The National Consumer Tribunal (NCT) recently handed down its first ruling on a matter under the Consumer Protection Act (CPA) that prevents companies from hiding behind convoluted structures to consumers' detriment.
The NCT's ruling, almost a year after the new law came into effect, found that MTN, SA's second-largest cellular network, could not scupper a compliance notice from the National Consumer Commission (NCC) by arguing that it was issued against the wrong legal entity.
MTN argued earlier this year that the notice issued by the NCC to force it to change its terms and conditions was not lawful, because MTN SA does not enter into contracts with consumers, but rather that a business unit, MTN Service Provider (MTN SP), does.
The commission took issue with several aspects of MTN's contract with consumers, including that it was one-sided, no quality of service was guaranteed, and consumers could not access unused data bundles for up to three years. While MTN had amended its contracts, it would not backdate the new agreement to when the CPA came into law.
No go
The NCT ruled that in MTN's application, the notice was issued against the wrong party, and was dismissed as the operator “cannot, through its choice of how to provide its services, absolve itself from the responsibilities for those services leaving consumers vulnerable and with no redress against either itself or the other company”.
The tribunal said “finding differently would lead to a manifest injustice, which runs counter to the purpose and policy interpretations of the CPA”.
The NCT said allowing a regulated entity to “circumvent and jettison” its responsibilities by sublicensing to another entity was not intended by the legislature as that would undermine consumer protection and measures put into place to protect the poor and vulnerable.
Case law
Nicholas Hall, an attorney with Michalsons Attorneys, says the ruling sets a precedent that companies cannot blatantly use company structures to avoid consumer liability.
“The tribunal relied on the concept of 'piercing the corporate veil', which means the court ignores the fact that a corporate has a separate legal entity to its shareholders, and in some cases, its board.”
Although not a new concept in law, the tribunal's ruling favours the public, says Hall. However, he notes that the judgment says “piercing the veil” is only allowed under strict conditions when there is a gross injustice and companies are blatantly using corporate structures to avoid liability.
“Organisations will not be able to rely on clever structuring of the organisation and its contracts to avoid all liability.”
Arguing the merits
During the tribunal's hearing, in January, the main argument hinging around whether MTN had complied with the CPA was not heard. A date for hearing MTN's argument against the NCC's compliance notice has yet to be set.
Robert Madzonga, chief corporate services officer of MTN SA, says MTN disagrees with the ruling. However, he says this “is not the end of the matter as this was only the first of a number of challenges raised by MTN”.
Madzonga says there are another three “grounds of challenge as raised by MTN against the compliance notice issued by the NCC”, which will now be heard by the tribunal at a later date.
NCC commissioner Mamodupi Mohlala was not available for comment, but previously said the NCC would be “heartened” if the NCT upholds the compliance notice. She said once the merits of the case were argued, a clear picture would emerge. “The transgressions have been going on long enough.”
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