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Send  Share  RSS  Twitter  17 Apr 2012

LOCAL GOVERNMENT: The City Of Johannesburg Vs. the Consumer Commission


Recent Gauteng Business News

The decision of the National Consumer Tribunal regarding the City of Johannesburg (the City) versus the Consumer Commission is the first reported decision of the new National Consumer Tribunal (the Tribunal). The decision relates to compliance certificates issued by the Consumer Commission against the City of Johannesburg in relation to its billing practices and alleged failure to perform refuse removal services adequately. The City is a "high capacity municipality" in terms of the Local Government: Municipal Structures Act and therefore subject to the Consumer Protection Act (CPA).

Nick Altini, Director and National Practice Head of the Competition and Regulatory practice explains, “The Commission received a number of complaints from residents about bills sent and dissatisfactory refuse removal services. They engaged with the City in regard to how to resolve the complaints, which the City undertook to do. However, the Commission felt the complaints were not being resolved quickly enough and issued a number of "compliance notices" (45 in all) essentially forcing the City to resolve the complaints or face an administrative penalty.

Favourable Ruling for Consumers Commission

At the hearings in late February, the Tribunal ruled that the compliance notices were defective as the Commission failed to follow the procedures and processes set out in the Act (as well as its own guidelines for enforcement) which govern the investigation of complaints and the provision of certain information to respondents in investigations before compliance notices can be issued. The Tribunal therefore cancelled all 45 compliance notices.

“While the decision may not inspire confidence in the CPA in the residents of Johannesburg, this is actually an important and ultimately favourable ruling for consumers too. This is because if the CPA is to reach its massive potential as a consumer protection tool, it is crucial that it is properly enforced. It is better that the Commission has received this sort of guidance at an early stage because it will have an opportunity to review its practices and apply remedial measures to other matters that it may be investigating, where the merits of the complaints are good but the administration of the complaint process has been tainted by irregularity, which would make subsequent prosecution impossible.”

He notes that in issuing compliance notices without first conducting a proper investigation into the complaint, the Commission amounted to improper administrative action. The Tribunal noted that the exercise of public power will only be legitimate when it is lawful and this means that conduct of the Commissioner must meet all legal and procedural requirements and not be arbitrary or irrational.

Commission Taken Only at Face Value

“The decision draws a clear distinction between four stages in the lifecycle of a consumer complaint, namely: the receipt of a complaint from a consumer; attempts to resolve a complaint informally; and an investigation culminating in a report and, if appropriate, a compliance notice (which is a statutory notice obliging compliance with the CPA). These stages are separate and distinct and it is only following a formal investigation that the Commission can reasonably conclude that a supplier has breached the Act and then issue that a compliance notice.

Chris Charter, Director in the Competition and Regulatory practice, notes , “The Commission's apparent practice of taking a consumer complaint at face value and issuing compliance notices based only on what the Commission refers to as "a desk-top analysis" without independently ascertaining the facts and then applying those facts to the provisions of the Act seems to have been its undoing here. In a manner of speaking, the expression "the consumer is always right" does not apply when there is legislative framework to consider.

“As the Tribunal points out, the fact that a consumer is justifiably unhappy does not necessarily mean that the Act has been contravened and that a compliance notice can be issued. It seems the Commission has been using compliance notices as a way to force suppliers to resolve complaints without properly considering whether the conduct in fact was illegal.

“The Commission will no doubt complain that the decision limits its ability to resolve complaints to the satisfaction of consumers, that it renders the Commission "toothless",” he notes.

““To this one might counter that the Consumer Commission was never established as a consumer activist but rather as an administrator of the Act without prejudice to either consumers or suppliers,” Charter says.

“The Commission must draw a balance between consumer and supplier rights and it is only through the due process of an investigation that this can be adequately done. This does not prevent the Commission from facilitating the resolution of disputes, but dispute resolution must not be confused with enforcement of the Act. In other words, a supplier may choose to resolve a dispute even where its conduct is not necessarily contrary to the Act.”

Charter notes that, “The Commission might also object to the fact that the Tribunal decision requires each and every complaint to be properly investigated before a compliance notice can be issued. In the case of a supplier beset with the type of problems the City has, the Commission will not have the resources to deal with each complaint.”

No Residual Power for the Commission to Declare Practices Unfair

“However,” says Charter, “the Tribunal provides an elegant solution: instead of issuing compliance notices for each complaint, the complaints might instead serve as evidence of a broader and more generic complaint – for instance that the City does not have appropriate billing mechanisms in place or that it should not make use of estimates in charging residents.

The Commission could of its own accord institute this broad complaint based on the imperative created by the sheer number of individual complaints and thus order compliance based on the cause rather than the symptoms,” he says.

“The case is also significant as it clarifies that the Act can only apply to conduct that predated the effective date of the Act (31 March 2011) in very specific circumstances. The Commission had hitherto been of the view that the transitional arrangements of the Act gave it the power to retrospectively consider prior conduct under, for instance, the repealed Consumer Affairs (Unfair Business Practices) Act. The Tribunal pointed out that the Unfair Business Practices Act can apply only to practice that had been previously declared unfair under that Act, and that there existed no residual power for the Commission to declare practices unfair with retrospective effect.”

Charter adds. “The decision is certainly something of a blow to the Commission, which has come out swinging since last April. However, the decision does not serve to render the Commission toothless nor does it undermine its power to regulate. Rather it clarifies the scope of the Commission's powers and the way in which such powers can be exercised. This is an important lesson for this fledgling regulator and proof of its mettle will be in how it moves forward from this decision, more secure in how its powers might be exercised responsibly.

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