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The Australian Consumer Law – suppliers and manufacturers – who is ultimately liable to consumers for defective goods?

The Australian Consumer Law is set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL) and provides a set of consumer guarantees that apply whenever goods are supplied to “consumers” as defined under the ACL. This article explores the interaction between supplier, manufacturer and consumer when there has been a breach of a consumer guarantee in a supply chain.

Recap – Who is a consumer?

Under the ACL, any supply of goods to a person1 is a supply to a ‘consumer’ if:

  • the price payable for the goods does not exceed $40,000;
  • the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or
  • the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads,

unless that person acquired goods for the purpose of re-supply or for the purposes of transforming them in trade or commerce, in the course of production or manufacture.2

What consumer guarantees apply to consumers and by whom are they given?
Section of ACL Guarantee Expectation Supplier / Manufacturer
51 Guarantee as to title The supplier of the goods has the right to dispose of the property in the goods when the goods pass to the consumer Supplier
52 Guarantee as to undisturbed possession The consumer has the right to undisturbed possession of the goods Supplier
53 Guarantee as to undisclosed securities The goods are free of any undisclosed security, charge or encumbrance Supplier
54 Guarantee as to acceptable quality The goods are of “acceptable quality” Supplier and Manufacturer
55 Guarantee as to fitness for any disclosed purpose The goods are reasonably fit for: (i) a purpose for which the supplier represents they are fit; or (ii) a purpose that the consumer makes known to the supplier or manufacturer for which the goods are being acquired by the consumer Supplier*
56 Guarantee to supply by description If goods are sold by description, they correspond to that description Supplier and Manufacturer
57 Guarantee relating to supply by sample or demonstration model If goods are sold by sample or demonstration model, they correspond to that sample or model Supplier
58 Guarantee as to repairs and spare parts The manufacturer of the goods will ensure that spare parts and facilities for repair of the goods are reasonably available Manufacturer
59(1) and (2) Guarantee as to express warranties The manufacturer will comply with any express warranty given by the manufacturer in relation to the goods and the supplier will comply with any express warranty given by the supplier Supplier and Manufacturer

* Curiously, under section 271 of the ACL, the consumer guarantee of fitness for a disclosed purpose is not listed as one of those consumer guarantees, which if breached, allows an affected person to make a claim against the manufacturer.

Who can a consumer pursue for breach of a consumer guarantee that is given by both a supplier and manufacturer?

A consumer can take action against the supplier (section 259 of the ACL), the manufacturer (section 271 of the ACL) or both the supplier and the manufacturer, provided the consumer does not seek to recover twice in respect of the same damage, nor recover more than their actual loss.3

Claims against suppliers must be made within a reasonable time4 and against manufacturers within 3 years after the affected person first became aware or ought reasonably to have become aware that the relevant guarantee had not been complied with.5

Who is a manufacturer?

Section 7 of the ACL broadly defines a manufacturer to include a person who:

  • grows, extracts, produces, processes or assembles goods;6
  • holds themselves out to the public as the manufacturer of goods;7
  • uses their own brand or name in relation to the goods;8 or
  • permits others to use their own brand or name in relation to the goods.9

In addition, a person who imports goods into Australia (who is not the manufacturer) will be deemed to be the manufacturer of goods if at the time of importation the actual manufacturer of the goods does not have a place of business in Australia.10

Can more than one manufacturer be held liable?

Given the definition of manufacturer is broadly defined, it is possible for the actual foreign manufacturer as well as the local deemed manufacturer to be concurrently liable to consumers for breaches of the consumer guarantees under the ACL and this liability cannot be excluded.11

This proposition was confirmed by Finn J in Leeks12 (Leeks).

In Leeks, FXC was a manufacturer of a device used in activating reserve parachutes. FXC was an American company and its device was imported into Australia and sold by the Australian Parachuting Safety Council Inc. and John Chapman. The plaintiff, Mr Leeks sustained injuries when the device deployed his reserve parachute without being activated. Mr Leeks alleged breaches of the Trade Practices Act 1974 (Cth) (TPA)13 by FXC as the actual manufacturer of the device, and against Australian Parachuting Safety Council Inc., John Chapman and Australian Parachuting Federation Inc., as deemed manufacturers pursuant to s74A (the precursor to section 7 of the ACL).

