The Commerce Commission's prosecution last year of Michael Hill Jeweller Ltd under section 9 of the Fair Trading Act highlights the exposure businesses can face if they publish misleading and deceptive statements on websites.

While the Michael Hill prosecution was in a 'business to consumer' context ("B2C"), it is likely there would be similar liability exposure in respect of websites in the 'business to business' context ("B2B"). This is because the Fair Trading Act 1986 ("the Act") applies to all conduct and statements "in trade". Also, unlike the Consumer Guarantees Act 1993 in the B2B context, businesses cannot contract out of their Fair Trading Act obligations.

Michael Hill Jeweller was fined $1000 for breaching the Fair Trading Act by advertising "Collisee" brand Cartier watches on its website when it did not have reasonable grounds to believe that it could supply the watches.

While the fine imposed in this case was a reasonably small one, companies can be fined up to $100,000 and individuals up to $30,000 for breaching the Fair Trading Act. There is also potential exposure to civil actions for breach of the Act. In the context of most consumer transactions, potential litigants are unlikely to find this worthwhile in view of the relatively minimal loss that they generally incur. In more significant transactions, particularly with B2B, the risk of having to pay damages is obviously greater.

The Commerce Commission has also stated that as "new
e-commerce questions arise under the Act, we will continue to use the courts to develop the law". This is a clear indication that the Commission will use its powers to defeat misleading and deceptive conduct, regardless of the medium through which that conduct is occurring. The Commission's prosecution last year of at least one other company for misleading and deceptive material contained on a website also suggests that the Commission will be vigilant in its enforcement role in this area.

Many businesses launch web pages because it is an easy and low cost channel to market. However, many also fail to regularly update, either because they lack the resources to do so or because their web design agreements cover only periodic updates.

Following the Michael Hill decision, advice to businesses should be to regularly review the material on their websites. Where material is outdated it should be updated or deleted. If businesses want to keep 'historic' information on their site, this should be clearly indicated. As a practical measure, businesses could also warn their customers of when a website offer is likely to end.

The on-line trading environment is 24/7. The action taken by the Commerce Commission shows that vigilance in this real time trading environment must be continuous to ensure misleading or deceptive material isn't published 24/7 as well!

This is a general summary only and should not be taken as a substitute for specific advice.

x-tech group -Simpson Grierson
Web site: Simpson Grierson

Contacts
Michael Sage, Partner, michael.sage@simpsongrierson.com
Earl Gray, Partner, earl.gray@simpsongrierson.com
Jan Kelly, Partner, jan.kelly@simpsongrieson.com
Marc Cropper, Solicitor, marc.cropper@simpsongrierson.com

April 2001