Monday, 13 February 2017

Consumer Protection: Cancelling a Future Reservation, Order or Booking

Whether you are a supplier of goods or services, or a consumer entering into a transaction to receive goods or services, it is likely you will need to deal with the cancellation of an advanced reservation, order or booking at some stage.

For the most part, the legal position is now regulated by section 17 of the Consumer Protection Act No. 68 of 2008 (‘CPA’) – in summary, a consumer is free to cancel any advanced reservation, order or booking subject to the imposition of a reasonable cancellation fee.  This section does not apply to “special-order” goods (such as one-off, custom order goods) and does not apply to franchise agreements.  Moreover, a supplier may not impose any cancellation fee if the reservation, order or booking is missed due to death or hospitalisation.

Crucially, the apparently normal practice of including a “non-refundable” deposit for future services is not sustainable – a supplier should rather protect their interests by including a cancellation fee, which includes a sliding scale indicating how much of the fee will be refunded in the event of cancellation.  It may well be that a supplier is entitled to more than the deposit amount in any event, particularly if they are given unreasonably short notice and cannot replace the consumer.  Suppliers who persist with non-refundable deposits, particularly where they cannot reasonably justify the amount charged, will likely come off second best in the National Consumer Commission (or a competent court).

By way of example, the wedding industry is instructive.  According to the Ombud for Consumer Goods and Services, around 190 000 marriages take place in South Africa every year – shockingly, it is estimated that between 10 and 15% of these marriages are postponed or cancelled every year. Therefore, the statistics suggest that most suppliers in the wedding industry will face cancellation or postponement at least once every calendar year. 

Using one of the many wedding cancellations as an example, a consumer is entitled to cancel the agreement for future services (notwithstanding what the agreement may say).  The supplier has the corresponding right to charge a reasonable cancellation fee (a supplier may also ask for a reasonable deposit or booking fee to secure the future date).

The key issue appears to be the interpretation of a reasonable cancellation fee.  The following factors should be considered: nature of the service, length of notice, possibility of replacing the consumer and industry norms.

According to Advocate Melville of the Consumer Goods and Services Ombud, the idea should be compensation, not punishment of the couple.  A competent court or the National Consumer Commission will essentially be weighing up two competing interests: on the one hand, the consumer may feel it is their right to receive back their money for a service they did not receive – i.e.: they do not want to pay, or want to pay as little as possible.  On the other hand, the service provider may have to turn down other jobs (and perform a substantial amount of work before the actual day, as well as incurring operational costs). Further, in the wedding industry in particular, the replacement of a consumer on anything less than six or seven months’ notice may be difficult or improbable – i.e.: the service provider wants to charge as close to 100% of the fee as possible.
In the absence of clear industry guidelines, or authoritative legal precedent, the best answer is to attempt to deal with this fairly and transparently in your service level agreement (or your standard terms and conditions).

It is suggested that a sliding scale is employed as a guideline (the unique circumstances of every matter will have to be considered, and each matter is decided on a case-by-case basis).  The scale can be adjusted to take account of the particular service offering, industry and its norms - for example, in the wedding industry, services are typically booked more than 9 months in advance, sometimes more than 18 months in advance…

Therefore, a sliding scale in this industry will operate differently from one used in another industry.  For example, one could base the cancellation fee (as a guideline) on the length of time given and the likely ability of the supplier to replace the consumer.  If a supplier is only given one months notice, it is likely they will not be able to replace the consumer and can justify operational expenses, marketing, research etc. and validly claim a large proportion of the contract price. 

Conversely, a supplier given 11 months’ notice should be able to re-book the date and will likely have incurred little to no costs – therefore, the refund should be as close to full as possible.

All of this will depend on the service offering and particular facts of the situation, particularly with an area of law that is as new as this one.  Suppliers would be wise to ensure their agreements deal with cancellation, spell out a reasonable penalty, and are fully CPA compliant – reputational risk and long legal battles are often not worth a few thousand Rand…

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