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Most businesses will use contracts to make sure that any agreement they have with another party is legally binding. This includes health businesses in New Zealand. Contracts are crucial to make sure you get compensation if your contracting party breaches the contract. However, for a contract to be legally enforceable, it must meet several elements. There may be a situation where you are mistreated when a contract is being negotiated. This could be through unconscionable conduct or unfair contract terms and could result in the contract being unenforceable. This article will explain what these situations are and how to avoid them.

What is Unconscionable Conduct?

New Zealand law does not explicitly define unconscionable conduct. However, there are laws in New Zealand that are intended to prohibit conduct, that is similarly defined in Australia. Unconscionable conduct in New Zealand can be seen as conduct that ‘goes beyond being commercially necessary or appropriate’. It can also be defined as conduct against conscience by reference to the norms of society, with such norms including honesty and fairness.

An example of unconscionable conduct is if a car dealer argues that a car is faulty because of the driver’s driving style when they know there is a defect with the car.

How is Unconscionable Conduct Found?

The courts have a set of criteria that they can use to determine whether conduct is unconscionable. These include:

  • the relative bargaining strength of the parties;
  • whether one party was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;
  • whether there was any undue influence, pressure, or any unfair tactics; and
  • the extent to which the supplier and the customer acted in good faith.

How Can a Health Business Avoid Unconscionable Conduct?

To avoid being punished for unconscionable conduct, you must ensure that whatever product or service you are selling is exactly how you portray it. In addition, you must make sure that you disclose the limits of your good and what it can and cannot do. For example, if you are selling hearing aids, you must let your customer know how it will make their life easier, including details about the: 

  • range;
  • battery; and 
  • comfort.

You should also consider the position of who you are dealing with when negotiating with them. If the other party has a lower bargaining position than you, then you are more likely to be engaged in unconscionable conduct. That is to say; you should consider all the characteristics of a party when dealing with them.

As a health business, you have to be extra careful as you are likely to be in a higher bargaining position. This is because people will do more to fix a health issue as they are in a vulnerable position.

What Are Unfair Contract Terms?

As the name suggests, unfair contract terms are terms that either party are disadvantaged by. Further, New Zealand law has defined a test to determine if a contractual term is unfair. A term is considered unfair if it:

  • is in a standard form contract, which is a contract where the terms have not been subject to effective negotiation between the parties;
  • would cause a significant imbalance in the parties rights and obligations arising under the contract;
  • is not reasonably necessary to protect the legitimate interest of the party who would be advantaged by the term; and
  • would cause detriment (either financial or otherwise) to a party if it were applied, enforced, or relied on.

For a term to be considered unfair, all four of these elements must be satisfied. 

How to Avoid Unfair Contract Terms as a Health Business?

To avoid unfair contract terms, you should make sure that a term in your contract does not cause unfairness. Additionally, you should only include terms in your contract that you need to serve your legitimate interest in the transaction.

Only the Commerce Commission can find a term unfair. If a contract term is proven to be unfair, it will be unenforceable, and you may face a fine. No private party can bring an unfair contract term claim.

Key Takeaways

You should always use a contract if you are making agreements with other businesses. This is so that both parties are legally bound and protected in the case of a breach. However, when forming contracts, you must not act unconscionably or include any unfair contract terms. This could open you up to an unenforceable contract, or you could be subject to fines. To avoid these situations, you should always consider all the relevant factors of your contracting party and make sure you are not taking advantage of them.

If you are unsure, then it is prudent to consult a lawyer when dealing with contracts. Health businesses must take extra care as you are in a position where it can be easy to take advantage of someone. If you need any legal assistance with business contracts, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

How do I determine the relative bargaining power of each party?

This is done by figuring out who will be most advantaged by the formation of the contract. If the one party is more advantaged, they will do more to get the contract over the line. This could open them up to dealing with unconscionable conduct.

Will the Commerce Commission always look for unfair contract terms?

If you have been including unfair contract terms in your contracts, then someone may complain to the Commerce Commission, who can take you to court.

Can any term be unfair?

No, unfair contract terms do not apply to the subject matter or the price stipulated in the contract.

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