Article by Sue Hayes & Roelof Bonnet

An Act of Parliament or contractual agreement often prescribes that a person or entity operating in a particular industry must become a member of a regulatory body. The reasons may vary from protecting consumers to preventing unfair advantage. As a result, a duty to act impartially is being imposed on more and more people entrusted with adjudicative functions as arbitrators or quasi-arbitrators of regulatory bodies.

The question of whether or not regulatory bodies can be held liable for damages for a negligent, incorrect decision was considered in the case of Matrix Vehicle Tracking v Advertising Standards Authority South Africa (the ASA) - an independent body established and sponsored by the advertising industry to ensure that its system of self regulation works in the public interest.

In this case, a negligent, incorrect decision by the ASA preventing Matrix from publishing two advertisements gave rise to an action for damages against the ASA for economic loss Matrix suffered as a result of the withdrawal of their advertisements.

The Court had to determine whether the conduct of the ASA was wrongful (one of the elements of a delictual damages action). In cases involving the negligent cause of pure economic loss, conduct is not wrongful as a matter of course.

The Court conceded that the ASA owed Matrix a duty of care to arrive at a decision without negligence in a manner which is fair, justifiable and reasonable, and within the ambit of the terms of the complaint. But it said that it did not necessarily follow that a failure to do so gave rise to a duty to compensate. It held that "policy considerations" would ultimately dictate whether or not the ASA should be held liable for the loss suffered, and that policy considerations require that there should be no liability where a judicial officer has failed in his duty and acted wrongfully due to negligence.

The Court effectively extended the principles applicable to the immunity of the judiciary to that of the regulatory body, arbitrator and quasi-arbitrator. It held that the decisive policy underlying the immunity of the judiciary is the protection of its independence to enable it to adjudicate fearlessly. In addition, the threat of damages would unduly hamper the efficient disposal of litigation.

While Matrix itself was not a member of the ASA, advertisers are indirectly bound to observe the codes of that regulatory body since their advertising agents belong to a constituent member of the ASA. Accordingly, by engaging the services of someone who is a member of a professional organisation, one has to accept the consequences of that person's professional rules and standards.

The Court made it clear that the principle of immunity is not dependent on consent. Any incorrect decision arrived at negligently during an adjudicative process which purports to serve the public good, cannot be regarded as unlawful. This principle applies even where the process is not based on either legislation or contract. However, decisions made in bad faith are unlawful and can give rise to damages claims, although they may be difficult to prove.

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