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Commerce Commission releases report on unfair contract terms in the telco sector

February 10, 2016


Partners Anne Callinan, James Craig

Competition law (inc cartels) Unfair contract terms

On 17 March 2015 new provisions came into force under the Fair Trading Act 1986 prohibiting the use of unfair contract terms in standard form consumer contracts. 

The Commerce Commission has now completed an investigation into standard form contracts in the telecommunications industry. A copy of their report can be found here.

The Commission is also conducting a review of standard form contracts in the electricity retail and gym industries. However, the Commission's guidance to the telecommunications industry will be of relevance to other industries seeking to ensure compliance with the unfair contract terms regime.

The Commission examined the standard form contracts across seven telecommunications businesses. It engaged with the industry in relation to 66 contractual provisions which it considered had the potential to be unfair contract terms. These broadly related to four key types of contractual provisions:

  1. Limitation of liability clauses: the Commission viewed clauses which limited or excluded a Company's liability as being potentially unfair if there was no corresponding limitation on customer liability. It acknowledged that such clauses could be legitimate where (a) the amount of the limitation is sufficient to ensure that customers are not left out of pocket when loss occurs; and (b) customers have the same or similar limitation to their liability as the company.
  2. Rights to unilaterally vary the contract: the Commission regarded many of these clauses as being drafted too broadly. Rights to unilaterally vary the contract are likely to require a legitimate reason to do so, and also allow a customer to exit the contract without penalty if the variation results in detriment to the customer.
  3. Customer responsibility for unauthorised charges: the Commission has noted that a business should not make the customer its insurer. However, it has accepted that such terms could be legitimate, provided that there is the opportunity for customers to notify the company of charged for unauthorised use of their services for the company to then assess each case on its merits to determine where liability for the unauthorised use should lie.
  4. Liability for consequential losses: while such clauses limiting a company's liability for consequential loss may be legitimate, it must be clear that any limitation does not purport to exclude liability under the Fair Trading Act or the Consumer Guarantees Act 1993 (both of which allow customers to recover compensation for consequential loss arising from a breach of those Acts). 

If you have any questions or need assistance reviewing your standard form contracts please contact Anne Callinan or Glen Holm-Hansen.