On 10 December 2013, the Consumer Law Reform Bill ("Bill") passed into law, representing a new high-water mark in New Zealand consumer affairs regulation.1 The Bill implements the most significant modernising reforms to New Zealand consumer law in over two decades, and more closely aligns New Zealand consumer law with Australian consumer law by amending several consumer-related acts, notably the Fair Trading Amendment Act 2013 ("FTA") and the Consumer Guarantees Amendment Act 1993 ("CGA"), which received royal assent on 17 December 2013 ("Royal Assent").2
Consumer Affairs Minister Hon Craig Foss stated that the Bill will strengthen consumer rights, simplify business compliance and ensure consumer protections are clear and accessible.3 Some of the more transformative provisions will be delayed for six months,4 and in the case of the unfair contract terms prohibition, 15 months from Royal Assent.
- Enforcement: The Commission acquires new powers under the FTA to compel interviews, enforce undertakings and seek management bans for individuals that repeatedly breach the FTA.5
- New liability for collateral credit agreements: Consumers who reject faulty goods purchased on credit arranged by the trader may apply to the Disputes Tribunal to hold the trader liable.
- Consumer product safety requirements: The Minister can make safety statements, require notification to MBIE within two days of product recalls, and appoint product safety officers to inspect goods and business premises.
Delayed changes - FTA (taking effect 6 months after commencement unless otherwise stated)
- FTA fines tripled: Maximum fines will increase nearly three-fold under the FTA to $200,000 for individuals and $600,000 for bodies corporate. The increased fines for FTA breaches, which are usually strict liability breaches, so the Commission does not have to prove a mental element, will likely increase the risk profiles and compliance costs of businesses.
- Infringement notices and fines: The Commission will be able to issue infringement notices and fines of up to $2,000 for clear-cut offences.
- Extended warranties: There are new disclosure requirements for warranties in excess of the CGA and a five day cooling off period.
- Uninvited direct sales regime (formerly, "door to door sales"): A five-day cooling off period for uninvited direct door-to-door and telephone sales.
- Unsolicited goods and services: Businesses cannot demand payment for goods the customer has not asked for.
- Unsubstantiated representations regime: Businesses must substantiate with evidence all claims, which a reasonable person would expect to be substantiated. The corollary is the Commission need no longer test the representation to prove a breach of the FTA where a claim has not been substantiated at the time it was made.
- Changes to contracting out: In certain circumstances, including business-to-business transactions, parties may contract out of their FTA obligations, provided certain criteria are met.
- Unfair contract terms:6 The Commission may seek a court order declaring that a term in the standard form consumer contract is unfair ie it causes one party (usually the consumer) to be disadvantaged, and is not needed to protect the interests of the other party (usually the business). The "unfair" term is still legal and enforceable until the point in time that such an order is obtained. This change will not take effect until 15 months after the Bill is passed. This is intended to give businesses extra time to review their current contracts and to allow a period for case law guidance on the equivalent provision in Australia to develop.
Delayed changes - CGA (taking effect six months after commencement)
- Delivery guarantee: A customer can reject goods/obtain compensation from a seller responsible for delivering those goods, if the goods arrive substantially late.
- Extension of CGA: The CGA now covers all transactions (including online businesses, auction sites like Trade Me, tenders and mobile applications) where the seller is a "trader", with traders required to identify themselves as such.
- Changes to contracting out: In business-to-business transactions, parties may contract out of their CGA obligations provided certain criteria are met, which will mirror the criteria for contracting out of the FTA.
With Royal Assent now granted, businesses should familiarise themselves with the changes, and ensure employees are aware of these. Other preparatory measures include assessing whether standard form contracts include unfair contract terms;7 whether it is appropriate to contract out of the FTA in business-to-business contracts; updating extended warranty agreements (including in relation to insurance contracts); ensuring appropriate licenses are in place in the case of dealers of second-hand goods; and implementing processes and guidelines to ensure trade representations are substantiated with appropriate evidence.
