International Comparison Discussion Paper

May 2006

Previous Page / Table of Contents / Next Page

Part 1 - Summary of New Zealand's Consumer Protection Law

The Fair Trading Act 1986

The Fair Trading Act (FTA) prohibits certain conduct and practices in trade, provides for the disclosure of consumer information relating to the supply of goods and services and promotes product safety. The FTA is substantially based on Part V of the Australian Trade Practices Act 1974.

Part 1 - Prohibitions

Under Part 1 of the FTA, there are three main types of prohibitions:

• misleading and deceptive conduct;
• false representations; and
• unfair practices.

Misleading and Deceptive Conduct

Sections 9 to 12 of the Act cover all conduct that is misleading or deceptive or is likely to mislead or deceive. Section 9 covers misleading and deceptive conduct generally, Section 10 covers misleading conduct in relation to goods, section 11 covers misleading conduct in relation to services, and section 12 covers misleading conduct in relation to employment.

False Representations

Section 13 of the Act gives a list of specific areas in which representations must not be false or misleading. The distinction between section 9 (misleading and deceptive conduct generally) and section 13 (false or misleading representations) is deliberate. Contravention of section 13 can give rise to a criminal as well as civil liability whereas only a civil charge is possible under section 9.

Section 14 outlines prohibitions for false representations regarding the sale of land. A breach of this section is a criminal offence but a breach of subsection 2 (section 14(2)) is a civil offence only.

The Act also places prohibitions on certain conduct regarding trademarks. Civil and criminal sanctions apply.

Unfair Practices

The various unfair practices which are prohibited under the Act are:

• Offering gifts and prizes without the intention of providing them
• Bait advertising[5]
• Referral selling[6]
• Demanding or accepting payment without intending to supply as ordered
• Misleading representations about certain business activities
• Harassment and coercion
• Pyramid selling schemes.

Part 2 - Consumer Information

Sections 27 to 28 of the FTA provide for regulations creating consumer information standards for goods and services. These relate to the type of information which must be disclosed and the way that information is to be disclosed. Currently there are four consumer information standards, covering:

• country of origin clothing and footwear;
• fibre content labelling;
• care labelling; and
• supplier information notices (SINs) for used vehicles.

Part 3 - Product Safety

Section 29 provides for regulations prescribing certain product safety standards.

There are currently 6 product safety standards relating to:

• children's toys
• cigarette lighters
• children's nightwear and limited daywear having reduced fire hazard
• household cots
• pedal bicycles
• baby walkers.

These standards establish particular requirements that must be met, usually by referring to Australian/New Zealand Standards.

Under section 31, the Minister can declare goods to be unsafe if the good may cause an injury to any person. Such notices are effective for 18 months.[7] If goods do not comply with product safety standards, or may cause injury to any person and the trader has not recalled the goods, the Minister may compulsorily require the goods to be recalled (section 32).

Part 4 - Safety of Services

Section 34 provides for regulations prescribing safety standards in respect of services. There are no safety of services standards currently in force.

Part 5 - Enforcement and Remedies

The FTA is enforced by the Commerce Commission. Individuals and corporations can also take action under the Act.

Civil proceedings and criminal prosecutions can be taken. However, in some cases only civil proceedings can be taken. This includes breaches of section 9, which prohibits misleading conduct in trade and which is the most frequently litigated section of the Act. As well, the Disputes Tribunal has no jurisdiction for breaches under this section. Civil remedies include injunctions, orders for corrective advertising (only available to the Commerce Commission), private actions and other compensatory orders, depending on the jurisdiction of the Court.

Under the FTA offences are generally strict liability, that is, a person is held responsible for damages resulting from their actions regardless of their level of fault.

Breaches of the FTA can lead to civil or criminal liability with a fine of up to $60,000 for individuals. If the trader is a body corporate they may be liable for a fine of up to $200,000. If there is more than one offence for the same breach, then total fines imposed cannot exceed the maximum.

