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Consumer Law Update – A Year in Review 2018

Home Insights Consumer Law Update – A Year in Review 2018

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Contributed by: Troy Pilkington, Sarah Keene, Joe Edwards, Rachel O'Brien and Sarah-Michelle Washer

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Published on: December 18, 2018

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As the season for consuming begins, Russell McVeagh continues its annual tradition of reflecting on the important developments in New Zealand's consumer law during the year.  And what a year it has been, with the biggest ever fine under the Fair Trading Act 1986, the first ever unfair contract terms proceedings, the first Commerce Commission proceedings against a wholly-overseas based online retailer, release of a new advertising standards code, and the Government's proposal to introduce a prohibition on "unfair conduct". 

Read on to enjoy New Zealand's 2018 consumer law developments in a (chest) nutshell.

Steel yourself for the highest ever FTA penalty

In October, the Court fined Steel & Tube Holdings Limited (Steel & Tube) $1.885 million for breaching the Fair Trading Act 1986 (FTA) by making false and misleading representations about the standards and testing of its steel mesh products.1    

Steel & Tube's fine under the FTA is the largest for a single company and provides a clear signal as to how seriously the courts are taking such conduct, and demonstrates the bedding in of the significantly increased penalties introduced in 2013.2 

However, despite this being a record fine, the Commission wants more.  It announced in November that it would appeal the sentence on the basis that it was too lenient as the Court:

  • failed to properly attribute the knowledge of a Steel & Tube manager to the company; and
  • did not adequately take into account the size of Steel & Tube and the potential for it to gain from the conduct.

Steel & Tube has also appealed, so the High Court's decision will prove very interesting.

It will be a matter of "watch this space" in 2019 to see where the appeal takes this fine, and to observe how the Commission goes in its FTA proceedings against Euro Corporation Limited where it has filed 59 charges for representations Euro Corporation made about its steel mesh products.

First UCT declaration

In August, the Commission commenced proceedings seeking a declaration that Home Direct Limited’s (Home Direct) consumer contracts contained unfair contract terms (UCTs) – namely terms that automatically converted a customer's direct debit payments into “voucher entitlements” for future Home Direct purchases if the customer continued to make direct debit payments after it had paid down its purchases. The "vouchers" could not be refunded or exchanged for cash and expired after 12 or 24 months with the proceeds forfeited to Home Direct. 

This is the first time the Commission has sought a UCT declaration since UCTs became unlawful in March 2015. 

In other UCT developments, earlier in the year, the Commission reviewed the standard terms for re-usable pre-paid travel cards of major public transport providers, including Auckland Transport's AT HOP Card, Wellington's Snapper Services Card and Environment Canterbury’s Metrocard.  In light of this review:

  • Auckland Transport made more than 20 amendments to its terms and conditions, including extending the validity period of unused AT HOP cards from two to six years and limiting the blocking of cards in cases where passengers repeatedly fail to tag off; and
  • Snapper changed its notice period to two weeks and agreed to replace non-functioning cards for free when damage to the card is not the passenger’s fault.

First proceedings against overseas online entity

In August, the Commission announced that it would commence court proceedings against Viagogo, a Switzerland-based ticket resale website. At the time of the announcement, the Commission had received over 400 complaints about the company since the beginning of 2017, making it the most complained-about trader in that period.

The Commission claims that Viagogo made false or misleading representations that it was an "official" seller, that tickets were limited or about to sell out, that consumers were “guaranteed” to receive valid tickets for their event, and about the price of the tickets. 

In filing these proceedings, the Commission joined a number of international enforcement agencies in Europe and Australia taking similar action against Viagogo. 

As far as we are aware, this is the first time the Commission has issued proceedings against a wholly-overseas based online business. The proceedings will likely raise interesting jurisdictional questions, which will create precedent for the Commission to take proceedings against other overseas entities in the future. The Commission acknowledges that "the case is complex and may take some time to be heard by the High Court."3

Given online retail is a priority focus for the Commission, online businesses (including overseas business that sell to New Zealand consumers) will be watching this case with interest.

Second and third unsubstantiated claims prosecutions

After taking its first unsubstantiated claims prosecution in 2017 (against Fujitsu General New Zealand Limited), this year saw the Commission achieve two further successful prosecutions: 

  • Timber King Limited and NZ Steel Distributor Limited were fined over $400,000 after pleading guilty to making false, misleading and unsubstantiated representations relating to steel mesh.  
  • HRV Clean Water Limited was fined $440,000 in October for making unsubstantiated claims about the benefits of its water filters and about the quality of New Zealand’s home water supply.

The Commission has also laid charges against Kiwipure Limited for allegedly making unsubstantiated claims about the benefits (including health benefits) and capabilities of its water filter systems. 

