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Hotel Chain Guilty Of Eight Breaches Of Fair Trade

Hotel Chain Guilty Of Eight Breaches Of Fair Trade

A hotel chain has pleaded guilty to eight charges of breaching the Fair Trading Act in a case that reinforces to businesses that advertising "conditions apply" is not sufficient to avoid misleading consumers where the main message of the advertising is misleading.

Oaks Hotels and Resorts NZ Limited has been fined $26,000 in the Auckland District Court today for breaching section 13(g) of the Fair Trading Act, after misleading customers about the price and nature of accommodation in their apartments in Auckland and Christchurch. In sentencing, Judge Aitken described the advertisements as 'grossly misleading'.

In July 2006, the Oaks launched their 'Smartstay' brand of accommodation in New Zealand by promoting the cost of their apartments as being 'from $79 per night'. However the $79 price was only available for a minimum 28 day stay in a studio room. The actual nightly rate was $119 for a studio room. The average stay at the hotels in Auckland and Christchurch was between two to three days and the vast majority of guests would not be able to get the advertised price of $79.

Radio advertising also claimed that the $79 price was for 'a brand new self contained smart stay apartment with its own lounge, kitchen and laundry' when for that price customers could only get a one room studio in Christchurch or a studio with sectioned off sleeping area in Auckland. What's more, extensive bus shelter advertising used for the promotion referring to the $79 price, depicted a two bed room apartment, and not a one room studio to which the offer related.

Although both the radio advertising and the bus shelter advertising referred to 'Conditions apply, the nature of the conditions to obtain the $79 price were not specified.

Commission Chair Paula Rebstock says "Consumers rely on businesses to provide accurate information in order to make informed choices. The Oaks advertising campaign was misleading about both the price and nature of the accommodation. Merely saying that conditions apply, where those conditions significantly change the nature of the offer will not prevent a breach of the Fair Trading Act."

Ms Rebstock says the accommodation market in New Zealand is very competitive and it is not acceptable for businesses to try to gain market share through misleading advertising.

This is reinforced by Judge Aitken who said in her judgment that the misleading nature of advertising was aggravated in two significant ways:
 "By the picture accompanying the bus shelter advertisements which was of a two bedroom apartment. On no terms or conditions would such an apartment be obtained for $79 per night;
 Further, the radio advertisement claimed that the studio apartments had "their own lounge, kitchen and laundry" which was also untrue a studio apartment being by its very nature a single room"

Judge Aitken said, "The untrue statement was an important one in its context. $79 per night even for a studio apartment in two of the country's largest cities is a highly attractive offer and there was a real potential to attract customers. I concur with the informant that the effect (if not the intent) of such advertising was to offer a low lead in price, which while clarified on inquiry, still left the defendant in a position to attract business that it might not otherwise have obtained."

Judge Aitken went on to say, "This was a grossly misleading and extensive advertising campaign run over a six week period in all four of New Zealand's largest cities. There is a need to condemn such conduct and to deter others from adopting a similar course."

Oaks Hotels and Resorts NZ Limited trading as Oaks Smartstay Apartments. Oaks is 100% owned by Oaks Hotels and Resorts Limited, a publicly listed company in Australia which manages 32 accommodation properties including three recently launched properties in New Zealand.

Section 13 (g) of the Fair Trading Act relates to making a false or misleading representation.
Court penalties for breaching the Act can include fines of up to $200,000 for a company and $60,000 for an individual. Only the courts can decide if a representation has breached the Act.


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