IN THE NATIONAL CONSUMER TRIBUNAL HELD IN CENTURION NATIONAL CREDIT REGULATOR

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1 IN THE NATIONAL CONSUMER TRIBUNAL HELD IN CENTURION Case number: In the matter between: NATIONAL CREDIT REGULATOR - APPLICANT and LEWIS STORES (PTY) LTD - RESPONDENT Coram: Prof. T. Woker Presiding Member Prof. J. Maseko Tribunal Member Ms. P. Beck Tribunal Member Date of Hearing: 6 April 2017 JUDGMENT AND REASONS THE APPLICANT 1. The Applicant in this matter is the National Credit Regulator (the Applicant), a juristic person established in terms of Section 12 of the National Credit Act, 2005 ( the Act or the NCA ). The Applicant has its place of business at 127 Fifteenth Road, Randjespark, Midrand; Gauteng Province. 2. At the hearing of 6 April 2017, the Applicant was represented by Ms. Nthupang Magolego, Senior Advisor employed by the Applicant, assisted by Ms Du Plooy and Ms Peters.

2 THE RESPONDENT 3. The Respondent is Lewis Stores (Pty) Ltd, a private company incorporated in South Africa; with registration number 1946/023387/07 and registered in terms of section 44 of the NCA as a credit provider under Registration Number NCRDC47 1 (the Respondent). 4. The Respondent has its main address at 53A Victorian Road, Woodstock, Cape Town in the Western Cape Province. 5. At the hearing on 6 April 2017, the Respondent was represented by Adv CDA Loxton SC assisted by Adv PBJ Farlam SC and A Milovanovic. BACKGROUND 6. The Applicant initiated a complaint into the Respondent in its own name in terms of section 136 (2) of the Act. The complaint was initiated after the Applicant read a newspaper article regarding a mystery shopping exercise conducted by a consumer rights organisation. The article inter alia mentioned that the Respondent was charging consumers fees for an extended warranty. During the subsequent investigation the Applicant s inspectors became aware that the Respondent was also operating a club, for which membership fees were charged. The investigation was therefore extended to include an investigation into these club fees. 7. The matter was subsequently referred to the Tribunal on the basis that that the Respondent has contravened section 90, 91, 100, 101(1)(a) and 102(1) of the Act During a pre-hearing of the matter it was agreed that the matter would be argued on the papers. 3 It was also decided that the matter would proceed on the merits of the referral and that heads of argument would be confined to the merits only. The arguments on an appropriate sanction would follow later after the Tribunal had made a ruling on the merits. 1 Since 28 August 2007 (page 28 of case file). 2 See para 33 of the Applicant s founding affidavit. 3 Pre-hearing minutes. See page 669. Page 2 of 30

3 9. For the purposes of this judgment there are two issues which are relevant: these relate to the club fees which the Respondent charges consumers who belong to the club and the extended warranties which apply to goods purchased by consumers. APPLICABLE PROVISIONS OF THE ACT 10. In support of its application the Applicant has relied on the following sections of the Act: - Section 90(1) which provides that a credit agreement must not contain an unlawful provision. - Section 90(2)(a)(i) which provides that a provision of a credit agreement is unlawful if its general purpose or effect is to defeat the purposes or policies of the Act. - Section 90(2)(a) which provides that a provision in a credit agreement is unlawful if its general purpose is to (i) defeat the purposes or policies of the Act; (ii) deceive the consumer; (iii) subject the consumer to fraudulent conduct. - Section 90(2)(b) that provides that a provision in a credit agreement is unlawful if it directly or indirectly purports to (i) Waive or deprive the consumer of a right set out in the Act; (ii) Avoid a credit provider s obligations or duty in terms of the Act; (iii) Set aside or override the effect of any provision of the Act; (iv) Authorise a credit provider to (aa) do anything that is unlawful in terms of the Act and (bb) fail to do anything that is required in terms of the Act. - Section 91(a) which provides that a credit provider must not directly or indirectly require or induce a consumer to enter into a supplementary agreement or sign any document what contains a provision that would be unlawful if it were included in a credit agreement. - Section 100(1)(a) which provides that a credit provider must not charge an amount to or impose a monetary obligation on the consumer in respect of a credit fee or charge prohibited by the Act. - Section 101 (1) a) to (g) which provides that a credit agreement must not require payment by the consumer of any money or other consideration, except the principal debt, initiation Page 3 of 30

