Mercury Charged With Misleading Customers – A Business Lesson
Changes To Small Trade Contract Provisions Come Into Play August 16th
Incorporated Societies Act: How Will It Affect Your Incorporated Society?
Setting Up A Business - A Guide
Commercial Leases: Covid-19 Response (Management Measures) Legislation Act 2021 in Force
The Commerce Commission has filed seven charges against Mercury NZ under the Fair Trading Act for making false and/or misleading representations.
On 19 July 2022, the Commerce Commission announced it had filed seven charges against Mercury NZ Limited (Mercury) under the Fair Trading Act for making false and/or misleading representations. Mercury is the third largest retail electricity provider in New Zealand and provides electricity and gas services to around 300,000 residential customers.
In 2016 Mercury changed its terms and conditions so that customers on a renewed term could terminate their plan without paying an early termination fee. This was a positive change for Mercury’s customers. However, the Commission alleges that, despite this change, Mercury represented, both verbally and in writing, to some customers terminating automatically renewed fixed-term energy plans between 2017 and 2020, that it was entitled to charge a $150 termination fee.
The Commission also alleges that some customers were incorrectly told that an early termination fee would be charged if customers wanted to switch providers or that the fee would be waived if they remained a customer of Mercury.
The Commission says Mercury had an obligation to ensure that its relevant staff were fully aware of the contract terms, including changes to those terms, and that the terms were adhered to, so that customers were not misled. The Commission says its investigation revealed systemic problems inside Mercury that resulted in harm to customers. A number of customers were likely to have been misled and potentially out-of-pocket, because robust systems were not in place.
While almost all customers who were incorrectly charged an early termination fee have been refunded, there may well be a number of other people who have remained customers of Mercury to avoid the early termination fee – which is not fair on them or potential competitors in the retail energy market.
The first court appearance is scheduled for 16 August 2022. Interestingly, this is the same day that the unfair contract term provisions in the Fair Trading Act are extended to provide protections for contracts between businesses.
Lessons for Businesses
The Commission says Mercury’s case is an important reminder of the need for businesses to ensure they have appropriate systems in place to meet their obligations under the Fair Trading Act. Here are some key lessons to help businesses comply with the Fair Trading Act.
- Check your standard form consumer contracts
The Fair Trading Act prohibits unfair contract terms in standard form consumer contracts (read more about this here). A contract term will be unfair if the term causes a significant imbalance between the parties, the term is not reasonably necessary to protect the legitimate business interests of the advantaged party, and if the advantaged party were to enforce the term, the consumer would suffer detriment.
In August 2016 the Commerce Commission released its Energy Retail Contracts Review and identified the following as commonly used potentially unfair terms:
• Automatically renewal of fixed term contracts for a further term unless the customer opts out.
• Limiting the energy provider’s liability without limiting the customer’s liability.
• Changing the price of services or other terms of the contract without allowing the customer to terminate the contract without penalty.
- Don’t overstate discounts or sales
The Commission has also filed charges against retailers for misleading ‘discounts’ and sales practices. Problematic practices include artificially inflating the ‘original’ price so the ‘discounted’ price looks like a significant saving, or having a ‘sale’ for so long that the price can no longer honestly be called a ‘sale’.
When advertising discounted prices you need to be able to show that the higher price is truly the standard price at which the goods or services are usually sold. Read more about this here.
- Check your standard form contracts with other businesses
The Fair Trading Act’s prohibition on unfair contract terms is extended to cover small trade contracts between businesses from 16 August 2022. The prohibition applies to business contracts where each party is engaged in trade, it is not a consumer contract, and it does not form part of a trading relationship that exceeds $250,000 each year.
Terms which allow one party to do something but not the other are likely to be unfair. Similarly, automatic renewals, hidden costs, and unreasonable penalties are likely to be problematic. Read more about this here.
- The truth, the whole truth, and nothing but the truth
Conduct which is misleading and deceptive, or likely to mislead or deceive, is unlawful. Even if you don’t intend to mislead or deceive someone, if they’re likely to be misled or deceived you may have acted unlawfully. It is also unlawful to make unsubstantiated representations. Don’t stretch the truth or make statements you can’t back up. Stick to the facts and what you know to be true.
About the author:
Associate | Corporate and Commercial Team
Rochelle's work focuses on commercial structures and relationships, company law, joint ventures, corporate advisory, and governance advice. She advises on commercial agreements, shareholder agreements, company constitutions, and other contractual matters. She also regularly acts in the sale and purchase of shares, the sale and purchase of businesses, and assists in resolving shareholder disputes.
Rochelle’s broad experience in commercial transactions, employment law, privacy, and health and safety gives her a unique overview from which to provide thorough and pragmatic advice.