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Brief Counsel

Have your say on comprehensive consumer law review

22 June 2010

The scope of the Government’s reform of seven key statutes governing the purchase of goods and services in New Zealand is comprehensive and will directly affect many businesses.

Consumer Affairs Minister Heather Roy says the objective is to move toward a ‘One Law-One Door’ system in which consumers will have a single place to go for advice and assistance when transactions turn sour.

The review coincides with the development of the Australian Consumer Law and is designed to provide for “real-time harmonisation as appropriate with Australia”.

Submissions are due by 30 July 2010. 

Scope of the review

The seven statutes covered by the review are: 

  • Fair Trading Act 1986 (covers pre-sale to point of sale)

  • Consumer Guarantees Act 1993 (covers post-sale period)

  • Weights and Measures Act 1987

  • Auctioneers Act 1928

  • Door to Door Sales Act 1967

  • Layby Sales Act 1971, and

  • Unsolicited Goods and Services Act 1975.

Among the issues being considered is whether the Auctioneers Act, the Door to Door Sales Act, the Layby Sales Act and the Unsolicited Goods and Services Act should be incorporated into an enhanced and ‘principles-based’ Fair Trading Act (reflecting the “One Law” goal).  It is expected that the Weights and Measures Act and the Consumer Guarantees Act will remain stand-alone: the first because it is necessarily prescriptive in nature and the second because it is self-enforcing while the Fair Trading Act relies on public enforcement.

Also on the table is the Carriage of Goods Act 1979 with respect to its coverage of consumer transactions and the Sale of Goods Act 1908 as it relates to the Layby Sales Act and the Auctioneers Act.

The purpose of the review is explained as follows:

It is questionable whether there need to be seven 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 changes because of other priorities.

A principles-based approach

Principles-based law relies on a clear statement of high level objectives to guide users and the courts rather than on prescriptive detail.  Purpose statements are proposed to be incorporated in the Fair Trading Act, the Consumer Guarantees Act and the Weights and Measures Act.  The Ministry’s preferred purpose statement for the new Fair Trading Act would be along these lines:

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.

The discussion document notes that the reference to “in good faith” was dropped in the policy objective adopted by the Australian Ministerial Council on Consumer Affairs because the courts have struggled to attach a coherent meaning to the words and because it is foreign to the principles of freedom of contract and “let the buyer beware”.  But it says that the concept “sits easily alongside fairness as a principle” and that this is a strong argument for including it.

The review also asks whether some or all of the six operational objectives for consumer policy identified by the Australian Productivity Commission should be included in any New Zealand consumer legislation in addition to purpose statements.  These are that the consumer policy framework should 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 greatest disadvantage

  • provide accessible and timely redress where consumer detriment has occurred, and

  • promote proportionate, risk-based enforcement.

Unfair practices

The review proposes extending the unfair practices provisions in the Fair Trading Act to include unfair contract terms and substantiation of claims made by suppliers about their goods and services.  The only real argument offered for doing this is to follow the Australian Consumer Law.

Unfair contract terms

The Australian Consumer Law defines a term as ‘unfair’ when it:

  • causes a significant imbalance in the parties’ rights and obligations under the contract

  • is not reasonably necessary to protect the legitimate interests of the supplier, and

  • causes financial or non-financial detriment to a party.

The unfair term provisions are confined to standard form consumer contracts.  These are pre-written rather than negotiated separately with each customer and relate to the supply of goods and services for wholly or predominantly personal, domestic or household use.The objective of targeting these contracts is to catch terms which consumers have not knowingly agreed.

Claims which cannot be substantiated

The document states that it is relatively rare for suppliers making unsubstantiated statements to be held to account because it is difficult to prove that such a statement is actually misleading or false.The review proposes a different mechanism to deal with these claims than the Australians have adopted.  The Australian Consumer Law provides the ACCC with substantiation notice powers as a preliminary investigative tool to seek information to support claims or representations which may be unsubstantiated.  The Commerce Commission has been pushing for similar powers here but the Government is concerned that the requirement on suppliers to prove they are innocent creates an inherent “reverse onus” that is contrary to the New Zealand Bill of Rights Act.

