Internet and online traders

Introduction to online consumer law

Consumer rights are protected by the Fair Trading Act 1986 (the FTA) and the Consumer Guarantees Act 1993 (the CGA).  The purpose of this legislation is to ensure consumers receive the goods and services they pay for, and to ensure that the goods and services received are of reasonable quality. 

There are many different ways of selling goods and services online.  This includes through online auctions such as Trade Me, Daily Deal websites like One Day, and via social media, text message or email.  Despite this wide marketplace, the internet is not the proverbial “free for all” where anything goes.  Recent changes to consumer law that came into effect on 17 June 2014 have seen amendments made to the FTA and CGA, with the aim of better protecting online consumers.  These changes and how they relate to existing consumer law provisions are described below.

When will the Fair Trading Act 1986 apply?

Section 28B of the FTA provides that where goods and services are offered for sale to consumers on the internet, and that offer is capable of acceptance via the internet, the seller must clearly identify to potential consumers whether or not it is in trade.  This allows consumers to recognise whether or not they are protected by the provisions of the FTA and CGA.

Where the offer and any resulting sale is managed through an intermediary who is not a party to the sale, that intermediary must still take reasonable steps to ensure the seller complies with the FTA.  For example, Trade Me now offers sellers the option of having an ‘In Trade’ banner appear on their profile, thereby allowing both parties to satisfy their new obligations.

If a seller is in trade and does not make this fact known to the consumer, the seller can be liable to a fine from the Commerce Commission.

While “in trade” is not defined in the FTA, or the CGA for that matter, “trade” under both means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services.  In determining whether someone is in trade, factors to consider include whether the seller:

• Regularly offers to sell goods or services online;
• Makes, buys or obtains goods with the intention of selling them;
• Is GST registered;
• Has staff or assistants to help manage sales; and
• Has incorporated a company or set up a form of trading vehicle.

Sellers are unable to avoid their obligations under the FTA or the CGA by using a third party to make offers or to sell goods and services on their behalf.  Where this occurs, the principal seller will still be considered to be in trade, with their agent also facing potential liability.

However, the exception to the rule is where goods are sold that were initially bought or acquired for personal use.  If this is the case, then the seller will not be considered to be in trade.

What other obligations does the Fair Trading Act 1986 impose on online sellers?

Other obligations that a seller must comply with under the FTA when selling goods online include:

• Avoiding misleading or deceptive representations about the goods or services being sold; 
• Avoiding misleading consumers about any rights and/or obligations they may have;
• Avoiding unfair sale practices, like bait advertising (where goods and services that cannot be supplied are advertised in order to lure consumers into the store);
• Having reasonable bases for any claims made about their goods or services, irrespective of whether such a claim is express or implied; and
• Complying with product safety and consumer information standards where relevant.

What protection is offered under the Consumer Guarantees Act 1993?

The CGA applies to goods and services purchased for personal or domestic use.  This includes sales that are made through online bidding using websites such as Trade Me.  The CGA sets out several warranties a seller makes when selling goods and services, which include that the goods and services:

• Match their description;
• Have no undisclosed defects;
• Are fit for their normal purpose; and
• Are safe, durable, of reasonable quality, and acceptable.

Under the new changes, sellers must ensure that any goods sold online that are sent or delivered to the consumer arrive in acceptable condition and on time.

Contracting out

Businesses cannot contract out of the FTA as a whole in dealings with individual consumers.  However, section 5D of the FTA provides that certain provisions of the FTA can be contracted out of where:

• All parties to the agreement are in trade and have agreed to contract out of one or more of Sections 9 (prohibiting misleading and deceptive conduct generally), 12A (prohibiting unsubstantiated representations), 13 (prohibiting false and misleading representations) and 14(1) (prohibiting false or misleading representations in connection with the sale or grant of land);
• The agreement is in writing;
• The goods or services are supplied and acquired in trade; and
• It is fair and reasonable that the parties are bound by the contracting out provision.

Section 43 of the CGA allows parties to contract out of the provisions of the CGA where:

• The agreement is in writing;
• The goods and services are supplied and acquired in trade;
• All parties to the agreement are in trade and agree to contract out of the provisions of the CGA; and
  It is fair and reasonable that the parties are bound by the contracting out provision.

In determining whether it is fair and reasonable to contract out of the relevant FTA or CGA provisions, the court will take into account the circumstances of the agreement, which include:

• The subject matter of the agreement;
• The value of the goods and services;
• Whether either party obtained legal advice before signing the agreement; and
• The respective bargaining power of the parties, including the extent of their ability to negotiate the terms of the agreement.

Breaching the FTA and CGA

While the Commerce Commission cannot enforce the CGA, if a seller breaches the CGA, then that seller may also be in breach of the FTA, over which the Commerce Commission does have authority.

The Commerce Commission is New Zealand’s primary competition enforcement and regulatory agency.  Set up by the Commerce Act 1986, it enforces the legislation that prohibits misleading and deceptive conduct by traders and the promotion of competition in New Zealand markets.  Part of the Commerce Commission’s role is to investigate complaints and bring Court claims against parties who breach the FTA.

A company breaching the FTA can be fined up to $600,000 and an individual up to $200,000.

Conclusion

The ultimate aim of consumer law legislation is to protect non-business savvy consumers from being ripped off.  In the event of a complaint or claim, the particular facts of the matter in question will always be relevant.  As a consumer, you can protect yourself by:

• Researching a seller online and reviewing any feedback and comments before making a purchase;
• Understanding what you are buying by reading the description of the goods or services carefully; and
• Reviewing the terms and conditions and ‘fine print’ of any offer.

If you would like further information please contact Laura Monahan on 07 958 7479.