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The impact of the Consumer Protection Act on contracts

25th March 2011

By: Creamer Media Reporter

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This week we look at the impact of the Act on certain aspects of contracts, in particular fixed term agreements and unfair contract terms.

FIXED TERM AGREEMENTS

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How does the CPA affect fixed term agreements?

One of the Act's chief objectives is to promote a marketplace for consumer products and services that is fair, accessible and sustainable. In so doing, an underlying feature of the Act is that it provides consumers with the right to choose, and this choice extends to agreements for a fixed term.

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Importantly, the Act gives individual consumers the right to cancel an existing fixed term agreement with no explanation or reason necessary:

on the expiry of the fixed term agreement, without penalty; and

at any other time, on 20 business days' written notice to the supplier provided that the supplier may impose a reasonable calculation penalty in contemplation of the agreement enduring for its full term.
All amounts owed to the supplier up to the date of cancellation must be fully paid.

How will the "reasonable" cancellation charge be determined?

The Minister of Trade and Industry may prescribe the manner, form and reasonableness of any cancellation charges imposed as a result of an individual consumer cancelling a fixed term agreement. Recent draft regulations propose that a reasonable cancellation charge may not exceed 10% of the amount which would have been payable by the consumer for the remainder of the intended fixed term, excluding interest.

Can a supplier cancel a fixed term agreement?

Yes, a supplier may cancel a fixed term agreement with an individual consumer when there is a "material failure by the consumer to comply with the agreement". However, the supplier must first give the consumer notice of the failure, and allow the consumer 20 business days within which to rectify it. If the 20 business day period passes and the consumer has not yet rectified the "failure", only then may the supplier cancel the fixed term agreement.

Other key changes impacting fixed term agreements

The Minister may prescribe a maximum period for all or certain types of fixed term agreements. Recent draft regulations propose that the maximum period for all fixed term agreements with individual consumers be limited to 24 months. Previously there was no statutory limit on the duration of such contracts and this was left to the parties to agree between themselves.

Upon the expiry of the fixed term agreement with an individual consumer, the agreement will automatically continue on a month-to-month basis unless the consumer expressly terminates the agreement or agrees to a renewal for a further fixed term.

It is also worth noting that the Act requires a supplier to write to an individual consumer advising of the consumer's right to cancel the fixed term agreement, without penalty, on its expiry. This written notice must be given not more than 80 nor less than 40 business days before the expiry of the agreement. Moreover, the supplier must inform the consumer of any material changes if the agreement is to be renewed, or may otherwise continue beyond the expiry date, and the consumers options to terminate it or renew it for a further fixed term.

NO UNFAIR, UNREASONABLE OR UNJUST CONTRACT TERMS

The Act prohibits “unfair, unreasonable or unjust” contractual terms, and regulates exclusion and limitation of liability clauses and disclaimers.

A supplier may not:

offer to supply, or enter into an agreement to supply goods or services, on terms that are unfair, unreasonable or unjust, or at a price which is unfair, unreasonable or unjust;

market any goods or services, or negotiate or conclude a transaction or agreement in a manner that is unfair, unreasonable or unjust; or

require a consumer to waive any rights, assume any obligation or waive any liability of the supplier, on terms that are unfair, unreasonable or unjust.


When is a term, transaction or agreement "unfair, unreasonable or unjust"?

There is no closed list of what will constitute an unfair, unreasonable or unjust term, transaction or agreement. However, the Act contains several examples, including:

if it is excessively one-sided in favour of any person other than the consumer or other person to whom goods or services are to be supplied; and

if the terms of the transaction or agreement are so adverse to the consumer as to be inequitable.
The proposed draft regulations contain a list of contract terms which are presumed not to be fair and reasonable in certain circumstances. Suppliers should look carefully at this list once the final regulations are published.

What are the consequences of a term or condition being unfair, unreasonable or unjust?

Suppliers run the risk that an agreement, transaction, term or condition will be void if it is unfair, unreasonable or unjust. In addition, a court may make any order which it considers just and reasonable in the circumstances, including but not limited to, restoring money or property to the consumer, awarding compensation to the consumer for losses or expenses relating to the transaction or the proceedings of the court and/or requiring the supplier to cease any practice, alter any practice, form or document, as required to avoid a repetition of the supplier’s conduct.

How are exclusions of liability affected?

The Act contains extensive provisions ensuring that "exemptions from liability" and disclaimers (colloquially often referred to as the "fine print") are properly drawn to the attention of the consumer. The Act requires that any provision or notice which:

purports to limit in any way the risk or liability of the supplier or any other person;

constitutes an assumption of risk or liability by the consumer;

imposes an obligation on the consumer to indemnify the supplier or any other person; or

constitutes an acknowledgement of any fact by the consumer;
must be written in plain language. The fact, nature and effect of such provision must be drawn to the attention of the consumer in a conspicuous manner and form likely to attract the attention of an "ordinarily alert" consumer in the circumstances. Importantly, it must be done before the consumer concludes the agreement, begins to engage in the activity, or enters or gains access to the facility, or is required or expected to offer consideration for the transaction or agreement. Consumers may not be required to waive their rights under the Act.

GOING FORWARD

The CPA marks a departure from the current contractual position in a number of ways. For fixed term agreements, it gives an individual consumer the right to cancel an agreement at any time without a specified breach of the agreement or failure on the part of the supplier. The full extent and impact of this provision is unclear as the nature and extent of the maximum charges that a supplier may impose on such cancellation, are yet to be determined.

It should be noted that there are various other requirements and provisions in the Act which are relevant to contracts and other documents. The Act may also impact certain pre-existing agreements.

Suppliers affected by the Act should review their standard terms and conditions, documents presented to customers or used in business dealings, and any disclaimers (for example those included on tickets and notices to the public) to ensure that they do not contravene the Act's provisions. Business policies and practices will also need to be reviewed and staff will need to properly trained as to what may or may not be said or done in relation to products or services being sold and the contractual terms under which those transactions must and cannot be concluded.

Written by Robby Coelho, Partner and Alexia Christie, Partner at Webber Wentzel Attorneys

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