New protection from unfair contract terms 


From 17 March 2015 it will not be legal to include unfair contract terms in standard consumer contracts. This applies to contracts entered into, renewed or changed, from this date (except for insurance contracts).


What is a standard consumer contract?

These protections only apply to standard form consumer contracts.

A contract is a standard form contract if:

  • its terms can’t be negotiated i.e. it is offered on a “take it or leave it” basis
  • it’s a consumer contract i.e. for goods or services supplied by a person or organisation in trade, and the goods or services are of the type normally used for personal or household use (not used for commercial purposes).

Some examples of standard form consumer contract include when you:

  • enrol your child at a day care centre
  • purchase daily deals or coupon specials 
  • sign up to a gym membership, pay TV, a telecommunications plan, electricity or gas services
  • buy something on hire purchase or get a loan
  • subscribe to pay TV
  • rent goods 
  • book and pay for your holiday

A note about insurance contracts - the unfair contract terms provisions only apply to new insurance contracts beginning on or after 17 March (not pre-existing contracts being renewed or varied), and a number of terms are exempt from being declared as unfair.


What exactly is an unfair contract term?


A court can declare a contract term to be unfair if it satisfies all three of the factors below:

  1. The term would give one party significantly greater rights or fewer obligations than the other party (e.g. it penalises one party for breach of contract, but not the other) and
  2. The term is not necessary to protect the legitimate interests of the party who would be advantaged 
  3. The term would be detrimental to one of the parties to the contract

A contract term can only be considered unfair if all three of the above apply.

An example of unfair contract term is if a telecommunications provider has terms in its one-year contract which allow it to vary its supply charges at any time, and also charge an early termination fee if the customer wishes to end the contract before the year is up.

However, if a one-year contract terms allows the provider to vary its supply charges at any time but also allows the customer to terminate the contract at such times without being liable for termination fees, then those contract terms are unlikely to be considered unfair.

What can I do if I think my consumer contract has unfair contract terms?

Only the Commerce Commission is able to go to court to have a contract term declared “unfair”, so if you believe a trader is including unfair terms into its consumer contracts you can report it to  the Commission.

If the court declares the contract terms to be unfair, it can result in the business being:

  • prohibited from using those contract terms or enforcing them
  • convicted and fined
  • ordered to refund money to the affected consumer or pay damages to them

 

Where can I find out more?


The Commerce Commission has developed guidelines on how they will enforce the law relating to unfair contract terms.