Availability of goods
The Fair Trading Act requires businesses to supply advertised goods or services at the advertised price for a reasonable (or stated) period and in reasonable (or stated) quantities.  Websites also need to be kept up-to-date so that stock that is no longer available is not promoted.

There is no precise definition of what is meant by ‘reasonable quantities’ and ‘reasonable time’.  In practice, it will depend on the market in which the business is operating, the likely demand based on experience, the attractiveness of the offer and the nature and extent of the advertising.

The Act prohibits businesses from advertising goods or services that they know they cannot or may not be able to supply in reasonable quantities.  Because of advertising deadlines, some businesses place advertisements for goods before they actually have them on hand.  Sometimes, advertisements for goods ordered from overseas are placed in anticipation of their arrival.  Businesses should be careful to make sure they have reasonable grounds to believe the goods will be available when the advertisement appears.

Advertising goods and services that cannot be supplied in order to lure people into a shop is known as ‘bait advertising’ and is a breach of the Act.  General qualifying statements such as ‘while stocks last’ could still leave a business open to charges of bait advertising if reasonable quantities of the advertised product are not available.  Any limits on an offer should also be stated, for example, ‘one per customer’, ‘offer ends 1st March’.  If stock is not available and consumers are being invited to place orders for it, then any advertising needs to make this clear.

There may be times when, through no fault of its own, a business is unable to supply goods or services as advertised.  Businesses should have a ‘raincheck’ system in place to ensure that if this happens, the business is able to offer to supply or procure the supply of the goods or services, or the equivalent goods or services, at the advertised price, as soon as possible.  The goods or services should be provided within a reasonable time if the raincheck is accepted by the customer.

A proper raincheck system not only ensures that customers’ needs are met, but is also a defence (under section 19 (3) of the Act) against prosecution when goods or services are not available as advertised.  (See Defences.)

Claims about qualifications and skills
Any claims a business makes about qualifications or skills its employees possess must be truthful and accurate.  Membership or approval of trade organisations should not be claimed unless that membership has been approved and is current.  Claims should not be based on pending applications or part membership.

Claims about success
Businesses must not make misleading claims about their own success.  Such claims may be designed to convince potential customers of the merits of going to that business for a particular product or service.

If a claim is made about the success of a certain product, service, or a business itself, this claim must be true.  It must also be current.  Any claims made relating to past success, such as an award won two years ago, must clearly state the date restrictions of that award – a restaurant claiming to be ‘best budget restaurant of the year’ when it was awarded the title five years ago, would breach the Fair Trading Act unless the date restriction was clearly stated.

Comparative advertising
Promoting goods and services by comparing them to competing products and services is a common and accepted method of advertising.  Comparisons can help consumers judge the relative merits of competing products and choose the one which best suits their needs and budgets. 

As with all advertising, comparative advertising must not mislead or deceive.  The comparisons made must be accurate, and must be of ‘like’ products or services available in the same market. 

A business is in the best position to know whether its product can reasonably be compared to a competitor’s.  If comparisons are used in advertising, they must tell the full story and not leave out information that is necessary for a true and fair comparison to be made. 

Condition of goods – new or used?
All representations must accurately convey the condition or history of the goods being sold – whether they are new, reconditioned, shop soiled or second-hand.

In different circumstances, the word ‘new’ can have different meanings – including ‘not second-hand’, ‘not old or antique’, or ‘the latest model’.  The way goods are described must not mislead or deceive customers about what they are getting.

If goods have been used for display or promotional purposes, or have been previously sold and then put back out for sale alongside stock which is new, a business will be at risk of breaching the Fair Trading Act, as customers are likely to assume that the goods are new, unless there is a statement that tells the real history of the goods.

A retailer advertised reconditioned mobile phones for sale without stating that the phones were second-hand.  The retailer was convicted and fined.

Employment advertisements
The Fair Trading Act prohibits anyone – not just those in trade – from misleading or deceiving others about the availability, nature, terms or conditions, or any other matter relating to a job opportunity. 

Anyone who places employment advertisements must take care that the advertisements accurately describe what, if any, jobs are available.  In addition, all information given about a job before or at an interview with prospective employees must be accurate and not mislead. 

A sales job was advertised with the representation ‘Our marketing team are making MORE LEADS than our sales staff can sell!!’  This was false.  Other misrepresentations about the number of leads were made during the job interview.  The company was convicted and fined.

Fine print
With all advertising, the first or overall impression made on a potential customer is very important.  People reading, seeing or hearing an advertisement can react to and make decisions based on that first or overall impression.  In making that impression, sometimes what is not said is just as important as what is said. 

