Australia: Fair Trading Act In 2008 – The Year In Review

Last Updated: 12 February 2009
Article by Mark Williamson and Ruth Sullman

The Commerce Commission (Commission) monitors compliance with our principal consumer protection legislation - the Fair Trading Act 1986 (Act). In 2008 the Commission focused on misleading promotions, particularly in the banking, finance and supermarket sectors.

JANUARY/FEBRUARY

Sale pricing

The Commission commenced 2008 with a stern warning for retailers – advertising sale prices that are no cheaper than every day prices can put them in breach of the Act. Advek Holdings, trading as Back to Bed, was fined $26,400 for breaching the Act by advertising 'massive savings' and 'slashed prices' when it was consistently selling beds at approximately the same prices during sale and non-sale periods.

Broadband

In February, the Commission commenced proceedings against Telecom and Xtra alleging they had misled the public as to the characteristics of the service and performance of their broadband plan 'Go Large'.

Advertising of property

In February, a Wellington real estate agent (Mr Wilcox), and the company he worked for, Team Wellington Limited, admitted breaching the Act when he advertised a section of land as having 'provisional resource consent for six executive quality detached town houses'. Following a complaint by the Wellington City Council, the Commission found there was no such thing as 'provisional resource consent' and no resource consent had been applied for. Team Wellington Limited was required to undertake compliance training and have such training audited.

Sunscreen settlement

After a lengthy investigation commencing in 2006, the Commission reached settlements with four sunscreen companies in relation to products that claimed to provide all day protection from the sun from just one application of sunscreen. The four companies acknowledged that they had breached the Act, agreed to immediately withdraw from sale any products that didn't meet the SPF claims made on the labels, ensure that any future product labels and packaging are accurate, and carry out corrective advertising.

Blue Chip investigation

The Commission announced in February that it would examine documentation relating to Blue Chip New Zealand following complaints that people may have been induced to invest based on false or misleading representations.

Petrol prices

OM Petroleum (NZ) Limited was fined $35,000 for breaching the Act after the company charged customers two cents more per litre than the price advertised in its forecourt for 91 and 95 octane petrol between 1 August 2006 and 26 February 2007.

Septic tank clearing

A Waikato septic tank cleaning company, Effluent Services Limited (ESL) and its director were fined a total of $28,500 after pleading guilty to breaching the Act. The breaches included falsely advertising that ESL was Waikato's only certified code compliant liquid waste contractor when the company wasn't certified at the time of the claim, and providing misleading information to customers as to why final invoices were considerably higher than amounts quoted.

MARCH/APRIL

Fraud Awareness Week

March saw the arrival of Fraud Awareness Week from 3 to 10 March 2008. As part of this initiative the Commission warned New Zealanders to be wary of 'seduction scams' involving promises of easy money, true love or great prizes that will never be delivered. Consumers were also warned about 'deception scams' where scammers pretend to be from legitimate businesses and ask for personal information so they can steal money or an identity. The Commission encouraged consumers to protect themselves by not responding to scammers if in doubt.

Finance firm fined over credit contracts

Lelei Finance Limited (LFL), a consumer finance company based in South Auckland, which lends almost exclusively to the Tongan community, was fined $37,480 in March for breaches of the Act and the Credit Contracts and Consumer Finance Act 2003 (CCCF Act). LFL failed to provide initial disclosure in 616 consumer credit contracts (as required under the CCCF Act) and made false and misleading representations regarding its right to enforce the contracts in default letters when the credit contracts could not be enforced as the company had failed to give correct disclosure.

Progressive fined

Progressive Enterprises Limited ran a promotion offering customers who purchased Signature Range cereals the chance to win a trip to Hunter Valley in Australia. The Commission received complaints from consumers who purchased the cereal after the competition closing date and were therefore unable to enter. The company was originally convicted and fined $17,000 in the District Court, but this conviction was later overturned in the High Court as the Commission failed to prove that the company advertised the competition with the intention of not providing prizes.

