Changes to the Fair Trading Act

The Fair Trading Amendment Act 2013 modernises New Zealand consumer law, better reflecting the digital and commercial world we live in, and aligning New Zealand and Australian consumer law.

The Act helps ensure businesses can compete more effectively and that consumers are better protected. It also allows the Commission to be more timely and effective in our actions when the law is broken.

Changes under the Act include additional rights for consumers and obligations for businesses as well as investigation and enforcement tools for the Commission. The table below provides a summary of the changes with links to more information.

Rights and obligations

Auctions – new rules apply to certain types of auctions (excluding online auctions like Trade Me)

Buying and selling online – traders who sell online must make it clear they are traders, meaning purchases have rights under the Consumer Guarantees Act
Contracting out of the Fair Trading Act – businesses cannot contract out of their obligations to consumers
Door-to-door and telemarketing sales – consumers have extra protection when approached by uninvited sales people at their home or workplace, or by telephone
Extended warranties – traders must now disclose consumer’s rights under the Consumer Guarantees Act and a comparison of those rights with the benefits of the extended warranty being offered
Substantiation – it is an offence for traders to make a claim they can’t back up
Unsolicited goods and services – it is illegal for a business to demand payment for goods or services that haven’t been requested by the recipient
Investigation and enforcement
Compulsory interview powers – allows the Commission to require oral evidence from individuals
Enforceable undertakings – a form of out-of-court negotiated settlement
Increased fines – penalties for misleading and deceptive conduct, false representations, unfair practices and issues around product safety have increased from $60,000 to $200,000 for individuals and from $200,000 to $600,000 for businesses
Management banning orders – in certain circumstances the Commission can ban an individual from being a director or involved in the management of a company
Product Safety Monitoring and Enforcement Powers – some new powers when conducting inspections

Laws prohibiting unfair contract terms will come into force on 17 March 2015.

Compulsory interview powers

The Commission now has the ability to require oral evidence from people during some Fair Trading Act investigations. Previously the Commission could only request interviews and individuals could refuse to be interviewed or to answer certain questions. The interviewee must answer questions put by the Commission, but any responses cannot be used against the interviewee in criminal proceedings, other than in some limited, specified circumstances. The compulsory interview power can be used for investigations that started before the provision came into effect.

Enforceable undertakings

Enforceable undertakings are a form of out-of-court negotiated settlement. Where the Commission believes there has been a breach of the Act the Commission may accept enforceable undertakings. They may include agreements by a person or business to stop doing something, make compensation payments, publish corrective advertising or pay costs to the Commission. If the party does not keep to their agreement the Commission may apply to the Court to enforce the agreement.

Increased fines

Recent changes to the Act include significantly increased penalties, the introduction of infringement offences and the ability for courts to impose banning orders. These new penalties come into effect six months after Royal Assent on 17 June 2014.

Important changes include:

  • Fines for misleading and deceptive conduct have been increased by at least 300%. Individuals now face fines of up to $200,000 per offence. Companies face fines of up to $600,000 per offence.
  • Participants in pyramid schemes now face fines of up to $600,000. In addition, a Court can also strip offenders of the equivalent revenue or 'commercial gain' earned from the offending.
  • Breaches of Part 2 of the Act (relating to Consumer Information) or Part 4A (relating to consumer transactions and auctions) can result in a fine for an individual of $10,000 and $30,000 for a body corporate.
  • The Commission can issue infringement notices with fines of up to $2,000 for offences for:
    • failing to comply with a suspension of supply notice issued under section 33D;
    • involving the contravention of section 28 (consumer information standards);
    • failing to comply with section 28B(1) or (2) (disclosure of trader status on Internet);
    • involving the contravention of any of the following provisions of Part 4A:

(i) section 36C (layby disclosure requirements);
(ii) section 36D (further layby disclosure requirements);
(iii) section 36L (uninvited direct sale disclosure requirements); and
(iv) section 36T (extended warranty disclosure requirements.

Other remedies

There are other remedies available under the Act that remain unchanged. These include:

  • Corrective advertising orders - A court may require a trader to publish corrective advertising; to disclose information to the public generally, or to an affected section of the public; and publish corrective statements.
  • Compensation/refund orders - A court may order a trader to pay money, by way of refund or compensation, to those who suffer loss as a result of unlawful conduct.
  • Altering/voiding a contract - A court may order that a contract be altered or voided as a result of unlawful conduct.

Management banning orders

A Court can now also impose a management banning order which prohibits an individual from being involved in the management of a company. A management banning order can be taken against an individual who:

  • has, on at least two separate occasions within a 10-year period, committed a criminal offence under the Act; or
  • is, or was at the time of committing the offence, a director of, or concerned in the management of, an incorporated or unincorporated body that has, on at least two separate occasions within a 10-year period, committed a criminal offence under the Act; or
  • has been prohibited by an overseas jurisdiction, in connection with the contravention of any law relating to unfair trading, from carrying on certain activities.

A person who breaches a management banning order made against him or her commits an offence that is punishable by fine of up to $60,000.

Product Safety Monitoring and Enforcement Powers

Under section 47K of the Fair Trading Act 1986, the Commerce Commission can authorise any employee to monitor and enforce compliance with any or all of the provisions listed below. This allows the Commission to monitor and enforce these provisions more effectively. An authorised Commission employee may also enter and inspect a place (not including a private residence) without a warrant for the purpose of monitoring or enforcing compliance of the following:

Unfair contract terms

Unfair contract terms will be prohibited in all standard form consumer contracts entered into after 17 March 2015, and also in those contracts (except insurance contracts) that are renewed or varied after that date.

The provision allows the Commission to seek a declaration from a court that a term in a standard form consumer contract is unfair. While only the Commission can apply for this, any person may ask the Commission to apply to the court in relation to a contract to which they are a party.

The court may declare a term unfair if it is satisfied that the term would cause “a significant imbalance in the parties’ rights and obligations; and is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and would cause some detriment (whether financial or otherwise) to the other party if applied, enforced or relied on.”

Certain terms cannot be declared unfair. These are terms that:

  • define the main subject matter of the contract;
  • set the upfront price payable under the contract; and/or
  • are required or expressly permitted by any enactment.