South Africa: SCA confirms that commercial agreements structured to avoid the Consumer Protection Act are not automatically invalid

In Dr Darren Levin Inc. and Another v Promenade Centre (Pty) Ltd, the Supreme Court of Appeal (SCA) dismissed an appeal concerning the validity of a commercial lease concluded between Promenade Centre (as the landlord) and Dr Darren Levin Inc (as the tenant).

The lease was concluded with Dr Levin’s incorporated entity, rather than with Dr Levin personally, after Promenade indicated that it no longer wished to conclude leases with individuals in order to avoid the application of the Consumer Protection Act 68 of 2008 (CPA).

The CPA does not apply to transactions where the consumer is a juristic person whose asset value or annual turnover, at the time of the transaction, equals or exceeds ZAR 2 million. In this case, it was common cause that Dr Levin’s incorporated entity had an asset value or annual turnover exceeding ZAR 2 million.

The dispute arose after Dr Levin’s incorporated entity failed to pay amounts due under the lease, following which Promenade cancelled the lease and claimed damages. Dr Levin and his incorporated entity argued that the lease was void, invalid and unenforceable under the CPA, or alternatively contrary to public policy, because of Promenade’s requirement for it to be concluded through a juristic person in order to avoid the application of the CPA.

The SCA held that merely contracting with a juristic person, and thereby avoiding the application of the CPA, cannot, without more, cause the consumer agreement to be void. The SCA’s reasoning was informed by the fact that:

• Dr Levin is not a low-income, vulnerable consumer and did not suffer any disparity of negotiating power;
• the agreement was a commercial lease, rather than a residential one; and
• parties may arrange their commercial affairs to avoid the application of legislation.

The key takeaway is that South African courts may uphold genuine commercial arrangements, even where one party’s motivation is to avoid the CPA. The outcome may be different where the agreement involves the kind of low income, vulnerable consumer the CPA is designed to protect.