What are Contracting Out Clauses?
A "contracting out clause" is a term or condition within a contract that attempts to limit, exclude, or modify the rights, obligations, or liabilities that would otherwise apply by law. These clauses often seek to reduce a party's responsibilities or to negate statutory protections granted to consumers [Source: Consumer Guarantees Act 1993, s 43(1); Fair Trading Act 1986, s 5C(1)].
Contracting Out Under the Consumer Guarantees Act 1993
The Consumer Guarantees Act 1993 (CGA) sets out minimum guarantees for goods and services supplied to consumers in New Zealand. These guarantees include that goods are of acceptable quality, fit for purpose, and match their description, and that services are carried out with reasonable care and skill, are fit for purpose, and are completed within a reasonable time and at a reasonable price [Source: Consumer Guarantees Act 1993, Parts 1, 2].
General Prohibition
Generally, suppliers cannot "contract out" of the CGA. Any term in a contract that purports to exclude, restrict, or modify the application of the CGA, or any liability under it, is void [Source: Consumer Guarantees Act 1993, s 43(1)]. This means that even if a consumer agrees to such a clause, it has no legal effect, and the guarantees of the CGA still apply.
Exceptions for Business Transactions
There are specific circumstances where parties can agree to contract out of the CGA:
- Agreement between parties "in trade": Parties can contract out of the CGA if:
- Both parties are "in trade" [Source: Consumer Guarantees Act 1993, s 43(2)]. A person is "in trade" if they are acting in the course of a business, profession, or occupation [Source: Fair Trading Act 1986, s 2].
- The goods or services are supplied and acquired "in trade" [Source: Consumer Guarantees Act 1993, s 43(2)].
- Both parties agree in writing to contract out of the CGA [Source: Consumer Guarantees Act 1993, s 43(2)].
- It is fair and reasonable that the parties are bound by the contracting out provision [Source: Consumer Guarantees Act 1993, s 43(2)].
- Supply of services to non-consumers for business purposes: A supplier can contract out of the CGA's services provisions if:
- The person acquiring the services is not a "consumer" [Source: Consumer Guarantees Act 1993, s 43(2A)]. A "consumer" is a person who acquires goods or services of a kind ordinarily acquired for personal, domestic, or household use or consumption, and does not acquire them for resupply or use in a manufacturing or repair process, or in the course of trade [Source: Consumer Guarantees Act 1993, s 2].
- The person acquires the services for the purposes of a business [Source: Consumer Guarantees Act 1993, s 43(2A)].
- The agreement to contract out is in writing [Source: Consumer Guarantees Act 1993, s 43(2A)].
If a contracting out clause does not meet these criteria, it is unenforceable, and the protections of the CGA continue to apply [Source: Consumer Guarantees Act 1993, s 43(1)].
Contracting Out Under the Fair Trading Act 1986
The Fair Trading Act 1986 (FTA) prohibits misleading and deceptive conduct in trade, false representations, and unfair practices. Its purpose is to protect consumers from such conduct and to promote fair competition [Source: Fair Trading Act 1986, s 1A].
General Prohibition
Similar to the CGA, the FTA generally prohibits contracting out of its provisions. Any term that purports to exclude, restrict, or modify the application of sections 9, 12A, 13, or 14(1) of the FTA, or any liability under them, is void [Source: Fair Trading Act 1986, s 5C(2)].
These sections deal with key consumer protections:
- Section 9: Prohibits persons "in trade" from engaging in misleading or deceptive conduct, or conduct that is likely to mislead or deceive [Source: Fair Trading Act 1986, s 9].
- Section 12A: Prohibits persons "in trade" from making unsubstantiated representations [Source: Fair Trading Act 1986, s 12A].
- Section 13: Prohibits persons "in trade" from making false or misleading representations regarding goods or services [Source: Fair Trading Act 1986, s 13].
- Section 14(1): Prohibits persons "in trade" from engaging in misleading conduct in relation to goods [Source: Fair Trading Act 1986, s 14(1)].
Exceptions for Business Transactions
Parties can contract out of sections 9, 12A, 13, and 14(1) of the FTA if [Source: Fair Trading Act 1986, s 5C(1)]:
- Both parties are "in trade" [Source: Fair Trading Act 1986, s 5C(1)(a)].
- The agreement to contract out is in writing [Source: Fair Trading Act 1986, s 5C(1)(b)].
- Both parties agree to the contracting out provision [Source: Fair Trading Act 1986, s 5C(1)(b)].
- It is fair and reasonable that the parties are bound by the contracting out provision [Source: Fair Trading Act 1986, s 5C(1)(c)].
If a contracting out clause does not meet these specific conditions, it is void, and the relevant protections of the FTA continue to apply [Source: Fair Trading Act 1986, s 5C(2)].
When to Seek Independent Legal Advice
Understanding the enforceability of contracting out clauses can be complex, particularly in specific contractual contexts. Individuals or businesses seeking to understand their rights or obligations concerning such clauses are encouraged to consult with Consumer Protection, the Commerce Commission, or their local Community Law Centres for free legal information.