“Wily confidence tricksters” to face a consumer class action

For many South Africans, the bills are piling up and there is not enough money to pay them. Google searches for “loans” yield a plethora of results, including websites such as www.loanchoicesa.co.za and www.loanhubsa.co.za, eager to assist unsuspecting customers with obtaining a short-term loan, promising “no credit checks” or “loan fees” involved. All that users need to do is complete a contact form, provide their bank details, and click a checkbox to indicate acceptance of jargon-filled terms and conditions.

25 Aug 2021 6 min read Corporate & Commercial Alert Article

At a glance

  • Thousands of South Africans who sought short-term loans online ended up unknowingly subscribing to a telephonic legal advice service.
  • The Stellenbosch University Law Clinic has brought a class action against the companies behind the loan websites, seeking to reverse the debit order transactions and obtain an interdict against similar schemes.
  • The class action has been certified as an "opt-out" action, with the court finding commonality of issues and appropriateness for relief. Consumer law issues under the Consumer Protection Act and common law will be raised in the case.

Thousands (if not tens of thousands) of South Africans have filled out such forms online on a multitude of websites, all operated by Lifestyle Direct Group, the brainchild of Mr Damian Malander.

Those who completed these online forms have a common complaint: on their understanding they had contacted the relevant website for loan assistance, however, they began to notice deductions from their bank accounts in the form of debit orders. When they queried the debit orders, consumers were informed, to their surprise, that they had authorised the debit orders as part of a subscription for a “telephonic legal advice service”. No short-term loan had been approved or granted. When they tried to cancel the purported agreement, they were stonewalled, and then harassed with threats in the event that the debit orders were not honoured.

These are the facts which drove the Stellenbosch University Law Clinic (Law Clinic) to bring a class action before the Western Cape High Court on behalf of consumers who unwittingly subscribed for “telephonic legal advice services” having been led to believe that they had simply enquired as to their eligibility for a loan. The Law Clinic sought an order to “certify” a class action on behalf of those consumers, in order to undo these purported agreements, and effectively reverse thousands of debit order transactions. The Law Clinic also sought an interdict prohibiting the companies from conducting similar schemes, pending the final determination of the class action.

The class action

The “certification” of a class action suit is the first step in obtaining relief for aggrieved consumers. The Law Clinic sought (and obtained) certification of an “opt-out” class action to be instituted against the various companies running the “loan” websites (respondents). None of the respondent companies were registered credit providers or registered legal practitioners. All of these companies are associated with a group company, Lifestyle Direct Group, the first respondent, and Malander, the eighteenth respondent.

By the time that the matter was heard by the Western Cape High Court (per Gamble J), the Law Clinic’s certification application had narrowed down to two discrete issues, namely the commonality of issues and the appropriateness of the remedy.

Commonality of issues

In order to bring a class action, an applicant is required to show that there is a commonality of issues. Put differently, the members of the class (i.e. the consumers in this case) must have claims against the respondents which are the same, or substantially the same. In considering whether this criterion had been met, the court held that it is not necessary for every member of the class to have an identical cause of action, with identical facts and identical relief. Rather, if there are some issues of either fact or law that are common to all the members of the class, this is sufficient to satisfy the commonality criterion.

On the facts before it, the court found that the scheme run by the respondents fulfilled this criterion, having regard to, amongst other things, the respondents’ modus operandi and the consumer law issues under the Consumer Protection Act 68 of 2008 (CPA) and the common law. The court also considered the fact that similar evidence would need to be lead in thousands of cases before separate courts if certification was to be refused. It referred to the Canadian Supreme Court authority in terms of which it was held that the essential question is “whether allowing the suit to proceed as a representative one will avoid duplication of fact-finding or legal analysis”. This test was found to be satisfied in that the consumers were all ultimately allegedly misled into concluding “agreements” in the same manner.


A further factor in determining a class action proceeding is the criterion of “appropriateness” – i.e. whether class action proceedings are the appropriate procedural device for putative plaintiffs to obtain relief. The court first sought to define the class being represented, having found that this definition provides the foundation for a class action. Importantly, the court agreed that in order for membership of a class to be determined through objective criteria, it is necessary that this class be defined with sufficient precision.

On the facts, the court found at least three objective criteria that could be used to establish membership of the class, namely: (i) whether the member’s bank account had been debited by the respondents; (ii) whether the member had been subject to harassment regarding the payment of the debit orders; and (iii) whether the member had intended to conclude an agreement with the respondents. Having persuaded itself that the class could be objectively and precisely defined, the court went on to find that the class was large in size and the claims were relatively small. On this basis, the court confirmed the appropriateness of the class action.

The last issue that the court had to consider in relation to the certification, was whether the class action should be an “opt-in” or “opt-out” action. An opt-in action requires that persons take active steps to be part of the class action, whilst an opt-out action automatically binds the members of the class, unless they decide to actively opt-out. The court found that the case before it was well suited to an opt-out class action, and ordered the publication of the class action in several newspapers, online websites, and radio stations countrywide.

The consumer law issues

The certification of the class action is merely the first step in vindicating the rights of thousands of South Africans who fell victim to what was, in effect, a scam. The next step (subject to any appeal against the certification order) was the ventilation of consumer law issues raised by the Law Clinic in terms of the CPA and the common law.

Although the court did not consider the merits of the substantive issues raised by the Law Clinic, it did make certain preliminary findings in relation to the four causes of action upon which the class action is likely to be based:

Firstly, the Law Clinic intends to argue in due course that the agreements concluded with the respondents on the various websites, were prima facie in contravention of sections 40, 41 and 48 of the CPA. These sections of the CPA deal with “unconscionable conduct”, “false, misleading or deceptive representations”, and “unfair, unreasonable or unjust contract terms” respectively. The relief sought is found in section 52 of the CPA, which gives courts a wide variety of powers to restore money or property, compensate consumers for losses, and to require the supplier to cease any practice.

Secondly, as an alternative to its argument under the CPA, the Law Clinic will rely on the common law and argue that the agreements were unlawful and based on a fraudulent misrepresentation. If successful, they will seek declaratory relief, entitling them to restitution and damages.

The third issue, which will feature in due course, is that the conduct of the respondents, by demanding payment from the consumers, is unconscionable in terms of section 40 of the CPA or unlawful according to common law. If successful, the class will be entitled to relief in terms of section 52(3)(b)(iii) of the CPA, which gives courts the power to require the supplier to cease any practice.

Finally, the Law Clinic will argue that Malander (as the controlling mind of the respondent companies) abused the respondents’ corporate personalities to perpetrate what was described as a scam.

Apart from the interesting consumer law issues that this case will deal with, the Law Clinic may also seek to argue that the “click wrap contracts” as defined in the Electronic Communications and Transactions Act 25 of 2002 in this case were invalid. “Click wrap contracts” essentially entail agreements that are concluded electronically by clicking on a box on a website (and thereby agreeing to certain terms and conditions) prior to submitting an online form. This issue has not yet been tested by our courts, and the upcoming trial and subsequent judgment promise to make it a landmark case.

Subject to an appeal against the certification order, the class action is likely to proceed in the course of 2022. Companies and consumers are encouraged to keep an eye on the proceedings as we are likely to see interesting developments in South African consumer law, both under the CPA and the common law.

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