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The New Zealand Fair Trading Act of 1986: deceptive advertising.

In 1986, New Zealand introduced the Fair Trading Act, legislation

aimed at consumer protection. This act was modeled after similar

Australian legislation, while taking into account the legislation and

precedents of other countries including the United States, England,

and Canada. Although wording of different nations' legislation is

often similar, unique national conditions may give rise to different

interpretations. The emergence of the Act may indicate a movement

toward minimal international standards in consumer protection legislation

among common law countries and to a lesser extent, a large

number of Western nations. This paper examines the content and performance

of the Act concerning deceptive advertising. Available evidence

suggests that the frequency and severity of deceptive advertising

has declined. Knowledge of the New Zealand experience provides

insight into the evolution of consumer protection legislation and

insight for American firms planning commerce there.

The consumer movement in the United States can be traced to the early part of this century. Although those in consumer affairs are knowledgeable about the American experience, they have less appreciation for the proconsumer movement in other nations. There is a notable dearth of research in this area (Boddewyn 1982). This article is intended to broaden perspectives about such legislation by looking at recent developments in New Zealand, a country of 3.3 million people, about the size of California, and a member of the British Commonwealth.

In December 1986, legislation known as the Fair Trading Act 1986 was passed into law in New Zealand and became effective in March 1987. This act, replacing the Consumer Information Act of 1969 and other piecemeal legislation, significantly extends protection to both consumers and businesses by prohibiting certain kinds of marketing conduct and promotional strategies. Prior to this Act, no comprehensive legislation dealing with consumer protection and deceptive advertising existed, and enforcement was largely ineffective. There had not been a single successful prosecution involving deceptive advertising under previous legislation.

The Commerce Commission (established under the Commerce Act 1986, which is companion legislation to the Fair Trading Act) was given the central role in defining the Fair Trading Act and in securing compliance, although the previously established Ministry of Consumer Affairs retained some enforcement powers, particularly in relation to product safety. The main purpose of the Commerce Act is to protect the interests of both consumers and commercial customers by requiring consumer information on goods and services and by controlling restrictive trade practices and anticompetitive mergers and takeovers. Although the consumer is intended to receive the most benefit, the Act also applies to trade purchasers, trade suppliers, and competitors. As a result, the Act gives lawful traders a remedy against unlawful ones.

An understanding of the New Zealand Fair Trading Act has three significant benefits. First, because consumer legislation throughout the Commonwealth (e.g., Canada, Australia, the United Kingdom) is similar to New Zealand's, insights into the regulatory characteristics of a number of important markets can be gained. Second, American readers can appreciate how an originally U.S. legislative model is adapted to other contexts. Third, internationally expanding American companies need such knowledge to lessen the risk of transgressing local laws, particularly when using promotions to enter foreign markets.

This paper first looks at the rationale and provisions of the Act. Remedies and enforcement are then discussed. The paper concludes by examining the implications for consumers, recent test cases, and the importance of the Act to those in consumer affairs in North America.

REASONS FOR THE ACT

New Zealand was subjected to substantial international pressure to adopt fair trading legislation, particularly by Australia, New Zealand's major trading partner. The Fair Trading Act was modeled after the Australian Trade Practices Act of 1974, which in turn was modeled after similar American, British, and Canadian legislation. A closer trading relationship between Australia and New Zealand was fostered by the Australia-New Zealand Closer Economic Relations and Trade Agreement 1982 (ANZCERTA), commonly known as the Closer Economic Relations (CER) Agreement. Incompatible consumer protection measures were viewed as a potential hindrance to free trade between the two countries and as a potential contravention of the CER Agreement. The Fair Trading Act was intended to bring such legislation into accord. A joint Australia-New Zealand specialist tribunal may eventually be established to deal with proceedings under both Acts (Trotman 1988). That New Zealand legislation has been brought into conformance with legislation elsewhere is a notable accomplishment, as New Zealand consumer protection legislation was not always parallel to and was usually less coherent than that of other nations (Mulholland 1982).

In addition to foreign pressures to adopt fair trading legislation, the New Zealand government felt that such legislation was needed for public benefit. The Fair Trading Act is intended to prohibit certain conduct and practices in domestic trade (e.g., pyramid selling), end misleading and deceptive trading and advertising, ensure that product safety standards are maintained, and improve consumer knowledge so that consumers can make better decisions. It is designed to counter the ill effects of a lack of competition and to enable consumers to benefit as much as possible from the competitive environment stimulated by the 1986 Commerce Act (Fair Trading Act 1986; Explanatory Booklet 1987; Trotman 1988). The Act also extends existing legislation dealing with contracts, misleading advertising in relation to credit terms, and product safety labelling. According to the Commerce Commission Chairman, the Act seeks to impose a "code of morality upon businesses; obligations we'd expect of each other in our personal dealings" (Collinge 1987a, 6).

