Legal Articles

download this article | print this article

The Consumer Protection Act Simplified August 2011


By Maria D’Amico of D’Amico Attorneys

Following several false starts, the Consumer Protection Act, Act 68 of 2008 came into effect on 31 March 2011. Its impact on the conduct of business will be far reaching. Indeed, it is fair to say that it will fundamentally change the way we do business in South Africa. This seems to worry some entrepreneurs but their concerns are largely unfounded. Those who take the trouble to familiarise themselves with the requirements of the Consumer Protection Act (CPA) and are prepared to conduct business in an ethical manner will have little to worry about.

Purpose of the CPA

The CPA is intended to protect consumers from unconscionable, unfair, unreasonable, unjust or otherwise improper trade practices as well as from deceptive, misleading, unfair or fraudulent conduct by suppliers. It applies to practically all transactions involving consumers and can be described as a Consumer Bill of Rights. The CPA’s implementation places South African consumers firmly into the group of most protected consumers worldwide.

Consumers who feel that they have been unfairly treated by a supplier can lodge a complaint with the National Consumer Commission (Commission), who may deal with it, refer it to the Consumer Protection Tribunal (Tribunal) or to a commercial court. Should a supplier be found guilty, the tribunal can impose a fine of up to 10% of the supplier’s annual turnover or R1 million, whichever is the greater. Scary stuff indeed but easy to understand and apply and as mentioned previously the suppliers who apply the principles of the CPA should have little to worry about.

Applicability of the CPA

I have already said that the CPA applies to transactions with consumers as defined in the CPA. This raises the question: who is a consumer?

1 Definition of consumers

1.1 Persons to whom goods or services are marketed in the ordinary course of the supplier’s business based on an agreement between a supplier and a consumer other than a franchise agreement;

1.2 Franchisees operating under a franchise agreement.[1]

 

2 Transactions that are exempt from the CPA

The CPA does not apply to all business transactions. Some of the transactions that are specifically exempt are listed below.

2.1 The supply of goods to the state;

2.2 Where the consumer is a juristic person whose asset value or annual turnover equals or exceeds R2 million;

2.3 Credit agreements;[2]

2.4 Employment agreements; and

2.5 Collective bargaining agreements.

 

3 Exemptions in respect of existing agreements

The CPA does not apply to existing agreements if:

3.1 The marketing of the goods supplied under the agreement was done prior to the CPA’s effective date; or

3.2 The transaction/agreement was signed prior to the CPA’s effective date; or

3.3 Goods were supplied prior to the CPA’s effective date.

Franchise agreements and related legal issues

For the first time in the history of franchising in South Africa, legislation deals specifically with franchising. Franchise agreements are governed by the CPA, with the franchisor deemed a supplier and the franchisee a consumer.

4 Validity of the franchise agreement

For a franchise agreement to be valid, it must:

4.1 Be in writing and signed by or on behalf of the franchisee. This has been customary anyway but now it has become a legal requirement;

4.2 Have the following statement inserted on top of the first page: A franchisee may cancel a franchise agreement without cost or penalty within 10 business days after signing such agreement, by giving written notice to the franchisor;

4.3 Contain all prescribed information reflected in the regulations to the CPA;

4.4 Be compiled in simple, plain and understandable language.

This listing is neither exhaustive nor does the drafting of a franchise agreement lend itself to a DIY-approach. The involvement of a competent legal practitioner is necessary to ensure that the agreement covers every conceivable angle and will stand up to possible legal challenges.

5 The disclosure document

5.1 Disclosure documents are nothing new. For the best part of the past two decades, members of the Franchise Association of South Africa (FASA) were compelled to issue them to prospective franchisees. Unfortunately, FASA lacked the necessary statutory powers to enforce compliance by non-members. This led to individuals entering into franchise arrangements they had not fully understood and brought franchising into disrepute.

5.2 The CPA makes the issue of a disclosure document compulsory for all franchisors. Prospective franchisees must receive a disclosure document at least 14 days before they are permitted to sign a franchise agreement and the minimum information it must contain is reflected in the regulations to the CPA.

6 Creating clarity regarding cooling-off periods in franchising

6.1 It is important to remember that the 14 days cooling-off period counted from the date on which the prospect receives the disclosure document and the 10 business days cooling-off period counted from the date the new franchisee signs the franchise agreement are independent from each other, and they may not run concurrently.

6.2 In practice, this will have the effect that no bank will release funding and no franchisor will commence with any of its obligations arising from the franchise agreement, namely the initial training and/or site selection prior to the expiry of the 10 business days cooling-off period.

7 Unfair discrimination

The CPA makes it an offence for a supplier to unfairly discriminate against anyone. If, for example, a supplier would grant exclusive access or assign priority of supply to any person or category of persons and/or charge different prices to different categories of consumers it would be seen as a contravention of the CPA.

