Take note of changes to the Fair Trading Act 1986

When it comes to customer protection, New Zealand legislation sets a high standard, and recent amendments to the Fair Trading Act 1986 shifts the focus even more to doing the “right thing by the consumer”. By Gus Hazel.

Amendments to address unfair contract terms, which were introduced in March this year, mean that a party with most of the bargaining power cannot dictate terms, and in particular cannot implement “unfair” terms.

In New Zealand this most obviously affects big companies that service a lot of customers, for example telecommunications or finance companies, and online traders, but does go beyond just those situations.

According to the Commerce Commission, charged with investigating potentially unfair contracts, it is focusing in particular on industries that have proved problematic overseas, or in which complaints have been received in the past, including;

  • Telecommunications.
  • Rental cars.
  • Fitness/gymnasiums.
  • Airlines.
  • Online trading.
  • Finance.

If your business uses “standard form consumer contracts” it would be prudent to review the terms in light of these amendments.

Also of interest to international companies doing business in New Zealand will be amendments to the Fair Trading Act 1986 in relation to unsubstantiated representations. This applies to the supply, sale, possible sale or promotion of goods, services, or interests in land.

Any business that makes an unsubstantiated claim about a good or service may be at risk of breaching the Fair Trading Act – even if they did not manufacture or supply the good or service or develop the promotional material.

This means that retailers or online sellers who promote, or otherwise make, an unsubstantiated claim about a good or service they are selling may be liable as well as the manufacturer or supplier from whom the claim originated.

The Commerce Commission gives some examples: the term “factory prices” implies that prices are especially low because they reflect what other retailers would pay when they buy the relevant goods from the manufacturer for resale.

In order to satisfy the reasonable grounds requirement, the business making such a claim would have to have sufficient pricing and sales data to substantiate that the prices charged to consumers are genuine factory prices.

This data would have to show that the prices reflect the price usually charged by the manufacturer for the goods and that additional costs are not to be included in the price.

There are four key things to be aware of to ensure your company avoids making such a claim:

  • Don’t make claims that there are not reasonable grounds for believing to be true.
  • Rely on facts, figures and credible sources of information, not guesses or opinions.
  • Keep documentation or other information that you have gathered in the process of sourcing or researching.
  • There must reasonable grounds for claims at the time they are made, substantiating a claim after it was made may not get you off the hook.

It is important to remember is that even if a claim is true, it may still breach the Fair Trading Act if a business did not have reasonable grounds for making it. The substantiation requirement applies irrespective of whether the claim is false or misleading.

Only the Courts can make a ruling on breaches of the Fair Trading Act, but penalties can be stiff, with fines for companies found breaching provisions of the Fair Trading Act of up to $600,000 and individuals up to $200,000.

The Court may also impose a management banning order against anyone convicted of these offences on two or more separate occasions within a 10 year period.

Gus Hazel is a Partner at James & Wells and leads the Auckland office’s legal team.

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