On 12 November 2016, the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) extended many of the protections of the Australian Consumer Law (ACL) to small businesses contracts entered into on or after this date. Those protections also apply to the provisions of a contract that is renewed or varied on or after this date, to the extent of the new provisions. As parties affected by COVID-19 seek to enforce various termination, extension of time, variation and compensation clauses in their contracts, it is an opportune time to review these protections and how the Courts have applied them since their commencement.
Key amendments to the ACL
In summary, the key amendments to the ACL are:
As many of these clauses are the very clauses that parties may seek to rely on in the current circumstances to address supply delays and the inability to resource or access projects, it is important to know whether your contract is a “small business contract” before you seek to rely upon a clause that may be deemed unfair under the ACL.
Although the ACL does not define ‘employee’ (for the purpose of the fewer than 20 people criteria), the term has been held to include casual employees if they are engaged on a regular and systematic basis. There is also potential for the term to include people engaged nominally as contractors and as part of special purpose vehicles.
There has been much court decisions on how to calculate the contract price (for the purpose of the price payable does not exceed the $1 million criteria). It will include both agreed lump sums and an allocation for amounts calculated at agreed schedules of rates based on anticipated quantities.
One area where there has been no court decisions since the ACL amendments commenced is how to calculate the ‘contract duration’. This is of particular relevance to the construction industry where there is often a date for completion and or program for completion of the work, as well as a defects liability or warranty period (DLP) provided for in the contract.
On one view, DLPs should be included in the contract duration as remedial work may be required during that period and the final payment is generally made on the conclusion of those periods, where retentions are returned and final completion is certified after the conclusion of the DLP.
The alternative view is that DLPs should not be included in the contract duration because they are akin to a warranty period, and work is only required in the event that the work, subject to the contract, is not compliant when first completed.
In these circumstances, parties seeking to rely on potentially unfair contract terms should be mindful that there remains great uncertainty about whether some contracts are small business contracts for the purpose of the protections, which may give rise to an argument about whether the term sought to be relied upon is void.
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.