Instead the review suggests adding a general prohibition along the following lines:

No person shall, in trade, make a material claim in relation to the supply or possible supply of goods or services as to the nature, characteristic, or suitability for a purpose of those goods or services, without having reasonable grounds to justify or substantiate the claim.

Inclusion of such a clause would allow unsubstantiated claims to be investigated and prosecuted without the need for a substantiation notice procedure.  The document anticipates that this provision would be used more as a “wake up call” (i.e. forcing rapid change or clarification to the claim) than as a “full-blown prosecution” but proposes that it should be subject to civil and criminal remedies, allowing for third parties to take action as well as the Commerce Commission.

A claim would need to be suspected of being incapable of substantiation to be investigated.  Any claimed supporting evidence would need to in fact be sufficient to support the claim.  If the claim is “clinical tests show”, reliable and competent scientific support should be included.  Alternatively, if the claim is that the product is “marked down” or “below cost”, proof of the pre-sale or cost price would be needed.

The discussion document refers particularly to claims “where there seems to be an inadequate understanding [by consumers] of any basis for the claim”.  Examples cited are claims of eco-friendliness and sustainability.

Selling and duress

Door to door sales and other direct selling

The Door to Door Sales Act is 43 years old and, although the courts have extended its application to telemarketing, is out of date.  It is limited to credit sales over a threshold of $20 for books and $40 for other purchases, and provides for a ‘cooling off’ period of seven days during which the consumer can cancel the purchase.

The Act is supported by two voluntary codes of practice; one from the New Zealand Marketing Association and the other from the Direct Selling Association of New Zealand.

Questions raised in the review are:

  • whether there is a need for dedicated legislation relating to direct marketing or whether it should be incorporated within the Fair Trading Act

  • whether there should be a threshold for the Act’s application and, if so, whether $100 would be appropriate

  • whether the cooling off period should be extended to 10 days (compared to a three working day period under the Credit Contracts and Consumer Finance Act 2003), and

  • whether there should be any regulation of the hours when direct marketers may call on consumers.

Unsolicited goods and services

Provisions relating to unsolicited supplies in the proposed Australian Consumer Law are that:

  • no right to payment can be asserted without reasonable cause to believe the right is justified (and with the onus of proof resting on the supplier)

  • no liability for payment or for loss or damage (unless wilful) rests with the recipient of the goods or services, and

  • ownership passes to the recipient unless the goods are reclaimed within three months, or one month if the person receiving the goods gives notice.

The review proposes that this model be introduced here as part of an enhanced Fair Trading Act.

Unconscionability or oppression

Unconscionability is a long-standing doctrine established by the courts for use when other legal concepts such as fraud, duress or mistake do not provide an adequate remedy.  But the threshold tests are high, the doctrine relates only to the formation of contracts (rather than to behaviour during the course of the contract) and it is only available as a defence in litigation where the “stronger” party is seeking to enforce a contract.

Accordingly, although the Australians propose bolstering their existing prohibitions on unconscionable conduct, the review asks whether it might be more appropriate in New Zealand to include in the new Fair Trading Act a general prohibition on “oppressive” conduct, using the definition from the Credit Contracts and Consumer Finance Act.  This states that:

...oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards or commercial practice.

Product safety

Product safety is provided for through the Consumer Guarantees Act and the Fair Trading Act and the system is considered to be generally in line with Australia’s and robust.  However, some “possible enhancements” are proposed.  These include:

  • whether the regulator should be permitted to require product recalls and bans where it is “reasonably foreseeable” that a product might cause injury or harm rather than (as currently) forcing recalls where products “will or may” have these effects

  • whether notification to the regulator of voluntary recalls by a supplier should be mandatory where the product has caused serious injury or death

  • whether the regulator should be able to initiate a product recall where a supplier has failed to take action, and

  • whether the Fair Trading Act should provide the Minister of Consumer Affairs with the power to issue product safety policy statements similar to the Government Policy Statements applying in the gas and electricity sectors (and in addition to the current powers in the Fair Trading Act to issue product safety standards).

