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[2020] ZANCT 10
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National Consumer Commission v Lynx Chemicals CC (NCT/158652/2020/73(2)) [2020] ZANCT 10 (3 May 2020)
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IN THE NATIONAL CONSUMER TRIBUNAL
HELD IN CENTURION
Case number: NCT/158652/2020/73(2)
In the matter between:
NATIONAL CONSUMER COMMISSION APPLICANT
and
LYNX CHEMICALS CC RESPONDENT
Coram:
Adv J Simpson – Presiding Tribunal member
Mr A Potwana – Tribunal member
Mr T Bailey – Tribunal Member
Date of Hearing - 30 April 2020
Date of judgment - 3 May 2020
JUDGMENT AND REASONS
APPLICANT
1. The Applicant in this matter is the National Consumer Commission, a juristic person established in terms of section 85 of the Consumer Protection Act, 68 of 2008 (“the CPA”), (“the Applicant” or “the NCC”).
2. At the hearing, Mr J Selolo, Director of Prosecutions, represented the NCC. He was assisted by Mr L Biyana, legal advisor.
RESPONDENT
3. The Respondent is Lynx Chemicals CC, a registered Close Corporation with registration number 88/018201/23 (“Lynx” or “the Respondent”). Lynx’s business premises are located at 29 Brighton Road, Bramley View in Johannesburg.
4. At the hearing, Ms R Andrews of Group 21 chambers, instructed by Hengst and McMaster Attorneys, represented Lynx.
APPLICATION TYPE
5. The NCC has referred the matter to the Tribunal in terms of section 73(2) of the CPA.
6. The NCC is asking for a finding of prohibited conduct based on Regulations 5.1.2, 5.2.1 and 5.2.2 of the Consumer and Customer Protection and National Disaster Management Regulations and Directions[1] (“the Disaster Regulations”).
7. The relevant Disaster Regulations state:
“5.1 In terms of sections 40 and 48 of the Consumer Protection Act a supplier may not –
5.1.1……..
5.1.2 may not offer to supply, supply or enter into an agreement to supply any good and service at a price that is unfair, unreasonable or unjust,
5.2 In terms of section 120(1)(d) of the Consumer Protection Act, during any period of the national disaster, a price increase of a good or service contemplated in Annexure A which –
5.2.1 does not correspond to or is not equivalent to the increase in the cost of providing that good or service; or
5.2.2 increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020, is unconscionable, unfair, unreasonable and unjust and a supplier is prohibited from effecting such a price increase.”
BACKGROUND
8. During March 2020 the NCC received a complaint from a business which purchased hand sanitiser from Lynx Chemicals. The complainant alleged he ordered three containers of 25 litres of hand sanitiser for R990.00 each. He received one container but was quoted a price of R2475.00 per container for the remaining two containers. This appeared to be an instance where a supplier was inflating the price of goods in contravention of the Disaster Regulations. The NCC decided to investigate the complaint and appointed an inspector. Based on the inspector’s findings, the NCC lodged the application with the Tribunal.
PRELIMINARY PROCEDURAL ISSUES
Condonation for the late filing of the replying affidavit
9. The application was filed with the Tribunal on 9 April 2020. It was served on Lynx by email on the same day. On 9 April 2020, the Tribunal registrar issued a notice of filing to all the parties. The Notice stated that Lynx was required to file its answering affidavit within four business days of receipt of the application. Lynx filed its answering affidavit on 16 April 2020. The NCC was required to file its replying affidavit by 23 April 2020 at 16h00. The NCC only managed to file and serve the replying affidavit by 16h23 on 23 April 2020. The NCC was therefore 23 minutes late in filing the affidavit. The NCC applied for condonation for the late filing.
10. At the hearing, the Presiding member explained to Lynx that it was entitled to oppose the application for condonation. The hearing would then be postponed to enable Lynx to file the required affidavit. In the alternative, Lynx could choose to not oppose the application for condonation and consent to the filing of the replying affidavit. The Tribunal panel could then issue an immediate ruling on the application for condonation, and the hearing could continue. Lynx confirmed that it does not wish to oppose the condonation application and consented to the late filing of the replying affidavit.
11. In the hearing, the Tribunal panel granted the application for condonation, with reasons to be provided in the judgment on the main matter. Accordingly, the Tribunal will shortly state the reasons for the ruling.
12. In accordance with Rule 34(1)(a)[2] the Tribunal may condone the late filing of a document or application. Rule 34 (2) provides that The Tribunal may grant the order on good cause shown.
13. The NCC’s affidavit states that the application involved mathematical calculations and novel questions of law. Therefore, it had to consider the affidavit carefully. It had finalised the replying affidavit on 23 April 2020 at 14h55. The process of having the affidavit commissioned at the police station took some time. It was only able to complete the process at 16h15 and then send the affidavit.
