Know your rights
Since you’re often unable to negotiate the terms of a standard form contract, there is now a law to deal with possible unfairness, under the Fair Trading Act (FTA). This law only applies to standard form contracts to provide products or services for ordinary domestic use. It is up to the court to decide if the contract is in fact a standard form contract.
A penalty clause may be unfair if it’s purpose is to sanction you for breach of contract or prevent you from doing so.
An unfair contracts term (UCT) is specifically defined under the FTA and can be declared unfair if the term:
- would cause a significant imbalance in your rights and obligations under the contract
- is not reasonably necessary to protect the legitimate interests of the supplier
- would cause detriment (financial or other losses) to you if it was applied or enforced.
Some terms can’t be reviewed under the UCT law. For example, if the term:
- defines the main subject matter of the contract ie the products or services you are buying
- sets the up-front price payable (this may include additional fees, but not penalty fees which may still be challenged as unfair)
- is expressly allowed by another statute ie the law.
Unfair contract terms
The FTA gives examples of possible unfair contract terms. Mainly, unfair terms allow a business to make changes to the contract or changes to the products or services they supply without your consent. These include terms that allow the supplier to:
- vary the terms of the contract
- avoid or limit their performance of the contract
- renew or not renew the contract
- vary the upfront price without giving you the right to end the contract without your paying penalty
- vary the products or services to be supplied.
Insurance contracts are treated differently under the unfair contracts terms law (UCTL) within the FTA, with a much longer list of terms that may not be challenged as unfair.
This UCT law allows you to apply to the Commerce Commission to have the particular terms challenged. However, only the Commerce Commission can apply to the District Court or High Court for a declaration that a term is unfair and therefore not enforceable.
Parties to a standard form consumer contract can’t contract out of the UCT provisions. This means they can’t try to get around the FTA or tell you that it doesn’t apply. Any attempt to do so may breach the FTA that the UCTL is part of.
Read the Commerce Commission’s Unfair Contract Terms Guidelines(external link) for more information.