New Zealand's unfair contract term regime had its tenth birthday this year but there have still not been many cases under the regime, and even fewer regarding digital platforms.
However, a recent case involving a holiday accommodation platform (Bachcare) shows that the Commerce Commission's approach to enforcement – which to date has largely focused on education and warnings – may be heading more towards court action. The Bachcare case also gives some useful insights into the Commission's approach to unfair terms.
The impugned terms
The Commerce Commission sought a court declaration that terms in Bachcare's guest terms and conditions (that applied when booking accommodation through the platform) were unfair.
Bachcare accepted that previous versions of its terms included unfair terms relating to cancellation of bookings and what happened if a property became unavailable after booking. There were various versions of the terms at issue in the case (which went back as far as 2019). Some examples of issues raised about the terms include:
- The cancellation clause was not drafted with sufficient clarity to make the consequences of cancellation clear. It also provided that if the guest cancelled or reduced their nights at any time before the stay, they forfeited costs paid, irrespective of how early cancellation occurred, and without sufficient balancing provisions to mitigate situations where the clause resulted in unfair outcomes for guests. Later iterations of the clause provided a sliding scale with partial refunds depending on the time of cancellation, but were still found to be unfair in the particular context.
- If a guest cancelled and Bachcare was able to re-book the property, in one version of the terms there was a 15% administration fee and the guest was responsible for contacting Bachcare to ascertain eligibility for a re-booking refund. In other versions, there was no right to a refund in the event the property was re-booked.
- Failure to pay any amount when due could immediately be treated as a cancellation by the guest.
- The service fee payable to Bachcare was non-refundable “under any circumstances”, which included cancellation even if due to Bachcare or owner breach.
- If a property became unavailable for any reason (including Bachcare or owner breach), a refund was only provided if it was not possible to shift a booking to another property "in the existing community or a nearby community".
Key takeouts
As the case involved an agreed settlement between the parties, the focus of the case is on whether the outcome proposed by the parties is appropriate and the case does not provide much in terms of judicial analysis of the unfair contract terms provisions.
That said, the Commission did press for the Court to make findings on certain matters to set some precedent. The Court declined to make findings on most of the matters that the Commission wanted it to, but it did outline what the Commission submitted – so the case gives some interesting insights into the Commission's position on some key issues that are particularly relevant to businesses that take bookings or operate digital platforms for services. For example:
- Transparency/location of cancellation terms: The Commission expressed the view that, if a service such as accommodation is non-refundable in all or most circumstances, then this should be stated in the listing information that is readily available to consumers. Including a summary or link to the cancellation policy in the customer journey would not "cure" the imbalance or unfairness in the circumstances of the case. The Court did not reach any conclusion on this point, given the case involved an agreed settlement. However, it did state that the imbalance of the impugned terms was reinforced by a lack of transparency and how the terms were located and displayed (noting that "the consumer had to read several pages of reasonably fine and detailed print").
- Sliding scale for when partial refunds available: The Commission submitted that changes to the cancellation clause to provide for partial refunds depending on the time of cancellation (eg, 30% refund if cancelled 30 days or more before the booking) went some way to reducing the extent of the imbalance in the parties' rights and obligations. However, such terms were impugned because a substantial portion of accommodation costs were still forfeited if a guest cancelled, regardless of how far in advance the cancellation occurred or if the property was re-booked. If no distinction is made between early and late cancellations, the Commission's view is that the term would be less likely to be a genuine estimate of the loss that would be suffered and therefore less likely to be fair.
- Impact of amelioratory steps on fairness of term: The Court stated that it "may well be that a supplier departs from the strict enforcement of its terms in order to alleviate detriment or unfairness" – but pointed out that the focus of the assessment of whether the relevant terms would cause detriment is not on the extent to which detriment in fact resulted. The Commission further submitted on this point that "amelioratory steps would not render the term itself fairer, and indeed may reinforce that the term, if strictly adhered to, would operate unfairly".
Whether or not a term is unfair is fact specific. The Bachcare case does not involve a suggestion that Bachcare could not have cancellation provisions, rather it is the specific nature of them that was at issue. The case is a good reminder to:
- Check whether the unfair contract terms regime applies to your standard terms
- If so, review the terms, including any cancellation or termination terms, in light of the Commission's current approach, and in the context of the contract as a whole
- Make sure that any cancellation terms are clearly shown to customers as part of the purchasing journey.
If you need assistance reviewing standard form contracts to identify potentially unfair terms, please contact one of our consumer law team members.
