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In New Zealand, there are two key pieces of law protecting consumers that your business needs to follow. These are the Fair Trading Act (FTA) and the Consumer Guarantees Act (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 in New Zealand that your business can contract out of, meaning that you do not have to comply with the requirements they set. Can you contract out of the Fair Trading Act? This article will explain: 

  • 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. 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;
  • not mislead your customers;
  • not make any unsubstantiated claims (you need to be able to prove the claims you make with facts or evidence);
  • 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 that 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. 

If you do not comply with the FTA’s requirements, you could face costly legal penalties.

What Does Contracting Out Mean?

Contracting out refers to a written agreement you sign that means you do not have to meet the requirements for the act you are contracting out of. Some acts allow this, while others do not.

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, say you make a claim to the other contracted party that your products “can cure their headaches in minutes,” but you cannot back this up with evidence. If you contracted out of your FTA obligations, they could not bring an action against you for making an unsubstantiated claim.

But, this does not stop the other party from seeking legal remedies 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 need to do your part to maintain that protection.

However, there is an exception. 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
  • it 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. If you have misled a customer about this fact, you are breaking the law.

This contracting out does not apply to general misrepresentations to the public. But when dealing with the other contracted 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; and
  • false or misleading representations regarding the sale of land.

However, the Commerce Commission can still investigate you for breaches of the FTA and impose the 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 is dependent 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, but you want to avoid liability if it does not end up being true. If you decide to contract out, make sure to conduct your due diligence. Watch out for unfair contract terms.

Key Takeaways

As a general rule, you cannot contract out of the obligations the Fair Trading Act 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
  • it is fair and reasonable for both parties to contract out.

If you would like more information or guidance around whether you should contract out of the FTA, contact LegalVision’s regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is the Fair Trading Act?

The Fair Trading Act (FTA) is a piece of law that protects honest and fair trade by prohibiting certain sales practices. This includes misleading your customers or making claims that you cannot back up with evidence or engaging in unfair sales tactics.

What is the Consumer Guarantees Act?

The Consumer Guarantees Act (CGA) is a piece of law that sets out mandatory guarantees that all businesses providing consumer goods or services must uphold. This includes maintaining product quality and providing a remedy when there is something wrong with a good or service that you provided.

What does contracting out mean?

Contracting out refers to signing a written agreement with another party in trade that says a certain piece of law does not apply to you. You can only do this if that law says you can, and if it is fair and reasonable for both parties to contract out.

Can you contract out of the Fair Trading Act?

As a general rule, you cannot contract out of the Fair Trading Act in terms of your obligations to consumers. But, you can contract out if both parties that are in trade agree in writing, and if it is fair and reasonable to do so.

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