As we noted in our 12 August 2021 alert on amendments to the Fair Trading Act introduced by the Fair Trading Amendment Bill, significant changes are made on the application of the unfair contract terms regime to business to business or small trade contracts. The Bill received Royal Assent on 16 August 2021 and is now the Fair Trading Amendment Act 2021 (Amendment Act).
Some of the changes made by the Amendment Act are now in force. Of particular note are:
- Extended warranties: Businesses that make extended warranty agreements with customers over the telephone must provide a copy of the agreement to the customer within five working days of the date it is agreed. Customers can cancel an extended warranty agreement within five working days of receiving the agreement.
- Management banning orders: The Amendment Act extends the set of circumstances where directors or managers may be subject to a management banning order.
The extension under the Amendment Act of the unfair contract terms regime to include small trade contracts and prohibitions on unconscionable conduct to include parties engaged in trade, as well as changes to uninvited direct sales, comes into force on 16 August 2022.
What is a “small trade contract”?
Under the Amendment Act, a small trade contract is a standard form contract where the parties are engaged in trade; is not a consumer contract; and does not comprise or form part of a trading relationship that exceeds an annual $250,000 value threshold when the relationship first arises.
How is an unfair contract term determined?
A term will be considered “unfair” where the term (cumulatively):
- would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
- would cause detriment(whether financial or otherwise) to a party if it were applied, enforced, or relied on – current case law is that this is a low threshold; and
- is not reasonably necessary in order to protect the legitimate interest of the party who would be advantaged by the term.
Businesses should use this time to understand their new obligations and align their current practices if they are not already doing so.
