8. Product Safety

Consumers being confident that the goods and services they buy are safe is fundamental to their participation in markets. Suppliers of goods or services which are not safe and that cause harm or physical damage may not be trading fairly or in good faith. As well as potentially causing harm and distress to individuals, unsafe products can have an impact on costs to the health budget and to the Accident Compensation Corporation.

Product safety is addressed in the two main consumer laws: the Consumer Guarantees Act and the Fair Trading Act.

Consumer Guarantees Act 1993

Consumers’ first line of defence when a product supplied is unsafe is under the Consumer Guarantees Act. The statutory guarantee that goods supplied in trade to consumers are of acceptable quality includes the requirement that the goods be as safe as a reasonable consumer fully acquainted with the state and condition of the goods would regard as acceptable, having regard to all the circumstances including the nature of the goods and any statements on their packaging or label, or representations by the supplier or manufacturer in relation to the goods (sections 6 and 7).

Where a consumer buys goods supplied in trade which are not acceptably safe in terms of the Consumer Guarantees Act, the consumer has remedies against the supplier and the manufacturer of the goods. The remedies available to consumers under the Act are to return the goods or have them repaired or replaced. Suppliers and manufacturers are also liable for any loss or damage to the consumer or any third person resulting from the failure of the goods where the loss or damage was reasonably foreseeable (sections 18(4) and 27(1)(b)). Suppliers and manufacturers are for practical purposes exempt from liability for physical injury to consumers and any third parties under the Accident Compensation scheme, but they are potentially liable for other damages⁵⁰.

Avoiding product liability is a stronger incentive in jurisdictions where suppliers and manufacturers are liable for personal injury than it is in New Zealand, but there is an inference that suppliers and manufacturers in New Zealand still have an incentive to avoid liability for other damages. Reputational damage in the market place from high profile cases where goods are found to be unsafe probably has a higher commercial impact than an award of damages by a Disputes Tribunal or other court.

Unlike the statutory guarantee that goods of an acceptable quality should be safe, the statutory guarantees in relation to services do not expressly refer to services being safe. The safety requirement is probably implicit in the guarantees that services are carried out with reasonable care and skill (section 28), and that the services are fit for particular purpose (section 29). If consumers suffer physical damage or loss as a result of services being provided which are not safe, then the services are unlikely to have been provided with reasonable care and skill, or to have been fit for purpose.

Breaches of the Consumer Guarantees Act are only actionable at the suit of consumers in the civil courts. Consumers are unlikely to be motivated to take on cases in relation to the lower-priced goods which are frequently the subject of product safety concerns. Breaches of the Consumer Guarantees Act are not offences enforceable by the Commerce Commission (or any other public agency).

Fair Trading Act 1986

The Fair Trading Act includes provisions dealing with product safety (Part III) and the safety of services (Part IV). The features of these provisions of the Fair Trading Act include:
Regulations may be made establishing product or service safety standards for the purpose of preventing or reducing the risk of injury to any person (sections 29 and 35).
Product safety standards may relate to:

• The performance, composition, contents, manufacture, processing, design, construction, finish or packaging of goods;
• The testing of the goods during or after manufacture or processing;
• The form and content of markings, warnings, or instructions to accompany the goods⁵¹.
• Service safety standards may relate to:
• The maintenance, repair, treatment, processing, installation, assembly, cleaning or alteration of goods;
• The construction, maintenance, repair, cleaning or alteration of any building or other fixture on land;
• The development of land;
• The transportation of goods⁵².
• An official standard (which means a standard determined by Standards New Zealand or similar) may be declared to be a product or service safety standard under the Fair Trading Act (sections 29(2) and 35(2)).

There are six current regulated product safety standards in New Zealand⁵³. There are no regulations for service safety standards. Where a product or service safety standard is regulated, no person may supply, offer to supply or advertise for supply products or services unless the products or services comply with any applicable product or service safety standard.

Goods which are intended for use outside New Zealand do not need to comply with any product safety standards, but they must have a statement physically applied to the goods saying that the goods are for export only, or are intended to be used outside New Zealand.
Where it appears to the Minister that goods “will or may cause injury to any person”, the Minister may declare the goods to be unsafe by notice in the Gazette, and no person may supply, offer to supply or advertise the goods for sale while the notice is current. The notice applies up to 18 months in the first instance, and may then be extended to apply indefinitely (section 31).

Where goods have been supplied which do not comply with a product safety standard, or the goods are of a kind which will or may cause injury to a person, and the supplier has not taken satisfactory action to recall the goods itself, the Minister may require a compulsory recall.

The product safety standard regulations made under the Fair Trading Act are enforced by the Commerce Commission. New Zealand Customs Service is responsible for ensuring there is no importation of goods that do not comply with the product safety standard regulations. General product safety monitoring is undertaken by the Ministry of Consumer Affairs. The Ministry works with its Australian counterparts and other international consumer agencies as part of its product safety monitoring work.

