MIGHTY RIVER POWER SUBMISSION TO THE COMMERCE COMMITTEE CONSUMER LAW REFORM BILL PUBLIC VERSION MARCH 2012
1. INTRODUCTION Mighty River Power appreciates the opportunity to provide our views on the Consumer Law Reform Bill (the Bill) to the Commerce Committee. We have been involved with this project from the initial discussion paper published by the Ministry of Consumer Affairs (Ministry) in 2010, and we trust that our comments are useful. This submission sets out our views on a number of issues raised in the Bill. For ease of reference, we have structured our submission with reference to the structure of the Bill. This submission focuses on issues relating to: contracting out of the Fair Trading Act 1986 (FTA) (clause 7); unsubstantiated claims (clause 9); unsolicited goods and services (clause 11); the jurisdiction of the Disputes Tribunal (clauses 21 and 24); the application of the Consumer Guarantees Act 1993 (CGA) to electricity (clauses 2, 35 36, 41 and 43); and unfair contract terms and unconscionability. Our contact person in relation to this submission is: Monica Choy Legal Counsel Email: monica.choy@mightyriver.co.nz Phone: +64 9 308 8271 2. EXECUTIVE SUMMARY Contracting out of the Fair Trading Act Mighty River Power supports the general rule that parties should not be able to contract out of the FTA. We also support, in principle, the Bill s proposal to allow an exception to this rule for businessto business agreements. However, every business should be free to agree, within the bounds of the law, the terms on which it will engage with any other business; the law should intervene in arm slength commercial transactions only in the most limited of circumstances. Mighty River Power is concerned that the business to business exemption, as currently drafted, is unnecessarily restrictive. In particular, we are concerned at the proposed condition that it must be fair and reasonable that the parties are bound by the provision in the agreement. What is fair and reasonable differs greatly depending on circumstances, including the business appetite for risk, and the persons in trade are in the best position to make this purely commercial decision. This restriction threatens to substitute the view of the court (or even the Disputes Tribunal) for the view of the persons in trade. The focus of the FTA should be on consumer protection. As currently drafted, it risks sheltering businesses from poor commercial decisions. 2
We suggest the business to business exemption should apply to all agreements where: the goods, services, or interest in land are both supplied and acquired in trade; and all parties to the agreement: o o are in trade; and agree to contract out of the provisions of this Act. Unsubstantiated claims Mighty River Power supports the proposed prohibition on unsubstantiated claims. We take great care to ensure that all of our claims can be substantiated. It is important to us, from both a legal and a marketing perspective, that consumers trust the claims that we make. Unsolicited goods and services We are concerned that the new sections regarding unsolicited goods and services are unsuited to the supply of electricity and gas, for both interpretation and practical reasons. Many of the provisions (such as a requiring a person who receives unsolicited goods to make those goods available for collection for 10 working days after receipt) are effectively impossible to comply with in relation to electricity and gas. At a practical level, these new sections risk inhibiting standard practices in the electricity market around disconnection, moving house and changes of tenancy that have been established over time to the benefits of consumers and suppliers. We suggest that these new sections should not apply to the supply of gas and electricity. Uninvited direct sale agreements Mighty River Power generally supports the proposed amendments to bring unsolicited direct sale agreements into the FTA. The Door To Door Sales Act 1967 is dated, particularly in its application to credit agreements only, and overall the Bill updates and clarifies the law. We have suggested some changes to wording and other specific aspects. Jurisdiction of the Disputes Tribunal We support the Dispute Tribunal. However, we recognise that the informal resolution model has its limits, and believe that the legally nuanced and case law heavy nature of most disputes regarding section 9 of the FTA mean they should be heard in the District Court only. We suggest that the current restriction on the Disputes Tribunal hearing and determining matters in relation to section 9 of the FTA should be retained. 3
The application of the Consumer Guarantees Act to electricity We strongly support the proposed amendments to the CGA in relation to gas and electricity. We recommend that these changes come into force as soon as practicable. Unfair contract terms and unconscionability We do not favour the introduction of provisions relating to unfair contract terms and unconscionability. In our view, Cabinet s decision to exclude these provisions, based on the recommendation of the then Minister of Consumer Affairs, was correct. 3. CONTRACTING OUT OF THE FAIR TRADING ACT 1986 Clause 7 of the Bill inserts new sections 5C and 5D into the FTA. Section 5C sets out the general rule that parties cannot contract out of the FTA; the provisions of the FTA have effect despite anything to the contrary in any agreement. This general rule is subject to three exceptions: where a provision imposes a stricter duty on the supplier than the FTA would; where a provision imposes a more advantageous remedy against the supplier than the FTA would; and where new section 5D, which relates to certain business to business agreements, applies. Mighty River Power supports the general rule and the first two exceptions, and supports new section 5D in principle. As currently drafted, however, the new section 5D is unnecessarily restrictive and is likely to operate with a high degree of uncertainty given the inclusion of a fair and reasonable condition. Every business should be free to agree, within the bounds of the law, all of the terms on which it will engage with any other businesses. This is a fundamental element of a competitive market and includes agreeing to contract out of the FTA, a consumer focused piece of legislation. It is wellestablished that the law should intervene in arm s length commercial transactions only in the most limited of circumstances. 