7.2 Loss & injury caused by defective products

Contributed by MatthewLittlejohn and JaneBlack and current to 1 May 2016

This section deals with the laws relating to compensation claims for personal injury and injury to property caused by defective goods.

It covers claims made by those who have bought goods and those who are injured or have property damaged by goods bought by another person.

Compensation for other losses, such as those caused as a result of breaches of condition or warranty involving refunds of the purchase price of unsatisfactory goods or services, are covered elsewhere in this chapter (see Contracts and consumer protection ).

This section covers compensation sought from:

• a supplier of goods
• a manufacturer or importer of goods.

In some cases an injured person has insurance of their own against which they can make a claim (see Insurance ), or can claim against the insurance held by the occupier of the land or premises on which the accident occurred (see Accidents on private and public property ).

The law regarding compensation for injury caused by defective goods comes from a number of sources and is found in:

• the Australian Consumer Law which imposes strict liability for injury on manufacturers and suppliers of goods. Under this Act, manufacturers and importers are required to compensate those who die or suffer certain sorts of injury or have their property damaged as a consequence of a defect in goods.
• the law of contract, including statutory additions, such as implied terms primarily covering goods.
• the common law of negligence, which covers goods and could be relied on by an injured purchaser and certain other people.

Which law should be used?

Where a person who has suffered loss or injury is the purchaser of defective goods, a contractual remedy against the retail seller of the goods may be quite adequate to provide compensation. The terms implied into a sale or supply contract may provide a consumer with an effective route to compensation if difficulties arise (see Contracts and consumer protection ).

However, in some cases contractual remedies are inadequate, particularly:

• where the supplier has become insolvent or disappeared, can't be sued for some other reason, or doesn't have the money to pay compensation
• where the person suffering the injury or damage is not in a contractual relationship with the supplier or seller, for example, a person given the goods by the person who bought them
• where the person is merely a passer-by when injured by the goods and, therefore, has no contract with the seller or supplier.

A wide range of remedies are available under the law of contract. Under Part the ACL, it is possible to claim compensation directly from a manufacturer or importer for breach of an implied condition, such as that goods be fit for the purpose specified by the buyer (see Contracts and consumer protection). Under the ACL, this right is not limited to the purchaser of the goods, but is extended to a person who 'acquires title' through the purchaser; that is, a person given or sold the goods by the purchaser. In relation to defective goods, the right to claim compensation against the manufacturer or importer of the goods is further extended to persons injured by the goods who have neither purchased nor acquired title to the goods.

Case study

A manufacturer of woollen underpants was sued for negligence by a person who wore them and contracted dermatitis from an excessive sulphite residue left from the manufacturing process. The plaintiff was able to prove that the pants were defective because they contained excessive chemicals, but could not show whether the chemical residue was due to any particular deficiency in the manufacturing process. However, the court decided that the existence of excessive chemicals was of itself sufficient evidence of carelessness and upheld the charge of negligence [Grant v Australian Knitting Mills [1935] UKPCHCA 1; (1935) 54 CLR 49].

The Australian Consumer Law

Defining injury and damage

A person who is injured or has certain property damaged by goods supplied in trade or commerece by a manufacturer or importer, either directly or through a retailer has protection under the Australian Consumer Law.

Those seeking to take action against a manufacturer or importer must do so within three years of sustaining injury or property damage, and within ten years of the supply by the manufacturer of the goods. To be entitled to compensation, a person must satisfy all of the following conditions:

