Protecting businesses and consumers from unfair commercial practices

Protecting Businesses and Consumers from Unfair Commercial Practices - Hospitality New Zealand

The Government have released a discussion document on protecting businesses and consumers from unfair commercial practices.

Extract from the Ministers’ foreword:
"This discussion document is an opportunity for you to help us to better understand whether or not there is a need for New Zealand’s existing protections against unfair practices to be strengthened. If there is a need for a law change, then we want to ensure that any changes are proportional to the problem. In particular, we want to make sure that all businesses, big or small, can continue to compete effectively, negotiate firmly, and freely enter into contracts that reflect their wishes. Your input is critical to ensuring that we get this balance right."

MBIE say:
"The Government is considering whether the protections for businesses against unfair commercial practices should be strengthened and we want to hear from you."

Deadline for submissions to MBIE:

9am, Monday 25 February 2019

You can provide feedback by:

Filling in the template submission form then returning it via email or post
Make a submission using Microsoft Word and return it via email or post
Email: competition.policy@mbie.govt.nz
Post:
Competition and Consumer Policy
Building, Resources and Markets
Ministry of Business, Innovation & Employment
PO Box 1473
Wellington 6140
New Zealand

We encourage all members to make a submission and give their views to the government on this.

Hospitality NZ is also interested in your views on this – we would welcome your feedback to help shape our submission too – please email our Advocacy and Policy Manager, Nadine Mehlhopt at nadine@hospitality.org.nz , by Friday 15 February 2019

Consultation documents are available to read at the following links:

Protecting businesses and consumers from unfair commercial practices – discussion paper

Protecting businesses from unfair commercial practices – summary

MBIE webpage

Overview from the consultation document:

What are unfair commercial practices?

What is ‘unfair’ is highly subjective. However, it can broadly be grouped into two categories:
→ Unfair contract terms may include contract terms which shift risk from one party to another, make it difficult for a party to terminate a contract, or are otherwise very one-sided.
→ Unfair conduct, which relates to things other than a contract itself. This may include businesses using pressure tactics, deceptive conduct, or the way in which a contract is enforced.
We do not think it is the role of government to protect businesses from every transaction that they might ultimately regret. We also want to make sure that measures to protect individual businesses do not stop businesses from competing fairly with each other, or from negotiating firmly with their customers and suppliers.

Is there a problem?

We surveyed a range of (mostly small) businesses in June 2018 to find out about whether their relationships with their suppliers and businesses were fair and healthy. Despite the existing laws around unfair commercial conduct, a significant proportion of businesses reported experiencing unfair conduct or contract terms. In particular:
→ 45 percent of businesses reported being offered contracts that they considered contained ‘unfair’ terms in the past year. These included terms that limited the liability of one party, terms that allowed one party to unilaterally vary the contract, and extended payment terms.
→ 47 percent felt that they had otherwise been treated unfairly. The most common complaints were businesses not complying with an existing contract, misleading or deceptive behaviour, and businesses making demands over and above what was agreed in a contract.

Many of these businesses reported being negatively affected by these practices. This included cash flow issues, increased costs, reduced sales, reputational damage, disrupted supply, wasted time, and increased stress. While not all of these concerns will need a response from government, we think that these results indicate that there might be a gap in the protections available to businesses, particularly small ones.

Options to address unfair commercial practices

If additional protections are needed, we think there are two main options to increase the protections for businesses against unfair contract terms and unfair conduct. These options are not mutually exclusive; both options could ultimately be selected.

Option 1: protect businesses from unfair conduct

There are various ways that a protection could be designed, including prohibiting conduct that is ‘unconscionable’ (based on Australian law), ‘oppressive’ (based on consumer credit law); or ‘unfair’ (based on European law). Regardless of the exact wording, the basic effect of the protections would be to target the worst conduct by businesses towards other businesses. They would be unlikely to affect everyday interactions and transactions between businesses.

