GRC Professional - February 2015 Edition | Page 29

business, industry, profession, occupation, activity of
commerce or undertaking to supply goods or services or
interests in land), and a consumer. A consumer is anyone
who purchases goods or services of a kind ordinarily
acquired for personal, domestic, or household use or consumption, and not for the purpose of reselling them or
using them in the course of production, repair or manufacture. It is important to note from these definitions that
businesses may be also considered “consumers” for these
purposes, because the emphasis is on whether the type
of goods or service is a personal, domestic, or household
item – not on the actual identity of the purchaser.
What is an unfair contract term?
The NZCC will have to apply to the court for a declaration, and there are mandatory factors the judge
must take into account. There are 3 requirements for a
contract term to be unfair:
1. It would cause a significant imbalance in the parties’
rights and obligations under the contract;
2. The term is not reasonably necessary to protect
the legitimate interests of the party advantaged by
it; and
3. It would cause detriment (financial or otherwise) to
a party if it were relied upon.
The judge is given wide scope to consider any other
matter considered relevant, but must take into account the
extent to which the term is transparent, and the context of
the contract as a whole. The NZCC Guidelines suggest
that a “significant imbalance” is likely to exist where a term:
• Gives rights to the business supplier that it would
not usually have, or be able to obtain, if the parties
had equal bargaining power; or
• Protects a business in a way that puts the consumer
at a significant disadvantage; or
• Shifts risks onto the consumer, even where the
supplier is better placed to manage the risk.
The Guidelines also give examples where a significant imbalance in rights might include terms:
• penalising one party for breach of contract, but not
the other
• that purport to create mutual penalties, but where it
is improbable that the stronger party is ever likely to
suffer a penalty
• purporting to confer a valuable benefit on the
customer, which is unlikely to ever be realised.

The whole
context of
the contract
is important,
not just a term
that might
appear unfair
in isolation.

If arguing that a term is reasonably necessary to
protect the legitimate interests of the supplier, factors
such as the business’s costs, operations, structure, risks
and methods of mitigating risks become relevant. For
example, a penalty may be reasonably necessary if it
merely recovers losses or costs arising from the other
party’s breach of contract.
There is a big focus on transparency of terms. The
NZCC says terms that are not transparent are more
likely to be unfair, because consumers may not be
aware of their existence or full effect. Transparency is
to be assessed “in the eyes of the average consumer”, an
objective test, but one containing a lot of discretion. For
example, what happens in the event that a term is clearly
expressed but still causes imbalance and disadvantage
to a consumer? It is likely that the more transparent a
term is, the greater imbalance, disadvantage or unfairness must be shown.
Terms need to be expressed in reasonably plain
language, be legible, clearly presented and readily available to the other party. In contrast, a term hidden in fine
print or schedules, found on a different webpage, a different or unexpected part of a document, or phrased in
complex technical jargon, will not be transparent.
The whole context of the contract is important, not
just a term that might appear unfair in isolation. A term
might be more equitable when read in the context of
the rest of the contract, or counterbalanced elsewhere
by additional benefits provided, such as a lower price or
dis