All you need to know about the Consumer Protection Act

The RMI appointed consumer law attorneys Robertson Teuteberg Kirk to present an ongoing series of awareness seminars on the Consumer Protection Act to its members nationwide. This article forms an overview of the Act and its implications. Monthly follow-up articles will focus on specific industry sectors and business scenarios

CONSUMER PROTECTION ACT 68 OF 2008

Prior to the introduction of the CPA, consumer protection was largely unregulated and although consumer protection law is a multifaceted subject, it has always been fragmented in that no one single piece of legislation has encompassed all the provisions relating thereto. No specific rules of law existed setting out consumers basic rights to issues of information disclosure, fairness and transparency. The legislative framework preceding the CPA did not address challenges such as discriminatory and unfair marketing practices. It also did not address the proliferation of low quality and unsafe products nor the limited redress available to the ordinary consumer.

The government identified these shortcomings and on April, 29, 2009 enacted the Consumer Protection Act 68 of 2008. The CPA has sweeping implications for business in every industry and on every level and the motor industry will be acutely affected. All RMI members need to become familiar with the provisions of the Act and must ensure that their business processes, documents and policies are amended in preparation for the effective implementation of the CPA which will be at the end of October 2010.

Consequently they must ensure that their staff receives training to ensure that inadvertent staff actions or omissions do not result in liability and potential losses being created for their businesses. RMI members must not be complacent about preparing for the CPA. They must prepare themselves accordingly so as to avoid the product liability issues that may arise within the motor industry.

WHY HAS THE CPA BEEN CREATED?

The CPA promotes and advances the social and economic welfare of consumers in South Africa by establishing a legal framework within which a fair, accessible, efficient and sustainable consumer market can flourish. It aims to protect previously disadvantaged persons and the poor against exploitation and misleading marketing and fraudulent schemes and it also provides consumers with simple mechanisms of redress.

It creates a consistent enforcement framework relating to consumer transactions and agreements and prohibits unconscionable behaviour by business. The CPA is the Consumers Bill of Rights and it embodies internationally recognised consumer rights. It makes provision for penalties and states that fines of up to R1 000 000 or 10% of turnover, (whichever is higher) can be levied for non-compliance. Class actions on behalf of groups of consumers are now also possible. It is a single overarching law, replacing seven previous pieces of legislation.

WHAT IS THE MOST IMPORTANT CHANGE BROUGHT ABOUT BY THE CPA?

It changes the litigation landscape in that prior to the CPA there was very little recourse for a consumer who suffered damage as the consumer had to prove the negligence of a manufacturer or supplier. Litigation is expensive and most consumers cannot afford to sue large businesses. The CPA radically changes the basis of liability in that the consumer no longer has to prove negligence on the part of the supplier, producer, importer or distributor. The CPA introduces a no-fault liability system across the supply chain meaning: the consumer will merely have to show that he bought the product; that he suffered adverse consequences because of unsafe goods, or product failure, or defects, or hazards or inadequate instructions, or inadequate warnings or because of improper labelling.

He can then sue a supplier. In the supply chain, the supplier means the producer or importer, distributor or retailer, installer or provider of access in respect of any goods. The supplier may be liable for any harm, including death, illness or injury to any natural person; loss or physical damage to any property; and certain economic loss may be payable, regardless of what steps they took to prevent the occurrence and irrespective of whether they were negligent. (And this also applies to all services, including anyone who applies, installs, or gives a consumer access to goods in conjunction with a service). Simply put, the whole supply chain means: from manufacturer to importer (whether local or foreign); from importer to wholesaler; from wholesaler to dealer; from dealer to a consumer.

And this includes professionals such as accountants, auditors, attorneys, doctors, and the like. The CPA effectively applies to any person involved in promoting or supplying goods or services, (including advertisements) irrespective of whether they are resident in South Africa or not, or operate on a not-for-profit basis. Even foreign producers who merely advertise their goods in South Africa may incur liability under the Act. In order to practically illustrate what strict liability (also called “no-fault” liability”) means, think of a service centre installing a radiator into a vehicle during a routine service. The radiator is defective and then causes damage or loss.

Prior to the CPA, liability may stop with the manufacturer of the defective radiator. But the CPA now allows a consumer to sue the manufacturer, or the importer of the radiator or the service provider who installed it. The onus and burden of proof no longer lies with the consumer. It now lies on the shoulders of all the “suppliers”.

WHAT ARE THE EXEMPTIONS?

The CPA applies to all transactions except where the State is the consumer and where the supplier has turnover or net asset value above a certain threshold (to be determined in the regulations to the CPA). This means that the CPA excludes big business, in its capacity as a consumer, from CPA protection. In other words, a large business using the services of another company or person will not be able to take recourse against that supplier.

