New law could cost millions in product recalls

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.

New target

Previously product liability was limited to manufacturers of goods, but under the new definition manufacturers, importers, distributors and retailers are included.

"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," says 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."

Link law

Contrary to the current law where negligence is a requirement for liability, no negligence needs to be proved under the new Act. There just needs to be a causal link between harm and the defective product.

This introduces 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," says Marshall.

Toyota for example, which has made global headlines over its recall of cars with faulty accelerators, estimates that recalls will cost the company US$2 billion (R14.5 billion).

Toyota, fortunately, has liability insurance, although it is not known how far this cover extends.

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.

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.

Get protection

"South African companies can learn from this," says Marshall. "We are becoming more litigious as a society and consumers are more educated about their rights. Companies can't afford to wait until a liability action gets brought against them; they need to have protection in place now."

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.

A typical policy covers costs to inspect, withdraw, or destroy the product, as well as overtime and additional personnel costs.

It also includes expenses related to communication, such as advertising and media messaging, which is vital to restore confidence and maintain supply contracts and business relationships.

Loss control service

As South African manufacturers increasingly source ingredients, components and packaging from further afield, they have less control over the supply chain.

In light of this, Chartis provides a unique global loss control service where in-house experts check the supply chain and perform quality control, ensuring businesses receive sound goods.

This service aims to limit product recall and minimize claims.

"With goods originating from all over the world, including countries with different safety and quality standards, it is worth being properly covered," adds Marshall.

"Manufacturers and distributers need to make sure contractual agreements are in place to allow all parties to recover losses.

"The CPA is a paternalistic law designed to protect the man on the street and courts will be strict in interpreting liability. Rather let your insurance company protect you against liability costs."