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
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
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.
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
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.
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.
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.
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.
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.
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 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.
The maximum penalty for breaching the
Fair Trading Act has been increased to $200,000 for individuals and $600,000 for
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.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.