Submission on the Consumer Protection Act No. 68.of 2008.
Vivian Atud
Vivian.atud@gmial.com
Economist and Researcher at the Free Market Foundation
14th June 2012
Introduction
The Consumer Protection Act (CPA) No. 68 of 2008 came into effect on the 1st of April 2011.
This act makes South Africans one of the most protected consumer groups in the world.
For most consumers in South Africa, this sounds like great news given that there is a lot of poor
service delivery. There are contracting challenges, too, when it comes to certain products where
the consumer is illiterate and does not immediately fully understand the terms and conditions of
them or cannot bargain on equal terms with a supplier. According to government this legislation
is aimed at promoting a culture of consumer rights and responsibilities, as well as to encourage
business innovation and enhanced performance. It is also hoped that the new legislation will
improve access to and the quality of information so that consumers will be able to make
informed choices and be protected from hazardous goods and dealers.
For this Act to have come into being, certain assumptions about South African consumers had
to be made. Some of those assumptions are that: most South African consumers have unequal
bargaining power with suppliers1; they do not know or understand their rights as consumers;
they are ignorant about the technical components of goods; they are poor and illiterate; their
poverty makes them vulnerable to abuse by unscrupulous suppliers; there is inequality of
resources between the contracting parties; clauses in contracts, such as exemption clauses, are
unreasonable and open to abuse by the party who holds a stronger bargaining position;
exemption clauses in contracts curtail the rights of consumers and thus affect them negatively.
Based on these assumptions, the Act seeks to protect consumers2: natural persons and small
businesses. Its scope is broad and covers most areas of business, including all of the following:
agreements, warranties, direct marketing, product liability, advertising, sales, exchange of
goods, rentals, services and goods. Different levels of obligation are imposed on suppliers,
1
2
Section 1(a)
Section 3 (a), (b), (c)
importers3, distributors and manufacturers. However, no matter the intention, the consumer
always pays. Any extra costs incurred are always passed on to the consumer. So, while a
consumer may be feeling protected, these measures reduce their personal liberty and increase
the cost they pay in the market for goods and services.
The CPA, in its current form, has predictable economic consequences and impacts on individual
liberty. Furthermore, no matter how good the intentions of government are behind introducing
the CPA, the outcome is more a matter of economics. Business and consumers always act
according to the incentives in the marketplace. For government to meet the objectives of the
Act, certain sections would need to be reworked.
This submission seeks to draw the attention of our law makers to those sections of the Act that
need to be reworked or excluded altogether if it is to achieve the desired results.
Main Concerns
According to some provisions in the Act, individuals and small businesses no longer have the
freedom to agree on the terms that would serve both of their best interests and draw up a
contract based on those agreed terms. According to section 61 of the Act, all suppliers are now
liable for the goods they sell, including second-hand goods. As per section 61 of the Act, the
suppliers S(61):producer S(1), importer S (1), distributor S (1), or retailer S (1) of any goods is
liable for any harm (death, injury or illness, loss of property or damage to property, and
economic loss resulting from harm) caused wholly or partially as a consequence of supplying
unsafe goods S61 (1 (a), product failure or defects in any goods S61 (1 (b), inadequate
instructions or warnings about products S61 (1 (c).
This provision introduces a wide margin of uncertainty on the part of the supplier and means the
poor can no longer choose to buy goods sold cheaply because of their condition which would
certainly meet their needs but not necessarily measure up to government requirements. This
leaves many small businesses and individuals worse off.
3
Section 5 (a), (b), (C)
Sound laws of contract4 must be based on the principles of individual autonomy and the sanctity
of contracts. Provided that, when a contract was drawn up, the person was not a minor or
mentally ill, and that their consent was not obtained by means of error, misrepresentation, fraud,
undue influence or duress, their contractual undertaking would be enforced to the letter. A court
would not release that person from the contract or create better terms for them. This principle of
contracts promotes individual freedom and has been corrupted by the provisions contained in
the CPA in its current form.
The Act falls short of achieving its main objectives because:
1. It has created room for uncertainty5 in the relationship between consumers and
suppliers. It gives courts the discretion to review a trade contract which undermines and
damages the most important principle of contract law - certainty and contractual
freedom - given that contracts exist basically to create certainty, protect the
expectations of all parties and secure to each the bargain made.
