Consumer Law database_Nov/Dec 2012
Published on: Dec 11, 2012
Dear Consumer Law Review recipient,This will be the last CLR for 2012 and what a year it has been!
In this edition we take a closer look at the landmark judgment in Standard Bank of South Africa v Dlamini (2877/2011)  ZAKZDHC 64 (23 October 2012) in which the plain language provision in the National Credit Act (the NCA) was applied in a hire purchase agreement. Paul Esselaar has written a contribution on the use of garnishee orders. These orders were in the news last month due to some startling reports on Moneyweb.
We have included the third part in our series on the Protection of Personal Information Bill which is on the National Council of Provinces’ agenda for 28 November 2012. Who knows, it may still become a law this year. If not, this is expected early in 2013.
Thank you for all of your support. We will see you again in January 2013.
Elizabeth de Stadler is the editor of the Consumer Law Review, a senior associate at Esselaar Attorneys in Cape Town (http://www.esselaar.co.za). Her practice consists of general regulatory compliance due diligences; training and workshops on regulatory compliance; opinion work on the CPA, the National Credit Act, Banking Law, Gaming and Lotteries, Insurance, Medical Law, Marketing Law, Contract Law; and plain language drafting.
She conducts regular workshops and training sessions on the Consumer Protection Act (the CPA) and other consumer legislation for businesses and for Law@work, a unit situated within the Law Faculty at the University of Cape Town. She is the co-author of a consumer law textbook and a guide to plain language legal drafting, both of which are to be published by Juta Law.
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IN THIS EDITION OF THE CONSUMER LAW REVIEW
— Standard Bank v Dlamini: Plain language coup in the Durban High Court
— The ungarnished truth
— NCR scraps Codes of Conduct
— Intro to PoPI (part 3): Why are you collecting my data?
— Are class actions becoming a real risk?
— Plain language tip
Standard Bank v Dlamini: Plain language coup in the Durban High Court
The Durban High Court recently used plain language to provide an out to a consumer who concluded an agreement with Standard Bank. Whether one agrees with the judgment or not, this case is one of the most important decisions post-NCA and CPA for several reasons, not least of which is that it gives some very practical guidance on the effect of the plain language provision on the way in which consumer contracts are drafted and concluded.
It is very important to note that the NCA and the CPA have identical plain language provisions and that many of their principles can therefore be applied to other consumer agreements.
Mr Dlamini purchased a defective vehicle from a dealership. With the help of the dealership, Mr Dlamini had concluded a credit agreement to finance the vehicle. It was not in dispute that the vehicle was defective and that Mr Dlamini was in fact entitled to return it. When he returned the vehicle, Mr Dlamini thought that he would be entitled to a refund and that he had cancelled the agreement. In the interim Standard Bank demanded payment in terms of the credit agreement and eventually issued summons after having sent a notice in terms of s 129 of the NCA to the incorrect address. The bank contended that Mr Dlamini did not cancel the agreement and that his return of the vehicle was a ‘voluntary surrender’, a distinction which had significant financial implications for Mr Dlamini. The bank relied on a clause in the agreement which stated that the agreement must be terminated by sending a notice to the bank’s vehicle and asset finance division via fax. It was not good enough that Mr Dlamini had informed the dealership where he bought the vehicle.
Here is what we are told about Mr Dlamini (para 23):
Mr Dlamini is functionally illiterate and does not understand English. This is as obvious to me as it was to Mr Mtetwa [the dealer]. Mr Dlamini completed schooling at standard one. At 52 years, he is an unsophisticated African male. He had difficulty in the witness stand engaging with the documents. He had become so excited about the purchase of a vehicle that he paid little attention to the repayment plan. He relied on the bank to deduct reasonable installments. He did not expect the bank to deduct a high amount that left him without the means to support himself, his wife and his two little children. He expected to discover what the amount of those instalments would be when the bank deducted its first instalment from his account. He trusted his bank. On discovering that he bought a defective vehicle he returned it intuitively to the person who sold it to him.
