Dummies Guide to the Consumer Protection Act

Why the Consumer Protection Act?

The purpose of the Consumer Protection Act (CPA) is to promote the welfare of consumers in South Africa by establishing a legal framework for a consumer market that is fair, accessible, efficient, sustainable and responsible for the benefit of consumers generally.

Emphasis is now on protecting the public from ‘greedy big business’ willing to make a buck at the cost of the consumer. It will play a big role in protecting the poor and previously disadvantaged persons.

It represents a ‘big stick’ approach to non-compliant businesses – it provides for fines up to R1-million or 10% of turnover, whichever is higher. Furthermore, class actions on behalf of groups of consumers are envisaged. It is a single overarching law to replace seven previous laws.

There is currently very little recourse for the consumer who must prove the negligence of a supplier. The CPA radically changes the basis of liability. No longer is the consumer required to prove negligence by the supplier, producer, importer or distributor. The Act introduces a no-fault liability system where the consumer merely has to show that food was ‘off’ or that there was a foreign object in a pack in order to succeed in a claim against a retailer, supplier or manufacturer. It’s intended to protect consumers across the board from exploitation of any kind and provides them with simplified redress mechanisms as no-fault liability is introduced. It achieves this by introducing, among other things, a system of product liability and improved redress. Producers, distributors or suppliers will be liable for any damages – whether death, injury, loss or damage to property.

It includes the whole supply chain – from farmer to wholesaler, wholesaler to retailer, importer to consumer, as well as professionals such as auditors, attorneys and doctors.

Effectively, it applies to all involved in promoting or supplying goods or services, irrespective of whether they are resident in South Africa or not, or whether they operate on a not-for-profit basis. Even foreign producers who merely advertise their goods in South Africa may incur liability under the Act.

The Act decriminalises certain conduct and subjects it to administrative sanctions, while it also enables consumers to demand refunds if goods are of inferior quality. Consumers are now empowered to cancel contracts if not satisfied with the terms and to have a final say as to their renewal.

Looking more closely at the concept of no-fault or strict liability

Section 61 of the Act represents a significant amendment to the existing law, in that it allows for a consumer harmed by unsafe goods, product failure or defect, or even from inadequate instructions or warnings on packaging, to sue almost any person involved in getting that product to market, irrespective of whether that person was negligent.

For example, where a defective geyser causes loss, currently the buck might stop with the plumber who installed it. But section 61 shifts the burden of proof squarely on to the shoulders of the supplier and the geyser manufacturer or even the importer could be sued.

Liability for economic loss will also cover consequential losses, even those very remote and unforeseeable, eg computer crash loss of data. Another example is a seller of a nail used to erect a structure that collapses is liable for the structure and all loss of earnings of everyone therein.

Taking recourse under the CPA

The Act allows for enforcement of rights by the consumer in new forms including a National Consumer Commission and Provisional Consumer Courts (both yet to be established), and the National Consumer Tribunal created under the National Credit Act.

How consumers are to lodge claims remains unclear. It seems they will apply to the institutions above, or will be able to approach an ombudsman. These kinks and details are still to be ironed out.

What about claims for damages?

There will be no punitive damages as is the case in the US, although class actions will be possible (as in the US).

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.

When does the CPA come into effect?

The CPA became law on April 29, 2009. Broadly speaking, the Act comes into force 18 months later, although the strict liability aspects of the Act come into force six months earlier.

Technically, only contracts concluded after the 18-month period will be affected by the Act, but certain limited provisions apply to fixed-term contracts entered into before the end of the 18-month period.

The next step from government will be the promulgation of regulations as required by the Act which could take 12 to 24 months. However, other sections will come into effect even if there are no regulations, for example, the strict liability clause.

Of course, it’s still possible that sections of the Act will be challenged in the Constitutional Court, which could delay implementation.

Extraordinary protection for the consumer, but at what price?

The legislation places much greater responsibility on producers, distributors and marketers, and the cost of complying with the law will be recouped to some extent from consumers.

Companies will have to get legal assistance to rewrite contracts. According to the Act, contracts and other documents need to be in simple and understandable language.

Producers will have to review their quality controlprocedures, as the legislation enforces consumers’ rights to safe and quality products. Manufacturers will have to pay bigger insurance premiums, all of which translates into higher prices for consumers.

The best defence appears to be insurance and good QC/QA and traceability systems, both administrative and in the laboratory, the diligent testing of products and keeping very accurate records.

South Africa is likely to see far more voluntary product recalls, such as in Europe and North America, in a bid to be ‘better safe than sorry’.

What about the little guys?