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 clicking here.

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 contract.

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 contract.

A court can declare a term unfair if it is satisfied that:

  • it would cause a significant imbalance between the parties; and
  • 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 customer's consent.

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 body corporate.

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 unfair.

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.