RATIONALE FOR THE FAIR TRADING ACT

The rationale of the Fair Trading Act, according to the Fair Trading Act and the Explanatory Booklet can be summarized as protecting (1) consumers from commercial deception in the marketplace

whether this be in advertisements, product claims, or product

safety claims; and (2) reputable suppliers from their less scrupulous competitors who

might obtain a competitive advantage by resorting to deceptive

practices.

The belief that the caveat emptor approach embodied in New Zealand common law was insufficient gave impetus for the legislation. Common law evolved when products were less complex; purchases were consummated locally; most transactions were face-to-face between producer and buyer; and consumers could examine products with their own skill or knowledge. However, with contemporary market conditions, new factors characterize the majority of consumer transactions: (1) The original manufacturer and ultimate consumer rarely engage

in direct negotiation. To some extent this is due to technological

changes and population mobility; (2) The consumer is becoming increasingly confused as to who is

legally responsible for what; (3) Increasing technology in products is making it more difficult for

consumers to evaluate their purchases objectively; (4) Increasingly, consumers are being influenced by advertising and

promotional methods rather than sales presentations at the point

of sale, or by their own evaluations; and (5) There is an increasing divergence between legal forms and actual

transactions (Pengilley 1987, 60).

Given the separation between buyer and seller and the increasing power and influence of sellers, the New Zealand government views caveat venditor as more appropriate. For example, when an advertiser makes a factual claim, the burden of proof of its correctness lies with the advertiser, a relatively recent requirement in New Zealand. Parenthetically, the demand for stronger advertising (and other) controls, as expressed in this Act, probably reflects rising standards of public expectation and increased concern for fairness rather than declining standards of advertising and other marketing practices.

The term "consumerism" is not stressed in the legislation because the regulations are designed to benefit companies as well as individuals. This broad focus reflects both the political background to the Act and the paucity heretofore of procompetition legislation. In other words, the Act is a form of "catch-up" legislation aimed at covering a number of areas.

PROVISIONS OF THE FAIR TRADING ACT

The New Zealand Fair Trading Act is characterized by having both general principles (like the FTC guidelines) and an array of specific civil and criminal remedies. These remedies are discussed in the section on remedies and enforcement. This paper focuses on the portion of Part 1 of the Fair Trading Act which is concerned with deceptive advertising. The full title of Part 1 is "Misleading and Deceptive Conduct, False Representations, and Unfair Practices." Sections 9 through 11 involve misleading and deceptive conduct, generally, and in relation to goods and services. Section 13 addresses false representations, while section 12 is not relevant to this discussion. Appendix A provides the exact wording of sections of Part 1.

Because of the recency of the Act, local precedents are few. Accordingly, the Commerce Commission still relies heavily on precedents from rulings related to the Australian Trade Practices Act and to a lesser degree on precedents from the United States and elsewhere. Direct reference is made to the relevant Australian legislation. However, this degree of reliance on foreign rulings is already declining as local rulings accrue. Commentary on Australian decisions, which have been used by the New Zealand Commerce Commission, is in Donald and Heydon (1978); Taperell, Vermeesch, and Harland (1983); and Goldring, Maher, and McKeough (1987). An overview of Australia's equivalent to section 9 provides an understanding of the scope of the Fair Trading Act and its implications for advertisers.

In the Fair Trading Act, "trade" is defined as "any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or the disposition or acquisition of any interest in land" (Fair Trading Act 1986: Explanatory Booklet 1987, 7-8). "Trade" should be regarded as covering the whole field in which trade (or commerce as in American legislation) is carried out and not confined to any particular event which may occur in the conduct of a business operating within that field. The provisions of the Act apply to all commercial transactions including the marketing of services and goods. The Act specifically addresses performances of work, including work of a professional nature; provision of, or the use of facilities (such as entertainment, recreation, instruction); and the conferring of rights, benefits, or privileges for which remuneration is payable in the form of royalty, tribute, levy, or similar extraction. Also covered are contracts in relation to insurance, banks and customers, money lending and credit. The Act, therefore, encompasses almost all business activities in which consumers engage.

As in the U.S. and Australian Acts, "misleading and deceptive" are not defined in the New Zealand Act either. Instead, a specific definition is intentionally avoided in order to provide for flexibility and "newly conceived misleading or deceptive practices" not evident when the Act was introduced (Trotman 1988, 65). Such an approach allows broad application of the Act. Australian judges interpreting the Australian Act refer to the Oxford Dictionary definition of deception as "to cause to believe what is false" (Goldring, Maher, and McKeough 1987). New Zealand judges currently use objective criteria and the same definition, and view conduct as deceptive when it has a tendency or capacity to lead others to believe that something is true when it is really false.

"To mislead" is construed to mean leading into error. Consequently, misleading conduct is conduct which is capable of leading people to hold false beliefs. The word "likely" in "likely to deceive or mislead" seems to envisage that conduct will contravene the law if there is a real chance or possibility that a significant number of people will be misled or deceived by the conduct directly affecting them. Therefore, this last phrase implies that conduct which merely has a remote tendency to mislead or deceive must be disregarded (Taperell, Vermeesch, and Harland 1983).

