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) . Section 61 is primarily concerned with two issues: “product liability” and “product safety”. The focus of this article is on product liability.
There are interesting unique characteristics of the supplier-consumer relationship in the context of product liability cases that we want to sketch upfront:
- There is often more than one party involved: the manufacturer of the goods (who is often overseas), the importer, distributor or supplier of the goods and the purchaser or end consumer;
- There is often no contractual relationship between the purchaser of a defective product (e.g. a South African hardware vendor who is a distributor who buys the defective product from the manufacturer in China) and the consumer who suffers harm (who bought the defective product from the hardware vendor in South Africa);
- The distributor may have contracted out of liability or or may simply have insufficient financial resources to meet any contractual claims and the manufacturer is located overseas.
Strict Product Liability
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).
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.”
Joint and Several Liability
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.
Eight important questions you must ask
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:
#1 Does the transaction fall under the CPA?
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 section 5(3) and (4). Examples of transactions excluded by section 5(2) include those transactions in terms of which:
- goods or services are promoted or supplied to the State;
- the consumer is a juristic person whose asset value or annual turnover, at the time of the transaction, equals or exceeds the threshold value determined by the Minister in terms of section 6.
#2 Are you one of the entities captured by s61?
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.
#3 Do the necessary factual circumstances for strict liability exist?
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.
#4 Was the harm caused by a product failure, defect or hazard in the 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.
#5 Did you provide adequate instructions or warnings?
Suppliers of goods that may be defective must ensure that adequate instructions or warnings provided to the consumer about the hazard.
#6 Did the type of “harm” contemplated in the CPA occur?
Section 61 covers both physical harm and economic harm. Both have specific meanings under the CPA and one of these must have occurred.
#7 Do you have a defence available to you?
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.
#8 Has the claim been brought on time?
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.
Contracting out of Liability
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.
Proper Indemnities Needed
The supplier is, however, entitled to protect itself and limit its liability contractually regards 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 to, 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 were at fault.
Product Liability Insurance
It is probably also advisable to get product liability insurance.
 Another section which 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.)
 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.