Our government assumes that all consumers are willing and able to pay the extra cost of far-reaching  consumer protection and the right to equality.   But why are consumers not given the choice of opting out of such expensive ‘insurance’ when they may wish to ‘Tata ma chance’ with the cheap goods and services ?

Government may mean well in enacting various laws to give effect to the right to equality but someone has to pay for the extra protection.   Ultimately it will be consumers.   More affluent consumers may not feel the pinch.   But the less fortunate consumers will pay an unequal share of the increased costs of services and goods as they rise dramatically in relation to their incomes.

Judges cannot be blamed for giving effect to the law but in many instances they do not  appear to appreciate the enormous burden that will fall on the less fortunate consumers.   Consumers are not given any choice and in many instances may not want to pay a premium for the kind of deluxe protection afforded in South Africa.

There is no doubt that the legal profession will benefit enormously from this type of ‘nanny’ state legislation because all businesses will have to obtain legal advice and have all their agreements audited and updated to ensure compliance with the new laws.

Justice Dhaya Pillay’s unreported judgment on 23 October 2012 in Standard Bank of South Africa Ltd v Dlamini (HCKZD) will surely please all those lawyers who will now be consulted  by businesses, both large and small, who cannot risk having their agreements declared unlawful, void and legally unenforceable.

The credit agreement in question was signed in June 2010 and it is hard to believe that the Bank has not ensured that all its agreements are now fully compliant with the law.   But the judgment is a serious warning to everyone to ensure that all agreement are fully complaint.

Judge Pillay found inter alia:

  • Deliberate and deceptive conduct by the Bank;
  • Parts of agreement designed to deceive consumers;
  • Setting of a type of trap an unacceptable business practice;
  • Infringement of right to information in an official language;
  • Infringement of right to information in plain and understandable language;
  • Infringement of right to be informed of responsibilities;
  • Standard agreement an ‘unappetising formidable read’;
  • Purported waiver of common rights makes credit agreement unlawful;
  • Form and getup of agreement must be accessible;
  • Entire credit agreement was unlawful and void and set aside;
  • Aim of penalising and intimidating the consumer cannot be excluded;
  • Bank’s action was heavy handed intimidation of the consumer;
  • Infringement of the consumer’s right to equality.
  • Bank should have ‘voluntarily acknowledged that as goods sold in terms of a credit agreement, s 5(2)(d) of the CPA would have applied to the sale’;
  • Bank ‘remained unresponsive to the CPA and its aspirations before it became enforceable’; and
  • Interpretation and application of the provisions of the NCA fortified by the CPA.

Apart from the common law and the Constitution these statutes must also be considered:

  • National Credit Act 34 of 2005 (the NCA).
  • Employment Equity Act 55 of 1998 (the EEA).
  • Promotion of Equality and Prevention of Unfair Discrimination Act 4 of 2000.
  • Consumer Protection Act 68 of 2008 (CPA).
  • Companies Act 71 of 2008 which ‘promote(s) compliance with the Bill of Rights…in the application of company law.’

Here are some extracts from the latest judgment with footnotes omitted and emphasis added.   By the way the Bank lost the case as it was held that the buyer of the second-hand car had returned the vehicle and rescinded the agreement when he discovered how defective the vehicle was.

[25] On these facts I find firstly that Mr Dlamini terminated the agreement by returning the vehicle because it was so defective that it could not be driven.    A voluntary surrender is usually triggered by a consumer’s inability to comply with the credit agreement.   Not a whiff of evidence suggested that Mr Dlamini was unable to pay for the vehicle or that he returned it for any reason other than it being incapable of being driven The Bank failed to establish a factual basis for any finding that the termination was a voluntary surrender.   Mr Dlamini’s mere non-compliance with the procedural formality of faxing notice of termination does not lead to the inference that he terminated the agreement by voluntarily surrendering the vehicle

[26] Secondly, the Bank and its agents caused Mr Dlamini to enter into a credit agreement without reading, interpreting and explaining the material terms to him which he did not know and understand.   Could he nevertheless in law be held to have assented to the agreement by virtue of his signature?

[27] Turning to the law, the Bank relied on the common law principles of quasi-mutual consent and caveat subscriptor  and the cases in which these principles were invoked.   However, when the NCA applies, the constitutional right to equality comes to my mind immediately.   The Preamble to the Constitution and to the NCA connect them.   What then is the interface between the Constitution, NCA and the common law principles of caveat subscriptor and quasi mutual consent?

