Consumer Law Review - Feb 2012

Published on: Feb 14, 2012

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February 2012

Dear Consumer Law Review recipient

Welcome to the first edition of the Consumer Law Review newsletter. We have taken the liberty of including you in our initial mailing of this free monthly service as we believe this information will be of interest and benefit to you in your professional capacity. In order to receive future copies of the newsletter - and to comply with the spirit and letter of the Consumer Protection Act regarding direct marketing activities - we kindly request that you register to receive future editions by creating an online user profile at www.jutalaw.co.za and adding the Consumer Law Review newsletter to your list of marketing information requests from Juta Law.

Each edition of the Consumer Law Review will contain analysis pieces in which we will aim to analyse the provisions of various pieces of consumer legislation and shed some light on actual consumer matters and the problems which practitioners face in practice.


Over time we will also dedicate sections to marketing and labelling issues. The year 2012 promises to be an eventful one in these two areas. Firstly, there is the Protection of Personal Information Bill (POPI) which is gaining momentum. We will update you on the status of that Bill in the next edition. Secondly, there is the infamous Regulation 146 passed under the Foodstuffs, Disinfectants and Cosmetics Act 54 of 1972, which is about to come into effect. In the next edition Eitan Stern writes about labelling legislation and what ‘100% fruit juice’ really means.

The field of consumer law has shown enormous growth in the last couple of months. I anticipate that this will continue to be the case as the NCC finds its feet and as the developments in other sectors gain momentum. The
CLR is the ideal source for you to keep up with developments.

The author of the Consumer Law Review is Elizabeth de Stadler, 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 Consumer Protection Act (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 CPA and other consumer legislation for businesses and for Law@work, a unit situated within the Law Faculty at the University of Cape Town. In addition to writing her PhD dissertation (The consumer’s right to quality goods: a comparative analysis of the Consumer Protection Act 68 of 2008) she is the co-author of a consumer law textbook and a guide on plain language legal drafting, both of which are to be published by Juta Law.

Please forward any comments regarding the Consumer Law Review newsletter to Juta Law Publisher, Anita Kleinsmidt, akleinsmidt@juta.co.za.

 

Kind Regards

Anita Kleinsmidt

Law Publisher

 

IN THIS EDITION OF THE CONSUMER LAW REVIEW

- What is the Consumer Law Review?

- The NCC is no white elephant: an overview of the last 10 months

- The right to quality services: cell phone companies take some (unnecessary) flack

- Who took my data?

- Plain language tips


ARTICLES

What is the Consumer Law Review?

The Consumer Law Review aims to provide practitioners with an updating service which takes an inclusive look at consumer law. The CLR will eventually include media coverage of consumer related topics, commentary and the latest reported cases on consumer protection legislation and the common law.

This raises the question – what is consumer law?

Consumer law, as a distinct field of law, is a concept which is relatively new to South Africa. Due to the promulgation of the Consumer Protection Act, 68 of 2008 on 1 April 2011, consumer law has suddenly become a new headache for practitioners and businesses alike. But it is certainly not new.

Consumer law is often defined as an area of law which is aimed at regulating the private (law) relationship between consumers and businesses. One way to make sense of this very broad definition is to look at the meaning which we give to ‘consumer’. Often a consumer is limited to a ‘natural person who is acting for purposes which are not related to his trade, business or profession’.[1]This means that ordinarily, consumer protection legislation does not apply where companies are the consumer or where the goods are bought for resale or for use in the manufacture of other products.

The Consumer Protection Act, 68 of 2008 (‘the CPA’) did not follow this convention. Section 1 of the CPA defines ‘consumer’ as either a natural person or a juristic person with an annual turnover or gross asset value of less than R2 million to whom goods were promoted or supplied in the ordinary course of the supplier’s business, with whom

a ‘transaction’ was concluded, or ‘if the context so requires or permits, a user of those particular goods or a recipient or beneficiary of those particular services, irrespective of whether that user, recipient or beneficiary was a party to a transaction concerning the supply of those particular goods or services’.[2]

This is very important as it means that South African consumer law will not only be applicable to transactions between businesses and consumers, but also to transactions between businesses. This was an interesting choice by the legislature, given that entirely different and complex considerations exist in business-to-business transactions.

