“Improving the Effectiveness of the Consumer Product Safety System”: Australia in International & Comparative Context

I am pleased finally to see and now have the opportunity to make a Submission on a draft Regulatory Impact Statement (“Consultation RIS”) setting out various options for reforming Australia’s consumer product safety system, in light of developments locally and internationally (CAANZ, October 2019).[1] Especially as it has been more than 4 years since the Australian Consumer Law (ACL) Review was initiated by federal and state/territory consumer affairs Ministers. And more than 2.5 years since CAANZ’s Final Report agreed with submissions by myself and many others that Australia was long overdue in adding to the ACL a General Safety Provision (GSP).

I reiterate recommendations dating back over a decade, made to multiple governmental inquiries in Australia, to introduce an EU-style GSP (RIS option 6). This requirement for suppliers only to put safe consumer products on the market is spreading also around the Asia-Pacific region, where Australia concentrates more and more of its trade and wider “transgovernmentalist” network activity.[2]

• In addition, but not as an alternative because these do not place sufficient obligations on suppliers to pro-actively manage their product risks, I also support implementing:
• Option 3 (allowing regulators rather than Ministers to ban unsafe products); and
• Option 4 (allowing the regulators to issue orders against conduct causing or likely to cause significant consumer detriment, inspired by ASIC’s new financial product intervention powers).

If and when adding Options 3 and/or 4 to Option 6, a new “product safety substantiation order” power could be introduced for regulators too.

Problems with Australia’s current regime: socio-economic and legal

• I agree with the Consultation RIS’s summary of the three key sets of problems with the current ACL (and wider) product safety law regime:
  • many unsafe products entering the Australian market and causing harm;
  • slow (mostly post-market) regulatory responses; and
  • uncertainty and lack of knowledge about the regime.

• Indeed, my co-researchers in an ARC-funded research project underway into child product safety compared especially to the US reported in a recent peer-reviewed article that, for 2011-17 voluntary recalls:
  • “Australian child-related recalls increasing by 88% over 7 years, while US child-related recalls decreased by 21% over the same period. This result is unexpected given the US consumer market is 18 times larger than the Australian consumer market and suggests a need to change the reactive approach to product safety in Australia”.[3]

• In post-publication private conversation, Catherine Niven further informs me that voluntary recalls across all consumer products have been trending upwards in Australia over 1998-2018, according to the Product Safety Australia website:

2018: 675 2017: 593 2016: 612 2015: 583 2014: 515 2013: 455

2012: 427 2011: 401 2010: 359 2009: 384 2008: 371 2007: 419

2006: 388 2005: 367 2004: 367 2003: 400 2002: 436 2001: 307

2000: 199 1999: 237 1998: 163

• I note particularly the increase from around 2012. I suggest this relates to the dramatic growth of online trading and shopping in Australia, which is only set to increase further.[4] This expands the influx of cheaper but often lower-quality goods imported from abroad (such as China), noted in the RIS and in literature or data from other jurisdictions. It is unlikely that the increase in voluntary recalls can be explained by better education and awareness (given the lack of clarity and understanding about Australia’s current regime noted in the RIS and elsewhere). Nor by a significant increase in mandatory safety standards (only a few have been added in recent years) or public safety warnings (as the RIS notes, there have only been ten since 2013 and some later / belatedly triggered further regulatory responses anyway – eg ethanol fireplaces, Takata airbags, hoverboards).

• Rather, the attitude among (perhaps especially smaller) suppliers seems to be increasingly: “let’s just import or supply the product, see what happens; if we get reports of injuries or complaints, and especially if the regulators query us, let’s issue a voluntary recall and hope that solves the problem”. This attitude can also be inferred by another surprising finding from the recent publication by Niven and co-authors (emphasis added):

“the majority of Australian child-related recalled products failed to comply with mandatory safety requirements. While various factors might contribute to the lower level of non-compliance reporting in US child-related recalls, it is worth noting that the USA introduced conformity certification reforms in 2008 to address safety issues with imported consumer products. A manufacturer of a children’s product imported into the USA must issue a certificate stating that the product complies with applicable US regulatory safety requirements. The certificate must be based on third-party conformity testing and accompany the product or shipment. Australia does not have a similar conformity certification requirement, placing a significant burden on regulators to identify, test and remove non-compliant products from the Australian market. The high level of product non-compliance identified in the Australian recalls points to a need for Australia to consider additional premarket procedures, such as a conformity certification requirement for children’s products of types that are subject to mandatory safety standards.”

