Competition rules and the Consumer Protection Act

Update: This post was prepared on the basis of the draft Regulations. The final Regulations were issued on 1 April 2011 and differ from the draft Regulations in some important respects including the requirement to report on various issues which are highlighted in this post. I'll work on an update to this post in light of the final Regulations as soon as possible.

Competition terms and conditions must be carefully prepared under the Consumer Protection Act. They govern consumer's relationship with competition promoters and form a contractual basis for that relationship. They can also be fairly tricky to develop given the myriad factors promoters must take into account. Section 36 of the Consumer Protection Act and the proposed Consumer Protection Act Regulations address how competitions should be conducted and, indirectly, what the relevant terms and conditions should contain. The Consumer Protection Act mentions two sets of documents used in connection with “promotional competitions” which it defines as follows:

any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or chance if—
(i) it is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier, or association of any such persons, or the sale of any goods or services; and
(ii) any prize offered exceeds the threshold prescribed in terms of subsection (11), irrespective of whether a participant is required to demonstrate any skill or ability before being awarded a prize.

In the first place the Consumer Protection Act prescribes what needs to be set out in an “offer to participate in a promotional competition”:

(5) An offer to participate in a promotional competition must clearly state—

(a) the benefit or competition to which the offer relates;
(b) the steps required by a person to accept the offer or to participate in the competition;
(c) the basis on which the results of the competition will be determined;
(d) the closing date for the competition;
(e) the medium through or by which the results of the competition will be made known; and
(f) any person from whom, any place where, and any date and time on or at which—

(i) a person may obtain a copy of the competition rules; and
(ii) a successful participant may receive any prize.

Section 36 alludes to three further sets of provisions which are meant to be set out in the Consumer Protection Act Regulations (currently draft Regulations being edited following a comment period):

• A monetary threshold for the purpose of excluding so-called “low value” prizes from the “promotional competition” definition;
• Minimum standards for promotional competition record keeping; and
• Audit and reporting requirements in respect of promotional competitions.

The draft Regulations, published in October 2010, set the monetary threshold at R1. They also require the promoter ("a person who directly or indirectly promotes, sponsors, organises or conducts a promotional competition, or for whose benefit such a competition is promoted, sponsored, organised or conducted") to ensure that a -

“chartered accountant, registered auditor, admitted attorney or commissioner of oaths conducts the competition and must be reported on through the promoter's internal audit reporting procedures”.

Promoters must retain the following information for “at least five years”:

(a) full details of the promoter, including identity or registration numbers, as the case may be, addresses and contact numbers;
(b) the rules of the promotional competition;
(c) a copy of the offer to participate in a promotional competition contemplated in section 36(5);
(d) the names and identity numbers of the persons responsible for conducting the promotional competition;
(e) a full list of all the prizes offered in the promotional competition;
(f) a representative selection of materials marketing the promotional competition;
(g) a list of all instances when the promotional competition was marketed, including details on the dates, the medium used and places where the marketing took place;
(h) the names and identity numbers of the persons responsible for conducting the selection of prize winners in the promotional competition;
(i) in the case of a prize exceeding R 1.00 (One Rand) in value, determined by reference to what a consumer would in the ordinary course of business pay to purchase the prize, an acknowledgment of receipt of the prize signed by the prize winner, and his or her identity number, and the date of receipt of the prize;
(j) declarations by the persons contemplated in paragraph (d) made under oath or affirmation that the prize winners were to their best knowledge not employees, agents or consultants of the promoter or marketing service providers in respect of the promotional competition, or the spouses, life partners, business partners or immediate family members;
(k) a copy of the report contemplated in subregulation (6).

The promoter is further required to prepare a submit a full report referred to in (k) in the document retention list on -

… the conduct and outcome of a promotional competition, detailing as a minimum-
(a) the basis on which the prize winners were determined;
(b) the summary describing the proceedings to determine the winners, including the names of the persons participating in determining the prize winners, the date and place where that determination took place and whether those proceedings were open to the general public;
(c) whether an independent person oversaw the determination of the prize winners, and his or her name and identity number;
(d) the means by which the prize winners were announced and the frequency thereof;
(e) a list of the names and identity numbers of the prize winners;
(f) a list of the dates when the prizes were handed over or paid to the prize winners;
(g) in the event that a prize winner could not be contacted, the steps taken by the promoter to contact the winner or otherwise inform the winner of his or her winning a prize; and
(h) in the event that a prize winner did not receive or accept his or her prize, the reason for his or her not so receiving or accepting the prize, and the steps taken by the promoter to hand over or pay the prize to that prize winner, and must record the name, identity number and contact details of the person compiling the report and the date thereof.

