On 17 April 2013 the Consumer Affairs Minister Hon Craig Foss introduced two Supplementary Order Papers ("SOPs") to amend the Consumer Law Reform Bill ("Bill").1  The Bill, which represents the most significant changes to New Zealand's consumer law in more than 20 years, is expected to be enacted this year.  

This Alert canvasses the additional amendments and clarifications set out in the SOPs.

Background

The Bill was introduced into Parliament in May 2011,2 with the key policy drivers being to promote efficient regulation and to harmonise New Zealand's consumer laws with that of Australia.3  Following the introduction of the SOPs, Hon Craig Foss stated that the "reforms will promote confident, well-informed consumers to help drive competition and innovation.”4  The Commerce Select Committee ("Committee") reported back in October 2012,5 and the Bill underwent its second reading in December last year.  The Bill now awaits Committee of the Whole House stage (where proposed amendments are voted on), and is expected to be enacted sometime later this year.

Greater clarity on unfair contract terms

While the Bill has strong bipartisan support, some aspects of the Bill are not being welcomed with open arms by many New Zealand businesses.  In particular, the re-emergence of the prohibition on unfair contract terms at Committee stage, despite initially being excluded from the Bill due to considerable negative reaction and insufficient evidence that the benefits would outweigh the costs, was disappointing.6

Early indications from the Commerce Commission ("NZCC") are that if the Bill is enacted it will have a particular focus on investigating and prosecuting unfair contract terms and that it will draw on the experience of the Australian Competition and Consumer Commission ("ACCC") and other international regulators in formulating its approach to enforcement.

While unfair contract terms look set to stay, this week's SOPs provided some welcome clarifications.

The SOPs propose substituting a new s 26A into the Fair Trading Act 1986 ("FTA") that:

  • clarifies that the prohibitions on including an unfair contract term in a standard form contract will apply only after the Court has declared the term to be an unfair contract term; and
  • clarifies that if a term has been declared an unfair contract term by a Court, it can nonetheless be included in the standard form contract if it is included in a way that complies with any terms in the Court's decision.

The SOPs also amend the definition of when a contract is unfair to provide that, in insurance contracts, a term that reflects the underwriting risk accepted by the insurer may be treated as reasonably necessary to protect the legitimate interests of the insurer (and therefore not unfair).7

Finally, the SOPs delay the commencement of the unfair contract term provisions until 15 months after Royal assent, allowing businesses more time to come to terms with the new provisions and greater opportunity to consider developments in Australia.8

Other changes

The SOPs also propose making changes in relation to the following matters:

  • Vendor bids at auctions:  the SOPs provide further clarity on when vendor bids in auction processes, including real estate auctions, will be regarded as misrepresentations under the FTA.  In particular, a vendor will be regarded as making a false or misleading representation if it, or any agent on its behalf, makes a bid on its own property, unless such a bid is made before the reserve price is met and is clearly identified as a vendor bid;
  • Contracting out provisions: the commencement of provisions enabling parties to negotiate out of their FTA and Consumer Guarantees Act obligations in business-to-business transactions will be delayed until six months after Royal assent;
  • Uninvited direct sales: where the total price payable for an uninvited direct sale cannot be calculated at the time of sale, as may be the case with phone or electricity services, the seller will be required to disclose how the total price will be calculated; and
  • Disclosure of trader status: the provision requiring disclosure of trader status in Internet sales has been "future proofed" to capture technological advances, such as mobile applications, by making it clear that the provision applies to sales made "via the Internet", not just to those made "on an Internet site".

Next Steps

These late amendments to the Bill further demonstrate that some of the proposed reforms, particularly those relating to unfair contract terms, are at high risk of lacking robustness and clarity and will require careful consideration by businesses when they come into effect.  Indeed, at the time that Hon John Banks has announced new initiatives to improve New Zealand's regulatory performance,9 it is notable that the Bill that will implement the most significant changes to consumer law in 20 years would likely struggle to meet the quality assurance standards announced by Mr Banks. 

While the Bill is still on track to become law later this year, there remains a narrow window of opportunity to convince the Minister to propose further changes before the Bill is considered by the Committee of the Whole House.