8 Direct marketing

With the introduction of the CPA, direct marketing has become highly regulated. What follows are some of the issues direct marketers need to consider to avoid falling foul of the legislation.

8.1 No unwanted marketing communications

8.1.1 A consumer has the right to refuse acceptance of any marketing communication. This can be effected in one of two ways:

· Marketing messages sent, for example, via email or sms must have an opt-out function consumers can use at no cost to themselves.

· Consumers can request to be registered on a website, to be known as the Uniform Resource Locator. Such requests take effect 30 days after registration; and from the 31st day onwards, direct marketers are bound to abide by them. (At the time this article was compiled, the website was not operational but this is currently being addressed.)

8.1.2 The CPA also places restrictions on the times during which consumers may be contacted by direct marketers. Consumers may not be contacted:

● During weekdays between 20h00 and 08h00 the next day;

● On Saturdays not before 09h00 or after 13h00; and

● On Sundays and public holidays.

8.2 Cooling-off period

8.2.1 A consumer who has purchased goods arising from a direct marketing transaction enjoys a 5-day cooling-off period. During these 5 business days the consumer may return the goods without having to give any reason and is entitled to a full refund;

8.2.2 The direct marketer is obliged to inform the consumer of this right;

8.2.3 Refunds must be effected within 15 business days;

8.2.4 This cooling-off period does not apply to in-store sales.

9 Bundling

Consumers have the right to select suppliers. This notwithstanding, suppliers have the right to demand that consumers purchase goods from the supplier or a designated third party provided that the supplier:

9.1 Is able to demonstrate that the convenience to the consumer in having these goods bundled outweighs the limitation on the consumer’s right of choice;

9.2 Can show that the bundling of these goods results in economic benefit for the consumer; or

9.3 Offers bundled goods separately and at individual prices. This applies especially to branded goods.

10 Fixed term agreements

10.1 Duration of agreements

10.1.1 This does not apply to a juristic person irrespective of its net asset or annual turnover;

10.1.2 Fixed-term agreements may not exceed 24 months unless the supplier can show that the longer period results in a financial benefit for the consumer.

10.2 Early termination of agreements

Consumers are entitled to terminate agreements at any time by giving the supplier 20 days’ notice in writing. However, the supplier would then be entitled to levy a reasonable charge for early termination.

10.3 No automatic renewal

No automatic renewal may be imposed on the consumer at the end of the agreement period. Unless the consumer agrees specifically to a renewal of the contract, the contract may continue on a month-by-month basis until the consumer decides otherwise.

General consumer rights

11 Official languages

The National Consumer Commission uses English and isiZulu as its official languages.

12 Instruction manuals and similar publications

The supplier is obliged to provide instruction manuals that are written in plain language and can easily be understood. Poor translations from foreign languages are not acceptable.

13 Pre-authorisation of repairs / maintenance services

The supplier must provide the consumer with an estimate of the cost of undertaking repairs or maintenance work. Should the item not be in the supplier’s possession then the supplier must still provide an estimate of costs. The work must not commence prior to the consumer having pre-authorised the quote.

Should the supplier wish to charge for furnishing a quote then this must be disclosed in advance and the consumer must agree to this.

14 Delivery times must be adhered to

Suppliers are under an obligation to deliver goods at an agreed date and time. Should no specific times have been arranged then delivery must be effected within a reasonable period.

15 Opting out of a signed agreement

A consumer has the right to cancel a signed agreement if:

15.1 The agreement arose as a result of a direct marketing initiative, and the consumer cancels within 5 business days; or

15.2 The consumer did not have an opportunity to examine the goods before taking delivery; or

15.3 The goods are unsuitable for an intended purpose and this purpose was clearly communicated to the supplier.

Pricing and labelling of goods

16 Pricing of goods

Suppliers must clearly mark the price of goods. This can be done either by labelling of the goods or by displaying a price on the shelf were the goods are displayed, as long as an average consumer is likely to be able to identify the price for the item.

Prices for goods on display can lawfully be changed provided that the label showing the new price covers the label showing the old price completely.

17 Labelling of goods

This provision comes into full effect on 1 October 2011. However, the CPA already requires that goods are labelled to disclose prescribed information as reflected in the regulations. Additional requirements may be added before or after the implementation date.

As far as this is applicable, it will be especially important to ensure that the supplier discloses the following information:

17.1 Country of origin;

17.2 Goods have been genetically modified;

17.3 If goods bear a trademark but have been imported through grey market channels;[3]and

17.4 If goods are reconditioned, rebuilt or remade.

18 Sales records are compulsory

The CPA provides that comprehensive written sales records must be generated.

