Commerce Commission v Home Direct Limited - [2019] NZHC 2943

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-1775

[2019] NZHC 2943

UNDER Part 5 of the Fair Trading Act 1986

BETWEEN

COMMERCE COMMISSION

Plaintiff

AND

HOME DIRECT LIMITED

Defendant

Hearing: 29 October 2019

Appearances:

S M Hunter and A D Luck for the Plaintiff T Cleary for the Defendant

Judgment:

12 November 2019

JUDGMENT OF MUIR J

This judgment was delivered by me on 12 November 2019 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:………………………….

Counsel:
S M Hunter, Barrister, Auckland

Solicitors:
Meredith Connell, Auckland Chapman Tripp, Auckland

COMMERCE COMMISSION v HOME DIRECT LIMITED [2019] NZHC 2943 [12 November 2019]

Introduction

[1] In these proceedings the Commerce Commission applies for a declaration that terms in a standard form consumer contract are unfair. It does so pursuant to recently introduced provisions in the Fair Trading Act 1986 (the FTA).1 A term declared to be unfair may no longer be used, enforced or relied upon.2 It is said by counsel for the Commission that this is the first case to be determined under the section.

[2] The terms at issue in the proceeding were used in a standard form consumer contract by the defendant, Home Direct Ltd. Home Direct Ltd is New Zealand’s largest mobile trader. It employs over 250 staff and operates nationwide selling consumer goods online, over the phone and via mobile shops. The types of goods sold by Home Direct Ltd include clothing, toys, electronics, furniture and whiteware.

[3] Home Direct Ltd sells goods on credit by way of a credit facility known as a “Lifestyle Account”. The facility provides for regular weekly or fortnightly debits from a consumer’s bank account. Home Direct Ltd charges interest (currently 25.5 per cent) and monthly account management fees on all Lifestyle Accounts.

[4] During the period relevant to this litigation, Home Direct Ltd operated what it called a “Voucher Entitlement Scheme” (the Scheme). Under the Scheme, when a Lifestyle Account customer had repaid what they owed to Home Direct Ltd for previous purchases and interest, Home Direct Ltd continued to debit regular amounts from the customer’s bank account, with each of those payments converted into a separate “voucher entitlement”. Customers could use their voucher entitlements to make future purchasers from Home Direct Ltd.

[5] The Scheme contained two terms, which in combination the Commission submits were unfair.

(a)Customers could not have their voucher entitlements refunded or exchanged for cash (the No Refunds Term).

1 Fair Trading Act 1986, ss 46H and 46I. The relevant sections were inserted as from 17 March 2015 by the Fair Trading Amendment Act 2013.
2 Fair Trading Act 1986, s 26A(1)(b).

(b)The voucher entitlements expired after 12 months (the 12-month Expiry Term).

[6] The combined effect of these terms was that once sums were debited from the customer’s bank account and not used to purchase goods from Home…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] NZHC 2943
Decision Date: 12 November 2019

CaseChat Overview and Summary

In the case of Commerce Commission v Home Direct Limited, the Commerce Commission sought a declaration that two terms in a standard form consumer contract were unfair under the Fair Trading Act 1986 (FTA). Home Direct Ltd, a large mobile trader, operated a "Voucher Entitlement Scheme" where customers who used a credit facility called a "Lifestyle Account" could earn vouchers that could be used for future purchases. However, these vouchers could not be refunded or exchanged for cash and they expired after 12 months. The combined effect of these terms resulted in customers forfeiting significant sums of money. The High Court of New Zealand was required to decide whether these terms were unfair under the FTA.

The court found that the terms were indeed unfair. The No Refunds Term and the 12-month Expiry Term, when operated in combination, caused a significant imbalance in the parties' rights and obligations under the contract, with no corresponding benefit to the consumers. The terms were also not reasonably necessary to protect Home Direct Ltd's legitimate interests, as the company had no legitimate interest in holding customers' funds interest-free against potential future purchases without an option for refund or forfeiting such funds if not spent within 12 months. Moreover, the terms caused detriment to consumers as they were effectively locked into purchasing goods from Home Direct Ltd when their circumstances might have dictated more efficient application of their savings. The terms were not transparent, as they were not clearly identifiable, were ambiguous, and were presented in small font and in a condensed box, which could easily have been missed by customers.

Taking into account the contract as a whole, the court concluded that the terms were unfair, as they created a significant imbalance in the parties' rights and obligations under the contract, were not reasonably necessary to protect Home Direct Ltd's legitimate interests, and would cause detriment to customers if applied, enforced, or relied on.

As a result, the court declared that the No Refunds Term and the 12-month Expiry Term, when operated in combination, were unfair contract terms within the meaning of s 46L(1) of the FTA. The court also declared that Home Direct Ltd must not include these terms in a standard form contract or apply, enforce, or rely on them in a standard form contract. The Commerce Commission intended to broadly publicise this decision to alert as many consumers as possible of their rights to seek refunds.

Orders