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
Allow only one party to unilaterally terminate, vary or renew the
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
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
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
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.
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.