On 28 February 2018 the Federal Government initiated the largest compulsory recall in Australian history – for all vehicles fitted with ‘affected Takata airbag inflators’ (Takata Compulsory Recall).

At present the Takata Compulsory Recall affects approximately five million vehicles in Australia. A contravention of the Takata Compulsory Recall can carry heavy financial penalties – up to $1.1 million for corporations and up to $220,000 for individuals.

The Takata Compulsory Recall comes in the wake of many years of voluntary recalls for Takata airbags which, since 2009, have seen approximately 2.7 million vehicles in Australia being subject to voluntary recall notices. The reason for the compulsory recall is that, at the time of its announcement, the ACCC estimated that:

• approximately 860,000 vehicles in Australia with defective Takata airbags were not subject to any voluntary recall, and
• replacement rates for individual suppliers conducting voluntary recalls varied from between 36 percent to 84 percent, with four suppliers having replacement rates of less than 50 percent of the vehicles subject to voluntary recalls.

Compulsory recalls

The difference between a voluntary recall and a compulsory recall is that a compulsory recall:

• is initiated by the responsible Minister, as opposed to the supplier
• requires all suppliers of affected vehicles to recall all affected vehicles in Australia (whereas a voluntary recall can specify whatever terms the suppliers decide), and
• specifies the manner and timing of all recall activity.

There are two principal aspects to the Takata Compulsory Recall. The first is the requirement on ‘suppliers’ to effect the recall action itself, and the second is the prohibition on the supply of vehicles with affected Takata airbag inflators (until the recall action has been performed).

Takata Compulsory Recall obligations – manufacturers

The Takata Compulsory Recall requires ‘suppliers’ to effect the recall action. This applies to all affected vehicles, whether new or used.

‘Suppliers’ are defined as the first person to supply a vehicle with a defective Takata airbag into Australia. In most cases this will be the Australian corporate subsidiary of the vehicle’s manufacturer which imports the vehicle, not the retail Dealer who subsequently acquires the vehicle from the manufacturer. Other suppliers to whom obligations will usually apply are businesses which import and supply ‘grey’ or parallel imports.

Under the Takata compulsory recall, suppliers must:

• recall, as soon as possible and on a rolling basis, all affected vehicles and replace the airbag at no cost to the consumer – with priority given to replacement of airbags that present the highest safety risk (these being the ‘alpha airbags’)
• publish a recall ‘schedule’ by 1 July 2018 which specifies when – on a rolling basis – affected vehicles are scheduled to have their airbags replaced under the recall – in this way an affected vehicle will either be under ‘active recall’ or ‘future recall’
• complete all replacements by 31 December 2020
• contact consumers directly to initiate the recall action
• publish a VIN search tool on their websites by 1 July 2018 that allows consumer to identify if their vehicle is affected, and
• make arrangements for towing or transporting a vehicle or providing loan or hire cars during the replacement process in certain circumstances.

In practice, the recall action itself – the replacement of the airbag inflators – will be performed by Dealers by arrangement with manufacturers, with Dealers compensated for parts and labour costs in the same way as for other warranty work.

Takata recall obligations for Dealers

The prohibition on the supply of vehicles with affected Takata airbag inflators will have a very significant impact on Dealers – in particular because of the large number of vehicles affected.

It is important to understand that the prohibition on the ‘supply’ of a vehicle is not limited to a retail sale to a customer. It effectively means a blanket ban on all supplies in trade or commerce.

This means that the prohibition extends to wholesale Dealer-to-Dealer trades, fleet sales, sales by auction and so on. It also includes the supply of courtesy or loan vehicles, test drive vehicles and even in the context of the sale of a dealership business including a Dealer’s inventory of used vehicles. Affected vehicles are, in effect, ‘frozen’ wherever they are in the supply chain.

The prohibition applies differently to new and demonstrator vehicles on one hand and used vehicles on the other.

New and demonstrator vehicles

For new and demonstrator vehicles, Dealers:

• must not supply vehicles with affected airbags under ‘active recall’
• may supply vehicles with affected airbags but not under active recall, provided that the:
  – supply is before 31 December 2018, and
  – Dealer has first complied with the applicable notice requirements – by giving notice to the prospective purchaser or recipient of the vehicle orally and in writing and before the supply of the matters prescribed in the Takata Compulsory Recall Notice, and
• must not supply any vehicles with affected airbags after 31 December 2018 unless their recall action has been performed.

Used vehicles

For used vehicles, Dealers:

• must not supply vehicles with affected airbags under ‘active recall’
• may supply vehicles with affected airbags but not under active recall, provided that the Dealer has first complied with the applicable notice requirements – by giving notice to the prospective purchaser or recipient of the vehicle orally and in writing and before the supply of the matters prescribed in the Takata Compulsory Recall Notice.

In the case of the supply of used vehicles with affected airbags, there is no 31 December 2018 cut-off.

The notice requirements

The notice requirements for the supply of new and demonstrator or used vehicles differ depending on whether the particular vehicle is fitted with an ‘alpha airbag’, is less than six years post manufacture or is more than six years post manufacture.

The notice requirements are set out in the Compulsory Recall Notice itself. In summary, they include:

• informing the consumer using specific prescribed wording of the following summary of matters:
  – there is an affected Takata airbag in the vehicle
  – to avoid future risk of injury or death, the affected Takata airbag needs to replace as soon as possible once the vehicle is on ‘active recall’
  – suppliers will make direct contact with the consumer to arrange for the recall activity to occur once the vehicle is on ‘active recall’
• recording in the service record of the affected vehicle the:
  – presence of an affected Takata airbag in the vehicle
  – the location of the affected Takata airbag (e.g. driver side, passenger side or both)
  – the need to replace the affected Takata airbag during the active recall period
• affixing a notice to the vehicle’s windscreen and engine bay containing prescribed text about the affected Takata airbag.

The Compulsory Recall Notice does not prohibit the private sale of an affected vehicle by an individual. The ACCC has stated that if an owner of a vehicle wishes to sell it privately before receiving a final replacement airbag, the owner should inform the new owner that the vehicle has an affected Takata airbag that will require replacement, and contact the Australian office of the manufacturer and provide them with the new owner’s contact details (with the new owner’s consent).

The Compulsory Recall does not render an affected vehicle unroadworthy or unregistrable. The ACCC also stated that it should not affect a vehicle’s insurance and that if any insurer takes a contrary view, a consumer should report that to the ACCC.

The Takata Compulsory Recall and the Australian Consumer Law (ACL)

Lastly, the Compulsory Recall does not alter the rights or remedies available to consumers under the Consumer Guarantee Regime of the ACL. This means it is potentially open to a consumer to assert a failure of the consumer guarantee as to acceptable quality in the context of the Takata Compulsory Recall.

There is not yet any case authority on whether a compulsory recall indicates a breach of the guarantee as to acceptable quality, but we expect this issue to be tested at some point given the number of vehicles affected, and the potential lure to customers of a refund or replacement vehicle – a remedy sometimes available under the ACL in the context of a major failure of a consumer guarantee.

For more information, and to view the Compulsory Recall Notice, please visit: http://www.productsafety.gov.au/recalls/compulsory-takata-airbag-recall/about-the-compulsory-takata-airbag-recall

This article was written by Evan Stents – Lead Partner, and Christian Teese – Senior Associate, Automotive Industry Group | HWL Ebsworth Lawyers

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