Dear Consumer Law recipient
It is an exciting time for consumer law. The National Consumer Tribunal (NCT) has published its first findings in the MTN, MultiChoice and City of Johannesburg cases.
As of 1 March 2012 suppliers have to make sure that the labelling of their products complies with the GN R146 to the Foodstuffs, Cosmetics and Disinfectants Act. While many firms have already changed their labelling, there are still many non-compliant products out there. Compliance has been very challenging as the provisions are not clear and they currently have many different interpretations.
On the financial services front, as Warren Radloff writes, the Financial Services Board (FSB) seems to have won its turf war with the National Consumer Commission (NCC). The Financial Services Laws General Amendment Bill 2012 was published for comment on 7 March 2012. The comments have to be submitted by 02 May 2012. The Bill ‘exempt[s] any financial service, product or institution regulated by the FSB and the FSB from the scope of the Consumer Protection Act, as higher standards of consumer protection are being implemented in terms of financial sector legislation.’ (Source: Motivation for Proposed Amendments http://www.fsb.co.za) We will definitely take a closer look at this in our next issue.
Apart from these new developments, attorneys continue to grapple with the provisions of the Consumer Protection Act (CPA). In this edition we shed some light on the plain language requirement in section 22.
Ellizabeth de Stadler
The editor 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 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 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 to plain language legal drafting, both of which are to be published by Juta Law.100% pure misleading
IN THIS EDITION OF THE CONSUMER LAW REVIEW
- The latest news: The NCT makes its first findings
- 100% pure misleading
- Treating customers fairly in South Africa: What to expect
- Chasing the plain language standard
- Plain language tips
The latest news: The NCT makes its first findings
We held this edition of the CLR back, because we were waiting for the NCT to make its first findings based on the CPA in three cases between the National Consumer Commission on the side and MTN, MultiChoice and the City of Johannesburg on the other.
MTN found itself before the NCT, because it is objecting to a compliance notice issued by the NCC on several procedural grounds. (A supplier is entitled to do so in terms of s 101 of the CPA. Also see ‘Cases before the National Consumer Tribunal’ in this issue’) The NCT’s decision only deals with one of the issues raised by MTN, which it chose to decide as a point in limine. In short, MTN took the point that the NCC cited MTN as the party in the matter (and the compliance notice) while MTNSP was in fact the contracting party.
MTN was not successful. The NCT decided to ‘pierce the corporate veil’. This is the conclusion which the NCT reached after its analysis of the case law:
 From the above case it would appear that [MTN] cannot, through its choice of how to provide its services, absolve itself from the responsibilities for those services leaving consumers vulnerable and with no redress against either itself or the other company.
 Finding differently would lead to a manifest injustice which runs counter to the purpose and policy imperatives of the CPA encapsulated in section 3 of the CPA.
 It would moreover in effect mean that a regulated entity can successfully circumvent and jettison its responsibilities in the terms and conditions of their licence by sublicencing [sic] to another person. This could clearly not have been intended by the legislature and would undermine the consumer protection and regulatory measures put in place particularly to protect the poor and vulnerable.
Based on this line of reasoning the NCT dismissed the point in limine which means that the NCT now has to consider the entire case made by MTN regarding the validity of the compliance notice.
By now I had hoped that I would be writing an article on the substance of the MTN case, i.e. an article about cell phone operators’ obligations in respect of the cancellation of contracts, how section 63 applies to the expiry of air time and data bundles and what the NCC’s thoughts are on plain language and small print. I had hoped that finally attorneys would be able to cite a precedent as authority for their interpretation of the CPA. This hope was based on the fact that the MTN case finally appeared before the National Consumer Tribunal. Unfortunately the decision in the MTN case will not bring us any closer to any sort of precedent. Why? Firstly, remember that this was an application by MTN to have the compliance notice issued by the NCC set aside on several procedural points. This does not require the NTC to apply the substantive provisions of the CPA Secondly, the finding was on a point in limine, specifically whether the fact that the NCC cited the wrong party (MTN instead of MTNSP) is fatal to the case.
This was not the only procedural point raised by MTN and on the face of it, this was not an attempt by MTN to avoid compliance with the compliance notice issued by the NCC. Taking the procedural points was absolutely unavoidable. There is no other way of putting it. The NCC was tripping over itself in its eagerness to help the consumer.
