The Consumer Goods and Service Ombudsman (the Ombud) was established by the Consumer Goods and Services Industry Code of Conduct (the Code). Until recently, there has been uncertainty as to whether businesses were obliged to subscribe to the Code and pay annual fees that fund the Ombud. The position was recently clarified when the High Court in Pretoria declared that mandatory participation and payment of fees by all eligible businesses is lawful.
The Court’s decision
The Ombud brought the application for declaratory relief, claiming industry suppliers were not complying with the provisions of the Code. The application was opposed by Voltex and Astral. Voltex claimed that section 82 of the Consumer Protection Act, 2008 (CPA) did not empower the Ombud to insist on compulsory participation or payment of fees, but that participation was voluntary. Further, Astral submitted that the Code was not only ultra vires, but that it was unconstitutional and unlawful as it was irrational. Astral further submitted that the Minister’s decision to promulgate the Code was unlawful due to unreasonableness.
In reaching its decision, the Court took into consideration the purpose of the CPA, which is to realise and protect the rights of consumers as well to promote and advance the economic welfare of consumers in South Africa. Further, the Court emphasised that most constitutional jurisdictions place substantial burdens on their economic institutions to promote fair play.
The Court further criticised the respondents’ failure participate during the public participation phase around the Code. (This is an important consideration for industry suppliers for future regulations and codes that may be promulgated under the CPA.) When considering whether the fee structure was lawful, the court considered guidelines published by the National Consumer Commission in 2012, which set out a funding model for the Code. The court also took into account the powers of the Minister to promulgate a Code that requires fees from participants. The court found that the Code was drafted In line with the guidelines and within the powers of the Minister.
Finally, the Court pointed out that s82(1)(b) of the CPA states that the Code includes any voluntarily established scheme which regulates the conduct of a person conducting business in that industry. As there is no mention in the provision that members of that industry must first agree to be bound by the Code, participation can be mandatory. Moreover, the guidelines for drafting the Code require that the Code should be mandatory. Hence, the Court found for the applicant, stating that the power to levy a fee was necessary and incidental and that the Code was mandatory for all suppliers belonging to the industry.
How this effects industry suppliers
All entities operating in the consumer goods and services industry must register with the Ombud, subscribe to the Code and pay the participation fee. However, the Code excludes certain transactions and industries (some of which are governed by their own codes):
- transactions not covered by the CPA or governed by other public legislation;
- the automotive industry;
- Electronic communications services; and
- transactions with organs of state or financial institutions.
This judgement places extensive legal responsibilities on industry participants such as establishing an effective Internal Complaints-Handling Process, subsequent training of staff, paying an annual fee based on the annual turnover of the entity and the risk of a fine for contravening the Code (up to 10% of the entity’s annual turnover). It is not yet known whether the Court’s decision will be taken on appeal. For now, compliance is key.