False car information

A Christchurch motor vehicle dealer was fined $5,000 for falsely describing a car as not damaged when imported. This was in addition to the buyer having already received a refund of the full cost of the car as ordered by the Motor Vehicle Disputes Tribunal.

Incorrect timber labelling

In May the Commission and Fletcher Distribution Limited, trading as Placemakers, reached a settlement in relation to the incorrect in-store description, labelling and supply of TimberSaver, a treated timber framing product. TimberSaver had been accredited as complying with the Building Code by the Building Industry Authority and as being suitable for use in situations that otherwise required the use of a timber treated in accordance with the H1.2 hazard class requirement. Between November 2004 and July 2005, Placemakers represented on labels and invoices that the TimberSaver product was H1.2 treated timber when it wasn't. In addition, the Commission received complaints from consumers who had ordered H1.2 treated timber but had been supplied TimberSaver treated timber. There was no indication that any loss or damage had been suffered by consumers.

In the settlement reached between Placemakers and the Commission, Placemakers agreed, among other things, to meet any valid guarantee claims that customers may have relating to TimberSaver in the event that customers experience problems in the future with TimberSaver. Placemakers acknowledged that they had breached the Act by labelling TimberSaver as H1.2 treated timber and committed to undertake corrective advertising.

Warning to property company

A Wellington property company and one of its directors were warned by the Commerce Commission after telling a real estate agent who was marketing a Wellington inner city property on their behalf, that they had resource consent to build four apartments and ground floor commercial space. At the time of advertising the property, although resource consent had been applied for, consent had not been granted.

MAY/JUNE

Warning about 'greenwashing'

Greenwashing is potentially deceptive marketing designed to portray a company or product as caring for the environment when the claims cannot be substantiated.

In June, the Commission warned a Wellington taxi company that it may be misleading consumers with its 'going green campaign'. A complaint was made that the taxi company's website contained false and misleading information in that it stated the company's LPG cars reduce 'carbon dioxide pollution by up to 25%' and that the Nissan Maxima 3 ˝ litre V6 petrol engine CVT transmission is '20% more fuel efficient than traditional automatic transmission'. It would be difficult to substantiate these claims. The company was issued a warning letter by the Commission and advised to change its compliance processes.

JULY/AUGUST

When is something 'New Zealand made'?

The meaning of 'New Zealand made' was considered by the District Court in July 2008 when Knights Business Furniture was convicted of four breaches of the Act relating to representations that four models of office chair were New Zealand made. The four models were assembled in New Zealand using components manufactured in Taiwan, China and Italy. The only parts of the chairs manufactured in New Zealand were incidental parts and the foam and upholstery for the seat and the back support. The chairs were promoted in a brochure distributed to retailers with the words 'NZ Made' appearing beneath a stylised silver fern. The Judge held that whether a product was made in New Zealand was a question of fact and degree. In this situation the New Zealand input into the chairs was not enough to justify describing them as New Zealand made.

Consistent pricing in advertisements and in-store

Also in July, Parallel Imported Limited was fined $15,000 for breaching the Act. The Commission's investigation into the company found that between April 2005 and November 2006, customers making enquiries about the prices of goods were quoted higher prices in store and on the phone than the prices for the same goods promoted in newspaper advertising and the company's website. The Commission noted that the onus is on businesses to ensure that their products are available at advertised prices and that effective systems are in place so that price representations are consistent across all channels.

Misleading promotion leads to $80,000 fine

ANZ Investment Services (New Zealand) Limited, a wholly owned subsidiary of ANZ National Bank Limited, was fined $80,000 for running a misleading television campaign. The campaign screened across the major television channels during November and December 2006 and represented that people who bought bonus bonds before the end of December 2006 and retained them until 31 January 2007 would be placed in the draw to win $1 million and a bach. However, the intention was to run a two-tier prize draw. Eligible customers were placed in an initial draw with one selected to undertake the second draw. The second draw involved the winner of the first draw selecting an envelope from 100 envelopes. One contains the major prize of $1 million and an additional $500,000 to go towards a bach. The other 99 envelopes contained a cheque for $10,000. The true terms of the offer were shown in small print for a short time at the end of the advertisement, however, this was insufficient to correct the impression that the $1 million and bach would be won, when in fact customers were only in a draw to win a 'chance' to win $1 million and a bach.

