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[2012] ZANCT 3
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Mobile Telephone Networks (Pty) Ltd v National Consumer Commission (NCT/2738/2011/101 (1) (P)) [2012] ZANCT 3 (19 March 2012)
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IN THE NATIONAL CONSUMER TRIBUNAL
HELD AT CENTURION
Case No: NCT/2738/2011/101 (1) (P)
DATE:19/03/2012
IN THE MATTER BETWEEN:
MOBILE TELEPHONE NETWORKS (PTY) LTD …..................................................................Applicant
AND
THE NATIONAL CONSUMER COMMISSION.........................................................Respondent
CORAM:
TERBLANCHE D. (MS.) (PRESIDING MEMBER);
MASEKO J.M. (PROF.) (PANEL MEMBER)
BECK P. (MS.) (PANEL MEMBER)
RULING IN LIMINE AND REASONS FOR RULING
__________________________________________________________________________________
The Applicant is Mobile Telephone Networks (Pty) Ltd (“MTN”), a limited liability company incorporated in South Africa, with registration number 1993/001436/07 and its physical address at 216 14th Avenue, Fairlands, Roodepoort. The Applicant is licensed as an electronic communications network operator in South Africa.
The Respondent is the National Consumer Commission (“NCC”); a public entity established in terms of section 85 of the Consumer Protection Act No. 68 of 2008 (“CPA”).
The Applicant brought an application in terms of section 101(1) of the CPA to the Tribunal for the review of a compliance notice issued against it by the Respondent.
The National Consumer Tribunal (“Tribunal”) has jurisdiction to hear this matter in terms of section 101(1) of the CPA. This section provides that a person issued with a compliance notice in terms of section 100 may apply to the Tribunal in the prescribed manner and form for its review.
This ruling follows the hearing of this matter held on the 20th January 2012 at the Offices of the Tribunal in Centurion. The ruling is based largely on written submissions by both parties as well as oral arguments and in the case of the Applicant written heads of argument presented at the hearing.
The Applicant based the review application on several grounds including a claim that the Applicant was the “wrong party”.
This claim alone, led to the Tribunal taking a mero motu view to deal with this point as a point in limine, as the Tribunal considered it unnecessary to consider the rest of the “grounds” of review, its rationale being that it would serve little purpose to continue into a lengthy hearing on all the issues in dispute between the parties if the Tribunal indeed determines that the compliance notice was incorrectly issued to the Applicant. The other grounds for review were therefore not considered at this stage, pending a determination on whether the Applicant was the correct party against whom to issue the notice.
Issue to be decided
The issue accordingly to be decided is whether the Applicant was the appropriate party to be issued with the compliance notice.
Applicant’s Submissions
The Applicant asserted that the contract which the compliance notice relates to is not a contract between consumers and the Applicant. As such, so the Applicant contends, it is the wrong party to issue the compliance notice to and cannot be held liable for the alleged non-compliance with the CPA. The Applicant based the above assertions on its claims, in summary, that:
It does not conclude subscriber agreements with customers;
Only MTNSP (Mobile Telephone Network Service Provider), a sister company in the “MTN Group of Companies”, concluded subscriber agreements with customers;
MTNSP is a separate company (legal entitity) registered with its own Board of Directors, who happen to also be the same as that of MTN (Applicant);
Applicant is only a network operator which allows several service providers, such as MTNSP and Nashua Mobile, to make the network provided by it (MTN) available to their customers;
At some point the Respondent prepared a consent order for MTNSP to sign and not MTN. Only when MTNSP refused to sign the said consent order did the Respondent issue a Compliance Notice, but to MTN and not to MTNSP; and
MTNSP competes with other service providers in selling the services supplied by MTN to their clients / consumers, which seals the separation between MTN and MTNSP.
