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Refunds for Defective Goods

Refunds for Defective Goods

A recent Supreme Court of Appeal (“SCA”) decision provides some insight into the approach of the Court regarding consumers receiving refunds for defective goods.

In Motus Corporation (Pty) Ltd and Another v Wentzel, Wentzel purchased a new entry level car from a dealership.  The transaction was financed by a bank.  Her problems with the vehicle began whilst it was still on the showroom floor!  Her complaints about alleged defects in the car were numerous.  On three occasions, she took the car to the dealership’s service department, which conducted repairs free of charge.  However, she continued to have problems and complaints, so the dealer principal offered to take back the vehicle as a trade-in (at book value) so that she could purchase a different model car.  Wentzel did not qualify financially for that arrangement.

She approached the Motor Industry Ombudsman of South Africa (MIOSA) for assistance – she requested a full refund for the car, alternatively a car which could be completely repaired.  MIOSA would not assist her, so she approached the courts. She succeeded in the High Court where the dealership and its parent company were held jointly and severally liable for the total purchase price and finance charges for the vehicle and were ordered to pay Wentzel’s costs on an attorney and client scale.  On appeal to the SCA, the High Court order was set aside with no order as to costs.  In effect, Wentzel was required to keep the car and to continue to pay it off in terms of her arrangement with the bank.

The SCA touched on three key issues regarding consumers who want refunds for defective goods:

  1. Must a consumer exhaust all the remedies referred to in Section 69 of the Consumer Protection Act 68 of 2008 (“the Act”) before they may approach a civil court?

Section 69 provides for referring a matter to the National Consumer Tribunal, an appropriate ombud, the consumer court, alternative dispute resolution, filing a complaint with the National Consumer Commission and “approaching a court with jurisdiction over the matter, if all other remedies available to that person in terms of national legislation have been exhausted”.  The section, which is couched in permissive language and wherein remedies are couched as alternatives, does not create a clear hierarchy of remedies.

The Court did not hear full argument on the matter, so the issue was not finally resolved.  However, the Court noted that section 69 of the Act should not be read lightly as excluding the right of consumers to approach the court in order to obtain redress.  Section 34 of the Constitution guarantees the right of access to courts. The Court stated that, “…there is no apparent reason why [consumers] should be precluded from pursuing immediately what may be their most effective remedy. Nor is there any apparent reason why the dissatisfied consumer who turns to a court having jurisdiction should find themselves enmeshed in procedural niceties having no bearing on the problems that caused them to approach the court.”.

  1. When is a consumer entitled to a refund in terms of section 56(3) of the Act?

The Court held that a consumer is entitled to a refund in terms of section 56(3) of the Act when all of the events referred to in that section have taken place. Section 56(3) provides that, “(i)f a supplier repairs any particular goods or any component of any such goods, and within three months after that repair, the failure, defect or unsafe feature has not been remedied, or a further failure, defect or unsafe feature is discovered, the supplier must (a) replace the goods; or (b) refund to the consumer the price paid by the consumer for the goods.”

To obtain a replacement or refund, Wentzel had to show, firstly, that the dealership had repaired the defective parts and, secondly, that within three months after the repairs the defects had not been remedied or that a further failure was discovered.  Although section 56(3) requires a further defect to be “discovered” and not “reported”, the Court was of the view that a consumer is required to report further defects to the supplier which manifest themselves within three months after the repair of the vehicle as such reporting is necessary for the purposes of enforcing the warranty provisions.

Wentzel was not entitled to a refund because she did not report further defects to the dealership’s service department after the repairs which had been conducted by them.  Although she had discussed further defects with the dealership, this had been done in a different context and for a different purpose – when she had gone to the dealership to discuss the possibility of replacing the vehicle with another model.

  1. What would be the amount of the refund?

The Court found that, even if Wentzel had been entitled to a refund from the dealership, she would not have been entitled to the amount which she had agreed to pay to the bank in terms of her agreement with the bank (which included finance charges). The maximum amount of the refund would be the amount which was paid by the bank to the dealership on her behalf.  Furthermore, the dealership would have been entitled to deduct a reasonable amount for the use of the vehicle during the time that it was in her possession, a period of more than 18 months.

In conclusion, this case offers hope to consumers who want to approach a civil court for redress.  It is also a stark warning that a purchaser of a new car should report any defects in the car to the service department of the dealership (and not a salesperson); preferably in writing.  The amounts of any refund should be determined so as to be fair to both parties.

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