A Brave New World - Consumer Protection And The Legislature.

INTRODUCTION

The Consumer Protection Bill of 2008 is a wide ranging document, the purpose of which is to promote a fair, accessible and sustainable market place for consumer products and services.

There are few commercial transactions that the Bill would not apply to. Only transactions with the State, or those that exceed the value threshold to be determined and are part of a supply train transaction or which are specifically exempted by the Minister fall outside the general purview of the Bill. The definitions of "Goods" and "Services" also effectively exclude certain service providers.

Consumers, (a term which is broadly defined), benefit from the provisions of the Bill and includes a person to whom particular goods or services are marketed in the ordinary course of the supplier's business or a person who has entered into a transaction, (which is equally broadly defined), and where the context requires or permits, the user of particular goods or services even if they were not party to the particular transaction.

Goods are also broadly defined to include anything marketed for human consumption or any other tangible object and service includes any work or undertaking performed by a person for the direct or indirect benefit of another.

Medical and hospital services will fall within the tentacles of the Bill subject to the general exclusions referred to earlier.

There are two significant areas in which stakeholders in the health industry will be affected by the provisions of the Bill namely:

Contracts including contract terms and format including the use of disclaimers and indemnities; and

Product liability

CONTRACTS Ability To Contract While the age of majority has been reduced to 18 years, there are provisions in the Children's Act 2005, which are not yet in force, which provide in general terms for the age of 12 to be the yardstick for determining the ability of children to consent to medical and surgical treatment. The Child Care Act and the National Health Act remain silent about the ability of a minor, who has capacity to consent to surgical/medical treatment, to assume contractual obligations to the healthcare provider including the obligation to make payment of that healthcare provider's account.

Section 39 provides that an agreement to enter into a transaction for the supply of any services to a consumer is voidable at the option of the consumer if at the time the agreement was made, the consumer was an un-emancipated minor and made without the consent of an adult responsible for that minor and the agreement has not been ratified by the adult or the consumer on becoming emancipated or an adult.

Section 9 confirms that there is nothing objectionable about a supplier refusing on reasonable grounds to enter into an agreement with a minor for the supply of services unless the supplier has reason to believe that the minor is emancipated.

On the face of it the bizarre circumstance will exist where a minor consents to treatment, and for reasons of confidentiality owed by the healthcare provider to the consumer as patient, the healthcare provider may not disclose the fact of the treatment to the parents so that the parents are not placed in a position where they can consent to that contract to treatment (or they may actually have refused the treatment to the minor patient) and the minor then avoids the contract and refuses to pay for the services.

The argument may be, although it is untested, that implicit in the consent provisions under the Child Care Act and Section 39 of the Bill that for the purposes of the medical service transaction the minor is to be considered emancipated. The minor contracting will then have all the benefits and protections available to them under the Bill, and all the contractual obligations, that go with it.

Written Consumer Agreements The Minister may prescribe that categories of consumer agreements be required to be in writing. The terms of any consumer agreement that is in writing, whether required by the Act or voluntarily, applies irrespective of whether or not the consumer signs the agreement.

The supplier must provide a free copy or free electronic access to a copy of the terms and conditions of the agreement. The agreement must satisfy the requirements of Section 22 and must set out an itemised breakdown of the consumer's financial obligations under such agreement.

The National Health Act does contemplate and give authority to the Minister to make regulations regarding the contents of reports and forms but not contracts. To the extent the National Health Act and its regulations overlap and duplicate provisions in the Bill, because no regulatory authority or scheme is created by the National Health Act, the opportunity for application for exemption from the ambit of the Bill does not present itself.

Accordingly section 22 provides a consumer has the right to information in plain and understandable language. It requires the contract to be in prescribed form, if any, or in plain language if no form has been prescribed. The test for plain language is, amongst others, whether it is reasonable to conclude that an ordinary consumer of a class of persons for whom the document is intended, with average literacy skills and minimal experience as a consumer of the relevant goods or services, could be expected to understand the content, significance and import of the document without undue effort having regard to:

The context, comprehensiveness and consistency of the document;

The organisation, form and style of the document;

The vocabulary, usage and sentence construction;

The use of illustrations, examples, headings or other aids to reading and understanding.

