Due to social differences and unequal distribution of wealth, there is an inherited inequality in bargaining power amongst parties in contractual relationships. Fortunately, the CPA creates mechanisms whereby challenges experienced in contract law can be addressed by requiring specific prerequisites regarding consumer contracts.
The effect of the CPA on four common law principles regarding consumer agreements
- This common law principle implies that a consumer shall be bound to an agreement by signing it as the signature signifies the assent thereto. This principle requires the agreement to be reduced to writing and signed by both parties for it to bind both parties to the agreement.
- The CPA goes further by placing the onus on the supplier to ensure that the agreement is in plain and understandable language otherwise the consumer could claim to be in an unequal bargaining position should they be uneducated, or claim that they did not have an understanding of what the agreement stipulated at the time of transaction.
Parol evidence rule
- The common law rule prohibits a party to a written agreement from including extrinsic evidence that contradicts or adds to the already written terms of the agreement.
- The CPA contradicts the parol evidence rule as the National Consumer Tribunal or relevant court may consider extrinsic evidence to establish whether the written terms of the agreement are, in fact, fair, just and reasonable. Thus, the court will consider the verbal agreements made prior to the written agreement.
Freedom to contract
- Contractual relationships exist due to party autonomy. Freedom to contract means that parties enjoy the right to freedom of choice (without external intervention) and that parties are free to accept or reject the terms of the contract.
- Time limitation and exemption clauses often undermine the freedom of parties to contract due to the disparities in bargaining power that deny them the opportunity to negotiate terms (specifically regarding consumers). These limitations are generally valid but should have a commercial reason.
- The CPA might seem to contradict the ‘freedom to contract’ principle, but it protects the interest of both the consumer and the supplier and enables an equal bargaining position by providing–
- a list of contract terms that are presumed to be unfair;
- clear guidelines regarding fixed-term agreements;
- that notice is required for certain terms and conditions at specific times.
Passing of the risk rule
- Under the common law, there is a ‘passing of the risk’ rule which implies that the buyer takes ownership of the goods and is liable for accidental loss once the agreement is concluded but not yet necessarily delivered. The seller, however, remains liable for negligent or intentional loss of goods.
- The CPA provides that the supplier must keep the goods under his ‘care and risk’ until delivery, thus the seller remains liable for accidental, intentional or negligent loss of goods.
It is clear from the above that the CPA has an impact on common law by reducing the imbalance between contracting parties. The benefit of the CPA provisions is only enjoyed by consumers, as defined in the act, namely the natural or juristic persons (with an asset value or annual turnover of less than R2 million at the time of the transaction) to whom goods and services are promoted or supplied in the ordinary course of business and for consideration. Even though this seems rather unfair to those who do not fall within the classification of a consumer, the law makes provision for agreements and contracts to be concluded in good faith and in the public interest. The latter, although not covered by the CPA, does form part of the broader Consumer Law, which will be discussed in a future blog.
Whilst the main focus of the CPA is on compliance, our approach at SERR Synergy is to implement compliance in such a way that it provides business value to our clients and allows for improvement in efficiency and effectiveness by meeting compliance requirements within the broader context of Consumer Law. SERR Synergy assists enterprises to conduct business in an ethical manner and to promote and protect the reputation of their businesses.
About the Author: Monique Rossouw completed her B.Consumer Science degree at the University of Pretoria. She joined our team in July 2018 and currently holds the title of “Information Compliance Advisor”. She specialises in compliance with the Consumer Protection Act (CPA) as well as POPI and PAIA. This includes compiling legal compliance reports and developing policies along with the other assessment aspects relating to consumer protection legislation. She drafts and submits PAIA manuals to the Human Rights Commission and also compiles and implements Data and Information Protection Reports to identify risks associated with information security in each department of an organisation.
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