Can You Contract Out of the Fair Trading Act?

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Table of Contents

• Your Obligations Under the FTA
• What Does Contracting Out Mean?
• Contracting Out of the FTA
• Should I Contract Out of the FTA?
• Key Takeaways
• Frequently Asked Questions

In New Zealand, there are two key pieces of law protecting consumers that your business needs to follow. These are the Fair Trading Act 1986 (FTA) and the Consumer Guarantees Act 1993 (CGA). These laws govern how you sell your goods or services to customers and what kind of claims you can make about your products. There are some laws that your business can contract out of, meaning that you do not have to comply with the requirements they set. This article will explore how the FTA is relevant for your business and whether you can contract out of the obligations that it imposes.

Your Obligations Under the FTA

The purpose of the FTA is to promote fair trading in business. The FTA makes it illegal for businesses that provide goods or services to consumers to engage in misleading or deceptive conduct or unfair trade practices. This means protecting consumer interests and regulating trade relations between businesses. 

If the FTA applies to you, then your business must:

• accurately represent the goods or services you provide, including in your promotional materials, website, social media, and claims to your customers;
• not mislead your customers;
• not make any unsubstantiated claims (you need to be able to prove the claims you make with facts or evidence which you have obtained before making the claim);
• sell your goods honestly (do not engage in unfair sales tactics, such as pyramid selling schemes);
• follow relevant product safety standards, such as those for children’s toys;
• not withhold important information from your customers; and 
• disclose legally required product information, such as country of origin and care labelling.

The FTA binds anyone who is ‘in trade’ to these obligations. ‘In trade’ means that you:

• regularly sell goods and services; or 
• buy products with the purpose of selling them on. 

What Does Contracting Out Mean?

Contracting out refers to a written agreement you sign with another party that means you do not have to meet certain requirements you are contracting out of in respect of the other party. This means that the other party to the agreement cannot bring legal action against you for breaching an obligation under the relevant act. 

For example, suppose you claim the other contracted party that your products “can cure their headaches in minutes.” However, you do not have evidence to back up this claim. If you contracted out of your FTA obligations, they could not bring an action against you for making an unsubstantiated claim. However, this does not stop the other party from seeking legal avenues for different kinds of breaches, such as going against your contractual obligations.

Contracting Out of the FTA

As a general rule, you cannot contract out of the FTA. As a trader, you have to be upfront and honest with customers about the claims you make regarding your products. The law protects consumer rights, and you must do your part to maintain that protection.

However, an exception allows businesses to contract out of certain sections of the FTA. This exception applies if:

• both parties to the contract are in trade and agree to contract out;
• the goods, services or interest in land you are exchanging are exchanged in trade;
• the agreement is in writing and signed (a verbal agreement would not count); and
• the relevant section is fair and reasonable for both parties to agree to contract out.

This exception cannot apply to your customers if they are consumers. They can sign a contract saying that they agree to contract out, but this contract is not valid and unenforceable. You are breaking the law if you have misled a customer about this fact.

This contracting out does not apply to general misrepresentations to the public. 

However, where you are engaging with another party in trade and have successfully contracted out of your FTA obligations and have written consent from the other party, you do not have to comply with the FTA’s prohibitions on:

• general misleading or deceptive conduct;
• unsubstantiated representations or claims;
• false or misleading statements; or
• false or misleading representations regarding the sale of land.

Notably, while the other party cannot bring legal action against you for breaches of obligations you contract out of, the Commerce Commission can still investigate your business. They can impose appropriate fines, even if you contract out with the other party.

Should I Contract Out of the FTA?

Whether you decide to contract out of the FTA for a particular sale depends on your circumstances. While the FTA protects consumers, allowing businesses to contract out when dealing with each other means that you can rely on your own assessment of the risk, relying on your own commercial experience.

But, this contracting out clause will only be valid if the agreement was ‘fair and reasonable’. This depends on various contextual factors, such as:

• what the agreement was about;
• the value of the goods or services you are exchanging;
• the evenness of each party’s bargaining power; 
• the kinds of negotiations that took place; and
• whether both parties sought legal advice.

Contracting out may be a useful option for your business if you want to share unconfirmed information with the other party. Still, you want to avoid liability if it does not end up being true. If you decide to contract out, conduct your due diligence and watch out for unfair contract terms.

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Key Takeaways

The Fair Trading Act (FTA) imposes obligations on businesses to talk fairly and honestly about their goods and services to avoid misleading or deceiving consumers. As a general rule, you cannot contract out of the obligations the FTA imposes on your business. You cannot contract out of the FTA with consumers. But, you can contract out if:

• both you and the other party are in trade and agree to contract;
• you are exchanging the goods or services in trade;
• the agreement is in writing; and
• the relevant section is fair and reasonable for both parties to contract out.

For more information on whether you should contract out of the FTA, our experienced regulatory and compliance can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions