Tag Archives: public liability insurance

Consumer Protection Act no joke, affects every business from 1 April

It is surprising how little has been written about the new Consumer Protection Act No 68 of 2008, which comes into operation on 1 April.   It gives tremendous power to consumers in their dealings with businesses, and will put every business on its toes, the punitive fines of R1 million or more being a strong motivator.

The Act itself runs to just under 100 pages, and whilst written to be understood, it is a volume of information to comprehend.  We bought the book written by Advocate Neville Melville, ‘The Consumer Protection Act Made Easy’, to guide us in evaluating our business in terms of compliance with the new Act.   It is frustrating that there are many grey areas, as the author had to write the book as broadly as possible, to be applicable to every South African business and industry.   I have written this blogpost with a focus on how the new Act will affect the hospitality industry, not as an expert by any means, as an hospitality business owner.   Accommodation provision is most specifically identified as a type of Service covered by the Act, whereas restaurants are not mentioned as such, but the Act applies to the provider of “Goods”, which includes anything “marketed for human consumption”.   Any contracts entered into before 1 April 2011 are excluded from the provisions of the Act.

The Act is introduced as follows: “To promote a fair, accessible and sustainable marketplace for consumer products and services and for that purpose to establish national norms and standards relating to consumer protection, to provide for improved standards of consumer information, to prohibit certain unfair marketing and business practices, to promote responsible consumer behaviour, to promote a consistent legislative and enforcement framework relating to consumer transactions and agreements, to establish the National Consumer Commission…”. 

It has been designed with the express purpose to protect the poor, and vulnerable and historically disadvantaged consumers, and to ‘promote their full participation as consumers’.  It also aims to apply ‘internationally recognised customer rights’, and seeks to ensure transparent ‘redress’ for consumers subjected to ‘abuse or exploitation in the marketplace’.  From a consumer perspective, it will certainly lead to improved customer service and better quality products, as complaints about service and product quality, as incorporated by the Act, can be taken to the newly established National Consumer Commission.   The penalties that businesses can face are R1 million or 10 % of the annual turnover, whichever is the higher figure.   Advocate Melville advises that businesses must ensure that they have sufficient public liability insurance.  

The Consumer Protection Act ascribes eight rights to consumers:

!.   The Right of Equality

     A business may not exclude or unfairly discriminate against any person, or category of persons, prioritise one set of persons over another, or charge certain types of persons more than another.  This raises an important issue about the “Right of Admission” signs in hotels and restaurants.  Le Quartier Français in Franschhoek, in banning patrons from its establishments, may fall foul of the new Act on this point.  

One may not contract with a minor, or with mentally challenged persons. 

2.   The Right to Privacy

   Consumers have the right to reject or block unwanted direct marketing or any other communication via e-mail, telephone and sms.  Allowable contact times for direct marketing may be specified in future.   Newsletters, for example, must have an ‘unsubscribe’ option, to allow recipients the right to not receive them in future, especially if they are deemed to be for ‘direct marketing’ purposes. 

3.   The Right to Choose

Products may not be bundled together with another product or service linked to it, and therefore a supplier or retailer cannot make it mandatory to buy another (possibly unwanted) product as part of a package.   Consumers also have the right to ‘examine goods’, yet cannot be held liable for damage in doing so, a bizarre ruling – however ‘gross negligence, recklessness, malicious behaviour or criminal conduct of the consumer’ is chargeable. 

By agreement, the consumer and supplier can agree how, when and by whom the product or service will be delivered.  If it is not specified, it is implicit that the supplier must deliver the product within a reasonable time period.   The consumer has the right to check the goods on delivery, to ascertain whether they meet the specifications of the order.   

