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FTA Examples A situation to consider #1 Brett’s business is expanding due to the popularity of his products. He employs a part time marketing manager, a young enthusiastic student he finds through Student Job Search. He asks the student (Julia) to devise a marketing campaign for the sprouted grain loaf, which Brett is about to start selling in health food shops in Dunedin. Julia enthusiastically puts together a brochure that is to be available to customers of the health food shops. It states that the sprouted grain loaf is 100% guaranteed to improve your digestive system and overall health. It states the loaf is full of organic wholesome ingredients and lovingly handcrafted. It states the product contains 100% wholegrains, no refined products, is suitable for vegans and all those who react badly to supermarket bread. However, a month later some customers who are allergic to wheat have reacted badly to the bread which contains wholemeal flour. Several complaints are received by the Commerce Commission. The Commerce Commission investigates. Might the Commerce Commission be able to make a claim against Brett’s Bakery Ltd under the Fair Trading Act? What remedies might be available for the persons who have complained? 

Consider each of the statements made individually in the brochure.  "100% guaranteed to improve your digestive system and overall health"  S12A claim by the Commerce Commission: Unsubstantiated representation  Consumer cannot personally bring the claim, only the commerce commission.  Would require the BB to prove they have some evidence to back up that statement (study, etc)?  Is it the kind of representation that a reasonable person would expect to be substantiated, yes. Suggests there is some evidence, research behind that. Not just a meaningless statement. Specific. Grounds for that.  S12B The matters the court must have regard to in any proceeds, note 12C only CC can take proceedings under s12A.  Court would have regard to nature of goods, nature of representation, research, source of info…[..]  "full of organic wholesome ingredients"  True or not true  If not full of organic ingredients breach of s9, s10 and potentially s13.  "lovingly hand crafted"  That is not what the complaint is about, the complaint is about what's in the bread.  Could be an issue if the goods were mass produced in a factor, that would give grounds to a complain, misleading.  "100% wholegrains, no refined products"  If not true breach of s9, s10, and s13.  Either true or not true.  "Suitable for vegans"  Either true or not true, no animal products in this loaf then true.  "All those that react badly to supermarket bread"  That statement is so vague is to be meaningless. Unlikely attract any breach of the FTA. Have to ask: Why do some people react badly to supermarket bread? Do they have an allergic reaction to supermarket bread? Some supermarket bread is GF??? Weird.

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Could argue this is somehow misleading a RP in the claimant's situation (someone allergic to flour)  No, product said it has wholegrains, not claiming to be flour free" What does react badly mean? Constipated? None of them attract a breach of FTA, so vague.

If the statements, either untrue or true, is untrue, potentially attract breach of s9 (general prohibition), s10 (misleading public as to nature/characteristic's), s13 (prohibits representations as to the goods being of a particular quality). If any of those are untrue AND the customer has suffered loss, potentially claim under s43. Best case is for under unsubstantiated provisions for the first statement. Something only CC can bring an action for.

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What is the loss? Time off work, spent money on a product not good for them? Doctor's fees. Would have to be some loss for which the misleading statement was an effective cause. If everything was true, it did have organic ingredients, 100% wholegrains…etc. don't think easy to establish a breach other than unsubstantiated representation.

A situation to consider #2 Brett’s Bakery Ltd needs a table to display the baked goods on in the bakery shop. Brett goes into a second hand furniture shop and sees a large old wooden table that looks about the right size. When he asks the shop keeper what sort of wood the table is made of, the shop keeper says the table is made of recycled rimu (a native New Zealand wood) that came from a local demolition job. Brett buys the table for the bakery. A friend who is a timber expert happens to look closely at the table a few weeks later and tells Brett that it is in fact made of Malaysian Maple which would almost definitely have been illegally sourced from a rainforest in Malaysia (as that is the most common source of this type of wood). Brett is very upset as he would not have brought the table if he knew the wood was sourced from a rain forest. He wants to bring an action against the second hand furniture shop. Is there any ability to bring an action under the Fair Trading Act? 

