Fair Trading Act amendment: Unconscionable conduct, unfair contract terms in small business contracts and uninvited direct sales

  • Legal update

    08 April 2020

Fair Trading Act amendment: Unconscionable conduct, unfair contract terms in small business contracts and uninvited direct sales Desktop Image Fair Trading Act amendment: Unconscionable conduct, unfair contract terms in small business contracts and uninvited direct sales Mobile Image

Following a review by the Ministry of Business Innovation and Employment (MBIE) into unfair commercial practices and consumer law, the Fair Trading Amendment Bill (the Bill) was introduced into Parliament on 17 December 2019.

The Bill amends the Fair Trading Act 1986 (the Act) in three major ways, by:

  1. introducing a prohibition on unconscionable conduct in trade;
  2. extending the FTA’s current protections against unfair contract terms in standard form consumer contracts to also apply to business-to-business contracts that form part of a trading relationship (with an actual or expected value below $250,000 in any 12-month period); and
  3. strengthening consumers’ ability to require uninvited sellers to leave or not enter their premises, including the use of “Do Not Knock” stickers.
Unconscionable conduct

The Bill introduces a prohibition against unconscionable conduct in trade. The prohibition on unconscionable conduct will apply whether or not:

  • there is a system or pattern of unconscionable conduct; or
  • a particular individual is identified as disadvantaged or likely to be disadvantaged by the conduct; or
  • a contract is entered into.[1]

Currently the Act prohibits certain unfair practices such as misleading and deceptive conduct, and harassment and coercion.[2]

The Bill explains that the 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.[3]

Unconscionable conduct is not defined, however the explanatory note to the Bill describes unconscionable conduct as serious misconduct that goes far beyond being commercially necessary or appropriate.[4]  The Bill also provides a list of factors that a court may have regard to when assessing if a person’s conduct is unconscionable.

The prohibition will apply to all consumers and businesses in situations including the circumstances surrounding the formation of a contract, the terms of a contract and the way a contract is enforced.[5]

As with other breaches of the Act a breach of the prohibition against unconscionable conduct can result in a maximum penalty per breach of $600,000 for businesses and $200,000 for individuals.[6]

The unconscionable conduct provisions in the Bill intentionally align with similar provisions in the Australian statute the “Competition and Consumer Act 2010” (CC Act), so that New Zealand courts may draw on Australian case law when deciding if conduct reaches the threshold required to show unconscionable conduct.

In Australia, unconscionable conduct is similarly not defined.[7]  However, Australian courts have made the following comments when considering unconscionable conduct:

  • conduct is unconscionable if it is “against conscience by reference to the norms of society”;[8]
    • “norms [of society] can include acting honestly, fairly, and without deception or unfair pressure”;[9]
    • “The statutory norm is one which must be understood and applied in the context in which the circumstances arise. The context here is consumer protection directed at the requirements of honest and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty.” [10] 
  • “the application of the principles of unconscionable conduct is challenging because it requires value judgments and an evidence analysis to be applied”; [11]
  • “It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances”;[12] and
  • “the notion of unconscionability is a fact-specific and context-driven application of relevant values by reference to the concept of conscience”.[13] 

The ACCC has brought approximately 16 cases relating to unconscionable conduct to date.

Unfair contract terms in small business contracts

The Act prohibits the inclusion, in standard form consumer contracts, of terms that have been declared to be unfair terms[14].  The UCT provisions were introduced by the Fair Trading Amendment Act 2013 and came into force from March 2015.

Unfair contract terms may not be included in “standard form consumer contracts”. These are contracts that have not been subject to effective negotiation between the parties.

The Bill proposes to extend the current protections against unfair contract terms in standard form consumer contracts to also apply to some standard form business-to-business contracts.

The Bill proposes to retain the current test that contract terms can be declared to be unfair if:[15]

  • the term is in a standard form contract that has not been subject to effective negotiation between the parties;
  • it would cause significant imbalance in the contracting parties’ rights and obligations arising under the contract; and
  • it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  • it would cause detriment to a party if applied, enforced or relied upon.

These protections would apply to trading arrangements where the goods or services provided have a value below $250,000 (or below $250,000 annually where the trading arrangement spans more than one year). A transaction value cap recognises that it is not realistic to expect businesses to do due diligence, seek legal advice, or attempt to negotiate low value or routine contracts. However, there is a stronger case that the onus should continue to remain on businesses to do due diligence and seek legal advice on higher, potentially more strategic, contracts.

The transaction value cap in the draft bill is coupled with a “trading relationship” test where there is more than one contract between the same or related parties on the same or substantially similar terms.

In Australia, the unfair contract terms provisions of the Australian Consumer Law were extended from business-to-consumer to business-to-business contracts from November 2016.  The threshold for the application of the protections in New Zealand differs from that in Australia in two respects:

  • Australia has an FTE-equivalent element for determining whether the contract is with a “small business; and
  • the transaction value cap is higher in Australia.

