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You, Your Customers and the Law

on Tuesday, 17 September 2013. Posted in Latest Articles, Business

What you need to know

Every business has customers. This article will briefly outline the most important of the laws regulating your relationship with them and provide some tips on how to ensure you comply.
Consumer Guarantees Act 1993

If you are involved with providing goods or services to private consumers (as opposed to other businesses) you need to understand and comply with your obligations under the Consumer Guarantees Act 1993 (the CGA). The CGA gives private consumers remedies against manufacturers, importers and distributors of goods (rather than just against retailers). It restricts the use of liability exclusion clauses and reservation of title clauses in contracts, and implies statutory quality guarantees into the supply of both goods or services.

Consumer guarantees

The CGA establishes the minimum guarantees which you must provide to your private customers. If you provide goods to consumers, these guarantees include guarantees that:

  • You have the right to sell the goods you are selling;

  • You are able to give clear title to the goods (i.e. you guarantee that the goods are not subject to any security interest);

  • The goods are of an acceptable quality;

  • The goods are fit for their purpose; and

  • The goods match any description or sample you have provided.

If you provide services to consumers, you must provide a guarantee that your services will be:

  • Carried out with reasonable care and skill;

  • Completed within a reasonable time; and

  • Fit for their purpose.

If you fail to meet your obligations under these guarantees you can become liable for damages. These damages could include the cost of replacement goods or services, incidental costs incurred by your customer (e.g. travel expenses and costs of rectifying damage caused by your defective goods), or the profits lost by your customer as a result of the defective goods or services you supplied.

You cannot contract out of the minimum guarantees established by the CGA. If you try and do so you can face a fine up to $60,000 for an individual or $200,000 for a company. You may be liable even if your attempt to contract out of the required guarantees is unintentional.

Reservation of title clauses

Reservation of title clauses (sometimes called “Romalpa” clauses) are a common feature of contracts for the supply of goods. Where a purchaser is a consumer and the goods are of a kind covered by the CGA, these clauses can only be enforced if certain procedures are followed, including obtaining the consumer’s signature.

Consequently, if you want to include reservation of title clauses in your contracts with customers, you need to ensure that your contract terms comply with the CGA and are signed by your customers.

You will also need to consider registering your rights under the Personal Property Securities Act 1999 (an Act considered elsewhere in this guide).

Your Consumer Guarantees Act compliance programme

If you manufacture, import, distribute or supply goods or services you need to take steps to avoid or minimise the possibility of breaching the CGA. The first step is carry out a compliance audit and a check of your sales documentation.

This includes checking your terms of trade, labelling and packaging. If you are a retailer, you should also check your “upstream” supply contracts to ensure you can pass liability for defective goods back to the manufacturer or distributor. We can assist you with carrying out these checks.

Establishing a compliance programme will also help to ensure that:

  • If you can contract out of any of the provisions of the CGA, you do so effectively;

  • Any limitation or exclusion of damages clause you include in your contractual documents is enforceable; and

  • Any reservation of title clauses you need are effective.

What about goods or services you supply to other businesses rather than private consumers?

The Sale of Goods Act 1908 applies to the sale of goods not covered by the CGA. It implies conditions as to title, quality and fitness of goods into contracts for the sale of goods. If you are selling goods to other businesses you must have the right to sell the goods and the goods you sell must be fit for their purpose and of merchantable quality. These obligations are not as extensive as those imposed by the CGA but are still important.

Fair Trading Act 1986

The CGA covers your obligations to private consumers who purchase goods or services from you. The Fair Trading Act 1986 (the FTA) is much broader in scope and governs your relationships with every person or business you engage with in the operation of your business.

The FTA is designed to encourage fair business practices. It prohibits misleading and deceptive conduct, false representations, and unfair practices. It also deals with consumer information, product safety standards and the sale of unsafe goods and services.

Enforcement and remedies

If you fail to meet your obligations under the FTA you can face significant penalties. These penalties can be either:

  • Monetary penalties (up to $60,000 for an individual, $200,000 for a company); or

  • Court injunctions to prevent further infringements from occurring.

A business that is convicted of an offence may also have to:

  • Publish information (eg to clarify misleading advertising);

  • Publish corrective statements;

  • Provide replacements or supply parts; or

  • Refund money and return goods.

You can face these penalties following legal action by your customers or business associates or following legal action by the Commerce Commission (the legal authority established to enforce the FTA and other related business laws). However, courts will often impose a lower fine or penalty if they are satisfied the business has tried to operate an effective compliance programme.

