Are your standard form contracts compliant?

We recently wrote about the then-upcoming amendments to New Zealand’s Fair Trading Act 1986, including to NZ’s unfair contract terms regime. As of 16 August 2022, those amendments are now in force. Now, more than ever, it’s important to consider whether standard terms and conditions are compliant with the changes.

So, what’s changed?

Previously, the Act contained protections for consumers against “unfair contract terms”. The new amendments mean that these protections now also apply to small trade contracts. We expanded on this topic in our earlier publication, but in short these are contracts which are:

1. Between parties in trade;
2. Standard form (i.e., there is no opportunity to negotiate); and
3. Relate to a trading relationship worth less than $250,000.00 per year.

A term will be deemed unfair if the Court is satisfied that:

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

What might an unfair contract term look like?

Clauses that limit or extremely reduce liability, onerous terms that are “buried” or hidden in a contract, or terms that penalise for termination following price increases are all potential examples of unfair terms. Importantly, it is not only the content of terms and conditions that is relevant, but also how they are presented. A lawyer should always consider:

1. what a client’s business reasonably requires to protect itself; and
2. how this is conveyed.

What happens if existing terms and conditions contain an unfair term?

The Commerce Commission can take action to stop the implementation of an unfair term by applying to the Court for a declaration of unfairness. If the Court declares the term unfair and it continues to be enforced, a party can be prosecuted and fined up to $600,000 (or $200,000 in the case of an individual).

Source: thelawyermag.com

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