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Is My NZ Business Liable for Manufacturer Defects?

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When running a business in New Zealand, several responsibilities apply to the products you sell. You will generally be responsible if your business sells faulty or damaged goods to consumers. Consumer law, such as the Fair Trading Act and the Consumer Guarantees Act, establishes standards for the products you sell. The law requires you to offer a remedy to consumers where products are damaged or faulty. If you sell products from a manufacturer, you will still have to follow consumer laws. This article examines whether your business is liable for manufacturer defects. 

Your Obligations Under Consumer Law

When you sell products to consumers in New Zealand, consumer law requires you to meet various guarantees about these products. These guarantees aim to protect consumer interests and maintain consumer standards. When you sell products to consumers, you guarantee that they are: 

  • fit for purpose. Goods must be fit for their intended purpose. If a consumer purchases a product with a specific purpose in mind, the product should be able to fulfil that purpose;
  • shipped on time and in good condition;
  • of safe and acceptable quality. Products must be of acceptable quality, which means they should be free from defects, safe, and durable. They should also meet the reasonable expectations of an average consumer;
  • the same as your description or sample. If you advertise a product with specific features or qualities, it must live up to those claims;
  • priced reasonably; and 
  • sold legally.

As a seller of goods, you are responsible for ensuring your products meet these guarantees, even where a third party has manufactured the goods for you. If something goes wrong, you are a customer’s first point of contact and can be held liable for providing a remedy. This remedy might involve repairing the product, replacing it, or refunding the purchase price.

However, if the fault is due to a manufacturer’s defect, the manufacturer may be responsible for reimbursing you or replacing the defective product. 

Manufacturer Warranties 

Manufacturers may offer an express warranty at the time you purchase products from them. These express warranties usually guarantee that a manufacturer will repair or replace faulty goods within a specific timeframe. They usually come as part of the purchase price. These warranties can then be passed on to the consumer who purchases the product from you. 

Suppose a customer encounters a manufacturing defect within this warranty period. In that case, you should contact the manufacturer on the customer’s behalf and collaborate with the manufacturer to reach a remedy that works for all parties. 

Importantly, a manufacturer’s warranty does not replace the consumer guarantees. Indeed, it applies in addition to them. A consumer may still be entitled to a remedy for a defect that arises outside of the warranty period.

Where you are importing and distributing products from a manufacturer who does not have an ordinary place of business in New Zealand, you will be deemed to be the manufacturer of the products under New Zealand Consumer Law. Accordingly, where you provide any express guarantees, these are binding on you as the manufacturer, and you will be liable to satisfy these guarantees. This is the case even when your manufacturer refuses to assist you in doing so. 

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Contractual Rights Manufacturing Agreement 

Entering a manufacturing agreement is common for businesses that engage an external manufacturer to produce their goods. The manufacturing agreement covers the end-to-end process and is important in outlining your agreed business terms.

To assist you where products are defective or faulty, your agreement should include the following clauses:

  • quality control;
  • warranties;
  • recall process; and
  • termination.

Quality Control

The manufacturing agreement should include clauses that require the manufacturer to reach certain obligations relating to the quality of the good. This might include the requirement of test runs and periodic quality control inspections, but it should be specific to the product you purchase. 

You may also include a requirement for the manufacturer to replace any products that do not satisfy these quality control requirements. 

Warranties 

Your manufacturer may provide a standard warranty. If not, you should consider if you would like to include these within your contract. A warranty will set a clear timeframe where the manufacturer will remedy any manufacturing defects or damage at no additional cost. 

Recall Process

A recall process clause will set out the process where there is a manufacturing defect or issue with a batch of products rather than just one-off goods. In this case, you will need to set a clear process and delegation of responsibilities, including who is responsible for recalling the goods from consumers and returning the goods to the manufacturer, including the costs associated with doing so. 

Termination

Finally, your termination clause should allow you to terminate your agreement promptly where the manufacturer does not satisfy their contractual obligations. Where these clauses are in place, you will have a clear contractual remedy where the manufacturer is responsible for product defects. 

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Key Takeaways

As a business that sells a product to consumers in New Zealand, you are responsible for ensuring your products meet consumer guarantees. This obligation exists even when a third party manufactures the goods for you. However, your manufacturer may owe you contractual obligations, which you should negotiate and record in your manufacturing agreement. In particular, you might require the manufacturer to honour a warranty, assist you with product recalls, or reimburse you for defective products. 

For assistance drafting a manufacturing agreement or advice relating to manufacturer defects, our experienced regulatory and compliance can assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today on 0800 005 570 or visit our membership page.

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