EARTHQUAKE-PRONE BUILDINGS – AN UPDATE
December 1, 2015

UNFAIR CONTRACT TERMS

On 10 February 2016The Commerce Commission released a review on unfair contract terms in the Telecommunications industry.  This was the first review of unfair contract terms since the changes to the Fair Trading Act prohibiting unfair contract terms in standard form consumer contracts came into force in March last year and represents an ongoing piece of work for the commission.

The Commerce Commission has already published general guidelines in respect of the Commission’s view on what may constitute unfair contract terms.  The Telecommunications industry review report, whilst not specifically relevant to other industries, does provide useful guidance as to how the new laws are being interpreted by the Commission and its approach.

Interestingly, despite most of the Telecommunications companies reviewed having already amended their terms in order to comply with the new laws, the Commission still found a number of the amended terms potentially unfair.  The types of clause most commonly found to still be non-compliant included terms relating to:

  • Limitations of liability.
  • Clauses contracting out of consequential losses
  • Unilateral rights to terminate without reason.
  • Responsibility for unauthorised charges.
  • Unilateral rights to restrict, vary or suspend services.

The Commission not only looked how the contractual terms might be reasonably necessary to protect a legitimate interest of the company but also considered whether there were fairer means by which the interest could be protected.

The Commission also looked focused on areas of contractual imbalance and whether limitations of liability were reasonable having regard to reasonably foreseeable losses that could arise.   The Commerce Commission noted that limitation of liability clauses may be legitimate where the amount of limitation is sufficient to ensure that customers are not left out of pocket where loss occurs and the customers have the same or similar limitation to their liability.

In the area of unilateral changes to services, the Telecommunications companies relied heavily upon a need to keep current with changes in technology, the law and regulatory requirements as a rationale for needing to be able to unilaterally change the terms of a service or contract.  The Commerce Commission focused on what was strictly necessary to protect the companies’ interests and whether customers who suffered a detriment as a result of the change were adequately protected.

Another area that the Commerce Commission focused on was responsibility for unauthorised charges.  The Commerce Commission considered that where a contractual term imposed upon the consumer a risk that the trader was better able to control, that would be potentially unfair.  From the Commission’s perspective, that placed the customer in the position of being the business’ insurer.  The Commission preferred terms which involved an investigation of unauthorised charges with decisions being made as liability on merit.  This provided the balance which the Commission was looking for.

The Commerce Commission will continue to review consumer terms for other industries and whether or not your industry is a direct target of a review, it would be prudent to keep an eye on the Commerce Commission reports and a review on any standard form consumer contracts which your business maintains to ensure that your business keeps compliant in this area.