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Potential breach provisions  S9 Misleading and deceptive conduct  S13A No personal shall in trade in connection with possible supply of goods make a false or misleading representations that goods are of a particular composition.  Test for misleading (Red Eagle): Would a a RP in the plaintiff's situation, with characteristics known to the defendant or of which the defendant ought to have been aware, would likely have been misled or deceived?  Probably yes, given that he asked and was told a specific answer, unless the shopowner could argue that a RP would know what rimu looked like, and this was a black table.  Seems a RP would be misled on these facts. Remedy  Unlikely the CC going to get involved in this case, private dispute between two parties.  Suffered loss?  Worth the same, still worth the 1000$ he paid for it. He hasn't suffered any financial loss.

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Just because he was told something about it was misleading, no claim as he suffered no loss. Just because he didn't want to buy a table that came from a rainforest, not enough to give him a loss under s43. If worth a quarter, would have suffered a loss. Paid for X, worth less.

A situation to consider #3 Brett’s marketing manager Julia designs a label for the sprouted grain loaf that states “ this loaf is totally natural, eco – friendly and 100% guaranteed delicious” The bakery next door, which also sells a sprouted grain loaf, complains to the Commerce Commission alleging that Brett’s Bakery Ltd has breached the Fair Trading Act with this label. Is there any basis on which the Commerce Commission or the next door bakery might be able to take action against Brett’s Bakery Ltd? 

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"this loaf is totally natural", "eco - friendly" o Possibly grounds for an action under s9 on basis that was misleading or s13 on basis that is a false or misleading representation that goods are of a particular kind, standard, quality, grade, composition, etc. o Very difficult to prove that that is false. How can you prove "totally natural". o Unsubstantiated representations provisions s12A-D, CC only can take action under, most likely claim  Rather than the person unhappy having to establish that the statement was false or misleading, all that has to be done is the CC puts the seller to proof that they had some information of substance behind those statements. Basis for statements.  S12A-D say that a person must not make an unsubstantiated representation. Unsubstantiated if they don't have R grounds for making that representation. Person making it has to establish they had reasonable grounds for saying this.  Potentially could ask the CC to initiate some sort of unsubstantiated action. That would be the most useful rather than s9 or s13. "100% guaranteed delicious" o Mere puffery, doesn’t have any real meaning. So vague a RP wouldn't expect that to mean anything. Other issue: Complaint by someone who hasn't bought the bread Operating business next door. They can bring a claim under FTA Enforcement is not limited to CC and purchasers of products/users of service Rival businesses can take action to enforce. Trying to get damages if loss? Or injunction?

A situation to consider #4 Brett’s Bakery’s sprouted grain loaf is very popular. The Wellington Organic Shop enters into a contract with Brett’s Bakery under which it agrees to buy 20 loaves per day and requires that the 20 loaves must be on the shelves of the shop in Wellington by 9am each day. Brett’s bakery is in Lower Hutt, a 45 minute drive from the Wellington Organic shop. Brett contracts with Lucky Carriers Ltd to transport the loaves to the Wellington Organic Shop every morning, with pick-up to be at the bakery at 8am. The owner of Lucky Carriers, Joe Lucky, tells Brett that he (Joe) is a man of substance and he will personally guarantee the obligations of Lucky Carriers.

Two months later there is a period of 2 weeks when the loaves do not arrive at the Wellington Organic Shop before 12 mid-day. A lot of the stock in the shop is left unsold. The Wellington Organic shop cancels the contract to buy bread from Brett’s Bakery. This causes a big hole in Brett’s Bakery’s profits. What's more, Brett’s Bakery had paid $2000 up front to Lucky Carriers to secure the carriage of the bread for the next 6 months. When Brett calls Joe he finds that Lucky Carriers has had some problems and now gone into liquidation. Brett says he will be suing Joe personally for Brett’s Bakery’s losses which are around $5000. Joe says good luck with that, you will fail because the guarantee was never signed (as is a requirement of the Property Law Act). Brett then complains to the Commerce Commission. Does Brett’s Bakery have any grounds to make a claim under the Fair Trading Act in this situation?  

