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For trades - what are your
obligations when selling goods online?
For traders - what are your obligations when selling goods
online?
Online auction websites (like TradeMe) can be an easy stepping-stone towards
starting or growing a business. The systems are already in place and there are
relatively few barriers to entry. As with any business it is important to be
aware of your rights and obligations. Typically, running a business in an
online auction environment is no different to running any other business.
Outlined below are some issues to keep in mind.
Income Tax Act 1997 (ITA)
Any amount you derive from a business is income, and can attract tax. The ITA
provides that 'business' includes any profession, trade, or undertaking
carried on for profit. If you intend to make a profit, the presumption is that
you are operating a business.
There is no minimum threshold for income tax. Even small, part-time, hobby or
after-school businesses must pay tax on income earned. If annual turnover
exceeds $60,000 you will also be required to register and account for GST.
If you sell something because you no longer want or need it, you will not
typically have an obligation to pay income tax. This is because your primary
motivation was not to make a profit, so you are not operating a business for
the purposes of the ITA.
Fair Trading Act 1986 (FTA)
The FTA applies to online selling only when a seller is 'in trade'. The
definition of 'trade' is wider than the definition of business under the ITA.
'Trade' includes "any trade, business, industry, profession, occupation,
activity of commerce, or undertaking relating to the supply or acquisition of
goods or services or to the disposition or acquisition of any interest in
land." With such a wide definition, it may not always be easy to determine
whether or not you are 'in trade'. If in doubt, seek legal advice.
Those in trade have wide obligations under the FTA, which details that you
must:
* make it clear to potential buyers you are 'in trade',
* have a reasonable basis for claims that you make about your products or
services,
* not make representations that mislead or deceive consumers about the product
or their rights,
* not bury qualifications, limitations and other important terms in fine print
or on a link-through web-page,
* not offer to sell goods or services that you do not reasonably believe you
can supply. If you source goods from a supplier only once the product has
been sold, you must ensure any representations you have made about
availability and delivery times are accurate.
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Inside this edition
For traders - what are your obligations when selling goods online?
Property sales - disclosure
The Family Court reforms - one year on
Speak no evil - non-disparagement provisions in employment settlement
agreements
Bain's latest battle: the quest for compensation
Snippets
Building Amendment Act 2013 update
Should you pay a deposit?
Print version
Consumer Guarantees Act 1993 (CGA)
The CGA applies to goods and services you sell while 'in trade'. The CGA
implies a warranty that the goods sold match their description, are fit for
their purpose, are of acceptable quality and will last for a reasonable time
having regard to the price. If you breach one of these implied warranties, you
may be required to repair or replace the product within a reasonable time, or
provide a full refund.
Many people fall into the trap of thinking these rules won't apply, because
their business is small, part time or just a hobby. If you have any doubts
about whether you are in trade or running a business, or if you are unsure of
your obligations, you can seek legal advice.
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The principle of 'caveat emptor', or "let the buyer
beware", applies to buying property. Purchasers are always advised to complete
their own thorough due diligence investigation before they buy.
It is important however to remember that despite caveat emptor, the people
involved in selling a property (i.e. the vendor and in particular, the real
estate agent) have significant obligations to disclose information to the
purchaser. These requirements are in place to protect the purchaser.
A real estate agent, as a licensee under the Real Estate Agent's Act
(Professional Conduct and Client Care) Rules 2012 (the Act), cannot rely on
caveat emptor when involved in the sale of a property. The obligations on a
licensee under the Act require, at a minimum, that an agent discloses known
defects to a customer. Clearly, where an agent has knowledge of an issue with
a property, the only appropriate course of action is to advise prospective
purchasers.
In some situations, the Act requires an agent to go further than simply
disclosing known defects. Rule 10.7 of the Act states that where it would
appear likely to a reasonably competent licensee that land may be subject to a
hidden or underlying defect, the licensee must obtain confirmation from their
vendor client and expert evidence that the land is not subject to the defect,
or ensure the purchaser is informed so that they can commission expert advice
should they choose to do so.
