Unfair contract terms

You don’t have to put up with unfair contract terms. Join our Play Fair campaign to get rid of them.

15june play fair hero

You don’t have to put up with unfair contract terms. Join our Play Fair campaign to get rid of them.

17 March 2015 was a red-letter day for consumers. The date marked the start of a long-awaited ban on unfair contract terms. It’s one of the most significant changes to consumer law in the last 20 years and means you won’t have to accept the unfair conditions companies try to impose when you buy goods or services.

The ban applies to unfair terms in standard-form consumer contracts – the non-negotiable terms and conditions you’re presented with when you’re joining a gym, signing up with a telco or hiring a rental car.

Companies were given generous notice of the ban to give them time to remove offending terms. But we haven’t seen much evidence that’s happened. We've launched our “Play Fair” campaign to out companies that continue to use unfair terms.

Common culprits

Unfair terms can lie in wait in contracts used by a wide range of companies from electricity retailers to retirement villages.

These terms unfairly privilege the seller over the buyer. Common culprits include terms that give the company unilateral rights to vary the contract, the goods or services supplied, or even the price.

They also include terms that penalise the consumer – but not the company – for ending a contract. The company often retains the right to end the contract whenever it wants. But you face steep fees if you want to call it quits.

If you’ve ever signed up for a gym membership, there’s a good chance you’ve encountered these types of terms. Gym contracts are a target of our campaign. They can give the gym wide-ranging rights to change or cancel the agreement. But the rights available to the consumer may be extremely limited and costly to use.

Debitsuccess, which manages memberships for various gyms, has used a standard contract that reserves the gym's right to vary its services and change the location of any branch. The contract requires the gym member to keep paying fees regardless.

It’s easy to sign up for gym membership but it’s often not as easy to cancel. Debitsuccess’ contract states you have to give 30 days’ notice to cancel. You can’t consider the membership terminated until the company confirms that in writing.

Court action

In Australia, which introduced a ban on unfair terms in 2010, companies are being taken to court over the use of terms like these.

A Federal Court ruling in 2013 forced Aussie telco NetSpeed to remove contract terms that gave it unilateral rights to cancel and to vary the price without allowing customers to opt out. It also had to remove a term that required the customer to indemnify the company in any circumstance.

Last year, an Australian Competition and Consumer Commission (ACCC) investigation into daily deal site LivingSocial resulted in the company axing a clause which gave it the right to make substantive changes to its terms and conditions without telling customers.

The ACCC has also recently filed court proceedings against two companies, Chrisco Hampers Australia and Europcar, over alleged unfair terms in their contracts.

The Chrisco case involves a term in the company’s layby agreement that gives it the right to keep taking payments from a customer’s bank account when the layby has been paid in full. Europcar is being challenged over terms that require the customer to pay a liability fee if a rental vehicle is damaged or stolen, irrespective of fault.

Both companies have used similar terms in their contracts on this side of the ditch.

Clamping down

It's up to the Commerce Commission to take court action against companies here.

Under the Fair Trading Act, the commission can apply to the courts for a declaration that a term is unfair. If the court grants the declaration, the company can’t use the term in its contract or attempt to enforce it. Any company which does so runs the risk of breaching the Act and a $600,000 fine.

We’ll be filing complaints with the commission about any company that continues to use terms we believe are unfair.

What we’re doing

Here are some examples of potentially unfair terms we’d like to see changed.

Join us

Support our campaign to get rid of unfair terms.

  • If you’ve been given a contract you think contains an unfair term, let us know. Send a copy to us at playfair@consumer.org.nz
  • Let the company know you think the term is unfair. You can also make a complaint to the Commerce Commission. We have sample letters to help you.
  • Tell your family and friends they don’t have to put up with unfair terms and let them know about our campaign.
  • Follow our campaign here online.

Campaign FAQs

What’s the definition of an unfair term?

The Fair Trading Act defines a term as unfair if it:

  • would cause a significant imbalance between the rights of the company and the consumer
  • is not reasonably necessary to protect the legitimate interests of the company
  • would cause detriment, whether financial or otherwise, to the consumer if it were to be applied or relied on.

What terms are likely to be considered unfair?

The Act contains a list of terms that the courts are likely to regard as unfair.

The list includes terms that allow a company to unilaterally:

  • cancel or renew the contract
  • vary the terms of the contract or the good or services supplied
  • vary the price payable without providing a right for the consumer to end the contract
  • avoid or limit performance under the contract
  • penalise the consumer for breaching or cancelling the contract
  • assign the contract to the detriment of the consumer
  • determine whether a contract has been breached.

It also includes terms that limit:

  • the company’s liability for its agents
  • the consumer’s right to sue the company
  • the evidence the consumer can present in legal proceedings.

Does the ban apply to all contracts?

The ban applies to standard-form consumer contracts which are entered into, varied or renewed from 17 March. Standard-form contracts are the pre-written terms and conditions used by electricity retailers, telcos, finance providers, pay-TV operators, gyms and a whole host of other companies.

However, the ban won’t apply to insurance contracts. After successful lobbying, the insurance industry was exempted from the ban. This exemption means any existing insurance policy is allowed to contain unfair terms. Only new policies taken out after 17 March will be affected by the ban albeit to a limited extent. The Act exempts key terms in new insurance policies from challenge, including terms that:

  • specify the sum or sums insured
  • provide for the payment of premiums
  • identify the uncertain event or the risk insured against
  • exclude or limit the liability of the insurer to indemnify the insured for certain events or in certain circumstances
  • describe the basis on which claims may be settled or that specify any contribution due from the insured in the event of a claim
  • relate to the duty of utmost good faith that applies to insurance contracts
  • specify requirements for disclosure, or relate to the effect of non-disclosure or misrepresentation, by the insured.

Who can challenge an unfair term?

Only the Commerce Commission can challenge unfair terms in the courts. However, anyone can ask the commission to seek a declaration from the court that a term is unfair.

We’d like the law amended so individual consumers can challenge these terms in the Disputes Tribunal.

What are the penalties for including unfair terms in a contract?

Any company which tries to impose an unfair term on its customers runs the risk of breaching the Fair Trading Act and getting a $600,000 fine.

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