National Credit Regulator v Lewis Stores (Pty) Ltd and Another

• Jurisdiction: South Africa
• Court: Supreme Court of Appeal
• Judge: Wallis JA, Nicholls JA, Dlodlo JA, Eksteen AJA and Hughes AJA
• Judgment Date: 13 December 2019
• Citation: 2020 (2) SA 390 (SCA)
• Hearing Date: 13 December 2019
• Docket Number: 937/18 [2019] ZASCA 190
• Counsel: PL Carstensen SC for the appellants. APH Cockrell SC (with PBJ Farlam SC) for the respondents.

Eksteen AJA (Wallis JA, Nicholls JA, Dlodlo JA and Hughes AJA concurring):

[1] The appellant (the Regulator) applied to the second respondent (the tribunal), pursuant to an investigation it had carried out, for a declarator that the first respondent, a national retailer of furniture and electrical appliances (Lewis), had repeatedly contravened ss 90, 91, 100, 101(1)(a) and 102(1) of the National Credit Act 34 of 2005 (NCA) and for certain ancillary relief. The tribunal dismissed the application and a subsequent appeal [1] to the High Court, Gauteng, was unsuccessful. The current appeal is with special leave of this court. [2]

The appeal

[2] In the appeal the Regulator contended that:

(a)

The charge levied by Lewis for certain 'extended warranties' in respect of goods purchased from it constituted prohibited conduct as envisaged in ss 100, 101(1) and 102(1) of the NCA and that the extended warranties also contravened ss 90 and 91 of the NCA; and

(b)

The charging of subscriptions for membership of the Lewis Family Club (club fees) to customers who had entered into credit agreements with Lewis was prohibited conduct as envisaged in ss 100, 101 and 102(1) of the NCA as these fees constituted a prohibited 'cost of credit'.

I will deal with each in turn, but before doing so I need to deal with a concern regarding the jurisdiction of the tribunal.

Jurisdiction of the tribunal

[3] In consequence of the findings of its investigation the Regulator referred the matter to the tribunal, ostensibly in terms of s 140(2)(b) of the NCA, in which it sought, inter alia, the following relief:

'(a)

A declaration that [Lewis] has repeatedly contravened s 90, 91, 100, 101(1)(a) and 102(1) of the NCA;

(b)

A declaration that [Lewis'] repeated contravention of s 90, 91, 100, 101(1)(a) and 102(1), constitutes conduct prohibited by the NCA.

(c)

An order directing [Lewis] to refund all the customers who were, from 2007 to date, unlawfully charged with costs and maintenance agreements by Lewis which ran concurrently with the supplier/manufacturer warranty or had no term or period;

Eksteen AJA (Wallis JA, Nicholls JA, Dlodlo JA and Hughes AJA concurring)

(d)

An order directing [Lewis] to refund all the consumers who were, from 2007 to date, unlawfully charged club and membership fees by Lewis.

(e)

. . .

(f)

An order declaring all the clauses or provisions relating to unlawful maintenance costs in the maintenance agreements with [Lewis] referred to in the investigation report unlawful provisions;

(g)

An interdict restraining [Lewis] from, in future, charging consumers with unlawful maintenance costs; . . . .'

[4] I have a concern regarding the jurisdiction of the tribunal to deal with matters arising under the provisions of ss 90 and 91 and accordingly with the power of the tribunal to have entertained the application or to have made orders in the terms sought. The concern arises from the provisions of the NCA, specifically ss 164(1) and 90(4).

[5] The tribunal is a statutory body established by s 26 of the NCA. Its powers are defined by the NCA. The functions of the tribunal are set out in s 27 and include 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 has occurred and, if so, by imposing a remedy provided for in this Act; . . .'.

[6] Section 150 of the NCA empowers the tribunal to make orders —

'(a)

declaring conduct to be prohibited in terms of this Act;

(b)

interdicting any prohibited conduct;

. . .

(h)

requiring payment from the consumer of any excess amount charged, together with interest at the rate set out in the agreement; or

(i)

any other appropriate order required to give effect to a right as contemplated in this Act or the Consumer Protection Act, 2008'.

'Prohibited conduct' is defined in the NCA as 'an act or omission in contravention of this Act; . . .'.