• Especially if this US-style requirement is not added to the ACL regime, an EU-style GSP should be added so that importers and suppliers assess and monitor product risks beforehand, rather than after injuries or complaints occur. The GSP arguably leads to a more pro-active approach to safety risk assessment taken by UK suppliers, before putting goods on the market, as voluntary recalls are far less frequent in the UK compared to Australia.[5]

Limitations in existing ACL provisions on recalls and accident reporting

• Another problem highlighted by Niven and co-authors is the comparative lack of specificity required in Australia regarding the content of recall notices (emphasis added):

“First, the inclusion of de-identified injury information is not a requirement for Australian recalls, and the absence of data restricts the ability to analyse injuries associated with recalls. More fundamentally, the lack of injury information in a recall notice impacts on the ability to effectively communicate the product hazard to consumers. Second, country of origin data were not available in the Product Safety Australia published recall notices and were, instead, extracted from Australian recalls published on the OECD global recall portal. The reason for this irregularity is unclear, and the inclusion of country of origin data is valuable to identify leading source countries for recalled products, which can then inform cross-border safety communications and surveillance. Lastly, Australian recalls could be improved by requiring information on the number of product units being recalled to more effectively communicate the extent of public exposure to the hazard.”

These criticisms echo concerns raised during the ACL Review process (but not adopted the CAANZ Final Report) by myself and Choice and others, calling also for suppliers to have to periodically and publically disclose progress in recalls.

• A further problem with the ACL regime is that the scope of mandatory accident reports introduced (belatedly) from 2011 is comparatively narrow (not extending to all serious health risks) and the reports are not disclosed to the public (unlike the narrower subset of voluntary recalls, which have to be notified to the regulators and then are made public).[6] Penalties for not making mandatory accident reports are also low, and increases were not enacted in recent ACL amendment, seemingly because of federal guidelines.[7] Each infringement anyway must be proved separately, which likely explains why the ACCC has not brought many actions and even where it has sought larger aggregate amounts by adding arguments about misleading conduct (as in claims against Woolworths and Thermomix: see below).

• Such limitations around mandatory accident reporting obligations also contribute to suppliers not taking product safety as seriously as in other jurisdictions with broader reporting requirements. Since the ACL Review did not adopt Submissions by myself and others to broaden them, and the recommendation to set up a public complaints or product safety incident database seems to be making very slow progress, this further bolsters the case to introduce an EU-style GSP.

Deficiencies in coordinating general and sector regulation

• Another aspect that the Consultation RIS downplays is the problem of coordination between the general consumer regulators (already dispersed among the ACCC and State/Territory regulators) and sector-specific regulators. There is some mention of the TPA and FSAANZ as well as the transport department (p63) and an acknowledgement that the Takata airbag recall remains very problematic (only 80% recalled: p21).[8] A recent newspaper editorial calls this a disgrace, and asks why registration is not being cancelled for 20000 vehicles recently warned by the government to be “critical” (out of over 400000 vehicles still to be fixed) or why their resale is not banned.[9] Interestingly, the Korean government banned BMW vehicles recalled for other reasons from being driven, underpinned by criminal penalties on drivers, prompting BMW to provide free replacement vehicles to those drivers while it completed recalls and remediation of their unsafe vehicles.[10]

• Even without such reforms to Australia’s laws on recalls, our regulators could already seek sanctions against car companies in Australia for poor progress in completing recalls of cars with dangerous Takata airbags. Because amendments to motor vehicles legislation, extending recall powers (and sanctions) to the transport regulator, have not been enacted and even when so will not take effect until 2021, only the ACCC can seek sanctions to incentivise suppliers to complete airbag related recalls – and should do so.

• I recently provided a witness statement for the NSW coronial inquest into the fatality from an exploding airbag in a Honda vehicle in 2017.[11] It highlighted issues in obtaining responses from the ACCC when I alerted various officials to perceived problems much earlier. I expect the coroner’s impending report will urge more pro-active involvement by general consumer regulators rather than deferring readily to sectoral regulators.

• The other big problem area has been the interaction between the consumer regulators and those dealing with electrical products (exemplified by problems with recalls involving Infinity cabling in homes, with follow-up apparently now being provided by the NSW OFT rather than ACCC, and Samsung washing machines). A more contemporary example may be e-vaping, where Australia’s consumer regulators (despite being experts in safety, marketing and consumer behaviour generally) have not been evident in the current public debate.[12] Again, unless consumer regulators decide to take a more active role in monitoring and intervening in consumer product markets where there is also a sectoral regime and regulator, suppliers need to be better incentivized to supply safe products by the introduction of a GSP.

• At present, as well as resource constraints (apparently only around 60 staff for product safety activities out of over 1000), the ACCC and other consumer regulators may feel constrained by the Government’s current “Statement of Expectations – ACCC”, especially where there could be “duplication” of supervisory activities of other regulators.[13] But if that cannot be interpreted more liberally (and resources devoted to the ACCC) to achieve more “robust and effective” partnerships, then the Statement of Expectations should be revised by the Government. After all, not only do consumer regulators have general technical expertise in safety issues, they have more general expertise about consumer and supplier behaviour (including marketing / impacts) that other sectoral regulators.

