Consumer Law Reform: A Discussion Paper

Following my appointment as Minister of Consumer Affairs in November 2008, I formulated key priorities and goals for the Consumer Affairs Portfolio from 2009 through to the next election. I used the Government’s strong commitment to regulatory responsibility as a guidepost, along with the belief that effective consumer laws help to create a competitive business environment in which consumers and businesses can engage with trust and confidence. As with other business regulation, consumer laws that fail to achieve their objective – or which are no longer relevant to the way the market operates – can be a drag on the innovative potential of business.

At my first planning session with Ministry of Consumer Affairs’ officials I introduced the idea of “One Law-One Door”. The “One Law” refers to the goal of a principles-based piece of consumer-supplier legislation. I envisage the “One Door” concept as a portal for consumers; one place to go to seek advice and assistance when consumer transactions don’t go as planned. Achieving the goals of the “One Law” initiative will be a significant step forward for consumer law and regulatory reform in New Zealand. Providing effective consumer law will help to further foster a competitive business environment in which consumers can transact with confidence and honest businesses compete on a level playing field.
This discussion paper is the result of the “One Law” review.

Having strong and relevant consumer legislation is very important. Consumer legislation is an important contributor to consumer confidence and successful consumer participation in the market place. Consumers transacting with confidence contribute to a productive and innovative economy. For businesses, effective consumer laws help to create a competitive business environment where reputable suppliers are protected from the inappropriate market conduct of competitors.

The Ministry’s review work has been greatly assisted by the Australian Productivity Commission’s 2007-2008 review of Australia’s Consumer Policy Framework and the work since then by the Commonwealth, States and Territories to put in place the Australian Consumer Law. Carrying out the review at the same time as the development of the Australian Consumer Law is also enabling real-time harmonisation as appropriate with Australia which supports the Government’s Single Economic Market agenda.
This discussion document covers seven consumer laws that have not been reviewed for many years in some cases. Each law is examined individually and questions are included throughout the paper to assist your consideration of the issues. I invite and welcome comment from both consumers and industry on the issues raised in this document.

Hon Heather Roy
Minister of Consumer Affairs
 

The Ministry of Consumer Affairs invites submissions on the proposals outlined in this discussion paper.

To assist your consideration of the issues covered in the discussion paper, a number of questions are included. These are throughout the document and listed in full on page 125. Please do not be constrained by these questions or feel that you need to answer any or all of the questions.

Parties who wish to make a submission are invited to respond by Friday 30 July 2010.

Submissions should be emailed in either Adobe PDF or Microsoft Word format to the Ministry of Consumer Affairs (consumerlawreform@mca.govt.nz), with "Submission on the Consumer Law Reform" as a subject heading. Alternatively, submitters may send hard copies of their submission to:
Consumer Policy
Ministry of Consumer Affairs
PO Box 1473, Wellington

Submitters should indicate any documents attached in support of their submission in a covering letter.

A forum the week of 9 August 2010 will also be available to hear representative oral submissions. Please indicate in your written submission if you would like to make a supporting oral submission. The Ministry of Consumer Affairs will contact you and advise if you have been selected to present an oral submission. The forum will be open to other interested parties to attend. Details of the time and place of the forum will be placed on the Ministry’s website.

The Ministry of Consumer Affairs will acknowledge receipt of all submissions electronically. Please contact Anita Manga (anita.manga@mca.govt.nz or ph +64 4 462 4273) if you do not receive electronic acknowledgement of your submission within 5 business days.

Consideration of submissions

The Ministry of Consumer Affairs will consider all submissions. A summary of submissions will be prepared and made available. Taking into account the submissions received, the Ministry will report to the Minister of Consumer Affairs on recommended reform of consumer laws.

Official Information Act 1982

Please note that any submissions you make may be published and subject to a request for release under the Official Information Act 1982.

In providing your submission, please advise us if you have any objections to the release of all or part of your submission and the basis of your objection. When preparing and releasing any summary of submissions and when considering any Official Information Act requests, the Ministry will carefully review any representations you make in this regard.

Privacy Act 1993

Any personal information that you supply to the Ministry in the course of making a submission will be used only by the Ministry when considering matters covered by this discussion paper.
When preparing any summary of submissions on Ministry discussion papers, it is the Ministry's normal practice to set out the names of parties making submissions. Your name will be included in any such summary unless you inform the Ministry that you do not wish your name to be included. To indicate your wishes, or to view personal information held about you in relation to matters covered by this discussion paper, or to request correction of that information, please contact the Ministry of Consumer Affairs (consumerlawreform@mca.govt.nz).
 

There are several consumer laws that deal with the purchase of goods and services. These laws, taken together, seek to promote better outcomes for consumers through:

• protection from misleading and deceptive conduct, unfair practices and unsafe or defective goods or services
• assistance in making better purchasing decisions by ensuring consumers receive appropriate product information, or in some cases by changing the terms and conditions on which goods and services are purchased (such as cooling-off periods)
• standardisation in weights and measures
• provision of remedies when the reasonable expectation of a consumer transaction is not met, and
• enforcement by the Commerce Commission of good market conduct.

Effective consumer laws help to create a competitive business environment in which consumers can transact with confidence and reputable suppliers are protected from inappropriate market conduct. The advantage for reputable suppliers is that they can compete on a level playing field. Confident and empowered consumers, in association with responsive suppliers that trade fairly, promote effective competition and overall benefits for consumers. Confident and empowered consumers have an important role in the development of dynamic and trusted markets.

The principal consumer laws dealing with the purchase of goods and services are:

• Fair Trading Act 1986
• Consumer Guarantees Act 1993
• Weights and Measures Act 1987.
• There are also:
• Auctioneers Act 1928
• Door to Door Sales Act 1967
• Layby Sales Act 1971
• Unsolicited Goods and Services Act 1975.

As part of the government’s commitment to regulatory responsibility, the Ministry of Consumer Affairs is undertaking a review of the consumer laws listed above with the view to achieving reform.¹

Why the review

Where consumer laws do not achieve their objective or are no longer relevant to the way the market operates, they can be a drag on the innovative potential of businesses. Consumer law that is potentially out of date and may no longer be relevant is also a compliance problem for businesses and consumers.

The Government Statement on Regulation: Better Regulation, Less Regulation released by the Minister of Finance and the Minister of Regulatory Responsibility in August 2009, states:

“Outdated, poorly conceived and poorly implemented regulation can significantly hinder individual freedom, innovation, and productivity. Reducing the burden imposed by such regulation will help unshackle our economy and give New Zealanders more ability to shape and improve their own lives.
New Zealand needs to offer a better policy environment than can be found elsewhere if we are to overcome the economic disadvantages of our small size and geographical isolation, and attract and retain increasingly mobile talent, skills, capital, technology and entrepreneurship.
This is why improving the quality of regulation is a priority for this government. We believe that better regulation, and less regulation, is essential to assist New Zealand to become more internationally competitive and a more attractive place to live and do business.”

It is questionable whether there need to be 7 specific consumer laws dealing with consumer transactions. Most of the consumer laws covered in the review are older than 20 years. Some of the laws are quite prescriptive. None have modern purpose statements signifying their intent or underlying principles. Whilst there have not been concerns raised that the laws are ineffective, most have not been reviewed recently, or previous reviews have not resulted in any changes because of other priorities.

There is not good public recognition of consumer legislation other than the Consumer Guarantees Act and the Fair Trading Act. A major survey of consumers’ awareness² of their rights and consumer law , undertaken mid-2009, showed that less than 2 percent could name the Weights and Measures Act as consumer legislation they were aware of, and less than 1 percent could name the Layby Sales Act, the Unsolicited Goods and Services Act and the Sale of Goods Act. There was no recall of the other pieces of law.

The Government also has a commitment to achieving, where possible, a single economic market (SEM) with Australia. SEM is based on the objective that deeper economic linkages between New Zealand and Australia provide bigger markets in which to buy and sell goods and services, allow access to a larger and more varied pool of capital and labour, and open our economy to new ideas and technology. SEM aims to address behind-the-border impediments to trade. This includes identifying innovative actions that could reduce discrimination and costs arising from different, conflicting or duplicate regulatory requirements. The aim is to ensure that trans-Tasman markets for goods, services, labour and capital operate effectively and support economic growth in both countries.
The Fair Trading Act 1986 is very similar to the consumer provisions in Australia’s Trade Practices Act 1974.

Australia is currently undertaking a major reform of its consumer laws with the introduction of the Australian Consumer Law. The Australian Consumer Law will replace the consumer protection and fair trading provisions in the national Trade Practices Act and each State and Territory’s fair trading laws with a single national consumer law, applied as the law of each Australian jurisdiction. As part of the reforms there will also be a new policy development and decision-making framework through the Ministerial Council on Consumer Affairs (MCCA), and a coordinated approach to enforcement, compliance and education by Australia’s consumer agencies.³ As a member of MCCA, the New Zealand Government has been involved in the development of the Australian Consumer Law and is following the reform process closely.

The review of our consumer law at the same time as the Australian Consumer Law reforms is very timely and provides a real time opportunity to achieve harmonisation of approach where this is appropriate.

Objectives of the review

The objectives of the review are:
To have in place principles-based consumer law that:

• enables consumers to transact with confidence;
• protects reputable suppliers and consumers from inappropriate market conduct;
• is up to date and relevant now and into the future;
• is easily accessible to those who are affected by it;
• is in line with international best practice, as appropriate; and
• is effective and enforceable;
• To achieve simplification and consolidation of the existing law; and
• To achieve harmonisation with the Australian Consumer Law, as appropriate, in accordance with the government’s agenda of a single economic market with Australia (SEM).

What the review encompasses

In accordance with the Government Statement on Regulation: Better Regulation, Less Regulation, the 7 consumer laws noted above are being reviewed in order to identify any requirements that are unnecessary, ineffective or excessively costly.

Specifically, each of the consumer laws is being reviewed by looking at its history and original purpose, its ongoing relevance and, if still relevant, whether it is sufficiently up to date for consumer transactions of today and the overall effectiveness and enforceability of the law. The review of the overall effectiveness includes looking at any gaps in the law taking into account best practice international consumer law.

