TREATING CUSTOMERS FAIRLY – A REQUIREMENT IN TERMS OF FAIS

TREATING CUSTOMERS FAIRLY – A REQUIREMENT IN TERMS OF FAIS

In terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (“FAIS“), The Financial Services Board (“FSB“) published the Treating Customers Fairly (“TCF“) outcomes as the foundation of the FSB’s objectives for consumer protection and market conduct. The need for these outcomes is because of the imbalances previously experienced between financial services consumers and regulated financial entities, rendering consumers vulnerable to market conduct abuse. As financial products are complex, poor decision making and bad advice in respect of these products can lead to unintended consequences being experienced and suffered by a consumer a long time after the transaction was entered into.

The aim of TCF

The TCF outcomes are aimed at reducing market conduct risks and protecting consumers of financial products. The outcomes must be delivered to consumers throughout the product life cycle and at all stages of the relationship with the consumer. The TCF outcomes must be incorporated throughout the company so that everyone understands what TCF is and so that they can apply it.

The TCF outcomes address certain issues that are common in all industries. The outcomes may assist companies and consumers in instances where consumers have unrealistic expectations about the financial products/services being offered by companies even where the consumer was treated fairly; and on the other hand, where a consumer with a low level of understanding about the product/service is satisfied with the service received from the company but is unaware that he/she has been treated unfairly.

The key principles

TCF focuses on two key principles:

  1. ensuring that consumers understand the risks and benefits of the financial products/services they are investing in; and
  2. minimising the sale of unsuitable products/services to consumers.

What TCF is not

TCF is not about creating satisfied consumers at all costs. A satisfied consumer can still be treated unfairly and not know that he/she was treated unfairly.

TCF does not absolve consumers from making decisions and taking responsibility for such decisions – consumers still have a responsibility to know what they are getting into and to take responsibility for their decisions.

It also does not mean that all companies must do business in an identical manner – as long as business is done fairly and transparently, TCF requirements will be met.

The 6 TCF outcomes

  1. Culture: consumers should be confident that they are dealing with companies where TCF is central to the corporate culture;
  2. Products and services: products and services marketed and sold in the retail market should be designed to meet the needs of identified consumer groups and should be targeted according to such identified groups;
  3. Clear and appropriate information: consumers must be provided with clear information and kept appropriately informed before, during and after point of sale (i.e. throughout the product/service’s life-cycle);
  4. Consumer advice: where advice is given, it must be suitable and should take account of the consumer’s circumstances;
  5. Product performance expectations: products should perform in the way that consumers have been led to expect and service must similarly be of an expected acceptable standard; and
  6. Post-sale barriers: consumers must not face unreasonable post-sale barriers imposed by companies when they want to change products, switch providers, submit a claim or make a complaint.

Conclusion

The TCF outcomes were created to ensure that the fair treatment of consumers is imbedded in the culture of companies operating in the financial services industry. The outcomes must be implemented throughout the life-cycle of the product/service, meaning that financial service providers have a duty to continuously ensure that consumers are treated accordingly.

Enforcement of the TCF outcomes will occur through a range of deterrents with the objective of preventing unfair treatment of consumers, and may be penalised through mechanisms such as intensive and intrusive supervision, naming and shaming of offenders, and financial penalties.

Essentially, the ultimate goal of TCF is to ensure that the financial needs of consumers are suitably met through a sustainable industry. If a financial services provider aims to achieve the outcomes, the direct effects should be appropriate financial products and services and heightened transparency in the industry.

PRODUCT LIABILITY: IS THE SUPPLIER LIABLE FOR HARM SUFFERED BY A CONSUMER?

PRODUCT LIABILITY: IS THE SUPPLIER LIABLE FOR HARM SUFFERED BY A CONSUMER?

In a previous article entitled “The responsibility of a supplier to conduct a consumer product safety recall“, we dealt with various matters around product safety recalls. As a follow-on to that, this article deals with the “product liability” concept which goes hand-in-hand with “product safety recall“.

