Amendments to the Fair Trading Act for Small Trade Contracts

The Fair Trading Amendment Act 2021

The Fair Trading Amendment Act 2021 ("Amendment Act") was enacted on 16 August 2021. It introduces changes to the Fair Trading Act 1986 ("Act"), some of which have come into effect and others which will come into effect on 16 August 2022.

A key change introduced is that from 16 August 2022 the unfair contract terms framework in the Act will extend to cover standard form small trade contracts. It currently only applies to standard form consumer contracts.

Businesses may wish to start reviewing their standard form small trade contracts for any unfair contract terms, given there is just under a year to become compliant.

Other amendments to the Act include prohibitions on both unconscionable conduct and uninvited direct sales, which will also come into force from 16 August 2022.

Small Trade Contracts

Under the Amendment Act, a contract is considered a small trade contract if each party to it is engaged in trade, it is not a consumer contract and it does not comprise or form part of a trading relationship that exceeds the annual value threshold (of $250,000.00 including GST (if applicable) or more) when the relationship first arises.

The section further broadens the scope by adding that if a party to a proceeding alleges that a contract is a small trade contract, the contract is presumed to be a small trade contract unless any other party to the proceeding proves otherwise.

Section 46I of the Fair Trading Act 1986

Section 46I of the Act gives the Court the power to declare that a term in a standard form consumer contract (and, from later this year, a small trade contract) is an unfair contract term. If the Court, on application from the Commerce Commission, finds a term to be unfair (meeting the criteria in Section 46L of the Act), the clause will be declared unenforceable and a person may not include that term into a contract, or apply, enforce or rely on that term.

In our view it is preferable for your small trade contractual terms to meet the fairness threshold in the first instance, and that is where we can assist.

What Makes a Term Unfair?

A term in a contract will be considered unfair where (in accordance with Section 46L of the FTA) the term:

• would cause a significant imbalance in the parties rights and obligations arising under the contract;

• would cause detriment (whether financial or otherwise) to a party if it were applied, enforced or relied on; and

• is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term.

Other factors which could weigh in on whether the contract is unfair are the extent to which the term is transparent and the contract as a whole.

Please contact us if you would like guidance on how to comply with the reforms. We can assist you with drafting or editing existing contracts ahead of the introduction of the small trade contract amendments coming into effect later this year, so please get in touch and direct any enquiries to:

Andrew Knight on (09) 306 6730 (aknight@mcveaghfleming.co.nz); or

Linda Packer on (09) 915 2575 (lpacker@mcveaghfleming.co.nz)

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