Investigation into Hanover Finance

The Commission commenced an investigation into Hanover Finance in late July 2008 as to whether Hanover Finance breached the Act by making misleading representations to prospective investors and/or the public generally.

SEPTEMBER/OCTOBER

Fine for 'pashmina' shawls

Ezibuy was fined $8,500 for marketing and selling shawls advertised as silk blend pashmina. Tests, undertaken as part of the Commission's investigations, showed they were actually made of cotton and polyester with no pashmina or silk content. The Commission stressed it is the responsibility of businesses to ensure that the labelling on their product is accurate and, if necessary to undertake testing to assure themselves that labels and descriptions supplied by manufacturers are correct.

Consumers urged to approach cash back offers with caution

In October, the Commission urged consumers to be cautious of cash back offers. The Commission noted that cash back offers are becoming increasingly prevalent in the New Zealand retailing industry, particularly in the sale of computers and printers made by respected manufacturers through a number of large retail chains. The Commission had received a significant number of complaints. In most cases consumers had received the cash back but this was often occurring many months after the consumer had made the claim.

Misleading 'buyer enquiry' ads

A Wellington real estate company was fined $7,500 for breaches of the Act for advertising a house at 'buyer enquiry over $380,000' when it knew the vendor would accept no less than $400,000 net of the agent's commission.

NOVEMBER/DECEMBER

Sunscreen testing

An investigation by the Commission, after allegations that some sunscreen failed SPF or Broad Spectrum testing, highlighted a problem with the application of the current sunscreen standard that is mandatory in Australia and voluntary in New Zealand. The Commission investigated three sunscreens and had these tested by four different laboratories. When comparing the results for the same product, results varied from laboratory to laboratory and in some cases within laboratories. The sunscreen standard is now being reviewed by the Standards Review Committee.

Refund for interest charged on 'interest free' contracts

Several thousand customers who bought items on 'interest free' terms but were incorrectly charged interest were refunded more than $3 million as a result of an out of court settlement agreed between the Commission and GE Finance and Insurance trading as GE Money.

Affected customers bought goods from Noel Leeming and Bond and Bond stores during a 'Pay Nothing Until July/ August 2007' promotion which ran between October 2005 and February 2006 with finance provided by Pacific Retail Services (later purchased by GE Money). Customers were provided finance for a term of three years and were not required to make any payments until an 'early exit' date (generally 17 months after the purchase date). Customers who chose to repay their loan in full by the 'early exit' date were only required to pay the purchase price and credit fees, without any interest. However, after the 'early exit' date customers were required to pay instalments that included interest calculated from the date of purchase. This was despite the loan documentation stating there was an interest free period of 17 months and that interest commenced at the end of the interest free period.

GE admitted breaching the Act and agreed to recalculate the outstanding balances of all affected accounts to exclude interest in the interest free period and to provide credits or refunds to affected customers.

Bogus pill business fined $100,000

A Tauranga company, Erdic Limited (Erdic) and its manager were fined a total of $100,000 for breaching the Act by falsely claiming pills sold by the company would make women's breasts firmer and larger. Erdic made claims in a brochure and on two websites that a pill called Erdic was a natural alternative to breast implants and could significantly and permanently increase the size, shape and firmness of women's breasts.

Green guidelines

The Commission released guidelines at the start of December intended to educate businesses that make environmental or 'green' claims in marketing about avoiding making misleading or untrue claims about their products or services under the Act.

Savvy shoppers

At the start of December, the Commission urged shoppers to remember their rights under the Act and the CCCF Act. The Commission sees a rise in complaints from consumers during the holiday period with over 70% of the claims relating to the Act.

WHAT'S NEXT?

In 2009, the Commission is likely to continue to focus on misleading promotions. It will be more important than ever for companies to ensure that they have effective compliance programs.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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