Private law mechanisms: Diminishing impact

• A final aspect not emphasised in the Consultation RIS is that private law mechanisms potentially incentivizing suppliers do not seem to be playing much role. Despite significant media-reported product failures and the observed increase in voluntary recalls, there is very little caselaw on the ACL’s (EU-style) strict product liability provisions or the (NZ-style) consumer guarantees related to safety. What case law there is tends to be in tribunals, with conflicting decisions, and/or with little precedential value; and the ACCC is not bringing representative actions as allowed by the ACL. Class action law firms also continue to focus on investor cases, not product liability claims any more, due to fewer problems establishing causation or loss among larger groups of victims.

• The Consultation RIS does rightly highlight the big penalty ordered in ACCC v Thermomix [2018] FCA 556 (p25), for misleadingly not disclosing safety issues. Yet there the company conceded liability (like in the earlier Woolworths judgment). Further, if injured consumers had brought suit they would have to claim under different ACL causes of action (excluding misleading conduct as it is no longer claimable for personal injury). Once again, this diminished capacity for private law to incentivise suppliers bolsters the case for stronger interventions through public regulation.

Overall economic costs and benefits

• I also note that the ACCC estimates the annual cost to the Australian economy from unfair products, killing 780 Australians and injuring 52000 each year, to be “at least $5billion and … likely … much higher”, compared to consumer goods market of $173billion in 2018-9 (p18). But the related Appendix does not explain where the data comes from re annual deaths or disability. Our ARC project identifies the very disparate and poor data collected in and from hospitals in Australia, compared say to the USA where the consumer regulator sends staff to and coordinates much better information-gathering. It is also unclear whether the ACCC calculations includes deaths and serious injuries from products covered by sectoral regulators, like vehicles (the Appendix separates out quad bikes). The calculations also may only count an economic loss from a disability starting from one year, whereas many consumer product safety problems affect victims for shorter periods (but collectively putting significant drain on the economy). Such incidents[14] are also far less likely to be reported.

• Anyway, even a conservatively estimated economic loss of $5billion is a very significant ground for regulatory intervention. We should recall that the 2010-11 ACL re-harmonisation nation-wide and “trading up” to higher standards in some respects (eg the mandatory accident reporting requirements, or unfair terms regulation for consumer contracts) was bolstered by the Productivity Commission’s 2008 Inquiry Report estimating that its “reform package could provide a net gain to the community of between $1.5 billion and $4.5 billion a year”.[15] I hope ACCC experts are present at all consultation events being planned by Treasury regarding this Consultation RIS, to elaborate on their Appendix calculations and respond to other points raised below regarding legal and practical limitations to the ACL’s current regulatory regime.

• We must also acknowledge the economic gains in harmonizing and “trading up” to higher product safety regulatory standards, through having laws aligned with those of major trading partners, and educating accordingly our suppliers (including actual and potential exporters) and legal or other professional advisors. For the GSP in Option 6, the RIS emphasizes the UK General Product Safety Regulations 2005 (p41), but the UK in fact introduced a form of GSP as early as 1987, influencing Malaysia in 1999 as well as the EU from 1992, which in turn influenced Hong Kong, Macau and later Canada and partly Singapore. There is a wealth of experience available for regulators as well as suppliers through sticking to the tried and test EU-style GSP to add to the ACL regime.

CONCLUSIONS: Adopt Option 6 (possibly with but not instead of Options 3 and 4, adding therein in a “product safety substantiation order” power for regulators)

• Option 5 lacks that advantage, because it is an Australian innovation. It is also conceptually incoherent and confusing because it takes the “safety defect” definition in the ACL (designed for strict product liability) and combines it with a reasonableness test. It will likely generate significant uncertainties for suppliers, regulators and courts to try to square that circle in a consumer product safety context.

• Option 4 is another Australian innovation, inspired by recent ASIC Act amendments in response to calls for regulators to be able to ban detrimental financial services.[16] Yet the proposed power’s differences with existing ACL product ban powers are hard to assess, and so would likely to lead to significant uncertainties and therefore costs. A more clearly reformulated power could be introduced but that would still put the burden on the regulator to act, rather than more directly on the supplier to assess their own product risks as with an EU-style GSP. So Option 4 should be additional to introducing Option 6, not instead of it.

• Option 3 is even more inadequate on its own because it is still a completely reactive post-market power (triggered by actual not potential or emerging safety risks), and it only really shifts powers from the Ministers to make bans or public warnings to the regulators. Again, however, it could be useful to implement together with pre-market Option 6 (alongside perhaps also Option 4).