INTRODUCTION

From as far back as the early days of the Romans, a plethora of claims for damage suffered or loss incurred as a result of defective or unsafe goods or products have been a part of the ever-evolving legal fraternity. These claims ranged from a claim against a horse-drawn coach manufacturer, to a claim against a man who sold a diseased horse which later dies in the possession of the buyer, or anything in between. To date, product liability claims is still a practice in most legal systems around the world – including South Africa.

PRODUCT LIABILITY

In essence, the concept “product liability” refers to a supplier’s liability towards the consumer or third-party for damage suffered or for loss incurred as a result of the supplier’s defective or unsafe goods/products supplied.

Product liability is regulated by the Consumer Protection Act 68 of 2008 (the “CPA“). As the name suggests, the main objective of the CPA is to regulate relations between the supplier and the consumer. In line with that objective, the provisions of the CPA relating to product liability focus on regulation of the relationship between the supplier (i.e. manufacturer, designer, distributor or retailer) and the consumer, rather than between suppliers themselves.

SUPPLIER’S LIABILITY FOR HARM SUFFERED BY A CONSUMER

Until the inception of the CPA, claims arising from damage suffered or loss incurred by a consumer or third party as a result of defective product were regulated by our common (i.e. uncodified) law. As such, liability for such damage or loss could only be determined in terms of the common law of delict. Given the burden an aggrieved party is required to discharge in order to succeed with a delictual claim, it was often difficult for many consumers to successfully prove their claims in this regard.

To plug this gap, the Legislature introduced a different approach with regards to the consumer’s burden of proof through the CPA. In terms of section 61 of the CPA, a supplier may be held liable to a consumer for any damage or loss arising from (i) the supply of a defective/unsafe product or (ii) where damage or loss arises from the supplier’s failure to provide adequate information relating to the risks associated with the use of a product. The main benefit to the consumer lies in the fact that the supplier may be held liable regardless of whether it (the supplier) was negligent or not.

Consideration of whether there is any probability of success in a claim in terms of section 61 hinges on the following three questions:

  • whether goods and/ or services as defined in CPA are involved;
  • if so, whether the person (against whom the claim has been instituted) is in fact the “supplier” as defined in the CPA; and
  • whether the claimant suffered harm as a result of defective goods supplied by the such supplier?

CONCLUSION

The purpose of this article is to provide an insight into the supplier’s liability towards the consumer for damage or loss arising from supply of defective goods/product and should not be considered as advice.

In our last article of this series, we will discuss some aspects around whether the role-players in the supply chain can decide, among each other, who will be liable to the consumer.

LATEST IN LEGISLATION

LATEST IN LEGISLATION

On 24 November, the Portfolio Committee on Trade and Industry published the draft National Credit Amendment Bill, 2018 and the Memorandum on the Objects of the Bill (the Bill) for public comment. The Bill establishes a procedure by which low income and over-indebted consumers under credit agreements (who may not qualify to undergo the debt review or sequestration processes) may apply for debt intervention.

The Bill provides for the National Credit Tribunal and National Credit Regulator to make a myriad of orders. Note that debt intervention orders will result in all qualifying credit agreements being suspended for an initial period of 12 months and, subject to a review of the consumer’s financial circumstances, may extend the suspension period for a further 12 months or make an order extinguishing the credit agreements, partially or in full, where the financial circumstances of the consumer have not improved. Further, where a credit agreement is subject to credit life insurance, the credit agreement may be suspended to allow for the consumer to claim from the insurance provider.

The Bill also implements criminal sanctions for certain contraventions of the National Credit Act, 2005.

The proposed amendments by the Bill will directly impact credit providers and consequences of the new provisions will need to be considered carefully.

The public has until 15 January 2018 to submit written comments to the Portfolio Committee on Trade and Industry where after public hearings will be held to discuss same.

THE BIG BANG BITCOIN – BLOCKCHAIN, TULIPS, CRYPTOCURRENCIES AND REGULATORY SANDBOXES

THE BIG BANG BITCOIN – BLOCKCHAIN, TULIPS, CRYPTOCURRENCIES AND REGULATORY SANDBOXES

Bitcoin and other cryptocurrencies have had an astronomic rise in 2017 (“to the moon” as crypto fans like to refer to the rise in value) – with some cryptocurrencies even increasing more than 20 times in value this year alone. It certainly has been the year of cryptocurrencies, with mass media attention and new user wallet registrations reaching an all-time high almost every week (even The Big Bang Theory, one of the most popular comedic sitcoms in the US, dedicating a whole episode to Bitcoin).

