Dear Consumer Law Review recipient,
It is essential for any attorney who wishes to be a ‘consumer lawyer’ to remember that this not only requires a thorough knowledge of the Consumer Protection Act, but also of any legislation which operates within the industry under discussion. This is because, in many cases, the CPA will operate concurrently with any industry-specific legislation or will, in limited instances, be excluded in favour of industry-specific legislation. This month’s developments are perfect examples of this phenomenon.
We will cover the very significant decisions of the National Consumer Commission, two National Credit Advisor cases, the resistance to the proposed amendments to the Short-term Insurance Act (a prime example of industry-specific consumer protection) and the latest on the Protection of Personal Information Bill.
Until next month,
Elizabeth 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.
- At the National Consumer Tribunal
- Cases on the National Credit Act
- Consumer law legislation
- Plain language tip
The NCT’s decisions are available on its website (http://www.thenct.org.za/) or can be accessed on SAFLII (http://www.saflii.org/za/cases/ZANCT/).
The NCT’s decision in the case of Vodacom Service Provider Company (Pty) Ltd and Vodacom (Pty) Ltd v National Consumer Commission NCT/2793/2011/101(1)(P) has been the most instructive decision to date. For the first time, the validity of a compliance notice has been interrogated in full. The case will be used against the NCC for some time to come.
In September 2011 the NCC served a compliance notice on Vodacom for the alleged non-compliance of its subscriber contracts. The timing of the compliance notice was strange, as at that time Vodacom had already agreed to revise its subscriber agreements by 31 October 2011. Despite this agreement, Vodacom refused to sign a consent order as it did not agree that it was engaged in the prohibited conduct complained of in the consent order and that signing the order would expose Vodacom to administrative fines. According to the NCC, it therefore had no choice but to issue the compliance notice against Vodacom.
Note that there is a difference between a consent order and a compliance notice. A consent order is an agreement between two or more parties to a dispute. In litigation terms this would be known as a settlement agreement. The order which the parties were seeking from the National Consumer Tribunal is the equivalent of a court order. Therefore they were in essence seeking to make the agreement between them an order of court. A compliance notice, however, is a notice issued by the NCC in terms of s 100 in which it will (at least in theory) notify a party that it is engaging in prohibited conduct, outline the details and extent of the non-compliance and the steps that must be taken in order to comply.
Vodacom challenged the validity of the notice on several jurisdictional grounds (see para 29 of the decision). It alleged that:
· the compliance notice was served on the wrong party;
· the compliance notice related to the wrong contract;
· the issuing of the compliance notice was irrational and done for the wrong reasons; and
· there was no consultation with the Independent Communications Authority of South Africa (ICASA) prior to the issuing of the compliance notice as required by s 100(2) of the CPA.
It was accepted that the issuing of a compliance notice constitutes an administrative action (see para 45 of the decision and s 32 of the Promotion of Administrative Justice Act 3 of 2000) and that it must therefore be lawful, reasonable and procedurally fair. The NCT also took the point that the issuing of a compliance notice would be unlawful if all the jurisdictional facts prescribed in s 100 of the CPA were not in existence or observed (see para 44 of the decision). In light of these observations, the Tribunal identified the following questions consideration:
· Did the NCC have a reasonable belief that Vodacom was engaged in prohibited conduct?
· Did the NCC serve the compliance notice on the correct party?
· Did the NCC issue the notice for a valid reason?
· Did the NCC consult ICASA as required in terms of s 100(2)?
· Was the issuing of the compliance notice lawful, reasonable and procedurally fair?
Was there a reasonable belief of non-compliance?
This enquiry hinged upon whether there was a proper investigation. This aspect was also discussed in the Tribunal’s judgment in City of Johannesburg v the National Consumer Commission  ZANCT 6, where it was decided (certainly not surprisingly) that a compliance notice may only be issued once an investigation has been completed.
It has been the practice of the NCC in all the cases against the cell phone operators to provide an ‘analysis’ of the relevant subscriber agreement by listing the clauses of the subscriber agreement (verbatim) in a column with an accompanying column listing the sections of the CPA which are contravened. In all of the cases against the cell phone operators, the NCC refers to these documents as ‘analysis reports’. The NCT pointed out that calling this report an ‘analysis’ is indeed a misnomer. The clauses are merely identified and not analysed and no reasons are provided as to why these clauses contravene the CPA (see paras 52 and 53 of the decision).