What follows here is a very limited discussion of but one of the arguments made in the judgment as to why Mr Dlamini should prevail (See Carmel Rickard’s blog, ‘A free state of mind’ (http://carmelrickard.posterous.com/166437770#comment). Also see my blog (http://www.esselaar.co.za/plain-language-finally-makes-it-high-court) for a discussion of a different aspect to what will be discussed below.). The aspect we deal with here is whether suppliers are obliged to include consumers’ CPA rights in the contract. Many suppliers are hesitant to include references to the CPA in their contracts, as they fear that it will encourage consumers to claim.
Essentially the complaint against the bank was that it recorded certain obligations of the consumer in terms of the NCA in the agreement, but that it failed to include the consumer’s right to a refund. It was held that [para 41]:
Non-disclosure of s 121(3)(a) [the consumer’s right to receive a refund] violates the right of consumers to education and information in terms of s 3. The bank’s selection of what parts of s 121 of the NCA it should record in the agreement and what it should exclude is deliberate and deceptive. The heading of s 121 highlights its purpose as the ‘Consumer’s right to rescind credit agreement’. Instead of informing the consumer of this right, the bank pitches it as an onerous bundle of obligations on the consumer to pay the bank the costs of renting and recovering the vehicle. Projecting the consumer’s obligations whilst understating his rights discourages rescission which is the consumer’s statutory right.
The question is whether this line of reasoning can be applied in respect of other consumer contracts. It is clear that contracts cannot detract from the consumer’s rights as any clause that limits the consumer’s CPA rights is void (s 51). We also know that suppliers must not mislead consumers (s 41) and that consumers have a right to contracts which are fair, reasonable and just (s 48) which means that they must not be ‘excessively one-sided’. Despite all of that the CPA (contrary to, for instance, an instrument like the EC Directive on Consumer Sales and Associated Guarantees) does not expressly require a supplier to inform a consumer of their consumer rights or to include them in a contract. A notable exception to this is s 32 which provides that a consumer must be informed of the right to a 5-day cooling-off period in respect of sales which are the result of direct marketing. It is notable because it opens the door to an argument that the legislature would have included this disclosure obligation in respect of other sections if it wanted to.
What is interesting about the Dlamini judgment is that it recognises the notion that an omission from a contract or agreement which emphasises consumers’ obligations while obscuring their rights is ‘deceptive and misleading'. This argument could easily be made by relying on s 41 of the CPA. The judgment also emphasised the fact that the more abstract right to education and information was emphasised. Suppliers would be well advised to remember that the consumer has a 'right to disclosure and information'.
The ungarnished truth
By Paul Esselaar, a partner at Esselaar Attorneys (www.esselaar.co.za)
There has been some media coverage recently on rampant unsecured lending, the fees and methods of unscrupulous debt collectors and the use of garnishee orders for purposes of debt collection. The catalysts were several Moneyweb reports (http://www.moneyweb.co.za/moneyweb-special-investigations/how-my-salary-became-zero-after-a-garnishee-took-e) since September which exposed the abuses committed by debt collectors and the fact that 40% of the income earned by South Africans is used to service loans (http://www.moneyweb.co.za/moneyweb-special-investigations/sa-workers-trapped-in-debt-hell?sn=2009+Detail). It has even been suggested that the strikes which plagued the mining sector and ultimately led to the Marikana tragedy can ultimately be attributed to the high levels of unsecured debt (http://www.moneyweb.co.za/moneyweb-special-investigations/swoop-on-marikana-sees-loan-sharks-arrested) and this suggestion, in turn, led to investigations by the National Credit Regulator.
Against this backdrop, several of the large retail banks, the Banking Association of South Africa (BASA) and the National Treasury ‘reached an agreement to improve responsible lending and prevent households from being caught in a debt spiral’ (http://www.moneyweb.co.za/moneyweb-financial/banks-to-give-relief-to-distressed-credit-customer). This agreement included limiting the use of garnishee orders.
