COVID-19 and the possible price gouging effect: Does South Africa have the legislative framework to cope?

The outbreak of COVID-19 (coronavirus) in Wuhan, China has witnessed the death of up to 16 362 people (as on 24-3-2020) across the globe, and without a vaccine, it seems this is only the beginning (see Centers for Disease Control and Prevention www.cdc.gov, accessed 11-3-2020). The mortality rate is increasing every single day and in a panic of the looming pandemic, people are buying basic food supplies and sanitary products at an alarming rate. In Singapore for example, the high demand for rice and instant noodles prompted Prime Minister Lee Hsien Loong to address the public on the availability of these supplies. Supermarket spending in New Zealand increased by 40% from the beginning of March 2020. While in Malaysia, hand sanitiser sales increased by up to 800%. All these countries have confirmed coronavirus cases (Bryan Lufkin ‘Coronavirus: The psychology of panic buying’ www.bbc.com, accessed 11-3-2020).

In response to the high demand for goods and services, manufacturing companies and retailers have hiked their prices. Reports of ‘price gouging’ or excessive pricing on eBay, Etsy and South Africa’s Takealot (Qama Qukula ‘Takealot pulls surgical masks after backlash over R2,500 price tag’ www.capetalk.co.za, accessed 11-3-2020) have left consumers vulnerable to unfair trade practices. For example, a pack of face masks costs more than US$ 100 in the United States (US) and R 2 500 in South Africa (SA) on e-commerce sites. Amazon announced it removed over a million basic-needs products for misleading claims and price gouging (Nick Statt ‘Senator slams Amazon over coronavirus price gouging on hand sanitiser and face masks’ www.theverge.com, accessed 4-3-2020). The United Nations (UN) has reported that since the outbreak of the coronavirus, prices have increased, with the cost of surgical masks skyrocketing by 600% while the price of gowns has doubled. Market manipulation and corruption have become prevalent, and the gap between the rich and the poor is becoming wider.

In a bid to curb panic, pharmaceutical companies in Britain, for example, announced that consumers will only be allowed to purchase two bottles of sanitizer per person. Whereas, Amazon has pledged to investigate price gouging on its platform (Nick Statt ‘Amazon warns sellers against price gouging face masks amid coronavirus concerns’ www.theverge.com, accessed 25-2-2020). In the US, there are numerous pieces of legislation on excessive pricing during natural disasters. For instance, in terms of s 445.903 of the Michigan Compiled Laws (Michigan Consumer Protection Act 331 of 1976), it is an offence to charge ‘the consumer a price that is grossly over the price at which similar property or services are sold’ – regardless of whether there is a declared emergency. The offence attracts a penalty of up to US$ 25 000 per violation. The New York Consolidated Laws, General Business Law s 396-R regulating price gouging, prohibits the sale of ‘goods and services vital and necessary for the health, safety and welfare of consumers’ at an ‘unconscionably excessive price’ during a declared state of emergency (see www.nysenate.gov, accessed 11-3-2020). Contravening this section also attracts a penalty of up to US$ 25 000.
Is SA ready?

With SA declaring a diagnosis of its first case on 5 March 2020, the question is whether we are prepared generally in terms of disaster management to handle such an outbreak and specifically concerning legal responses to the hiking of prices of basic sanitary products. This article investigates whether the South African legislative framework is sufficient to rebuff attempts by unscrupulous businesses to capitalise on the coronavirus crisis and any other future crises.

In the event of a natural or man-made disaster, the first point of reference would be the Disaster Management Act 57 of 2002 (the Act). The Act defines ‘disaster’ as ‘a progressive or sudden, widespread or localised, natural or human-caused occurrence which –
(a) causes or threatens to cause –
(i) death, injury or disease; or
(ii) damage to property, infrastructure or the environment; or
(iii) a significant disruption of the life of a community; and
(b) is of a magnitude that exceeds the ability of those affected by the disaster to cope with its effects using only their resources.’

The coronavirus would fall squarely within the definition of a disaster as it is a communicable disease that poses the threat of death. The Act makes provision for the establishment of a disaster management centre and provides general powers and duties of the centre in s 15, which among others include –
  1. making recommendations regarding funding of disaster management;
  2. promoting recruitment, training and participation of volunteers;
  3. making recommendations on whether a national state of disaster should be declared in terms of s 27;
  4. promoting research into all aspects of disaster management; and
  5. liaising and coordinating its activities with the provincial and municipal disaster management centre.

However, the Act does not contain any provision concerning the regulation of commodity pricing during a disaster. To this end, SA lacks laws specifically dedicated to or providing for the protection of consumers against price gouging in a state of emergency. There are, however, several sections in the Consumer Protection Act 68 of 2008 (CPA) and Competition Act 89 of 1998 (the Competition Act) that may be used to challenge, alternatively lay complaints against firms that attempt to take advantage of a crisis and hike commodity prices. This article suggests two avenues of dealing with price gouging.