Many advertisements include fine print sections containing details of conditions and qualifications.  Fine print should not be used to conceal important information which would be critical to a person’s decision to buy goods or services.  Fine print cannot be used to modify, in an unexpected manner, the overall impression given by the ‘big print’ or headline.

If the overall impression given by an advertisement is misleading, it will breach the Fair Trading Act no matter what information is provided in fine print.  If there are important qualifying, limiting or unusual conditions on a sale, or on other transactions such as finance agreements, these should be shown in a bold, clear and compelling way in the advertisement which cannot be easily overlooked. 

The courts have indicated that they will not take into account the confines of any advertising medium in deciding whether a particular advertisement is misleading.  Businesses need to ensure that the main message conveyed in any advertisement – whether it be in print, on TV or radio, or on a website – is accurate rather than relying on the fine print to correct a misleading impression.

Stating that ‘Special Conditions Apply’ will not protect a business when the conditions are unusual, inconsistent with, or modify, in an unexpected manner, the main message.  Fine print can elaborate on the main selling message, but not contradict it.

Fine print is also often used in contracts.  The Act has a much broader application than contract law.  In a number of cases, courts have decided that fine-print conditions in a contract cannot be relied upon to avoid liability under the Act if false or misleading statements have been made previously to encourage the signing of the contract.  Businesses should also take care that fine print in contracts does not conflict with any statutory obligations. 

Image advertising
Image advertising is the use of appealing images to influence how consumers view products on the basis that people will buy a product because they associate it with a memorable, appealing image. 

A business may seek to convey an image of being environmentally friendly by using scenery in advertising, or designs featuring dolphins or plants, or may use a well-known personality, with appropriate associations, to promote its product and strengthen its image.

If a representation has been made, it may be in breach of the Fair Trading Act if it is found to create an impression which cannot be substantiated.

Advertising should not be used to create an image for a product or service which cannot be backed up by the facts.  The image must be accurate.  However, the Act does not prohibit ‘puffery’ – exaggerations which are so obvious that they are unlikely to mislead anyone. 

Internet advertising and transactions
The Fair Trading Act applies to representations and transactions made electronically, including those made over the internet.

All companies incorporated in New Zealand or which carry on a business in New Zealand are subject to the Act.  This applies whether they are dealing with local customers, or trading with customers overseas, or whether the website is overseas.  Businesses should take care to ensure all representations made online are accurate and do not mislead potential customers.

Because websites can be accessed by consumers anywhere in the world, it is important that local businesses that trade internationally through their websites are aware that laws in other jurisdictions may also apply to them.  Whether a business will also be subject to legislation in other countries will depend on the laws in those countries.

The Commission has well-established relationships with its international counterparts to tackle consumer problems connected with cross-border transactions in both goods and services.

The Ministry of Consumer Affairs has published a New Zealand Model Code for Consumer Protection in Electronic Commerce which provides guidance to businesses and information for consumers on the practices that businesses should adopt when engaging in business to consumer electronic commerce.  The model code is available to download at www.consumeraffairs.govt.nz, in the Business Information section.

Origin of goods
When deciding to purchase goods, customers will often be influenced by the origin of those goods.  They may prefer to buy New Zealand-made products, or believe that goods made in certain countries are preferable to others.

Businesses must avoid misleading consumers about where goods are made.  It is not just words that can be misleading.  Symbols such as kiwis, flags or other national emblems can also convey false or misleading impressions as to place of origin.

A place of origin can be defined as the country or region where the product was created in its final form from its raw materials or constituent parts.  In other words, it is the country or region where the product’s ‘essential quality’ was created.  It is not necessarily the place where the most money was spent on a product – and it is not the place where only final assembly or packaging was done.

For example, orange juice which is made from imported concentrate which has water added and is bottled in New Zealand, could be labelled ‘Bottled in New Zealand from imported concentrate’.  It is the concentrate which gives the juice its essential character, not the water or the bottling.

When a product has been worked on, or added to, in several places, it may be misleading to claim a place of origin.  In such cases, to avoid making misleading claims about where the product was made, explicit terms such as ‘assembled’, ‘packaged’ or ‘blended’ should be used.

The Commission encourages businesses to list their contact details on goods, but care needs to be taken to ensure that those details do not create a misleading impression about the origin of the product.  The Commission’s approach is that where contact details may give the impression of a place of origin that is different from where a product gained its essential quality, sufficient information should be put as prominently as possible on the label to indicate that the product came from elsewhere.

Importers should also note that the Customs Act 1966 prohibits the importation of goods which are falsely described – and this includes labels which are deceptive about their place of origin.

