The Fair Trading Act 1986 (Act) has, since March 2015, prohibited the use of unfair contract terms in standard form consumer contracts, i.e. business to consumer contracts. The Fair Trading Amendment Act 2021 (Amendment Act) came into force on 16 August 2022 and implements three new protections to address unfair practices, including a prohibition on unconscionable conduct, extending unfair contract terms to cover standard form small trade contracts and the right to require uninvited sellers to leave or not enter your property. This article focuses on the extension of unfair contract terms to standard form small trade contracts, i.e. business to business contracts.
A contract will be a “small trade contract” if:
A “trading relationship” consists of the contemplated contract and any other contract between the parties on the same or substantially similar terms. A trading relationship exceeds the annual value threshold (and is not a small trade contract) if the contract contemplates consideration of $250,000 (including GST, if applicable) or more to be paid in any 12-month period.
This regime will only apply to small trade contracts that are “standard form contracts”, being contracts that have not been subject to effective negotiation between the parties. In making that determination a Court must consider:
If one party alleges that a contract is a standard form contract, it is presumed to be so unless the other party proves otherwise.
There are three fundamental elements that could lead to a Court deciding that a term is unfair:
The Amendment Act will not apply to contracts that have been entered into prior to 16 August 2022 unless the contract is varied or renewed on or after this date. In addition, the unfair contract terms provisions do not apply to insurance contracts.
If there is concern that a contract term may be unfair, a complaint can be made to the Commerce Commission to determine if they will bring an application to the Court. If the Court declares a small trade contract term to be unfair, it will not be enforceable and will breach the Act.
Every person who contravenes the Act commits an offence and is liable on conviction to a fine not exceeding $200,000.00 for an individual or a fine not exceeding $600,000.00 for a body corporate.
It is important for businesses to understand the extension of the unfair contract terms regime to business to business contract relationships and it is recommended that suppliers undertake a review of all standard form contracts to check for compliance with the changes introduced by the Amendment Act.
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