Fair Trading Amendment Bill

Fair Trading Amendment Bill

Government Bill

213—1

Explanatory note

General policy statement

Unfair commercial practices—such as the use of pressure tactics, deception, one-sided contract terms, and practices that generally exploit a consumer’s or small business’s vulnerabilities—can prevent markets from functioning effectively by decreasing trust, increasing search and transaction costs, and skewing the playing field in favour of businesses that act dishonestly. They may restrict competition and, with it, productivity and innovation. Even where practices are not strictly anti-competitive, they may restrict the ability of firms to grow and thrive, by diverting their attention away from their core business. Unfair practices can also lead to high levels of financial detriment and stress for consumers.

While there are already a number of legislative protections against unfair practices, consultation undertaken by the Ministry of Business, Innovation, and Employment in 2018 found that gaps in the protections remain.

To address these issues, this Bill amends the Fair Trading Act 1986 (the Act) to introduce the following 2 new protections against unfair practices:

  • It prohibits unconscionable conduct in trade. Unconscionable conduct is serious misconduct that goes far beyond being commercially necessary or appropriate:

  • It extends the Act’s existing protections against unfair contract terms in standard form consumer contracts to also apply to small trade contracts. These are contracts between businesses that form part of trading relationships with an actual or expected total value of less than $250,000 in any 12-month period.

In addition, the Bill strengthens the ability of consumers to require uninvited direct sellers to leave or not enter their property, including through the use of generally worded written notices. It also makes a number of minor changes to improve the functioning of the Act and support consistency with other legislation enforced by the Commerce Commission.

These changes seek to support the overall purpose of the Act, which is to contribute to a trading environment in which—

  • the interests of consumers are protected; and

  • businesses compete effectively; and

  • consumers and businesses participate confidently.

The Bill aims to achieve these objectives while also ensuring that—

  • the measures to protect businesses and consumers do not overreach or unduly undermine commercial certainty; and

  • businesses can continue to negotiate firmly and enter freely into contracts that reflect their wishes.

Departmental disclosure statement

The Ministry of Business, Innovation, and Employment is required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

Regulatory impact assessment

The Ministry of Business, Innovation, and Employment produced regulatory impact assessments on 24 September 2018 and 20 June 2019 to help inform the main policy decisions taken by the Government relating to the contents of this Bill.

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 provides that clauses 10, 11, 13, 14, and 20 come into force the day after the Bill receives the Royal assent, with the rest of the Bill coming into force a year after Royal assent.

Clause 3 provides that the Bill amends the Fair Trading Act 1986 (the principal Act).

Part 1Main amendments to principal Act

Clause 4 amends section 2 (interpretation). It inserts definitions of residential premises, small trade contract, and standard form small trade contract, and extends the definition of unfair contract term to cater for small trade contracts.

Clause 5 inserts new section 2A, which introduces a schedule of transitional, savings, and related provisions. The provisions relate to the amendment made by clause 7 (see the explanation of Part 2).

Clause 6 inserts new sections 7 and 8, which deal with unconscionable conduct. New section 7 prohibits unconscionable conduct in trade, while new section 8 lists factors that the court may have regard to when deciding whether conduct is unconscionable, for example,—

  • the relative bargaining power of the person engaging in the conduct and any person disadvantaged by the conduct; and

  • the extent to which they acted in good faith; and

  • whether particular characteristics or circumstances of an affected person lessened their ability to protect their interests.

It is an offence under section 40(1) of the principal Act to contravene the prohibition on unconscionable conduct in trade. The offence is subject to a maximum fine of $600,000 for a body corporate and $200,000 for an individual, in line with current maximums under section 40(1). Existing provisions in the principal Act dealing with civil proceedings and remedies (such as injunctions, refunds, damages, and having contract terms altered or declared void) also apply.

Clause 7 inserts new sections 26B to 26E, which address unfair terms in contracts between businesses.

New section 26B extends the principal Act’s existing protections against unfair terms in standard form consumer contracts to also cover small business-to-business contracts. Under the extension, if the Commerce Commission obtains a court declaration that a term of a standard form small trade contract is unfair a person must not (subject to certain exceptions) include, apply, enforce, or rely on the term in a standard form contract. It is an offence under section 40 to contravene new section 26B.

Broadly speaking, a contract is a small trade contract if it is not a consumer contract and—

  • it is between 2 or more parties that are each engaged in trade; and

  • it does not comprise or form part of a trading relationship that is worth $250,000 or more per year when the relationship first arises.

Contracts are treated as forming part of the same trading relationship if they are on the same or substantially similar terms and have the same parties or related parties.