Respondent’s Submissions
10. Respondent countered the Applicant’s submissions to the effect that –
The purpose of the CPA as provided for in terms of section 3(1)(b), which states that;–
“The purposes of this Act are to promote and advance the social and economic welfare of consumers in South Africa by - reducing and ameliorating any disadvantages experienced in accessing any supply of goods and services by consumers –
Who are low income persons or persons comprising low-income communities;
Who live in remote, isolated areas or low density population areas or communities;
Who are minors, seniors or other similarly vulnerable consumers; or
Whose ability to read and comprehend any advertisement, agreement, mark, instruction, label, warning, notice or other visual representation is limited by reason of low literacy, vision impairment or limited fluency in the language in which the representation is produced, published or presented...”
The Applicant was merely raising technical points and not addressing the substantive issues of the matter;
The Respondent does not deal with company law and that company law should not even enter the fray.
The Respondent deals with regulated entities and not companies as entities. The compliance notice was issued to MTN and not MTNSP as MTN is a regulated entity, not MTNSP.
MTN has been licensed to operate by the Independent Communications Authority of South Africa (ICASA) and not MTNSP. And since MTNSP is not a licensed operator and is not licensed to carry out business by ICASA.
Respondent further submitted that MTN and MTNSP were one and the same or MTNSP was merely a conduit of MTN. In this respect Respondent referred to the provisions of Clause 1.22 of the Subscriber Agreement between MTNSP and its subscribers, which expressly states that “Operator” means:
“Mobile Telephone Networks (Proprietary) Limited; its successors or assignees or any other licensed cellular operator in South Africa which has granted MTNSP a sub-license to make the Network Services available...”
MTN and MTNSP were one and the same because they share the same address and logo.
MTN and MTNSP belong to a group of companies in a supply chain and that section 61(3) of the CPA renders MTN and MTNSP jointly and severally liable.
Analysis of Facts and Arguments
Before we analyse the above submissions, insofar as is necessary, we set out the matters (relevant to our discussion further below) that is common cause between the parties, namely that -
MTN and MTNSP are separate and distinct legal entities. This is evidenced by their different respective registration numbers in terms of the Companies Act;
MTN and MTNSP have the same registered address;
MTN and MTNSP have the same Board of Directors;
MTN and MTNSP utilise the same logo on their respective letterheads and stationary;
MTN is a network service provider required to be licensed and is licensed as such by ICASA;
MTNSP is a financial services provider regulated by the Financial Services Board (FSB);
The contract that is subject to the Compliance Notice is one entered into between consumers and MTNSP.
The structure of the MTN group of companies was explained to the Respondent.
The issue before the Tribunal has been characterized as and turns on whether MTN, being a distinct legal entity, could be cited and held responsible for the interactions between another distinct legal entity, namely MTNSP, and consumers.
The Tribunal is a creature of statute, having been established in terms of the National Credit Act, Act 34 of 2005 (NCA), with its functions and powers as set out in the NCA, as amended by CPA. As such the Tribunal is obliged to operate within the confines of its empowering legislation and to observe all the laws that bind the courts, the population and other Tribunals.
The CPA contains specific provisions regarding the “Realisation of Consumer Rights” in section 4 thereof. Section 4(2) specifcally provides that –
“In any matter that is brought before the Tribunal or court in terms of this Act –
the court must develop the common law as necessary to improve the realisation and enjoyment of consumer rights generally and in particular by persons contemplated in section 3(1)(b); and
the Tribunal or court, as the case may be, must –
promote the spirit and purposes of this Act; and
make appropriate orders to give practial effect to the consumers’ rights of access to redress, including but not limited to –
any order provided for in this Act; and
any innovatove order that better advances, protects, promotes and assures the realisation by consumers of their rights in terms of this Act.”
One of the fundamental pillars of the South African law is that a company is a separate legal entity: neither the directors nor shareholders of the company are liable for its debts or obligations1. Once a company is formed metaphorically speaking a veil or curtain is drawn between the company and its shareholders and directors, which separates the company from its shareholders and directors, and protects them from liability of debts and from the wrongful acts of the company2. In the case of Salomon v Salomon & Co Ltd3 the court expressed this legal principle by stating that, a company has a separate legal personality aside from its shareholders and its directors. Lord Macnaghten remarked as follows:
“The company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is exactly the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or a trustee for them.” 4
16. While it is generally accepted that subsidiaries, even wholly owned ones, have a separate legal personality - one that should not be disregarded - it has been accepted however in certain situations that this may be ignored. The court held in the case of Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd5 that there is no general discretion to just disregard a company’s separate legal personality - fraud, dishonesty or improper conduct provides grounds for piercing the corporate veil but other considerations come into play. The court said that the need to preserve the separate corporate identity must be balanced against policy considerations which arise in favour of piercing the corporate veil.