As part of the review of each consumer law, consideration is also being given to whether it could be incorporated into an enhanced Fair Trading Act or whether it should remain as standalone law.

The review also is considering the Carriage of Goods Act 1979 with respect to its coverage of consumer transactions and the Sale of Goods Act 1908 with respect to its relationship to the Layby Sales Act and the Auctioneers Act. These laws are not being reviewed, however, in the same manner as the other 7 consumer laws.

Footnotes

 1. There are also other industry-specific laws which have a consumer protection function, but which fall outside the scope of this review. These laws include the Real Estate Agents Act 2008, the Lawyers and Conveyancers Act 2006 and the Immigration Advisers Licensing Act 2007.

2. National Consumer Survey 2009

3. More information about the reforms can be found at: http://www.treasury.gov.au/consumerlaw.

The following table sets out at a high level the essential elements that consumer law must cover (indicated by the headings in bold in the table) and possible areas that come under each of the elements. The matters not covered in existing law are in a grey shade.
In summary, consumer law needs to be clear in terms of the outcomes or underlying principles it seeks to deliver. These may be set out in purpose statements or other statements of the objectives of the legislation.
At its core, consumer law concerns protection against:

• unfair commercial practices
• selling under duress
• unsafe products.

Consumer law also may establish protections through defining trader obligations for specific situations, such as supplying goods by weight or measure.

Consumer law also concerns the empowerment of consumers. In this regard, it should cover:

• information provision to assist consumer decision-making
• guarantees and associated enforcement provisions to enable redress when a transaction does not meet reasonable expectations.

Consumer law must also include appropriate enforcement and penalty provisions to ensure compliance.

The following sections of the report discuss those elements of consumer law that already exist and their ongoing relevance; as well as possible additional consumer law provisions. The discussion is arranged under the headings as set out in the table.

Essential elements and possible areas to be covered by consumer 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.

Good faith

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.

Questions

Footnotes

 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

 

Certain types of trader conduct can put consumers under pressure to buy goods or services they do not really want, which is a form of duress. This section discusses existing consumer law protections regarding door to door sales and unsolicited goods and services, which are both types of selling that can put consumers under duress. There is existing legislation addressing both of these areas, but in both cases the legislation is old and out of date.

The existing law is compared with the Australian Consumer Law stage 2 proposals which have modern provisions on unsolicited sales practices including door to door selling, telephone sales and other forms of direct selling which do not take place in a retail context. These will replace door to door sales and unsolicited sales practices legislation in the Australian States and Territories. The Australian Consumer Law stage 2 proposals also include under unfair practices, modern provisions concerning unsolicited supply of goods and services.

This section also considers whether protections for consumers against unconscionable conduct or oppressive conduct should be included in an enhanced Fair Trading Act.
Australia has existing provisions in the Trade Practices Act prohibiting unconscionable conduct. In 2008 the Australian Commonwealth Government Senate Economics Committee undertook an examination of the unconscionable conduct provisions. In November 2009, the Australian Government responded to the Senate Economics Committee report and established an expert panel to consider options for amending the unconscionable conduct provisions. We have drawn on the findings of both of these processes as much as possible.

The work undertaken by Australia regarding unsolicited sales practices, unsolicited supply of goods and services and unconscionable conduct is timely. It has assisted the analysis which follows and also provides an opportunity to consider harmonisation of law in these areas.
 

Consumers being confident that the goods and services they buy are safe is fundamental to their participation in markets. Suppliers of goods or services which are not safe and that cause harm or physical damage may not be trading fairly or in good faith. As well as potentially causing harm and distress to individuals, unsafe products can have an impact on costs to the health budget and to the Accident Compensation Corporation.

Product safety is addressed in the two main consumer laws: the Consumer Guarantees Act and the Fair Trading Act.

Consumer Guarantees Act 1993

Consumers’ first line of defence when a product supplied is unsafe is under the Consumer Guarantees Act. The statutory guarantee that goods supplied in trade to consumers are of acceptable quality includes the requirement that the goods be as safe as a reasonable consumer fully acquainted with the state and condition of the goods would regard as acceptable, having regard to all the circumstances including the nature of the goods and any statements on their packaging or label, or representations by the supplier or manufacturer in relation to the goods (sections 6 and 7).

Where a consumer buys goods supplied in trade which are not acceptably safe in terms of the Consumer Guarantees Act, the consumer has remedies against the supplier and the manufacturer of the goods. The remedies available to consumers under the Act are to return the goods or have them repaired or replaced. Suppliers and manufacturers are also liable for any loss or damage to the consumer or any third person resulting from the failure of the goods where the loss or damage was reasonably foreseeable (sections 18(4) and 27(1)(b)). Suppliers and manufacturers are for practical purposes exempt from liability for physical injury to consumers and any third parties under the Accident Compensation scheme, but they are potentially liable for other damages⁵⁰.

Avoiding product liability is a stronger incentive in jurisdictions where suppliers and manufacturers are liable for personal injury than it is in New Zealand, but there is an inference that suppliers and manufacturers in New Zealand still have an incentive to avoid liability for other damages. Reputational damage in the market place from high profile cases where goods are found to be unsafe probably has a higher commercial impact than an award of damages by a Disputes Tribunal or other court.

Unlike the statutory guarantee that goods of an acceptable quality should be safe, the statutory guarantees in relation to services do not expressly refer to services being safe. The safety requirement is probably implicit in the guarantees that services are carried out with reasonable care and skill (section 28), and that the services are fit for particular purpose (section 29). If consumers suffer physical damage or loss as a result of services being provided which are not safe, then the services are unlikely to have been provided with reasonable care and skill, or to have been fit for purpose.

Breaches of the Consumer Guarantees Act are only actionable at the suit of consumers in the civil courts. Consumers are unlikely to be motivated to take on cases in relation to the lower-priced goods which are frequently the subject of product safety concerns. Breaches of the Consumer Guarantees Act are not offences enforceable by the Commerce Commission (or any other public agency).

Fair Trading Act 1986

The Fair Trading Act includes provisions dealing with product safety (Part III) and the safety of services (Part IV). The features of these provisions of the Fair Trading Act include:
Regulations may be made establishing product or service safety standards for the purpose of preventing or reducing the risk of injury to any person (sections 29 and 35).
Product safety standards may relate to:

• The performance, composition, contents, manufacture, processing, design, construction, finish or packaging of goods;
• The testing of the goods during or after manufacture or processing;
• The form and content of markings, warnings, or instructions to accompany the goods⁵¹.
• Service safety standards may relate to:
• The maintenance, repair, treatment, processing, installation, assembly, cleaning or alteration of goods;
• The construction, maintenance, repair, cleaning or alteration of any building or other fixture on land;
• The development of land;
• The transportation of goods⁵².
• An official standard (which means a standard determined by Standards New Zealand or similar) may be declared to be a product or service safety standard under the Fair Trading Act (sections 29(2) and 35(2)).

There are six current regulated product safety standards in New Zealand⁵³. There are no regulations for service safety standards. Where a product or service safety standard is regulated, no person may supply, offer to supply or advertise for supply products or services unless the products or services comply with any applicable product or service safety standard.

Goods which are intended for use outside New Zealand do not need to comply with any product safety standards, but they must have a statement physically applied to the goods saying that the goods are for export only, or are intended to be used outside New Zealand.
Where it appears to the Minister that goods “will or may cause injury to any person”, the Minister may declare the goods to be unsafe by notice in the Gazette, and no person may supply, offer to supply or advertise the goods for sale while the notice is current. The notice applies up to 18 months in the first instance, and may then be extended to apply indefinitely (section 31).

Where goods have been supplied which do not comply with a product safety standard, or the goods are of a kind which will or may cause injury to a person, and the supplier has not taken satisfactory action to recall the goods itself, the Minister may require a compulsory recall.

The product safety standard regulations made under the Fair Trading Act are enforced by the Commerce Commission. New Zealand Customs Service is responsible for ensuring there is no importation of goods that do not comply with the product safety standard regulations. General product safety monitoring is undertaken by the Ministry of Consumer Affairs. The Ministry works with its Australian counterparts and other international consumer agencies as part of its product safety monitoring work.

Ongoing relevance of product safety law

The general approach to product safety law through the Consumer Guarantees Act and the Fair Trading Act allows for consumers to take self-enforcement action and for public enforcement and monitoring. This two pronged approach would appear to be very effective.
The product safety system in New Zealand is generally consistent with the Australian system under their Trade Practices Act (and the proposed Australian Consumer Law). This reflects the genesis of the Fair Trading Act.

The most fundamental issue which faces any product safety system is that regulations can only have a reactive role because the range of goods and services available to consumers is too great for a regulator to sensibly monitor or test for safety compliance. Any product safety regulation system is primarily reactive because in many instances it can only react to particular problems which arise. For most purposes, suppliers and consumers themselves have the primary responsibility for keeping consumers safe when they buy goods and services. New and emerging product safety risks and concerns challenge the reactive model. “Traditional” product safety risks have in the main centred on physical features (sharp edges, entrapment hazards etc) that are relative easy to identify.

Increasingly risks and issues are being raised around chemicals and new technologies where risks are virtually impossible to determine by any other means than laboratory testing. Consumers do not have ready recourse to such testing facilities and so rely on regulators to ensure safe products. Similarly many small businesses lack the capacity to test products, and/or do not consider testing for product safety before they supply goods, which means potentially unsafe goods get on to the market un-checked. Responsible businesses and manufacturers frequently ask the Ministry of Consumer Affairs for guidance as to how they can ensure that their products are safe. However, retailers of low value imported goods may be less inclined to demand evidence of safety testing for the products they sell. Mandatory standards can help all stakeholders by laying down clear criteria around product safety issues.

