With new unfair contract terms provisions for consumer goods and
services taking effect under the Fair Trading Act in March 2015,
the Commerce Commission has released draft guidelines for
While they do not override the Act, it could be very useful for
businesses that commonly use standard form contracts to make
submissions on the guidelines.
We also recommend that businesses who use standard form
contracts for consumer goods or services review their contracts
over the next six months to ensure they comply with the new
Background: the unfair contract terms provisions
Broadly, the courts will have a new power to determine, on
application by the Commerce Commission, that terms of standard form
consumer contracts are unfair, and therefore unenforceable. Terms
defining the subject matter and setting out the upfront price in
the contract (provided this is transparent), and any terms
specifically required by legislation, will fall outside the scope
of the unfair contract terms regime.
A standard form contract is not specifically defined but as a
minimum must have not been subject to effective negotiation between
the parties. It is likely to include terms and conditions (perhaps
in fine print attached to an invoice, quotation or purchase order)
offered by a business to a contracting party on a "take it or
leave it" basis, where the other party has little bargaining
power or opportunity to negotiate the terms.
A term will be unfair if the court is satisfied that the term
would cause a significant imbalance between the parties'
contractual rights and obligations, is not reasonably necessary in
order to protect the legitimate interests of the business, and
would cause detriment to one party if it were relied upon. In
addition, the Court must consider the transparency of the term and
the contract as a whole. "Transparency" requires that a
term is expressed in reasonably plain language, legible, clearly
presented and readily available. There are safe-harbours for terms
which are to be considered "reasonably necessary" in
The new regime includes a "grey list" of example terms
which may be considered unfair, such as the ability for one party
to unilaterally vary the contract, but this is not conclusive and
will depend on court determinations. Businesses reviewing their
contracts should focus on terms that fall within this list of
examples, as well as converting overly legalistic terms to plain
Importantly, only the Commerce Commission will be able to bring
an application to the courts for a declaration of an unfair
contract term. The Commission's interpretation, as reflected in
the guidelines, will therefore be very important.
Draft Guidelines from Commerce Commission
Helpfully, the draft guidelines highlight a list of industries
that could have standard form consumer contracts:
telecommunications and utilities, finance companies, gyms,
residential construction, motor vehicle sales, air travel, car
rental, day care centres, online apps and software, pay TV, hire
purchase, retirement villages, residential tenancy and real
Perhaps appropriately at the outset of this new regime, the
draft guidelines do little more than explain the new regime, and
provide general information of the requirements on the legislation,
in a plain English format.
Despite that, there are several areas on which businesses could
usefully comment. In particular, the Commission has taken a narrow
view of the requirement to prove that a term is reasonably
necessary to protect a business's legitimate interests. The
Commission's view is that the threshold is high, would require
that the interest is a legitimate interest and which requires
protection, which cannot reasonably be protected by fairer
We think this could be an area for businesses to focus on, and
take this opportunity to explain situations where contract terms
might be "reasonably necessary" to protect legitimate
business interests. This could lead to immediate benefits if the
Commission were to recognise those circumstances in the final
version of the guidelines and reduce the likelihood that the
Commission will want to examine such terms in the future.
In addition, we think that the Commission could give more
examples in relation to the "grey list" of potentially
unfair terms to assist businesses in their contract review process.
At present, the Commission's examples address only the simplest
and most obvious of the points in the grey list, and not those
where there could be more room for debate about whether a term is
In our view, the guidelines could also address the increasingly
common use of electronic and web-based platforms for contractual
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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