Consumer Protection (Definitions ofGoods and Services) Bill

on behalf of the Minister of Consumer Affairs: I move, That the Consumer Protection (Definitions of Goods and Services) Bill be now read a second time. Since 1994 the Consumer Guarantees Act has been the main source of rights and remedies for consumers who have purchased products and services that are proven to be defective. The Act was meant to cover all goods and services ordinarily acquired in trade for personal and domestic purposes, but in 1998 the High Court ruled that the Act did not apply to electricity, or electricity line services. This bill will reverse that decision and erase all doubt that the Act applies to other utilities and to computer software. As a cornerstone of New Zealand consumer laws, the Consumer Guarantees Act lays down some common-sense rules. Goods must be of acceptable quality, services must be performed with reasonable care and skill, and when things go wrong the supplier or manufacturer has an opportunity to put things right except in serious cases where the consumer can choose to reject the goods or cancel the contract and get a refund.

This bill has three underlying purposes—firstly, to ensure that the Consumer Guarantees Act applies to all products and services that are ordinarily supplied in trade for domestic consumer use now and into the future; secondly, to ensure that the supplier in the supply chain who is best placed to manage the risk of product failure is liable to the end consumer for defects; and, thirdly, to ensure that New Zealand’s trade practices statutes are consistent with each other.

The first purpose is achieved by expressly including those products about which doubt has been cast. These include electricity, gas, water, and computer software as goods. They also include network supply functions for electricity, gas, telecommunications, water, and waste water removal services. The second purpose is achieved by amending the definition of supplier to clarify that the firm that supplies the service to the consumer is liable for failure to meet the minimum standard performance required by the Consumer Guarantees Act. However, there are exceptions for contracts that involve business consumers so that the Act does not interfere with the integrity of business-to-business transactions.

The third purpose is met by bringing into line the corresponding definitions of goods and services in the Commerce Act, the Fair Trading Act, and the Consumer Guarantees Act. I commend the members of the Commerce Committee for the sterling work they did in grappling with some very complex issues in connection with this bill. The committee heard many submissions and listened carefully. Most submissions supported the bill, but many suggested amendments to make the bill more workable. The committee has recommended several changes that have improved the bill immeasurably. Once again, I thank the committee for its good work.

I would like to comment briefly on the main issues considered by the committee. The original bill included telecommunication signals in the definitions of the goods. Several submissions warned that this might expose Internet service providers and telecommunications companies to liability for the content of and accuracy of information on third-party websites. This would have been an undesirable and unintended outcome, and I agree with the committee’s recommendation that telecommunications signals should be deleted from the definition.

Several submissions urged the committee to delete electricity from the definition of goods. This would undermine the Consumer Guarantees Act purpose with regard to consumers’ redress. The Consumer Guarantees Act provides incentives for everyone in the chain of supply—manufacturers, distributors, and retailers—to stand behind the products and services they supply. If electricity were included as a good, then the guarantee of acceptable quality would apply to electricity retailers and manufacturers. If electricity were included as a service only, then the injured consumer would have to prove that the lines company was negligent, before redress was available. This would leave most consumers without any remedy, and it would remove the incentive for electricity companies to determine who has caused a particular fault.

Defining goods to include electricity makes a lot of sense, and it is not onerous for electricity suppliers. This is because the meaning of “acceptable quality” is based on what a reasonable consumer, who is fully acquainted with the nature of the product, would regard as acceptable. A reasonable consumer understands that electricity is supplied in real time, is subject to momentary fluctuations, and is prone to outages due to environmental or other hazards and periodic maintenance.

A major concern of submitters was identifying who is a supplier of electricity for the purpose of the Act. The committee has formulated an amendment to make this easier. In practice, electricity retailers will be responsible for supplying electricity that is of acceptable quality. Electricity lines companies will be responsible for supplying line function services with reasonable care and skill. They will not, however, be responsible for failures that result from the acts of third parties, or events beyond human control where the supplier manages the risk of that occurrence with reasonable care and skill.

The committee also heard submissions that that definition of goods should not include computer software. As the consumer receives a licence to use software, it was argued that software should be regarded as a service rather than a good. Rightly, I believe that the committee considered that the consumer receives an interest in software that is similar to other goods such as music CDs. Therefore, it should not be regulated differently in terms of its quality and fitness for purpose. The guarantees and remedies that relate to goods are also more relevant and applicable to software than are the guarantees and remedies that relate to services.