As noted, there are only six current product safety standards and no service safety standards under the Fair Trading Act. The product safety standards which have been made are all primarily concerned with protecting children from being injured by the products they use. The principle is that children are particularly vulnerable to risks like choking hazards, or from flammable nightwear. By way of comparison, Australia has 41 mandatory standards currently in place.

The Australian product safety system was extensively reviewed by the Australian Productivity Commission in 2005⁵⁴ and its findings have been used in decisions incorporated into the Australian Consumer Law process. The main driver of the review was the harmonisation of State and Commonwealth law and coordination of enforcement. The review also looked at Australia having a general product safety provision.

One issue which was considered by the Productivity Commission and in relation to the Australian Consumer Law was the extension of the system for safety standards to apply to services. Product safety laws in Victoria, Queensland and South Australia (which will be replaced by the new Australian Consumer Law) currently apply to services, and this is also the case in New Zealand, but the Trade Practices Act only applies to the safety of goods. The Australian proposal is to provide for safety standards for services, but to limit the services which may be subject to safety standards to those related to the supply of goods.

The examples usually cited in Australia as cases where service safety standards might apply are the unsafe installation of blind and curtain cords which create a strangulation hazard for children, the installation of highly flammable insulation in roof cavities, and the incorrect installation of heat lamps creating a fire hazard in ceilings. In New Zealand, other legislation covers specific service safety, e.g. the Building Act 2004 and Code, and the Electricity (Safety) Regulations 2010.

The scope of potential service safety standards in New Zealand includes services in relation to goods, as well as in relation to land, development of land and the transport of goods. Standards for solariums (sun beds) and hang-gliding have been contemplated in New Zealand. These industries are currently regulating themselves by complying with codes of practice or licensing operators. The voluntary development of industry codes and standards is encouraged where it can effectively deliver service safety and thus avoid the need for regulation.

The fact that no service safety standards have ever been made in New Zealand suggests any differences with Australia may be academic, but the potential scope of service safety standards is broader in New Zealand than will be the case under the Australian Consumer Law.

Possible enhancements to product safety laws

Power to ban or recall products which could reasonably foreseeably cause injury

Another issue identified in Australia which applies equally in New Zealand is that the test for product bans and recalls requires that the goods “will or may cause injury to any person”. This means the goods are required to be inherently defective or dangerous, even if they are used correctly. Some Australian jurisdictions have had a wider formulation allowing for products to be banned or recalled where it is “reasonably foreseeable” that they will or may cause injury⁵⁵. It is sometimes “reasonably foreseeable” that products will be misused in a dangerous way, even if they are not inherently defective or unsafe if they are used normally or properly. Certain types of fireworks are a good example.

The Australian Productivity Commission recommended that the Australian Consumer Law should harmonise the approach in the different Australian jurisdictions, and include the power to ban or recall products which could reasonably foreseeably cause injury. The recommended provision has the advantage that “reasonable foreseeability” is part of the legal test for negligence, and it makes sense that the regulators should have the ability to ban a product that it would be negligent to supply.

A similar amendment could be made to the New Zealand Fair Trading Act, which would have the benefit of removing any potential doubt and make it clear that goods which might be safe when they are used properly might be banned or recalled if it is reasonably foreseeable that they will cause injury through being misused.

Regulators’ powers

Other elements in the Australian Consumer Law concerning product safety which are different to New Zealand’s product safety provisions relate to the powers of regulators. For example, the regulator could be empowered to undertake a product recall itself where the supplier fails to respond to a compulsory recall (or the supplier cannot be found or has gone out of existence). There will also be mandatory notification of voluntary recalls and incidents where products are associated with serious injury or death.

In New Zealand, the current recall process requires a significant amount of administration by the Ministry of Consumer Affairs as there is currently no requirement for suppliers to advise the Ministry of a proposed recall of a consumer product associated with serious injury or death. An exception is goods which are covered by other legislation such as electrical products and motor vehicles. Frequently the Ministry is contacted by the media asking about a recalled product and its relevance to New Zealand. In most instances, due to the monitoring networks in place, the Ministry is already aware of the recall and has taken steps to contact suppliers.

There is a compulsory requirement in many countries including Australia and the United States to advise the authorities of an unsafe product and a safety recall notice. In the event that prior notice is given, it is possible to ensure that the process is carried out effectively, with the published notice carrying appropriate details and contact information, placed correctly within the market, and that monitoring processes are in place.

Consideration could be given to requiring notification of voluntary recalls of products that have been involved in serious injury or death. Such a restriction is suggested as the regulator does not have the capacity to handle the volume of recalls that result from the occurrence of minor injuries.

Product safety regulators in Australia and other jurisdictions also have other powers not currently available in New Zealand. These include the power to enter trade premises to undertake regulatory activity, the ability to suspend unsafe products, the power to examine documentation and records associated with unsafe products, and the power to seek the disposal of unsafe and/or destruction of unsafe goods following legal proceedings.

The Fair Trading Act includes search powers where there are reasonable grounds to believe a search is necessary to investigate a contravention of the Act and a search warrant is obtained (section 47). However this power does not extend to a general inspection, or the investigation of potentially unsafe goods which are not subject to a safety standard or ban. At present if a business declines to allow Ministry or Commerce Commission officials on to their premises, nothing further can be done. It could make it extremely difficult, if not impossible, for appropriate action to be taken.

In terms of granting these types of powers, appropriate checks and balances are provided for in the Search and Surveillance Powers Bill 2008 which is currently before Parliament. It is probably most appropriate that changes to the legislation in this area are considered as part of that Bill which is amending the Fair Trading Act.

Government Product Safety Policy Statements

In 2007, there was a concern raised about possible unacceptable levels of formaldehyde in clothing. The Ministry of Consumer Affairs developed a Government Product Safety Policy Statement on acceptable levels of formaldehyde in clothing and other textiles.

A government product safety policy statement was identified as a non-regulatory approach which, while not having the same legal status as regulations, would still carry considerable weight. The concept of a government product safety policy statement was modelled on the government policy statements used in the energy sector to provide guidance to the gas and electricity industries on acceptable outcomes sought by government which if not achieved in a voluntary manner would have to be regulated.

As noted, under the Consumer Guarantees Act it is the responsibility of retailers, importers and manufacturers to only supply products that are of acceptable quality and fit for the purpose for which they are supplied, including that they are safe. A government product safety policy statement of acceptable limits of formaldehyde was identified as providing clear guidance to retailers, importers and manufacturers without the need for regulations.

A suggestion is that the Fair Trading Act specifically provide for the Minister of Consumer Affairs to issue government product safety policy statements, with a requirement for consultation with parties who may be affected prior to any statement being finalised. If there is a formal reference in the Fair Trading Act to issuing government product safety policy statements, this will extend the product safety regulatory options. It will also give the issue of any such statements a more formal status than at present.

In summary:

Consumers having confidence that the goods and services they buy are safe is fundamental to their participation in markets. Accordingly, product safety provisions are essential in consumer law. The existing provisions in the Consumer Guarantees Act and the Fair Trading Act are fairly comprehensive and seem to be effective.

Some improvements to enhance the product safety provisions in the Fair Trading Act have been identified and feedback on these is invited.

Questions 

50 Injury Prevention, Rehabilitation and Compensation Act 2001.
51 Fair Trading Act, section 29.
52 Fair Trading Act, section 34.
53 The six current product safety standards are:
(1) Product Safety Standards (Baby Walkers) Regulations 2001;
(2) Product Safety Standards (Children’s Nightwear and Limited Daywear Having Reduced Fire Hazard) Regulations 2008;
(3) Product Safety Standards (Children’s Toys) Regulations 2005;
(4) Product Safety Standards (Cigarette Lighters) Regulations 1998;
(5) Product Safety Standards (Household Cots) Regulations 2005; and
(6) Product Safety Standards (Pedal Bicycles) Regulations 2000.
54 Review of the Australian Consumer Product Safety System, Productivity Commission Research report, 16 January 2006.

55 The relevant jurisdictions are Victoria, New South Wales and Western Australia. 

In 2003, a review was undertaken of the role of the Ministry of Consumer Affairs in a dynamic, modern economy⁵⁶. Called “Creating Confident Consumers”, the review concluded that the outcome of confident consumers occurs when consumers’ reasonable expectations are met when purchasing a product or service and if they are not met, consumers have access to redress. Information barriers were identified as the major reason for the gap between what consumers expect and what they get from a transaction. The review determined that an information-based framework was the most appropriate approach to consumer law.

The information-based framework says well informed consumers are generally in the best position to form their own preferences and decide whether or not to enter into a transaction; and that consumer policy should be aimed at reducing the gap between consumers’ expectations and reality within such a framework, by ensuring that:

• consumers can get the information they need to make decisions;
• consumers understand and value accurately that information (so they are more likely to seek it out);
• consumers are not exposed to hidden risks and hazards; and
• consumers have access to redress in the event of failed transactions.

The existing consumer law, supported by industry self-regulation, fits the information-based framework. The Fair Trading Act is designed to ensure that consumers are not misled about what to expect from a transaction. It also provides specifically for regulations for product safety standards and consumer information standards. The Weights and Measures Act is designed to ensure that consumers get the quantity of goods they expect. The Consumer Guarantees Act provides for access to redress in the event of failed transactions.

Disclosure

Regulations to require businesses to disclose particular information are often used to enable consumers to get the information they need to make decisions. Compulsory disclosure requirements have the objectives of promoting transparency and accountability and reducing information search costs where the product, service or the relevant consumer information is complex, or the consumer information is difficult to gather. Compulsory disclosure is required for a wide range of products, from medicines and food to investment (e.g. the Securities Act 1978) and borrowing products (e.g. the Credit Contracts and Consumer Finance Act 2003).

Disclosure takes a variety of forms. For example, the regulated disclosure for financial products includes information on the performance of the investment, details of key personnel and conflicts of interest. The regulated disclosure for credit contracts includes information on the costs of borrowing, interest, repayment timing and fees associated with the borrowing.
Labelling, notices and warnings may be appropriate when only a small amount of simple information is required to inform consumers. For example, mandatory warning labels on poisonous products are a low-cost way of providing important information to consumers.

