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CONSUMER LAW: CHANGE IS UPON US - ARE YOU READY?

From 17 June 2014 significant changes are to be implemented to New Zealand's consumer law, largely by changes to the Fair Trading Act 1986 ("FTA") and the Consumer Guarantees Act 1993 ("CGA").

Set out below is a snapshot of the key changes:

  • Contracting out of the FTA:Businesses, when contracting with each other, may contract out of certain legal protections imposed by the FTA; however business cannot contract out of their obligations to consumers.

  • Product claims:There is a new restriction on making "unsubstantiated representations". Claims made in respect of goods or services being sold must be based upon "reasonable grounds". This may mean that retailers can rely on claims made to them by the product wholesaler, but only to the extent it is "reasonable" for them to do so. Retailers may have a duty to show that claims they make about products are accurate.

This does not prevent claims being made which the reasonable consumer clearly understands to be marketing or advertising spin, such as "Red Bull Gives You Wings".

  • Unsolicited goods and services: There will be no obligation on those who receive unsolicited goods to pay for them. The only obligation is to make the goods available for collection if they do not want them. Those who receive unsolicited services are not required to pay for them (this does not apply to gas and electricity). The sender of the goods must not mislead the consumer with respect to their rights.

  • Layby sales:The Layby Sales Act 1971 is repealed, and the law relating to this is now found in the FTA. The layby contract must now be in writing and disclosure of the key terms of that contract to the consumer is required, including the consumer's right to cancel, how cancellation charges are calculated and when the retailer may cancel the contract. The new provisions may be enforced by the Commerce Commission.

  • Uninvited direct sales:The Door to Door Sales Act 1967 is repealed. New provisions are included in the FTA. The consumer must be told of their rights under the FTA, including their right to cancel the contract before agreeing to be supplied and they must be given a copy of the sale agreement. This includes sales made over the telephone.

  • Extended product warranties:The FTA now includes very specific disclosure procedures, which includes giving the consumer a cooling-off period, the requirement to provide the consumer with a summary comparison between the consumer's rights under the CGA and the protections which they will be given under the extended warranty arrangements. An extended warranty does not include a manufacturer's warranty.

  • Auctions:A new Auctioneers Act 2013 will apply which sets out the administrative aspects of auctions and auctioneers. The auction process itself is to be governed by the FTA. There are specific changes in relation to sellers' bids, including their use and disclosure. If relevant, sellers must disclose their status as professional traders. The CGA protections may now be applied to sellers in trade by way of auction. These changes do not apply to "Trade Me" type transactions (they are not treated as true auctions).

  • Contracting out of the CGA:Suppliers of goods and services business-business may contract out of the legal protections and promises applied by the CGA, provided it is "fair and reasonable" to do so. New provisions prescribe what fair and reasonable means.

  • Delivery of goods:Under the CGA, the time at which goods are deemed to be supplied to the consumer has been clarified and new provisions inserted to give a guarantee as to the time of delivery of goods (which is either within a specified time period, or if no time period is agreed, within a reasonable time).

  • Gas and electricity:These are now covered by separate guarantee and indemnity provisions in the CGA.

Along with the changes set out above, penalties for breaches of certain consumer laws have been increased and in other areas the Commerce Commission has been given wider powers to act against suppliers.

We recommend that:

  • Businesses review their terms of trade and procedures.

  • Retailers (as well as manufactures) carefully consider whether any claims made about products being sold can be supported (note: it does not matter that the claim turns out to be true at a later date, it must be able to be supported at the time it is made).

  • Those offering extended product warranties (not manufacture's warranties) should carefully review and consider how they will fulfil the new disclosure requirements.

  • Sellers who carry out auctions review their obligations under the Auctioneers Act 2013 and the new disclosure and procedural requirements set out in the FTA.

  • Where businesses are uncertain as to their obligations that they take specialist consumer law advice.

A further change due in March 2015

A further change to the FTA, to regulate what can be described as "standard form consumer contracts" (which may in fact also include business-business contracts relating to consumer goods) to address concerns about terms in those contracts which may be considered unfair, is to come into effect in March 2015.

The FTA will set out what types of terms in contracts are likely to be unfair to consumers, as they are not easily understood, or not commercially legitimate, such as those terms:

  • Which impose excessive penalties for breach of the contract.

  • Where the contract can be renewed or reviewed only by the suppler.

  • Where a trader can vary a price without offering the customer the right to terminate.

  • Which seek to limit all liability.

  • Which limit a right to take legal action against another party.

  • Which allow the contract to be changed by one party and not the other.

We recommend businesses now start to review their standard form contracts/terms, especially where they are entered into with consumers, to consider if certain terms could be considered unfair and if they are unsure to take specialist advice.

Written by Mark O'Donnell at 09:00

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