Product liability

The terms of reference required the Commission to focus on a particular area of product liability: situations in which the product itself played a crucial role in causing the injury or loss to the consumer or a member of the community. The reference considered only the liability of manufacturers and suppliers for the quality of the goods. The Commission was also asked to examine financial compensation for the loss awarded by the courts. Consideration of the value of other remedies or schemes, such as a public compensation scheme, was outside the terms of reference.

At the time of the reference, the Trade Practices Act 1974 (Cth) allowed people to claim compensation for loss resulting from unsafe or defective goods in particular situations.

Three consultation documents were released as part of the reference:

• an issues paper Product Liability (ALRC IP 7), and
• two discussion papers—Product Liability (ALRC DP 34) and Product Liability: Draft Legislation (ALRC DP 37).

The final report (ALRC Report 51) was released in 1989. After analysing the law, the Commission identified a number of problems.

• It was extremely costly for people to enforce their rights arising under the law.
• The standards imposed by the law were ambiguous. It was difficult for manufacturers to know whether or not they had complied with the standards.
• The laws operated unfairly. In some cases, the person who suffered the loss was over-compensated. In other cases, people were arbitrarily denied compensation.

Key recommendations

• Rather than simply rework negligence or contractual rules, an entirely new basis of liability for manufacturers and suppliers should be introduced. To prevent multiple claims for the same loss, this new form of liability should exclude all other claims relating to that product, with very limited exceptions.
• The Trade Practices Act 1974 (Cth) should be amended to achieve a national law on product liability. The States and Territories should enact legislation reflecting the Commonwealth position.
• Many of the features of the proposed legislation were designed to make it easier for those having suffered loss to prove their case in court, including sufferers who had been the purchasers of goods. Under the proposals, a person had a right to compensation if:
  • that person suffered loss or damage;
  • the loss or damage was caused by the way goods acted; and
  • the goods were manufactured or supplied by a company.
• There should be no need to prove a further element, such as that the goods were ‘unsafe’ or ‘defective’.
• Because the manufacture and supply of goods involves many people, it is sometimes difficult to identify a defendant. The law would allow a specific person in the chain of manufacture and supply to be identified as the person to be sued (generally the manufacturer). The identified person could take legal action of its own against those who it knows share responsibility. Limited defences should be available.
• If the loss suffered is partly due to the actions of the consumers themselves, this should be taken into account when calculating the compensation owed by the manufacturer or supplier.

Implementation

In October 1989 the Federal Treasurer asked the Industry Commission to report on the economic effects of the proposals put forward by the ALRC in its report.

The Industry Commission reported that the proposals would be effective in imposing liability on producers for loss caused by products and so, would increase the incentive for producers to take full account of the loss their goods might cause.

However, the Industry Commission criticised the absence of a requirement for goods to be defective and also claimed that implementation of the ALRC’s proposals would impose adjustment costs as producers and consumers adapted to the new system.

The Federal Government announced that it would introduce a system based on the European Economic Community model where liability attached only to defective goods. This model, based on the 1985 European Community Product Liability Directive, was considered by the ALRC in its discussion paper but rejected in its final report.

The EEC model was implemented in the Trade Practices Amendment Act 1992 (Cth). This Act inserted a new Part VA into the Trade Practices Act 1974. The new sections provided for remedies where a defect in goods causes injury or damage to individuals or to their personal or private property. The plaintiff bore the responsibility of proving that the goods were defective and that these defects caused the damage. This element of the Trade Practices Act was later referred to Senate Standing Committee on Legal and Constitutional Affairs, which supported the Act.