Are you a business owner and need assistance understanding how the recent changes to the Fair Trading Act may affect your contracts and trading terms?
Contact our commercial expert, Bret Gower today for further advice.
Fair Trading Act Update: Winter is Coming
30 September, 2021 | Bret Gower
The Fair Trading Act 1986 (“the Act”) has long been at the forefront of consumer protection in New Zealand. The Act includes protection for consumers from unfair contract terms under standard form contracts. In the event there is a suspected unfair contract term, consumers may complain to the Commerce Commission who have the power to apply to the High Court for a declaration to that effect rendering the term unenforceable.
What are Standard Form Contracts
Standard form contracts are typically found where everyday people enter into contracts without the chance of negotiation. For example, in most cases when we contract with large companies for services (i.e. telecommunication services, utility services, etc) the offer is generally under their standard terms and proffered as a “take it or leave it” type arrangement. In many cases consumers do not even read these types of terms and conditions.
For the purposes of the Act, those types of contracts are known as standard form contracts.
What are Unfair Contract Terms?
There is no set definition or exhaustive list as to what constitutes an unfair contract term. The determination is ultimately at the discretion of the High Court subject to the circumstances surrounding the application being made. However, some examples of unfair contract terms are provided for in the Act. Some common examples are:
- A term that permits one party (but not the other) to avoid, limit, or terminate the contract;
- A term that penalises one party (but not the other) for a breach or termination of the contract;
- A term that permits one party (but not the other) to vary the terms of the contract; and
- A term that limits one party’s right to sue.
The Recent Changes
On 16 August 2021, Fair Trading Amendment Bill 2019 received royal assent bringing significant new protections and the extension of consumer protection to commercial parties under small trade contracts (commercial parties were previously excluded from protection under the Act).
New Protections – The Prohibition of Unconscionable Conduct
The significant new protections provide that no party in trade (i.e. businesses) can engage in conduct that is unconscionable. What constitutes unconscionable conduct is yet to be seen as it is not defined in the Act, however, the Act provides guidance by way of relevant factors the Court may consider when assessing whether conduct is unconscionable. This includes:
- Unfair pressure or tactics were used;
- Any undue influence on the parties;
- Whether the parties acted in good faith;
- Whether the parties understood the documents;
Again, the determination seems to ultimately be at the Court’s discretion subject to the circumstances surrounding the application being made.
Extension of Protection to Small Trade Contracts
Another significant change is that the unfair contract terms scheme (as described above) will be extended to protect businesses under a “small trade contract” with other businesses. Small trade contracts are defined as contracts between parties in trade that do not meet a $250,000.00 (incl GST) annual value threshold when the trading relationship first arose.
The Grace Period
These significant changes to the Act will come into effect on 16 August 2022. Businesses therefore have a year to review their practices, standard form contracts, and small trade contracts to ensure they are compliant and not in breach of their obligations under the Act.
If you have any questions or require any assistance in reviewing your practices and contracts in anticipation of the new Fair Trading Act changes, do not hesitate to contact our commercial associate, Bret Gower for a quick chat to determine whether these changes apply to you.