A cry for help: Issues in consumer protection

How well does Kenyan consumer protection legislation extend to professional services?

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Dr Charles Khamala

On one hand, given modern technological advances, mass consumers lack sufficient information and knowledge to evaluate the quality, not only of mass-produced goods and services but also of improvements to land. On the other hand, producers wield considerable resources which they abuse to dictate terms of trade. Under the social contract, the state therefore extinguishes the Hobbesian “war of everyone against everyone” to preserve life, liberties and the pursuit of happiness, under government. How can producers be prevented from maximising their profits upon the altar of sacrificial consumers? Can “fair trade” spontaneously emerge from an unregulated market governed by the “equal” application of law? Does the Kenyan Constitution intervene to protect consumers from unscrupulous trade practices?

Producing defective commodities or services attracts the “developmental risk defence” under product liability law. Basically, whenever any product is invented or manufactured, there is always a possibility that it may ultimately turn out to harm consumers. However, this is no reason to discourage entrepreneurship in entirety. Reasonable and prudent consumers should exercise caution in their purchase and use of commodities. Hence tension arises of whether to impose the cost of defective products on manufacturers in departure of the usual “buyer beware” rule of leaving losses to lie where they fall. The answer is justified differently in different contexts. Can the Consumer Protection Act apply to regulate professionals? For example, do Kenya’s building construction standards lack adequate enforcement to apportion consumer liability whether for defective buildings as “bads” or unfair trading disasters as “misinformed” consultancy services?

Consumer rights are human rights enshrined under Article 46 of the Constitution as follows: “46(1) Consumers have the right – (a) to goods and services of reasonable quality; (b) to the information necessary for them to gain full benefit from goods and services; (c) to the protection of their health, safety, and economic interests; and (d) to compensation for loss or injury arising from defects in goods or services. (2) Parliament shall enact legislation to provide for consumer protection and for fair, honest and decent advertising. (3) This Article applies to goods and services offered by public entities or private persons.”

Consumer rights are human rights enshrined under Article 46 of the Constitution as follows: “46(1) Consumers have the right – (a) to goods and services of reasonable quality; (b) to the information necessary for them to gain full benefit from goods and services; (c) to the protection of their health, safety, and economic interests; and (d) to compensation for loss or injury arising from defects in goods or services. (2) Parliament shall enact legislation to provide for consumer protection and for fair, honest and decent advertising. (3) This Article applies to goods and services offered by public entities or private persons.”

Consumer rights are reinforced under the Consumer Protection Act No. 46 of 2012, “giving consumers the right to demand quality goods and services in Kenya.” This exposes firms that do not comply to lawsuits.” It punishes “businesses that knowingly sell sub-standard goods and lie on pricing. It also provides for warranties for damaged or injurious goods. It “includes all those involved in the provision of, or the use or enjoyment of facilities for amusement, entertainment, transport, broadcasting, tourism, recreation, education or instruction.”

Various purposes of the Act, under Section 4, aim to “promote and advance the social and economic welfare of consumers in Kenya.” This is achieved first, by “establishing a legal framework for the achievement and maintenance of a consumer market that is fair, accessible, efficient, sustainable and responsible for the benefit of consumers generally.”

Secondly is by “reducing and ameliorating any disadvantages experienced in accessing any supply of goods or services by consumers.” Third entails “promoting fair and ethical business practices.” Fourth is about “protecting consumers from all forms and means of unconscionable, unfair, unreasonable, unjust or otherwise improper trade practices, including deceptive, misleading, unfair or fraudulent conduct.”

But does Kenyan consumer protection legislation extend to professional services? Take the building construction industry. Arguably, building practitioners are covered under “consultancies”. Moreover, the National Construction Authority as a regulatory body can impose obligatory “insurance” cover as a licensing condition; “service providers” fall within the definition of consumer protection. This is so to the extent that consumer rights prevent under-cutting and over-pricing of goods and services. Furthermore, Section 45 of the Engineers Act 2012 No. 43 of 2011 proscribes various types of professional misconduct.

These range from deliberately failing “to follow the standards of conduct and practice of the engineering profession set by the Board” to committing “gross negligence in the conduct of his professional duties.” Additionally, the NCA Act No. 41 of 2011 imposes a duty to inform consumers such as County governments which procure contractors or licence buildings “on goods and services in the market to ensure they are of high quality and meet health standards.” Tellingly, “the use of misleading information to sell goods and services” is prohibited, which covers defective constructions. Besides justifying compensation for collapse of defective physical infrastructure, the statutory definitions and scope of consumer protection extend equally to collapsing intangible infrastructure, such as financial institutions.