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Conduct was in trade Potential representations o "Man of substance"  Mere puffery, so vague, meaningless. o "Personally guarantee the obligations of Lucky Carriers"  If not intention to do so or are not guarateeing them misleading under s9 or s13  S13(i) No person shall in trade…make a false or misleading representation concerning the existence of a guarantee.  Was it misleading?  Test Red Eagle: Whether a RP in Brett's Bakery's situation with characteristics known to the defendant or of which the defendant knew or ought to have been aware, would likely have been misled or deceived?  Possibly, likely to have been misled. Reasonable prospect of success. Causation o S43 Whether loss was by the conduct of Joe Lucky? o Test (Red Eagle): Was the promise of a guarantee an effective cause of the loss?  Brett's Bakery is going to have to establish that it wouldn't have entered into the contract unless Joe gave the guarantee.  If he would have entered into it anyway, whether or not guarantee was irrelevant. Would have to establish it was an effective cause of his loss. Link between guarantee and entered into the contract. More than a immaterial or negligible link. Fairly significant consideration in entering into the contract.  Does it matter that it was also a pre-contractual misrepresentation?  Contract law - can generate cause of action under the Contractual remedies act.  No, can have concurrent actions. Can have action on several grounds. Potentially, so long as he can establish a RP in position of Brett's Bakery would have been misled by that and it was an effective cause of the loss, potential for claim.

Would it make a difference if the contract with Lucky Carriers had said that “nothing in the Fair Trading Act applies to this contract”?

Contracting out, general rule s5: No contracting out, subject to those exceptions in s5(d) exceptions for parties in trade.  5(d)(iii) "Agreement has to be in writing, goods/services have to be supplied, acquired in trade, all parties in trade, and it must be fair and reasonable that the parties be bound by the contracting out clause" o Generally look at things like are they both of equal bargaining power? o Can Joe Lucky argue that there has been effective contracting out?  Suggest one major hurdle for Joe: Joe Lucky is making statement that he will personally guarantee the obligations of Lucky Carriers in his personal capacity, statement from Joe Lucky to Brett's Bakery, not part of the contract.  If there is any clause in the K about contracting out, that doesn't protect Joe from what he says personally.  If the contract of carriage says “nothing in the Fair Trading Act applies to this contract” that relates to statements made in the contract, this statement was made by Joe outside of the contract of carriage. Contracting out clause won't apply to it.  What he says to Brett is outside of the contract, different transaction. Best claim for misleading conduct: Misleading to state that there was a guarantee of the service, under s13(i). A situation to consider #5 - Supplier offshore Brett’s wife Dory decides to take up sewing now that she is a stay at home mother with three children under 5.She wants to buy a sewing machine so searches on line for a good second hand one. She finds one advertised on the website of an American business for a good price. The website has a picture of the machine and it is described as having a fully reconditioned motor. The price is $1000, which is significantly less than the price of new one or even a second hand machine of the same model from a New Zealand supplier. Dory completes the purchase on line and the machine arrives two months later. However the motor is slow and clunky and breaks down after two weeks’ use. Dory takes the machine to a local appliance repair shop that has a look at the motor and says it is very old and has reached the end of its life. Dory says she thought the motor was reconditioned and the repair shop states, no, it is the original motor that has been in the machine for 20 years. Does Dory have any ability to claim against the seller under the Fair Trading Act?  Supplier whose in America  S3 FTA: Act extends to engage in contact outside of NZ by any person, resident, or carrying on business in NZ to extend that such conduct relates to the supply of goods or services, etc within NZ. If that American business is carrying on with either resident or carrying on business in NZ, then subject to FTA. If not, can't enforce the Act against them.  No ability to claim  This involves consideration of level of activity of supplier in NZ. On these facts, assuming they have no physical presence in NZ. No distributor, no agent, no network of repair shops, etc. Just selling from an American business, shipping to NZ, not carrying on business here, meaning can't claim under the FTA against them.  Big problem with online trading. Would it make a difference if the American seller’s website stated that in relation to new machines there was an agent in Auckland that would handle all repairs in the event of such a machine breaking down within 6 months of purchase?