With this new euphoria of interest in blockchain, Bitcoin and other cryptocurrencies, we have been extremely busy this year researching distributed ledger technology, providing commercial and regulatory advice on coin offerings and helping our clients navigate their way through the regulatory wilderness in which, not just South Africa, but the world finds itself.

What is Bitcoin and Blockchain technology?

Blockchain or distributed ledger technology, emerged as the technology underlying Bitcoin. Bitcoin was the first significant cryptocurrency to be used and was created in 2009 by a mysterious figure using the alias “Satoshi Nakamoto”. Essentially, blockchain is the operating model that allows Bitcoin transactions to be processed and recorded.

Blockchain introduces a form of collective bookkeeping, or a publicly available digital ledger, via the internet. More specifically, it is a completely decentralised record of ownership which is shared across a network of computers. This shared public digital ledger contains a record of all the transactions that have taken place in each specific cryptocurrency (or potentially any other asset) that have ever been processed by the blockchain. Indirectly, this allows verification at any moment in time of who owns how much of it. Each of the computers connected to the network hosts a complete copy of these records.

The so-called “mining of Bitcoin” process allows new transactions to be verified and added to the digital ledger in a consensual, fully decentralised way. Unlike with conventional payment systems, in the blockchain there is no need for a trusted central bank or central authority to do this job. Distributed ledger technology “decentralises” trust, this being one of the key features of the innovation. It is a distributed, decentralised, immutable, public, digital ledger.

Bubbles and Tulips

Bitcoin and “bubble” have become synonymous during this year’s sky-high rally. According to www.coinmarketcap.com, the total market capitalisation of more than 1000 different cryptocurrencies and tokens are about US$300 billion, of which Bitcoin makes up approximately 56% (as at the time of writing – this could all change in the blink of an eye)!

JP Morgan boss Jamie Dimon recently labelled Bitcoin a fraud and said its astronomic rise is a textbook financial bubble comparable to the Dutch “tulip mania”, wherein 17th century Holland, the price of tulip bulbs initially soared before collapsing in the aftermath. Hundreds of articles conversely have been written over the past few months speculating on how high Bitcoin could possibly go. US hedge fund manager, Mike Novogratz, believes the world will see a Bitcoin price of more than US$40 000 by the end of 2018 and cybersecurity computer programmer and businessman, John McAfee, believes Bitcoin will hit US$1 million by 2020.

While Bitcoin itself is uncertain and could be a “bubble”, cryptocurrencies are gaining traction without many people realizing how much society has already begun to adopt these models. Bitcoin or any other current cryptocurrency might not go the length, but they have opened peoples’ eyes to the endless possibilities that blockchain technology holds for the future.

South African regulators and “regulatory sandboxes”

Whether or not blockchain technology, or rather cryptocurrencies, would pass the legal and regulatory hurdles which exist in South Africa is yet to be determined. In South Africa, cryptocurrencies, to a certain degree, are still unregulated, and crypto-entrepreneurs need to ensure they fit themselves into existing legislation when launching these types of businesses.

A thorough legal investigation needs to be undertaken by any crypto-entrepreneur in South Africa to understand whether their planned blockchain business and/or cryptocurrency system falls within the scope of the Banks Act, 1998, its regulations, the South African Reserve Bank Act, 1990, the National Payment System Act, 1998, and of course for offshore transactions, the Exchange Control Regulations.

Regulators and regulatory bodies across the globe are keeping a close eye on the growing impact of blockchain. Many are also creating “regulatory sandboxes” as controlled environments within which innovation can be stimulated. A “regulatory sandbox” is a regulatory haven, that allows fintech innovators, such as blockchain and crypto-entrepreneurs, to test their products and business models in a live environment whilst being exempt from having to adhere to some of the existing regulatory legislation and requirements. Although regulation may not always move as fast as innovation, it is positive to see the Financial Services Board and the South African Reserve Bank also adopting this “regulatory sandbox” approach in South Africa, which has been most notably lead by the UK.

