Commerce Commission releases Unfair Contract Terms guidelines

Thursday 26 February 2015

Authors: Laura Littlewood, Tania Goatley and Kristin Wilson

The Commerce Commission has published its final Unfair Contract Terms Guidelines which set out the approach the Commerce Commission will take to enforcing the new unfair contract terms provisions under the Fair Trading Act 1986.

This update sets out the key changes that the Commerce Commission has made to the initial draft version of the Guidelines that were released in July 2014. The changes follow submissions by approximately 30 parties. Our earlier​​ Update on the draft guidelines is available h​ere.

Key changes in the final version of the Guidelines

Key changes in final version of the Guidelines, include:

  • The Commerce Commission makes it clear that it will apply for court declarations in suitable cases that meet its enforcement criteria, and in cases that present the opportunity to develop case law on important points.

  • If a contract is varied or renewed on or after 17 March 2015, the whole contract becomes subject to the unfair contract terms provisions, regardless of the importance or extent of the variation.

  • Industries in which standard form consumer contracts are common have been expanded to include: car parking, childcare centres, daily deal or coupon specials, events and entertainment, professional services, rental of appliances or goods, and self-storage facilities.

  • A term means all or part of a term, clause or provision. If a term addresses multiple matters, each matter will be subject to its own assessment under the unfair contract terms provisions.

  • In making a declaration of unfairness, a court may describe the context or conditions that make the use of that term unfair.

  • A declaration will apply directly to the term in the contract the court has scrutinised. If a supplier has used the same contract multiple times, then it is likely that the declaration of unfairness will extend to all of the same terms contained in those other contracts. It may also extend to other kinds of contracts containing the same term, depending on the contract’s content and the terms of any court declaration.

  • The Commerce Commission will publish any decision it obtains. Other traders should carefully consider the court’s findings and exercise caution before incorporating terms in their contracts that have been declared unfair when used by other traders. A term that was unfair in one context may not be unfair in another. Other businesses that wish to rely on such a term should however ensure that the inclusion of that term in their contract would not be unfair, having regard to the tests prescribed in the Fair Trading Act, including the nature of the contract as a whole.

  • If it is found that a term causes significant imbalance between the parties’ rights and obligations under the contract, a court will consider the contract as a whole to see if there are other terms that might reasonably be seen as counterbalancing the effect of the relevant term.

  • If a business argues a term is reasonably necessary to protect its legitimate business interests, it will need to prove this on the balance of probabilities (ie a civil standard of proof).

  • More clarification has been provided as to the definition of a ‘consumer’ in the Act. The guidelines note that it is a matter of fact and degree whether goods can be said to be of a kind ordinarily acquired for private use. The fact that a good or service is often acquired for commercial use does not prevent it also from being ‘ordinarily acquired’ for private use.

The final version of the Guidelines also includes additional statements which reiterate that:

  • Parties to a standard form consumer contract cannot contract out of the unfair contract terms provisions, and any attempt to do so may breach the Fair Trading Act.

  • In order for a term to be declared unfair, the term must cause significant imbalance in the parties’ rights, create detriment to the consumer, and not be reasonably necessary to protect the legitimate business interests of the supplier. All three elements must be present in order for a term to be unfair.

  • If a term is declared unfair, the supplier against whom the declaration was made may not use or enforce that term unless it is included in a contract in a way that complies with the terms of a court’s decision.

Commerce Commission’s approach

Businesses need to be familiar with the Guidelines in advance of the unfair contract terms provisions coming into effect on 17 March 2015. The Commerce Commission Chair, Dr Mark Berry, has made it clear that there will be no grace period for enforcement, and that the Commerce Commission intends to be active in enforcing these rules as soon as they come into effect.

The Commerce Commission has indicated that particular focus will be placed on industries that have proven problematic overseas, or industries in respect of which complaints have been received in the past. Businesses operating in the following areas will need to be particularly careful to ensure that their contracts are compliant with the new rules:

  • telecommunications;

  • rental cars;

  • fitness;

  • airline;

  • online trading; and

  • finance.

The unfair contract terms provisions apply to contracts signed on or after 17 March 2015, or which are varied or renewed on or after 17 March 2015. There is still time for businesses to amend their contracts to avoid potentially unfair terms, but this time is running out. If you would like any assistance to review and amend your standard form consumer contracts, or if you have any questions, please contact your usual Bell Gully adviser or any of the individuals to the right.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Laura Littlewood

    Senior Associate Auckland
  • Tania Goatley

    Partner Auckland
  • Kristin Wilson

    Senior Associate Auckland
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