In casu the question is therefore whether there are policy considerations which arise in favour of piercing the corporate veil or whether this case even involves having to consider piercing the corporate veil.
The context within which the Tribunal has to consider this question is textured by the fact that Applicant, MTN, is a regulated entity providing regulated services to consumers through a third party juristic person whom it granted a ‘sub-license’ to. Applicant holds a licence for the provision of the regulated services issued to it by ICASA.
Within the South African regulatory environment there are economy-wide and industry-specific regulatory institutions. ICASA is the relevant industry-specific regulator, established in terms of section 3 of the Independent Communications Authority of South Africa Act (Act 13 of 2000). The Respondent, the National Consumer Commission, is an economy-wide regulator, established in terms of section 85 of the Consumer Protection Act, Act 68 of 2010 (the CPA). Section 85(2)(c) provides that “The Commission must exercise the functions assigned to it in terms of this act and any other law…” The functions of the Commission are set out in sections 92 to 98 of the CPA.
In the case before us it is clear that the regulated services Applicant is licensed for is provided through MTNSP through standard contracts the latter enters into with individual consumers. It is these standard contracts that are under attack by the Respondent for alleged non-compliance with the CPA. This contract relates to, as is reflected on the face of it, to the “PROVISION OF NETWORK SERVICES”.
The contract deals with -
21.1 Clause 2 ‘Start date, renewal and cancellation’,
21.2 Clause 3 ‘Supply of SIM cards and network services”,
21.3 Clause 4 “Charges’,
21.4 Clause 5 ‘Suspension of access to network services’,
21.5 Clause 6 ‘Limitation of liability’ etcetera.
As will be apparaent from the above and the definitions from the contract below the main body of the contract strays into the domain of the provision of licensed services for which MTN (not MTNSP), as regulated entity is accountable for to its regulatory authority ICASA.
With regard to the definitions: The terms “network” and “network services” are defined in the contract.
23.1 “Network” means “the PLMN (Public Land Mobile Network) cellular telephony system operated by the Operator in South Africa”. “Operator” means “Mobile Telephone Networks (Proprietary) Limited (MTN SA), its successors or assignees or any other cellular operator in South Africa which has granted MTN SP a sub-license to make the network services available to you.
23.2 “Network services” means the GSM Telecommunications network services and any other related service made available to you by MTN SP in terms of this contract, which may include, Value Added Services, international roaming and dialling.
Applying the Cape Pacific Ltd - case6 above, the question is therefore whether the need to preserve the separate corporate identity outweighs the policy considerations which arise in favour of piercing the corporate veil. Specifically taking into account the following considerations –
From the contract and the above definitions it is clear that the Applicant is the licensed entity and granted MTNSP a ‘sub-license’ and that the regulated services contracted for are for these licensed network services;
The contract is entered into between a consumer and MTNSP, yet does the latter have any control for example over qualitative aspects of the product;
The services provided are regulated services, yet can ICASA act against MTNSP as it is not the entity subject to the license and the ultimate sanction of withdrawal of the license for non-compliance with license conditions;
Following MTN’s submissions regarding the existence and effect of separate legal personae, if ever there are complaints or problems with the provision of the regulated services, MTN cannot ever be held accountable or liable by any regulator, neither the NCC nor ICASA, for that;
25. Applying the Cape Pacific Ltd - case7 above, when goods and services subject to a licensing regime are supplied to consumers, the policy considerations – for a regulatory authority to hold a regulated entity accountable for the provision of regulated services; and for consumers’ rights to be protected in terms of the CPA - which arise in favour of piercing the corporate veil outweighs the need to preserve the separate corporate identity.
