Businesses that operate in New Zealand and Australia should consider whether their standard form contracts comply with New Zealand’s and Australia’s unfair contract term (UCT) rules.

We are still seeing a number of businesses who are yet to carry out a full audit of their B2B contracts, despite New Zealand’s UCT rules for B2B contracts being in force since August 2022. Rules for B2C contracts have been in force since before August 2022, although we are still seeing compliance gaps here. If you haven’t turned your mind to UCT compliance yet, we recommend doing so urgently, as the Commerce Commission has been successfully prosecuting allegations of non-compliance in the courts.

New Zealand businesses that have an Australian presence should consider whether their contracts with Australian (and non-Australian) customers are subject to Australia’s UCT rules. Penalties for non-compliance are now higher than ever before – potentially in the millions – and, anecdotally, we understand that the Australian Competition & Consumer Commission (ACCC) is actively enforcing these rules.

In this article we provide insight into how businesses can manage their compliance across New Zealand and Australia, a refresher on UCTs in New Zealand, and an update on UCTs in Australia. 

Insights from your friendly UCT lawyers

Key observations and recommendations from us, based on what we have seen since New Zealand’s UCT rules changed in August 2022, are:

• Compliance is slow… We are still seeing a number of businesses who are yet to carry out a full audit and update of their B2B standard form contracts, despite New Zealand’s UCT rules for B2B contracts being in force since August 2022.
• But there’s still time! Our UCT team continues to advise clients on risk areas in their contracts. In New Zealand, provided you haven’t been issued with a court declaration that one of your contract terms is unfair, you still have time to update your contracts and avoid complaints to the Commerce Commission. 
• Consider your legitimate business needs. A term might be unfair if it is not reasonably necessary to protect your legitimate interests as a business – conversely, it might not be unfair if it is reasonably necessary to protect your legitimate interests. Identifying those interests, and the contractual measures you need in place to ensure they’re protected, is a crucial part of the UCT audit exercise.

Another key point to note is that there are similarities, but also crucial differences, between the UCT rules in New Zealand and Australia. The types of terms that will be considered “unfair” tend to be the same across both jurisdictions, subject to interpretation of statutory definitions by the courts, which means that changes made for New Zealand compliance will (usually) be appropriate for Australia, and vice versa. However, the types of B2B contracts that are subject to UCT rules differ, as do the consequences of non-compliance. 

A coordinated approach can be taken to New Zealand and Australian compliance. Separate legal advice should be obtained for each jurisdiction, but efficiencies can be achieved by leveraging advice provided in the first jurisdiction you engage with.

If you’re a business that operates in New Zealand and Australia, the nature of our input could include:

• Reviewing standard terms that have been audited by Australian UCT lawyers, to identify whether there are any other terms that may present risks under New Zealand law, but on the basis that any changes already made for Australia should be automatically carried across to New Zealand contracts.
• Reviewing standard terms in detail, as the first pair of legal eyes in any jurisdiction, and reaching out to our Australian colleagues to provide comments on additional terms that may present risks under Australian law.

What are unfair contract terms?

Unfair contract terms are terms in qualifying consumer and trade contracts that are, as the label says, “unfair”. In both New Zealand and Australia, this means a term that: 

• would cause significant imbalance in the parties’ rights and obligations under the contract; 
• is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and 
• would cause detriment to a party if it were applied, enforced, or relied on.

Examples of potential UCTs include terms that permit one party (but not the other) to terminate the contract, permit one party (but not the other) to renew or not renew the contract, permit one party to vary the contract without the other’s consent, or limit one party’s right to sue another party. UCTs are not limited to ‘one-sided’ terms, nor will every one-sided term be a UCT, but these are the first red flags we will look for when reviewing contracts. 

UCTs in New Zealand are governed by the Fair Trading Act 1986, while UCTs in Australia are governed by the Australian Consumer Law (ACL) found in Schedule 2 of the Competition and Consumer Act 2010.

UCTs in New Zealand

New Zealand’s UCT rules apply to:

• all contracts with consumers;
• contracts with business customers where the annual trading relationship does not exceed NZ $250,000; and
• grocery supply contracts where the annual trading relationship does not exceed NZ $1 million.

The Commerce Commission can apply to the court, either on their own initiative or at the request of a party to the contract, for a declaration that a term in a standard form consumer or small trade contract is an unfair contract term. 

If a court declares that a term in a standard form consumer contract is a UCT, that term cannot be relied upon and must be removed from the contract in question. If a business or individual attempts to enforce a term that has been declared a UCT by the court, that business or individual commits an offence and is liable on conviction to a fine not exceeding NZ $200,000 for an individual, and NZ $600,000 for a body corporate.

Latest developments in Australia

On 9 November 2023, Schedule 2 of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 came into force. This Act amends the ACL to include increased penalties for UCTs. Business that include a UCT in a qualifying B2B or B2C contract can now incur a maximum penalty of:

• AU $50 million;
• three times the value of the “reasonably attributable” benefit obtained from the conduct, if this can be determined; or
• if the court cannot determine the benefit, 30 per cent of “adjusted turnover” during the relevant breach period.

Individuals are subject to a maximum penalty of AU $2.5 million. 

These increased penalties apply to standard form contracts made or renewed on or after 9 November 2023. The new regime also applies to any contract terms that are varied or added to existing contracts on or after 9 November 2023. 

The introduction of penalties for UCTs marks a significant change from the previous treatment of UCTs under the ACL, which, if proven, were deemed void but did not incur any penalty.

The ACCC has indicated that the intention behind this change was to deter companies from breaching their obligations to consumers under the ACL, by permitting the courts to enforce penalties that represent a significant impact on companies, rather than a cost factored into the ordinary course of business.

Conduct engaged in outside Australia

We are also aware of further potential developments in the Australian courts regarding the application of the Australian Consumer Law, and therefore the UCT rules, to contracts between businesses and non-Australian customers, where such businesses generally “carry on business in Australia” (but not necessarily with respect to the affected contract).

Advice for businesses

Compliance with New Zealand’s UCT rules should be front of mind for all New Zealand businesses, and overseas businesses “carrying on business in New Zealand”. If you are unsure whether your contracts are up to scratch, get in touch with our UCT team.

New Zealand companies with an Australian presence should consider whether Australia’s UCT rules might apply to their contracts with Australian and non-Australian customers alike. If you are unsure, we recommend reaching out to one of our New Zealand experts and we can put you in touch with Dentons’ UCT experts in Australia.

You can find some of our other updates on New Zealand’s UCT rules here:

• Consumer protection in New Zealand 
• Game, set, and match for unfair contractual terms
• Fair Trading Act 1986 protections extend to small businesses – are you ready?

Start a conversation

Talk to the experts. Hayley Miller and her team of consumer law specialists are on hand to assist with all things UCT. They have extensive experience advising on the application of the Fair Trading Act, Consumer Guarantees Act and other New Zealand consumer laws, and they can point you in the right direction for advice on the same in Australia.

This article was written by Ashleigh Ooi, Senior Associate, with assistance from Faye McIntosh, Solicitor, in our corporate and commercial team.