Fitness for purpose in a different sense: is the Australian Consumer Law prepared for AI-enabled goods and services?

Is the Australian Consumer Law (ACL) “broadly capable” of protecting consumers in an increasingly AI-enabled marketplace? The Federal Government's recent Final Report on Review of AI and the Australian Consumer Law concludes it is, following an analysis of the ACL's existing, principles-based and technology-agnostic framework.

While it generally finds the ACL is fit for purpose in the face of increasing uptake of AI in goods and services, it flags targeted reforms and practical lessons for businesses.

We unpack the Review and set out practical steps for manufacturers and suppliers of AI-enabled goods and services.

Which aspects of the ACL were considered in the Review?

The ACL is Australia's primary consumer protection law, regulating goods and services and providing consumers with rights of recourse against manufacturers and suppliers in certain circumstances.

The Review considered whether the ACL was well-equipped to address a variety of potential risks to consumers posed by AI-enabled technology, including safety and psychological risks and the risk that consumers could be misled by the technology. The Review considered existing ACL frameworks, including:

• Prohibitions against misleading or deceptive conduct, false or misleading representations and unconscionable conduct.

• Consumer guarantees requiring goods and services to meet minimum standards, and the associated rights to redress from manufacturers or suppliers where those standards fail to be met.

• Provisions regarding goods with "safety defects", and the ability to recover damages from manufacturers.

It recognised that the application of these provisions to AI-enabled goods and services is complex, given the range of AI products, the evolving nature of the technology, and the diversity of potential consumer law issues that might arise.

The Review's Findings

1. Principle-based protections in the ACL remain effective

 The Review found that the ACL's core protections – the prohibition on misleading or deceptive conduct, the consumer guarantees, and the product safety provisions – already extend to AI systems, and that there is no need for a wholesale rewrite of the ACL or for an “AI-specific” chapter. As the Final Report states, "the ACL remains an important framework to support consumers and businesses safely realise the benefits of AI.”

This means the baseline obligations when supplying goods or services apply: regardless of the technology, if you are supplying to Australian consumers you must not mislead and statutory warranties apply such that goods and services must be of acceptable quality, fit for purpose and safe.

2. AI-enabled products: goods or services?

 The Review highlights that the dividing line between "goods" and "services" can be challenging where AI is involved, such as where the offering to consumer may bundle some combination of hardware, software, AI, ongoing updates, and cloud functionality. This ambiguity can create uncertainty about the obligations of providers of AI-enabled goods and services under the ACL.

The Review found that this uncertainty could be managed by:

• Amending the non-exhaustive list of examples of "goods" which appears in the definition of "goods" in the ACL. Including relevant examples may make it clearer what is – and is not – considered a "good" under the ACL in an AI context.

• Updating education materials and guidance about the application of the ACL to software and AI-enabled goods and services.

3. Who may be liable as a manufacturer for issues with AI-enabled goods? 

The Final Report notes that under the ACL, the definition of "manufacturer" – which includes persons who grow, extract, produce, process or assemble goods – is more readily applied to traditional goods, and that there may be ambiguity in an AI-context where a multiple entities may be responsible for different aspects of the system’s development, deployment and integration into goods and services.

The Review found that targeted amendments to the definition of "manufacturer" under the ACL may further clarify which businesses across the AI supply chain are manufacturers for product liability purposes.

4.  Defences to defective goods actions against manufacturers 

Under the ACL, manufacturers are generally held liable for loss caused by goods that have safety defects, which are goods that are not as safe as consumers are entitled to expect. The Review found that existing statutory defences to "safety defect" claims under the ACL remain broadly appropriate in an AI context. Some amendments may however be required to clarify the extent of potential legal liability in this regard for manufacturers of AI-enabled goods or services, such as where those manufacturers continue to exercise a degree of control over the good after it has been supplied.

There are certain defences available to manufacturers to avoid liability. One is the "state-of-art" defence which arises if the manufacturer can prove that the safety defect did not exist "at the time of supply." This means that the manufacturer is not liable if it can demonstrate that the product was free from any safety defect when it was supplied to the consumer or to the supplier. The defence requires that the defect could not have been identified with the existing technology and science available at the time of supply. This sets a high standard, requiring manufacturers to stay informed about advancements in relevant technology, science and knowledge even after their goods are in circulation.

The Review observes that this defence may be less clear with software-enabled goods, including AI-enabled goods, where the manufacturer might reasonably be expected to continue exercising control over the product post-supply. Again, it suggests technical amendments may be required to ensure that defences such as this operate as intended in the AI context. 

5. No new enforcement tools for the ACCC – for now 

The Report found that specific changes to current powers available to the Australian Competition and Consumer Commission (ACCC) are not necessary to respond to AI‑enabled goods and services, though regular reviews of its powers should continue.

6. Australia – leading the pack? 

The Review found that the existing protections available under the ACL provide Australian consumers of AI-enabled goods and services with similar, and in some cases stronger, protections in comparison to those available in the EU, UK, and Singapore.