Changes to the Fair Trading Act

The Fair Trading Amendment Act 2021 came into force on 16 August 2022. The Act has been introduced to put in place new protections against unfair practices, by extending the protections against unfair contract terms under the Fair Trading Act 1986 and prohibiting unconscionable conduct.

The types of contracts that are captured under by the Amendment Act include terms of trade and independent contractor agreements. A contract is subject to the amendments under the new Act when it is in standard form, a trade contract, or a small contract.

A standard form contract is one where the terms of the contract have not been substantially negotiated, for example a template-based contract. A trade contract is a business-to-business contract where the parties to the contract are involved in trade. A contract is considered to be a small contract where the trading relationship has an annual value of less than $250,000 including GST at the time the trading relationship begins.

Under the Amendment Act an unfair term is one which creates an imbalance between the rights and obligations of the parties, is unnecessary to protect the legitimate interests of the party who would benefit from the term and causes detriment to one of the parties if applied, enforced, or relied upon.

A court cannot determine a term to be unfair if the term defines the matter of the contract, sets the upfront price payable under the contract or is required or expressly permitted by an Act. When the court makes a decision regarding a term, they must consider the transparency of such term alongside the contract as a whole. If a court finds a term to be unfair, it must be remedied or removed. If the business does not address the unfair contract term, they may face fines of up to $600,000, or $200,000 for an individual.

The Amendment Act also prohibits traders from behaving unconscionably. There is no definition of unconscionable conduct in the Act. This was to avoid limiting the circumstances in which this protection could be relied upon. However, section 8 of the Act contains a non-exhaustive list of factors to assess whether conduct is unconscionable. This includes the following:

• the relative bargaining power of the trader;
• the extent to which the parties have acted in good faith;
• whether the affected person was reasonably able to protect their own interest; or
• whether there was undue influence.

If the court finds that a company has acted unconscionably, it may face fines of up to $600,000, or $200,000 for an individual.

In summary, businesses that use standard form small trade contracts are affected by the recent changes as a result of the Fair Trading Amendment Act. It is essential that businesses ensure their standard form contracts are compliant.