Watch out for “Unfair Contract Terms” in NZ

Watch out for “Unfair Contract Terms” in NZ

UnfairPeople that have been caught out by small print in standard form contracts will be pleased to know that sections 46H to 46M of the Fair Trading Act 1986 have just come into force on 17 March 2015, which prevent “unfair contract terms” in certain “standard form consumer contracts”. An unfair contract term is defined (in s 46L) as term that:

• would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
• is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• would cause detriment (whether financial or otherwise) to a party if it were applied, enforced, or relied on.

There is a “grey list” of potentially unfair terms (see…/0121/latest/DLM6410749.html), but generally, an unfair term will be something that causes a significant imbalance in favour of one party at the expense of the other. This could include terms that limit liability under a contract even if the party is at fault (which is typical in many standard contracts) and terms that allow one party to unilaterally change or terminate the contract.

Standard form contracts are those presented on a “take it or leave it” basis, such as terms & conditions on a website, phone contracts, hire purchase agreements, parking notices, gym memberships, or terms on the back of an invoice.

Although the Act only applies to “consumer” contracts, this includes business to business contracts if it relates to goods or services ordinarily acquired for domestic purposes and not purchased for “resupply in trade”. For example, buying a computer or car for business would be covered, as well as personal services used ordinarily for domestic purposes such as services from electricians or builders.

If you think your business might have standard terms which are in breach of these provisions, you should get some legal advice. If you are taken to court by the Commerce Commission, fines for non-compliance are $200,000 for individuals and $600,000 for companies, which might seem a bit unfair…