A Small Enterprise Ombudsman

24 January 2022 16:00 by John de Villiers

The proposed creation of an Office of the Small Enterprise Ombud Service for Small Medium and Micro Enterprises should help to create a protective and supportive environment for SMMEs.

Chapter 3A of the Draft National Small Enterprise Amendment Bill[1] proposes the creation of an Office of the Small Enterprise Ombud Service as an alternative dispute resolution mechanism for Small Medium and Micro Enterprises (SMMEs).  It was published for comment in December 2020 and once finalised and implemented (was intended to be done during the 2021/2021 financial year)[2] should provide more support to SMMEs, by regulating unfair business-to-business practices thereby driving inclusive economic growth and job creation.  South Africa has a number of established ombuds offices such as the Press Ombud and the Consumer Goods and Services Ombud which provide independent, impartial, fair, timely and efficient dispute resolution processes across a number of sectors.

The proposed amendments to the National Small Enterprise Act, 102 of 1996[3] will govern inter alia:

  • Establishment of Office of Small Enterprise Ombud Service
  • Appointment of Ombud and Deputy Ombud
  • Powers and functions of Ombud
  • Receipt of complaints, prescription, jurisdiction and investigation
  • Determinations by Ombud
  • Staff of office
  • Delegation by Ombud, Deputy Ombud and Director
  • Funding of office
  • Accountability
  • Disestablishment and liquidation of Office
  • Rules applicable to Ombud
  • Record-keeping
  • Annual report of Ombud and
  • Unfair trading practices

In short, an independent, impartial, fair, timely and efficient dispute resolution process is intended to be created, which will provide a cost effective, and practical way to resolve complaints without parties having to go to court.

Considering unfair trading practices:

Unfair trading practices

17T. (1) The Minister -

(a)   may, subject to subsections (2) to (5), on recommendation by the Ombud, by notice in the Gazette, declare certain practices in relation to small enterprises to be prohibited unfair trading practices;

(b)   may make regulations requiring specified enterprises—

  1. to provide in the prescribed manner, prescribed information about their  contracting and payment practices and policies relating to small enterprises; and
  2. to publish such information in the prescribed manner; and

(c)   must make regulations regarding the application of this section;

(d)   must consult with the Minister responsible for trade, industry and competition before making regulations regarding the application of this section and receive a response within 30 working days thereof.

(e)   must, in the performance of a function in terms of this section, consult with any Minister responsible for a national function affected by the performance of that function.

(2) Small enterprises have the right to choose, trade and transact freely, including—

(a)   the right to fair and unambiguous business contract;

(b)   the right to a reasonable payment date and interest on late payments;

(c)   the right to disclosure of information;

(d)   the right to fair and honest dealing; and

(e)   the right to accountability from large enterprises and organizations.

It is noteworthy that the ombud can declare certain practices in relation to small enterprises to be prohibited unfair trading practices such as – 17T (3)

(3) The practices contemplated in subsection (1)(a) include—

(a)   ambiguous contract terms;

(b)   lack of written contracts;

(c)   retrospective changes to arrangements;

(d)   the transfer of commercial risk to the weaker party;

(e)   the use of information outside the purpose for which the other party discloses it;

(f)    sudden and unjustified termination of a commercial relationship or termination without reasonable notice;

(g)   long-term exclusive agreements aimed at preventing weaker parties from entering an existing market;

(h)   unfair exclusionary compliance requirement practices; or

(i)    unfair contract terms in retail and commercial leases for small enterprises.

(4) The following principles must guide the Minister and the Ombud in considering whether or not a declaration contemplated in subsection (1) may be made:

And that:

(a) That the practice concerned, directly or indirectly, has or is likely to have the effect of—

  1. harming the sustainability and competitiveness of small enterprises;
  2. unreasonably prejudicing any small enterprise;
  3. deceiving any small enterprise; or
  4. unfairly affecting any small enterprise; and

(b) that if the practice is allowed to continue, one or more objects of this Act will, or is likely to be defeated.

Small enterprises will still be able – at (2) to have the right to choose, trade and transact freely. Yet in a business and contractual environment which could be seen as overly protective of the SMME sector in many aspects, through encouraging and enforcing best practices. Reservations about for instance the concept of unfairness and its relationship to legal certainty when it comes to contracting are therefore valid and whether included in the amendment or not, will remain an issue.

[1] Draft National Small Enterprise Amendment Bill
[2] Department for Small Business Annual Performance Plan 2021/2022 at 30
[3] https://www.gov.za/sites/default/files/gcis_document/201409/act102of1996.pdf