Price-gouging concerns find little support in law, consumers advised

Posted on April 22, 2020 in Commercial , Private Client (Tags: Consumer Law)

The restrictions on retail activity imposed by Alert Level 4 lockdown have resulted in some interesting consequences for consumers, some of which are positive but many of which could be regarded as “sailing close to the wind” from the consumer’s perspective.  Some have resulted in so many complaints that the government was forced to create an email hotline for price gouging complaints: 

The Government’s concern over alleged price gouging has little support in our consumer law unless the conduct in itself constitutes misleading or deceptive conduct under the Fair Trading Act.  That may come as a surprise to outraged consumers but the law does not protect those who are willing to pay what would normally be regarded as an excessive price for an item such as a facemask or hand sanitiser.  The best advice that the Commerce Commission can give is that if the trader gives a reason for the increased price which is misleading or deceptive, that may be actionable.  If the trader quite openly admits they are taking advantage of market shortages in relation to the relevant product, the consumer’s remedy is not to purchase the product in the first place.

Only last week, Dick Smith has been criticised for price-gouging activity in relation to products such as hand sanitiser, latex gloves and facemasks.  Its website showed hand sanitiser available in pocket size 50 ml bottles for $14.99 which equates to $300 per litre (plus delivery).  A pack of 50 3-ply disposable face masks purporting to offer flu/virus protection is offered for $99 (but with free delivery).  Dick Smith’s parent company Kogan has defended its pricing action on the basis of market supply and demand.

Other online retail sites such as Trade Me have agreed to restrict sellers from offering products at greatly inflated prices where price gouging as suspected, even not illegal.

Refunds for cancelled or frustrated contracts has also resulted in a large number of consumers being left out of pocket.  This is particularly the case in the travel industry where almost all activities ceased almost overnight.  At best, most airlines are offering credits rather than refunds irrespective of the nature of the underlying ticket.  The consumer may well be entitled to receive the refund if their ticket is fully refundable.  The airline’s strategy leaves it to the consumer to follow up and seek a refund even where this is not offered.  This is obviously a strategy to prevent the airline running out of cash, but the guidance provided is not necessarily transparent.

Whilst we are in uncertain times, it is still important for consumers to check the terms of any contracts to ensure they are being given what they are entitled to, and if necessary, take legal advice.  New Zealand has a relatively new regime which prevents traders from having terms in their standard form contracts (which includes online terms) which could be regarded as unfair, so even if the conduct of a trader is permitted by the standard terms, it could still be illegal.

The Commerce Commission recently made public its first declaration under this regime which forms part of the Fair Trading Act.  It relates to a scheme offered by Home Direct where consumers can purchase goods on deferred payment terms, and opt in to a scheme where Home Direct continues to debit payments after the customer had paid for goods in full, which payments were converted into vouchers to be used for future purchases.

The issue the Commerce Commission had with the scheme was that the vouchers were non-refundable for cash and expired after 12 months. They found that:

  • the contract terms, when read together, cause a significant imbalance in the parties’ rights and obligations arising under the contract which was not balanced by any substantial corresponding right in favour of the consumer;
  • are not reasonably necessary to protect the legitimate interests of Home Direct; and
  • would cause a detriment to customers if they were applied, enforced, or relied on.

The significance of this decision, and the changes to the Fair Trading Act, is that even if the trader follows the terms of the contract scrupulously in dealing with its customers, the customer may still have a remedy if the terms themselves are unfair in the way that the Home Direct terms were.

Sally Peart, Partner