[7] Sections 90 and 91 of the NCA, relied upon by the Regulator and referred to in the relief claimed from the tribunal, are contained in part A of ch 5 of the NCA. Part A of ch 5 is concerned with 'unlawful' agreements and provisions. Section 90(2) lists a number of provisions which would be unlawful if they were contained in a credit agreement, and s 91 is directed at preventing a credit provider from circumventing the provisions of s 90 by recording provisions which would be unlawful if included in a credit agreement, in a separate supplementary agreement or unilateral document signed by the consumer. [3]

Eksteen AJA (Wallis JA, Nicholls JA, Dlodlo JA and Hughes AJA concurring)

[8] In s 90(3) the NCA declares a provision which is unlawful in terms of s 90(2) void as from the date that the provision purports to take effect. [4] Notwithstanding this provision, however, s 164(1) of the NCA provides:

'Nothing in this Act renders void a credit agreement or a provision of a credit agreement that, in terms of this Act, is prohibited or may be declared unlawful unless a court declares that agreement or provision to be unlawful.'

This, it seems to me, refers back to the provisions of s 90(4), which stipulates:

'In any matter before it respecting a credit agreement that contains a provision contemplated in subsection (2), the court must —

(a)

sever that unlawful provision from the agreement, or alter it to the extent required to render it lawful if it is reasonable to do so having regard to the agreement as [a] whole; or

(b)

declare the entire agreement unlawful as from the date that the agreement, or amended agreement, took effect,

and make any further order that is just and reasonable in the circumstances to give effect to the principles of s 89(5) with respect to that unlawful provision or entire agreement, as the case may be.'

[9] These provisions of the NCA are not a model of clarity. However, prima facie, it appears that no unlawful provision, as envisaged in s 90(2), contained in a credit agreement would be void, as envisaged in s 90(3), unless and until a court had declared it to be unlawful. [5] If this is correct, the tribunal does not have the jurisdiction to declare any such provision unlawful, because that jurisdiction appears to vest in a court, and the tribunal is not a court. Moreover, voidness is not automatic because s 90(4) requires a court to alter the offending provision so as to render it lawful if it is just and reasonable to do so. In that event the provision ceases to be unlawful.

[10] By virtue of the conclusion to which I have come on the issues canvassed in argument, it is not necessary to resolve this issue. It was not raised in the papers and we have not had the benefit of full argument in that regard. Accordingly, I refrain from making a conclusive finding in this regard.

The extended warranties

[11] The Regulator's investigation [6] into the extended warranties, leading to its complaint initiated in its own name in terms of s 136(2) of the NCA, arose in consequence of an article published in a newspaper which

Eksteen AJA (Wallis JA, Nicholls JA, Dlodlo JA and Hughes AJA concurring)

asserted that Lewis might be engaging in prohibited conduct relating to, amongst other things, extended warranties. The article recorded that information was obtained by a 'mystery shopper' who went to a Lewis outlet to purchase a television set. It proceeded to explain that a number of secret shopping expeditions that were recorded were conducted at Lewis outlets. The investigator accordingly engaged with Lewis in respect of its extended warranties. One McLoughlin, an accountant in the employ of Lewis, explained that all goods sold by Lewis have a 12-month supplier's warranty which operates from the date of purchase. An 'extended warranty and maintenance contract' (extended warranty), which endures for two years after the expiry of the supplier's warranty, was offered to purchasers in respect of the goods sold. The terms and conditions of the extended warranty were explained to consumers prior to the conclusion of the agreement and it was entirely optional whether the consumer accepted the warranty.

[12] The explanation did not allay the concerns of the Regulator. In the conduct of its investigation the Regulator inspected a sample consisting of 22 customer files from Lewis' records. It is not clear how many of the consumers were interviewed, but only three affidavits were obtained. The affidavits which were taken are so brief as to be of little assistance. The investigation found no evidence of the conduct alleged in the news article. However, the investigator reported that in five instances consumers said that the 'extended warranty' was not explained to them and had they understood they would not have taken it. Only one affidavit was obtained in support of this allegation. The deponent merely stated that the extended warranty was 'not fully explained'. What was in fact said and understood by the parties, in particular with reference to the period of its operation, was not explored in the affidavit. No mystery shopper was sent to determine first-hand how employees of Lewis conducted themselves and the recordings of the secret shopping expeditions do not appear to have attracted the interest of the Regulator.

[13] Instead, the Regulator called for copies of a number of credit agreements and extended warranties which Lewis duly provided. The extended warranty was reflected on a pro forma document which provided blank spaces for the insertion of the period of the warranty and the commencement and completion dates thereof. In the sample of documents provided, the Regulator identified a number of extended warranties where the sales staff had either not completed the blank spaces...