4 fee, a service fee, interest, cost of credit insurance, default administration charges and collection costs. - Section 102 (1) which provides that if a credit agreement is an instalment agreement, a mortgage agreement, a secured loan or a lease, the credit agreement may include in the principal debt deferred under the agreement any of the following items to the extent that they are applicable in respect of any goods that are the subject of the agreement (a) An initiation fee as contemplated in section 101(1) (b), if the consumer has been offered and declined the option of paying that fee separately. (b) The cost of an extended warranty agreement; (c) Delivery, installation and initial fueling charges; (d) Connection fees, levies or charges; or (e) Subject to section 106, the premium of any credit insurance payable in respect of that credit insurance. SUMMARY OF APPLICANT S SUBMISSIONS Club fees 11. The Applicant alleges that the charging of club fees by the Respondent is prohibited in terms of section 100, 101 and 102(1) of the Act as these fees constitute a cost of credit. The Applicant is of the view that the club fee charges are not permitted by sections 101 and 102, since a club fee is not mentioned in these provisions of the Act Although the Act does not define the words cost of credit the Applicant argues that a contextual reading and interpretation of various sections of the Act is necessary and that when taking all the evidence into consideration the Respondent must be found to have contravened the Act by charging consumers a club fee as a cost of credit. 13. In summary, the Applicant contends that the club fee is a charge under a credit agreement for the following reasons: (a) One of the terms contained in the credit agreement that the Respondent concludes with the consumer provides consumers with an option to agree or not to agree to the club fee. (b) Even though none of the consumers whose credit agreements were sampled during the investigation agreed to join and pay for the club fee, the club fee was 4 In Founding Affidavit; Paragraph 38 on page 20. Page 4 of 30

5 (c) (d) none the less part of the terms of the credit agreement (even though it was optional). There are consumers whose statements of account include a charge for club fees. The inclusion of this club fee in the statement of account is an indication that the club fee is charged under a credit agreement. Further, this is contrary to section 109 as read with Regulation 35 which prescribe the form of the statement of account and the information that must be contained therein. 5 An agreement concluded outside the credit agreement which imposes a fee that is not allowed in a credit agreement is an unlawful supplementary agreement Extended Warranty 14. The Applicant argues that the nature of an extended warranty is to extend the term of the manufacturer s warranty and therefore operates from the date when the manufacturer s warranty comes to an end, until a determined or determinable period. 15. The Applicant contends that the Respondent s extended warranty is not applicable where: (1) the extended warranty operates concurrently with the manufacturer s warranty (in that the Respondent provides a two year warranty and one year of that warranty operates during the period in which the consumer already has a manufacturer s warranty); and (2) where the warranty contract does not reflect the period of time during which the extended warranty is to operate because this time period is material to the validity of the extended warranty. 16. In response to the Respondent s reply that the extended warranty concluded with consumers should be read together with further information provided by the Respondent to show that in fact the two year warranty did extend beyond the manufacturer s warranty, the Applicant argues that the parol evidence rule applies. 17. In essence this rule provides that once a contract has been reduced to writing the written contract is the only record of the agreement and is the document that has to be interpreted in order to determine the content of the contract. The document containing the parties 5 This latter argument was only raised by the Applicant in its heads of argument and was not set out in its founding affidavit. Page 5 of 30

6 agreement is therefore the only evidence of the terms of the contract and it is the contract which determines and reflects the intention of the parties to it. SUMMARY OF RESPONDENT S ARGUMENT Point in limine 18. The Respondent submits that the investigation and the referral of the matter to the Tribunal was unlawful because the Applicant has failed to adduce adequate evidence in support of its complaints. The Applicant initiated the complaint based on a newspaper article which mentioned that the Respondent was charging consumers and extended warranty fee in instances where the manufacturer s warranty was in place. Pursuant to this investigation the Applicant noted that the Respondent was also charging club fees. On the basis of the conduct of other credit providers who were also charging club fees it then decided to investigate the club fees in relation to the Respondent The Respondent does not deny that the newspaper article may have raised the question of a possible violation of section 102(1)(b) insofar as the mandatory nature of the extended warranty is concerned but denies that the investigation into its club fee practice was valid as there was no rational basis to extend the investigation regarding the extended warranty to include an investigation into club fees. 20. The Respondent argues that the extension of the investigation to include club fees taints the entire investigation conducted by the Applicant and the referral of both complaints. The Applicant cannot initiate a complaint in its own name in terms of section 136(2) in the absence of any evidence that a violation of the Act has been committed. 21. The Respondent refers to Woodlands Dairy Pty Ltd v Competition Commission 7 (which was subsequently confirmed and qualified in Competition Commission v Yara (SA) (Pty) Ltd 8 ) where Harms DJP held that the commissioner must at the very least have been in possession of information concerning an alleged practice which objectively speaking could give rise to a 6 Founding Affidavit para (6) SA 108 (SCA) (6) SA 404 (SCA) Page 6 of 30