Warranties, consumer rights and safety remain key areas of focus

The Commission also had a number of other key areas of focus during 2018, including:

  • Extended warranties: The courts fined two retailers (PB Technologies Ltd for $77,000 and Michael Hill New Zealand Limited for $169,000) after they pleaded guilty to failing to comply with the extended warranty requirements in the FTA.
  • Misrepresentations about Consumer Guarantees Act 1993 (CGA) rights: The Commission continued its focus on taking action against retailers that misrepresent consumers' rights under the CGA, including:
    • In November, appliance retailer Noel Leeming Group Limited was fined $200,000 for misrepresenting consumers' rights under the CGA, including telling consumers that they had to contact upstream suppliers directly about faulty products, and that replacement phones could only be obtained if a fault occurred three times.
    • In October, 1 Dollar Reserve Cars Limited was fined $8,000 (an individual $4,000) for misrepresenting consumers’ rights under the CGA and failing to display mandatory vehicle Consumer Information Notices.
    • In May, the Commission warned Apple Sales New Zealand for potentially misleading consumers about their CGA rights and about replacement products being new.
  • Mandatory safety standards: A number of fines were issued for non-compliance with the mandatory product safety standards for children's toys and children's nightwear, including: 
    • In February, two toy suppliers were fined for breaching the mandatory standard that applies to toys/products for use by children up to 36 months. Toy importer Mega Import and Export Limited was fined $65,000 and AHL Co Ltd was fined $20,000.
    • Later in the year, two clothing companies were fined for failing to comply with the standard for children's nightwear. Online and store retailer NZSALE was fined $74,000 and Goodwear Limited was fined $50,000.

New developments for advertisers

This year the Advertising Standards Authority released its new Advertising Standards Code, which is a consolidation of six previous codes.4 This takes the number of advertising codes from 11 to six.5 The new Advertising Standards Code became effective on 1 November 2018 for new advertisements placed in media and will be effective for all advertisements placed in media from 1 February 2019.

New prohibitions on "unfair conduct"?

In December, the Government published a Discussion Paper canvassing options for the introduction of prohibitions on unfair contract terms in business-to-business dealings and unfair conduct.

If introduced, such prohibitions would represent a marked change to New Zealand's existing commercial law framework, and could have far-reaching impacts on the way that businesses contract with one another. For more details on this announcement, please see our December Consumer Law Update.

What will 2019 bring?

Turning from reflection to prediction, we expect 2019 will be yet another active year for consumer law activity in New Zealand. In particular, we will see how the Commission progresses in seeking even higher penalties against Steel & Tube, how the Commission's proceedings against Viagogo fare, and the Government's proposals for prohibiting "unfair conduct". 

Beyond the above, the Commission has said that its priority focus areas for 2018/19 will include:

  • Retail telecommunications sector: The Commission has said it will continue its focus on the "billing, contract terms, marketing and switching" practices of telecommunications businesses.
  • Responsible lending and the credit sector:  The Commission has said it will have a continued focus on the responsible lending principles in the credit sector, and associated issues such as unreasonable fees and high-cost online lenders.
  • Online retail: The Commission has said it will carry out a range of work to develop its understanding of the issues associated with online purchasing, including looking for opportunities to educate businesses about their responsibilities, and take appropriate enforcement action where businesses are non‑compliant with their New Zealand consumer law obligations.
  • Motor vehicle sales:  Motor vehicle sales look sure to yet again be a key area of focus for the Commission, with it saying "we will be looking closely at the systemic issues consumers face when purchasing a car and will take appropriate enforcement action when the law is breached. We plan to increase our advocacy and education efforts with participants in the motor vehicle sales sector."

If you have questions in relation to any of the issues discussed above, please contact one of the authors below.

FOOTNOTES
  1. Further details about the decision can be found in our October Consumer Update.
  2. The Fair Trading Act Amendment 2013 increased the maximum corporate penalty for breaching the Fair Trading Act 1986 from $200,000 to $600,000, and increased the fine for individuals to a maximum of $200,000 per offence.
  3. https://comcom.govt.nz/case-register/case-register-entries/viagogo/media-releases/update-on-viagogo-investigation.
  4. The six previous codes are: Advertising Code of Ethics; Code for Comparative Advertising; Code for People in Advertising; Code for Advertising Food; Code for Environmental Claims; and Code for Advertising Vehicles.
  5. The six codes are the Advertising Standards Code, Children and Young People's Advertising Code, Code for Advertising and Promotion of Alcohol, Therapeutic and Health Advertising Code, Code for Advertising Gaming and Gambling, and Code for Financial Advertising.
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