How to: Protection under the Fair Trading Act

Introduction

The FAIR TRADING ACT 1986 protects consumers by prohibiting misleading or deceptive conduct in trade. It also:

  • prohibits certain specific types of misleading conduct and misrepresentations
  • prohibits specific unfair trading practices
  • sets safety standards and consumer information standards
  • provides consumers with remedies for conduct that breaches the Act

The Act applies to anyone engaged in trade. "Trade" is given a wide definition and includes any business, industry, profession, occupation, commercial activity, or undertaking relating to the supply or acquisition of goods or services. It also includes the sale or purchase, or other disposition or acquisition, of any interest in land.

The Act covers all aspects of business, including advertising, pricing, sales techniques and finance agreements.

Misleading or deceptive conduct, and misrepresentations

The FAIR TRADING ACT 1986 prohibits people in trade from engaging in misleading or deceptive conduct, or conduct that is likely to mislead or deceive. Usually conduct that breaches this rule will qualify both as misleading conduct and as deceptive conduct, and therefore the person or business in question will be liable under both headings.

For there to be a breach of the Act it is irrelevant whether there was an intention to deceive or mislead: the question is whether the conduct could mislead or deceive. Similarly, it is not necessary for someone to have suffered a loss or to have been directly affected by the conduct in question in order for there to be a breach of the Act.

As well as this general rule against misleading or deceptive conduct, the Act also specifically prohibits certain types of behaviour, including:

  • conduct that is liable to mislead the public about the nature, manufacturing process, characteristics, or quantity of goods, or about their suitability for a particular purpose
  • conduct that is liable to mislead the public about the nature, characteristics, or quantity of services, or about their suitability for a particular purpose
  • in relation to an offer of employment, conduct that is misleading or deceptive, or is likely to mislead or deceive, as to the availability, nature, terms, conditions, or any other matter relating to the employment
  • false or misleading representations about the price, standard, quality, place of origin or history of goods, or about a particular use or benefit of goods, or that goods have a particular endorsement or approval
  • false or misleading representations about the price, standard or quality of services, or that services have a particular endorsement or approval

Unfair trading practices

The Act also prohibits certain unfair trading practices, such as:

  • offering misleading incentives
  • advertising goods or services at a specified price when the person does not intend to supply them at that price for a reasonable period and in reasonable quantities, or does not have reasonable grounds for believing that that can be done
  • demanding or accepting payment without intending to supply the goods or services in question
  • making false or misleading representations about the profitability, risk or other relevant aspect of a business activity that is said to be able to be carried on from a person's home
  • inviting people to engage or participate in a business activity requiring work or work and investment, while misrepresenting the profitability, risk or other relevant aspect of the business activity
  • using physical force, harassment or coercion in connection with the supply or possible supply of goods or services, or the payment for them
  • pyramid selling schemes (see How to avoid pyramid selling schemes)

What does the term "goods" include?

In the FAIR TRADING ACT 1986, "goods" means:

  • personal property (that is, not land) of every kind, whether tangible or intangible

"Goods" also specifically includes:

  • ships, aircraft and vehicles
  • animals (including fish)
  • minerals, trees and crops (whether they're on, under or attached to land or not)
  • gas and electricity
  • water
  • computer software

What does the term "services" include?

In the FAIR TRADING ACT 1986, the term "services" includes any rights, benefits, privileges or facilities that are (or are supposed to be) provided, granted or conferred.

Without limiting the general definition just given, specifically includes rights, benefits, privileges or facilities that are (or are supposed to be) provided, granted or conferred under any of the following types of contract:

  • a contract for, or in relation to, the performance of work (including professional work), with or without the supply of goods
  • a contract for, or in relation to, the provision of, or the use or enjoyment of, facilities for accommodation, amusement, the care of people or animals or things, entertainment, instruction, parking or recreation
  • a contract for, or in relation to, the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction
  • a contract for, or in relation to, the supply of electricity, gas, telecommunications or water, or the removal of waste water
  • a contract of insurance (including life assurance and life reassurance)
  • a contract between a bank and a customer
  • a contract for, or in relation to, the lending of money or granting of credit, or the making of arrangements for the lending of money or granting of credit, or the buying or discounting of a credit instrument, or the acceptance of deposits

But "services" does not include:

  • rights or benefits in the form of the supply of goods or the performance of work under an employment contract

Consumer information and product safety standards

Regulations made under the Act set standards for information provided to consumers. Currently there are information standards dealing with the country of origin of goods, the fibre content of textile goods, and the correct way to care for textile goods.

Regulations also set down product safety standards. There are currently standards for bicycles, children's night clothes, and toys.

A person who fails to comply with these information or safety standards breaches the Act.

Who is protected by the Act?

The protection provided by the FAIR TRADING ACT 1986 is available to consumers and also to rival competitors.

In advertising and selling goods or services a person running a business should take into account the fact that some people will be more easily misled and deceived than others. The courts have clearly stated that the Act is available to all people, regardless of their level of intelligence or naiveté.

Policing the Act

In general the FAIR TRADING ACT 1986 is policed by the Commerce Commission. However, in addition to an action by the Commerce Commission, any consumer or competitor who believes there has been a breach of the Act may take legal action under the Act independently.

Actions taken under the Act may be either criminal or civil, or both (although action under section 9, which is the general rule against misleading or deceptive conduct, and under several other provisions of the Act can only be civil). In a criminal action, the person or business is charged with a breach of the Act and is liable to a substantial fine - up to $60,000 for an individual and $200,000 for a company. In a civil action, the person may be ordered, among other things, to pay damages to a consumer or competitor who has suffered some loss or damage.

Both individuals and companies, equally, may be prosecuted under the Act. If action is taken against a company, it will be the directors, managers and employees that may be held liable. Similarly, any other person who may have assisted, helped or encouraged the breach may also be held liable.

Employer's responsibility for employees

If you are an employer you must take extra care to ensure that your employees are fully aware of what is acceptable conduct under the Act, of what constitutes a breach, and of what the consequences are of breaching the Act. As an employer you are responsible for the actions of your employees.

Cautionary notes
  • Much can be at stake, both financially and personally, if you breach the Act. If you are setting up a business, it is strongly recommended that you obtain legal advice before you begin trading, to ensure that your practices and conduct comply with the Act.
  • If as a consumer you believe that the Act may have been breached, you can complain to the Commerce Commission, or you may wish to take your own legal action under the Act, in which case you should consult a lawyer.


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