The parameters of consumer law are also informed by its sources. The CPA is not the only source of consumer law. Section 2(10) of the CPA provides that it must not be interpreted to exclude any right which the consumer may have under the common law. The CPA and the common law therefore apply in conjunction with each other and the common law cannot be disregarded when the rights of consumers (and the obligations of suppliers) are analysed. This means that the common law of sale and lease, the general principles of contract (particularly those dealing with pre-contractual representations) and the law relating to product liability (the law of delict, in other words) also form part of this area of law.

Section 2(2)(a) of the CPA provides that foreign and international law must be considered when interpreting the CPA. This means that instruments such as the European Directives on, for example, sales, product liability, unfair contract terms, distance selling, and the UK Sale of Goods Act 1979, and Unfair Contract Terms Act 1977, can be taken into account when we struggle to interpret the provisions of our own Act. It also means that we must keep up with development in those jurisdictions.

Of course, the CPA is not the only piece of legislation in this country which regulates the interaction between consumers and suppliers. All of the following acts contain measures for consumer protection: the National Credit Act 34 of 2005; the Competition Act 89 of 1998; the Financial Advisory and Intermediary Services Act 37 of 2002; the Short-Term Insurance Act 53 of 1998; the Pension Funds Act 24 of 1956; the Foodstuffs, Cosmetics and Disinfectants Act 54 of 1974, and so on.

There are two ways to deal with the overlap between sector or product specific legislation. The regulator responsible for a particular industry may ask for an exemption from some or all of the provisions of the Act. So far only two exemptions have been granted.[3] However, the short- and long-term insurance industries, the pension funds industry, the collective investment schemes industry and the security services industry have been granted a reprieve from most of the provisions of the CPA until 1 October 2011.[4] Where exemptions are not granted, the CPA and the overlapping legislation will apply concurrently where possible.[5]If there is a conflict between the two acts, the ‘provision that extends the greater protection to a consumer prevails over the alternative provision.’[6]

This mean that often more than one piece of legislation will apply and that any study or review of consumer law must include other pieces of legislation aimed at consumer protection, in order to be complete.

In light of the above, the CLR will focus on all law which affects transactions between suppliers and consumers in various industries, the contracts between suppliers and consumers, the common law of contract and products liability, plain language, credit law, marketing law, product labelling and safety and the enforcement of consumer law.



[1]This is the definition which is employed in the EU. See Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees and Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts. This definition is also used in the UK Consumer Protection Act, 1987.

[2]The definition of consumer must be read with the definition of ‘market’ and section 5(2) and the threshold determination contained in GN 294 GG 34181 of 1 April 2011. There are other exemptions in section 5(2) which are too specific for current purposes.

[3]The banking industry has been exempted from section 14 (fixed term agreements) of the CPA.
See GN 532 GG 34399 of 27 June 1998.

[4]See Schedule 2, item 10 of the CPA and GN 533 GG 34400 of 27 June 2011.

[5]Section 2(9)(a).

[6] Section 2(9)(b).

The NCC is no white elephant: an overview of the last 10 months

This newsletter marks the 10th month that businesses have been subject to the CPA.

Before the Act came into force, speculation was rife as to whether it is could be enforced and whether the National Consumer Commission (NCC) will make any real inroads. Well, the NCC has proven its detractors wrong. Despite its operating on a relatively limited budget of R33 million per year, the media reports on its activities have been streaming in with surprising regularity.[1] Admittedly, the media coverage may have been less than accurate at times and therefore what you see below cannot be presented as fact, but simply as an indication of the NCC’s activities.

First there were the cell phone companies. They were earmarked for attention from the very beginning by Chief Commissioner Mamodupi Mohlala. First, Vodacom refused to compensate consumers for interruptions in coverage in June. Shortly thereafter the NCC started grumbling about cell phone contracts industry-wide and eventually issued compliance notices to Telkom, Vodacom, MTN, Cell C and 8ta demanding that they amend their terms and conditions.[2] For more on this topic, see ‘The right to quality services: cell phone companies take some (unnecessary) flack’ .

