Plain language law

New Zealand law explained for everyone

Fair Trading Act 1986

Enforcement and remedies - Declaration of unfair contract terms

46L: When term in consumer contract or small trade contract is unfair

You could also call this:

“When a contract term is not fair to one side”

A term in a consumer contract or small trade contract can be considered unfair if a court decides it meets three conditions. First, it creates a big difference in what each side can do or get from the contract. Second, it’s not really needed to protect the interests of the side that benefits from it. Third, it could harm the other side if it’s used.

When a court is deciding if a term is unfair, they can look at anything they think matters. But they must consider how clear the term is and how it fits with the rest of the contract.

The side that benefits from a term has to prove that it’s necessary to protect their interests. If they can’t, the court will assume it’s not necessary.

For insurance contracts, some terms are always considered necessary to protect the insurer’s interests. These include terms that describe what’s being insured, how much it’s insured for, what’s not covered, how claims are handled, how premiums are paid, and rules about honesty and sharing information.

In this section, ‘contract of insurance’, ‘premium’, and ‘uncertain event’ have special meanings that are defined in another law called the Insurance (Prudential Supervision) Act 2010.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6410742.

Topics:
Business > Fair trading
Money and consumer rights > Consumer protection
Previous

46K: Terms that may not be declared to be unfair contract terms, or

“Rules about which contract terms can't be called unfair”

Next

46M: Examples of unfair contract terms, or

“List of ways a contract can be unfair to one person”

Part 5 Enforcement and remedies
Declaration of unfair contract terms

46LWhen term in consumer contract or small trade contract is unfair

  1. A term in a consumer contract or small trade contract is unfair if the court is satisfied that the term—

  2. would cause a significant imbalance in the parties' rights and obligations arising under the contract; and
    1. is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
      1. would cause detriment (whether financial or otherwise) to a party if it were applied, enforced, or relied on.

        1. In determining whether a term of a consumer contract or small trade contract is unfair, the court may take into account any matters it thinks relevant, but must take into account—

        2. the extent to which the term is transparent; and
          1. the contract as a whole.

            1. For the purpose of subsection (1)(b), a term in a consumer contract or small trade contract must be presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.

            2. For the purpose of subsection (1)(b), and despite anything in section 46M, in relation to contracts of insurance only, the following terms must be taken to be terms that are reasonably necessary in order to protect the legitimate interests of the insurer:

            3. a term that identifies the uncertain event or that otherwise specifies the subject matter insured or the risk insured against:
              1. a term that specifies the sum or sums insured or assured:
                1. a term that excludes or limits the liability of the insurer to indemnify the insured on the happening of certain events or on the existence of certain circumstances:
                  1. a term that describes the basis on which claims may be settled or that specifies any contributory sum due from, or amount to be borne by, an insured in the event of a claim under the contract of insurance:
                    1. a term that provides for the payment of the premium:
                      1. a term relating to the duty of utmost good faith that applies to parties to a contract of insurance:
                        1. a term specifying requirements for disclosure, or relating to the effect of non-disclosure or misrepresentation, by the insured.

                          1. In subsection (4),—

                            contract of insurance has the meaning given in section 7 of the Insurance (Prudential Supervision) Act 2010

                              premium has the meaning given in section 6 of the Insurance (Prudential Supervision) Act 2010

                                uncertain event has the meaning given in section 7 of the Insurance (Prudential Supervision) Act 2010.

                                Notes
                                • Section 46L: inserted, on , by section 36 of the Fair Trading Amendment Act 2013 (2013 No 143).
                                • Section 46L heading: amended, on , by section 18(1) of the Fair Trading Amendment Act 2021 (2021 No 32).
                                • Section 46L(1): amended, on , by section 18(2) of the Fair Trading Amendment Act 2021 (2021 No 32).
                                • Section 46L(2): amended, on , by section 18(3) of the Fair Trading Amendment Act 2021 (2021 No 32).
                                • Section 46L(3): amended, on , by section 18(4) of the Fair Trading Amendment Act 2021 (2021 No 32).