Here are some of the problems which were encountered in the MTN, Vodacom and Cell C cases. (Some of these problems are raised in the papers. Others are my observations based on the court bundle.):
The most worrying issue for suppliers must be that the current NCC approach is to continue with matters even where the suppliers have attempted to remedy the infringement after having received a compliance notice or to issue compliance notices while negotiations are in process. This means that, once the NCC identifies what it views as prohibited conduct, it issues compliance notices and takes matters to the NCT despite the apparent willingness of suppliers to comply. This brings with it not only the risk of significant legal costs (for both sides), but also the risk of reputational harm, given the fact that the matters have attracted some measure of media exposure up until now. It would appear that this approach is partly motivated by the lack of precedent which is confronting the NCC. Ie; there are disputes as to whether the particular corrective actions taken by the suppliers after the compliance notice are sufficient to remedy the prohibited conduct. This means that it is very difficult to respond to compliance notices, which makes them all the more potent. As a result suppliers have little option but to oppose the NCC, making it a very expensive approach for an already cash-strapped NCC.
The MTN case does not appear to be the only one. In the hearing on the MultiChoice matter, interesting questions on the interpretation of the CPA arose with regard to bundling, but unfortunately
[t]he operator said [yesterday] commissioner Mamodupi Mohlala’s notice did not comply with her own act (the Consumer Protection Act) and that MultiChoice, as the noncompliant party, did not have the ‘foggiest idea’ what the case against it was. (Source: http://www.businessday.co.za/Articles/Content.aspx?id=166181)
The NCT has subsequently agreed that the compliance notice issued by the NCC is formally defective as it did not consult with ICASA under whose regulatory authority Multichoice falls. The NCC is required to do so in terms of s 100(2) of the CPA. In the City of Johannesburg case the 45 compliance notices issued against the City were set aside because the NCC failed to conduct a proper investigation into the complaints before issuing the notices. http://www.legalbrief.co.za/article.php?story-20120404140601426
The NCC has indicated in the media that it would appeal these rulings. http://www.businessday.co.za/Articles/Content.aspx?id=169049 I hope that they don't. Consumers and suppliers alike would be better served if the NCC acts more introspectively and gets its house in order before they learn any more expensive lessons.
100% pure misleading
By Eitan Stern
The prevalence of preservatives, genetically modified organisms (GMOs) and multifaceted production methods, coupled with the current discourse of consumer protection in South Africa, has meant that food labelling regulations have to be rigorous to ensure that the consumer is protected.
One example of a potentially problematic case is the labelling of fruit juice products as ‘100% pure fruit juice’. Could the use of the term ‘100% pure’ be considered misleading labelling, when applied to products which contain ingredients other than just 100% pure fruit juice?
Section 24(2) of the Consumer Protection Act (CPA) provides that a supplier must not ‘knowingly apply’ labelling which is likely to mislead a consumer. Strangely, the burden on a retailer, the entity which supplies directly to the consumer, is heavier. If a retailer knows, reasonably could determine, or has reason to suspect that a label is likely to mislead a consumer, the retailer must not supply those goods.
The labelling of fruit juices is regulated by the Department of Health, which is responsible for the Foodstuffs, Cosmetics and Disinfectants Act 54 of 1972 and its regulations, the most recent of which, GN R146, came into effect on 1 March 2012.
According to GN R146, terms which indicate specific health qualities of a product, such as ‘pure’, are permitted in the case of fruit juice if the juice is compliant with the criteria referred to in the Labelling and Advertising of Foodstuffs Guidelines. These guidelines are currently incorrectly numbered and the criteria referred to are listed on a website with a faulty hyperlink. In summary: the regulations regarding the labelling of fruit juice as ‘100% pure’ are unclear, contradictory and incomplete. One would hope that suppliers know what their duties are, because consumers certainly will not.
This specific issue was dealt with by the Advertising Standards Authority of South Africa (ASA) after a complaint regarding the use of the term ‘100% CRANBERRY JUICE’ on a fruit juice label (Skweez Cranberry Juice / S Wylie / 9922, available at http://www.asasa.org.za/ResultDetail.aspx?Ruling=3987). According to the ASA ruling it was legitimate for the product to be labelled ‘100% Cranberry Juice’, even if the juice was diluted with permitted preservatives (e.g. sodium benzoate, potassium sorbate and pimarcin), natural fruit essence, flavourants, ascorbic acid or carbon dioxide, as the addition of these ingredients does not make the juice content less than 100% cranberry, and the reasonable person would understand that a juice product on a shelf would need added preservatives to prolong its shelf life.