Trader obligations

Layby sales

Questions include:

  • whether the definition of a layby sale should be amended to exclude all transactions with fewer than three instalments (including the deposit), and

  • whether sellers should be able to recover all their costs on the cancellation of a sale (such as the salesperson’s salary and advertising costs) or only those specific costs associated with the layby transaction (the costs of recording and taking payments).

Weights and measures

The Weights and Measures Act is regarded as “substantially sound” but a “small minor change” is proposed – to introduce mandatory periodic re-verification or mandatory certificates of accuracy for all weighing and measuring equipment used in the sale of goods.

Carriage of Goods Act

Even if no other change is made to the Act, the $1,500 maximum liability the carrier has for each unit of goods will be reviewed.  The cap was last set in 1986.  

The Carriage of Goods Act is primarily business legislation so optimises the freedom of the parties to determine their own risk.  The Consumer Guarantees Act is quite different in nature and there is no ability to contract out of the protections it provides.  But the Carriage of Goods Act over-rides the Consumer Guarantees Act (because it excludes carrier liability other than under the terms of the contract of carriage or under the Carriage of Goods Act).  The discussion document states that generally it is the seller rather than the buyer who contracts with the carrier and that rights of redress against the carrier “will invariably be contracted away [by the seller]”.  Further, particularly where the sale is from a private person – perhaps over an auction website – any incentives for the seller to seek redress from the carrier are seen to be weak if they exist at all.

To remedy this problem, the review proposes giving consumers rights under the Consumer Guarantees Act in relation to carrier services.  It notes that this would be “a significant change to longstanding practices in the carrier industry, because it would potentially rebalance the risk of goods being lost or damaged in transit in favour of consumers” and says the definition of who is a consumer will be important – especially if extended to include small businesses.

Auctioneers

The review asks:

  • whether occupational regulation of auctioneers is necessary or appropriate, and if so, which is the most appropriate approach and why – positive licensing, negative licensing or an industry-led system?

  • are there any particular competencies or standards of conduct which should be applied to auctioneer licensing?

  • are the legal rules applying to auctions (primarily under the Sale of Goods Act) appropriate or should they be updated?

Consumer guarantees

The Consumer Guarantees Act is described as a well-understood and successful piece of legislation but a number of areas are identified for potential amendment.  These include:

  • whether a new definition of auction is required to distinguish those which should be excluded from the Consumer Guarantees Act (including traditional auctions conducted online) and those which should not (primarily Trade Me style auctions)

  • whether added protections are needed to prevent consumers being persuaded to buy extended warranties which provide no more protection than is available under the Act

  • whether a Disputes Tribunal should be permitted to order the rights and obligations of a consumer under a collateral credit agreement vest in the supplier in situations when goods are rejected but there is a collateral credit agreement under which a consumer would otherwise remain liable and the supplier has not refunded the price of the goods (such a provision would reflect section 89(2) of the Motor Vehicle Sales Act), and

  • whether the Act should be amended to provide that both electricity retailers and lines companies are liable for the quality guarantees in the Act (this is designed to address retailer concerns that they could be held to account for distribution network faults over which they have no control).

Additional enforcement provisions

The review proposes two additional enforcement provisions for inclusion in the Fair Trading Act:

  • Court enforceable undertakings - the Commerce Commission commonly uses settlement agreements as an alternative to litigation but these can be problematic if the business fails to comply as the Commission is not an affected party and therefore cannot enforce the agreement.  The proposal is to eliminate this problem by making such arrangements enforceable so that the Commission can prosecute a breach through the courts, and

  • Banning orders – these would be included in the Act’s offence and penalty provisions and would allow a judge to ban a recidivist trader from undertaking certain activities.

Next steps

A wide range of possible changes to the consumer protection regime is envisaged in the review, many of them very significant and with potentially serious implications for business.

A copy of the discussion document is available here.

Chapman Tripp is happy to assist with submission preparation.

For further assistance, please contact the lawyers featured.

 

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