Member Article

I once heard that Chinese architects have a curious, but effective, way of designing public squares. First, they will sow seeds over the surface of the square and wait till the grass grows. Then, they will let people walk around the square for a period of time. Finally, the stepped areas will help the architects decide which paths across the square to pave.

However, sometimes, law-makers should anticipate in paving the way and guiding people through “the safest
paths across the park”. This is the case of Consumer Protection laws in Argentina[1] where legal protection is recent, and still not properly enforced[2], but it constitutes a significant step towards leveling the play in the market relationships.

Undoubtedly, the risk of a consumer[3] that doesn’t know how to act in the market is larger in situations where he can get harmed, for example, by purchasing unsafe products or defective merchandise. In this regard, and unlike the classical system[4] that only reacted once damage had occurred, the Argentine Consumer Protection Act (CPA) has established some preventive norms for product liability.[5]

First, the CPA applies in Argentina a product liability system that sets forth the strict, joint and several liability of all the participants in the different stages of the production and marketing,[6] for damages arising from the risk or defect of products or services[7].

Second, the Act requires specific information[8] in relation to products or services which may be dangerous to the health or safety of consumers (Section 6). Moreover, it specifically includes a safety obligation to protect consumers’ health (Section 5) by trying to ensure that products and services can only be offered to the consumer when, under foreseeable and normal conditions of use, they will not be hazardous to human health and physical integrity.[9]

Furthermore, when defective, used or reconstituted products are publicly offered to undetermined potential
consumers, this condition should be clearly and accurately stated (Section 9). Last but not least, with regard to hazardous products or services the CPA not only imposes an information obligation, but also a duty of the supplier to place them on the market in accordance with the mechanisms and norms which guarantee consumer’s safety.[10]

However, the manufacturer or the seller (or any intermediary) is subject to strict liability standards. Showing that the manufacturer complied with all the applicable laws and regulations governing the development, manufacturing, licensing, marketing and supply of
the product or that he was not negligent, is insufficient to excuse his liability when the consumer suffers an injury due to the defective or hazardous nature of the product. To avoid liability, the manufacturer, or seller, must prove that the cause of the injury is unrelated to him.[11]

There is no sharing of liability in the Argentine legal system. Although, the general principle established in our procedural code is that the plaintiff bears the burden of proof, when the damages for defective products are sought, the courts[12] take into consideration that the manufacturer is in a better position than the consumer to produce technical evidence.[13] Accordingly, they shift to the manufacturer or seller the burden of proving that the product is not defective.[14]

Furthermore, the CPA establishes that exemption clauses and clauses changing the burden of proof are illegal. In
particular, the Act mentions two specific types of unfair clauses, namely, those limiting liability for damages (Section 27 letter a.), and those which change the burden of proof to the detriment of the consumer (Section 37 letter c.).[15]

Although there is no general obligation to recall[16] products, the CPA sets forth that if a supplier has knowledge or becomes
aware of a defect or the product’s dangerousness, it must immediately communicate such circumstance to the enforcement authorities[17] and to the consumers by means of advertising or sufficient public announcements.[18]

The problem is that, in this particular matter, there is a legal vacuum because  neither the CPA nor its regulatory or supplementary statutes specify or develop the way how to carry out a recall. This legal uncertainty, suggests that the Davids and Goliaths of the market need a hand to lead them across the square.

In any case, punitive damages were introduced in our legal system by amendment of the CPA in April 2008, so consumers can now request judges to impose punitive damages to the suppliers who breach their legal or contractual obligations.

Obviously, corporations that become aware of a defect in their products will be less reluctant to make a full disclosure of information related to the defect if the cost of the failure to warn is high. The punitive damages cannot exceed AR$ 5,000,000 (approximately
US$ 1,300,000) in each of the claims, and they must be paid directly to the consumer.[19]

Now, down to earth, lets imagine a car. It is possible that from the thousands of parts that an automobile is made of one of the components may show some kind of defect. Liability risks can be mitigated if the automobile company informs Consumer Defense authorities and publicly notices consumers. On the other hand, it is a good opportunity to show corporate responsibility and fidelity with clients by taking care of them.[20] 

Nevertheless, when a company decides to make a recall, it will be publicly admitting the existence of a defect in some of its products. Consequently, the company would be subject to assume liability towards its clients for the damages arising from the risky or
defective products. In other words, the company would have to stand up to it and would not be able to deny any past or potential claim as regards the disclosed defect.

