What businesses can start thinking about now in preparation for the Consumer Law Reform Bill being passed as law

The Consumer Law Reform Bill (“Bill”) was introduced to Parliament on 20 April 2011.

The Bill was read a second time on 11 December 2012 but it currently sits at number 37 on the Parliamentary Order Paper, so we continue to wait for the Bill to progress. Regardless of the slow progress through Parliament, businesses should be using this time to review existing compliance plans and risk management strategies, and look to better align their systems with consumer expectations and the imminent consumer protection law.

This overview is derived from the Bill, commentary to the Bill and the discussion paper.

Background

Consumer law is based on the concept that both consumers and the economy as a whole benefit from consumers making effective purchasing decisions. To enable consumers to make such decisions, consumers need to have access to good and accurate information and not face undue or unfair pressure. The current Bill seeks to promote better outcomes for consumers through:

  • protecting consumers from misleading and deceptive conduct, unfair practices and unsafe or defective goods or services;
  • ensuring consumers are assisted in making better purchasing decisions by ensuring consumers receive appropriate product information and are adequately protected through terms and conditions;
  • provision of remedies when the reasonable expectation of a consumer transaction is not met; and the Commerce Commission is empowered with enforcement measures to secure good market conduct.

The Bill will align New Zealand’s consumer law with the Australian Consumer Law, by amending and consolidating the:

  • Fair Trading Act 1986;
  • Consumer Guarantees Act 1993;
  • Weights and Measures Act 1987;
  • Carriage of Goods Act 1979;
  • Sale of Goods Act 1908;
  • Secondhand Dealers and Pawnbrokers Act 2004;
  • Auctioneers Act 1928;
  • Door to Door Sales Act 1967;
  • Layby Sales Act 1973; and
  • Unsolicited Goods and Services Act 1975.

Implications for businesses

There are numerous significant changes to consumer law in New Zealand, which will affect the way that we look at consumer law and how we develop, approach and manage relationships with consumers.  Some of the key implications that will affect businesses are outlined below.

Internet sales

The Bill inserts a requirement that internet sites facilitating sales between traders and consumers must require traders to identify themselves as such if selling goods or services. The owner of the internet site is required under the new provision to take all practicable steps to ensure that persons offering goods and services for sale on the site comply with the requirement to make clear to potential purchasers that the offer is made by a person in trade, for example, traders using Trademe will have to identify themselves as a person in trade as distinct from an individual using Trademe to sell household goods.

Whilst the burden appears to be on the owner of the internet site, it is likely that traders and/or suppliers will face a positive duty to familiarise themselves with the terms and conditions of the internet site, and in particular, will be responsible for ensuring that adequate steps have been taken to identify themselves to consumers.

Unfair contract terms

The Bill inserts a prohibition against the use of unfair contract terms in standard form contracts, modelled on the “Australian Consumer Law”. 

Consumer contract is defined in the Bill to mean, in the case of a contract relating to goods or services, a contract between at least one supplier supplying the goods or services in trade and at least one consumer. The Court will determine what a standard form consumer contract means, and whether a term is in fact unfair.

However, the Bill does provide a grey list of terms that are likely to be considered unfair, for example, a term that permits, or has the effect of permitting, one party (but not the other party) to avoid or limit performance of the contract.

Unsubstantiated representations

The Bill inserts new provisions on unsubstantiated representations. These target traders who make representations without reasonable grounds. The provision does not include representations that a reasonable person would not expect to be substantiated, so that creativity in advertising would not be stifled.

A representation is unsubstantiated, as distinct from the traditional false and misleading representation provisions, if the person making the representation does not, when the representation is made, have reasonable grounds for the representation, irrespective of whether the representation is false or misleading.  A person will therefore be responsible for their own education and research to ensure that all representations made in the sales process are substantiated, and failing to do so will result in liability. In particular, a court will consider, in assessing liability, such things as:

  • the nature of the representation;
  • any research or other steps taken by or on behalf of the person before the person made the representation;
  • the nature and source of any information that the person relied on to make the representation;
  • the extent to which the person making the representation complied with the requirements of any standards, codes, or practices relating to the grounds on which such a representation may be made, and the nature of those requirements.

