In 2014, a “substantiation provision” was passed into NZ law. Section 12A of the Fair Trading Act 1986 prohibits persons in trade from making unsubstantiated representations, with “unsubstantiated” being defined as applying whenever the person making the representation does not have reasonable grounds for their claim. Section 12A is balanced by statutory defences in section 44, such as where a breach is due to reasonable mistake or reasonable reliance on information from a third party.
The Commerce Commission (Commission) oversees the Fair Trading Act. Until September 2017, its enforcement activity had been limited to issuing a warning to Baa Baa Beads Limited over claims as to the beneficial qualities of its Baltic amber products. However, the Commission has now obtained the first conviction under section 12A.
The well-known heating systems provider, Fujitsu General New Zealand Limited (Fujitsu) had made various claims over a two year period about the efficacy and energy efficiency of certain heat pumps. Fujitsu’s website and promotional materials contained statements as to “NZ’s most energy efficient heat pump range”, with one particular heat pump range described as offering “better heat efficiency” and being “the most efficient system ever”.
Fujitsu had also stated that its e3 pump was a “breakthrough energy saver” that provided over four times the value in heat for each dollar of power consumed. However, it emerged that this was achieved in laboratory conditions and would not have been attainable for most consumer homes.
Accordingly, the District Court found that “the dissemination of information was significant and significantly inaccurate”. Given the lack of scientific basis to its claims, Fujitsu was fined $310,000.00 for its unsubstantiated representations.
The Commission recently followed up on the Fujitsu case by issuing another warning, this time to New Zealand Home Services Limited (NZHC).
NZHC had made various claims in sales presentations and on its website, including that properties with solar systems increased in value by 3 to 4% and sold faster than other properties on the market, that solar systems could generate annual returns of 10% to 30%, and that the cost of power rises between 2.5% and 7% each year.
Given the significant upfront cost of installing solar systems, the Commission emphasised the need to back up those claims. The Commission found that the material provided as evidence claims lacked reliability and were not applicable to the NZ market, or were authored after the fact (of NZHC’s representations). NZHS has now erased the claims from its website and sales material.