The new Consumer Protection Act is going to have an impact on South African businesses when it comes into force at the end of March and a note of panic has crept into media reports concerning the Act. This month we take a brief look at how property sellers, estate agents and landlords will be affected.We also take a look at how vital it is to notify your insurance company about any possible claims against you, and consider another example that illustrates why you must be very careful when signing a surety agreement.
Consumer Protection And Property Panic – Who’s At Risk?
“Don’t Panic!” (Douglas Adams, Hitchhikers Guide to the Galaxy)
Property sellers, estate agents and landlords – many of your deals will be subject to the requirements of the new Consumer Protection Act (“CPA”), so prepare for them now!
Firstly, be ready to comply with the Act when it comes into force at the end of March – you risk major losses if you don’t. You could for example have your agreement declared invalid and administrative penalties, even criminal prosecution, are provided for contraventions.
Secondly, the additional consumer protections expose you to some serious new restrictions and risks. Indeed, a note of panic has crept into some recent media articles on the subject, with suggestions that the whole property industry will be adversely affected.
Don’t panic, the risks are manageable – but seek advice and assistance now if you haven’t done so already.
Note incidentally that CPA will not apply to every agreement and transaction:-
- Pre-existing agreements will by and large not be affected, except that: –
- Any fixed-term contract still to be in existence on or after 31 March 2013 will be partially subject to the Act.
- Supplies of defective goods on or after 24 April 2010 will still carry the risk of damages claims.
- Individuals, or
- Smaller “juristic persons” (corporate/partnerships/trusts with assets or annual turnovers under a threshold – provisionally R3m).
- The Act applies only to the supply of goods or services “in the ordinary course of the supplier’s business”, so it’s likely that most run-of-the-mill “private” or “once-off” transactions will be exempt (although estate agents will still need to comply in respect of their marketing practices, sales mandates etc).
- Not all consumers are protected, only those who are either:-
- Of particular concern to landlords has been the proposed 2 year limit on fixed-term contracts, and the fear that tenants will be able to give 20 business days’ notice of cancellation at any time (subject only to the imposition of a “reasonable” – maximum 10% – cancellation penalty). The silver lining here for landlords is that neither of these particular provisions applies to any “juristic persons” at all (regardless of assets or turnover) – only to individuals.
Take advice on whether or not you are at risk here; and if so, on how to manage it.
Note: The above is of necessity a summary of selected general principles only – seek specific advice in doubt.
Signing Suretyship: The Sting’s In The Tail!
Yet another warning on the dangers of signing surety for someone else’s debts comes from a recent High Court case in which a bank secured a substantial judgment against a party who had signed surety for a close corporation’s debts.
Signing a suretyship always seems safe (and standard: “Everyone does it……”) at the time. But you will be stung – and stung hard – if the principal debtor hits hard times down the line.
The case in question saw the surety’s two lines of defense crumble:-
- She was unable to claim the protections of the National Credit Act (“NCA”), because the main agreement – i.e. the bank’s agreement with the CC – wasn’t a “credit agreement” as defined in the NCA (which has limited application to corporate entities).
- Nor did she succeed with her defence that she had never agreed to the bank increasing its loan to the CC. She had signed a standard-wording surety agreement binding her to “the repayment of any sum or sums of money” owed by the CC “from whatever cause arising” and could not go outside that written agreement.
If you have no alternative but to stand surety, take advice before you sign anything! And at the very least, limit your liability – in both amount and time period – as much as you can.
Notify Your Insurers Of Every Possible Claim – Even If The Risk Is “Small”!
When must you advise your insurance company of a possible claim against you?
The temptation is to do nothing until a claim is actually made against you, particularly if – although something has happened that might perhaps result in a claim – it doesn’t seem particularly likely at the time.
Big mistake! In a case recently before the High Court, a shop’s customer had tripped over an electric cord and fallen, sustaining injuries. He sued the shop, which in turn blamed the cleaners it had contracted to provide general cleaning services in the store. The cleaners then claimed indemnity from their insurers under a Public Liability policy.
The Court supported the insurers’ repudiation of the claim on the ground that the cleaners, although first made aware of the incident in 2008, had only given them notice of the claim when summons was actually served on them in 2010. This was in breach of a (standard) clause in the policy requiring clients to give notice “as soon as reasonably possible”. That, held the Court, meant reporting any such incident as soon as is “reasonably practicable in all the circumstances. The enquiry is a factual one. And the answer will depend upon the circumstances of each particular case.”
The moment you appreciate that there is “inherent in the situation a possibility that a claim might be made”, even if (as in this case) it seems to you that the risk of a claim resulting is “small”, you must notify your insurers without delay.
If you don’t, you risk being left – like the cleaning company in this case – to face the music alone.