Are your contract terms “fair”?

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Over the past decade New Zealand’s consumer protection laws have seen a number of changes. One of these was the introduction of “Unfair Contract Terms” (UCT) under the Fair Trading Act Amendment Act 2013.

Despite coming into force in 2015, the New Zealand Commerce Commission is still finding businesses across different industries that are in breach of these laws.  

Do these rules apply to me?

UCT provisions only apply to standard form consumer contracts – so what are these?

A standard form consumer contract is a contract between parties which has not been subject to “effective negotiation”. As a consumer, you may deal with these forms of contract on a daily basis for example, your local gym membership contract, or your mobile phone contract.

Generally these types of contract are done on a “take it or leave it” basis.

It is important to note that UCT provisions do not affect business-to-business transactions, unless they related to a sale involving personal or domestic goods or services.

What are Unfair Contract Terms?

For a term to be considered “unfair” it must meet three requirements:

  1. The term would cause a significant imbalance in the parties’ rights and obligations arising under the contract.

Example
If you are builder or electrician and cause damage to a customer’s property (whether through your own negligence or not), and the customer is unable to make a claim, then this would likely be considered to cause a “significant imbalance”.

  1. The term would cause detriment (whether financial or otherwise) to a party if the term were applied, relied on or enforced.

Example
A consumer may come under considerable pain or distress, or may face financial penalties if the term is enforced.

  1. The term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term.

The onus is on the advantaged party to prove that the term in the contract is necessary, not on the Commissioners to prove that that the term is not reasonably necessary. As a result of this, the Act provides little guidance on what will be deemed “necessary”. Each situation is therefore analysed on a case by case basis.

It is important to note that all three requirements must be met, so a contract term may cause detriment to a consumer but it may not cause a significant imbalance of power between both parties.

When determining whether a term is a UCT the Court will also consider the contract as a whole, and any other matter it considers relevant.

Next steps

If you are someone who operates in the realm of standard form contracts, it is important to check that your contracts comply with today’s consumer protection laws.

If your contracts are found to be in breach of these laws, you could be facing a fine of up to $200,000 if you are an individual or up to $600,000 if you are body corporate!

If you would like to know more about Unfair Contract Terms, or any other advice relating to your business contracts, please contact our Business team.

This article was first published in December 2017 and updated in June 2019.