Another important question concerns who is misled or deceived? The test applied in both New Zealand and Australia is whether or not there is a breach of the Act and its effect on "consumers." Consumers may be the consuming public, or a specified portion of the public. The standard applied is that of the "average" member of the community at whom the advertisement is aimed (Fair Trading Act 1986: Explanatory Booklet 1987). The spirit of the Act is guided by the ruling in a 1978 case that "the ignorant, the unthinking and the credulous making purchases do not stop to analyse but are governed by appearances and general impressions" (Collinge 1987b, 18).

In identifying the relevant class of the consuming public, or any individual within that class, the nature of the audience which is or might be addressed by the advertisement (or representation) must be examined (Pengilley 1987). While this class is often the general public, it may be more limited. For example, in Parkview (Keppell) Pty. Ltd. (1984), the class was travel agents, the target audience of the advertisement in question. The interpretation of the advertisement, therefore, is from the perspective of and based on the knowledge of travel agents, not the general public (Pengilley 1987).

Once the class is determined, the advertisement will be examined in terms of the people within that class. The relevant persons are those "not particularly intelligent or well informed, but perhaps of somewhat less than average intelligence and background knowledge, although the test is not the effect on a person who is quite unusually stupid" (Annand and Thompson Pty. Ltd. v. TPC 1979). The test in New Zealand and Australia then is not that of the "reasonable person" in the relevant class as under common law or the "consumer acting reasonable in the circumstances" as under the 1983 FTC policy statement. Under the liberal New Zealand and Australian interpretation, an advertisement may be misleading even though it fails to deceive more wary consumers.

PROHIBITED AND ALLOWED ADVERTISING

Many types of advertising statements are subject to legal examination in accordance with the Act. The extent to which puffery, nondisclosure, comparative advertising, claim substantiation, and credit terms are considered by the Fair Trading Act is discussed in this section. Other advertising issues are listed in Appendix B.

Product Puffery

Puffing is the act of enhancing the image of a product by using boastful, nonquantifiable, and usually meaningless terms such as "the world's best," "enormous," or "greatest." Imaginative advertising or humor, cartoons, or slogans in the form of puffery do not violate the Fair Trading Act. The Australian Trade Practices Commission has held puffing as "exaggeration or puffery used to attract attention, but which is so self evident that it is unlikely to mislead anyone who would not contravene the law. However, representations and claims that take on a factual character and price terms may amount to a breach unless they are capable of substantiation" "Advertising and Selling" 1981) and objective assessment. For example, a claim that certain items were "top quality" was held to violate the Australian Act when the items of concern were seconds and rejects (MacFarlane v. John Martin and Co., Ltd. 1977). This is "illegal misrepresentation" rather than puffery.

Hence, under New Zealand law a toothpaste advertised as one which will "beautify the smile," or a motor oil claimed to be the "perfect" lubricant, is likely to be held as merely puffing. However, while puffing may remain a defense to misleading or deceptive advertising claims, its scope is narrowing. Only the classical forms of puffing, such as "world's greatest" and "wonderful new product," will remain likely as a defense (Duffy and Duffy 1990, 149-150).

Nondisclosure

Half truths and nondisclosure of material facts may violate the Act. Representations must not only be true in fact but must give a truthful impression (Pengilley 1987). A statement in a legal examination will be read in its context and in light of the overall impression it imparts to those it addresses. The traditional United States (and similar Australian) interpretation of "truthfulness" requires a high standard for advertisements. New Zealand interpretation is similar to the United States interpretation, with deception requiring a "likelihood" to mislead, which requires a higher degree of proof for prosecution than would a "capability" to mislead. According to the Fair Trading Act,

Not only what is said, but what is left unsaid, may be misleading or deceptive.

Half truths and nondisclosure of material facts may beach the law. . . . [G]enerally,

the important factor is the impression likely to be created in the mind of

any person likely to be affected by the conduct." (Fair Trading Act 1986:

Explanatory Booklet 1987, 10)

Failure to disclose relevant information also affects comparative advertising. "An advertiser would not be bound to mention the areas where the competitive product has an advantage unless the omission of such a point would be likely to lead a consumer into a mistaken belief" (Fair Trading Act 1986: Explanatory Booklet 1987, 9).

Comparative Advertising

Comparative advertising, used less frequently in New Zealand than in the United States, involves naming competitors in advertisements and usually comparing features and benefits. The New Zealand Commerce Commission acknowledges that comparative advertising can provide useful information to consumers, providing that the comparisons are accurate. To avoid violating the Act, comparisons must not create a false impression, even if this requires the advertiser not to disclose information which might be relevant to some consumers, but misleading to others. An advertiser is not required, however, to include information which highlights a competing product's advantages unless such an omission might lead a person to a mistaken belief.

