Why you must know your obligations as a company under the Fair Trading and Consumer Guarantees Acts…

A company in New Zealand is currently being investigated by the Commerce Commission after receiving many complaints from customers that the product they ordered online was not what they had expected, and then failing after many attempts to receive a replacement or refund.

The Commerce Commission is investigating the standard of the products and the customer service provided, to see whether the company has failed to meet its obligations under both the Fair Trading Act and the Consumer Guarantees Act.

Fair Trading Act

It is important for companies who sell goods and services to consumers to know their obligations under the Fair Trading Act. In particular, all companies are prohibited from acting in a misleading and deceptive manner and cannot make false and/or misleading representations about their goods or services under the Act.

Companies must ensure the description of what they are selling and advertising to the public is accurate. This includes, but is not limited to, the standard, quality, grade, manufacturing process, nature, characteristics, and suitability of the goods and services.

For example, a company labelled its nightgowns and pyjamas as low fire danger fabric. Subsequently, the nightgowns and pyjamas failed flammability tests.

The company then agreed to tighten its quality controls after being warned by the Commerce Commission. However, the company later sold pyjamas that had no fire warning label attached to them, and as a result was fined $6,500 plus costs.

Where a company is found to have breached the Fair Trading Act, it may be liable to pay a fine for each breach. 

Consumer Guarantees Act

Companies should also know their obligations under the Consumer Guarantees Act.

A common example is when goods are purchased by way of description, sample or demonstration… the consumer must then receive the same goods as described or shown. If the goods are significantly different, the company must rectify this.  

Companies are expected to provide the consumer with a replacement and where that is not possible a full refund must be provided. This has to be done within a reasonable time and should be at no extra cost to the consumer. Companies cannot use a sign stating “No refunds or exchanges” to escape their obligations owed under the Consumer Guarantees Act.

If the Commerce Commission finds the company mentioned above has misled the public by providing a product that does not match the description and/or sample, and has failed to provide consumers with redress, then it may be prosecuted, and forced to pay a fine for each breach made under both Acts.

It is vital to know your obligations under both the Fair Trading Act and the Consumer Guarantees Act, because the resulting costs for breaches can be very significant.



Claire Tyler
Commercial Lawyer
Wellington