Misleading and deceptive conduct – Fair Trading Act (FTA)
“Get unlimited broadband for $75 a month!” “Join Sky and get Sky Sport free!”. Consumers are constantly bombarded with advertisements and offers from traders. Sometimes the offers seem too good to be true, until you read the fine print.
The FTA prohibits misleading or deceptive conduct and false representation. The relevant provisions being section 9 which prohibits misleading and deceptive conduct generally and section 13 which prohibits false or misleading representations.
A breach of these sections of the FTA is a criminal offence and if found to be in breach the offender can face fines up to a maximum of $600,000 for a company and up to $200,000 for an individual.
Godfrey Hirst v Cavalier Bremworth
The Court of Appeal decision in the case of Godfrey Hirst NZ Limited v Cavalier Bremworth Limited  NZCA418 is a significant case concerning misleading conduct and a reminder to traders that it is not good enough to hide information in fine print, or where consumers need to hunt for it. The case involved a claim by Godfrey Hirst NZ Limited (GH) against Cavalier Bremworth Limited (CB) with regard to its headline warranties statement made by CB on its website relating to its “Habitat Collection” range of synthetic carpets which was manufactured by INVISTA (Australia) Pty Limited, the manufacturer of the synthetic fibres used in the carpets. The warranties posted on the website include “lifetime stain and soil resistance”, “25 years fade resistance”, “15 years abrasive wear” and “Lifetime Anti-static protection” – such warranties were then qualified by a hyperlink access to a “Limited Warranties” booklet contain the full terms and conditions (and limitations) of the warranties.
GH claimed consumers would have to delve too far into the fine print to know the limitations of the warranties (for instance, the terms and conditions contains qualifications that carpets installed by landlords in rental residential dwellings are excluded from the lifetime stain resistance warranty, stains by non-food and non-beverage substances, including ink and bleaches are excluded).
CB’s defence pointed to the asterisks used to draw consumers’ attention to the detailed terms and conditions. However, the Court of Appeal did not consider that the hyperlink to the warranties booklet averted the misleading dominant message. The Court of Appeal concluded that although consumers might notice some of the warranties are limited, such limitations did not detract from the “dominant message” or “overall impression” conveyed to a significant number of consumers.
In arriving at their decision, the Court of Appeal considered the following questions:
- Who is the consumer?
- What standard of care is expected of the consumer?
- Did the High Court impose on the consumer too high a standard?
The consumers in such a case would comprise all of the “average”, ordinary” or “reasonable” consumers in the class targeted by the allegedly misleading representations, except the “outliers”. Outliers are consumers who are unusually stupid or unusually ill-equipped or who have extreme or fanciful reactions.
In general, consumers are expected to exercise a degree of care which is reasonable having regard to the circumstances. In real life this means that where consumers have real day to day experience of the type of goods and services, they should be expected to have some common sense, but they will not be expected to understand technical details. In this case, although the link to the full terms and conditions was readily accessible, the terms were “too detailed and complex to permit a consumer looking at the website easily to determine what was covered by the warranties”.
The Court of Appeal concluded that the advertisements were misleading and that the qualifying intention accessible by hyperlink on another web page, was not sufficient to correct the consumer perception as to the warranties advertised.
What does it mean for consumers and business?
The Court of Appeal decision clarifies a number of important points in relation to misleading advertising, including that *:
- All consumers are entitled to the protection of the FTA, not just the knowledgeable, well-off or sophisticated.
- Claims are made to all members of the target audience, except for the “outliers” which includes those who are “ill-equipped” or “whose reactions are extreme or fanciful”.
- When assessing whether a claim breaches the FTA, it is the dominant message of the headline that is important.
- Where there is a glaring disparity between the dominant message of the headline and the information qualifying it, the maker of the statement must draw the disparity to the consumer’s attention in the clearest possible way.
- The FTA will be breached where a claim has lured a consumer into “the marketing web” by misleading means. It does not matter that the consumer may come to appreciate the true position before the transaction is completed.
* from Commerce Commission media release 9 September 2014