Arguably the most wide-reaching change following the recent
overhaul of New Zealand's consumer laws is the prohibition on
unfair contract terms in standard form consumer contracts. These
changes come into effect on 17 March 2015.
The Commerce Commission has indicated that it will take a
proactive approach to enforcing these new rules. It has recently
finalised its guidelines outlining its intended approach to
enforcement. You can access these guidelines by
What is the purpose of the change?
Consumers are often asked to agree to standard terms and
conditions when purchasing goods and services without reading or
understanding those terms.
These new provisions are intended to redress the imbalance of
bargaining power between consumers and businesses when standard
form contracts are used.
What is a standard form consumer contract?
A standard form consumer contract is a standard form contract
between a business and a consumer and relates to the supply of
goods or services ordinarily acquired for personal use.
A standard form contract is a contract to which the consumer has
not had an effective opportunity to negotiate the terms.
Essentially the consumer is required to either accept or reject the
What is an unfair term?
A term in a standard form consumer contract is unfair if a court
declares that it is unfair.
Only the Commerce Commission can apply to a court for a
declaration that a term in a standard form consumer contract is
unfair. Customers themselves cannot seek a declaration. This is
unlike the Australian position where both consumers and the
Australian Competition and Consumer Commission can apply directly
to a court for a declaration that a contractual term is unfair.
There are certain terms in a standard form consumer contract
that cannot be declared unfair. These include terms which define
the main subject matter of the contract and set the upfront price.
These terms are exempt because it is assumed the customer
understands and agrees to those key terms because they directly
relate to the customer's decision to proceed with the
A court can declare a term unfair if it is satisfied that:
it would cause a significant imbalance between the parties;
it is not reasonably necessary to protect the legitimate
interests of the party which would be advantaged by the term
(usually the business); and
it would cause detriment to a party (usually the customer) if
it were relied on.
A 'grey list' of terms has been prepared which provide
examples of terms which are more likely to be considered unfair.
There are a number of terms included on the grey list such as terms
which unfairly attempt to limit a business' liability and terms
which allow a business to vary the contract without the
What happens if a term is declared to be unfair?
If a court declares that a term in a standard form consumer
contract is unfair, the business cannot include that term in its
contracts and will not be able to apply, enforce or rely on the
term. If the business breaches those requirements they can face a
fine of up to $200,000 for an individual or up to $600,000 for a
What do you need to do?
If your business uses standard form consumer contracts you
should check whether they contain any terms which may be considered
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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