Is the CPA the final word on product liability?
Donald Dinnie
Donald Dinnie
Donald Dinnie, Director, Deneys Reitz
Residual Common Law product liability claims
Our common law acknowledges that physical or financial harm to others by producing or distributing a defective product is actionable. Our law has no difficulty in providing a remedy to persons who are harmed physically in person or property by a defective product.
For that reason, Professor Boberg suggested that “Product liability in law has perhaps been puffed up a little beyond its true importance” (PQR Boberg: The Law of Delict, Volume 1, Acquilian Liability (1984), page 194). Consumers will disagree. From the time when product liability claims were first allowed, requiring proof that the manufacturer was negligent in the manufacture of the product causing the harm, it often made it impossible for a complainant to succeed.
In Wagener v Pharmacare Limited, the Supreme Court of Appeal declined to develop the common law to impose strict liability saying that it was for the legislature to do so if it wished and that our common law was sufficient to protect the claimant’s right to bodily injury.
Five years later, the legislature took up that invitation with the inclusion in the Consumer Protection Act of section 61 providing a no-negligence regime for liability for damage caused by goods.
The no-negligence liability regime extends to injuries and damage caused as a consequence of:
- supplying unsafe goods.
- a product failure, defect or hazard in any goods.
- inadequate instructions or warnings provided pertaining in respect of any hazard arising from or associated with the use of any goods.
That is irrespective whether the harm resulted from any negligence on the part of any or all of the producer, importer, distributer or retailer.
The limiting feature of the section is the definition of “harm” which is:
- Death of or injury to a natural person.
- Illness of any natural person.
- Any loss of or physical damage to any property whether movable or immovable.
- Economic loss resulting from any of those forms of harm.
Pure economic loss is a loss that does not arise directly from damage to property or person, but in consequence of the conduct complained. Such as a loss of profit, being put to extra expenses or the diminution in the value of property (Telematrix (Pty) Limited t/a Matrix Vehicle Tracking v Advertising Standards Authority).
Because pure economic loss falls outside the ambit of the product liability provisions, a claimant who suffers pure economic loss without personal injury or damage to property because of a defective product, will have to consider whether the common law provides any remedy in the circumstances.
Where the claimant suffers pure economic loss but is in the position to avoid the loss contractually, there are no grounds to extend the remedy to another legal basis (more specifically in delict). The situation is different where it is not possible in any practical sense for a consumer to protect itself against pure economic loss caused by the negligence of the manufacturer.
In Freddy Hirsch Group (Pty) Limited v Chickenland (Pty) Limited (March 2011), Nandos Chicken distributors suffered pure economic loss when products in which the spice packs containing Sudan One (a substance not fit for human consumption) were recalled. Those distributors had no contract with the supplier of the spice packs and were not in the position to protect themselves by contract. The question was whether our common law allowed the claim for pure economic loss in the circumstances.
Our courts are reticent to allow pure economic loss claims. The court requires policy factors to be in favour of imposing such a liability. It takes into account factors such as whether there are a limited number of possible claimants, whether there will be a multiplicity of actions, and whether the damage suffered by the claimants was foreseeable by the manufacturer.
On the Chickenland facts, the Court found that the nature of the distributor relationships was that:
- The spice manufacturer was aware of the role played by the distributors in their clients’ business.
- The claims would not bring an unforeseeable multiplicity of actions.
- The imposition of liability imposed no additional burden on the manufacturer than already imposed by law or good practice internationally.
- The manufacturer’s client and the distributors were innocent victims of the manufacturer’s illegal conduct and had a duty to withdraw the contaminated product from the market to mitigate their losses.
On the Chickenland facts, the court determined that fault on the part of the manufacturer had been established.
So, in the case of a claim for pure economic loss arising from a defective product, the basis of the claim is recovery at common law because such claims fall outside the benefits afforded by section 61 of the Consumer Protection Act.
The Consumer Protection Act does not provide a one-stop remedy for all product liability claims. Common law remains the remedy for product liability claims for pure economic loss.
Farewell to small print – unfair contract terms and reasonable cancellation penalties
Rosalind Lake
Rosalind Lake, Director, Deneys Reitz
The Consumer Protection Act changes consumer agreements in a number of ways, the most significant of which is the prohibition of contracting on unfair terms. The Act sets out a number of terms which will be unfair and void. This is supplemented by the regulations which list over 30 instances of clauses which are presumed to be unfair if included in agreements with individual consumers.
