The Consumer Protection Act and five common law principles

February 1st, 2013
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By Sarah-lynn Tennant and Vuyokazi Mbele

There are no formalities in terms of the common law for entering into any contract. However, where the parties agree to such formalities, or if the law prescribes these, the agreement needs to be in writing and signed (eg the Alienation of Land Act 68 of 1981 requires that the sale of immovable property be reduced to writing and signed by both parties or their agents).

An agreement reduced to writing and signed by the parties has been affected by the introduction of the Consumer Protection Act 68 of 2008 (CPA), which has as its main objective the protection of consumers while establishing duties for suppliers in respect of a consumer agreement.

In general, the CPA applies when goods or services are promoted (advertised) or supplied in the ordinary course of business and for consideration. It does not, however, apply in certain instances, for example if a consumer is a juristic person with an asset value or annual turnover in excess of R 2 million at the time of the transaction or if the transaction pertains to services under an employment contract.

Below is a discussion of how the CPA has affected five common law principles relating to consumer agreements that have been reduced to writing and signed by the parties.

Principle 1: Caveat subscriptor

In terms of the common law principle caveat subscriptor, when an agreement is reduced to writing and signed by the parties, they are bound to its terms as signature signifies assent thereto. This places the burden on the consumer to protect himself by understanding the terms of the agreement before signing it, as he will be bound to their ordinary meaning.

The CPA has, however, shifted the burden of ‘understanding’ the agreement from the consumer to the supplier. Section 22 of the Act requires the supplier to ensure a consumer agreement is in ‘plain and understandable language’ and s 50 states that an agreement reduced to writing must contain a breakdown of the consumer’s financial obligations (where a signature may not be required unless the parties agree to this or law prescribes otherwise).

These sections place the burden on the supplier to ensure that the consumer understands the terms of the agreement, including his financial obligations. Should the consumer (eg the buyer) sign the agreement, he shall still be bound to it through the caveat subscriptor principle. Accordingly, the common law principle of caveat subscriptor remains in existence, although the CPA has shifted the burden in respect of understanding from consumer to supplier.

Principle 2: Freedom to contract

The common law incorporates the cornerstone principle of freedom to contract, which provides that parties are free to decide on the terms of their agreement with the only exception that an agreement must be lawful or legally possible (which entails that it must not be contrary to the common law and the agreement must be legally executable).

The CPA, however, contains provisions that restrict the parties’ freedom to contract. In particular, the following provisions may not be adapted or ignored when entering into a written consumer agreement:

  • Section 14 of the CPA states that a consumer agreement must not exceed 24 months unless the consumer expressly agrees to this and the supplier can prove a financial benefit for the consumer. In terms of such an agreement, either the supplier or consumer may be allowed to cancel the agreement on 20 business days’ written notice and the supplier has the additional burden of notifying (not more than 80 days and not less than 40 business days) the consumer in writing of the impending expiry date of the agreement, the material changes that will apply to the agreement after the expiry date and also that the agreement will continue on a month-to-month basis unless the consumer directs otherwise.
  • Section 17 of the CPA affords the consumer a right to cancel a reservation, booking or order for goods (other than special goods) and a reasonable cancellation fee may be imposed by the supplier.
  • Section 26 of the CPA requires a supplier to provide the consumer with a written record of each transaction entered into with the consumer.
  • Section 47 of the CPA states that where a supplier fails to supply goods or services on an agreed date or time due to a shortage of stock or incapacity, the supplier must provide same or equivalent goods or services to the consumer, or the supplier must refund the consumer all amounts paid with prescribed interest and incidental costs for breach of the agreement (unless the circumstances are beyond the supplier’s control and the supplier took reasonable steps to inform the consumer of the shortage or incapacity).
  • Section 48 of the CPA provides that the supplier must not enter into an agreement with a consumer on terms that are unfair, unjust or unreasonable. Section 48(2) lists generally when a term or agreement is unfair, unjust or unreasonable, while reg 44(3) of the regulations in terms of the CPA specifies such instances. The test in this regard is subjective as the supplier may prove otherwise. Section 51 of the CPA prevents a supplier entering into an agreement with a consumer on prohibited terms (a list is provided in s 51). The test in this regard is objective and may not be proven otherwise by a supplier.
  • Section 58(1) of the CPA requires that the supplier draw notice to the attention of the consumer relating to a risk (and its nature and possible effect(s)). Where the risk is of an unusual nature or could result in serious injury or death, the consumer must assent to it.