The one exception to the maximum fine provision relates to pyramid selling. Pyramid selling[8] is a criminal offence with a fine of up to a maximum of $200,000. If a person is convicted of pyramid selling, that person can be required to repay any commercial gain made from their dealings in addition to any fine.

The Court has other powers following a contravention of the Act. It may declare a contract void or vary its terms, order money or property be returned to the person who suffered loss, order goods be repaired or supplied, or order services be supplied.

The limitation period for prosecuting offences is 3 years after the matter giving rise to the contravention was discovered or ought reasonably to have been discovered.

Part 6 - Miscellaneous Provisions

The FTA gives the Commerce Commission powers of entry, search and seizure, and inspection as well as the power to require the supply of information or documents. Employees of the Commerce Commission can apply for a warrant to search premises. A warrant may be issued subject to some conditions, including obligations and powers of the person executing the warrant.

Refusing to co-operate with a search, refusing to provide documentation, or knowingly providing false or misleading information is an offence, although with lower fines than those associated with breaching other parts of the FTA (up to $10,000 for an individual and $30,000 for a body corporate).

The Consumer Guarantees Act 1993

The Consumer Guarantees Act 1993 (CGA) generally has the purpose to provide certain degrees of protection to consumers regarding the supply of goods and services. It sets out a number of guarantees concerning the supply of goods and services and requires traders and manufacturers to provide remedies to consumers when these guarantees are not met. The CGA is based on the Saskatchewan[9] consumer protection legislation (prior to 1997) and New Zealand case law prior to 1993.

Redress in the Consumer Guarantees Act

Under the CGA, consumers have the right of redress when:

• the goods do not meet a guarantee of acceptable quality (section 6);
• the good is not fit for the particular purpose that the trader represented it to be, or for the purpose for which the consumer makes clear they are buying the product (section 8);
• the goods do not correspond to the description by which they are supplied by (section 9);
• the goods do not correspond to the sample or demonstration model on which the sale was based (section 10);
• the consumer pays the trader more than a reasonable price for the goods (subject to other riders) (section 11);
• under Part III, the manufacturer fails to ensure that facilities for repair of the goods and supply of parts for the goods are available for a reasonable period after the goods were supplied (section 12); and
• under Part III, the manufacturer does not stand by their express guarantee (which is binding) (section 13).

When goods fail to comply with any of the guarantees set out above, the consumer has the right of redress against the trader (given by section 16 and outlined below). There is one exception to this - when the manufacturer instead of the trader has breached the guarantee of acceptable quality. In this situation the consumer has no right of redress against the trader, but does against the manufacturer. In all other cases, there is a right of redress against the trader even if they are unaware of such a failure. In other words, the guarantee provisions impose strict liability. Traders are expected to disclose any defects in the goods to the consumer if known.

The right of redress against the trader applies not only to the original consumer, but anyone (as long as that person meets the definition of consumer) who acquires the goods from or through the consumer.

Repair, Replace or Refund

If a good is faulty (i.e. does not comply with the CGA guarantees provided under sections 5, 6, 7, 8, 9 or 10), the trader must remedy the failure.[10] If the failure can be repaired, the trader must repair the goods. The consumer may require the trader to remedy the failure within a reasonable time.

If the failure cannot be repaired or is of substantial character, the trader must replace the goods with an identical or superior type, or refund the purchase price. The consumer can choose which of these remedies is most acceptable to them.

In the case of a failure that is of substantial character and can be remedied, the consumer has two choices:

• to require the failure to be remedied; or
• to reject the goods.

If a trader does not remedy the problem or takes an unreasonable time to remedy the problem, the consumer can have the failure remedied elsewhere and charge all reasonable costs to the trader. The consumer must give the trader an opportunity to remedy the defects before taking the goods to someone else to fix, otherwise the consumer loses the right to seek reimbursement of costs from the original trader. Alternatively, the consumer can choose to reject the goods and seek a refund or replacement goods.

Rejection

Consumers cannot reject the goods after they have been satisfactorily repaired.

