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New penalties for directors for failure to file companies’ financial statements
Companies Act Changes: NZ director essential
Unfair Contracts and Consumer Law changes
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Directors’ liability for reckless trading
The Building Act 2004: major implications for property developers, builders and vendors
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Unfair Contracts and Consumer Law Changes
Unfair Contracts Act
This legislation has been enacted but will not come into effect until March 2015. This gives businesses with standard form contracts the opportunity to check that the terms used are not “unfair”.
Will the Unfair Contracts Act affect me?
The Act only applies to contractual terms in ‘standard form contracts’. There is some ambiguity in the legislation as to what a ‘standard form contract’ is. Ultimately this is a decision for the Court to make. However, the Act suggests that a ‘standard form contract’ may be one where:
- One of the parties has all or most of the bargaining power;
- The contract was prepared by one or more parties before any discussion occurred with the other party;
- One or more of the parties was required to accept or reject the terms of the contract in the form in which they were presented;
- There wasn’t an opportunity for effective negotiation of the terms;
- The contract doesn’t take into account the specific characteristics of any party to the contract.
It is difficult to form a concrete view on what contracts will be covered under the Act. However, if a party to a contract alleges the contract is a ‘standard form contract’, the Court will presume it is, until the other party proves otherwise. We have seen a range of owner driver contracts recently that could arguably fall within the definition of standard form contracts. If your businesses use contracts, it would pay to check whether the terms are unfair.
What is an ‘unfair’ term?
There are certain terms that the Court cannot interfere with under the new legislation. These are: terms that define the main subject matter of the contract; terms that set the upfront price payable under the contract; and terms required by law.
Aside from those terms any other term may be deemed unfair if:
- It would cause a significant imbalance in the parties’ rights and obligations under the contract; and
- It is not reasonably necessary in order to protect the legitimate interests of the party who would get an advantage from the term; and
- It would cause detriment to a party if it was applied, relied on or enforced.
What are the consequences of keeping an unfair term in a contract?
If a term is declared by the Court to be unfair, it cannot be relied upon or enforced. That term cannot be used in further contracts between the parties. However, getting to that stage requires the Commerce Commission to apply to the Court to have a contractual term declared “unfair”. Parties can not do this of their own accord and there is a process for getting the Commerce Commission involved.
A breach of the provisions exposes the party to a fine of up to $200,000 for individuals or $600,000 for a body corporate. The reality is, however, that these penalties will be reserved for ‘repeat offenders’. The way the Act is likely to affect your business, is that there may be terms you could not rely on. It is an opportune time to review your contracts.
CONSUMER LAW CHANGES
There have been changes to the Consumer Guarantees Act (CGA) and the Fair Trading Act (FTA) in relation to “contracting out”. While parties have always been able to contract out of the Consumer Guarantees Act, in limited circumstances, parties can now exclude the Fair Trade Act from applying in their contracts also.
When can I opt out of the CGA/FTA?
If you are a business in trade supplying goods and/or services to another business, you may exclude the CGA and certain parts of the FTA when it is fair and reasonable to do so. This must be agreed between the parties in writing.
Parties can agree to contract out of the following FTA provisions:
- Misleading and deceptive conduct;
- Unsubstantiated representations;
- False or misleading representations; and
- False representations or other misleading conduct in relation to land.
Now is the time to review your contracting out procedures in your terms of trade, supply agreements and other contracts. It is important to ensure the contracting out provisions are “fair and reasonable”. In particular, suppliers should ensure that their customers are required to actively accept the contract, by signing or acknowledging acceptance in writing.
Should you require any assistance with amending your contracts, or advice on your legal obligations please contact Shafraz Khan.