Consumers can then choose to seek a substitute, investigate the details of the risk, or make the purchase and use the product with care, based on the precautions most reasonable people take with “poisons”. Regulations prescribing the provision of information on medicines and food are made under the Medicines Act 1981 and the Food Act 1981.

Mandatory labelling is used to provide information that can be very difficult for consumers to otherwise find and the government considers having weighed the costs and benefits that there is justification to require such labelling. Included in this category is mandatory care labelling for clothing and furnishings, labelling of petrol octane rating at petrol pumps, energy efficiency and water efficiency labelling of some products and consumer information notices for used motor vehicles.

Consumer information standards under the Fair Trading Act

The Fair Trading Act provides for the making of regulations to prescribe the content, form or manner in which information about a particular good or service is required to be disclosed in a consumer information standard (section 27).

Consumer information standards may include information relating to the kind, grade, quality, origin, performance, care, composition, contents, design, construction, use, price, finish, packaging, promotion or supply of goods or services (section 27(1)(a)).

Regulations under the Fair Trading Act currently provide for consumer information standards on the following:

• country of origin labelling for clothing and footwear
• fibre content labelling on most textile goods, including clothing
• care labelling of clothing, furnishings, textiles
• used motor vehicles, and
• water efficiency of certain water using products.

The Fair Trading Act consumer information standard regulation making provisions are deliberately wide. This means that general information provision for consumers, when regulation can be justified, can be mandated through these regulation-making powers rather than requiring specific legislation.

Possible enhancements to Fair Trading Act information provisions

Extension of scope of consumer information standards regulations

In the development of the Consumer Information Standards (Water Efficiency) Regulations 2010 a problem arose with respect to including in the regulations specific requirements related to testing of the water-using products covered by the regulations. While the regulation-making powers at section 27 in the Fair Trading Act provide for certain types of information and the form and manner of the information to be disclosed, they do not allow for the testing requirements to be directly specified. Establishing the testing requirements can only be done by declaring an official standard (or part(s) of an official standard) as a consumer information standard and modifying it as necessary. For the supplier to meet the standard, there is a presumption that the testing requirements in the standard will be met. A further problem is when an appropriate official standard does not exist or is not fully suitable.

The product safety standard regulation-making powers at section 29 provide for regulations to be made relating to the testing of the goods during or after manufacture and processing. It is proposed that the consumer information standard regulation-making powers should include a similar provision in order to clearly enable testing requirements to be specified in the regulations.

Information on traders soliciting on behalf of charities

The Commerce Select Committee is considering the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill, which is a Members Bill sponsored by Amy Adams MP. The Bill is directed at charities that use third party collectors for fundraising by donations. It aims to provide increased transparency and public accountability for professional third party collectors who are in the business of collecting funds on behalf of registered charities. The General Policy Statement for the Bill notes that public accountability is an important part of the credibility that enables people to donate with confidence. In particular, the Bill aims to address concerns over disproportionate fees taken by third party collectors of funds solicited for charities.

The Bill proposes an amendment to the Fair Trading Act to address this issue for several reasons, including: non-disclosure of the proportion of the donation going to the third parties’ costs is considered misleading to people who donate; and the Act applies to traders, as for the purposes of soliciting money, third party fundraisers are considered to be acting “in trade”.

The Commerce Committee has asked that as part of the Consumer Law Reform review consideration is given to the matters addressed in the Bill. This will allow for a full regulatory analysis to be undertaken of the problem the Bill is seeking to address.

As noted, the Fair Trading Act is concerned with accurate information and provides specifically for regulations on disclosure of particular information. Two possible options for addressing the problem the Bill seeks to address have been identified (there may also be others). One is to include in the Fair Trading Act specific disclosure requirements regarding charities. While this is a possible approach, a downside is that it does not fit with the more generic principles-type approach of the current Act.

The other option might be a consumer information standard under the Fair Trading Act. Consumer information standards regulations can provide for disclosure of information relating to certain features, including the promotion or supply of the goods or services. They also can require the form and manner in which that information must be disclosed on or in relation to, or in connection with the supply or resupply, or possible supply or resupply, or promotion of the supply of the goods or services.

The review will take into consideration the submissions received by the Commerce Committee. Any additional comments are welcomed, in particular on the form for addressing the problem underlying the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill.

In summary:

The Fair Trading Act, the Weights and Measures Act and the Consumer Guarantees Act all include provisions which enable information provision to consumers which is accurate and will assist consumer decision-making. These laws are complemented by other legislation which also provides for the disclosure of information to consumers; and also industry self-regulation which promotes disclosure of information and avenues to seek redress when transactions do not meet expectations.

One area which has had public discussion over several years concerns disclosure of information with respect to charities. There are still concerns that disclosure in this area is not adequate.

Questions

Footnotes

56 Creating Confident Consumers: The Role of the Ministry of Consumer Affairs in a dynamic modern economy (May 2003)

This section of the Discussion Paper considers consumer law that specifies obligations on businesses in defined trading circumstances. Current law sets out specific trader obligations regarding layby sales, sales by auction and sales by weight and measure (respectively in the Layby Sales Act 1971, the Auctioneers Act 1928 and the Weights and Measures Act 1987).
In all cases, the objectives of the law are to create a business environment in which consumers can transact with confidence and reputable suppliers are protected from inappropriate market conduct.
 

The Auctioneers Act 1928 is included in the suite of consumer law being reviewed in this Discussion Paper. The Act provides for the occupational regulation of a person selling property by auction (an auctioneer). An auctioneers licence is required to authorise the holder to carry on business as an auctioneer (section 24), and it is an offence for any person to conduct any sale by auction (section 32), or to hold themselves out to be an auctioneer without a licence (section 33).

A sale by auction is defined under section 2 of the Act as:

“the selling of property of any kind … by outcry, by the auctioneer saying ‘I’ll take’ and commencing at a higher figure and going to a lower figure, by what is known as Dutch auction, knocking-down of hammer, candle, lot, parcel, instrument, machine, or any other mode whereby the highest, the lowest, or any bidder is the purchaser, or whereby the first person who claims the property submitted for sale at a certain price named by the person acting as auctioneer is the purchaser, or where there is a competition for the purchase of any property or any interest therein in any way commonly known and understood to be by way of auction; and shall be deemed to include the selling of any property by outcry in any public place, as the same is defined in the Summary Offences Act 1981, or in any room, or mart, or place to which the public are admitted or have access, whether or not the sale of the goods has been advertised to take place.”

The reference to “outcry” in the beginning of the definition applies to the various different auction methods referred to in the definition. The methods include the very specific (e.g. Dutch auctions), and the very general (e.g. a competition for the purchase of any property … in a way commonly known and understood to be by way of auction).

The concept of “outcry” is important because it applies to all the auction methods referred to in the definition. To further clarify the definition of sale by auction, “outcry” is also defined in section 2 of the Act as “any request, inducement, puff, device, or incitement made or used by means of signs, speech, or otherwise in the presence of not less than 6 people by any person for the purpose of selling any property offered or available for sale, whether such property is or is not the same as that shown or referred to by him when making or using such request, inducement, puff, device, or incitement.” The fact that not less than 6 people must be present means auctions cannot take place in private. The Auctioneers Act definition of auction only applies to auctions where it is possible for the bidders to be physically present with the auctioneer (and other witnesses).

One of the issues with the prohibition on anyone who is not a licensed auctioneer conducting a sale by auction is that community and charity fundraising auctions are technically caught under the Auctioneers Act, and it is not unusual for auctions of low value or donated goods for fundraising purposes to be conducted by people who are not licensed auctioneers. This aspect of the Act is clearly not enforced in practice, and there is a question as to whether the requirement for community and charity fundraising auctions to be carried out by licensed auctioneers is necessary or appropriate.

There are separate rules that may apply to auctioneers auctioning land and motor vehicles. The Real Estate Agents Act 2008 allows individuals licensed under that Act to sell or offer to sell any land without having to be licensed under the Auctioneers Act. Licensed auctioneers may also sell or offer to sell land by auction without being licensed under the Real Estate Agents Act⁶³. The interface between the Real Estate Agents Act and any changes that might be made to the Auctioneers Act would need to be carefully worked through. Motor vehicle auctioneers can also choose to be registered under the Motor Vehicle Sales Act 2003.

The actual rules for conducting auctions of goods are in section 59 of the Sale of Goods Act 1908, and a similar section covering the sale by auction of land is found in the Property Law Act 2007. These rules concern the sale of property by lots, the completion of auctions and the withdrawal of bids, vendor bidding and reserves. The Consumer Guarantees Act specifically does not apply to the supply of goods by auction or competitive tender under section 41(3).
The implications of the meaning of the term “sale by auction” in relation to the Consumer Guarantees Act and online auctions are discussed below in the Consumer Guarantees Act section at 12.1.1.

History of the Auctioneers Act

The Hansard debates prior to the passage of the Auctioneers Act indicate that auctioneers were to be licensed in order to more accurately and strictly define who was to be entrusted with the right of selling goods by auction, especially in light of an auctioneer’s role involving the handling of other people’s property and money⁶⁴. The Hansard debate noted that auctioneers have the potential to cause significant financial harm to consumers if they conduct themselves inappropriately when they deal with other people’s property and money.
The second reason given in the debates refers to the class of auctioneers known as “itinerant auctioneers” who set up auctions one day and leave the next. This was deemed to be an “undesirable form of trading” because it was difficult to obtain redress against itinerant auctioneers⁶⁵.

Requiring auctioneers to be licensed was intended to ensure that only those of fit and proper character would be eligible to obtain an auctioneer’s licence. As consumers⁶⁶ generally deal with an auctioneer infrequently, they may not be able to effectively judge the character or competence of an auctioneer. Licensing fit and proper persons as auctioneers could therefore protect consumers from reckless or incompetent auctioneers, by preventing people who are not fit and proper from obtaining a licence.