Whether or not you understand blockchain technology, believe cryptocurrencies is in a “bubble”, a fad or that the world is on the cusp of a technological revolution, one thing is clear – Bitcoin, cryptocurrencies and blockchain have made a massive statement this year and 2018 is certainly going to be interesting!

THE IMPORTANCE OF COSEC – SHARES AND THE SECURITIES REGISTER

THE IMPORTANCE OF COSEC – SHARES AND THE SECURITIES REGISTER

Company secretarial matters (or more commonly referred to as “CoSec“) are not overly exciting but do play a very important role when looking at any commercial transaction. Various matters can fall under the CoSec stable, but this article will focus exclusively on share issuances and updating the securities register (or more commonly referred to as the share register) following such issuances.

Background

In the haste of getting started or in the excitement of closing that first deal, many investors and entrepreneurs do not consider CoSec matters as a priority and often end up not properly implementing the investment. Most often, this leads to investors ending up without any share certificates evidencing their investment. Furthermore, their investments are not reflected in the securities register, which may prove detrimental to both the investor and the company as described below. First things first, however…

What is a share issuance?

In terms of section 38(1) of the Companies Act 71 of 2008, as amended (“the Act“), the board of directors of the company (“the Board“) may resolve to issue shares of the company at any time, subject to the conditions of such section being met. In addition to this, further conditions may regulate the issue of shares in certain instances, most notably when there is a subscription of shares (section 39), where consideration requirements must be considered (section 40) and where shareholder approval is required (section 41).

If the investment is successfully concluded and the relevant sections of the Act (as mentioned above) are complied with, the investment can be implemented. This means that the company can proceed to issue the shares that the Board has resolved to issue. This share issuance can then be evidenced by way of a certificate (some securities may also be uncertificated in certain instances). A share certificate is a commonly found example of a certificated security, and as such, must adhere to the provisions of section 51 of the Act, which include the fact that the certificate must state the name of the issuing company, the name of the person to whom the shares are being issued, the number and class of shares being issued, and any restriction on the transfer of such shares. The share certificate must furthermore be signed by two persons authorised by the Board, and serves as proof of ownership of the shares (in the absence of evidence to the contrary).

If the Board issues a share certificate which complies with the above, only one leg of the share issuance is complete. A very important secondary leg is the act of entering the investor’s details into the securities register as required in terms of section 50 of the Act (each company is obliged to have a securities register – even for uncertificated securities).

The importance of the securities register

Why is this second leg so important? Well, in terms of section 37(9) of the Act, only once the subscriber’s name is entered into the securities register, does he actually acquire the rights associated with the particular securities issued to him. As such, although there are contractual rights and obligations between the parties (in terms of the subscription and/or sale of shares agreement), for all intents and purposes, the investor does not acquire, and therefore cannot exercise, the rights awarded to him as proprietary holder in the company until the securities register has been updated.

Regrettably, in our experience, various investors are comfortable when they receive their issued share certificate (sometimes not even validly issued) and therefore do not request a copy of the updated securities register evidencing their investment. Especially where larger transactions are contemplated, parties require an accurate reflection of the shareholding position of the company to determine how the investment should proceed. Where the securities register has not been kept up to date and accurate, and when this is discovered during the due diligence investigations, such CoSec matters may cause unnecessary and costly delays for the company. Other matters may also be more difficult to administer post-transaction (especially where shareholder disputes are present).

Conclusion

Considering the above, it is advised that all CoSec matters are done accurately, diligently and kept in good order at all times to ensure that all parties’ rights are adequately protected, and that good corporate governance is maintained by the company. If you feel you might require any assistance with this, please do not hesitate to contact us.

POPIA: RESPONSIBLE PARTIES AND OPERATORS

POPIA: RESPONSIBLE PARTIES AND OPERATORS

Our previous POPIA articles have examined various aspects of the Protection of Personal Information Act 4 of 2013 (“POPIA“) at length, most notably, the various conditions for processing personal information.  In this post, we will examine the roles of “responsible party” and “operator” in terms of POPIA and what each of these roles entails, along with the rights and responsibilities of the roles.

