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Consumer Protection Act

Visiting a trade show and discussing the products with the supplier directly will help owners of small retail stores, who are situated in remote areas where agents cannot always show them samples, to avoid ordering the wrong product.

June/July 2009

The Consumer Protection Act:

The consumer is King

Don’t miss part two of this article where we explore the Consumer Protection Act further with emphasis on retailers selling to consumers.

The new Consumer Protection Act has revolutionised the way consumers are to be treated from now on. It has been described as a Bill of Rights for the consumer. But just what are the implications for the sport and outdoor industry? How will suppliers and retailers be affected? In this article BEVAN FRANK takes a look at some of the provisions of the Consumer Protection Act as it would affect suppliers selling to retailers. Part two will focus more on retailers selling to consumers

In April 2009 the Consumer Protection Bill was signed into law by President Kgalema Motlanthe. The main purpose of the Consumer Protection Act is to prevent exploitation, or harm, of consumers and to promote the social well being of consumers. The Act brings to the fore general principles of consumer protection and serves as an overarching governing statement on consumer protection matters in SA.

According to the Preamble, the Act seeks to protect the interests of all consumers as well as to ensure “accessible, transparent and efficient redress for consumers who are subjected to abuse or exploitation in the marketplace.”

The Act stipulates that it is desirable to promote an “economic environment that supports and strengthens a culture of consumer rights and responsibilities, business innovation and enhanced performance”.

Thus the economic interests of consumers are protected and they now have greater access to information that will allow them to make informed decisions with regard to acquiring new products. Consumers are now protected from any hazards to their well being and safety and have an effective means of redress. The rights of the customer are now seen as paramount. Some of the fundamental rights attributed to the consumer by the Act include:

  • the right of equality in the consumer market;

  • the right to privacy;

  • the right to choose;

  • the right to full disclosure and access to information;

  • the right to fair and responsible marketing;

  • the right to fair and honest dealings;

  • the right to fair, just and reasonable terms and conditions;

  • the right to fair value, good quality and safety.

  • In terms of the Act, suppliers are now accountable to consumers. The Act replaces, in a new and simplified manner, existing provisions from five acts, including the Consumer Affairs (Unfair Business Practices) Act, Trade Practices Act, Sales and Service Matters Act, Price Control Act as well as the Merchandise Marks Act.

    The Act will only operate from 29 October 2010 (18 months from the date it was signed by the President), so there is time to prepare to comply with and familiarise yourself with the provisions of the Act!

    When the Act was promulgated, acting Deputy Director General in the Department of Trade and Industry, Nomfundo Maseti, said that the primary purpose of the Act is to protect consumers from exploitation and unfair practices in the marketplace from unscrupulous businesses, and to empower consumers to make wise purchasing decisions. It achieves this by introducing, amongst others, a system of product liability and improved redress.

    “Producers, distributors or suppliers, will be liable for any damages in the form of death, injury, loss, or damage to property and economic loss, to the consumer or third party,” said Maseti. “This Act decriminalises certain conduct and subjects it to administrative sanctions, while it also enables consumers to demand a refund if the goods are of inferior quality. Furthermore, consumers may return the goods to the supplier, without penalty and at the supplier’s risk and expense, if the goods fail to meet the required standard.”

    In terms of the Act consumers are now empowered to cancel contracts if they are not satisfied with the terms of a contract. In addition, consumers will have the final say whether they would like their contracts to be renewed or not. Consumers will now be protected from unscrupulous businesses trying to induce them to waive the obligations and liability of the supplier in terms of agreement.

    The Act aims to make redress accessible, and protect consumers from being victimised if they act to enforce their rights.

    It establishes a National Consumer Commission as a primary administrative regulator responsible for carrying out education, research, investigation of complaints and general enforcement of the Act. Furthermore, a tribunal will conduct hearings on complaints and adjudicate certain disputes and alleged prohibited conduct.

    How will this affect the industry — for example, the relationship between a retailer and supplier?

    Does a retailer, when buying from the supplier, have the same rights as a consumer in terms of the Act?

    According to Eunice van Zyl, a Senior Associate at Webber Wentzel, the Act defines the term ‘‘consumer’’ very broadly as including any person (including natural and juristic persons) to whom goods or services are marketed, as well as actual users of the goods or recipients of those services. In addition, a person who enters a transaction with a supplier in the ordinary course of the supplier’s business is a consumer. “I believe that the definition of consumer is wide enough to include retailers,” says Van Zyl.