7 reasonable suspicion on the existence of a prohibited practice. Without such information there could not have been a rational exercise of the power The Respondent also refers to the case of National Credit Regulator v Capitec Bank Ltd 10 where Van Oosten J pointed out that before an investigation is carried out, a reasonable suspicion is necessary in order that the far reaching powers of the Applicant are not abused, in other words, the Applicant may not launch an investigation simply as a fishing expedition. It must have a reasonable suspicion that the party under investigation has engaged in some form of prohibited conduct. 23. The Respondent contends that the Applicant utilised the newspaper article as a springboard for its far-reaching investigative powers in terms of section 189 of the Act and that this decision was motivated by an intention to embark on a fishing expedition concerning the Respondent s operations regarding club fees, as part of the investigation into extended warranties. Club Fees 24. The Respondent argues that the fees which are charged for membership to the Lewis Family Club do not involve the provision of credit or the imposition of fees or charges under a credit agreement and thus fall outside the purview of section 100 to 106 of the Act. 25. The relevant facts which support this argument are as follows: (1) Membership of the club is purely voluntary and only 27% of the Respondent s customers are members of the Club. 11 (2) Membership of the Club is open to any member of the public and a person does not have to be a customer of the Respondent in order to belong to the Club. 12 (3) The Club membership contract is concluded with a member of the public independently of any credit agreement. If forms a separate transaction which is independent of any other transaction that is concluded with a consumer. (4) The only time that the Club membership is mentioned is on the manager s interview sheet which does not form part of a credit agreement. 9 Woodlands para A440/2014[2016] ZAGPPHC 125 (23 March Answering affidavit para 50 page Answering affidavit para 23 page 513. Page 7 of 30

8 (5) The Club membership may be terminated at will with no effect on any credit agreement. 13 (6) The Club fee is not rolled up into the cost of credit and no interest is charged on arrear membership fees nor are they pursued for recovery purposes. (7) The Club fee is a separate and distinct fee charged by the Respondent to persons who wish to be members of the Lewis Family Club For these reasons the Respondent argues that the issue of club membership fees fall outside the jurisdiction of the Applicant. Extended warranties 27. The Respondent denies that there is an overlap between the extended warranty and the manufacturer s warranty because the Respondent extends its warranty to cover the two-year period after the manufacturer s warranty. 28. The Respondent accepts that in some instances the extended warranty agreement concluded with consumers the date when the extended warranty expires has been erroneously recorded or has not been recorded at all but it has presented evidence to show that its computer system properly records the duration of the extended warranty as well as the date of its commencement The Respondent further argues that there is no evidence to show that the Respondent has failed to honour its obligations under the extended warranty in year three. 30. Regardless of the fact that it denies that there is an overlap between the two warranties, the Respondent points out that there is no provision in the Act which prohibits the recovery of an extended warranty when there is an overlap with the manufacturer s warranty. The Respondent therefore argues that there is no merit in the Applicant s argument that the extended warranty becomes inapplicable and is not covered by section 102(1)(b) of the Act simply because it overlaps with the manufacturer s warranty. 13 Answering affidavit para 24 and 25 page Answering affidavit para 53 page Answering affidavit para 59.6 page 523. Page 8 of 30

9 31. The Respondent argues that there are at least two reasons why an extended warranty may still be offered in circumstances where the goods are already covered by a manufacturer s warranty. These are: (1) The manufacturer may not honour its warranty; and (2) The warranties may cover different risks. EVALUATION OF THE EVIDENCE 32. The parties agreed at the pre-hearing that the Tribunal will make a determination on the issues before it based on the evidence which was presented by the parties by way of affidavit. In these circumstances, when there is a dispute of fact the version of the Respondent must be accepted unless this version is so far-fetched or clearly untenable that the court is justified in rejecting (the averments of the respondent) merely on the papers This matter must be decided on the strength of the submissions presented in the documents before the Tribunal. Both parties have presented strong arguments in support of their submissions in their affidavits and heads of argument. Point in limine 34. The Respondent argues that the Applicant did not have a reasonable basis for its investigation into the issue of club fees. It has accepted that there may have been a reasonable basis for the investigation into extended warranties because of the newspaper report, but argues that it was not reasonable to extend this investigation into the issue of club fees, merely because it discovered that the Respondent has a club, was charging fees for this club and it was investigating other credit providers that also operate clubs. 35. Although the Respondent has set out a comprehensive argument in its heads of argument, this issue was not vigorously pursued at the hearing. The matter is between the National Credit Regulator (the Applicant) and a credit provider (the Respondent) and deals with allegations that 16 See Cameron JA in South African Veterinary Council v Szymanski 2003 (4) SA 42 (SCA) para 24; Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (a) at 634H-635C and Stellenbosch Farmers Winery Ltd v Stellenvale Winery (Pty) Ltd 1957 (4) SA 234 (C) at 235 E-G where the following rule was formulated: where there is a dispute as to the facts a final interdict should only be granted in motion proceedings if the facts as stated by the respondent together with the admitted facts in the applicant s affidavit justify such an order. Page 9 of 30

10 the Respondent has engaged in prohibited conduct by contravening the NCA. The Tribunal has been established to adjudicate on instances of prohibited conduct under the Act. 36. The Applicant was alerted to possible contraventions by a newspaper article and as the investigation continued it became concerned about other possible contraventions (namely the charging of club fees). The Applicant was not merely engaging in a fishing expedition, which was the concern of the courts in the judgments referred to by the Respondent. For the purposes of this judgment and without pursuing the matter any further, it is accepted that the Applicant did have a reasonable suspicion entitling it to commence its investigation into the issue of the extended warranties and that this initial investigation was extended into the issue of club fees, a matter of some concern for the Applicant generally in the credit market. The point in limine is therefore dismissed. Issues to be decided 37. There are two main issues which this Tribunal must consider: (1) The issue of club fees and whether these fees form part of the cost of credit ; and (2) Whether the Respondent is engaging in prohibited conduct regarding its extended warranties. (a) Club fees 38. This issue of establishing a club and charging club fees is a controversial issue and an issue of some concern for the Applicant because this places an increased monetary burden on consumers, many of whom may be regarded as vulnerable and less literate. One of the aims of the Act is to protect such consumers. The Tribunal has already issued a comprehensive judgment regarding a similar issue in NCR v Edcon Holding NCT 35378/2015/140(1) where the Tribunal found that the club fee did form part of the cost of credit and as such was an unlawful fee. Page 10 of 30

