Tag Archive for: unfair contractual terms

The Consumer Law Reform Bill (“the Bill”) contains significant changes to New Zealand consumer laws, and will affect a wide range of businesses. At this stage it looks like it will come into force in or about October 2013, although some sections will have a transition period of 6 months or more before they become effective.

Regulation of the relationship between businesses and consumers in New Zealand is currently largely dictated by the Fair Trading Act 1986 (“the FTA”) and the Consumer Guarantees Act 1993 (“the CGA”). The Bill will strengthen and update both of those Acts, among others, and will align them more closely with Australian consumer law.

The changes will affect the relationship between businesses and consumers and the relationship between businesses and businesses.  This article discusses some of the more substantial amendments and what you should do to prepare for these changes.

Unfair Contractual Terms

A significant number of proceedings brought by consumers (or the Commerce Commission) against businesses, have been for breach of section 9 of the Fair Trading Act which stipulates a person shall not, in trade, engage in conduct that is misleading or deceptive, or likely to mislead or deceive.

The Consumer Law Reform Bill introduces a further restriction; that a person, in trade, must not include an unfair contract term in a standard form consumer contract, or rely on or enforce such a term.

A contract is presumed to be standard form until proved otherwise. Factors which will point to a standard form contract include:

  • whether one party has all the bargaining power;
  • whether the contract was prepared before any discussion relating to the transaction occurred; and
  • a lack of opportunity to negotiate.

The bill gives examples of unfair contract terms, which include:

  •  A term that permits one party (but not the other party) to avoid or limit the
    performance of the contract, or to terminate, vary or renew the contract; and
  • A term that limits one party’s right to sue another party, or limits one party’s
    vicarious liability for its agent.

To limit the risk of uncertainty to consumer contracts the unfair terms provisions are only enforceable by the Commerce Commission. The Commerce Commission can apply to a Court for a declaration that a term is unfair, and if successful, that term will not be able to be enforced or relied upon.

The unfair contract provisions will come into force 15 months after the Bill receives Royal assent to allow businesses time to prepare.

How can you Prepare for the Changes

  • Examine any standard form contracts that your business relies upon, and determine whether any terms may be regarded as “unfair”.

The Commerce Commission has stated that they expect all businesses to comply with the new provisions by the date the new law comes into force, so make changes to affected contracts sooner rather than later.

Unsubstantiated Representation

The Bill will make it an offence under the FTA for a person, in trade, to make an unsubstantiated representation.

An unsubstantiated misrepresentation is a claim made about a good or service without any reasonable basis,irrespective of whether it is true or not.

Currently the onus is on the Commerce Commission to prove that a claim made by a trader is false. Under the Bill the trader will have to make sure that they have good grounds for making any claims about their products.

The law does not apply to representations that a reasonable person would not expect to be substantiated, such as “puffery” (i.e. ‘Red Bull gives you wings. In determining whether a representation is substantiated the Court will consider industry standards.

The degree of evidence required is likely to be a factual issue. Considerations such as how specific the representation is, the type of product (is it potentially dangerous), and the accessibility to evidence (can the consumer easily test the representation themselves) are relevant in similar Australian law.

How can you Prepare for the Changes

  • If you are in the business of supplying services or goods you should first identify representations that you are making that consumers are likely to rely upon.
  • Having identified these, begin the process of ensuring that representations you are making are supported by evidence. Your legal advisor will be able to assist in determining what evidence is likely to be necessary.

Contracting out of the Fair Trading Act and Consumer Guarantees Act

Under the Bill parties will not be able to contract out of the FTA or the CGA, except in some situations  when both parties are in trade. In those circumstances it must be fair and reasonable that the parties are bound by the contracting out provision.

In determining what is “fair and reasonable” the Court will take into account various circumstances including:

  • The value of the goods;
  • Whether the other party was required to accept the terms and conditions; and
  • The respective bargaining power of the parties.

How can you Prepare for the Changes

  • Review your business to business agreements to determine whether contracting out clauses should be added, or whether existing clauses are fair and reasonable.

Extending the Consumer Guarantees Act – Auctions and Guarantee of Delivery

Under the Bill consumers will be able to rely upon the CGA when purchasing of goods by way of auction, including online, such as through Trade Me. Further, those supplying goods, whether by auction or otherwise, will be liable for loss or damage to goods in transit. Delivery to the consumer will also need to occur within a reasonable time (if no specific time is agreed).

How can you Prepare for the Changes

  • Make sure you are familiar with your obligations under the CGA.
  • Make sure your representations as to time of delivery are realistic.

Should you need any assistance with this, or with any other commercial matter, please contact Kris Morrison or Tim Rankin at Parry Field Lawyers (348-8480).