South Africa: Promotional Competitions: Mama – Legitimate Or Illegitimate?

Last Updated: 13 December 2007
Article by Hugh Melamdowitz

Spoor & Fisher has, for numerous years, been advising its clients on the lawfulness or otherwise of promotional competitions. Promotional competitions are governed by Section 54 of the Lotteries Act No. 57 of 1997 ("the Act"). In the first matter of its kind in South Africa, the National Lotteries Board ("NLB") instituted motion proceedings against Firstrand Bank Limited ("FNB"), in terms of which the NLB sought the following order:

  • It be declared that the competition that is being conducted by the respondent (FNB) for the purposes of promoting its short term investment product known as "the FNB Million-A-Month Account" is unlawful in terms of Section 56(b) and/or 57(1)(b) of the Lotteries Act No. 57/1997.
  • That the respondent (FNB) be interdicted and restrained from conducting the competition.
  • That the respondent (FNB) pays the costs of the application.

Spoor & Fisher has been representing the NLB in this application.

In short, the facts of the matter are that FNB has been offering what it terms "a product" known as the FNB Million-A-Month Account ("MAMA"). The product is similar to a 32-day notice account. It has a minimum opening balance requirement of R100.00. The account earns little or no interest and no banking charges or fees are levied by FNB, but it is linked to a monthly competition. In terms of this competition, account holders stand a chance of winning monthly cash prizes, including a grand prize of R1 000 000.00. For every R100.00 in the individual’s account, the account holder obtains one entry in the monthly draw conducted by FNB. Any individual who has deposited R100.00 (or any other amount) is entitled to withdraw that amount subject to FNB being given 32 days notice of the withdrawal. In the event that shorter notice is furnished, penalties could apply.

The NLB argued that MAMA contravenes Section 57(1) of the Act. This was based on the contention that the competition is a lottery that has not been authorised by or under the Act. In addition, it was also argued that because prizes are distributed by lot or chance and success does not depend on skill, MAMA contravenes Section 56(b) of the Act. Furthermore, as the product is being promoted by the respondent (FNB) through the media and connects FNB’s trade and/or business and/or sale of its banking products to members of the public, it is not a promotional competition contemplated by Section 54 of the Act.

FNB responded by arguing that:

  • The product does not constitute a lottery, as one of the essential elements prescribed by the Act for a lottery to exist, namely "subscription", is not present; and
  • The NLB does not have the requisite locus standi (legal standing) to launch this application.

In terms of the Act, any individual conducting a lottery not authorised by the Act or any other law shall be guilty of an offence (see Section 57).

The Act defines a lottery as including:

"…any game, scheme, arrangement, system, plan, promotional competition or device for distributing prizes by lot or chance and any game, scheme, arrangement, system, plan, competition or device, which the Minister may by notice in the Gazette declare to be a lottery;…"

A promotional competition is defined in the Act as:

"…a lottery conducted for the purpose of promoting the sale or use of any goods or services;…"

In terms of Section 63 of the Act, the Act will not apply where there is no subscription.

"Subscription", in turn, is defined as:

"…the payment, or delivery of any money, goods, article, matter or thing, including any ticket, coupon or entry form, for the right to compete in a lottery;…"

The matter was argued before Mr Justice Seriti. Judge Seriti initially considered the issue pertaining to locus standi. Having regard to Section 10(d) of the Act, the Judge held:

"The applicant (the NLB) clearly has the express authority to institute these proceedings. If not, then at the very least, such power is by necessary implication conferred upon the applicant. The applicant performs a civic duty in enforcing the provisions of the Act. It has the principal duty and therefore also the obligation to monitor, regulate, police and enforce the provisions of the Act and also to approach the Court for the necessary relief."

Judge Seriti considered various Court decisions including Johannesburg City Council v Knoetze & Sons 1969(2) SA 148 WLD where, at page 154, Mr Justice Trollip stated:

"Indeed, the presumption is the other way, …: (the) civil remedy of interdict is presumed to be available unless the statute excludes it expressly or by necessary implication."

Judge Seriti also referred to the matter of Roodepoort – Maraisburg Town Council v Eastern Properties (Pty) Ltd 1933 AD 87 at page 96 where Appeal Court Judge Stratford stated:

"Where it appears either from a reading of the enactment itself or from that plus a regard to surrounding circumstances that the legislature has prohibited the doing of an act in the interest of any person or class of persons, the intervention of the Court can be sought by any such person to enforce the prohibition without proof of special damage."

Accordingly, the Court found that the NLB was entitled to approach the Court for the relief it sought.

Judge Seriti held that, if:

"… the conduct of the respondent… (is) found to be in contravention of the act, it cannot be justifiably argued that the applicant is not entitled to approach the Court for the necessary relief. As stated in United Technical Equipment Co. v Johannesburg City Council 1987(4) SA 343 TPD…, failure of the Court to grant an interdict to stop an unlawful conduct would amount to the condonation of behaviour which is contrary to the provisions of the legislature."

Judge Seriti went on to find that, should the NLB have no authority to approach a Court for an interdict, it would be unable to effectively carry out its mandate, particularly that conferred in terms of Section 10(d) of the Act.

Insofar as the question of subscription is concerned, Judge Seriti accepted that, initially, the MAMA account was described by FNB as "an investment account". As a result of consumer complaints to the Advertising Standards Authority, the Advertising Standards Authority ruled, on 24 June 2005, that advertisements touting the MAMA account as an investment account were misleading. Subsequent to that ruling, FNB termed the MAMA account a savings account.

The essence of the argument by FNB was that, as the customer was entitled to recoup the R100.00, there was no payment of a stake and, accordingly, the subscription element required for a lottery did not exist. FNB argued that the MAMA account is just another banking product offered by FNB. It argued that, although initially referred to an "investment account", this description was incorrect and MAMA is, in fact, a savings account.

Judge Seriti found that the right to participate in the draw is inseparable from the opening of an account. Without opening an account, one cannot participate in the competition. In addition, Judge Seriti found that by sacrificing high interest rates for the chance of winning a prize, the FNB customer, by depositing money into the account, is paying a subscription to participate in the draw.

On these premises, Judge Seriti handed down an order finding that:

  • The MAMA account is unlawful in terms of Section 56(b) and 57(1)(b) of the Lotteries Act; and
  • FNB is interdicted and restrained from conducting the competition.

Subsequent to the decision, FNB applied to Judge Seriti for leave to appeal the judgment, but the judge refused the application.

FNB has now petitioned the Supreme Court of Appeal for leave to appeal the judgment handed down by Judge Seriti.

Resulting from the application for leave to appeal, and in accordance with our Court Rules, the judgment of Judge Seriti has been suspended pending the outcome of the appeal, and we await with interest the decision of the Supreme Court of Appeal. If the Supreme Court of Appeal refuses leave to appeal, this would, in our view, result in a final determination by the High Court that the MAMA account is an unlawful lottery. In the event that leave to appeal is granted, the Supreme Court of Appeal will, in due course, consider the matter.

Notwithstanding that the Supreme Court of Appeal has not yet spoken, this case must serve as a warning to all businesses conducting promotional competitions. It is essential that the promotional competition conforms to the provisions of the Act. Should this not be the case, the promoters of the competition, including the company whose products are being promoted and its advertising agency, may well be criminally prosecuted or alternatively, face legal action by the NLB to prevent the competitions from being conducted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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