Do you really want to get out of that Contract? Well perhaps now you can…Unfair Contract Laws will now apply to certain contracts entered into after 12 November 2016.
If the Court finds a particular term of that contract to be unfair, the clause will be unenforceable.
If the clause is essential to the Contract, the whole contract might then be unenforceable.
This might be of significant benefit to you, if you have signed up to a contract containing unfair/onerous terms. Finally, this might level the playing field between Contractors and Principals.
However, the laws will only apply to some contracts, not all.
What Contracts does it apply to?
The laws apply to any “standard form contract” entered into where (relevantly):
- It is for the supply of goods or services;
- One or more of the parties is a small business (that is, employs less than 20 people); and
- The price payable under the contract is no more than $300,000; or
- The contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
The laws will also apply to any variations to an existing standard form contract (ie a contract entered into before 12 November 2016) where the variation is agreed after 12 November 2016.
The term “standard form contract” is not defined, however in ascertaining whether a contract is a standard form contract, the Court will consider such matters as:
- the respective bargaining power between the parties – that is, did one party have significantly more power than the other;
- whether or not a party was given a genuine opportunity to negotiate the terms of the Contract; and
- Whether in reality the contract was put on a “take it or leave it basis”.
Some people may be under the misapprehension that the standard or “pro-forma” contracts commonly published, for example, AS standard contracts or contracts marketed by industry bodies for use by members, are what is meant by “standard form contract”. That is not necessarily the case. Contracts are likely to be a “standard form contract” if they have been developed by a party (whether or not that document is based on a commonly published contract document) for their exclusive use on a regular basis. For example, a subcontract developed by a head contractor for their exclusive use with their subcontractors on projects. Such are often provided in the tender documents with no opportunity to negotiate amendments to the terms.
What is an unfair term?
As a non-exhaustive definition, the legislation provides that a clause will be unfair if it:
- would cause a significant imbalance in the parties’ rights and obligations arising under the Contract;
- is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
The legislation lists some examples of what might be considered to be unfair, being a clause that:
- permits one party (but not another party) to avoid or limit performance of the contract;
- permits one party (but not another party) to terminate the contract;
- penalises one party (but not another party) for a breach or termination of the contract;
- permits one party (but not another party) to vary the terms of the contract;
- permits one party (but not another party) to renew or not renew the contract;
- permits one party to vary the upfront price payable under the contract without the right of another party to terminate the contract;
- permits one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract;
- permits one party unilaterally to determine whether the contract has been breached or to interpret its meaning;
- limits one party’s vicarious liability for its agents;
- permits one party to assign the contract to the detriment of another party without that other party’s consent;
- limits one party’s right to sue another party; and
- limits the evidence one party can adduce in proceedings relating to the contract.
Again, the list is non-exhaustive. Practically speaking, the laws might apply to any clause in a contract which allows one party but not another a right to do or refrain from doing something.
So how might the laws affect you?
For the Contractor:
- If you have signed up to a standard form contract – and again, that does not necessarily mean a pro forma contract, it could extend to any contract in effect put on a “take it or leave it” basis;
- That Contract contains a clause that is unfair; and
- The contract was signed after 12 November 2016; or
- The unfair clause was included in the contract by a variation entered into after 12 November 2016,
then that clause and/or the Contract might be unenforceable against you. That can have serious implications to your rights and obligations which you may not be aware of until it is too late. If you believe the above might apply to you and you want to resist a clause of a contract and/or the whole contract being enforced against you, come and talk to us urgently!!
For the Principal/Head Contractor:
It is time to revisit your contracts and your contract entry process to ensure that any contract you enter with your subcontractors can be enforced. Come and talk to us about reviewing those contracts and that process, before it is too late! At the least, appropriate severance clauses need to be included in your contracts to give you the best argument that the rest of the contract will survive if one of the terms is determined to be unreasonable.