On a Tight Leash

Courts tell Advertising Standards Authority to back off

The reputation of the Advertising Standards Authority of South Africa has suffered recently, in part because of reports on its financial crisis and court actions brought by non-members

In Brief

  • The self-appointed advertisements regulator in South Africa has been biting more than it can chew, that is what a high court recently found in a a case that ultimately ruled that ASASA has no jurisdiction over non-members
  • Gauteng High Court Judge DTvR du Plessis ordered the watchdog to desist ruling and sanctioning advertisements of non-members without their consent or submission to jurisdiction
  • The case filed by complementary medicines company Herbex Ltd. is significant for many other non-members who have found themselves on the receiving ends of the watchdog even when they declined to participate in respective adjudication processes
  • The court's ruling couldn’t have come at a worse time for ASASA whose fate is in the balance as management works to fix financial, governance and management issues
  • Our examination of ASASA’s annual financial reports revealed gross contravention of the New Companies Act relating to salaries and remunerations of directors of Non-Profit Companies

South Africa’s complementary medicines industry is worth more than R8 billion per year. On shelves of leading retailers, hundreds of products compete for space. It’s cutthroat and largely unregulated business; just ask the CEO of Herbex Ltd., Eddie Bisset.

Bisset has made some small fortune selling weight loss products for over two decades, thanks in part to the growing obesity and overweight problems, and people’s desire for leading healthier lifestyles. Not everyone is impressed with Bisset’s business model, though.

In March 2012, consumer activist Harris Steinman wrote to the Advertising Standards Authority of South Africa (ASASA) complaining about Herbex’s products and advertisement. In a nutshell, Steinman felt Herbex was laying it on thick; there was no scientific evidence to substantiate the weight loss claims the company was making.

Steinman’s complaint set in motion events that culminated in a significant court ruling on 5 May 2016 regarding ASA’s jurisdiction. In the case of Herbex (Pty) Ltd v The Advertising Standards Authority (Gauteng local division of the High Court 14/45714, 25 April 2016), Judge DTvR du Plessis interdicted ASASA from extending its jurisdiction to non-members.

ASASA is an industry-funded watchdog of the marketing and communication industry. Membership to the body is voluntary and comprises of agencies, marketers and the media, who agree to be bound by the organisation’s Code (of Advertising Practice) and rulings. The Code covers a wide range of issues. One of its fundamental principles is ‘prior substantiation’, which requires an advertiser to have up-to-date and market-relevant documentary evidence to support all claims made in an advertisement before it is published.

For Herbex and many other ASASA's non-members who have found themselves under the watchdog’s mercy, the court ruling was music to their ears. In many occasions ASASA has adjudicated on complaints and issued Ad Alerts affecting non-members’ ads even when they declined to participate in the process. ASASA’s real power comes from the Ad Alerts issued to media companies who, because of their membership to the watchdog, stop publishing or airing advertisement deemed to be in breach of the body’s codes.

So, how did Herbex get embroiled in this legal tussle with ASASA?

Among the complementary medicines that Herbex markets and sells are three products - Attack The Fat Syrup, Eat-less Drops and Appetite Control Tablets. In his complaint to ASASA, Steinman argued that consumers were being misled since there was no evidence supporting the claims made for these products. Herbex, despite not being a member of ASASA, defended itself before the body. ASASA ruled Herbex’s (online) advertisements contravened the Code.

Once such a ruling is made, the ‘offending party’ can lodge an appeal with ASASA’s appeal panel. Which is what Herbex did, only that appeal fell through and ASASA proceeded to publish the damning ruling on its website, an action which Herbex says damaged its reputation. The company’s only available avenue was to seek intervention of the courts to stop ASASA from maintaining the defamatory ruling on its website.

In his founding affidavit, Bisset claimed Herbex was repeatedly misled by ASASA that it was duly empowered to regulate medicinal advertising on behalf of the Medicines Control Council (MCC) in terms of Section 18c of the Medicines and Related Substances Control Act No. 101 of 1965. “Herbex was misled and induced (by material, false or misleading statements and non-disclosures absent from the ASASA’s standard letters) to respond to, participate in, and defend itself at great cost and inconvenience in internal hearings or procedures conducted by, or under the auspices of ASASA.”

