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Digest No. 1857

Consumer Law Reform Bill 2011

Date of Introduction: 20 April 2011
Portfolio: Consumer Affairs
Select Committee: As at 10 May, 1st Reading not held.
Published: 10 May 2011byJohn McSoriley BA LL.B, Barrister,Legislative AnalystP: (04) 817-9626 (Ext. 9626)F: (04) 817-1250Public enquiries:Parliamentary Information Service: (04 817-9647) Caution: This Digest was prepared to assist consideration of the Bill by members of Parliament. It has no official status.Although every effort has been made to ensure accuracy, it should not be taken as a complete or authoritative guide to the Bill. Other sources should be consulted to determine the subsequent official status of the Bill.

Purpose

The Consumer Law Reform Bill is an omnibus Bill amending :

  • the Fair Trading Act 1986 (the FTA);

  • the Consumer Guarantees Act 1993 (the CGA);

  • the Weights and Measures Act 1987 (the WMA);

  • the Carriage of Goods Act 1979;

  • the Sale of Goods Act 1908; and

  • the Secondhand Dealers and Pawnbrokers Act 2004.

The Bill repeals the Auctioneers Act 1928, the Door to Door Sales Act 1967, the Layby Sales Act 1971, and the Unsolicited Goods and Services Act 1975. The matters covered by those four Acts being repealed are incorporated into the amended FTA and a new Auctioneers Act.

Background

Need for the Bill

The Bill “achieves alignment with the Australian Consumer Law, as appropriate, in accordance with the Government’s agenda of a single economic market with Australia”.

“The Bill contributes to the Government’s Regulation Review programme. It modernises consumer law. Several of the existing consumer laws have not been reviewed for many years and are not in accord with modern trading practices such as Internet transactions and telephone and credit card sales. The existing Auctioneers Act 1928 is not in accord with modern occupational regulation practice. Some of the existing consumer Acts have a very narrow subject area and do not need to exist as stand-alone legislation”.

Regulatory impact statements

The Ministry of Consumer Affairs produced regulatory impact statements in December 2010 and February 2011 to help inform the main policy decisions taken by the Government relating to the contents of this Bill.

A copy of these regulatory impact statements can be found at:

Main Provisions

Standard “purpose” clauses for each Act

The Bill provides for new standardised purpose clauses for the FTA, the CGA, and the WMA. The purpose of each of these Acts is:

to contribute to a trading environment:

“(a) in which trading is fair;

“(b) in which there is effective competition; and

“(c) in which consumers and businesses participate confidently (see Part 1, Subpart 1, Clause 5; Part 1, Subpart 2, Clause 34; Part 1, Subpart 3, Clause 46, and Part 2, Clause 64).

Fair Trading Act 1986 (FTA)

Contracting out permitted except between businesses

The Bill adds provisions to the FTA that make it clear that where there is an agreement between a business and a consumer, the parties to the agreement cannot contract out of the provisions of the Act unless the agreement imposes a stricter duty on the supplier than would be imposed under the FTA or the agreement provides a more advantageous remedy against the supplier than would be provided under the FTA.

In addition the Bill provides that in the case of business-to-business (i.e. persons “in trade”) agreements, the parties may include provisions in their agreements that would, or may, result in a contravention of Section 9 (“Misleading and deceptive conduct generally”), Section 13 (“False or misleading representations”), or Section 14 (“False representations and other misleading conduct in relation to land”) of the FTA.

However, to rely on this limited exception to the general rule on contracting out of the FTA, the parties must satisfy specified requirements, including that the provision is fair and reasonable (Part 1, Subpart 1, Clause 7, inserting New Sections 5C and 5D into the FTA).

Unsubstantiated representations

The Bill introduces new provisions relating to unsubstantiated representations and provides that a person must not, “in trade”, make an unsubstantiated representation. “Representation” is defined for the purpose of the provision as a representation made in respect of goods, services, or an interest in land and made in connection with:

  • the supply or possible supply of the goods or services; or

  • the sale or grant or possible sale or grant of the interest in land; or

  • the promotion by any means of one or more of those two matters.