    There are exclusions. The Act will, for example, not apply to a juristic person (e.g. a company or close corporation, bodies corporate, partnerships, associations and trusts), whose annual turnover or asset value, at the time of the transaction, exceeds a threshold value yet to be determined by the Minister.

    Simone Monty, a partner at Routledge Modise in association with Eversheds, points out that the aim of the Act is mainly to protect individuals and small juristic persons and it is anticipated that the initial threshold will probably be similar to the National Credit Act, which has set the threshold for “juristic persons” at an annual turnover or net asset value of R1-m.

    “Accordingly, where the retailer is a juristic person, the Act would in most cases not afford them the consumer rights in respect of purchases from suppliers because their annual turnover will exceed the threshold,” Monty says. “This, however, does not apply where the retailer is a franchisee and the supplier is a franchisor”.

    When the retailer is an individual, or a small juristic entity with a net asset value or annual turnover below the threshold, the Act will apply.

    If a retailer would be considered a consumer in this instance, then the following needs to be considered: the supplier usually employs sales agents who sell to the retailer by showing samples, or even a catalogue. The agent works on commission and will therefore try to push sales. What is the recourse of a retailer if the goods do not live up to expectations?

    “The normal rules of agency still apply,” says Van Zyl. “A principal is bound by the actions of his agent if those actions fall within the scope of the agent’s mandate. If misrepresentations were made regarding the goods, a retailer will have ordinary contractual remedies.”

    As in the past, different sections and procedures in the Act are applicable to the return of goods sold and supplied that are damaged, or unsafe, says Neil Kirby, a director at Werksmans. “Assuming that the goods are damaged when they are supplied to the consumer, then the consumer may return the goods in terms of the procedures set out in section 20 of the Act,” says Kirby. “A distinction is drawn between goods ordered and unsolicited goods supplied.”

    Van Zyl points out that in certain circumstances the supplier may impose a charge on the retailer for restoring the goods and for repackaging the goods.

    But, if the retailer is a consumer, then the buck stops at the supplier!

    “The supplier remains responsible for all the actions of the agent who will be acting on behalf of the supplier,” says Monty. “The retailer would have full recourse (where the Act applies to it as consumer) against the supplier in terms of the Act.”

    Consumers have the right to fair value, good quality and safety as well as the right to choose. Thus a consumer has a right to choose, or examine, goods.

    Monty points out that if the consumer has agreed to purchase goods solely on the basis of a description, or sample, or both, provided by the supplier (or in this case the agent of the supplier), the goods delivered to the consumer must in all material respects and characteristics correspond to that which an ordinary alert consumer would have been entitled to expect, based on the description, or on a reasonable examination of the sample, as the case may be.

    If a consumer is not given a chance to examine the goods delivered, the consumer would be able to return the goods and receive a refund. Alternatively the goods could be deemed unsolicited goods and will be dealt with in terms of those provisions of the Act dealing with unsolicited goods.

    “The right to fair value, good quality and safety also includes a right to receive goods that are reasonable and suitable for the purposes generally intended; of good quality and good working order and free of defects; useable and durable for a reasonable period of time and compliant with applicable standards set out under the Standards Act or any other public regulation,” says Monty.

    It is clear that one needs to look at the circumstances of the supply of the relevant goods. Also, “there is an implied warranty on quality in any transaction or agreement pertaining to the supply of goods to a consumer that the producer or importer, distributor and retailer each warrant that the goods comply with the requirements and standards referred to above, except to the extent that those goods have been altered contrary to instructions,” Monty states.

    If the goods fail to satisfy the requirements and standards referred to above, the consumer may return the goods to the supplier, without penalty and at the suppliers risk and expense, within six months after delivery of any goods to a consumer.

    As a remedy in respect of the implied warranty provisions, Monty points out that the supplier must at the direction of the consumer, either repair or replace the failed, unsafe or defective goods, or refund to the consumer the price paid by the consumer for the goods.

    The Act stipulates that if the supplier repairs any goods or component of such goods — and within three months a further defect is discovered — the supplier must replace the goods or refund the consumer the price paid for the goods.

    The implied warranty referred to above and the right to return goods are in addition to any other implied warranty or condition imposed by common law, this Act or other public regulation; and any express warranty or condition stipulated by the producer or importer, distributor or retailer, as the case may be.

    Can the retailer insist that the supplier take back returns when a customer complains?

    “If the retailer is able to categorise the goods into one or more of the provisions of section 20, and subject to the transaction falling outside the exemptions of the Act, then the retailer may indeed insist that the supplier takes the goods back when a customer complains,” Kirby says.