A distributor falsely represented that canned tomatoes from Spain were of New Zealand origin.  Although ‘Espana’ was stamped on the top of the can, the wrap-around label said ‘Product of New Zealand’.  The distributor was convicted and fined.

A business falsely represented the place of origin of jackets by removing a ‘Made in Korea’ label, leaving attached a label marked ‘Christchurch New Zealand’, and affixing a swing tag which included the name and New Zealand address of the manufacturing company which imported the clothing.  The business was convicted and fined.

Pictorial representations
It is possible for businesses to mislead or deceive customers – and therefore breach the Fair Trading Act – with pictures as well as with words.

Illustrations of goods used in advertisements must relate specifically to what is actually being promoted.  The picture in the advertisement for goods must not, for example, be of a more popular or expensive model.  Similarly, any pictures used on packaging must accurately represent the product contained inside.

If the product illustrated is different from the one offered, fine-print explanations are unlikely to prevent people being misled. 

Puffery
The Fair Trading Act does not prohibit ‘puffery’ – exaggerations which are so obvious that they are unlikely to mislead anyone.  Humorous and imaginative advertisements often use this technique.  Often no objective test can be used to determine their truth or otherwise, or the statements are obvious exaggerations.

Businesses should be careful when using exaggerated statements.  Representations and claims that appear to relate to facts rather than opinion, particularly regarding quality and price, such as that a product is ‘the fastest’ or ‘the most economical’, will breach the Act if they are not accurate.  The more factual or seemingly factual (and therefore the more capable of being proved or disproved) a claim is, the more likely it is to be a representation which, if misleading or deceptive, could breach the Act.

Businesses should also bear in mind the sophistication or otherwise of the potential audience when making exaggerated claims which seem to be obvious puffery.

Sponsorships and endorsements
To promote a product or service, a business may decide to seek an endorsement from a prominent person or organisation.  Claims that a person or organisation endorses a product must be true, and that person or organisation must agree that the business can make the claim.

The Fair Trading Act prohibits false or misleading claims that a product or service has the support or endorsement of any person or organisation.  Businesses must not claim the endorsement of a fictitious or disbanded organisation. 

If a claim is made that someone uses a certain product, this claim must be true.  It must also be current.  Any claims made by the person endorsing the product or service must also be true.

Businesses must not make misleading statements about the nature of any endorsement given to products or services by a reputable organisation.  Such endorsements include Standards Association accreditation, or medical or product safety certification.

The Commission does not endorse or approve any organisation, person, scheme or marketing strategy.  Claiming Commerce Commission approval will breach the Act.

Statements about the future
As with all claims, any statements about what is likely to happen in the future must be truthful.  This is particularly applicable to anyone selling a franchise, a ‘work from home’ enterprise, or a business. 

Section 22 of the Fair Trading Act prohibits false or misleading representations about the profitability or risk of some business activities.  Advertisements which give false or misleading expectations about the income potential of such ventures breach the Act. 

Consumers should get professional independent advice (for example, from an investment adviser, bank manager, accountant or lawyer) before investing money in any scheme or business activity and should be extremely cautious if encouraged to borrow money to join such a scheme on the promise of easy returns.

To avoid breaching the Act, a business must have a reasonable basis for any claims made about likely future profits, or potential sales of the franchised product.  If challenged, the truth of the claim will be tested on what was known and believed at the time the claim was made, and not with the benefit of hindsight.  For example, previous sales and records of a product under franchise may be relevant in establishing whether a claim about expected franchise profits was misleading.

A business made a projection of income for inclusion in a prospectus promoting the sale of a video library.  The court found that if a statement as to future events is made, then there must be a proper basis for it; it must be based on an honestly held belief and, if made by an expert or one who claims to be an expert, that belief must be honestly held on rational grounds.  The business was found to have made the projection of income with ‘reckless indifference’, and was convicted and fined.  Half of the fine was ordered to be paid to the complainant.

Tests and surveys
The results of tests or surveys which are favourable to a product or service may be quoted in advertising.  If this is done, the results must not be distorted to make them appear more favourable.  Alluding to a non-existent test or survey will breach the Fair Trading Act.

Businesses should also be able to provide evidence to support the accuracy and relevance of the results, should they be questioned. 

It is important that any representations made do not mislead consumers as to the nature, extent or standard of any test or survey.

Words with special meanings
Businesses should avoid using jargon or ‘trade terms’ with special meanings without adequate explanation if the average consumer is unlikely to be familiar with them.

This includes terms such as ‘endowment’ or ‘indemnity’ when selling insurance, or tube size rather than screen size when selling television sets.  Without additional information or explanation, such terms could mislead customers.

Businesses must also ensure that technical words are easily understood and not used in a false or misleading way.