As from 31 March, South Africa will have a comprehensive new consumer protection regime when the Consumer Protection Act, 2008 ("CPA" or the "Act") takes effect. Certain of its provisions are already in force.

This e-Alert is the first in a series of e-Alerts that will look at the Act's key provisions and how its implementation will affect existing business practices.

What does the CPA regulate?

The CPA replaces the many laws currently regulating consumer protection with a single framework for protecting consumer rights. It builds on the consumer protection principles contained in the National Credit Act, 2005 but extends to all consumer-facing businesses.

The CPA's provisions are far-reaching and numerous. It governs issues such as unfair contract terms, product liability, disclosure and pricing and will regulate certain marketing practices from consumer loyalty programmes and promotional competitions to referral selling. It will aim to rid the market of unethical trading practices, unsafe products and unfairly discriminatory marketing.

The Act generally applies across most industries to any supply of goods or services in the ordinary course of business between suppliers and consumers (unless an exemption applies) and also to franchise arrangements. Certain transactions which are not conducted in the ordinary course of business however, are also covered by the Act, and the terms “supplier”, “supply”, “consumer”, “goods” and “services” are defined more broadly in the Act than in common parlance. Most of us are therefore likely to be affected by the Act in some way.

What are the consequences of non-compliance?

Suppliers risk having their notices, provisions and agreeements that do not comply with the Act declared invalid and, in addition, open themselves up to a possible damages award.

A supplier found guilty of conduct prohibited under the CPA may be subject to an administrative penalty of up to 10% of the supplier's annual turnover during the preceding financial year, or R1 million, whichever is the greater. Contravention may also result, in certain circumstances, in criminal conviction or imposition of a fine or both. Related reputational damage is also something that suppliers should bear in mind.

The Act will be enforced by the National Consumer Commission and the National Consumer Tribunal will have jurisdiction to adjudicate on complaints and disputes.

Does the CPA apply to me and my business?

As mentioned above, the CPA applies to most transactions between consumers and suppliers in South Africa that are entered into in the ordinary course of the supplier's business for consideration. It also applies to the promotion of goods and services; and to the goods actually supplied and services that are performed.

It will apply to foreign suppliers and service providers who are involved in any of these activities in South Africa; as well as to the supply of goods or services by clubs, trade unions, associations whether for fair value consideration or not; and to franchises.

When considering whether the Act applies, you need to bear in mind that it is aimed at protecting vulnerable consumers, not big business. For this reason, the Act therefore does not apply to:

transactions where the consumer is a juristic person (e.g. a company, close corporation, partnership or trust) whose asset value or annual turnover at that time exceeds R3 million;

transactions involving the promotion or supply of goods or services to the State;

industries that are granted an exemption by the Minister.
Note, however, that even if a particular transaction is exempt, where the goods are supplied in South Africa, the goods themselves and the importer, producer, distributor and retailer of those goods will be subject to the Act's provisions on safety and recall, and liability is imposed for harm caused by unsafe or defective goods or inadequate warnings or instructions.

Who is a "consumer"?

Broadly these are individuals and juristic persons under the R3 million threshold (see above) to whom goods or services are marketed in the ordinary course of the supplier's business; as well as actual users of the goods or recipients of those services (whether or not they were party to the transaction or paid for the goods or services). In addition, a person who enters a transaction with a supplier in the ordinary course of the supplier's business (and the transaction is not exempt) is a consumer. Franchisees in terms of franchise agreements are also considered to be consumers, but the R3 million threshold for juristic persons does not apply to them.

Who is a "supplier"?

A person who markets, promotes or supplies goods or services is subject to the Act’s provisions as a “supplier”. Importantly:

the “supply” of goods includes the sale, rent, exchange and hire of goods in the ordinary course of business for consideration; and

the supply of services includes the sale, performance or provision of services or granting of access to any premises, event, activity or facility in the ordinary course of business for consideration. It also extends to suppliers who cause the services to be performed or provided, without being involved in the actual performance of those services, as well as sub-contractors.
What goods are subject to the Act?

The CPA specifies certain categories of goods and services to which it applies, but these categories are not exhaustive. By way of example, "goods" include anything marketed for human consumption, any tangible object including a medium on which anything is encoded or written, literature, music, information, data, software or other intangible product including a licence to use such product, a legal interest in land, and also gas, water and electricity.

What services are subject to the Act?

Services regulated by the Act include: any work or undertaking performed by one person for the direct or indirect benefit of another; the provision of education, information, advice or consultation; transportation; the provision of accommodation or sustenance, entertainment, access to any electronic communication infrastructure, access or a right of access to an event or to any premises, activity or facility; the provision of access to or use of any premises or other property in terms of a lease; and the provision of a right of occupancy of, or power or privilege over or in connection with, any land or other immovable property; and rights of a franchisee. It does not matter whether the person promoting, offering or providing the service actually participates in, supervises or engages directly or indirectly in the service.

The Act does not apply to the following "services":

education, information, advice or consultation to the extent that such services constitute advice or intermediary services subject to the Financial Advisory and Intermediary Services Act (“FAIS”);

any banking or related services to the extent that such service constitutes advice or intermediary services subject to FAIS;

the undertaking, underwriting or assumption of any risk on behalf of another to the extent regulated by the Long-Term Insurance Act or the Short-Term Insurance Act; and

services to be supplied under an employment contract.
The exemption of insurance services is, however, conditional on the Long-Term Insurance Act and the Short-Term Insurance Act being amended within 18 months from the commencement of the CPA to align them with the consumer protection measures set out in the CPA.

What happens on 31 March?

As mentioned above, the CPA becomes fully effective on 31 March. Provisions dealing with the establishment of new consumer protection bodies and those authorising the Minister of Trade and Industry to make regulations are already in force.

Importantly, it should be noted that the Act has limited retrospective effect. The CPA will generally not apply to marketing which took place, agreements which were concluded or goods or services which are supplied before 31 March 2011. However, where an agreement for a fixed term is entered into before 31 March 2011 which will expire after 31 March 2013, and it would have been subject to the Act if it had been in effect at the time the agreement was made, then certain provisions of the Act will apply. Importantly, the new strict liability provision for harm caused by goods applies to all goods that were first supplied to the consumer from 24 April 2010 onward.

Going forward

Future e-Alerts will look at the CPA in greater detail, focussing on implementation issues of which businesses should be aware.

Written by Haydn Davies, Partner and Trudie Broekmann, Senior Associate at Webber Wentzel