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“Retailer Beware” - check your product claims!

February 14, 2019

Contacts

Partners Richard Watts
Special Advisors Sarah Chapman

Consumer law

Retail today is all about the on-sell. Whether a major shop or small internet based retailer, the plan is to advertise online, highlight special qualities of the product and make a quick sale.

And what makes sales? Strong claims - “100% fur-free”, “contains only natural products”, “100% degradable.” But if sourcing a product from someone else, can you afford to rely on their assurances to back up your claim? A recent decision suggests not - forget “buyer beware”, think “retailer beware”.

What happened?

Boohoo.com purchased a number of “faux fur pom pom jumpers” from a supplier who provided a signed acknowledgement committing to not supplying products that contained real fur. Boohoo.com’s quality control team also conducted testing on the jumpers to check whether the fur was real or faux using testing methods commonly used in the industry to check real fur. Despite this, an animal activist group (who had conducted independent testing via a textiles analysis expert) complained to the Advertising Standards Authority (ASA) with a test report demonstrating that the jumper it had purchased from boohoo.com contained real animal fur.

The ASA upheld the complaint agreeing that the conduct was misleading. While this may not necessarily come as a surprise, it does raise the question of who should be liable and what can be done to mitigate this liability? In this case, boohoo.com’s supplier acknowledgements and internal quality control tests were clearly not enough.

What’s the position in New Zealand?

Generally speaking, advertising claims in New Zealand can be determined to be misleading in two primary ways:

• Through a decision of the New Zealand Advertising Standards Authority (NZ ASA); or
• Through an action under the Fair Trading Act 1986 (FTA).

We briefly discuss a few decisions below.

NZ ASA decision

In 2016, a complaint was made to the NZ ASA about beanies and pants for toddlers that were advertised as being 100% organic cotton.[1] The basis of the complaint was that because Ali Express offered the same products that were not 100% organic, the beanies and pants advertised were “knock offs” that were also not 100% organic.

In response to the complaint, the advertiser provided proof that it did not purchase the garments from Ali Express and stated that it had no reason to believe the garments were not 100% organic cotton, given that is what the original labels on the garments had stated. The complaints board accepted this response from the advertiser and was satisfied that the version of the products offered by the advertiser must therefore be 100% organic cotton as advertised.

While this decision may appear to be in conflict with the boohoo.com decision, there is an important caveat - the NZ ASA only has jurisdiction to consider the grounds of complaint put before it. It could only base its decision on whether the advertisement was misleading by establishing whether or not the garments were purchased from Ali Express, because this is what the complainant used to substantiate his/her allegation that the garments were “knock offs” (and that the advertisement was misleading). If the complainant had provided scientific evidence showing that the cotton was not 100% organic, and the advertiser was unable to refute that evidence, this decision may have been different.

FTA decision

The FTA prohibits misleading and deceptive representations in trade. Section 13 of the FTA sets out a number of prohibitions in relation to false and misleading representations about the nature and characteristics of goods, the price, any sponsorship or endorsements as well as the place of origin.

However, the FTA also provides a number of defences in relation to a breach of the false and misleading representations provisions. These defences may be available if:

  • The breach was due to a reasonable mistake;
  • The breach was due to reasonable reliance on information supplied by another person; or
  • The breach was due to the act or default of another person and reasonable precautions and due diligence was exercised to avoid the breach.

In an old but helpful case,[2] a food retailer was charged with falsely representing the quality and composition of goods. The retailer sold pies described as “Beef Pies” when it was found that the pies actually contained a “not insignificant” amount of sheep meat. The meat, described as “minced beef”, was supplied to the retailer by a third party and the central issue in the case was whether the retailer’s mistaken belief that they were being supplied with beef mince was a reasonable one.

The Court decided that the retailer could rely on the defence of reasonable mistake in this case and noted the following factors:

  • The retailer had a long standing relationship with the third party, who had been a reliable supplier for many years;
  • The retailer was entitled to place reasonable reliance in the supplier complying with its contractual obligations to supply minced beef;
  • The fact that the retailer’s internal quality control team did not test for meat species was a reasonable omission, given that at that time, its staff were not aware of any system for testing the species of raw meat.

The Court also briefly considered the defence of reasonable reliance, as the retailer sought to argue that its misleading contraventions were due to a reasonable reliance on information supplied by the third party. The Court did not deal with this point in any great detail (given that the defence of mistake was already established). However, it did say that the retailer failed to establish that there was any “written or oral assurance or indication” that the goods matched the description provided by the third party. This was despite the implicit assurance from the conduct involved in the third party delivering the goods that they complied with what the retailer had ordered.

What does this mean for you?

Drawing the above together, it seems that liability ultimately ends up on retailers. While it may seem unfair to hold retailers responsible for claims that are based on contractual terms and promises from third party suppliers, the FTA (and the ASA codes) are primarily concerned with the protection of consumers. The burden must fall somewhere, and it is difficult (if not impossible) to hold a third party supplier responsible under the FTA or ASA codes for representations that they may not have technically made to consumers themselves.

This is not to say that third party suppliers aren’t without liability. If the proper documentation is in place, retailers in this situation may be able to claim compensation from suppliers under the terms of their contracts. However, these avenues as between retailers and suppliers do not mitigate the publicity and brand issues that can result from adverse ASA or Commerce Commission / New Zealand Court investigations and decisions.

We have the following suggestions to help limit your exposure to liability for false and misleading claims:

  • If you purchase raw materials, insist on obtaining a specific assurance that the materials are what they are purported to be (and that your advertising is consistent with this assurance). The obligation to provide this could, for instance, be a condition of your supply contract.
  • Depending on the nature of your business and your products, consider having your products periodically tested externally by reputable providers.
  • Think about your relationships with your suppliers and reflect on how often the supplies have (or haven’t) complied with the terms of your contract. The ability to prove a good past relationship with your suppliers may come in handy.
  • Keep up to date with industry news and in particular, keep an eye out for issues that may affect your product or product claims.
  • Check your supply contracts for any warranties and indemnities that may allow you to seek compensation from your suppliers (including for damage to reputation) in the event a misleading claim action causes loss.

Feel free to contact us if you would like advice that is specific to your business and its needs. We’d be delighted to help.

[1] Complaint number 16/057.

[2] Adams v ETA Foods Limited (1987) ATPR 40-831, 48, 967.

 

Contributors nicole.ashby@simpsongrierson.com