5. Principles-Based Law
Principles-based law refers to including relatively high-level objectives and principles in Acts of Parliament, without delving into over-prescriptive details.
The advantage of principles-based law is that its purpose and objectives are clear, and affected parties have the opportunity to determine how they will comply with the principles without necessarily having to follow detailed and intrusive rules. The intention is that principles-based law is outcomes focussed and easier to comply with for businesses in particular. The intended outcomes for consumers/citizens and businesses are clearer.
Modern New Zealand legislation tends to be principles-based, with carefully crafted “purpose” sections and rules that apply at a relatively general level. The function of purpose sections is to provide a guide to interpreting the law for its users, as well as for the courts when they are required to apply the law. Regulations and other delegated legislation which sit below the primary Act of Parliament are then used, as necessary, to set out more prescriptive and detailed rules.
None of the laws being considered in the review of consumer law have purpose sections that can be described as principles-based. For the most part this reflects the age of the legislation, with most being at least 20 years old.
The Fair Trading Act and the Consumer Guarantees Act include reasonably high-level rules rather than detailed requirements, but neither of them have modern purpose sections. Introducing purpose sections to these Acts is an option for modernising them, and moving them further in the direction of principles-based legislation. Amending existing consumer law to make it more principles-based would simplify and assist consolidation of existing consumer law.
The policy underpinning consumer law is essentially based on the concept that both consumers individually and the economy as a whole benefit from consumers making effective purchasing choices from a range of competing goods and services. In order to make effective choices, consumers need to have access to good and accurate information and to be able to make their decisions without undue or unfair pressure.
Consumer law is largely focussed on ensuring that these essential pre-conditions for good decision-making exist and that an environment exists in which consumers can transact with confidence. When products and services do not live up to the expectations created by the information provided by the supplier, consumers can hold these suppliers to account.
We have described laws creating rights for disappointed consumers to take action themselves as being “self-enforcing” in this discussion document. The remedies available to individuals or other private parties generally provide for breaches to be mitigated or stopped, or for damages or losses to be compensated. These types of remedies are available through the courts (including the Disputes Tribunal) in their civil jurisdiction.
In some cases, the government enforces the law on behalf of consumers (through the Commerce Commission and the Ministry of Consumer Affairs Measurement and Product Safety Service (MAPSS)). Public enforcement involves punitive sanctions (fines) where there is a perceived public harm or an offence rather than individual “private” harms. There is usually some moral wrongdoing underpinning offences enforceable by regulators under consumer laws, and enforcement is technically through the courts’ criminal jurisdiction.
The outcome sought from consumer law is confident consumers, such that:
- when a consumer purchases a product or service, his/her reasonable expectations are met; and
- consumers know there is access to redress if their reasonable expectations are not met; and
- consumers and suppliers have confidence in market rules.
Possible purpose statement for the Fair Trading Act
A possible purpose statement (the preferred option) for an enhanced Fair Trading Act, that encapsulates these policy principles and that would clearly state the principles of the legislation, is along the lines of:
“To promote consumer well being by fostering effective competition and enabling the confident participation of consumers in markets in which both consumers and suppliers trade fairly and in good faith.”7
This purpose statement points to a responsibility on both the supplier and consumer to undertake fair and honest transactions. It is very similar to the objective for consumer policy recommended by the Australian Productivity Commission in its 2007 review of Australian Consumer Law, which has been a key catalyst for the Australian Consumer Law reforms.
The Productivity Commission’s overarching objective, slightly modified, was adopted in 2008 by the Australian Ministerial Council on Consumer Affairs (MCCA), which includes the New Zealand Minister of Consumer Affairs. MCCA added reference in the primary objective to the empowerment and protection of consumers, and removed the reference to consumers and suppliers trading in good faith.
The consumer policy objective agreed by MCCA, and which was subsequently endorsed by the Coalition of Australian Governments (COAG) is:
“To improve consumer well being through consumer empowerment and protection fostering effective competition and enabling confident participation of consumers in markets in which consumers and suppliers trade fairly.”8
The Australian Consumer Law does not include the high-level policy objective from the Productivity Commission or MCCA, but the MCCA objective was included in the Intergovernmental Agreement which supports the Australian Consumer Law.