[29] Academics Fredman et al observe:

‘In many countries, equality legislation initially sought to free individuals from the negative effects of these group characteristics, believing that in a colour-blind and gender-neutral world individuals could thrive and develop their potential free from stereotypical assumptions.   But this view of equality was narrowly circumscribed.   It was a relative principle dependent upon identifying an appropriate comparator.   It also operated symmetrically so that the benefits provided to a disadvantaged group could be challenged as a violation of the principle of equality.   Moreover, it assumed that the only legitimate role of state action was negative, to stop discrimination, rather than requiring positive steps and measures to be taken to remedy disadvantage.   The failure of this formal view of equality to address deeply entrenched and complex patterns of group disadvantage led to sustained criticism by feminist and other writers, and to calls for formal equality to be replaced with substantive equality.   Substantive equality, unlike formal equality, requires attention to context, the intersection of different grounds of disadvantage, difference, and positive obligations upon the state’.

[30] Our Constitutional Court (CC) has repeatedly endorsed the substantive approach to equality.   Likewise, national legislation contemplated in the equality clause aimed at preventing or prohibiting unfair discrimination must also be interpreted in ways that achieve substantive effect.   Therefore achieving equality, non-discrimination and human rights through legislation are policy objectives flowing from the Constitution itself.

[31] One category of legislation promulgated includes the obvious examples of the Promotion of Equality and Prevention of Unfair Discrimination Act 4 of 2000 and the Employment Equity Act 55 of 1998.   These Acts target specific groups of people discriminated on recognised grounds of discrimination.   As the learned authors Fredman and others point out, substantive equality looks beyond the recognised grounds to context and positive obligations.   Accordingly, the legislature did not stop with this category in pursuit of its transformative agenda.

[32] …

Socio-economic status and illiteracy are not listed grounds of discrimination.   Discrimination on these grounds is often indirect and therefore harder to diagnose and prove.   Hence the NCA and CPA are but two statutes on a raft of national legislation aimed specifically at consumers to reverse historical socio-economic inequalities and adjust the imbalances.

[38] Clause 10.6 of the agreement paraphrases s 121(1), (2) and (3)(b) of the NCA but studiously excludes any reference to subsec (3)(a) which gives the consumer the right to a refund from the credit provider.   Subsection (3)(b) clearly favours the Bank; the consumer has to pay the Bank.   Subsection (3)(a) which favours the consumer because the Bank must to pay the consumer is omitted.

[39] Rescission of an agreement referred to in the heading of s 121 of the NCA and termination of an agreement at the instance of the consumer under s 122 of the NCA have distinctly different causes and consequences.   Rescission aims to restore the contracting parties to the status ante quo.   In other words the agreement is revoked or withdrawn.   Termination retains and enforces the agreement.   The remedy to which Mr Dlamini was entitled when he discovered that the Bank’s agent sold him a vehicle that could not be driven at all was a refund in terms of subsec (3)(a).

[40] Despite the agreement being silent about rescission and a refund the Bank does not deny that Mr Dlamini has a right arising from the NCA to rescind the agreement.   Clause 8 of form 20.2 which reg 30 of the NCR prescribes for small agreements, is headed ‘Consumer’s right to rescind the agreement (if applicable)’.   The Bank does not deny that it is applicable.   However, the Bank contends that he may only invoke the right to rescind after he delivered a notice to rescind in terms of reg 37 of the NCR.   If such notice was important to the Bank then it should have included it in the agreement as a material procedural step not only to surrender but also to claim a refund.   It should also have ensured that Mr Dlamini was aware of it.

[41] Non-disclosure of s 121(3)(a) violates the right of consumers to education and information in terms of s 3.   The Bank’s selection of what parts of s 121 of the NCA it should record in the agreement and what it should exclude is deliberate and deceptive.

[42] Disclosure of only subsec (3)(b) creates the impression that consumers have no choice but to pay the Bank even when the Bank sells them defective vehicles.   Such non-disclosure and selective disclosure is designed to deceive consumers.   Such deception conflicts with the letter and spirit of the NCA.   Above all, it reinforces the patterns of inequality and inequity that persist in South Africa.  