The main purpose of POPIA is to regulate the use of personal information (as defined by POPIA and summarised below) and to provide for adequate security measures to protect personal information, and the different parties in a relationship will have to comply with these measures in certain ways. Therefore, these roles are important to consider as they have a profound impact on the relationships between responsible parties and operators and also affect the way in which information is processed and used.

What do these terms mean?

  • responsible party” means the party who determines the purpose of and means for processing personal information. This decision may be made alone or in conjunction with another party.
  • operator” means a person who processes personal information for a responsible party in terms of a contract or mandate, but does not come under the direct authority or control of the responsible party.
  • processing” means any activity (including automatic means) concerning personal information, and includes the collection, receipt, recording, organisation, collation, storage, updating or modification, retrieval, alteration, consultation or use, distribution by means of transmission, distribution or making available in any other form or merging, linking, and restriction, degradation, erasure or destruction of information.
  • personal information” is information relating to an identifiable, living person and is not limited to information relating to race, gender, marital status, pregnancy, ethnicity, age, health, disability, religion, language, culture, education and employment, criminal history, identity number, contact details, biometric information, personal opinion, etc.

What is the difference between a responsible party and an operator?

As set out above, responsible parties determine the purpose for processing information, what information is processed, for how long and how it is processed. Where an operator is involved, the responsible party will still determine the purpose for processing etc, but will outsource the processing of the information to the operator. The responsible party therefore still makes all decisions in relation to the information and the operator acts in accordance with these decisions and on the instructions from the responsible party.

The responsible party remains ultimately accountable for ensuring that POPIA is complied with by both itself and all operators providing services to the responsible party. The outsourcing or sub-contracting of any processing activities to operators does not absolve the responsible party from liability. If the operator contravenes POPIA, the responsible party will still be held liable by the Information Regulator.

The importance of contracts when appointing an operator

As with many other relationships, a contractual agreement between a responsible party and operator will prove very useful and high highly recommended in order to definitively address and govern the roles of each party and the boundaries of the relationship.

An agreement between the responsible party and operator should address, at the least, the following points:

  • That the operator only acts within the ambit of the agreement/mandate with the responsible party;
  • The purpose for processing of the information;
  • What information may be processed by the operator;
  • What the operator may or may not do with the information outside of the processing mandate;
  • A duty to protect the information received, not share it with third parties without consent, to keep the information received confidential and to otherwise act within the ambit of POPIA;
  • Limit the operator from appointing further operators without the responsible party’s knowledge or consent; and
  • Liability for the operator*.

Liability for the operator

As mentioned above, the responsible party will be held ultimately liable by the Information Regulator for a breach of POPIA by the operator. The Information Regulator will impose this liability on the responsible party where the breach occurred within the scope of the mandate agreement between the responsible party and the operator and will not be diverted to the operator where the breach is as a result of the operator’s failure to uphold the principles of POPIA.

Therefore, the agreement between the responsible party and the operator is extremely important for the responsible party as this agreement can result in the responsible party holding the operator liable for any claims that the Information Regulator and/or data subjects (the people whose personal information is being processed) bring against the responsible party as a result of a breach of POPIA by the operator. A liability clause will allow the responsible party to bring a claim for any loss suffered by the responsible party as a result of the operator’s negligence or breach of POPIA.

Some relief for a responsible party in this regard is where an operator breaches POPIA where the operator has exceeded its mandate. In these circumstances, the operator is seen to be acting as a responsible party in regard to the personal information as the operator is determining the purposes and means of processing.

Conclusion

We cannot emphasise the importance of an agreement between a responsible party and operator enough as such an agreement sets out the important details of the relationship between the operator and responsible party and aims to protect not only the responsible party, but also the operator by detailing the extent of the processing and other responsibilities that the operator undertakes.

Make sure that you know when you act as a responsible party and when you are acting as an operator as your responsibilities will differ along with your liability.