An example where rule 10.7 would apply, is where a house was built in a
particular time period using particular materials, the combination of which
are commonly associated with a risk of weathertightness issues. Regardless of
whether a client vendor discusses this issue or not, an agent is expected to
take appropriate action as described above to investigate (and possibly
disclose) this risk as part of their obligations.
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 If
a situation arose where a vendor directs an agent to withhold information in
respect of defects, an agent must stop acting for that vendor as required by
rule 10.8 of the Act. Such an obligation should provide some comfort to
purchasers that an agent cannot simply stay silent on any issue, even if that
is what their vendor client wants.
The provisions of the Act only apply to licensees, so obligations on the
vendor in a private sale with no vendor's agent are not as well defined.
However, most sales of real estate use as a template the ADLS / REINZ
Agreement for Sale and Purchase form. This form includes a comprehensive list
of vendor's warranties, for example the vendor warrants that building works at
the property completed by that vendor have been properly consented.
While purchasers must complete their own investigations on a property, they
can take some comfort in the obligations around disclosure on the people
involved in selling property. A combination of upfront clear questions about a
property and an understanding of these disclosure obligations is the best
recipe for uncovering any issues and avoiding problems down the line.
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A year has now passed since the
introduction of significant changes to the way the Family Court deals with
parenting disputes.
The thinking behind the reforms is that family disputes are better resolved
between the parties themselves. Now parties seeking Family Court assistance
must first participate in a Parenting Through Separation course and then
compulsory mediation called Family Dispute Resolution (FDR). It is only after
agreement cannot be reached at FDR that the matter may proceed to court.
As well as these preliminary requirements, legal aid is no longer available at
the application stage, unless the application is urgent, because there are
restrictions on when lawyers may represent a party in court (usually not until
the matter reaches the hearing stage).
Where domestic violence or other risk factors are at play, the process has not
changed. Parties in these situations may proceed directly to court if the
circumstances justify the making of urgent orders.
Unsurprisingly, the Government considers their reforms have been broadly
successful. They point to cost savings, and believe the Family Court is now
freed up to focus on the difficult cases that really require judicial
intervention. Likewise, FDR providers also believe that they assist parties to
reach a resolution that is sustainable, and in a faster and less stressful way
than the court process.
The legal profession has not viewed the reforms in the same light. While only
anecdotal evidence exists given the short period since implementation, family
lawyers have a number of concerns.
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The changes have resulted in a rise in unrepresented
parties. These parties have to make their own applications to the court,
sometimes with legal advice but often without it. They may have no
understanding of the law, court processes and how best to state their case,
which can slow down the court process. It is of greater concern that unfair
outcomes may result as parties agree to outcomes they do not truly understand,
and that may be counter to the best interests of the children. It is difficult
to see how this results in reduced stress on families.
There has been a significant rise in applications made on a
without notice basis, which strictly speaking do not meet the criteria. The
increase in these kinds of applications results in greater pressure on court
staff and the judiciary to process these promptly. The new application forms
that were introduced, ostensibly to assist unrepresented parties, have instead
frustrated court users and proved difficult to follow. Documents that were
previously two to three pages long now stretch to ten. Thus any cost savings
that Government points to may simply increase in other areas as they are
forced to direct more resources into court processes. The changes come on top
of an existing scarcity of court registry and judicial resources, meaning
lengthy delays in obtaining court time and processing of documentation. It is
hard to see how this frees up judicial resources for difficult cases. In
addition, any cost savings the Government points to are likely to be 'back
ended' into different areas of the family justice system.
It is true that it is better if family disputes can be resolved between the
parties themselves. Many parents already resolve parenting disputes without
assistance from the court, but this will not always be possible. These latest
Family Court reforms arguably block access to justice to those who really need
it and at a time they really need it.
