Changes to the New Zealand Fair Trading Act 1986 (FTA) take force on 16 August 2022 which:
- Prohibit unconscionable conduct
- Extend the unfair contract terms regime to small trade contracts
- Entitle consumers to direct uninvited direct sellers to leave or not enter their property
These changes are aimed at reducing the prevalence of unfair commercial practices across the economy. The Commerce Commission has also published guidance about each of these changes.
Unconscionable conduct
It is now an offence under the FTA for persons in trade to engage in unconscionable conduct. The maximum fine for individuals is $200K, and for companies and body corporates $600K.
“Unconscionable conduct” is undefined but factors that may be taken into account include:
- The relative bargaining power of the parties
- The extent to which the parties acted in good faith
- If a contract is involved, the terms of the contract, the circumstances in which the contract was entered into, the way the contract is enforced, and whether obligations under the contract are reasonably necessary for the protection of the trader’s legitimate interests
The prohibition is based on an equivalent Australian prohibition. Australian courts have indicated that unconscionable conduct is “conduct against conscience by reference to the norms of society”. The Commerce Commission’s guidance also indicates unconscionable business conduct is “business activity that is a substantial departure from Aotearoa New Zealand’s generally accepted or expected standards of business conduct”.
Unfair contract terms
The FTA has a regime targeting unfair contract terms in standard form consumer contracts. This regime is now extended to the business to business context for standard form small trade contracts.
A contract is a small trade contract if:
- each party to the contract is engaged in trade
- it is not a consumer contract
- it forms part of a trading relationship worth less than $250,000 in any annual period when the first or only contract is entered into
A trading relationship consists of a contract and any other contract and future contract between the same parties on the same or substantially similar terms. An example in the legislation indicates that contracts can be in the same trading relationship even if they have different subject matters (for example a contract for grapes and a contract for apples which have the same terms).
There is also a process for regulations to deem classes of contract to be a small trade contract.
For contracts captured under the unfair contract terms regime, the Commerce Commission can seek a court declaration deeming a term in the contract to be an unfair contract term. A term can only be declared unfair if:
- the term would cause a significant imbalance in the parties’ rights and obligations arising under the contract
- the term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it
- the term would cause detriment (whether financial or otherwise) to a party if it were applied, enforced or relied on.
Some terms cannot be declared unfair, ie are exempt from the regime. Terms are exempt to the extent they:
- define the main subject matter of the contract
- set the upfront price payable under the contract
- are required or expressly permitted by any enactment
It is an offence to include unfair contract terms in a standard form contract (unless allowed by the court), or apply, enforce or rely on the unfair contract term. The maximum fine for individuals is $200K, and for companies and body corporates $600K.
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