but massive costs to companies". 7 In addition, Dr Beerworth is reported as saying: "Manufacturers should take heed of the fact that, on the face of it, the legislation represents a whole new ball game, with emphasis on subjective rather than objective measures of safety" and that "The legislation gives the courts too much discretion in highly politicised design defect legislation (for example tobacco) as to whether the products are safe enough for consumers and thus should remain on the market". 8

The Public Interest Advocacy Centre (PIAC) is reported as welcoming the proposed reforms but criticising the Government for allowing manufacturers to invoke a `state of the art' defence. Under this defence a manufacturer will not be liable if, in the light of scientific and technical knowledge at the time of manufacture, the defect could not have been known. The PIAC is reported as believing that this defence is likely to be used in association with pharmaceutical products. 9

Main Provisions Clause 3 provides that proposed Part VA (proposed sections 75AA- 75AS) will apply to goods supplied by their manufacturer after the commencement of this Bill. Clause 3 aims to ensure that the proposed product liability regime will not operate retrospectively.

Proposed sections 75AA- 75AS, that deal with the liability of corporations for damages and injuries arising from the use of defective goods they have manufactured, imported or, in certain cases, supplied, will be inserted into the Principal Act by clause 4. Due to proposed section 75AB, importers will be treated as manufacturers. `Liability action' is defined to be an action under proposed section 75AD. Goods will be taken to be defective if they do not provide a level of safety that persons generally are entitled to expect of the goods (proposed subsection 75AC(1)). In assessing the extent of the safety of goods, regard is to be given to all relevant circumstances, including: the way in which, and the purposes for which, the goods have been marketed; the way the goods have been packaged; and any instructions for, or warnings associated with the goods (proposed subsection 75AC(2)).

Proposed section 75AD deals with the liability of a manufacturer for defective goods. Where: * a corporation, engaged in trade or commerce, supplies goods manufactured by it; and * the goods have a defect; and * because of the defect, a person dies or suffers injuries, or goods usually bought for personal, domestic or household use are destroyed or damaged; and * a person suffers loss because of the death or injures, or a person who used the destroyed or damaged goods suffers loss; the corporation: * will be liable to compensate the person for their loss; and * the injured person may bring an action against the corporation for recovery of their loss (proposed subsections 75AD(1) and 75AD(2)).

Proposed section 75AF provides that proposed section 75AD will not apply where workers' compensation or a law giving effect to an international agreement applies.

Proposed section 75AG provides that where a person, who wants to start a liability action, does not know who the manufacturer of the goods alleged to be defective was, he/she may request the supplier/(s) of the goods to give him/her particulars of the corporation which manufactured the goods, or suppliers of the goods. Where the person, after a reasonable time, still cannot identify the manufacturer, then the corporation, or each corporation that is a supplier: * to whom a request for particulars of the corporation which manufactured the goods; and * who did not comply with the request; will be taken to have manufactured the goods that are alleged to be defective.

Trade Practices Amendment Bill (No. 2) 1991 Proposed section 75AH provides that in a liability action, it will be a defence if a corporation can prove: * the alleged defect in the goods did not exist when they were supplied by their manufacturer; * the goods had a defect only because they were complying with a mandatory standard; * the state of scientific or technical knowledge at the time the goods were supplied by the manufacturer was not such as to enable the defect to be known; or * the goods were contained in other goods (finished goods) and the defect is attributable to the design of the finished goods, the markings accompanying the finished goods, or the instructions or warnings given by the manufacturer of the finished goods.

If it can be reasonably inferred, on the basis of direct or circumstantial evidence, that a defect in goods caused loss, the court is to adduce that inference (proposed section 75AJ).

Proposed section 75AN deals with the time for commencing actions. Proposed subsection 75AN(1) provides that a person may start a liability action at any time within three years of becoming aware, or ought reasonably to have become aware, of the alleged loss and the identity of the manufacturer of the allegedly defective goods. As well, actions must be commenced within 20 years of supply of the good if death or injury has resulted, or within 10 years if economic loss has occurred.

Proposed section 75AR provides that proposed Part VA is not intended to exclude or limit the concurrent operation of any state/territory law, or limit, restrict or affect any right a person would have if this proposed Part were not enacted.

References 1. The outline of Australian product liability laws contained in the "Background" of this Digest is a summary derived from the June 1989 report of the Australian Law Reform Commission titled Product Liability, and the July 1990 report of the Industry Commission titled Product Liability. 2. Australian Law Reform Commission, Product Liability, June 1989, p. 6. 3. Ibid., pp. 34- 36. 4. Industry Commission, Product Liability, July 1990, pp. 17 and 18. 5. M. Harrison- Smith, Law and Government Group, Parliamentary Research Service, Department of the Parliamentary Library. 6. Industry Commission, Product Liability, July 1990, pp. 64 and 65. 7. The Australian, 26 December 1991. 8. Ibid. 9. Law Society Bulletin, December 1991

Bills Digest Service 13 February 1992 Parliamentary Research Service

For further information, if required, contact the Law and Government Group on 06 2772430.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1992.

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Published by the Department of the Parliamentary Library, 1992.