Further clarification of "unfair contract terms" and other changes to the Consumer Law Reform Bill

Thursday 24 July 2014

Authors: Glenn Joblin and Laura Littlewood

A new Supplementary Order Paper 273 to the Consumer Law Reform Bill has been released, replacing Supplementary Order Paper 207 discussed in the previous issue of Corporate Reporter here. SOP 273 retains the changes introduced in SOP 207 with some additions and amendments, particularly with regard to the new unfair contract term provisions and their application to insurance contracts. The main changes introduced by SOP 273 to the Bill affecting the Fair Trading Act 1986 and the Consumer Guarantees Act 1993 are outlined below.

Fair Trading Act

The substantive amendments to the Fair Trading Act (FTA) include:

  • A delayed start for contracting out provisions: One of the key changes proposed in the Bill allows parties in trade to contract out of the FTA, in certain circumstances. The SOP proposes to delay the commencement of the contracting out provisions until six months after the Bill receives Royal assent.

  • Further clarification for unfair contract term provisions: The Bill introduces a new prohibition, under the FTA, on including or enforcing any term in a standard form consumer contract which the court has declared to be an "unfair contract term". The SOP proposes further clarification on the regime for "unfair contract terms" as follows:

    (i) Prospective effect - the prohibition on unfair contract terms will not apply to consumer contracts entered into before the prohibition comes into force, but will apply to variations and renewals to those contracts (other than insurance contracts, as discussed in paragraph (iii) below).

    (ii) Varying unfair terms - a term that has been declared "unfair" can be used in a consumer contract if the term is varied to become compliant with the court's declaration.

    (iii) Insurance contracts - the prohibition on unfair contract terms will not apply to insurance contracts entered into before the prohibition comes into force, nor to variations and renewals of such contracts. The SOP also provides a list of terms particular to insurance contracts that favour the insurer but that will not be deemed unfair on the basis they will be considered reasonably necessary in order to protect the legitimate interests of the insurer. These include terms limiting the liability of the insurer to indemnify the insured, terms providing for payment of the premium and terms specifying the requirements for disclosure by the insured.

    (iv) Transitional period - the SOP proposes that the effective date of the new prohibition on unfair contract terms be delayed until 15 months after the Bill receives Royal assent.

  • Additions to the "shill bidding" prohibition: One of the highly publicised changes made by the Bill to the FTA was the implementation of a prohibition on "shill bidding", the practice of vendors' bidding on their own property, with the intention of artificially inflating the price. The SOP adds to the Bill's existing rules by providing that a vendor (or agent) making a bid that is above the reserve price constitutes a false or misleading representation.

  • Clarification for Internet trading provisions: The Bill inserted a requirement to the FTA that if a vendor who is in trade offers goods or services for sale on the Internet, the vendor must make it clear to potential purchasers that the vendor is a person in trade. The SOP clarifies that the vendor need only disclose that they are in trade if the vendor's offer is capable of being accepted via the Internet.

  • Modification of reporting requirements for voluntary product recalls: The Bill proposes a framework for streamlining the voluntary recall of goods. This framework imposes reporting requirements on the supplier to notify the Chief Executive of the Ministry of Consumer Affairs within two working days of recalling the goods. The SOP amends the provisions of the Bill, so that the reporting requirements apply only in situations where there is no other requirement to report to a government agency or take any other action in respect of the goods.

  • Further changes to the new uninvited direct sales regime: The Bill repeals the Door to Door Sales Act 1967, and replaces it with the uninvited direct sales regime under the FTA. The Bill proposes that uninvited direct sales agreements be required to contain the total price payable under the agreement. The SOP clarifies that the price must be stated either as (i) the total price payable and any other consideration to be given under the agreement or (ii) the method by which the total price will be calculated.

Consumer Guarantees Act 1993

The substantive amendments to the Consumer Guarantees Act (CGA) include:

  • A delayed start for contracting out provisions: As under the FTA,one of the key changes proposed in the Bill is that parties in trade will be able to contract out of the CGA, in certain circumstances. The SOP proposes to delay the commencement of the contracting out provisions until 6 months after the Bill receives Royal assent.

  • Clarifications for theguarantee as to acceptable quality in supply of gas and electricity: The most significant of the Bill's reforms to the CGA is its insertion of a separate guarantee of acceptable quality in relation to the supply of gas and electricity. The SOP clarifies that the guarantee does not cover non-reticulated gas. It also proposes consequential amendments to other aspects of the CGA to assist the new guarantee to fit within CGA's existing framework.

  • New guarantee as to delivery: The SOP proposes a new guarantee relating to delivery. Where a supplier is responsible for delivering or arranging for the delivery of goods to the consumer, the supplier guarantees that the consumer will receive the goods at a time or within a period agreed by the supplier and the consumer, or, if no time has been agreed, within a reasonable time. Where the guarantee is breached, the consumer may, depending on how substantial the breach is, either reject the goods, or obtain damages for the loss.


The Consumer Law Reform Bill is currently at the committee of the whole House stage of the Bill (where the final form of the Bill is agreed by the House) and is still on track to be passed into law by the end of the year. The Bill will be passed as six separate bills (as set out in SOP 218): the Fair Trading Amendment Bill, the Consumer Guarantees Amendment Bill, the Weights and Measures Amendment Bill, the Secondhand Dealers and Pawnbrokers Amendment Bill, the Carriage of Goods Amendment Bill and the Auctioneers Bill.

The Bill will come into force on the day after it is enacted. However, there are transitional periods built into the Bill to allow time to implement various changes. In addition to the six-month extension given for the contracting out provisions and the 15-month extension for the unfair contract term provisions noted above, there are also six-month transitional periods relating to:

  • 'unsubstantiated representations' in trade;
  • layby sales, uninvited direct sales and extended warranty agreements;
  • infringement offences;
  • auctions and Auctioneers;
  • the Carriage of Goods Act;
  • the guarantee as to delivery provisions in the CGA; and
  • the CGA's application to gas and electricity.

For further information on the Consumer Law Reform Bill see our earlier client update here.‚Äč


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
  • Glenn Joblin

    Partner Auckland
  • Laura Littlewood

    Partner Auckland
Related areas of expertise
  • Insurance
  • Corporate governance and advisory
  • Consumer law