By Peter Spring, Keegan Alexander, Lawyers, Auckland, New Zealand.
In the intensely competitive marketplace of today, businesses are forever looking for new and innovative ways to promote their goods and services to an increasingly discerning public.
However, merchants who do so need to take care when pushing their products not to make unsubstantiated representations.
You should be aware that the regulator can serve a “substantiation notice” on you, requiring you to give information and/or produce documents capable of supporting a claim or representation. If you fail to comply with the substantiation notice, you commit an offence unless you can prove that you:
(a) Acted honestly and reasonably; and
(b) Having regard to all the circumstances of the case, ought fairly to be excused.
Until recently, there was no provision in New Zealand but the New Zealand Fair Trading Act has now been amended in an ongoing effort to harmonise consumer law in both jurisdictions (New Zealand and Australia).
In New Zealand, section 12A of the Fair Trading Act now prohibits persons in trade from making representations that are not substantiated. A representation is said to be unsubstantiated if you do not have reasonable grounds for making the representation at the time the representation is made. This applies irrespective of whether the representation is false or misleading.
The New Zealand Act includes an exclusion for representations that “a reasonable person would not expect to be substantiated” – this means representations that are so obviously exaggerated or overstated that they are unlikely to mislead anyone (otherwise known as “puffery”) do not have to be substantiated.
Such an exclusion is not explicit in Australian consumer law, though case law indicates that if a statement is merely puffery, it does not constitute a representation for the purposes of the Act.
Examples of the kinds of representations requiring substantiation would include:
“Tests prove that…”,
“Doctors recommend that…”,
“available to you at factory prices”.
Essentially, the requirement applies to any representations that consumers should be able to rely on when making decisions about your products or services.
Although the provisions regarding substantiation of representations are expressed differently, practically speaking, the New Zealand and the Australian legal frameworks are aligned.
This means that businesses on both sides of the Tasman need to take care that:
(a) All representations made (that are not puffery) are capable of substantiation; and
(b) Records supporting such substantiation are well maintained.