Holiday voucher company pleads guilty to breaches
Media Release - Holiday voucher company pleads guilty to Fair Trading Act breaches
Discount Premium Holidays Limited, a New Zealand registered company that operated from Australia selling holiday vouchers in New Zealand, has pleaded guilty to 38 charges of breaching the Fair Trading Act and has been fined $209,000 in the Auckland District Court today. Discount Premium Holidays has also been ordered to pay $4,940 in court costs and $7,500 in solicitor™s fees.
The company’s director, Devang Parikh, has also pleaded guilty to two charges under section 103 of the Commerce Act for attempting to deceive or knowingly mislead the Commerce Commission during the Commission’s investigation. He has been fined $7,000 plus court costs of $260.
“By imposing a significant fine on an Australian based company operating in New Zealand, the court has sent a clear message that misleading behaviour by overseas companies that breaches the Fair Trading Act and affects New Zealand consumers will not be tolerated,” said Adrian Sparrow, Commerce Commission Director of Fair Trading.
In sentencing Judge Kerr noted that Discount Premium Holidays had in engaged in marketing which clearly set out to gain money but not provide any return for the investments made and that the marketing was dishonest.
This action resolves a case that saw the Commission applying for an injunction to prevent the company from making misleading representations in New Zealand. The Commission also issued a warning to consumers to be cautious when approached to buy holiday vouchers over the phone.
>From July 2006 Discount Premium Holidays sold memberships over the phone for a travel programme. As part of their sale pitch, the telemarketers made an extensive number of false claims about the membership scheme.
Benefits of membership included vouchers which were supposed to entitle members to discounts at accommodation providers ‘anywhere in the world’. However, the vouchers could only be redeemed at a limited number of accommodation providers in Australia and only a handful in New Zealand.
Consumers were told that the vouchers would provide ‘free’ night’s accommodation when in fact the voucher’s terms required the consumer to make certain purchases before receiving any free accommodation. Additionally the vouchers were not redeemable at most of the hotels listed in the accommodation directory provided as part of the membership.
Consumers were also told that the memberships were being offered to special customers only, at a ‘special one time only’ price, when in fact Discount Premium Holidays was making up to 600 calls a day to people chosen randomly from the phone book and the price was always the same.
In some cases, it was also not disclosed that the membership terms and conditions allowed Discount Premium Holidays to recharge consumers’ credit cards every 12 months at its discretion unless the consumer cancelled the membership. Discount Premium Holidays also falsely claimed that certain banks and credit card companies were affiliated with Discount Premium Holidays and that these organisations had provided Discount Premium Holidays with consumers™ details. A fulῬ list of the misrepresentations is available in the background section.
“Consumers are entitled to presume that the information given to them over the phone is correct – accurate information is vital so that they can make informed purchasing decisions,” said Mr Sparrow. “Business cannot use false marketing and high pressure selling techniques simply to make a sale. Products must accurately reflect anyᾠclaims made about them.
In early September 2007, Discount Premium Holidays was put on notice by the Commission that its conduct risked breaching the Fair Trading Act. Discount Premium Holidays was warned to cease all misleading conduct by the end of September. However, as the Commission continued to receive an increasing number of complaints from consumers that Discount Premium Holidays was making misleading representations via telemarketing, the Commission successfully applied for an injunction in the High Court which restrained Discount Premium Holidays and its director from making misleading representations to New Zealand consumers. The temporary injunction was effective from November 2007. The Commission has applied to the High Court for this injunction to be made permanent.
In June 2008, the Commission issued a warning to consumers saying that consumers should be cautious and resist pressure to buy vouchers that offer discounts and services that seem too good to be true, especially those that come via ‘cold call’ telemarketing, without first determining whether the offer is legitimate. The Commission is reiterating the warning to consumers to undertake research before they buy.
“While there are many companies offering genuine products and services over the phone, the Commission recommends that consumers take their time before making any commitment to purchase,” said Mr Sparrow. “The nature of phone selling can make it difficult for consumers to verify the product or service being offered. It is importantᾠthat consumers do not feel pressured into making a decision to purchase straight away. Take down details of the offer “ a legitimate company will have nothing to hide from your researcῨ.
During the investigation, Mr Parikh, the Australian based director of Discount Premium Holidays told the Commission that Discount Premium Holidays’ contract with a voucher provider, Free 2 Travel, had been verbally amended to include marketing into New Zealand, when this was not the case. Mr Parikh also told the Commission that Discount Premium Holidays had an existing contractual relationship with Free 2 Travel, when this contract had been terminated. The Commission succesῳfully prosecuted Mr Parikh under Section 103 of the Commerce Act 1986 for this attempt to deceive in relation to an investigation under the Fair Trading Act.
“These charges show that there are serious consequences if parties being investigated attempt to mislead the Commission in any matter before it,” said Mr Sparrow.
Discount Premium Holidays Limited is a New Zealand registered company based in Melbourne, Australia. It was incorporated in New Zealand on 7 July 2006. Devang Parikh is its sole shareholder and director.
The investigation has established that Discount
Premium Holidays systematically made misrepresentations to
consumers when telemarketing its products. Those
(a) Failing to disclose that the membership prices quoted to New Zealand consumers were in fact in Australian dollars;
(b) Representing that the membership prices quoted were ‘special’ prices, when they were in fact the regular selling price;
(c) Representing that the accommodation vouchers could be used anywhere in Australia and New Zealand, when in fact they could only be used at a very limited number of accommodation providers;
(d) Representing that the accommodation vouchers could be used anywhere in the world, when in fact they could only be redeemed in Australia and New Zealand;
(e) Representing that the accommodation vouchers could be used at specifically named accommodation providers, when in fact those accommodation providers had no such arrangement with Discount Premium Holidays;
(f) Representing that the accommodation vouchers entitled the holder to free accommodation, when in fact the holder was required to make certain purchases in order to qualify;
(g) Representing that the accommodation vouchers could be used at any time, when in fact significant date restrictions applied;
(h) Failing to disclose that memberships could be automatically renewed after 12 months at Discount Premium Holidays’ discretion and credit cards could be charged another membership fee;
(i) Representing that memberships were transferable, when in fact they were not;
(j) Representing that the memberships were being offered to special customers only, when in fact an unlimited number of consumers were being contacted at random by Discount Premium Holidays;
(k) Representing that Discount Premium Holidays had a trading presence in Auckland, when in fact it does not;
(l) Representing that the accommodation vouchers were known as FlexiBreaks, when in fact Discount Premium Holidays had no authority to sell FlexiBreaks vouchers;
(m) Representing that Discount Premium Holidays was affiliated with a number of credit card providers and issuing banks, when in fact it was not;
(n) Representing that Discount Premium Holidays was compliant with the Australian Direct Marketing Association (ADMA), when in fact it was not;
(o) Representing that Discount Premium Holidays was a SAI Global Quality Endorsed company, when in fact it was not; and
(p) Representing that Discount Premium Holidays had a customer base of 28,000 high income members, when it did not.
Commerce Act Section 103 says
No person shall—
(2) No person shall attempt to deceive or knowingly mislead the Commission in relation to any matter before it.
The fine for breaching Section 103 is up to $10,000 in the case of an individual, or up to $30,000 in the case of a body corporate.
Fair Trading Act
Breaches of the Fair Trading Act may result in prosecution in Court. Companies found guilty of breaching provisions of the Fair Trading Act may be fined up to $200,000 and individuals up to $60,000. Only the courts can decide if a representation has breached the Fair Trading Act.