Several submitters asked for water to be removed from the definition of goods, and the supply of water to be removed from the definition of services. The committee concluded that the bill should cover water. Currently, there is doubt about whether all trade practices legislation covers water. Therefore, as with computer software, water and its associated supply services are included in the bill for the avoidance of doubt only.

Another area where submitters raised some serious concerns was the suppliers’ ability to exclude liability to business customers in situations where they do not have a contract with them. The committee resolved this issue by giving a non-contracting supplier, such as a lines company, the benefit of any liability exclusions contained in the contract to supply, such as between the retailer and business consumer. In conclusion, I consider that the bill represents a significant development for consumer protection in New Zealand. I commend the bill to the House.

I rise on behalf of the National Party to support this bill, and in particular the amendments contained that will alter the Consumer Guarantees Act. When the original Act was passed in 1993 it had pretty broad provisions. Unfortunately, the definition failed to have clarity in a number of areas, and this amendment bill attempts to clarify those. I want to spend my time this evening talking about what the bill does, what the amendments are proposing to do, and the benefits of that. However, I want to spend some time at the end on flagging some concerns I have. While the intentions of the bill are good, and while we will support it, on reading the bill, and not being part of the select committee, I saw a few red flags, and I want to alert the House to those.

What does the bill do? It provides certainty about the scope of the Consumer Guarantees Act, and in particular this is an omnibus bill that attempts to change legislation across a number of bills, including the Fair Trading Act, the Commerce Act, and, of course, the Sale of Goods Act. In particular, as the Minister outlined in her address to the House, there are really two issues in terms of the definition of goods and the definition of services. I will touch just for a moment on the definition of goods. This bill will look to include definitions of, amongst other things, computer software, electricity, gas, and water, and, in particular, the definition of service will also move in those areas, but looking at the suppliers. It will mean the definition of a supplier will include someone who does not have a direct contract with the consumer. That is quite an interesting point in the sense that the bill will be implying a contract on a consumer.

Members will be aware that that has become somewhat more necessary as a function of the electricity reforms that took place where the supply of electricity moved from being a vertically integrated supply chain, all the way through to having various pieces: obviously, the generators, the lines companies, and the retailers. The current law is that a consumer will have a relationship with the retailer. If the retailer fails to deliver electricity because of a fault caused by the line company, then the consumer will have no further redress. That is one of the things that the bill is attempting to deal with.

Clause 7, as the Minister outlined, allows the retailer to have specific contracts with the business community, and to contract out with the business community in certain parts, as does clause 9.

I guess an issue where I start having concerns is that of how the law works. In practice, the primary obligations covered by the definition of goods are those of acceptable quality, and conformity to a description given. What is of acceptable quality may, to a reasonable consumer, have one definition for one person and one definition for another. Acceptable quality to a consumer cooking for a dinner party for 12 in the suburbs of Auckland, when those people are about to turn up in half an hour, the cooker is not working, and, therefore, there will be a lack of food, may be completely different from that for a consumer who is not in the house between the hours of 10 in the morning and 3 in the afternoon because he or she is out working hard, as we would expect that person to be—not out somewhere on some jolly that he or she may find more enjoyable.

At a reasonable time, like 12 o’clock in the afternoon when not in the house, a consumer may not consider a lack of electricity supply to be an issue. But, as I said earlier, if 12 people are turning up for dinner, and the cooker is not working, I can assure the House that a reasonable consumer under that condition would want an electricity supply. So there is considerable ambiguity contained in those clauses, and I believe they will need some definition.

One of the major concerns I have is the fact that reasonable consumers will have to read their documentation extremely carefully. It may be argued that they will take a different course of action from the action that they would otherwise take if this legislation were not passed. I ask members to allow me to expand my thought processes on that concern. Currently, most consumers in the country take out insurance coverage for their fridge-freezer in the event that there is not continuity of electricity supply. I know that when I look in my freezer at nights, I see tucked in there lots of things that I would like to insure, on the basis of their being high-quality seafood and the like—from the wonderful electorate that I represent, of Helensville—and I know that I have taken the precaution to have a guarantee of that, through an insurance contract. This law, by being passed, will argue that that is not required, because we will be able, under the legislation, to seek compensation and redress via amendments to this consumer protection legislation.

That raises a number of issues. The first is the sheer logic of that. In other words, the cost will now be passed to all consumers, as opposed to the cost being passed to consumers who want to cover their positions. For example, maybe I do not have a terribly large fridge-freezer in my house—

💬 Clayton Cosgrove: You could afford one.