14. The Tribunal does not regard the delay of 23 minutes as excessive. There is no indication of the NCC wilfully delaying the filing of the affidavit. Lynx did not suffer any prejudice. Lynx has not opposed the application for condonation.
15. In the circumstances, the Tribunal granted the application to condone the late filing of the replying affidavit.
Filing of a supplementary affidavit
16. On 29 April 2020 Lynx filed a supplementary affidavit. The Tribunal Rules do not provide for the filing of a supplementary affidavit. During the hearing, the Tribunal panel advised Lynx that it would first have to file an application to condone the filing of a supplementary affidavit and Lynx would further have to apply for a postponement of the matter for this purpose. Lynx decided to withdraw the filing of the supplementary affidavit and confirmed the withdrawal on record.
EVIDENCE SUBMITTED
NCC
17. The NCC’s founding affidavit is somewhat unclear in setting out the charges and the basis for the charges. It appears that the NCC submits that Lynx contravened the Disaster Regulations in two separate instances. Both these instances constitute a contravention of Regulation 5.1.2 of the Disaster Regulations. The evidence to support this charge is simply referred to as annexures in the application without being explained in any way[3]. One is therefore forced to try and interpret the evidence supporting the charge.
18. The NCC appears to submit that during the period 9 to 11 March 2020 Lynx charged an amount of R990.00 for 25 litres of hand sanitiser. The NCC attached relevant invoices from this period issued by Lynx. However, for the period 12 and 13 March 2020 Lynx issued four invoices showing prices ranging between R1024.56, R1090.00 and R1290.00 for 25 litres. The average of the increases amounts to an increase of 13.5% on the amount of R990.00 it charged previously. The NCC submits that this average increase of 13.5% was unfair, unjust and unreasonable and is therefore a contravention of paragraph 5.1.2 of the Disaster Regulations.
19. The NCC attached an invoice dated 24 March 2020. This invoice reflects the price of R2475.00 being charged for 25 litres of hand sanitiser. There are further invoices attached which show that Lynx charged this same amount to various other clients. The price of the hand sanitiser was therefore increased from R990.00 to R2475.00 from 24 March 2020. The NCC submits that this increase was unfair, unjust and unreasonable. Therefore, it is a contravention of Regulation 5.1.2 of the Disaster Regulations.
20. The NCC then goes on to refer to contraventions of Regulation 5.2.1 and 5.2.2 of the Disaster Regulations. It submits that the average increased mark-up of 13.5% referred to in paragraph 18 above, was implemented; although there was no increase in the price of the raw materials required to manufacture the hand sanitiser. It attached invoices showing that the price of the alcohol supplied to Lynx did not increase. The invoices are dated 6, 9 and 12 March 2020. The NCC submits that this constitutes a contravention of Regulations 5.2.1 and 5.2.2 of the Disaster Regulations.
Lynx
21. Lynx does not dispute the 13.5% increase and does not dispute the increase from R990.00 to R2475.00 for 25 litres of hand sanitiser. Essentially Lynx provided explanations for the increases and submitted that it was not in contravention of the Regulations.
22. Lynx submits that it manufactures some products, and in other instances, it buys a product from another party and sells it on to clients. Its average mark-up for any goods it buys and then sells is 48%. The NCC did not dispute this submission.
23. Before March 2020 it had only sold two containers of hand sanitiser in 2019. The demand for this product was very low. The demand suddenly increased in March 2020. Lynx then started procuring raw materials to manufacture and sell hand sanitiser. For the period 2019 until 17 March 2020, It sold the hand sanitiser for R990.00 for 25 litres, excluding Value Added Tax (VAT). To explain the average increase of 13.5%, Lynx submitted that various factors could play a role in its pricing. Aspects such as bulk orders, discounts, and transport costs could influence the pricing. It explained these additional costs on the invoices in question. It submitted that the increase was not unjust, unfair or unreasonable. It further submitted that the average increase took place before 19 March 2020, when the Disaster Regulation was published.
24. Lynx submitted that the increase in the price from R990.00 to R2475.00 was due to it being unable to source further raw material to manufacture hand sanitiser. Its last sale of manufactured sanitiser was on 17 March 2020. It decided to procure pre-manufactured hand sanitiser, package it and sell it. On 24 March 2020, It ordered five, one thousand litre containers of hand sanitiser from CDR Hygience Supplies (“CDR”). The cost price of the sanitiser was R1625.00 for 25 Litres, R36.10 for a 25 Litre container and R1.00 for a label. The total cost excluding VAT would be R1662.10. The selling price was calculated as R2475.00, after adding the 48.9% mark-up to the cost price. Based on this cost estimate, Lynx quoted several clients for the hand sanitiser and received deposits from them. Lynx attached an invoice from CDR dated 24 March 2020 showing a price of R330 000.00 for 5000 litres of hand sanitiser. Lynx paid a deposit of R100 000.00 for the hand sanitiser.
