In an Australian case, a mobile services company had in its standard terms and conditions:

We may vary any term of this Agreement at any time in writing…”

This was held to be an unfair contract term, in breach of Australian consumer protection laws.

From 17 March 2015, similar protections will apply in New Zealand, and those in trade will be prohibited from including unfair contract terms in standard form consumer contracts.

On application of the Commerce Commission, the court may declare a term “unfair”.

Once a term is declared unfair, any trader who tries to enforce or rely on that term is liable to a fine on conviction of up to $200,000 for an individual, or up to $600,000 for a body corporate.

Businesses will need to review their standard contracts to ensure compliance with new consumer protections.

A standard form contract is, in essence, a boilerplate “rinse and repeat” contract. Common examples include gym memberships, phone and internet contracts, contracts with power companies, consumer entertainment contracts, and online conditions of sale.

Under the reforms, a court may determine any contract in which the terms have not been subject to effective negotiation to be a standard form consumer contract. Because both businesses and individuals can be “consumers”,  a huge number of contracts will need to be updated to comply with the changes..

In making a declaration that a term is “unfair” the Court must be satisfied that the term:

  • Would cause a significant imbalance in the parties’ rights and obligations under the contract; and
  • Is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  • Would cause detriment to a party if enforced or relied on.

Certain clauses are more likely to be seen as “unfair”. For example, clauses which: allow one party to change or end the contract without consultation; limit one party’s right to sue; or say that the written contract is everything (so anything you’ve been told which is not written in the contract is not binding).

When deciding if a term is unfair, the court may take into account anything it thinks relevant, but must consider the contract as a whole and take into account how “transparent” the term is.

A “transparent” term is one that is expressed in reasonably plain language, is legible, presented clearly, and readily available to any affected party. It is suggested that the more “transparent” a contract term is, the better.

The Commerce Commission expects compliance from 17 March 2015 – not after – so the sooner your standard form consumer contracts are brought up to speed the better.

Contact us now if you need help reviewing your contracts or would like to talk about your options.