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Prohibition on unconscionable conduct now in force

The Fair Trading Act 1986 (FTA) was amended in August 2022 to ban businesses from engaging in unconscionable conduct. New Zealand law already contained protections for businesses and consumers against unfair behaviour from businesses, so for example:

  • misleading and deceptive conduct, false, misleading or unsubstantiated representation and harassment and coercion are all prohibited under the FTA; and

  • the Credit Contracts and Consumer Finance Act 2003, in relation to credit contracts and related transactions, protects against practices which could be considered to be unfair.

The government introduced the unconscionable conduct prohibition to fill the gaps that the existing law did not extend to after receiving submissions that the existing protections did not go far enough.

What does "unconscionable" mean?

The FTA does not define "unconscionable". According to the Commerce Commission, this is conduct that is more than just hard commercial bargaining but is conduct that is clearly unfair and unreasonable. In assessing whether conduct is unconscionable, the court may consider the following:

  • the relative bargaining power of the person engaging in the conduct (the Trader) and any person who is disadvantaged, or likely to be disadvantaged, by the conduct (an Affected Person);

  • the extent to which the Trader and an Affected Person acted in good faith;

  • whether an Affected Person was able to understand any documents provided by the Trader; and

  • whether the Trader subjected an Affected Person to unfair pressure or tactics or otherwise unduly influenced an Affected Person.

Breach of the prohibition is an offence and individuals are subject to a fine of up to $200,000. If a court finds that a person has suffered, or is likely to suffer, loss or damage due to the unconscionable conduct, the court can make a variety of orders, including:

  • that any contract between the parties is void;

  • for the return of property or refund of money; and

  • for the payment of the amount of loss or damage.

How to avoid unconscionable conduct

To avoid unconscionable conduct, businesses should act fairly, reasonably and in good faith in their dealings with their customers and other businesses. The Australian Competition and Consumer Commission offers the following guidance:

  • take care to be reasonable when exercising your rights under a contract;

  • consider the characteristics and vulnerabilities of your customers;

  • make sure your contracts are thorough, easy to understand, and do not include harsh, unfair or oppressive terms;

  • ensure you have clearly disclosed important or unusual terms or conditions;

  • ensure customers understand the terms of any agreement and give them the opportunity to consider the offer properly. If the contract is long, you may decide to provide a summary of the key terms;

  • observe any cooling-off periods that may apply or consider offering a cooling-off period;

  • give customers the opportunity to seek advice about the contract before they sign it;

  • be open to resolving complaints; and

  • do not reward your staff for unfair, pressure-based selling.

We recommend that businesses create appropriate guidance and training materials for their staff and agents which they update from time to time.

Disclaimer: This information is of a general nature and is not intended as legal advice. It is important that you seek legal advice that is specific to your circumstances. All rights reserved © Jackson Russell 2022

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