Controversial new test for ‘ordinary course of business’

November 1st, 2021

The Consumer Protection Act 68 of 2008 (CPA) provides a wide range of protections to consumers. It has a particularly complex set of legal rules, which determine when the Act will apply. Entwined in these applicability rules, is the phrase ‘supplier [acting] in the ordinary course of the supplier’s business’. When a supplier is not acting in the ordinary course of its business, the CPA will not apply, and the consumer will be left without the safety net provided by the Act.

The question arises, are the following suppliers acting in the ordinary course of their business:

  • I have driven my car for five years and I wish to replace it, so I advertise it on Facebook’s Marketplace and sell it to whoever will pay me the asking price. I am not a second-hand car dealer, just an ordinary individual, but I do go to the trouble of drawing up a short contract, which the buyer and I sign, in which I make it clear the car is sold voetstoots.
  • I am an insurer and after paying out a client’s claim after a fire ravaged the client’s warehouse, I exercise my right to subrogation in respect of the goods in the warehouse. I sell these goods voetstoots to members of the public.

In terms of s 5(1)(a), the CPA applies to transactions occurring in South Africa (SA). ‘Transaction’ is defined with reference to a situation where the supplier of goods or services is acting in the ‘ordinary course of [its] business’.

The phrase ‘in the ordinary course of the [supplier’s] business’ has elicited much debate and is ripe for judicial clarification. To understand what was intended by the drafters of the Act, we must first turn to the Act itself. The definition of ‘business’ in s 1 of the Act is central to our understanding the phrase: ‘“business” means the continual marketing of any goods or services’.

Surprisingly, ‘market’ in turn, is defined as follows: ‘“Market”, when used as a verb, means to promote or supply any goods or services’.

When we combine the contents of these definitions, it becomes clear that the phrase ‘in the ordinary course of the supplier’s business’ means that the supplier is someone who acts in the ordinary course of continually promoting or supplying goods or services.

If the test is applied to example one, the seller is not acting in the ‘ordinary course’. In example two, the regularity of these types of sales by the insurer would be determinative. It is likely that the sale of the damaged goods would be ‘in the ordinary course of business’ for the insurer and that the CPA would consequently apply to the goods sold.

It is clear that the CPA does not only apply to the main business of the supplier, a secondary money-making endeavour or a ‘side hustle’ can also be governed by the CPA. As long as the supply is not out of the ordinary for the supplier, and it is not a once-off transaction, then on the wording of the CPA, it is ‘in the ordinary course’ of the supplier’s business.

For example, if I am the senior partner of a law firm, and there is one extra parking bay at the premises, I take the initiative of offering it for rent to our neighbours. We enter into a handshake agreement in terms of which the neighbour rents the parking bay on a month-to-month basis for a monthly rental. Applying the definitions in the CPA one could argue that the ‘ordinary course of business’ requirement has been met due to the ongoing nature of a lease:

  • Firstly, because as owner or possessor of the parking space it would not be out of the ordinary to rent out the parking space.
  • Secondly, access to the parking bay is supplied to the renter daily, whether the lease runs on a month-to-month basis or is for a longer term.

In the recent judgment of Airport Inn and Suites (Pty) Limited v Strydom (GJ) (unreported case no 2020/28545, 7-5-2021) (Du Bruyn AJ) a different test was introduced. The judgment deals with a dispute between a landlord and tenant in respect of commercial premises. The judge was tasked with determining whether the lease is a transaction as defined in the CPA, and consequently investigates whether the lease was concluded in the ordinary course of the landlord’s business. The outcome will determine whether the tenant can be afforded protection under the CPA.

Du Bruyn AJ points out that the phrase ‘in the ordinary course of business’ appears in the definitions of both ‘consumer’ and ‘transaction’ in the CPA. When interpreting this phrase, Du Bruyn AJ does not break down the meaning of the words found in the definition of ‘consumer’ and ‘transaction’, but instead adapts the test found in Joosab v Ensor, NO 1966 (1) SA 319 (A) at 326D – E, as follows:

‘In Joosab’s case and in the context of section 34(1) of the Insolvency Act 24 of 1936, the Appellate Division set out the test for determining whether a transaction was “in the ordinary course of business”. It was held that the test is an objective one, namely whether, having regard to the terms of the transaction and the circumstances under which it was entered into, the transaction was one which would normally have been entered into by solvent businesspeople. This objective test under the Insolvency Act 24 of 1936 must be adjusted for purposes of applying it to the CPA. Reference should not be made to solvent businesspeople, but merely businesspeople.’

I can paraphrase this new test as: Is the transaction of such a nature as businesspeople would normally conclude, considering the terms of the transaction and the circumstances under which it was entered? This in my view is akin to a test of whether a transaction was concluded at arm’s length.

What is the result if we apply the test to the examples given above?

I would venture that the individual selling their car is likely to be regarded as acting in the ‘ordinary course’ if the purchase price is around market value, the car is sold voetstoots and the keys are only handed over after proof of payment of the purchase price has been received. As can be appreciated, the new test has the effect of extending the ambit of the CPA enormously to suppliers who are not expecting to be governed by the CPA.

With the second example, the insurer is likely to sell goods in a business-like manner and so the CPA is likely to (still) apply to the transaction.

If one looks at the example of the law firm renting out the parking bay, the outcome will depend on whether the transaction is entered into on an arm’s length basis or not. Since the agreement is not in writing and there is no formal invoicing process followed, the CPA probably does not apply. In this example, the new test is likely to narrow the applicability of the CPA to leases, to the detriment of tenants.

In my view, the new test skews the intention of the legislature that applicability of the CPA be determined by continuous supply and causes unnecessary confusion by imposing a test, which contradicts that in the Act.

If you are a consumer, it is in your best interests to persuade a supplier to contract with you in a business-like fashion, for example in terms of a written contract.

In the meantime, as legal practitioners, we are hopeful that the Supreme Court of Appeal will bring correction or at least greater clarity on these conflicting tests.

Trudie Broekmann BA LLB (Stell) Dip International Law (Antwerp) LLM Tax Law (UCT) is a legal practitioner at Trudie Broekmann Attorneys in Cape Town.

This article was first published in De Rebus in 2021 (Nov) DR 9.