Warranties and the CPA

How does a warranty work? What are your rights as a consumer? You know your rights, how do you enforce them?

Warranties on items and services seem designed to confuse consumers, and protect suppliers, often more than seems fair. In this his article, let’s focus on the consumer and supplier relationship, with the applicable remedies available to a consumer where rights, in terms of the section 56 and 61 of the Consumer Protection Act, No. 68 of 2008 (CPA), have been infringed.

A consumer is a person (natural or juristic) to whom particular goods or services are marketed in the ordinary course of the supplier’s business; or (equally important) a person who has entered into a transaction with a supplier in the ordinary course of the supplier’s business, unless the transaction is exempt from the CPA. The minister of Trade and Industry published the threshold at R2 million and the CPA will not apply to transactions where the consumer is a juristic person whose asset value or annual turnover exceeds this threshold at the time of the transaction. A supplier is any person who markets any goods or services.

Let’s look at a practical example to explain the application of the CPA, from the identifying of a right to its enforcement by the consumer.

S (supplier in the position of a distributor) supplies amongst others diesel filters to R (supplier in the position of a retailer). The diesel filters are covered by a warranty in terms whereof S specifies that any liability in and to the diesel filter will only cover R and no further parties. C (consumer in the position of the general public) purchases one of S’s diesel filters from R. C has the diesel filter professionally installed by a diesel mechanic days after the purchase of the filter. Two weeks after the filter has been installed and C is on his way to work, diesel showers from his vehicle and the diesel on the tar surface causes a loss of traction and C to lose control over his vehicle and he collides with a lamp post at the side of the road. C’s vehicle is written off. After closer inspection it is confirmed that the diesel filter fitted on C’s vehicle was defective and this caused the diesel leak and the subsequent collision. After the collision it has been established that the failure of the specific brand of diesel filter was not an isolated incident and that S have received numerous complaints regarding the diesel filter.

What rights are available to C in these circumstances with regards to the recovery of his damages? It should be noted that R will enjoy the same protection as C under the CPA as long as its asset or annual turnover does not exceed R2 million.

The rights conferred upon a consumer in terms of the CPA are in addition to any other rights that a consumer has in terms of existing law. C purchased the diesel filter on the understanding that it was in good working order and C will have the right to recover his damages from R on the ground of breach of contract. C may not be able to also hold S liable for his damages as no nexus exist between C and S in the above scenario and the relationship between them will be governed by the terms of the diesel filter’s warranty. C thus has the option to elect whether he wants to claim in terms of the CPA or existing law.

If C elects to claim in terms of the CPA, S will not be able to legally enforce the terms of the limitation clause in the warranty against C, as precluded by section 48 of the CPA. Section 48 prohibits unreasonable contract terms which, inter alia, include terms which require consumers, or other persons to whom any goods or services are supplied on behalf of the consumer, to waive any rights; assume any obligation; waive any liability of the supplier on terms that are unfair, unreasonable or unjust, or impose any such terms as a condition of entering into a transaction. C will automatically have the right of recourse against both R and S as set out herein later.

In terms of section 61 of the CPA, C will be able to hold the producer or importer, S or R liable for any harm caused, wholly or partly, as a consequence of supplying the diesel filter that has been classified as defective or unsafe, irrespective of whether the harm caused by the defect resulted from any negligence on the part of the producer, importer, S or R. Harm is defined as the death of, or injury to any natural person; an illness of any natural person; any loss of, or physical damage to, any property, irrespective of whether it is movable or immovable; and any economic loss. The term harm has been defined to include an almost unlimited spectrum of ailments by including the term economic loss to any property. C will have the option to hold the producer, importer, S or R jointly and severally liable for the damage that he suffered. C does not have to prove negligence to be successful with a claim and merely has to prove the existence of the unsafe goods or product failure.

However, liability in terms of section 61 of the CPA does not arise if the defective condition of the diesel filter did not exist at the time it was supplied. If it is unreasonable to expect S or R to have discovered the unsafe product characteristic, failure, defect or hazard, in their role in marketing the goods to consumers, then the CPA sees it as equally unreasonable to apportion liability.

If it is unreasonable for R to have discovered the defect in the diesel filter, C will have no recourse against R in terms of the CPA and will have to enforce his rights against the persons remaining in the value chain and in our scenario this means S may be directly liable towards C notwithstanding any clauses contained in the product warranty.

Together with the claim for the damages, C will have the right to enforce the warranty in terms of section 56(1) of the CPA against the producer or importer, S and the R. C will have the right to elect whether the defective diesel filter should be repaired or replaced by R or S, or to have the purchase price refunded. Section 56 determines that R or S may not impose a penalty should C seek to enforce his rights.

If R has an asset or annual turnover value above the threshold it will not receive protection in terms of the CPA in the same way that it shields C. The law of contract will govern relationships between R and S, and the negotiation and the scrutinising of franchise, service level and supplier agreements remain the first line of defence for R. The dominant party, normally being in the position of the producer or importer or distributor, have the power in negotiating agreements and possible unreasonable terms may be inevitable for a retailer in the position of R. When negotiating agreements one of the clauses that needs to be identified and avoided as far as possible by a retailer in the position of R will be the indemnity of the dominant party which relates to harm in terms of the CPA. These indemnity clauses will only be enforceable between the contracting parties and will not be enforceable against consumers. Notwithstanding the existence of an indemnity clause in a franchise agreement, C reserves the right to seek recourse for harm directly from the producer or importer, S or R, jointly and severally. The dominant party may be found to be liable towards C for harm in terms of the CPA, however it may be able to recover any such losses from R in terms of an applicable indemnity clause. If indemnity clauses cannot be avoided in negotiations, suppliers have to ensure that the relevant liability insurance is in place.

The CPA has armed consumer rights in South Africa, but overconfidence created by the CPA is often extinguished by the drawn-out process of enforcement.

• The first port of call would be for C to approach R and/or S to enter into negotiations to settle a matter within the parameters of the CPA as a guide for settlement terms. If R and S refuse to enter into negotiations to settle the matter, C has a whole inventory of remedies to his disposal.
• Failing that, refer the matter to an alternative dispute resolution agent, who will attempt to resolve the matter. Any finding by the alternative dispute resolution agent may be made an order by the National Consumer Tribunal or the High Court if agreed thereto by the parties;
• Approach the National Consumer Tribunal, if permitted by the CPA.
• Next, it is on to the relevant industry ombud, after it has been determined that the specific ombud has jurisdiction over R and/or S. In our scenario the Motor Industry Ombudsman would have the jurisdiction to adjudicate the matter.
• Approach the consumer court of the province, if such court has been established;
• File a complaint with the National Consumer Commission in the prescribed manner and form.
• As a last resort, the consumer can approach the relevant court to resolve the matter.