11 39. However each matter must be decided on its own merits, and it is necessary to evaluate the evidence presented in this matter to decide whether or not the club fee for the Lewis Family Club constitutes a cost of credit. 40. The Respondent is a large furniture brand which sells a range of household furniture, electrical appliances and home electronics. These goods can be purchased in terms of a credit agreement or they can be purchased for cash. 41. In addition to selling furniture and appliances, the Respondent operates a club which consumers can belong to should they elect to do so. The fee for joining this club is R25 per month and consumers receive certain benefits such as periodic draws for prizes, cash, furniture vouchers or store account clearances up to R Consumers can also apply for study bursaries at Boston College and they receive a quarterly Club Magazine. 42. There are various ways in which consumers can join the Club such as by going to their nearest store and telling them that they would like to join the club or by sending a Whatsupp or SMS to a particular number and the Respondent undertakes to get back to the consumer Consumers who wish to join the Club sign a separate contract which is headed Lewis Club Membership Contract There is no reference to the Club or to a club fee in the credit agreements which consumers enter into when they purchase goods in terms of a credit agreement. The Applicant argues that one of the terms contained in the credit agreement provides consumers with an option to agree or not to agree to the club fee. However, a perusal of the credit agreements before the Tribunal indicates that this is not in fact the position. The reference to the Club is contained in a manager s interview sheet which the person who is dealing with the consumer must complete with the consumer. 19 This interview sheet contains questions or procedures regarding the following: - Carrying out certain account administration such as checking for payslips and doing a credit profile check; 17 See page 541 of the record of LAD1 of the answering affidavit 18 See page 543 of the record or LAD3 of the answering affidavit. 19 See page 115 of the record. Page 11 of 30

12 - Welcoming the consumer; - Carrying out an affordability assessment; - Taking the consumer through the main points of the contract; - Advising the consumer about insurance; - Discussing the repayment plan such as when the first instalment is due; - Dealing with the issue of second hand goods and a voetstoots clause; - Dealing with customer relations such as asking the consumer whether he or she has any questions regarding the contract - Dealing with the issue of the Club. 46 Each of these sections is completed by the interviewer filling in a tick box which indicates the consumer s answer which is either a yes or a no. As far as the Club fees are concerned, the questions read as follows: I confirm that I have agreed to join the Lewis Club and enjoy its many benefits yes or no. I further confirm that I can afford the monthly fee of R25 yes or no. 47 This is where the Applicant s concern has arisen. At a time when consumers are applying for credit, they will also be asked whether they want to join the Club. Their answer is recorded simply as a yes or a no. The Applicant is therefore of the view that this fee is then charged to the consumer, as a cost of credit. 48 Consumers who have purchased goods and/services from the Respondent are sent a monthly account which sets out the different amounts which must be paid according to the various agreements which they have concluded with the Respondent. The critical issue which the Tribunal must decide is whether the club fee which is included on this statement is a cost of credit or a separate charge for a separate service. It is only if it is actually a cost of credit that the Respondent can be found to have contravened the Act because the Act does not list a Club fee as permissible fee under section 101 or One can certainly understand the concerns of the Applicant and there are serious questions around whether or not such a club has any real benefits for vulnerable consumers, however I Page 12 of 30

13 am unable to conclude that club fees actually constitute a cost of credit for the following reasons: (1) Consumers do not have to join the club when they apply for credit and there are a number of examples before the Tribunal where consumers elected not to join the Club. 20 In fact the Applicant itself states that in the examples which it investigated, consumers had elected not to join the club. (2) There are also examples of where consumers have resigned from the club or where the Respondent has stopped charging Club fees because the consumer has stopped paying for the Club. 21 (3) Consumers receive a statement which indicates a separate account for their Club fees which has its own account number. See for example, the account of AA Maart (page 121 of the documents). This account lists three separate agreements. The first two are clearly credit agreements because interest and fees are charged (these are which commenced on 1 April 2015 and which is due to end on 1 March 2018 and which commenced on 1 November 2015 and is due to end on 1 October 2018). The third account which commenced on 25 September 2015 is for Club membership. No fees or interest are charged on this account, hence this agreement cannot be regarded as a credit agreement and as this is a fee which is charged for a separate service which commenced on a different date to the other two agreements, it cannot be regarded as a cost of credit for those two transactions. (4) The Act does not seek to regulate the goods and services which a credit provider offers to its consumers, it only seeks to regulate the fees and charges which can be charged when a consumer elects to pay for goods in accordance with a credit agreement (which includes a credit facility). There is no evidence before the Tribunal, to show that the Respondent offers consumers a credit facility. Therefore every time a consumer purchases an item from the Respondent a separate agreement, credit or otherwise, is entered into. (5) As far as the Club fees are concerned, the Respondent is offering consumers a service and whatever reservations the Applicant may have regarding the value of vulnerable consumers joining a club, the Act does not prohibit credit providers 20 See pages 116 ; 134; 166; 198; 222; 271; 290 of the record. 21 See LAD4 A and LAD 4 B or pages 546 and 547 of the record. Page 13 of 30

