Two Supplementary Order Papers (SOPs) which propose further amendments to the Consumer Law Reform Bill (the Bill) were released last month. These SOPs propose key changes in respect of unfair contract terms and the process by which the Bill will be passed into law. For information about the changes proposed by the Bill generally, please see our previous legal updates: December 2012, October 2012 and May 2011.
The Bill introduces a new prohibition on having unfair terms in standard form consumer contracts. Under the Bill, a court may declare a term of a standard form contract to be "unfair" if the term:
- Would cause a significant imbalance in the parties' rights and obligations under the contract
- Is not reasonably necessary to protect the legitimate interests of the advantaged party
- Would cause detriment (whether financial or otherwise) to a party if it were applied, enforced, or relied on.
A court would not, however, be able to declare as unfair a term that defines the main subject matter of the contract, the upfront price payable, or a term required or expressly permitted by any enactment.
In response to widespread concern and uncertainty as to what types of clauses might be deemed an "unfair contract term", one of the SOPs proposes that the prohibition on including an unfair contract term in a standard form contract only apply after the court has declared a term to be unfair. Once a court makes such a declaration, it would be illegal to apply, enforce, or rely on such a term (even where the term is in a contract that was executed before the declaration was made). Including a term in a way that complies with the court's declaration would be permitted. The SOP also proposes that the commencement of the unfair contract term section of the Bill be delayed for 15 months, presumably to give people more time to learn about the changes and amend their standard form contracts accordingly.
The other SOP proposes to split the omnibus Consumer Law Reform Bill into six separate amendment bills (Fair Trading Amendment Bill, Consumer Guarantees Amendment Bill, Weights and Measures Amendment Bill, Secondhand Dealers and Pawnbrokers Amendment Bill, Carriage of Goods Amendment Bill, and Auctioneers Bill).
The Bill will next come before the Committee of the Whole House, where the SOPs and other any changes will be voted upon. Following this stage, the Bill will have its Third Reading. The Bill is expected to come into force later this year.
To read the Bill and SOPs click here.