$256K in penalties for souvenir companies that misled tourists

Two companies and two individuals have been convicted and fined a total of $259,000 in the Auckland District Court for manufacturing and selling to visiting Asian tourists a range of high-priced souvenir items that were not what they claimed to be.

The charges brought by the Commerce Commission under the Fair Trading Act followed search warrants executed on ten premises in Rotorua and one in Auckland in August 2011. The search warrants were a multi-agency initiative which involved the Commerce Commission, Police, Customs, Immigration and the Wildlife Enforcement Group. Tourism New Zealand assisted the investigation.

Tourists from China, Korea and Taiwan on organised tours were taken to several of the premises and were sold items such as alpaca rugs and merino or alpaca duvets. They paid significantly more for these items than they were actually worth as a result of misleading representations that the alpaca rugs were New Zealand made, when they were imported, and that the duvet wool content was 100% alpaca or merino when it was not.

“New Zealand has a reputation for producing premium wool products. Tourists are prepared to pay significantly more for these products than for the same items produced elsewhere. To sell items as New Zealand made when they are not, or knowingly label and sell items as 100% alpaca or merino wool when they are not, is deliberately misleading buyers,” Commerce Commission Chairman Dr Mark Berry says.

The companies were:

Top Sky Holdings Limited

• Charged with 12 breaches of the Fair Trading Act, was fined $140,000.
• The company’s Managing Consultant Mr Haidong Chen was also charged with 28 breaches of the Fair Trading Act and was fined $24,500 for his conduct relating to both Kiwi Wool and Top Sky.
• Offered for sale in its Rotorua retail outlet alpaca rugs imported from Peru that had been re-labelled as ’ ’Alpaca New Zealand, 100% Baby Alpaca, proudly made in New Zealand by Alpaca New Zealand’.
• Told customers that their Alpaca rugs were made in New Zealand when they were not.
• Manufactured and offered for sale duvets that were labelled as exclusively or predominantly containing alpaca fibre. The alpaca wool content was just 20%.
• The directors of the company admitted to the Commerce Commission that they knew the representations being made by sales staff were false.
• The alpaca rugs sold by Top Sky were priced between $4,000 and $8,000 each when Peruvian alpaca rugs are sold elsewhere for between $1,000 and $1,600 each.

Kiwi Wool Limited

• Charged with 18 breaches of the Fair Trading Act, was fined $84,000.
• The company’s Managing Director Mr Jinming Chen faced 18 charges and was fined $10,500.
• Manufactured and sold wool duvets both to retail outlets and directly to tour groups. The labels on the duvets stated they were ’100% pure alpaca wool’ when the alpaca wool content was just 20%.
• Kiwi Wool also manufactured and sold duvets with labels stating they were ’100% New Zealand merino lamb wool‘, when the wool content was not merino.
• The directors of the company admitted to the Commerce Commission that they knew the representations made about the duvets were not true.
• The cost of manufacture of the duvets was about $70. They were sold to tourists for between $400 and $1,000. Tourists received an inferior product compared to what they believed they were buying.

“The Commission’s role is to protect the interest of consumers. In this case tourists, who represent a valuable segment of the country’s economy, have been deliberately targeted and harmed by this conduct. Our action on this matter demonstrates that we will take firm action where we see consumer harm,” Dr Berry says.

In sentencing delivered on Thursday 28 March 2013, Judge Dawson said the defendants demonstrated a “large degree of wilfulness and carelessness in the misrepresentations [they were] deliberate and systematic.” Judge Dawson also said the defendants’ conduct “undermined fair competition in the market and unfairly disadvantaged other traders."

There are six further companies and five individuals facing charges as a result of the investigation who are still yet to be dealt with by the courts.