Is your company a supplier of goods or services?
If so, there are many legal and important commercial aspects to consider when you embark on the process of becoming either the original manufacturer of goods, a link in the supply chain, or the final provider of goods or services to consumers.
The Consumer Protection Act 68 of 2008 (‘CPA’) governs supply of goods and services to consumers (which are defined in the Act) and there are a number of sections of the CPA which must be complied with, from providing for plain language in agreements, to prohibition on exclusion of liability for harm caused by products, to prohibition on excluding the implied warranty of quality for goods that applies within a certain time frame following supply. So, suppliers which supply goods and/ or services (as defined in CPA) may not exclude liability for harm, and must ensure they comply with the implied warranty. There are also a number of other CPA provisions (including maximum permitted length of the term of agreement, and product recall requirements) which are beyond the scope of this article.
The National Credit Act 34 of 2005 (‘NCA’) is also important to be aware of. How are suppliers permitted to charge for supply of goods and services? Can interest be charged? Can a different price be charged for upfront payment than for payment that is deferred?
A tricky provision of the NCA is invoked when suppliers of services attempt to disguise interest payments in deferred or delayed terms of settlement. The NCA regulates this type of mechanism in its provisions regarding a discount transaction, which is a very different mechanism to an incidental agreement, and so payment options should be carefully considered and analysed to make sure they do not fall foul of this provision.
Aside from legislation (of which there are others in addition to the CPA and NCA) there are commercial considerations to take into account too. These are briefly:
- Is there a period of exclusivity you would like to enforce (either as the supplier or intermediary)?
- Do you have sales targets to meet / would like to enforce?
- Is the re-sale of the goods you have purchased / are supplying governed by any restrictions – e.g., packaging, warning labels to be included?
- Do you need support or training in the sale of the goods? Would you like to compel the purchaser of your goods to undergo training or support?
- Do you have intellectual property or trade secrets which are your property and which you would like to make other parties aware of?
- Do you want to prevent the buyer of your goods from circumventing (cutting you out of) the supply chain? Is this permitted in terms of competition law?
- Are there warranties you are being given or would like to enforce?
- How will you handle a recall of the product, and how do you need to provide for this in the agreement you have with re-sellers or your goods and services?
- Is there potential for weak links to appear in the supply chain, the consequences of which you would like to mitigate by incorporating indemnities into your agreements with suppliers to you, or to parties to which you are re-selling?
- Have you reserved ownership of the goods you are selling to protect you against default by your re-sellers or the event of them going into business rescue or liquidation?
A carefully considered and well drafted agreement with suppliers and / or re-sellers, can make the business of supply a less risky and more transparent one for you and the parties with which you contract.
This article should not be used or relied upon as professional advice and is for information and marketing purposes. Please consult with one of our attorneys should you need legal assistance relating to this area of law.