Friday, April 17, 2009

The Consumer Protection Bill is the Department of Trade and Industry’s omnibus consumer protection legislation which has been passed by Parliament and is currently awaiting the President’s signature.   
The Bill will substantially change the face of contract law, consumer law, the law of sale, marketing and business practices, amongst other things.  While the Bill will have a significant impact on the substantive law, the purpose of this article is consider the impact of the Bill on dispute resolution. 

Section 5 of the Bill provides that, subject to certain exceptions, the Bill will apply to:
• Every transaction within South Africa;
• The goods or services supplied in terms of the transaction; and
• The promotion within South Africa of any goods or services or the promotion of a supplier of any goods or services. 
The relevant exceptions are:
• Where the goods or services are promoted to or supplied to the State;
• Where the consumer is a juristic person with an asset value or annual turnover which exceeds a threshold value to be set by the Minister;
• Where the value of the transaction exceeds a threshold value to be set by the Minister; or
• Where the Minister has granted an exemption to a particular industry or transaction type.
Unless the Minister is generous in granting exemptions (which would somewhat defeat the Bill’s purpose) or sets the threshold at a particularly low level, an enormous number of transactions, and certainly most ordinary commercial transactions between consumers and suppliers, will fall within the ambit of the Bill.
This in turn means that disputes between consumers and suppliers will now be regulated, and resolved, according to the Bill’s dispute resolution provisions.
Standing to sue
The starting point of the Bill’s dispute resolution mechanisms is section 69(1) read with section 4(1).  Section 4, like the Constitution’s section 38, confers standing to sue on persons acting:
• On their own behalf;
• On behalf of those who cannot act on their own behalf;
• As a member of or in the interest of a class of persons; and
• In the public interest.
The Bill therefore includes potential class action litigants and public interest litigants as persons with standing to sue.  Section 4 limits the broad standing, however, to allegations that a consumer’s rights have been infringed. Suppliers do not appear to have the standing to complain that their rights have been infringed. Nor, as will be pointed out below, once a complaint has been initiated, does the supplier appear to enjoy the options available to the consumer of referring the complaint on to the next step in the dispute resolution chain if the first step was unsuccessful.
While the Bill is obviously consumer-focused and is intended primarily to confer protection on consumers, instances will arise where the supplier may wish, or even need, to institute a claim. For example, if a consumer cancels a fixed-term agreement under section 14 but fails to pay the supplier the reasonable cancellation penalty, the supplier will need to sue to recover the amount owing.
Similarly, if the consumer cancels an agreement within the cooling-off period provided for in section 16 but fails to return the goods, the supplier will be unable to enforce payment because of the provisions of section 16(4)(b) and will first have to compel the return of the goods. It would seem strange for the legislature to have excluded suppliers from the Bill’s dispute resolution regime in these situations. 
Following the example set by the Constitution, section 4 also saves consumers from having to wait for a right to be infringed before instituting a claim (subject to an exception discussed below). Section 4 operates in situations where a right is “threatened.”
Section 69 provides that section 4 persons may enforce any right in terms of the Bill or in terms of a “transaction” or “agreement” or “otherwise resolve any dispute with a supplier” by invoking the Bill’s dispute resolution mechanisms.  On the Bill’s plain wording, then, it would seem that one can rely on section 4’s broad standing and the Bill’s dispute resolution provisions to resolve any dispute with a supplier, even if the subject of the dispute is not a substantive right in terms of the Bill.
The courts may, however, adopt a narrower interpretation of these sections (and probably should).
Regulatory and dispute resolution fora
The Bill introduces a number of regulatory and dispute resolution fora.

The National Consumer Commission
The National Consumer Commission will be an organ of state located within the public administration, but as an institution outside the public service. It is to be headed by a Commissioner appointed by the Minister and seems to be modelled on the Competition Commission.
The Commission is empowered to conduct investigations, encourage the development of codes of practice, undertake legislative reform, conduct research and public information campaigns, advise and report to the Minister, monitor the consumer market and promote dispute resolution, though it does not itself resolve disputes.

Consumer Courts
The consumer courts, also called consumer tribunals, are to be created under provincial legislation. The Bill therefore has little detail on how they are intended to operate or how they will be constituted. 

Provincial Consumer Protection Authorities
These authorities are also to be created under provincial legislation and will share similar functions to the Commission, operating at a provincial level. 
The provincial authorities have been given a narrow and limited jurisdiction. Section 84(b) only grants the provincial authorities jurisdiction to facilitate the mediation or conciliation of disputes between or among persons resident or carrying on business exclusively within the province.  This narrow jurisdiction would seem to limit the provincial authorities jurisdiction where a supplier operates in more than one province or where the supplier is located in another province.  Many consumer disputes will accordingly fall outside of the provincial authorities jurisdiction.
The Bill relies heavily for dispute resolution on ombuds. The ombud includes:
• Existing ombuds, whether created by statute or through voluntary industry arrangements;
• The ombud for financial institutions created under the Financial Services Ombud Schemes Act; and
• Accredited industry ombuds, where industry codes containing dispute resolution mechanisms have been promulgated and approved by the Commission.