Before considering these events it is worthwhile to consider what exactly a garnishee order is. If you take a look at the Magistrates' Court Act you will notice that two types of orders refer to a ‘garnishee’. The first is an Emoluments Attachment Order (EAO) (s 65J) which orders the employer (the garnishee) to pay a monthly amount to the judgment creditor (the creditor who obtained the court order against the debtor). The second is more properly called a garnishee order (s 72) where a third person (not the employer) who owes the debtor money is instructed to pay the judgment creditor directly instead of paying the debtor. An example of a s 72 garnishee order is the attachment of a bank account so that the bank must pay the funds in the bank account to the judgment creditor in order to satisfy the judgment.
In terms of section 65J an EAO can only be issued if:
· The debtor consents to the EAO, or
· The attorney sends a registered letter warning him that an EAO will be issued and also files an affidavit confirming the debt due and that the registered letter was sent.
In theory it would then be possible to get an EAO without really knowing what the debtor’s financial position is. However, in practice, if the consent of the debtor to the EAO is not obtained then most (if not all) magistrates will demand that an enquiry into the financial position of the debtor (s 65A) be held before they will issue the EAO. If the debtor fails to arrive at the hearing into his/her financial position then the judgment creditor’s attorney can ask for an arrest warrant to force the debtor to come to court.
Turning to the media statements relating to the BASA decision ‘not to use garnishee orders’, there are a couple of points that should be made here. The first is that while the media correctly reflected the text of the BASA’s statement (http://www.moneyweb.co.za/moneyweb-financial/joint-statement-by-the-minister-of-finance-and-the), judging from the remainder of the article and the press release, it is clear that garnishee orders may still have their place within the toolbox of debt collection tools – they will just not be the tool of first choice. Other options – such as getting the debtor to consent to a monthly instalment or attaching the debtor’s goods – will be attempted first. Secondly it would be interesting to know whether the motivation to decrease the use of the EAO is due to it being less cost-effective for BASA members, as by the time an EAO is issued, the banks would normally have already established that the debtor does not have sufficient movable goods to satisfy the judgment. Thirdly, it appears that EAO’s may have a tendency to be able to be used / issued in a fraudulent manner (see http://www.moneyweb.co.za/moneyweb-special-investigations/hawks-probe-fake-garnishees-arrests-to-follow#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled&id=I0_1353415011409&parent=http%3A%2F%2Fwww.moneyweb.co.za and http://www.moneyweb.co.za/moneyweb-special-investigations/sa-infested-with-debt-abuse).
Obviously if EAO’s are issued in a fraudulent manner then this is a criminal case which must be pursued by the police. However there is some scope for the abuse of the EAOs in a non-criminal manner such as overcharging fees due for the debt in contravention of the National Credit Act or placing pressure on a debtor to agree on a sum for an EAO that is not financially possible. All of these factors have resulted in some calls for an overhaul of the EAO system.
However, while it is clear that the debt collectors and the attorneys responsible for EAOs are under some pressure to reform, care should be taken to properly consider the impact of the EAO system so as not to throw out the baby with the bathwater. The EAO system was created for a legitimate purpose – to repay the money owed by debtors to creditors when the debtor was unwilling (rather than unable) to satisfy the debt. If the EAO system were to be completely removed or varied then this could in turn lead to less credit being advanced. The lack of availability of credit in an economy has a surprisingly large effect on consumers and the economy and should not be underestimated.
As the credit lifecycle is an eco-system that is acutely sensitive to variations and the ultimate effect of a change is not always obvious when is first implemented, it would be wise for any changes to the debt collection process to be made in a considered way after having access to as much statistical evidence as is possible.
