A contract is subject to the unfair contract terms regime if it is:

• in a standard form; A standard form contract is one where the parties have not negotiated the terms of the contract in a substantial way. This includes template-based contracts.
• a trade contract; A trade contract is a business-to-business contract where both parties are involved in trade.
• a small contract. A contract is a small contract where the trading relationship has an annual value of less than NZD$250,000 including GST at the time the trading relationship began.
The types of contracts that may be captured by the Amendment Act include terms of trade and independent contractor agreements.

What is the definition of an unfair contract term?

An unfair contract term is a term that:

• creates an imbalance between the rights and the 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.

Generally, a term in a standard form contract will be unfair if it favours one party and puts them at an unfair disadvantage by creating a significant imbalance.

A Court cannot determine a term to be unfair if the term:

• defines the main subject matter of the contract;
• sets the upfront price payable under the contract; or
• is required or expressly permitted by any Act.

A Court must consider the transparency of a term and the contract as a whole when deciding if a term is unfair, along with any additional factors the Court considers relevant.

If a Court declares a term to be unfair, it must either be remedied or removed. It cannot be applied, enforced or relied upon. If a business does not address the unfair contract term, it may face a fine of up to $200,000 for an individual or $600,000 for a body corporate.