Tuesday 17 March 2015
Unfair contract terms
As part of a wider consumer law reform in New Zealand, amendments have been made to the Fair Trading Act 1986 (FTA) to provide for a new 'unfair contract terms' regime. Under the regime, standard form consumer contracts (ie, consumer contracts that are not negotiated and are in a take-it-or-leave-it form) will be prohibited from containing terms that a court declares to be unfair.
What are unfair contract terms?
Terms can be declared unfair by the courts if they would cause significant imbalance in the parties' rights and obligations, are not reasonably necessary to protect the legitimate interest of the advantaged party, and would cause detriment if relied on. For example, if your company's standard form consumer contracts contained terms that:
- give rights to the business that it would not usually have or be able to obtain if the parties had equal bargaining power; or
- protect the business in a way that puts the consumer at a significant disadvantage; or
- shift risks to the consumer that the business is better placed to manage,
this may give the court a basis to declare the contract unfair, as it creates a 'significant imbalance between the parties'.
Examples of Unfair Contract Terms
Examples of clauses that may be declared unfair in a standard form consumer contract are clauses that permit, or have the effect of permitting, one party (but not the other) to:
- vary or renew the contract;
- terminate the contract;
- limit liability or require indemnification;
- penalise for breach or early termination;
- vary the price of goods / services, without the right to terminate the contract;
- assign the contract to the detriment of another party without that party's consent; and
- decide whether or not a contract has been breached.
Unfair contract terms must not be included in any new, varied or renewed standard form consumer contracts from 17 March 2015.
If you think your business may use standard form consumer contracts affected by these law changes, please contact us to discuss reviewing those contracts.