The regulations include terms commonly present in most standard agreements. These terms are presumed to be unfair in transactions related to the consumer’s business or profession. The listed terms are indicative only and consequently, in the circumstances of a particular transaction, clauses could be fair or unfair. Many suppliers will simply exclude these listed terms in their agreements to avoid potential liabilities.
The courts, excluding consumer courts, will have the authority to determine whether a clause or term in an agreement is unfair in terms of the Act, interpreting any document or section of the Act to the benefit of the consumer.
Some of the clauses presumed to be unfair in the regulations are:
- Any exclusion or limitation of the liability of the supplier for death or personal injury to the consumer from defective or unsafe goods.
- Requiring the consumer to fulfill all their obligations even though the supplier has failed to fulfill its obligations.
- Allowing the supplier an unreasonably long time to perform.
- Allowing the supplier to terminate, renew or limit performance if the consumer is not given the same rights.
In addition to clauses that are presumed unfair, there are clauses that are permissible, but special attention must drawn to them. If a provision of a consumer agreement, attempts to limit risk or liability in any way, makes the consumer assume risk or liability, imposes any obligation on the consumer to indemnify the supplier or any other person or, is an acknowledgement of fact by the consumer, it must be drawn to the attention of the consumer in plain and understandable language. A consumer may cancel the agreement at any time during the fixed term on 20 days’ notice. The maximum term for fixed term agreements is, for the time-being, 24 months, unless a longer period is agreed to for the consumer’s financial advantage.
Many suppliers have been waiting on the final regulations in order to determine how they will know if they are reasonable. The regulations do not provide a formula but instead require a consideration of all the circumstances of the cancellations, including how much time is left on the contract, the practice of the relevant industry, and the value of goods retained or returned by the consumer. Any penalty may not undermine the value of the consumer’s right to cancel.
Indemnities – a risky business safeguard
Trisha Ramnarain, Associate and Jessica Petersen, Candidate Attorney, Deneys Reitz
The Eastern Cape high court recently considered the enforceability of an indemnity signed by a participant in an adventure race. Joy Duffield fell from a zip-wire slide strung from the top of a scaffold platform to ground level (‘a foefie slide’) while taking part in a school’s corporate adventure race. She was injured and sued Lillyfontein School and the other three defendants, who were the organisers of the race. The defendants unsuccessfully tried to rely on a written disclaimer because it was badly worded.
In Duffield v Lillyfontein School and Others, the indemnity form read:
I, Joy Duffield, acknowledge that I am aware that the Kempston Adventure Race involves a number of potentially hazardous activities … and although stringent safety measures will be in place, the risk of personal accident or injury cannot be completely excluded. … I accordingly hereby undertake and agree to indemnify the organisers, sponsors, Lilyfontein School and any individual involved in assisting with the organisation against any liability and against any/all proceedings, claims, damages, interests, costs and/or expenses which may result from any accident or injury to myself or my sports equipment.
Indemnity clauses are construed restrictively. Joy Duffield’s indemnity was subject to the understanding that the defendants would, for their part, take all necessary measures in order to reduce such risk by ensuring that stringent safety measures would be in place. The Court found that in order to rely on the indemnity, the defendants would have to prove that stringent safety measures were, in fact, in place. The matter was adjourned to a later date in order for this issue to be determined.
With the advent of the Consumer Protection Act, such indemnities will be subject to even greater restrictions. Suppliers and consumers are precluded from contracting on terms which are unfair, unreasonable or unjust to the consumer. Any agreement or contractual term that is excessively one-sided in favour of any person other than the consumer, or that is so adverse to the consumer as to be inequitable, is regarded as unfair, unreasonable or unjust. Such an indemnity clause will be void.
However, the Act does allow for the inclusion of fair indemnity clauses in agreements between suppliers and consumers in certain circumstances. But those seeking the protection of indemnities will need to draw the indemnity to the consumer’s attention at the negotiation stage, or at least prior to concluding the contract, in a conspicuous manner; explain the nature and effect of the indemnity in plain language; and give the consumer sufficient time to consider, understand and accept such a clause.
Finally, the Act confirms the common law position that any term which limits or exempts a supplier from liability for loss suffered by the consumer due to the supplier’s gross negligence or that of its agents is void.
Indemnities should therefore be worded carefully, with due regard to potential conditions or obligations that they may impose, and to the strict requirements of the Act.