EQUITY CROWDFUNDING VS OTHER TYPES OF CROWDFUNDING

EQUITY CROWDFUNDING VS OTHER TYPES OF CROWDFUNDING

A little while ago we wrote an article on the regulatory vacuum relating to equity crowdfunding. Whilst there has been little movement from a regulatory perspective as to how South Africa is going to regulate crowdfunding – meaning that it is still unregulated – there have been some positive steps taken by the Financial Services Board (“the FSB“). Crowdfunding has been at the forefront of the FSB’s recent discussions – hopefully an indication of their support.

If you are unfamiliar with the term “crowdfunding” and you have looked to “professor” Google to gain a bit of an understanding of what it is, here is a small overview on what crowdfunding is and the types that are available.

The term “crowdfunding” is essentially a description of a funding raise of multiple (typically small) sums of money from the general public to fund some form of venture, whether that be a charitable venture or a profit-making venture.

  • Donations based crowdfunding is fairly straightforward – a group of people donate money to an organisation or person that they believe in, generally for a charitable cause. Backabuddy is a good example of this in motion in South Africa.
  • Rewards based crowdfunding is widely used to incentivise people to fund the venture of a small business. This is similar to donations based crowdfunding, but with a key difference, as the person seeking funding offers a reward to the person / people donating. Thundafund is an example of a South African rewards based crowdfunding platform.
  • Loan based crowdfunding occurs where the person / company borrows money from the crowd and the crowd receives interest as their return. Entrepreneurs typically use this to get a better interest rate than they would have gotten if they went to the more established money lenders.
  • ICO’s (Initial Coin Offerings) have become the most recent of the crowdfunding fads. Unfortunately, there have been a few notorious fraudulent schemes using ICO’s. In fact, the Useless Ethereum Token famously launched a satirical ICO that clearly stated that its coins were worth nothing and it raised USD$93,949 (+/- R1 million)! ICO’s are fairly complex, so we are not going to go into them in this article, but if you would like to see a previous article written on the subject, you can read about it here.
  • Equity based crowdfunding occurs where shares in a company are offered to the public in exchange for funding. This is really significant as the crowd become business owners of the company and have certain rights attached to their investment.

Equity based crowdfunding has previously been avoided in South Africa, as people are generally wary of entering a space like this due to the regulatory concerns. Uprise.Africa (which has already had its soft launch) has, however, started an equity based crowdfunding operation in South Africa and is about to become fully operational.

What’s the difference?

Equity based crowdfunding differs significantly from its more underpowered cousins, as shareholders in a company (even minority ones) have certain rights that they can exercise to ensure that startups aren’t off buying bean bags and half-price sushi with investor funds. This means that the crowd has some oversight and can share in the rewards or growth of the business. So, the crowd is rewarded in the long term for investing into the startup (although most startups are high-risk investments and returns are not very common).

What this means for the startup is that they can market test their product to see whether the general public would be interested in the investment. It also means that the startup can probably get a more favourable investment than your average venture capital (“VC“) firm would give as the crowd isn’t normally as interested in the bottom line of the startup as your average VC firm is.

Equity crowdfunding has such huge potential to boost the South African economy, in fact the World Bank recently predicted that the market potential in Africa for crowdfunding will be up to $2.5 billion by 2025. Equity crowdfunding in South Africa will hopefully tap into that and unleash significant potential in the startups that are based here.

OBSERVATIONS ON COMPANY NAMES

OBSERVATIONS ON COMPANY NAMES

Choosing a name for your new company may seem simple, but what may not be clear is that you cannot call your company whatever you want, as South African law regulates what a company name can and cannot be. Section 11 of the Companies Act, 71 of 2008 (“the Companies Act“) sets out the criteria for company names. In essence, the name of your company may comprise of words in any language together with any words or letters / numbers / symbols and / or punctuation marks. However, the name of your company may not be the same (or similar to) the name of another company or close corporation, someone else’s defensive name (a name registered up to two years which is aimed at preventing trade marks from being included in the new company name), business name or registered trademark or a mark on any merchandise. Your company name must not falsely imply that the company is part of any other person / entity, is an organ of state, is owned by a person having any particular educational designation, who is a regulated person or is owned by any government or international organisation. Importantly, your company name must not include anything that may constitute propaganda for war, incitement of imminent violence or advocacy of hatred against any right entrenched in the Bill of Rights.

