Enforcement of the Fair Trading Act



Consequences of Contravention
The Commerce Commission, or anyone else, can take court action under the Act. Legal proceedings must begin within three years of the alleged breach occurring. Civil proceedings under the Act can take place in the Court, the District Court or the Disputes Tribunal, depending on the type of order sought and the amount of the claim. Criminal proceedings are taken in the District Court.

Criminal court action may result in fines of up to $30,000 for an individual and $100,000 for a company. Frequently both a company and the individuals involved in a breach will be prosecuted by the Commission. They may also face the costs of adverse publicity and lost sales, as well as of defending themselves in court.

Anyone can apply to the Court for an injunction to stop the Act being breached. The court can grant injunctions to stop activities that traders are currently engaged in, or are likely to engage in. Where prompt intervention is necessary to minimise damage caused by unlawful conduct, the court may order an interim injunction pending a full hearing of the case.

The Commerce Commission also has the right to apply to the Court for corrective advertising orders. Where it is satisfied that a trader has contravened the Act, the court may order the trader to:

  • Disclose information to the public generally, or to an affected section of the public;
  • Publish corrective statements.

The trader has to bear the costs of this remedial action.

The court may grant a number of other remedial orders, including orders that:

  • A contract be altered or made void;
  • Money be refunded;
  • Goods be repaired or services supplied.

An application can be made to the court for these orders up to three years after a contravention has occurred. The court may order that money be refunded to a consumer even if that consumer is not party to the proceedings before the court.

Examples

A company marketed a window cleaning product called “Glassguard”. The claims about the product were false. Incorrect statements were also made to people who purchased the right to apply the product. The company was convicted and fined. The court also made two compensation orders of $12,000 and $3,200.

A tour promoter made misrepresentations about the profitability of tour operations that were being franchised. The promoter was convicted and fined and ordered to pay compensation orders which totalled $11,800.


Defences to Actions from the Act
Traders are obliged to comply with the Fair Trading Act and not conduct business in a false, misleading or deceptive way. However, section 44 of the Act provides some general defences to criminal actions taken under the Act.

These defences are that:

  • The contravention was due to a “reasonable mistake”. To prove a reasonable mistake, it is necessary to show there was an intention to act correctly. This means some system of checking, such as a compliance programme, should have been in place to detect errors.

  • The contravention occurred because the trader “reasonably relied” on information from another person (other than their employee or agent). The person reasonably relied on must be someone outside the control of the defendant.

  • The contravention was caused by an “accident” outside the trader’s control, or was caused by the actions of a third party (not an employee or agent), and reasonable and diligent steps were taken to avoid the contravention. The accident must be one which could not have been avoided if reasonable precautions were taken that is, if the defendant had been diligent. In one instance, the court found that because a shopper had moved a can of soup to a different place on a shelf, the resulting incorrect shelf pricing of the can was due to an accident beyond the defendant’s control.