FAIR TRADING AMENDMENT ACT – LIFE IS NOT FAIR, NOW WHAT?

Posted by Thomas Barnaby on October 28 2022 in News

New legislation now in force addresses unfair commercial practices in an attempt to ensure that New Zealand has a trading environment where both businesses and consumers are treated fairly. The Fair Trading Amendment Act 2021 (Act) places new obligations on businesses and provides new protections for consumers and small businesses.

Unfair contract terms

The most significant change relates to the extension of protections against unfair contract terms in “standard form consumer contracts” to “small trade contracts”.  A contract is a “small trade contract” if:

• Each party to it is engaged in trade;
• It is not a consumer contract; and
• It does not comprise or form part of a ‘trading relationship’ that exceeds $250,000 per year. 

The $250,000 limit on the protections recognises that when a business enters into large strategic contracts, they have an obligation to undertake their own due diligence, seek legal advice, and make their own decisions about whether the risks are acceptable.

The extension also recognises that some businesses can face a complete lack of bargaining power when dealing with another business – with no choice but to accept unfair terms in contracts. The intention is that these ‘take it or leave it’ non-negotiable contracts become less prevalent.

An “unfair” term is one that:

• Would cause a significant imbalance in the parties’ rights and obligations;
• Is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
• Would cause detriment to a party if applied, enforced, or relied on.

If a court declares a term in a contract to be unfair, that term will be declared unenforceable and must be amended or removed. If the offending business does not comply with those orders, a fine may be enforced of up to $200,000 for an individual, or $600,000 for a body corporate.

Unconscionable Conduct

Another significant change relates to the introduction of a prohibition on persons engaging in unconscionable conduct while in trade. The Act makes it clear that the prohibition goes beyond the narrow concept of unconscionability that currently exists in New Zealand courts. This applies whether or not there is a system or pattern of unconscionable conduct, a particular individual is identified as disadvantaged, or whether there is a contract or not.

While “unconscionable conduct” is not defined, it includes the following non-exhaustive factors which a court may consider when assessing a trader’s conduct:

• The relative bargaining power of the person engaging in the conduct;
• The extent to which the parties acted in good faith;
• Whether the affected person was reasonably able to protect their own interests; and/or
• Whether there was undue influence.

If a trader is found to have acted unconscionably, that trader may also be liable for a fine of up to $600,000 for a business or $200,000 for an individual. 

Implications

New Zealand businesses should familiarise themselves with these changes to ensure they are compliant and avoid falling foul of the penalty provisions or having their terms declared unenforceable.

If your business uses standard form contracts and those contracts are likely to come under these changes, we recommend you seek legal advice and have those contracts reviewed.

While these changes do not apply retrospectively to existing contracts entered into before 16 August 2022, any variations to those existing contracts after that date are likely to be subject to the new regime.

If you would like assistance with considering the impacts of these new changes on your business, or would like more information regarding the above, please contact us.

Kellie Bright | Special Counsel | Kellie.Bright@shieffangland.co.nz

Thomas Barnaby | Solicitor | Thomas.Barnaby@shieffangland.co.nz