In Australia, protections extend to standard form contracts where:[16]

  • at least one party is a “small business” having fewer than 20 employees at the time the contract is signed; and
  • the upfront prince payable is A$300,000 or less, or A$1 million or less if the arrangement continues for more than 12 months.

The FTE-equivalent element was considered arbitrary and likely to be difficult for larger business contracting with the smaller business to know with any confidence, hence “fewer than 20 employees” threshold was omitted in the New Zealand Bill.

Uninvited direct sales

In 2014, the Act was amended to provide provisions relating to uninvited direct sales agreements. Uninvited direct sales agreements are agreements:

  • negotiated in a consumer’s home or workplace during an uninvited visit or call;
  • for a person in trade to supply the consumer with goods or services; and
  • that are priced at $100 or more or whose price cannot be determined until after they have been supplied[17].

The Act currently includes disclosure requirements relating to uninvited direct sales agreements, including requirements for agreements to be expressed in plain language and with specific information, including the total price payable and a clear description of the goods or services. [18]  The Act also enables consumers to cancel an uninvited direct sale agreement by giving notice of the cancellation within five working days of receiving a copy of the agreement.[19]

Currently, under New Zealand law:

  • Everyone has an implied licence to enter a property and knock on the door.
  • The occupants of a property have a right to revoke the implied licence to enter a property, by telling a person to leave or by placing a sign or sticker on their door or gate with a message that explicitly revokes the salespersons’ implied licence to enter the property.
  • Under the Trespass Act 1980, a person trespasses if they neglect or refuse to leave a place after being warned to leave by the occupier of that place.[20]

In our view, it is currently unclear whether a person entering a property that has a generic “Do Not Knock” sticker would be considered by a court to be trespassing, as a generic sticker may not be specific enough to be considered a trespass notice. There have been no test cases on this issue. MBIE has also identified this as a gap in its impact statement produced in relation to the review of consumer credit regulation (“Impact Statement”) and it is this gap that the Bill aims to close off.

The Bill adds to the Act’s current provisions in relation to uninvited direct sales by adding a new provision, section 36RA, which strengthens a consumer’s ability to require uninvited sellers to leave. The proposed provision applies to persons entering residential premises for the purpose of negotiating an uninvited direct sale agreement. Under the Bill:

  • 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.
  • The direction to leave or not enter may be a general standing direction, such as a sign saying “Do Not Knock”, or it may be a specific verbal direction to leave.
  • After being given a specific direction, a salesperson must wait at least 2 years before returning to the premises to negotiate an uninvited direct sale agreement.[21]

As set out in the December 2019 Cabinet Paper on the Bill (“Cabinet Paper”), the provisions will only apply to uninvited direct sales and not visits by organisations such as charities or political parties.[22]

The Bill also enables the Commerce Commission to use its powers of enforcement to prosecute breaches.  Anyone who contravenes the provision commits an offence punishable by a fine of up to $10,000 for an individual or up to $30,000 for a body corporate.[23] These penalties align with existing penalties for breaches of other uninvited direct sales provisions. Certain civil remedies are also available, such as an order cancelling or varying a contract or directing the payment of compensation.[24]

The Bill also amends the defences provision of the Act to insert a defence relating to any criminal prosecution of a contravention of the new uninvited direct sales provisions. The provision provides a defence if the person who gave the direction to leave, or with whose authority the direction 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.[25]

The changes apply to consumer credit contracts that are uninvited direct sale agreements as well as other uninvited direct sale agreements.[26] This is unusual as most of the Act’s other uninvited direct sale agreement-related provisions are disapplied in consumer credit contract cases and regulated under the Credit Contracts and Consumer Finance Act 2003.

The original impetus for the changes, as set out in MBIE’s Impact Statement, came out of concerns about predatory behaviours by mobile traders (businesses that do not have fixed retail premises and that predominantly sell goods on credit or payment terms), rather than at traders offering services or utilities.[27] Examples of these concerns include:[28]

  • the high cost of purchasing goods with some mobile traders, compared with cash prices of mainstream retailers;
  • obtaining multiple signed direct debit forms to ensure continued payment;
  • including obscure terms in the contract requiring payments continue after the item is fully paid, to build an account credit;
  • utilising refund policies which require a home visit, for a fee, prior to refund;
  • not allowing customers to exercise their statutory or contractual rights to cancel their agreements;
  • failing to make prompt and full refunds; and
  • retaining money paid by customers who stop making payments, despite no goods having been supplied to the customer.

However, MBIE concluded in its Impact Statement, that consumers may be vulnerable to other sales, and thus extended the proposed provision to all uninvited direct sales.[29]

The proposed changes are also intended to address the identified gap under the Trespass Act 1980, whereby signage (e.g. “Do Not Knock” stickers) that are not directed at a particular individual may not be sufficiently clear to be considered a trespass notice.  The Bill clarifies that these stickers do have legal effect.

