R1-million ruling against Vodacom has big implications for contracts in South Africa
Vodacom’s million-rand fine from the National Consumer Tribunal can be a lesson for South African businesses and consumers, Werksmans Attorneys director Armand Swart has said.
The National Consumer Tribunal recently issued Vodacom a R1 million fine for contraventions of the Consumer Protection Act (CPA).
The Tribunal determined that Vodacom breached the CPA by levying an unreasonable cancellation penalty of 75% on consumers who cancelled their fixed-term contracts before expiry.
It also considered other CPA breaches relating to fixed-term contracts.
The first complaint related to Vodacom’s levying a 75% cancellation penalty.
“Vodacom’s defence to this complaint was that the cancellation penalty had been imposed on SIM-only contracts to recover discounted rates and ‘additional benefits’ such consumers enjoyed compared to prepaid consumers,” Swart stated.
“The Tribunal noted that in October 2022, Vodacom had of its own accord amended its terms and conditions, which now provides for a cancellation penalty equal to one month’s subscription fee,” he continued.
“Vodacom also conceded that prepaid contracts had been inflated to ‘incentivise customers to enter into fixed-term contracts’”.
Under the CPA, consumers have the right to cancel fixed-term contracts at any time, subject to certain conditions being met.
These conditions include that the supplier may charge a “reasonable” cancellation penalty.
Swart explained that the CPA and its associated regulations provide factors to be considered when determining what a reasonable cancellation penalty is.
These include:
- The amount the consumer owes up to the date of cancellation
- The originally intended duration of the agreement
- The value of the transaction up to cancellation
- The value of any goods remaining in possession of the consumer after cancellation
- The general practices in the relevant industry
“The Tribunal held that the 75% cancellation penalty was not justifiable and negated a consumer’s right to cancel a consumer contract; it therefore breached the CPA,” Swart said.
“The Tribunal also held that Vodacom’s amendment to the Ts&Cs was of no significance to the present complaints as Vodacom still contravened the CPA at the time.”
The Tribunal’s ruling also included two other major components: timely processing of cancellations, and refusing to cancel because of outstanding bills.
“Vodacom’s defence was that delays were caused by their third-party service provider who provided call centre services,” Swart stated.
“Vodacom admitted that the service provider’s call centre agents deliberately avoided processing cancellation requests timeously to earn incentives from Vodacom.”
The Tribunal found Vodacom liable for the service provider’s conduct because the CPA provides that a supplier is responsible for any act or omission committed by an agent or employee on its behalf.
The Tribunal also considered complaints about Vodacom’s refusal to cancel contracts in arrears, or if the consumer could not pay the cancellation penalty.
“Vodacom argued that they were entitled to these payments prior to allowing the consumers to cancel,” said Swart.
The CPA provides that “upon cancellation” of a fixed-term contract, the consumer remains liable to the supplier for any amounts owed in terms of the contract at the date of cancellation.
The Tribunal confirmed that a consumer remains liable for any outstanding amounts following cancellation.
However, a supplier may not prevent a consumer from cancelling their contract due to any arrear amounts or refusal to pay the cancellation penalty.
The supplier must take legal steps to recover any outstanding amounts following cancellation.
“The Tribunal found that Vodacom had contravened the CPA by refusing to cancel the consumer contracts on these bases,” Swart said.
Lessons for businesses and consumers
Swart advised that businesses should not commit any of the prohibited conduct that Vodacom was found guilty of.
Businesses must allow consumers to cancel their fixed-term contracts per the CPA, process cancellation requests timeously, and only charge a cancellation penalty that is reasonable in the circumstances.
These policies and procedures should extend and apply to their employees and third-party service providers, whose actions they can be held liable for.
For consumers, Swart advised they should read and understand the Ts&Cs before agreeing to them.
“A consumer can then take up any unfair cancellation terms with a Supplier before agreeing to the goods/services, or they can explore alternative suppliers with more favourable terms,” he said.
“For consumers who have an issue with a Supplier’s cancellation terms that they are subject to, they can approach the Consumer Goods and Services Ombud (CGSO).”
Specific consumer-facing industries may have their own dispute-resolution bodies and procedures.
For example, the automotive industry has its own ombud — the Motor Industry Ombudsman of South Africa.
Other examples of industries with specific bodies and procedures include financial services and the property industry.
“Consumers should be aware of which bodies and procedures apply to the services or goods they are purchasing,” said Swart.
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