The Consumer Protection Act (CPA) and the draft regulations thereto issued for comment, will make significant changes to in the legal requirements for promotional competitions, according to lawyers from Cliffe Dekker Hofmeyr business law firm. The CPA changes the definition of promotional competitions, closes loopholes for the exemptions of competitions from the law, regulates the prices promoters may charge for competitions, and makes new provisions for the rules according to which competitions must be conducted.

Emma Kingdon, director in the Technology, Media and Telecommunications (TMT) Practice at Cliffe Dekker Hofmeyr business law firm, explains that section 36 of the CPA and its accompanying regulations will repeal section 54 of the Lotteries Act and its regulations dealing with promotional competitions.

“The first notable change is to the definition of the phrase 'promotional competition'. The CPA defines a promotional competition as "any game, competition, scheme, arrangement, system, plan or device for distributing prizes by lot or chance, conducted in the ordinary course of business for the purposes of promoting goods, services or persons, where the prize exceeds a certain threshold, and irrespective of whether or not participants are required to demonstrate any skill or ability before being awarded a prize".

Kingdon says that currently under the Lotteries Act, it is possible to argue that a competition, which involves an element of skill by the participants, is not a promotional competition, as the skill suggests that the distribution of prizes is not by chance. The revised definition in the CPA closes that loophole by making the element of skill irrelevant, thus bringing more arrangements into the scope of the CPA.

Ilhaam Jakoet, associate in the TMT Practice at Cliffe Dekker Hofmeyr says that the second notable change is that there is no exemption for competitions that do not involve a 'subscription'.

“The Lotteries Act defines a subscription as the payment of any consideration in respect of the right to participate in a competition. Currently under the Lotteries Act, if competitions do not involve the payment of such consideration, they are exempt from the provisions of the Lotteries Act and its regulations on promotional competitions.

By contrast, the CPA does not mention any exemption for competitions that do not involve a subscription. The only exemption is for competitions whose prizes have a value that is below a threshold to be prescribed by the Minister of Trade and Industry. The draft regulations to the CPA propose that this monetary threshold should be R1. Since the monetary value of prizes in competitions is in most cases more than R1, it is difficult to envisage what types of competitions will not be subject to the CPA and its regulations,” Jakoet says.

Jakoet says the third notable change is that consumers cannot be required to pay any consideration in respect of the competition other than the reasonable costs of entering the competition.

“The draft regulations to the CPA go further and state that promoters who require consumers to enter competitions via SMS or MMS may not charge a fee that is higher than the minimum fee normally payable by the general public for an ordinary SMS or MMS on its chosen cellular network.

This dispenses with the confusion created by the current regulations to the Lotteries Act, which state that a promoter may not charge a fee in respect of the right to participate in a competition which is more than the fee usually payable for the goods or services being promoted. The draft regulations to the CPA have however adopted a different approach. The entry free for a competition is no longer linked to the cost of the goods or services being promoted. Instead, the regulations make it clear that it is unlawful to charge premium-rated SMS's or MMS's on entries to competitions,” she explains.

Jakoet says the fourth change is that the regulations to the CPA contain a new provision relating to the conduct of a competition. The regulations state that a promoter must ensure that a chartered accountant, registered auditor, admitted attorney or commissioner of oaths conducts the competition and must be reported on through the promoter's internal audit reporting procedures.

“In addition to the four changes described above, the CPA also sets out in detail certain prescribed minimum information that must be stated in relation to competitions, as well as the records that must be retained, the extent of which is onerous.

In addition, the draft regulations to the CPA also require a promoter to compile a full report on the conduct and outcome of the promotional competition, detailing inter alia the basis on which the prize winners were determined, a summary of the proceedings to determine the winners, and details of the person who oversaw the determination of the prize winners and whether that person was independent,” notes Jakoet.

Kingdon adds that in light of the above, “it is important that in the future (the CPA and is due to come into force on 1 April 2011) considerable attention is applied to the planning and conduct of a competition, including the drafting of its rules, the keeping of complete and accurate records and the appointment of expert and authorized persons to assist therein.”


Notes:

• Cliffe Dekker Hofmeyr is one of the largest commercial law firms in South Africa with some 115 directors/partners and 250 qualified lawyers located at offices in Johannesburg and Cape Town.

• Cliffe Dekker Hofmeyr lawyers specialise in services covering the complete spectrum of business legal needs in 11 core areas of practice. The firm also has dedicated sector-led teams consisting of lawyers with experience in a wide range of industries and the public sector.

• Cliffe Dekker Hofmeyr is the South African member firm of DLA Piper Group, an alliance of legal practices, which includes firms with offices around the globe that are affiliated to members of the DLA Piper Practice but are not themselves members of it.

• Cliffe Dekker Hofmeyr's Africa practice, in conjunction with DLA Piper Africa Group, is unrivalled in terms of pan-African legal services and geographical coverage.

• DLA Piper is an international legal practice with over 3,500 lawyers located in 30 countries and 69 offices throughout Asia, Europe, the Middle East and the US.

Written by Emma Kingdon, Director – Technology, Media and Telecommunications at Cliffe Dekker Hofmeyr attorneys