The Government recently announced its intention to amend the Fair Trading Act (the Act) to between protect both consumers and businesses against unfair commercial practices.
The announcement comes in response to submissions received on a Ministry of Business, Innovation and Employment discussion paper released in late 2018 on whether additional protections are needed for businesses and consumers against unfair commercial practices. The submissions received showcased a range of potentially unfair commercial practices including:
- extended payment terms;
- one-sided contract terms;
- businesses being locked-in to contracts for long periods of time;
- non-compliance with terms of existing contracts;
- making excessive demands;
- blacklisting; and
- Unconscionable Conduct
The first proposed change is to prohibit conduct which is unconscionable. That is, serious misconduct that goes far beyond being commercially necessary or appropriate.
The prohibition against unconscionable conduct will apply to the supply (or possible supply) and acquisition (or possible acquisition) of goods or services that is, in all the circumstances, unconscionable. The prohibition will apply to the formation of the contract, the terms of the contract and the way the contract is enforced.
The Government does not intend to define what is unconscionable, but the prohibition is intended to address similar conduct as under Australian consumer law. Australian consumer law requires a high threshold to be met before a breach can be proven. A difference in bargaining power that results in one party being disadvantaged is not enough for the conduct to be unconscionable. Factors to be considered when determining whether conduct is unconscionable will include:
- the relative bargaining power of the parties;
- whether one party was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;
- the presence of any undue influence or pressure, or any unfair tactics; and
- the extent to which the supplier and the customer acted in good faith.
The prohibition would apply to both consumers and businesses with proposed maximum penalties of $600,000 for businesses and $200,000 for individuals.
- Unfair Contract Terms
The second proposed change is to extend consumer protection under the Act to also apply to business contracts. The Act currently provides protection for consumers against unfair contract terms in standard form consumer contracts. Any such term cannot be enforced. The Government’s proposal would extend this to business contracts with a value below $250,000 in any given year.
The Government is also proposing a stronger enforcement regime as an incentive to remove unfair contract terms from contracts. Currently, civil remedies are only available if the Commerce Commission has successfully obtained a court declaration that the term is unfair. A private party cannot apply for a declaration. As the Commerce Commission is the only entity that can seek a declaration that a contract term is unfair, there have been few unfair contract term cases in New Zealand.
What this could mean for you
The proposed changes will offer assurance for small businesses who are dealing with companies that will only trade on their own standard term contracts with no room for negotiation. As relevant bargaining power is a factor big national and global companies will be required to operate more fairly and openly. This will be particularly comforting for courier drivers, dependent contractors and franchisees.
Those of you dealing with consumers and businesses with contracts below $250,000 in value should review your standard form agreements to check if any terms could be considered unfair.
The Fair Trading Amendment Bill will be introduced to Parliament in early 2020.