FRANCHISING AND THE NEW CONSUMER PROTECTION BILL – EUGENE HONEY
The New Consumer Protection Bill (“CPB”) which is in its third draft form is intended to promote and advance the social and economic welfare of consumers in South Africa by promoting fair business practices and protecting consumers from unfair, unreasonable and improper trade practices, as well as deceptive, misleading, unfair or fraudulent conduct. It is also intended to promote social, economic and environmental responsibility in consumer markets and to facilitate increased consumer awareness and informed consumer choice and behaviour.
Very importantly it is also intended to provide a legal framework for achieving and maintaining a consumer market which is fair, accessible, efficient and sustainable. This will be assisted by providing an accessible, consistent and efficient system for the resolution of disputes and of redress for consumers. We understand that the latter system will be similar to that introduced in relation to the Competition Act.
The CPB is intended to be a Bill of Rights for consumers in the form of compliance codes for business and an enhanced enforcement tool to protect the rights of consumers. The Department of Trade and Industry believe that this bill will assist in improving competition and will result in a higher quality of goods and services, more competitive prices and innovation, as well as economic sustainability.
The CPB will apply to every transaction in South Africa between a supplier and a consumer, provided the amount involved is less than an envisaged R500,000.00. Both the terms “suppliers” and “consumers” are very broadly defined. It will however apply to all franchisees, whatever the cost thereof. There are certain exclusions such as employment contracts and credit agreements.
The CPB also introduces certain key concepts and provisions, such as the concept of equity, which has traditionally played a lesser role in relation to our law of contract. The right to equality, privacy and choice is also introduced, as well as the right to fuller and better disclosure. Fair and responsible marketing, honest dealing and fair agreements, fair value, quality and safety, as well as supplier’s accountability, have also been introduced by the bill.
Although the third draft has apparently been completed, it has not yet been circulated to the public. Concerns for the franchise industry in the second draft included the risk that all franchise agreements would fall within the definition of continuous service agreements and could therefore simply be terminated on 20 (twenty) business days notice, which would be extremely detrimental to the franchise industry in South Africa. Another concern is a provision in the CPB in relation to suppliers, in terms of which a franchisor would not be entitled to require that a franchisee purchase goods and services from specific suppliers, enter into additional agreements or transactions with the same or another supplier or agree to purchase any goods or services from a designated third party. Further, the concept of bundling or tying products, such as, for example, attaching a promotional coupon, credit slip or voucher to goods purchased, could be a problem.
It appears that the third draft or the regulations of the CPB will include substantial requirements on franchisors to give full disclosure to prospective franchisees when selling franchise businesses. In addition, if there is any misrepresentation or non-disclosure with regard to the acquired franchise business, then in that event it appears that it will be easier for franchisees to cancel the agreement and reclaim all or at least a substantial part of the monies paid to the franchisor. False, misleading or deceptive representations and non-disclosure will include representations relating to the performance, characteristics, benefits and qualities of the intended franchised business. In addition, any agreements which are manifestly unfair, unjust or inequitable will also be at risk of possible cancellation.
Consumers will therefore have the right to honest dealing and fair agreements. As a result any undue influence, pressure, unfair tactics and similar negative conduct will also threaten the cancellation of the agreement.
Looking forward, the third draft of the bill is expected to be available for public comment in the near future. It will then be necessary to examine the updated bill and to immediately make representations to the Department of Trade Industry regarding inconsistencies and potential difficulties for the franchise industry and small business. It is however envisaged that many of the concepts introduced in the new bill, mentioned above, will remain, as result of which every franchise agreement and all representations to prospective franchisees will need to be audited and checked for compliance with the new Consumer Protection Act, when it comes into force, which is anticipated to be during 2008.
Eugene Honey is a director at Bowman Gilfillan.