4.   The Right to Disclosure

     All documentation must be written in plain and understandable language (the tenancy clause in the Taj Cape Town ‘legal document’ when one checks in will not meet this criterion in the Act!).  The advertised or marked price is the one that must be honoured, even if it is an error.   A brand name or trade mark must not attempt to mislead consumers.  “Grey market goods” must be identified by the sellers as such.  Important to note is that a ‘written record of the transaction’ must be provided, and must contain the following prescribed information:

*   Supplier’s full registered business name and VAT registration number

*   Address

*   Date of transaction (could be two dates for accommodation establishments, if a deposit is taken to make the booking.  The transaction date will differ from the actual accommodation dates, so there could be three sets of dates)

*   Description of goods and services provided

*   The unit price

*   The quantity supplied

*   The total price before tax

*   The VAT amount – few establishments separate this amount, as all transactions are VAT inclusive

*   The total price. 

The right to disclosure also would include information about anything that can affect the consumer’s use of the product, in containing potentially hazardous or harmful ingredients (e.g. Reuben’s at One&Only Cape Town correctly specifies which of its dishes contain nuts, alcohol, and pork).

5.   The Right to Responsible and Fair Marketing

     Marketing must be honest.   One may not over-promise, exaggerate, mislead or make false claims, so as to lead the consumer to have a different expectation.  One must honour one’s commitment to have a specified product or service available on the date/time that was agreed.  Restaurants, for example, may not claim that their dishes contain ingredients that they do not, or that they are imported when they are sourced locally.  Advertising must realistically portray the benefits of the product or service.  

Loyalty programs are specifically mentioned, and the ruling is that the promised reward must be available to the consumer.  The communication of how the loyalty programme works must be clear. 

6.   The Right to Fair and Honest Dealing 

The Act uses the word ‘unconscionable’, a complex word Melville writes, given that the Act itself calls for ‘plain language’ in all dealings with the consumer!  This clause calls for positive conduct with the consumer, and does not allow a supplier to use ‘undue influence, pressure, duress or harassment, unfair tactics or any similar conduct’ in getting payment due to the supplier, or goods returned.   As a hospitality supplier, it would be great if the Act protected suppliers against such abuse and blackmail too!

The supplier may not withhold material facts about the product or service (e.g. renovations taking place at a guest house), nor imply a benefit of the product or service that does not exist, or fail to correct a misunderstanding that the consumer expresses about the product or the service.   Reasonable availability of the product or service must be accurately communicated, as must be the availability of parts for repairs.   Pyramid schemes are expressly forbidden. 

Overbooking, with the express purpose of taking more bookings than one has the capacity for, based on the knowledge that not all booked customers will arrive (e.g. airlines, hotels) is no longer allowed, as one must have the service/product available if it has been booked.   Any such overbooking and therefore inability to honour a booking calls for a refund of the cost of the booked service as well as the costs involved in cancelling the booked service (e.g. loss of business suffered by the customer), which could become very costly for the supplier!   However, the supplier may make an alternative arrangement on behalf of the customer, and that customer is reasonably expected to accept the alternative arrangement.

7.   The Right to fair, just and reasonable terms and conditions

       The Act regulates ‘agreements’ (not calling them contracts) between suppliers and consumers.  One may not contract with minors, and those that are mentally unfit.   Information in the agreement must be in plain understandable language.  Repairs must be pre-quoted.    Some agreements will be specified by the Minister to be in writing.  The sales record must contain the required information (as specified above).  Any risk to the consumer that may lead to serious injury or death must be highlighted (does a pool count?).  Any other potential risks associated with the product or the service must be highlighted.   A ‘fair’ price must be offered, and the terms must be ‘fair’ and reasonable, although ‘fair’ is not defined.  “Unfair” is however defined as agreements which are one-sided in benefit to a party other than the consumer, or are based on misleading information.  No clause in an agreement can be in contravention, or cancel any provisions,  of the Consumer Protection Act.   PIN codes and ID books may not be kept by the supplier, and only copies may be made of the ID book and the PIN code used for a transaction.

A contentious provision for businesses is the right to a cooling-off period, which allows the consumer to return bought goods within five days of purchase, and must be refunded in full within 15 business days.  The notice of cancellation must be in writing.  Melville uses the word ‘good’, and not ‘service’, so it is not clear if this applies to bookings made for services such as accommodation, for which a 50 % deposit is likely to have been taken.   Even more uncertain is how the provision that a consumer can return a ‘good’ if he/she did not have a chance to see the product beforehand, but only of it is not hazardous to the public health (which would exclude food and beverages) or if it has been tampered with.  Such a clause could apply to accommodation too, being an unsighted purchase (but is defined as a ‘service’), so this may not be applicable.   

