Category: Consumer

THE IMPACT OF THE CPA ON FRANCHISE AGREEMENTS

With franchises becoming a common phenomenon worldwide and franchisors, traditionally, benefitting from a strong bargaining position when negotiating franchise agreements, regulation of the industry has become inevitable and has South Africa’s legislature initiated this regulation through the Consumer Protection Act No.68 of 2008 (“CPA”), which was signed into law on 24 April 2011.

The CPA has forcibly changed the way franchises operate, in that franchisees are deemed to be consumers in terms of the CPA and now have a whole variety of consumer rights. The CPA and its detailed regulations, regulate the whole franchising process, which includes the “franchisor-franchisee relationship” and more importantly, the franchise agreement itself, which must contain prescribed clauses and information in order to be CPA compliant.

A fundamental change affecting the franchise industry is that every franchise agreement must now contain a cancellation clause, failure of which the agreement may be declared void. In terms of section 7(2) of the CPA, a franschisee may cancel a franchise agreement, without costs or penalty, within 10 business days after signing such agreement. Under this provision, if the franchisee excercises his right to cancel the agreement, the franchisor has no remedy to recover from the franchisee any loss suffered as a result of the cancellation.

In addition to the aforesaid, a franchisor must provide a potential franchisee with a disclosure document, in terms of Regulation 3 of the CPA, at least 14 days before the franchisee signs the franchise agreement. This document is aimed at giving the franchisee all the information required in order to make an informed decision. The document must, as a minimum, contain the following:

  • the number of individual outlets franchised by the franchisor;
  • the growth of the franchisor’s turover, net profit and the number of individual outlets, if any, franchised by the franchisor for the financial year prior to the date on which the prospective franchisee receives a copy of the disclosure document;
  • a statement confirming that there has been no significant or material changes in the company’s or franchisor’s financial position since the date of the last accounting officer, auditor’s certficate or certificate by a similar reviewer of the company or franchisor, that the company or franchisor has reasonable grounds to believe that it will be able to pay its debts as and when they fall due; and
  • written projections of potential sales, income, gross or net profits or other financial projections for the franchised business.

Furthermore, the CPA governs the right of a franchisee to select suppliers in terms of section 13 of the CPA. The only platform in which the franchisor can now dictate supply are those goods which are branded or related to the branded products or franchise service.

The CPA also prohibits false or misleading representations concerning the performance, characteristics and benefits of the business, which is regarded as unfair, unreasonable and unjust contract terms. Franchise agreements must also contain provisions that prevent unreasonable fees, prices or other consideration and conduct that is not reasonably necessary for the protection of the legitimate business interests to the franchisor, franchisee or franschise system.

Sections 7 and 51 read together with Regulation 2 of the CPA, very specifically mark the parameters of clauses that must be included, as well as some that may not be included, in a franchise agreement.

Current and future franchise agreements will be largely impacted by the CPA and therefore business owners must acquaint themselves well with the ambit and workings of the CPA before entering into a franchise agreement. If you are a franchisee, it will benefit you greatly to make sure that you understand your rights and that you are not coerced into entering into a franchise agreement.

The practical effects of non-compliance with the CPA when negotiating and concluding franchise agreements have become apparent in rulings and findings by the National Consumer Tribunal, Consumer Court and National Consumer Commission, which do not tolerate any non-compliance with the strict provisions of the CPA. Readers are thus advised to obtain legal counsel before entering into a franchise agreement.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

Consumer Protection Act. No 68 of 2008

Naudé T & Eiselen S, Commentary on the Consumer Protection Act, Juta, 2014

THE CONSUMER PROTECTION ACT AND YOUR RIGHTS

My Lawyer_Images_Template-03The South African Consumer Protection Act, No. 68 of 2008 was signed on 24 April 2009 and the purpose of the Act is to protect the interests of all consumers, ensure accessible, transparent and efficient redress for consumers who are subjected to abuse or exploitation in the marketplace and also to give effect to internationally recognised consumer rights. The Consumer Protection Act define a consumer as any person to whom goods and services are marketed, who is a user of the supplier’s goods, enters into a transaction with the supplier or service provider of any services and products.

