On 24 September 2019, the Ministry of Business, Innovation and Employment (‘MBIE’) announced two proposed changes to the Fair Trading Act 1986 (‘FTA'):
These new changes aim to provide additional protection for businesses and consumers from unfair commercial practices, and to bring the FTA more in line with prohibitions applying in Australia.
Unconscionable conduct is generally understood to mean conduct which is so harsh that it goes against good conscience. Think use of pressure tactics, predatory lending practices, and taking advantage of the community’s most vulnerable (e.g. sick, elderly, those with difficulty understanding English, or who do not understand their legal rights). As noted above, MBIE has proposed to model the prohibition against unconscionable conduct on the approach taken in Australia. So what is the state of play across the ditch?
Unconscionable conduct in Australia
Unconscionable conduct does not have a precise legal definition in the Australian Consumer Law (‘ACL’) but was intended to be developed on a case-by-case basis by courts over time.
One of the leading cases on the subject considered it to be conduct which is particularly harsh or oppressive, and against conscience as judged against the norms of society (such as acting honestly, fairly and without deception or unfair pressure).
MBIE has also said the proposed bill will include a list of factors for a court to consider and apply in determining whether conduct is unconscionable, which again will be broadly consistent with Australian legislation. The ACL includes factors such as:
MBIE’s concern is that current legislation does not cover this type of behaviour, so the new prohibition is designed to act as a “safety net to target rare cases of particularly egregious conduct” and will have a high threshold.
On that basis, we do not foresee at this time there being many claims brought in relation to unconscionable conduct. However, it will be an effective and necessary tool to protect those who need it the most, and penalise those who partake in such harsh or oppressive conduct.
Unfair contract terms (‘UCT’) regime
Contract terms are considered unfair, and therefore unenforceable, if:
Some examples of UCTs, or alleged UCTs, are:
Currently, only standard form consumer contracts are covered under the UCT regime. Consumer contracts are those between a supplier of goods or services in trade (i.e. as a business) to a consumer. ‘Standard form’ is not defined but instead determined by the courts. Generally speaking they are contracts that are offered on a ‘take it or leave it’ basis, prepared by the seller, and likely to be the same as, or similar to, the contracts the seller offers to other buyers.
Under the new proposals, the regime will be extended to apply to business-to-business contracts with a value of less than $250,000. The value cap was chosen to recognise that in practice, it is not just consumers who require protection. But businesses can also be vulnerable to unfair contract terms as they may not have the resources or bargaining power to conduct due diligence, seek legal advice, or negotiate low-value or routine contracts.
How will this impact you and your business?
We generally agree with MBIE that inclusion of a prohibition against unconscionable conduct in the FTA should not have a significant impact on the vast majority of businesses that act fairly and reasonably on a day to day basis.
Nevertheless, some helpful tips for businesses to remember (other than the obvious ‘don’t exploit your customers’) include:
The application of the FTA to business-to-business contracts with a value of less than $250,000 is likely to have a much more substantial impact. Businesses should take this opportunity to review their business-to-business contracts and pay particular attention to clauses in relation to:
Our view and next steps
Following Australia may prove to be a mistake in relation to unconscionable conduct as case law has not yet developed an agreed definition. A recent High Court judgement (the uppermost court in Australia) was split 4:3, demonstrating that even some of the country’s best legal minds do not agree upon its meaning. On the back of this there have been calls for ‘unconscionable’ to be replaced with a different term such as ‘unfair’ or ‘oppressive’ in the hope of reducing uncertainty. This may nullify the Government’s intention of courts here being able to piggy back off Australian case law.
MBIE has already signalled that, for business contracts, a stronger enforcement regime will be needed to ensure that there are effective incentives to remove UCTs from contracts. There is currently a review taking place of the unfair contract terms regime and it is after this where the Government will consider such a stronger enforcement regime. This will be where the rubber hits the road.
The Government's intention is to introduce the bill to amend the FTA in early 2020. There will be a further opportunity for parties to make submissions through the select committee process early next year. You can read more about the Government’s plans in the discussion paper and cabinet paper.
We will be back with another alert once the bill has been drafted to see what it looks like. Watch this space!
 ACCC v Lux Distributors Pty Ltd  FCAFC 90 [which involved Lux Distributors Pty Ltd taking advantage of 3 elderly women by deceiving them, firstly as to the purpose of the respondent’s services and secondly, subjecting them to unfair sale techniques which pressured the women to purchase their products].
 Unfair commercial practices: release of discussion document: cabinet paper published: 23 Nov 2018 at .
 https://comcom.govt.nz/news-and-media/media-releases/2019/commission-wins-appeal-over-viagogo-injunction-case Recently, the Commerce Commission has successfully appealed against the High Court’s decision not to issue an interim injunction. The Commerce Commission’s application for an injunction is able to proceed and be heard. https://comcom.govt.nz/news-and-media/bulletin/first-court-actions-over-unfair-contract-terms.
 The Federal Court of Australia declared that certain terms of contract between Australia’s largest potato wholesaler, Mitolo Group Pty Ltd, and potato growers were unfair contract terms and therefore void. https://www.accc.gov.au/media-release/court-penalises-potato-wholesaler-for-breaching-the-horticulture-code-and-declares-unfair-contract-terms-void.