The term “unsubstantiated representation” is defined as “a representation made by a person who does not, at the time of making the representation, have reasonable grounds for the representation, irrespective of whether or not the representation is in fact false or misleading”

In deciding whether a person had reasonable grounds for a representation, a Court must have regard to all of the circumstances, including:

  • the research or other steps taken by a person before making the representation;

  • the nature of the goods, services, or interest in land in respect of which the representation was made;

  • the nature of the representation (for example, whether it was a representation of quality or quantity, or of fact or opinion);

  • the actual or potential effects of the representation on any person;

  • the purpose of the Bill.

Only the Commerce Commission (the Commission) may commence proceedings under this provision (Part 1, Subpart 1, Clause 9, inserting New Section 12A into the FTA).

Comment

This is an addition to the existing provisions prohibiting false or misleading representations (Sections 13-15 of the FTA).

Unsolicited goods

The Bill adds new relating to sending or delivering unsolicited goods and providing unsolicited services. The provisions on unsolicited goods reduce the receiver’s liability for goods from three months to ten working days (provided that at any reasonable time during the period of 10 working days after the day on which a person receives those goods, that person must make those goods available for collection by, or on behalf of, the person who sent or delivered them) (Part 1, Subpart 1, Clause 11, inserting New Sections 21A-21D into the FTA).

Product safety

The Bill provides for the issuing by the Minister, after appropriate consultation, of product safety statements relating to goods of any description or any class or classes of goods and to provide guidance on the safety of those goods to consumers, retailers, and manufacturers (Part 1, Subpart 1, Clause 13, inserting New Clauses 30A and 30B into the FTA).

Declaring goods unsafe

Section 31 of the FTA provides that the Minister may declare any class or classes of goods to be unsafe goods where it appears to him or her that those goods “will or may cause injury to any person”.

The Bill provides further that the Minister may declare to goods to be unsafe if it appears to him or her “that a reasonably foreseeable use (including misuse) of the goods will, or may, cause injury to any person“. The matters to which the Minister must have regard in this exercise are listed (Part 1, Subpart 1, Clause 14, amending Section 31 of the FTA by inserting new paragraphs (1A) and (1B)).

Product recall

Section 32 of the FTA currently provides for the Minister to require a product recall.

The Bill now makes additional provision for a supplier to voluntarily take action to recall goods because:

  • “the goods will, or may, cause injury to any person”; or
  • “a reasonably foreseeable use (including misuse) of the goods will, or may cause injury to any person”; or
  • “the goods do not comply with a product safety standard”.

The Bill sets out a procedure which may result in the chief executive requiring the supplier to make certain information relating to the recall publicly available or in the Minister requiring the supplier to take certain actions in relation to the recall (Part 1, Subpart 1, Clause 15, inserting New Section 31A into the FTA; Clause 16, amending Section 32 of the FTA).

Product safety officers

The Bill provides that the chief executive may appoint as product safety officers any persons have passed such examinations “as the chief executive requires” testing the person’s knowledge of the [FTA] and of “the functions and powers of product safety officers”.

If a product safety officer believes on reasonable grounds that goods supplied or dispatched from a place are unsafe, that officer may, “for the purpose of ascertaining, or taking steps to ascertain, whether the suspect goods are in fact unsafe”: enter a place from where the suspect goods are sold (but if the place is a dwellinghouse, only with the permission of the occupier unless under a warrant issued by a Judge or Court Registrar (etc.)); inspect the suspect goods there; obtain details of the person in whose custody the suspect goods are; obtain from that person details of the person from whom the suspect goods were acquired and also the details of persons to whom the goods have been supplied; and require certain information (such as their employer and the identity of the owner of the goods) from the person delivering the goods. Product Safety Officers are also given powers to issue suspension of supply notices (i.e. “a notice prohibiting the person or persons identified in the notice from supplying the goods identified in the notice during the period before the expiry of the notice” (Part 1, Subpart 1, Clause 17, inserting New Sections 33A-33D into the FTA).