Consumers have the right to cancel an advance booking or order, ‘but may be liable for a charge for doing so’.   A supplier may “require payment of a reasonable deposit in advance and impose a reasonable charge for the cancellation” . The ‘reasonable’ is not defined, but Melville writes that it should be decided on the basis of the following:

   *   The nature of the products and services

   *   the length of notice of the cancellation

   *   the “reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation”. 

   *   The general practice of the industry concerned

In the case of the death or hospitalisation of the person making the booking, the deposit paid must be refunded in full, but this does not apply to a family member’s death or hospitalisation. 

Should a supplier close a service facility (say a guest house which decides to close over winter), 40 business days’ notice must be given to the customer, and the deposit payment must be refunded within 5 business days after the service facility has closed. 

8.  The Right to fair value, good quality and safety

Any good, or element within a good, that can cause harm, injury or potential death to the consumer must be spelt out to the consumer.   These risks can include those that the consumer may not ordinarily have expected, especially those which can lead to serious injury or death.   At Whale Cottage we have evaluated our operation relative to this clause, and have changed our breakfast menu to highlight all nut-based cereals, and have changed the content of one of our Huguenot Fine Chocolates’ turn-down chocolates, which previously was a hazelnut praline.

Products that are available to or sold to the consumer that may contain hazardous substances must have the warning and description on the pack or available separately (e.g. we stock Tabard insect spray in our guest bedrooms, with instructions and health warnings on the pack). 

The Act calls for compensation to consumers if the products bought caused harm to themselves and/or their property.  Not only the direct supplier is liable, but also the importer, the retailer, the manufacturer, the distributor, and the installer can be sued for damages within a three year period from the date of the loss or damage.

A further requirement is that products and services should be of a quality that consumers are ‘generally entitled to expect’.  It states that industry association codes and practice would guide what this reasonable level of quality would be.  For the accommodation industry, the Tourism Grading Council guidelines and requirements probably would be a good quality guide.  Timing of the delivery of the service is once again highlighted as having to be ‘reasonable’, and suppliers must give consumers ‘reasonable’ notice (timing undefined) of ‘unavoidable’ delays.   A good requirement, for anyone dealing with builders or repairmen, is that the property must be left in the condition it was when they first started their work.  Suppliers of repair services must safeguard the consumers’ goods in their care, and this includes deposits that may have been paid.

Products bought must deliver on what they are expected to perform.  They must be in good working condition and free of defects.  So, for example, a toaster used in a guest house can not be expected to perform the same service compared to one used domestically, and the consumer must declare the usage, so that he/she can make the most suitable purchase.  If the product does not perform, the consumer can return the product within a six month period, and can demand a new replacement product, money back, or repair of the item.   The consumer has the right of choice in this regard, not the supplier.  This places a responsibility on suppliers to stock enough of any products to be able to replace products, especially if the items might be discontinued!   Repaired goods have a three month warranty period through the Act.   No ‘voetstoots’ clause applies for any purchase any longer.

The Consumer Protection Act is a lengthy piece of legislation, and each business is advised to check its practices and communication to customers, to evaluate its compliance with the new Act.  It could become an explosive minefield if opportunistic consumers were to try to exploit the provisions of the Act, especially for the service industry, where things are not always black or white.  However, the protection it affords consumers is welcomed, and the improvement in the level of service and quality of products one can expect as a result is too.

POSTSCRIPT 26/5:  This afternoon I attended a Consumer Protection Act workshop at the Radisson Blu hotel, organised jointly by Cape Town Tourism and FEDHASA Cape.  The first part was presented by a lawyer from Webber Wentzel, the most boring speaker, who quoted clauses from the Act and had assumed that the audience knew nothing at all about the Act.  He had misread his audience completely.  He was followed by FEDHASA legal consultant Peter Cumberlege, who was far more entertaining as well as informative, but with strong views that FEDHASA Cape appears to rely on, without robust debate!  The key points made:

*   nothing in the Act is new – we all treat guests fairly

*   the most contentious statement was that the hospitality industry should NOT have a standardised cancellation and refund policy – all establishments are unique.  However, the Chairman of the National Consumer Tribunal said in Franschhoek recently that the hospitality industry should form an industry body, and should standardise its cancellation policy, given that the Act regularly refers to standard industry practice.

