Fair Trading Amendment Act 2013 – Key changes coming into effect

​On 17 June 2014, the majority of the​​ changes introduced by the Fair Trading Amendment Act 2013 came into force. Businesses will need to ensure that they are compliant with the newly enacted provisions set out below.

The changes to the Fair Trading Act which came into force on 17 June 2014 include the following:

Contracting out

Businesses will not be able to contract out of the Fair Trading Act when dealing with individual customers. This means that, for example, businesses should not use fine print to attempt to limit their liability for anything they or their agents state about their products or services.

Businesses selling to or supplying other businesses with goods and services will be able to contract out of certain provisions of the Fair Trading Act if both parties agree, the agreement is in writing, and it is fair and reasonable for them to do so. Businesses should consider whether they wish to include contracting-out clauses in business-to-business sales agreements and terms of trade to take advantage of this change.

Unsubstantiated representations

The prohibition against unsubstantiated representations is likely to make a major difference to how businesses advertise their products, and will greatly increase the ability of the Commerce Commission to take action against businesses that make unsubstantiated claims.

The new legislation requires that if a person makes a claim or representation, they must be able to substantiate the claim at the time that it is made. Regardless of whether the representation is true, businesses must actually be in possession of such evidence when they make the relevant claims, and will need to be able to prove this is the case if the Commerce Commission commences an investigation into the business’s conduct. The onus has been shifted so that the business making the representation will need to be able to prove it can be substantiated, rather than the Commerce Commission needing to prove that the representation is incorrect, false or misleading. This will make it more likely that the Commerce Commission will be able to successfully prosecute businesses that make misleading claims.

In determining whether a business or person had reasonable grounds for making a representation, the Court will have regard to the nature of the representation, the nature of the product or service involved, any research or steps taken on by or on behalf of the person making the representation and the actual or potential effects on any person. The Court will also have regard to 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. If a person in a particular business is subject to another law that sets out requirements for making representations, and the person complies with those rules, then this prohibition against unsubstantiated representations will not apply.

Unsolicited goods

The sender of unsolicited goods must inform the recipient of their rights and obligations, including the fact that the recipient does not have to pay for the goods, and that they must make the goods available for collection by the sender during the period of ten working days after the goods are received. If the sender does not provide the relevant information to the recipient, or does not collect the goods within ten days, the goods will be treated as being an unconditional gift to the recipient. Recipients of unsolicited services are not liable to pay for those services (except for reticulated gas and electricity).

It is an offence to assert a right to payment in respect of unsolicited goods or services, and you may not issue an invoice for such goods unless the required information is provided about the recipient’s rights.

Internet sales

If a business is offering goods for sale over the internet (and the offer can be accepted over the internet), the vendor must identify itself as being in trade, as opposed to being a private individual not operating in trade. Organisations that act as intermediaries for these kinds of sales (for example auction websites), must take reasonable steps to ensure the sellers who are in trade identify themselves as such.

Layby sales

The Layby Act 1971 will now only apply to agreements entered into before 17 June 2014. From now on, layby sales will be governed by the Fair Trading Act. The Fair Trading Amendment Act has changed the definition of a ‘layby sale’ slightly, and has increased the maximum price for purchases that will constitute layby arrangements from $7,500 to $15,000. Businesses must now provide customers with a clear written agreement, and are required to provide individuals with certain information, including details about the individual’s right to cancel the sale. Any cancellation charge must not be more than reasonable costs incurred by the seller.

Uninvited direct sales

Under the new legislation, customers will have five days in which they can cancel uninvited direct sales agreements if they are approached by a vendor selling goods or services while they are at home, work or over the telephone. To be an uninvited direct sale, the customer must not have invited the seller to come to their house or business, or to discuss the sale with them over the phone, and the value of the item purchased must be over $100, or unascertainable at the time of sale. Any uninvited direct sales agreement must be a clear written agreement, including details such as a description of the product, and the full purchase price. The seller must tell the buyer about his or her cancellation rights before the contract is entered into.

Extended warranties

Businesses offering extending warranties are now required to make it clear to customers what additional rights the extended warranty will give them. Retailers also are required to explain that customers have five working days to change their mind and cancel the extended warranty, and must explain to customers how to cancel. The extended warranty agreement must be in writing, in plain language, and be clearly presented. The agreement must include a comparison of the consumer’s rights under the Consumer Guarantees Act as opposed to the warranty, must include a summary of the consumer’s rights under the Consumer Guarantees Act, and must tell the consumer how they can cancel the agreement. The agreement must also show the total price payable for the warranty and include all of the terms of the agreement.

Auctions

The Fair Trading Amendment Act has consolidated the relevant law relating to auctions, and makes clear how auctions are to be run, including new rules around vendor bidding.

Increased penalties

The maximum penalty for breaching the Fair Trading Act has been increased to $200,000 for individuals and $600,000 for companies.

Steps forward

Now that these provisions are in force, it is particularly important that your business is compliant. Special caution should be taken in making claims about your products, services or business, and you must ensure that any claims can be substantiated. Businesses that engage in uninvited direct sales, layby arrangements, or which offer extended warranties will need to ensure that they are compliant with the new requirements, especially given the increased penalties. If you are unclear about any of the new requirements introduced by the Fair Trading Amendment Act 2013, or any of the other recently enacted consumer legislation, please contact us.