Contracts are the administrative foundations of the building and construction industry. However, when contracts are skewed in favour of one party—often the more powerful one—they can lead to significant legal disputes. In Australia, the Australian Consumer Law (ACL), part of the Competition and Consumer Act 2010 (Cth), regulates unfair contract terms, offering protection against unjust provisions. Here’s how these laws apply to building contracts.
What Makes a Contract Term Unfair?
Under the ACL, a contract term can be declared void if it’s deemed unfair and the contract is a standard form, consumer contract. Section 23(1) outlines that for a term to be considered unfair, it must meet the following criteria:
- Significant Imbalance: The term creates a significant imbalance between the parties’ rights and obligations. If one party gains an unfair advantage, especially when the other is in a weaker bargaining position, the term could be deemed unfair.
- Not Necessary to Protect Legitimate Interests: The term must not be essential for protecting the interests of the party enforcing it. If the term is excessively broad or punitive, it may not meet this standard.
- Causes Detriment: The term causes harm—whether financial or otherwise—to the other party if enforced.
How Does This Apply to Building Contracts?
For builders dealing with owners, trades, or subcontractors, understanding unfair contract terms is essential—particularly when using standard form contracts. These contracts may sometimes contain clauses that unfairly shift risks or give one party excessive control.
The Impact of Unfair Terms on Your Building Project
Unfair terms in building contracts can lead to several problems:
- Unexpected Costs: Unjust terms can lead to unplanned expenses, disrupting budgets and financial planning.
- Disputes and Delays: Imbalanced contracts often result in disputes, which can cause project delays or even escalate to litigation.
- Uncertainty: Vague or unfair contract terms can create confusion about each party’s obligations, affecting the overall success of the project.
Conclusion
The Australian Consumer Law provides strong protections against unfair contract terms, especially in the building industry. Being aware of these protections and addressing potential issues early can help ensure your contracts are fair and your projects run smoothly.
If you’re unsure about the terms in your contract, reach out to our team for guidance.