In October, the Commerce Select Committee reported back on the Consumer Law Reform Bill. The Bill will make long awaited changes to consumer protection law, and amends the Fair Trading Act 1986 (FTA), the Consumer Guarantees Act 1993, the Weights and Measures Act 1987, the Carriage of Goods Act 1979, the Sale of Goods Act 1908, and the Secondhand Dealers and Pawnbrokers Act 2004. It also repeals the Auctioneers Act 1928, the Door to Door Sales Act 1967, the Layby Sales Act 1971, and the Unsolicited Goods and Services Act 1975. The matters covered by the four Acts being repealed are incorporated into the amended FTA and a new Auctioneers Act.

Prohibition of unfair contract terms to be included in FTA

The major change arising from the committee's review is the inclusion in the FTA of a prohibition on including, applying, enforcing or relying on an unfair contract term in a standard form consumer contract. Whilst this is a move away from the initial position not to include the provision in the Bill, similar law exists in Australia and the United Kingdom. If enacted, businesses in New Zealand will be required to review and, if necessary, change their standard form contracts.

What is an unfair term?

Under the Bill, unfair contract terms are those declared by a court to be unfair. Applications to the court for such a declaration can only be made by the Commerce Commission. The Bill provides relevant factors to aid interpretation of when a term in a consumer contract will be declared unfair. In particular, a term will be unfair if the Court is satisfied that the term:

  • would cause a significant imbalance in the parties' rights and obligations arising under the contract;
  • is not reasonably necessary in order to protect the legitimate interests of the advantaged party; and
  • would cause detriment (whether financial or otherwise) to a party if the term was applied, enforced or relied on.

Consistent with the current Australian and UK approach, the Bill provides a list of terms that may be declared unfair in the circumstances, including rights of renewal or termination for only one party. Many of these terms are common in standard form consumer contracts. The inclusion in the list does not automatically deem those terms unfair, however, it does create a strong likelihood that these terms will be declared to be unfair by a court.

If a term is declared unfair by a court, then it is not enforceable. The committee has proposed to triple penalties (up to $600,000 per breach for businesses) for breaches of the FTA and that includes a breach of the provisions dealing with unfair contract terms.

Other key changes

A number of other changes have been made to the Bill, including:

  • clarification that an unsubstantiated representation does not include representations that a reasonable person would not expect to be substantiated;

  • the Committee has recommended that not only must suppliers of extended warranties for defective goods and services disclose what rights consumers have under the Consumer Guarantees Act, but that a direct comparison between those rights and remedies, and what is offered under the extended warranty is required. This would enable consumers to better assess what extra value the extended warranty provides.

  • suppliers who are responsible for delivering or arranging delivery of goods will be subject to a consumer guarantee that the goods will be received within an agreed time or within a reasonable time; and

  • new provisions which require traders on internet auction sites (such as trademe) to identify on their webpage that the goods and services that they are selling are covered by the Consumer Guarantees Act.

Further information

The bill is expected to pass in early 2013.

See our earlier article Getting ready for the Consumer Law Reform Bill for a more comprehensive summary of the Bill (as at March 2012), including how it is likely to affect both businesses and consumers.

Additionally further information is available at www.consumeraffairs.govt.nz.