Construction Site

It takes less time to do things right
than to explain why you did it wrong.

Henry Wadsworth Longfellow

What you need to know about competition
and consumer law

A short guide to consumer law

In this guide:

Introduction to the Fair Trading Act

Quotes and estimates

Misleading consumers about their rights

Claiming you're something you're not

Substantiating claims

Extended warranties

Unfair contract terms

 

Introduction to the Fair Trading Act

This short guide outlines some key elements of the Fair Trading Act to help you, your employees and your business comply with the law. We also have a range of user-friendly fact sheets that explain more.

The Act makes it illegal for businesses to give false information or mislead their customers. It applies to all aspects of the promotion and sale of goods and services — from advertising and pricing to sales techniques and financing. And it also promotes product safety.

Businesses must ensure that the information they give to customers — both verbally and in writing — is accurate, and that important information is not withheld. Consumers are then in a good position to make informed choices about what goods and services they buy.

 

Quotes and estimates

Businesses use a wide range of pricing techniques to market their goods and services. This can include offering savings and special offers, making price comparisons with competitors and providing quotes or estimates to potential customers. These are all common and legitimate business practices.

But businesses must take care that their customers aren't misled or deceived. Any representations your business makes about price must be clear, accurate and unambiguous.

If you’re giving a quote or estimate for a job, for example, your potential customer must be able to rely on that quote or estimate — as it will play a big part in their decision to buy your goods or services. A quote is an offer to do a job for a certain price. If accepted, then there is a contract for the work to be done for that price, unless the parties agree to a change in the price to cover extra work not covered by the original quote.

On the other hand, an estimate is the nearest price, or range of prices, that your business can give based on past experience. If there could be a significant variation from the estimated price, you should make this clear to your customer. All limits and conditions must be clearly spelled out. You must make the estimate honestly and based on reasonable grounds. While it is good business practice to put quotes and estimates in writing, the Act doesn't make a distinction between written and verbal quotes. So be careful what you say too.

Example of false or misleading information

A plastering company sends out an invoice for replacing cracked plasterboard with new plasterboard, filling and painting it.

In fact, the only work done was filling and painting existing plasterboard. This conduct is likely to be unlawful under the Fair Trading Act because it misleads the customer about the nature of the work that was completed.


You can read more in our Pricing fact sheet.

 

Misleading consumers about their rights

It is an offence under the Fair Trading Act to mislead a consumer about their contractual or legal rights.

For example, the Consumer Guarantees Act sets out minimum guarantees about goods and services bought for personal use. While we don't enforce the Consumer Guarantees Act, we can take action when businesses breach the Fair Trading Act by misleading consumers about their rights under the Consumer Guarantees Act. A “No Refund” sign, for example, with no limits on when this may apply, amounts to an illegal attempt to deprive customers of their rights.

The same would be true where a consumer was misled about any other contract term or legal right.

Example of misleading consumers about their rights

A customer is told by their insurance company “you’re only entitled to a second hand hot water cylinder” in a situation where the customer’s insurance policy entitles them to a new hot water cylinder.

This conduct is likely to be unlawful under the Fair Trading Act.


You can read more in our Misleading consumers about their rights fact sheet.

 

Claiming you’re something you’re not

Any claims made to bolster the image of your business, products or services must be accurate. This includes claims about the success, skills, test results or backing your business has, or which its employees, products or services have. Claims like these are typically designed to convince potential customers of the merits of using your business over another and can give an unfair competitive advantage.

Example of claiming you're something you're not

A building firm was suspended from the Registered Master Builders Federation as a result of a complaint made about the quality of work on a property.

Despite the suspension, the firm continued to represent it was a member of the Registered Master Builders Federation and that customers would receive Master Build Guarantees for work it had undertaken. In other instances the firm accepted payments for Master Build Guarantees but did not forward the applications and payments to Master Build Services until physical construction had begun on site. As a result, when the firm went into liquidation, some customers were not covered by a Master Build Guarantee.

The Court found this behaviour breached the Fair Trading Act.


You can read more in our Claiming you’re something you’re not fact sheet.

 

Substantiating claims

Every day, consumers are faced with advertising claiming that goods and services are cheaper, superior or provide particular benefits. Consumers generally don’t have the time or resources to establish whether these claims are accurate or not. And in many cases, even when they use the advertised good or service, they can’t easily evaluate whether the advertised claims are true.

Any claim you make about a good or service must be substantiated — whether the claim is express or implied. And you must have reasonable grounds for making those claims. Reasonable grounds can come from:

  • information provided by reputable suppliers or manufacturers
  • information your business holds
  • any other reasonable source (for example, scientific or medical journals).

Importantly, your business must have reasonable grounds at the time you make the claim.

You can read more in our Unsubstantiated representations fact sheet.

 

Extended warranties

Businesses may offer a wide range of warranties and guarantees as part of their business activities, including extended warranties.

An extended warranty is an agreement that:

  • is between a consumer and a “warrantor” in relation to the purchase of goods or services
  • is entered into around the same time as the goods or services are purchased
  • provides specific warranties, guarantees or undertakings (either directly or through a third person) for those goods or services
  • is purchased at an additional cost to the goods or services.

An extended warranty agreement is different to a warranty, which is typically a guarantee given on the performance of a product or services at no extra charge.

When offering extended warranties for goods or services, businesses have to comply with rules related to disclosure and cancellation requirements. These rules allow customers to properly consider how their rights under an extended warranty compare with their rights under the Consumer Guarantees Act and enable them to, for a limited period, change their minds about buying the extended warranty.  

Before a consumer enters into an extended warranty agreement, the business offering the extended warranty must orally tell the consumer about the right to cancel the agreement within five working days of receiving a copy of it. The business offering the extended warranty must also explain how to go about cancellation. 

When a consumer purchases an extended warranty, a business must provide them with a written copy of the extended warranty. The agreement must be in plain language, legible, clearly presented and must contain certain information.

Example of an extended warranty and what needs to be disclosed

A construction firm offers a guarantee which can be purchased in addition to any work completed by them. The guarantee provides cover for loss as a result of defective material and/or workmanship and structural defects for 20 years.

This guarantee is likely to be an extended warranty under the Fair Trading Act. If so, the construction firm offering this guarantee must comply with the disclosure and cancellation rules provided under the Fair Trading Act.

 

You can read more in our Extended warranties fact sheet.

 

Unfair contract terms

It is common for many businesses to use standard form consumer contracts. Examples include consumer contracts for car parking, gym membership, residential construction, and electricity and gas services. From 17 March 2015, if the Commission thinks a term in a standard form consumer contract is unfair, it can apply to the Courts to have it declared so.

A term in a standard form consumer contract may be declared unfair if:

  • it causes significant imbalance in the parties rights and obligations; and
  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and
  • causes detriment (financial or otherwise) to a party if the term is applied, enforced or relied on.

Examples of terms that may be unfair include terms that allow one party, but not the other, to vary the terms of the contract, vary the price payable under the contract or vary the characteristics of the goods or services to be supplied under the contract.

Some terms cannot be declared unfair. The exempt terms are those that define the goods or services being bought under the contract, set the upfront price payable under the contract and terms that are required or allowed by any rule or regulation.  

If a term is declared to be unfair, a business cannot include it in a standard form consumer contract and cannot apply, enforce or rely on that term.

For more information and examples of unfair contract terms, see our Unfair Contract Terms Guidelines

 

Please note that the information provided here is guidance only and should not be used instead of legal advice. If you are unsure about what your business needs to do to comply with consumer law, you should seek your own legal advice.

Also note there have been some recent changes to the Fair Trading Act that you should know about. Read our fact sheets on our website.