Ongoing relevance of product safety law

The general approach to product safety law through the Consumer Guarantees Act and the Fair Trading Act allows for consumers to take self-enforcement action and for public enforcement and monitoring. This two pronged approach would appear to be very effective.
The product safety system in New Zealand is generally consistent with the Australian system under their Trade Practices Act (and the proposed Australian Consumer Law). This reflects the genesis of the Fair Trading Act.

The most fundamental issue which faces any product safety system is that regulations can only have a reactive role because the range of goods and services available to consumers is too great for a regulator to sensibly monitor or test for safety compliance. Any product safety regulation system is primarily reactive because in many instances it can only react to particular problems which arise. For most purposes, suppliers and consumers themselves have the primary responsibility for keeping consumers safe when they buy goods and services. New and emerging product safety risks and concerns challenge the reactive model. “Traditional” product safety risks have in the main centred on physical features (sharp edges, entrapment hazards etc) that are relative easy to identify.

Increasingly risks and issues are being raised around chemicals and new technologies where risks are virtually impossible to determine by any other means than laboratory testing. Consumers do not have ready recourse to such testing facilities and so rely on regulators to ensure safe products. Similarly many small businesses lack the capacity to test products, and/or do not consider testing for product safety before they supply goods, which means potentially unsafe goods get on to the market un-checked. Responsible businesses and manufacturers frequently ask the Ministry of Consumer Affairs for guidance as to how they can ensure that their products are safe. However, retailers of low value imported goods may be less inclined to demand evidence of safety testing for the products they sell. Mandatory standards can help all stakeholders by laying down clear criteria around product safety issues.

As noted, there are only six current product safety standards and no service safety standards under the Fair Trading Act. The product safety standards which have been made are all primarily concerned with protecting children from being injured by the products they use. The principle is that children are particularly vulnerable to risks like choking hazards, or from flammable nightwear. By way of comparison, Australia has 41 mandatory standards currently in place.

The Australian product safety system was extensively reviewed by the Australian Productivity Commission in 2005⁵⁴ and its findings have been used in decisions incorporated into the Australian Consumer Law process. The main driver of the review was the harmonisation of State and Commonwealth law and coordination of enforcement. The review also looked at Australia having a general product safety provision.

One issue which was considered by the Productivity Commission and in relation to the Australian Consumer Law was the extension of the system for safety standards to apply to services. Product safety laws in Victoria, Queensland and South Australia (which will be replaced by the new Australian Consumer Law) currently apply to services, and this is also the case in New Zealand, but the Trade Practices Act only applies to the safety of goods. The Australian proposal is to provide for safety standards for services, but to limit the services which may be subject to safety standards to those related to the supply of goods.

The examples usually cited in Australia as cases where service safety standards might apply are the unsafe installation of blind and curtain cords which create a strangulation hazard for children, the installation of highly flammable insulation in roof cavities, and the incorrect installation of heat lamps creating a fire hazard in ceilings. In New Zealand, other legislation covers specific service safety, e.g. the Building Act 2004 and Code, and the Electricity (Safety) Regulations 2010.

The scope of potential service safety standards in New Zealand includes services in relation to goods, as well as in relation to land, development of land and the transport of goods. Standards for solariums (sun beds) and hang-gliding have been contemplated in New Zealand. These industries are currently regulating themselves by complying with codes of practice or licensing operators. The voluntary development of industry codes and standards is encouraged where it can effectively deliver service safety and thus avoid the need for regulation.

The fact that no service safety standards have ever been made in New Zealand suggests any differences with Australia may be academic, but the potential scope of service safety standards is broader in New Zealand than will be the case under the Australian Consumer Law.

Possible enhancements to product safety laws

Power to ban or recall products which could reasonably foreseeably cause injury

Another issue identified in Australia which applies equally in New Zealand is that the test for product bans and recalls requires that the goods “will or may cause injury to any person”. This means the goods are required to be inherently defective or dangerous, even if they are used correctly. Some Australian jurisdictions have had a wider formulation allowing for products to be banned or recalled where it is “reasonably foreseeable” that they will or may cause injury⁵⁵. It is sometimes “reasonably foreseeable” that products will be misused in a dangerous way, even if they are not inherently defective or unsafe if they are used normally or properly. Certain types of fireworks are a good example.

The Australian Productivity Commission recommended that the Australian Consumer Law should harmonise the approach in the different Australian jurisdictions, and include the power to ban or recall products which could reasonably foreseeably cause injury. The recommended provision has the advantage that “reasonable foreseeability” is part of the legal test for negligence, and it makes sense that the regulators should have the ability to ban a product that it would be negligent to supply.

A similar amendment could be made to the New Zealand Fair Trading Act, which would have the benefit of removing any potential doubt and make it clear that goods which might be safe when they are used properly might be banned or recalled if it is reasonably foreseeable that they will cause injury through being misused.

