Charges against Bunnings dismissed.
Certain rules for interpreting whether broad marketing statements comply with the Fair Trading Act 1986 (FTA) were clarified in a 2021 case brought by the Commerce Commission against Bunnings[1].
The Auckland District Court dismissed charges that Bunnings had misled consumers regarding its prices when it made statements such as ‘lowest prices are just the beginning’, ‘lowest price guaranteed’, ‘lowest prices on all your DIY jobs’ and ‘unbeatable prices’. The Commerce Commission claimed such statements breached the FTA by misleading consumers into thinking Bunnings had the lowest price on all of its items, when in practice it did not.
In finding Bunnings successful, the court considered the following key factors:
- Bunnings routinely conducted surveys of competitors’ prices and had processes for adjusting prices if a competitor’s pricing was found to be cheaper
- A reasonable consumer would be aware that a store the size of Bunnings could not know on a daily basis exactly what competitors were charging for every product and that a small number of products may be more expensive
- The guarantee to beat a lower priced product by 15% implied that some items may be cheaper elsewhere, but it provided a means to ensure consumers could get a lower price at Bunnings, and
- There was no evidence that consumers had complained of being misled by Bunnings and only one of its competitors had made a complaint.
This case provides guidance to businesses when making broad marketing statements. You should, however, be aware of your obligations under the FTA; if you are unsure about any aspect of the legislation, we can help.
Directors found trading recklessly may face multiple fines
In October last year, the High Court found a director who traded recklessly not only breached his directors’ duties under the Companies Act 1993, but also breached the Fair Trading Act 1986 (FTA)[2].
Panama Road Development Limited (PRDL), a property development company, was encountering delays on a project and its funding was due to expire. Mr Gapes, a director of PRDL, was working to secure further funding. Dempsey Wood Civil Limited (Dempsey) had provided services to PRDL and Mr Gapes assured Dempsey that PRDL had funds to pay for ongoing work. However, PRDL was unable to secure further funding and was put into liquidation.
There were insufficient funds in the liquidation to pay Dempsey for its work, so Dempsey sued Mr Gapes personally. Dempsey alleged that Mr Gapes had not only breached his directors’ duties, but that he also breached the FTA by misleading Dempsey into thinking PRDL had sufficient funds to pay it.
The High Court ordered Mr Gapes to pay $100,000 to PRDL for the breach of his directors’ duties, and an additional $280,000 to Dempsey for breaching the FTA.
This judgment is good news for unsecured creditors who may have an additional avenue for recovering funds in an insolvency situation. It is also a cautionary tale for directors to be careful about any representations they make regarding the financial position of a company should it encounter financial difficulty.
Important upcoming legislation drafted
Two bills introduced in Parliament in 2021 will, if passed, make small but significant changes to the law as it relates to business.
Company law: The Companies Act 1993 requires directors to act in the ‘best interests’ of the company, which was traditionally understood to mean maximising return to shareholders.
If passed, the Companies (Directors Duties) Amendment Bill will clarify that a director may also consider environmental, social and governance factors when determining the best interests of the company, including:
- Recognising the principles of the Treaty of Waitangi
- Reducing adverse environmental impacts
- Upholding high standards of ethical behaviour
- Following fair and equitable employment practices, and
- Recognising the interests of the wider community.
Sexual harassment: The Employment Relations (Extended Time for Personal Grievance for Sexual Harassment) Amendment Bill, if enacted, will extend the time frame for raising a personal grievance for sexual harassment from 90 days to 12 months in an effort to recognise that being exposed to sexual harassment can be traumatic and may take time to process before coming forward.
While it’s expected both bills will become law, they are currently awaiting their first readings and may be changed before being enacted. We will keep you posted.
[1] Commerce Commission v Bunnings Limited [2021] NZDC 8918.
[2] Dempsey Wood Civil Ltd v Gapes [2021] NZHC 2362.