Retailers’ Association Submission

Retailers’ Association

Private Bag 34

AUCKLANDPARK

2006

19 August 2008

Attention: The Secretary of Parliament, Mr Johnny Ramrock c/o Marchelle Williams

Via email: ; CC:

Dear Mr Ramrock

RE: Consumer Protection Bill: Bill 19A (as amended by Bill 19B) of 2008: retail submission to NCOP

We thank you for the opportunity to give written commentary on the Consumer Protection Bill. As part of this submission, we also request the opportunity to make representations during the course of the National Assembly Public Hearings.

This submission will consist of three parts: an introduction, a summary of our key concerns and a detailed analysis in table format of all our concerns. The submission is made on behalf of Retailers’ Association, which is made up of the following organisations that operate as large national retailers as well as associated smaller independent franchise operations. It should be noted that some of the member businesses may also make supplementary submissions, in addition to this submission. Members of the Retailers’ Association are:

Ellerine Holdings

Edcon (Pty) Limited

Foschini Group

JD Group

Mass Discounters

Massmart

Metcash

New Clicks Holdings Group

Pick ‘n Pay

Shoprite Checkers

Smollan Group SA (Pty) Ltd

Spar Group Limited

Truworths

Woolworths (Pty) Ltd

Part A: Introduction

The Retailers’ Association supports the socio-economic and human rights objectives that are the basis of the Bill. We welcome the Bill as means to protect the consumer market and the legitimate interests of stakeholders that participate in this market. In particular, the Retailers’ Association recognises the need to protect the consumer, particularly vulnerable consumers, whose rights must be balanced with the needs of business to pursue economic objectives that lead to economic growth and poverty alleviation. Our written representations are reflective of these objectives and of sustaining a strong and viable wholesale and retail sector in a vibrant and growing economy.

We recognise and acknowledge that the dti has engaged in an extensive consultative process with business in the drafting of the Bill, and has consequently made a number of amendments to the Bill thereby taking a number of businesses’ concerns into account. There are, however, a number of areas of the Bill that we believe still require consideration in order to ensure an effective and fair consumer market, and that the objectives of the Bill are met. These concerns are set out below in the form of key concerns, followed by a detailed analysis outlining more detailed issues of concern.

Part B: Key Concerns

The broad areas of concern are referred to in this section, but are dealt with in more detail in the table that follows this section.

1. Official Language Requirement

One of the issues that the dti made adjustments to, following the consultations with business was the official language requirement. As the Bill now stands, the plain and understandable language requirement remains whilst the official language requirement was deleted. These amendments were made as a result of what we submit was a persuasive argument by business: that the costs of providing all consumer related information in all the official languages would be so onerous that it would not be capable of implementation. Millions of documents are produced for consumers. To require all documentation to be available in all official languages would, we submit, create an extremely onerous regulatory burden, result in excessive costs to business, and have a negative impact on the environment.

By way of illustration, we attach as Annexure 1 two mock-up labels for baby food products, showing that the existing required information cannot even be accommodated in one language on a label due to space constraints. Should the official language requirement become law, it would be impossible to have a second language, yet alone any further languages on such a label.

During the joint briefing to Parliament by the dti, it was clear that many of the Honourable Members of Parliament were concerned that the official language requirement had been removed. We submit that there are sound regulatory impact reasons for the removal. If, however, the official language requirement is to be reconsidered, we would request that this be done after a regulatory impact assessment has been conducted. The regulatory impact would be further minimised if the drafters were to narrow down the types of customer communication that should be available in the official languages, to only those types of communication that are absolutely essential.

2. Duplication and Overlap with Other Legislation

For business to thrive, as stable regulatory environment is essential, so that all parties know what are their rights and obligations, one of the objectives of this Bill is to unite fragmented pieces of legislation into a comprehensive and single piece of legislation and create this stability and certainty. The Bill, however, creates a piece of legislation that is both extremely broad in its application and also still overlaps with other pieces of legislation that will continue to apply alongside this Bill. This leads to uncertainty, and ultimately a denial of the very rights sought to be addressed in the Bill.

Despite the clear intention of the drafters to avoid duplication, this has not been reflected in the Bill primarily due to contradictions within the Bill. For example, section2(9) stipulates that where contradictions with other Acts exist, the Act that affords the consumer the most protection applies. However, section 5(3) provides for a regulatory authority to apply to dti minister to set aside consumer protection requirements if provisions overlap with that of the authority.