The NCC was criticised for the following:
· The compliance notice was based on an old (possibly pre-CPA) version of the subscriber agreement and the discussions between the parties were not taken into account (see para 57).
· The compliance notice was based on the analysis report which, even on the NCC’s version, is a preliminary document which simply identified certain clauses as ‘possibly’ contravening the CPA (see para 58).
· No reasons for the NCC’s interpretation were advanced in the analysis report and Vodacom’s explanations in relation to these clauses were not taken into account when the compliance notice was drafted. A ‘reasonable belief’ cannot be formed without taking Vodacom’s views into account. In the absence of a weighted approach, compliance notices will be issued based on the NCC’s uncontested views. ‘Detailed analysis’ is needed, particularly where the NCC is dealing with grey-listed terms in terms of regulation 44 (see paras 59 to 62).
Based on these criticisms, the NCT held that the NCC did not show that ‘it had a reasonable belief, based on objective facts, reasons or principles that [Vodacom] was engaged in prohibited conduct’ (see para 63 of the decision). It held that the NCC’s conduct was arbitrary and unlawful.
The NCT could have stopped at this point, as this finding was enough to set the compliance notice aside. That notwithstanding, the remaining questions were also examined.
Was the compliance notice served on the right party?
The compliance notice was served on Vodacom (Pty) Ltd, instead of on Vodacom Service Provider Company (Pty) Ltd which actually concludes the contract with the consumers. The NCC argued that Vodacom can be held liable because it licences VSP to contract with consumers. It also argued that consumers do not know what the distinction is between these two parties and that they should be regarded as the same. Both of these arguments were rejected by the NCT. The first, because Vodacom’s liabilities in terms of the licence conditions do not extend to matters governed by regulatory bodies other than ICASA and the second, because ‘[the] Tribunal cannot make a decision regarding the correct party to be held liable in law based on the perceptions of consumers’ (see para 69 of the decision).
This is not the first time that the NCT has had to consider this issue. MTN made the same argument when the NCC issued a compliance notice against it instead of against MTNSP, with whom consumers contract when they take out a contract with MTN. This point was considered and rejected by the NCT (Mobile Telephone Networks (Pty) Ltd v National Consumer Commission  ZANCT 3 (19 March 2012). This Tribunal (which consisted of differed members) came to a different decision on what seems (without extensive analysis) to be the same facts with little explanation for how these cases can be distinguished. On the face of it there now seems to be some uncertainty as to the approach which the NCT will follow when confronted with incorrect citations on compliance notices.
Disturbingly the NCC’s error was pointed out to it and Vodacom requested that VSP should be substituted as the correct party. The NCC refused. This decision was criticised by the NCT as it lead to an ‘unnecessary waste of resources which…had little or no impact on the final outcome of this matter’.
Did the NCC issue the compliance notice for valid reasons?
Section 100(2) provides that a compliance notice can be issued when the NCC believes that a person has engaged in prohibited conduct and for no other reason. If a compliance notice is issued for an ulterior purpose or motive it would be unlawful (see paras 70 and 71 of the decision). The correspondence emanating from the NCC indicated that it was not issuing the compliance notice because it believed that Vodacom was engaged in prohibited conduct, but because it would not sign consent order (see paras 72 to 74 of the decision). The NCT declared that it was ‘unlawful for the [NCC] to use the threat of a compliance notice in order to force a party to agree to terms which it would not usually agree to’, and that ‘[r]efusing to agree to a consent order does not constitute prohibited conduct under the CPA’ (see para 76).
Did the NCC consult with the regulatory authority (ICASA)?
Section 100(2) provides that before issuing a compliance notice to a regulated entity ‘the Commission must consult with the regulatory authority that issued a licence to that regulated entity.’ Vodacom submitted that the one meeting which did take place between the NCC and ICASA did not constitute ‘consultation’, but that the meeting was merely aimed at informing ICASA that it intended to issue compliance notices to various industries in the Information and Communication Technologies sector (see para 82). This was not the first time that a supplier in this sector has made this particular allegation before the NCT. The same argument was made successfully by MultiChoice (see the decision in MultiChoice Africa (Pty) Ltd v the National Consumer Commission  ZANCT 4). In the case under discussion the NCT found that the aim of the meeting was not to ‘consult’, because the NCC had, at that stage, already made up its mind to issue compliance notices and in fact presented the compliance notices to ICASA. According to the minutes of that meeting ICASA was not even informed that the members of the industry was attempting to comply with the NCC’s requests and that they had been granted until 31 October 2011 to do so (see para 88).
