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Promotional competitions and their requirements under the Consumer Protection Act 2008

6th June 2011

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The Consumer Protection Act, 68 of 2008 (the “CPA”), came into effect on 31 March 2011 and is likely to have certain far-reaching implications for the promoters of promotional competitions, especially competitions which are conducted using SMS or MMS technology.

Overview

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Many corporates including a number of multi-national companies make use of promotional competitions and, in particular, promotional competitions which are conducted using short message service (“SMS”) or multi-media message service (“MMS”) technology. Until 31 March 2011, promotional competitions were regulated by section 54 of the Lotteries Act 1997 (the “Old Act”). This position changed with effect from 31 March 2011 when section 54 of the Old Act was repealed.

If one opens almost any newspaper, magazine or website, one is confronted with a myriad of promotional competitions and, especially, competitions conducted using SMS or MMS technology. For this reason, the promoters of such competitions will need to realise that the CPA is likely to apply to such competitions and educate themselves as to its specific requirements.

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Application of the CPA

The CPA will apply to :-
• every transaction occurring within South Africa, unless it is exempted;
• the promotion of any goods or services or of the supplier of any goods or services within South Africa, unless exempted; and
• the supply of goods or the performance of services under a transaction to which the CPA applies.

The main exemption which applies in the realm of promotional competitions occurs where the consumer is a juristic person whose asset value or annual turnover at the time of the transaction equals or exceeds R2 million (it is interesting to note that the Minister of Trade and Industry, Dr. Rob Davies (the “Minister”), originally proposed that this threshold should be R3 million but then subsequently reduced the threshold to the lower figure). While the exact reasons behind this threshold reduction are unclear, it would appear that the intention was to exclude all but the smallest juristic persons from falling within the definition of a “consumer” and accordingly having rights under the CPA.

In addition, the application of the CPA extends to a matter irrespective of whether the supplier (a) resides or has its principal office within or outside South Africa; (b) operates on a for-profit basis or otherwise; (c) is an entity owned or directed by an organ of state; or (d) is required or licensed in terms of any public regulation to make the supply of the particular goods or services available to all or part of the public .

Promotional Competitions conducted under Section 36 of the CPA

Section 36 of the CPA governs promotional competitions and defines a “promoter” as “a person who directly or indirectly promotes, sponsors, organises or conducts a promotional competition, or for whose benefit such a competition is promoted, sponsored, organised or conducted” and a “promotional competition” as any competition which is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier or the sale of any goods or services where the value of any prize offered under such competition exceeds the monetary threshold prescribed by the Minister. Regulation 11(4) of the Consumer Protection Act Regulations (the “Regulations”) specifies that the monetary threshold to be applied under section 36 of the CPA will be R1.00. Given this rather wide definition and the very low value threshold, it is clear that the vast majority of competitions conducted in South Africa from 31 March 2011 will be governed by the CPA. What is also noteworthy is that the definition of “promotional competitions” includes competitions where prizes can be won regardless of whether a participant shows any skill or ability.

Promoters, including promoters of SMS or MMS competitions, would be in contravention of the CPA where:-
• they indicate that a participant has won a competition if no competition has been conducted, the person has, in fact, not won the competition or the person is required to meet a previously undisclosed condition or to pay a further sum of money in order to receive the prize; or
• a participant is informed that he has a right to a prize when, in fact, he does not have such right, where the prize was generally offered to other similar participants, or where the participant is required to pay a further amount for the prize or to purchase any goods or services.

Crucially, section 36(3) requires that the promoter should “not require any consideration to be paid by... any participant... other than the reasonable costs of posting or ... transmitting an entry” and regulation 11(1) of the Regulations specifies that the “reasonable cost of electronically transmitting an entry shall not exceed R1.50”. Once again, it is interesting to take note of the differences between the draft Consumer Protection Regulations, 2010 (the “Draft Regulations”) and the final-form, published Regulations since regulation 14(1) of the Draft Regulations originally proposed that a promoter “may not charge a fee for that service ... exceeding the minimum fee normally payable by the general public on the network or via the service provider chosen by the consumer in respect of an ordinary SMS or MMS”. By specifying the exact cost, the Minister has avoided a situation where promoters could have unintentionally been in breach of the CPA and its Draft Regulations for setting the fee for entry into a competition at a level higher than the “reasonable cost” or the “minimum fee” for sending an SMS or MMS. The vague definition contained within the Draft Regulations would have made it difficult, if not impossible, for a promoter to determine what the legally permissible level at which SMS’s or MMS’s may be charged since this determination would have depended entirely upon the specific network used by the participant, whether such participant had a pre-paid or long-term contract and, importantly, the participant’s specific tariff package.