National Consumer Tribunal
This is the existing National Consumer Tribunal created under the National Credit Act. 

The dispute resolution system: five fora
Direct access to the Tribunal
Section 69 provides for four methods of dispute resolution.  The first, in section 69(a), is direct referral to the Tribunal.  However, the Tribunal’s rules do not yet provide for direct access and regulations will have to be promulgated to provide for such access.
The Tribunal’s rules currently provide that it will operate informally and in an inquisitorial manner, although the process is similar to civil litigation in some ways.
Parties can be represented by anyone (including non-lawyers) and may represent themselves. Any person with a “material interest” may participate in the proceedings and question witnesses.
These rules were formulated when the Tribunal’s functions were restricted to credit agreements under the National Credit Act and where the number of parties who could potentially have a “material interest” in the matter was more limited than will potentially be the case with disputes under the Bill. How the Tribunal will interpret the “material interest” rule for disputes in terms of the Bill is uncertain.

Referral to an ombud
Secondly, section 69(b) and 69(c)(i) provide that the matter may be referred to an ombud, if such an ombud is available and enjoys jurisdiction.
Curiously, section 4, the standing provision discussed earlier, provides that those persons listed in section 4 may approach a court, the Tribunal or the Commission. It omits the words “consumer courts”, “provincial authorities” and “ombud”.  The usual principles of statutory interpretation would therefore suggest that an ombud cannot entertain the broad standing conferred on persons by section 4.  However, the Commission is expressly mentioned in section 4 and can, through section 72, refer complaints to consumer courts, alternate dispute resolution agents, ombuds and provincial authorities.  It therefore seems unlikely that the legislature could have intended to immunise the ombuds from the broad standing created by section 4. 
If the ombud process does not achieve a resolution, section 70(2) provides that the party who referred the matter to the ombud “may file a complaint with the Commission in accordance with section 71”. Again, this wording is unfortunate.  If there hadn’t been an available ombud, the consumer could in any event have filed a complaint with the Commission in terms of section 69(c)(iv).  The consumer could also have elected to approach a consumer court or alternate dispute resolution rather than referring it to the Commission.  By expressly providing, in section 70(2), for a right that was already available, and by not mentioning other rights which were equally available, section 70(2) implies that the consumer cannot now refer the matter to alternate dispute resolution or to a consumer court once they have approached an ombud.  There is no logical reason, however, why the section 69(c)(ii) and (iii) rights should be removed simply because an ombud was available but did not resolve the matter. 

The Consumer Court
The third option, provided for in section 69(c)(ii), is to apply to a consumer  court.  If section 75(1)(a) is anything to go by, a complainant will be able to approach the court where they are resident or the court where the supplier has its principal place of business. 
This would be a significant change from the usual situation where the plaintiff must go to the defendant, and is an especially significant change given that a supplier does not have to be resident in South Africa for the Bill’s provisions to apply.
The Consumer Courts have two modes of operation:
• When hearing a matter by way of a complaint from the Commission,  section 72(1)(b) provides that they are to resolve the dispute through mediation, conciliation or arbitration; and
• When they hear a matter by way of a completed investigation, sections 73(2) and (5) provide that they are to function as the Tribunal would – namely, by having papers filed and hearing argument on the papers, a process more akin to civil litigation than mediation or conciliation.
How the court is to conduct itself when it receives a complaint directly from the consumer under section 69(c)(ii) is not explained in the Bill.
A respondent who has been taken to a consumer court under section 73(2) (the completed investigation) or 75(1) (referral after a certificate of non-compliance) may apply in terms of sections 73(3) and 75(2) respectively to have the matter heard by the Tribunal, in preference to the Consumer Court.  Whether such an application is permissible where the consumer went directly to the Consumer Court under section 69(c)(ii) is not stated.

Alternate dispute resolution
The fourth option, provided for in section 69(c)(iii) is alternate dispute resolution (“ADR”).
ADR includes arbitration, mediation and conciliation and can be conducted through any mediator, arbitrator or conciliator - formal training or accreditation does not appear to be a requirement.  Ombuds are included under the definition of ADR agents. 
If ADR is successful, section 70(3)(a) provides that the resolution may be recorded in the form of an order.  Section 70(3)(b) states that if the parties to the dispute “consent to the order”, the order may be submitted to the Tribunal or a court to be made a consent order.
If the ADR process was mediation or conciliation there could by definition never be any order or resolution without the parties agreeing to it.  Arbitration, on the other hand, is premised on the fact that once parties have agreed to arbitrate they will be bound by the arbitrator’s determination. Consent to that determination is irrelevant and unnecessary. Section 70(3)(b) was therefore probably intended to mean no more than that the order may be made a consent order if the parties consent to it being confirmed as a consent order.
While there are many reasons to approve of the Bill’s clear preference for ADR as a means of dispute resolution the Bill has, however, left several important gaps which may bedevil the practical implementation of ADR in consumer disputes.
To take a simple example, ADR costs money. The Bill is silent on who will bear these costs. Empowering the Commission in section 72(1)(b), for example, to refer matters to ADR is not of much practical use until there is a determination as to who will pay the costs of ADR.  It will be a rare ADR agent who will entertain such a referral in the absence of an agreement as to fees. 
Similarly, section 69(d) makes it compulsory to exhaust all other available remedies before approaching a court. In other words, ADR, or, at a minimum, an attempt to refer the matter to ADR, becomes a compulsory step prior to civil litigation.  ADR cannot easily be imposed on unwilling participants and compelling unwilling parties to attempt ADR before approaching a court may drag disputes out, rather than make them quicker.  For example, the conclusion of an arbitration agreement can be lengthy and protracted.  With ADR as a compulsory step, it becomes possible for a party intent on delaying matters to drag out the negotiation of the arbitration agreement knowing that the other party must pursue the attempt long enough to persuade a court later that it has complied with section 69(d). 
ADR will also decrease the availability and number of decisions interpreting the Bill. Without interpretive precedents it will be difficult to advise clients on the application of the Bill.  While section 2(2) provides that a court or Tribunal may refer to the decisions of an ombud, consumer court or arbitrator to interpret the Bill, it is unclear how this will be done in practice given that there is currently no formal mechanism for the recording and reporting of arbitral decisions and given that arbitration is often a confidential process. 

