Are you squared away with unfair terms law changes?
Updated: 6 days ago
Latest update 27/03/24 | Last update 22/10/2023 | First published 10/08/2023 on TradeBox's website, 09/08/2023 on Aitchison Reid's client newsletter
This guidance article was provided to TradeBox Australia by Aitchison Reid Building and Construction Lawyers, and written by its director, Fionna.
Life's not fair - get over it...
When I was little, whenever I would complain that something was unfair, my Dad would reply “Well, life’s not fair – get over it!”
That expression used to infuriate me to my very core. So, it’s no wonder I ended up being a lawyer advocating for subbies and tradies. Blatant unfairness still riles me.
You may already be aware that Australian Consumer Law[1] states that a court can make a term in a standard form contract void if it's unfair. However, you may not be aware that this law also applies to small businesses.
Currently [before 9 November 2023], the worst that can happen to a business with an unfair term is that the term is made void. However, that changes on 9 November 2023[A1].
On 9 November 2023
On 9 November 2023, the unfair term component of Australian Consumer Law is being extended, so that:
A small business is now a business with no more than 100 employees; and
The ACCC will be able to fine businesses with unfair terms in their standard form contracts.[2]
An unfair term is defined as:
“(1) A term of a consumer contract or small business contract is unfair if:
(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.”
Although section 25 provides a list of examples of unfair terms, the complete extent of what is an unfair term has been slowly emerging with each new court case.
Perera v Bold Properties
So going back to Perera v Bold Properties (QLD) Pty Ltd[3] and special condition 7.
The court considered:
Was special condition 7 transparent?
The court held that special condition 7 was not transparent because:
It did not comply with the QBCC Act requirements for the special condition to be included in the warning on the front page of the schedule of a domestic building contract; and
It did not state how the price increase was to be calculated and instead the price increase was arbitrary and at the builder’s sole discretion.
Does special condition 7 cause a significant imbalance in the parties’ rights and obligations?
The court held that special condition 7 caused a significant imbalance in the parties’ rights because:
“Special condition 7 is drafted in such a way as to provide the respondent with a seemingly unconstrained right to adjust the contract price by an arbitrary amount in the case of delay, irrespective of whether that delay was caused by the applicant, the respondent or factors outside either party’s control.”;
Special condition 7 did not refer to any increase in cost or any specified basis of the increase in the contract price, other than Bold’s base price had increased (which was increased by Bold at its discretion);
The homeowners had no right to terminate the contract if Bold chose to increase the contract price. The homeowners were instead locked into the contract; and
Special condition 7 provided Bold “with a unilateral right to vary the upfront price of the contract, which has purportedly been locked in by a separate agreement between the parties for which consideration was provided, without providing any right to the applicants to terminate or otherwise to negotiate the increase.”
Would special condition 7 cause a detriment to the homeowners?
The court held that special condition 7 caused detriment, because special condition 7 caused a financial detriment to the homeowners.
The homeowners would either have to accept the increase to the contract price, or repudiate the contract and be liable to pay the builder damages.
Is special condition 7 reasonably necessary to protect Bold’s legitimate interests?
The court held that special condition 7 was not necessary to protect Bold’s interests because:
The way special condition 7 was written, it allowed Bold to rely on any delay including its own, to increase the price;
The number of the cost increases were known to Bold before the contract was entered into; and
When considering the contract as a whole there were other protections in the HIA contract including delay damages and claiming for an extension of time, if the delay was outside Bold’s control.
So what does this mean for you?
If you are a subbie, start looking forward to transparent fair terms in your subcontracts with headcontractors from 9 November 2023. In fact you are likely to be seeing a bit of change with a number of the larger builders already.
If you have your own terms and conditions, it is time right now to review them or just get rid of them, (including domestic building contracts, commercial terms and sub-subcontracts) and replace them with compliant terms and conditions.
Drafting an unfair term is pretty easy. Drafting a fair term that is balanced and fulfils all of the requirements of Australian Consumer Law, is very challenging. Believe me I know, because that is what I do as a construction lawyer and crafter of TradeBox's contracts. Therefore, please don’t try and do it yourself, get an experienced construction lawyer to help you, or buy already drafted terms that have been drafted by a construction lawyer, like the terms and conditions provided by TradeBox.
End notes
[1] Schedule 2, Competition and Consumer Act 2010.
[2] I will discuss these changes in a lot more detail in later emails.
[3] [2023] QDC 99.
[A1] In the earlier version of this guidance article published 9 August 2023, the date for when Australian Consumer Law changes come into force was incorrectly stated as 10 November 2023, when in fact it is actually coming into force on 9 November 2023.
Please note
This article was written by Fionna C A Reid, director of law practice Aitchison Reid Building and Construction Lawyers (Aitchison Reid) for TradeBox Australia (TradeBox), so that TradeBox can share the article as guidance with tradies and subbies. Use of this article is subject to TradeBox’s terms and conditions of use stated here: https://www.tradebox.com.au/terms-and-conditions-our-ar-content
Aitchison Reid, like TradeBox, is based in Queensland.
This article has been drafted in reference to building and construction trade businesses in Queensland only.
TradeBox is not a law practice. This article is not legal advice and is for guidance purposes only. Seek advice on matters of interest arising from the commentary, information and guidance in this article.
Aitchison Reid’s content for this article was released to TradeBox in August 2023. Individual liability limited by a scheme approved under professional standards legislation.
