A number of surprises, being unintended consequences of the Consumer Protection Act (CPA) have arisen, which will be explored in this and subsequent articles. Today I want to talk about why it is important to ensure the quality of your supplier is the best you can afford.
Liability of Each Supplier in The Supply Chain for Each Other
According to the new Consumer Protection Act, each supplier in the supplier chain is liable for each other in full, for the entire amount of the complaint/ summons issued against it.
It does not cost the complainant anything to lodge a complaint against any supplier in terms of the CPA. There are various Government bodies created for the CPA, the main body is the Consumer Commission.
To date, the Consumer Commission has received thousands of complaints since the CPA and its Regulations were first brought into operation on 1st April 2011. So the CPA is ignored at your peril.
An Example of Your Liability for a Bad Supplier
Let’s say a vagrant picks up a discarded plastic container from a rubbish dump to store his month’s supply of anti-retroviral pills. The container was used for something else that was sold at the local well known supermarket chain, but it has a clip-on lid and the vagrant thinks this would be ideal.
By him using this product to store his anti-retroviral pills he is now a Consumer in a Supply Chain. This particular Supply Chain would start from the manufacturer/importer of that plastic container and would go right down to this vagrant. Each of those Suppliers in that Supplier Chain would be jointly and severally and strictly liable one for the other. That is, each supplier pays in full for the damages incurred as well as costs incurred by their customers down the value chain. It is important to note money does not have to pass hands for a Consumer to be classified as such and therefore receive protection under the CPA.
Carrying on with our example… Unfortunately for the vagrant the lid falls off and he loses his monthly supply of anti-retrovirals because the container’s clip was defective. As a result he misses taking his drugs and becomes immune to that type of drug resulting in him developing full blown Aids. This wouldn’t have happened if the container had worked properly.
Each Supplier in The Supply Chain is Liable in Full
His case is picked up by the Consumer Commission and the local well known supermarket chain is successfully complained against / sued for the damages suffered by the Consumer vagrant using the faulty container. The supermarket chain pleads saying they didn’t manufacture the container and shouldn’t be held liable.
They also say the vagrant did not buy the container from them and thus they are not liable.
The Consumer Commission dismisses these arguments based on the new CPA and fines the supermarket up to 10% of its annual gross turnover or R1 million, whichever is the greater. It also holds the supermarket chain fully liable for all costs and directs it to compensate the vagrant (the Consumer), to pay all legal fees incurred by the Consumer Commission, and to change its business practices. A massive cost to the supplier as well as huge adverse effect on publicity.
Where Does The Liability End?
However based on the CPA the liability does not end here. The supermarket chain now sues its Supplier of the product and defective container. Using the CPA it wins its case for full compensation getting reimbursed for the 10% or R1 million fine, the compensation to the vagrant, and its legal fees for the Consumer Commission hearing. Considerable legal fees and expenses have been generated and time wasted in this second legal case.
That supplier of the product states that it did not manufacture the containers and using the CPA it sues the container manufacturer for all fines, compensation, and legal fees, incurring legal fees and expenses and time to get the matter resolved.
The container manufacturer examines the container and finds out the chemicals used in the container were defective. So it sues the company that sold them the chemicals, also incurring legal fees and expenses.
And so on, all the way up the supply chain until the guilty party has been found. By now the legal fees for each leg are added up and are not insignificant, let alone the fine and the compensation to the vagrant.
This article is contributed by Gavin Gow from Gavin Gow Inc Attorneys. He inter alia specializes in the new Consumer Protection Act (CPA), which came into operation on 1st April this year. He is one of the foremost experts in the new CPA in South Africa and consults to leading businesses across the country. He can be contacted at firstname.lastname@example.org or telephone: (031) 561-1011
This article was amended by Douglas MacGregor from SuppDex who can be reached at email@example.com
By requesting a SuppDex certificate from all suppliers you can see how well their existing customers rate their suppliers along 7 aspects of total quality. Tools like SuppDex can significantly reduce a company’s risk of contracting with a poor performing supplier, thus opening them up to the risk of litigation due to the CPA.