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Consumer Law Reform

Written by Darryl King, PARTNER on June 2nd, 2014.    

What is changing?

Significant amendments governing the way businesses deal with consumers have been made to the Consumer Guarantees Act (CGA) and the Fair Trading Act (FTA), among others. 

The changes are aimed at empowering consumers to make better informed purchasing decisions and supporting good business practices.

Please let us know if we can assist you in understanding these important law changes.

Product Safety - Summary of change
Already in force

The FTA now includes a regime for voluntary product recalls and bolsters Government powers regarding these recalls. 

The new laws widen the existing compulsory recall regime by introducing a test to determine if a recall is required, and notification requirements if such a recall is required.

A compulsory recall will be required if the Government believes that a reasonably forseeable use or misuse of the goods may cause injury to a person.

Action to take
If you supply products which could be subject to a product recall, ensure your business is familiar and up-to-speed with these new obligations.

Check these new obligations with your insurer to determine whether they fall within your insurance cover.

Unsubstantiated Representations - Summary of change
In force from 17 June 2014

The FTA has been amended to include a prohibition on making unsubstantiated representations.

You cannot make a representation when trading unless at the time you make it you have reasonable grounds for making it and you are able to substantiate it. 

The new law applies to traders (including suppliers and retailers) who make unsubstantiated representations, whether or not they developed the promotional or marketing material, or manufactured or originally supplied the goods or services.  However, there are defences for traders who seek to rely on representations made on packaging where the brand manufacturer is reputable.

Action to take

Consider your business’s internal policies and guidelines to ensure you can substantiate any representations your business makes by recording and documenting the grounds for each representation before you make that representation.

This should include obtaining or retaining evidence, research or other documentation that gives you reasonable grounds to make a representation.
For retailers, consider including or bolstering the warranty/indemnity provisions relating to the supplier’s/manufacturer’s representations in your agreements with your suppliers/manufacturers for added protection.
You will need to assess all representations your business makes to consumers.  You should also consider releasing guidelines to your staff on what can be said to your customers. 

Unsolicited Goods or Services - Summary of change
In force from 17 June 2014

The FTA will require businesses that deliver unsolicited goods or services to recipients to disclose certain information to those recipients including a statement that the business cannot demand payment for goods or services that a consumer has not asked for.

Action to take

If you deliver unsolicited goods or services, you will need to review your disclosure documentation and processes to ensure that you comply with the new requirements.

Internet Sales - Summary of change
In force from 17 June 2014

New provisions in the FTA will require online sellers that are ‘in trade’ to disclose that they are ‘sellers in trade’ to potential purchasers.

Anyone selling goods initially bought or acquired for their own personal use is not ‘in trade’.

Sellers cannot avoid their obligations by having someone else make offers or sell on their behalf, as the principal seller will still be liable.
Consumers’ rights in relation to internet sales will now be explicitly incorporated into the CGA.  Goods must match their description, have no undisclosed defects, be fit for their normal purpose and be safe and durable.

Action to take

If you sell products or services ’in trade’ through the internet (including through Trade Me), you will now need to disclose that you are ‘in trade’ to all potential purchasers.

Contracting Out - Summary of change
In force from 17 June 2014

The FTA and CGA have been amended so that businesses can contract out of their FTA and CGA obligations to other businesses.

Parties cannot contract out of all FTA obligations, for example the obligation not to make representations that are likely to mislead the public.

Parties who wish to contract out of either the FTA and CGA must do so in writing and it must be fair to both parties.

Action to take

You will need to consider whether your business should be contracting out of its obligations under the FTA or the CGA and whether it is fair and reasonable to both parties in the circumstances.  You should look out for counterparties seeking to contract out of the CGA and the FTA and consider whether there is adequate protection for you under the contract.

You cannot rely on implied wording to contract out of these laws.  Contracting out needs to be expressly stated in your contracts. 

There are some grey areas within these changes and we would be happy to advise you on how to proceed and the risks of contracting out.

Guarantee as to Delivery - Summary of change
In force from 17 June 2014

The CGA has been amended to provide a specific guarantee relating to the delivery of goods.

The guarantee provides that goods should be received by the consumer at the time, or within the period, agreed between the supplier and consumer.  If this guarantee is breached, the consumer may reject the goods (if the failure is of a substantial nature) or otherwise claim money for any loss.

Suppliers can also be required to pay a consumer money for any loss resulting from the failure to deliver the goods, or any late delivery.

Action to take

If you deliver or arrange for the delivery of goods, consider how realistic your delivery timeframes are.  Is it is possible that delivery could be late?  If so, consider changing your delivery timeframes.

If you are a supplier and you use a carrier to deliver your goods, you will be responsible for any delay by the carrier.  Check the contract with your carrier to ensure they will indemnify you for any loss you suffer if they are at fault.

Check your insurance policy to ensure it covers any claim against your business by a customer or third party for delivery damage.

Extended Warranties - Summary of change
In force from 17 June 2014

The FTA has new provisions which will regulate extended warranties offered by suppliers to consumers.

Suppliers will be required to provide full disclosure of any extended warranty at the time of purchase, including a summarised comparison between the CGA guarantees (that are given by all suppliers at the time of purchase) and the protections provided by the extended warranties.

Action to take

You will need to review and update your extended warranty documentation to ensure it complies with the new disclosure requirements.

Warrantors will need to carefully construct summaries of their extended warranties for consumers to avoid misleading consumers about their rights.

Auctions and Auctioneers - Summary of change
In force from 17 June 2014

The Auctioneers Act 2013 replaces the Auctioneers Act 1928 and sets out a registration procedure for auctioneers (as opposed to the old licensing procedure) and new record-keeping requirements for registered auctioneers, among other things.

Action to take

Auctioneers will have to register under the new Act and ensure they comply with new record-keeping requirements.

Unfair Contract Terms - Summary of change
In force from 17 March 2015

An unfair term in a standard form consumer contract entered into or varied from 18 March 2015 may be declared ‘unfair’ and if so, cannot be relied upon or enforced.
A term will be considered ‘unfair’ if it (a) would cause a significant imbalance in the parties’ rights and obligations under the contract, (b) is not reasonably necessary to protect the interests of the advantaged party, and (c) would cause the other party financial or other detriment if enforced.
There is a ‘grey’ list of terms in the FTA which may constitute unfair terms.
Only the Commerce Commission can apply to the court to have a term declared unfair.  Unfair terms are not unenforceable in themselves. 

Action to take

Many existing standard form consumer contracts will contain terms that are considered unfair under the new laws.  You will need to change any unfair terms to avoid breaching the FTA.

An unfair term in a standard form consumer contract used with a large number of clients could be problematic if the term is found to be unfair, as that term will be unenforceable across all of those client contracts.

We recommend you contact us early to help you review your standard form consumer contracts given the lack of clarity around what may be deemed an unfair term.

The information contained in this publication is of a general nature and is not intended as legal advice.  It is important that you seek legal advice that is specific to your circumstances.
All rights reserved © Jackson Russell 2014


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