Unfair Contract Terms in Consumer Contracts

In March 2015 new rules came into force prohibiting the use of “unfair” terms in standard form consumer contracts. In February 2016 the Commerce Commission released a report on unfair contract terms (UCT) in the telecommunications sector.  The full report, available here, contains the first industry review by the Commerce Commission.  The Commerce Commission has taken a tougher stance than many expected and businesses that sell direct to consumers should review their standard form consumer contracts to take into account that tougher stance.

The Commerce Commission reviewed 19 standard form consumer contracts from seven telecommunications businesses.  Even though the majority of these businesses had already reviewed their contracts and made efforts to ensure they complied with the UCT provisions before they were introduced, the Commerce Commission identified 66 terms that could potentially be unfair.  The Commerce Commission worked with the companies involved to amend the relevant contracts. 
 

Key points from the telecommunications report 

The most common terms identified as potentially unfair were terms that:

1. limit or exclude the liability of the supplier;
2. allow the company to unilaterally vary the contract;
3. make the customer responsible for unauthorised charges on the customer’s account; and
4. allow the company to avoid liability for consequential loss. 

An unfair term can be justified if it is reasonably necessary to protect the legitimate interests of the business.  However the Commerce Commission’s report indicates that the threshold for this justification is reasonably high as the Commerce Commission rarely agreed with the telecommunications businesses when this justification was used.

Which sectors will the Commerce Commission target next? 

Contact

Darryl King,
PARTNER