Option 2: protect businesses from unfair contract terms

This option would mean that in standard form (‘take it or leave it’-style) contracts, businesses would not be able to include terms that:
→ would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
→ are not reasonably necessary; and
→ would cause detriment if they were enforced.
These protections would not apply to the main subject matter or upfront price of the contract. Introducing these protections would impact on a wide range of business contracts and there could be some costs for businesses in reviewing and amending their contracts. However, because the protections would not apply to the main subject matter of the contract, the upfront price, or terms that are reasonably necessary, we do not think that they would significantly restrict the types of arrangements that businesses are able to enter into with each other.

Design of the protections

If either of the above options is introduced, decisions will need to be made about:
→ whether the protections should apply to all businesses, or small businesses only (and if so, what counts as “small”);
→ whether the protections should only apply to transactions below a certain monetary threshold; and
→ how any new protections will be enforced, and the penalties for breaching the law.

In practice, there are a number of ways to combine these options for increasing the protections against unfair practices. We have presented four possible packages of options. The packages are high-level only and do not address, for example, which version of Option 1 would be selected.

 

The questions:


MBIE have set out a number of questions which they are interested in – found throughout the document and as a complete list at the end of the document. Members can respond to as many, or as few, as they want. Members are not limited to these questions and can provide any feedback that is within the scope of the consultation.
Some examples that are of particular relevance are:


Issue 1: Unfair business-to-business contracts


Q1 What types of unfair business-to-business contract terms are you aware of, if any? How common are these?
Q2 What impact, if any, do these unfair contract terms have?
Q3 Is government intervention to address unfair business-to-business contract terms justified? Why/why not?


Issue 2: Unfair business-to-business conduct


Q4 What types of unfair business-to-business conduct are you aware of, if any? How common is this type of conduct?
Q5 What impact, if any, does this conduct have?
Q6 Is government intervention to address unfair business-to-business conduct beyond existing legislative protections justified? Why/why not?
Q10 Do you agree with our proposed high-level objectives and criteria for assessing any potential changes to the regulatory framework governing unfair practices? If not, why not?

 

Option 1: Introduce a high-level protection against unfair conduct


Q11 Should a high-level prohibition against unfair conduct be introduced? Why/why not?
Q12 What are the advantages and disadvantages of Options 1A, 1B, and 1C (Refer to Annex 1 for more information)? Which option, if any, do you support?
Q13 If unconscionable conduct were prohibited (Option 1A), should a definition of unconscionability be included in statute, and if so, how should it be defined?
Q14 Is it appropriate to require businesses to act in good faith (as per Option 1C – see Annex 1)? Are there situations in which doing so could have negative economic outcomes?
Q15 Are there any other variations on Option 1 that we should consider?
Q16 If a version of Option 1 is selected, should it also extend to matters relating to the contract itself?
Q17 Should any protection against unfair conduct apply to consumers only, consumers and some businesses (and if so, which ones?), or all consumers and businesses?


Option 2: Extend unfair contract terms protections to businesses


Q18 If the UCT protections are extended to businesses, do you agree that the current consumer UCT provisions should be carried over without major changes? If not, why not?
Q19 If the UCT protections are extended to businesses, should the FTA’s ‘grey list’ for consumer UCTs be carried over ‘as is’? Are there any existing examples of unfair terms that should be removed from the list, or any new examples that should be added?
Q20 Should the protections against UCTs apply to consumers only (as at present), consumers and some businesses (and if so, which ones?), or all consumers and businesses?
Q21 If the protections against UCTs are extended to businesses, should a transaction value threshold be introduced, above which the protections do not apply? If so, what should the threshold be?
Q22 Should there be penalties for breaching any new provisions regarding UCTs, and should there be civil remedies available, even if unfair terms have not previously been declared by a court to be unfair? How should any penalties and remedies be designed?


Options packages


Q24 Do you have a preferred options package? If so, which is your preferred package, and why?