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COVID-19: Commission Issues Guidance On Consumer Rights And Business Obligations

The Commerce Commission has issued guidance for consumers and businesses to assist them in understanding what their rights and obligations are in relation to disruptions to travel, trading and events as a result of COVID-19.

“In the last couple of weeks, we have had more than 100 complaints relating to cancellations and refunds. This is a complicated legal area and we wanted to provide guidance for both consumers and businesses that would help to reduce the confusion,” Commission Chair, Anna Rawlings said.

In the current circumstances, the Commerce Commission encourages businesses and consumers to treat each other fairly, and to be patient and respectful while they work through challenges arising as a consequence of COVID-19.

The main factor that will determine a consumer’s rights or a business’ obligations will be the terms and conditions that were agreed to at the time of the booking or transaction. Some contracts will provide rights to a refund; others may state that a credit will be provided, allowing consumers to rebook at a later date.

“If you had a right to a refund under the terms and conditions at the time you purchased the ticket or made the booking, then you should receive a refund,” Ms Rawlings said.

Businesses must not mislead consumers into thinking they are not entitled to a refund if they are entitled to a refund and they cannot lawfully develop a policy that contradicts a consumer’s contractual entitlement. If they do either of these things, then they risk breaching the Fair Trading Act.

When consumers are looking at their contract terms and conditions, they should look for a clause that explains what happens when the contract is cancelled or when there are events beyond human control that make the contract impossible to perform without fault by either party. These are often called force majeure clauses or clauses that talk about frustration of the contract. Some contracts may even specifically reference pandemic.

The Commission’s guidance covers general legal principles and has a series of frequently asked questions in areas such as travel, events, weddings, subscriptions and memberships. However, circumstances can vary from contract to contract and the Commission encourages businesses and consumers to discuss the situation with one another to work out a solution that best fits the circumstances of their relationship.

“These are very difficult times for both consumers and businesses and some of these contracts will involve considerable sums of money. As a consumer, where you have a choice of a refund or credit, you should consider what is the best option for you personally. You may wish to support a local business by accepting a credit rather than a refund. However, you should also be aware that any credit is dependent on the business continuing to trade, so there may be a greater risk with a credit than a refund,” Ms Rawlings said.

The Commission also has a range of other guidance available on the COVID-19 page on its website including advice on responsible lending for lenders and borrowers. Information for regulated businesses and tips on how to get the best out of your broadband are also available.

 

Background

When is a contract “frustrated”?

A contract becomes frustrated when, without fault by either party, the contract is impossible to perform, because the circumstances in which performance would occur are radically different from those contemplated by the contract.

The contract must be incapable of being performed, not just difficult, expensive or inconvenient to do so.

The New Zealand Government from late March 2020 announced border restrictions and a lockdown which prohibited non-essential businesses from operating and consumers from leaving their homes for non-essential reasons. Many other governments internationally imposed similar restrictions.

In these circumstances, events outside either party’s control such as restrictions imposed by Government will prevent some contracts from being able to be performed and this means that some contracts will be frustrated.

Where a contract is “frustrated” the Contract and Commercial Law Act 2017 (CCL Act) applies. It provides that the terms and conditions agreed by the parties will determine what happens, if those terms deal with frustration. If the contract is silent on what happens if the contract is frustrated, the CCL Act says that the consumer is entitled to a refund, but that the business may retain its reasonable expenses and overheads incurred in relation to the contract before the date of frustration (we call these the “allowable expenses”).

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