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Important changes are coming that could affect business contracts

March 24, 2015

This update will outline some of them - I want to focus on some specific issues. Not all issues are referred to in this update - For example, there are provisions in the legislation dealing with unsubstantiated representations, unsolicited goods/services, lay by sales, internet traders and shill bidding, product safety and product recalls, auctions and auctioneers.

Many contracts will need to be reviewed in the light of these changes.

Note that it is beyond the scope of a simple email update to deal with specifics relating to your terms/contracts.

Fair Trading Amendment Act 2013
Unfair contract terms (these provisions don't take effect for over a year) - where the court considers that a contract is a standard form consumer contract, it must not contain any terms that the courts have declared to be unfair. Many B2B contracts will be consumer contracts, because the definition of consumer does not, for example, exclude someone who simply buys or leases goods for business use. (Basically, a consumer is someone who acquires or holds themself out as acquiring goods or services that are ordinarily acquired for personal use etc and the goods or services aren't acquired for re-supply or consumption in the course of manufacture or in repairing or treating other goods or fixtures. Many goods or services acquired by businesses are also ordinarily acquired for personal (etc) use.) Accordingly, for example, a B2B sale of non inventory or of non consumables or a B2B equipment lease may well be a consumer contract under the FTA and the seller/lessor would need to make some attempt at guessing whether any of their terms might be deemed to be unfair. The Act sets out guidelines for determining when a consumer contract will be a standard form contract (a key issue is lack of bargaining power by one party) and what sort of terms might be unfair. A term is unfair it would cause significant imbalance in the parties' rights and obligations, and isn't reasonably necessary to protect the legitimate interests of the party for whose benefit it is inserted and would cause detriment to the other party if it is relied upon. Many traders will now need to have their contract documentation reviewed to try to identify terms that could be deemed to be unfair - this will not necessarily be a simple or easy task. The saving grace in terms of time effort and cost is that this aspect of the new legislation does not yet have a commencement date and could be as much as 15 months away.

As noted, business parties may be deemed to be consumers under B2B transactions. In relation to some provisions of the FTA, like those dealing with deceptive or misleading conduct, parties in B2B contracts will be able to contract out of those provisions if it is agreed by both parties and it is fair and reasonable for them to do so. The Act sets out some guidelines as to what is relevant in determining what is fair and reasonable. The new requirement that the contracting out be fair and reasonable may affect the validity or effectiveness of some existing contracting out provisions so these types of clauses will need to be reviewed. (This comment also applies below, in relation to the Consumer Guarantees Amendment Act.) These provisions take effect in June or July this year.

Extended Warranties - traders who seek to sell (at or about the same time that they sell the goods or services) extended warranties/guaranties over and above those provided for by the Consumer Guarantees Act will need to explain them in writing so that a consumer can determine whether they are in fact advantageous to buy, and a consumer will have a right to cancel any such warranties/guarantees within 5 working days of having received a copy of the extended warranties/guarantees. The legislation sets out what information must be given to the consumer.

Fines will be increased substantially under a number of parts of the Fair Trading Act.

Consumer Guarantees Amendment Act 2013
These provisions take effect in June or July this year (other than for the third one below, which takes immediate effect). Amongst other things:

Where goods are supplied to a consumer, there is a new guarantee as to delivery (within the time agreed or otherwise within a reasonable time). In B2B contracts, that guarantee can be excluded if it is agreed by both parties and it is fair and reasonable to do so.

In relation to contracts for the retail supply of gas or electricity to a consumer, there is a guarantee that the supply is of acceptable quality. The Act sets out what the means. Where the supplier's failure to comply with the guarantee is caused by say, problems with a pipe line or electricity line, in either case for which someone else is responsible, the retailer may be entitled to an indemnity from that person to the extent to which that person has caused the retailer to be have had to provide a remedy to the consumer. Again, in B2B contracts, the retailer can contract out of the guarantee if it is agreed by both parties and it is fair and reasonable for them to do so. Where there is a dispute between the retailer and the other supplier, then the matter is to be dealt with in accordance with the dispute resolution procedures under the Gas Act/Electricity Act.

Liability of supplier under collateral credit agreements - these provisions may take a bit of time to understand fully (as to what situations they apply to) but at their simplest, where a business that supplies goods or services to a consumer arranges finance from a third party to enable the consumer to buy the goods or services from the supplier, and the goods or services are then rejected by the customer, the supplier could be liable for the consumer's obligations under the finance agreement.

Credit Contracts - proposals, no legislation yet
Where the Act applies, even more disclosure will be required, disclosure will always need to before credit is advanced, lenders will have to comply with principles of responsible lending and there will be some restrictions on the security that lenders can take over some consumer goods.

Steven Dukeson LL.M. (Hons.)
Dukesons Business Law
Email: steve@dukesons.co.nz

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