• A person has to have been injured or certain property must have been damaged. The compensable loss and damage arising out of such injuries or damage are:
  • injury to an individual, including death
  • loss suffered by another person as a result of the injury or death caused to the first person by goods supplied by the manufacturer. This would include loss suffered by a person who is financially dependent on the person who has been injured or killed.
  • damage to goods ordinarily used for personal, household or domestic purposes
  • damage to land, buildings or fixtures ordinarily acquired for private use.
  • The injury must be caused by a defect in the goods.
  • The goods must have been manufactured, which is defined broadly to include grown, extracted, produced, processed or assembled. If there is no manufacturer in Australia, the importer can be held liable. In such a scenario, the importer is referred to as the deemed manufacturer.
  • The manufacturer or deemed manufacturer must have supplied the goods after 9 July 1992. Goods do not have to be supplied directly to the consumer, rather they need only be put into circulation.
  • The manufacturer or deemed manufacturer must have supplied the goods in trade or commerce.
  • The manufacturer or deemed manufacturer must have supplied the goods in the ten years before legal action for compensation is started.
  • The claim for compensation for injury or damage must be started within three years of the time the claimant became aware, or ought to have become aware, of both the nature and extent of their loss and the identity of the manufacturer.
  • The manufacturer must be unable to rely on any of the following defences:
    • • the alleged defect did not exist at the time the product was supplied. The defect might have, for example, arisen out of someone else's action or inaction after the goods were supplied. A consumer in this situation may have a right to compensation from the person who caused the defect. For example, the transport company that caused the defect while delivering the goods might be the appropriate target for legal action
      • the product was defective only because it complied with a mandatory government standard. For example, a passenger is badly burnt in a car accident because she cannot unbuckle her seatbelt quickly enough to avoid the flames. The seatbelt does, however, adhere to design standards required under NT law so the manufacturer can't be held liable
      • the defect could not have been discovered given the scientific and technical knowledge available when the goods were supplied
      • the safety defect is attributable to a component in the defective goods, and the defect is only attributable to the design of the component, the markings on them or the instructions given with them.

What if the injured person contributed to the loss?

An injury or damage may be caused partly by defective goods and partly by action on the part of the person who has been injured or sustained damage to their property. A court may reduce the amount of compensation awarded by corresponding amounts. This is similar to the principle of contributory negligence in tort actions (see Motor vehicle accidents ). For example, a passenger injured by a negligent motorcar driver will invariably have any damages award reduced by 15% if they were not wearing a seatbelt. Their failure to wear a seatbelt is held to have contributed to 15% of their injuries. Similarly, a person injured by goods found to be defective, but who may have contributed to their injuries by using the goods improperly, may have any damages reduced by a factor that takes account of the improper use.

When are goods defective?

Goods are defective if they do not provide the level of safety a reasonable consumer would require. Goods do not, however, have to be absolutely risk free.

A defect can include a defect in the design and manufacture of goods or in their presentation, including any instructions or warnings present or missing.

The way goods are marketed may also mark them as defective. For example, an item designed for a trained person should not be marketed to someone untrained; an untrained consumer is likely to misunderstand any accompanying warnings and instructions for a product's proper use. Similarly, the packaging, markings, instructions and warnings provided with potentially hazardous goods can render them defective. Legally, a manufacturer must anticipate, where possible, the potential dangers inherent in the misuse of their product and inform consumers of such risks. Such warnings may detail the type of injury or damage that could be expected from misuse.

The scientific or technical knowledge available when goods were supplied can also determine whether a product is defective. Goods that met community safety standards when they were put into circulation are not deemed to be defective at a later date simply because community expectations have increased.

Price is another factor that defines a defective product. A buyer of a cheaper product should not expect it to contain the safety features associated with more expensive counterparts. However, the consumer is still entitled to expect a cheaper product not to be dangerous. A product with fewer safety features must carry clear instructions to this effect.

Who is the manufacturer?

A manufacturer is defined as the corporation that:

• makes the goods
• imports the goods
• encourages the public to think it is the manufacturer
• has the goods manufactured for sale as its 'home brand'.

What if the manufacturer can't be identified?

If a potential claimant finds it difficult to identify the manufacturer of a defective product, they should write to any or all known suppliers of the product in question, requesting information about the manufacturer. Suppliers who do not comply with the request within 30 days are considered to be manufacturers of the goods for the purposes of the claim.

Obligations of manufacturers and suppliers

Suppliers must maintain records for more than ten years so they can respond to requests to identify manufacturers of goods alleged to be defective. A supplier whose records fail to identify the manufacturer of a product faces the prospect of being deemed the manufacturer themselves. If no evidence to the contrary is produced, a supplier in such a position will find it very difficult to defend a claim.

Manufacturers must also maintain comprehensive records on all the goods they produce. Records must be kept if they relate to:

• the manufacturing process
• quality control
• testing and research.