Many of these provisions and section 36 itself inform what should be contained in competition rules. These provisions should deal with a variety of issues including relevant dates, competition mechanics, prize details, communication channels and how and on what basis competition participants' personal information may be collected and used in the competition and for marketing purposes which may follow the competition's conclusion.

Its important to bear in mind that competition terms and conditions are contractual provisions and the document is an agreement between the promoter and the participant. These terms and conditions must be carefully prepared to ensure they are complete and comply with applicable law and legal requirements including the Consumer Protection Act’s plain language requirement. Another important consideration is that consumers acquire a right, protected by the Consumer Protection Act, to participate in a promotional competition when they -

• Comply with any conditions which must be satisfied to earn the right; or
• “[acquire] possession or control of the medium, if any, through which a person may participate in that promotional competition”

This right, like other consumer rights, is protected by the Consumer Protection Act which imposes certain restrictions on promoter's actions in relation to the competition itself and elsewhere in the Consumer Protection Act where consumers acquire rights. The fact that consumers acquire and may exercise rights, alone, is likely to have a profound impact on how the Consumer Protection Act is applied. These rights are explicit and are protected. Their explicit introduction has the potential to change our consumer oriented paradigms, which was probably the idea.

Complicated promotional competitions under the Consumer Protection Act

Promotional competitions are a terrific way to create a better awareness about a product, service or brand and generate some buzz. These competitions are on Facebook Pages, dedicated microsites and on company websites. They can be a lot of fun and the prizes are often terrific. Unfortunately for marketers, these competitions are about to become a lot more complex from a legal perspective when the Consumer Protection Act comes into force on 1 April 2011.

Marketers or promoters have historically used a pretty short list of rules to govern competitions in the past but this is going to change. Section 36 of the Consumer Protection Act deals with Promotional competitions and will impose a series of requirements for not only what should be included in competition rules but also what information and documentation should be retained after the competition comes to a close. This section is informed by the draft Consumer Protection Act regulations and regulation 14 in particular which sets out important detail. The regulations are not yet final and are subject to change but they give strong indications of what lies ahead for promoters.

For starters, the competition rules (actually, terms and conditions may be a better description) must be prepared and made available to prospective contestants at the beginning of the competition and must be made available at no cost to contestants. Promoters are also required to retain the competition terms and conditions at the end of the competition. I understand the time period to be 5 years but I stand to be corrected. Other information the promoter must retain for "at least five years" will likely include the following (this is not a complete list of information the promoter must retain):

• the promoter's full details;
• a copy of the offer to participate in the competition (this must set out the competition benefits, steps to accept the offer and participate in the competition and more details commonly found in competition rules used today);
• names and identity numbers of persons responsible for conducting the competition;
• a representative selection of materials marketing the competition (this could include screenshots or other screen captures if the competition is marketed online);
• a full list of prizes;
• declarations by people responsible for conducting the competition that winners were not excluded from being winners in terms of the Consumer Protection Act; and so on.

Promoters may also be required to report on various aspects of the competition to effectively establish compliance with the Consumer Protection Act and furnish the Consumer Commission with this information on demand.

To add to all of this, the regulations currently envisage competitions being conducted under the supervision of a chartered accountant, registered auditor, admitted attorney or commissioner of oaths and must be reported on through the promoter's internal audit reporting procedures. This requirement, alone, adds quite an overhead to competitions and its not clear what must be audited: individual winners or the process used to determine the winners.

Conducting competitions under the Consumer Protection Act is not a simple matter. I have just barely scratched the surface with this post. The rules themselves begin to resemble detailed terms and conditions, particularly when you factor in the myriad disclosures marketers and their clients will have to include to comply with other aspects of the Act. The traditional half page rules just won't do anymore.