Court of Appeal clarifies intention under the Fair Trading Act
Published19 Aug 2010
A decision delivered by the Court of Appeal on Monday in a case involving the Commerce Commission and Progressive Enterprises Limited has clarified the interpretation of Section 17 of the Fair Trading Act.
A decision delivered by the Court of Appeal on Monday in a case involving the Commerce Commission and Progressive Enterprises Limited has clarified the interpretation of Section 17 of the Fair Trading Act. Section 17(a) of the Act prohibits the offering of gifts and prizes where there is no intention to provide the prize or provide a prize as offered.
Progressive Enterprises had continued to promote a competition after it had closed. The Court of Appeal agreed with the High Court that Progressive Enterprises did not contravene the Fair Trading Act. Previously the District Court had convicted and fined Progressive Enterprises for breaching the Act.
"While the outcome is disappointing, it is always useful to have clarity as to how the courts interpret the legislation that we enforce," said Mary-Anne Borrowdale, General Counsel Enforcement, Commerce Commission. "The courts have now confirmed that for a breach of section 17 to be proved, the trader must positively intend, at the time the offer is made, not to provide the gift or prize."
This case related to Progressive Enterprises' in-store advertising of a prize draw after the competition had ended. Progressive Enterprises, between 2 July and 31 August 2006, ran a promotion offering the chance to win prizes to customers who purchased cereal and entered a prize draw. The competition closed on 31 August 2006 and five winners were notified. However, despite complaints from members of the public and contact from the Commerce Commission, some Progressive Enterprises supermarkets continued until early December 2006 to display cereal packets and other materials that promoted the competition. There was no indication on the promotional materials that the competition had closed.
The Court of Appeal judgment confirmed the earlier High Court view, saying "…we do not accept that an offence against section 17 can be committed inadvertently or carelessly. There must be first, an offer of a prize in connection with the supply of goods and second, a co-existing intention of not providing the prize."
"The Court of Appeal has found that Progressive Enterprises did not contravene the law in this case. However, in the Commission's view, to avoid any possibility of misleading consumers, businesses must clearly indicate competition closing dates on all promotional material, and systems should be in place to ensure that promotional materials are removed at the end of a competition," said Ms Borrowdale.
The Commission is now studying the judgment and will not be commenting further.
Background
In May 2008, Progressive Enterprises Limited was found guilty of breaching the Fair Trading Act by offering the opportunity to enter a prize draw to win a holiday, months after the competition had closed. Progressive Enterprises was fined $17,000 in the Manukau District Court.
Progressive Enterprises appealed the Manukau District Court's decision and in December 2008, the High Court in Auckland overturned the earlier decision and quashed Progressive's conviction, on the grounds that Progressive Enterprises did not have the intention not to provide the prize.
In May 2009, the Commission was given leave to appeal the High Court's decision and in August 2010, the Court of Appeal dismissed the Commission's appeal.
In connection with the supply or possible supply of goods or services…;
offer gifts, prizes or other free items with the intention of not providing them or not providing them as offered."
Court penalties for breaching the Fair Trading Act can include fines of up to $200,000 for a company and $60,000 for an individual. Only the courts can decide if a representation has breached the Act.
Progressive Enterprises Limited holds approximately 45 per cent of the New Zealand grocery market and operates the Foodtown, Woolworths and Countdown supermarket banner groups. Progressive Enterprises Limited is also the franchise coordinator for the FreshChoice and SuperValue banner groups. Wholesaling is conducted through The Supply Chain.