NCR scraps Codes of Conduct
The National Credit Regulator (NCR) has announced that it will ‘withdraw’ approval for the Credit Providers’ Code of Conduct to Combat Over-indebtedness and also the Debt Counsellor’s Code of Conduct for Debt Review. Interested parties have until 13 December 2012 to make representations regarding the NCR’s intentions. The notice can be found at http://www.info.gov.za/view/DownloadFileAction?id=179573.
This comes as a result of research done by the NCR which revealed that the battle against reckless lending and over-indebtedness is being lost. Whether the NCR is throwing the baby out with the bathwater, remains to be seen.
Intro to PoPI (part 3): Why are you collecting my data?
This is part 3 in our series of articles on the Protection of Personal Information Bill (PoPI). If you are wondering whether it applies to your business, don’t. The definition of ‘processing’ and ‘personal information’ are so wide that the application of the Bill is virtually guaranteed (see September 2012 edition of Consumer Law Review). The Bill is structured around eight conditions for the lawful processing of information. These conditions are simply sets of obligations which are imposed on the responsible party (the supplier). The first obligation which we discussed was the somewhat obvious obligation to process personal information lawfully. If you have the consumer’s consent you are home free. If not, one of the other legitimising facts in s 11(1) must be present (see the October 2012 edition of Consumer Law Review).
Section 13(1) of the Protection of Personal Information Bill (PoPI) provides that ‘personal information must be collected for a specific, explicitly defined and lawful purpose related to a function or activity of the responsible party.’ Then the supplier must take steps to make the consumer aware of this purpose (s 13(2)). From this alone it is clear that the consumer must be aware that personal data is being collected, but s 18 drives it home. Section 18(1)(a) provides that the consumer must be made aware that information is being collected and the source from which it is being collected.
It does not stop there. The following information must also be disclosed:
· the name of the responsible party;
· the purpose (again) for which the information is being collected;
· whether the supply of the information is voluntary or mandatory;
· the consequences of a failure to supply the information;
· if the collection of the information is authorised or required by legislation, the name of that legislation;
· if the information is going to be transferred to a third country or international organisation and the level of protection which is given in that country or organisation; and
· any other information which is necessary to make the processing reasonable, for example:
- the recipient of the information;
- the nature or category of the information;
- the existence of the right to have access to your personal information and to correct the information if necessary;
- the existence of the right to object to the processing of the personal information; and
- the right to lodge a complaint with the Information Regulator.
If the information is collected from the consumer they must be given this information before it takes place. If not, then the consumer must be notified as soon as is ‘reasonably practicable’ (s 18(3)).
There are several exceptions to this obligation (s 18(4)):
· The consumer can consent to the non-compliance.
· If the non-compliance does not prejudice the legitimate interests of the consumer as set out in this Bill, it can be justified.
· If compliance could prejudice a lawful purpose of the collection, it is not required.
· If compliance is not reasonably practicable, non-compliance will be excused.
· A supplier does not have to comply if the information will not be used in a form in which the consumer may be identified or the information will be used for historical, statistical or research purposes.
· As with many of the obligations in terms of the Bill, non-compliance is in the interest of national security or in the interest of maintaining the law and preventing, detecting, investigating, prosecuting and punishing offences (if the supplier is a public body), if the information is collected in order to collect tax or if non-compliance is necessary to conduct proceedings in a court or tribunal.
The exceptions to the obligation are wide and vague enough to give suppliers significant wriggle room, something which will no doubt be welcomed. It does have the added side-effect that suppliers will not be certain when they should or should not comply.
Our first article in 2013 will be about the art of formulating the purpose(s) for collection of the information.
Are class actions becoming a real risk?
The Supreme Court of Appeal has made it easier to establish a class action on behalf of consumers, in Children’s Resource Centre Trust v Pioneer Foods (50/2012)  ZACSA 182 (29 November 2012). This case was decided in the context of competition law. You will recall that the respondents were engaged in anti-competitive behaviour in terms of the Competition Act 89 of 1998 in the form of the fixing of bread prices.
