Sales & Marketing

18 Mar 2011

Download this as a pdf

Government Announcement on Consumer Law Reform

The Government has released two Cabinet Papers setting out proposed reforms to be made to our consumer laws. These will be part of a Consumer Law Reform Bill to be introduced this year.

This FYI identifies:

• initial wins;
• important reforms you need to know about;
• reforms of significant concern; and
• where to from here.

The Cabinet Papers are the culmination of a process begun in June 2010, when the Ministry of Consumer Affairs (Ministry) released a discussion paper outlining a review of New Zealand's consumer laws. The goal of the review is to simplify and consolidate our consumer laws.

The Cabinet Papers propose reform of our main consumer laws, including the:

• Consumer Guarantees Act 1993;
• Fair Trading Act 1986; and
• Weights and Measures Act 1987,

and to a lesser extent, the:

• Auctioneers Act 1928;
• Door to Door Sales Act 1967;
• Layby Sales Act 1971; and
• Unsolicited Goods and Services Act 1975.

Initial Wins

The Ministry recommended introducing prohibitions on "unfair" contract terms and "unconscionable conduct". The Government decided not to introduce such prohibitions. In our previous FYIs, we argued that these reforms would have caused significant uncertainty and increased compliance costs for businesses. We are pleased to see that the Government is listening to businesses' concerns.

Important Reforms You Need to Know About

Fair Trading Act

The Consumer Law Reform Bill will repeal four laws, and instead make their provisions part of the Fair Trading Act. These laws are the:

• Auctioneers Act;
• Door to Door Sales Act;
• Layby Sales Act; and
• Unsolicited Goods and Services Act.

The Consumer Guarantees Act and Weights and Measures Act will continue to be standalone laws.

Online auctions

The Consumer Guarantees Act will be amended so that auctions and competitive tenders are covered by the guarantees. At the moment, goods sold by auction (such as via Trade Me) are not covered by the guarantees under the Consumer Guarantees Act.

Extended warranties

The Consumer Guarantees Act will be amended to require extended warranties to disclose what the warranty provides above the statutory guarantees under the Consumer Guarantees Act.

Product safety

The Fair Trading Act will be amended to enhance the protections for consumers against unsafe products. Amendments include:

• the Minister of Consumer Affairs being able to require recalled unsafe products to be destroyed; and
• mandatory notification to the Ministry of product safety recalls, and for these recalls to be listed on the Ministry's website for up to two years.

Fair Trading Act enforcement

The Fair Trading Act will be amended to enable a court to give banning orders. A banning order would:

• prevent a person from being a director, promoter, or involved in the management of a business for up to 10 years;
• only be available where a person has been convicted or involved in the management of a company that has been convicted, of two or more offences under the Fair Trading Act within a 10 year period; and
• only be appropriate to the extent necessary to protect the public from being harmed by more of the person's offending.

The Fair Trading Act will also be amended to specify a limited number of infringement offences and provide for the Commerce Commission to issue infringement offences for minor breaches. Indications are that such minor breaches would not be for misleading or deceptive conduct or representations.

Weights and Measures Act

Currently, the Weights and Measures Act requires that a retailer is responsible for weighing goods sold (eg, vegetables at a supermarket). This means that in the age of self-checkouts, supermarkets may technically be in breach of the Weights and Measures Act.

Therefore, the Weights and Measures Act will be amended so that:

• the person offering the goods for sale (ie, retailers) will be responsible for the accuracy of weighing equipment used to determine the sale of their goods; and
• the weighing instrument and indicator of the weight of a good must be in close proximity, so that the consumer can see both at the same time.

Reforms of Significant Concern

There are three reforms that present significant concerns and may affect your business. These are:

• introducing provisions to the Fair Trading Act prohibiting unsubstantiated claims;
• amendments to the Fair Trading Act to give the Commerce Commission (Commission) the power to use court enforceable undertakings; and
• extending the Disputes Tribunal's jurisdiction to cover misleading and deceptive conduct under section 9 of the Fair Trading Act.

Unsubstantiated claims

The Cabinet Papers propose adding provisions to the Fair Trading Act prohibiting unsubstantiated claims. While consumers rely on, and are entitled to rely on, information provided by suppliers about goods and services, a call for prohibition ignores the fact that the existing laws (including the Fair Trading Act and Advertising Standards Authority Codes) sufficiently cover such claims.

Despite the Government's pledge to "remove requirements that are unnecessary, ineffective or excessively costly", a prohibition on "unsubstantiated" claims is contrary to such goals. Businesses will face increased compliance costs as a result of uncertainty over what standard a trader must substantiate their claims to, as well as costly compliance programmes to ensure all claims can be substantiated. Further difficulties arise for retailers over the extent to which they can rely on the claims of their suppliers.

Court enforceable undertakings

The Cabinet Papers propose to amend the Fair Trading Act to give the Commission the power to use court enforceable undertakings (Undertaking). An Undertaking would be a settlement agreement between the Commission and a person or business who admits to breaching the Fair Trading Act. If a person or business does not comply with an Undertaking, they will be prosecuted for breaching the Undertaking - not the original breach.

In our view, the Commission does not need such extra powers, given the Commission can already enter into settlement agreements. Further, large fines and injunctions are already available to deter breaches of the Fair Trading Act.

A further concern is that Undertakings could be presented to the marketplace as a statement of the law - not simply the view of the Commission. Undertakings are not statements of law, as only a court can determine whether conduct has breached the Fair Trading Act.

Disputes Tribunal's jurisdiction

The Cabinet Papers propose that the Disputes Tribunal (Tribunal) will have jurisdiction to consider alleged breaches of section 9 of the Fair Trading Act. This will allow the Tribunal to consider claims of misleading and deceptive conduct.

Claims of misleading and deceptive conduct can often be legally complex. As the Ministry of Justice pointed out in one of the Cabinet Papers, the Tribunal is neither equipped nor intended to deal with complex legal claims. This is because the parties cannot have lawyers, the referees are not required to be legally trained, and there are limited appeal rights.

We are also concerned that by widening the Tribunal's jurisdiction, it will open the floodgates to complex and time-consuming claims. This will undermine the Tribunal's ability to provide cheap, simple, and fast access to justice.

Where to From Here

The Ministry of Consumer Affairs plans that the reforms announced become law by the end of the year. We hope not to see hastily drafted legislation and a short select committee submission period.

It is important to make your views heard. We can help you prepare submissions during the select committee process, lobby your local MP, or discuss the practical effects the reform will have on your business.

Authors

Peter Stubbs

Partner - Corporate & Commercial

DDI: +64 9 977 5010

Mobile: +64 21 955 230

Email:

View Profile

Gwendoline Keel

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5201

Mobile: +64 21 242 6639

Email:

View Profile

Craig Nelson

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5185

Mobile: +64 21 918 309

Email:

View Profile