Fair Trading Amendment Act Changes

Recent amendments to the Fair Trading Act are now in force (they came into effect on 16 August 2021).

These amendments place additional obligations on businesses and provide protections for customers and small businesses.

The three main changes are as follows:

1. Extending unfair contract provisions to cover standard form small trade contracts;
2. Prohibiting unconscionable conduct in respect of the supply or acquisition of goods or services; and
3. Enhancing customers’ ability to direct uninvited direct sellers to leave or not enter their property.

Unfair Contract Terms

Businesses are now protected from unfair contract terms in take-it-or-leave-it standard form small trade contracts.

A small trade contract is where:

1. There is a standard form contract;
2. There is limited ability to negotiate terms; 
3. The parties to the contract are engaged in trade (i.e., both parties are businesses);
4. The contract is not with someone acquiring goods and services for personal or domestic use; and
5.  The contract does not form part of trading relationships with a total value of more than $250,000 (inclusive of GST) per year at the outset of the relationship.

It is important for businesses that use standard form contracts to ensure that the terms are fair.

Some examples where standard form consumer contracts are unfair include:

1. Where they create a significant imbalance between parties;
2. Where they would cause financial or other detriment to a customer if relied upon; and
3. Where they are not necessary to protect genuine business needs.

It is also important to note that whether a term is unfair is largely based on the specific circumstances involved.

The Commerce Commission can seek a declaration to stop any a business from using unfair terms in a standard form consumer contract. If a Court determines that any term is unfair, then it cannot be enforced, applied, or relied upon, meaning that it will not be legally binding on the other party to the contract. Any business trying to enforce, apply or rely upon an unfair term can also be prosecuted. 

Unconscionable Conduct

There are rules in the Fair Trading Act prohibiting unconscionable conduct. Unconscionable conduct is conduct that goes against what is expected from parties acting in good commercial conscience.

There are several factors that Courts may consider in assessing whether conduct is unconscionable, including:

• What the respective parties bargaining strength is;
• Whether the parties have acted in good faith;
• Whether the parties can protect their interests;
• Whether the parties can understand documents provided;
• Whether unfair tactics were used; 
• Whether there was undue influence or pressure;
• Whether it was made clear to an affected party that entering into the contract might adversely impact their interests or cause risk;
• Whether there was the opportunity to negotiate;
• Whether there was the opportunity to obtain legal advice;
• Whether the terms are reasonable; and
• The conduct of the parties after the contract was entered into.

Businesses need to ensure that their conduct and contracts are not unconscionable. There are fines of up to $600,000.00 for businesses and $200,000.00 for individuals if found guilty of unconscionable conduct. A Court can also order businesses to compensate customers or vary the terms of the contract.

Directing Uninvited Salespeople to Leave or not Enter Property

There are new rules that apply to businesses (including agents or sales representatives engaged by a business) that approach customers directly at home or over the phone.

Customers can now direct people to leave (or not enter) their residential property if they are uninvited and attempt to conduct business. The customers directions:

• Must be audible or visible; and
• May be a general standing direction (for example, a general “Do Not Knock” sign).

Sales representatives are prohibited from entering a property to negotiate an uninvited direct sale contract for two years once a specific direction is given by a customer.

Breaches of these new rules can result in fines of up to $30,000 for businesses and $10,000 for individuals. A Court can also order businesses to compensate customers or vary the terms of any contract entered into between the parties.

Businesses and sales representatives must also now inform customers of the right to cancel an uninvited direct sale contract within five working days of signing. They must also explain how to exercise the cancellation right before signing. Customers are not required to make payment until the five working day cancellation period has expired.

An uninvited direct sale contract may still be unenforceable if it is not:

• Dated;
• Written in plain English;
• Clear and legible; or
• Provided to the customer.

It is important for businesses employing sales representatives that conduct door to door sales to provide sufficient training to ensure that staff understand their legal obligations.

Please contact our specialist team at DTI Lawyers if you would like us to review your contract terms to ensure they are compliant with the recent amendments: Phone 07 282 0174 or email reception@dtilawyers.co.nz