If it ain't broke...

Jenny Stevens, Senior Associate | Monday 14 August 2006

First published in The Business, New Zealand Herald,
14 August 2006

The need to protect consumers from unscrupulous or shoddy operators is a no-brainer - only those operators themselves might argue otherwise.

But how we achieve the legal protection and, at the same time, ensure business and the wider economy is not strangled unduly in the process, requires careful balance.

Proposed changes to New Zealand's consumer protection laws, now up for discussion, have the potential to unbalance a system that appears to be working well for consumers. While it makes sense to review and monitor the status quo - and tweak where necessary - the extent of the changes now being suggested could mean we risk causing a well-oiled machine to splutter, or worse, mow down all in its path.

A review by the Ministry of Consumer Affairs of the redress and enforcement provisions of consumer protection law suggests seven proposed amendments to the Fair Trading Act that the Ministry considers would enhance the effectiveness of New Zealand's consumer protection legislation. Most of the proposals involve giving the Commerce Commission greater investigative and enforcement tools, including the ability:

• to conduct compulsory interviews;
• to issue cease and desist orders to halt conduct that allegedly breaches the Act; and
• to require a person/trader to "substantiate" claims made by them or, in other words, to place the burden of proof on the trader rather than the Commission.

The Ministry's reasoning in support of the proposals is unconvincing. Having completed a "benchmarking comparison" of the investigative and enforcement tools available to regulators in Australia, Canada, the UK and the US, the Ministry concludes that many of the powers regulators have in these other jurisdictions would also be "nice to haves" for the New Zealand Commerce Commission.

The Commission, as one would expect, supports this view. Given the Commission's vigorous stance on Fair Trading Act (and Commerce Act) enforcement, it would be reasonable to expect that these further powers will be used by the Commission or that the Commission would, at least, threaten their use as a way of achieving "voluntary" compliance.

The question that the discussion paper does not adequately address is whether the use of these additional investigative and enforcement tools would actually increase compliance - and ultimately enhance consumer protection.

The Commission is already extremely active in its enforcement of the Fair Trading Act. It regularly uses its existing formal powers of investigation, such as issuing a notice requiring the provision of documents, and also uses informal tools, such as requesting attendance at voluntary interviews. As a result of its investigations, each year the Commission issues a large number of warnings, enters into a number of settlements, and secures a number of convictions under the Act. The Commission's achievements under the Act regularly make national news headlines.

The discussion paper suggested that some of the proposals would make the Commission's role easier and cheaper. We all have good reason to support moves that lead to the more efficient and cost effective administration of justice, even us lawyers. However, that ideal must be adequately weighed up against the rights of individuals and businesses, particularly when dealing with legislation that involves criminal liability. That has not happened in this case.

A basic right in a criminal investigation is a right to silence. If the Commission is to be able to insist that a person attend a compulsory interview, the Ministry acknowledges that appropriate immunity provisions will be required to protect this basic right. Immunity provisions already exist in some other contexts, such as in the Commerce Act, but the details of what the Ministry would propose in the Fair Trading Act context are yet to be provided.

Perhaps more problematic is the proposal to amend the Act so that the Commission can require a person to substantiate any claim that they make about a product or service. This proposal not only raises concerns as to the right to silence but also shifts the traditional burden of proof - which in a criminal prosecution would be the higher "beyond reasonable doubt" standard - from the Commission to the person being investigated.

Proposals that the Commission be empowered to issue cease and desist orders or to issue warnings over the safety of a product before an investigation is complete, raise concerns over how to ensure those under investigation are afforded due process.

With some further work, some of the amendments proposed by the Ministry may be able to be drafted to address concerns about the possible undue intrusion on the rights of those subjected to a Commission investigation. However, even if that can be achieved, there remains unanswered the question of why, at a time when investigations by the Commission appear more frequent, wide-ranging and successful than ever, such amendments are required at all?

The saying "if it ain't broke, why fix it?" springs to mind.