The hidden dangers of pirate parts

MINING companies fitting OEM-supplied equipment with ‘pirate parts’ may be opening themselves up to liability risks, according to a recent paper by Minter Ellison Lawyers.
The hidden dangers of pirate parts The hidden dangers of pirate parts The hidden dangers of pirate parts The hidden dangers of pirate parts The hidden dangers of pirate parts


Staff Reporter

Given that under Australian law company directors have a statutory responsibility to act with reasonable care and diligence in relation to employees, there is clearly an onus on companies to carefully consider liability consequences when it comes to repairing OEM equipment.

Author of the paper Odette Gourley said under the Mines Inspection Act in New South Wales a mine manager is obliged to ensure that all equipment is designed, used, maintained, repaired and replaced to protect the health and safety of persons at the mine.

“Under these same regulations, it is an offence to repair equipment or machinery at a mine unless the repair is safe and is done without reduction in safety,” she said.

The safety consequences of failure of equipment can be serious, and can result in serious personal injury to an operator or serious damage to the equipment itself.

The costs to repair specialised equipment can be very high and more frequently mine operators are looking to sources other than OEMs to carry out these jobs. But Gourley warned that repairing OEM equipment with non-genuine parts ought not be made on a simple price comparison alone.

As she pointed out, the performance and safety of large, complex and expensive machines is dependent on materials strength and precise manufacturing tolerances - precisely what OEM warranties cover.

If a mining company elects to have non-genuine parts fitted several complex issues, including liability consequences, should be considered.

Even if no accident occurs a corporation may be in breach of the law, given that the obligation is to provide safe equipment. In defending itself should litigation arise, Gourley said a corporation would find it difficult to make out that there was no practicable alternative to the non-genuine spare part, particularly if other parts are available.

The corporation could show it had no control over a safety breach if there was a design flaw, materials problem or manufacturing quality problem by the parts supplier and the information the company had did not suggest the likelihood of any such problems.

In addition, each ‘management’ person would be held accountable unless that person showed he had no knowledge the corporation was in breach; he could not influence the conduct of the corporation; or he tried to prevent the breach by the company.

Each of these would be hard to show, for example, if someone was a manager with responsibilities in relation to equipment purchase or repair he could not say he had no knowledge of the breach.

“Would he be able to show that, being a relevant manager or director, he used all due diligence to prevent the breach by the company? - not if he has had no enquiry made as to the safety of non genuine spare parts relative to the safety of OEM parts,” the paper said.

To prevent possible breaches related to non-genuine parts Gourley advised companies to ask some or more of these questions:

• In practical terms, how significant are the particular parts in terms of safety consequences or failure?

• Does the price difference between non genuine and OEM parts represent a quality trade-off which may affect safety or can it rationally be explained by superior efficiency, economies of scale etc?

• Does the non-genuine part meet the necessary specifications for repair and subsequent safe performance of the equipment?

• Is the part made by a reputable manufacturer with sufficient manufacturing skills, experience and resources to produce consistent quality necessary for consistent safety?

• What is the track record of the particular non genuine parts or this particular manufacturer - does the manufacturer/supplier have any information that might give rise to safety concerns or provide evidence verifying safety?

• If safety testing data or a substitute is not available, why is that so? Is adequate safety testing carried out?

Companies also needed to consider the risk in on-selling used equipment repaired with non-genuine spare parts. While a company may be prepared to take the risk of using non-genuine spare parts while the equipment is in its possession, it should consider the ramifications of disposing of the equipment for second-hand use, without disclosing what parts were fitted.

Warranties provided by OEMs could also be affected by using non OEM parts and if problems occur there could be a confusion of responsibility: is the performance problem the responsibility of the equipment supplier or the supplier of the non genuine spare parts?

“The prudent company, taking into account the potential consequences discussed, will address the issue more broadly and make all appropriate enquiries. The decision will be influenced by the existence or absence of available information and where information is available, what that information shows about safety and performance in comparison with OEM parts,” Gourley said.