From 16 August 2022, the Fair Trading Amendment Act 2021 (FTAA) places new obligations on businesses and provides new protections for small businesses. The Amendment Act brings in the following new protections to address unfair practices for small businesses:
Unfair contract terms provisions are extended to cover standard form small trade contracts; and
Unconscionable conduct in trade is prohibited.
Unfair Contract Terms in Small Trade Contracts
The unfair contract terms provisions of the Fair Trading Act, which previously only applied to standard form consumer contracts, have been extended to include standard form small trade contracts. A contract is a “small trade contract” if:
Each party to the contract is engaged in a trade;
It is not a consumer contract;
It does not comprise or form part of a trading relationship that exceeds an annual value threshold of $250,000 (Incl GST, if applicable) when the trading relationship first starts.
The court may declare a Contract Term to be unfair if it meets ALL of the following requirements:
The term would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
The term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and
The term would cause detriment (whether financial or otherwise) to a party if it were applied, enforced or relied on.
If the court determines that a contract term is unfair, it will be an offence to include, apply, enforce or rely on the term in a small trade contract which is punishable by a fine of $200,000 for an individual or up to $600,000 for a company. The offending party can also be ordered to pay damages or to refund money to the other party to the contract.
Contracts entered into before 16 August 2022 (and not varied or renewed on or after that date) will not be considered small trade contracts nor will relevant insurance contracts entered into before 1 April 2025.
The Commerce Commission has some great video’s and guidance to help with understanding these requirements here on their website.
The Commerce Commission will also publicise any declarations of unfair contract terms so you might want to sign up for their mail list here.
Unconscionable Conduct Prohibition
The FTAA introduces a prohibition on any person in trade engaging in conduct that is unconscionable. Existing provisions in the Fair Trading Act capture certain types of unconscionable conduct but the new prohibition acts as a safety net to capture unconscionable conduct that occurs in trade which may not have been previously caught.
Unconscionable Conduct in Trade is not explicitly defined in the FTAA but the following conditions will be considered by the court:
The relative bargaining power of the parties;
The circumstances and characteristics of the affected party;
If there was unfair pressure or tactics; and
If there is a contract, the terms, circumstances and form of such contract.
Unconscionable conduct may arise whether or not there is a system or pattern of unconscionable conduct, a particular individual can be identified as disadvantaged, or a contract was entered into.
Any person found to be engaged in unconscionable conduct in trade commits an offence and may be liable to a fine not exceeding $200,000 for an individual or not exceeding $600,000 for a company.
Implications for Business
It is critical that businesses understand the implications of these changes and if you use standard form contracts for the sale of goods or services to other businesses, you may want to consider having them reviewed by your legal advisor.
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