14 from operating a club and offering certain benefits to those consumers who elect to belong to the Club. The fee charged to consumers is a monthly fee for belonging to the Club and is not therefore, a cost of credit. 50 This matter can be distinguished from the previous case decided by the Tribunal in NCR v Edcon because in that particular matter the Tribunal found that the club fee and club membership did form part of the credit agreement and no separate contract for club membership is concluded with the credit provider. The only reference to club membership is on the application form for a credit facility (i.e. a store card) as a tick box option. 22 Club membership is not purchased separately or as a separate transaction and is an integral part of the credit agreement process. 51 Edcon is a retailer that offers a credit facility to its customers in the form of a store card. This store card can be used to purchase various items on credit from its stores as well as other products such as cell phone airtime. 23 The application for credit and the joining of the club are therefore part and parcel of the same process. 52 In this particular matter, the evidence establishes that consumers enter into separate agreements each time they wish to purchase goods and/ or services from the Respondent and they do not have a credit facility in the form of a store card. There is therefore a separate contract for joining the Club and a separate fee is charged for Club membership. This agreement cannot be seen as a credit agreement because no interest is charged and consumers are paying in advance for a particular service. If they fail to pay for that service, the agreement is terminated. (b) the extended warranty 53 The Respondent offers its consumers an extended warranty which operates for a two year period after the original manufacturer s warranty of one year has expired. 54 The Applicant alleges that consumers have been charged for an extended warranty in instances where no valid extended warranty is in place, or the extended warranty is not 22 See para 40 of the judgment. 23 See para 33 of NCR v Edcon. Page 14 of 30

15 applicable. This is because either the term of the Respondent s extended warranty runs concurrently with the supplier/manufacturer s warranty or the extended warranty has no term to the warranty which, the Applicant alleges, is a material term of the warranty agreement. 55 The Applicant s concerns around the warranty arise from the fact that its investigation revealed that incorrect dates or no dates appeared on some of the agreements which had been concluded with consumers. 56 The Respondent concedes that in some instances mistakes were made or that information was omitted from the contracts concluded with consumers but points out that the correct position is later explained to consumers and it provides evidence to establish that there was no overlap or concurrency between its warranty and the warranty offered by the manufacturer. 57 The Applicant argues that the Tribunal should reject this evidence on the basis of the parol evidence rule. However, the parol evidence rule does not apply in this situation. The parol evidence rule is a rule which applies in the law of contract in circumstances where the contract has been reduced to writing. 24 One party to that contract (and not some third party) may not present extrinsic evidence that discloses an ambiguity and clarifies it or adds to the written terms of the contract that appears to be whole. The rationale for this rule is that since the contracting parties have reduced their agreement to a written document, extrinsic evidence of past agreements or terms should not be considered when interpreting that writing. 58 As an aside, it is noted that the Respondent has now added a statement to the accounts which are sent to consumers that indicates the date on which the warranty expires. This is clearly a positive move and appears to have come about as a result of the Applicant s investigation. 59 The issue which the Tribunal must decide is whether a mistake regarding the date on the document signed by the consumer or the failure to actually set out the date involves a contravention of the Act. 24 See Van Huysteen Lubbe and Reinecke Contract: General Principles 5ed (2016) 167. Page 15 of 30

16 60 The Applicant has relied on section 102 of the Act which deals with fees or charges. This section provides that the credit provider may include certain items in the principal agreement (i.e. the credit agreement) to the extent that they are applicable. Included in this list is the cost of an extended warranty agreement. 61 Therefore the Act provides that the Respondent may include the cost of an extended warranty as part of its fees or charges. This is as far as the Act goes, it does not prescribe the actual terms and conditions of that warranty. 62 The Applicant has argued that the word applicable must be interpreted to mean that the warranty must be useful. It is further argued that when there is an overlap with an existing warranty the extended warranty is not useful and when there is no date for the warranty, the warranty does not exist. 63 The interpretation of the word applicable to mean useful, cannot be correct. The Act simply lists a host of fees which the Respondent is entitled to charge. It does not have to charge them but if they are applicable to a particular credit agreement they may be included in the principal debt deferred under the agreement. 64 Therefore, even if the conduct of the Respondent s staff when it comes to explaining the terms and conditions of an extended warranty to a consumer may be questioned, this does not mean that the Respondent has engaged in conduct which is prohibited by the Act. The Respondent is entitled to charge for an extended warranty as a permissible fee under section 102 and the Act does not set out the terms and conditions of that warranty other than to state that the cost of that warranty may be included as a fee or charge. CONCLUSION 65 The Act does not prescribe the goods and services which a credit provider is entitled to offer to consumers. It deals with credit and the cost of credit. Therefore the Act does not prevent a credit provider from offering the services of a club to consumers provided these services are not part of the cost of credit. Page 16 of 30

