New Zealand Law Society - Commission seeks declaration that contract terms are unfair

Commission seeks declaration that contract terms are unfair

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The Commerce Commission has begun High Court proceedings seeking a declaration that mobile trader Home Direct’s consumer contracts contained unfair terms relating to its “voucher entitlement scheme”.

It is the first time the Commission has sought such a declaration since March 2015 when it became unlawful under the Fair Trading Act 1986 to include, apply or rely on terms that have been declared by a court to be unfair. The law applies to standard form consumer contracts, which are ‘take it or leave it’ contracts where the consumer is not given a meaningful opportunity to negotiate the terms.

Home Direct sells household goods via mobile shops, online and telephone. Customers were invited to opt-in to a “voucher entitlement scheme” when they signed up to purchase goods. Under the scheme direct debit payments did not stop after the goods were paid off. Instead they were converted every week into “voucher entitlements” which could be used towards purchasing more goods from the firm.

The Commission alleges that “vouchers” could not be refunded or exchanged for cash, and expired after 12 or 24 months, depending on when the customer joined the scheme, with the proceeds forfeited to Home Direct.

“In our view they create a significant imbalance in the rights and obligations of the parties and they are not reasonably necessary to protect the legitimate interests of Home Direct,” says Commissioner Anna Rawlings.

Only the Commerce Commission can ask a court to make a declaration on whether a term is unfair. If a court decides a term is unfair a business cannot enforce it. If a business continues to use an unfair term, it is liable for prosecution by the Commission.