Proposals to give the Fair Trading Act more teeth

By Chelsea Copland - 1 Mar 2020

The two key changes are:

1. To introduce a general prohibition against "unconscionable conduct" in trade; and
2. To extend the existing unfair contractual terms regime to apply to standard form small trade contracts (that is contracts worth less than $250,000).

Unconscionable Conduct

Under the new Bill "a person must not, in trade, engage in conduct that is unconscionable."  This provision is closely modelled on Australian Law and whilst the term "unconscionable conduct" has not been explicitly defined in the Bill this conduct is generally regarded by the Ministry of Building Innovation and Employment as encompassing conduct which is "against conscience by reference to the norms of society with such norms including honesty and fairness."  This is consistent with the Australian Courts' interpretation of the term where "unconscionable conduct" has been considered to mean conduct that is "particularly harsh or oppressive and against conscience as judged against the norms of society."

The Bill provides a list of factors the Court may consider when determining whether a person's conduct is unconscionable.  These are

1. the relative bargaining power of the parties;
2. the extent to which the parties acted in good faith;
3. the ability of the affected person to reasonably protect their own interests;
4. whether one party was required to comply with conditions that were not reasonably necessary for the protection of a legitimate interest of the other party;
5. whether any undue influence, pressure, or unfair tactics were used; and
6. the terms and form of the contract.

If the Court determines that a person has engaged in unconscionable conduct, then that person could be fined up to $200,000 or, where operating as a business, they could be fined up to $600,000.

Unfair Contract Terms

The FTA currently contains prohibitions against including "unfair" contractual terms in standard form consumer contracts only.  The new Bill proposes to extend the existing prohibition to cover small trade contracts.  A small trade contract is broadly defined as being:

1. A contract between parties engaged in trade (i.e. not a consumer contract); and
2. A contract worth less than $250,000 (to be assessed when the contract is first entered into).

If the Court determines that a term in a standard from small trade contract is unfair, then it will be an offence to include, rely on, or enforce that term.

How will this impact you?

The proposed amendments to the FTA will impact all businesses and, in particular, the terms of small trade contracts will need to be reviewed to remove any unfair terms.  The public is invited to make submissions on the Bill by 27 March 2020 and if you would like to discuss any aspect of the changes please call us.

Contacts

Chelsea Copland

Andrew Skinner