The Commission
Fifthly, section 69(c)(iv) provides that a complaint may be filed with the Commission in accordance with section 71.  The reference to section 71 is confusing for three reasons. 
Firstly, section 4 operates where rights are “threatened”.  Section 71, however, for reasons which are not clear, limits complaints to allegations that a person “has acted in a manner inconsistent” with the Bill and ostensibly removes from the Commission the power to consider a threat to a right. 
Secondly, while section 69 provides that the persons listed in section 4 may enforce any right in terms of the Bill or in terms of a “transaction” or “agreement” or “otherwise resolve any dispute with a supplier”, section 71 appears to restrict complaints to “actions inconsistent with” the Bill.
Thirdly, section 71 provides that complaints must concern matters in section 69(1)(c)(ii) or (2)(b).  Neither of these sections exist.  They were present in a previous version of the Bill but have since been deleted. 
Referring a complaint to the Commission will result in one of three possible outcomes:
• If the Commission determines that the complaint is frivolous or vexatious or does not disclose a cause of complaint, it will issue a certificate of non-referral (section 72(1)(a));
• It may refer the complaint to one of the other fora or a regulatory body (sections 72(1)(b) and (c)); or
• It may direct an inspector to investigate the complaint (section 72(1)(d)). 
The investigation has several possible outcomes. It may result in:
• A certificate of non-referral (section 73(1)(a));
• The matter being referred to the National Prosecuting Authority if the investigation indicates that an offence might have been committed in terms of the Bill (section 73(1)(b));
• The matter being referred to the Equality Court (section 73(1)(c)(i));
• The matter being referred to the Tribunal or a consumer court (section 73(2));
• A draft consent order being proposed (section 74); or
• A compliance notice being issued (section 73(1)(c)(iv)).
A consent order is an order which the Commission and the supplier agree to have made an order of court. The compliance notice is issued where the investigation indicates, on reasonable grounds, that the supplier has engaged in prohibited conduct. Subject to certain rights to object to the notice, the supplier is obliged to comply with any compliance notice issued by the Commission.

Section 116 provides that complaints may not be referred to the Tribunal or consumer courts more than three years after the act which is the cause of the complaint.  Unlike the Prescription Act, prescription accordingly does not begin when the complainant becomes aware of the conduct, but rather when the conduct occurs. Hence it shortens the time available to the consumer to lodge a complaint. 
Section 116 does not say that this rule of prescription applies to ADR agents, the Commission, provincial consumer protection authorities, civil courts or ombuds and whether it will be interpreted in this narrow sense remains to be seen. 
The effect of section 69(d), which requires exhaustion of all other remedies before approaching a civil court, on prescription is also unclear.  Conceivably circumstances will arise where a summons might be issued more than three years after the debt arose because the consumer was first exhausting the other dispute resolution remedies. 
Consumer Protection Groups
Section 78(1)(b) authorises consumer groups accredited under the Bill to intervene in any proceedings where a consumer is not “adequately” represented.  On its face, this allows consumer groups to participate in mediations and arbitrations. How this will affect the conduct, confidentiality and costs of the ADR process is a challenge the ADR agent will face. 
The implementation and enforcement of the Bill will, especially initially, cause uncertainty and could potentially result in protracted dispute resolution processes and possibly increased costs until greater clarity is obtained on the implementation of the dispute resolution provisions.
Suppliers should therefore take legal advice on the dispute resolution provisions in their standard-form contracts and perhaps pro-actively develop a dispute resolution policy in the light of the Bill so that when complaints arise, the supplier’s employees and agents will have a ready template to guide them cost-effectively through the dispute resolution regime. 
Attorneys acting for consumers will have to initiate complaints early to avoid falling foul of prescription and should carefully evaluate which of the available fora would best suit the outcome which their client seeks.  Those attorneys who are not yet familiar with the ADR process will also have to familiarise themselves with these tools, given section 69(d).
Kevin Iles is an associate in the Dispute Resolution Department at Bowman Gilfillan