Over the last couple of weeks, the Fair Trading Amendment Bill made its way through the final stages of Parliamentary review and was passed into law on Monday 16 August. Some of the changes are effective immediately; other more significant changes take effect a year later.
One of the significant changes is the extension of the unfair contract terms framework (which prohibits terms that are ‘unfair’ in standard form consumer contracts) to cover standard form small business contracts valued at under NZ$250,000 per year.
Two other key changes are:
- a new prohibition against "unconscionable conduct" in trade. Unconscionable conduct is not defined and is to be assessed against a raft of factors, including the relative bargaining power as between the parties, and whether there was unfair pressure or tactics involved; and
- rights for consumers to require uninvited direct sellers to leave or not enter their property.
Other less significant changes come into force immediately, including:
- widening the circumstances in which management banning orders (that prohibit a person from taking part in the management of a company that carries on business in New Zealand) can be made; and
- the requirement for suppliers to provide consumers with a written copy of their extended warranty within 5 working days of purchase.
What’s an‘unfair’ contract term?
The unfair contract terms rules have been in place in NZ for consumer contracts for some time now (and there are similar rules in Australia) so we can look to guidance developed over that time about the types of terms that are likely to be problematic. Some examples include:
- Terms that allow one party to increase prices or vary terms to the detriment of the other party, without any liability for the disadvantaged party to terminate the contract;
- Automatic renewal terms that are not adequately disclosed; and
- Early termination charges.
If, following an application from the Commerce Commission, the High Court declares that a term is unfair, that term cannot be applied, enforced, or relied upon. In addition to the need for contractual certainty, businesses should be alive to the risk of negative publicity or reputational harm from an investigation into possible unfair contract terms, or indeed proceedings.
Now is a good time for businesses to consider whether they might be covered under the extension of the unfair contract terms framework and examine their standard terms to ensure compliance.