On 17 June 2014 the Consumer Law Reform Bill brought into effect a number of changes to consumer laws. One of the most relevant changes for the retail industry was the introduction of “unsubstantiated representations” under the Fair Trading Act 1986 (“FTA”). What does this mean for your business?
Consumers live in a fast-paced world and expect to rely on the promoted characteristics of competing retail products when making speedy purchasing decisions in their local retail outlet. Nip in, nip out for many purchases. Buying decisions are made quickly, sometimes impulsively, without much attention to detail. Recent changes to the FTA provide consumers with additional rights and increase businesses’ obligations to consumers. The corollary is that retailers have increased obligations.
One of the key changes for the retail sector is the inclusion of a prohibition on making “unsubstantiated representations” under the FTA. This change means that retailers must ensure they are able to show that any representations made on retail products or in connection with the promotion of these products can be substantiated at the time the representations are made. Importantly, this is irrespective of whether or not the representations are accurate. Accurate but unsubstantiated representations will still breach the new provision under the FTA.
“Long weekend, 50% off sale”, “Massive savings with 25%-75% off storewide”, “eco-friendly laundry liquid” and similar are claims manufacturers, suppliers and retailers all make to attract consumers. With the introduction of the new “unsubstantiated representations” provision, it is key you ensure you have reasonable grounds for making the claims and research and/or evidence to substantiate them.
To close off initial enquiries before they waste your valuable time and to avoid pitfalls, undertake research and/or retain records which support each marketing representation you make before you make them to consumers. The level of substantiation required will depend on the claim being made. This change places a significant duty/burden on businesses to review all representations before they are released to consumers and to ensure an appropriate level of documentation is retained in case the claims being made are brought into question.
The new provision does not apply to a representation that a reasonable person would not expect to be substantiated, for example, “a little piece of heaven in every slice” or similar. The basis for this is that obvious exaggerations are unlikely to mislead consumers. Bear in mind though that you must not misrepresent your retail products or suggest they have characteristics they do not in fact possess. The new provision could also extend to making unsubstantiated representations as to ownership of intellectual property rights such as the expansive use of the ©, ® or ™ symbols.
Unusually, the unsubstantiated representations provision can only be enforced by the Commerce Commission, not by consumers, the rationale behind this being to avoid its misuse by competitors to reduce competition. But make no mistake, the source of initial information/complaints will almost surely be your competitors in the majority.
It is important that you give attention to the new provision and address it internally as soon as possible. The new increased penalties under the FTA are dramatic; if you are found to have made unsubstantiated representations you will be liable to the increased penalties which include an increase from $200,000 to $600,000 for body corporates. Any business that is found to make an unsubstantiated representation risks breaching the new provision irrespective of whether it actually manufactures or supplies the retail product or created the advertising material for it. Retailers such as supermarkets, department stores and similar may also be liable for the promotion of unsubstantiated representations about their retail products to consumers just as the source of the representations may be, the manufacturers or suppliers.
Retailers must ensure they have reasonable grounds for all representations they make about the products they offer for sale – without a reasonable basis to support reliance on representations made by third parties such as manufacturers and suppliers, retailers may be liable for making unsubstantiated representations especially where the information relied on would be called into question by most retailers.
The message is simple and clear, greater care is now required.