Cancellation fee: gym contract (201602-0005932) [2016] ZACGSO 8 (7 March 2016)

Cancellation fee: gym contract (201602-0005932) [2016] ZACGSO 8 (7 March 2016)

The supplier's imposition of a cancellation penalty based on a fixed percentage of the outstanding contract value is inconsistent with the Consumer Protection Act, which requires that only actual losses, discounts granted, and goods/services supplied in contemplation of the full contract term may be considered. Future profits or blanket penalties are excluded. The supplier must calculate the penalty on a case-by-case basis, considering the factors listed in Regulation 5(2), and ensure the penalty is not disproportionate to the harm suffered. Ambiguities in the CPA must be interpreted in favour of the consumer, and international and local jurisprudence supports the exclusion of future...

Citation
[2016] ZACGSO 8
Parties
Applicant: Complainant; Respondent: Supplier
Court
Consumer Goods and Services Ombud
Jurisdiction
South Africa
Judgment Date
7 March 2016
Case Number
201602-0005932
Procedural Posture
Consumer Complaint / Recommendation
Outcome
Recommended settlement: consumer to pay R699 as a reasonable cancellation penalty.
Judges
N Melville
Legal Topics
Consumer Protection Act, Fixed Term Contracts, Cancellation Penalty, Contractual Liability, Unfair Contract Terms
Commercial and Corporate Consumer Protection Act Fixed Term Contracts Cancellation Penalty Contractual Liability Unfair Contract Terms

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Parties

Complainant

Applicant

Supplier

Respondent

Procedural Posture

Consumer Complaint / Recommendation

Legal Issues

  1. 1 Is the supplier's method of calculating the cancellation fee reasonable under the Consumer Protection Act?
  2. 2 Does the contract unlawfully penalize the consumer for cancelling before the fixed term ends?
  3. 3 Should future profits be included in the calculation of a cancellation penalty under the CPA?

Ratio Decidendi

The supplier's imposition of a cancellation penalty based on a fixed percentage of the outstanding contract value is inconsistent with the Consumer Protection Act, which requires that only actual losses, discounts granted, and goods/services supplied in contemplation of the full contract term may be considered. Future profits or blanket penalties are excluded. The supplier must calculate the penalty on a case-by-case basis, considering the factors listed in Regulation 5(2), and ensure the penalty is not disproportionate to the harm suffered. Ambiguities in the CPA must be interpreted in favour of the consumer, and international and local jurisprudence supports the exclusion of future...

Court Disposition

Recommended settlement: consumer to pay R699 as a reasonable cancellation penalty.

Orders

  • The parties are advised to settle the matter by the consumer paying R699 to the supplier.
  • The supplier is directed to ensure future contracts disclose cancellation penalties clearly and calculate such penalties in accordance with the CPA and its regulations.