What’s next and our view

The Bill is currently being considered at select committee.  Once the Bill passes into law, most provisions will come into force one year after the date of Royal Assent.[30]

Unconscionable conduct

It is clear that the proposed prohibitions on unconscionable conduct contained in the Bill will have a high threshold and will require obviously very poor conduct.  Therefore, we expect that as long as businesses have good procedures and policies in place and set clear expectations with its employees and, in particular, marketing teams, that the prohibition on unconscionable conduct will not have a significant impact on most businesses.  Ultimately what is “unconscionable conduct” is highly dependent on each factual scenario, and the overall effectiveness of the unconscionability regime remain to be seen.

Unfair contract terms in small business contracts

If the Bill passes in its current form, the existing regime in respect of unfair contract terms in standard form consumer contracts will extend to standard form business contracts within the threshold.  Within the current enforcement framework, terms are not “unfair contract terms” until declared to be such by the courts and only the Commerce Commission can seek declarations to that effect. However, this could change with the Government’s upcoming review into the effectiveness of consumer protection laws and the wider range of amendments that were made to the Act in 2015. MBIE has signalled that it will be considering possible enhancements to the enforcement of the UCT provisions, including:

  • Whether private parties should be able to take action in respect of UCTs.
  • Whether the Act’s full civil regime (including injunctions, refunds, and damages) should apply to UCTs, without terms needing to have previously been declared to be unfair.
  • Whether some sort of penalty should apply if UCTs are included in standard-form contracts, without the need for that term to have previously been declared to be unfair.
  • Whether the definition of “upfront price” should be changed to better reflect what a reasonable consumer would define as being an “upfront price”, and so that fees and charges for ancillary matters may be challenged as UCTs.
  • Whether there are some ‘grey list’ or other terms that should be prohibited in all circumstances, in order to provide more certainty and reduce enforcement costs.

Businesses should review their small business-facing contracts now, for whether they strike a defensible balance in protecting the legitimate interests of the company.  A structured review will put business in the position of being able to defend, amend or delete their terms on a considered risk assessment.

Uninvited direct sales

The proposed changes to the uninvited direct sales provisions make it quite clear that salespeople must not enter residential premises for the purpose of negotiating an uninvited direct sales agreement if they are directed not to, including if the direction is by way of a standing “Do Not Knock” notice.

Businesses that conduct such activities will need to ensure that it gives clear guidance and training to any of its door-to-door sales people about the behaviour required to comply with the Act, and set up internal processes to tract when direction to leave is given, to ensure that the address is not revisited within the restricted period.


[1] Fair Trading Amendment Bill, s 6.
[2] Fair Trading Act, ss 9-12 and 23.
[3] Fair Trading Amendment Bill, Explanatory note.
[4] Fair Trading Amendment Bill, Explanatory note.
[5]  Cabinet Paper “Fair Trading Amendment Bill: Approval for Introduction”, above n 2, at [6].
[6] Fair Trading Act, s 40(1).
[7] Cabinet Paper “Unfair Commercial Practices: Policy Decisions” (19 August 2019) at [27] (https://www.mbie.govt.nz/dmsdocument/6621-unfair-commercial-practices-policy-decisions-proactiverelease-pdf).
[8] Australian Competition and Consumer Commission v Lux Distributors Pt Ltd [2013] FCAFC 90, at [41].
[9] at [23].
[10] at [41].
[11] Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) (No 3), [2019] FCA 1982, at [146].
[12] Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 29, 699 at [291].
[13] Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155, at [104].
[14] See sections 26A and 46H–46M of the FTA.
[15] Fair Trading Act 1986, s 46I.
[16] Competition and Consumer Act 2010, s 23.
[17] Fair Trading Amendment Bill, Part 1.
[18] Fair Trading Act 1986, s 36L.
[19] Fair Trading Act 1986, s36M.
[20] Trespass Act 1980, s 3.
[21] Ibid.
[22] Cabinet Paper “Fair Trading Amendment Bill: Approval for Introduction” (10 December 2019), at [17]. (https://www.mbie.govt.nz/dmsdocument/10347-fair-trading-amendment-bill-approval-for-introduction-proactiverelease-pdf).
[23] Fair Trading Act 1986, s 40(1B).
[24] Fair Trading Amendment Bill, Part 1.
[25] Fair Trading Amendment Bill, cl 12 amends s44 of the Fair Trading Act 1986.
[26] Fair Trading Amendment Bill, cl 8 amends s 36L of the Fair Trading Act 1986.
[27] Ministry of Business, Innovation and Employment “Impact Statement – Consumer Credit Regulation Review” (undated) at p 36. (https://www.mbie.govt.nz/assets/c09d5636b6/coversheet-consumer-credit-regulation-review.pdf).
[28] at p 36.
[29] at p 42.
[30] Fair Trading Amendment Bill, s 2.