Bell Gully: Uncertainty Ahead With New Unconscionable Conduct Legislation

A new prohibition against ‘unconscionable conduct’ in trade is one of a number of changes to the Fair Trading Act 1986 that come into force from 16 August 2022. The new prohibition may have wide-ranging implications for many businesses, according to a new report from Bell Gully’s Consumer, Regulatory and Compliance (CRC) team.

The report notes the new prohibition has been somewhat overshadowed by the other, more prominent, changes it accompanied. However, it will be important for businesses to take note of the new prohibition given that unconscionable conduct is not defined, and could therefore apply in a wide variety of circumstances.

“The uncertain scope of the new prohibition means that there will be an urgent need for clarification,” says the report’s author, Richard Massey, a senior associate in Bell Gully’s CRC team. “When the new prohibition was first proposed, the government made it clear that they didn’t want to limit the types of conduct which could be considered ‘unconscionable’ by including a definition. It is therefore left to the courts to work out what that means.” As a result, businesses who want clarity on the scope of the new restriction will have to wait until it is tested through litigation.

The experience of the Australian Courts has already shown this might not be straightforward. “In Australia, where similar provisions already exist, the courts have struggled to cohesively define what unconscionable conduct means. While some useful principles emerge from those cases, individual judges can have quite different views on when conduct is unconscionable.”

The unconscionable conduct prohibition will impact a wide range of businesses, Richard says. “Larger businesses in particular may start to encounter objections by smaller counterparties that robust commercial behaviour is now ‘unconscionable’, and in breach of the Fair Trading Act. The original intention was that the restriction should be limited to serious misconduct that goes far beyond what is commercially necessary or appropriate. New Zealand businesses will hope that case law reflects that intended high bar, to avoid the restriction being invoked too liberally.”

The Big Picture: Understanding the new prohibition on ‘unconscionable conduct’ discusses the issues posed by the new prohibition.

The changes will come into force from 16 August 2022.

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