Registered vs trading names:

The registered name of a company is the name which has been reserved, approved and then registered with the Companies and Intellectual Property Commission (“the CIPC“). In terms of the Companies Act, a company is required to display its registered name (and registration number) on all forms, notices and correspondence with others and failure to do so constitutes an offence.

Despite that, it is common practice for entrepreneurs to acquire shelf companies or to register a company with a non-distinctive name and to simply trade under a different name. Although a trade name does not need to be registered, the assumption is that a reasonable level of investigation would have been conducted to ensure that a trade name is not already in use. In reality, this often leads to the infringement of third party trademarks or causes confusingly similar names to exist.

For the above reason, the Consumer Protection Act 68 of 2008 (“the CPA“) has introduced changes to the way in which “trading as” names (which the CPA calls “business names“) may be used. The provisions relating to business names are contained in sections 79 to 80 of the CPA, and will only come into effect upon a date to be determined by the Minister of Trade and Industry (“the Minister“) and published in the Gazette. This has not happened yet, but it is likely that when it does, the Minister will allow a certain amount of time after the published date for companies to comply with these new provisions.

The intention of the legislature in this regard, is to seek to enforce the consumer’s right to information concerning suppliers. The aim is to prevent a situation where a business would trade under one name but fail to disclose the identity of the actual entity behind the transactions, thereby frustrating the attempts by the consumers to seek redress in pursuing the correct entity.

What you need to know and the CPA’S requirements

In terms of section 79 of the CPA:

A person must not carry on business, advertise, promote, offer to supply or supply any goods or services, or enter into a transaction or agreement with a consumer under any name except:

  • the person’s full name as:
  • recorded in an identity document or any other recognised identification document, in the case of an individual; or
  • registered in terms of a public regulation, in the case of a juristic person; or
  • a business name registered to, and for the use of, that person in terms ofsection 80, or any other public regulation.

What the above means is that an individual or company (as the case may be) may not operate / carry on business with a business name unless it is registered in terms of the CPA. This information will then be publicly available on the business names register as maintained by the CIPC. The implication is that, should any business operate with any other name other than those as set out in section 79, the National Consumer Commission (“the NCC“) can issue a compliance notice and failure to comply will result in a fine or prosecution as a criminal offence.

As some assurance, however, the CPA provides a certain degree of relief for businesses which have been in trade before the business name provisions come into force – the NCC may not enforce the business name requirements against a business if it has been trading under the business name for a period of at least one year.

Procedure

Section 80 of the CPA provides for the procedure in registering the business name of a company. As mentioned before, these provisions are not yet in force since the business names registry and the registration process have not yet been established.

When the provisions come into force, a person may file a notice with the CIPC to register any number of business names currently used by your entities. If the business, under which the business name has been registered does not carry on business for a period exceeding 6 (six) months, the CIPC reserves the right to cancel such business name.

Possible difficulties

These provisions may cause difficulties for franchises because there are normally multiple franchisees trading under the same name as the franchisor. However, the registered name for each franchisee, may be completely different. The new requirements therefore force each separate franchisee to register the same business name leading to multiple entries of the same name being reflected on the records of the CIPC. This could be somewhat counter-intuitive since the confusion that it creates may defeat the purpose of the consumers’ right to information in the first place. Furthermore, franchisors may not be happy allowing each and every franchisee incorporating what is effectively their “trade mark” as the franchisees business names.

Going forward

Although these provisions have not come into effect yet, in the interests of avoiding the rush of changing branding and registering new names at the CIPC, the provisions above should be duly considered when choosing a business name as the criteria will most likely need to be adhered to in the near future.