26. The CPA is a new legislation in South Africa and as such there is limited jurisprudence that has been generated on how it is supposed to be interpreted. Section 2(2) of the CPA that deals with interpretation, states that:
“When interpreting or applying this Act, a person, court or Tribunal or the Commission may consider−
(a) appropriate foreign and international law;
(b) appropriate international conventions, declarations or protocols relating to consumer protection; and
(c) any decision of a consumer court, ombud or arbitrator in terms of this Act, to the extent that such a decision has not been set aside, reversed or overruled by the High Court, the Supreme Court of Appeal or the Constitutional Court.”
The Tribunal in terms of this provision will look to the international jurisprudence that has crystallized when dealing with consumer rights for guidance.
In a number of states in the United States, if a corporation is used by an individual or by another corporation, to perpetrate fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose alternatively to accomplish equity and justice, a court may disregard the corporate entity and treat the corporation’s acts as if they were done by the persons controlling the corporation under the alter ego doctrine. The doctrine requires two elements to be satisfied. The court in Webber v Inland Empire8 couched the doctrine and its requirements in the following terms:
“[That firstly] there is such a unity of interest and ownership between the corporation and the individual or organization controlling it that their separate personalities no longer exist, and [secondly] failure to disregard the corporate entity would sanction a fraud or promote injustice. The doctrine is applicable where some innocent party attacks the corporate form as an injury to that party's interests. The issue is not so much whether the corporate entity should be disregarded for all purposes or whether it’s very purpose was to defraud the innocent party, as it is whether in the particular case presented, justice and equity can best be accomplished and fraud and unfairness defeated by disregarding the distinct entity of the corporate form. Nevertheless, persons who themselves control a corporation, who have used the corporate form of doing business for their benefit, who have dealt with and treated the corporation as a separate entity, or who have otherwise by their actions expressly or impliedly recognized its corporate existence, may be estopped to deny the corporation's separate legal existence. Parties who determine to avail themselves of the right to do business by means of the establishment of a corporate entity must assume the burdens thereof as well as the privileges. The alter ego doctrine is applied to avoid inequitable results, not to eliminate the consequences of corporate operations. Thus, alter ego is used to prevent a corporation from using its statutory separate corporate form as a shield from liability only where to recognize its corporate status would defeat the rights and equities of third parties; it is not a doctrine that allows the persons who actually control the corporation to disregard the corporate form. In other words, alter ego is a limited doctrine, invoked only where recognition of the corporate form would work an injustice to a third person.”
In our view the facts in casu are on par with the postulations set out in the case above in that –
There is such a unity of interest and ownership between the corporation and the individual or organisation controlling it that their separate personalities no longer exist;
Failure to disregard the corporate entity would sanction a fraud or promote injustice;
Persons who themselves control a corporation, who have used the corporate form of doing business for their benefit, who have dealt with and treated the corporation as a separate entity, or who have otherwise by their actions expressly or impliedly recognized its corporate existence, may be estopped to deny the corporation's separate legal existence;
Parties who determine to avail themselves of the right to do business by means of the establishment of a corporate entity must assume the burdens thereof as well as the privileges;
In the matter at hand justice and equity can best be accomplished and fraud and unfairness defeated by disregarding the distinct entity of the corporate form.
It is not required that the corporate form has been permanently abused before a court will pierce the corporate veil. In National Labour Relations Board v Greater Kansas City Roofing9 the Court of Appeal formulated the requirements for the alter ego doctrine as follows:
“…..the doctrine of piercing the corporate veil under an alter ego theory can best be described by the following two-part test: (i) was there such unity of interest and lack of respect given to the separate identity of the corporation by its shareholders that the personalities and assets of the corporation and the individual are indistinct, and (ii) would adherence to the corporate fiction sanction a fraud, promote injustice, or lead to an evasion of legal obligations.”
In National Labour Relations Board v West Dixie Enterprises Inc.10 the Court of Appeal held that the corporate veil may be pierced when:
“(1) there is such unity of interest, and lack of respect given to the separate identity of the corporation by its shareholders, that the personalities and assets of the corporation and the individuals are indistinct, and
(2) adherence to the corporate form would sanction a fraud, promote injustice, or lead to an evasion of legal obligations.”
