Sign On The Dotted Line At Your Peril
What does the Consumer Protection Act say?
The Consumer Protection Act CPA, now set to come into full operation on 01 April 2011, introduces a market place in which the cautious buyer’s obligations are shifted onto the shoulders of the (soon to be) cautious seller.
The delay will enable the department to finalise all processes required to effectively administer these two pieces of legislation, as well as give business and the public enough time to prepare themselves for compliance with the new laws. According to the Department of Trade and Industry, the two pieces of legislation have significant impact on business operations.
The act will also prohibit certain unfair marketing and business practices which will be monitored by a new consumer tribunal
Minister of Trade and Industry, Rob Davies, deferred the implementation of the acts to allow for more consultation with stakeholders before finalising the legislation.
The postponement, however, only relates to the general implementation of the various provisions of the two Acts. It does not extend to the establishment of the two institutions required to implement or administer both legislations – namely the Companies and Intellectual Property Commission and the National Consumer Commission.
In this note we take a closer look at the obligations that the CPA places on business generally, as seller, when it concludes agreements with consumers.
Keep in mind that the CPA applies to all transactions concluded in South Africa in the ordinary course of business, of the supplier, and as such, does not directly interfere with individual transactions between persons.
When Joe Soap sells his house to a third party, he is not transacting in the ‘ordinary course of (his) business’ and the transaction and agreement is not governed by the Act. On the other hand, if the seller is a property developer or builder, the transaction will be in the ordinary course of the seller’s business and will require compliance with the Act.
Contracts under the CPA-General Rules
Unfair, unreasonable, unjust contract terms prohibited
The Act prohibits a business from including unfair, unreasonable or unjust contract terms in its agreements. Each clause of a contract and the effect of that clause on the consumer, must therefore be considered carefully to ensure that it is not unfair or unreasonable.
Businesses that up to now safely hid behind their standard term agreements which disclaimed liability for various eventualities, may find themselves at odds with the Act’s requirements and liable in instances where they were not before.
Plain language
The Act requires that agreements must be in plain and understandable language. As such, most businesses, including developers and builders, will need to re-draft or amend their sale agreements to be CPA compliant. Failure to do so may allow consumers to get out of the agreements and may make the supplier guilty of unconscionable conduct and liable to pay a penalty. The Act allows for penalties of up to 10% of a supplier’s yearly turnover.
The new law will come into effect 18 months after it is signed by the state president, except the strict liability section, which comes into effect in April 2011
Onerous clauses
Onerous clauses must be drawn to a consumer’s attention in plain and understandable language.
These are clauses that:
(i) limit the risk or liability of the supplier or any other person or pass any risk or liability to the consumer (e.g., exemption clauses);
(ii) provide an indemnity by the consumer to the supplier or any other person; and/or
(iii) are unusual or could not reasonably be expected to appear in the contract (i.e., a personal security hidden in a corporate credit application).
The Act requires these clauses to be specifically drawn to the consumer’s attention and the consumer must be afforded an opportunity to consider and comprehend the impact of the clause, before signing that he accepts to contract on that basis.
Definition of Onerous: A Law that involves one or more heavy obligations
Reasonable price, reasonable terms
A supplier may not enter into any agreement for the supply of goods or services (i.e., developer selling property; managing agent selling services) at a price or on terms that are unfair, unreasonable or unjust.
How this requirement of the Act will develop, remains to be seen. However, courts are granted extensive powers in the CPA and may, amongst others, make an order that:
(i) changes the price or the terms contained in a contract;
(ii) requires money to be returned to the consumer; or
(iii) is innovative, in order to uphold the spirit of the CPA.
Effectively, the courts are authorised to change an unfair purchase price or term in a contract (which may well result in a contract differing materially from what the parties initially intended). It is likely that the courts will exercise these powers sparingly, where there is a manifest injustice.
Voetstoots
Whilst the CPA does not amend the common law position of a voetstoots clause in property transactions for once-off deals, it is altered in cases where sellers are suppliers (i.e., developers, speculative builders or those with a primary business objective of dealing in property).
The Act stipulates that consumers have the right to receive goods that are of good quality and in good working order. The supplier is now liable to deliver goods that are free of defects, unless such defects were pointed out to the purchaser and the latter agreed to accept delivery of the goods with the defects. Therefore, if goods (property) were sold with defects, whether latent or patent, the consumer will have recourse against the supplier for any defects not specifically brought under his attention before contracting.
Cannot contract out of CPA
Note that a supplier may not:
(i) include any term in a contract that waives or deprives a consumer of a right in terms of the CPA
(ii) contract in a way that is intended to avoid a supplier’s obligation(s) in terms of the CPA
(iii) include any term in a contract that allows the supplier to penalise the consumer for enforcing rights that should not attract a penalty. Avoid the consequences of non-compliance and take the opportunity, before the Act is in full operation on 01 April 2011, to have your agreements updated and revised.
Compiled by Maryna Botha. this article was taken from the December 2010 issue of Real Estate Investor.
Resources
- STBB | Smith Tabata Buchanan Boyes
- www.stbb.co.za
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