New Law Governing Unfair Contract terms relating to Builders between Businesses and Small Businesses

20/04/2016

The Federal Government recently passed changes to the Law which may affect Building Contracts, with those changes scheduled to commence in November 2016.

The Government changed the Australian Consumer Law (“ACL”) to expand the application of the rules regarding unfair Contract terms. These rules state that certain terms in contracts may be ruled to be unenforceable if they act unfairly on parties to the contract.

The ACL had previously applied these rules to Contracts between businesses and individual consumers.  However the recent changes extend these rules to Contracts between businesses and small businesses. 

The changes will affect a Contract where one of the parties employs fewer than 20 persons and the up front price payable under the Contract does not exceed $300,000.00 for short term Contracts or $1,000,000.00 for longer term Contracts.  The provisions apply to Contracts for the supply of goods or services and so may apply to Builders where one firm supplies to another business goods or services, including building services.  The new laws apply to “Standard Form Contracts”, which means Contract which are “take it or leave it” that cannot be negotiated between the parties. 

Where one party is in a dispute with the other party in relation to these Contracts and submits that one of the terms of the Contract is unfair, it is open to a Court in a dispute to rule that the unfair term does not apply.

Examples of possible unfair terms include the follows:

(a)      A term that allows one party, but not the other party to terminate a Contract.

(b)      A term that penalises one party, but not the other party for a breach of Contract, and

(c)       A term that limits liability by one party for its breach of the law in relation to the Contract.

An example of a Contract where the new legislation may apply could be where a business supplies manufactured goods to another firm which wants to use those products in erecting a building.  If the parties had entered into a standard contract which limited the liability of the supplier for poor workmanship or losses caused by its unlawful actions in supplying the goods, the Court may find that term was unfair and could not be enforced in any dispute. 

Businesses will need to be aware that if they use Contracts with these terms which could be found to be unfair, they may find that in any dispute Courts rule the terms are unenforceable.

Watson and Watson, Building and Construction Lawyers can advise you on Contracts, the conduct of disputes, preparation of Legal Submission and documents for Courts and Tribunals and other legal aspects of Building and Construction contracts and projects.

If you have any enquiries in relation to disputes concerning any contract, in particular in connection with building works, subcontracting, or supply, please contact Richard Watson of Watson and Watson, an experienced solicitor with in excess of 25 years experience in the area of building and construction.