Bachcare Limited (Bachcare) is facing allegations from the New Zealand Commerce Commission (NZCC) that some of its contract terms are unfair and may cause financial detriment for customers who book accommodation through Bachcare’s website.

The NZCC has filed proceedings in the High Court under the unfair contract terms (UCT) provisions of the Fair Trading Act. This is only the second time the NZCC has brought such proceedings since the UCT regime was introduced.

In this article, we summarise the NZCC’s allegations, and discuss how businesses can ensure that their own contract terms are compliant with consumer law.  

The Bachcare proceedings

Bachcare provides New Zealand holiday home rental services through its online platform, where property owners can list properties, and holiday-goers can book those properties. The bookings made by holiday-goers are subject to Bachcare’s Terms and Conditions.

The NZCC has been investigating Bachcare’s Terms and Conditions since November 2020, and has now filed proceedings alleging that certain past and current terms used by Bachcare are UCTs under the Fair Trading Act. 

The particular terms in issue had the effect that:

1. Consumers could lose up to 100% of what they had paid when they cancelled their booking, regardless of how far in advance they cancelled.
2. Consumers could lose up to 100% of what they had paid if the booking was cancelled for reasons beyond their control, for example, severe weather events.
3. Bachcare could keep its service fee even when Bachcare cancelled the booking.

If the High Court grants a declaration that the terms are unfair Bachcare will be prohibited from including or enforcing these terms in any current or future contracts.

How will the NZCC show that these terms are UCTs?

The UCT regime only applies to terms in standard form consumer or small trade contracts. Standard form contracts are contracts which are presented on a “take it or leave it basis” and are therefore not subject to genuine negotiation between the parties. A small trade contract is a business-to-business contract where the trading relationship does not exceed an annual value of $250,000.

Bachcare’s Terms and Conditions are a “standard form” consumer contract because users of Bachcare’s website must agree to them before accessing Bachcare’s services without having a meaningful opportunity to negotiate those Terms and Conditions.   

The NZCC will need to satisfy the Court that each of the relevant terms meets all three of the following requirements:

1. The term would cause a significant imbalance in the parties’ rights and obligations arising under the contract.
2. The term is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the term (ie Bachcare).
3. The term would cause detriment (whether financial or otherwise) to a party (ie the consumer) if the term were applied, relied on or enforced.

In making this assessment, the Court must consider the transparency of the term and the contract as a whole, as well as any other relevant matters.

Where a term is not transparent, it will be more likely to be considered unfair as the other party may be unaware of its existence or effect. Some good examples of when a term may lack transparency are if it is expressed in overly complex language, is presented illegibly, or is hidden in the fine print.

The term must also be considered in the context of the whole contract to understand how it relates to the other terms and what the overall effect might be. A good example of where the contract as a whole may counterbalance a term that appears unfair on its face is where a term unfairly limits rights to cancel a contract but this is balanced by providing lower prices.

Why should NZ businesses pay attention to this latest action?

This latest court action by the NZCC should put NZ businesses on notice regarding their own standard form contracts. This is a developing area of enforcement by the NZCC, in particular since August 2022 when the UCT regime was extended to apply to standard form small trade contracts.

Further amendments to the UCT regime may also be on the horizon. The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 recently enacted in Australia has introduced key changes to the Australian competition law regime. These include, for the first time, penalties for companies that include UCTs in standard form contracts with consumers and small businesses. Maximum penalties available under the Australian Consumer Law have also increased fivefold to the greater of $50 million or three times the value derived from the relevant breach, or, if the value derived from the breach cannot be determined, 30 per cent of the company’s turnover during the period it engaged in the conduct.

These increased penalties are designed to send a strong deterrent message to businesses, with the Australian competition regulator noting “These maximum penalty changes will allow the Courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise the serious attention of owners or shareholders.”

As the NZ consumer law regime closely mirrors its equivalent in Australia, there is a reasonable chance that similar changes will be proposed for the Fair Trading Act in future. This means that an expansion of the penalties available for UCTs may be on the horizon, as well as increased penalties. Ultimately, greater vigilance over UCTs is becoming increasingly important for businesses in New Zealand.

If you have any questions or concerns about whether your standard contracts include UCTs, please get in touch with any of our contacts.

Special thanks to Tom Hammond for his assistance in writing this article.