Laybys

The Bill makes provision for layby sales in the FTA and repeals the Layby Sales Act 1971. A layby sale is the purchasing of goods where the purchaser pays for the goods by instalment, but until the last instalment is paid to the vendor the goods remain the property of the vendor.

The Bill provides that the essential features of a layby sale agreement are as follows:

  • the consumer will not take possession of the goods until the price of the goods has been paid;

  • the price is paid in three or more instalments (or two or more instalments if the agreement specifies that it is a layby sale agreement) with the deposit paid for the goods counting as an instalment;

  • the price is not more than $15,000 or, if greater, the amount specified as being the limit of the Disputes Tribunal's jurisdictions under Section 10(1A)(b) of the Disputes Tribunals Act 1988: currently $15,000).

The Bill sets out in detail the provisions relating to Layby sales (Part 1, Subpart 1, Clause 18 inserting New Part 4A into the FTA, inserting New Section 36A (the purpose clause) and inserting New Subpart 1, New Sections 36A-36J into the FTA).

Uninvited direct sales (including “door to door” sales”)

The Bill sets out the rules for uninvited direct sales and repeals the Door to Door Sales Act 1967. The term “uninvited direct sale” is defined (much more widely than just door to door sales) as an agreement:

  • for the supply, in trade, of goods or services to a consumer; and
  • made as a result of negotiations (whether or not they are the only negotiations that precede the making of the agreement) between a supplier and the consumer in each other’s presence at a place other than the supplier's usual place of business or trade or by telephone; and
  • where the consumer did not invite the supplier to come to that place, or to make a telephone call, for the purposes of entering into negotiations relating to the supply of those goods or services (whether or not the consumer made such an invitation in relation to a different supply); and
  • where the price paid or payable by the consumer under the agreement is more than $100.

The Bill also provides that a consumer has not invited a supplier to come to that place, or to make a telephone call, merely because the consumer has:

  • given his or her name or contact details to the supplier other than for the predominant purpose of entering into negotiations relating to the supply of the goods or services referred to above; or
  • contacted the supplier in connection with an unsuccessful attempt by the supplier to contact the consumer;

It is also provides that the consumer has not entered into negotiations for a supply merely because the consumer has invited the supplier to quote or estimate a price (Part 1, Subpart 1, Clause 18 inserting New Part 4A into the FTC, New Subpart 2, inserting New Sections 36K-36R into the FTA).

Extended warranties

The Bill makes detailed provision for extended warranty agreements. The term “extended warranty is defined as:

  • an agreement between a supplier and a consumer under which the supplier agrees, for additional consideration, to repair, replace, or remedy defective goods or services; and
  • includes an agreement that provides for,
    • repair, replacement, or remedy in situations also covered by a guarantee under the Consumer Guarantees Act 1993 or under an express guarantee given by the supplier or
    • repair, replacement, or remedy over a longer period than, or for a period commencing on the expiry of, an express guarantee referred to above; or
    • insurance or other cover in relation to the goods (for example, cover for accidental damage, loss, theft, or assistance in setting up and operating the goods) or services.

The Bill also includes agreements that provide for benefits that are the same as those available under the Consumer Guarantees Act 1993, are for a longer period than those available under that Act, or provide insurance cover in relation to the goods or services. Additional consideration, express guarantee, manufacturer, and supplier (each of which are used in the definition of extended warranty agreement) are also defined (Part 1, Subpart 1, Clause 18 inserting New Part 4A into the FTC, New Subpart 3, inserting New Sections 36S-36U into the FTA).

