Second round of changes under the Fair Trading Amendment Act 2021

Thursday, August 11, 2022

Important changes to the Fair Trading Act 1986 are due to come into force on 16 August 2022. These changes are part of the amendments introduced by the Fair Trading Amendment Act 2021, in addition to other changes which came into force in August last year.

These changes introduce three new protections for both consumers and businesses:

  • The existing unfair contracts regime will be extended to cover standard form small trade contracts;
  • A new prohibition against unconscionable conduct in trade will be introduced; and
  • People will be able to require uninvited direct sellers to leave or not enter their residential property.

Extension of the unfair contracts regime

This regime, which currently applies to standard form consumer contracts, will be extended to include “small trade contracts.” Typical features of a standard form contract are that there is little to no opportunity to negotiate the terms, the contract may be pre-prepared by one party before any discussions are held relating to the transaction, and the parties may have unequal bargaining power. A contract is a small trade contract if:  

  • The parties involved are “in trade” (i.e. businesses);
  • It is not a consumer contract; and
  • At the time the trading relationship first arises, the contract does not form part of a trading relationship with an actual or expected total value exceeding $250,000 (inclusive of GST) per year.

One key point to be aware of is that the classification of a small trade contract does not require that either of the parties is a small business. A contract between two large corporate entities will be classified a small trade contract if the trading relationship falls under the annual value threshold when the parties enter into the first or only contract of the relationship.

Under this regime, the Commerce Commission has the sole power to seek a court declaration that a term in a standard form small trade contract is unfair. If a court determines a term to be unfair, it cannot be applied, enforced or relied upon.

As noted in our earlier discussion of the proposed regime before the Fair Trading Amendment Act was passed, a similar regime has operated in Australia since 2016. We would expect that the Commerce Commission and the courts would rely on Australian precedent for guidance in the early stages of this regime.

New prohibition against unconscionable conduct in trade

Unconscionable conduct is not defined in the Act, but was described in the explanatory note to the Bill as serious misconduct that goes far beyond being commercially necessary or appropriate.

Conduct can be unconscionable regardless of whether there is a pattern of unconscionable conduct or it was a one-off occurrence, or whether there is a contract or not. It is also not necessary for there to be an identifiable individual who has been disadvantaged.

There is a non-exhaustive list of factors that a court may consider when assessing if a person’s conduct is unconscionable. These factors include:

  • The relative bargaining power of the trader and any affected person who is disadvantaged or likely to be disadvantaged by the trader’s conduct;
  • The extent to which the trader and an affected person acted in good faith;
  • Whether the affected person was reasonably able to protect their interests, taking into account their particular characteristics and circumstances;
  • Whether the affected person was able to understand any documents provided by the trader; and
  • Whether the trader subjected an affected person to undue influence.

Traders engaging in unconscionable conduct will be liable for fines of up to $600,000 for a body corporate, and $200,000 for an individual.

Directions to leave or not enter premises

If a person enters or is about to enter residential premises to negotiate an uninvited direct sale agreement, residents will have the right to direct people to leave or not enter their property.

The directions may be through the use of generally worded notices such as “do not knock” stickers, or can be a specific direction such as a verbal face-to-face instruction to leave or not enter. If the direction is specific, the uninvited direct seller must not enter or re-enter the property for two years.

A breach of this provision can result in a fine of up to $30,000 for a body corporate, and up to $10,000 for an individual. However, if prosecuted for a breach of this provision, it will be a defence if the defendant can prove the person who gave the direction has moved away, or that they were given permission to enter or re-enter by a resident or someone acting with the authority of a resident.

Next steps

The Commerce Commission will be releasing guidance about these new provisions when they come into force on 16 August 2022. We will provide further detail about the implications of these changes once this guidance has been released and the regulator’s position on enforcement is more clear.

If you currently use standard form contracts for business-to-business sale of goods or services, we recommend reviewing these in light of the new provisions relating to small trade contracts. For assistance with this or to discuss how any of these changes to the Fair Trading Act may affect you, please contact a member of our Corporate and Commercial Team

 

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

 

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