Consumer Protection Act - Financiers and property rights

The Consumer Protection Act, 2008 (the “Act”) is to be implemented in two phases: The provisions relating to the appointment of officials, the establishment of an administration and the making of regulations are due to come into force on 1 April 2011 (draft regulations have already been published for comment). The other provisions of the Act are due to come into force in October 2011.

The Act deals with three distinct matters, namely, consumer rights, franchise agreements and business names. It appears that the motive for dealing in the Act with franchise agreements and business names is mainly to bring the regulation of these matters under the control of the Department of Trade and Industry, the government agency that has promoted and drafted the Act. In this newsletter we deal only with those provisions of the Act relating to consumer rights.

The consumer rights provisions of the Act apply to (i) every “transaction” other than an exempt transaction; (ii) the promotion of any “goods” or “services”; (iii) goods and services supplied in terms of any transaction other than an exempt transaction; and (iv) goods and services supplied in terms of any credit agreement as defined in the National Credit Act, 2005. A “transaction” is defined as any transaction for the supply of goods or services for consideration by a person in the ordinary course of that person’s business. Exempt transactions include: (i) any transaction for the supply of goods or services to the State; (ii) any transaction where the consumer is a “juristic person” (defined as a body corporate, partnership, association or trust) whose asset value or turnover is at least a specified threshold amount (which according to a draft regulation is to be set at R3 million); (ii) any credit agreement as defined in the National Credit Act, 2005; and (iv) any transaction “pertaining to services to be supplied under an employment contract”.

The term “goods” is defined in section 1 of the Act to include (i) anything marketed for human consumption and any other tangibles; (ii) intangibles such as books, films and software; (iii) a legal interest in immovable property; and (iv) gas, water and electricity. The term “services” is widely defined in section 1 of the Act to include all types of services and the right to use or occupy any movable or immovable property, but excluding: (i) advice and intermediary services that is subject to regulation in terms of the Financial Advisory and Intermediary Services Act, 2002; (ii) services regulated in terms of the Long-term Insurance Act, 1998, or the Short-term Insurance Act, 1998; and (iii) a right granted in terms of a lease as defined in the National Credit Act, 2005.

Generally speaking, the Act serves to protect consumers by outlawing certain activities relating to the advertising, marketing, sale and supply of goods and services, imposing certain minimum obligations on suppliers in regards to the way in which they market and sell products and services, prescribing the minimum standards for labelling and disclosure of information to consumers, prescribing minimum standards for contracts relating to the supply of goods and services, providing for minimum product and service quality standards, granting consumers additional rights to terminate transactions, and affording consumers additional rights of recourse against suppliers and others involved in the promotion, manufacture, packaging and supply of products and services. The Act makes provision for the establishment of a National Consumer Commission whose role will be to receive and investigate complaints and other matters under the Act. Disputes under the Act may, depending on the circumstances, be referred to an ombudsman or be determined by a Consumer Court, a High Court or the National Consumer Commission established pursuant to section 26 of the National Credit Act, 2005.

Financial services providers are, generally speaking, subject to regulation under the Financial Advisory and Intermediary Services Act, 2002 and the Consumer Protection Act does not apply in these circumstances. The Act also does not seem to apply to the marketing and sale of securities and other financial instruments. Financiers of movable and immovable goods are to some extent excluded from the Act. Lease finance is excluded from the definition of “service” by virtue of the exclusion (in the definition of “rental”) of any lease as defined in the National Credit Act. The position regarding asset finance by way of, for example, suspensive sale agreements, is unclear. Section 5(2)(d) of the Act provides that the Act “does not apply to any transaction that constitutes a credit agreement under the National Credit Act” but that section goes on to provide that “the goods or services that are the subject of the credit agreement are not excluded from the ambit of this Act”. Whether or not a financier of goods under a suspensive sale agreement can avoid application of the Act in circumstances where, for example, a consumer wishes to return defective goods under section 56(2) of the Act for a refund “without penalty” will depend on whether or not the sale of the goods by the financier to the consumer can be regarded as a “supply” as defined in section 1 of the Act. In order for a “supply” to have taken place, the goods must have been sold by the financier “in its ordinary course of business”. Asset financiers who ordinary sell goods under suspensive sale agreements may have difficulty in avoiding the application of the Act in this respect. If goods are so returned to a financier, the financier may, depending on the provisions of the credit agreement, nevertheless be entitled to recover an appropriate amount of finance charges and costs since the agreement itself would not be subject to the Act.

Section 44 of the Act provides for a significant change in the South African property law. Section 44(1) provides that “every consumer has a right to assume … that in the case of a supply of goods, the supplier has the legal right, or the authority of the legal owner, to supply those goods”. Section 44(2) provides that “If, as a result of a transaction or agreement in which goods are supplied to a consumer, a right or claim of a third party pertaining to those goods is infringed or compromised the supplier is liable to the third party to the extent of the infringement or compromise”. Under common law, a person does not, generally speaking, lose his ownership in an asset by virtue of the wrongful actions of another person. Thus, for example, where, say, the owner of a car leaves his car with a garage for service or repairs and if the garage proprietor were, without the authority of the owner of the car, to sell the car to a third party, the third party purchaser would not acquire any right of ownership in the car notwithstanding that the purchaser might have paid the garage proprietor for the car and was unaware that the garage proprietor was not entitled to sell the car. The provisions of section 44 seem to provide that the purchaser in the foregoing example would acquire ownership of the car. Since the term “goods” includes rights to immovable property, the change apparently envisaged by section 44 would also apply to land.

The Finance Law Update is published as a complimentary service. The information in this publication is intended as a general summary of developments in South African finance law and should not be relied upon as legal advice.

For further information concerning any item in this publication please contact Jurgens Bezuidenhout on JB@Tabacks.com or telephone +27 11 358 7700 at Tabacks Attorneys.