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Clear indication that they are carrying on business in NZ. Could potentially under s13(d) making a false or misleading representation that the goods have been reconditioned and good chance of getting some action against them under the FTA. CGA? o Not acceptable quality. o Definition of manufacturer - Might be a situation thinking about that Act as well.  "Person that carries on business of assembling goods, where outside NZ and the manufacturer doesn't have a place of business in NZ, the person who imports or distributes those goods. That doesn't get you there, agent is not an importer or distributor.  If facts had been different, repairer won't get you within definition of manufacturer.

A situation to consider Brett needs a new home computer. He can never get onto the one he currently has at home because his partner Dory is always on the computer in the evening browsing the on-line second hand clothes sites. He goes to Noleen Lemons Ltd and enters into a contract for the purchase of a new Dell computer (he is the purchaser, not Brett’s Bakery). The contract of sale consists of three pages of closely-typed text on a printed form, with the only two individualised items being the serial number of the computer and his name. In the middle of the form there is a clause that states:  In the event of any defect in the goods appearing within the first two years after purchase, the retailer will, if the goods are delivered to it, undertake to repair the goods up to a total cost of $1000, provided that if the retailer in its discretion considers that the defect has been caused or contributed by fault on the part of the purchaser, it may decline to meet the costs of repair (in full or in part). Eighteen months after purchase the computer produces a “blue screen” repeatedly. The computer then has to be shut down for five minutes before it will restart and all unsaved work is lost. Brett takes the computer to Noleen Lemons for repair. Noleen Lemons tells Brett it will not cover the cost of repair as the defect is caused by a virus and Brett should have got an anti-virus security device on this computer. Does Brett have any rights to claim against Noleen Lemon (or any other options) under the Consumer Guarantees Act or the Fair Trading Act? Consumer Guarantees Act  Is he a consumer? o Definition of 'consumer'  Supplier? Yes, bought from retailer?  Are these goods ordinarily acquired for purpose of household use? Yes, household computer.  What guarantees might have been breached? o Acceptable quality  Is this computer, which after 18 months shows blue screen, in breach of guarantee?  Definition s7: Such that a reasonable consumer XYZ.. Would expect the computer to last longer than 18 month having regard to fact that it was new breach of acceptable quality?  Probably yes, unless somehow contributed to by the way he used it.

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Aware of virus? Whether a reasonable person would install an anti virus on their computer?

Fair Trading Act  Unfair contract terms o Clause in middle of contract could be challenged as an unfair contract term o Consumer? Yes o Standardford consumer contract? Def s46J o Terms that cannot be challenged s46K? o Terms that unfair? S46L and s46M? o If unfair what is the process for challenging it?  Can't do anything himself, can only take his complaint to the commerce commission, a matter of persuading CC to take action against NL. Contractual interpretation issue?  Defect that appeared in the goods, yes  If the retailer considers the defect has been caused or contributed by fault on part of purchasers, has there been? Fairgo?

A situation to consider #2 Brett’s business is growing as his products are becoming very popular. He needs to source a reliable bulk supply of sunflower seeds and other grains. Farmer Anne is not able to commit to the quantities that he needs. He enters (on behalf of Brett’s Bakery Ltd) into a contract with a large wholesaler, NZ BioGrains Ltd, for a regular supply of sunflower seeds, linseed, oats, and rye. Brett is presented with a contract to sign. He reads the first page, which sets out the obligation to supply the different types of grains and the price, but not the rest of the six-page contract. He signs it on behalf of Brett’s Bakery Ltd. Six months later NZ BioGrains Ltd is having trouble sourcing sunflower seeds due to an extended drought in Australia. NZ BioGrains tells Brett that sunflower seeds will be unavailable for three months. Brett says that is a breach of our contract. NZ BioGrains says – no – look at clause 21. Clause 21 states that NZ BioGrains reserves the right to suspend supply of any grain for any reason on giving 1 week’s notice. Brett says – that is not what you told me, you said you would be able to promise a reliable supply of all grains (this is what Brett was told when he initially made contact with NZ BioGrains). NZ BioGrains says – look at clause 40. Clause 40 says – the purchaser has not relied on any statements made to it outside of the contract terms contained in the contract. • Does Brett’s Bakery have any claim against NZ BioGrains in this situation (or is there any other course of action Brett might be a...