New Zealand: Fair Trading Law Reform

The Fair Trading Amendment Bill (Bill) was introduced to parliament on 17 December 2019 to amend the Fair Trading Act 1986 (Act). The Bill passed its first reading on 12 February this year and submissions are now being accepted by the Select Committee and will close on 27 March 2020.  

Background

The Bill aims to better protect consumers and small businesses from unfair commercial practices. It is a result of the discussions and consultation conducted by MBIE between December 2018 and February 2019. Work undertaken by MBIE during this time found that a significant number of businesses had been offered what they considered to be unfair contract terms or treated unfairly. It recommended legislative intervention to respond to unfair practices prevalent in the market including: imbalances in bargaining power, lack of legal or commercial sophistication of some parties, and the presence of take-it-or-leave-it standard form contracts. 

Such unfair practices were said to have negative economic impacts including increasing costs for a party both in terms of negotiating the terms of the contract and/or implementing unfair terms they have signed-up to. This may prevent that party’s ability to grow and innovate and could also discourage some parties from entering into a contract in the first place thereby restricting competition. 

We submitted on MBIE’s discussion paper at that time and opposed its proposals. In our view, there is no need for further government intervention in business-to-business practices. We retain the view that the proposed Bill is not necessary to the extent it further regulates business-to-business practices. Our reasoning is set out in our original submission on MBIE’s discussion paper which can be found here. 

New protections against unfair practices 

The Bill as introduced, includes two new protections against unfair practices:

• It prohibits unconscionable conduct in trade; and 
• Extends the current Act’s protections against unfair contract terms in standard form consumer contracts to also apply to small trade contracts. 

The Bill includes factors that a court may have regard to in assessing whether a party’s conduct is unconscionable including: 

• The relative bargaining power of the parties;
• The extent to which the parties acted in good faith;
• Whether the party affected was reasonably able to protect its interests (taking into account its particular characteristics and circumstances);
• Whether the party affected was able to understand documents provided; 
• Whether the affected party was subjected to unfair pressure or tactics or unduly influenced;
• Whether a party failed to disclose to the affected party intended conduct that might adversely affect that party’s interests or would be at risk to that party’s interests;
• Where there is a contract:

• The circumstances in which the contract was entered into;
• Whether the party obtained independent legal or professional advice; 
• The terms of the contract;
• The form of the contract;
• Whether the terms allow a party to reasonably meet its obligations;
• Whether the obligations are reasonably necessary;
• The conduct of the parties; 
• The length of time a party is given to remedy a breach;
• Whether any enforcement action taken was lawful; 
• Any other conduct of the parties after the contract was entered into; and

• Any other circumstance the court considers relevant. 

Australian law also prohibits parties from engaging in unconscionable conduct. It does not specifically prescribe unconscionable conduct but leaves this to be developed on a case-by-case basis by the courts. Relevant factors that Australian courts will consider are similar to the proposed factors in the Bill. The ACCC in Australia has released guidance on the term and suggests that it is more than acting unfairly, “it must be against conscience as judged against the norms of society”. It also offers some tips for businesses to avoid crossing the line into unconscionable territory such as: 

• Not to exploit the other party when negotiating terms;
• Act reasonably when exercising rights under a contract; 
• Consider the characteristics and vulnerabilities of the other party;
• Ensure the contract is thorough, easy to understand, not too lengthy and does not include harsh, unfair or oppressive terms;
• Highlight important or unusual terms;
• Ensure that the party understands the terms of the agreement and give ample opportunity for them to consider the offer;
• Observe any cooling-off period or consider offering a cooling-off period; 
• Give the party opportunity to seek advice on the contract; 
• Be open to resolving complaints; and 
• Don’t reward staff for unfair, pressure-based selling. 

The ACCC guidance is available here.

New Zealand businesses may benefit from the above tips when refreshing contracting policies if the Bill is ultimately enacted.  

Sanctions proposed under the Bill for engaging in unconscionable conduct include a fine of up to $600,000 for a body corporate and up to $200,000 for an individual. 

Under the new regime, clients will also need to be particularly mindful when entering into small trade contacts that the terms of those contracts are fair, similar in their approach to negotiating and agreeing terms with consumers. Small trade contracts are contracts between businesses that form part of trading relationships with actual or expected total value of less than $250,000 in any 12 month period. If a court declares a term unfair, it will, if used again, be void and may render the business liable for a penalty of up to $600,000 for a body corporate and up to $200,000 for an individual. 

Other changes

The Bill also includes some further rights and obligations to protect consumers in relation to uninvited direct sales and makes a number of minor changes to improve the overall functioning of the Act. The full Bill is available here.

Next steps

We will be making a submission on the Bill and welcome any comments from our clients. If you wish to make your own submission, you can do so by to the Select Committee by 27 March 2020. Submissions can be made online here.

As always, our experienced team is here to help.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.