Guidelines may be published for methods of assessing whether a document satisfies those requirements.

Hospitals, for example, would have to re-look at bed letters and other contracts with patients as will any other roleplayer in the health industry who contracts in writing with a consumer. The requirement that an itemised breakdown of the consumer's financial obligations under the agreement be recorded, unless reasonably interpreted, could be extremely onerous.

For some healthcare providers the answer may be not to record an agreement in writing (provided the agreement is not one of those consumer agreements required to be in writing) and the plain and understandable language provisions and the requirement to set out an itemised breakdown of the consumer's financial obligations would not apply.

Whether the contract is oral or in writing however the supplier must not offer to supply, or supply, services at a price or on terms that are manifestly unfair, unreasonable or unjust.

A transaction or agreement or term or condition is unfair, unreasonable or unjust if:

It is excessively one-sided in favour of any person other than the consumer or person to whom services are to be supplied.

The terms of the transaction or agreement are so adverse to the consumer as to be inequitable.

In the first example the anomaly is self evident. One may have a consumer whose bargaining or contractual position is far stronger than that of the supplier with the result that the consumer forces excessively one-sided terms in its favour but which would not on the statutory test be considered to be unfair, unreasonable or unjust. In the latter instance the test is extremely wide and vague and provides fertile ground for much litigation on the basis of equity.

Disclaimers And Indemnities

A supplier cannot enter into a transaction subject to a term or condition if it:

purports to admit or exempt a supplier of goods or services from liability for any loss directly or indirectly attributable to gross negligence of the supplier or any person acting for or controlled by the supplier; or

constitutes an assumption of risk of or liability by the consumer for a loss arising from that gross negligence.

To that extent the common law is altered which currently permits disclaimers or indemnities that exclude liability for gross negligence.

The Bill does not otherwise prohibit the use of disclaimers or indemnities as such.

It does provide that a supplier must not require a consumer to waive any rights or waive any liability of a supplier in terms that are unfair, unreasonable or unjust or impose any such term as a condition of entering into a transaction.

A transaction or term is unfair, unreasonable or unjust if:

It purports to limit in any way the risk or liability of a supplier or any person; or

Constitutes an assumption of risk or liability by the consumer; or

Imposes an obligation on the consumer to indemnify the supplier or any other person for any cause; and the term, condition or notice is unfair, unreasonable, unjust or unconscionable or the fact, nature and effect of that term, condition or notice was not drawn to the attention of the consumer in a manner satisfying the requirements of Section 49.

In essence disclaimers or indemnities must be written:

In plain language (s22) the fact, nature and effect of the notice must be drawn to the attention of the consumer;

In a conspicuous manner and form that is likely to attract the attention of an ordinarily alert consumer having regard to the circumstances; and

Before the earlier of the time which the consumer:

Enters into the transaction; begins to engage in the activity or enters or gains access to the facility; or

Is required or expected to offer consideration for the transaction.

The consumer must be given an adequate opportunity in the circumstances to receive and comprehend the notice.

To the extent the disclaimers or indemnities are hidden away in contract documents and bed letters, those will need to be reformulated, the wording of the disclaimer or notices should be revisited to ensure compliance with the plain language provisions, and a protocol should be adopted and enforced to ensure compliance.

The requirement to ensure that not only the fact but the nature and effect of the provision or notice should be drawn to the attention of the consumer presents a challenge.

The provisions apply equally to disclaimer or indemnity notices that are displayed.

The provisions however only apply to consumers or persons who are supplied at the direction of the consumer and there is therefore no bar to the use of disclaimers and indemnities in distributorship agreements, in contracts between a supplier and producer, importer or distributor. Bear in mind that the supplier's contract could still be attacked on the basis that the terms are unfair, unreasonable or unjust. The test however is only from the perspective of what the supplier must not do and on the face of it there is no bar to the person with whom the supplier contracts imposing terms which on the statutory test are unfair, unreasonable or unjust.

