This update provides an overview of the key changes to the FTA. Bell Gully has also published a Guide to Unfair Contract Terms in Business Contracts, to assist with updating your template agreements. Click here to request a copy.
The Bill highlights a growing focus on consumer and small business protection in the current economic climate. In welcoming the passage of the Bill, the Minister of Commerce and Consumer Affairs, David Clark, emphasised that: “We are tightening the screws on unfair and dishonest business activity, which has no place at any point in time, but especially as our economy recovers from the impact of COVID-19."
Unfair contract terms
The most significant change introduced by the Bill is the extension of the unfair contract terms regime to capture certain business-to-business (B2B) contracts worth under NZ$250,000 per year. This aligns the New Zealand position more closely with Australia, which introduced similar restrictions on B2B unfair terms in 2016 (though different thresholds apply).
The key test for whether a term is “unfair" remains fundamentally unchanged. That includes consideration of whether the term:
- would cause a significant imbalance in the parties' rights and obligations arising under the contract,
- 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.
The application of that test in the new context of “small trade contracts" will likely be informed by learnings from the consumer context, as well as overseas case law regarding unfair terms in B2B contracts.
The Commerce Commission may release new guidelines, or update the initial Unfair Contracts Terms Guidelines, to reflect these changes. We will continue to monitor these guidelines and provide updates.
For more information about other changes, see our earlier update. The other key changes relate to:
- a new prohibition against "unconscionable conduct" in trade, and
- rights for consumers to require uninvited direct sellers to leave or not enter their property.
One year transition period
The key changes under the Bill (including the changes relating to unfair contract terms) will come into force in August 2022.
This provides a one-year transition period for businesses to review and update their standard form B2B contracts, to ensure that contracts valued NZ$250,000 per year or less do not contain any unfair contract terms.
Does your business use standard form templates to enter into “small trade contracts" worth NZ$250,000 or less per year? If so, now is the time to review and update those templates to ensure they don't contain any unfair contract terms.
If you would like assistance with this process, or with reviewing specific templates, please get in touch with our commercial and consumer law team or your usual Bell Gully advisor. If you would like a copy of Bell Gully's Guide to Unfair Contract Terms in Business Contracts, please click here to request a copy.