Be aware of imminent changes to our trading laws

Business

The long awaited Consumer Law Reform Bill was passed into law at the end of 2013 and its extensive provisions have begun to take effect.

Introduction

Major changes to the Fair Trading Act, Consumer Guarantees Act and four other important pieces of consumer legislation will have an effect on every business or individual who is buying or selling goods and services in New Zealand –including individuals who trade via Trademe.

It is important that you understand what these changes mean for you.

Purpose

The law reform was designed to update consumer law in New Zealand and to harmonise it with Australian law. The changes are intended to provide stronger consumer protection so that consumers can trade with greater confidence and to promote competition, innovation and growth.

What laws are changing?

There are significant changes to the Fair Trading Act 1986 and Consumer Guarantees Act 1993. There are also changes to the Carriage of Goods Act, Weights and Measures Act, Secondhand Dealers and Pawnbrokers Act as well as a new Auctioneers Act.

When do these changes take effect?

Some of the changes took effect last December. These include changes to new product safety requirements and the increased powers of the Commerce Commission. Changes to collateral credit contracts are also now in effect.

However, most of the key changes come into effect very soon on 17 June 2014. Changes that will come into force then include those relating to:

  • unsubstantiated representations by vendors;
  • the provision of extended warranties;
  • rules around the provision of unsolicited goods;
  • cooling off periods for telephone and door sales;
  • internet sales (including from overseas into New Zealand); and
  • unachievable delivery guarantees.

Further changes relating to unfair contract terms will come into force in March 2015.

We will take a look at the changes to the two most significant pieces of legislation in turn.

Consumer Guarantees Act 1993

The Consumer Guarantees Act protects consumers by providing certain guarantees from suppliers and manufacturers when goods are acquired.

The changes extend the Act to cover goods ordered over the internet or by telephone (including by individuals if sold by a “person in trade”) and goods sold at auction or tender.

The amendments also introduce new guarantees for the delivery of goods. Traders will be liable under the Act if goods do not arrive within the stated timeframe or arrive damaged.

There are also new provisions relating to a five day cooling off period for telephone and door to door sales. During this period such consumers can cancel their purchase - as of right.

Fair Trading Act 1986

The Fair Trading Act protects consumers by prohibiting unfair conduct and trade practices. It provides for the disclosure of information relating to goods and services and promotes product safety. There are numerous changes that affect traders.

The new law prevents traders from making “unsubstantiated representations.” Traders who claim that their goods are cheaper, better, superior or provide particular benefits must now have reasonable grounds for making those claims. Traders who claim that the good is for sale at “half price” need to be able to show that it is usually sold for twice that sale price!

Extended warranties have become a common occurrence in New Zealand in recent years. The law now specifies new disclosure requirements required by traders (who must provide comparisons of what consumers would get with and without purchasing the extended warranty) and also provides for a cooling off period so that consumers can properly think about whether they want to pay extra for the additional benefits of the extended warranty.

Unsolicited goods are goods delivered to a consumer who did not ask for them, after which the trader usually asks the recipient to pay if they wish to keep them. A consumer who is the recipient of unsolicited goods now has no general obligation to pay for them. What is more, if they tell the trader that they do not want the goods and then make the goods available for collection for 10 working days after receipt, the goods become theirs as a “gift” if not collected by the trader within the 10 working days period.

The changes also prohibit businesses from including “unfair contract terms” in standard form consumer contracts. An unfair term is one that causes a consumer to be disadvantaged when it is not a truly necessary term of the contract. For example a term that states that a business can change or alter other terms in a contract without consulting the consumer first.

The Commerce Commission has been granted extended powers. There are now increased penalties for breaching the Fair Trading Act - companies found breaching the Act can be fined up to $600,000 and individuals up to $200,000 per offence.

Finally, traders (including individuals) who are “in trade” and who make sales over the internet are now fully covered by the Fair Trading Act – even if the trader is based outside of New Zealand.

Contracting out of these Acts

You cannot contract out of these Acts if you are in the business of providing goods or services to consumers.

The only exception to this rule is where one business is contracting with another. To successfully exclude the provisions of the Acts both parties must be in trade, they must contract out in writing, and the exclusion must be fair and reasonable. What is fair and reasonable in the circumstances will depend on a number of different factors such as the type of agreement/whether one party has more bargaining power than the other and so on.

Conclusion

If you are a consumer you are about to enjoy more protection and benefits when you purchase goods and services in New Zealand.

If you are a business or an individual who trades then you should quickly come to grips with the new legislation or you will face a risk of prosecution. In particular we are aware of many of our clients who make strong statements about their products and might be at risk of making “unsubstantiated representations” in their advertising.

You should arrange for a review of your terms of trade and for your lawyer to also advise you on any aspects of your practice that might need to change (such as if you are involved in selling extended warranties or making telephone sales).

Remember most of these laws come into effect in only a few weeks time on 17 June 2014.

Our Business Team are experts in this area and would be happy to help.

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Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.