Amendments to the Fair Trading Act 1986 (Act) which are in force placed new obligations on businesses, including prohibiting unfair contract terms in standard form small trade contracts.
Businesses should check if any of their contracts are standard form small trade contracts under the Act and should turn their minds as to whether the terms in their contracts are justified (or could potentially deemed unfair), are reasonably necessary to protect their interests and are drafted so they are easy to understand.
The rules generally apply to contracts that are prepared by one party, are not negotiated and form a part of a trading relationship with an actual or expected total value of up to $250,000 in any 12-month period when the trading relationship first arises.
A contract term will be considered unfair if it:
- would cause a significant imbalance in the rights of your business and the rights of the party you are contracting with;
- would cause detriment to the other party if applied/enforced; or
- is not reasonably necessary to protect your business interests.
Clauses which may be deemed unfair, are clauses which provide that your business has the right to terminate or vary a contract (and the other party does not have the same rights), include unreasonable fees or penalties, unreasonable exclusions or limitations of liability, and/or the right for you to assign a contract to someone else where the other party cannot do the same.
The Commerce Commission is responsible for enforcing these changes to the Act and may seek declaration from the District or High Court if it deems it necessary. If a declaration is made, penalties can include a fine, an injunction and/or orders directing a refund or payment of damages. If a declaration is made the contract as a whole will not end and the other terms of the contract will continue to be binding.
If you have not reviewed your terms of trade or other contract templates, now is an excellent time to do so. At TODD & WALKER Law we have an experienced Commercial and Corporate team can help ensure that your contracts are robust and work for you (not against you) for future transactions and reflect the current law.
If you require further information or advice, contact our Commercial and Corporate Team on [email protected] or 03 441 2743.