The Commerce Commission has recently published an announcement in relation to two mobile trader companies concerning unfair contract terms under the Fair Trading Act 1986 (FTA) and breaches of the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
The High Court, in a reasons judgment dated 25 July 2022, has outlined the reasons behind a determination where Ace Marketing Limited (Ace) was found to have breached the responsible lending principles under the CCCFA. The Court also made a declaration that certain terms of Ace’s standard form contract amounted to ‘unfair contract terms’ under the FTA.
Under Ace’s standard terms it had certain rights to delay delivery of goods to a customer if the customer had missed a payment. The Court found that these provisions gave rise to a significant imbalance in rights (to the customer’s detriment). The Court also found that the length of the deferral periods provided for in the provisions weren’t reasonably necessary to protect Ace’s legitimate business interests.
Further, the Court found that Ace had breached the responsible lending principles in s 9C(3)(b)(ii) and (iii). The responsible lending principles are intended to ensure that borrowers are assisted to reach informed decisions and are reasonably aware of the full implications of entering lending agreements.
The Court considered that the risk of delay to the delivery date arising out of the relevant provisions was a key risk for customers and, accordingly, the provisions should have been clearly highlighted by Ace and brought to the attention of customers. The Court found that they were ‘neither clearly highlighted nor properly explained’ including because the relevant terms were first mentioned in page 10 of the contract and were otherwise ‘hard to find, inconsistent and hidden in the fine print’. This amounted to a breach of the obligation to ensure terms are expressed in plain language in a clear, concise and intelligible manner. It also amounted to a breach of Ace’s obligation to ensure information is not presented in a manner that is, or is likely to be, misleading, deceptive or confusing.
The Commission has also published a formal warning letter issued to Xtreme Deals Limited (Xtreme Deals) which contains a warning against likely breaches of the responsible lending principals and use of unfair contract terms in relation to ‘delayed delivery’ provisions (similar to those discussed in respect of Ace).
The Commission’s warning letter referenced the Court’s decision in the Ace Marketing Limited proceedings in alleging the similar ‘delayed delivery’ provisions were likely to be considered unfair contract terms for the purposes of the FTA. As with Ace, the Commission alleged likely breaches of s 9C(3)(b)(ii) and (iii) of the CCCFA. In addition, in respect of Xtreme Deals, the Commission referred to the likely failure to ensure contracts were not oppressive under s9C(3)(e)(i).
The Commission has accepted enforceable undertakings from Xtreme Deals that it will not use such delayed delivery provisions in its consumer credit contracts.
The Ace Marketing Limited case is one of only two examples where the unfair contract terms provisions have been applied in the New Zealand Courts. Although this case (and the warning letter to Xtreme Deals), concerned consumer matters, they are a timely reminder that the unfair contracts terms regime has recently been expanded to include certain ‘in-trade’ contracts between businesses. It also serves as a reminder to lenders of the lender responsibility principles and that all consumer documents and contracts should be carefully prepared to be clear, concise, and not likely to mislead or deceive.
Please feel free get in touch with any of the experts below if you would like to discuss any of these matters further – including if you have questions about whether the unfair contracts terms regime applies to your contracts.
This article was co-authored by Miriam Klein Ovink, a Solicitor in our Banking and Finance team.
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