An example of the overlap is intermediary services under the Financial Advisory and Intermediary Services Act (“FAIS Act”). “Advice” that is regulated under the FAIS Act is excluded from the ambit of the Bill, but intermediary services are not. Given that the FAIS Act and its regulations already contain consumer protection provisions, it is suggested that intermediary services also be excluded from the Bill.

Similarly, credit agreements under the National Credit Act will be governed by this Act and also the Bill. It is understood that it was the dti’s intention to have the asset or the good that is financed under the credit agreement governed by the Bill, but the credit agreement governed by the National Credit Act. This is not stated clearly in the Bill, and we suggest this be clarified.

A provision in the Bill that is also not clear is the exemption for transactions above a certain threshold and goods in a “supply chain” relationship. This is detailed more fully in the detailed table that follows, but it must be emphasised, that the threshold is based on a value of a transaction. Given the nature of transactions between a large business (as a consumer) and a large business supplier, a transaction is often made-up of many smaller transactions and these could all be governed by one agreement. This would be the case where there is a continuous supply of services, such as a courier service. In some months, a transaction (forming part of the whole agreement) could fall below the threshold and in some months, it call fall above.

The dti has indicated that it would not be possible to exempt businesses based on their annual turnover, but it is suggested that this be reconsidered as an annual turnover requirement would be far easier to ascertain than a transaction based requirement.

Having said this however, the threshold requirement alone will not exempt a transaction (as with the NCA), as the transaction must be one where the goods or services are supplied to a person in the supply chain and as per the requirements of section 5(2)(b)(ii). This would mean that a large or even a listed company that procures services of a supplier of goods that such company will use in its own business as an end user, will not be exempted. Whilst it is laudable to extend the provisions of the Bill to the company’s as consumers, this is not necessary as such business-to-business transactions are usually individually negotiated with both parties usually aware of their rights.

A final example is the overlap between what is regarded under this Bill as safe, quality goods and hazards, under section 63, which is also defined and covered under the Foodstuffs, Cosmetics and Disinfectants Act (and its Regulations) with different definitions of what is safe and hazardous.

3. Implied Warranty of Quality

Sections 20 and 56(2) provide that within 6 months after delivery of any goods to a consumer, that the consumer may return the goods to the supplier, without penalty, at the supplier’s risk and expense. On return, if the goods fail to satisfy the requirements that they are safe and of good quality, then the goods must be repaired or replaced or the amount paid must be refunded to the consumer.

It is clear that a 6-month return period is not appropriate for all types of products. It is certainly unreasonable to allow for a 6-month return period in the case of perishable food products that would have deteriorated significantly over the period. It is submitted, therefore, that the 6 month period should be replaced with a ‘reasonable period’ to be determined dependent on the nature of the goods.

Provision also needs to be made for the supplier or retailer to require that the consumer provides adequate proof of purchase when returning goods under this provision (and also under section 20).

4. Liability for Damage Caused by Goods

Section 61 of the Bill, introduces strict liability for any damage caused by goods. In contrast to the current position, which requires the consumer to prove fault on the part of the supplier, of either a negligent or intentional nature, section 61 provides for strict liability, in other words, regardless of fault on the part of the supplier or retailer.

This section will add immense costs to big business with respect to insurance, and will lead to an unsustainable situation in relation to smaller and medium sized businesses that cannot afford to insure themselves against this risk. In many instances, the middle-sized business will not withstand a strict liability claim, and will have to declare insolvency. A producer or importer, distributor or retailer will have to take out extensive insurance cover to provide for the risk of being liable to consumers in terms of this section. The costs of this will increase the cost of doing business, and the cost will inevitably be filtered down to the consumer.

We acknowledge the endeavour by the drafters to protect the consumer, particularly the more vulnerable consumer who does not always have access to justice when required to prove fault on the part of the supplier. We submit, however, that this problem is better addressed through ensuring accessible institutional structures, where vulnerable consumers are enabled and empowered to process their cases, rather than highly onerous solution of strict liability set out in section 61.

5. Regulations

Much of the detail contained in the Bill is dependent on Regulations being drafted. Without these, it is very difficult to comment on some of the provisions in the Bill, for example what the prohibited period is under section 12 and the maximum term of fixed term agreements under section 14.

It is understood that the Regulations will be drafted early in 2009 (i.e. after the Act is made law but during the period when the Act is inoperative) but this will be too late, as businesses will need to prepare for implementation of the Bill and with most of the detail absent, businesses will not be able to do this.