• When adding Options 3 and 4 to Option 6, the ACL regime could also be made more pro-active by adding a new power for regulators to have suppliers show cause as to how they believe their products are in fact safe. (In other words, add a “product safety substantiation order” power for regulators, like that usefully added to the ACL in 2010 to address potentially misleading conduct.) With Option 6 on the EU model, being able to show cause is already required because they would have to keep and disclose if necessary a risk assessment file, to establish compliance with a GSP.

• Options 1 (no change) and 2 (better education) are inadequate given the demonstrated extent of the problem as well as the uncertainties and gaps in the current ACL regime.

[1] https://consult.treasury.gov.au/market-and-competition-policy-division-internal/main-consultation/

[2] See generally Nottage, Luke R. and Malbon, Justin E. and Paterson, Jeannie Marie and Beaton Wells, Caron Y., ASEAN Consumer Law Harmonisation and Cooperation: Backdrop and Overarching Perspectives (June 3, 2019). Luke Nottage, Justin Malbon, Jeannie Marie Paterson and Caron Beaton-Wells, “ASEAN Consumer Law Harmonisation and Cooperation: Achievements and Challenges”, Cambridge University Press (Forthcoming); Sydney Law School Research Paper No. #19/32. Available at SSRN: https://ssrn.com/abstract=3398046

[3] Catherine Niven et al (2019) https://injuryprevention.bmj.com/content/early/2019/08/08/injuryprev-2019-043267.full

[4] See eg https://www.transdirect.com.au/blog/aus-ecommerce-stats and https://www.webalive.com.au/ecommerce-statistics-australia/

[5] As tabulated at pp38-9 of Choice’s submission in 2015 to CAANZ regarding the ACL Review Issues Paper, over 2013-5 voluntary recalls in the UK were half the numbers annually as in Australia. This is despite the UK population (and consumer market place) being much larger than for Australia.

[6] Nottage, Luke R., Suppliers’ Duties to Report Product-Related Accidents under the New ‘Australian Consumer Law’: A Comparative Critique (May 4, 2010). Commercial Law Quarterly, Vol. 25, No. 2, pp. 3-14, 2011; Sydney Law School Research Paper No. 10/41. Available at SSRN: https://ssrn.com/abstract=1600502

[7] https://www.ag.gov.au/Publications/Pages/GuidetoFramingCommonwealthOffencesInfringementNoticesandEnforcementPowers.aspx

[8] This

[9] https://www.canberratimes.com.au/story/6423207/takata-airbag-recall-delays-are-a-disgrace/

[10] https://www.dw.com/en/south-korea-bans-recalled-bmws-over-fire-fears/a-45072421

[11] See eg https://www.smh.com.au/national/nsw/man-who-died-in-airbag-malfunction-would-have-been-quadriplegic-if-he-survived-inquest-told-20190924-p52ucy.html. Unfortunately the hearings were not completed this month and will resume from March 2020, whereupon my statement should be available on request.

[12] See eg https://www.smh.com.au/national/what-is-vaping-and-is-it-bad-for-you-20190926-p52v8l.html. However, the ACCC did successfully obtain penalties in 2017 against e-cigarette suppliers that misleadingly stated they contained no harmful chemicals found in ordinary cigarettes: https://www.accc.gov.au/media-release/e-cigarette-companies-to-pay-penalties

[13] On “regulatory cooperation”, it states (emphasis added): “The Government expects that the ACCC will maintain robust, effective and collaborative working partnerships with other Commonwealth and State and Territory agencies, as well as the ACCC’s counterpart regulators in overseas jurisdictions, to ensure the proper functioning of Australia’s regulatory framework.  The ACCC should avoid the duplication of the supervisory activities of other regulators, and should consider whether outcomes could be achieved by using existing regulation administered by another regulator, in order to ensure an integrated regulatory framework and minimise compliance costs.” Compare the ACCC’s current Response to the Government: https://treasury.gov.au/sites/default/files/2019-03/ACCC_Statement_of_Intent.pdf

[14] I can give examples eg in the online survey just from my own personal knowledge over the last few years, especially those involving a Takata airbag in a Honda, Fisher & Paykel fridge, Dyson vacuum cleaner and Aldi gas cooker (just to mention those from larger suppliers with more market reputation presumably to preserve).

[15] https://www.pc.gov.au/inquiries/completed/consumer-policy/report

[16] For an earlier recommendation along these lines, ie drawing from consumer product safety law to improve financial services regulation (rather than vice versa as now proposed in Option 4), see Nottage, Luke R. and Kozuka, Souichirou, Lessons from Product Safety Regulation for Reforming Consumer Credit Markets in Japan and Beyond: Empirically-Informed Normativism. Sydney Law Review, Vol. 34, No. 1, 2012, pp. 129-162; Sydney Law School Research Paper No. 11/39. Available at SSRN: https://ssrn.com/abstract=1895084