The Ombud strikes back – A victory for franchising and consumers

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The Consumer Protection Act (“the CPA”) contains several mechanisms that consumers can use to enforce their rights against suppliers in relation to defective products or substandard services. Amongst these, section 82 of the CPA empowers the Minister of Trade and Industry to prescribe an industry code:

  • regulating the interaction between or among persons conducting business within an industry; or
  • regulating the interaction, or providing for alternative dispute resolution, between a person conducting business within an industry and consumers.

The section seeks to address a longstanding need in the machinery available for enforcing the rights of consumers in particular industries and resolving disputes between industry participants. While there have been industry bodies in some industries for many years (the Consumer Goods Council and the Franchise Association of South Africa just being two examples), they have always suffered from the fact that they did not have any legally enforceable jurisdiction over participants in their industries and consumers would only have recourse through the body’s structures against those who voluntarily became members and agreed to be governed its rules and procedures.

Recalcitrant industry participants who did not choose to submit to the jurisdiction of the industry bodies were often able to act with impunity in their dealings with consumers and other stakeholders, such as suppliers. The only avenue of recourse for disgruntled parties was the courts, but the value of the transactions giving rise to the dispute, relative to the costs of litigation, often made that route uneconomical.

A judgement of the Gauteng Division of the High Court handed down on 26 March 2021, in the matter of Consumer Goods and Services Ombud NPC and Another Voltex (Pty) Ltd and Others, represents a significant advance for consumer rights, recognizing that, in terms of section 82 of the CPA, all participants in an industry, whether they chose to belong to the industry body or not, were subject to regulation and the dispute resolutions mechanisms contained in an industry that had been duly prescribed by the Minister.

The Consumer Goods Council had complied an industry code and created a Goods and Services Ombud for participants in the Goods and Services Industry, which was prescribed and accredited by the Minister on 30 March 2015. The Code provided, inter alia, for compulsory membership of the Ombud and payment of levies by all industry participants.

Voltex (Pty) Ltd and Astral Operations Ltd challenged the validity of the code, on the grounds, amongst others, that the CPA did not authorise the Minister to compel participants to belong to the Ombud and pay levies to finance it. The Court, in its judgement, pointed out that, in fact, the draft guidelines for the accreditation of Industry Codes of Conduct and Ombud published by the Minister stipulated expressly that a code should be made mandatory for all suppliers belonging to the industry concerned.

The Court also noted that according to the guidelines, “a code of conduct must propose a funding model for the maintenance and effective operation of the office of the Ombud”. The court held that where a statute expressly permits achieving a certain result (in this case the funding of the Ombud), it must necessarily be interpreted to permit “everything necessary to achieve the result by implication”. Therefore, the Court reasoned, if the code was required to provide for compulsory membership by all industry participants, and it was necessary to provide in the code for the funding of the Ombud, by necessary implication, a fee could be levied on every participant for that purpose.

The judgement left some questions still to be answered, in particular the potentially difficult issue of a company or business whose activities may fall within the sphere or more than one industry (such as a supplier of consumer goods or services that is also a franchised business). It is not clear whether the business may choose which industry body to support, or whether it can be forced to contribute to both. Nevertheless, the judgement represents an important step forward in the protection of consumers’ rights in terms of the CPA and the Constitution, by making it unlawful for any industry participant to avoid addressing consumers’ complaints and relying on the complexity and costliness of court proceedings to deter consumers from laying complaints.

To date, in the ten-year period since the CPA came into effect, the Minister has prescribed only two codes, for the consumer goods and services and automotive industry, which three others (the franchise industry, funeral services and advertising and marketing industries) are awaiting approval. The judgement in this case will hopefully prompt additional industry bodies to draft and apply for accreditation of industry codes, in order to increase the level of protection afforded to consumers.