INSIGHT

Lime shines light on product safety representations and product recalls

By Jaime McKenzie, Miriam Stiel, Anita Thompson, Edison Wang, Ellen McCrea
ACCC Consumer law Employment & Safety Risk & Compliance

In brief 5 min read

A recent court-enforceable undertaking accepted by the ACCC involving electronic scooters raises interesting issues about when updates to an electronic product may constitute a 'recall action'.

Key takeaways

  • The ACCC's action demonstrates that businesses need to carefully consider what actions may fall within the definition of a 'recall', particularly in cases where electronic products are supplied.
  • It also serves as a reminder that product safety issues can, in some instances, be regarded as a breach of the consumer law provisions of the Australian Consumer Law and can give rise to pecuniary penalties.
  • Given the very short timeframe for lodging a mandatory report, suppliers must have appropriate processes in place for ensuring any product safety issues are brought to the attention of those responsible for assessing whether the mandatory notification obligations are triggered.
  • There has been discussion for some time about the prospect of introducing a General Safety Provision (GSP) (ie a positive obligation on suppliers to ensure the safety of their products) into Australia's product safety regime. The Federal Treasury has recently included the introduction of a GSP as one of a number of potential reforms to the regime, which has put the proposal in the limelight. While the results of Treasury's assessment and public consultation are yet to be released, businesses should watch this space and be prepared to adapt to potential changes to Australia's product safety regime.

Background

The ACCC has accepted a court-enforceable undertaking from Lime Network Pty Ltd (Lime), an e-scooter rental company, in relation to alleged misrepresentations made by Lime about the safety of its Generation 2.5 model (Gen 2) e-scooter and non-compliance with product safety reporting obligations under the Australian Consumer Law (ACL).

Between November 2018 and March 2020, Lime supplied its Gen 2 e-scooter for hire in Brisbane, Adelaide and Monash University's Clayton campus in Victoria. On at least 50 occasions, Lime became aware that when excessive brake force was applied to Gen 2 e-scooters, it would cause the front wheel of the Gen 2 e-scooter to abruptly lock, causing riders to sustain serious injuries, including broken bones, damage to teeth, and cuts and abrasions (the Unexpected Stopping Issue).

In response, Lime deployed remote updates on at least three occasions to its firmware that were specifically designed to fix the bug that was causing the Unexpected Stopping Issue. The ACCC was ultimately informed of the updates on 21 March 2019.

In its undertaking, Lime acknowledged it was likely to have contravened the ACL by engaging in misleading and deceptive conduct and making false or misleading representations as to the safety of its Gen 2 e-scooters. Lime also admitted it had failed to notify the Federal Minister of (i) action it had taken to recall the Gen 2 e-scooters; and (ii) serious injuries suffered by consumers who had used the Gen 2 e-scooters.

In addition to making admissions, Lime undertook to notify its customers of the ACCC's concerns and the content of its undertaking by contacting them via email and publishing a statement on its website. Lime has also agreed to implement a consumer compliance program to minimise the risk of future contraventions and only supply Gen 3 e-scooters or other later models for a period of three years if it resumes operations (which are currently suspended due to COVID-19).

Alleged safety misrepresentations

In the ACCC's view, Lime had made an implied representation to consumers that the Gen 2 e-scooters were safe to use and/or would not cause injury when used as intended.

By failing to adequately disclose to consumers the risk of death, serious injury or illness associated with the Unexpected Stopping Issue, the ACCC considered that Lime was likely to have been in breach of the prohibitions against (i) misleading or deceptive conduct; and (ii) making false and misleading representations that goods are of a particular standard or quality. The ACCC's action against Lime is a reminder that product safety issues can, in some instances, be regarded as a breach of the consumer law provisions of the ACL and can give rise to pecuniary penalties.

Non-compliance with mandatory notification obligations

Australian product safety regime

Australia's product safety regime is a combination of federal and state legislation, but is primarily regulated under the ACL.

Where a supplier becomes aware of a product safety issue, it can conduct a voluntary recall under the ACL. This triggers certain mandatory reporting obligations, requiring the supplier to provide written notice to the Federal Minister (usually through the ACCC) that it has taken voluntary action to recall consumer goods. That written notice must be provided within two days of taking the relevant recall action. The Federal Minister can also order a supplier to recall goods if it appears to the Minister that the supplier has not taken satisfactory action to prevent the goods from causing injury (known as a 'compulsory recall').

In circumstances where goods are not subject to a compulsory recall and a supplier has not conducted a voluntary recall, the circumstances may still give rise to breaches of other consumer protection provisions of the ACL (eg the consumer guarantees or misleading conduct provisions).

Definition of a recall

The ACCC's action against Lime signals a testing of the limits of what amounts to a 'recall' and how the product recall requirements may apply to electronic goods and services. 

In Lime's case, the ACCC considered the application of the firmware updates to constitute a 'voluntary recall' within the meaning of section 128 of the ACL. Since Lime failed to give written notice to the Federal Minister within two days of applying the firmware update (an action amounting to a voluntary recall), the ACCC considered it had breached its mandatory notification obligation under the ACL.

This raises the issue of what types of actions taken by suppliers in relation to their products will be sufficient to constitute a voluntary recall. Following a review by Consumer Affairs Australia & New Zealand in 2018, it was proposed that a definition of the term 'recall' be introduced into the legislation, which would have included 'corrective action' taken by suppliers to mitigate safety risks. Although this proposed change was abandoned, existing ACCC guidance indicates that a recall broadly includes any action taken by a supplier to remove goods from distribution, sale or consumption. The ACCC's action against Lime signals a testing of the limits of what amounts to a 'recall' and how the product recall requirements may apply to electronic goods and services.  

Failure to notify injuries

The product safety regime also requires a supplier of consumer goods who becomes aware of a death or serious injury or illness that was caused, or may have been caused, by the use or foreseeable misuse of a consumer good to notify the Federal Minister within two days of becoming aware of the incident. The ACCC considered Lime's failure to provide notice within two days of becoming aware of the risk of injury amounted to a breach of its mandatory notification obligations under the ACL.