Where consumers reject the goods, they have to notify the trader that they reject the goods and give the reasons for the rejection. The consumer is also obliged to return the goods to the trader unless the cost of doing so is substantial.

A consumer loses the right to reject goods if the right is not exercised within a reasonable period of time.

The right of rejection is also lost if:

• the consumer has disposed of the good(s) or if they have been lost or destroyed while in the possession of a person other than the trader or an agent of the trader;
• the goods are damaged after delivery for reasons not related to the condition of the goods at the time of supply;
• the goods have been attached or incorporated in any property and cannot be isolated without damage.

Right of Redress against the Manufacturer

Part III sets out the rights of redress for a consumer against a manufacturer. These rights are not as extensive as those against the trader and are mainly restricted to claiming damages for any reduction in the value of the goods below the purchase price. The consumer has rights when the goods fail to comply with the CGA guarantees such as acceptable quality, access to repairs and spare parts, description of the goods, and express guarantee of the manufacturer. As with traders, the right of redress against the manufacturer applies not only to the original consumer, but anyone (as long as that person meets the definition of consumer) who acquires the goods from or through the consumer.

There are some exceptions to seeking redress from the manufacturer. The manufacturer cannot be liable for:

• a breach of guarantee of quality if that guarantee was not made by the manufacturer;
• a breach that is due to a cause independent of human control occurring after the goods have left the control of the manufacturer;
• a breach that arises only as a result of the price being charged by the trader that is higher than the recommended retail price (or average price).

Consequential Loss

In all cases where a consumer has a right of redress, they also have the right to obtain damages for any loss or damage resulting from the failure which was reasonably foreseeable as likely to result from the failure. Damages can be claimed whether or not the failure was remedied, and whether or not the failure was of a substantial character.

If Direct Remedies Don't Work

The legislation does not allow for enforcement under the CGA to be carried out by the Commerce Commission or any other government or third party agency. The consumer may initiate civil legal action if the remedies are not followed through. The Disputes Tribunal, District Court or the High Court may hear claims for costs, damages, or for a refund payable under the Act. There is one exception to the consumer-driven redress rule: if a trader attempts to contract out of the obligations imposed by the Act, they may be committing an offence under s 13(i) of the Fair Trading Act (for example, a sign in a shop that states that refunds are not available). The offending trader can then be prosecuted by the Commerce Commission.

Exercising Consumer Rights and Getting Redress under the Fair Trading Act and the Consumer Guarantees Act

New Zealand consumer protection legislation relies to a large extent on consumers taking action for themselves. No enforcement agency is responsible for enforcing the CGA and while the Commerce Commission has enforcement responsibilities with respect to the FTA, it is only able to investigate a small percentage of the complaints it receives. When the Commerce Commission takes action against a trader, its primary goal may be not to secure redress for the individual consumers detrimentally affected by the breach.[11]

This means that when a consumer does not get what they expect from a transaction or when a transaction goes wrong, they are largely responsible for pursuing their own remedy. Consumers may decide that it is not worth their while trying to put a transaction right. This may occur, for example, when the price paid for a good is relatively low or when a consumer decides that their best course of action is to try and avoid a similar transaction occurring in the future and therefore "vote with their feet" (for example, they decide not to return to a restaurant where they were dissatisfied with a meal or service that they received). Where consumers decide to take action, they are required in the first instance to try and get redress from the trader concerned.

If consumers cannot resolve the matter with the trader there are a number of options that a consumer can pursue. The consumer may at this stage decide not to take any further action or may try and resolve the matter by, for example, contacting the head office, a trade association to which the trader belongs, a specific complaints body if there is one (for example, the Electricity and Gas Complaints Commissioner) or take the matter to the Disputes Tribunal. Consumers can take matters to the District Court but because of the costs involved it is unusual for consumers to do this. Court cases involving consumer protection legislation are usually instigated by businesses or the Commerce Commission.

Previous Page / Table of Contents / Next Page