Occupational regulation under the Auctioneers Act

The Auctioneers Act provides for the District Court to determine whether a person applying to be a licensed auctioneer is a “fit and proper person”, who can be trusted to deal with people’s property and money. This is a “negative licensing” system, because people who are not fit and proper persons are prevented from being licensed auctioneers, and can therefore not conduct any sale by auction.

The District Court makes the decision on whether an applicant is a fit and proper person based on:

• an affidavit or statutory declaration regarding the financial position of the applicant (the applicant cannot be bankrupt)
• two character testimonials which are dated no later than 6 months before the application, and contain the names and addresses of the referees
• the proposed form of the advertisements – two advertisements for the local newspaper with the largest coverage, to be advertised between 7-10 days apart, and
• a police report which states the application is not opposed by the Police.

The requirement for the police report presumably helps decrease the likelihood that an auctioneer would knowingly auction stolen goods, although the Act does not stipulate the basis for the Police to form a view on whether someone is a fit and proper person. The applicant is also required to lodge a $1,000 fidelity bond with an insurance company or other financial institution.

The fee for becoming a licensed auctioneer is $300, and local authorities in the area where the auctioneer conducts business receive 90% of the fee ($270). Only $30 of the fee is applied as a partial contribution towards the cost of administering the Act. It is understood that the basis for assigning 90% of the fee to local government is to defray the additional costs to local government due to the number of auctions being held. For example, when the Act was passed, the majority of auctions held were for livestock. Local authorities had costs related to cleaning the mess from the streets following outdoor livestock auctions.

dditionally, funding was considered to be necessary for building and maintaining roads, as the number of auctions attracted increased road use.

Ongoing relevance

Aspects of the regulatory system which apply to the occupational regulation of auctioneers seem to be either unusual or clearly archaic (e.g. councils receiving funding for removing effluent from streets and the requirement for a $1,000 fidelity bond).

There are three questions that need to be addressed

• Whether the occupational regulation of auctioneers is either necessary or appropriate in its current form?
• Whether the legal rules that apply to auction sales are appropriate?
• Whether the scope of the definition of “auction” is appropriate for the purpose of the occupational regulation of auctioneers, or for the rules that apply to sales by auction?

Is occupational regulation of auctioneers necessary?

Occupational regulation can take many forms, and can either be carried out by the government, or by an occupational group or industry. The purpose of occupational regulation is to protect the public from the occupation being carried out incompetently, recklessly or dishonestly.

There are some assumptions behind occupational regulation. These are that:

• intervention by the government in occupations should generally only occur when there is a problem or potential problem that is unlikely to be solved in any other way, or where the alternatives will be inefficient or ineffective
• the amount of intervention should be the minimum required to solve the problem, and
• the benefits of intervening must exceed the costs.

Government intervention in an occupation is not always necessary. With respect to auctioneers, the primary issue is whether there is a possibility that incompetent or dishonest service by auctioneers could result in significant harm to the consumer and/or a third party and what is the nature of the risk of significant harm. Given that intervention in occupations incurs compliance costs, it is important to only intervene where the potential harm would be significant.

The actions of auctioneers that have the potential to cause harm, be it significant or otherwise, are:

• the manipulation of the auction process by the auctioneer
• the auctioneer making false or misleading representations about the property being sold
• the auctioneer selling items for much lower prices than could have been obtained
• collusion between the bidders, or between the auctioneer and a bidder
• the auctioneer failing to carry out their services to the seller with reasonable care and skill (services such as inspection and cataloguing items for auction, and arrangement of advertising and other marketing for the event)
• the auctioneer failing to account to the seller for the proceeds of sale, and
• the auctioneer selling stolen goods.

Of these risks, the most significant are likely to be where the auctioneer fails to account to the seller for proceeds of sale, or sells stolen goods.

As noted, the Auctioneers Act places the discretion about whether a person is fit and proper to deal with people’s property and money with the District Court. The District Court is involved in the regulation of some occupations, but it is more usual for a specific licensing authority or registrar to carry out this function⁶⁷.

The justification for placing occupational regulation of auctioneers with the District Court was originally that District (or Magistrates) Courts would have local knowledge about people applying to be licensed auctioneers, so local police and court staff between them could effectively operate the negative licensing system. This justification is no longer valid. The District Court can only consider the papers presented to it when it makes its decision on whether an applicant is a fit and proper person to be a licensed auctioneer and this is not an efficient use of District Court resources.

Another unusual aspect of the occupational regulation of auctioneers is that there is no centralised “register” of licensed auctioneers maintained by the licensing authority. Each District Court maintains its own register of auctioneers which may be searched by members of the public, but there is no official national register of auctioneers registered under the Auctioneers Act. The only form of national “register” of auctioneers is held and maintained by the Auctioneers Association of New Zealand. An agreement exists between the Auctioneers Association and the Ministry of Justice whereby within one month of issue of an auctioneer’s licence, a copy is sent to the Association so they can update their central register. The licensed auctioneers on the register maintained by the Auctioneers Association are not necessarily members of the Association.

If it is considered that the risks of incompetent or dishonest auctioneers are sufficient to justify their continued occupational regulation, there are four possible options:

• licensing by a specialist licensing authority along modern lines requiring the meeting of defined competency standards
• a negative licensing regime such as that for motor vehicle traders under the Motor Vehicle Sales Act 2003
• including licensing of auctioneers alongside secondhand dealers and pawnbrokers under the Secondhand Dealers and Pawnbrokers Act 2004 (which is a specific form of a modern negative licensing system), and
• an industry-led licensing approach with an approved industry body.

Another option is to effectively remove the external regulation of the auction industry, and to rely on the industry to set its own standards for conduct and ethics. If this option is adopted, the Auctioneers Act in its current form would be repealed, although some form of legal underpinning could still be required to support industry self-regulation.

Licensing of auctioneers by a specialist licensing authority

Specialist licensing authorities exist for a number of occupations. There are licensing authorities that set competency standards that must be met for registration and to obtain a practising licence. These licensing authorities also have a disciplinary role and competency and conduct breaches can lead to the revocation of a licence. Positive licensing of this nature occurs across a range of disciplines, for example, electrical workers, teachers, and dentists. In many cases, the professions are in the health sector or cover other occupations where the work of the tradesperson or professional could damage life or property if not undertaken competently.

Authorisation (a form of licensing) of financial advisors and Qualifying Financial Entities (QFEs) by the Securities Commission is an example of a positive licensing system which could have some relevance to possible positive licensing of auctioneers. Authorised financial advisors and QFEs need to comply with a code of conduct and meet minimum competency and training requirements.

The existing Auctioneers Act provides a form of negative licensing system, but there are more modern and effective models available. For example, motor vehicle traders licensing under the Motor Vehicle Sales Act (MVSA) may have some relevance to auctioneers. Under the MVSA, a person may obtain a licence provided they have not breached certain conducts, for example, been convicted of a crime of dishonesty in the preceding 5 years. Negative licensing requirements are more lighthanded than positive licensing and do not require applicants to meet competency requirements or to comply with codes of conduct.

Secondhand dealers and pawnbrokers are also covered by a negative licensing regime. As well as having to satisfy certain conduct tests, a police check is required. The Secondhand Dealers and Pawnbrokers Act 2004 is focused on the risk of people dealing with stolen goods, and in particular it imposes particular recordkeeping requirements to assist with the traceability of goods which are bought and sold. This Act provides for secondhand dealers and pawnbrokers to be licensed by a Licensing Authority, but it does not deal with more general occupational regulation issues apart from those aimed at avoiding the sale of stolen goods.

Negative licensing can be expected to cost less than positive licensing because there are no competency or training requirements for a negative licensing system, although the trade-off is that a negative licensing system (even following a modern model) provides minimum protection to the public.

In all cases, specialised licensing authorities maintain a register of licensees which is accessible to the public.

Application to auctioneers

As noted, a requirement to hold an occupational licence should be justified by a problem or potential problem that is either unlikely to be solved in any other way, or where the alternative is inefficient or ineffective. Referring to the earlier discussion on the original justification for licensing auctioneers, there were two primary concerns: those relating to entrusting auctioneers with other people’s property and money; and itinerant auctioneers.

Itinerant auctioneers who are considered to be undesirable because they set up auctions one day and leave the next are no longer an issue.

Regarding the need to licence auctioneers because they are entrusted with other people’s property and money, this essentially concerns whether there is a possibility that incompetent or dishonest service by auctioneers could result in significant harm to the consumer and/or a third party. The risk primarily lies with the owner of the goods being sold, because the auctioneer is the seller’s agent. It is the seller’s property and money which the auctioneer holds, and the seller is the client of the auctioneer.

There have not been many cases in the New Zealand courts where auctioneers have been held to account for breaches of the Auctioneers Act, including for breaches of their duty to account for the proceeds of sale. However there is clearly the potential for auctioneers to harm their own clients who are selling property and third parties. It is an open question as to whether this risk is substantial, but it seems likely that some form of oversight of auctioneers is needed.

The checks and balances in the current negative licensing system are a fairly weak fit and proper person test. The Auctioneers Association of New Zealand Code of Ethics that applies for some auctioneers adds slightly to the current negative licensing regime, but not much.
Having a full positive licensing system, as noted, needs considerable justification and it is not clear that such justification can be established for auctioneers. A full positive licensing system will likely also impose considerably more cost on auctioneers than the present licensing system.

It is useful to consider how Australia regulates in this area. Whilst some States and Territories such as Queensland, Northern Territory and Western Australia have auctioneer licensing, others including Victoria and New South Wales no longer have general licensing of auctioneers (although there is specific licensing of auctioneers regarding real estate and motor vehicles). From discussions with Australian officials, it is understood that auctioneers’ licensing in Victoria and other parts of Australia was no longer considered necessary as auctioneers were in established and reputable businesses and issues suggesting the need to licence auctioneers entrusted with other people’s property and money were not evident. Self-regulation appeared to be the most appropriate and efficient response.

The United Kingdom also ended licensing of auctioneers some years ago. It does, however, have the Auctions (Bidding Agreements) Act 1969 which sets out specific rules related to anyone conducting an auction. These are discussed below in the context of the rules for conducting auctions.

