A new provision (section 12A) introduced under the Fair Trading
Amendment Act 2013 which prohibits businesses from making
unsubstantiated representation is one of the key amendments to the
Fair Trading Act 1986 ("FTA").
The inclusion of such a prohibition means that businesses must
be able to back up all claims in respect of their products (or
services) before they are made, and must be able to do so before
such claims are made.
What constitutes unsubstantiated representation?
A representation is unsubstantiated if the person making the
representation does not, when the representation is made, have
reasonable grounds for the representation, this is irrespective of
whether the representation is false or misleading. A trader could
later prove a claim to be true, but it will still be a breach on
the trader's part if at the time the claim was made the trader
did not have grounds to substantiate it.
What are reasonable grounds?
The Commerce Commission has published a factsheet (December 2013
– published 1 April 2014) which is designed to assist
businesses and consumers to understand their obligations and rights
when claims are made about goods and services. In summary,
reasonable grounds can come from (1) information provided by
reputable suppliers or manufacturers; (2) information the business
making the claim holds; (3) any other reasonable source e.g.
scientific or medical journals.
There are no precise tests for what constitutes reasonable
grounds as this is influenced by factors such as:
The nature of the goods/services;
The nature of the representation;
Any research or other steps the business took before making the
The nature or source of any information the business relied
upon to make the representation;
The actual or potential effects on the representation;
Compliance with the requirements of any statues, codes or
practice relating to the grounds for the representation.
These provisions do not apply to representations that a
reasonable person would not expect to be substantiated, i.e.
puffery, for example, claims such as "world best",
"kiss by the rain" are mere puffery and are not claims
which a reasonable person would expect to be substantiated.
However, businesses must ensure there is no underlying
In general, manufacturers and brand owners would be expected to
be able to substantiate their claims. The requirement on retailers
may not be as high if it simply relies on the claim of the
Defence to Prosecution
Section 44 of the FTA sets out those defences that are available
to a prosecution for unsubstantiated representations – these
If the contravention was due to reasonable mistake;
If the contravention was due to reasonable reliance on
information supplied by a third party.
If the contravention was due to the act of default of another
person (not employee or agent) and the defendant took reasonable
precautions and exercise due diligence.
What does it mean for businesses
Make sure you check your representations, evaluate the need for
each representation, consider the consequences of representations
being wrong, seek substantiating data and retain documentation
supporting any claim you make about your products or services.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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