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The Media love
reporting on salacious details of employment disputes before the Employment
Relations Authority (ERA) and Employment Court, by trumpeting headlines like
"Sacked worker who took worthless magazine gets $9,000". Many employers and
employees, however, choose to avoid the glare of publicity by resolving
employment disputes with settlement agreements.
Settlement agreements are confidential, keeping matters from the glare of
publicity. Settlement agreements also often have a term preventing either
party from speaking badly of each other, known as a non-disparagement
provision. Several recent ERA decisions have examined the issue of breaches of
these non-disparagement provisions in settlement agreements.
In Kea Petroleum Holdings Limited v McLeod [2014] NZERA Wellington 113, a
settlement agreement between the parties included a term that Ms McLeod would
not "disparage or speak ill of the company...or its officers." However, Ms
McLeod posted articles on Facebook, including allegations that Kea's Managing
Director had made "false statements" and "disrespected shareholders by lying
to them." Kea sought a financial penalty against Ms McLeod for breaching the
settlement agreement. The ERA found that Ms McLeod's statements regarding the
Managing Director were disparaging. The ERA also observed that Kea paid a
"substantial sum of money" to Ms McLeod to resolve an employment relationship
problem. In return she agreed not to pursue her personal grievance and not to
disparage or speak ill of the company. The ERA found Ms McLeod breached the
settlement agreement, and ordered her to pay a penalty of $2,000.
In Jacks Hardware and Timber Limited v Beentjes [2015] NZERA Christchurch 29,
the parties signed a settlement agreement with a non-disparagement provision.
Mr Beentjes then sent text messages to a current employee calling the Director
of Jacks Hardware a "sociopath", alleging the current employee was lying,
calling another staff member a "sycophantic sociopath" and accused Jacks
Hardware of hushing up his allegations. The ERA found the text messages
breached the non-disparagement provision and were flagrant, deliberate and
ongoing. The ERA imposed a penalty of $2,500 against Mr Beentjes.
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In Simpro Software New Zealand
Limited v Nuttall [2015] NZERA Auckland 64, the parties entered into a
settlement agreement requiring Mr Nuttall to desist from publishing "any
statement which would be construed as being degrading, defamatory, negative or
disparaging against Simpro and its agents, officers, directors or personnel."
Mr Nuttall published a comment on a Xero blog site that referred to Simpro
software as "a pile of crap" and "a waste of space". Simpro sought an order
from the ERA that Mr Nuttall comply with the non-disparagement provision. The
ERA found Mr Nuttall in breach of the provision, and ordered he immediately
comply. While Simpro did not seek a financial penalty, the ERA noted that
Simpro could have asked for a penalty, indicating the ERA would likely have
ordered a penalty.
These cases are a clear warning to employees to take settlement agreements
seriously, including the requirement not to speak ill of their former
employers, and gives hope to employers wanting to enforce settlement
agreements when their former employees do not comply.
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David Bain's name has been well-known to New
Zealanders for nearly 21 years, when his entire family were found murdered at
their Dunedin home in June 1994, followed by his conviction for their murders
in 1995 and subsequent acquittal in 2009.
The latest episode in the long running saga is Mr Bains application for
compensation for wrongful conviction and imprisonment.
Compensation is a matter entirely for the Cabinet and is discretionary. The
Cabinet guidelines set out the circumstances in which a person may be eligible
for compensation. Mr Bain is not eligible under the guidelines because, when
it quashed his convictions, the Privy Council ordered a re-trial. Defendants
who are sent back for retrial are considered to be more likely to be guilty,
than those cases where the appellate Court is confident to acquit.
However, in extraordinary circumstances, the Cabinet has a residual discretion
to pay compensation to a person who is not eligible where it is in the
interests of justice. In assessing eligibility under this residual discretion,
the principles of the guidelines are generally applied. Claimants must show
that they are innocent on the balance of probabilities and that there are
extraordinary circumstances to justify compensation.