Was the issuing of the compliance notice lawful, reasonable and procedurally fair?
The NCT found that the compliance notice was unlawful for the following reasons: The NCC ‘arbitrarily and capriciously’ gave Vodacom only until 30 September 2011 to comply with the compliance notice while it previously gave Vodacom until 31 October 2011 to amend its contracts. The NCC refused to consider (again ‘arbitrarily and capriciously’) the amended version of the Vodacom contract when it compiled the compliance notice. The NCC refused to provide reasons for its decision to issue a compliance notice as it was obliged to in terms of s 5 of PAJA. The NCC issued the compliance notice in order to impose a consent order to which Vodacom had not consented, as it was entitled to do.
The significance of this decision is that similar compliance notices were issued against all of the cell phone operators which, if challenged, should be set aside based on this precedent. The next case on the NCT’s roll is MTN’s application. Only the first round has taken place in which the NCT dismissed MTN’s application to have the compliance notice set aside on the basis that the wrong party was cited (see the Consumer Law Review of April 2012). MTN has raised many of the questions which were answered in Vodacom’s favour making it likely that the NCC should lose round two should it ever take place. According to MTN’s attorney, Robby Coelho of Webber Wentzel, the NCC has been invited to withdraw their opposition given the result in the Vodacom case. The NCC refused the invitation and the hearing was held on 11 July 2012. Given the likely outcome this seems like yet another waste of resources made even more objectionable by the fact that nothing precludes the NCC from investigating MTN properly, issuing compliance notices afresh and following the correct procedure if required.
Other important issues which attorneys should keep in mind when advising suppliers who are faced with ‘analysis reports’, consent orders or compliance notices are the following (amongst others):
· The issuing of a compliance notice is an administrative action in terms of PAJA and it must therefore be lawful, reasonable and procedurally fair.
· Suppliers are entitled to be provided with the reasons for the issuing of the compliance notice in terms of s 5 of PAJA.
· The NCC must complete its investigation before issuing a compliance notice. Issuing an ‘analysis report’ is not enough to constitute an investigation.
· If the supplier belongs to a regulated industry the industry regulator must be consulted before a compliance notice is issued.
· The NCC can only issue a compliance notice if it believes that a supplier is engaged in prohibited conduct and for no other reason.
· Refusing to sign a consent order when asked to do so by the NCC is not prohibited conduct and the NCC cannot issue a compliance notice as a result of such a refusal.
The developments surrounding the Auction Alliance saga are instructive as they not only shed some light on the way in which auctions are regulated in terms of the CPA, but also involves important ‘procedural concepts’ which are introduced by the Act.
Few attorneys were aware of the fact that the CPA contains extensive provisions on auctions (with the exception of sales in execution), before the NCC decided to pursue a claim against Auction Alliance. Of course, most of the Act applies to auctions as the sales concluded are not conceptually different to any other sale. Section 45 and regulation 19 to 33 specifically apply to auctions.
Before launching into the details the following cautionary statement is appropriate. The information is based on reports in the media. Once the entire matter has been heard the NCT will issue a written judgment. The media reports have not always been accurate in the past, but certainly the main themes are discernible.
Businesswoman, Wendy Appelbaum, lodged a complaint with the NCC against Auction Alliance. The gist of her claim was that Auction Alliance made use of a ghost bidder to drive up the price at the auction of Quion Rock estate.
What did the NCC do?
It found that Auction Alliance and the liquidators of the Quoin Rock estate were in breach of the CPA and issued a compliance notice against both parties. This compliance notice is being challenged by Auction Alliance.
Later the NCC and the liquidators of Quoin Rock agreed to modify the compliance notice to remove all references to the liquidators. Auction Alliance did not agree to this modification.
What did the Tribunal say?
According to the press the ‘application for the confirmation of a consent order regarding a compliance notice against Auction Alliance and the liquidators in the auction of Quoin Rock estate was dismissed by the Consumer Tribunal.’ (Business Day of 27 June 2012 available at http://www.businessday.co.za/Articles/Content.aspx?id=175039). Reasons for the decision will be available once the entire matter has been decided. As explained in the summary of the Vodacom decision above, there is a difference between a consent order and a compliance notice. The consent order related to amendments which the NCC and the liquidators wanted to make to the compliance notice.
