The Australian Competition and Consumer Commission (ACCC) has made a number of proposed recommendations to the way products are recalled in Australia following its review of the product safety recall system. The ACCC recently released its ‘Review of the Australian product safety recalls system’ (Review) indentifying a number of issues to be addressed under the current system to increase the systems effectiveness.

The ACCC proposes to incorporate its recommendations through the publication of new guidelines to conducting a product recall. The new guidelines will have a number of implications for insurers and intermediaries involved in product recall and general liability insurers given the necessary reassessment by suppliers of their recall strategies, policies and procedures in light of the proposed changes.

While the Review did not expose any considerable issue with the system the ACCC identified a number of improvements to be reflected in their new recall guidelines for suppliers which may improve the effectiveness of this system. The supplier’s response to the new mechanisms will be monitored by the ACCC for a year following publication before it determines whether further legislative reform is required in line with the Australian Consumer Law reforms. The recommendations contained within the report will ultimately form the basis of consultation within the industry between the regulatory bodies and industry representatives and other interested stakeholders in order to finalise the recall guidelines and whether any legislative amendments are required.

Background

When a safety concern in a consumer product is identified, suppliers and/or government officers may determine that the product needs to be recalled pursuant to the statutory provisions of the Trade Practices Act 1974 (Cth) (TPA). The relevant provisions of the TPA allow recalls to be made voluntarily whether initiated by suppliers, or, as required by law, when the ACCC or State and Territory Fair Trading offices identify a safety concern and negotiate a recall with the supplier. The TPA allows for the Commonwealth Minister to order a compulsory recall where necessary, which is often in practice, enforced by the ACCC.

The Review is a subsequent development from the Productivity Commissions review into Australian consumer product safety system in 2006 which recommended a review of the existing consumer product recall guidelines. The Australian Council of Governments approved the recommendation in 2008.

The Review considered the existing consumer product recall system in Australia, and addresses the existing regulatory provisions and the ways in which a risk associated with unsafe goods can be effectively managed under an improved regulatory system by both suppliers and regulators. In its review the ACCC identified a number of actions and practical recommendations to improve the way the product recall processes are managed under the current system. In particular, the ACCC made specific recommendations in regard to notification, communication, product retrieval and closure.

The current system

The ACCC currently regulates the safety of consumer products throughout Australia pursuant to the product safety provisions of the TPA and the publication of ‘Product Safety Recall: A guide for suppliers’, a guideline for managing product recall pursuant to good practice and the TPA. This is further supplemented by specific legislation governing the commonwealth regulatory bodies of certain types of goods.

Approximately one quarter of all safety recalls in Australia fall within the jurisdiction of the ACCC which is composed of general consumer product recalls, while specialist Commonwealth regulators have jurisdiction over the remaining three quarters. Generally the following commonwealth regulatory bodies should be notified of the recall of specific product groups under the notification requirements of the TPA:

• Food Standards Australia New Zealand for food products
• Department of Infrastructure, Transport, regional development and local council for motor vehicles
• Therapeutic Goods Administration for therapeutic goods
• Australian Pesticides and Veterinary Medicines Authority for agricultural and veterinary products
• State and Territory electrical regulators for electrical products, and
• State and Territory gas regulators for gas appliance products.

When the product is distributed in one or more States or Territories, suppliers are required to notify the product safety regulators in the relevant State or Territory within two days of any recall action. This notification is further to the requirement pursuant to the TPA. The Minister of Competition Policy and Consumer Affairs maintains the decisive power to order compulsory recalls for a product if it will or may cause injury to a person and where it appears that the supplier has not taken satisfactory action to prevent the goods from causing injury.

Currently the regulatory bodies independently interpret and manage the recall system in different ways. The Review identified four factors that are influenced by differing levels of involvement of regulators through their independent oversight of the recall process. The recommendations of the ‘Review into Australian product safety recalls system’ seek to clarify the regulatory oversight of the process to improve consistency in the practical implementation of the guidelines at a regulatory level and increase the effectiveness of the product recall system.

Notification

The Review found that the current system requiring notification to State and Commonwealth regulatory agencies, as required under the TPA, delayed the initiation of product recall. The proposed Australian consumer law reforms, coming into effect in January 2011, restrict the statutory notification requirements of suppliers to the regulatory bodies. Suppliers will only be required to notify the ACCC and not the state regulatory agencies however the notification requirements to the commonwealth regulatory agencies will remain. The ACCC will however liaise with other Commonwealth regulators to facilitate the ease of the burdensome notification requirements.