WHAT ABOUT FRANCHISES?

The CPA makes special provision for franchises. Apart from a few exceptions, the CPA provides a franchisee with the same consumer rights as an individual consumer, irrespective of whether the turnover or net asset value of the franchisee’s business is higher than the threshold referred to above.

WHAT ARE SOME OF THE OTHER NEW PROVISIONS IN THE CPA?

• The CPA generally deals with required disclosures; safety and quality; warranties; rights of delivery and return; rights of cancellation of ordered or reserved goods; marketing; sales; service contracts and transactions; fixed term agreements and as has been indicated above, liability for damage.
• It also provides for the concept of “unsolicited” goods. What this means is that if goods are delivered without having being ordered, or if there is an over-supply of goods in error and notice to this effect is supplied but the goods are not collected within 20 days of the notice at the supplier own cost, then the goods become the property of the person to whom they were delivered. The supplier cannot hold such consumer liable.
• It provides for the right to return goods in certain circumstances. A consumer must be allowed a reasonable time to examine goods. This right means that goods can be returned to a supplier, for a full refund, in the following instances: - If the consumer could not examine the goods; - If the consumer is exercising the 5 day cooling off period provided to him for goods sold by way of direct marketing;
  • - If goods agreed to were mixed in with nonagreed goods and so rejected by the consumer;
  • - If goods are unsafe or defective; and
  • - If goods were unsuitable for the purpose for which the consumer intended the goods to be used (in instances where the consumer had specifically informed the supplier of the purpose for which he wanted to purchase the goods).
• Suppliers do not have to refund retuned goods where a law prohibits the return of those goods or where the goods have been altered or disassembled.
• In addition to common law warranties and contractual warranties, the CPA creates an implied warranty of quality for all goods.
  • - The producer, importer, distributor and retailer each warrant that the goods comply with the quality provisions and standards (“the requirements”) set out in the CPA.
  • This is a minimum warranty for all new and used goods (excluding auctions).
  • This means that within 6 months of delivery, the consumer can return goods which fail to comply with the requirements, without penalty and at the suppliers risk and expense.
  • The supplier may repair or replace the goods or refund the purchase price (at the consumer’s choice).
  • If the consumer opts for repair, and the defect occurs again within the next three months (or a new defect appears), then the supplier must replace the goods or refund the purchase price! This may have serious consequences for the motor industry.

WHAT ARE THE STEPS AVAILABLE TO A CONSUMER FOR REDRESS AND RECOURSE?

Consumers can seek redress by going to an alternate dispute resolution agent; or to an ombud; or to a consumer court; or to a Magistrate’s Court or High Court; or to the National Consumer Commission or to the National Consumer Tribunal. The CPA also provides that Industry Codes of Conduct must be created to regulate:

• the interaction between persons conducting business in an industry; and
• providing for alternative dispute resolution between such businesses and consumers. Robertson Teuteberg Kirk is in the process of currently assisting the motor industry with the creation of its code of conduct.

ARE THERE ANY REGULATIONS YET?

Certain of the Regulations are currently being negotiated at the DTI and be promulgated by the end of April 2010. Robertson Teuteberg Kirk has attended meetings held in this regard on behalf of the RMI.

FINALLY...

The CPA places a huge burden on the industry and businesses will have to get legal assistance to rewrite contracts in simple and understandable language as is required in the CPA. Legal assistance will also be required to ensure that policies and procedures are tightened up, especially on the sales, servicing and staff training side. Business (manufacturers and dealers) will have to review their quality control procedures, as the legislation enforces consumers’ rights to safe and quality products.

Consumers have been handed a very big stick with which to keep suppliers in check. From a consumer rights perspective this is very positive, but many smaller businesses may not be able to afford the risk of legal action, especially as the consumer will not have to prove negligence. They will have to take out product liability insurance and ensure that accurate records are kept relating to the testing of products.

WHAT ELSE IS AVAILABLE TO YOU IN ORDER FOR YOU TO LEARN MORE ABOUT PROTECTING YOUR BUSINESS?

This is the first article of many relating to the CPA. RTK will be providing a series of articles on the CPA so the RMI members can learn more about their obligations and how to prepare their businesses accordingly. RTK will also provide the RMI with information to be placed on the RMI website. RTK is also in the process of finalising the construction of its website www.legaljunction.co.za which is geared towards:

• training the motor industry in the ins and outs of the CPA
• providing a document service for the different industry specific businesses within the motor industry itself
• providing legal services to RMI members when requested

Charlie and Sam can currently be contacted at info@rtk.co.za