Introducing a Prohibition on Unfair Contractual Terms into New Zealand Law: Justifications and Suggestions for Reform

Abstract

This article examines the question of whether New Zealand should legislate against unfair contractual terms. It considers the extent to which New Zealand law already restricts the use of such terms and concludes that prohibiting a contractual term merely on the basis of substantive unfairness is a novel and drastic move away from principles of freedom and sanctity of contract. Such a move is accompanied by the dangers of loss of certainty and the risk that a court or other decision-maker will make false assumptions about buyer preferences. However, despite these dangers, a prohibition on unfair terms can be justified if it is limited to unexamined, standard form terms in consumer contracts. These terms are not taken into account by consumers when making purchasing decisions. Market forces cannot operate effectively on these terms and there is therefore a danger that some of these terms may be unfair.

The article critically examines the proposed Australian unfair terms provisions and the unfair terms legislation of both the United Kingdom and the Australian State of Victoria. Recommendations are made for drafting New Zealand provisions on unfair terms. Statutory definitions for the concepts of "unexamined terms", "standard form terms", "consumer" and "unfair terms" are suggested. Penalty and enforcement issues are also examined.

Keywords: contract, terms, contractual, unfair, New Zealand, comparative, freedom, sanctity of contract, standard form contract, unfair terms, united kingdom, victoria, australia, drafting, unexamined terms, standard form terms, consumer, unfair terms, penalty, enforcement

JEL Classification: K00, K10, K12, K23, L51, O57, N40