Speedread

The proposed new law has been altered this week to push out commencement of the B2C unfair contract terms regime to around late-2014. However, the changes also confirm that the Act will operate retrospectively where suppliers seek to enforce unfair contract terms. Suppliers with terms declared to be unfair won’t be able to enforce them. So this may be an issue for suppliers as early as this year.

Many terms that might otherwise be seen as unfair will be out of the regime if the supplier does the right thing in how it designs the contracts, related material, and the services. After all, a clause which at first blush looks to be unfair may in fact be entirely reasonable and appropriate in the particular circumstances. Also important will be to have documentation ( a paper trail) to show that the supplier has assessed the position and to show why it considers the term is fair in the circumstances. An overall systemic approach would be valuable.

The B2B regime, enabling carve-out from some FTA obligations, would now start 6 months later (probably late this year).

We continue our series of articles starting with New NZ Law – many consumer supply contracts potentially illegal by late 20131 and “How to reduce exposure under NZ B2B supply contracts under new law2.

This week, supplementary order papers have been released, proposing changes to the Consumer Reform Bill. There are changes on top of amendments we address here.

An important change is made to the B2C unfair contract terms regime for standard form supply contracts, to clarify when the regime bites:3

  • Only when a court has declared a term to be unfair is there an obligation not to use the term in contracts.4
  • A supplier cannot enforce5 a term declared to be an unfair contract term “…even if the term was included in the contract before the declaration was made…”.

Because of the retrospective effect of that second point,6 suppliers are likely to be better off to address their unfair contract terms situation sooner than later. Otherwise they could end up with unenforceable contract terms on important issues. Plenty of typical terms in NZ supply contracts would not pass the Australian regulators’ views on what is acceptable, and the suppliers could end up not being able to enforce terms that are otherwise enforceable if framed correctly.

There’s no problem under the regime until and if the Commission seeks a court declaration. In practice, one of the times that is most likely to happen is when a supplier seeks to enforce a term. Therefore, getting the term right is desirable, so that it is enforceable, even though a declaration cannot be made until later.

The proposed legislation is unusual in not being fully self-policing, unlike much other trade practices law. It certainly will be challenging for the Commission to enforce for this reason: while that will make it easier for suppliers - as the Commission may not seek a declaration and couldn’t do so in the mutiple cases as it doesn’t have the resources - there is nonetheless the prospect that the Commission will seek a declaration in a supplier’s circumstances. While the Commission has its hands tied behind its back, generally, that means there should be compliance.

Many terms that might otherwise be seen as unfair will be out of the regime if the supplier does the right thing in how it designs contracts, related material, and the services. After all, a clause which at first blush looks to be unfair may in fact be entirely reasonable and appropriate in the particular circumstances. Also important will be to have documentation ( a paper trail) to show that the supplier has assessed the position, and to show why it considers the term is fair in the circumstances. An overall systemic approach would be valuable.