From the above cases it would appear that Applicant 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.
Finding differently would lead to a manifest injustice which runs counter to the purpose and policy imperatives of the CPA encapsulated in section 3 of the CPA.
It would moreover in effect mean that a regulated entity can successfully circumvent and jettison its responsibilities in the terms and conditions of their license by sublicensing to another person. This could clearly have not been intended by the legislature and would undermine the consumer protection and regulatory measures put in place particularly to protect the poor and vulnerable.
With regard to the Respondent’s submission that it only issues Compliance Notices to regulated entities we point out that section 100(1) of the NCA expressly provides that:
“Subject to subsection (2), the Commission may issue a compliance notice in the prescribed form to a person or association of persons whom the Commission on reasonable grounds believes has engaged in prohibited conduct.”
Section 100(2) in turn, provides that:
“Before issuing a Compliance Notice in terms of subsection (1) to a regulated entity, the Commission must consult with the Regulatory authority that issued a license to that regulated authority.”
On the plain reading of the sections 100(1) and (2) of the CPA, this Tribunal holds the view that section 100(1) does not preclude the Respondent from issuing compliance notices when appropriate to entities that are not regulated. The application of section 100(2) only has relevance where the entity being dealt with in section 100(1) happens to be a regulated entity. But none of the two subsections preclude the NCC from dealing with entities that are not regulated as subsection (1) refers to “a person or association of persons”. Nowhere does the Act or section under discussion add “who are regulated entities”. For this reason then, the argument by the Respondent that it knowingly attacked MTN instead of MTNSP because the Respondent is allegedly not allowed to deal with entities that are not registered, cannot succeed.
While section 100(1) of the NCA accords the Respondent the authority to deal with “a person or association of persons” it is worth noting that the definition of “person” in section of the NCA includes “juristic persons”. In the view of this Tribunal, the assertions by the Respondent then that the Respondent does not deal with unregulated entities, and that this Tribunal should not recognise or comply with other laws than the NCA and the CPA; cannot succeed.
The Respondent further argued that MTN and MTNSP belong to a group of companies in a supply chain and that section 61(3) of the CPA renders MTN and MTNSP jointly and severally liable. Again, the Respondent misconstrued the application of section 61(3) of the CPA as it applies specifically to liability for damage caused by goods. For this reason, the alleged existence of “jointly and severally” liability between MTN and MTNSP cannot succeed.
Applicant’s Prayers:
In its prayers, the Applicant requested the Tribunal to find that the Applicant is a wrong party to the Compliance Notice issued by the NCC on 24 August 2011; and
And pursuant to the foregoing finding, in the event that this Tribunal agrees with it, the Applicant further prayed that the Tribunal sets aside the Compliance Notice issued by the NCC on 24 August 2011.
Respondent’s prayers:
In its prayers, on the other hand, the Respondent moved that this Tribunal dismisses this point in limine and proceed with the substantive issues of the matter.
For the reasons above the Tribunal finds that:
Applicant’s challenge against the Compliance Notice on the basis that it was the “wrong” party is dismissed.
No order is made as to costs.
Handed down on 19 March 2012
[signed]
Prof. Joseph M. Maseko
Tribunal Member
Diane Terblanche (Ms), Presiding Member and Penelope Beck (Ms), Member, concurring
1 Ewing & Kleitman Without Prejudice 2011 at 8
2 Cassim et at (2011) at 3 (supra)
4 [1897] AC 22 (HL) at 51
6 At 5 supra
7 At 5 supra
8 Webber v Inland Empire Investment Inc. 74 Cal.App.4th 884, 88 Cal.Rptr.2d 594, (1999);
Communist Party v 522 Valencia Inc. (1995) 35 California Appeal Court 4th Circuit 980, 41 California
Reporter 2nd 618.
9 2 F.3d 1047 (CA 10th Circuit 1993).
10 1990 F 3d 1911 (CA 11th Circuit 1999).