1 This reluctance by the state to interfere with lawful commercial agreements is premised, correctly, on the understanding that all business involves some balancing of risk and reward, and it is the role of firms to assess these factors and decide how to act accordingly. The agreements a firm enters into will reflect these commercial decisions and business relies on the commercial certainty such agreements offer. 1 Burrows, J., Finn, J. and Todd, S. (2007) Law of Contract in New Zealand (3 rd ed.), LexisNexis NZ Ltd, Wellington, pp 212, 371. 4
Although the Bill appears to acknowledge this principle in providing for a limited business tobusiness exception, we believe that the new section 5D, as drafted, does not accurately reflect the importance of the freedom to contract. In particular, we are concerned at the proposed condition that it must be fair and reasonable that the parties are bound by the provision in the agreement. This is an extremely vague standard. What is fair and reasonable differs greatly depending on circumstances, including the business appetite for risk, and the person best placed to make this purely commercial decision is the person in trade. This restriction could allow the view of the court (or even the Disputes Tribunal) to be substituted for the view of the person in trade in agreeing to the provision. Businesses must be confident that the agreements they enter into with other businesses are enforceable. The possibility that a court (or the Disputes Tribunal) may later determine that a provision in that agreement was not fair and reasonable, and so is unenforceable, goes to the heart of a business freedom to contract and business certainty. The focus of the FTA should be on consumer protection. As currently drafted, it risks sheltering businesses from poor commercial decision making in their dealings with other businesses. The Bill rightly does not impose regulation on unfair contract terms. These are widely seen as creating commercial and legal uncertainty and high compliance costs and as being ineffective where accepted industry specific minimum terms already exist. We are concerned that the new section 5D s reference to fair and reasonable provisions could have the effect of introducing this concept by stealth. Where Cabinet has decided on the recommendation of the Minister of Consumer Affairs at the time not to legislate against unfair contract terms in standard form contracts with consumers, the Bill should not seek to impose a fair and reasonable requirement on business tobusiness agreements. Recommendation We suggest that the only qualification criteria for the business to business exemption should be those set out in new section 5D(3)(b) (c): the goods, services, or interest in land are both supplied and acquired in trade; and all parties to the agreement: o o are in trade; and agree to contract out of the provisions of this Act. Accordingly, we recommend removing section 5D(3)(a) and sections 5D(3)(d) (4) from the Bill. 4. UNSUBSTANTIATED REPRESENTATIONS New section 12A of the FTA prohibits a person in trade from making an unsubstantiated representation. A person in trade who makes certain representations must, at the time of making the representation, have reasonable grounds for those representations. 5
Mighty River Power supports this amendment. We take great care to ensure that all of our claims can be substantiated. It is important to us, from both a legal and a marketing perspective, that consumers trust the claims that we make. We support the intent for this section to require that reasonable grounds exist for a representation without requiring that those reasonable grounds be expressly set out in the representation (e.g., as a footnote or qualifying statement). Any requirement along these lines would be unworkable, given the amount of representations made in day to day business. 5. UNSOLICITED GOODS AND SERVICES New sections 21A to 21D of the FTA set out the liability of a person who receives unsolicited goods or services and prohibit any person in trade from asserting a right to payment for unsolicited goods or services. We support the general intent of these sections, and agree that these instances are better dealt with under the FTA than the (to be repealed) Unsolicited Goods and Services Act 1975. These sections would, theoretically at least, apply to gas and electricity, which are defined as goods for the purpose of the FTA. 2 We are concerned that these sections are unsuited to the supply of electricity and gas, for both interpretation and practical reasons. There are likely to be significant interpretation difficulties in attempting to apply sections 21A 21D to gas and electricity; the process for dealing with unsolicited goods is simply incompatible with the transient nature of gas and electricity. Under the new section 21A(1)(b), for example, a person who receives unsolicited goods must, for 10 working days after receipt, make those goods available for collection by, or on behalf of, the person who sent or delivered them. This is simply not possible for gas or electricity. Similarly, the recipient of unsolicited goods is not liable for any loss, or damage to, the goods unless the loss or damage resulted from a deliberate act by the recipient (new section 21A(1)(a)(ii)). Again, it is not clear how gas or electricity could be lost or damaged. The interpretation issues when generic provisions are imposed on the supply of gas and electricity have already been recognised in the CGA, which is amending the definitions for goods and services to exclude gas and electricity. At a practical level, the new sections 21A 21D risk inhibiting standard practices in the electricity and gas market that have been established over time to the benefit of consumers and suppliers. For example, when a customer moves house the retailer is responsible for switching the customer s account to his or her new home. Often, it is more efficient and cost effective (considering travel time, fuel and labour costs) for the retailer to leave the electricity at the old premises connected, particularly for rental properties where the premises is likely to be occupied again shortly or to 2 The unsolicited services provisions in new section 21B may also be relevant, as services includes rights, benefits, privileges, or facilities that are or are to be provided, granted, or conferred under a contract for, or in relation to, the supply of electricity and gas. 6
