Unfair Contract Terms: Changes to the Fair Trading Act

Changes to the Fair Trading Act in March 2015 saw the introduction of the concept of unfair trading terms.

As a result of those changes, the Commerce Commission is now able to take proceedings against a business that utilises unfair contract terms (UCT) in their standard form consumer contracts. Businesses with standard Terms and Conditions of Trade need to consider the terms and conditions upon which they do business and whether their contract comes within the standard form consumer contracts definitions set out in the Fair Trading Act.
If the UCT provisions apply, the amendments to the Fair Trading Act will prevent a business from enforcing a term in a standard form of contract where a Court has ruled that the following conditions have been met:

  • The term causes significant imbalance in the parties’ rights and obligations;
  • The term is not reasonably necessary to protect the legitimate interest of the party who would be advantaged by the terms; and
  • The term would cause detriment (financial or otherwise) to a party if enforced.

A court ruling would make the UCT unenforceable, however the remaining terms of the terms and conditions would be binding for the affected parties. If a party continues to use or enforce a UCT which has been held by a Court to be an infringement of the Fair Trading Act, the party using the terms or enforcing the terms may be convicted and fined under the Fair Trading Act and ordered to pay damages or refund money. Companies can be fined up to $600,000 and individuals up to $200,000 per breach, so the possible consequences for breach are considerable.
Any clients with concerns about their Terms of Trade or the changes to the Fair Trading Act should contact us.