Unfair Contract Terms in Building Contracts and Extensions of Time

Unfair Contract Terms

Under the Australian Consumer Law, a Homeowner can seek relief that a Court declares a clause to be void, unenforceable, and severed from a contract if the following elements are satisfied:

1. the relevant (Building Contract) is a consumer contract;
2. the Building Contract is a standard form contract; and,
3. there is an unfair contract term.

Consumer contract

A contract is a consumer contract if it is a contract for:

1. the supply of goods or services; or,
2. the sale of an interest in land,

to an individual whose acquisition of the goods, services or interest which is wholly or predominantly for personal, domestic or household use. 

Where a Building Contract is for constructing a personal dwelling for a Homeowner’s use, it is a consumer contract.  

Standard form contract

In determining whether a contract is a standard form contract, Courts must consider various criteria outlined under section 27 of the Australian Consumer Law, including but not limited to:

1. whether one party had most of the bargaining power;
2. whether one party had made another previous contract on the same or similar terms;
3. whether one party prepared the contract before any discussion regarding the transaction had occurred between the parties; and,
4. whether one party was given an effective opportunity to negotiate the terms of the contract.

Typically, a Building Contract that a Builder prepares will satisfy the above criteria and be a standard form contract.

Unfairness

A term of a contract may be unfair if:

1. it would cause significant imbalance to the parties’ rights and obligations under the contract;
2. it was not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and,
3. it would cause detriment (whether financial or otherwise) to a party if it were applied or relied on.

Example of an unfair extension of time clause

While acting for Homeowners against Builders, Vogt Legal has become aware of a potential unfair clause (Unfair Clause), which, relates to the Builder’s entitlement to claim an extension of time (EOT) for completing Works under a Building Contract.

The Unfair Clause provides:

In the event of a delay caused by or resulting directly or indirectly from any of the causes listed at clause 12.3 above, the time for completion of the Works will be extended by the period of such delay.  It is not a condition of the time for completion being extended that the Builder make a claim for extension.  The Builder must however provide the Proprietor with details of the extended time for completion upon request (my underlining added for emphasis).

The Unfair Clause entitles the Builder to claim an EOT for completing the Works without providing the Homeowner with:

1. any specific notice claiming the extension of time; or,
2. details of the matters giving rise to the extension of time.

Why the clause is unfair

If the Unfair Clause was to be relied upon, it would enable a Builder to claim an extension to the date for practical completion in circumstances where the Builder would not be obligated to:

1. notify a Homeowner of the Builder’s intention to claim an extension of time;
2. provide any details relating to the claimed extension/s of time (other than in relation to the details as to the magnitude of the extension); and,
3. provide limited details to a Homeowner other than on the Homeowners’ request.

If the Unfair Contract Term was to be relied upon by a Builder to seek an extension of time in circumstances where no notice had been provided to a Homeowner, the Homeowner will suffer detriment in that they will be deprived of the opportunity to:

1. contest the claimed extensions of time under Clause 17 of the same contract; and,
2. claim liquidated damages as a result of any claims for an extension of time not being upheld following a challenge to the claimed extension under Clause 17.

In the circumstances where the Unfair Contract Term was to be relied upon by a Builder to provide only limited details relating to the issue of how many days the date for practical completion would be extended by, a Homeowner would be placed in a position where he or she would need to choose to either “let the matter slide”, or challenge the claim for an extension of time under Clause 17 in circumstances where:

• they are unable to make an informed decision or obtain informed advice relating to that challenge because insufficient documents or information is provided to a Homeowner to allow them to determine whether or not there is merit in the challenge;
• if the challenge was made and proved unmeritorious because on the face of documents that exist, the claim for an extension of time was merited, a Homeowner would expose themselves to:
• a claim of legal costs on account of the unsuccessful outcome of the proceeding; and,
• a liability to pay their own legal costs associated with the unmeritorious challenge.

The predicament on the part of a Homeowner which the Unfair Contract Term permits to perpetuate places the Homeowner in a position where there is an absence of practical choice between the two outcomes above so as to give rise to a detriment for the purposes of Section 24(1)(c) of the Australian Consumer Law (ACL).

Conclusion

For the reasons which are outlined above, in our view, a decision maker may find that if the Unfair Contract Term was to be relied upon, it would cause a significant detriment to a Homeowner.

On the above basis, the Unfair Contract Term may be an unfair contract term for the purposes of Sections 23 and 24 of the ACL.

At Vogt Legal, we have helped countless homebuyers navigate the complex legal issues relating to Building Contracts, EOT’s, and the ACL.

For personalised legal advice tailored to your situation, don’t hesitate to reach out to us.  Our experienced team is here to help you navigate through these challenges and pursue the justice and compensation that you deserve.

For a more detailed analysis of the Unfair Contract Terms regime under the ACL as it relates to Building Contracts and extensions of time, please refer to our paper [PDF].

This article/post is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives and instructions or all of the relevant facts or circumstances. Will Vogt and Vogt Legal accepts no responsibility to any persons who relies on the information provided on this website.