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Laws prohibiting unfair contract terms in small business construction contracts continue to apply to parties impacted by the COVID-19 pandemic.
Any provision in a standard form ‘small business contract’ entered into on or after 12 November 2016 that is ‘unfair’ is void and unenforceable under the Australian Consumer Law (ACL).
To the extent that the contract can continue to exist without such unfair provisions, the remainder of the contract will continue to bind the parties.
Before a party seeks relief under contractual provisions relating to variations, suspension of work, extensions of time and compensation due to the impact caused by the COVID-19 pandemic, they need to consider if their contract is a small business contract under the ACL and whether the relief they are seeking is set out in an unfair contract provision which is prohibited by that law.
The prohibition under the ACL against unfair contract provisions in small business contracts applies to contracts for the supply of goods or services if each of the conditions below is satisfied:
It should be noted that Courts are yet to consider whether a defects liability period will be included for the purposes of calculating the duration of a contract.
A contract term will be ‘unfair’ if it:
The ACL provides a non-exhaustive indicative list of terms that may be unfair. These include, in a construction context:
As many of these clauses would grant relief to parties impacted by the pandemic in response to supply delays or the inability to resource or access construction projects, it is imperative that parties to construction contracts consider whether the ACL prohibitions against unfair contract terms applies to their contract before taking any action.
It is also a timely reminder for construction contractors to review the terms of their standard contracts to ensure they have the necessary protections to seek the relief they need when dealing with small businesses.
The above content is commentary rather than legal advice and was prepared on the basis of applicable legislation, government programs and initiatives that were in place as of the date of publication. Given the ongoing evolution of both the COVID-19 pandemic and frequent consequential changes to the various laws and programs within all Australian states and territories, readers should seek legal advice on the current situation as applicable to their specific circumstances before taking any action in relation to the above.
For further information and assistance on the issues raised in this article please speak to the authors, Joel Sturgeon – Partner and Shanna Beeton – Lawyer, or your usual Moray & Agnew contact.