17 66 The Act also does not prescribe the terms and conditions of extended warranties, it merely states that the cost of such a warranty can be included as a fee or charge. Order 67 For the reasons set out above, the Tribunal makes the following order: 67.1 The application is dismissed; 67.2 There is no order to costs. Signed on this 25 th day of May 2017 [signed] Prof Tanya Woker Tribunal member With Ms P Beck (Tribunal Member) concurring. DISSENTING JUDGMENT I have had the benefit of reading the main judgment by my colleague, Prof Woker and do not agree with her conclusions for the reasons set out below. I accordingly hand down the following dissenting judgment: THE ISSUE TO BE DECIDE 1. The referral deals with two distinct matters to be determined on the merits. : 1.1 The Issue of Club Fees in which: The Respondent is charging club fees which are prohibited by sections 100; 101 and 102(1) of the Act. 25 The view of the NCR is that these club fees constitute cost to credit. 26 The Respondent argued through statements of account that the club fees were treated separately from 25 In Founding Affidavit at Para 33 on Page 18 of the case file. 26 Replying Affidavit Paragraphs 31 on page 654; pages as well pages of the case file. Page 17 of 30

18 those of the credit agreement even though they all appeared in the same statements of account. The Tribunal notes, albeit obiter; that including these fees in the statement of account is not in good taste given the sensitivity of the Act towards the protection of vulnerable consumers. Actually even offering consumers such club membership attracting R25.00 every month is itself to be frowned upon; as it burdens a consumer s finances The Club fee charges are not permitted by sections 101 and 102, since a club fee is not mentioned in these provisions of the Act. 27 The Respondent argued that while it charges club fees, such fees are separate from the credit agreements. It also argued that club fees are not necessarily prohibited by the Act. A prohibition is different from not being permitted. And club fees while not prohibited, may also not be permitted but this is far from being prohibited. The Tribunal notes that section 100(1)(b) of the NCA, expressly provides that A credit provider must not charge an amount to, or impose a monetary liability on, the consumer in respect of an amount of a fee or charge exceeding the amount that may be charged consistent with this Act (My own emphasis) Illuminating questions that can assist in deciding this point, would then be whether the club fees could be a monetary liability on an amount of a fee or charge exceeding the amounts that may be charged consistent with the Act? The answer appears to be on the affirmative The inclusion of the club fees in the credit agreement statements of customers contravenes section 109 read with Regulation 35; since the club fees are not part of the fees prescribed for inclusion in the statement. Section 109(2) requires a statement of account in respect of small credit agreements to be in the prescribed form as a matter of must. While section 109(3)(a) and (b) of the NCA gives discretion to a credit provider to produce a statement of account in respect of large credit agreements in the prescribed form or one that meets such requirements. The prescribed form in question is prescribed in Regulation 35 as Form In Founding Affidavit; Paragraph 38 on page 20 of the Case file. Page 18 of 30

19 And the details of its contents do not include club fees such as those included in the statements of accounts of some of the clients of the Respondent. This strengthens the case of the Applicant who are then partly authorised by section 109(4) of the Act to prescribe such requirements and guidelines. 1.2 The Issue of Extended Warranty in which: The Applicant contends that : The extended warranty is not applicable where the extended warranty operates concurrently with the manufacturer s warranty. Evidence of such contracts was located in the case file and was common cause. The difference is that the Respondent argued that, much as these are in writing and signed by the Respondent and each affected consumer, they were made in error and should therefore be disregarded. This cannot succeed. The problem with such a defence is that the evidence tendered to oppose this attack, consisted of records unilaterally made and produced by the Respondent with no indication that the consumers actually agreed wherever part of the correction if at all it occurred. The parties argued at length over the issue of parol evidence Rule. But this writer is of the view that such a Rule had no application in this case, as the records of the Respondent produced in defence were a unilateral product of the Respondent and cannot be linked to the consumers, who for all intents and purposes obviously held copies of the agreements that showed such concurrency or had blank periods on their face The extended warranty is not applicable in circumstances where the warranty contract does not reflect the period of time during which the extended warranty is to operate. Page 19 of 30

