6.1 Fair Trading Act Misleading and Deceptive Conduct, False Representations and Unfair Practices Provisions
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An essential element of consumer law is protection of consumers and businesses from misleading and deceptive conduct, false representations and unfair business practices.
Misleading and deceptive conduct and false representations are regarded by society as unjust and unacceptable. Such conduct can lead to detriment for consumers and honest businesses, can distort markets, and lead to breaches of contract. This then has the impact of reducing confidence in the market and reducing competition, leading to associated negative economic impacts.
Consumers can be at a disadvantage due to a lack of adequate and accurate information about products and services they buy. This disadvantage decreases consumers’ bargaining power, and can make access to redress or resolution of their complaints more difficult.
Part 1 of the Fair Trading Act 1986 provides prohibitions against:
- misleading and deceptive conduct in trade, generally and in relation to goods, services and employment
- false or misleading representations
- offering gifts and prizes (and not providing them)
- bait advertising
- referral selling
- demanding or accepting payment without intending to supply as ordered
- misleading representations about certain business activities
- harassment and coercion
- pyramid selling schemes, and
- importation of goods bearing false trade description.
These prohibitions are deliberately wide, applying to all industry sectors and types of activities. The provisions are written with the objective of promoting general standards of conduct, rather than prescribing mandatory trading conduct.
The broad prohibitions against misleading and deceptive conduct in trade, generally and in relation to goods, services and employment at sections 9 to 12 of the Act, are a form of principle-based legislation, and allow for a wide range of facts to be laid before the courts. Essentially, the provisions establish a norm of business conduct and are drafted to provide courts with significant latitude to consider the facts of the cases before them.
False representations and unfair practices are more specific practices that are determined to be unfair in all circumstances. Such specificity ensures that businesses and consumers are clear about what is prohibited. These practices have proven to cause detrimental effects on consumers and honest businesses, and attract both civil and criminal liability.
Similar broad prohibitions against misleading and deceptive conduct are found in the equivalent Australian law (Trade Practices Act 1974, the Australian Consumer Law and State and Territory Fair Trading Acts) and in equivalent laws in the United Kingdom and Canada. The United States of America (USA) and European Union countries have broad prohibitions on unfair business practices.
History of Fair Trading Act unfair practices provisions
The Fair Trading Act was developed as complementary legislation to the Commerce Act 1986. Both laws were developed at a time of deregulation and specifically the removal of economic regulation controls. The Commerce Act provides for general regulation of competition and the Fair Trading Act prescribes general prohibitions on unfair conduct and behaviour that both affect outcomes for consumers and fair competition in markets.
One objective of the Fair Trading Act noted in the Parliamentary debates preceding its passage was having laws in New Zealand comparable with those of our major trading partners, particularly Australia. The Fair Trading Act’s provisions, in accord with this objective, are very similar to equivalent provisions in Australia’s Trade Practices Act 1974.
Prior to the Fair Trading Act, misleading and deceptive conduct was controlled by common law and the Contractual Remedies Act 1979. The Fair Trading Act expanded the scope for the law to respond to misleading and deceptive conduct. Under the Contractual Remedies Act, the consumer must prove they were misled by misleading conduct or false representations. In comparison, proof of an intent to mislead, or negligence, is not required under the Fair Trading Act. The Fair Trading Act also allows enforcement by the Commerce Commission and by other businesses as well as consumers themselves.
Ongoing relevance of unfair practices provisions
The misleading and deceptive practices, false representations and unfair practices provisions of the Fair Trading Act are an important component of New Zealand’s commercial legislation. Their relevance is quickly shown by a glance at the Commerce Commission’s website. The Commission, which is responsible for the monitoring and enforcement of the Fair Trading Act, notes 11 cases involving the Fair Trading Act for the period 1 January to 30 April 2010; and nearly 30 cases for 2009. Many of these cases concern the misleading and deceptive practices, false representations or unfair practices provisions of the Fair Trading Act.
Section 9 of the Act (misleading and deceptive conduct generally) is frequently litigated in the courts.
In 2007-08, the Australian Productivity Commission undertook a major review of Australia’s consumer policy framework9. Because of the similarity of New Zealand and Australian provisions related to unfair practices and conduct, as well as the similarity in the business environments of Australia and New Zealand, the Productivity Commission’s findings provide helpful analysis. The Productivity Commission noted that measures against unfair conduct and practices are a key element of generic consumer law and found that existing consumer laws deal adequately with most instances of unfair practices and conduct. A gap was found in provisions relating to unfair contract terms and substantiation of claims. These are discussed below at section 6.2. A significant difference in Australian consumer law compared to New Zealand’s Fair Trading Act is also a prohibition of unconscionable conduct generally, and this is also discussed later in this discussion document (section 7.3).
The Productivity Commission compared the unfair practices and conduct provisions with the broad prohibition against unfairness which is used in the USA, and has been more recently included in the European Union’s Unfair Commercial Practices Directive. A broad prohibition is suggested by some commentators as more future-proof as it avoids the need for prescription of specific types of unfairness.
The Productivity Commission noted that while they are conceptually attractive, the application of the USA provisions has periodically raised concerns due to changing interpretations of unfairness and the general statute is accompanied by various specific laws. Similarly in the European Union, the Unfair Commercial Practices Directive is supported by 31 specific prescribed practices.
The conclusion reached was that the differences between the general regime approach and the trade practices law in Australia are not as great as might be thought and that in practice a general fair practice provision may not be more adaptable in dealing with new problems.
Rather than examining this issue independently for the New Zealand context, the findings of the Productivity Commission have been accepted as just as relevant to New Zealand as Australia. Accordingly, including in the Fair Trading Act a broad prohibition on unfairness is not proposed.
In summary:
It is proposed the misleading and deceptive conduct, false representations and unfair business practices provisions of the Fair Trading Act are retained as an essential element of consumer law and that the Fair Trading Act continues as the cornerstone of consumer law. The Fair Trading Act is well-recognised law which is relevant in day to day business transactions and conduct. The National Consumer Survey 200910 found that 20% of New Zealanders could name the Fair Trading Act.
A review of Australian and other international consumer law undertaken by the Ministry of Consumer Affairs in 200611 identified there were a number of possible enhancements that could be made to the Fair Trading Act to ensure it remains in line with best practice consumer law. Several of the enhancements relate to the enforcement provisions of the Act. These are discussed at Section 12, Enforcement.
Two potential additions to the unfair practices provisions of the Fair Trading Act were also identified: provisions relating to unfair contract terms and substantiation of claims. These are discussed below and, as noted, are both provisions the Australian Productivity Commission considered, and supported, in its 2007- 08 Review of Australia’s Consumer Policy Framework.
Unfair contract terms and substantiation provisions are included in the Australian Consumer Law. One objective of the Consumer Law Reform is to achieve harmonisation of approach, where this is appropriate, with the Australian Consumer Law. This objective accords with the Government’s single economic market with Australia (SEM) agenda.
Another objective of the Consumer Law Reform is having in place principles-based legislation that is in line with international best practices and that delivers the outcome of confident consumers. Including unfair contract terms and substantiation provisions as part of the Fair Trading Act also would support this objective.
Footnotes
9. Review of Australia’s Consumer Policy Framework, Productivity Commission Inquiry Report, No. 45, 30 April 2008 – http://www.pc.gov.au/projects/inquiry/consumer/docs/finalreport.