Industry-led models

Currently, in New Zealand, auctioneers are able to voluntarily become members of the Auctioneers Association of New Zealand. Those auctioneers that choose to become members of the Association subscribe to a standard of ethical behaviour, which is found in the Association’s Code of Ethics⁶⁸. The Code of Ethics emphasises integrity by auctioneers among themselves and in relation to their clients and the public.

Approximately 150 of the 500 auctioneers who are licensed in New Zealand are members of the Auctioneers Association. To be accepted as a member of the Association, the individual must be either a licensed auctioneer, a person approved by the court to conduct sales by auction on behalf of an individual or company, or a chattels valuer (who is not a licensed auctioneer). Membership fees are a $300 annual fee, plus a one-off cost of $112.50 for access to the Auctioneers Association’s interactive website.

If licensing of auctioneers is no longer required by government regulation, anyone could conduct an auction without any formal checks or balances. This may not be an issue if the Auctioneers Association had comprehensive coverage of auctioneers. Given the risks associated with the business of auctioneers, and that the Auctioneers Association covers only about 30% of auctioneers, there is some risk in not having any licensing of auctioneers.
The Auctioneers Association could consider the possibility of establishing itself as an industry self-regulatory body in place of government regulation. Membership of the Association could become akin to membership of similar established industry self-regulatory bodies such as the Registered Master Builders Federation (RMBF) or the Institute of Professional Engineers (IPENZ). Membership of the RMBF is voluntary. It conveys that the builder is a qualified and experienced tradesman, as well as having the experience and management skills to undertake the building work required. Becoming a member of the RMBF requires builders to meet a range of requirements around qualifications, period of service, financial stability of the business, and references. These requirements are similar to that of a licensing regime, but are industry managed.

An alternative industry-led approach requiring that auctioneers must belong to an approved industry body similar to chartered professional engineers might be a more appropriate option. Only chartered professional engineers registered with the IPENZ under the Chartered Professional Engineers Act 2002 are able to hold themselves out as being chartered professional engineers. For auctioneers, the approach could be that only auctioneers who are members of an approved industry body could undertake auctions exempted from the Consumer Guarantees Act.

Under Part 3 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008, there is a process set out for how to approve dispute resolution service providers. A similar process for approving auctioneers’ industry bodies could be established. Approval criteria could include that there are membership rules concerning the proper conduct of auctions, the holding of money earned from the sale of goods at auction in a separate trust account, fit and proper person criteria (perhaps similar to the criteria for negative licensing of financial service providers, secondhand dealers or pawnbrokers, or motor vehicle traders) and breaches of rules and codes of conduct.

Because of the small number of auctioneers in New Zealand, another consideration for approval of an auctioneers’ industry body could be that it has a representative number of members or there is adequate coverage under other approved industry bodies.

An industry-led approach would need a legal basis, which could be included in a new Auctioneers Act, or in an enhanced Fair Trading Act. If included in the Fair Trading Act, a benefit could be additional enforcement by the Commerce Commission to support the approved industry body (or bodies). In particular, enforcement might be needed if someone holds themselves out to be an auctioneer when they are not a member of an approved body.
The industry-led approach would also need to require that an approved industry body maintain a publicly available register of members. The register could include member contact details and other useful information. A more formal register of this nature could be helpful to consumers and would provide more information about auctioneers than is currently available. A public register of licence holders would also require a specific provision in legislation.

Auctioneers themselves would be expected to meet the costs of the approved industry body (or bodies) if regulation of the industry was to be industry-led. Any positive or negative licensing approach would also be required to be funded through licence fees. The self-regulating option with no external regulation would also need to be funded by the industry itself.

The views of auctioneers on whether they consider an industry-led approach would work for their industry are particularly sought, together with whether there are particular competencies or standards of conduct that should be required by the approved industry body if there was an industry-led licensing system. Other stakeholders will also have views on these issues. If industry-led regulation or self-regulation is not supported, any information to support the alternative approach of requiring more formal positive or negative licensing is also sought.

Rules for conducting auctions

The Auctioneers Act is silent on how auctions are to be run. The Auctioneers Act deals primarily with the licensing of auctioneers, and the various offences which exist in relation to auctioneers and auctions. In prescribing these things, a “sale by auction” is defined; however this is for the purposes of defining the coverage of the occupational regulation of auctioneers, rather than for the purposes of regulating the actual conduct of auctions.

As noted above, section 59 of the Sale of Goods Act (and the equivalent provision in relation to the sale of land, which is section 42 of the Property Law Act 2007) addresses some aspects of the actual conduct of auctions. The Sale of Goods Act provides for:

• each lot at an auction to be subject to a separate contract of sale
• the sale to be complete on the “fall of the hammer” or other customary manner, and bidders may retract their bids up to the sale being complete
• the seller can only bid where the right to bid is reserved by the seller
• the fact that there is a reserve or “upset” price must be notified.

Section 59 therefore covers the most likely abuses of the auction process. The provisions are designed to protect the sellers whose goods are being auctioned, and the purchaser. The section covers the completion of the sale and the bidders’ opportunity to withdraw their bids, and the requirement for the seller to disclose the fact that there is a reserve price, or that the seller may bid itself. The seller may also be vulnerable to bids being withdrawn after the sale is complete, or to manipulation of reserve prices.

The statutory implied warranties in the Sale of Goods Act apply to the sale of goods by auction. These include the warranties as to fitness for purpose and merchantable quality in section 16 of the Sale of Goods Act. The broadly similar guarantees under the Consumer Guarantees Act do not apply to goods sold by auction because section 41(3) of the Act excludes the supply of goods by auction or competitive tender from coverage.

The main practical difference is that suppliers cannot contract out of the statutory guarantees on sales to consumers under the Consumer Guarantees Act, while they can contract out of the implied warranties in the Sale of Goods Act. Consumers buying goods at auction typically buy the goods on the basis of the goods being sold with no representations and warranties. Accordingly, they are usually taking a greater risk on the suitability or quality of the goods being purchased than if they were buying the goods directly from a supplier in trade. The onus is on the buyer to carefully inspect the goods being bid for, and theoretically the greater risk will be reflected in the auction price.

Even though auctions (and competitive tenders) are excluded from coverage under the Consumer Guarantees Act, they are still covered under the general unfair trading provisions in the Fair Trading Act. Any abuses of the auction process which are not already covered by section 59 of the Sale of Goods Act are likely to be a breach of the Fair Trading Act.
Any disputes between sellers, buyers or auctioneers following a sale by auction are also subject to the civil jurisdiction of the courts, and the standard doctrines of agency and contract law.

The specific rules in the United Kingdom Auctions (Bidding Agreements) Act 1969 (referred to above) that relate to the abuse of auction processes include:

• a dealer who agrees to give a gift or other consideration as an inducement for someone to abstain from bidding at a sale by auction, and a person who accepts such a gift or consideration, are punishable on summary conviction
• if someone is convicted under the above provision, the court may order that the person (or their representative) is not allowed, without the court's permission, for a period of either one or three years, to enter premises where goods for sale by auction are displayed, or to attend or participate in any way in a sale by auction
• the seller may avoid a contract where goods are purchased at auction by a person who entered into an agreement with others that they would abstain from bidding for the goods, and the purchaser or one of the other parties is a dealer, and
• where the purchaser has obtained possession of the goods under a contract that is avoided under the above provision and restitution is not made, the people who were party to the agreement to abstain from bidding are jointly and severally liable to make good the loss (if any) sustained by the seller.

Inducing potential bidders to abstain from bidding may be fraudulent, but it would probably not be caught as an unfair practice under the Fair Trading Act. We are not aware of any particular need for rules along the lines of those in the United Kingdom, but they are an option for New Zealand.

Questions

Footnotes

63 We understand the New Zealand Real Estate Institute requires its members who auction land to be licensed auctioneers.
64 Hansard, Volume 217, 26 July 1928.
65 Ibid.
66 Particularly as sellers, because it is sellers who are particularly exposed to auctioneers holding their property and sale proceeds.

67 Apart from auctioneers, the other occupational licensing groups currently administered by the District Court are: prostitution business owners, private investigators, security guards and sharebrokers.

68 www.auctioneers.org.nz/membership.asp.

Effective consumer laws help to create an environment in which consumers can transact with confidence. Transacting with confidence includes that consumers' reasonable expectations of transactions will be met and when a transaction goes wrong that consumers have ready access to appropriate redress.

The main consumer law dealing with redress is the Consumer Guarantees Act. The Act applies generally to all consumer transactions with suppliers in trade and sets out guarantees that goods and services must meet. A “consumer” under the Act is anyone who acquires goods or services ordinarily acquired for personal, domestic or household use or consumption, and not for resupply or use in production or manufacture by a business⁶⁹.

The broad approach under the Act has proved to be an effective means of providing consumers with confidence in the multitude of consumer transactions that occur.
The Act is self-enforcing. This means consumers must seek redress from a supplier or manufacturer directly to resolve their disputes. Where agreement cannot be reached between a consumer and supplier or manufacturer, the Disputes Tribunal may hear a claim from a consumer under the Act or if the dispute is about a motor vehicle, it may be taken to the Motor Vehicle Disputes Tribunal. A claim under the Act includes any time the supplier may have misled the consumer as to their rights under the Act.

As well, disputes about rights under the Consumer Guarantees Act may be taken to a trade association to which the supplier belongs, or any specific complaints body that might exist (for example, the Electricity and Gas Complaints Commission or the Banking Ombudsman). Consumers can also take matters to the District Court but because of the costs involved it is unusual for consumers to do this.

If a supplier attempts to contract out of the obligations imposed by the Act, they may be committing an offence under section 13(i) of the Fair Trading Act. For example, it is unlawful to have a sign in a shop that states that refunds are not available. An offending supplier can be prosecuted by the Commerce Commission under the Fair Trading Act.