6. Institutional Structures Provided for in the Bill

In terms of the Explanatory Memorandum of the Bill, it indicates, correctly, that the ‘Bill aims to make redress accessible…’. This calls for simple, clear, expeditious and accessible procedures in order for the consumer to enforce his or her rights.

When explored further this gives rise to a number of implicit principles:

  • Parties should clearly know where to go to enforce consumer rights, and such places should be geographically dispersed so that people can access such services
  • The time that it takes to process disputes should be minimized
  • Efficient and effective structures need to be in place that are capacitated and resourced to facilitate a fair outcome
  • Credible advisory and support services should be available for parties
  • People should be able to access consumer justice without the need for legal support and the associated financial expenses. Legal processes should be minimized where possible, except where matters are of such a nature that Court proceedings are required
  • Conciliation should be used as a first option for all disputes, failing which adjudication. Alternative dispute resolution should be encouraged as an alternative to legal processes
  • Sectors should provide their own dispute resolution services, provided they comply with the Act and are accredited to do so
  • An inspectorate would also be required in order to ensure that certain rights are reviewed and enforced

Contrary to the intention of accessible consumer justice as set out in the Explanatory Memorandum, it is submitted that the institutional structures as currently designed will act as a barrier to the access of justice. The proposed institutional structure creates the opportunity for extensive time delays, excessive legalisation, forum shopping, duplication and confusion as to which forum should be used. Parties could be tied up for extremely long periods of time in ascertaining which forum to approach and in working their way through the forums. This would require large financial resources, and in many cases would lead to complainants failing to pursue cases due to the time and resources required. It is submitted that the Bill creates an opportunity to significantly enhance consumer rights in South Africa in order to give effect to the objects contained in the Constitution. This calls for a complete review of the institutional structures with fresh and empowered structures, which will ensure access to consumer justice in a modern South Africa.This will ensure that the consumer can access the rights embodied in the Act, and that the respondent is in a position to properly respond to the issues raised. It is submitted that the structures contained in the Labour Relations Act of the CCMA, inspectorate and Courts are far better suited for the purposes of ensuring accessible consumer justice, than that embodied in the Bill. We submit that serious consideration should be given to this issue.

In addition, and contrary to indications given by the dti, it is not stated that the Courts will be the only bodies entitled to hear disputes regarding contracts. The Bill does not limit the authority of the Tribunal and it may hear such disputes. It is suggested that this be clearly stated in the Bill in order to ensure that there is no confusion.

The above key concerns all contribute to increasing the compliance costs. A more detailed breakdown of the concerns can be obtained from the specific provisions set out in the detailed table. Ultimately, a simple, clear and accessible institutional framework is required.

Part C: Detailed Analysis of Concerns

What follows is a detailed analysis of outstanding concerns pertaining to the Bill. The first two columns identify the provision of the Bill, with the Comments column detailing the concern, and in some cases a proposed solution to address the concern.

Annexures 1 and 2 follow regarding a specimen label and suggested wording changes respectively.

RETAIL SUBMISSION ON CONSUMER PROTECTION BILL - DRAFT RELEASED BY dti IN APRIL 2008
Section / Summary of provision / Comment
1.
Advertisement /

Definitions

/ This definition is extremely broad. It would also cover, for instance, a label in clothing and even a letterhead.
The definition should be made clearer so that it is limited to only where the communication or representation is for actual advertising purposes.
Business name / Business names (and Chapter 4, part A) should be regulated in the Companies Act and Close Corporations Act (or such other Act as may precede these Acts). Only business names of entities or businesses that are not companies and close corporations should be regulated in this Bill, e.g. sole proprietors.
Clearly / This definition was not in the prior drafts, but does not appear to be used in its context in the Bill, and its relevance is therefore questioned. It should be deleted.
Consumer / It is understood that this definition now includes someone who uses particular goods irrespective of whether that person actually purchased the goods.
However what is not clear is how this will apply in the employer/employee relationship? For example, when an employee who uses (for example) a power tool that was purchased by the employer for use in the business, and the employee is injured as a result of the product being defective. The employee would have a claim against the Workman’s Compensation Fund, but the wide ambit of this definition would also provide for a claim in terms of this bill, which can surely not be the intention?
In discussions with the dti they have confirmed that the intention had always been to exclude such a situation.