require power in the interim. In the meantime, the supply flows without a specific request and the retailer monitors electricity usage in the meantime (which will be at minimal levels). When the property is re occupied, this triggers the reactivation of monthly billing and the new occupants are invoiced for power consumed. This common practice benefits consumers. The new occupants can access power from day one; viewing times and open homes can use electricity if necessary (e.g., lights and electric garage doors); and security systems such as burglar alarms can continue to operate while the property is unoccupied. Retailers also benefit through savings in travel time, fuel and labour costs. Notwithstanding the interpretation issues in treating electricity and gas as an unsolicited good, there is a practical risk that this established and beneficial practice could be affected if retailers are unable to assert a right to payment for electricity and gas consumed by the new occupants on the basis that goods and/or services are unsolicited. Without this ability, properties will effectively have to be visited and disconnected on move out day then re visited and re connected for the new occupants. This inefficiency will mean unnecessary costs for suppliers and inconvenience for consumers. Recommendation We suggest that new sections 21A 21D should not apply to the supply of gas and electricity. This could be accomplished efficiently through amending the current definitions of goods and services in section 2(1) of the Act to exclude, in relation to section 21A 21D, gas and electricity. Alternatively, sections 21A(4) and 21B(2) could be amended to exclude gas and electricity from the definitions of unsolicited goods and unsolicited services respectively. 6. UNINVITED DIRECT SALE AGREEMENTS Mighty River Power generally supports the proposed amendments to bring unsolicited direct sale agreements into the FTA. In particular, we support: the broadened definition of uninvited direct sale agreement to encompass more than just credit agreements; the cooling off period of 5 working days; the $100 materiality threshold set out in new section 36K(1)(d); the absence of a prohibition on the supply of goods or services during the cooling off period; and the decision not to regulate the hours in which direct marketers may contact consumers. While we believe the new Subpart 2 on uninvited direct sale agreements is generally strong, we do have some suggested changes. First, we consider the new section 36K, which defines uninvited direct sale agreement, may inadvertently capture agreements made by telephone where the consumer called the supplier. The definition currently includes agreements made as a result of negotiations by telephone, excluding instances where the consumer did not invite the supplier to make a telephone call. We suggest 7
clarifying that agreements made as a result of negotiations by telephone, where the consumer has contacted the supplier (except in the circumstances in new subsection (2)) are not an uninvited direct sale agreement. Second, new section 36L(3) requires the supplier to give oral notice of certain rights to the consumer. We are concerned that there may be evidentiary issues with restricting this obligation to oral notice only. We suggest that this subsection should provide for either written or oral notice, at the supplier s discretion. We note that new section 36L(2) already requires a summary of the consumer s right to cancel the agreement be set out on the front page of the agreement. Third, we consider that consumers may not be able to comply with their cancellation obligations with respect to electricity and gas agreements. In particular, consumers are unlikely to be able to return or allow the supplier to take possession of any electricity or gas already provided to the consumer under the agreement, as required by new section 36Q. We suggest that this be clarified to exclude electricity and reticulated gas. Finally, we note the substantial increase in maximum fines for consumer and supplier breaches, as compared to the Door To Door Sales Act 1967. Under new section 40(1B), the new maximum fine for a contravention will be $30,000 for a body corporate and $10,000 for a person other than a body corporate. The current maximum fine is $200 for both suppliers and purchasers. While we acknowledge the importance of deterrence and agree that $200 is too low for the modern marketplace (the $200 limit does not appear to have been updated since 1967), we are concerned that the new limits may be disproportionate to the scale of any contravention for both suppliers and consumers. 