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Unfair Contract Terms & B2B Contracts

Written by David Alizade, PARTNER; Darryl King, PARTNER; Isabel Jenner, SENIOR ASSOCIATE; on ? 2nd, 0.    

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UNFAIR CONTRACT TERMS & B2B CONTRACTS

MARCH 2022
 
 

In case you missed our communications on this to date, the Government has decided that unfair contract terms are – well – unfair and should be banned from many standard contracts. The Fair Trading Act’s “unfair contract terms” regime is being extended to many B2B contracts from 16 August 2022. It is important that you and your team are aware of the new rules and that you update your contracts before 16 August. Here are ten key points you need to be aware of:

 


 

1.  WHAT IS THE UNFAIR CONTRACT TERMS REGIME?

If you contract with consumers, you will likely be familiar with the existing “UCT Regime”. For simplicity, Parliament has decided to apply this existing framework to small trade contracts. The UCT Regime allows the Commerce Commission to apply to the Courts to have terms in standard form contracts declared to be ‘unfair’, and therefore unenforceable.

 
 

2.  OK SO WHAT IS A SMALL TRADE CONTRACT?

A wide range of contracts will be small trade contracts, including supply and procurement contracts, franchise agreements, and independent contractor agreements. You will have a small trade contract if:

  • you use a standard form contract with your business customers, or you are required to sign one with another business; and
  • you have a trading relationship that, at the time the relationship is formed, is expected to have a value of $250,000 (incl. GST) or less in any 12 month period.
  

3. WHAT DOES UNFAIR
       
MEAN

A term is unfair if the term:

1.      would cause significant
         imbalance
in the parties’ rights
         and obligations;

2.      is not reasonably necessary to
         protect the legitimate interests
         of the party who benefits from 
         it; and

3.      would cause detriment to the
         other party.  

FYI, just because a term is unfair for a consumer does not necessarily mean it will also be unfair for a business. B2B contracts and the parties’ interests are different than apply for B2C contracts.


 

4.

CLEAR AS MUD - CAN YOU GIVE ME SOME EXAMPLES?

 

Key clauses that might be unfair include terms that:

  • allow one party to unilaterally vary the agreement;
  • place risk on a party for events outside their control;
  • penalise one party (but not the other) for breach;
  • allow termination for non-material breaches (or have complicated termination provisions);
  • limit a party’s ability to terminate the agreement (for example, by imposing high termination fees);
  • allow one party to vary the price payable under the agreement, without giving the other party the right to terminate; and
  • give a party too much discretion to the detriment of the other party.
 

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5. BUT WE RUN A FAIR BUSINESS, SURELY THIS DOESN'T APPLY TO US?

Speaking of evidence, don't talk the talk if you can't walk the walk.  If you make a claim about a good or service, you must have reasonable grounds for believing the claim is true at the time you make it.  Any claim should be supported as much as possible by facts, figures and credible sources of information.  Claims made on the back of guesses or unsupported opinions will not cut it! 

 
 
 

6. WHAT'S THE TIMING?

The UCT Regime will apply:

  • to all new small trade contracts entered into from 16 August 2022; and
  • to small trade contracts entered into before 16 August 2022, only when they are next varied or extended after that date.
 
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