THE RESPONSIBILITY OF A SUPPLIER TO CONDUCT A CONSUMER PRODUCT SAFETY RECALL

THE RESPONSIBILITY OF A SUPPLIER TO CONDUCT A CONSUMER PRODUCT SAFETY RECALL

Introduction

The Consumer Protection Act 68 of 2008 (“CPA” or “the Act“) establishes certain rights applicable to all consumers when purchasing goods (and services) for their personal use. The Act sets out, amongst others, that consumers have the right to fair value, good quality and safety as well as an implied warranty of quality.

The implied warranty of quality warrants that the goods comply with the requirements of being of good quality, durable, and safe for the use as advertised or designed. Where goods are of inferior quality, unsafe or defective, the consumer may return the product and the supplier is obliged to repair, refund or replace the failed, defective or unsafe product.

Consumers have a further right to have goods monitored for safety and recalled when such goods or components of such goods are hazardous, unsafe or defective. The Consumer Product Safety Recall Guidelines (“Recall Guidelines“) have been drafted in terms of the CPA to provide further detail for such instances and set out the procedure to be followed where products are to be recalled.

Hazardous products

Whilst suppliers would take necessary steps to ensure that their product is manufactured or produced in line with the required design and/or material specification, the reality is that there may be some unforeseen occurrences where manufacturing/production lines may deviate from such design or material specifications. In such cases, a product may be identified as unsafe where it presents health or safety hazards to the public. However, in some instances, a consumer product may also be identified as unsafe to consumers irrespective of whether there was a manufacturing or production error. The deciding factor is whether the product poses health or safety hazards to the public.

The CPA doesn’t clearly unpack the term “hazard”, but generally, a supplier’s product may be identified as presenting health or safety hazard where such product has the potential to cause the following:

  • injury;
  • illness;
  • death;
  • loss of, or physical damage to, any property; or
  • any economic loss as a result of any of the above.

Product safety recalls

In terms of the CPA and the Recall Guidelines, a supplier is required to, among other things, conduct a consumer product safety recall where a product poses a health or safety hazard. In essence, a consumer product safety recall is a process whereby a supplier is required to remove all affected product(s) from production, supply chain and any point of sale.  In terms of section 5(5) of the CPA, these Recall Guidelines apply to all goods supplied in South Africa, regardless of whether the transaction for the supply of such goods is subject to the CPA or not.

In 2012, the National Consumer Commission (“NCC“) published the Recall Guidelines detailing, among other things, procedural steps required to be followed by suppliers when conducting a product recall. In terms of the Recall Guidelines, a supplier may voluntarily initiate a safety recall. Where a supplier fails to voluntarily conduct a safety recall, the NCC may issue a written notice to the relevant supplier ordering it to conduct such safety recall.

Irrespective of whether a supplier voluntarily conducts the safety recall or is ordered to do so, a supplier is required to ensure that the procedural steps, as briefly set out below, are followed:

  • assess the risk;
  • cease distribution of the product;
  • notify the NCC;
  • notify consumers;
  • facilitate returns; and
  • facilitate returns.

In order to comply with the above mentioned procedural steps and to avoid any penal sanctions, a supplier may be required to prepare and put in place some form of a policy document(s) in anticipation of a product recall becoming necessary in the future.

Conclusion

Like with non-compliance with the provisions of the CPA in general, non-compliance with sections 60 and 61 of the CPA and the Recall Guidelines may have dire consequences. Suppliers may be declared to have engaged in prohibited conduct and an administrative fine of up to R1 million or 10% of its annual turn-over for the preceding financial year may be imposed.

Closely linked to the topic of safety recall, our next article on the CPA will be dealing with a discussion around the concept of “product liability”. For any further details on this topic, please do not hesitate to contact us.

NATIONAL WILLS WEEK – DOMMISSE ATTORNEYS

NATIONAL WILLS WEEK – DOMMISSE ATTORNEYS

This year we’ll be participating in National Wills Week from 11 – 15 September 2017.

For anyone who wishes to have a basic will drafted at no charge, all they’ll need to do is contact leanne@dommisseattorneys.co.za to schedule an appointment.

The attending practitioner will send a short questionnaire that each person is required to complete and return prior to any consultation.

Please note that this is a free service and is offered on a first come first serve basis.

http://www.lssa.org.za/our-initiatives/advocacy/national-wills-week