    “The consumer is entitled to have recourse against any of the persons along the supply chain and obviously the first point of call for a consumer would be the retailer,” Monty states. The retailer can then require the manufacturer, importer or distributor to comply with its obligations set out above in respect of quality of goods referred to above.

    “If the goods do not comply with the requirements, the consumer may within six months of delivery, return the goods, which must be replaced or repaired by the supplier (the supplier may also give the consumer a refund),” says Van Zyl, who points out that the provisions of the Act must be carefully studied as they are fairly detailed and highlight certain exceptions and variations.

    Sometimes suppliers insist that they will only supply a specific product to retailer if he/she takes a certain number, or a certain number of other products in a range. Would this still be legal in terms of the Act?

    In terms of the Act, but subject to certain exceptions, this would not be legal.

    Van Zyl refers to section 13, which stipulates that a supplier is prohibited, as a condition of offering to supply or supplying any goods or services, or as a condition of entering into an agreement or transaction, that the consumer must purchase any other particular goods or services from that supplier, or enter into an additional agreement or transaction with the same supplier or a designated third party; or agree to purchase any particular goods or services from a designated third party, unless the supplier:

  • can show that the convenience to the consumer in having those goods or services bundled outweighs the limitation of the consumer’s right to choice;

  • can show that the bundling of those goods or services results in economic benefit for consumers; or

  • offers bundled goods or services separate- ly and at individual prices.

  • “To the extent that the retailer is an individual, a small juristic entity, or a franchisee who is entitled to all of the benefits as a consumer of the Act, then the supplier will not be entitled to require that a retailer purchases bundled goods,” says Monty. “Of course, in the end the demand and markets will determine the course of action.”

    “The bundling of goods remain lawful in terms of the Act, subject to the provisions dealing with unsolicited goods,” Kirby states. “In this regard, a consumer may, if it receives goods in excess of those initially ordered, reject all of the goods or accept delivery of the goods and pay for the agreed quantity and treat the balance as unsolicited.”

    What about futures orders — would it be legal if a brand supplies different styles or colours to those selected by a local retailer because the samples he selected are not manufactured by the principal? Would it be legal to ask retailers to pay up front for orders?

    Section 18 (3) states that if a consumer has agreed to purchase goods solely on the basis of a description or sample, provided by the supplier, the goods delivered to the consumer must in all material respects and characteristics correspond to that which an ordinary alert consumer would have been entitled to expect based on the description, or on a reasonable examination of the sample or description.

    “To that end, it is arguable that retailers would be empowered to reject the models on the basis that those delivered do not correspond with those they agreed to purchase,” says Van Zyl. “On the other hand, if the retailer and supplier had entered into a contract in terms of which the retailer agreed to accept the models — then presumably the retailer would be bound by the terms of the contract.”

    “If the suppliers get together in order to decide on the production for a certain period of time based on the orders received worldwide, there is nothing in the Act which would prevent the suppliers from deciding on what range and the number of items within that range to produce, unless already contracted to supply,” says Monty.

    “In terms of the Act — to the extent that it is a solid order and the range changes — the supplier would be obliged to deliver products or goods which are substantially the same as promised. One cannot effectively force a supplier to produce certain items, or carry on producing a certain good, if the supplier no longer manufacturers those items and the agreement may provide for this.

    The manner in which payment is made for orders is by way of contractual arrangement between the supplier and the retailer. As already stated, however, it should be noted that in the majority of circumstances referred to herein, the retailer would fall above the threshold and therefore outside the protections of the Act.”

    “The terms and conditions of the futures order would have to be examined in order to understand when the order becomes effective if at all,” Kirby stipulates. “In this regard, the futures order may very well become effective on the realisation, or confirmation, of manufacturing timetables, and the production of lines of stock by manufacturers.

    “If one assumes that a future order is legally effective as at the time it is made, i.e. signed by the retailer, then the Act provides that such an order must be met. However, the obligation to enforce the rights provided in terms of the Act would rest with the SA retailer.”

    Kirby believes it is doubtful that a South African retailer would, for reasons of practicality, economics and business acumen, enforce legal rights against a larger multinational supplier in formal litigation — whether locally or internationally.

    While this article has covered some of the more pertinent issues relating to suppliers selling to retailers in terms of the Consumer Protection Act, it is intended to serve only as a guide. Readers are advised to consult with their attorneys if and when necessary. Special thanks to Simone Monty, a partner at Routledge Modise in association with Eversheds; Eunice van Zyl, a Senior Associate at Webber Wentzel; and Neil Kirby, a Director at Werksmans.

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