Is a recaller breaching the law if they continue to supply their product?

Last week I wrote about the current Australian Consumer Law (ACL) not prohibiting products being sold once they are subject to a recall. I did this with other suppliers in mind – retailers, distributors, etc

It was only when discussing with a colleague that I realised I hadn’t covered the prospect of the company that initiated the recall continuing to supply the product.

Two different scenarios

These are of course quite different scenarios. In the previous article, I suggested businesses down the supply chain or those that may be sourcing the same product should have to cease selling once a product has been listed on the recalls website.

The second scenario relates to the company that actually conducts the recall for a product it has put into the market. While a company that initiates a recall will typically cease or suspend sales, it would not be illegal for them to continue selling the products.

Recalling companies may be tempted to supply the recalled goods to different trade customers, or export them, as a way of recouping the costs of lost sales and the recall itself.

What’s to stop a recalling business keeping selling?

On the rare occasion of a business being given a compulsory recall order, the ACL prohibits further supply. However, no such provision applies to voluntary recalls.

There is, though, a precedent that was set by the Federal Court in February 2016. In that case the Court declared that Woolworths Ltd had engaged in misleading and deceptive conduct, in breach of the ACL, by continuing to sell goods once they knew them to be unsafe.

This precedent was very significant for consumer product safety. As I wrote in my blog article A product safety game changer, several products sold by Woolworths were found to be misleading with regard to their suitability for purpose. That is, their unsafeness meant they were unsuitable for their particular purpose.

With some of the Woolworths products, the contravention involved misleading consumers by continuing to sell the products after the company knew the products had caused injuries or safety incidents.

Based on this judgment, if a supplier makes what are, in effect, misleading or deceptive representations regarding the safety of their product then the courts will determine the conduct to breach the ACL. This could apply to selling products after they have been recalled for safety reasons.

More explicit prohibition needed

Only a disreputable business would supply products it has chosen to recall. But of course, not all ‘voluntary’ recalls are done of the company’s own volition. Frequently recalls are conducted at the behest of a regulator (which may threaten issuing a compulsory recall order); or a conscientious trade customer may also insist on a recall.

If a reluctant business has been pressured to recall its product, it may look to offload its stocks elsewhere as a way of avoiding some of the financial impost. Doing so would involve taking a risk on product liability and probably insurance coverage, but it may not be illegal.

The Woolworths case involved products that were known to have been associated with safety incidents and injuries. Would that be a requirement for a breach to be proven of the ACL’s misleading and deceptive conduct provisions? Products that are recalled are often done pre-emptively and have not always been involved with injuries or incidents.

Disreputable businesses do exist. It may be that only a new provision in the ACL that prohibits the future supply of recalled goods will address this current consumer safety risk.