6. JURISDICTION OF THE DISPUTES TRIBUNAL The Bill proposes to extend the jurisdiction of the Disputes Tribunal to allow the Tribunal to hear and determine applications for any order under new section 43, including for breaches of section 9 of the FTA. While we are generally supportive of the principles of the Disputes Tribunal, we believe the extension to include section 9 is unnecessary and runs counter to the role of the Disputes Tribunal. The Disputes Tribunal is a low cost, relatively informal mechanism to resolve disputes. Section 9, despite its straightforward wording, is a wide ranging prohibition which has seen the development of a rich and complex backdrop of case law precedent. This jurisprudence fleshes out the generic wording with nuances and clarity borne of experience. Disputes heard by the Disputes Tribunal are likely to miss out on this essential case law component. We believe the Disputes Tribunal is most effective in resolving low level, common sense disputes that turns on their facts, rather than the application of the law. Consistent with this aim, parties cannot be represented by lawyers at their hearing. Similarly, while referees must undergo a rigorous selection and assessment process, they are not (except for the Principal Disputes Referee) required to be legally qualified. If the Disputes Tribunal was to hear section 9 disputes, the rich and essential body of section 9 case law would be unlikely to be properly considered in many cases. This view is supported by the current position in the FTA, which expressly excludes section 9 from the Dispute Tribunal s jurisdiction. 8
Similarly, there is a risk that the continued development of section 9 case law would be limited if section 9 cases could be heard in the Disputes Tribunal. The Disputes Tribunal is generally not required to give written reasons unless requested although it may elect to do so at its discretion. Even if it does give written reasons, these have limited precedent value. Experience shows that section 9 disputes in the District Court are often complex, contentious and involve substantial amounts of technical and sometimes conflicting evidence. The District Court, with its well developed rules of procedure and evidence, is likely to be the most appropriate venue for these matters. We support the Dispute Tribunal, and consider its referees are effective and well trained. At the same time, however, we recognise that the informal resolution model has its limits, and believe that the legally nuanced and case law heavy nature of most section 9 disputes mean they should be heard in the District Court only. Recommendation We recommend that section 9 disputes should continue to be heard and determined by a District Court only. Section 39 of the FTA, which sets out the jurisdiction of the Disputes Tribunal, should continue to exclude application for orders in respect of a contravention of section 9 of the FTA. We also suggest that the proposed new section 39(2), which provides that section 39 is subject to section 43, should not be added. We believe section 39 should take precedence over section 43; this is consistent with section 39 s objective of establishing jurisdiction, which should be the starting point of any court or tribunal s decision making process. The Dispute Tribunal s jurisdiction the fundamental basis of its ability to hear and determine disputes should be clearly set out, rather than subject to section 43 s provisions on other orders. 7. ELECTRICITY AND GAS IN THE CONSUMER GUARANTEES ACT We appreciate the Ministry s work to consider and acknowledge that a serious issue exists in relation to the misallocation of liability on retailers under the CGA. The Ministry proposed, and the Bill reflects, a solution that will address this critical issue at source through a principled, sustainable and proportionate amendment to the CGA. We strongly support the proposed amendments to the CGA in relation to gas and electricity. We have one further comment on these amendments, relating to the timing of commencement. The majority of the provisions contained in the Bill will come into force the day after the date on which it receives the Royal assent. Provisions related to gas and electricity (particularly sections 35 36, 41 and 43) are among the provisions specifically excluded from this general commencement date; they will come into force six months after the Royal assent, although the explanatory note indicates that this date is subject to change. We suggest that sections 35 36, 41 and 43 should come into force as soon as practicable. To the extent that it is necessary to set a fixed date, this date should err on the side of timeliness. 9
8. UNFAIR CONTRACT TERMS AND UNCONSCIONABILITY Although the Bill does not propose to introduce provisions relating to unfair contract terms and unconscionability, we understand that the committee is interested in submitters views on these issues. We do not favour the introduction of provisions relating to unfair contract terms and unconscionability. In our view, Cabinet s decision to exclude these provisions, based on the recommendation of the then Minister of Consumer Affairs, was correct. Unfair contract terms Unfair contract terms provisions in the FTA would be unlikely to benefit energy consumers. Energy consumers already benefit from an array of sector specific and detailed energy regulation; for example, electricity retailers are overseen by the Electricity Authority and the Electricity and Gas Complaints Commission, and our consumer contracts exceed the standards set by these bodies. However, if the committee does decide to include unfair contract terms provisions, then the amendments should recognise and preserve existing sector specific consumer protections to avoid a belts and braces scenario from occurring. One way to do this would be to create a presumption that if a contract term meets or exceeds an independently set standard for consumer contracts in that sector, that provision is not unfair. The presumption would be rebuttable by the enforcing party. Similarly, to avoid compounding the likely workload increase of the Commerce Commission resulting from this Bill, we suggest that if the committee does decide to include unfair contract terms provisions, the Commerce Commission should be required to refer complaints to the supplier in the first instance, except in exceptional circumstances. The Commerce Commission would only be involved where supplier and consumer cannot reach a mutually acceptable outcome. * * * 10