David Smillie

October 2013... The Consumer Law Reform Bill is before Parliament awaiting its third reading and it is proposed that the Bill will be enacted before the end of this year. The Bill is intended to consolidate and update existing consumer protection laws and would see changes to 10 existing prices of legislation including the Fair Trading Act and Consumer Guarantees Act and the repeal of the Auctioneers Act 1928, the Door to Door Sales Act 1967, the Layby Sales Act 1971 and the Unsolicited Goods and Services Act 1975.

Included in the proposed reforms are additions to the Fair Trading Act to prohibit the use of “unfair contract terms” in standard form contracts. Many businesses routinely use standard form contracts to govern the sale of goods and services since, from the businesses perspective, it is far more efficient than negotiating a new contract with each customer for each transaction. However, concerns have been raised by consumer organisations that consumers are exposed since there is most often little or no opportunity to negotiate the terms of these contracts – and there is no incentive on suppliers to alter their contract terms as a mode of competition because consumers will most often choose between products based on such things as price rather than the fine print of the sales or lease contract. In this context the concern is that standard form contracts can include “unfair” terms which disadvantage consumers, for example a term that states the supplier may change the contract or increase pricing without the other party’s agreement. One of the objectives of the Consumer Law Reform Bill is to address this concern.

The prohibition on “unfair contract terms” would apply to “standard form consumer contracts” – being contracts entered into by a consumer for personal, domestic or household use and which contracts have not been subject to effective negotiation between the parties. Common examples of such contracts are rental car agreements, agreements for supply of electricity and telephone services, hire purchase agreements for domestic goods and gym membership agreements.

It is proposed that the Commerce Commission would be able to apply to the District Court or High Court for a declaration that a contract term is “unfair”. In making that determination the Court would have to be satisfied that the term causes a significant imbalance in the parties rights and obligations under the contract; that it is not reasonably necessary to protect the legitimate interests of the supplier and it would cause detriment to the consumer if that term was enforced. The Bill also includes a “grey list” of examples of various terms that would be likely to be unfair – they include the examples mentioned above aswell as terms allowing one party (but not the other) to renew or not renew the contract or to determine if a contract has been breached or to limit the right to sue another party.

Certain contract terms will be prevented from being declared “unfair” at all and they are terms that define the main subject matter of the contract, set the upfront price payable under the contract or any term required or expressly permitted by any other Act. In addition, there is an amendment to the Bill which would specify certain terms in insurance contracts that are also prevented from being held to be “unfair”.

Once the Consumer Law Reform Bill is passed into law there will be a 15 month interim period before the unfair contract terms section comes into force. That will allow suppliers whose business involves the supply of goods or services under standard form consumer contracts to review their terms of trade and to check whether any amendments are required in order to ensure compliance with the new law.