The Volkswagen diesel emissions reporting scandal provides a timely opportunity to review product recall obligations as they relate to motor vehicles in Australia.

This article is limited to product recall and reporting obligations in the context of safety defects. This is not to suggest or imply that the situation concerning Volkswagen diesel emissions amounts to a safety defect.

The safety of consumer goods (including their components) such as motor vehicles and motor vehicle parts is regulated by the Australian Consumer Law (ACL). Among other things, such as statutory warranties as to acceptable quality, the ACL imposes obligations on suppliers and manufacturers of consumer goods concerning product recalls.

Product recall obligations under the ACL also apply to Dealers, not just manufacturers, since Dealers are usually the ‘supplier’ to consumers. Accordingly, whilst it might be rare that a Dealer will ever take action to recall a vehicle or a part independently of a manufacturer, Dealers should understand their own independent obligations.

Safety defects

Under the ACL, goods (such as motor vehicles) are deemed to have a safety defect ‘if their safety is not such as persons generally are entitled to expect’. This means that whether a motor vehicle is considered to have a safety defect will be considered on a case-by-case basis.

The ACL sets out a number of relevant circumstances to take into account in determining the extent of the safety of goods, including:

  1. the manner in which they have been marketed, and the purpose of the good
  2. packaging and the use of any particular mark (for example, ‘Hazchem’ codes), and
  3. instructions or warnings with respect to the use of the goods.

More often than not, however, a safety defect will arise not because of the inherent nature of a particular good (such as an automotive part), but because of a manufacturing, production or design flaw. For this reason safety defects can be unforeseen, and in those cases manufacturers and suppliers need to understand their obligations to respond to safety defects.

Voluntary recalls

Unless a manufacturer or Dealer (as a supplier) is compelled by the relevant Commonwealth Minister to conduct a recall, there is no compulsion on a manufacturer or Dealer to do so (although there are mandatory reporting obligations, which are discussed further on).

However, section 138 of the ACL makes manufacturers liable for loss or damage suffered by an injured individual if a manufacturer supplies goods , in trade or commerce, that have a safety defect and have caused injury. Manufacturers can also be liable for loss or damage suffered by dependants of an injured person and for damage or destruction to other goods (for example, another motor vehicle damaged in a collision caused by a safety defect).

Dealers can only be liable under section 138 to compensate individuals who suffer loss and damage if the Dealer is deemed to be a manufacturer under the ACL. This will only occur if the Dealer itself directly imports the vehicle and the manufacturer of the vehicle has no Australian place of business. It would be very rare for this to occur.
Manufacturers and suppliers are strongly encouraged by the ACCC to be proactive and take steps voluntarily when it comes to safety defects. In most cases the best course of action for a Dealer will be to take steps in cooperation with a manufacturer, subject to getting appropriate legal advice, since manufacturers are generally much better equipped to coordinate and conduct recall action.

A manufacturer or Dealer might decide to take voluntary steps to conduct a recall where, for example, they become aware of a manufacturing or production error, or receive a complaint from a consumer and considers that a particular good:

  1. may fail and cause injury, and/or
  2. does not comply with an applicable safety standard. (It is an offence under the ACL to supply a good which breaches a specific safety standard, if there is one.)

If either a manufacturer or Dealer decides to conduct a voluntary recall for a safety issue, it must notify the relevant Commonwealth Minister within two days of that decision. The Commonwealth Minister may then in turn choose to make details of the recall public

Once the Minister is notified of a voluntary recall, it is out of the manufacturer or Dealer’s control as to whether or not the Minister decides to make public the details of the voluntary recall, for example, by requiring the publishing of a Safety Warning Notice.

Whether or not the Minister decides to do so may depend on the:

  1. nature of the reported component and its defect or dangerous characteristic
  2. detail of any recall plan of action the manufacturer or supplier intends to implement, or
  3. extent to which the manufacturer or supplier has already given public notice of the defect or dangerous characteristic of the good (if applicable).

There is no requirement under the ACL for the Minister to consult the manufacturer or the Dealer in respect of what action the Minister should take (if any), such as whether or not to publish details of a voluntary recall or any safety concern with a particular component.

Mandatory reporting in case of actual death or serious injury

If either a manufacturer or Dealer becomes aware of an actual death or serious injury (or illness) and either:

  1. considers that the actual death or serious injury was caused, or may have been caused by a particular component. or
  2. becomes aware that some other person considers that the actual death or serious injury was caused or may have been caused by the particular component, then the manufacturer or Dealer must, within two days of becoming aware, report the component to the Commonwealth Minister.
    This is not a compulsory recall obligation but a compulsory reporting obligation. The reporting would likely lead to the Commonwealth Minister making public details of the affected component and potentially, a compulsory recall (discussed below).

Recall Guidelines

The Australian Competition and Consumer Commission (ACCC) strongly encourages voluntary recall action in consultation with the ACCC and a ‘pre-planned’ recall policy.

To assist the conduct of voluntary recalls, the ACCC has published ‘Consumer Product Safety Recall Guidelines’. The Guidelines are not law, but are designed to help manufacturers and suppliers plan for and respond to safety incidents and to comply with their legal obligations under the ACL. In this way, compliance with the Guidelines may assist to minimise exposure to liability associated with safety defects.

Similarly, the Federal Chamber of Automotive Industries (FCAI) has also published a members’ Code of Practice for safety recalls.
Compulsory Recalls

The Commonwealth Minister has the power to issue a Compulsory Recall Notice under the ACL. Whether the Minister decides to do so may also depend on the factors listed above.

If this occurs, the Compulsory Recall Notice may require:

  1. recall of the affected motor vehicles
  2. disclosure to the public of the:
    (a)    defect or dangerous characteristic of the motor vehicles
    (b)    circumstances in which use of the motor vehicles may be dangerous
  3. repair, replacement of the motor vehicles at the manufacturer’s cost, or
  4. refund of the purchase price of the motor vehicle.

A Compulsory Notice can be issued to any person, whether a manufacturer or Dealer, who has supplied goods of a particular kind. A person who is issued with a Compulsory Recall Notice must comply with the requirements of the notice; it is not a voluntary recall. A failure to comply with a Compulsory Recall Notice is an offence under the ACL.

If a person fails to comply with a Compulsory Recall Notice they may not only be fined but may be liable for loss or damage suffered by another person by reason of a safety defect of the good the subject of the Compulsory Recall Notice.

Concluding remarks

Safety defects and potential liability for them are very serious matters. Dealers’ obligations are also independent to their contractual obligations to manufacturers under a Dealer Agreement. Accordingly, if a safety defect issue arises, you should act quickly and seek independent legal advice about both what your obligations are and what course you should take in cooperation with the manufacturer and the regulator.

Evan Stents
Lead Partner, Automotive Industry Group | HWL Ebsworth Lawyers

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