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Staff must be in tune with the Fair Trading Act songbook

Staff must be in tune with the Fair Trading Act songbook

Signature Range – you will all have seen enough advertising to know that this is a house brand sold in Foodtown and Woolworths supermarkets. In a recent court case, the Signature Range “Lighten Up” breakfast cereal showed that it is true to its name. Lighten Up caused Progressive to walk out of court with lighter pockets – it had to pay $17,000 in fines.

During 2006, people who bought Lighten Up could fill out an entry form in the packet and send it in to go into a draw to win a trip to Australia. How did consumers know about the prize draw? There was a sticker on the outside of the packet. Unfortunately, the sticker on the box did not tell customers that the prize draw closed on 31 August 2006. The marked packets of cereal stayed on the shelves after that date. Customers who bought the cereal after 31 August 2006 didn’t find out that the draw had already closed until after they bought the cereal and looked inside the packet.

Disgruntled New Zealand consumers complained to the Commerce Commission. The commission investigated the prize draw and found that the promo-stickered cereal packages were on sale in some Progressive supermarkets as late as 13 December 2006, more than three months after the draw had closed. The Commerce Commission prosecuted Progressive with the case going to court.

The Commerce Commission argued that by selling the promo-stickered product after the prize draw had closed, Progressive had offered prizes (the holiday) in relation to the supply of goods (the cereal) without intending to supply the prizes as offered. If proven, this would be a criminal breach of the Fair Trading Act and could attract a fine of up to $200,000 for a company (maximum individual fines are “only” $60,000).

Clearly supermarket staff had sold the cereal after the prize draw had closed – it was a no-brainer that their action was also the company’s actions (OK, so just in case there is any doubt, the Fair Trading Act says so). However, Progressive is a company, not a real-live person, meaning that it can’t form its own “intention”. The people who wrote the Fair Trading Act thought of that too. There is a provision stating that if the court needs to establish a company’s state of mind, (including intention), it can do so by showing that an agent or servant, (eg employee), of the company had that state of mind while he or she was acting on behalf of the company.

Head office staff did not intend to offer the holiday prizes after the closing date of the prize draw. However, Progressive argued that it, as a company, could not be found guilty because no staff member sold the cereal at the same time as that particular staff member had the intention not to supply the prize: senior staff did not have the intention to continue the promotion after the end date, and junior staff didn’t know the promotion had finished so couldn’t have the intention either.

The court found that there was no legal requirement that one staff member should have both done the wrongful act and had the wrongful intention at the same time, so (collectively) it found there was a breach of the provision. Progressive lost. But it will be interesting to see if this one is appealed because you can see how the argument works.

For practical purposes, it’s a good illustration of how employees at all levels in a company can cause legal headaches, often as a result of miscommunication. An important element of a Fair Trading Act compliance programme is having systems in place to identify issues that are broader than one employee’s particular area. You have to make sure that everyone on the team is marching to the same tune. And in step!

Richard Anstice is a staff solicitor in Rae Nield’s office. This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae and Richard can be contacted at raenield@marketinglaw.co.nz.


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