Australia: Take it or leave it? Unfair contract term prohibitions and the construction industry

Last Updated: 17 April 2016
Article by Frazer Moss and Laura Walton

Most Read Contributor in Australia, August 2016

Key Points:

There are several terms typically found in "standard form" construction contracts that could now fall foul of the unfair contract term prohibitions in the Competition and Consumer Act.

From November 2016, Federal unfair contract terms legislation will apply when doing business with contractors and suppliers that are a small business (fewer than 20 employees).

Now is the time to be considering whether the terms of template contracts used when contracting with small businesses might be "unfair", and working out how that should be addressed. As discussed below, construction industry players have less than 8 months remaining to undertake this review - see the 'pre-start' checklist for some tips.

Extension of unfair contract term prohibitions

Legislative amendments will soon extend the unfair contract term prohibitions in the Competition and Consumer Act 2010 (Cth), introduced in 2010, but limited to contracts with consumers, to contracts with small businesses. This is part of a reform agenda to give small businesses a fair go by protecting them from vulnerability to unfair terms in standard form contracts offered as "take it or leave it" deals.

The extended prohibitions will affect contracts entered into or renewed on or after 12 November 2016.

Who and what do the prohibitions apply to?

The prohibitions will apply to "standard form contracts" that:

  • are entered into with a small business (a business with fewer than 20 employees); and
  • have an upfront contract price of up to $300,000, or $1 million for contracts with a term of 12 months or more.

Unhelpfully, the legislation does not define what is a "standard form contract". Conceptually, it would seem to capture industry standard forms such as Australian Standards. It is also likely to extend to template contracts developed by individual organisations presented on a "take it or leave it" basis.

This means that the legislation is likely to apply to numerous subcontracts and standalone minor works, supply and consultancy contracts used on construction projects of all sizes.

What are unfair terms?

A term will be deemed unfair if it:

  • causes a significant imbalance in the parties' rights and obligations;
  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and
  • could cause detriment to the other party.

The legislation contains a non-exhaustive list of 13 criteria specifying what may constitute an unfair term. They include terms that permit one party to unilaterally vary the characteristics of the goods or services to be supplied, terms that penalise one party but not the other for breach or termination of the contract, and terms that have the effect of limiting one party's right to sue another party. The parameters set by this non-exhaustive list are somewhat vague or grey1. That greyness is compounded by the fact that terms that define the subject matter of the contract, and those that set the upfront price payable under the contract, are exempt. How far that exemption might reach is not clear.

Implications for the construction industry

The lack of precision in what is an unfair term is not particularly helpful for any party from a practical perspective, and is unlikely to readily effect the desired protection for small businesses. This is in contrast with some existing construction industry-specific legislation that implies and prohibits particular terms 2.

Applying the list of 13 criteria to terms typically found in "standard form" construction contracts, terms that could fall foul of the unfair contract term prohibitions include:

  • time bars, particularly those with short notice periods;
  • variation clauses allowing unilateral variations to be directed;
  • terms that allow a superintendent / principal's representative to make unilateral determinations;
  • warranties in design and construct contracts that make a contractor liable for preliminary design work by others;
  • novation clauses; and
  • termination for convenience clauses.

The answer in each instance will depend on the particular wording and operation of the term in issue. Factors which will mitigate against a clause being unfair are the protection of legitimate interests or controls/limits on its application.

Head contractors in particular should be alive to the reach of the legislation. Terms which might be negotiated and/or priced at head contract level may not be able to be "back to backed" down the contractual chain if they are "unfair" at that lower contractual level.

"Take it or leave it"?

Commentators have questioned to what extent, if any, the prohibitions will in fact assist or be utilised by small businesses in their day-to-day commercial dealings. Unlike some statutory prohibitions such as the maximum periods for payment in SOP legislation, relief from an unfair term requires court intervention.

Nonetheless, the operation of the unfair contract term legislation should not be ignored. It is prudent to review any frequently used "standard form" contracts to identify potentially unfair terms which could impact dealing with small businesses, and give consideration to addressing them.

Pre-start checklist

Identify

  • template contract suites that could include contracts with small businesses, or standalone minor works subcontracts, supply and consultancy agreements;
  • any existing contracts of that nature that are due for renewal on or after 12 November 2016.

Review the terms identified in those contracts against the "unfair contract terms" criteria.

Consider amending or removing any potentially unfair terms, including considering whether corresponding amendments are required higher up the contractual chain or whether pricing / risk profiles require adjustment as a result.

You might also be interested in...

Footnotes

1 The "grey list" is how a similar list in equivalent UK legislation is described.

2For example payment terms in the security of payment legislation and the Queensland Building and Construction Commission Act 1991 (Qld)

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.