The Fair Trading Act provides protection to Kiwi consumers by making businesses play fair when providing products and services.  

These protections have now been extended to small businesses, who when surveyed in 2018, indicated they were being offered ‘unfair terms’ by other businesses. 

The Unfair Contract Terms rules in the Fair Trading Act only apply to contracts that are ‘standard form’. These contracts are the ‘take or leave it’ kind where there is little ability for a customer to influence the terms of the contract. 

From 16 August this year, the rules were extended. Now if you operate a business, the rules not only apply to customers who use your products or services for private use, but also to business customers you trade with.

The Unfair Contract Term rules were drafted to ensure that contract terms do not put your customer at an unfair advantage by creating a significant imbalance between you and the customer that could cause a detriment to them – for example, a term where only one party can vary the agreement.

In many instances however, the impact of a term can be offset by providing measures to counterbalance the disadvantage. For instance, in the example above, the term could provide that notice is given to the customer and they can cancel the contract without penalty if they wish.

Often when we review terms of trade and supply contracts for our clients, they have cobbled the terms together from various websites or documents that have come across. This can be dangerous. It’s important to understand your business and what you are trying to achieve and your contract terms should align with your business processes, so if a term is ever challenged, you can show a legitimate interest that you are trying to protect. 

Being in business and managing risk goes hand in hand, so the decisions you make about the terms you include in your contract is important. While there is no law on the types of terms you include, if one of your customers takes issue with your terms, they can apply to the Commerce Commission and it could choose to investigate. 

When you’re in business, your reputation and brand is everything. Find out more about how important your terms of trade are to your brand in our article entitled ‘Your brand, your terms’. 

Why not have a go at our online self-assessment tool to see whether your contracts comply with the Fair Trading Act now?