The inclusion of a new prohibition on businesses making unsubstantiated representations is one of the key amendments to the Fair Trading Act.
Businesses are prevented from making representations about their products or services if they do not have reasonable grounds for the representation when it is made, whether or not it later turns out to be true. These changes come into effect on 17 June 2014.
What is the purpose of the change?
Businesses will often make claims about their products or services in advertising material to induce consumers to buy from them. Usually consumers are not in a position to check whether those claims are true.
These new provisions are intended to put the onus on businesses to ensure they have evidence to back up their claims. Consumers should be able to rely on what they are told by a trader so they can make informed decisions.
What types of claims are caught?
Both express (e.g. "50% off everything in store") and implied (e.g. "eco-friendly") claims must be substantiated.
Puffery is not caught by these new provisions. This means that the prohibition does not extend to inventive advertising that no reasonable person would expect to be substantiated.
When will you have reasonable grounds to make a claim?
Your business may have reasonable grounds to make a specific claim about your products or services if you have reliable supporting information from:
Documentation held by your business;
Testing you have commissioned;
The supplier or manufacturer of the products;
Scientific or medical journals and other reputable sources.
The courts are required to consider a range of factors when deciding whether a business had reasonable grounds for making a claim.
Compliance with other laws
If a business must comply with other laws which stipulate the grounds for making claims, these new provisions in the Fair Trading Act do not need to be complied with. For example the New Zealand Food Standards Code covers requirements for health and nutrition claims.
However, compliance with non-binding guidelines or codes will not exempt compliance with the unsubstantiated representation requirements in the Fair Trading Act.
What do you need to do?
You need to retain documentation supporting any claim you make about your products or services.
You need to be satisfied that any claims you make can be substantiated at the time they are made.
If you are a retailer and rely on claims made by the manufacturers or suppliers of the products you sell you should ensure that your contracts with them include warranties or indemnities from them relating to their claims.