The persuasive force of the NCC was seen in another telecommunications matter when the NCC issued a compliance notice against iBurst, Cell C, Virgin Mobile SA, MTN, Vodacom , FNB and 8ta for a contravention of section 63 of the CPA because they attach an expiry date to unused prepaid internet data.[3]See also Paul Esselaar’s ‘Who took my data? The effect of section 63 of the Consumer Protection Act on the telecommunications sector’ in this newsletter. Since the compliance notice was issued,  iBurst have scrapped expiry dates on its prepaid packages, and it would appear that the rest of the industry is hoping to resolve the matter through talks with the NCC.[4]

Medical schemes are also high on the NCC’s agenda and have been criticised for several separate indiscretions. Some have been asked to amend their contracts.[5]

While lower level municipalities were excluded from the ambit of the act amidst severe criticism, the City of Johannesburg was targeted by consumers. City of Johannesburg may very well be one of the first suppliers to receive an administrative fine. According to Nicola Mawson in her article ‘Joburg may pay for billing mess’on 20 September 2011 ‘the NCC has received 450 complaints from residents and has successfully forced the city to refund a consumer R7 million after it could not explain how it arrived at a grossly inflated bill.’ In addition the City is apparently now facing an administrative fine of R15 million after it failed to respond to some 65 compliance notices.

The retail industry is the leader of the pack with around 2000 claims registered by September 2011. However, the motor industry is not that far behind. The first couple of months of the post-CPA regime has seen a flurry of claims against the motor vehicle industry (according to Nicola Mawson, September 2011). According to Megan Power’s article ‘Watchdog shows car firms red light’of 4 September 2011, these claims include a claim against BMW South Africa for the replacement of a defective E82 135i Coupe worth R450 000, a claim (again, against BMW South Africa) for the replacement of a broken armrest and another against a Pietermaritzburg Fiat dealership for the replacement of a Fiat Punto Active.[6] Complex goods, such as motor vehicles, give rise to particular difficulties in interpreting the CPA. These difficulties will be addressed in future newsletters.

Telkom, Multi-Choice and Top TV were accused of contravening section 13 which prohibits ‘bundling’, ie where a service provider forces a consumer to buy products in bundles without offering those products separately. In the case of Multi-Choice and Top TV the NCC has taken issue with the fact that channels are only offered in certain pre-determined bundles and has ordered them to break down prices for each channel.[7] Telkom has been accused of bundling its ADSL data service with a compulsory voice service.

This article could be ended with an ‘etc’ as this is not a complete list. While the NCC have been somewhat tardy in resolving individual claims it seems that they have the big picture firmly in view.

What is the big picture? It is that more consumers are assisted by the policy of changing the suppliers’ behaviour, than by peppering suppliers with small claims. I am firmly in favour of focusing on and investigating indiscretions (not that all of the above compliance notices are warranted) at the supplier level, rather than fielding individual claims. The year 2012 should be a very interesting one.

 

The right to quality services: cell phone companies take some (unnecessary) flack

Since the NCC was established under the CPA, one thing has become very clear: cell phone operators will suffer.

The issue which has received the most coverage, is the application of section 14 of the CPA to cell phone contracts. In short, the NCC wants the terms and conditions of the contracts to be amended to include the right to cancel the agreement on 20 business days’ notice and to stop the cell phone operator from automatically renewing the agreement for longer than a month.[1]This is the dream of any consumer who is stuck in a cell phone (or gym) contract for two years with no option of cancelling without paying exorbitant cancellation fees.[2] Whether and how section 14 applies to a particular contract, is an interesting question, but not the one at issue here.

In any event, most of the operators did not take this lying down and have taken the NCC to the National Consumer Tribunal [3][4]. By the time you read this, these cases will either have taken their course or will be about to start. We will include an article on the cases and the legal questions involved in the next newsletter.

The CPA claim which piqued my interest was the one where Chief Commissioner Mohlala made the following comments regarding the contents of consumer agreements, after Vodacom suffered an interruption in service as a result of a network failure:

‘In terms of these compliance notices, we as the commission are saying there must be some guarantees with regards to quality of service. Currently, as the operators’ contracts stand, there are no guarantees,” says Mohlala.

She says consumers are expected to ‘hold up their end of the agreements’ by paying for services and paying additional fees in the case of premium services, but there ‘are no reciprocal guarantees from network operators around quality of service’.