For the CPA, in its current form, to give the courts the power to review contracts, means
a court could change the actual terms of a contract if it determined that the contract was
“unfair” and thus relieve one of the contracting party of their obligations while frustrating
the expectations of the other. This is contrary to principles of choice and freedom to
contract.
In the Act, words such as “fairness” and “good faith”, among others, are not clearly
defined. It would be difficult, therefore, for any business in South Africa to understand
what the courts may classify as ‘fairness’ or ‘good faith’ among other vague terms
proposed by the ACT. I would therefore suggest that Section 61 should be reworked to
create certainty or be excluded from the Act.
2. The provisions of the CPA, in its current form, gives consumers who may no longer be
happy with the contracts they willfully entered into or who may feel dissatisfied with a
product they freely chose the incentive to go to court to seek redress. In South Africa,
the courts are already overworked and under-resourced. If this Act is left in its current
form, the number of expensive, non-productive and time consuming litigations would
4
5
Aronstam PJ (1979)
Van der Merwe et al (2007)
increase. From an economic point of view, the CPA will encourage more consumers to
less carefully buy goods and enter into contracts and then later on challenge the validity
of such in court.
In the interest of the SA economy S (48) and S (49) should be rewritten, especially
where they deal with the requirement for exemption clauses to be “fair and reasonable”
without defining what is meant by “fair and reasonable”. Such terms must be clarified or
excluded. To give the courts the discretion to review contracts and to determine what is
fair is unreasonable and violates the principles of freedom of choice of South African
consumers and businesses.
3. Businesses will be less inclined to enter into contracts with consumers because of the
uncertainty that the customer in due course will approach the courts to request that they
be excluded from their contractual obligations. This reluctance on the part of suppliers
will be disadvantageous to the poor, the very people who the Act seeks to protect.
Government may have the power to legislate such an act, but it has no power to
legislate suppliers to sell to certain segments of the market6. To protect themselves,
firms will have to balance their preferred target markets against the consequences of the
provisions of the CPA which will include: more frequent returns, stockholding
adjustments, wording of warranties, accounting procedures, and methods of tracking
goods through the supply chain.
The penalties for non-compliance are severe. Companies that do not abide by the Act
face the penalty of a fine of up to 10% of turnover, or fines and a prison sentence of up
to 10 years. To survive, suppliers will do a cost-benefit analysis and determine which
consumers are more costly to serve and determine not to service that market segment.
Like other government regulations, The CPA that came into effect in April 2011 has a
disproportionate impact on the poor, the majority of whom are black, by making it more
difficult for the poor to access cheap, second-hand goods. Whenever a government
intervenes in the economy to protect consumers, it does so at a cost above that which
would be set by the normal economic forces of supply and demand otherwise it would
not be necessary for the government to meddle in economic matters. In the
abovementioned instance, government is creating an over-demand of certain goods and
a decrease in the supply of such goods. It is forcing businesses to choose to sell only to
6
Thomas Sowell 1994
those segments of the market that present less risk. The segments less likely to return
goods and less likely to back out of a contract.
4. The CPA provision that allows consumers to claim for damages caused by faulty goods
is based on strict liability7. This means that a consumer does not have to prove any
degree of negligence and can claim from anyone in the supply chain, not only the person
from whom they bought the goods.
In section (61) of the Act, the definition of product liability is too wide and leaves room for
inconsistent interpretation by the courts. Companies will need to invest more in legal
protection and insurance which will increase the overall cost of production and,
therefore, an increase in the prices of goods and services. These additional prices
increases will have a devastating impact on the poor, those who the Act seeks to
protect. Small businesses and franchises, instead of also being protected by the Act, will
also have to pay these higher prices which will have a detrimental effect on them..
5. The implied warranty8 of quality is also problematic. It infringes on the rights of
individuals and businesses who, for cost-benefit reasons, may freely choose to buy
certain goods that adequately meet their needs even though such goods are not under
any warranty.
