Consumer Law Reform Bill – Do your contracts comply?

Thursday 14 March 2013

Authors: Alan Ringwood, Tania Goatley, Laura Littlewood and Kristin Wilson

​​The Consumer Law Reform Bill (the Bill) has now had its second reading and is on track to be passed early this year. The Bill represents the biggest update to consumer law in New Zealand in the last 20 years. All businesses will need to review their current practices to ensure they comply with the amended legislation. This handout focuses on the key amendments made by the Bill which may necessitate changes to your consumer and business-to-business​ contracts and practices.

1. "Unfair Contract Terms" - Do your standard terms need updating?

The Bill introduces a new prohibition, under the Fair Trading Act 1986, on including or enforcing "unfair contract terms" in standard form consumer contracts. If you contract with consumers on standard terms, it is essential that you review your terms to ensure that they are not "unfair". Under the new law, courts will have the power to prevent businesses from enforcing terms against consumers if the court declares the term to be unfair.

Examples of terms which may be unfair in such a contract include terms that:

  • Allow only one party to unilaterally terminate, vary or renew the contract;

  • Penalise only one party for breach, but not the other;

  • Allow one party to avoid or limit performance but not the other;

  • Effectively reserve the right to determine interpretation of the contract, or to sue upon it to one party only.

2. Other amendments to consider

The following list highlights some of the other key amendments under the Bill which may affect your business-to-business contracts and consumer contracts and promotions (please note that this is not intended to be an exhaustive list of the amendments):

Contracting Out of the FTA: New discretion will be introduced for businesses to contract out (as between themselves – not with respect to consumers) of sections 9 (misleading and deceptive conduct generally), 13 (false or misleading representations), and 14(1) (false representations in relation to land) of the FTA, subject to certain conditions, including that it is 'fair and reasonable' for the parties to do so. This amendment will need to be taken into account when considering 'entire agreement', 'no reliance' and similar clauses.

It is uncertain how judges will determine whether it was fair and reasonable for businesses to purport to contract of the Fair Trading Act and the Consumer Guarantees Act, however the Bill suggests that what is 'fair and reasonable' will be measured against a range of factors including whether there is equality in bargaining power, the transparency of the terms, access to legal advice and the ability to negotiate.

Unsubstantiated Representations: Businesses will have to prepare their advertising and marketing materials with even more care than before. Whereas previously, it was prohibited to make misleading or deceptive statements to consumers, now it is also prohibited to make any representations unless you can prove that you have good grounds for making them. The burden has shifted from the Commerce Commission having to prove that a statement was false, to businesses having to show evidence to prove that it is true. The fact that a representation made is in fact true will not assist a business if it did not have substantiating evidence at the time it was made.

Contracting out of the CGA: The current discretion for businesses to contract out (as between themselves) of the CGA will be limited with the same conditions as the new contracting-out rights under the FTA, including that it is 'fair and reasonable' for the parties to do so.

Guarantee of Delivery: A new guarantee will be introduced relating to the timeliness of delivery in respect of suppliers delivering or arranging for delivery of goods to consumers.

3. Changes in enforcement

The last few years have seen large fines being imposed for breaches of the Fair Trading Act, with the defendant in one case being fined over $900,000 for multiple breaches. The Bill proposes to triple the maximum fine for breaches of the Fair Trading Act, with the maximum penalty per offence for companies being increased to $600,000. Individuals who are convicted of two or more breaches of the Fair Trading Act may be banned from being a director, promoter or being involved in trade for up to ten years if the Court thinks such a ban is appropriate.

The Disputes Tribunal's jurisdiction will be extended so that it can handle complaints about misleading and deceptive conduct (though the Disputes Tribunal will not be able to rule on complaints regarding unsubstantiated representations or unfair contract terms).

The Commerce Commission will be granted the power to:

  • conduct compulsory interviews under the Fair Trading Act;

  • enter premises without a warrant to investigate product safety and halt the sale of unsafe products

  • issue infringement notices and instant fines for failure to comply with consumer information standards or inadequate disclosure regarding extended warranties.

The changes to consumer legislation brought in by the Bill are likely to mean that disputes regarding terms of trade, misleading and deceptive conduct, and product liability will be handled quite differently in the future. Adequate preparation for the coming changes will be an essential way to ensure your business keeps up with the changing environment.

4. Steps businesses should take

Many businesses will be affected by these law changes, and terms of trade and other standard terms will need to be reviewed to assess the extent to which they may contain unfair terms. In addition, businesses will need to be careful that they only make claims when they have good grounds for making those claims.

As many of the policy initiatives proposed in the Bill are similar to policies in place in Australia, some businesses that operate trans-Tasman may have already sufficiently incorporated these proposals. However, at a practical level, it would be prudent to review such material against the proposed changes as there are likely to be differences in the detail.


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
  • Alan Ringwood

    Partner Auckland
  • Tania Goatley

    Partner Auckland
  • Kristin Wilson

    Senior Associate Auckland