20 28 The Respondent opposed this by indicating that the extended warranty was correctly explained to the consumers; despite the fact that the forms they signed and the periods shown where these appear, were obviously incorrect (showed concurrency). This rather strengthens the case of the Applicant The provision of extended warranties is fraudulent and deceptive to the affected consumers. The Respondent denied that these were deceptive and fraudulent; But the Respondent could not produce evidence or even allege that these were corrected and co-signed with the affected consumers at any given point. It is clear that the affected consumers would not even lay any claims at the relevant times as they would only be carrying in their possessions the copies that are containing the supposed errors or mistakes. This defence can, therefore, not succeed The extended warranties agreements constitute a supplementary agreement as contemplated in section 91 of the Act. The Respondent denied this. While on the face of it, it appears feasible to regard these as supplementary agreements; it should be noted that the Act allows for extended warranties In some of the cases and examples found in evidence where some of the extended warranty agreements do not reflect the period covered by the warranty; such agreements are invalid and accordingly all fees charged under such agreements are unlawful and stand to be reversed. 29 The Respondent argues in this regard that this writer is not 28 In Applicant s Heads of Argument; Paragraph 4.1 on Page 9 of the case file. 29 In Applicant s Head of Argument; at Paragraph to on pages 13 and 14 of the case file. Page 20 of 30

21 cloaked with the jurisdiction to determine the validity of a contract. PRAYERS OF THE APPLICANT 2. In the event that the Tribunal finds against the Respondent, the Applicant has also prayed for: 2.1 The Tribunal to then declare that the Respondent has repeatedly contravened the Act as catalogued above, which amounts to prohibited conduct in terms of section 150(a) of the Act. 2.2 An order compelling the Respondent to refund all consumers who were, from 2007 to date; unlawfully charged costs under maintenance agreements by the Respondent which ran concurrently with the supplier/manufacturer warranty or had no term period. 2.3 An order compelling the Respondent to refund all consumers who were, from 2007 to date; unlawfully charged club and membership fees by the Respondent. 2.4 An order compelling the Respondent to appoint at own expense, an auditor to audit consumers who were charged unlawfully costs of maintenance agreements, as well as club and membership fees by the Respondent. The Applicant prayed that the order should, also compel the Respondent to submit within 90 days of the auditor s report, the report to the Applicant and the Tribunal (Office of the Registrar). Applicant further prayed that the audit report should contain: Full details of each consumer; The commencement date and end of the credit agreement in respect of each consumer; The costs charged for the maintenance agreements and copy of the supplier/manufacturer s warranty for each credit agreement; The costs charged for the maintenance agreements and copy of the supplier/manufacturer s warranty for each credit agreement; The term period of the maintenance agreements, including the commencement and end dates; Page 21 of 30

22 2.4.6 Club and membership fee and the amount thereof for each consumer; and The statement of account for each consumer to date. 2.5 An order declaring all the clauses or provisions relating to unlawful maintenance costs in the maintenance agreements with the Respondent referred to in the investigation report; unlawful; 2.6 An order interdicting the Respondent from charging consumers with unlawful maintenance costs; 2.7 An order interdicting the Respondent from charging consumers club membership fees in the future; 2.8 An order imposing an administrative fine against the Respondent of R1million or 10% of the annual turnover of the Respondent; 2.9 Any other appropriate order required to give effect to the consumers rights in terms of section 150(j) of the Act; and 2.10 An order providing any further and / or alternative relief. JURISDICTION OF THE TRIBUNAL 3. On the face of it, this Tribunal has the requisite jurisdiction to deal with this matter; provided the point in limine challenging such jurisdiction fails. And in the advent that the point in limine raised by the Respondent succeeds, then the Tribunal will not have the requisite jurisdiction. But that is to be made in this judgment. Section 27 of the Act confers the Tribunal or a member of the Tribunal acting alone in accordance with this Act the jurisdiction and discretion to: (a) adjudicate in relation to any- (i) application that may be made to it in terms of this Act, and make any order provided for in this Act in respect of such an application; or (ii) allegations of prohibited conduct by determining whether prohibited conduct 30 has occurred and, if so, by imposing a remedy provided for in this Act; (b) grant an order of costs in terms of section 147; and 30 Section 1 of the Act defines prohibited conduct as an act or omission in contravention of this Act, other than an act or omission that constitutes an offence under this Act by a credit provider. Page 22 of 30

23 (c) Exercise any other power conferred on it by law. BACKGROUND 4. According to the Applicant; on 10 November 2015 (pages of case file) 31 the Applicant initiated a complaint against the Respondent. However, another initiation had preceded this one according to the Respondent. And the preceding initiation occurred on 16 July 2015 (page 665 of case file), the Applicant initiated the complaint against the Respondent in terms of section 136(2) of the NCA. 32 This initiation was signed (approved) by the Chief Executive Officer on 16 July 2015 (pages 664 and 13 of case file). 5. From the founding Affidavit deposed by Mashapa, the Applicant avers that the Applicant initiated a complaint as part of an investigation into the compliance of credit providers in the table of specific credit providers Annexure A of the Complaint Initiation (pages of case file). He further averred that this was after the Applicant had observed a newspaper article. That article had reported that a mystery shopping exercise by Summit Financial Wellbeing 33 ; had revealed that the Respondent was possibly flouting the provision of the Act by charging consumers compulsory delivery or handling fees. The article had also alleged that the Respondent was charging customers a fee for extended warranty, even in instances where manufacturers warranty was in place. (Annexure LM 3 on page 33 of case file). 6. The Applicant had; subsequent to the initiation of the complaint, appointed both Kgadi Sepuru ( Sepuru ) and Godfrey Tladi ( Tladi ) 34 in terms of section 25 of the Act. The investigation revealed that the Respondent had contravened the Act by committing conduct prohibited by the Act. 7. It is the contention of the Applicant 35 that the Respondent contravened section 90, 91, 100, 101 and 102 of the Act by charging consumers an amount for extended warranty in instances where the extended warranty was not applicable and / or where the extended warranty was invalid. 31 Date on which the CEO of the Applicant signed the authorisation 32 Page 19 of case file 33 a consumer rights company. 34 The various appointments for Sepuru were concluded on 4 August 2015; 27 August 2015; and for Tladi were on 3 November 2015; for various branches of the Respondent ranging from 53a Victoria Street, Woodstock Cape Town; 3 Main Street, Riversdale, Western Cape; 35 At Para 21 of the Mashapa Founding Affidavit page 7 of the case file. Page 23 of 30

