The Consumer Law Reform Bill (CLRB) is expected to come into force this year. This new legislation will make major changes to various consumer laws which will affect all consumers and most businesses. The CLRB introduces a new prohibition under the Fair Trading Act 1986 (FTA) on the use of ‘unfair contract terms’ in standard form consumer contracts. The classic examples that may be subject to the prohibition are contracts that contain a ‘take it or leave it’ provision if you want to use the service such as contracts for electricity or gas and telephone lines. The regime will not be directly enforceable by consumers. Instead it will rely on the Commerce Commission seeking a declaration from the court that a term in a standard form contract is unfair. In deciding whether a term in a standard form consumer contract is unfair the court must be satisfied that the term:
- Would cause a significant imbalance in a parties’ rights and obligations under the contract
- Is not reasonably necessary to protect the legitimate interests of the party who would be disadvantaged by the term, and
- Would cause detriment to a party if it were applied, enforced or relied on.
It will be an offence under the FTA for a person in trade to ‘apply, enforce or rely on an unfair contract term’ with the maximum penalty per offence for companies being increased to $600,000. It would seem, however, that an offence won’t be committed by a party unless they continue to use a term in a standard form consumer contract after it’s been declared unfair by the court.
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