A promoter would similarly fall foul of the CPA, where he requires participants to make payment for the opportunity to participate in the competition or where he requires the purchase of any goods or services and the price charged for those goods or services “is more than the price ... ordinarily charged for those or similar goods or services without the opportunity of taking part in (the) competition” .

For the purposes of ensuring fairness, the CPA requires that a promoter may not award a prize to any person who is a director, member, partner, employee or agent of, or consultant to, the promoter or to the supplier of any goods or services in respect of the competition .

Practical Requirements

A promoter should ensure that his invitation for participants to take part in his competition includes details on :-
• how a participant should accept the invitation to participate;
• how the results will be determined;
• the competition’s closing date;
• the means by which the results of the competition will be made public; and
• the person from whom or place where a copy of the competition rules may be obtained.

The promoter will be deemed to have satisfied these requirements if this information is available directly on the medium through which a person participates in the competition, on a document accompanying any medium or in any advertisement which is published and which draws attention to the promotional competition .

Any provision in the rules of a promotional competition requiring a prize winner to:-
• permit the use of his image in marketing materials;
• participate in any marketing activity; or
• be present when the prize draw takes place or the winners are announced,
without offering him the opportunity to decline such requirement, will be null and void.

The Regulations also require the promoter to ensure that a professional person such as an independent accountant, registered auditor, attorney or advocate oversees and certifies the manner in which the competition was conducted and reports his findings through the promoter’s internal audit reporting or validation and verification procedures.

WASPA Code of Conduct

The Wireless Application Service Providers’ Association (“WASPA”) represents the interests of organisations providing mobile application services in South Africa. Promoters should therefore consider WASPA’s code of conduct (the “Code”) before conducting a promotional competition since the Code requires that WASPA’s members adhere to the following requirements when conducting SMS or MMS competitions on behalf of a promoter :--
• although the Code does not place any restrictions on the cost which may be charged for entries sent via SMS or MMS, it does specify that the promotional material for any competition should clearly display the full cost to enter;
• any significant terms and conditions (including any restrictions on the number of entries which may be submitted or prizes which may be won);
• any significant age, geographic or other eligibility restrictions;
• any significant costs which a reasonable consumer might not expect to pay in connection with the collection, delivery or use of any prize; and
• the identity of the party running the competition and responsible for the prizes.

Record-Keeping Requirements and Document Retention

In order to ensure fairness the CPA also requires that a promoter must, for a period of at least 3 years, retain relevant details in respect of the promoter, the competition rules, whether an independent person oversaw the determination of the prize winners and, if so, his personal details, the details of the prizes and prize winners and the steps taken where a prize winner did not receive or refused to accept his prize.

If requested by the National Consumer Commission (the “Commission”), a promoter will, at his own expense, be obliged to provide the Commission with a report based upon the documents and materials described above.

Penalties and Fines

Promoters who choose to ignore and/or conduct promotional competitions in contravention of the provisions of the CPA and its Regulations, run the risk of having the competition being declared void and in contravention of the CPA. After concluding its investigation, the Commission may issue a compliance notice where it, on reasonable grounds, believes that the promoter is guilty of engaging in prohibited conduct. Where a promoter ignores or fails to comply with such compliance notice, the Commission may either (a) apply to the National Consumer Tribunal (the “Tribunal”) for the imposition of an administrative fine; or (b) refer the matter to the National Prosecuting Authority for prosecution as an offence under the CPA. Where a promoter is convicted of an offence under the CPA, such party may be liable to (i) a fine or imprisonment for a period not exceeding 10 years, or to both a fine and imprisonment (in certain limited but extreme cases); or (b) a fine or imprisonment for a period not exceeding 12 months, or to both a fine and imprisonment (in the majority of cases) . In addition, the imposition by the Tribunal of an administrative fine in respect of prohibited or required conduct would also be particularly onerous since such fines would be set at the greater of 10% of the guilty party’s annual turnover during the preceding financial year or R1-million.

Conclusion

Promoters of promotional competitions and, in particular, promoters of competitions conducted using SMS or MMS technology should ensure that they are aware of the various requirements and obligations placed upon them by the CPA and, in particular, the provisions of section 36. Great care should be taken by promoters who conduct competitions which will fall within the realm of the CPA as and from 31 March 2011 since the Commission and the Tribunal are likely to take a very dim view of promotional competitions which do not comply with the requirements of the CPA and its Regulations.

Written by Neil Taylor, partner in the Corporate and Commercial Department at Adams & Adams.
 

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