Both consumers and suppliers will need to keep their wits about them when dealing with defective goods when the Consumer Protection Act (CPA) is enacted on 1 April 2011. One of the ways in which the CPA is likely to significantly impact suppliers' businesses is the increased circumstances under which a consumer will be entitled to a refund.
Chris Charter, a director in the Competition and Regulatory Practice at Cliffe Dekker Hofmeyr business law firm explains, “Under common law, suppliers are not automatically required to refund a consumer if the breach can be remedied in another way. Currently, suppliers are thus generally free to decide whether to offer a refund to a dissatisfied customer, and many prefer to avoid the negative cash flow by offering to repair or replace defective products. In addition, many store warranties are limited to repairing defects. The CPA will impose stricter obligations as to when a customer is rightfully entitled to a refund.
Charter says that under section 55 of the CPA, every consumer has the right to goods that are of good quality, in working order, free of defects and reasonably suitable for the purpose generally intended. Goods of lesser quality may only be sold if the consumer has been expressly informed that the goods are offered in a specific condition and the consumer clearly accepts the goods.
“The requirement to specify the condition of the goods is more onerous than the current practice of "voetstoots" where a supplier is entitled to sell goods "as they are" without any liability to make good on any defects not specifically disclosed. According to the CPA, if, within six months of delivery, goods fail to meet the requisite quality standards, then the consumer is entitled to insist on a refund of the price paid for goods. Only where the consumer does not request a refund may the supplier either repair or replace the goods,” he notes.
“Thus,” says Charter, “suppliers no longer have the right to limit redress to repairs or replacement and will have to take the risk of statutory refunds into account in cash-flow projections. Since the CPA appears not to afford the consumer the right to choose replacement over repair, many consumers may insist on a refund rather than take a chance on a repair.”
Charter says that where goods are repaired, the statutory warranty on the goods as a whole is extended for a further three months. Thus, any repair made after three months effectively extends the warranty beyond the initial six month period. Any breach of the warranty in this three month period will require the supplier to replace the goods or offer a full refund of the original purchase price.
“Interestingly, the consumer in this case does not have the express right to demand a refund, and it is the supplier's prerogative to replace rather than refund.
“It is thus conceivable that where a consumer does not elect to be refunded for goods that prove defective within six months and the supplier elects to repair the goods rather than replace them, any further defect arising within three months does not give rise to the automatic right to a refund and the consumer may have to be satisfied with a replacement.”
That said, the replacement goods would again be subject to the six month statutory warranty, and a consumer twice bitten will have the opportunity to opt for a refund if the replacement goods also prove defective.
Charter notes that it would also appear that the three month warranty that applies to any goods under repair serves to trump the initial six month warranty, so that if a defect unrelated to the repair arises within the ensuing three month period, the goods must be replaced or refunded, without the option of repair. Oddly, if the repair holds for three months, and any other defects become apparent only after the expiry of three months but while the initial six month period is still running, then the right to demand a refund re-materialises, along with the suppliers right to effect a repair if the consumer does not demand a refund.
“All of the above conditions apply in addition to any warranty provided for as a matter of supplier policy or agreement and this can render the warranty and returns process quite complex,” Charter adds.
Notes to editors:
• Cliffe Dekker Hofmeyr is one of the largest commercial law firms in South Africa with some 115 directors/partners and 250 qualified lawyers located at offices in Johannesburg and Cape Town.
• Cliffe Dekker Hofmeyr lawyers specialise in services covering the complete spectrum of business legal needs in 11 core areas of practice. The firm also has dedicated sector-led teams consisting of lawyers with experience in a wide range of industries and the public sector.
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• DLA Piper is an international legal practice with over 3,500 lawyers located in 30 countries and 69 offices throughout Asia, Europe, the Middle East and the US.
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Written by Chris Charter, Director, Competition and Regulatory Practice, firstname.lastname@example.org and Andrea Collocott, Head: Marketing and Communication email@example.com at Cliffe Dekker Hofmeyr