Herbex further challenged the authority of ASASA, saying the watchdog wasn’t a statutory body established by any Act of parliament to regulate advertising in all media over all persons in South Africa. Herbex wanted the court to stop ASASA from adjudicating complaints about advertisements affecting non-members, and to desist from dispatching its standard letters, which it initiates against non-members.

The company asked the court to interdict and restrain ASASA from making and publishing rulings on its advertisement, and to compel it to refund with interest appeal fees amounting to R79 800 and 89 718.

Judge Du Plessis found Herbex’s rights of association and freedom of expression had been infringed, and found that ASASA has no jurisdiction over its non-members.

“…The respondent (ASASA) has no jurisdiction over any person or entity who is not a member of the respondent. I further find that the determination of complaints relating to advertisements of non-members and the issuing instructions, orders or rulings constitute an unlawful imposition of its jurisdiction over such non-members. It follows that the respondent may accordingly not issue instruction, order or ruling against non-members and may not sanction them without their consent or submission to jurisdiction.”

On the issue of appeal fees, Du Plessis ruled it was unlawful for ASASA to extract such fees from non-members and ordered ASA to repay Herbex about R170, 000.

 “The Advertising Standards Authority of South Africa has finally been exposed for what it is: unqualified, ignorant and cavalier private club that has no jurisdiction or statutory power over non-members. It’s now time for ASASA to stop scamming non-members,” says Herbex’s lawyer, Saul Shoot [– not the Saul of the 'Better Call Saul' TV series - editor].

Shoot has handled cases of other non-member companies who have been subject to similar treatment by the ASASA.

One such company is the Medical Nutritional Institute (Pty) Ltd. Last September MNI got the South Gauteng High Court to quash an ASASA ruling regarding the advertisement for its product, AntaGolin. ASASA had ruled that the advertisement for the supplement, which claims to combat insulin resistance and help with weight loss, contravened the Code, following a complaint by Steinman.

ASASA’s attempt to appeal the squash order was dented another blow soon after the Herbex judgment when the Constitutional Court dismissed ASASA’s challenge to an earlier denied leave to appeal.

The court rulings couldn’t have come at a worse time for ASASA whose fate is up in the air as management works to revamp the watchdog’s finances. According to a March report by Financial Mail, professional services firm KPMG recommended either ASASA winds up or it adopts strict measures to end the financial, governance and management issues.

The recommendations are part of a comprehensive report – the result of a business review requested by the ASASA’s principal funders, including the Association for Communication and Advertising, the National Association of Broadcasters, the Marketing Association of South Africa and Print Media South Africa.

Our examination of ASASA’s annual financial reports reveals gross contravention of Schedule 1 of the Companies Act No. 71 of 2008 (otherwise known as the New Company Act). ASASA was registered under the previous Act as a Section 21 Company. In the new legislation, Section 3 of the Schedule prohibits a non-profit company (ASASA) from “directly or indirectly paying any portion of its income … to any person who is or was an incorporator of the company, or who is a member or director, or person appointing a director, or the company, except remuneration for goods delivered or services rendered …” 

Relevant Section of the New Company Act

Despite that prohibition, in ASASA’s latest (though yet to be published) financials its auditor Grant Thornton declares; “The company is barely solvent…” This in itself is not news, what is disturbing is the clear contravention of the above Section. ASASA’s Chief Executive Officer, Thembelihle Nkosazana Msibi, in the financial year ending December 31, 2014 took home R1,749,382 in salary and bonuses – an amount that was more than the company’s cash flow from operating activities.

Ms. Msibi, other than being the CEO and director of ASASA is also a director or member of a battery organisations, including Muyair Investments (Pty) Ltd., Mzi Investments (Pty) Ltd., Mbako Engineering (Pty) Ltd., Ombudsman For Banking Services NPC, Sinqumile Mining Investments (Pty) Ltd., Simthu Investments (Pty) Ltd., Sommatel (Pty) Ltd., Thumsi Trading (Pty) Ltd., Tshilo Investment Holdings (Pty) Ltd and Zamsafety Equipment (Pty) Ltd. Not withstanding that most of these companies are under final deregistration processes due to non-compliance with the Companies Act, the numbers appear too many for an individual to justify the amount she drew in 2014 from ASASA.

The court judgments will see to a serious dent on ASASA’s main source of revenue. The question is, for how long can blind members continue to bankroll the watchdog now on a short leash?