I would like to think I can afford one. But maybe I do not have a very large one, because maybe I do not believe in frozen food. I enjoy the freshness of food. I enjoy food and the freshness of food so I am the type of consumer who tends to go down to Foodtown or the local supplier, select the fruits of the sea, and enjoy them fresh. But, unfortunately, as a result of this legislation, I will be paying through my electricity bill for those people who do not value freshness in the same way I do. That is one of the things, when I picked up the bill, that just whacked me around the face. I started thinking: “Whoa!”

💬 Stephen Franks: People who cook in hangis are paying for the microwaves of others.

That is right. We are supporting the bill because we supported it through the select committee. Now that I have had an opportunity to review it, I am not completely sure of that, but we are supporting it, and supporting it for the rationale that it attempts to do the right thing. The spirit of the bill is in the right place. The heart is in the right place. I am very, very confident that when National is back in Government in 2005, or earlier in a few months’ time if Labour cannot go a full term, I am absolutely sure I will be banging the table—I am not quite sure what table I will be banging—arguing: “Let’s just pull out of the 2003 Consumer Protection (Definitions of Goods and Services) Bill, and just have a look at that.” In particular, they are some of the issues I have.

I want to commend the select committee, and, of course, the Minister, for having the wisdom to delete telecommunications signals. I say that because, again, an interesting part of this legislation is the way it implies a contract with someone whom one does not have a formalised contract with. If I could just take a moment in the House, I will discuss why it was very important that telecommunications signals were removed. I point out that there has been a change in the way that financial market instruments are traded in this country, as there has been worldwide. The days of oral trading of stocks and shares via brokers in Queen Street have moved somewhat, to Internet-based trading. As a former member of the largest sharebroking house in the world, I can assure members that that move to Internet-based trading has taken hold, and will be significantly greater as the years go by. Had telecommunications signals been left as part of this legislation, the downstream effect of that would have been quite simply this—

💬 Stephen Franks: No, they are still there.

No, I tell Mr Franks that I think they have been deleted. They have been struck out unanimously in Part 3. [Interruption] Then it is of great concern to me, because my concern with the legislation is that there is some ambiguity in it. Let us imagine for a moment that that provision is in there. I do not believe that it is, but let us imagine that it is. Then my great concern is that a consumer trading on the Internet purchases a stock, and then suddenly there is a telecommunications signal, at the point at which that consumer hits the “buy” key. That communication is not transmitted, and the consumer then suffers a loss because the stock goes up. Who will that consumer be looking to for redress? That was my understanding of why the provision had been deleted from the bill. I stand to be corrected, but my understanding was that that was why the select committee deleted that provision.

Anyway, may I say that I do have pleasure in commending this legislation to the House for its Committee stage, but I flag those concerns that I raised in my speech.

I rise on behalf of New Zealand First to speak on this bill. This bill came about as a result of a 1998 High Court decision in a case brought by the Electricity Supply Association against the Commerce Commission, challenging its ruling that electricity was covered by the Consumer Guarantees Act. During the select committee’s deliberation, there was some concern about the inclusion of electricity in the principal Act as goods. Because that definition already exists in the Fair Trading Act and the Commerce Act, it seemed natural to extend that definition to consumer protection legislation. The bill also inserts the supply of electricity line function services into the definition of all three Acts.

Including electricity as goods, as well as services, in the principal Act will create incentives for all suppliers to take reasonable steps to avoid failure of supply. I notice that the Minister mentioned that it also reminds people of the climate changes and climate issues associated with electricity supplies. But what she did not mention was the mismanagement of generation under those circumstances. If a generation company is allowed to mismanage the supply, then there will be ramifications all the way down the line, regardless of whether there will be a shortage of water or other supply.

So the inclusion of electricity as both goods and services may actually create a problem under the looming electricity shortages that appear to be threatening for this winter. If that is the case, when we consider the inclusion of electricity as such, there is an attached agreement that electricity is of acceptable quality. However, will this bill affect supply if we begin to experience blackouts and even brownouts? We will need to watch this issue because it could well open up supply companies to legal ramifications.

With reference to telecommunications signals as goods, we acknowledge that there are difficulties in separating the content of the telecommunications signal from the actual product. As a result, telecommunications is treated as a service only, which means that consumers of telecommunications services have more limited rights under consumer protection legislation than consumers of other utilities. That is unfortunate—however, we can see the difficulties in classifying telecommunications as a good. The implications of making intermediary service providers, such as Internet service providers, responsible for the content of the communication, is certainly not desirable.