Food products are labelled with a list of ingredients so that the consumer can know what they are buying in case there is an ingredient which they wish to avoid. The words ‘100% fruit juice’ on the label of a product of which the list of ingredients on the back suggests otherwise, is misleading when read in light of sections 22 and 24 of the CPA. Consumers should not be expected to know how to assign technical meanings to concepts in order to properly exercise their right to information. If the ASA is correct in reasoning that the reasonable consumer does interpret ‘100%’ to include preservatives, then what is the sense of allowing a marketing term which is openly acknowledged to be untrue when interpreted in the literal sense, and which contradicts the full list of ingredients on the back of the label?
This issue is just one example of product mislabelling that takes place in the food and retail industry in South Africa. The CPA was established to regulate this type of conduct, and, in light of provisions of the Act and the clear lack of consumer protection in this example, the legislature and the ASA need to be more stringent regarding the mislabelling of food products. For some ‘100% fruit juice’ is merely an insult to their intelligence, but for others it is a potential health risk.
Eitan Stern manages eLabel (http://www.elabel.org). The organisation helps consumers make more informed decisions when choosing food products. The eLabel platform consists of an integrated network of websites and mobile applications which give consumers critical information where it counts the most – in the supermarket aisle. eLabel’s sister organisation, Concerned Consumers (http://www.concernedconsumers.co.za), acts partly as a consumer watchdog and consists of a network of 10 000 registered consumers in South Africa
Treating customers fairly in South Africa: What to expect
By Warren Radloff
Can the FSB shut down a business if it believes that its practices are unreasonably risky at the expense of customer protection? I was working in London when the UK Financial Services Authority (FSA) decided to roll out its Treating Customers Fairly (TCF) policy to all regulated firms. This sort of question caused much panic among the regulated community. Many of my clients did not see why TCF was relevant to their business and did not understand what the FSA wanted from them. I foresee similar questions arising in South Africa, as the FSB seeks to implement a very similar TCF approach to the regulation of financial services. This article is a brief look at the FSB’s TCF agenda as set out in its policy document, ‘TCF: The Roadmap’ dated 31 March 2011 (TCF Roadmap), with added insight from my experience of the FSA’s TCF initiative in London.
What is TCF?
As the name suggests it is a policy aimed at ensuring that all regulated firms ‘treat their customers fairly’. To comply with the policy your firm needs to demonstrate that it meets six principles or what are being termed ‘fairness outcomes’ (TCF Roadmap, 7):
Does TCF apply to me?
The FSB has said that it must still define which categories of financial products and services are regarded as having a ‘retail’ impact and therefore which firms will be obliged to deliver TCF outcomes (TCF Roadmap, 14). In my opinion, TCF is clearly a retail customer protection policy and makes little sense when applied in a wholesale context. The FSB can avoid much of the confusion which arose during the FSA’s implementation of TCF by properly defining the terms ‘retail’, ‘retail customer’ and ‘retail product or service’ for TCF purposes. The FSA, compelled under European directives to separate its regulated firms into ‘retail’, ‘professional’ and ‘eligible counterparties’, could not tamper with its definitions. The FSA was wary of introducing a new definition of ‘retail for TCF purposes’ as it would certainly include some professional firms. The FSA approach has been to apply TCF to all firms, but in practice to concentrate its supervisory resources on those firms with retail clients. As the South African regulatory framework does not recognise the general concept of a ‘professional client’, there should be no such confusion in introducing a definition of ‘retail client for TCF purposes’. The FSB has expressed concerns that explicit definitions might lead to definitional loopholes, but this would surely be addressed by proper drafting. I would therefore expect that TCF would apply to firms who direct their products or services, whether directly or indirectly, at customers who are ordinary financial customers or ‘retail customers’.
What do I have to do?
A firm will have to demonstrate that the fair treatment of customers is central to its culture. The FSB believes that if this is achieved, then the remaining five fairness outcomes will follow as a matter of course. The TCF Roadmap sets out a TCF culture framework which has the following key drivers:
The FSB is still to decide on its reporting requirements. The TCF Roadmap (22) suggests that it would like to have both non-public reporting (e.g. regulatory returns and compliance reports) and public reporting (e.g. claims statistics, complaints volumes and investment performance against benchmarks). I would be interested to see whether the FSB will adopt some of the FSA’s more intrusive supervisory techniques such as mystery shopping, which are only hinted at in the policy paper.
