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Upcoming changes to the Fair Trading Act – Contracts and Commercial Law



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Background

In August 2021, Parliament enacted a number of amendments to the
Fair Trading Act 1986. Some minor changes were of immediate effect,
with major changes coming into force from 16 August 2022. A key
change coming into force this year is an extension of existing
protections against unfair contract terms.

What’s changing?

Previously, such protections have prohibited the inclusion of
unfair contract terms in standard form consumer
contracts
. From August, these protections will be extended
to some standard form business to business
contracts
, being those where the value of the contract is
less than $250,000 in any year.

Unfair contract terms

The amendments retain the current test used to determine whether
a term can be declared unfair, namely in circumstances where:
1

  1. The term is in a standard form contract that has not been the
    subject of effective negotiations between the parties;

  2. It would cause significant imbalance in the contracting
    parties’ rights and obligations arising under the
    contract;

  3. It is not reasonably necessary in order to protect the
    legitimate interests of the party who would be disadvantaged by the
    term; and

  4. It would cause detriment to a party if applied, enforced or
    relied upon.

Crucially, the effect of a contract term being declared unfair
is that it is unenforceable in its entirety, meaning a Court will
not look to rewrite the term in such a way that makes it
“fair” in their view.

Our advice

In light of this coming into force, we recommended that
businesses consider conducting a thorough review of their terms of
trade , in particular, to mitigate any risk of these terms being
declared unenforceable post 16 August 2022.

Should you have any concerns, our Business experts are available
to assist in reviewing such terms and are able to provide
recommendations in anticipation of the changes coming into
force.

Footnote

1Fair Trading Act 1986, s 46I.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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