2013 - News and views in the Fair Trading Sphere
To date, much of the heavy lifting of New Zealand’s consumer law has been done by the FTA’s broad and flexible prohibition on misleading or deceptive conduct in trade. The new prohibitions coming into force emphasise the importance of full and timely cooperation with the Commission in case of suspected breaches of the FTA. We review the more prominent examples of the Commission's action under the FTA in 2013 below:
- Commission settles with Credit SaILS: In December, the Commission reached a settlement with five companies, as part of which the companies have agreed to create a settlement fund of $60 million to be distributed to investors who lost money when Credit SaILS failed in 2008. Key messages to the finance sector include:
- accuracy: all information conveyed to investors (in a prospectus, offer document, marketing materials and things said verbally by financial advisors) must be accurate. For instance, claims of capital protection and capital guarantee should be avoided unless they are perfectly true ("protection" means a guarantee against loss according to the average non-expert investor);
- accessibility: all key terms (upside, downside, time, cost) must be disclosed upfront; it is possible to mislead by silence; use plain English, not technical jargon, for example investors in CreditSaILS understood the phrase "capital protected by AA Rated collateral" to mean their capital was effectively guaranteed against loss;
- relevance: give prominence to representations that investors care about; investments made on behalf of others must be consistent with the risk appetite of the investor; and sellers of investment products should ensure that investments are suitable for the investors to whom they are offered; and
- reliance: financial advisors are a critical source of information for investors; and creators and promoters of investment products may have liability even where they are not named as an 'issuer' or a 'promoter'.
- Pulling wool over consumers' eyes in relation to woollies: Following several multi-agency search warrants being executed on ten Rotorua and one Auckland premises, four companies and six individuals have been fined $860,900 in the Court for manufacturing and selling over-priced souvenirs to Asian tourists - specifically, "New Zealand-made" alpaca rugs, when they were imported; and duvet wool content that was 100% alpaca or merino when it wasn't. According to the Commission, these practices undermine fair competition, unfairly disadvantage traders, erode New Zealand's 100% pure brand, and tourism viability.
- Sham "green" claims on plastic bags incurs fines: A plastic rubbish bag manufacturer was fined $30,000 in the District Court for breaches of the FTA in relation to claims made on the bags themselves, the company's website and in brochures provided to retailers about the oxo-biodegradability and environmental friendliness of plastic rubbish bags marketed. Under the impending unsubstantiated representations regime proposed by the Bill, traders purporting to sell "clean and green" products will have to maintain corroborating evidence.
- Shill bidding costs car company more than $165,000: The Auto Co (Millennium) Ltd has paid over $122,000 in compensation to affected consumers and Trade Me, and was fined $42,000 in the District Court for pleading guilty to misleading consumers about the price of vehicles auctioned on Trade Me. The Commission took a hard line against shill bidding and worked with Trade Me to investigate and prosecute offenders, as reinforced by the Courts. The new provisions proposed by the Bill that extends the CGA to the online trading platform, nips such premeditated and systematic conduct as internet shill bidding in the bud.
- Slingshot under fire: Slingshot has been fined $250,000 after pleading guilty to 50 charges it faced under the FTA. The Commission alleged that telemarketers acting on behalf of Slingshot either misled customers about the service provided or switched customers to Slingshot's services without their consent - known as "slamming" - and then vigorously pursued those who refused to pay. Slingshot's marketing agent, Power Marketing Limited, is defending some of the charges it faces.
Commission's show of force
The Commission published its Enforcement Response Guidelines,8 including the all new Criminal Prosecution Guidelines on 1 October 2013. These guidelines are aimed to help New Zealanders understand how the Commission's Competition Branch enforces consumer legislation.
In 2014, the Commission has already signalled it will put its expanded arsenal of powers, including the issue of infringement notices, into practice.9 It will be interesting to see how the Commission and courts deal with the prohibitions on unsubstantiated representations and contracting out of the FTA and CGA, and whether the increase in penalty levels will result in significantly higher fines in practice.
The changes to New Zealand consumer laws provide a good opportunity for businesses to review their compliance programmes and to implement refresher training for staff - once people have recovered from their Christmas exertions of course!