Challenges to disclaimers and indemnities may now become more frequent because of Section 49. The challenges will be as to form and procedure. Challenges to content of the terms of the indemnities and disclaimers will probably not alter dramatically from the public policy and constitutional tests considered and debated in the judgments in Afrox Healthcare Beperk v Strydom 2002 (6) SA21 (SCA) and Burger v Medi-Clinic (2000) and the various academic commentaries. Much will depend on what content the courts give to the tests for what is unfair, unreasonable or unjust, or excessively one-sidedness or a transaction so adverse to the consumer as to be inequitable. The introduction of equity as a test is the one significant new leg of the challenge which will face suppliers.

Over-Selling And Over-Booking Section 47 provides that a supplier cannot accept payment for services if the supplier has no reasonable basis to assert an intention to supply the services.

When a supplier makes a commitment or accepts a reservation to supply services on a specified date and time and on the date and time contemplated in the commitment or reservation fails because of incapacity to supply the services the supplier must refund any amounts paid with interest at the prescribed rate until date of reimbursement and in addition compensate the consumer for consequential damages for any economic harm sustained as a consequence of the breach.

There are a number of defences to that liability including if the supplier offered to supply and procure comparable services of the relevant requirement to satisfy the request and the consumer has accepted the offer or unreasonably refused. There is then no liability.

There is also no liability for consequential damages if the shortage of capacity is due to circumstances beyond the supplier's control and the supplier took reasonable steps to inform the consumer of the shortage in capacity as soon as practicable in the circumstances.

A shortage is not due to circumstances beyond the supplier's control if it results partially, completely, directly or indirectly from the failure on the part of the supplier to adequately and diligently carry out any ordinary or routine matter pertaining to the supplier's business.

Accordingly, where a healthcare provider books a patient for a procedure or treatment and then bumps the patient from the list any pre-payments made would have to be returned with interest. More significantly the healthcare provider may be exposed to a claim for consequential damages for economic loss, for example, where the patient establishes that they have taken leave for the particular procedure and would lose income as a result thereof, or the cost of the procedure would have increased by the time it can be rescheduled or the rescheduling would for other reasons result in economic loss to the patient.

Section 17 gives the patient the right to cancel advance reservations, bookings or orders but the healthcare provider who makes a commitment or accepts a reservation to supply services on a later date may require payment of a reasonable deposit in advance and may impose a reasonable charge for cancellation of the reservation. The charge is however unreasonable if it exceeds a fair amount in the circumstances having regard to:

The nature of the services reserved;

The length of notice of cancellation provided;

The reasonable potential for the service provider acting diligently to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation; and

The general practice of the relevant industry.

Interestingly, cancellation fees may not be imposed if the consumer is unable to honour the booking because of death or hospitalisation of the person for whose benefit the reservation is made.

The healthcare provider is however not provided with a reciprocal entitlement to claim consequential damage or economic loss presumably on the basis that the right to impose a reasonable charge for cancellation of the order adequately compensates the service provider.

Consumer's Right To Demand Quality Service

When a supplier undertakes to perform any services for and on behalf of a consumer the consumer has the right in terms of Section 54 to:

Timely performance and completion;

Timely notice of any unavoidable delay in the performance of the services;

Performance in a manner and quality that persons are generally entitled to expect;

The use, delivery or installation of goods that are free of defects and of a quality that persons are generally entitled to expect if any such goods are required for performance of the services;

having regard to the circumstances of the supply, and any specific criteria or conditions agreed between the supplier and consumer for and during the performance of the services.

If the supplier fails to perform to the standards referred to the consumer may require the supplier, at the supplier's option to either:

Remedy the defect; or

Refund to the consumer a reasonable portion of the price paid for the services performed and goods supplied having regard to the extent of the failure.

The section provides increased risk of exposure of healthcare providers to claims. The patient would not necessarily be required to establish lack of reasonable skill and care on the part of the healthcare provider. It would be sufficient for a patient, for example, to establish that the medical device provided to or installed in the patient is defective, without proof of negligence on the part of the healthcare provider and to require that the defect be remedied or a refund of the reasonable portion of the price paid be made.