Auctions

The Bill defines the term “auction” as “a process in which property of any kind (including goods, services, and interests in land) is offered for sale by an auctioneer on behalf of a vendor, and … bids for the property are placed with the auctioneer in real time, whether in person, by telephone, via the Internet, or by any other means … and … the property is sold when the auctioneer so indicates”. The Bill repeals the Auctioneers Act 1928 and sets out in the Bill provisions in detail relating to auctions (Part 1, Subpart 1, Clause 18 inserting New Part 4A into the FTA, New Subpart 4, inserting New Sections 36V-36ZC into the FTA).

Jurisdiction, offences and orders

The Bill gives the High Court jurisdiction to hear appeals from decisions of a District Court relating to enforceable undertakings and management banning orders. The Bill also extends the Disputes Tribunal’s current jurisdiction to hear and determine applications for certain orders under Section 43(2)(c) to (f) of the FTA (an order directing the person who engaged in certain misconduct to refund money or return property to the person who suffered the loss or damage; an order directing the person to pay to the person who suffered the loss or damage the amount of the loss or damage; or an order directing the person at that person's own expense, to repair, or provide parts for, goods that had been supplied by that person to the person who suffered, or is likely to suffer, the loss or damage) except that the Tribunal may not make such orders in respect of a contravention of Section 9 of the Act (misleading and deceptive conduct generally). The Bill now extends that jurisdiction of the Disputes Tribunal so that it can hear and determine applications for any order under New Section 43 including in respect of a contravention of Section 9. The Bill provides for provides for an infringement offence regime to apply to certain offences under the FTA. Those offences relate to failures to comply with consumer information standard requirements and certain disclosure requirements in New Part 4A, and with failures to comply with a suspension of supply notice. The regime allows for the payment of an infringement fine of a prescribed amount (of no more than $1,000) instead of prosecution for an offence (Part 1, Subpart 1, Clauses 19-21, amending Sections 37-44 of the FTA; Section 43 of the FTA is replaced by New Section 43 (in Clause 24)).

Enforceable undertakings and management banning orders

The Bill makes provision for enforceable undertakings and management banning orders (broadly based on similar provisions in the Securities Act 1978) and authorises the Commerce Commission to accept written undertakings and for their enforcement of written undertakings by order of a District Court. A District Court may make a management banning order against a person if the Court is satisfied that the order is necessary to protect the public from the risk that the person, or anybody that he or she is involved with, will commit further offences under the Act. An order can only be made against a person who has committed, or been involved with a company that has committed, certain offences at least twice within a ten-year period. A management banning order must prohibit a person from being a director of, or in any way concerned in or taking part in the management of, a body that carries on business in New Zealand. The person can apply to the District Court for leave to do any of the things otherwise prohibited by the order. It is an offence to breach a management banning order and the Bill sets out the procedures relating to management banning orders and provides for the application to a District Court for leave to do any of the things prohibited by the order (Part 1, Subpart 1, Clause 26, inserting New Sections 46A-46G into the FTA).

Authorised employees

The Bill provides for the Commerce Commission to authorise employees to monitor and enforce compliance with consumer information standards, product safety standards, unsafe goods notices, suspension of supply notices, and service standard notices, and for such employees to be issued with certificates showing their authorisation and sets out the powers of authorised employees. These are, generally, to enter any place where consumers have access to goods or services for supply or where goods and services are dispatched for supply, inspect the goods or services, require the person in charge to provide certain information, and, if appropriate, issue infringement notices. An authorised employee cannot enter a dwellinghouse, however, without a warrant (Part 1, Subpart 1, Clause 28, inserting New Sections 47K and 47L into the FTA).

Consumer Guarantees Act 1993 (the CGA)

The Bill amends the CGA with respect to its application to the supply of gas and electricity (“Amendments were made to the CGA in 2003 to address its application to gas and electricity. There is difficulty in understanding how the Act applies because the supply of gas and electricity is not of the typical nature of the supply of goods or services. Concerns were raised at the time Parliament considered the Electricity Industry Bill in 2010. The Bill provides for a separate treatment for the supply of gas and electricity with respect to determining acceptable quality” [1]   ).