The recommendations in the Review also aim to clarify the definition of ‘recall’ in its product safety recall guidelines, as the TPA and other legislative instruments fail to define the term. In practice this has impacted on the ACCC’s ability to effectively oversee and manage product safety related hazards and potential impacts on the safety of consumers. The amendment provides certainty to the application of the term where previously suppliers had erroneously applied their own interpretation affecting their compliance with the statutory requirements.

The ACCC also considers broadening the statutory notification provisions to include notification of domestic recipients of products being recalled in the domestic supply chain. Interestingly, the statutory notification provisions require only that suppliers advise international recipients in the supply chain of the recall and the proposed amendments seek to redress the shortfall in protection offered to the Australian consumers. In addition the proposed amendments clarify the supplier’s notification requirements to the relevant regulatory body of all actions taken to address risks posed by unsafe products, including issuing safety alerts, recall of product from consumers and from within the supply chain. Further, it is recommended the notification requirements extend to notification in both the domestic and international markets of actions taken to address consumer product safety risk.

Communication

The ACCC recommends that suppliers develop their proposed communication strategies with consumers based upon the consumer demographic as traditional methods of communication, such as requisite newspaper notices, are no longer sufficient to effectively communicate product recalls to the differing demographics of consumer. The proposed amendments do not only carefully consider the effective method of consumer communication but also the tone and form of the recall communication to encourage consumer compliance with the recall.

Under proposed amendments the suppliers are required to utilise a variety of direct and indirect communication methods to alert consumers to product recalls and facilitate compliance. This includes electronic based modes of communication such as social networking sites, websites, blogs and email.

Further, the proposed amendments require that the wording ‘voluntary recall’ will no longer be permitted in recall notices to consumers. Proposed amendments of the recall guidelines require that recall notices:

• use titling that will have the greatest impact on consumers
• have a boarder printed in red
• include a photo of the product
• contain a hazard symbol where available
• have a clear description of the product
• have a clear description of the risk and potential injury
• explaining the requirements of the consumer and the steps required
• contact details of the supplier, and
• information on refunds, product replacements or repair options.

The amendments resulted from market research which identified that communication channels allowing direct communication between the supplier and the consumers are the most effective methods of communicating product recalls. These recommendations will directly effect the business’s management of the reputation component of a product recall with increased exposure to the market through electronic mediums.

Product retrieval

The Review identified that product traceability enables suppliers to facilitate more efficient and effective product recalls. The ACCC is set to encourage suppliers to improve their logistical systems to improve product traceability to enable the effective monitoring of product position in the market. Additionally, with the assistance of the new traceability systems, the ACCC plans to implement a reporting schedule at the outset of a product recall to allow regulators to actively monitor the progress and effectiveness of the product recall.

The reporting process will be agreed by the ACCC and the supplier on a case by case basis to ensure the reporting requirements are sufficient to ensure the effective management of the product recall. This enhanced reporting measure will allow the ACCC to adopt necessary measures to ensure compliance with the recall and enhance consumer protection. The proposed amendments include granting the ACCC the option of recommending the Minister intervene in the product recall to properly protect consumers where the supplier’s actions are insufficient to protect the public interest.

The proposed amendments, which are made in addition to existing compliance requirements, are implemented through existing mechanisms to ensure greater transparency and consistency between the ACCC and suppliers to ensuring effective product recalls. The ACCC will also consider whether to make it an offence to supply goods which are subject to a voluntary recall in addition to the existing offence for supply of goods subject to compulsory recall. Further, the ACCC is also considering whether to allow the Commonwealth Minister to direct that a supplier offer a particular remedy when ordering a compulsory recall.

Closure

Under the review’s proposed amendments to the recall guidelines supplies will be required to provide to the relevant regulatory bodies:

• information on the cause of the product defect and steps taken to remedy that defect
• evidence of the destruction or rectification of the unsafe product, and
• a final report upon the management of the product recall.

Conclusion

The proposed amendments will lead to increased costs associated with the suppliers’ compliance with the amended product recall guidelines as suppliers will need to adapt their business procedures and practice. This will have a flow down affect on insurers who will be required to modify their policy’s and coverage accordingly given the increased compliance required, the associated cost implications and the suppliers increased exposure to risk.

Further information on the Australian product safety recalls can be found at: www.recalls.gov.au.

Further information

For further assistance or enquiries please contact Brad Russell on 07 3233 8786.