Expansion to unfair contract terms regime in New Zealand now in effect

This holiday season has seen major changes to the trade and compliance space that require immediate action from businesses. So, the team at Macpherson Kelley is making sure you’ve made a list and you’re checking it twice!

We’ll be releasing a series of accessible guides and articles on what your business needs to do to stay on Santa’s nice list this year – with the help and guidance of our trade and compliance team.

If your business is located in, or trades in New Zealand, you need to consider the recent changes to the New Zealand Fair Trading Act 1986 (Act) that came into effect from 16 August 2022.

NZ UCT regime

Since March 2015, the Act has prohibited the use of “unfair contract terms” (UCTs) in standard form consumer contracts.

Now, since August 2022, the UCT regime also extends to standard form small business (trade) contracts.  A standard form small trade contract is where:

• each party is engaged in trade and it is not a consumer contract; and
• the trading relationship does not exceed an annual value threshold of NZD$250,000 (including GST, if applicable) when the trading relationship first exists.

The expanded UCT regime applies to new small trade contracts entered into in New Zealand, as well as existing contracts that are renewed or varied, as of 16 August 2022.

The UCT regime cannot be contracted out of by the parties and any attempt to do so may be a breach of the Act.

What is a standard form contract?

A standard form contract is a contract that has not been subject to effective negotiation between the parties. Instead, it has been offered on a “take it or leave it” basis.

A court will consider the following when determining whether a contract constitutes a standard form contract:

• whether one of the parties had all or most of the bargaining power in the transaction;
• whether the contract was prepared by one party before any discussion took place about the transaction;
• whether a party was required to accept or reject the terms of the contract in the form in which they were presented;
• the extent to which the parties had an effective opportunity to negotiate the terms of the contract; and
• the extent to which the terms of the contract take into account the specific characteristics of any party to it.

What is an unfair term?

Terms that will fall under the UCT regime include:

• where reliance on the term would cause a significant imbalance between the parties;
• where the term is not reasonably necessary to protect the legitimate interests of the party relying on the term; and
• one party would suffer detriment (financial or otherwise) if they relied on the term.

Penalties

If a business includes a UCT in a standard form consumer contract or small trade contract, there may be significant consequences.

• The New Zealand Commerce Commission (Commission) may apply to the Court for a declaration that a term is unfair; and
• If the business continues to use or enforce a term that has been assessed as “unfair”, then it may face:
  • conviction and a fine of up to NZD$200,000(for individuals) or NZD$600,000 (for businesses); and/or
  • an injunction restraining the business from including, applying, enforcing or relying on the term; and/or
  • orders directing it to refund money or pay damages.

What do businesses need to do? 

Businesses located in or trading in New Zealand should:

• review and update their standard form contracts (for both business-to-consumer and business-to-business) for compliance with the UCT regime; and
• remember that the UCT regime applies to existing contracts that are varied or renewed after 16 August 2022.

Australia’s UCT Regime

Although New Zealand has expanded its UCT regime to be more closely aligned with that of Australia, it should be noted that the Australian Government has recently proposed further expansions to Australia’s UCT regime. The legislation is not yet passed, but proposes that UCTs in standard form contracts will become illegal, with penalties and consequences to be significantly increased.

To refresh your understanding of the Australian UCT regime, please click here for further details.

Need more information or assistance?          

For further information about the changes in New Zealand, or the proposed changes in Australia, or for a review of your compliance with the UCT laws, please contact one of our experts.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.