The CPA

The CPA aims to promote fair business practices, as well as to protect consumers from unfair, unreasonable or other improper trade practices, deceptive, misl­eading or other fraudulent conduct. In the wake of the coronavirus and the possibility of price gouging in response to panic buying or high demand for sanitary goods and services, consumers may find redress in the CPA. Part F of the CPA provides for the right to honest and fair dealing. Section 40(1) of the CPA prohibits a supplier from using force, coercion, undue influence, duress, unfair tactics or any other similar conduct concerning the supply of goods or services to the consumer. While the section does not specifically speak to excessive pricing, we believe that price gouging in times of crises amounts to ‘unfair tactics’ by the supplier. This is because the consumer is in a vulnerable position and the supplier obtains an unfair advantage such as is the case with the coronavirus. Where suppliers hike prices due to increased demand necessitated by a disaster, natural or otherwise, such conduct may be deemed unconscionable under s 40(2) of the CPA. This is because the supplier would have knowingly taken advantage of the fact that the consumer was substantially unable to protect their interests because of the urgency of the need to obtain sanitary goods or services.
Consumers may also find refuge under the auspices of s 48(1) of the CPA. In terms of the section, a supplier must not offer to supply goods or services at a price that is unfair, unreasonable or unjust (s 48(1)(a)). If one considers the price hike of face masks on Takealot, a consumer could conclude that R 2 500 for a pack of 50 surgical face masks is an unfair and unreasonable price. In that case, a consumer could rely on Part G of the CPA.

The Competition Act

The purpose of the Competition Act is to promote and maintain competition in SA to provide consumers with competitive prices and product choices
(s 2(b) of the Competition Act). Some argue that the true goal of the competition is ‘consumer welfare’ (see M Brassey (ed) Competition Law (Cape Town: Juta 2002)). If this viewpoint is accepted, then consumers may find a remedy against price gouging through the provisions of the Competition Act. While the Competition Act does not specifically provide for the prohibition of excessive pricing by all suppliers, recourse may be found under Part B of ch 2 of the Competition Act, relating to abuse by a dominant firm. Section 8(a) provides that a dominant firm is prohibited from charging excessive prices to the detriment of consumers.

In as much as the section specifically makes the provision applicable to dominant firms, it is widely understood and accepted that in a crisis such as the one we are facing due to the advent of the coronavirus, dominant firms are usually the ones to engage in price gouging as they have the means of production and manufacturing to meet the high demand as compared to smaller firms. In the case of Takealot, one could argue that it is a dominant firm in the e-commerce space. The price of R 2 500 for surgical face masks, which is excessive could, therefore, be prohibited by the Competition Act. The major stumbling block to accessing recourse under s 8 of the Competition Act is that one would need to establish dominance on the part of the firm engaging in price gouging before an allegation can be made that the firm is abusing said dominance (see s 7 of the Competition Act on how dominance is determined).

Conclusion

This article noted that SA lacks specific legislation or policy regulating the issue of price hikes during disasters. While some sections of the CPA and the Competition Act may be interpreted to give recourse to the consumer against excessive pricing, the nature of the recourse is usually lengthy due to the administrative and litigious nature of remedies in terms of the Acts. By the time a consumer is vindicated in their quest to challenge the unscrupulous practice of price gouging, the effects would have long been felt by millions of consumers. We, therefore, argue that as a nation, we are not prepared enough as we do not have a ‘go-to’ law or policy regarding price maintenance during a state of emergency brought about by a natural disaster.
Due to the frequency of disease outbreaks in Africa generally (for example, H1N1, meningitis, ebola, malaria) (see www.nicd.ac.za, accessed 11-3-2020), as well as other natural disasters (such as hurricanes, flooding, drought, etcetera) (see ‘Worst natural disasters in South Africahttps://briefly.co.za, accessed 11-3-2020), we propose that the government establish a clear cut policy on disaster management that would automatically place a moratorium on prices for basic and necessary commodities during times of crises. Alternatively, we propose that the legislature insert a section either within the CPA or the Competition Act to specifically provide for the regulation of markets in times of crisis by prohibiting price gouging and providing a penalty for contravention of the prohibition, such as the model available in the US.

Simbarashe Tavuyanago LLM (UP) is a legal practitioner and a lecturer at the Department of Competition and Labour Law and Kudzai Mpofu LLM (University of Venda) is a Research Assistant and Doctoral Candidate at the University of the Free State.
This article was first published in De Rebus in 2020 (April) DR 10.

Article courtesy: http://www.derebus.org.za/