The record must contain the following information:

18.1 Supplier’s full name, registration number and address;

18.2 VAT registration number;

18.3 Description of the goods supplied;

18.4 Unit price, quantity supplied and the resulting sub-total before taxes;

18.5 Applicable taxes; and

18.6 Total price.

19 Identification of supplier personnel

Direct marketers, delivery personnel, installers and repairers must be clearly identifiable. They must either visibly wear or display identification or provide suitable identification at the consumer’s request.

20 Consumer’s right to return goods

The CPA makes provision for various scenarios. The consumer has the right to return goods and receive a full refund if he/she:

20.1 Exercises his/her right to cancel a transaction resulting from a direct marketing transaction; or

20.2 Was not given a proper opportunity to examine the goods before delivery took place; or

20.3 Receives goods that are either not the exact goods ordered, are supplied in addition to the ordered quantity or have not been ordered at all (unsolicited goods); or

20.4 Finds that the goods do not satisfy a particular purpose that has been communicated to the supplier. Such goods must be returned to the supplier within 10 days from date of purchase.

In all these cases, the supplier is compelled to refund the consumer the full price paid less a reasonable deduction for items such as opened packaging.

Questionable selling tactics

The CPA prohibits certain questionable selling tactics; some examples follow:

21 Bait marketing

Bait marketing occurs when a supplier advertises goods at very attractive prices without having adequate stock at that price. When a consumer arrives at the store, he/she is told that the attractively priced item is sold out and is offered similar items at a higher price. The CPA prescribes that if an item is advertised at a low price, the quantity of the items available at that price must be stated. The onus is on the supplier to provide proof that the advertised quantity has in fact been sold.

22 Referral selling

The act prohibits the offering or granting of incentives to consumers in return for providing the supplier with the names of prospective consumers.

23 Misleading statements

23.1 Suppliers may not make any false, misleading or deceptive representations;

23.2 Suppliers may not use exaggeration, innuendo or ambiguity;

23.3 Should a consumer be under a clear misapprehension about a product then the onus is on the supplier to correct it.

24 Over-selling and overbooking

If a supplier cannot deliver on the agreed date any amount paid upfront by the consumer must be refunded in full. However, this section does not apply to franchise agreements or to consumer agreements where the goods are made to order for the consumer.

25 Unsolicited goods

The CPA makes provision for dealing with the delivery and acceptance of unsolicited goods. The consumer is under no obligation to pay the supplier for unsolicited goods if:

25.1 Goods were left without payment being required or an arrangement for payment having been made. (This practice is known as the “negative marketing option;

25.2 The quantity of goods supplied is in excess of the order; and/or

25.3 The goods delivered differ from those that were ordered. In this instance, the consumer has the option to keep the goods and pay for them. Alternatively, the consumer has the right to instruct the supplier to collect the unwanted goods but must not prevent any reasonable action by the supplier to do so.

Issues surrounding sales agreements

26 Supplier’s good faith

A consumer is entitled to assume that the supplier has the right to sell the goods on offer.

27 Agreements must be fair and reasonable

Section 48 of the CPA prohibits unfair, unreasonable or unjust contract terms. More specifically,

27.1 Agreements must be fair and reasonable in respect of price and contract terms;

27.2 May not be one-sided against the consumer; and/or

27.3 May not cause the consumer to waive any rights. For example, voetstoets clauses are no longer permitted in business contracts but are permitted in contracts pertaining to the sale of immovable property.

28 Obligation to point out certain contract terms

The supplier is obliged to draw the consumer’s attention to terms and conditions which have the effect of:

28.1 Limiting the risk or liability of the supplier or any other person;

28.2 Creating the assumption that the consumer assumes a specific risk or liability;

28.3 Imposing an obligation on the consumer; and/or

28.4 Constituting the acknowledgement of any fact by the consumer.

29 Courts have the power to modify agreements

Should an agreement be void then section 52 of the CPA comes into effect. It empowers courts to ensure fair and just conduct, terms and conditions by making an order:

29.1 Severing any part of the relevant agreement or altering it to the extent required to render it lawful; or

29.2 Declare the entire agreement void; or

29.3 Make any further order that is just and reasonable in the circumstances.

30 Changes do not necessarily create new agreement

If a supplier makes changes, deferrals or waivers to an existing agreement or substitutes goods in accordance with the provisions of the CPA then this does not mean that a new agreement has been created.

31 The plain language requirement

All legal agreements, notices and other documents must be drafted in plain simple and understandable language. Latin terms, ambiguous terms and terms that could easily be misunderstood by an average consumer must be avoided.

32 Product warranty

32.1 Implied warranty of quality of goods supplied

Section 56 contains an implied provision that the producer or importer, the distributor and the retailer each warrant that the goods comply with reasonable standards. Within 6 months from date of purchase, the consumer is entitled to return defective goods to the supplier at the supplier’s cost. The consumer has then the option to demand that these goods be repaired, replaced or a full refund is given.