*   Establishments must try to resell cancelled rooms, and should try not to charge for these.  If there is a charge, it should be to recover expenses, and not a full room rate, especially if the establishment is not fully booked on the day of the cancellation- this is a contentious view of Cumberlege, and many would disagree with him.

*   SQ prices must come off restaurant menus

*   Invoices can no longer be handwritten, given the invoice requirements in the Act

*   All websites and brochures should be checked for accuracy of claims.  Avoid overclaims.

*   If one overbooks one’s accommodation, the guest must be given equal or better accommodation, or one must refund: interest on money held plus monies paid plus cost of cancellation to the client

*   One is responsible for guests’ belongings on one’s property

*   Disclaimers and waivers are now meaningless in contracts

*   Sites representing a number of establishments must state the rate of the establishment and the percentage commission that they have added = full disclosure

The Consumer Protection Act Made Easy, Adv NJ Melville, 2010.  Exclusive Books.

Chris von Ulmenstein, Whale Cottage Portfolio: www.whalecottage.com  Twitter: @WhaleCottage

New accommodation grading criteria could lead to star-wars!

The accommodation industry is up in arms about the 83-page document they have been sent by the Tourism Grading Council of South Africa, asking it to comment on the proposed new assessment criteria to be used by assessors for their annual assessment from October onwards, to confirm the maintenance, upgrade or downgrading of their star allocation within a very short period of time. 

Initially accommodation establishments were given only six days to comment, but the Council has extended its deadline for the feedback to 9 April due to the furore which the document has caused.  It appears that assessors themselves may not be happy with all the proposed changes.  The final assessment criteria will be announced at Indaba in Durban on 8 May, reports the Southern African Tourism Update.

The majority of the criteria are as before, and this should be good news to owners of accommodation establishments.  However, some of the requirements are radically stringent, and as they imply costs in meeting the new criteria, they are highly contentious, especially given the poor state of the economy and the precarious financial situation that many establishments find themselves in.  The reaction of many establishments in seeing the criteria is that they will withdraw from the grading system, which is the opposite to what the Tourism Grading Council would be wishing to achieve with the new criteria.  Establishments in the lower star grading bands and B&B’s may be especially tempted to withdraw from the system.

The document does not state how much time establishments have to adjust to the new criteria, if they are an established business.   Feedback from the National Accommodation Association (NAA) indicates that properties will be given 2 years to implement the new criteria.  New establishments will obviously have to meet the new criteria from October onwards.

The new assessment criteria were compiled with input from accommodation owners, as well as research which consulting firm KPMG conducted to benchmark South Africa’s grading criteria against international standards (mainly UK, New Zealand and Australia).

The document was assessed in this post from a 4-star Guest House, B&B and Country House perspective, for which the criteria are the same, with the emphasis on Guest Houses:

1.   The practicality of completing a 66 page document is questioned, meaning that the current two-hour assessment visit will double in time, given the large number of aspects to be assessed.  This can only imply that the assessment fees, already around R2000 per visit, will have to increase.

2.   Guest house owners/hosts must live in a separate entity if they live on the property, but may not live more than a 10-minute drive away for check-ins.  Breakfast must be served every day, rooms must be serviced daily, and a guest lounge and breakfast room must be available for guests’ exclusive use.   All these criteria appear fair.

3.  All three accommodation types must meet “minimum entry requirements” before they can be assessed: 

      *   public liability insurance

      *   the safety and security of guests, which includes lockable doors and secured windows

      *   the visual privacy of guests from the street

      *   the booking service must be available all year

      *   “health and safety certificate – fire and building regulations” (the exact requirement in this regard is not clear)

       *   must be registered as a business with the provincial authority (no such registration requirement is known in the Western Cape)

       *   “no lawful discrimination on the basis of race, gender, citizenship, physical and mental conditions, etc” (the word “lawful” seems a contradiction!)   

