Promotional Competitions under the Consumer Protection Act
 The CPA will replace the Lotteries Act’s current definition of “promotional competition”. In future, section 1 of the Lotteries Act will define a “promotional competition” as having the meaning set out in section 36 of the CPA. The CPA will also repeal the entire section 54 of the Lotteries Act and replace it with new provisions set out in section 36 of the CPA. However, there appears to have been somewhat of an oversight in the drafting of the CPA, since it does not deal with references to section 54 in other sections of the Lotteries Act. One assumes that those references will in future be references to section 36 of the CPA. Promotional competitions, being lotteries, will still derive their legality from the Lotteries Act when the CPA comes into force. In other words, a promotional competition will still be unlawful unless it is authorised in terms of the provisions of the Lotteries Act (see section 56). However, in order to determine whether the promotional competition is in fact lawful, one will need to refer to the provisions of section 36 of the CPA. The definition of “promotional competition” in section 36(1)(d) of the CPA commences with wording which is similar to the Lotteries Act’s existing definition, but contains some additional detail. It defines a “promotional competition” as “any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or change 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.” The common element between the two statutes’ definitions is contained in the principle that a promotional competition is a competition or something similar in which prizes are distributed by lot or chance. However, whereas the Lotteries Act defines a promotional competition as having the purpose of promoting the sale or use of any goods or services, the CPA goes further by stating that it promotes, in the ordinary course of business, a producer, distributor, supplier, or association of any such persons. The CPA also introduces a minimum threshold for prizes in the definition of “promotional competition”. The question that arises is what the status will be of a promotional competition in which the value of the prizes falls below the threshold. When the Lotteries Act and the CPA are read together, a competition that does not depend to a substantial degree on skill will be unlawful unless it complies with the requirements set out in section 36 of the CPA. However, section 36 stipulates a threshold for promotional competitions. Theoretically, promotional competitions in which the value of the prizes falls below the threshold will therefore have no authorisation. This must be an unintended consequence, but it is still an issue that requires attention. Section 36(2) prohibits statements to the effect that a person has won a competition or has a right to a prize in certain circumstances. For instance, the promoter of a competition may not state that someone has won a competition if no competition has been conducted, if the prize is subject to a previously undisclosed condition or if the winner is required to offer further consideration. The provisions of the section also prohibit promoters from informing someone that they have won a prize if the prize was generally available or offered to all similarly situated persons or class of persons or if the person is required to offer further consideration for the prize or to purchase any particular goods or services. It can be hoped that these provisions will curb misrepresentations made and dubious marketing schemes organised by unscrupulous organisations. It appears that an attempt has also been made to clarify the provisions relating to the role of consideration in promotional competitions. Section 36(3)(a) states quite clearly that a promoter may not require consideration to be paid by a participant in a promotional competition, other than the reasonable costs of posting or otherwise transmitting an entry form or device. In the past, it was not entirely clear whether a promotional competition would be lawful if entrants had to incur costs in entering the competition, such as paying for the postage of the entry. This section now provides an answer to this. It must be kept in mind that only reasonable entry costs are permitted. As such, it can be argued that it would be unlawful for the promoter of a competition to, for example, charge significantly increased fees for an entry that must be sent via sms (cell phone text message). The CPA contains some novel provisions relating to the rules of promotional competitions. In terms of section 36(3)(c), the promoter must prepare competition rules before the start of the competition. Those rules must be made available to the National Consumer Commission and to any participant, on request and without cost. The rules must also be retained for a prescribed period after the competition has come to an end. Section 35(5) goes further by prescribing certain statements that must be contained in an offer to participate in a promotional competition. One can therefore expect that these statements will be incorporated in the rules of the competition. The statements include matters such as the prizes offered in the competition, the basis on which the results will be determined, the closing date and the medium through or by which the results will be made known. The statements must be made on the medium by which persons enter the competition, on any document accompanying such medium or in any advertisement that is published during the time and in the area in which the promotional competition is conducted and which draws attention to and is clearly associated with the competition. The CPA lists the usual persons that are not allowed to enter a promotional competition, such as directors and employees of the promoter as well as suppliers of goods or services in connection with the competition. It also states that a promoter may not award a prize to a winner, if it is unlawful to supply the goods or services comprising the prize to that particular winner. However, this does not preclude awarding a prize if the right to possess or use the prize is restricted, regulated by or subject to any public regulation. Section 36 also deals with an entrant’s right to participate in a competition and the right to any benefit conferred upon a person as a result of entering the competition. Section 36 appears to be an attempt to simplify the provisions regulating promotional competitions and to introduce additional protection for consumers participating in promotional competitions. It remains to be seen whether these intentions will bear fruit once the relevant provisions take effect. Danie Strachan Senior Associate: Corporate & Commercial Department Adams & Adams |
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| 3/06/2012 | Posted in: Competition Law and Commercial Law | ||
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