The Consumer Protection Act will affect the form and content of all consumer agreements with individuals and small businesses. Suppliers, manufacturers and retailers will need to review the provisions of the CPA applicable to them to ensure they are compliant before the CPA comes into effect in April 2011.

The scope of application of the act is wide because it applies to any goods or services promoted or supplied in South Africa in the ordinary course of the supplier’s business. One of the major aims of the legislation is to protect consumers from unfair, unjust or unreasonable contract terms.
Under the common law, freedom of contract prevails and the signature of the parties to a lawful contract is conclusive of the fact that the parties have agreed and understand the terms of the contract. The Consumer Protection Act lays down rules that restrict the freedom of consumers and suppliers to form agreements, and the content and form of those agreements.

The law requires suppliers to furnish consumers with specific information regarding their obligations, that certain notices to consumers or provisions of agreement must be brought to the consumer’s attention and must satisfy a set standard of clear and plain language. The act also prohibits contractual terms which are unfair, unreasonable or unjust.
Unfairness implies an imbalance between the consumer and supplier. The draft regulations, which were published for comment, list certain contractual terms that will be deemed to be unfair or unreasonable if contained in consumer agreements. This is not a closed list but is likely to include terms which:
· exclude or limit the liability of the supplier in certain circumstances;

· exclude or restrict the legal rights or remedies of the consumer in the event of non-performance or inadequate performance by the supplier of its obligations;

· exclude or hinder the consumer’s rights to take legal action or exercise any other legal remedy, particularly the obligation to take disputes to arbitration only;

· restrict the evidence that may be relied on by the consumer;

· impose burdens of proof onto the consumer that should lie with the supplier; or
unfairly prevent the parties from having equal rights (for example granting the supplier unilateral decision making powers).

The list as contained in the regulations is broad and use of any of the listed provisions will be prohibited. We are left wondering whether these will be unfair in all conceivable circumstances.

The Office of Fair Trading in the United Kingdom has given some guidance, in the form of guidelines, an explanatory memorandum and examples of what constitutes an unfair term under the UK consumer protection legislation, which is similar to that in South Africa. A similar document from the DTI would be welcome.

Even if a term is not on the prohibited list, a party alleging that a term is unfair may approach the court if there is no sufficient alternative remedy in the act. Previously the courts only set aside clauses if they were contrary to public policy. Under the act, the courts are given the broad power to review contracts and to order them to be amended depending on what is equitable. Where there is ambiguity, the courts must interpret standard form contracts and other documents to the benefit of the consumer. So if you are a supplier, you need to ensure that your contracts are clearly drafted in terms of the act and regulations.

If a provision is found to be unfair, the clause or the entire contract is unenforceable and may lead to certain sanctions or remedies.

Suppliers are advised to be prudent and scrutinise their current practices and policies to ensure that they are compliant with the act. Ultimately, contract wording should be amended to conform to the provisions of the law. Businesses need to understand the act and how it applies to them. Ignorance could be costly.

Notes for editors:

On 1 June 2011 Deneys Reitz will, together with Ogilvy Renault LLP, be joining Norton Rose Group. Norton Rose Group is a leading international legal practice, offering a full business law service from offices across Europe, the Middle East and Asia Pacific. Norton Rose Group is strong in financial institutions; energy; infrastructure and commodities; transport; and technology. The addition of Deneys Reitz and Ogilvy Renault LLP to Norton Rose Group will give the Group increased resources across its principal practice areas, including corporate finance, banking, litigation and international arbitration, intellectual property and employment, and new sector strengths will result from Ogilvy Renault’s strength in pharmaceuticals and life sciences.

Established in the early 1920s, Deneys Reitz is one of the largest commercial law firms in South Africa, providing specialist services in the full spectrum of legal disciplines. The firm is a national organisation, with over 200 lawyers at its offices in Sandton, Durban and Cape Town. The firm's Africa-specialised division, Africa Legal, provides an international pan-African legal service, and in early 2010 the firm established an associated office, CRB Africa Legal, in Tanzania.

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour.

Post 1 June 2011, Norton Rose Group will have over 2500 lawyers practicing in 37 offices worldwide.

Written by Candice Posthumus, Associate – Commercial at Deneys Reitz, Cape Town