On 12 November 2016 the Australian Consumer Law (ACL) was amended so that the unfair contract terms protection applying to consumers will also apply to “small businesses”.
There has been much commentary about the effect this will have on standard construction contract clauses such as liquidated damages, time bars, conversion of security, termination for convenience and set-offs (to mention a few) which could be declared “unfair” and void under the ACL.
Wide application
The unfair contract terms protections under the ACL will now apply to all contracts where:
- the contracting party has less than 20 employees; and
- if the contract period is less than 12 months, the contract price is not more than $300,00.00; or
- if the contract duration is more than 12 months, the contract price is not more than $1,000,000.00.
The common appearance of 6 to 12 month defect liability periods in construction contracts means that most contracts for a contract sum up to $1,000,000.00 will be subject to the new laws.
This will impact upon many subcontracts, supply agreement and consultancy agreements.
Significantly, if the protections apply, there is nothing to stop a small business submitting a claim for $10 million and relying upon the legislation, even if the contract price was less than $300,000.00. That is, the ACL is based on the upfront price of the contract, and unfair terms will remain void regardless of claims being made after entry into the contract that result in the final contract price well over the $300,000.00 or $1,000,000.00 limit.
Effect on the industry
Some commentators have said that the ACL will have little effect on the industry or adjudication under each state and territory’s respective security of payment legislation: If we follow this argument correctly, it has been said that because the ACL states that a “court” decides if a term is unfair, an adjudicator cannot also decide that a term is unfair. It has been suggested by some commentators that such a decision by an adjudicator would render the adjudication decision void for jurisdictional error.
Power of adjudicators
There is nothing new about adjudicators, in the course of interpreting contracts, exercising powers that are normally reserved for a court, and that are not expressly conferred by the security of payment legislation. Nor is there anything novel about adjudicators considering or relying on a provision in a statute to decide that a contract is void, or a clause unenforceable, where the statute provides that it is to be enforced by a “court”.
Some well-known examples are:
- declaring a contract void for unlicensed contracting under the QBCC Act (when the QBCC Act is enforced by QCAT or a court) – Cant Contracting v Casella;
- declaring a variation void because it was not in writing under the Domestic Building Contracts Act (when that Act is enforced by QCAT) – Gemini Nominees v Queensland Property Partners;
- declaring contracts or claims void for breach of the Electrical Safety Act (when that Act is enforced by a court) or the Professional Engineers Act (when that Act is enforced by QCAT or a court) – Agripower v Queensland Engineering & Electrical; and
- applying equitable or common law principles in interpreting contract provisions (which are generally reserved for the jurisdiction of the court) such as waiver and estoppel – Multiplex v Luikens and Minister of Commerce v Contrax.
In each of these cases the court found that an adjudicator could or should have applied the legislation or legal principle in question to determine whether the contract or clause was lawful or enforceable (even though in each case the legislation or legal principles could ordinarily only be enforced by a court or administrative tribunal).
The source of an adjudicators’ power to consider the legislation and legal principles (aside from those that the adjudicator is expressly required to consider under the respective security of payment legislation) has been held to arise by implication, as a consequence of the adjudicator’s duty to calculate or value a progress payment in accordance with the relevant and applicable terms of the contract.
This is apparent in the reasons of Palmer J in Multiplex v Luikens:
“If determination of a disputed progress claim depends upon resolution of a question as to what are the relevant terms of a contract, it must necessarily be implicit in the jurisdiction conferred on the adjudicator by the Act that he or she have jurisdiction to decide that question.”
The New South Wales Court of Appeal in Minister of Commerce v Contrax likewise held that the requirement placed upon adjudicator’s to consider the provisions of the construction contract:
“…entitles and indeed requires the adjudicator to take into account any considerations … that he or she thinks relevant to the construction of the Act, the construction of the contract, and the validity of the terms of the contract having regard to the provisions of the Act.”
Conclusion
The fact that the ACL is to be enforced by a “court” will not stop an adjudicator from deciding, on an interim basis, whether a clause or clauses in a construction contract are unfair, void and unenforceable under the ACL in an adjudication. That being the case, the legislation could be a game changer for claims by subcontractors, suppliers and consultants under security of payment legislation across Australia.