Background

Following the Fair Trading Amendment Act 2021 being passed last year, the prohibition against unfair contract terms (UCT) in standard form consumer contracts will be extended to all standard form, small trade contracts, with effect from 16 August 2022 next week.

Businesses entering into or, varying or renewing small trade business-to-business (B2B) contracts, on or after 16 August 2022, will need to assess whether any of their standard contract terms could be considered unfair.

For information on what may constitute a UCT, examples of the terms that could potentially be deemed as unfair, and information about what constitutes a small trade contract, please see our previous article here.

If a term is declared to be unfair by the court, businesses cannot include that term (unless in a manner permitted) or attempt to apply, enforce or rely upon that term in any small trade contract.

Businesses that continue to use, attempt to apply, enforce or rely upon any UCT after such a term has been declared to be a UCT, run the risk and could be liable upon conviction, for fines of up to NZD$200,000 for an individual or a fine not exceeding NZD$600,000 for body corporates, an injunction to prevent the business from relying on or enforcing the term and/or orders directing the business to refund money or to pay damages.

Developments in Australia

The UCT regime in Australia has applied in a B2B context since 2016. However, in response to many businesses having viewed the risks posed by the regime as low, steps are now underway to expand the regime and to introduce a new Bill which, if passed, would seek to increase the penalties for any party who proposes, applies or seeks to enforce an unfair term.

The proposed penalties are the greater of:

• AUD$10 million;
• three times the benefit of the conduct (if able to be determined); or
• 10% of annual turnover of the party for the previous 12 months.

For individuals involved in the conduct, the maximum penalty would be AUD$500,000.

Depending on how New Zealand businesses respond to the prohibition against unfair contract terms in small trade contracts, it will be interesting to see if New Zealand also follows our Australian neighbours and adopts increased penalties further down the track.

Get in touch

If you have any questions about the UCT regime, or need help reviewing any small trade contracts for compliance with the recent changes, please get in touch with one of our experts.

Special thanks to Emma Strong and Nicole Ashby for their asisstance in writing this article.