Principle 3: Passing of the risk rule

In terms of the common law ‘passing of the risk rule’, a consumer (or buyer) per a sale agreement (a form of consumer agreement) shall be liable for the accidental loss of goods as soon as the agreement becomes perfecta (when the essentialia of the agreement are met and the agreement is not subject to conditions or such conditions have been fulfilled). Delivery of the goods is not a requirement for this rule to take effect as this is a consequence flowing from a valid sale agreement (the seller remains liable for negligent or intentional loss to goods).

Thus, the buyer will be liable if he does not take delivery of the goods but the goods are accidentally damaged at the time the agreement of sale became perfecta.

Section 19(2)(c) of the CPA has adapted this rule by providing that the supplier (or seller) is liable for the loss of goods (be it accidental, intentional or negligent loss) prior to the delivery of goods as the supplier (or seller) must keep the goods in his ‘care and risk’ until delivery.

Principle 4: Parol evidence rule

This common law rule prevents a party to a written agreement from presenting extrinsic evidence (ie, other than the terms of the agreement) that contradicts or adds to the written terms of the agreement. This rule provides that since the parties have reduced their agreement to writing, extrinsic evidence shall not be considered when interpreting the agreement as the parties, when concluding their agreement, decided to omit such information.

Section 48 of the CPA inter alia provides that a supplier may not enter into an agreement to supply goods or services on terms that are unfair, unjust or unreasonable. Section 48(2) lists generally when a term or agreement is unfair, unjust or unreasonable, while reg 44(3) specifies such instances. The test in this instance is subjective and, with regard to the latter, the supplier may prove otherwise in view of the ‘particular circumstances of the case’.

Section 48 is accordingly in conflict with the parol evidence rule as the CPA provides that the National Consumer Tribunal (NCT) or relevant court hearing a CPA matter may look beyond a written agreement to establish if its terms are fair, just or reasonable. In deciding this, the relevant court or NCT will take surrounding circumstances into account, such as (as listed in s 52(2) of the CPA) –

  • the fair value of the goods or services;
  • the nature of the parties to the agreement; their relationship to each other; and their relative capacity, education, experience, sophistication and bargaining position;
  • the circumstances that existed or were reasonably foreseeable at the time the agreement was concluded;
  • whether there were any negotiations between the supplier and the consumer and, if so, the extent of these;
  • the conduct of the supplier and the consumer respectively;
  • the extent to which any documents relating to the transaction or agreement were drafted in plain language;
  • whether the consumer knew or ought reasonably to have known of the existence and extent of any particular provision of the agreement that is alleged to have been unfair, unreasonable or unjust, having regard to any trade custom and any previous dealings between the parties;
  • the amount for which, and circumstances under which, the consumer could have acquired identical or equivalent goods or services from a different supplier; and
  • in the case of a supply of goods, whether the goods were manufactured, processed or adapted to the special order of the consumer.

The CPA has accordingly adapted the common law parol evidence rule.

Principle 5: The voetstoots clause

Previously, in terms of the common law an agreement of sale could have incorporated the voetstoots clause. Accordingly, the supplier (or seller) would not be held liable for any defects to the goods, unless these were wilfully concealed. This clause deemed a warranty against latent defects as non-operative (the warranty ensured that the supplier (or seller) remained liable for goods sold where a latent defect arose).

The CPA provides certain warranties for goods and services and accordingly, in our opinion, the voetstoots clause may no longer be relied on:

  • Section 54 of the CPA relates to the supply of services (and goods that are installed or maintained in relation to the services), which the supplier must –

–        perform and complete on time, or the supplier must give timeous notice of a possible unavoidable delay to the consumer;

–        perform in a manner and quality as generally expected;

–        supply goods free from defects and of good quality as generally expected; and

–        return to the consumer in the same condition (at least) all goods used in carrying out the performance.

Where such warranties are not met, the supplier must remedy the situation or refund a reasonable portion of the purchase price (depending on the extent of the defect or failure) to the consumer.