History of the Consumer Guarantees Act

The Consumer Guarantees Act introduced into New Zealand a new regime of rights and remedies for consumers with respect to transactions involving the provision of goods and services to consumers. Prior to the Consumer Guarantees Act any rights of domestic consumers concerning the sale of goods came under the Sale of Goods Act and common law rules for services were contained in case law.

In the introductory speech made in Parliament on the Consumer Guarantees Bill, the then Minister of Consumer Affairs noted that the current law of implied conditions as to merchantable quality in the Sale of Goods Act was badly out of date, was drafted with commercial transactions in mind and was not understood and was inappropriate for modern consumer transactions. She noted also the common law rules for services were contained in case law which was inaccessible to both suppliers and consumers. The purpose of the new consumer guarantees law was clearly stated as promoting a fair and efficient market place, to enhance the ability of consumers to participate effectively in the market place and to promote fair and effective competition in the market place.

The Consumer Guarantees Act was passed as complementary legislation to the Fair Trading Act. The Fair Trading Act was described as providing for pre-sale representations and the Consumer Guarantees Act would provide for post-sale redress.

Ongoing relevance of the Consumer Guarantees Act

There is fairly good understanding of the Consumer Guarantees Act by consumers and suppliers. Many retailers display in their stores a sign produced by the Ministry of Consumer Affairs (and designed in association with the New Zealand Retailers Association and the Commerce Commission) about Consumer Guarantees Act rights and obligations.

The Ministry of Consumer Affairs provides training to Citizens Advice Bureaux, Community Law Centres and budget advice centres on the Consumer Guarantees Act. The Ministry also produces pamphlets for consumers and Word of Advice articles for publication in community newspapers on the Act. Consumer NZ regularly advises consumers about their rights under the Act as do consumer awareness television programmes such as Fair Go and Target. The Disputes Tribunal does not keep statistics of the cases it hears but advice from the Principal Referee and Community Law Centres and Consumer NZ reports indicate that cases involving the Consumer Guarantees Act are regularly taken to the Disputes Tribunal.

Many New Zealanders are very confident in enforcing their rights under the Consumer Guarantees Act. The National Consumer Survey 2009⁷⁰ found that when asked to name any of the legislation that sets out the rights of consumers, nearly 50% responded by naming the Consumer Guarantees Act. This is a very high recognition for a piece of legislation. Not only can it be named but the National Consumer Survey 2009 and the preceding National Consumer Survey 2005⁷¹ specifically tested consumers understanding of the Act. In response to a question regarding an item bought at sale price then found to be faulty, in 2009 84% of consumers correctly answered that the shopkeeper has to replace, refund or repair the item, and in 2005, 83% answered correctly. In response to a question about whether you have to pay for extra work done by a car mechanic who did not first obtain your agreement, in 2009 77% answered correctly that you did not have to pay (80% in 2005).

Less well understood was that if you buy goods and change your mind you do not have a right to return the goods with 45% answering this correctly in 2009 and 40% in 2005. The surveys also both show there is poor understanding of the warranties provisions in the Act with only 22% in 2009 (18% in 2005) of consumers correctly responding that if a fridge breaks down a month after a manufacturer’s warranty has run out, the retailer still has to repair the fridge free of charge.

Since the Consumer Guarantees Act came into effect in 1994, there have been considerable telecommunications technological advances, for example, mobile phones and the internet, which have allowed for new means of transactions. The Consumer Guarantees Act was developed at a time when sales were conducted face to face or by some form of mail order. The advent of sales methods now commonly used such as email arrangements, website interfaces which allow for online “shopping baskets” and confirmation of bids and sales by mobile phone were not contemplated.

Consumers are also advertised to quite differently than they were 15 years ago, and they can also pay for goods and services differently (including by instant funds transfers by banking facility and credit card).

Whilst the Act has proven remarkably robust as a consequence of strong underpinning principles, there are some areas of strain. One area of uncertainty is purchase by internet bidding or online auction (as conducted by Trade Me and similar providers) and whether the Consumer Guarantees Act should apply to such sales. A second area of concern is the sale of extended warranties, especially when such warranties provide no additional protections to consumers than the Consumer Guarantees Act.

Possible changes to the law to address these concerns are discussed below.

The overall robustness of the principles and underlying policy of the Consumer Guarantees Act is also demonstrated by Australia deciding to include in the Australian Consumer Law stage 2 proposals consumer guarantees provisions modelled on the Consumer Guarantees Act. This is an example of Australia looking to amend its law to harmonise with very effective consumer law in New Zealand. Its inclusion of consumer guarantees provisions in the Australian Consumer Law is supported by a detailed Regulatory Impact Assessment that recognises the success of New Zealand’s Consumer Guarantee Act. In particular the success is evident by New Zealand consumers’ awareness of their rights to have faulty goods repaired, replaced or a refund provided compared to very low knowledge of implied statutory warranties by Australian consumers⁷².

Consumer guarantees in standalone law or as part of the Fair Trading Act

It would be possible to include as a separate part of the Fair Trading Act provisions on consumer guarantees rather than having a separate Consumer Guarantees Act. This would be consistent with the Australian Consumer Law stage 2 proposals that provide for broadly equivalent provisions to the Consumer Guarantees Act in the new national consumer law. The Fair Trading Act, however, provides for public enforcement of its provisions by the Commerce Commission whereas the Consumer Guarantees Act establishes rights for consumers to take self-enforcement action. Including in the Fair Trading Act self-enforcing consumer guarantee provisions may introduce an unnecessary complexity.

The Consumer Guarantees Act has always been a complement to the Fair Trading Act. The Fair Trading Act provides for pre-sale and point of sale representations. The Consumer Guarantees Act concerns post-sale redress if a transaction does not meet reasonable expectations. The different enforcement approaches of the Fair Trading Act and the Consumer Guarantees Act alongside the very good recognition and understanding of the Consumer Guarantees Act supports the continuation of the Consumer Guarantees Act as standalone legislation and is the preferred option.

In summary:

The Consumer Guarantees Act is an important part of New Zealand’s consumer law providing consumers with tools to take enforcement action when a transaction does not meet expectations and promoting consumer confidence. It is very well recognised law and there is a fairly good understanding of its provisions.

The strong recognition of the Act and its provisions and its “brand awareness” are supportive of the Act continuing as standalone legislation. As well, the Fair Trading Act provides for public enforcement of its provisions by the Commerce Commission whereas the Consumer Guarantees Act establishes rights for consumers to take self-enforcement action.

The Consumer Guarantees Act is a type of principles-based law, although, as discussed at section 5 of this paper, it does not include a purpose statement. As a general observation, it is law that meets many of the objectives of this Consumer Law Review, although given technological changes that have changed the face of sales transactions, it is appropriate to consider some amendments to the Act to ensure it remains relevant and effective now and into the future.

Given the Australian Consumer Law stage 2 proposals to include consumer guarantees provisions modelled on the Consumer Guarantees Act, the Act also meets the objective of this Consumer Law Reform to achieve harmonisation with Australian law, as appropriate.

Footnotes

69 Businesses can be deemed “consumers” under the Consumer Guarantees Act when they buy goods or services “ordinarily acquired for personal, domestic or household use”, although suppliers can contract out of the guarantees in favour of business customers (section 43(2)). Suppliers cannot contract out of the guarantees to non-business consumers.

70 National Consumer Survey 2009

71 National Consumer Survey on Awareness and Experience of Consumer Legislation

72 The Australian Consumer Law, A national consumer guarantees law, Regulation Impact Statement, December 2009, OBPR Reference No. 10953, 30 November 2009 

The first objective of the Consumer Law Reform review is:

• To have in place principles-based consumer law that:
• enables consumers to transact with confidence;
• protects reputable suppliers and consumers from inappropriate market conduct;
• is up to date and relevant now and into the future;
• is easily accessible to those who are affected by it;
• is in line with international best practice, as appropriate; and
• is effective and enforceable.

Importantly, in order to achieve the outcomes of effective law that enables consumers to transact with confidence and that protects reputable suppliers and consumers from inappropriate market conduct, the law needs to be both enforceable and enforced. Accordingly, it is important that there are appropriate enforcement provisions in place
Consumer laws in New Zealand are either “self-enforcing” in the sense that they create legal rights enforceable by consumers, or they are enforced by government agencies carrying out investigation and prosecution functions. The self-enforcing laws include the Consumer Guarantees Act, Layby Sales Act, Door to Door Sales Act and parts of the Fair Trading Act. The remedies available to individuals or other private parties generally provide for breaches to be 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.
The Commerce Commission is the primary government enforcement agency for consumer law, especially under the Fair Trading Act. The Ministry of Consumer Affairs Measurement and Product Safety Service also has an enforcement role. 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 Commerce Commission has a well-established reputation as an enforcement agency and a quick look at its website indicates that it regularly takes prosecutions, obtains settlement agreements or gives warnings for breaches and possible breaches, in particular, of the Fair Trading Act but also other consumer law. Both the Commerce Commission and the Ministry of Consumer Affairs actively monitor compliance with consumer legislation and work with industry, for example, by providing guidelines and through audit checks of weights and measures accredited persons.
In 2005-2006, the Ministry of Consumer Affairs initiated work reviewing the effectiveness of the enforcement and redress provisions in the Fair Trading Act. An Initial Think Piece review was published by the Ministry in July 2005, and an International Comparison Discussion Paper was published in May 2006⁸⁰. The latter paper identified some additional enforcement powers under the Fair Trading Act that could allow for more effective enforcement of the Act by the Commerce Commission. As a result of this initial work two additional provisions are proposed for the Fair Trading Act: court enforceable undertakings and banning orders. These are in the following sections.
 

The second objective of the Consumer Law Reform review is:

• To achieve simplification and consolidation of the existing law.

Throughout the discussion document there has been consideration of how to meet this objective and whether standalone legislation is still needed to deliver particular consumer and business protections or whether the protections could be included in an enhanced Fair Trading Act.

Initial thinking is that there are three possible consumer law outcomes following consideration of the issues and questions addressed in the review. These are summarised below. The status quo is not considered an option that will meet the objectives of this review.

