Changes to the Fair Trading Act (FTA) to protect against unfair contract terms come into force today (17 March). From today (and with some exceptions), it will be unlawful to include an unfair term in a standard form consumer contract.
A lot has been published about the new changes but there’s a few things about the scope of the law that you may not know.
- Don’t assume that the law will apply to contracts with mum and dad consumers only. A business will be a consumer if the good or service is of a kind usually purchased for personal, domestic or household use or consumption. If you supply things like fridges and mobile phone plans, even for business use, your contract may still be caught (there are some exceptions to this, e.g. where the purchasing business intends to resell the items as part of its business or use them in the course of production or manufacture)
- One factor that a Court must take into account when deciding unfairness is whether the term is transparent. Having contract terms that are written in plain English, and are simple, clear, and easy to find, will help
- A term will not be declared unfair if it is reasonably necessary to protect your legitimate interests, although you would need to satisfy the Court that this is the case. When thinking about the fairness of a term, consider what the term is trying to protect you against – how would you show this is a valid interest that needs to be protected, and is there a fairer way that the interest could be protected
- A declaration that a term is unfair will apply to the particular contract being assessed, i.e. the contract between you and Mr X that is the subject of the declaration. Where you have used that same contract with other consumers, it is likely the declaration will apply to those contracts too. The declaration will not apply to other businesses’ consumer contracts that include the same or a similar term. That said, unless there are good reasons for that term to be in a contract, we think businesses should look to adapt or remove the same or similar terms to ensure they don’t fall foul of the FTA.
We suggest that you review any of your contractual terms (including website terms) that are affected by the law to assess compliance. Of course, until some declarations are made, it’s difficult to predict the full impact of the law change. But there are some good resources that can help, including the Commerce Commission’s Unfair Contract Terms Guidelines, which is available for download on the Commission’s website.