UCT provisions: Unfair contracts and consumer protection
The next time you are buying goods and services and you are presented with a form with a request to “Sign Here” you are entering into a standard form consumer contract. In theory, parties entering into a contract consider terms, negotiate changes and have an acute awareness of what they are undertaking to do and what they are expecting to receive.
The reality is significantly different, in that the form is presented at the time of purchase. There is no negotiation or time to consider the detailed provisions of the contract.
In recognition of the reality of standard form consumer contracts, changes have been introduced into the Fair Trading Act 1986 by introducing a concept of unfair contract term provisions (UCT provisions) to apply to standard form consumer contracts entered into or changed on or after 17 March 2015.
Standard form consumer contracts have as a primary feature that they have not been subject to effective negotiation between the parties. They are the sort of contracts consumers enter into every day. They are usually lengthy, in fine print and signed without time or inclination to read them by consumers buying such things as booking a trip, hiring machinery, buying furniture or a mobile phone, joining a gym or having work carried out. The difference between them and more commercial type contracts is that, in addition to an imbalance in the negotiating position of the parties, a completed contract is presented for execution without any opportunity to reject or vary terms.
The UCT provisions are supervised by the Commerce Commission. The Commerce Commission may apply to the Court for a declaration that a term in a standard form contract is a UCT provision. If the Court agrees, then the term cannot be included in the consumer contract and the party providing the contract cannot apply, enforce or rely upon it. There is additionally a significant penalty regime for non compliance with the Court directive, including in the case of conviction of an individual a fine of up to $200,000, and on conviction of a body corporate a fine of up to $600,000. There is also the possibility of orders directing the infringing party to refund money or pay damages.
There are some exempt terms which are excluded from being declared UCT provisions. They are terms which either define the subject matter, or set an upfront price payable, or are expressly required by any other enactment. UCT provisions on the other hand are ones which the Court considers cause significant imbalance in the party’s rights and obligations, which are not reasonably necessary to protect the legitimate interests of the party, advantaged by the term and would cause detriment to a party if the term were enforced or relied upon. The Court must also consider the extent to which the term is transparent and its context in the contract as a whole. By way of some examples as to what might be considered UCT provisions:
- The ability of one party to vary the terms or avoid performance
- The ability to change what is supplied without the other party being able to reject or terminate
- One way penalties
- Allowing one party to determine whether a contract has been breached or how it is interpreted
- Dispute provisions which allow only one party to sue or limit the control or conduct of dispute resolution proceedings
They are examples only. Terms which may be considered UCT provisions are not a closed category.
Businesses with standard form terms of trade should examine their terms to ensure they do not contain UCT provisions which may result in a complaint, and a Commerce Commission application to have the terms declared UCT provisions, with the consequences which follow.