The Chicago School and its critics

The Chicago School strongly suggests that consumer-producer relations should remain market-driven. First, because consumers are capable of adjusting their purchasing habits.

Hence, through trial-and-error, inefficient manufacturers or service providers should eventually be detected, and negative information communicated among consumers shall discourage repeat purchases.  Second, in a free market, rival enterprises are at liberty to advertise their superior wares to attract customers who are able to recognise advantages of defecting from bad brands and spot better deals. Third, should the open markets fail to supply appropriate goods and services to satisfy the consumer demand, so that private law remedies kick-in by enforcing contracts and compelling merchantable quality and ensure that commodities correspond to description? Similarly, tort law awards damages to injured consumers – who need not sue retailers – but are able to prove negligence by producers, as held in the landmark authority of “Donoghue v Stevenson” [1832]. Hence, through redistributing losses, common law mimics the market. Although building construction professionals comprise a profession with ethical rules and standards, if ethics fail, apart from criminal punishment, and consumer protection proves problematic, then civil law should compensate victims. Ultimately, civil negligence claims should hold property developers liable for personal injuries from substandard projects.

However, critics of the Chicago school reject two of its core assumptions as being false. First, they reject the notion that people are self-interested maximisers. Rather, people often behave according to non-rational factors such as emotions, sentiments and culture.

Second, critics must also reject the idea that the market operates to influence producers. Rather, oligarchs control the market. Instead, anti-Chicagoans argue, first, that consumers comprise a diverse class whose interests are diffuse, anomalous and difficult to ascertain.

Unlike the production function – which is performed at one place, over the entire day – the consumption function is relatively subordinate, performed at different locations on intermittent occasions. Competing interests such as work, play or education deserve more attention. Consequently, logistical constraints prevent consumer groups from organising and identifying common interests.

No consumer wants to be the guinea pig on which to test novel products for the group’s benefit. Yet, everyone is a consumer and would rather reap free benefits of non-defective commodities after group experimentation sieves rejects. This creates “free-rider” problems.

Second, Chicagoans also assert that, partly out of sympathy and to avoid retaliation, producers are unlikely to engage in negative advertising directed at sabotaging a competitor’s inferior products. Instead, as the famous “Carlill v Carbolic Smoke Ball Co.” [1893] case shows, adverts themselves are often superficial puffs designed to deceive gullible audiences into purchasing ineffective commodities. Moreover, victims of the 1960 Thalidomide disasters by German doctors, 1984 Union Carbide gas leak at Bhopal, and the 1986 Chernobyl nuclear power plant accident testify to the irreversibility of catastrophic exposure; prevention is better than cure. Third, not only are most consumers ignorant of their legal rights, they also lack adequate resources to litigate.

Worse still, contrary to legal theory assumptions, common law does not operate fairly. Rather, courts are themselves influenced by judges’ and magistrates’ own social class, political and cultural backgrounds, thereby creating ideological preferences. Given that consumer-producer relationships are inherently unfair, further that justice demands equalisation, the question emerges of whether it is more cost-effective and therefore preferable to either correct market distortions and common law deficiencies, or alternatively, to introduce statutory regulation through consumer protection legislation.

Ironically, using criminal law as an ultimate expression of public power to manage consumer capitalism may ultimately prove counter-productive. The impact of repressive criminal sanctions may not merely protect consumers from harmful products or services but also extinguish production processes altogether.

Regulation or Class Action?

Criminal procedure and evidence law are best suited to determining bivalent questions such as guilt or innocence, relevant or irrelevant and admissible or inadmissible. Instead, an administrative law approach is recommended to deal effectively with mass disasters emerging from situations involving a multiplicity of actors with variegated interests, which require accommodation. A broader perspective reveals that corporate “manslaughtering” involves not only construction company managers and its allegedly criminally negligent directors, but also, corrupt local authorities, suppliers of substandard professional services – the surveyors, architects, engineers and contractors – whose oversight may have detected cracks in the concrete walls which buckled upon an unstable foundation.