24 8. The Applicant also contends 36 that in some of the credit agreements, the extended warranty is (or should) not (be) applicable or is invalid in that the term of the Respondent s extended warranty for those goods purchased through the credit agreements operate concurrently with the manufacturer s warranty. Documentary evidence of this was captured in found in the case file. And these were common cause, save for what they represented, which was disputed by the Respondent who regarded these agreements as mistakes common to the clients and the supplier. 9. The Applicant contends further that in certain instances; the Respondent s extended warranty does not indicate the term of the extended warranty. The term of the warranty is material to the validity of the extended warranty and the lack thereof renders any such extended warranties invalid and unlawful. Applicant also contends that the provisions of maintenance agreements where the extended warranty is invalid due to the lack of the term are also unlawful in terms of section 90 of the Act as their purpose is to deceive consumers. The entire maintenance agreement is unlawful for this reason as the provision relating to the term of the warranty goes to the root of the extended warranty agreement Applicant also contends that the Respondent charged consumers a club and membership fee on credit agreements and that alternatively, the consequence of entering into credit agreements with consumers which are prohibited and not permitted by the Act ; contravened sections 100, 101, and 102 of the Act. 11. The investigation had established from Mervyn Mcloughlin, an accountant of the Respondent who had revealed that the maintenance agreement was an optional agreement covering the correction of faults in goods purchased. He had also stated that all goods purchased from the Respondent carried had a 12 months supplier/manufacturer s warranty which operates from the date of purchasing the goods. Documentary evidence of this warranty was also common cause. In the answering affidavit, the Respondent admitted to this 12 months supplier/manufacturer s warranty (Para 59 on page 522 of case file). There were also sworn affidavits of consumers indicating that they were never informed of the extended warranty. But at Para 59.4 on p523 of case file; the Respondent argues that this extended warranty is optional and additional (ibid) and that it also kicks in after the exhaustion of the first year covered by the initial 12 months warranty of the supplier / manufacturer. They also argued that section 102 of the NCA is not applicable to regulate the extended warranty (Para 80 on page 532 of case file). 36 At Para 22 of the Mashapa Founding Affidavit page 8 of case file 37 Para 23 ibid Page 24 of 30

25 12. At Paragraph 82 on Page 532 of the case file, the Respondent argues that the human error of misdating or not dating the extended warranty agreements; had already been corrected by the Respondent as at the time of the case. The problem with that argument is that this writer is considering the allegations as matters were at the time of the investigation and not as they may have changed since then. The changes alluded to, can only find application in mitigation should it come to that. They certainly cannot be a defence against a charge of contravention of applicable sections that may prohibit such. 13. In direct contrast to Mervyn Mcloughlin s assertions during the investigation, the investigators had obtained sworn affidavits from consumers interviewed who indicated that additional charges were not explained to them. The Respondent showed what it termed contradictions between some consumers who had refused the club fees, but opted for them later. But the opting to take later was not proven in evidence. Only statements produced by the Respondent, not the consumers were relied upon to prove such change of heart. This prove is not satisfactory to the Tribunal as such statements cannot be evidence that the consumers who wrote affidavits actually had agreed to such fees. 14. The Applicant further relied on documentary evidence to assert that the Respondent charged consumers a club membership fee which is not permitted by sections 100, 101 and 10291) of the Act. Such evidence was not in dispute. The Respondent countered this by showing that where the consumers actually opted for such things, but only produced evidence compiled by the Respondent where it had subsequently charged these consumers. The Respondent had in its submissions only shown examples where the consumers had refused to join the club for R25.00 per month. Then when it was time to prove that the same consumers had subsequently agreed to same, the Respondent relied on statements produced by the Respondent itself, not the Consumers, showing deductions of the same fees in statements of consumers. And when this was challenged, the Respondent argued that there was no evidence showing that the consumers had queried such deductions from their statements. This argument cannot succeed. 15. The Applicant also avers (on Para 38 page 20) that the Respondent is not permitted by law to charge consumers club fees or club membership fees whether such fee is optional or voluntary. The club fees for membership are not permitted by sections 101 and 102 or any other part of the Page 25 of 30