[43] The Bank could not have misunderstood Mr Dlamini’s reasons for returning the defective vehicle.   Any doubt it had should have dissipated once it knew that it could not gainsay the fact that Starlight sold Mr Dlamini a seriously defective vehicle.

[44] The Bank gave Starlight no mandate to report vehicles that were returned within five days in terms of the termination clause 10.6.   Such a business practice makes credit transactions unduly onerous and a veritable trap for poor, illiterate and disadvantaged people who intuitively would return defective goods to a supplier and ask for a refund.

[46] Another two consumer rights are important in the context of this case.   The first is the consumer’s right to information in an official language in terms of s 63 of the NCA.   Section 63(1) gives consumers a right to receive any document that is required in terms of the NCA in an official language that the consumer reads or understands, to the extent that is reasonable having regard to usage, practicality, expense, regional circumstances and the needs and preferences of the population ordinarily served by the person required to deliver that document.

[47] The second is the right to information in plain and understandable language in terms of s 64 of the NCA.   Subsection (1)(b) requires the producer of a document that is required to be delivered to a consumer in terms of the NCA to provide that document in the prescribed form, if any, for that document, or in plain language.   For the purposes of the NCA, a document is in plain language if it is reasonable to conclude that an ordinary consumer of the class of persons for whom the document is intended, with average literacy skills and minimal credit experience, could be expected to understand the content, significance and import of the document without undue effort, having regard to, the organisation, form and style of the document, and the vocabulary, usage and sentence structure of the text.

[48] Strictly interpreted neither s 63 nor s 64 of the NCA assists an illiterate consumer.   Purposively interpreted they embody the right of the consumer to be informed by reasonable means of the material terms of the documents he signs.   What is reasonable and material varies depending on the circumstances of each case.   Amongst other things, the industry, regional circumstances or geographical location, price, nature of the goods and services and class of consumers likely to contract for them are relevant to determining what are reasonable means and material terms.   Purposively interpreted, the credit provider bears the onus to prove that it took reasonable measures to inform the consumer of the material terms of the agreement.

[49] This transaction arose at a second hand car dealership in Pinetown, KwaZulu Natal.   IsiZulu is the predominant African language.   In the nature of such a business the Bank must anticipate that it will be dealing with historically disadvantaged persons.   It enters into contracts in terms of which vehicles are returned for repairs and re-collection, for defects or as voluntary surrender because of the consumer’s inability to pay the instalments.   Establishing at the earliest opportunity what the basis is for the termination of an agreement is therefore important in the second hand car dealership industry.   From the consumer’s perspective the circumstances in which he is entitled on termination to a refund, or obliged to pay the Bank, are also important.   Accordingly, the Bank should have had better measures in place to ensure that its historically disadvantaged customers are aware of their rights and responsibilities.   Pitched as consumer rights, ss 63 and 64 impose the onus on credit providers to inform their consumers of their rights and responsibilities.   Relying on agents whose interests as second hand car dealers conflicted with consumers’ interests needed better control of the agent to avoid any finding that the Bank was complicit.

[50] Where possible, the Bank should also take reasonable steps to facilitate compliance by consumers with their responsibilities.   In this case, the Bank simply had to have Mr Mthetwa interpret the material terms of the agreement when he sold the vehicle to Mr Dlamini or at the latest when Mr Dlamini returned the vehicle.

[52] Form 20.2 prescribes the content of a small agreement.   Although it merely offers the headings and brief references to particular sections of the NCA, its style and format is designed as a short document spanning over about two pages.   In this case the form of the credit agreement presents a two-page A4 size document in size eight font.   Part B of the agreement which incorporates the terms and conditions, an acceptance form and an authority to release goods form is seven pages.   The terms and conditions span over five pages incorporating 18 main clauses with several sub-clauses.   Clause 1 is a list of definitions usually found in complex agreements and legislation.

[53] For lawyers and lay persons alike, the form of the Bank’s standard agreement is an unappetising formidable read.   For a labourer like Mr Dlamini who did not read, write or understand English there might just as well have been no written agreement at all.   Mr Dlamini was in a worse position than the purchaser who signed one page of an agreement but who was sued in terms of a clause appearing on the reverse of that page which had not been sent to him.

