Make sure you have evidence for your goods or services claims. Unsubstantiated claims are illegal

POSTED BY Eesha Karamchandani
Rick Shera
02 October 2017

posted in Consumer Law | Fair Trading Act

VIEWED 568 TIMES

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Consumers need to be able to rely on the accuracy of claims made by businesses about goods and services so they can make informed purchasing decisions. Some claims are mere puffery as the old saying goes, like “our service is world beating”, or fanciful, like “Redbull gives you wings” but, where a more factual claim is being made, it needs to be backed by actual evidence. In New Zealand, making unsubstantiated claims has been illegal under the Fair Trading Act 1986 since June 2014. And the gloves are off now as we’ll see below with the Commerce Commission starting to come down hard on businesses who transgress.

What is an Unsubstantiated Claim?

A claim, or representation as it is called, is unsubstantiated if the trader making it does not have reasonable grounds for it at the time it was made.

Even if a claim is true, it may still breach the Fair Trading Act if a business does not have reasonable grounds for making it at the time. In other words, before you go out and claim that your widget will save 50% of daily power usage, you’d better have real world figures to back that up!

Fujitsu Case

Fujitsu General New Zealand Limited is the first company in New Zealand to have been fined for making unsubstantiated and misleading claims. It was fined a hefty $310,000 for claims it made about its heat pump range.

What claims did Fujitsu make?

Fujitsu claimed:

  • It had “NZ’s most energy efficient heat pump range.”
  • That a particular heat pump range delivered “better heat efficiency” and constituted “the most efficient system ever.”
  • That its e3 heat pump delivered “$4.92 heat for $1 power.”

The problem was that heat pump performance to these levels was achieved only in a laboratory and was not likely to be achieved by consumers in real-world conditions. The claims were made without a proper scientific foundation by Fujitsu, a well-known and reputable manufacturer, and were found to be significantly inaccurate and misleading.

Baa Baa Beads Case

The Fujitsu case shows the Commission moving on from its earlier approach of just giving warnings. In November 2015, the Commerce Commission issued a warning to wholesaler and online retailer ‘Baa Baa Beads’ after it failed to substantiate its claim about the therapeutic benefits of its Baltic amber products. You can read more on this case here.

Commerce Commission – Tips for businesses

The Fujitsu case is a timely reminder to all traders to ensure they have reasonable grounds at the time they make any claim in relation to any goods or services. Courts may fine companies found guilty of breaching provisions of the FTA up to $600,000 and individuals up to $200,000.

The Commerce Commission has a few tips for businesses:

  • Don’t make claims that you don’t have reasonable grounds for believing to be true.
  • Rely on facts, figures and credible sources of information, not guesses and unsupported opinions.
  • Keep documentation or other information that you have gathered in the process of sourcing or researching a good or service.
  • You must have reasonable grounds for claims at the time they are made, substantiating a claim after it was made may not get you off the hook.

Further guidance can be found in the Commerce Commission’s fact sheet on unsubstantiated representations (see Downloads).

Eesha Karamchandani and Rick Shera


Image courtesy of Jake Rustenhoven

POSTED BY Eesha Karamchandani
Rick Shera
02 October 2017

posted in Consumer LawFair Trading Act

VIEWED 568 TIMES

PERMALINK

Downloads

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