It would appear from reports in the press (Business Day of 27 June 2012 available at http://www.businessday.co.za/Articles/Content.aspx?id=175039) that the reason why the Tribunal would not confirm the consent order was that the consent order only related to one of the parties at whom the compliance notice was directed. The other party, Auction Alliance, wants to cancel the compliance notice as it is of the view that the notice is not lawful. The Tribunal could not confirm a consent order modifying the compliance notice and hear submissions on the cancellation of the same, modified compliance notice when Auction Alliance’s challenge to the compliance notice is heard.
What will Auction Alliance do next?
Auction Alliance has challenged the NCC’s compliance notice. The application to have the notice set aside will be heard this month. Auction Alliance argues that ‘[t]here were glaring irregularities within the fact-gathering process as a whole that demand comment, criticism and censure.’ It is also alleged that ‘the NCC made orders which are vague, nonsensical and beyond its jurisdiction to grant.’
As an aside: summonses issued after a compliance notice
In a curious move the National Consumer Commissioner issued summonses against Auction Alliance executives after a compliance notice was issued against the company. Auction Alliance challenged these summonses and on 18 June 2012 the Western Cape High Court held that the Commissioner acted outside her powers and that summonses cannot be issued after a compliance notice has been issued as that effectively concludes the NCC’s investigation into a matter (Business Day of 19 June 2012 available at http://www.businessday.co.za/Articles/Content.aspx?id=174457).
[Note from the editor: While this edition was in production, the NCT set aside the compliance notice issued against Auction Alliance. This means that they are off the hook (for now). The NCT indicated that it would make the reasons for this decision available at a later stage.]
Section 85(9)(c): Challenge to constitutionality opposed by the NCR
In the May/June edition of CLR Paul Esselaar wrote about a decision in the Western Cape High Court in which s 85(9)(c) of the National Credit Act was declared unconstitutional for being inconsistent with s 25(1) of the Constitution (the right not to be deprived of property arbitrarily).
The National Credit Regulator has decided to oppose the confirmation of the decision in the Constitutional Court.
Section 89(5) provides that if a credit provider fails to register as a credit provider when it is obliged to do so then a court must order:
· that the credit agreement was void (not voidable) from the date it was entered into;
· that the credit provider must refund the consumer any money paid with interest; and
· any purported rights which would normally be due to the credit provider ‘under the credit agreement’ are either cancelled or forfeited to the state.
The fate of this provision is now in the hands of the Constitutional Court.
Section 129 notice: The Constitutional Court has spoken
Section 129 has long been one of the most contentious provisions in the NCA. The section requires that a credit provider must bring a consumer’s default to the notice of the consumer in writing before it can commence any legal proceedings. The question has always been whether this notice must actually be received by the consumer or whether it is enough that the notice was delivered at the consumer’s chosen address.
The Constitutional Court has finally resolved this matter in Sebola and Another v Standard Bank of South Africa Limited and Another (CCT 102/11, 103/11)  ZACC 10 (29 May 2012). Cameron J held that the requirement will be met if a credit provider avers and proves that the notice was delivered to a consumer. In practical terms (where the notices are delivered by mail) the credit provider must produce ‘proof of registered dispatch to the address of the consumer, together with proof that the notice reached the appropriate post office for delivery to the consumer’ (see para 87 of the judgment for a summary of the decision). This will constitute prima facie evidence that the notice was delivered. It is of course open to a consumer to allege that the notice did not reach him or her in which case the court must investigate this claim and if so adjourn proceedings in terms of s130(4)(b).
New ‘guidelines’ on product recall
The Department of Trade and Industry published the Consumer Product Recall Guidelines on 13 June 2012 (GN 490 in GG 35434 of 13 June 2012).
Suppliers should beware that these guidelines are not guidelines in the true sense of the word, ie it would appear that suppliers have very little (if any) discretion in the matter. The guidelines must be part of any Industry Code which is developed in terms of s 82. In terms of s 82(2) the Minister is authorised to prescribe an industry code on the recommendation of the NCC.