Tests, Surveys, and Other Forms of Substantiation

In general, it is necessary to substantiate any claims made in an advertisement. Because the advertising agency, as well as the advertiser, may be liable for prosecution in cases involving unsubstantiated claims, legitimate substantiation must be available. Guidelines for use in the United States are also applicable in New Zealand: (1) If the advertiser uses test results, accuracy is important; (2) Where nutritional superiority claims are being made, particular

care regarding accuracy should be exercised, especially if the product

advertisements are directed at children; (3) Claims of uniqueness may be interpreted as performance claims,

thereby becoming subject to scrutiny by the Commission; (4) If the Commission becomes involved with a comparative claim, it

will look not to the technicalities behind the ad, but to the effect

the ad will reasonably be expected to have on the general public;

and (5) Substantiation of any claims, if at all possible, through independent

laboratory testing is highly advisable (Rosden and Rosden

1980, 31-18 and 31-19).

The Fair Trading Act prohibits the use of misleading or deceptive tests and surveys to support a claim. Examples include tests showing that a product achieves a particular level of performance, when that test is not representative of what can be achieved by the average user. Automobile fuel consumption achieved by test drivers is a typical illustration. Other examples are advertisements in which the claims made are said to be based on a statistical survey (e.g., "nine out of ten households prefer. . . .") when no survey was undertaken or results were distorted.

Finance and Credit Terms

If an advertisement offers finance or credit terms, it may be viewed as misleading and deceptive unless the nature of such credit or finance, its source, and terms are disclosed. According to the Commission, an advertisement stating "low interest finance readily available" aimed at lower income buyers might be misleading if the average member of the class of persons cannot qualify for the low interest rate and is consistently switched to higher interest finance (Fair Trading Act 1986: Explanatory Booklet 1987). In this case even the inclusion of "to approved purchasers" is an insufficient disclaimer. Instead, the ad needs to make known any significant limitations and qualifying criteria on the availability or terms of finance.

REMEDIES AND ENFORCEMENT

The Commerce Commission asks the following questions (adapted from Fair Trading Act 1986: Explanatory Booklet 1987, 66) when identifying advertisements or elements of advertisements that may potentially be false or deceptive: (1) Are any specific claims in the advertisement correct? (2) Does the advertiser have sufficient current information to back

up the claims made? (3) What is the likely effect upon the audience of what is being

said? (4) Do the benefits claimed allow for any variations in performance

which actually occur? (5) Do all models across the whole range of products in question

have the characteristics claimed? (6) Has there been any policy change in the quality or performance

of the product, and does the advertisement sufficiently distinguish

between the old and new stock? (7) Has the promotional material been altered to take into account

any changes in the product? (8) Are all mandatory instructions required by law included? (9) Is the totality of promotional material consistent, e.g., packaging,

labelling, brochures, advertising? Is any of the material

false or misleading? (10) Are technical specifications accurate? (11) Is any special time limit or other limitation for the promotion

specifically stated? (12) Does "fine print" coincide with the general claims? (13) Could any special trade terms used be misunderstood by

consumers? (14) Are any vague or general words (e.g., "antique," "guarantee,"

"nearby," "large," "spacious") suitably qualified to give them

some specific meaning or meaning which is not likely to be misunderstood? (15) Could there be any misunderstanding concerning additional

charges, accessories or extras?

Compared to previous legislation, remedies have been increased substantially both in severity and in scope. In addition, establishment of the Commerce Commission (along with the powers previously invested in the Ministry of Consumer Affairs) provides a forum here consumers can address a vast majority of improper advertising complaints. The Commerce Commission can recommend to either the High Court or District Courts that criminal charges be made against violators of the Act, except for section 9, misleading and deceptive conduct generally; section 14 (2), use of force, harassment, or coercion with respect to false representations and other misconduct in relation to land; and section 23, harassment and coercion in connection with supply of or payment for goods and services. For sections 9, 14 (2), and 23, the Commission can recommend civil charges, but criminal charges must be recommended by the police or the victim. Figure 1 summarizes the remedies and enforcement for all of these areas except section 23, as it is not directly related to deceptive advertising. In order to determine which court has jurisdiction under different circumstances and the sections of the Fair Trading Act which they can rule on, refer to Figure 2.

The High Court is authorized to impose penalties far more severe than those imposed by the district court. These include (1) a fine not exceeding $100,000 for a corporation or $30,000 for an individual (section 40); (2) orders for pecuniary penalties of up to $100,000 to compensate persons who suffer loss or damage as a result of the conduct (section 43); (3) injunctions restraining conduct (section 41); and (4) orders to disclose information or publish corrective advertisements (section 42).

Contravention of Part 1, sections 10, 11, 13, and 14 (a and b), dealing with false and/or misleading representations, unfair practices, and supplying goods which do not comply with consumer information standards are criminal offenses. However, civil proceedings also may be invoked. While the courts can fine companies up to $100,000 and individuals up to $30,000, factors taken into account when the penalty is assessed include (1) objective of consumer protection, (2) absence or presence of fraudulent or dishonest intent, (3) degree of negligence or reckless action by the defendant, (4) extent of wilfulness or deliberation in the defendant's conduct, (5) efforts of the defendant to correct the breach, and (6) deterrence effect of the penalty.