The consumer act specifies that in the event that an operator does not meet the ‘particular quality-of-service levels that are outlined in a contact’, then it ‘must offer the affected consumer a remedy‘, she says. If not, ‘the consumer is entitled to a refund to the extent that they have not received the guaranteed services or quality of service. Consumers must be compensated when operators don’t meet their obligations.’

According to Mohlala, operators have ‘exclusive control over issues of network coverage and quality of service’ and therefore need to give ‘some sort of commitment to consumers who are paying a lot for those services.’[5]

In response Vodacom made the following statement:

‘It said it was not possible to guarantee availability of its service ‘100% of the time’. An outage cannot be ‘completely excluded from the reasonable expectations of the consumer when they subscribe to the service.’

‘We therefore submit the outage … does not constitute a failure to perform to the standards contemplated in section 54(1) and therefore the complainants are not entitled to compensation.’[6]

The CPA distinguishes between ‘goods’ and ‘services’.[7]This distinction is not academic, for two reasons: (a) the test for a failure to perform differs between goods and services, and (b) the remedies given to a consumer differ, depending on whether the contract was for goods or for services.[8]

I have a particular problem with how Mohlala interpreted the test for a failure to perform and by extension, the mandatory content of a service contract under the CPA.

Let’s make one thing clear – the product (except for the actual device) provided by cell phone operators, is a service. The definition of services in section 1 expressly includes ‘the provision of access to any electronic communication infrastructure’.[9] Section 54 regulates the consumer’s right to demand quality service. In terms of this section the consumer has a right to timely services of the quality ‘that persons are generally entitled to expect…having  regard to…any specific criteria or conditions agreed between the supplier and the consumer before or during the performance of the services.’ The last part of that extract from section 54 certainly suggests that it would be open to Vodacom not to guarantee uninterrupted services, contrary to the assertion made by Mohlala.

Section 51 (amongst others) governs what can and cannot appear in a consumer contract. The main thrust of this section is that a supplier cannot force a consumer to contract out of the CPA. Given the formulation of section 54, a term in which the cell phone operator states clearly that it cannot guarantee that the service will be available for a 100% of the time does not fall foul of section 51. Why is this so? Because the cell phone operator is given the opportunity to manage the consumer’s expectations by telling him or her that 100% coverage is impossible to guarantee.

It would appear that Mohlala is thinking of the legal position relating to the supply of goods where the supplier is indeed required to make the guarantee to which she refers and cannot contract out of it.

I am certainly of the view that it would be entirely reasonable and indeed perhaps expected of Vodacom to say that we cannot guarantee 100% coverage. We all know that it is impossible. Vodacom is indeed required to have systems in place to avoid interruptions of the nature which caused this furor,[10] but they cannot be expected to do the impossible. Not even consumers are entitled to expect that.



[2]Section 14 when read with regulation 5 provides that a supplier can ask a reasonable cancellation penalty.

[7]Including both goods and services in the same piece of legislation was an interesting legislative decision and contrary to international practice.

[8]Section 54(1)(c) and section 61(2) deals with contracts for services and goods which creates a unique set of problems. For purposes of this article I am focusing on contracts for services only.

[9]In short, a consumer will have the unfettered choice between returning the goods and asking for a refund, demanding that the goods be replaced or that the goods must be repaired if the goods fail to meet the standards listed in section 55(2). In addition to this, the consumer will have the right to claim for harm caused to their person or property by goods which were unsafe or where inadequate warnings were provided.

[10]Similar to the ‘slip and fall’ cases in delict.


Who took my data?

By Paul Esselaar, a partner at Esselaar Attorneys (www.ea.law.za)

While we have been dealing with the Consumer Protection Act for some time, many attorneys still have a bit of a hard time connecting the legislation to real changes in a consumer's life. It is useful then, to be able to focus on particular examples to illustrate the potential power that the CPA can bring to bear on consumers and commerce in general. One of the more apparently innocuous sections of the Consumer Protection Act is section 63 which essentially indicates that a prepaid certificate/voucher/credit only expires if all the value on the certificate/voucher/credit has been used up, or if a period of three years has elapsed.

