November 27, 2023
As the end of the year approaches, it is an appropriate time to reflect on key construction cases considered by the courts which have reinforced and helped define crucial pieces of legislation in the construction industry. Over the next three weeks, this article series will wrap up the year with an exploration of some of those cases which serve as a useful reminder for contracts and projects heading into 2024.
The first article in this series will discuss the importance of ensuring your domestic building contracts comply with the requirements in the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), as highlighted in Perera v Bold Properties (QLD) Pty Ltd [2023] QDC 99 (Perera). Perera emphasizes the importance of considering when a contract term providing for a price increase will be classified as an unfair contract term under section 23 of the Australian Consumer Law (ACL).
Amendments to the ACL have recently come into effect which broaden, and provide further guidance on unfair contract terms, and as such, it is important for contractors to be aware of provisions that might be considered ‘unfair contract terms’. (For more information about these amendments, read LPC’s latest article series here).
QBCC Act
Section 14(6) of Schedule 1B of the QBCC Act requires any domestic building contract, where the contact price exceeds $20,000 and contains a provision enabling the contract price to be changed, to contain a warning to that effect, as well as a brief explanation of the effect of the provision.
Further section 14(7) of Schedule 1B of the QBCC Act requires the warning to be located in a prominent position on the first page of the contract schedule. A builder will not be entitled to rely on a provision in a contract to increase the contract price where the contract does not contain a warning on the first page of the contract schedule with a brief explanation.
A provision purporting to change the contract price in the absence of the required warning will be void, which may include all clauses that could result in price changes such as variations, latent conditions and delay costs.
The decision in Perera reaffirmed that a contract term which allows one party unilateral rights to adjust the contract price will be considered an unfair contract term and severed from the contract. Based on the amendments introduced to the unfair contract terms regime, a similar situation may result in more severe consequences.
Perera also serves as a reminder for builders to have their domestic building contracts reviewed regularly to ensure they comply with the relevant requirements in Schedule 1B of the QBCC Act and the unfair contract terms regime contained in the ACL.
Perera
Mr and Mrs Perera entered into a New Home Construction Contract with Bold Properties (QLD) Pty Ltd which provided a fixed sum contract price of $645,370.
The first page of the body of the contract provided a warning which stated the contract price is subject to change, and noted the specific clauses that allow for those changes. However, a clause within the special conditions, attempted to amend that warning by stating (in addition) that the special conditions and the tender conditions allow for changes to the contract price.
Shortly after the contract was entered into, Bold Properties attempted to rely on the special conditions to inform Mr and Mrs Perera that the anticipated start date would not be met due to delays and increased costs of building materials, and that they intended to increase the contract price by $51,342.
The clause relied upon by Bold Properties stated that ‘in the event that commencement has not taken place by the anticipated start date… the builder reserves the right, at the builders sole discretion, to increase the contract price…’.
Mr and Mrs Perera subsequently affirmed the contract, and sought a declaration that the special condition be void or be severed from the contract as:
- it was void for uncertainty and for being an unfair provision under the ACL; and
- the contract failed to provide a sufficient price increase warning as required by Schedule 1 of the QBCC Act.
The Court found that:
- the special conditions clause was void;
- purporting to allow Bold Properties to increase the contract price (based on unstated objective criteria) made the contract clause uncertain and therefore unenforceable;
- any attempts to amend the warning by a clause not on the first page as required by the QBCC Act, cannot succeed; and
- the special condition was an unfair term under the ACL, resulting in a significant power imbalance.
Further, it was also held that a “brief explanation of the effect of the provision” as required by the QBCC Act is a separate and additional requirement to the warning. It is not sufficient to only list the relevant clauses and state they allow for changes to the contract price.
For more information, read the full case here.
Key Takeaways
Perera serves a reminder to all builders that both the clauses themselves, and the statutory warnings in the contract, need to be carefully drafted to comply with all legislative requirements. We recommend that any amendments or special conditions be prepared and amended against the backdrop of the ACL and the findings stated in Perera.
LPC Lawyers
LPC Lawyers have industry knowledge and experience to assist both Principals and Contractors in all major projects and payment disputes.
If you would like to discuss any matters raised in the above article or this series as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Kimi Pace
Email: [email protected] or [email protected]
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