Subject:  Effect on General Merchandise Retailers of the Consumer Protection Act of 2008 – Assented to on 24 April 2009

1.

This is a short memorandum on some of the possible effects of the Consumer Protection Act  of 2008, on the business of general retailers with particular focus on the liability of a company for damage caused by goods in so far as Sections 61 and 113 of the Act are concerned.

2.

The Consumer Protection Act of 2008 provides a wide array of protection to all consumers, include the right to goods of good quality and durability which comply with all NRCS standards and other regulations, the right to goods which are fit for the purpose for which they are sold, the right to return goods for a refund or exchange, and strict liability by a retailer to a consumer for any direct or indirect damages (economic loss) caused by unsafe goods, or goods which have a defect or suffer a failure.

3.

As from 24 October 2010 (could be later if regulations are delayed), a consumer, which includes small business having a turnover below a threshold still to be published, will have the right to inspect and return any goods not suitable for a purpose within 10 days and only minimal deductions for restocking will be allowable, if any.  Where, however, goods are unfit for a stated purpose, or a purpose which may be inferred from the circumstances of the sale, then the goods may be returned within 6 months for a full refund regardless of the condition, as long as they have not been tampered with.  Thus, a washing machine sold as “industrial” and which cannot cope with the wash load of a crèche, could be returned for a refund within 6 months and cannot be rejected because it has been (ab)used while the intention of the manufacturer was domestic use.

4.

Even if a product is fit for purpose, it must be durable and of good quality and thus, if it fails or has a defect within 6 months of purchase then at the instance of the consumer it must be replaced or refunded.

5.

Trade descriptions must be in plain language and understandable to the ordinary consumer who would ordinarily purchase the product.  Any misleading trade descriptions can be dealt with very harshly in terms of compliance notices issued by the National Consumer Commission,  (repeated) failure to comply with such notice can lead to a fine of R 1 000 000 or 10% of turnover.

6.

Bait marketing and overselling and out-of-stock situations are dealt with very harshly and a retailer can be forced to supply goods at the advertised price, or obtain better goods for the same price, if prosecution is to be avoided.  Description of goods in advertising and marketing materials must be accurate so that the description corresponds to the image shown as well as to the product actually on sale.  Similarly, process on products must be honoured and E & OE will no longer be allowed.  If there is an error in advertisement as to the product description, the image, or the price, then the error must be publicized as widely as the original material and all consumers who want to purchase the product before such advertisement has taken place must be sold the product at the price shown or the better product if there is a discrepancy between the  description and the image shown.

7.

As from 24 April 2010, a consumer will have a claim for damages regardless of any negligence by the retailer or its supply chain and the consumer can expect the retailer to deal with the complaint and then only take it up with their suppliers.  It must be borne in mind that the liability for such damages is not only in terms of Sections 61 and 113 of this Act and both existing common law liability and criminal law liability will continue to exist so that a company could find itself both liable civilly under these sections of the Act but also under common law and criminal law.

8.

In terms of Section 112 of the Act, although not discussed here in detail, the sword of the Competition Tribunal will hang over the heads of intentional or grossly negligent transgressors where a fine of R 1 000 000 or 10 % of turnover of a company may be levied.  In terms of other provisions there are criminal sanctions against individuals in organizations which carry prison terms of upto 10 years.

9.

The Act also puts in place a product recall regime in terms of which product recalls may be ordered and which may require accurate record keeping of the sales of designated products and returns thereof for product failure monitoring and for reporting of such figures in order to permit recalls of out of specification products to be ordered before they cause damage or harm or for voluntary recalls to be instituted as required.

10.

As regards the liability for damage caused by goods, the major difference between the legal position in terms of the Section 61 and the current common law position on the liability of any person who is a link in the supply chain of goods to a consumer is that whereas the common law requires that the person be negligent or that there be breach of an explicit or implied contractual term, whereas Section 61 imposes a no fault liability on any producer or importer, distributor or retailer of any goods for damage caused wholly or partly as a consequence of supplying any unsafe goods, a product failure, defect or hazard in any goods, or inadequate instructions or warnings provided to the consumer pertaining to any hazard arising from or associated with the use of any goods, irrespective whether the harm resulted from any negligence on the part of the producer, importer, distributor or retailer, as the case may be.  Thus, the consumer may hold at their whim any or all persons in the supply chain liable for damages, the one paying the others to be absolved.

11.

Currently, it would be a defence to a claim by a consumer against that person for damages due to defective products or product failure for the person, or anyone else in the supply chain, to show that there was no negligence on its part and/or that liability was excluded or limited in terms of a contractual term such as a warrantee.

