Liability for Damage Caused by Goods in terms of the Consumer Protection Bill of 2008

1. This is a short memorandum on the effects of the Consumer Protection Bill of 2008, if it were to be passed into law as it now reads, on the liability of a company for damage caused by goods in so far as Section 61 of the Bill is concerned, however as Section 113 is an extension of Section 61, this will be included herein for completeness.

2. From the outset, it must be borne in mind that the liability for such damage is not only in terms of Sections 61 and 113 of this Bill 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 Bill but also under common law and criminal law.

3. Furthermore, in terms of Section 112 of the Bill, although not discussed here, 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.

4. The Bill will also put 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.

5. As regards the liability for damage caused by goods, the major difference between the legal position in terms of the proposed 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, proposed 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.

6. 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.

7. 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:

8. A further element of liability which is introduced by the Bill 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.

9. 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.

10. A disgruntled consumer will approach the Consumer Complaints Commission 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 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.

11. 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 -

12. Thus, the extent of provable damages has not been changed by the proposed Bill, 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.

13. 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.

14. The comment in paragraph 3 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.

15. The above is by no means an exhaustive thesis on this topic and is merely intended to alert and inform on the possible issues which may arise if the Bill were to pass into law in its present form, at least in so far as the Sections discussed above are concerned.

Liability for damage caused by goods

61.(1) This section does not apply to any genetically modified organisms regulated in terms of the Genetically Modified Organisms Act, 1997(Act No. 15 of 2006).

(2) Except to the extent contemplated in subsection (5), the producer or importer, distributor or retailer of any goods is liable for any harm, as described in subsection (6), caused wholly or partly as a consequence of-

(3) A supplier of services who, in conjunction with the performance of those services, applies, supplies, installs or provides access to any goods, must be regarded as a supplier of those goods to the consumer, for the purposes of this section.

(4) If, in a particular case, more than one person is liable in terms of subsection (1), their liability is joint and several.

(5) Liability of a particular person in terms of this section does not arise if-

(6) Harm for which a person may be held liable in terms of this section includes -

(7) Nothing in this section limits the authority of a court to-

Vicarious liability

113. (1) 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.
(2) This section does not apply in respect of criminal liability.