The MCCA policy objective is a possible alternative to the Productivity Commission policy objective as a basis for a purpose statement for the Fair Trading Act. The MCCA policy objective would have the possible advantage of closer alignment with Australia – although the Australian Consumer Law does not include this as a purpose statement. A possible disadvantage is that it emphasises consumer empowerment, protection and confident participation and gives less emphasis to the importance of good faith in the law.
The options discussed in this paper include enhancing the Fair Trading Act by incorporating various other Acts in it. The optional purpose statements for the Fair Trading Act could be included in the Fair Trading Act, whether or not parts covering the matters in other Acts, including the current Weights and Measures Act and Consumer Guarantees Act, are also added to the Fair Trading Act.
Possible purpose statement for the Weights and Measures Act
If the Weights and Measures Act remains separate from an enhanced Fair Trading Act, a possible purpose statement for the Weights and Measures Act could be along the lines of:
“To promote consumer and business confidence and effective market competition through ensuring goods are exchanged using accurate measurement, and regulating measuring instruments in use for trade.”
Wording along these lines makes clear the overall outcomes sought from the Weights and Measures Act, being consumer and business confidence and well-functioning markets. Essentially, the wording notes that the Weights and Measures Act is important business legislation intended to regulate market conduct and result in honest outcomes for consumers and businesses as regards weight and measure of goods.
The wording also covers the important regulatory functions of the Act.
This possible purpose statement relates well to the Act’s quite prescriptive provisions which concern achieving certainty for consumers and a level playing field for businesses.
Possible purpose statement for the Consumer Guarantees Act
If the Consumer Guarantees Act remains separate from an enhanced Fair Trading Act, a possible purpose statement could be along the lines of:
“To promote consumer well being in markets by:
a) defining rights that give consumers confidence that their reasonable expectations about a good or service provided by a supplier or manufacturer will be met, including expectations about the good or service’s performance, quality, purpose, or safety; and
b) defining rights for consumers to seek redress from a supplier or manufacturer where those reasonable expectations have not been met.”
This possible purpose statement has been worded to complement the wording of the possible Fair Trading Act purpose statements referred to above. The suggested options refer to promoting consumer well being in markets and consumer confidence. The wording draws attention to the Act providing rights to consumers with respect to goods and services purchased and to the obligations on suppliers and manufacturers to provide redress to consumers when these rights are not met. The rights concern the reasonable expectation that goods and services purchased will be safe, will meet performance and quality expectations and will meet the intended purpose the consumer has made known or the supplier has represented they are or will be fit for.
Additional objectives of consumer law
The Australian Productivity Commission also suggested six operational objectives for consumer policy in Australia:
“The consumer policy framework should efficiently and effectively aim to:
• ensure that consumers are sufficiently well informed to benefit from and stimulate effective competition;
• ensure that goods and services are safe and fit for the purposes for which they were sold;
• prevent practices that are unfair;
• meet the needs of those consumers who are most vulnerable or are at the greatest disadvantage;
• provide accessible and timely redress where consumer detriment has occurred; and
• promote proportionate, risk-based enforcement.”
One possible approach is to include all or some of these objectives in the Fair Trading Act, the Weights and Measures Act and the Consumer Guarantees Act, in addition to the purpose statements.
As noted above, the Australian Productivity Commission included in its suggested overarching policy objective for consumer law the concept of the confident participation of consumers in markets in which both consumers and suppliers trade fairly and in good faith.
The reference to good faith was controversial, and in the end it was omitted from the policy objective adopted by the Ministerial Council for Consumer Affairs. The difficulty with the concept of good faith is that the courts in countries like the United Kingdom, Australia and New Zealand have struggled to attach a coherent or principled meaning to the words. The concept has long been applied in civil law jurisdictions, and it is included in the United States of America's Uniform Commercial Code, but it does not fit easily with the underlying philosophies of the common law. The principles of freedom of contract and "let the buyer beware" are foundation planks of the common law of contract, and the intervening principle of "good faith" is foreign to the common law.