To reconcile the tension between these different interests and encourage responsible conducts maybe like Chinese architects, its time to find the stepped areas across the lawn.

[1] Argentina has specific consumer defense legislation since 1993 when the National Congress passed Act 24.240 (now amended).

[2] Cavalli Romina y Rojo Martín: “Teaching Consumer Law in a developing country: the case of Argentina”;
Houston, USA, May 19-20, 2006.

[3] In Argentina, consumers are individuals or companies that acquire or use goods or services as end-users, for free or not, and for their own benefit or for the benefit of their family or social group. Any

[4] Product liability was originally exclusively governed by the Civil Code’s general regime for damages of Argentina. Contractual relationships are governed by the principle of good faith (Section 1198 of the
Argentine Civil Code), which implies a duty of guarantee on the quality and harmlessness of the product. In turn, tort liability is governed by the provisions of Section 1113 of the Argentine Civil Code, which establishes a
strict liability regime for all damages caused by the risks or faults of the product because there is an obligation not to harm another person and to indemnify whenever such harm is done.

[5] Stiglitz A. Gabriel: “Consumer Law in Argentina and MERCOSUR”, Journal of Consumer
Policy, Volume 17, Number 4, Springer Netherlands, December 1994.

[6] Market line consists of the producer, the manufacturer, the importer, the distributor, the supplier, the seller, and the owner of the trademark.

[7] Section 40 of the CPA.

[8] The right of the consumer to obtain adequate information allowing the making of well-founded choices has been recognized worldwide in the United Nations Guidelines on Consumer Protection. The Argentine CPA obliges
sellers to give to the consumer, in a clear and objective form, truthful, detailed, effective, and sufficient information regarding the most important characteristics of the products and services (Section 4).

[9] Stiglitz A. Gabriel: “Consumer Law in Argentina and MERCOSUR”, Journal of Consumer
Policy, Volume 17, Number 4, Springer Netherlands, December 1994.

[10] Furthermore, the Act allows for legal actions aiming at preventing consumers’ interests from being threatened (Section 52). Idem.

[11] Denubie Sanchez Luis and Armando Miguel: “Argentina. Product Liability 2007”, The
International Legal Guide to Product Liability, Global Legal Group Ltd., London, 2007.

[12] In the last years the Courts have progressively favoured the criterion of the dynamic
burden of proof, and to consider that the party who is in the best position to prove should be proactive in submitting evidence. The last case I found was “Ardiles, Gustavo A. v. Fravega S.A. y otros” of the Civil and Commercial Court of Appeals of Cordoba, Courtroom number 7, April 29^th,2010.

[13] They are also the ones who have the cheapest cost to insure themselves.

[14] Belgrano,Nestor and Caputo Leandro : “Argentina. Product Liability 2005”, The International Legal Guide to Product Liability, Global Legal Group Ltd., London, 2005.

[15] Idem 5.

[17] The Commerce and Industry Secretariat, an administrative agency of the Ministry of Economy, enforces the CPA, inter alia, imposing penalties in the event of violations.

[18] Section 4 of Decree 1798/94 that regulates the CPA.

[19] Molinario Alberto D. and Castelli Leandro : “Argentina. Product Liability
201-”, The International Comparative Legal Guide to Product Liability, Global Legal Group Ltd., London, 2010.

[20] Das Narayandas, a professor of Harvard Business School who visited Argentina said that South American consumers look for a long term relationship with businesses. (Garcia Bertelt Mercedes: Los clientes fijan las reglas”, La
Nación, June 26, 2005 at 23.