The Court held that Mr Leeks could make parallel claims against both the actual foreign manufacturer and the Australian importers (as deemed manufacturers) concurrently. Relevantly, the judge in Leeks found that a consumer is not required to make a choice as to which manufacturer they wish to proceed against.

Supplier’s right of indemnity against the manufacturer

More often than not an affected person will make a claim against a supplier even if the failure to comply with a consumer guarantee was caused by the manufacturer. Practically this makes sense because usually the affected person may not know the identity of the manufacturer.

Where a supplier is liable to a consumer for a breach of consumer guarantees, the supplier has a right of indemnity against the manufacturer to recover its losses provided that the consumer guarantee that has been breached is one of the following:14

  • acceptable quality15;
  • fitness for a disclosed purpose which the consumer made known to the manufacturer either directly or indirectly or indirectly thought the supplier or a person who any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made16; or
  • supply by description.17

If the goods concerned are not of a kind ordinarily acquired for personal, domestic or household use or consumption, the manufacturer’s liability obligations to the supplier are limited to the lower of having the goods repaired or having the goods replaced.18

Section 276 of the ACL does not allow a supplier’s right of indemnity against a manufacturer to be excluded or modified by contract (except to impose an even greater liability on the manufacturer.)19

Are there time limits on a supplier enforcing its right of indemnity against a manufacturer?

Yes, a supplier has 3 years within which to make an indemnity claim against the manufacturer under section 274(4) of the ACL. The 3 year period commences on the earlier of:

  • the day which the supplier made a payment with respect to, or otherwise discharged in whole or in part, the liability of the supplier to the consumer;20 and
  • the day on which a proceeding was commenced by the consumer against the supplier with respect to that liability or, if more than one proceeding was commenced, the day on which the first proceeding was commenced.21
Take away items

Depending on where you sit in the supply chain, it is crucial to have an understanding of the statutory rights and obligations that apply to you under the ACL.

Manufacturers Suppliers Consumers
  • Manufacturers (including foreign or deemed manufacturers) can be held liable to consumers for breaches of certain consumer guarantees.
  • An importer of goods may be a deemed manufacturer.
  • Actual manufacturers and deemed manufacturers can be held concurrently liable to consumers.
  • Manufacturers may be liable to indemnify suppliers where supplier has breached certain consumer guarantees.
  • Manufacturers’ liability to suppliers may be limited in certain circumstances.
Suppliers have a right to be indemnified by a manufacturer if the supplier suffers loss as a result of breaching a consumer guarantee in certain circumstances. Consumers have rights to pursue:

  • Suppliers;
  • Actual manufacturers (including foreign manufacturers);
  • Deemed manufacturers; and
  • Both actual and deemed manufacturers concurrently.


This article was written by Teresa Torcasio, Partner and Caitlyn White, Senior Associate.

Teresa Torcasio

P:+61 3 8644 3623

E: ttorcasio@hwle.com.au

 

 

1 a person includes a corporation.
2 Competition and Consumer Act 2010 (Cth) Sch 2 (‘Australian Consumer Law’) sections 3(1) and (2).
3 Baxter v Obacelo Pty Ltd (2001) 205 CLR 635, 656 [46] – [47].
4 Australian Consumer Law section 259(2).
5 Ibid sections 273.
6 Ibid section 7(1)(a).
7 Ibid section 7(1)(b).
8 Ibid section 7(1)(c).
9 Ibid section 7(1)(d).
10 Ibid sections 7(1)(e) and 7(3).
11 Ibid section 276.
12 Leeks v FXC Corporation [2002] FCA 72.
13 The provisions largely mirrored the consumer guarantees in place relating to acceptable quality and fitness for purpose under the ACL (the alleged breaches were of the implied terms as to merchantable quality s74D TPA and fitness for purpose s74B, TPA.
14 Australian Consumer Law 274.
15 Ibid section 54.
16 Ibid section 55.
17 Ibid section 56.
18 Ibid section 276A.
19 Ibid section 276(3).
20 Ibid section 274(4)(a).
21 Ibid section 274(4)(b).

Important Disclaimer: The material contained in this publication is of a general nature only and is based on the law as of the date of publication. It is not, nor is intended to be legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.