The inclusion of water as a good and service during the select committee stage caused some concern that this bill could force local authorities to incur huge costs in upgrading the pipelines of supply, when the water supply dropped below the acceptable standards. This would result in some drastic rates increases to cover these huge capital outlays, and to avoid the possible legal ramifications of challenges to the supply.

Software companies are also very difficult to legislate for, because in fact consumers are buying only a licence and not the product itself. They are buying only the licence to use that product, and do not actually receive the product as a commodity. So it is very difficult to cover that issue, but this bill makes an attempt to do that reasonably well. In general New Zealand First supports this bill, but noting our concerns and the comments I have just made.

I rise to take a short call to support the Consumer Protection (Definitions of Goods and Services) Bill. Unlike the future leader of the National Party, Mr Key, who I am told—

💬 Hon Brian Donnelly: No, deputy.

No, no—leader! I hear that that reality is getting nearer and nearer, every day. Mr Tisch, over there, is doing the numbers—“Old Squeaky”! I just make two points to Mr Key: firstly, hāngi are not cooked in a microwave, and, secondly, instead of having his groceries delivered, it may pay him to go down to the supermarket. That is a good way for MPs to keep in touch with their constituents. This is a good bill. It ensures that New Zealand’s trade practices statutes are consistent with each other. It makes a number of very positive amendments. I support the bill.

I rise on behalf of United Future also to support the Consumer Protection (Definitions of Goods and Services) Bill. The purpose of the bill is to ensure that the Consumer Guarantees Act applies to all goods and services that are ordinarily acquired for personal, domestic, or household use or consumption. This bill similarly covers the Commerce Act, the Fair Trading Act, and the Sale of Goods Act. Specifically, it amends the definition of goods and services in these Acts to ensure that computer software, electricity, gas, telecommunications, water, and services related to their supply, are included within the scope of the legislation.

The Commerce Committee made a number of technical changes to the original bill. Notably, this included the removal of telecommunications signals from the proposed new definition of goods in the Consumer Guarantees Act, Fair Trading Act, and Commerce Act. The reason for the removal of telecommunications signals is that the definition of telecommunications signals in the bill was deemed by several submitters to be wide enough to cover the actual content of telecommunications. This caused controversy and unease within the industry. For example, Internet service providers were concerned they would be liable for emails they did not get through, for reasons beyond their control—such as a problem of an overseas network. The committee agreed that it was never intended that suppliers of telecommunications signals should be liable for the content of those signals, and therefore recommended removing them from the definition of goods, but still left them in the definition of services.

One widely publicised aspect of the bill is that it will give consumers the right to claim compensation from electricity companies when spikes or power surges damage computers or other equipment. Speaking as one who has had enough heart attacks over power spikes, I am glad this is in the legislation.

💬 Stephen Franks: That comes free!

Nothing comes free; the member should know that! Electricity suppliers will become liable for direct losses and reasonably foreseeable consequential losses to domestic consumers caused by problems for which they are responsible. This bill was originally designed to clear up an anomaly caused by a 1998 court ruling in a case between the Electricity Supply Association and the Consumers Institute, which held that electricity network services were neither goods nor services. The bill also closes a legal loophole that has meant that companies or individuals selling computer software packages, who misrepresent their products, have not necessarily been obliged to offer refunds or replacements to unhappy customers. Therefore, United Future supports this bill going on to the Committee stage.

The ACT party will be opposing this bill, which changes the definition of goods and services. This bill is the child of the Labour-Alliance coalition Government, and that should have been known as “Labour-Alliance Takeover”. I notice that this bill was introduced to the House by Laila Harré on behalf of Jim Anderton—and what an unhappy alliance that was. This legislation will bring only unhappiness to consumers in this country—because consumers will all end up paying higher prices under this legislation, whether or not they can afford it. The high prices are what they will pay for what this Government sees as a gold-plated standard.

This Government has said that it wants to protect consumers, but at what price? The price will be severe. Just like the bill I opposed earlier today—the Banning of Parallel Imports Bill—this bill will punish consumers by raising the price of goods and services right across the board. I notice from the Hansard that when Laila Harré introduced this bill she said that it would extend the definition of goods and services to include electricity, gas, telecommunications, water, and waste-water removal. It is interesting that the definition of telecommunications has been taken out of the definition of goods but it has been left in the definition of services. When the Luddites in the Alliance rushed to bring in this bill they forgot about the Internet and how that affects so many people’s lives now, and how the Internet works, and how an Internet service provider could well be held liable for losses that a consumer might suffer if he or she had relied on information gained through a web page that was incorrect?

