From 17 June 2014, businesses may contract out of some provisions of the Fair Trading Act in some circumstances.

The general rule is that the Fair Trading Act applies. However, private contracts can contract out of the Act if:

  1. The parties are both “in trade”; and
  2. The parties agree in writing; and
  3. The agreement is to contract out of an obligation under section 9 (misleading and deceptive conduct generally), s 12A (unsubstantiated representations, s 13 (False or misleading representations), or s 14(1) (false representations or other misleading conduct in relation to land); and
  4. The goods, services, or interest in land are both supplied and acquired in trade; and
  5. It is fair and reasonable that the parties be bound by the contracting-out provision.

On the one hand, contracting out means that sellers have less obligations under the law but it may be inconsistent with your reputation as a business to contract out of consumer legislation. What will your customers think if you are removing their protections against misleading and deceptive conduct?

It may also prove hard to say with any certainty that an agreement is “fair and reasonable”. The Commerce Commission has issued guidance which indicates that what is fair and reasonable depends heavily on the circumstances. Relevant circumstances include the value of the contract, the ability of the parties to negotiate strongly, and whether each side received independent legal advice.

Contracting out will also not completely protect a business against all legal claims. The Commerce Commission can still take action if a party breaches the Act. That means a business that does mislead customers (for example) may still be subject to an investigation, prosecution, and fine – even though it has “contracted out” of its obligations under the Act.