New Zealand has an array of commercial legislation designed to protect consumers in relation to the sale of goods and services. The Fair Trading Act 1986 (“FTA”) tends to be one of the most well known consumer law protections in New Zealand, often referred to as the “cornerstone of consumer law”. Recently, there has been much discussion around consolidating and enhancing New Zealand consumer law. As such, the Consumer Law Reform Bill is expected to be introduced to Parliament later this year which is likely to result in a number of key changes to existing consumer law, including those found in the FTA. In particular, the Ministry of Consumer Affairs proposes to introduce a new provision surrounding the substantiation of claims which will be of particular importance for the FMCG industry.
The FTA governs misleading and deceptive practices, false representations and unfair practices. The Act is aimed at businesses in trade who are obliged to ensure that the information they provide is accurate and that important information is not withheld in relation to all aspects of the promotion and sale of goods and services. This enables consumers to make informed choices about the goods and services they buy and it also protects businesses who do comply as it is not possible to contract out of the Act.
The FTA is monitored and enforced by the Commerce Commission, although anyone can make a complaint to the Commission about a potential breach. Perhaps the most frequently litigated area is section 9 of the FTA which prohibits misleading and deceptive conduct generally. There are also specific prohibitions on false and misleading representations which covers anything that may lead consumers to the wrong conclusion, create an incorrect implication, or through leaving out (or hiding) information.
There is a fundamental premise that traders should only make claims about their products if they have a reasonable and honest basis for doing so. Consumers purchasing decisions can often be manipulated by product claims such as those pertaining to the quality of the goods so that they are prepared to pay a premium price for the product because of the claim being made. The Ribena case is a good example where a misrepresentation was made in relation to the nutritional properties of a product. GlaxoSmithKlein made certain representations that its Ribena product contained a high content of Vitamin C and promoted the product as having Vitamin C related health benefits for children, teenagers and pregnant women. However, it was revealed that such claims were untrue and in fact some forms of the Ribena product contained no levels of detectable Vitamin C. Country of origin claims are another prime selling point and there have been a string of cases relating to claims that certain products were “New Zealand Made” when they were made overseas. For the most part, these were not direct statements but implied through representations such as “Kiwi” symbols and company descriptions.
At present, there is no requirement for suppliers to actively be able to substantiate such claims. The burden falls on the Commission to prove that the claims are in fact not accurate or that they in some way mislead and/or deceive consumers. This task can often be difficult and expensive to meet for the Commission. Further, there is a current trend for some traders to make “vague” or baseless claims which lack clear understanding, such as what constitutes “organic”, “green” and “eco-friendly”. As such, the Ministry of Consumer Affairs has recommended introducing a general prohibition under the FTA which would make it an offence for traders to make an unsubstantiated claim in New Zealand, whether or not that claim would qualify as a misrepresentation. Traders would need to have reasonable grounds to justify or substantiate the claim at the time the claim was made. The substantiation would be appropriate to the level of the claim, for example some claims may require test results or by providing pre-sale and cost prices. The main benefit of such a provision would be to motivate businesses to consider the claims they make and potentially reduce the chances of misrepresentation and deceptive conduct in the first place. The potential downfall is that compliance costs are likely to vary depending on the nature of the claim being made. For example, a scientific claim may prove to be more costly to substantiate and suppliers may be more reluctant to provide new products or products sourced from elsewhere if they cannot guarantee an appropriate level of substantiation prior to importing.
Law changes in Australia have given regulators the power to issue "substantiation notices" that require companies to produce information to back up their product claims. Not complying with a notice is an offence and companies face automatic fines if they fail to respond. It is unlikely that New Zealand will follow suit as such measures are seen as unnecessary and complicated in the New Zealand context, whereas a more general prohibition would improve the Commissions ability to quickly clarify and take enforcement against unsubstantiated claims using its existing investigating powers.
The proposed new substantiation provision in the FTA is one of several recommendations issued by the Ministry of Consumer Affairs as part of the Consumer Law Reform and it will be important for suppliers and retailers to keep up to date when such changes come into play. This may mean that the safest approach will be to have the facts and figures on hand (or at least be confident that you can get them) before making any claims about a product.
Published in FMCG Magazine September 2011