New requirements for Terms of Trade and other standard contracts

By Geoff Caradus

16 November 2021

Up until recently businesses have been relatively free to include aggressive and unfair terms and conditions in their terms of trade and standard form contracts used with other businesses. 

Recent amendments to the Fair Trading Act mean that all businesses will now need to review and update their terms of trade and other standard form commercial contracts used with other businesses to ensure they do not include unfair terms.

What types of contracts are caught?

The amendments are targeted at preventing unfair contracts regime in small (i.e. with a contract value of $250,000 or less per annum) standard form business to business (B2B) contracts. All businesses using standard form contracts which have an annual contract value of $250,000 or less should be reviewed. Standard form contracts used with consumers are already subject to the unfair contracts regime and have been for some time.

What is an unfair contract term?

The Commerce Commission has existing guidance available on its website setting out its view as to what amounts to an unfair contractual term in relation to consumer contracts. That guidance is also helpful in relation to B2B contracts. Further guidance is expected to be released soon.

Obvious examples of unfair terms include heavily one sided termination provisions, unilateral variation provisions and limitations and exclusions of liability. The existing guidance suggests that all terms including seemingly innocuous terms have the ability to be unfair.

Factors a court will take into account when determining if a contractual term is unfair include:

• whether the term would cause a significant imbalance between the parties contractual rights and obligations;
• whether the contract term is not reasonably necessary to protect a legitimate interest of the person who’s benefit it is for;
• whether the term would cause detriment.

The extent of transparency and overall terms of the contract are also relevant.

What are the consequences of using an unfair contract term?

From 16 August 2022 any unfair terms in B2B contracts will be in breach of the Fair Trading Act. As with many other offences of the Fair Trading Act, the consequences of conviction are substantial and may result in a fine of up to $200,000 for an individual, or up to $600,000 for a business.

Key takeaways

Businesses need to ensure their existing terms of trade comply with the new regime. Because of the tight timeframes and volume of work the amendments have created we recommend instructing a specialist commercial lawyer to review your terms of trade as soon as possible.

Because the new requirements significantly curtail the ability of businesses to protect themselves through one-sided contractual terms, we also recommend speaking to your insurance broker or insurer to ensure your existing levels of insurance cover are adequate.

Talk to us

If you would like more in-depth advice or further information about the content of this article, please don’t hesitate to contact Rhys Thompson or Mariam Matti from the Commercial Team. They can be contacted on (03) 548 8349 or rhys.thompson@pittandmoore.co.nz or mariam.matti@pittandmoore.co.nz.

Disclaimer: The information contained in this publication is of a general nature and is not intended as legal advice. It is important that you seek legal advice that is specific to your circumstances.