This section is different to the common law entitlement of a contractor to claim a reduced price for incomplete services. It provides a statutory remedy to the consumer for not only receipt of incomplete services but services that do not comply with the standards specified.

Time will tell whether the courts interpret the test for performance in a manner and quality that persons are generally entitled to expect as differing in any way from the test of reasonable skill and care required at common law. To the extent that the courts incorporate an element of equity, the supplier's exposure certainly will be increased.

LIABILITY FOR DAMAGE CAUSED BY GOODS South African law recognises claims based upon negligence in what is known as the delictual action where the plaintiff must show that the defendant's wrongful and culpable conduct caused the plaintiff patrimonial loss. There are four requirements:

A wrongful act or omission;

Fault, which may consist in either intention or negligence;

Causation; and

Patrimonial loss.

In South African law, the classic test for whether a person has been negligent was formulated by Holmes JA in Kruger v. Coetzee 1966 (2) SA-428(A). The court generally divides the negligence enquiry into the following stages:

Would a reasonable person in the position of the Defendant have foreseen harm?

Would that person have taken steps to guard against it?

What were those steps? and

Did the Defendant take them?

It is these principles that claimants have been constrained  to make use of in product liability litigation in South Africa  to date and which has been the subject of complaint by consumers.

Section 61 of the Bill alters the common law and institutes a no fault regime with limited exclusions from liability.

The producer, importer, distributor or retailer of any goods is liable for any harm (as defined) caused wholly or partly in consequence of supplying any unsafe goods, a product failure, defect or hazard irrespective whether the harm resulted from any negligence on the part of those persons.

A supplier of services who in conjunction with performance of the services such as the installion or providing access to any goods is also regarded as a supplier to the consumer. Accordingly a surgeon who, for example, installs a pacemaker is considered a supplier for the purposes of the section.

Where more than one of the producer, importer, distributor or retailer is liable in terms of the section their liability is joint and several allowing a patient who suffers harm as to sue the producer, distributor and/or retailer/supplier.

The healthcare provider who installs a defective product could escape liability if it is unreasonable to expect that healthcare provider to have discovered the unsafe product characteristic, failure, defect or hazard having regard to that person's role in marketing the goods to the consumer and the state of scientific and technical knowledge at the time the goods were under the control of that person.

A hospital, for example, that provides access to medical equipment used at a hospital, would, subject to the state of scientific and technical knowledge at the time, be required to ensure proper maintenance and risk control.

Although it is not expressly stated it appears that the onus would be on the hospital to establish that it was unreasonable to expect the hospital to have discovered the unsafe product characteristic, failure, defect or hazard in the circumstances.

The harm contemplated in this section is death, illness or injury of any natural person or loss of or physical damage to any property and economic loss that results from that harm. There is no claim under this section for pure economic loss.

There is a duty to mitigate damages and liability can be apportioned between persons found to be jointly and severally  liable. The greatest exposure to liability is that of the producer or importer of a particular product. As long as the patient can establish the defective product and harm, the section does not provide for any substantive defences for the producer or importer to such a claim.

There will be significant exposure of pharmaceutical producers or importers.

Section 60 provides for mandatory product recalls. Healthcare providers who suffer economic losses as a result thereof would not have recourse for damages under Section 61 but are reliant upon any cause of action in delict or to the extent provided in any contract between the healthcare provider and the producer or distributor.

Having regard to the no fault liability provisions of Section 61 healthcare providers should ensure that adequate recourse and indemnities are provided by way of any contract between healthcare providers and the product distributor, supplier or importer and should liaise with their medical malpractice and product liability insurers to ensure that the risks created by Section 61 are properly insured and that the healthcare provider is indemnified.

CONCLUSION While the closing date for submissions to the Parliamentary Select Committee on the Bill was 3 June 2008 healthcare providers or insurers who are concerned about the impact of the sections of the Bill dealt with in this paper or any other sections should nevertheless make submissions to the Select Committee as soon as possible. The changes are material and future potential liability is substantially increased.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Donald Dinnie 

Deneys Reitz Inc

82 Maude Street

Sandton

2196

SOUTH AFRICA

Tel: [phone]

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URL: www.deneysreitz.co.za

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