[54] A credit agreement is also unlawful if it purports to waive any common law rights that apply to the credit agreement.   The above rights and protections for consumers under the NCA develop and ameliorate the potentially harsh impact on consumers of the common law principles of caveat subscriptor and quasi-mutual consent relied on by the Bank.   These principles mean that a person who signs a document is taken to have assented to what appears above his signature.   The cases show that mutual consent is absent when a party is unaware of the terms of the agreement.   A party may be unaware because the agreement contains terms that were not expected or were not disclosed.   Or a party may be misled, misinformed or not informed; or the form and getup of the agreement is inaccessible.

[56] Nevertheless the common law remains relevant.   Case law developed the test for consent to be:

‘(D)id the party whose actual intention did not conform to the common intention expressed, lead the other party, as a reasonable man, to believe that his declared intention represented his actual intention?’

The NCA does not dispense with this test.   The norms and standards it prescribes for a valid agreement readjusts and clarifies the rights and responsibilities of the parties, the onus of proof and consequently, the statutory context in which the common law test applies.

[64] Applying the common law principles of caveat subscriptor and mutual consent, the Bank cannot hold Mr Dlamini bound to the agreement.   The unpalatable form and get-up of the agreement would have been immaterial to Mr Dlamini because of his illiteracy.   That was all the more reason why the Bank should have ensured that its agents explained the material terms to Mr Dlamini.   As Mr Dlamini was ignorant of the prescribed notice requirements of the agreement, there was no mutual consent as regards this term.   Accordingly, Mr Dlamini’s defence succeeds under the NCA and the common law.  

[65] The validity of the entire agreement is an issue that neither party addressed.   A credit agreement must not contain an unlawful provision.   A provision is unlawful if its effect is to defeat the purposes or policies of the NCA or deceive the consumer or if it directly or indirectly purports to waive or deprive a consumer of a right set out in the NCA or set aside or override the effect of any provision of the NCA.

[66] As stated above the selective disclosure of Mr Dlamini’s s 121 rights in terms of the NCA as a consumer to rescind the agreement was deceptive.   Furthermore, the breach of his ss 63 and 64 rights in terms of the NCA to be informed of the contents of the agreement and his rights to an agreement that complies in form with reg 30 skewed the agreement in favour of the Bank.   Distorting the balance created in the NCA in this way in the agreement is unlawful.   It defeats the purpose and policy of the NCA and renders the entire agreement unlawful.

[67] An unlawful provision in any credit agreement is void.   The court must sever the unlawful provision from the agreement, or alter it to render it lawful, if it is reasonable to do so.   If the unlawfulness was confined only to not recording fully and communicating clause 10.6 of the agreement to Mr Dlamini, then clause 10.6 could have been altered to render it lawful.   However, when the form and get-up of the agreement is inconsistent with the NCA and its regulations, and the Bank has not interpreted, translated or explained its material terms, severance is not an option.   The entire agreement must be set aside.

[76] Cumulatively considering the unexplained tactics the Bank employed, this action is heavy handed intimidation in response to Mr Dlamini seeking to enforce his right to rescind the agreement and claim a refund.   The Bank’s conduct in initiating and pursuing this action is unlawful for the further reason that it is irrational.   The unlawfulness on all the grounds established above is a breach of the right to equality in s 9(1) of the Constitution.   The Bank conducted this transaction oblivious of the purposes of the NCA.   Notwithstanding the manifest inequality in its relationship with its bargaining counterpart it sought to snatch an advantage.

[77] In passing I note that the CPA assented to on 24 April 2009 commenced on 31 March 2011.   Although the agreement in this case was terminated before the general effective date of the CPA, i.e. 31 March 2011 the Bank, like most large corporations that invest in corporate social responsibility projects, had to be aware of the purposes of the CPA which was already in the public domain.   . . .

[78] Institutions such as the Bank should welcome the framework proffered by the NCA and the CPA for bridging the socio-economic inequalities substantively and for reforming the credit industry, if for no reason but that sustained inequalities and need lead to unrest and social instability which is not good for business.   Even though the CPA was not effective when the Bank sold the vehicle to Mr Dlamini it should have voluntarily acknowledged that as goods sold in terms of a credit agreement, s 5(2)(d) of the CPA would have applied to the sale.   It should have been clear when the Bank issued summons on 3 March 2012 (sic) that consumer relations was no longer business as usually practised over its 150 year history in South Africa.   Disappointingly, the Bank remained unresponsive to the CPA and its aspirations before it became enforceable.   My interpretation and application of the provisions of the NCA above are fortified by the CPA.