• On appeal, the Alizadeh’s submitted that the primary judge erred in two key ways as explained below:
  1. The District Court wrongly concluded that LG Aust did not breach its duty of care in that the District Court should have found that LG Aust failed to make adequate inquiries of LG HQ concerning the refrigerators to be included in the Australian recall notice.  Specifically, that LG Aust should have asked LG HQ:
      
     1. whether there were any other refrigerators that suffered from the same defect; and
         
     2. why the list of serial numbers of products to be recalled did not include all of the refrigerators within the same model.
        
        The Alizadehs argued that, if LG Aust had asked those questions, their refrigerator would have been included in the spreadsheet and would, therefore, have been subject to the product recall and the fire would not have eventuated (Breach of Duty Issue) 
         
  2. Further, the District Court wrongly concluded that LG Aust’s conduct did not cause their loss. The Court should have found that if LG Aust had sought further information from LG HQ, it would have amended the spreadsheet to include a reference to their refrigerator model (Causation Issue). 

Court's decision 

The NSW Court of Appeal dismissed the Alizadeh’s appeal, finding that they had not established that LG Aust breached its duty of care or caused their loss. Crucially, the Court held that LG Aust was entitled to act on the information provided to it by LG HQ unless it had some reason to doubt that information and, in the circumstances, there was no evidence to suggest that, if LG Aust had sought further information from LG HQ, it would have amended its spreadsheet.

Breach of Duty Issue 

Having successfully established at trial that LG Aust owed them a duty to take reasonable care to avoid loss or damage, the Alizadeh’s argued that:

1. the information contained in the spreadsheet raised significant questions about how the affected refrigerators were identified, because LG Aust was aware that some refrigerators that were the same model as the applicants’ refrigerator had been included on the spreadsheet and at least one had in fact caught fire; and
    
2. a reasonable person in the position of LG Aust would have sought additional information to satisfy itself that all refrigerators affected by the defect would be caught by the recall.

However, the Court held that LG HQ had all the information necessary to determine which refrigerators were affected by the fault and which were not. LG Aust had none of that information and was in no position to test the information provided by LG HQ. It was, therefore, reasonable for LG Aust to assume that, in the case of each of the 24 models, not all the refrigerators contained the defective part and that LG HQ had conducted investigations to identify which refrigerators did, making any further enquiries unnecessary.

Causation Issue 

The Court held that, even if LG Aust had made further inquiries of LG HQ, there was no evidence that LG HQ would have altered the recall spreadsheet. In fact, it was likely that LG HQ would have responded by asking why the questions were being asked in the first instance, and otherwise, at most, the response of LG HQ would have been to explain its process of compiling the spreadsheet, not to expand the recall. There was no reason to think that in giving that explanation, LG HQ would have re-examined the process by which it identified the affected refrigerators or would have reached a different conclusion about which refrigerators were in the spreadsheet.

What does this mean for your business? 

The safest and best practice for Australian distributors is to seek clarification or reassurance from a parent company where appropriate, and particularly where the Australian distributor has any doubts regarding the accuracy or completeness of the information. Australian distributors can rely on information provided by a parent company (and manufacturer) for the purposes of discharging their duty of care to end consumers, as long as they have no knowledge of any defects in the goods and no reason to doubt that the information provided by the parent company in accurate or incomplete. This will particularly be the case in circumstances where the parent company has all of the information and technical expertise (and the Australian distributor does not). 

But a word of warning – a failure to seek clarification or reassurance from a parent company, particularly where the Australian distributor has any doubts regarding the accuracy or completeness of the information provided, may mean that the Australian distributor will have breached its duty of care to end consumers if a claim arises.