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Fair Trading – tougher enforcement across the board

19 April 2006

2006 may be developing into the year when Fair Trading Act enforcement steps into the limelight.  A record fine has been imposed in the banking sector in recent weeks, and more cases involving disclosure of credit card fees remain before the courts.

In addition, the drawn-out case where Air New Zealand was found guilty of breaching the Fair Trading Act in its airfare advertising is set to continue into 2006. 

Despite winning on 14 of the 20 sample charges brought in the District Court, the Commerce Commission is going for the jugular and attempting to appeal the decision on the other six charges that were dismissed by the Court. 

Commission wants clarity on advertising ruling

While the Commission has not disclosed the specific basis for the appeal, it wants the High Court to clarify aspects of the ruling that meant those other six sample advertisements were not found to be misleading.  So Air New Zealand’s fare advertising, particularly its fuel surcharges – and what ordinary New Zealanders really understand by the phrase “fare dinkum” – is likely to come before the courts again.

The 20 charges in the District Court were a sample of a total of 342 instances that the Commission alleged were in breach of the Fair Trading Act 1986.  Of the 14 charges that the Court found to have breached the Act, the majority were said to be "misleading" because additional costs which were tagged on to headline fares had not been adequately drawn to the public’s attention or explained in sufficient detail. 

Going further, the Court found one particular advertisement to be "false" in terms of the Act.  In this advertisement, Air New Zealand had listed the $20 fuel surcharge at the foot of the advertisement alongside additional charges such as insurance costs.  However, because the fuel charge was really an operating expense (that is, one which the airline could not legitimately separate out from the fare itself), it should have built it into the headline fare.  As Judge Thorburn noted “… of all the advertisements considered in this decision, this is the one which smarts most unpalatably of ‘sharp’ and unacceptable practice”.

In contrast, the six charges which the Court dismissed and which the Commission is now appealing, included advertisements where asterisks linking headline fares to

additional charges were found to be sufficiently proximate or obvious so as to avoid being false or misleading to consumers.  The charges relating to the “fare dinkum” advertisements – which dominated media coverage throughout the hearing – were also dismissed.  After extensive expert evidence as to the meaning of that phrase, the Court concluded that its use was “no more than a good example of the sort of creative fun that has its rightful place in the market of free enterprise and healthy competition that advertising revels in”.

Air New Zealand has since moved to change its advertising in response to the Court’s decision, and is planning to work towards having all inclusive fares as soon as the airline is able to implement them.  However, despite this the Commission has taken the view that the case “has wide-reaching implications for advertising in New Zealand”, and has indicated that it believes an appeal “will result in a clearer line being drawn for advertisers”.  The Commission has also moved to warn other parties against the practice of disclosing fuel surcharges as an add-on or "asterisked" cost.

Air New Zealand is facing potential maximum fines of up to $100,000 for each breach occurring before July 2003 (when the penalties were raised), and $200,000 for breaches since this date.  Sentencing on the charges is due shortly, but may be subject to the Commission’s appeal, and a similar case for Qantas is still waiting in the Court wings.

Direct marketing of mobile phones – Telecom wins in Supreme Court

A case as to the correct interpretation of the rather obscure and little-used Door to Door Sales Act 1967 has come before the Supreme Court, with an important outcome concerning remedies available to the Commerce Commission.  The Supreme Court on 30 March 2006 reversed an earlier Court of Appeal order requiring Telecom to refund the price of mobile phones to potentially thousands of customers.

By the time the case reached the Supreme Court, the facts were no longer in dispute. Telecom had run a direct marketing campaign for the sale of mobile phone and connection services to domestic customers.  After an initial visit or phone call by a sales agent, Telecom sent the customer a package containing a mobile phone and some contractual materials.  The packing slip notified the customer that any unwanted phones had to be returned within seven days, and that if the customer broke the seal on the box, they were accepting both the phone and Telecom's terms and conditions for a 24-month supply of telephone services. 

In the Supreme Court, Telecom accepted that it had breached the Door to Door Sales Act because customers had not been provided with a notice of their cancellation

rights in the prescribed form, and had consequentially breached the Fair Trading Act as well.  The key issue before the Supreme Court was whether Telecom would have to make corrective advertising that invited affected customers who had paid for the mobile phones to apply for a refund.    

The Supreme Court decided that the relevant section of the Door to Door Sales Act did not give jurisdiction to make an order requiring money paid by customers to be recoverable.  The statutory provision in question was designed for situations where there has been a deliberate attempt to avoid or defeat the application of the Act.  That was not the case here, and therefore the powerful remedy of full recoverability of money paid could not be applied to create an obligation upon Telecom to issue refunds.