Johannesburg - The Consumer Protection Act (CPA), which comes into effect later this year, will expose retailers to liability actions, insurance group Chartis South Africa said on Wednesday.
Product recalls were likely to increase substantially, the company said in a statement.
"This is because the new act casts a much wider legal net for product liability and introduces strict product liability for suppliers - defined by the CPA as any business that markets goods and services."
Previously, product liability was limited to manufacturers of goods, but the new definition includes manufacturers, importers, distributors and retailers.
"This wide definition means that retailers will be the ones targeted by disgruntled buyers, because they are closer to the consumer than suppliers further down the line," said Keith Marshall, regional manager, liabilities group at Chartis South Africa.
"Even if the fault is not theirs, they may still have to defend themselves against the action, which could be hugely expensive."
Contrary to the current law where negligence is a requirement for liability, no negligence needs to be proved under the new act.
Product recalls
"There just needs to be a causal link between harm and the defective product," Marshall said.
This introduced the possibility of a rise in product recalls.
"One of the biggest threats to a company's bottom line is product recall.
"The costs of recalling a product can be astronomical and this, in addition to reputational damage, could force a business to close its doors."
He cited the example of car manufacturer Toyota.
"Toyota has made global headlines over its recall of cars with faulty accelerators, with estimates that the recalls will cost the company $2bn (R14.5bn)."
Toyota fortunately had liability insurance, although it was not known how far this cover extended, Marshall said.
"The Toyota case has been a wake-up call for companies in Japan, where the country's first product liability law was passed only in 1994."
He said that ultimately it was Toyota's expansion overseas that exposed it to liability actions as far-flung supply chains made it harder to control quality and it encountered more litigious consumers.
"South African companies can learn from this," Marshall said. "We are becoming more litigious as a society and consumers are more educated about their rights."
He said companies could not afford to wait until a liability action was brought against them - they needed to have protection in place.
"Product recall policies generally cover the key expense areas and also provide the expertise of independent recall consultants to guide the company through the critical first few weeks of a product recall," Marshall said.
A typical policy covered costs to inspect, withdraw, or destroy the product, as well as overtime and additional personnel costs.
It also included expenses related to communication, such as advertising and media messaging, which was vital to restore confidence and maintain supply contracts and business relationships, Marshall added.
- Sapa