Make unsubstantiated representations and face the consequences

Friday 29 September 2017

Author: Kristin Wilson

​​​On 20 September 2017, the District Court handed down the first sentence for making unsubstantiated representations in breach of section 12A of the Fair Trading Act 1986 (the Act). Fujitsu General New Zealand Limited was charged with seven representative charges of breaching the Act. The charges related to unsubstantiated claims about the efficiency of its heat pumps on its website (in breach of section 12A of the Act) and in television advertisements and leaflet drops (in breach of section 13(e)).

Fujitsu made the following claims on its website:

  • ​"New Zealand's most energy efficient solutions".
  • "New Zealand's most energy effect heat pump range".
  • "New Zealand's most efficient heat pump range".
  • Fujitsu's e3 range of pumps were the most efficient systems ever; delivered better heat efficiency.
  • Fujitsu leads the way with unique energy saving features; consumers will receive the best possible economy across a wide range of models.
  • The e3 range delivers almost five times the heat of the amount of energy used.

​It was alleged that these representations gave the overall impression that Fujitsu's heat pumps were more energy efficient than those of their competitors and that these representations were unsubstantiated because the company did not have reasonable grounds to make the claims at the time of publication. 

The Court noted that the maximum penalty for breaching section 12A of the Act was the same as that which could be imposed for making false and misleading representations (namely $600,000). Judge Mill held that conduct under section 12A could at times result in a fine greater than conduct under section 13(e) depending on the nature of the breach, the culpability of the defendant in the breach, and the facts of the case. 

Fujitsu claimed that their statements were based on evidence that the heat pumps were highly efficient and that they were not a complete departure from the truth. The offending was not deliberate, but rather inadvertent or careless. They also claimed that dissemination of the statements was relatively small, was not part of an extensive advertising campaign, and there was no demonstrable prejudice to consumers or profit to the company as a result of the claims being made. 

Fujitsu said the unsubstantiated representations were made on the basis that Fujitsu had been awarded more energy stars by the Energy Efficiency and Conservation Authority than any other brand of heat pump in New Zealand. The claims about efficiency had accordingly not come "out of the blue". Fujitsu accepted however that the number of stars in respect of the heat pumps in its range could not in itself substantiate the representations it had made.

Judge Mill held that in the circumstances of this case the offending that arose due to the unsubstantiated representations was less serious than the more specific representations that had been made in breach of s13(e) of the Act (for example the claim in the online advertisements that the e3 heat pump delivered $4.92 of heat for $1 of power). Most of the unsubstantiated claims were made in general terms, and were in the nature of exaggeration, and accordingly were less likely to influence buyers than the misleading claims made in the television advertisements and leaflets.

When determining the appropriate sentence, Judge Mill took the following factors into account.

  • ​​The objectives of the legislation,
  • The seriousness of the offending,
  • The culpability of the company in relation to the offending (i.e. whether the offending was deliberate or careless),
  • The impact of the offending on people protected by the Act, including the need to denounce and deter such offending, and
  • The totality of the offending.

In terms of culpability for the unsubstantiated representations, the Judge held that Fujitsu management had been careless in making their claims based on the energy star ratings, and that a simplistic and naïve view had been adopted in order for the company to proceed in the way it had. The claim that the range could deliver five times more efficiency was approaching gross negligence, but was not a significant part of the overall offending. 

Ultimately Fujitsu was fined $25,000 for each of the five charges in respect of unsubstantiated representations, together with court costs and solicitors' fees. In total Fujitsu was fined $310,000.

This case should serve as a reminder to businesses that:

  • ​All representations must be able to be fully substantiated – not just based on a kernel of truth.
  • The evidence which is believed to substantiate the claims must be sufficient and tailored to the actual representations being made. It was not enough in this case for Fujitsu to rely on the fact that it had more energy stars than any other brand of heat pump.
  • Making unsubstantiated representations can, depending on the circumstances, be more serious than making general misleading representations, and large fines can result.
  • The Commerce Commission will prosecute businesses for this kind of conduct and it is no defence to obtain sufficient substantiation at a later date.

If you need any further information on matters covered in this update, please contact your usual Bell Gully adviser. ​​


Disclaimer

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.

For more information
  • Alan Ringwood

    Partner Auckland
  • Tania Goatley

    Partner Auckland
  • Kristin Wilson

    Senior Associate Auckland
Related areas of expertise
  • Consumer law
  • Regulatory investigations and prosecutions
  • Intellectual property
  • Media