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Unfair contract terms: finally some precedent, but is it enough?

Home Insights Unfair contract terms: finally some precedent, but is it enough?

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Published on: November 15, 2019


On Tuesday, the High Court declared that certain terms in Home Direct Ltd's standard form contracts were unfair and therefore unenforceable. This was the first declaration of unfairness by the High Court under the Unfair Contract Terms (UCT) regime, which came into force in the Fair Trading Act 1986 (FTA) from 17 March 2015.[1] 

It is interesting that it has taken four years for the Commerce Commission to seek and obtain its first declaration of unfairness. This is likely because New Zealand businesses have tended to cooperate when the Commission has proactively engaged with them in relation to any UCT concerns. 

While that pragmatic engagement from the Commission should be commended, the lack of precedent leaves uncertainty as to how the courts will interpret the UCT regime. That lack of clarity is unfortunate given:

  1. there are a number of differences between the New Zealand and Australian UCT regimes (where Australia already benefits from a significant body of case law); and
  2. the New Zealand Government has announced that it intends to extend the UCT regime to business-to-business (B2B) dealings – thereby significantly amplifying the scope of New Zealand commerce that is covered by a legal regime with little judicial precedent.

It is also interesting that the Commission sought a declaration in this case in circumstances where Home Direct accepted that the terms were unfair. This means that the Commission's concerns were largely untested in court. Therefore, while this judgment provides some useful initial guidance (with references to Australian case law), it is expected that the boundaries of the UCT regime will only truly be tested and teased out when a commercial party's interests are fully tested.

Background to the UCT regime

The UCT regime applies to standard form consumer contracts where consumers have little or no opportunity to negotiate the terms of the contract – often offered on a "take it or leave it" basis. The Commerce Commission has the sole power to seek a court declaration that a contractual term is unfair. If a court determines a term to be unfair, it cannot be applied, enforced or relied upon.

The Court may make the declaration only if it is satisfied that no relevant exclusions apply and:

  • the term is in a consumer contract;

  • the consumer contract is a standard form contract; and

  • the term is "unfair".

A term in a consumer contract is "unfair" if three criteria are met, namely if the term:

  • would cause a significant imbalance in the parties' rights and obligations arising under the contract; and

  • it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

  • would cause detriment (whether financial or otherwise) to a party if it were applied, enforced, or relied on.

Home Direct's contract terms

Home Direct is a supplier of goods to customers, including via its website and via a fleet of trucks that will "come to [a consumer's] home to discuss their shopping needs".[2] It has been referred to as the "largest mobile trader" in New Zealand.[3]

Before July 2019, when customers opened a credit account with Home Direct to purchase goods they were given an option to join a voucher entitlement scheme. The scheme involved customers continuing to make direct debit payments to Home Direct, even after they had finished paying off the goods, with those additional direct debit payments converted into "voucher entitlements" that could only be used to purchase further Home Direct products.  

The scheme included two terms that in combination were regarded as unfair. First, the voucher entitlements were non-refundable and second, they expired after 12-months (and so Home Direct would retain the funds from any expired vouchers).

Over the course of the scheme, which operated between 2009 and 2018, more than $644,000 was forfeited to Home Direct and at least 14,000 customers were affected (some customers forfeited amounts of up to $4,600).

Justice Muir noted that the scheme did not provide any additional benefit to the customer, nor did it impose any countervailing obligations on Home Direct.  

In addition, between 1 April 2017 and 14 December 2017, the terms relating to refunds and expiry of the vouchers were found to be insufficiently clear and so could very easily have been missed by consumers (they were on the ninth page of a 12 page document, no particular attention was drawn to them, and customers may not have been aware that their funds were forfeited because the voucher payments were taken from their account automatically each week). While Justice Muir noted that transparency is not decisive, he found it can be an important factor and that in this case the lack of transparency contributed to the unfairness. 

This provides a useful and timely reminder that key and onerous terms need to be brought to consumers' attention in a clear way, and that businesses who have lengthy T&Cs should take extra care to ensure they are drafted and presented in a way that is comprehensible to consumers.


Home Direct will provide refunds to customers who have had vouchers forfeited from 17 March 2015, (when the UCT regime came into force) and July 2018 (when the voucher scheme ceased). Home Direct has already credited customers more than $133,000. The Commerce Commission is encouraging Home Direct customers to check whether they are eligible for a refund or credit.

Further details on the High Court's decision can be found in the Commission's media release here, and in the decision itself here.

Our team

If you have any questions on how the UCT regime might affect your business, please contact Joe Edwards or Troy Pilkington – we have significant experience advising on these issues and we can help you proceed with confidence.

  1. Fair Trading Act 1986, ss 46H and 46I. The relevant sections were inserted as from 17 March 2015 by the Fair Trading Amendment Act 2013.

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

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