Finally, the Fair Trading Act has provisions whereby unsafe or hazardous goods may be subject to compulsory recall or manufacturing ban if a supplier fails to take action to recall goods or stop producing such goods voluntarily. These are, however, under section 32(b)(3), enforced by the Ministry of Consumer Affairs and not the Commerce Commission. As this paper focuses on deceptive advertising, Part III, section 29 (4) is of particular relevance: "No person shall supply, or offer to supply, or advertise to supply, goods of a kind in respect of which a product safety standard has been prescribed unless those goods comply with that product safety standard."

The supplier may be required to disclose information to the public regarding the goods, or repair or replace the goods (this will be addressed in the Conclusion). Recall orders can only be imposed when a supplier fails to take action to recall goods voluntarily.

Intent of the Advertiser

American and Australian experiences indicate that breach of the law does not depend on the "intent" of the advertiser, except where the Act specifically requires an intention (Hornsby Building Information Centre v. Sydney Building Information Centre 1978). The rationale is that the legislation is concerned solely with the "real and potential impact" of commercial conduct and not with the state of mind of the person engaging in that conduct. In other words, if the public is deceived, it does not matter if the deception was intentional, unintentional, or even known to the marketer. In contrast, the New Zealand law may depend on intent. Section 44 of the Act provides a defense if the defendant can show that a "reasonable mistake" was made or that violation was due to "reasonable reliance" on information provided by others. This defense requires the defendant to have taken "reasonable precautions and exercised due diligence" or to show that the violation was beyond control. With the exception of these last requirements, prosecution depends upon scienter, knowingly violating the provisions of the Act.

Unknowing violators are treated more leniently by the Commission and the Courts than are knowing and intentional violators. Furthermore, if violations are corrected quickly and not repeated, offenders are often given some relief from prosecution or are not penalized as severely.

IMPLICATIONS FOR CONSUMERS

Ostensibly, section 9 of the Fair Trading Act is very wide in its scope, with a great deal of potential impact. First, advertisers cannot assume their audience is of average intelligence or possesses any prior knowledge or understanding of the product or service being promoted. Advertisements probably will be simpler and more easily understood than previously. Second, regarding product puffery, purely subjective statements will be used more often than objective statements to avoid violation of the Act. Such terms as "amazing" and "excellent" are likely to be used. As statements become more factual (e.g., "quickest") violation is more likely unless claims can be supported. Third, with half truths, the experiences of the Australian Federal Court have shown a marked tendency that if: * a statement is equivocal, it will be given substantive meaning; * there is nondisclosure, the court will find obligations of disclosure

in certain circumstances; * there are changed circumstances, the court will find a duty to correct

prior statements (corrective advertising); and * there is a statement of expectation, the court will sometimes construe

it as a representation of fact (Pengilley 1987).

Fourth, with comparative advertising, consumers should witness increased comparison of products of a like nature. For example, it would be misleading to compare the price of used, retread, or blemished automobile tires with new tires. Likewise, it would be misleading to make a comparison using a list price that a competitor seldom or never uses (a variation of "bait and switch" . Perhaps most important, if the Commerce Commission, and other consumer groups, can maintain a high profile public relations program, New Zealand consumers will learn where they can go for assistance and recognize what is permissible and what is not. The Commerce Commission, along with the Ministry of Consumer Affairs, is witnessing increased contact with the public as a result of the Act. Consumer awareness efforts have contributed to this contact, especially the New Zealand television program "Fair Go" which investigates a wide variety of consumer complaints.

CONSEQUENCES OF THE FAIR TRADING ACT

The Act has stimulated vigilance on the part of those involved in fair trading and consumer protection. New Zealand is likely to parallel the Australian experience with their 1974 Act, which saw advertising become more credible. An overwhelming majority of New Zealand complaints addressed false representations, followed by complaints about business conduct, and finally, complaints about unfair practices. Complaints in New Zealand by the business sector are shown in Table 1 (Report of the Commerce Commission 1989). [TABULAR DATA 1 OMITTED]

In the three years from the inception of the Act through March 1990, the Commerce Commission received 4,464 complaints. About 90 percent of these were filed by consumers. Possible violations occurred in 2,143 cases, of which 932 were handled informally, 464 formally, 34 brought to court, with the remaining 713 in process (Fair Trading Statistics 1990). However, a significant decline in the number of complaints in recent months, one-third of which required no further action, signals a trend.

Two factors contribute to the trend. Compliance with the Act has resulted in fewer complaints, and the Commerce Commission's intention to increase awareness by pursuing test cases (Francis 1990) has discouraged infractions of the law. Unfortunately, consumer knowledge of the Act is unknown because it has not been surveyed.

At the same time, no evidence was found that the factual content of advertisements is declining (Francis 1990). No evidence exists of collusion or "agreements" between industry members whereby they agree not to prosecute each other for violations of the Act (Francis 1990). The Commission has indicated such agreements would be dealt with harshly.