While this section appears innocuous at first blush, it is only when you connect this section to current industry practices that the real impact of section 63 becomes apparent. Specifically the telecommunications sector – which is notorious for uncompetitive behaviour despite protests to the contrary from the industry itself – may have to reinvent its entire business model due to this section. The problem is best illustrated by an example.

At present Vodacom offers a special where a prepaid customer can buy a SIM card for R499. For this price the consumer receives 20 gigabytes of data for a period of two months. After the two months has expired, any unused data is simply deleted and the SIM card will become inoperative until such time as the SIM card is recharged – in other words, more airtime is bought.

Clearly, it is part of Vodacom's business model that a certain percentage of consumers who purchase this special offer will not use the entire 20 gigabytes within the allotted 2 month period. Presumably Vodacom would argue that this fact allows Vodacom to provide the consumer with a better price, which is in the consumer's best interest. In effect the consumers who use less bandwidth are cross-subsidising those who use the entire 20 gigabytes within the allotted time. Of course this also means that those consumers who are unlucky enough to be unable to use the bandwidth within the 2 month period – perhaps due to access to a poor mobile signal while on holiday – would have to accept that they have wasted their money.

It is at this point that the potential power of section 63 becomes apparent. Essentially section 63 would force the network provider (in our example, this is Vodacom) to continue to provide the consumer with access to the 20 gigabytes of data until it is either used up or three years have elapsed from when it was purchased. When one considers that all the networks have prepaid data offers, section 63 would effectively force the networks to stop their special offers or alternatively, to expand the terms of the offering so that the 20 gigabytes expire three years after purchase.

Certainly, this is the position of the National Consumer Commission (NCC) which has recently issued compliance notices to the various network providers, indicating that the prepaid offerings must comply with section 63. Unsurprisingly, the networks have reacted by challenging the compliance notice, essentially arguing that the NCC's interpretation of section 63 is incorrect. Of course we will have to wait to see what the outcome of this will be, although at this stage it is not easy to envisage a persuasive argument to counter the relatively clear language of section 63(2).

It is clear that this is a serious affair for the telecommunications sector when one considers that section 76 of the Consumer Protection Act specifically allows the courts to award damages 'against a supplier for a 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'. The argument would be that every prepaid customer who took advantage of an offer similar to the current Vodacom special would be entitled to have their unused bandwidth returned to them and available for a further 34 months. Quite apart from the loss of revenue that this would cause, there would also be an administrative burden placed on the network providers to be able to identify the unused portion of bandwidth and credit that particular amount to the correct consumer. In fact, the administrative burden could even be more expensive than the bandwidth itself and it is not entirely clear that this information would even be available to the network providers, as they delete this type of information after a certain time period.

While South Africa has seen greater competition in the telecommunications sector than previously, it may come as a surprise that South Africa still remains amongst the less competitive countries when it comes to telecommunications costs. It may be, that where the Electronic Communications Act and the Competition Act have failed the consumer, there may be some relief for the consumer from the Consumer Protection Act.

From the editor:

For more information on the compliance notice issued by the NCC see 5 December 2011 http://www.businessday.co.za/Articles/Content.aspx?id=160339. iBurst, who was among the network providers who were issued with a notice, have decided to comply with the notice and scrap expiry dates on their pre-paid data packages (see http://www.itweb.co.za/index.php?option=com_content&view=article&id=50044:iburst-scraps-data-expiry).

PLAIN LANGUAGE TIPS

  1. How do you translate ‘joint and several liability as surety and co-principal debtor’ into plain language?

    Used in a sentence: You accept liability as surety and co-principal debtor with Sally Smith for all amounts which may become due and payable in terms of this agreement.

    Plain language sentence: You agree that we can claim the entire amount that is owed by Sally Smith from you without claiming against her first. (You are jointly and severally liable as surety and co-principal debtor). If you do not understand what this means you should obtain legal advice.

    Always remember that this will depend on the factual situation and instructions received from your client.

  2. Legalese: null, void and no force and effect whatsoever

    Plain language: void OR invalid OR unenforceable (but not all three)

The plain language tips were drafted by Elizabeth de Stadler of Esselaar Attorneys and Ruth Baitsewe of the Unit for Document Design at the Stellenbosch University Language Centre.

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