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FRANCHISE AGREEMENTS ESCAPE CONSUMER LAW REFORM

by Simon Lord,
last updated 13/05/2011

Franchise agreements will not now be caught up in proposals by the Ministry of Consumer Affairs to reform consumer law. Originally, it was feared that some elements of consumer law might be extended into business-to-business standard form contracts, with suggestions that these might include clauses relating to unconscionable conduct and good faith.

John Boscawen, the Minister of Consumer Affairs, has now published his intentions and advised, ‘New Zealand has few recorded examples of unfair contract terms, and introducing a prohibition would lead to increased uncertainty around whether contracts were valid, particularly amongst businesses which rely heavily on standard form contracts. There is mixed evidence on whether a prohibition on specific terms considered “unfair” would have any real effect, or would just encourage contracts to be worded differently, but with equal effect. The incentive to amend contracts in an attempt to reduce the potential for unfairness imposes a compliance cost on businesses and consumers for little or no benefit.’

However, he notes that, ‘Similar provisions have recently been introduced into Australian law, and the Ministry of Consumer Affairs will monitor the impact of these, reporting back on the Australian experience.’

He has also ruled out unconscionability provisions, saying, ‘While there is currently no evidence unconscionable contracts are a significant problem, including a prohibition may have led to a considerable period of uncertainty as the courts determined test cases to set limits around its application. Existing case law already includes significant protection for consumers, and there was considerable concern that adding unconscionable conduct provisions to the Act would add little more, while compromising freedom of contract.’

The news has been greeted with delight by the Franchise Association, which has been lobbying on behalf of its members with the Ministers of both Commerce and Consumer Affairs, officials of the Ministry and the Small Business Advisory Group appointed by the Minister of Commerce.

Full coverage of the Consumer Law Reform Bill can be found here

Questions & Answers from the Minister are here

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