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Liability For Manufacturers Who Supply Unmerchantable Goods - A Novel Statutory Cause Of Action Available To Australian Plaintiffs.

Article Excerpt
Introduction

Until recent times, product liability claimants in Australia typically relied upon negligence to establish a right to damages, pleading in the alternative misleading or deceptive conduct under section 52 of the Trade Practices Act 1974 (Cth) ("the TPA"), and a breach of one or more of the statutory causes of action against manufacturers and importers of defective products contained within Part V Division 2A and Part VA of the TPA.

However, restrictions on the availability of common law negligence, combined with the likely continuing limitation of personal injury claims under section 52 of the TPA, make it inevitable that the battle ground for future litigation will involve these alternative statutory causes of action contained within Part V Division 2A (sections 74B and 74D) and Part VA of the TPA.

Although there is a relative paucity of case law defining the extent of these provisions, some recent decisions of the Federal Court provide some guidance. The case law that does exist reveals that Division 2A of Part V is being interpreted in a very broad way and may impose more stringent standards on manufacturers than common law negligence.

In this article, I will give a general overview of the statutory cause of action available under section 74D in Part V Division 2A and concentrate on a recent decisions regarding that section. Section 74D makes a manufacturer or distributor liable for the consequences of selling goods which are not of merchantable quality. This is cast in terms of whether the product is reasonably fit for the purpose for which goods of that kind are normally bought.

Why are section 74D claims of interest to US manufacturers and importers into Australia?

Allegations made pursuant to section 74D of the TPA are interesting for the following reasons:

This cause of action is likely to be rather unusual from the US perspective.

It is a "strict liability" cause of action, which means that the plaintiff will not be required to demonstrate that the defendant failed to exercise reasonable care and skill, which is the central inquiry when proving a claim for common law negligence.

It is a cause of action which could be alleged by all users of a product which is found to be defective, not merely those who have sustained an injury. This is because their claim is that they were all exposed to an increased risk of injury in using the product and thus are entitled to compensation pursuant to this statutory cause of action.

Lack of merchantability could be argued by a plaintiff's lawyer where a product has been withdrawn or recalled from the market, especially if the reason for the product recall was related to safety issues. It could be alleged, in such circumstances, that the withdrawal or hazard alert amounts to a concession as to lack of merchantable quality.

Overview of Division 2A of Part V of the TPA

The statutory causes of action established by Division 2A of Part V are considered to be "strict liability" causes of action.

The policy behind strict liability is to make it easier for plaintiffs to prove their claims,...