Time to review terms of trade - consumer law reform is implemented

Recent changes to the Consumer Guarantees Act 1993 (CGA) and the Fair Trading Act 1986 (FTA) have a significant effect on lawyers involved in preparing contracts and terms of trade. While there have been some articles about the changes made in the Consumer Law Reform Bill (Bill), the changes are extensive. 

The Bill was split into three Acts which amended the FTA, CGA and the Auctioneers Act 1928. Highlighted below are changes to the FTA and CGA of which practitioners should be aware. The majority of changes are to the FTA and the next key date to be aware of is 17 June 2014 when nearly all the changes will take effect. Key changes include:

  • a prohibition on making representations without having reasonable grounds at the time the representation is made;
  • new rules relating to online sales and disclosures in respect of whether the vendor is in trade;
  • new rules relating to extended warranty agreements including disclosure and cancellation rights;
  • significant new rules relating to unsolicited goods and services, layby sales and uninvited door-to-door sales (including detailed new disclosure obligations);
  • new provisions related to product safety and recalls;
  • permitting contracting out of some FTA provisions but only if that is fair and reasonable (a similar test to the CGA provision relating to contracting out); and
  • the creation of a range of offences which allow infringement notices to be issued.

With effect from 17 March 2015, there are also new rules which prohibit unfair contract terms in standard form consumer contracts. Whether an agreement is a standard form contact will be determined by a court (upon application by the Commerce Commission) based on a range of factors which might be summarised as reflecting the bargaining power of the parties. If an agreement is a standard form consumer contract then it may not contain unfair contract terms and those terms will be void. 

A non-exhaustive list of examples of unfair contract terms is included in the FTA. An unfair term may be one where:

  • one party (but not other parties) may do things such as avoid or limit performance of the contract, terminate the agreement, penalise another party for a breach or termination of the contract, vary the terms of the contract, renew or not renew the contract, amend the price without providing for a termination right for the other party, vary the characteristics of the goods or services to be supplied, or determine whether a contract has been breached or to interpret its meaning;
  • there is a limitation on one party’s vicarious liability for its agents;
  • one party is permitted to assign the contract to the detriment of another party without that other party’s consent;
  • one party’s right to sue another party is limited;
  • the evidence one party can adduce in proceedings is limited; or
  • the evidential burden on one party in proceedings is imposed.

Key changes to the CGA include: 

  • an amendment to the definition of acceptable quality which places relevance on the type of supplier and context in which the goods or services are supplied;
  • a new guarantee relating to the delivery of goods and services;
  • in trade auction sales will no longer be able to be sold “as is where is” and will be subject to the CGA (however there is an ability to contract out for business to business sales);
  • the ability to contract out of the CGA for business to business transactions is subject to that being fair and reasonable.  Whether contracting out is fair and reasonable depends on a number of factors including the nature and value of the goods, respective bargaining power and whether the terms were negotiated.

Practitioners involved in preparing or advising on terms of trade, particularly consumer contracts, should consider a detailed review of the changes and how client contracts need to be amended.  See page 6 for details of ADLS’s upcoming CPD seminar on “Preparing Clients for Consumer Law Reform”, being held on 28 May 2014.  

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