Option 1: An enhanced Fair Trading Act complemented by the Consumer Guarantees Act and the Weights and Measures Act as standalone laws

An enhanced Fair Trading Act could incorporate provisions as considered appropriate from the Door to Door Sales Act, the Layby Sales Act, the Unsolicited Goods and Services Act and new provisions to ensure this legislation is relevant and up to date with modern transactions and best practice consumer law.

The Consumer Guarantees Act and the Weights and Measures Act would continue to complement the Fair Trading Act. One reason for keeping the Fair Trading Act and the Consumer Guarantees Act as separate laws is that the Fair Trading Act provides for public enforcement of its provisions by the Commerce Commission whereas the Consumer Guarantees Act establishes rights for consumers to take self-enforcement action. Another reason is that both pieces of law have very good recognition. The major survey of consumer awareness undertaken in 2009⁸² indicated that nearly half of New Zealanders could name the Consumer Guarantees Act and about one quarter the Fair Trading Act. There is also very good understanding of the rights consumers have under the Consumer Guarantees Act for faulty goods to be repaired or replaced by the retailer, or for retailers to provide a refund to the consumer.

The Weights and Measures Act is a very important law for defining consumer outcomes, but it is specialist business legislation. There is a trade off between having a lesser number of statutes and ease of access for business wanting to find relevant law. Weights and measures law internationally tends to stand alone. For example, in Australia, they have the National Measurement Act 1960, the United Kingdom has the Weights and Measures Act 1985 and Canada has the Weights and Measures Act.

In the overall consumer law portfolio, these three pieces of law would then be complemented by the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and the Motor Vehicle Sales Act 2003 (MVSA), which are sector specific pieces of law. Both are principles-based and recent law. The MVSA was recently reviewed and the CCCFA is currently being reviewed. It is being proposed that the CCCFA will be amended to incorporate the Credit (Repossession) Act 1997.

Option 2: An enhanced Fair Trading Act incorporating as a separate part the Weights and Measures Act and complemented by the Consumer Guarantees Act
The second possible outcome is that an enhanced Fair Trading Act could incorporate provisions from the Door to Door Sales Act, the Layby Sales Act, the Unsolicited Goods and Services Act and new provisions as considered appropriate to ensure this legislation is relevant and up to date with modern transactions and best practice consumer law as referred to in option 1. The Fair Trading Act could also include as a separate part those matters covered by the Weights and Measures Act.

The Weights and Measures Act essentially concerns specific representations as to the weight or measure of a good. Similar to the Fair Trading Act, it is legislation that concerns the regulation of the conduct of businesses in order to achieve good outcomes for consumers and to protect honest businesses from unscrupulous business practices.

Option 3: An enhanced Fair Trading Act incorporating as separate parts the Consumer Guarantees Act and complemented by the Weights and Measures Act

The third option is an enhanced Fair Trading Act, incorporating provisions as considered appropriate from the Door to Door Sales Act, the Layby Sales Act, the Unsolicited Goods and Services Act and new provisions to ensure this legislation is relevant and up to date with modern transactions and best practice consumer law. The Fair Trading Act could also include as a separate part those matters covered by the Consumer Guarantees Act.

The Australian Consumer Law proposes to include within its scope broadly equivalent provisions to the Consumer Guarantees Act. Australia, however, has separate legislation for regulating the use of weights and measures. This option for enhancing the Fair Trading Act would therefore be closest to the Australian Consumer Law in its proposed final form.

Questions

Footnotes 

82 National Consumer Survey 2009.

Principles and Purpose Statement for Consumer Laws

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:

• Fair Trading Act – "To promote consumer wellbeing 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."
• Consumer Guarantees Act – "To promote consumer wellbeing 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.

b) defining rights for consumers to seek redress from a supplier or manufacturer where those reasonable expectations have not been met."

• Weights and Measures Act – "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."

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?

Unfair Practices: Unfair Contract Terms

4. Do you support including unfair contract terms provisions in the Fair Trading Act along the lines of the Australian Consumer Law, and for what reasons?

5. Is it appropriate to include a "good faith" element in the definition of an unfair contract term (like the United Kingdom and Victorian legislation, and the Productivity Commission recommendation), or is the approach used in the Australian Consumer Law preferable?

6. Do you think the approach used in the Australian Consumer Law of providing examples of unfair contract terms would be appropriate for New Zealand law?

Unfair Practices: Unsubstantiated Claims

7. Should there be a general prohibition on unsubstantiated claims under the Fair Trading Act, and for what reasons?

8. Should any general prohibition on unsubstantiated claims (or any other preferred approach) be enforceable by the Commerce Commission and/or privately under the Fair Trading Act?

Door to Door and Other Direct Selling

9. What direct selling (door to door sales, telemarketing, other defined direct selling), if any, should be regulated, and for what reasons?

10. Should direct selling law only apply to purchases above a particular value (for example, $100)?

11. Do you support a cooling-off period of 7 days, 10 days or another timeframe?

12. Should the supply of the goods or services be prohibited during the cooling-off period, and for what reasons?

13. Should there be any regulation of the hours when direct marketers may call on consumers? Why, and if you think there should be regulated hours, what hours?

14. What are your views on moving regulation of direct selling to the Fair Trading Act?

Unsolicited Goods and Services

15. Do you support unsolicited goods and services provisions along the same lines as those in the proposed Australian Consumer Law, and for what reasons?

16. What are your views on moving regulation of unsolicited goods and services to the Fair Trading Act?

Unconscionable Conduct

17. Is it appropriate to include a prohibition on unconscionable conduct in the Fair Trading Act, along the lines of the Australian Trade Practices Act and the proposed Australian Consumer Law?

18. Should any remedies for unconscionable conduct be restricted to consumers or also available to businesses, and for what reasons?

19. Would it be more effective to amend the Fair Trading Act by applying the broader concept of "oppression" from the Credit Contracts and Consumer Finance Act to the supply of goods and services generally, rather than amending the Fair Trading Act to extend the application of the case law concept of unconscionability?

Product Safety

20. A range of provisions exist under the Consumer Guarantees Act and the Fair Trading Act in relation to consumer product safety. Do you think these provisions are sufficient, and if not, what changes do you suggest?

21. What are your views on New Zealand adopting a "reasonably foreseeable" test of product safety regulation along the lines being considered for the Australian Consumer Law?

22. What are your views on the regulator being able to initiate a product recall itself where a supplier fails to undertake a compulsory recall?

23. What are your views on mandatory notification to the regulator of voluntary recalls and incidents where products are associated with serious injury or death?

24. What are your views on the Fair Trading Act including provisions for the Minister to issue Government product safety policy statements?

Consumer Information

25. The Fair Trading Act provides for consumer information regulations. Do you think these provisions are sufficient, and if not, what changes do you suggest?

26. What are your views about adding testing requirements to the consumer information regulation-making powers?

27. What are your views on including specific disclosure requirements in the Fair Trading Act concerning third party collectors fundraising for charities?

Layby Sales

28. Do we need detailed provisions regulating layby sales or would a more principles-based approach be better?

29. Should the definition of a layby sale be amended so any transaction with less than three instalments (i.e. a deposit and later payment in full) is not a layby sale under the Act, and for what reasons?

30. Is it appropriate that sellers can recover all their costs on the cancellation of a layby sale or should the seller's costs be limited to specific costs associated with the layby transaction?

31. What are your views on moving regulation of layby sales to the Fair Trading Act?

Weights and Measures

32. What are your views on the Weights and Measures Act remaining standalone or moving to the Fair Trading Act?

33. Are there any other areas within the Weights and Measures Act that you think could be improved? Please provide details and supporting explanation.

Carriage of Goods Law and Consumers

34. Is it appropriate for consumers to have rights under the Consumer Guarantees Act in relation to carrier services?

Regulation of Auctioneers and Auctions

35. Which do you consider the most appropriate approach to licensing auctioneers, and why – positive licensing, negative licensing or an industry-led approach?

36. Are there any particular competencies or standards of conduct that should be required of auctioneers by an approved industry body under an industry-led approach or positive licensing?

37. Are the legal rules which apply to auctions (primarily under the Sale of Goods Act) appropriate, or should they be updated?

38. If there is a valid distinction between a traditional auction conducted online and a Trade Me style auction, should purchasers from Trade Me style auctions have the benefit of the guarantees under the Consumer Guarantees Act?

39. What are your views on the suggested ways to clearly identify auctions exempted from the Consumer Guarantees Act (a new definition of auction; that auctions must be conducted by a licensed or approved auctioneer; that online auctions must meet certain requirements)?

Consumer Guarantees

40. What are your views on specific regulation of extended warranties?

41. What are your views on requiring greater disclosure of information to consumers on extended warranties?

42. What are your views on requiring a “cooling-off” period for cancelling an extended warranty?

43. What are your views on providing an “opt-in” period for buying an extended warranty?

44. Should any law regulating extended warranties be enforced by the Commerce Commission under the Fair Trading Act, and for what reasons?

45. What are your views on the Consumer Guarantees Act providing that a requirement for any bond for assessment of a faulty good must be disclosed to the consumer in writing before the good is purchased?

46. Is it appropriate that "refusing" to remedy a failure under the Consumer Guarantees Act also includes “refusal by words or conduct”, and for what reasons?

47. What are your views on including the equivalent to section 89(2) of the Motor Vehicle Sales Act in the Consumer Guarantees Act for situations when goods are rejected and there is a collateral credit agreement?

48. What are your views on amending the Consumer Guarantees Act to provide that both an electricity retailer and a lines company would be liable for the quality guarantees set out in the Act?

Enforcement

49. What are your views on including in the Fair Trading Act provisions for court enforceable undertakings?

50. What are your views on including enforcement orders in the Fair Trading Act for the banning of recidivist traders from certain activities?

Consolidation of Consumer Law

51. What are your views on a single, enhanced Fair Trading Act that also incorporates the Consumer Guarantees Act and/or the Weights and Measures Act?

52. What are your views on continuing to have a separate Consumer Guarantees Act and/or a Weights and Measures Act?