In accordance with the CPA, all goods sold are now automatically covered by a six
month warranty, with parts and labour covered for three months. Consumers may also
choose between a refund, repair or replacement. If a repair fails within three months, the
goods must be replaced or a refund given. A student or graduate today may to buy an
old, cheap second-hand car without a warranty so that they can secure a job that
requires private transport. This is no longer possible within the current provisions of this
new Act.
Conclusion
The CPA introduces the general principle of consumer protection, and governs consumer
protection in SA. According to the provisions of the Act, protection will be achieved by
7
8
Section (61)
Section (56)
introducing a system of product liability and improved redress. The Act seeks to protect
consumers from abuse arising from non-negotiated terms. It aims to prevent exploitation or
harm to consumers and to promote their social wellbeing. It seeks to create and promote an
economic environment that supports and strengthens the culture of consumer rights and
responsibilities. It further seeks to promote a fair, efficient and transparent market place for
consumers and businesses. The CPA has included a general unfair contract term.
The Act, in its current form, cannot achieve these objectives and it deviates from the principles
of liberty which allow contracting parties to freely choose the terms and manner of their
agreement themselves. The law should secure the environment where a free and self-regulated
market place can flourish. Freedom of contract ensures certainty in the law of contract which
gives contracting parties the confidence that their contracts can be entered into and enforced
without any interference whatsoever from the courts. Consumers should have the liberty to
choose the terms of contracts they want to enter into and what companies they want to buy
from.
The CPA is in contradiction to the democratic values enshrined in our constitution9. It limits the
freedom of choice of individuals. In the Apartheid days, the government of the time thought it
knew what was good for South Africans and came up with policies that resulted in unequal
development and limited individuals from achieving their life goals and realising their potential.
After gaining freedom from apartheid, the adoption of our new democratic constitution seeks to
restore individual liberty and promote choice throughout the country, for all the country’s
peoples. These gains will gradually be lost if Acts like the CPA are left unchecked.
The interests of all South Africans are best served by allowing every adult the maximum
freedom and responsibility for choosing his objectives and the means for obtaining them. As the
Legislature carries out its role of writing laws, it needs to refrain from interfering in the lives of
individuals and confine itself primarily to maintaining law and order, preventing individuals from
interfering in the lives of others, and enforcing agreements (contracts) voluntarily arrived at. It is
not possible to have liberty for some (consumers) and not for others (business). For personal
liberty to prevail the law should treat everyone equally; there is no liberty for one unless there is
equality before the law for all.
9
South African constitution (The preamble and the Bill of Rights)
Finally, I would like to point out, that while opponents to the apartheid system fought against
government intervening in the lives of individuals and the Constitutions seeks to protect our
rights as individuals in a free country, the government activity taking place in our current
democracy, if left unchecked, will reverse many of these achievements. I, therefore, suggest
that the Consumer Protection Act be re-examined so that sections that infringe on the rights of
consumers to choose the type of goods they want and to contract freely in a manner in which
they so choose can be eliminated. If the Consumer Protection Act could be re-written to allow
citizens to freely engage in voluntary exchange with the only protection legislated by the
Legislator is from fraud and force, individual liberty would thrive. Once this happens, more trade
will take place and many more business contracts will be entered into in the South African
market place, the economy would grow, and everyone will benefit, especially the poor and small
business.
References
1. Aronstam PJ (1979) Consumer Protection, Freedom of Contract, and the Law. Cape
Town, Juta.
2. Christie RH (2006) The Law of Contract in South Africa (5th Edition) Durban: Butterworth.
3. Kok Christelle (2010) “The effects of the consumer protection act on exemption clauses
in standardized contracts.” University of Pretoria Thesis.
4. Government Gazette (2009) “Consumer protection Act No. 68 of 2008”. The Presidency
Republic of South Africa.
5. Moseneke D “ Transformative Constitutionalism: its implication for the law of contract”
(2009)1 STELLR 3
6. Van der Merwe et al. (2007) Contract: General Principles (3rd Edition) Cape Town, Juta
7. Van Dorsten JL “The burden of proof and exemption clauses” (1984)49 THRHR 189
8. Van Zyl DH “The significance of the concepts ‘Justice’ and ‘Equity’ in Law and Legal
thought” (1988) 105 SALJ272