The Consumer Protection Act and five common law …

1 The Consumer Protection Act and five common law principles 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.

2 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.

3 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.

4 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.

5 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.

6 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).

7 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)).

8 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).

9 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.

10 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.