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Woolworths product safety case

Last week Woolworths was fined more than $3 million for supplying goods with misleading representations as to their safety and failing to withdraw unsafe products from sale. This is only the second time in Australia’s history* such a high penalty has been ordered for breaches associated with product safety.

The Federal Court issued declarations that Woolworths Limited had breached the Australian Consumer Law (ACL) by selling a number of unsafe goods during 2011-2014.

The defects in Woolworths’ products caused several serious injuries, including burns from hot oil when the handle of the deep fryer broke during use and chemical burns including to a young child, caused by a defective cap on the bottles of drain cleaner.

In some cases, Woolworths became aware of serious injuries resulting from defects in these products, but did not promptly remove the products from sale and recall the products. These products were subsequently removed from sale and recalled, but not always before further injuries resulted from their defects. In these cases the Court found that Woolworths had misled consumers as to the suitability of the products.

Justice Edelman imposed the high level of fines because of the large number of consumers exposed and the view that the company’s quality assurance systems should have been more robust. Moreover he pointed to the severe injuries that occurred and the company being slow to withdraw products from sale and conduct recalls.

The breaches also included a number of occasions when Woolworths failed to meet mandatory product safety reporting requirements.

Significance

As well as the record fines, this case represents a number of significant developments in Australian product safety.

This is the first time a court has found contraventions of the misleading and deceptive provisions in a product safety case that did not also involve a breach of a mandatory safety standard.

Specifically, the court declared that Woolworths had breached the ACL’s misleading and deceptive conduct provisions – by selling goods with misleading safety information on them or by continuing to sell goods after they knew they were unsafe. These were not breaches of the ACL’s product safety provisions.

Woolworths recalled drain cleaner

The main products were:

  • A deep fryer whose handles came off when being lifted while full of hot oil
  • Drain cleaner liquid with a faulty bottle cap
  • Safety matches that broke and ignited easily
  • A padded chair, and a folding stool that did not bear their stated load weight.

None of these products are subject to a mandatory standard.

This case was also the first court action for breaches of the mandatory reporting provisions.

Is it now illegal to sell any goods that are unsafe?

The ACL does not contain any express prohibition from selling unsafe products – either knowingly or unknowingly. Such a prohibition is referred to as a General Safety Provision (GSP).

By declaring five unsafe products to be in breach of the ACL misleading and deceptive provisions, is the Court providing a de facto GSP?

All five products were found to be misleading with regard to their suitability for purpose. That is, their unsafeness equated to being unsuitable for their particular purpose.

In three of the five cases the products carried consumer information relating to safe use: on the drain cleaner – instructions for opening the bottle; on the chair and stool – maximum load weight. The inaccuracy of this information was explicitly misleading.

In the other instances, the contravention was purely for misleading consumers by continuing to sell the products after the company knew the products had caused injuries or safety incidents. This ruling is the more significant as a product safety precedent.

It is an established principle that companies can mislead or deceive by silence. That is, retailers can mislead consumers by failing to disclose information that might change a person’s mind about buying a product.

The ACCC’s focus, and that of the Court, was on products not withdrawn or recalled quickly enough after injuries and incidents were revealed, which equates to silence in this context.

Based on this judgment, if a supplier makes what are in effect false, misleading or deceptive representations regarding the safety of their product then the courts will determine the conduct to breach the ACL.

So, while there is no express provision proscribing supply of unsafe products, the legal consequences in the Woolworths case indicate that suppliers would do well to consider that a GSP exists and ensure they only supply safe goods.

Detailed audit

One further distinction in this case is the order made for an external audit of products. Woolworths is to engage an independent auditor to periodically check high risk products against their corporate product safety quality and compliance processes. These are the first such orders to be made in Australia, to my knowledge.

These include overseas factory assessments, pre-production evaluations and pre-shipment inspections. Audits are also to be conducted for recalled products and customer complaints.

The policies and processes to be audited are all standard product safety practices that Woolworths has strengthened since the breaches occurred. All companies should have these systems in place and manage them effectively.

ACCC vigilance

As well as the action on the five products listed above, the ACCC took action on eight instances in which Woolworths had breached the requirement to notify the ACCC of injuries associated with a product they sold.

The Woolworths case is the first time the ACCC has taken court action for breaches of the mandatory reporting requirements, introduced in 2011. The penalties imposed for these breaches totalled $57,000 for eight contraventions of the reporting requirements.

ACCC logo

All these actions demonstrate the ACCC’s vigilance on product safety. The ACCC’s Chairman, Rod Sims said ‘Woolworths misled Australian consumers and placed their safety at risk. The significant penalties imposed in this case reflect the serious nature of Woolworths’ conduct. In the future, companies generally must do more to detect unsafe products and remove them from their shelves.’

The ACCC has demonstrated its vigilance in consumer product safety. Through the information it gathers with recalls and mandatory reporting data, the ACCC has been able to monitor safety concerns and take action.

The ACCC has now established it will act on product safety across the board – whether goods are subject to a mandatory standard, a ban or just simply unsafe.

Implications for retailers and importers across Australia

What does this Court decision mean for suppliers?

The requirement to not supply unsafe goods is not absolute – the indications in the judgment are that ‘reasonable’ action to check safety, to examine products that are subject to reports, to stop selling products that represent risk of significant injury and to ensure the injured are cared for, would have substantially reduced the penalties.

The key messages for all suppliers are:

Scales iconThe ACL applies to all product types – not just those regulated by mandatory standards and bans

Scales iconIt is critical to withdraw products from sale as soon as a significant hazard is suspected; and recall the product where serious injury reports are known to implicate the product. Companies should have effective complaint handling systems and recall procedures in place

Scales iconIt is essential to report to the ACCC any serious injuries associated with products, as well as the instigation of any recalls (within the short timeframes prescribed in the ACL)

Scales iconCompanies may be breaching the ACL by offering products for sale that:

  • do not make accurate statements about safe use
  • are known to be unsafe
  • are unsafe in the first instance, especially where they are shown to cause injury

Scales iconCompanies must have suitably rigorous compliance programs for the size of their organisation

Scales iconCompanies need to get product safety right!

 

 

See our Product Safety Checklist – A Manager’s Guide for an overview of measures required for businesses selling or making consumer goods.

The judgment is available on the Federal Court of Australia website.

For further reading, see the Sydney Morning Herald article Paediatrician calls for stronger product safety laws published 26 March 2016

* Dimmeys retailers and their distributor and director were fined a total of $3.72 million in December 2013 following action by Consumer Affairs Victoria

 

Product safety enforcement