Although the 1990 Report of the Commission has not been published, some material from the 1989 report is worth mentioning:

While knowledge of the Act in the business community is still patchy the level

of awareness is improving. Anecdotal evidence indicates that the standard of

advertising, for example, has improved with traders being less inclined to

make unqualified claims about their products or services. There have been few

cases where traders who have come to Commission notice have reoffended.

(Report of the Commerce Commission 1989, 45) The Commission feels that complaints filed by traders frequently benefit consumers because competitors, due to their knowledge of the industry, have information about possible violations which would otherwise escape the attention of consumers (Preston 1989).

With an increase in national precedent, the Commission is becoming less reliant on foreign precedents although foreign cases are still monitored and analyzed. The following summary of recent court cases reveals what the Commission feels are appropriate "test" cases (Report of the Commerce Commission 1988, 1989).

An appliance retailer was ordered by the Court to pay $8,970 in

fines and court costs for placing misleading prices in a newspaper;

specifically, a 12-hour sale was advertised but in reality, prices

before and after the sale were the same as during the sale.

A publishing company was fined $24,000 for pro forma invoicing,

invoicing "customers" for goods and services they never

ordered.

A provider of car parking spaces was fined $400 for false representation

and bait advertising. Parking spaces were advertised for

$12 a week when they were only available at $22 a week for periods

up to one month, or $13.20 for periods greater than one month.

A photographer was fined $1,000 and was ordered to compensate

customers for failing to supply prepaid goods and services

during the specified time period.

A furniture retailer was fined $500 and ordered to pay fees and

costs of $1,100 for advertising brass beds which were in fact made

predominantly of steel.

A mail-order operator was fined $750 plus costs for promoting

pyramid selling schemes and chain letters. In a separate case

involving a similar offense, the Commission was involved in a

police prosecution.

A cruise line was fined $5,000 and ordered to pay costs for a

misleading price representation. The cruise line advertised that

New Zealanders could "fly free" to Sydney to join the cruise. In

reality, the New Zealand customers paid $500 more than Australian

customers.

In two separate cases, clothing retailers were each fined $3,000

for selling articles which breached the "Children's Night Clothes

Product Safety Standards."

Private actions are now declining in number primarily because the costs involved vary significantly. A review of a sample of cases shows that costs to consumers bringing action, excluding penalties against the defendants, generally range from $300 to $1,200. The costs for companies to initiate action against other companies are usually much higher, from about $2,000 to $50,000, excluding penalties. These higher costs generally result from market research, surveys, and other forms of expert testimony used by the opposing parties. Some important cases include:

In one case the Court of Appeal gave clear guidance that

Australian decisions regarding Part 5 of the Trade Practices Act

should be applied in New Zealand, mentioning the consistency

required by the CER treaty; and

The High Court granted an interim injunction against one pharmaceutical

firm for making direct comparisons with a competitor's

(the plaintiff's) product. Recall was not required because the judge

felt that this would raise unwarranted doubts about the defendant's

product. The judge also warned that such injunctions

should not become a routine request by firms wanting to use the

courts for "marketing gamesmanship."

Most complaints have been dealt with outside the courts. As noted, although breach of section 9 is not a criminal offense, it can give rise to civil remedies provided for in the Act such as injunctions, damages, and corrective advertising. Although complaints by consumers still prevail, competitor generated complaints to the Commission are on the rise. This may ultimately follow the trend seen in Australia, where over 80 percent of the actions under section 52 of the Trade Practices Act of 1974 are brought by one business against another, rather than by the Commission or consumers. This is similar to the trend in the United States. Three types of suits are most common: (1) companies institute suits to protect their business or brand name, (2) actions to stop competitors from making misleading claims about their product, and (3) companies sue their suppliers.

The legislation has motivated businesses to observe each other's advertising and other marketing practices more closely. Subsequent action benefits not only the trader, but also the consumer by improving marketing practices. Competitors have adopted, to some degree, a policing practice. This is evidenced by the recent release of a voluntary code of ethics by the Committee of Advertising Practice ("Advertising and Ethics" 1990).

A related defensive trend in New Zealand has seen some advertising agencies, publishers, and broadcasters protect themselves from accusations of misleading conduct by asking clients to sign agreements confirming compliance with the Act and to accept liability if in noncompliance. Whether such actions will hold up in court is unknown. The Act provides no limitation on the number of participants in the advertising process that can be sued for misleading or deceptive conduct. Multiple defendants in a case could include manufacturers, wholesalers, retailers, media, and advertising agencies.

Presently, the Commerce Commission has no plans to review the contents of the Act. Minor changes to the Commerce Act are being considered, particularly in provisions regulating the issuance and use of search warrants for investigations. Although Part IV of the Act defines when warrants can be issued, the courts have been less than willing to provide warrants to the Commission. This is probably the most significant weakness of the Act. With this exception, the Commission feels that it has enough "teeth" to dramatically improve trading practices.

While the penalties imposed by the Act may not appear severe by international standards they can be significant for small companies operating in a small economy. The penalties and the negative publicity that accompanies them, serve as a deterrent, as a vast majority of companies are taking notice of and are abiding by the objectives of the Act.

