Lender Surrogacy - Product Liability and Occupational Health and Safety Laws
While the topic of ‘Product Liability’ is ordinarily more a matter of interest to manufacturers of goods, AELA is concerned that the concept of lender surrogacy could significantly increase finance risks and costs. The surrogacy concept seeks to make financiers, including lessors, liable for faults or claims arising out of the goods being financed. An earlier version of the concept is the ‘linked credit provider’ principle present in many consumer credit statutes.
AELA is strongly opposed to the imposition of liabilities on financiers where, in the general course of financial activity, equipment is chosen by the lessee or borrower without reliance on the skill or judgment of the financier. The product liability regime under the Trade Practices Act has adopted a form of financier surrogacy by imposing obligations on suppliers, but the regime has had little or no adverse impact on finance providers.
Similar concerns apply in other legislative areas (including environmental protection law) where the liability net via ‘ownership and control’ and supply tests can be cast widely to cover lessors and other financiers with the risk of high penalties without reasonable or adequate defences. Law reform measures such as these should always be analysed for their economic costs and benefit. AELA, along with other financier groups, continues to press for control tests and appropriate defences in this type of legislation.
A major concern in this regard was the strict and unlimited liability placed on owners and operators by the 1999 Commonwealth Damage by Aircraft Act. A minor insurance matter in the pre-11 September 2001 world, the exposure to lessors and other financiers in the absence of war/terrorism cover was a major liability for aircraft lenders. AELA made ongoing representations to Transport and Attorney-General’s Departments in relation to the problems that the strict and unlimited liability provisions of this legislation posed for aircraft owners/lessors in their capacity as passive financiers. In response to AELA’s detailed submissions, the Government agreed in September 2002 to a full passive financier exemption from the legislation.
Occupational Health and Safety (OH&S) legislation may make financiers under lease and hire-purchase facilities responsible for the safe use and maintenance of financed plant, equipment, materials or substances; and for health and safety incidents arising from use of a financed asset. This may result from the financier being the “owner” or “supplier” of the financed asset under the particular wording of the OH&S laws, standards and codes of practice, which differ slightly in each Australian jurisdiction. In most cases, the asset financed does not come into the possession or control of the financier, with the result that there is little opportunity for the financier to influence plant safety, work practices or OH&S outcomes in general.
The laws of some states (including Victoria, the ACT and NSW) include ‘passive financier’ exemptions which give some relief to financiers from the application of health and safety laws. The position is not as clear in other states. AELA aims to ensure that OH&S laws include “passive financier” provisions so that the mere provision of finance does not attract OH&S obligations where the financier does not have day-to-day control over the asset or any responsibility for its selection or maintenance during the term of the financing arrangement.
In April 2008, the Federal Government began a national review of OH&S laws, with the support of the Workplace Relations Ministers’ Council. Stage 1 will consider the harmonisation of these laws and make recommendations on the optimal structure and content of a model OH&S Act, including duties of care, identification of duty holders, the scope and limits of duties and the nature and structure of offences and defences. Stage 2 will address the scope of the model laws and other matters identified as important to be addressed in a model Act. Recommendations from Stage 2 are due by 30 January 2009. AELA made a submission to the review to ensure that the review panel is aware of concerns about the unsatisfactory application of the National Standard for Plant and other OH&S laws to financiers. The submission supported the harmonisation of OH&S laws and the inclusion of passive financier provisions and a “control” test incorporating the concept of an ability to manage and influence OH&S outcomes as a crucial element in allocating duties/responsibilities under these laws.
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