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01 Jun 2016

Great boards of fire!”: Hoverboards and the ACCC’s interim ban

By Nick Cooper, Kate McNally and Henry Johnston 

Australian retailers have to act over any hoverboards they have sold, or still hold.

Earlier this year, the Australian Competition and Consumer Commission (ACCC) placed an interim ban on the sale and supply of hoverboards in Australia after they were linked to a number of spontaneous fires. In this article, we consider the terms of the ban as well as the implications for Australian retailers.
 

2015: The year of the hoverboard

The iconic 1989 feature film Back to the Future Part 2 introduced the hoverboard into popular culture, where it has remained a firm fixture. The film’s central character, Marty McFly, travels forward in time from the 1980s to 21 October 2015 and is involved in a chase with his nemesis Biff — while riding a hoverboard. The date 21 October 2015 was declared “Back to the Future Day” and fans of the series have been busy revisiting the original film and sequels.

Car manufacturer Lexus took advantage of the milestone by unveiling a short video[1] on 4 August 2015 for its hoverboard project “Slide”, featuring professional skateboarder Ross McGouran riding a hoverboard in a Barcelona skate park. In the video, Lexus pays homage to the Back to the Future chase scene, with McGouran like Marty McFly — skating in the hoverboard across a pool of water.

Like most things that look too good to be true, it was. The Slide hoverboard was never going to make it into the hands of everyday consumers. It can only be ridden in the customised Barcelona skate park where Lexus installed thousands of magnets in the ground to repel the liquid nitrogen-cooled super conductors in the hoverboard. Further, only one Slide hoverboard was ever made.

However in 2014, commercial versions of the hoverboard began appearing at consumer electronics fairs. These commercial versions are also known as hands-free Segways, self-balancing scooters, gliders, smart boards, sky-walkers or mod boards. Unlike the hoverboard in Back to the Future or the Lexus ad, these commercial hoverboards have wheels and do not levitate off the ground. They are usually powered by a rechargeable lithium ion battery like those found in laptops or phones.

The popularity of the hoverboard as the 2015 Christmas gift was never in doubt, with children of the 1980s revisiting their childhood hoverboard fantasy and early-adoption by celebrities capturing the attention of the younger generation.

In late December 2015, Russell Crowe made headlines when he complained that an airline had refused to check-in his children’s hoverboards. Reality television star Kendall Jenner’s Instagram video showing her unceremoniously falling from a hoverboard received 1.1 million “likes”.

Manufacturers were quick to respond to the spike in demand, with a large number making the decision to start producing hoverboards for the first time. In general, the hoverboards on the market look quite similar, but the price disparity of up to $2000 provides an indication of the difference in quality.

Hoverboards crash — and burn

In 2016, there have been at least six fires in Australia attributable to hoverboards.

Most owners reported fires that started while a hoverboard was charging, although there have also been cases of hoverboards bursting into flames while being used. The root cause of the fires is yet to be determined though many suspect it is related to the lithium-ion batteries. Technology commentators have proffered an explanation that poor quality chemical electrodes may contain small, sharp metallic particles that puncture the thin plastic divider between the electrodes, causing the chemicals to meet in a vigorous chemical reaction.

Safety concerns over hoverboards are not limited to the chance of fire. There is also a concern about injuries through falls. Users also risk being in contravention of state road traffic laws by operating a mechanically powered vehicle on a public road. This is also a problem faced by lovers of the motorised esky.

ACCC interim ban

The Australian Consumer Law (ACL) provides that the responsible Minister is able to impose an interim ban of 60 days on a product if it appears to them that:[2]

  • consumer goods of that kind will or may cause injury to any person; or
  • a reasonably foreseeable use (including a misuse) of consumer goods of that kind will or may cause injury to any person.

The ACCC issued warnings about hoverboards on 10 December 2015 and 12 January 2016.

On 18 March 2016, the Minister placed an interim ban on hoverboards that did not meet, or could not be shown to meet, certain listed standards and requirements.[3]

This meant that for a period of 60 days from 19 March 2016, the supply of these hoverboards was banned. The listed standards included those published by the International Electrotechnical Commission (IEC), an international non-profit, non-government organisation that prepares and publishes standards for all electrical, electronic and related technologies.

On 23 April 2016, the ban was extended for a further 30 days.

Failure to comply with the ban is a criminal offence with a maximum fine of $220,000 for an individual and $1.1 million for a corporation. Civil penalties may also apply.

What should Australian retailers do in response to the ban?

The first step is to consider whether the hoverboards you have sold comply with the standards and requirements listed in the ACCC interim ban notice.

Three possible scenarios are:

1. You test the hoverboards and they are compliant;

2. You don’t test the hoverboards; or

3. You test the hoverboards and they are not compliant.

If you cannot prove that your hoverboards are compliant (ie. scenario 2 and 3 above), you must stop selling the hoverboards during the ACCC ban period. However, if the ban does expire, serious consideration should be given to whether sales should be recommenced. Bear in mind that the cost involved in testing may outweigh likely profits.

What about hoverboards already sold?

If you cannot confirm that the hoverboards are safe, your customers may be entitled to a refund.

However, what if customers don’t exercise this right because they want to keep the hoverboard (knowing the risks), are unaware of the risks, or for some other reason?

All Australian retailers of hoverboards should now be aware of the potential risk of fire. By not taking action regarding hoverboards that have already been sold, a retailer may open themselves up to future claims.

Assume, for example, that Customer A purchased a hoverboard from you in December 2015 as a Christmas present for his daughter. Since the sale, you have become aware of the potential risk of fire. You have stopped further sales but not recalled previously sold hoverboards. Customer A’s hoverboard sits idly in the garage until the winter holidays when it is put on charge overnight. While Customer A and his family are sleeping the hoverboard ignites; the house is destroyed and Customer A’s child received severe burns. Customer A lodges claims on his insurance policies.

Whether an insurance policy responds to a claim will depend on the specific facts and the terms of the insurance policy. However, it is likely — and maybe even inevitable — that an insurer will look to claim against other parties whose actions contributed to the relevant event. In this scenario, the insurer would likely look to the hoverboard retailer.

Given this highly probable scenario, all retailers who have sold hoverboards prior to the date the ACCC’s interim ban took effect should consider instituting a recall program. Many retailers and suppliers already had and these are listed on the ACCC website.

If you do become aware that a hoverboard you supplied caused serious injury, illness or death, you are required to notify the Minister within two days, or face a fine of up to $3330 for an individual or $16,650 for a corporation.

Can an Australian retailer get a refund from its supplier?

If you have purchased hoverboards from a company that has recalled its products, you should be able to obtain a refund from your supplier. However, if your supplier does not voluntarily offer a refund and is based overseas, the usual hurdles in claiming and enforcing against an overseas company will apply, such as seeking leave to serve notice of a writ out of the jurisdiction. Even if these hurdles can be overcome, there is no guarantee that these companies will have any assets to claim against.

Key takeaways

Stop selling hoverboards and consider whether you should initiate a voluntary recall:

  • if you are uncertain that your hoverboard complies with the specified electrotechnical standards; or
  • if you have sold a hoverboard that does not comply with the standards.

 

This article was first published in Inhouse Counsel, Vol 20 No 5, June 2016

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.