Several of the ‘guidelines’ will be of interest to suppliers, not least of which that ‘[s]uppliers have an obligation under the CPA to notify the Commission when they undertake a recall.’ (guideline 3) Suppliers are required to notify the NCC within two days from initiating the recall (guideline 2).
The general ‘responsibilities’ of suppliers are to:
· conduct a comprehensive risk analysis of the safety hazard;
· stop distribution of a product that has been identified for a product recall;
· remove the unsafe product from the marketplace;
· notify the relevant regulator(s);
· notify the public;
· notify international product recipients;
· notify others in the domestic supply chain;
· facilitate the return of recalled products from consumers;
· store and dispose of recalled products safely;
· have a written recall strategy/plan;
· maintain records and establish procedures that will facilitate a recall; and
· provide progress reports on the conduct of the recall to the Commission and relevant regulators.
Ignoring the guidelines is an offence under s 110(2) (see Section B, para 1.1 of the guidelines). Section 110(2) provides that ‘[i]t is an offence to fail to act in accordance with a compliance notice’. It would therefore appear that the guidelines are effective a ‘standing compliance notice’ and therefore it is uncertain whether the Commission would be required to issue ‘another compliance notice’ before acting against a supplier. Given that the contravention of a code of conduct is prohibited conduct in terms of s 82(8) it is also possible (although again not clear) that the NCC could ask the NCT to impose an administrative fine in terms of s 112 against any supplier who fails to comply with the guidelines.
Suppliers would be well advised to review and update their product recall procedures.
The short-term insurance industry came under attack from the Treasury last month (see the Business Day of 19 June 2012 available at http://www.businessday.co.za/Articles/Content.aspx?id=174449). It stands accused of being ‘behind the curve’ when it comes to treating consumers fairly. Internal complaints management procedures and the industry ombud also came under fire. The remarks were heavily criticised by members of the industry as being too generalised. On the face of it this criticism seems justified. However, the laudable efforts by individual insurers does not detract from the fact that problems do exist, particularly when it comes to the format in which information is disclosed to the consumer and the fact that policies are rarely written in understandable (plain) language.
The remarks from Treasury must be seen against the backdrop of the proposed Financial Services Laws General Amendment Bill (see Warren Radloff and Elizabeth de Stadler’s article in the CLR of June 2012). This Bill is currently being negotiated after submissions closed in May 2012. The powers that the Bill would grant to the Registrar of Insurance has recently been criticised by Professor Vivian from the Wits University School of Economic and Business Sciences (see the Business Day of 29 June 2012 available at http://www.businessday.co.za/Articles/Content.aspx?id=175278). He points out that enabling the Registrar to dictate policy wording would be a ‘concerted move away from naturally competitive market forces towards central planning of a critical sector of the South African economy’. He expressed the concern that this restricts competition which would ultimately leave the consumer with fewer products and suppliers to choose from. This type of interventionist policy was adopted in Europe and ‘had proved to be unworkable and detrimental to the industry’.
Protection of Personal Information Bill
The Portfolio Committee received a briefing from the Department of Justice and Constitutional Development on the work done by the Technical Committee on the Protection of Personal Information Bill on 19 June 2012. The Bill is now in its 7th Working Draft and has been presented by the Technical Committee to the Portfolio Committee for further deliberation.
It is still expected that the Bill will be passed into law in the next 4 months. This means that all suppliers who process personal information should start familiarising themselves with the provisions of this Bill. To say that the Bill covers a wide range of activities is an understatement. ‘Processing’ means the collection, receipt, organisation, collation, storage, updating or modification, retrieval, alteration, consultation or use, dissemination, distribution, merging, linking, restriction, degradation, erasure or destruction of information. (See Russell Opland’s article in the May/June 2012 edition of CLR for more information.)
The Bill has very specific implications for direct marketers. It will no longer be sufficient to (only) comply with the CPA.
Attorneys are accustomed to using the phrase ‘in full and final settlement of any claim which you may have’ in communications in which settlement offers are made to consumers who have complained about a product.
This phrase might not necessarily be considered legalese, but consider using a friendlier tone when communicating to consumers. We suggest:
We will gladly compensate you in the amount of [INSERT AMOUNT] to, in some small way, make up for your loss. Please note that should you accept this settlement amount, you cannot bring any further claims relating to this incident.
The plain language tips were drafted by Elizabeth de Stadler and Ruth Baitsewe of the Unit for Document Design at the Stellenbosch University Language Centre.
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