David scores victory against Goliath as court declares advertising regulator unconstitutional

A modern day David has scored a victory against a corporate Goliath as the court declared the Advertising Regulatory Board (ARB) is acting unconstitutionally when it makes rulings about non-members and their advertising.

Bliss Brands, a local laundry product manufacturer, has taken on one of its competitors, international corporate Colgate-Palmolive, as well as the ARB and won in the high court in Johannesburg.

The Advertising Regulatory Board

The ARB is a self-appointed watchdog of the advertising industry, set up and funded by the industry to regulate itself. Its code of conduct contains measures to maintain standards for the industry and adjudicate complaints about companies that do not stick to the code.

The Memorandum of Incorporation (MoI) of the ARB and the code allows the ARB to rule against non-members and if the non-member does not comply with the ruling, the members of the ARB are forbidden from accepting the advertising in question. The ARB therefore has absolute power over all advertising, even if the advertising is not done by a member.

Bliss, the modern day David

Although Bliss is not a member of the ARB, it was ordered by the regulator to withdraw the packaging of its hygiene soap brand, Securex, after Colgate-Palmolive that is a member and sells a competing brand, Protex, complained.

Bliss decided it had had enough of being bullied and challenged the constitutionality of the ARB in court.

“Colgate-Palmolive lodged a very similar complaint against us in 2019 about another brand and the ARB also ruled against us. At the time, although we did not at all agree with the merits of the ruling, we made a commercial decision to comply,” Dr Liezel Bygate, marketing director of Bliss Brands, says.

“We have absolute belief in the quality and integrity of our brands and chose to compete in the market, not in the courtroom. Emboldened by this outcome, Colgate seized the opportunity to follow shortly with another very similar complaint about our brand. We realised we would have to take a stand.”

She says Bliss did not join the ARB because the company did not think it would have much of a voice to challenge the system and effect the necessary changes as it is such a small company.

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Judgment

Judge Denise Fisher ruled that:

• Clause 3.3 of the ARB’s MoI, which grants the ARB jurisdiction over non-members, is unconstitutional, void and unenforceable
• The part of clause 3.3 that says “in the absence of a submission to jurisdiction” in two places must be removed
• The ARB has no jurisdiction over non-members
• The ARB is not allowed to issue rulings against or in relation to non-members and their advertising
• The ruling against the Bliss product is unlawful and is set aside
• The ARB must pay back the money to Bliss that was paid to appeal its decision
• The ARB must pay the costs for the constitutionality challenge that includes the fees of two counsel and Colgate-Palmolive must pay for three lawyers.

“We are very pleased with the outcome of this case and hope it can be a step towards levelling the playing field and addressing the stranglehold which the ARB wields over the industry,” Bygate says.

She says the intention of the ARB may be noble but there are certain aspects about the way it operates which raises questions about fairness and partiality, such as:

• The ARB is self-appointed and funded by its members who effectively have the ability, through their membership of the ARB, to affect the ability of non-member competitors to trade.
• The ARB does not allow external legal representation at appeal hearings, which benefits large corporates who have in-house lawyers who can represent the company, but  penalises smaller companies who do not employ legal advisers.
• The adjudicators are not lawyers, let alone judges, but they preside over legal matters, such as copyright, which should be determined in a proper court.
• Respondents have no say in the appointment of adjudicators and when an adjudicator resorts to name-calling, it calls into question their impartiality and, indeed, their professionalism,
• Taking a stand required considerable resources, which may have precluded smaller independent companies from objecting in the past. Perhaps this will change now.

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ARB is appealing

Gail Schimmel, CEO of the ARB, says the regulator is filing an application for leave to appeal. “We believe the judgement is deeply flawed in many respects, but most significantly in that it leaves the consumer without recourse against misleading and offensive advertising.

“The vast majority of marketers are not ARB members and if we cannot make decisions for the guidance of our members, consumers will be left unprotected. As consumer protection is at the very core of our mandate, an appeal is inevitable,” she says.

Schimmel points out that lodging an application for leave to appeal suspends the judgment and therefore consumers can take comfort in the fact that for now it is business as usual at the ARB.

“We believe the judgment was extremely clear, comprehensive and compelling. Of course, the ARB is within their rights to appeal,” Bygate says.