Subsequently, army officers, firemen, hospitals and other rescuers mitigate personal injuries to civilians. Yet continuing financial losses accrue against prospective tenants, bankers, insurers and aggrieved civilians.

How has the Jubilee government delegated accessible services to Kenya’s building contractor fraternity to facilitate self-regulation by licensing and disciplining its members? The answer depends on whether the construction industry remains poorly-regulated by the NCA, which is mandated to licence builders and contractors to eliminate rogue contractors and malpractices in Kenya’s building and construction industry. But it also requires an evaluation of the normative framework of Engineers Board of Kenya and the Institute of Engineers of Kenya under the Engineers Act. The Judiciary is the ultimate implementer which determines the extent to which bye-laws go unenforced, and if transactions are market-driven and left to private law processes, Chicago-style.

Devolution objectives, under the new Constitution, require participation in planning, decision-making, procurement etc. Have county governments facilitated public participation and accountability in the construction sector? The Constitution merely enshrines principles, while statutes cannot foresee all eventualities and provisions necessarily contain gaps.

Where there are loop-holes in written law, Kenyan common law burdens aggrieved persons to prove fault in order to claim remedies. In practice, the criminal law is invoked as an afterthought, to assuage upper and middle class guilty consciences, pricked by public outcry following sensational mass media publicity of periodic building collapse disasters.

Non-prosecution of industrialists irrespective of their wrongdoings seems attributable to a trade-off by which liberal ideology encourages risks at the expense of environmental and other harms.

Sadly, the limitation of disaster management through pressure from moral panics is that the fundamentally-imbalanced bargaining power in relations between significant actors engaged in profiteering and racketeering remains skewed thus fuelling continued unjustified public risks to physical, psychological and intangible hazards. Conversely, where administrative regulatory bodies impose and enforce excessive safety standards, such as requiring compulsory professional indemnity cover, on the pain of criminal sanction, this strategy creates a moral hazard. This is because individual consumers are likely to become emboldened to remain reckless or negligent unless they are encouraged to internalise the costs of any losses incurred. Thus, one outcome of abandoning the “caveat emptor” or “buyer beware” principle, which advocates self-caution, is the tendency of increasing the number of accidents in society. Moreover, because producers are driven by profit motives and because imposing a requirement of strict liability on producers in turn increases the total production costs, therefore insurance costs are indirectly borne by consumers. Can consumers afford to pay the price of enhanced safety measures? An optimum balance entails providing a policy framework with incentives to reward producers who voluntarily comply with corporate social responsibility values.

Yet Kenyan consumers are not sufficiently organised by enabling legislation to express their interests through pickets and boycotts. The Consumers Federation of Kenya has been accused of extorting manufacturers and distributors. In the English case of “Hubbard v Pitt” [1976] Lord Denning held that picketing is not a private nuisance if it is directed to communicating information or peacefully persuading, and does not obstruct, threaten or inflict violence to landlords. However, in late 2015, “complaints against consumer lobby groups…prompted the Competition Authority of Kenya to ask all of them to register…as it develops a regulatory framework. Other public-interest groups, most of which run as one-man shows with no proper organisational structure, have also not escaped controversy.”

One reason effective disaster management legislation is long overdue is because Parliamentarians previously limited their protection to industrial accidents under trade union law, but neglected to facilitate the regulation of consumer unions to articulate consumer risks. And in the education sector teachers unions and school heads associations have for a long time been calling for the dissolution of two bodies: the Kenya National Association of Parents (Knap) and the Kenya National Parents and Teachers Association.

To regulate the banking industry, both the Deposit Protection Insurance “Corporation and CBK are required by law to take prompt corrective action to resolve an institution’s problems in order to safeguard the interest of the institution’s depositors as well as the banking sector” and recently MPs seek to reintroduce controls on interest rates. Under the labour laws of 2007, trade union leaders are protected by immunity against potential lawsuits for defamation, nuisance, tort and breach of employment contracts when leading strikes, lock-outs or boycotts on behalf of workers against powerful economic interests.

By amending the Consumer Protection Act, a public compensation fund may be instituted with significant budgetary support to facilitate establishment of consumer unions to test products and services, whether constructing collapsing buildings or banks, and bring class action cases to consumer courts without fear of intimidation by producer lobbies.

Writer is an Andrew W. MellonPost-doctoral Fellow at Rhodes University

 

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