Defects and the development risk defence – an Australian perspective
Mabel Tsui provides us with an Australian perspective on the development risk defence against a pharmaceutical product liability claim and how it has only been applied within Australian legislative history twice.
In 2011, a significant but little discussed law known as the development risk or state of the art defence was considered for the second time by an Australian court in a product liability claim. The court was faced with a very difficult product – a drug, specifically, Merck’s controversial anti-inflammatory drug Vioxx. This article is an extension of two previous pharmaphorum articles from December 2011 and May 2012 – a series focusing on pharmaceutical product liability claims in Australia. This article will identify how the judgment in Vioxx has contributed towards further understanding this defence as it applies in Australia.
In Australia, the defence is set out in s142(c) of the Australian Consumer Law, and is one of the defences available for defective product claims set out in Part 3-5 of the Law. It states that where a product is found to be defective, the manufacturer will be able to argue this defence if:
“The state of scientific or technical knowledge at the time when the goods were supplied by their manufacturer was not such as to enable that safety defect to be discovered.”
The defence has only been applied twice by Australian courts – in 1999 (where the product in question was contaminated oysters) and in the 2010 Vioxx product liability case – Peterson v Merck Sharpe and Dohme  FCA 180. In both cases, the defence was argued successfully but unfortunately, both cases fail to provide any significant jurisprudential analysis of the defence. In the contaminated oysters case – Ryan v Great Lakes Council – the closest the Court came to the issue was when Lindgren J pondered, but did not answer, how strictly or moderately the defence was to be applied.1
In the more recent case of Peterson however, I believe Jessup J in his Honour’s judgment has identified one key point towards answering this important question, by asking, as a starting point, what type of defect is the product suffering?
The type of defect:
In his judgment, Jessup J identified that Vioxx was, essentially suffering two out of three recognised types of defects. The first was design – as the composition of the medication was what caused the side effects. The second was instructional, as Vioxx failed to provide the necessary warnings of the risks associated with the medication. (The other type is manufacturing, which did not apply in this case.) Having identified the specific types of defects Vioxx suffered, his Honour went on to explain why the defence should apply to the design aspect, writing at paragraph 929 (emphasis added):
“[The defence] contemplates the existence of a defect capable of being discovered by reference to the current state of scientific or technical knowledge. … The defect was something inherent in Vioxx as a matter of composition. I consider that the intent of s75AK(1)(c) is that if that defect could not be discovered according to the state of scientific or technical knowledge, the defence should be available, notwithstanding that enough was suspected about the product to activate an implied obligation to give warnings of the kind mentioned in s75AC(2)(d). I propose to uphold MSDA’s defence under s75AK(1).”
Is this a reasonable application of the defence?
It is necessary at this stage that I refer briefly to Australian legislative history relating to the passage of this part of the Australian Consumer Law. When the product liability provisions to which this defence was related was first proposed in the legislature, it was the then Attorney-General’s express intention that the term “defect” would operate on the understanding that there were three types of defects – being manufacturing, design and instructional.
“…in the pharmaceutical context, manufacturing defects would be the one that could be regarded as most controllable and avoidable…”
Out of the three types of recognised defects, in the pharmaceutical context, manufacturing defects would be the one that could be regarded as most controllable and avoidable. Whether it is the combination of two chemicals leading to a toxic mix (construction) or contamination somewhere during the production and assembly process – these are external circumstances manufacturers are able to largely control and / or eliminate. On the other hand, the design of a drug and its interaction with individual physiology and other medications is something the manufacturer cannot fully foresee or prevent and thus, the degree of their control is severely diminished. The defence was brought in to reflect this fact, and to mitigate against too strict a liability for faults that businesses should not be strictly liable for. Indeed, when passing this law, the Attorney-General appeared to caution against too easily classifying pharmaceuticals and vaccines as defective, merely because of the existence of side effects, nothing that such products “confer substantial benefits which flow to the wider community at large. The small statistical chance of injury associated with them does not of itself mean they are defective.” 2
If the above reasoning is correct, Jessup J’s decision to allow the defence in the face of a design defect is justified and indeed consistent with the reasoning of Australian lawmakers. On the other hand, his Honour also noted that Vioxx suffered an instructional defect, but it appears the design defect was the deciding factor. Should the defence have been extended to cover the instructional defect in this case? I am reluctant to offer a definite answer, but rather, will provide some guidance in determining this issue. Manufacturers have to undertake a balancing exercise in determining which risks are sufficient serious or likely in considering whether a warning is warranted. In addition, warning labels are subject to third party drug regulatory approvals. Finally, there is also a risk / benefit analysis – to warn of every potential side effect associated with the drug may cause unnecessary and exaggerated fears in patients, who may overlook the therapeutic benefits offered. These are among the relevant considerations which courts and the legislature should take into account in making future decisions about this defence. All in all, the observations in this article do guarantee that more questions about this defence in terms of scope and application will arise in the near future for the Australian legal landscape.
1.  FCA 177.
2. Explanatory Memorandum, Trade Practices Amendment Bill 1992 (Cth), 8.
About the author:
Mabel Tsui is currently completing a PhD in law at the Queensland University of Technology Faculty of Law, researching the Australian product liability regime in the context of drug injury claims. Her research interests are in pharmaceutical product liability, rationing of resources and public health law.
How does the development risk defence differ in other countries?