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Unfair contract terms

By Gibson Sheat

Unfair contract terms

You may be aware that consumer law reform has been on Parliament’s agenda for some time now.  This year has seen a raft of amendments to existing legislation to strengthen consumer rights.  The unfair contract term reforms in the Fair Trading Act 1986 (Act), which came into force in March of this year, are of particular interest to businesses.  It is now unlawful to include an unfair term in a standard form consumer contract.

The first thing businesses need to do is to consider whether their terms of trade or contracts are “standard form consumer contracts”.  Put simply, these are contracts that are offered on a “take it or leave it” basis and relate to goods or services are of a kind ordinarily acquired for personal, domestic or household use or consumption.  The Commerce Commission provides examples of industries that will be caught by the provision.  These industries include childcare centres, gyms, motor vehicle dealers, real estate agents, residential builders and utility companies.

If your business uses “standard form consumer contracts”, you need to ensure the contracts do not contain unfair terms.  Put simply, a court may declare that a contract term is unfair if it causes a significant imbalance in the rights and obligations of the parties, it is not reasonably necessary to protect the business’ interests and it would cause detriment to the consumer if it is relied upon.

The theme running through examples of unfair terms are that they apply to one party and not the other.  Examples of unfair terms include terms that penalise the consumer for a breach of contract but not the business, terms that limit the liability of the business but not the consumer and terms that allow the business to vary the terms without the consumer’s authority.

Many of these terms are standard in business terms of trade, so it is important that businesses check their contracts.  Please note that these reforms do not affect transactions between businesses. They only apply to transactions between businesses and consumers.  For transactions between businesses, the reforms to the Act now allow the parties to contract out of certain parts of the Act. Businesses may want to update their terms of trade accordingly. 

Penalties for a breach of the unfair contract term provisions are up to $200,000 for individuals and up to $600,000 for companies.

If you are in business, we suggest you take a moment to consider whether your business may be caught by the unfair contract term provisions.  The last thing a business needs is to take a call from the Commerce Commission after a disgruntled customer has picked up on the fact the business has unlawful terms in its contract.

If you have any questions about this article or wish to consider whether the reforms apply to your business, please call or email Rhys.

Rhys Williams, Senior Solicitor P: +64 4 916 6452  E: rhys.williams@gibsonsheat.com



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