It is probable that the consumer does not receive fair compensation for damages under the provisions of the Act. This reflects New Zealand attitudes toward compensation for civil as well as criminal violations. Penalties are significantly lower than in the United States. However, penalties for revenue generation are not the primary objective of the Act; the Act is designed to deter and correct deceptive advertising and other activities. Individual consumers are encouraged, and normally expected, to seek compensation for damages by taking legal action on their own. This is in part due to limited funding made available to the Commission for prosecution.

While the Commission's prosecution budget relevant to the Act is not publicly available, reliable sources estimate the annual budget, not counting staff and fixed overhead costs, to be about $120,000 to $150,000. The Commission does not receive any amounts from fines, which are directed into the government's general fund. While the Commission would benefit from a larger enforcement budget, severe violations of the Act are unquestionably declining. Nonetheless, there is no guarantee that all violations can be prosecuted because of limitations in time and money on the part of the Commission or individual victims.

All incorporated businesses must provide material such as annual reports to the Commission. These reports are virtually identical to those in the United States, because of similar accounting standards. Other than this, few data are filed on a regular basis. Accordingly, investigations usually require special access to a defendant's records.

CONCLUSION

Advertisers in New Zealand are compelled to take the rise of consumerism seriously and comply with the appropriate regulations restricting fraud. Advertising is becoming more honest, less deceptive, and more helpful to consumers. The New Zealand legislation represents one example of global diffusion of proconsumer laws. In the case of New Zealand, adoption of the Act represents the introduction of an entirely new kind of legislation.

For North American observers accustomed to such protection, the case of New Zealand is especially significant. Many countries do not have a tradition of consumer protection as in the United States. When compared with similar legislation in the United States and elsewhere, the speed and comprehensiveness with which the New Zealand government introduced the Act are noteworthy. Although most of the legislation mirrors what has been done elsewhere, it is still one of the few small nations that have such laws. Because of the small size of the country, an integrated legal system (no state, provincial, or city courts), efficient media, and a compact business community, the outcome of prosecution is disseminated easily. For this reason, the deterrent effect is particularly strong.

Consumer protection in New Zealand is still in the growth stage. After a strong consumer movement in the 1970s, which languished in the early 1980s, consumerism is on the rise again. This reflects increased exposure to a wide variety of consumer goods, and the influence of the "green" movement, which often addresses product standards. Any "peak" in consumerism will probably lag that in the United States by a few years.

In the area of unsafe products, the Minister of Consumer Affairs is empowered under the Fair Trading Act to remove unsafe products from the market. However, businesses are not required to report unsafe products! Reporting is normally left to consumers. Historically, only when overwhelming evidence exists that a product is unsafe (e.g., a significant number of injuries), does the Minister of Consumer Affairs recommend that a product be withdrawn. This is perhaps because the Minister is a political appointee. In contrast, the Commission is a government department and is theoretically less subject to political influence.

As trading and economic relationships among countries become stronger, further international harmonization of consumer legislation should be seen. However, identical legislation among countries is unlikely because consumer values, expectations, and politics vary. One impetus for the New Zealand Fair Trading Act was increasing trade with Australia and the need to have common laws to facilitate trade. Uniformity of these laws among Commonwealth countries is far more likely than is uniformity between non-Commonwealth countries. For example, there are some indications that a free trade agreement may be forthcoming between Canada and New Zealand, encouraging some consistency of trade legislation between them. The extent to which the United States will harmonize its consumer laws with other trading partners remains to be seen.

It is important that American businesses wishing to engage in commerce with New Zealand be knowledgeable about these fair trading laws, particularly to the extent that they vary from comparable legislation in the United States. This paper also reflects the need for governments to appreciate consumer legislation in other countries that are likely to be trading partners. From another perspective, such understanding may also give us a broader view of the global trends for consumer legislation. The New Zealand example shows that consumer legislation can be introduced, implemented, and effective in countries where such legislation had not existed previously. Consumer affairs specialists in other countries including the United States may view aspects of New Zealand's experience as lessons to be learned or avoided.

APPENDIX A

Exact Wording of Sections of Part 1 9. Misleading and deceptive conduct generally--No person shall,

in trade, engage in conduct that is misleading or deceptive or is

likely to mislead or deceive. Cf. Trade Practices Act 1974

(Aust.), s. 52. 10. Misleading conduct in relation to goods--No person shall, in

trade, engage in conduct that is liable to mislead the public as to

the nature, manufacturing process, characteristics, suitability

for a purpose, or quantity of goods. Cf. Trade Practices Act

1974 (Aust.), s. 55. 11. Misleading conduct in relation to services--No person shall, in

trade, engage in conduct that is liable to mislead the public as to

the nature, characteristics, suitability for a purpose, or quantity

of services. Cf. Trade Practices Act 1974 (Aust.), s. 55A. 12. Conduct in relation to employment. 13. False representations--no person shall, in trade, in connection