12.

When Section 61 comes into effect, the question of negligence will not arise and the only defences open to the person in the supply chain will be those set out in Section 61(5) which are:

(a)

the unsafe product characteristic, failure, defect or hazard that results in harm is wholly attributable to compliance with any public regulation;

(b)

the alleged unsafe product characteristic, failure, defect or hazard—

(i)

did not exist in the goods at the time it was supplied by that person to another person alleged to be liable; or

(ii)

was wholly attributable to compliance by that person with instructions provided by the person who supplied the goods to that person, in which case, subparagraph (i) does not apply;

(c)

it is unreasonable to expect the distributor or retailer to have discovered the unsafe product characteristic, failure, defect or hazard, having regard to that person’s role in marketing the goods to consumers; and

(d)

the claim for damages has prescribed in terms of Section 61(6).

13.

A further element of liability which is introduced by the Act is that of no fault vicarious liability in terms of proposed Section 113 in terms of which if an employee or agent of a person is liable in terms of this Act for anything done or omitted in the course of that person’s employment or activities on behalf of their principal, the employer or principal is jointly and severally liable with that person.  Whereas presently under common law this is available to a consumer the present section makes this easier to enforce as the element of negligence is no longer a requirement for liability for the actions of an employee or agent.

14.

A major consequence of the coming into effect of the Bill, and especially Section 61, will be the need for systems by distributors and retailers, both administrative and technical, to test products and keep accurate records in order to be able to sustain the defence that it is unreasonable to expect the distributor or retailer to have discovered the unsafe product characteristic, failure, defect or hazard, having regard to that person’s role in marketing the goods to consumers, and the state of scientific and technical knowledge at the time the goods were under the control of that person.  These product analyses and documentary reviews would need to be detailed enough and use modern enough techniques to show that the current state of scientific and technical knowledge had been applied in determining the safety and suitability of goods.   There will off-course be much debate as to what the effect of the role as a wholesaler or retailer has on the liability of the wholesaler or retailer in terms of the defence that they merely sell on what has been sold to them without reviewing or testing the safety or suitability thereof, however, in the writers opinion, the bigger the wholesaler or retailer, the less likely this defence is to succeed.

15.

A disgruntled consumer will approach the Consumer Complaints Commission or an Ombudsman appointed in terms of the Act with their complaint who will then investigate the complaint and request replies from the person or persons against whom the complaint is directed.  If the matter is not resolved before the Commission or Ombud there will be a determination by the Tribunal whether liability exists and a certificate to this effect will be issued enabling the complainant to approach a Court for an order on the amount of the damages, however, the finding of liability will not be brought up before such a Court.

16.

The good news is that what has not changed is the determination of the extent of any damages claimed.  Thus, there are no punitive damages as is the case in the US and a court will —

(a)

assess whether any harm has been proven, and adequately mitigated; 

(b)

determine the extent and monetary value of any damages, including economic loss; or

(c)

apportion liability among persons who are found to be jointly and severally liable.

17.

Thus, the extent of provable damages has not been changed by the Act, except of the inclusion of economic loss, however, the consumer will no longer have to prove negligence on the part of anyone in the supply chain in order to open the door to a damages claim, which is the case under the present common law, and thus there may be many spurious or minimal claims against supply chains where the damages are either incalculably small or very minor in extent, such as the replacement of a tin of baked beans, but which require proper responses to the Consumer Complaints Commission and even the Consumer Tribunal, from legally qualified personnel rather than the current customer care line type of approach.  Failure to deal fully with all the issues at an early stage may result in unfavourable decisions of liability which, besides the legal consequences and potential damages awards, will have incalculable public relations harm as the press are likely to broadcast such findings of liability which besides damaging the goodwill of the business may also spur further consumers to lodge complaints which in turn need to be dealt with.

18.

Further, the inclusion of economic loss in the list of damages calculable by the Court makes it possible that claims may be instituted not only for directly forseeable losses and direct losses, but also consequential losses, however unforeseeable these may have been.  Thus, in an absurd example, the importer or supplier of a faulty nail could be liable for the collapse of a building constructed using said nail as well as the losses suffered by the occupants of such a building including their loss of income and the landlords loss of income.  This will make it even more crucial that imports from cheap manufacturing locations are screened and tested prior to being put on sale.

19.

The comment above regarding the imposition of administrative fines of upto R 1 000 000 or 10% of turnover should not be forgotten as a rash of findings of liability by the Tribunal may lead to further investigations into the conduct of a business and imposition of such fines where deemed appropriate.

20.