Will I be punished if I don’t treat customers fairly?
The FSB has said it wants not only to develop and monitor the TCF framework, but also to enforce adherence to the framework. The FSB says that it would first negotiate any corrective action by engaging with the firm’s senior management (TCF Roadmap, 27). Where this fails or where the FSB considers that there is a serious risk to consumers or unacceptable conduct by the firm, it would take formal action against the firm.
The FSB’s current enforcement powers include:
The FSB aims to implement TCF by January 2014, with the caveat that this timeline would not preclude earlier promulgation of TCF-related legislative changes should circumstances warrant it. I do hope that the retail banking sector’s exemption from TCF is short lived (it is due to the FSB’s current lack of jurisdiction over retail banks). The exemption flies in the face of a retail consumer protection initiative; it is the equivalent of making seatbelts mandatory for all vehicle passengers, excluding children.
After the initial jitters TCF was adopted without much fuss by the UK regulated community. This outcome-based initiative blended well into the FSA’s principles-based regulation and the UK’s customer service-oriented business culture. I believe the FSB will find it more of a challenge to adopt an identical policy in South Africa. However, if the fair treatment of customers is important to the FSB, then it must make tough decisions and persevere with this initiative.
The latest news: Between July and November 2011 the FSB piloted a Treating Customers Fairly self-assessment tool with a sample group of financial services firms. This tool was to assist the firms to gauge their success in achieving TCF fairness outcomes and culture framework requirements. The FSB has now published a feedback report on the pilot exercise and the key TCF lessons and observations. Drawing from these responses the FSB intends to publish the final version of the TCF self-assessment tool in the first quarter of 2012.
The FSB has also apparently won its turf war with the NCC. The Financial Services Laws General Amendment Bill 2012 was published for comment on 7 March 2012. The comments have to be in by 02 May 2012. In short, it ‘exempt[s] any financial service, product or institution regulated by the FSB and the FSB from the scope of the Consumer Protection Act, as higher standards of consumer protection are being implemented in terms of financial sector legislation.’ (Source: Motivation for Proposed Amendments http://www.fsb.co.za)
Warren Radloff obtained his B Juris and LLB at the University of Port Elizabeth and his LLM at the University of Cape Town. He was admitted as an Advocate of the High Court of South Africa in 1999 and practised at the Cape Bar until 2001. He then worked for the ANC in Parliament until 2003. Since then he has lived in the UK, where he was admitted as a Solicitor of the Supreme Court of England and Wales and obtained an Investment Management Certificate from the CFA Society of the UK. He worked for the FSA where he specialised in the regulation of asset management firms and banks, before joining Kinetic Partners LLP in 2008, an asset management consultancy in London. Warren is a member of the FAIS committee of the Compliance Institute of South Africa and advises clients on various aspects of the financial services sector in South Africa and Europe.
In search of the plain language standard
Few of the provisions of the CPA have been more perplexing to attorneys than section 22, which deals with the plain language standard. Perhaps this is because, ironically, the section which explains what plain language is is not written in plain language. Perhaps it is just because attorneys are not used to drafting in this way. Whatever the case may be, consumer contracts must be in plain language. You will not find this in section 22; this obligation is created by section 50(2) which provides that if a consumer agreement is in writing (as most are, but even if they are not a consumer is entitled to demand it) it must be in plain language.
Plain language also plays a role in determining whether a particular term of an agreement is considered unfair to the consumer in terms of section 48. Section 52 lists the extent to which the plain language requirement was satisfied as one of the factors which a court must consider when considering the fairness of a term.
So, what will happen if a contract is not in plain language? This is by no means certain from the CPA. (It is not clear whether a failure to meet the plain language requirement will make an agreement void per se. The wording of section 52 suggests that it is just one factor to be taken into account when determining whether a term is unfair and consequently void. The position may be different for exemption clauses (see section 49(3).) Practice, however, tells us that apart from the distress which it may cause a supplier’s consumers, the repercussions for that supplier’s image and the increased queries and complaints, the NCC may order (and have been doing so) suppliers to amend their terms at very short notice. More distressingly, it appears that the NCC believes that it has the power to prescribe what the reformulated term must look like – this impression was created by the papers in all the cases against the cell phone providers.