If you have a complaint and the supplier won’t resolve it for you, you can complain to your provincial Consumer Affairs Office or the National Consumer Commission as well as other bodies.

The Consumer Protection Act:

  • ensures that you are treated as an equal and protects you against discrimination in economic transactions.
  • protects your privacy and ensures fair practice when goods or services are marketed to you.
  • means you have the right to choose the agreements you enter into and continue with.
  • gives you the right to the disclosure of information so that you can make informed choices.
  • protects you against fraud and other dishonest practices.
  • makes sure that you don’t have to agree to unfair conditions in the small print.
  • allows you to return things which don’t work properly.
  • protects you against goods and services that can harm you.
  • makes suppliers compensate you if they have caused you a loss.
  • ensures that you are educated on consumer issues and the results of your
    choices.
  • makes it possible for you to form groups to promote your interests.

The Consumer Protection Act can help consumers in dealings which involve advertising, marketing, promoting, selling, supplying and delivering or repairing of goods and services in South Africa.
You are a consumer if you have made a deal with a supplier, for example, when you pay for goods or services, or if goods or services are marketed to you.

Goods include things, but also information and data and the licence to use it. Services include receiving advice or training you pay for, transport of people or goods, transactions at restaurants and hotels, entertainment and access to electronic communication. Employment relationships, credit agreements, deals between two private consumers and goods or services supplied to government do not fall under the Consumer Protection Act.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

http://www.saconsumercomplaints.co.za/your-rights/

http://www.legal-aid.co.za/selfhelp/?p=422

I BOUGHT SOMETHING THAT DOESN’T WORK

A4Sarah buys furniture from Mark who promised her that the furniture is of good quality. However, he doesn’t notify her about problems with the furniture. Later, Sarah discovers that some of the chairs she bought have faulty joints, meaning they can’t be used properly. This is what’s called a latent defect and Sarah will be able to claim from Mark for the furniture not fulfilling its purpose.

A patent defect or a latent defect?

A patent defect is when there’s a problem with a purchased item but it was clearly visible and obvious to the buyer when the contract was signed. If the furniture that Sarah bought had a patent defect, such as a chair leg missing, it would be assumed that she knew about it and the law would not protect her.

NOTE: A defect is something that makes the product less useful or completely useless. A product not looking as good as you thought is not a defect. A piece of furniture with a stain on it can still be used normally. If the product has broken or missing parts, meaning it can’t be used properly, it’s a defect.

If the product you bought has a defect affecting its usability and purpose, then the seller is liable and you as the buyer can claim from them. You should also take into account if the contract had a “voetstoots” clause, meaning that you are buying a product based on its appearance or “as is”. If this is the case the seller would not be held accountable for any defects with the product, latent or patent.

What can I get back from the seller?

If the product you bought has a latent defect you can get a price reduction or a refund for the price you paid. A price reduction is the difference between the price you paid and the true value of the product. A full refund includes the price you paid, interest, maintenance costs and the cost of receiving the product. A full refund would also mean that you need to return the product that you got under the contract.

If a defect has caused you harm or damaged your property, for instance, you could possibly also claim this amount as compensation from the seller.

Who is a trader and who is a seller?

It’s important to keep in mind that there’s a difference between someone who is a trader and a seller. A trader is someone who makes a living from selling products, whereas a seller is an ordinary person like Mark in the example above. A trader who specialises in particular products and boasts having a specialized knowledge is held to a higher standard than an ordinary seller.

Sales talk or latent defect

It’s normal for sellers or traders to do the best to sell their product. This usually means “sales talk” or boasting about the products value and usefulness. They are allowed to do this, however, if they make statements about the product that turn out to be false, such as claiming the product can do something that it actually can’t, the law will be in your favour and protect you in the same way as a latent defect.

Before you agree to buy anything from a seller or a trader make sure you inspect the product first and make note of any defects there might be. If you neglect to inspect the product it could be more difficult for you to get compensation from the seller if there is a problem in the future.

Reference

“What you should know about Contracts”. 2009. The Western Cape Office of the Consumer Protector. Department of Economic Development and Tourism. Accessed from: https://www.westerncape.gov.za/ on 13/05/2016.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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