Third party manufacturers – Pitfalls for Australian suppliers

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Australian Consumer Law (ACL) provides a national framework for consumer protection in the supply of goods and services. Under the ACL, the definition of a “manufacturer” of goods is broader than just the enterprise that makes the goods – it is defined as including a person (includes a company or partnership) who:

  • extracts, grows, produces, processes or assembles goods
  • holds themselves out to the public as the manufacturer of goods
  • allows their name to be applied to goods
  • allows another person to hold them out to the public as a manufacturer
  • imports goods where the actual manufacturer does not have a place of business in Australia at the time of importation

In summary, a company can be liable for defects in goods even if it had no role in their manufacture.

Consumers who suffer loss or damage (includes injuries to persons and economic loss) because of safety defects in a manufacturer’s products can take the manufacturer to court or make a complaint to a consumer protection agency, which may take action on the consumer’s behalf. A product has a safety defect if its safety is not what the community is generally entitled to expect – this includes how and for what purposes the product has been marketed, its packaging, instructions or warnings about using the product, etc.

Suppliers who import goods should reduce their exposure to product liability action by using responsible and sensible business practices such as:

  • Know your manufacturer: the identity, location, reputation, etc and whether there have been problems with their product in the past.
  • Conduct regular reviews of product designs and production (this may mean regular visits to the manufacturer’s overseas factory).
  • Implement and review quality assurance procedures regularly.
  • Test products regularly to product specifications, ensuring they are always met, including batch testing.
  • Conduct appropriate marketing and keep control over how the goods are presented.
  • Provide clear and thorough user instructions.
  • Where necessary, conduct a quick voluntary recall of any products that are defective or unsafe.

If you have any questions about product liability exposures, please contact your insurance broker for advice.