It is a long judgment, but its value lies in the fact that it answers two questions:
(1) When may a class action be brought?
(2) What procedural requirements must be satisfied?
The answers to these two questions essentially provide a roadmap to using this procedural mechanism. This is a welcome development, given that Parliament has not passed any legislation regulating class actions yet.
What is a class action?
A class action is a legal procedure which enables the claims (or parts of the claims) of a number of persons against the same defendant to be determined in the one suit. In a class action, one or more persons (‘representative plaintiff’) may sue on his or her own behalf and on behalf of a number of other persons (‘the class’) who have a claim to a remedy for the same or a similar alleged wrong to that alleged by the representative plaintiff, and who have claims that share questions of law or fact in common with those of the representative plaintiff (‘common issue’). Only the representative plaintiff is party to the action. The class members are not usually identified as individual parties but are merely described. The class members are bound by the outcome of the litigation on the common issues, whether favourable or adverse to the class, although they do no, for the most part, take any active part in that litigation. (para 16)
This means that once the class action has been adjudicated, individual members cannot institute an action again. For this reason (because it is their rights which are being adjudicated upon), class members must either be given the opportunity to be excluded (opt-out) or to be included in the class (para 18).
- The requirements for the certification of a class action are:
- The class must be defined (para 29);
- A cause of action raising a triable issue must be identified (by way of a draft set of particulars of claim (para 35);
- The claims must give rise to common issues of fact or law, but the claims need not be identical (para 44); and
- The court must be satisfied that the representative is suitable (no conflict of interest and the capacity to conduct the litigation properly) (para 46).
In addition the court must be satisfied that a class action is the appropriate procedure to follow in order to adjudicate the underlying claims. (para 23)
The court also considered the remedy proposed by the representatives for the class (para 80). It was proposed that any damages would be paid into trusts which would use the funds ‘generally to benefit bread consumers'. The reason for this solution is that it would be impractical to distribute the damages to the members of the class, in which case the damages should be distributed in a way which is as close as possible to direct distribution. Alternative forms of distribution are recognised in other jurisdictions, but only in limited cases (para 82). The court found that this type of remedy would depart
from the purpose of the class action to compensate those who have suffered loss for that loss, by stripping them of their claims, with the excuse that as they are small they are worthless, and vests those claims in others to purse their own interests.
The court suggests that the problem of distributing relatively small claims practically could be solved by computing them on an aggregate basis using statistical methods. (para 86) These losses can them be distributed by way of targeted price reduction for a period, ie a form of indirect compensation for their loss.
In this case, the matter (at least in part) was referred back to the High Court for determination along the lines of the principles which were determined.
It would serve suppliers well to remember that the CPA also provides that
a court considering a matter in terms of this Act may…award damages against a supplier for collective injury to all or a class of consumers generally, to be paid on any terms or conditions that the court considers just and equitable and suitable to achieve the purposes of this Act.’ (s 76(1)).
Section 4(1)(c) also gives standing to a person acting as a member of, or in the interest of, a group or class of affected persons'.
The utility of this procedure in the context of consumer litigation where claims are small and litigants many was pointed out by the court (para 21) and the principles which have been identified illustrates that such a claim would indeed be possible in respect of various instances of prohibited conduct in terms of the CPA.
Plain language tip
It is a popular misconception that agreements which deal with complicated subject matter cannot or should not be written in plain language or ‘dumbed down’. This is a misconception because a document which is in plain language can still convey complicated ideas. Perhaps Christo J Botha’s formulation of this idea is a good point on which to end 2012:
… ‘plain’ in ‘Plain Language’ does not mean monosyllabic words and single clause sentences: the emphasis is on comprehensible language. It is not the ideas that are simplified, but the language used to convey those ideas.
(C Botha Statutory Interpretation: An introduction for students 3 ed (Juta 1998) 5.)
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