There is no guarantee that a web page will be correct. Everybody knows that or should know that. Just because something is on the Internet does not mean to say that it is correct. Anyone who has marked his or her children’s homework will know that. But as it is a service a consumer still could be liable under this legislation, because the legislation is so unclear and so nebulous it is difficult to tell what would happen if someone made a claim to a telecommunications provider under a service.

When I was going through this I wondered whether the Alliance had actually got the idea for this legislation from a website and thought that that would be a good idea, and let us pass a law that makes us look like we are caring, sharing, neo-socialists but it will actually make goods and services expensive and put them out of the reach of many poor people in this country.

Laila Harré spoke absolute tripe when she introduced this bill, and despite its going to the select committee and being reported back, tripe it still remains. Steven Franks said, when he spoke on this bill in October 2001, that this Government is giving no regard to the most sweeping law in this country—the law of unintended consequences. I think that is a good quote. I ask the member whether he remembers saying that. It is a wonderful phrase—“the law of unintended consequences”.

The arrogance of this Government is truly gobsmacking. Those members sit there and pass legislation like this; legislation that changes definitions and adds applications. They sit back thinking that there will be no negative consequences, only positive ones. Well, I hate to disappoint them but there is absolutely no such thing as a free lunch.

If we look at the current Consumer Guarantees Act, we see that it covers things like quality, durability, safety, and a number of other assurances. Under this bill, as I have said, that cover will extend to electricity supply. As I see it, this is just a knee-jerk reaction to the power crisis of 1998 in central Auckland. For a start, we are now 5 years on; it is 5 years ago that that happened. Power companies have long since made changes and carried out work that minimises the chance of a repeat of that. But just as this Government is trying to do with its transport legislation, it thinks it can buy votes in Auckland at the expense of the rest of the country.

💬 Hon Dr Michael Cullen: Oh!

Obviously, I am keeping Dr Cullen up. What happens if the power goes off for 2 hours? It is fine for someone who is wealthy enough to own heaps of electronic goods—I understand that spa pools are very popular with this Government—and video games. The gas supply is included in this bill, as well, and as John Key added just a minute ago, under this bill, when the power and the gas go off while one is cooking for a dinner party, then people will probably be affected quite badly. The spa pool will get cool, and the Chardonnay will not chill, so they might be in deep trouble. But the people who have all those things would be most likely to be covered by insurance. They can afford to minimise the risk for themselves.

What this legislation will do is allow those insurance companies to renege on their responsibilities under the cover that those people will have because, instead, the supplier of the electricity or the gas will be liable under this legislation. This is typical of this Government, which tries to eliminate all sorts of risk in people’s lives. It just cannot be done. Sometimes people cannot be protected from themselves, no matter how much one might want to try.

Also, this bill will lead to increased compliance costs for the electricity and gas suppliers. Will they absorb those costs themselves? No, they will pass them on to consumers. We can expect everyone’s electricity and gas bills to go up so that the electricity retailers are able to cover themselves for the stream of claims that will undoubtedly result when this bill is passed, and, of course, that will be another godsend for the lawyers.

As Stephen Franks said a minute ago, the people who cook in a hangi or on a barbecue will be paying for those who like to cook on a Smeg or in a microwave oven and want a guaranteed uninterrupted power supply. This legislation is nothing more than self-congratulatory nonsense, and the people who have to pay for it will probably never benefit from it. The people with a television, a freezer, a hot-water cylinder, and a radio—basic electrical goods—are not actually adversely affected when the power goes off for a couple of hours. Every sensible person who owns a freezer knows that if the door is kept shut, the food is OK, and that if the hot tap is not run, then the hot water is OK. Even if people do not have insurance to cover the contents of the freezer, they are fine. But the people who cannot afford the very goods and services that this bill protects will be paying for those who can afford them.

There was some talk in October 2001—and I am glad to see Dr Cullen in the House, because perhaps he will take a call and clarify this situation—about the inclusion of shares in this bill. I cannot tell whether shares are included, and neither can Stephen Franks. Section 2(1) in clause 6 states that the definition of services “ (a) includes any rights (including rights in relation to, and interests in, personal property),”. At first glance that appears to include shares. So does this mean that a purchaser of shares will have to be guaranteed; that, for instance, the supplier of those shares—and it is unclear whether that would be the company or the promoter of the shares—would have to guarantee that, say, in 35 years’ time, those shares will be a safe nest egg for the consumer?

💬 David Parker: No.

Well, that is not clear in this legislation. It is impossible to tell from that clause, and someone will have great fun with it one day, because of all this. This is actually crap legislation, and we are opposing it.