Taking legal action

Actions for compensation under s 236 of the Australian Consumer Law follow the procedures used for any other legal action. Unless the damage suffered is trivial, a claimant should obtain legal advice. A lawyer can advise on the appropriate court in which to take action, and about time limits imposed by the ACL. The seriousness of the injury or property damage determines the court in which an action is brought. Generally, the more serious the damage, the more expensive the legal action. Legal action can also progress slowly, taking from 12 months to many years to come to any resolution.

Representative actions

Where a number of people have suffered injury or damage to property caused by a particular defective product, they may be able to have their claims litigated together under the Federal Court of Australia (Grouped Proceedings) Act 1991 (Cth).

Alternatively, the ACCC may act on behalf of one or more people who have been adversely affected by a particular product (see Contact points ).

The law of negligence

Manufacturers of defective goods may be liable under the common law of negligence. Manufacturers of goods have a duty to take care to avoid causing injury or loss to any person if they can foresee that injury or loss might result from a defective product. Where negligence is proved, compensation may be payable for injuries and loss sustained by the buyer or to any other injured person to whom such a duty was owed.

For example, if a motor vehicle contains a serious manufacturing defect and, as a consequence, is involved in an accident, the manufacturer may be liable to all who suffered personal injury or loss, whether they were travelling in the defective vehicle, in another vehicle involved in the crash, or standing on a footpath.

To be successful, a claimant for compensation based on negligence must show that:

• the manufacturer or supplier owed a duty of care to the claimant or the class of persons of whom the claimant is a member
• the manufacturer or supplier breached its duty of care
• the claimant suffered loss or damage due to the breach of the duty of care of the manufacturer or supplier.

Proof of negligence

To prove negligence a claimant must show that:

• a product is defective - this usually requires a detailed examination of the product by an expert
• the individual or corporation being sued, usually the manufacturer, is responsible for the defect.

In general, courts acknowledge the fact that, while an injured person can prove a product defective, it is often virtually impossible to show precisely how the manufacturer was careless. A court will not, therefore, usually require detailed proof of a manufacturer's negligence. Courts usually accept the simple existence of a serious defect as evidence of negligence on behalf of the manufacturer. This view is known as res ipsa loquitur: the facts speak for themselves. Underpinning this view is the belief that manufacturing procedures and technology have advanced sufficiently to make it possible for manufacturers acting with reasonable care to produce goods without serious defects.

Retaining evidence

If a product causes injury or damage because it is suspected to be defective, it is important to retain the product or its remains as evidence for a possible claim.

What goods are covered?

Liability for negligence under the common law extends to products in the broadest sense of the term, from the construction of houses to the production of cars and other consumer goods.

Who is liable?

People other than manufacturers can be held liable under the common law of negligence. Anyone who causes a product to be defective through carelessness is potentially liable for any injuries or property damage resulting from the defect. A person injured by an exploding soft drink bottle may be able to claim negligence against:

• the bottle manufacturer if the bottle itself was defective
• the drink manufacturer if there was excessive carbonation in the bottle
• the transporter if the bottle was mishandled in transit.

Negligence could not be claimed if the bottle was mishandled by the consumer.

A careless repairer could be held liable for negligence, so too a careless designer, installer or even inspector. The courts have held local authorities liable to house buyers where the authorities have negligently failed to properly carry out inspections of houses during construction and the houses have later been found to be structurally unsound [Anns v Merton LBC [1977] UKHL 4; [1978] AC 728; Sutherland Shire Council v Heyman [1982] 2 NSWLR 618]. A garage that negligently issues a roadworthy certificate for an unsafe vehicle that is subsequently involved in an accident may be liable to pay compensation to those injured.

Taking legal action

Action for compensation under the laws of negligence may be pursued in the same way as for any other legal action (see Contracts and consumer protection ). Unless the damage suffered is trivial, a claimant should obtain legal advice. If the damage is minor or there is no ongoing loss, it is unlikely that a case will be worth running, given the costs involved (e.g. legal fees, expert reports).

Time limits

In the NT personal injury claims must be made within three years from the date that the injury was caused. This limit can be extended in the case of minors and persons under a disability. Legal advice should be sought in this regard.