Regulators’ powers

Other elements in the Australian Consumer Law concerning product safety which are different to New Zealand’s product safety provisions relate to the powers of regulators. For example, the regulator could be empowered to undertake a product recall itself where the supplier fails to respond to a compulsory recall (or the supplier cannot be found or has gone out of existence). There will also be mandatory notification of voluntary recalls and incidents where products are associated with serious injury or death.

In New Zealand, the current recall process requires a significant amount of administration by the Ministry of Consumer Affairs as there is currently no requirement for suppliers to advise the Ministry of a proposed recall of a consumer product associated with serious injury or death. An exception is goods which are covered by other legislation such as electrical products and motor vehicles. Frequently the Ministry is contacted by the media asking about a recalled product and its relevance to New Zealand. In most instances, due to the monitoring networks in place, the Ministry is already aware of the recall and has taken steps to contact suppliers.

There is a compulsory requirement in many countries including Australia and the United States to advise the authorities of an unsafe product and a safety recall notice. In the event that prior notice is given, it is possible to ensure that the process is carried out effectively, with the published notice carrying appropriate details and contact information, placed correctly within the market, and that monitoring processes are in place.

Consideration could be given to requiring notification of voluntary recalls of products that have been involved in serious injury or death. Such a restriction is suggested as the regulator does not have the capacity to handle the volume of recalls that result from the occurrence of minor injuries.

Product safety regulators in Australia and other jurisdictions also have other powers not currently available in New Zealand. These include the power to enter trade premises to undertake regulatory activity, the ability to suspend unsafe products, the power to examine documentation and records associated with unsafe products, and the power to seek the disposal of unsafe and/or destruction of unsafe goods following legal proceedings.

The Fair Trading Act includes search powers where there are reasonable grounds to believe a search is necessary to investigate a contravention of the Act and a search warrant is obtained (section 47). However this power does not extend to a general inspection, or the investigation of potentially unsafe goods which are not subject to a safety standard or ban. At present if a business declines to allow Ministry or Commerce Commission officials on to their premises, nothing further can be done. It could make it extremely difficult, if not impossible, for appropriate action to be taken.

In terms of granting these types of powers, appropriate checks and balances are provided for in the Search and Surveillance Powers Bill 2008 which is currently before Parliament. It is probably most appropriate that changes to the legislation in this area are considered as part of that Bill which is amending the Fair Trading Act.

Government Product Safety Policy Statements

In 2007, there was a concern raised about possible unacceptable levels of formaldehyde in clothing. The Ministry of Consumer Affairs developed a Government Product Safety Policy Statement on acceptable levels of formaldehyde in clothing and other textiles.

A government product safety policy statement was identified as a non-regulatory approach which, while not having the same legal status as regulations, would still carry considerable weight. The concept of a government product safety policy statement was modelled on the government policy statements used in the energy sector to provide guidance to the gas and electricity industries on acceptable outcomes sought by government which if not achieved in a voluntary manner would have to be regulated.

As noted, under the Consumer Guarantees Act it is the responsibility of retailers, importers and manufacturers to only supply products that are of acceptable quality and fit for the purpose for which they are supplied, including that they are safe. A government product safety policy statement of acceptable limits of formaldehyde was identified as providing clear guidance to retailers, importers and manufacturers without the need for regulations.

A suggestion is that the Fair Trading Act specifically provide for the Minister of Consumer Affairs to issue government product safety policy statements, with a requirement for consultation with parties who may be affected prior to any statement being finalised. If there is a formal reference in the Fair Trading Act to issuing government product safety policy statements, this will extend the product safety regulatory options. It will also give the issue of any such statements a more formal status than at present.

In summary:

Consumers having confidence that the goods and services they buy are safe is fundamental to their participation in markets. Accordingly, product safety provisions are essential in consumer law. The existing provisions in the Consumer Guarantees Act and the Fair Trading Act are fairly comprehensive and seem to be effective.

Some improvements to enhance the product safety provisions in the Fair Trading Act have been identified and feedback on these is invited.

Questions 

50 Injury Prevention, Rehabilitation and Compensation Act 2001.
51 Fair Trading Act, section 29.
52 Fair Trading Act, section 34.
53 The six current product safety standards are:
(1) Product Safety Standards (Baby Walkers) Regulations 2001;
(2) Product Safety Standards (Children’s Nightwear and Limited Daywear Having Reduced Fire Hazard) Regulations 2008;
(3) Product Safety Standards (Children’s Toys) Regulations 2005;
(4) Product Safety Standards (Cigarette Lighters) Regulations 1998;
(5) Product Safety Standards (Household Cots) Regulations 2005; and
(6) Product Safety Standards (Pedal Bicycles) Regulations 2000.
54 Review of the Australian Consumer Product Safety System, Productivity Commission Research report, 16 January 2006.

55 The relevant jurisdictions are Victoria, New South Wales and Western Australia.