32.2 Warranty on repaired goods

Every repair carries a minimum warranty of 3 months on parts and labour. This warranty runs concurrently with any warranty given by the supplier or any other party in the supply chain. It becomes void if the consumer has misused or abused the repaired goods, or if the breakdown is the result of ordinary wear and tear.

33 Product liability

33.1 Compulsory hazard warning

33.1.1 The supplier of hazardous or unsafe goods must bring to the attention of the consumer the following:

Any risk of an unusual character or nature;

Any risk of which a consumer cannot be reasonably expected to be aware;

33.1.2 Suppliers must display warning notices and print them on the packaging of the goods.

33.2 Liability for harm caused by goods

33.2.1 The producer, importer, distributor and retailer of any goods are jointly liable for any harm that arose as a consequence of any of the following instances:

The supply of any unsafe goods;

The supply of goods that suffer product failure or defect; and/or

Inadequate instructions or warnings provided regarding the hazards arising from or being associated with the use of the goods.

33.2.2 Liability exists regardless of whether the harm was the result of negligence on behalf of the producer, importer, distributor or retailer of the goods or not.

33.2.3 For the purposes of the provisions contained in section 61 of the CPA, the entity that supplies, installs or provides access to the goods is regarded as the supplier of these goods to the consumer.

33.2.4 If, in a particular case, more than one person is liable in terms of this section, their liability is joint and several.

33.2.5 Exemption from liability

An exemption from liability may exist if either:

The harm arising from the use of the unsafe product is attributable to compliance with any public regulation; or

It can be proven that at the time the goods were supplied to the consumer the alleged defect in the goods did not exist.

Safeguarding consumers’ property

34 Lay-bys

Should the goods the consumer has selected not be available at the time the consumer has paid off the purchase price in full, the consumer has the option to either:

34.1 Demand a full refund; or

34.2 Choose goods of equivalent quality.

35 Prepaid certificates, credit notes or vouchers

Any such documents remain valid until the full value has been redeemed in exchange for goods, or for 3 years after the date of issue, whichever comes first.

36 Accounting for consumer’s property

Should a supplier have possession of deposits, repayments, membership fees or any other monies or property of a consumer, the supplier must record this. Under no circumstances may a supplier treat such property as if it were its own.

37 Return of parts and materials

If a supplier carries out servicing or repairs on a consumer’s property, parts and/or other components that have been removed from the item that was serviced or repaired must be retained. These parts or components must be returned to the consumer in a reasonably clean container unless the consumer declines to accept them.

38 Business names

Section 79 of the CPA regulates the use of business names and “trading as” names. It stipulates that a person must not carry on business or supply any goods or services under any name except:

38.1 In the instance of a sole proprietor, the proprietor’s full name as shown in this person’s identity document. Neither abbreviations of the full name nor the use of informal trading names is permitted unless the proprietor can show that he/she has been actively trading under that name for at least 1 year before the new act took effect.

38.2 In the instance of a registered business, the business’s full name as registered with the Companies and Intellectual Property Commission (CIPC), formerly known as CIPRO.

38.3 The proprietor of a trading name or trade mark can grant a consumer a licence to “trade as” under that name or trade mark.

Summary

The CPA is administered by the National Consumer Commission of the DTI and is a powerful piece of legislation. As I said at the outset, it will transform the way in which we do business in South Africa and sanctions meted out to transgressors will be severe.

Already, the DTI has signalled its determination to enforce compliance with the CPA. The application of the Competition Act which is also administered by the DTI, demonstrates that it has the will and the capacity to achieve that. In the light of this, I can only urge business owners to review all their existing documentation, namely their Terms and Conditions of Sale, franchise agreements and similar documents. The involvement of an experienced practitioner in this field is an absolute necessity and I look forward to being of assistance in this regard. Call 011 463-3110 or write to mariasec@damico.co.za.

Disclaimer

 

This article has been compiled for information purposes only and does not constitute legal advice. It is generally accepted that to be meaningful, legal advice needs to be tailored to the specific needs and circumstances of the case on hand. It follows that neither Maria D’Amico nor Maria D’Amico Incorporated can accept liability for any loss or damage caused to any individual or entity that has acted or omitted to act on the basis of this information.



[1] Although franchisees are deemed to be consumers, franchise agreements are exempt from some of the sections of the CPA. They are, however, subject to other sections that deal specifically with franchising.

[2] The exemption applies only to the credit transaction itself and not the sale of the goods (which falls under the ambit of the CPA).

[3] This means that the goods were imported without the involvement of the official manufacturer’s agent. This could potentially lead to lapsing of the product warranty and a refusal by the local agent to service or repair the goods.