Extended warranties

The Bill proposes amendments to the disclosure requirements relating to extended warranty agreements to ensure that consumers are fully aware of their existing rights under the law, and how these rights compare to an extended warranty.

In addition to the existing requirements for the warranty agreement to be in writing, plain language, legible and clear, the Bill proposes a requirement that all agreements contain on the front page:

  • a summarised comparison between the relevant guarantees under the law and the protections provided by the extended warranty agreement;
  • a summary of the consumers rights and remedies; and
  • a summary of the consumers right to cancel the agreement.

In addition, the amendments propose that the warrantor must also, where reasonably practicable, give the consumer oral notice, before the agreement is entered into, of the consumer’s right to cancel the agreement within 5 working days; and how the consumer may cancel.

Door to door sales

It is proposed that the Bill will repeal the Door to Door Sales Act 1967, and makes changes to the uninvited direct sales provisions. “Uninvited direct sales” is defined more widely than just door to door sales. It is defined in the Bill as an agreement:

  • for the supply, in trade, of goods or services to a consumer; and
  • made as a result of negotiations (whether or not they are the only negotiations that precede the making of the agreement) between a supplier and the consumer in each other’s presence:
    • in the consumer’s home or workplace, where the consumer did not invite the supplier to come to that place …; or
    • where the negotiations take place by telephone, where the consumer did not invite the supplier to make the telephone call … .
    • where the price paid or payable by the consumer under the agreement is more than $100.00 or cannot be ascertained at the time of supply.

The Bill also provides that a consumer has not invited a supplier to come to the place, or to make a telephone call, merely because the consumer has given personal details to the supplier, contacted the supplier in connection with an unsuccessful attempt by the supplier to contact the consumer, or because the supplier has provided an unsolicited quote or estimate.

The amendments propose substantial disclosure requirements on suppliers. For example, there is specific information prescribed in the Bill that a supplier must include on the front page of all agreements, such as a summary of the consumer’s right to cancel the agreement. In addition, the supplier must give the consumer oral notice before the agreement is entered into of the consumer’s right to cancel the agreement within the stipulated timeframe and how the consumer may cancel.

What are some of the things businesses can be thinking about now?

The Bill provides for criminal and civil penalties, court enforceable undertakings, and banning orders. The Commerce Commission will also have expanded investigative and enforcement powers. Accordingly, it is important that businesses review their processes and systems to ensure that there are adequate compliance plans and risk management strategies in place to ensure protection from inadvertent breaches.

Businesses should direct their focus to existing compliance plans and risk management strategies. If a long period of time has passed since the business initially implemented the compliance plans and risk management strategies, focus should be on whether improvements could be made now with a view to the Bill becoming law next year.  Such considerations for businesses could include:

  • Whether there has been a shift in the market strategy, such that there is increased use and reliance on internet trading and marketing?
  • Whether the business uses standard form consumer contracts which were drafted many years ago, and which today, may not be appropriate for the modern day transaction?
  • Whether there are appropriate training opportunities for employees to ensure that they understand and are aware of their obligations to consumers, and how this assists risk management?

Making changes now to compliance plans and risk management strategies, will lessen the burden and risk on businesses when the Bill is eventually passed as law.

 

If you would like further information on any issue raised in this update please contact:

Brian Joyce, Principal

DDI: +64 9 377 8419

Email:brian.joyce@clendons-ns.co.nz

 

Krystle Gardner, Solicitor

DDI: +64 9 965 2662

Email:krystle.gardner@clendons-ns.co.nz

 

If you would like to subscribe to Clendons North Shore communications, please email Louise Gardner at louise.gardner@clendons-ns.co.nz.

 

Disclaimer

This publication is necessarily brief and general in nature. You should seek further information before taking any action in relation to the matters dealt with in this publication.