Your Fair Trading Act compliance programme

You are legally obliged to comply with the FTA. You also have a commercial interest in making sure your competitors comply with it. It is therefore important that your employees know what the FTA requires. You should therefore establish a compliance programme to ensure that your staff understand and comply with their obligations under the FTA and can identify breaches of the Act by your competitors.

Privacy Act 1993

If you collect, store, use or disclose information about individuals in the course of running your business you must comply with the Privacy Act 1993. This Act is designed to promote and protect individual privacy. It affects every person or organisation that deals with information about private individuals. No businesses are exempt.

The Privacy Act sets out 12 information privacy principles that must be observed by anyone who holds information about private individuals. These principles establish rules regarding:

  • The collection, use, and disclosure of information relating to individuals; and

  • The rights that individuals have to access and correct that information.

Effects of non-compliance

Individuals can complain to the Privacy Commissioner if they believe that an organisation holding information about them has interfered with their privacy.

The Privacy Commissioner may endeavour to settle the complaint by conciliation or mediation. If this is unsuccessful, the complaint may be taken to the Human Rights Review Tribunal. This Tribunal has the power to make an order restraining an organisation from continuing or repeating an interference, award damages and costs up to a maximum of $200,000, or order the organisation to remedy the interference.

In addition, there can be a fine of up to $2,000 for infringements in dealings with the Privacy Commissioner. It is also worth noting here that it is a criminal offence under the Crimes Act 1961 to use or disclose personal information in order to obtain an advantage or pecuniary gain.

Your privacy compliance programme

If you or your organisation handles personal information, you will need to consider your activities in the light of the information privacy principles and other requirements of the Privacy Act.
As a first step, you should appoint a privacy officer. That person should then conduct a privacy audit and set up your ongoing compliance programme.

A good compliance programme will:

  • Ensure that your business complies with information privacy principles;

  • Enable your privacy officer to deal appropriately with requests from the Privacy Commissioner or any other person;

  • Enable you or your business to deal properly with any complaint.

Personal Property Securities Act 1999

If you supply goods to your customers before receiving payment, you should ensure that your terms of trade allow you to retain ownership of those goods until you receive payment in full. Such retention of ownership clauses in your terms of trade (often referred to as reservation of title or Romalpa clauses) provide some security for you if any of your customers experience financial difficulty. However, the benefits of these clauses can be lost if you do not register your security interest on the Personal Property Securities Register (PPSR).

The PPSR was established by the Personal Property Securities Act 1999. This Act provides a common set of rules to establish security interests in personal property and to prioritise them, and sets up a single procedure for their registration. The Act provides for registration of a wide range of security interests, not only security interests created by reservation of title rights. As a general guide, registered security interests take priority over unregistered security interests.

If you need to secure payment from your customers, whether by way of reservation of title provisions in your terms of trade or by a more general security over your customers’ assets, you should investigate your options under the Personal Property Securities Act 1999. Understanding this Act is also important if you are granting security over your business assets to any of your suppliers or lenders.

Securing payment from your customers is important for your business. If you want to ensure that your business terms give you the best level of security possible, contact your us and ask us to review your terms of trade and business contracts.

Credit Contracts and Consumer Finance Act 2003

If you provide any type of credit or lease arrangement to private individuals for personal, domestic or household purposes, you must comply with the Credit Contracts and Consumer Finance Act (the CCCFA). The CCCFA is designed to protect the interests of borrowers. It does so by requiring lenders to disclose to borrowers the most important elements of their credit arrangements. The CCCFA applies to credit contracts and to some lease arrangements.

You must comply with the CCCFA if:

  • Your business provides credit or leases goods to a person (i.e. not a company or a trust); and

  • That credit or lease is provided for personal, domestic or household purposes; and

  • You charge interest or fees or take security for the credit provided or, in the case of leased goods, the lease is for more than one year; and

  • This is part of your normal business activity.

If the CCCFA applies you must disclose to your customer in writing:

  • The interest they must pay;

  • The payments required;

  • The interest rate; and

  • The fees you will charge.

Different disclosure rules apply depending on the type of contract involved. Disclosure obligations for credit contracts are more onerous than those which apply to consumer leases. The CCCFA also allows the Commerce Commission to investigate claims and prosecute lenders who act oppressively or do not meet their disclosure obligations.


A wide range of business laws govern your relationships with customers. Some of these laws, such as the Consumer Guarantees Act 1993 and the Fair Trading Act 1986, apply to almost all businesses whereas others such as the Privacy Act 1993, apply to some businesses only.

You therefore need to identify which of these consumer protection laws apply to your business and then establish a compliance programme to ensure that you comply with those laws.

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