But what is plain language? The use of the word ‘plain’ is unfortunate. This is because ‘plain’ is equated to ‘simple’, which strengthens the misconception that translating a document into plain language involves ‘dumbing down’ the document. This is not the case, nor should it be. The word ‘plain’ in this context should rather be equated to ‘understandable’ or ‘accessible’. This means that it is entirely possible to translate complex legal concepts or documents into more understandable or accessible language. The word ‘more’ in the previous sentence is also very important. Plain language is often a matter of degree; it is not a standard that is ever ‘achieved’. What is plain language for purposes of the CPA? A strict legalistic approach to plain language is not to be encouraged. The plain language movement has been gaining momentum for years in other fields. Reproducing the ‘definition’ of plain language used in section 22 is also not helpful. The definition only becomes accessible when it is broken down into components.
Must the contract be understandable to each individual consumer before the requirement is met? No. The contract must be understandable to an ordinary consumer of the class of consumer for whom the contract (by implication the product or service) is intended. This means that if a particular product or service is marketed to a more sophisticated market a more sophisticated contract will be appropriate. However, this ‘ordinary consumer’ must have minimal experience of that particular transaction and must be of average literacy. The issue of literacy is also addressed in section 40(1), which provides that a supplier must not 'knowingly' take advantage of a consumer’s illiteracy or inability to understand the language of the particular agreement. The issue is raised again in section 52, where the parties’ relative capacity, education, experience, sophistication and bargaining position’ are listed as factors in determining the fairness of a particular contract.
How hard must the consumer try to understand the contract? It depends. The consumer must understand the term with ‘undue effort’. When will effort be due? Perhaps when the product or service is particularly expensive, complex in nature or important, one can expect a greater effort from the consumer or perhaps even that the consumer will seek independent advice.
When viewed in this fashion several myths about plain language are debunked. It is not an entirely subjective standard. In fact it is often possible to clearly identify the class of persons to whom a product or service is marketed, as well as their characteristics, including education and sophistication. In fact, many suppliers have market research companies who are appointed entirely for that purpose. It is also clear that the requirement is adaptable to different circumstances. The standard may differ depending on the sophistication of the product or service. The level of simplicity of the terms for the sale of a refrigerator need not be the same as a contract for the sale of insurance.
How well must the contract be understood? Very well. The consumer must understand the ‘content, significance and import’ of each term. The difference between these terms is subtle if not non-existent, but it is clear that the consumer must understand both the express and implied meaning of a term and its legal consequences.
I will not discuss other elements such as the context, comprehensiveness, consistency, organisation, form, style, vocabulary, sentence structure and the use of illustrations, examples, headings or other aids to reading and understanding, which are mentioned in section 22. These will be addressed in the monthly plain language tips. However, the importance of the design of the document must never be underestimated. Plain language is not only about the words.
PLAIN LANGUAGE TIPS
On that note – here is this month’s plain language tip:
Be careful of so-called ‘boilerplate' clauses. By their very nature they are used over and over in precedents, without much thought for their relevance to a particular situation or whether they are needed, given the level of complexity of the agreement. They are also often written in legalese which is not understandable, even to the attorneys who use them.
Their relevance and formulation should be assessed in each agreement.
A good example is the clause which deals with severability:
Except as expressly provided to the contrary herein, each paragraph, clause, term, and provision of this AGREEMENT, and any portion thereof, shall be considered severable. If for any reason, any provision of this AGREEMENT is held to be invalid, contrary to, or in conflict with any applicable present or future law or regulation in a final, unappealed ruling issued by any Court in a proceeding to which [insert name] is a party, that ruling shall not impair the operation of, or have any effect upon, such other portions of this AGREEMENT as may remain otherwise intelligible, which shall continue to be given full force and effect and bind the parties hereto.
If any provision of this Agreement is declared invalid for any reason, the rest of the Agreement will remain valid (binding on the parties), unless the rest of the Agreement cannot be enforced without the invalid provision (not severable).
(Always remember that this will depend on the factual situation and instructions received from your client.)
Provided by the Unit for Document Design and the Stellenbosch University Language Centre and Elizabeth de Stadler from Esselaar Attorneys.
© 2012 Stellenbosch University Language Centre and Elizabeth de Stadler
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