While the common law courts have struggled with the definition of "good faith", or its meaning in particular circumstances, references to the good faith principle have become increasingly common in cases and academic writing. For example, modern Australian and New Zealand courts are generally reluctant to decide that an express agreement between parties to conduct themselves in good faith has no meaning at all, when that was less likely to have been so in earlier cases.
The controversial issue for contemporary cases (and academic consideration) is whether a general duty to act in good faith should be implied in commercial contracts generally, or in particular types of contracts, irrespective of what the contracts might say. The difficulty with this approach is that contract law is theoretically based on the agreements parties make between themselves, and implying terms which the parties have not in fact agreed to always strains the underlying model. The problem of the courts deciding on whether or not a general duty of good faith should be implied is exacerbated by the inability of the courts to agree on a consistent definition of what good faith actually means.
Imposing good faith obligations through legislation avoids the difficulty of the courts speculating on what the parties might have agreed to in their contracts, but the difficulty of determining what good faith means in any given situation remains. In general terms, good faith involves parties acting fairly and honestly towards each other. It may also involve behaving reasonably, meeting the other party's reasonable expectations, or acting in accordance with prevailing community standards. Acting in good faith may simply (if unhelpfully) involve not acting in bad faith.
Another definitional problem with "good faith" is that it tends to merge into other legal doctrines or principles, many of which are already referred to in the Fair Trading Act. For example, breaching the misleading and deceptive conduct, false representation and unfair practices prohibitions in Part 1 of the Fair Trading Act would also involve a breach of good faith. The same point would apply to unfair contract terms or unconscionability (or oppressiveness) provisions if they are added to the Fair Trading Act.
From a strict legal point of view, a separate legal obligation to act in good faith (whether implied in contracts through the common law or imposed by legislation) may add no substance to the law at all.
However, the issue of whether it would be useful to refer to mutual obligations of good faith between consumers and suppliers as a statement of principle in a new purpose section for the Fair Trading Act is a different question. The purpose section would provide statutory context and direction for the courts and other people reading the law; it would not create any new legal obligations. The fact that good faith sits easily alongside fairness as a principle which applies generally across the whole ambit of the Fair Trading Act is a strong argument for including it in any purpose statement.
Risks associated with principles-based law
There are risks with principles-based law. It may be seen as loose and ineffective if affected parties do not accept the principles and respond to the law by trying to minimise their compliance. It may also be more expensive in terms of compliance costs if businesses have to work out their own compliance programmes on a case-by-case basis, rather than simply following prescribed rules.
Tensions may arise between the principles or objectives and the specific provisions in the law when they are applied to particular circumstances. How the courts deal with the tensions which might arise may create uncertainty which is unexpected, even if a just or fair result is achieved.
Some lawyers in particular dislike law which includes high-level statements of purposes and principles and prefer detailed and prescriptive law where everyone knows exactly what the rules are because they are spelled out precisely. Australian law tends to follow a more prescriptive approach rather than being principles-based, so Australian Acts are often longer and more detailed than equivalent New Zealand Acts. Sometimes the prescriptiveness of more detailed law can become self-fulfilling because more distinctions and gaps appear as the law becomes more prescriptive, and new levels of detail are required to ensure the law anticipates those distinctions and gaps.
1. What are your views on including purpose statements in the Fair Trading Act, the Consumer Guarantees Act, and the Weights and Measures Act along the following lines:
2. Are there other principles or objectives you think should be referred to in the consumer law(s)?
3. Should any purpose statement in the Fair Trading Act include a reference to consumers and suppliers trading in good faith, and for what reasons?
7. Final drafting of any purpose statement will be undertaken by the Parliamentary Counsel Office. The suggested purpose statements in this discussion document are thus indicative only to allow for consultation and discussion regarding their general direction.
8. COAG decision of 2 October 2008 and reflected in the Intergovernmental Agreement for an Australian Consumer Law signed on 2 July 2009, reference http://www.coag.gov.au/coag_meeting_outcomes/2008-10-02/index.cfm#regulat and http://www.coag.gov.au/coag_meeting_outcomes/2009-07-02/index.cfm#regulatory