with the supply or possible supply of goods or services or with

the promotion by any means of the supply or use of goods or

services, (a) Falsely represent that goods are of a particular kind, standard,

grade, quantity, composition, style, or model, or have

had a particular history or particular previous use; or (b) Falsely represent that services are of a particular kind, standard,

quality, or quantity, or that they are supplied by any

particular person or by any person of a particular trade,

qualification, or skill; or (c) Falsely represent that a particular person has agreed to

acquire goods or services; or (d) Falsely represent that goods are new, or that they are reconditioned,

or that they were manufactured, produced, processed,

or reconditioned at a particular time; or (e) Falsely represent that goods or services have any sponsorship,

approval, endorsement, performance characteristics,

accessories, uses, or benefits; or (f) Falsely represent that a person has any sponsorship, approval,

endorsement, or affiliation; or (g) Make a false or misleading representation with respect to

the price of any goods or services; or (h) Make a false or misleading representation concerning the

need for any goods or services; or (i) Make a false or misleading representation concerning the

existence, exclusion, or effect of any condition, warranty,

guarantee, right, or remedy; or (j) Make a false or misleading representation concerning the

place of origin of goods. Cf. Trade Practices Act 1974

(Aust.), s. 53.

APPENDIX B

Other Issues Addressed by the Act That Are Potentially Deceptive and Misleading
* Ambiguity in a claim * Age of goods
* Literal truths and half truths * Length of time in business
* Fine print qualifications * Packaging and labelling
* Claims of endorsement * Special offers
* Statements about the future * Extras
* Statements of opinion * Sizes and dimensions
* Words with special meanings * Employment opportunities
* Symbols and abbreviations * Misleading business and
 product names


REFERENCES

"Advertising and Ethics" 1990), Marketing Magazine, 37(3): 14-15. "Advertising and Selling" (1981), Canberra: Australian Trade Practices Commission. Annand & Thompson Pty. Ltd. v. Trade Practices Commission (1979), 25 ALR: 91-102. Boddewyn, J. J. (1982), "Advertising Regulation in the 1980's: The Underlying Global Forces," The Journal of Marketing (Winter): 27-35. Collinge, John (1987a), "The Fair Trading Act 1987 (sic), " speaking paper, Wellington: Commerce Commission. Collinge, John (1987b), "The Fair Trading Act 1986," New Zealand Law Society Seminar (March): New Zealand Law Society. Donald, B. G. and J. D. Heydon (1978), Trade Practices Law, Volumes 1 and 2, Sydney: The Law Book Company. Duffy, Patricia D. and Michael F. Duffy (1990), Legal Aspects of Marketing, 4th edition, Dunedin: University of Otago. Fair Trading Act 1986, House of Representatives, Wellington. Fair Trading Act 1986: Explanatory Booklet (1987), Wellington: Commerce Commission. Fair Trading Statistics (1990), Commerce Commission, draft document. Francis, Maxine (1990), Commerce Commission, interview (May). Goldring, John, L. W. Maher, and J. McKeough (1987), Consumer Protection Law in Australia, Sydney: Butterworths. Hornsby Building Information Centre Pty. Ltd. v. Sydney Building Information Centre, Ltd. (1978), 140 CLR 216. MacFarlane v. John Martin and Co. Ltd. (1977), 2 TPC 188, 191. Mulholland, R. D. (1982), Consumer Law in New Zealand, New Zealand:The Dunmore Press Limited. Parkview (Keppell) Pty. Ltd. v. Myfare Pty. Ltd. (1984), ATPR para 40-486. Pengilley, Warren (1987), "The New Zealand Fair Trading Act, " New Zealand Law Journal, February): 59-69. Preston, John (1989), Commerce Commission, interview (June). Report of the Commerce Commission for the Year Ended 31 March 1988 (1989), Wellington: Commerce Commission. Report of the Commerce Commission for the Year Ended 31 March 1989 (draft, 1990), Wellington: Commerce Commission. Rosden, George Eric and Peter Eric Rosden (1980), The Law of Advertising, New York: Matthew Bender. Taperell, G. Q., R. B. Vermeesch, and D. J. Harland (I 983), Trade Practices and Consumer Protection, 3rd edition, Sydney: Butterworths. Trotman, Lindsay (1988), Misrepresentation and the Fair Trading Act, New Zealand: The Dunmore Press Limited.

Steven Lysonski is Associate Professor, Marketing Department, College of Business Administration, Marquette University, Milwaukee, WI, formerly of Department of Business Administration, University of Canterbury, Christchurch, New Zealand; and Michael F. Duffy is Senior Lecturer, Department of Marketing, University of Otago, Dunedin, New Zealand.

The authors wish to thank Mr. John Preston of the New Zealand Commerce Commission, Dr. Patricia Duffy of the University of Otago, and the reviewers who provided invaluable insight, untiring encouragement, and excellent editorial comment.
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Title Annotation:Viewpoints and Communications
Author:Lysonski, Steven; Duffy, Michael F.
Publication:Journal of Consumer Affairs
Date:Jun 22, 1992
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