       *   clear and visible signage (this could be contentious, as many establishments, B&B’s in particular, wish to remain low key about their existence)

       *   staff dealing with guests must be professional and courteous at all times

4.   The marks awarded from the assessment are to change in determining the star grading, meaning more 4 and 5 star establishments potentially, as the mark requirement has dropped.   This contradicts the previous tightening of the percentages, as it was felt that there were too many 4 and 5 star establishments (this should be generally acceptable to establishments) :

        *   1 star 30 – 43%

        *   2 star 44 – 58 %

        *   3 star 58 – 74 %

        *   4 star 74 – 88 % (currently is 85 – 94 %)

        *   5 star 88 – 100 % (currently 95 – 100%)

5.    The assessment allows for the establishments’ Universal Access to be evaluated at no extra charge, and for a bronze, silver, gold or platinum plaque to be awarded to establishments that cater for guests with disabilities.  Establishments will not be penalised for not offering these facilities.   The evaluation for the Universal Access takes up a large part of the space on the assessment questionnaire, making it feel longer and more onerous than it is if the Universal Access is not evaluated.

6.   Some of the key requirements are the following:

      *   One off-street parking bay per bedroom must be offered, but can be up to 2 rooms per bay in “urban areas” (this should be what most establishments have already)

      *   Staff must be on 24 hour call as far as safety and security is concerned (this probably is in place in most establishments)

      *   Contentious could be the minimum room and bathroom sizes specified, given that the current dimensions of rooms in existing establishments cannot be altered: a 4* guest establishment must have a size of at least 30 sq. meters for the bedroom, bathroom and landing.  The bedroom must have at least 9 sq meters of “free floor space”, and the bathroom 2 sq. meters of such space

      *   All 4* and 5* establishments must offer a safe fitting a “17 inch” laptop – this could be very contentious, given that most guest houses have built-in safes for valuables already.  This could be a very costly requirement change to meet

      *   Each wardrobe must have a minimum of 14 clothes hangers in it (one wonders how they came to this number – surely 10 can do?)

      *   All 4* and 5* establishments must have airconditioning – this is the most costly requirement change, and will create resentment amongst those establishments that do not have airconditioners, especially for B&B’s, as well as for those that do, given the punitive electricity cost increases

      *   Each bedroom must have a “master lighting switch” at the beside, something which requires installation at building stage, so this too can cause controversy and cost

      *   Mirrors must measure 120 x 40 cm, and may not be on the back of the door.  Most establishment mirrors are on the back of the bedroom door!

     *    Bathrooms may be open plan to the bedroom, but the toilet must have a lockable door.  Guests must be informed about open plan bathrooms when they book.

    *    Towels have to be changed every day – this is very controversial, given water shortages and punitive electricity charge increases from 1 April.   Bed linen must be changed every 3 days.

    *   A hot and a cold breakfast choice must be offered, and the breakfast time must be at least three hours (this is a fair requirement).

    *   A laundry service must be offered on at least 5 days a week (this is a fair requirement)

    *   An internet service must be offered in 3*, 4* and 5 * establishments (this is a fair requirement, given guest needs, but will add to the running costs of the business).

    *   The MOST controversial requirement is an 18 hour Reception service, from 6h00 – midnight, in 4* establishments.  Guest house staff work an extremely long day, and given the recession, this is a most irrational and expensive requirement.  Staff working until midnight without their own cars cannot get home if they do not live on the property, given the lack of public transport at that time of night!

The full document regarding the proposed Tourism Grading Council grading criteria for Country Houses, Guest Houses and B&B’s can be read here.

POSTSCRIPT 1: The deadline for comments has now been extended to 27 April, reports South African Tourism Update on 31 March.

POSTSCRIPT 2 : The accommodation establishments will be given one year to implement the new criteria, says an e-mail sent to them by the Tourism Grading Council on 31 March, and not 2 years as the NAA wrote.

Chris von Ulmenstein, Whale Cottage Portfolio: www.whalecottage.com