  • Section 55(2) of the CPA provides that a supplier must supply goods –

–        that are suitable for the purpose intended unless the consumer has been informed that the goods were offered in a specific condition, and who has agreed (expressly or through conduct) to this condition. Where the consumer has specifically informed the supplier of the purpose of the use of the goods, the consumer can expect that the goods delivered are reasonably suited for that purpose (s 55(3) of the CPA) or the consumer can return the goods to the supplier in terms of s 20(2)(d) of the Act;

–        of good quality, in good working order and free of defects unless the consumer has been informed that the goods were offered in a specific condition, and he agreed (expressly or through conduct) to this condition;

–        that can be used for a reasonable period of time (taking into account surrounding circumstances, eg ‘wear and tear’); and

–        that comply with the Standards Act 29 of 1993 and other applicable law.

To determine whether such warranties have been complied with, all relevant circumstances must be considered, for example the marketing, packaging and display of goods; the trade description; instructions given; and time when the goods were produced and supplied (s 55(4) of the CPA).

In considering all the relevant circumstances, a failure or defect in the goods will remain as such regardless of whether they are latent or patent and goods cannot have failed or have a defect merely because a better product is now on the market (s 55(5) of the CPA).

A failure to comply with s 55(3) of the CPA will result in s 20(2)(d) – the return of goods – applying and not s 56 of the CPA, whereas a failure to comply with the rest of s 55 of the CPA will result in s 56 of the CPA applying, in terms of which the consumer has six months from the date of delivery to return the goods to the supplier at the supplier’s risk and expense. The supplier must fix the good(s) within three months, replace them or repay the consumer the price paid.

  • A supplier must further, per s 57 of the CPA, warrant every ‘new or reconditioned part installed’ during repair or maintenance work (including labour) for three months or longer, as specified in writing by the supplier unless (in which case the warranty is void) the consumer subjects the ‘new or reconditioned part’ to abuse or the ‘new or reconditioned’ part is subjected to ‘wear and tear’.

Conclusion

In summary, the extent of the adaptations or amendments by the CPA to the above five common law principles are:

  • Caveat subscriptor: In terms of the CPA, the burden of understanding the agreement has shifted from consumer to supplier, who must ensure that the agreement is in plain and understandable language and that the consumer receives a breakdown of his financial obligations. However, the common law principle still applies if the consumer signs the written agreement once he understands it.
  • Freedom to contract: This principle remains applicable save for certain mandatory provisions stipulated by the CPA, for example the duration of a consumer agreement may not exceed 24 months (unless otherwise agreed and there is a financial benefit for the consumer) and such an agreement may be terminated on 20 business days’ written notice; the cancellation of a reservation, booking or order of goods is allowed by a consumer (where a reasonable penalty may be imposed); a written record must be issued per transaction by the supplier; the supplier shall remain liable to the consumer due to a shortage of stock or incapacity to supply goods or services; terms of a consumer agreement may not be unfair, unjust or unreasonable; terms of a consumer agreement may not be prohibited and a notice concerning a risk of an unusual nature (or which could result in injury or death) must be acknowledged by the consumer.
  • Passing of the risk rule: Section 19(2)(c) of the CPA stipulates that a supplier (or seller) is liable for the loss of goods prior to the delivery of goods as the supplier (or seller) keeps the goods in his ‘care and risk’ until delivery.
  • Parol evidence rule: Although this principle remains intact, s 48 read with s 52(2) of the CPA allows for extrinsic evidence to be presented to a court or the NCT to establish if contractual terms are unfair, unjust or unreasonable.
  • Voetstoots: The voetstoots clause is void through the warranty provisions in the CPA. In particular, s 54 provides that services must be warranted (including the goods that are installed or maintained with the service). Section 55(2) read with s 56 ensures a supplier warrants goods for six months; and s 57 warrants new or reconditioned parts installed for three months or longer.

Sarah-lynn Tennant LLM Dip Corporate Law (UJ) is a senior legal researcher and Vuyokazi Mbele LLB (UFH) is a legal researcher at LegalWise in Johannesburg.

This article was first published in De Rebus in 2013 (Jan/Feb) DR 36.

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