If you sell defective goods or products, you may be responsible for the harm anyone suffers. This is called product liability. You might have to pay for all of it, even if it was not your fault. You cannot limit this liability, but you can get the person whose fault it is to pay you back. That is why we have prepared an indemnity for you to use.
The Consumer Protection Act and Product Liability
The Consumer Protection Act 68 of 2008 (CPA) became law in 2008. While most of the substantive provisions dealing with the supplier-consumer relationship will only come into effect on 1 April 2011, the parts dealing with administrative matters came into effect on Saturday 24 April 2010. One of these is section 61 which deals with liability for damage caused by goods (e.g. hardware and other physical equipment) There are interesting unique characteristics of the supplier-consumer relationship in the context of product liability cases that we want to sketch upfront: One of the scary things about section 61 is that it imposes a form of strict liability where producers, importers, distributors, or retailers of goods are ‘automatically responsible’ for harm caused by the supply of any unsafe goods, product failures, and defects in any goods regardless of who is at fault. This is one of a few instances, where strict liability is imposed in our law by an Act of Parliament as strict liability, is very much an exception in our law (and where imposed, is mostly done so in common law-related matters such as vicarious liability).[2]
Wikipedia describes it quite nicely when it says that “rather than focus on the behaviour of the manufacturer (as in negligence), strict liability claims focus on the product itself. Under strict liability, the manufacturer is liable if the product is defective, even if the manufacturer was not negligent in making that product defective – with negligence the plaintiff still has to prove that the defendant’s conduct fell below the relevant standard of care.” The CPA’s provisions are far-reaching in that they apply to “the producer or importer, distributor or retailer of any goods”. So what happens if more than one of them is liable? Section 61 makes them “jointly and severally liable”. What this means is that the plaintiff can sue each for a pro rata share, or may choose to sue for the whole amount (this is very different to joint liability where you can only be sued for your pro rata share of the obligation or debt). This is very onerous! So you could end up being on the hook for everything. If you are a supplier and need to ascertain whether or not section 61 applies to you or whether you might be liable for harm suffered under section 61, then you need to ask yourself the following eight questions: The CPA applies to every transaction occurring in South Africa unless excluded by section 5(2) or an industry wide exemption has been granted in terms of sections 5(3) and (4). Examples of transactions excluded by section 5(2) include those transactions in terms of which: The parties who are subject to section 61 are “producers, importers, distributors and retailers”. Each of these has a particular meaning under the CPA. It is important to ascertain whether or not you fall under any of these. The factual circumstances in which strict liability may occur include harm occurring as a result of the supply of 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. Subject to certain defences provided for in section 61(4), the harm must have been caused by the product failure, defect or hazard in the goods (irrespective of any negligence on the part of the supplier). “Failure” and “defect” have very specific meanings under the CPA. Suppliers of goods that may be defective must ensure that adequate instructions or warnings are provided to the consumer about the hazard. Section 61 covers both physical harm and economic harm. Both have specific meanings under the CPA and one of these must have occurred. There are a number of defences to liability available and it is important to check whether or not one of these is available to you. Section 61 requires that a claim for damages must be brought within three years after the happening of specific events itemised in section 61. These, therefore, need to be evaluated. A question that we have often been asked is whether or not it is possible for a supplier to waive or limit the provisions of section 61 contractually. The simple answer is NO. The CPA is very clear that a supplier is not allowed to make the transaction or agreement subject to any term or condition if it directly or indirectly purports to set aside or override the effect of any provisions of the CPA or exempt itself from liability for any loss directly or indirectly attributable to the supplier’s gross negligence. The supplier is, however, entitled to protect itself and limit its liability contractually regarding other persons in the supply chain. Put differently, the supplier can protect itself and limit its liability contractually against its producer, importer, distributor, and retailer, but not against the consumer. One way to do so is to seek an indemnity from the other person in the supply chain. This might not be a problem with new agreements you are entering, but could be a challenge in respect of existing agreements in that the other party who you contract with might not have any incentive to grant you the indemnity. We have accordingly prepared a bilateral indemnity which you might want to consider entering into with other parties in your supply chain. In this indemnity, you would indemnify each other in relation to harm caused to a consumer where either of you was at fault. It is probably also advisable to get product liability insurance. [1] Another section that came into effect is section 7 which requires all franchise agreements to be in writing and signed by the franchisee and grants the franchisee a cooling-off period to cancel its franchise agreement, without cost or penalty, at any time within ten business days after signature.) [2] Other pieces of legislation which impose strict liability are the Aviation Act 74 of 1962 (where the owners of an aircraft are strictly liable for loss flowing from “material damage” caused to a person or property on land or water by the aircraft while flying, landing or taking off and the National Nuclear Regulator Act 47 of 1999 (which makes the holder of a nuclear installation license strictly liable for “nuclear damage” caused during the currency of the license holders period of responsibility.
Strict Product Liability
Joint and Several Liability
Eight important questions you must ask
#1 Does the transaction fall under the CPA?
#2 Are you one of the entities captured by s61?
#3 Do the necessary factual circumstances for strict liability exist?
#4 Was the harm caused by a product failure, defect or hazard in the goods?
#5 Did you provide adequate instructions or warnings?
#6 Did the type of “harm” contemplated in the CPA occur?
#7 Do you have a defence available to you?
#8 Has the claim been brought on time?
Contracting out of Liability
Proper Indemnities Needed
Product Liability Insurance