The Bill also amends the CGA to remove the exemption from the guarantees provided under that Act with respect to auctions and competitive tenders, with the exception of secondhand goods sold by a trader to a consumer at an auction. (“Through this amendment and the definition of auction, which is in what will become the new Auctioneers Act (Part 2 of the Bill), the Bill will ensure that goods sold by traders through an Internet auction are covered by the CGA” [2]   ).

The Bill also amends the CGA and the Carriage of Goods Act 1979 to provide that consumers have the guarantees provided by the CGA when using carrier services. The Bill also increases the carrier’s liability under the Carriage of Goods Act from $1,500 to $2,000. The carriers’ liability was last increased in 1989 (Part 1, Subpart 2, Clauses 32-55, amending the CGA).

Weights and Measures Act 1987 (the WMA)

The Bill amends the system of standards of weighing and measuring by providing for reference standards, allows accredited persons as well as inspectors to hold reference standards. The Bill also provides for a new regulation-making power that enables certificates of weighing or measuring accuracy for specified instruments to be prescribed. This enables the recognition of new retailing practices such as supermarket self-checkout facilities and also Internet trading (Part 1, Subpart 3, Clauses 44-55 amending the WMA).

Secondhand Dealers and Pawnbrokers Act 2004

The Bill amends the definition of secondhand dealer to make it clear that people who sell their personal possessions do not come under the definition of secondhand dealer by excluding buying “other than for personal use or enjoyment or as a gift” (Part 1, Subpart 4 Clauses 56-58, amending the Secondhand Dealers and Pawnbrokers Act 2004).

Carriage of Goods Act 1979

The Bill enables consumers who are parties to contracts for the carriage of goods or the intended recipient of the consignment that is the subject matter of the contract to contract out of certain provisions of the Carriage of Goods Act 1979 and of certain provisions of the Consumer Guarantees Act 1993. However, this does not allow a consumer to contract out of Part 4 of the Consumer Guarantees Act 1993 which deals with guarantees relating to the supply of services. The Bill also requires a carrier to offer to enter into certain kinds of contracts for carriage depending on the value of the goods to be carried (Part 1, Subpart 5, Clauses 59-63, amending the Carriage of Goods Act 1979).

New Auctioneers Act

The Bill also provides for a new Auctioneers Act, which requires registration of auctioneers and businesses conducting auctions. A person may be registered as an auctioneer provided the person is not disqualified from registration. For example, a person must be 18 years or older, must not be an undischarged bankrupt, and must not have been convicted of a crime of dishonesty in the preceding five years. A person who only conducts an auction for a charitable or a not-for-profit activity, for example, school fundraising, and is not in trade and charging a commission or receiving a payment from the auction proceeds, does not need to be registered. The Bill amends a number of Acts consequentially, including removing certain exemptions from having to be registered as an auctioneer for persons conducting certain forms of auctions (for example under Section 52(4) of the Land Act 1948 any officer of Land Information New Zealand may conduct an auction alienating crown and under that section and for the purposes of that auction that officer is not require to be the holder of an “auctioneer's licence”. Under Section 230 of the Public Works Act “any person” appointed by the Minister to conduct the sale by auction of any chattels which have been acquired or used for the purpose of any Government work under that Act is also exempted from having to hold an auctioneers licence. Similar provisions exist under the Sentencing Act (Section 137(2) in respect of the sale of confiscated motor vehicles) and under Section 41(6) (in respect of the disposal of unclaimed property). All these exemptions are removed by this Bill) (Part 2, Clauses 64-88; Schedule 3 to the Bill).

Copyright: © NZ Parliamentary Library, 2011
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  1. Consumer Law Reform Bill, 2011 No 287-1, Explanatory note, General Policy statement, p. 4.   [back]
  2. Ibid.   [back]