To: ALL AADA MEMBERS
AADA has received several enquiries from dealers regarding restrictions on wholesale trading of vehicles affected by the Takata mandatory airbag recall.
AADA recognises that any restrictions on wholesale trading add considerable expense and complexity to dealer operations. AADA has been in discussions with the ACCC about this issue and is seeking to urgently have the current arrangements reviewed.
To assist members and clarify the existing arrangements, the following legal advice has been prepared on our behalf for dealers, by industry lawyers, HWL Ebsworth (HWLE).
1. The Prohibitions on Supply (and the Notice Requirements)
1.1 In summary, there are two prohibitions on the supply of affected vehicles – one which applies to new & demonstrator vehicles, and another which applies to used vehicles. The prohibitions operate as follows:
(a) new or demonstrator cars with an affected airbag:
(i) cannot be supplied in trade or commerce if under active recall;
(ii) can be supplied in trade or commerce before 31 December 2018 if not under active recall provided required notices given (which vary according to category of vehicle);
(iii) cannot be supplied in trade or commerce under any circumstances after 31 December 2018 (unless recall action has been performed),
For further detail, see section 5(14) of the Recall Notice
(b) used cars with an affected airbag:
(i) cannot be supplied in trade or commerce if under active recall;
(ii) can be supplied in trade or commerce if not under active recall provided required notices are given (which vary according to category of vehicle)
For further detail, see section 9(4) of the Recall Notice
1.2 There are three key aspects of the prohibition:
(a) it applies to ‘persons‘ – this means any individual or company (including a dealer, auction house, fleet wholesaler, manufacturer etc.);
(b) The word ‘supply’ in the Recall Notice means ‘supply by way of sale, exchange, lease, hire or hire-purchase’. In other words, it is any supply (or sale), and it does not matter whether the supply is by auction on consignment, or to whom the vehicle is being supplied;
(c) having regard to sub-paragraphs (a) & (b), the prohibition only applies to persons supplying ‘in trade or commerce’. This applies to any dealer, auction house, fleet seller, manufacturer and any person who carries on a business supplying cars. The prohibition does not apply to an individual selling their car privately outside a business context. This is because such sales would not be considered to be ‘in trade or commerce’. The prohibition would apply if a person engaged an auction house to sell a car on consignment, because the auction house would be subject to the prohibition and notice requirements in the Recall Notice.
1.3 ‘Affected airbag’ means a frontal driver or passenger airbag inflator made by Takata that uses either a Phase Stabilised Ammonium Nitrate (PSAN) with desiccant (including an Alpha Inflator) or PSAN with calcium sulphate desiccant.
1.4 ‘Active Recall’ means when recall action has been initiated in respect of a Vehicle. When the relevant Affected airbag subject to the recall action has been replaced, the Vehicle is no longer under active recall. However, the Vehicle may be under active recall again in the future if further recall action is initiated for the vehicle in relation to another Affected Airbag in the Vehicle (or if there is a like-for-like replacement as an interim measure because a shortage of permanent remedy parts).
1.5 The notice requirements are set out in the Recall Notice in sections 7(8) – for new & demo cars – and 9(4) for used cars.
2. Concluding Remarks
2.1 In terms of its specific application to ‘wholesale’ supplies, having regard to the matters set out above, it is the opinion of HWLE that the Recall Notice:
(a) prohibits the wholesale supply of any new, demonstrator or used vehicle under active recall;
(b) prohibits the wholesale supply of new or demonstrator vehicles with an Affected airbag that are not under active recall after 31 December 2018;
(c) prohibits the wholesale supply of new or demonstrator vehicles with Affected airbags that are not under active recall before 31 December 2018 unless all of the notice requirements are adhered to;
(d) prohibits the wholesale supply of any used vehicle that is not under active recall unless all of the notice requirements are adhered to.
2.2 We appreciate that the impact of the Recall Notice is not particularly practical for the wholesale supply chain. However, we consider the reason for this is that there is an overriding imperative to ensure the replacement of parts to avoid safety risks – wherever the affected cars are and whoever happens to be holding them.
2.3 Finally, if a supplier supplies a vehicle under active recall, or otherwise without complying with the notice requirements, then that supplier commits an offence in contravention of section 199 of the Australian Consumer Law. A person who commits an offence is liable to a penalty as follows:
(a) $1,100,000 (per offence) for a corporation; and
(b) $220,000 (per offence) for a person that is not a corporation.
2.4 Further to paragraph 2.3, the offence is a ‘strict liability’ offence – which means that the act of supplying will be enough to establish the offence even if there was no intention to commit the offence. It is a defence to the offence if the supplier can prove that the supply in contravention of the Recall Notice was caused by a reasonable mistake of fact or due to another persons actions beyond the supplier’s control and that the supplier took reasonable precautions to avoid the contravention. However, given that the Recall Notice is written in unambiguous language, and there is widely available and easily searchable information on which cars carry Affected airbags, we consider it to be very unlikely that a supplier who breached the Recall Notice could escape liability.
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