25. The hand sanitiser was delivered to Lynx’s premises on 24 March 2020. On delivery, Lynx noted that the sanitiser smelled different from the product it normally manufactured. Upon inquiry, it discovered that CDR had used acetone-based alcohol in the product, which is not suitable for personal hygiene. Lynx cancelled the sale, and the product was returned to CDR. Lynx refunded all the deposits paid by its clients for the product. Lynx attached copies of telephone messages and email interactions with the representative of CDR, which set out the problem and the cancellation of the sale. Therefore, Lynx denies that the increase was unfair, unjust or unreasonable.
26. The NCC disputed that the cost price of the pre-manufactured hand sanitiser was R1662.10. It submitted that the cost price was actually R1439.48 per 25 litres. The mark-up was therefore 65% and not 48%. The NCC bases this on an a credit note dated 6 April 2020. The original tax invoice shows that the sanitiser was purchased for R330 000.00. No VAT is indicated on the invoice. The credit note however now reflects VAT. The sanitiser is therefore shown as having been purchased for R286 956.52 excluding VAT. Lynx submitted that the credit note was incorrectly drafted by Lynx and should never have included VAT. The original invoice did not include any VAT as CDR did not reflect any VAT registration number and could not charge VAT.
CONSIDERATION OF THE EVIDENCE
27. Lynx admitted the increase of 13.5% in its overall prices over the two days from 12 to 13 March 2020 and explained this increase. It submits that the increases related mainly to transportation costs and in one instance to the incorrect addition of VAT on the invoice. The NCC made numerous submissions regarding the incorrect or misleading calculation of VAT on the invoices, incorrect or missing delivery addresses, incorrectly completed invoices and missing information on the invoices. The Tribunal agrees that the manner in which the invoices were prepared is certainly suspicious and subject to doubt. However, the NCC was unable to provide any evidence that the invoices or the explanations provided were false.
28. Regulation 5.1.2 states that a supplier may not offer to supply any goods at a price that is unfair, unreasonable or unjust. Therefore, even if the explanations are proven to be false, the NCC is further required to prove that the increase was unfair, unreasonable or unjust. The NCC did not place any evidence before the Tribunal in this regard. The pleadings did not contain any averments as to what constitutes unfair, unreasonable or unjust behaviour. In the absence of any evidence in this regard, the Tribunal is unable to make a finding. The NCC is further unable to use the provisions of Regulations 5.2.1 or 5.2.2 to argue that the increase was unfair or unjust. These provisions did not exist on 12 and 13 March 2020. The Regulations were only issued on 19 March 2020.
29. Regulation 5.2.1 requires the NCC to prove that the increase to R2475.00 did not correspond to or was not equivalent to the increase in the cost of providing those goods. There is a difference between the invoice and the credit note regarding the inclusion of VAT. The original invoice does not show any VAT but the credit note does. Again, the Tribunal must agree that Lynx’s invoices are subject to some doubt. The original invoice issued by CDR does not reflect any VAT. Whether Lynx made an error in including VAT in the credit note is open to speculation. However, the NCC could not prove that the amount Lynx had to pay for the pre-manufactured sanitiser was false or that the order never took place. The NCC did not call CDR to testify or provide any evidence as to their involvement or to explain the price paid for the sanitiser. Based on the evidence presented, the Tribunal must find that Lynx did quote its increased prices based on the price it had to pay for the pre-manufactured sanitiser. The NCC charged Lynx under Regulation 5.1.2 on this sale. Therefore, even if the mark-up was proven to be 65%, the NCC would still have to prove that the increase was unfair, unreasonable and unjust. It made no submissions in this regard in the papers.
30. Regulation 5.2.2 required the NCC to prove that Lynx increased its net mark-up on the sanitiser above the average mark-up for that sanitiser in the three months before 1 March 2020. The NCC did not submit any evidence that the average mark-up Lynx applied was not 48%. It further did not provide any evidence that Lynx increased this mark-up unlawfully when it offered to sell sanitiser for R2475.00 per 25 litres. The NCC could not prove any sales for a three month period prior to 1 March 2020 as Lynx did not sell any hand sanitiser during that period.
CONCLUSION
31. Although Lynx’s invoicing practices can be regarded as suspicious, the NCC was unable to prove that Lynx contravened Regulations 5.1.2, 5.2.1 and 5.2.2.
ORDER
32. Accordingly, the Tribunal makes the following order:
32.1 The application for a finding of prohibited conduct against the Respondent is refused; and
32.2 There is no order as to costs.
DATED ON THIS 4TH DAY OF MAY 2020
[signed]
Adv J Simpson
Presiding Tribunal member
Mr A Potwana (Tribunal member) and Mr T Bailey (Tribunal member) concurring.
[1] Regulation 350 of GG 43116 of 19 March 2020
[2] Regulations for Matters Relating to the Functions of the Tribunal and Rules for the Conduct of Matters before the National Consumer Tribunal, 2007 (as amended)
[3] See paragraph 8.1.2 of the founding affidavit