Upcoming changes to the Fair Trading Act

Background

In August 2021, Parliament enacted a number of amendments to the Fair Trading Act 1986. Some minor changes were of immediate effect, with major changes coming into force from 16 August 2022. A key change coming into force this year is an extension of existing protections against unfair contract terms.

What's changing?

Previously, such protections have prohibited the inclusion of unfair contract terms in standard form consumer contracts. From August, these protections will be extended to some standard form business to business contracts, being those where the value of the contract is less than $250,000 in any year.

Unfair contract terms

The amendments retain the current test used to determine whether a term can be declared unfair, namely in circumstances where: ¹

1. The term is in a standard form contract that has not been the subject of effective negotiations between the parties;
2. It would cause significant imbalance in the contracting parties' rights and obligations arising under the contract;
3. It is not reasonably necessary in order to protect the legitimate interests of the party who would be disadvantaged by the term; and
4. It would cause detriment to a party if applied, enforced or relied upon.

Crucially, the effect of a contract term being declared unfair is that it is unenforceable in its entirety, meaning a Court will not look to rewrite the term in such a way that makes it "fair" in their view.

Our advice

In light of this coming into force, we recommended that businesses consider conducting a thorough review of their terms of trade , in particular, to mitigate any risk of these terms being declared unenforceable post 16 August 2022.

Should you have any concerns, our Business experts are available to assist in reviewing such terms and are able to provide recommendations in anticipation of the changes coming into force.

Footnote

¹Fair Trading Act 1986, s 46I.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.