In criminal proceedings, the burden is on the prosecution to prove all
elements of the offence beyond reasonable doubt. In applying for compensation,
the burden shifts onto Mr Bain to demonstrate that he is innocent on the
balance of probabilities. "Balance of probabilities" simply means that it is
more likely than not that he is innocent. It is a less stringent test to
satisfy and is the standard of proof required in civil proceedings. The
classic example of the two standards of proof is the case of OJ Simpson, who
was found not guilty in criminal proceedings for murder, but liable for
wrongful death in civil proceedings.
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Once Mr Bain has established that he is innocent
on the balance of probabilities, it is a matter for the Cabinet to decide
whether there are extraordinary circumstances that justify an award of
compensation. Factors relevant to the exercise of the extraordinary
circumstance discretion have been described as "inherently open-ended".
The Cabinet generally instructs a New Zealand QC
to review claims for compensation. The scope of the review is very wide and is
not restricted to the usual rules of evidence in criminal proceedings. In Mr
Bains case, the Cabinet appointed a retired judge from Canada (Justice Binnie).
Justice Binnie's report was peer reviewed by Robert Fisher QC who considered
it would be unsafe for Cabinet to rely upon. The current Minister of Justice,
Hon. Amy Adams, has now appointed retired Australian judge Ian Callinan to
undertake a fresh inquiry into Mr Bain's innocence.
Interestingly, the terms of reference for the report also ask Justice Callinan
to consider whether Mr Bain is innocent beyond reasonable doubt. If the report
considers Mr Bain is innocent beyond reasonable doubt, this will be a factor
relevant to the exercise of the extraordinary circumstance discretion. The
report is expected within six months, but it remains to be seen whether it
ends the debate about Mr Bain's innocence that has so polarised New
Zealanders.
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Building Amendment Act 2013 update
From 1 January 2015 the
Building Amendment Act 2013 (the Act) changed the rules around residential
building works. These include the following:
* Works worth more than $30,000 now require a written contract including the
building timeframe, the process for varying the contract and the dispute
resolution process.
* For works worth more than $30,000, or if requested, a prescribed checklist
must be provided together with information about the legal status of the
builder, their dispute history, their skills, qualifications and licensing
status.
* Work done to a household unit may automatically include a one year defect
liability period in which the builder can be required to remedy defects.
The Act also provides implied
warranties in all works, that:
* the work will be completed within a stated or reasonable time and will be in
accordance with the plans, the building consent, all laws and legal
requirements and with all reasonable care and skill in a proper and competent
manner, and
* supplied materials will be new (unless otherwise agreed) and suitable for
the purpose for which they will be used.
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Should you pay a deposit?
Payment of deposits has become a normal part of
everyday business, being commonplace in transactions from house purchases to
building work.
However, what is best practice? There is always risk involved when paying
money and receiving nothing tangible in return. What happens, for example, if
a company or natural person becomes insolvent before completing the work you
paid the deposit for? What if a property vendor has spent your deposit but
cannot complete settlement on the day, because they owe their bank too much?
Typically, you may then find yourself an unsecured creditor and it is quite
possible that you will not recover all of your money.
While loss of a deposit happens rarely, you should always consider the risk
when paying a deposit. For example, is the other party solvent? Always seek to
pay the smallest amount possible and consider requiring security to be granted
in return. In property transactions you should consider requiring a deposit to
be held in trust as stakeholder until risks have been assessed and minimised.
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If you have any questions about the newsletter items,
please contact me, I am here to help.
Simon
Scannell
S J
Scannell & Co - 122
Queen Street East, Hastings
4122
Phone:
(06) 876 6699 Fax: (06) 876 4114 Email:
simon@scannelllaw.co.nz
All
information in this newsletter is to the best of the authors' knowledge true
and accurate. No
liability is assumed by the authors, or publishers, for any losses suffered
by any person relying directly or indirectly upon this newsletter. It
is recommended that clients should consult S J Scannell & Co before
acting upon this information.
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