New section 26E provides that regulations may designate additional types of business-to-business contract as small trade contracts, or exclude particular types of contract from being small trade contracts.

Like the unconscionable conduct offence, the offence of contravening new section 26B is punishable under section 40(1) of the principal Act by a fine of up to $200,000 for an individual or up to $600,000 for a body corporate, and civil remedies are also available.

The amendments in clauses 8 and 9 concern uninvited direct sale agreements. An uninvited direct sale agreement in this context generally means an agreement, negotiated in a consumer’s home during an uninvited house call, for a person in trade to supply the consumer with goods or services that are priced at $100 or more or whose price cannot be determined until after they have been supplied.

Clause 8 amends section 36L (disclosure requirements relating to uninvited direct sale agreements) as a consequence of clause 9’s insertion of new section 36RA. The effect of the clause is that new section 36RA applies to consumer credit contracts that are uninvited direct sale agreements in the same way that it applies to other uninvited direct sale agreements (unlike most of the principal Act’s other uninvited direct sale agreement-related provisions, which are disapplied in consumer credit contract cases in favour of an alternative disclosure regime under the Credit Contracts and Consumer Finance Act 2003).

Clause 9 inserts new section 36RA (directions to leave premises or not enter premises). The new section applies to anyone who is about to enter, or has entered, residential premises to negotiate an uninvited direct sale agreement. The person must not enter the premises if a resident or someone acting with a resident’s authority directs them not to enter. If the person has already entered the premises, they must leave as soon as possible if directed to leave by a resident or someone acting with a resident’s authority. The direction to leave or not enter may be a general standing direction, such as a sign on a letter box or front door saying “Do not knock”, or it may be a specific direction, such as a resident telling the person face-to-face to leave. After being given a specific direction a person must wait at least 2 years before returning to the premises to negotiate an uninvited direct sale agreement.

Anyone who contravenes new section 36RA commits an offence under section 40(1B) of the principal Act. The offence is punishable by a fine of up to $10,000 for an individual or up to $30,000 for a body corporate. Certain civil remedies are also available, such as an order cancelling or varying a contract or directing the payment of compensation.

Clause 10 amends section 36U (disclosure requirements relating to extended warranty agreements). The amendment gives the warrantor under an extended warranty agreement entered into by telephone 5 working days to provide the consumer with a copy of the agreement. Previously the copy had to be provided immediately.

Clause 11 amends section 37 (jurisdiction of High Court). The amendment confirms that if a matter before the Commerce Commission under the principal Act raises a question of law, the Commission may refer the question to the High Court.

Clause 12 amends section 44 (defences) to insert a defence relating to any criminal prosecution of a contravention of new section 36RA (directions to leave premises or not enter premises). The defence is if the defendant proves that—

  • the person who gave the direction, or with whose authority it was given, no longer lived at the premises at the time of the contravention; or

  • the contravening conduct was carried out with the permission (given after the direction but before the conduct) of a resident or someone acting with a resident’s authority.

Clause 13 inserts new section 46AA (matters included in undertakings). This new section extends how the principal Act deals with enforceable written undertakings given to the Commerce Commission. It aligns the principal Act’s approach with the approach taken by other Acts, including by requiring the Commission to publish details of any undertaking to pay compensation or costs.

Clause 14 amends section 46C (management banning orders). A management banning order is a court order banning someone from being the director of, or managing, a body in New Zealand due to a history of offending against the principal Act. Section 46C currently covers cases where a person has committed offences twice personally, or has been a director of, or involved in managing, a single body that has offended twice, but it does not cover cases where one offence has been committed by the person and the other by the body, or where the offences have been committed by 2 different bodies that the person has been involved with. The amendment closes that gap.

Clauses 15 to 19 amend sections that relate to the process for a court to declare that a term in a standard form contract is unfair. The amendments extend the sections so that they apply to small trade contracts, instead of consumer contracts only. Section 46M gives examples of terms that may be declared by a court to be unfair, such as terms allowing one party but not another to vary or terminate the contract.

Clause 20 inserts new section 48T. This new section is intended to increase consistency between the Commerce Commission’s powers across Acts by enabling the Commission to prohibit the disclosure of information, documents, and evidence forming part of an investigation.

Part 2Transitional, savings, and related provisions

Clause 21 inserts new Schedule 1AA (transitional, savings, and related provisions). New Schedule 1AA phases in the protections in new sections 26B to 26E against unfair terms in small trade contracts. It provides that the protections do not apply to contracts entered into before those sections come into force unless the contracts are varied or renewed after that coming into force. The exception to this is insurance contracts entered into before new sections 26B to 26E come into force, which continue to fall outside the protections even if they are varied or renewed.