Proposed changes to New Zealand’s consumer laws look set to go ahead soon, following the release of the Commerce Select Committee’s report on the Consumer Law Reform Bill in early October.

In addition to modernising New Zealand’s consumer law, the Bill is intended to improve its alignment with Australian consumer law.  The Ministry of Consumer Affairs has heavily relied on the Australian experience in developing consumer law reform proposals in the Bill, and this is highlighted by some of the changes recommended in the Committee’s report.

Following Australia: Prohibition on unfair contract terms

A significant change is the proposed introduction of a new prohibition on unfair terms in standard form consumer contracts.  The Committee acknowledged that provisions relating to the new prohibition reflect the essential features of Australian consumer law.

The prohibition will mean that a court may declare a term of a standard form consumer 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 and
  • Would cause detriment (whether financial or otherwise) to a party if it were applied, enforced, or relied on.

A court will 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.

Views on the proposed new prohibition are (unsurprisingly) mixed - with consumer interests/organisations and enforcement agencies generally supporting a new prohibition, and businesses and business associations generally opposing it.

Arguments against the prohibition include the lack of evidence for the need for intervention, and that the change would impose significant compliance costs for businesses (which would be passed on to consumers).  Arguments for the prohibition include a desire for increased transparency in allocating risk in standard form contracts, and that the fact that consumers are unlikely to read or understand terms in standard form contracts indicates that there is market failure in this area.  The Ministry of Consumer Affairs has also relied on an Australian Productivity Commission report, which concluded that there are ethical and economic reasons for introducing unfair contract terms provisions.

Since the enactment of similar provisions in Australia, the ACCC’s focus appears to have been on providing guidance and education to businesses (rather than taking enforcement action), and undertaking proactive compliance reviews of contracts in particular industries.  In its recently released annual report, the ACCC notes that, during the compliance review process, businesses have deleted, amended, and made structural changes to contract terms in response to the ACCC’s concerns.

Examples of types of terms that the ACCC has identified as possibly unfair include terms that:

  • Exclude or limit liability for errors and inaccuracies on a business’s website
  • Deem a consumer to have "understood" the contract
  • Attempt to limit a business’s liability for what its employees say and do
  • Enable the business to unilaterally vary the terms.

The Australian experience suggests that the existence of legislation prohibiting unfair terms could have a significant impact on modifying behaviour in relation to standard form contracts, even if enforcement action is rare. It also provides insight as to the likely areas of focus of the Commerce Commission if and when the provisions are enacted in New Zealand.

Other areas of closer alignment

Other proposed changes to New Zealand’s consumer law, which will better (but not completely) align areas of the law with Australia include:

  • A new prohibition on unsubstantiated representations.  The ACCC’s power to issue substantiation notices partly motivated the new prohibition on unsubstantiated representations.
  • Increased maximum penalties for breaches of the Fair Trading Act.  The Committee recommended that the maximum penalties be increased from $60,000 to $200,000 for individuals, and $200,000 to $600,000 for bodies corporate, bringing the penalty regime closer to that of Australian consumer law.
  • Changes to the regulation of "door to door" sales.  The repeal of the Door to Door Sales Act and introduction of new provisions regulating uninvited direct sales in the Fair Trading Act will better align with the regulation of "unsolicited consumer agreements" in Australia (although some aspects of the Australian law have not been included, such as the regulation of the hours for such sales).

No prohibition on unconscionable conduct (yet)

The Committee decided not to recommend the introduction of unconscionable conduct provisions, concluding that “it is prudent to wait until Australia has developed a body of authoritative case law on the matter before following suit”.

This conclusion indicates that even further alignment with Australian consumer law is on the cards – but perhaps only after the Australians have shown such provisions to be enforceable and effective.