The dreaded ACL injury: the Australian Consumer Law and building contracts
Since it fully came into effect on 1 January 2011, the Australian Consumer Law (ACL) has lived up to its infamous initials. Just as athletes live in fear of hearing those three letters from physicians, now businesspeople must also tread carefully to avoid hearing them from judges.
The ACL is part of the Competition and Consumer Act 2010 (Cth). Although recently enacted, many of its provisions were previously in effect under the now-repealed Trade Practices Act 1974 (Cth).
This law touches all trade and commerce in Australia in some way, and seeks to ensure that parties adhere to standards of fairness and honesty in business. Failure to do so can lead to a number of consequences, including a contract being torn up and even criminal sanctions.
The regime is part of a broad shift of the law away from the fundamental legal principle that if parties willingly and knowingly agree to a contract, they must keep their promise, regardless of how difficult this is or ends up becoming.
Perhaps its name is to blame, but many are under the false impression that the Australian Consumer Law only applies to everyday retail consumers. However, complex “high-end” commercial deals can equally be subject to the ACL. Your building contract could be affected in the same way that Amy buying a DVD player is affected.
This article is only a primer to a range of consumer law issues that people on construction projects should be thinking about. For information about how these might apply to your project or your claim, please seek legal advice.
What is the ACL?
The ACL is the primary law governing protections and expectations about business conduct in Australia. It applies nationally, to every State and Territory. It also applies where foreign companies do business with businesses in Australia.
In general, it is important for developers, homeowners and contractors to know that the ACL applies even if the parties have “agreed” that it doesn’t apply. Parties cannot contract to exclude the application of the ACL.
Having said that, courts are still working out how to deal with contracts that in roundabout ways exclude its operation.
What transactions are caught by the ACL?
This depends.
Certain protections apply to any trade or commerce taking place in Australia. Additional protections regulate more specific types of transaction.
Developers and builders would do well to ask themselves the following questions:
- Is my project trade and commerce?
- Is my contract a consumer contract?
- Is my contract a small business contract?
Is my project “trade or commerce” under the ACL?
This is the broadest category of protections given by the ACL, so if you are thinking about it the answer is very likely “yes, my project is trade and commerce”.
The ACL covers trade or commerce that takes place within Australia and includes business or professional activity (whether for-profit or non-profit).
Some previous examples of constructions that were affected by ACL claims include projects to:
- build extensions to a large domestic airport;
- construct a spillway for a dam;
- design and install a ceiling to an aquatic centre; and
- build a strata title development in Kirribilli.
So what protections apply in trade and commerce?
The most famous protection is misleading and deceptive conduct. Not precisely defined, it encompasses a broad range of statements, representations or behaviour that may mislead or deceive a reasonable person. In certain circumstances, silence may be misleading, and this will be caught too. It does not matter that the person did not intend to mislead with their conduct, and does not matter that the deception happened before the contract was executed.
Related to this is the protection from unfair practices, which are activities that are broadly misleading. These include false or misleading claims about the standard of goods and services being supplied. They also include prohibitions against bait advertising, against asserting a right to payment without a reasonable cause to believe there is a right to payment, and against supplying unsolicited services.
Another line that all businesses involved in trade or commerce must toe is that of unconscionable conduct. The definition of “unconscionable conduct” is broad and not limited to what is written down in the statute books. Either a supplier or an acquirer of goods or services may be accused of unconscionable conduct.
Some examples of what might be considered to be unconscionable include: the imposition of conditions not reasonably necessary to protect the interests of a party, the exertion of any undue influence or pressure on a party, and unreasonable failure by a party to disclose intended conduct or risks that would not be foreseen.
Is my contract a small business contract?
The contract in question might be a “small business contract”. This will be where:
- A contract is for supply of good or services, and
- A party to the contract is a business that has 20 or fewer employees, and
- The upfront contract price is up to $300,000 (or the upfront contract price is $1 million and the contract has a duration of more than 12 months).
These are the questions businesspeople should be asking themselves.
Small business contracts have all the protections outlined above (including misleading and deceptive conduct, unfair practices, and unconscionable conduct). In addition, they are protected from unfair contract terms
An unfair contract term is a term in a standard form contract that would cause significant imbalance in the parties’ rights, is not reasonably necessary to protect the legitimate interests of the party benefiting from it, and would cause detriment to the other party.
There are no hard and fast rules about what is an unfair term, as the circumstances of the case will always be considered carefully by a court. However, an example is a term that allows one party unilaterally to vary the characteristics of the goods supplied, or to vary the terms of the contract.
Is my contract a consumer contract?
The most protected species under the ACL are consumers. The contract for goods or services is a consumer contract if:
- The price of the goods or the services is less than $40,000; or
- The goods or services were of a kind ordinarily acquired for personal, domestic or household use or consumption; or
- The goods were a commercial road vehicle.
Where any of these apply, the person acquiring the goods or services could be a “consumer” in the eyes of the law. In addition to the protections listed above, consumers benefit from consumer guarantees.
Consumer guarantees are a litany of warranties that a supplier of goods or services makes to a consumer the moment the contract is in place. Some examples include:
- The goods or services are of acceptable quality;
- The services are rendered with due care and skill;
- The services are reasonably fit for a purpose, if the consumer makes it know they hire the services for this purpose.
Many of these guarantees already exist elsewhere, in tort and contract. The difference here is that contracting parties cannot contract out of these consumer or small business guarantees. Subject to what is said below, they will apply regardless of any contractual term stipulating that they don’t.
Remedies
Parties who are a victim and suffer loss or damage because of another party’s breach of the ACL have many remedies at their disposal.
The main remedy is that they may make a claim for damages from the offending party. This claim for damages must be made within 6 years of the day that the entitlement for the claim first arose.
Some of the above breaches of the ACL are also criminal offences. This especially includes false or misleading representations, and unfair practices.
If the ACCC or local bodies such as Fair Trading NSW bring actions against businesses for the above breaches, they can enforce pecuniary penalties. They can also request injunctions preventing the offending conduct. There are a myriad of other remedies to suit the specific circumstances, including requirements to undertake training of staff.
Limiting the effect of the ACL
The effect of the ACL cannot be excluded, restricted or modified by a term of the contract. Any contractual term that purports to do this is struck out by courts.
Though this principle appears clear as day, courts have found it difficult to apply in the real world, and there are isolated examples of businesspeople who have avoided a nasty ACL claim through clever drafting of the contract.
In one NSW case, a contract purported to prevent claims made under statute after one year from the date of practical completion. This had the practical effect of reducing the 6 year limitation under the Act, and the court found this was acceptable. Similarly, another NSW case held that a monetary limit of $300,000 was effective to prevent a claim under the ACL from more than this amount. The courts in both cases gave detailed consideration to the surrounding circumstances.
However, a recent Victorian case has gone the opposite direction. The contract purported to require a claimant to give 7 days’ notice to the other party if it was going to make a claim, including under statute. The Victorian Supreme Court found that this contractual provision was void.
Hopefully these issues will be definitively settled by a superior court. Until then, parties must be wary both of the possibility that the ACL will override what their contract says, and of the possibility that contractual time bars or monetary bars might affect a claim they have.
Conclusion
It is essential for anyone involved in business and all their staff members to understand their obligations under the ACL, because you can be sure the lawyers of the other side will know them. There is no escaping them, as they apply irrespective of what the contract says and government regulators are on the lookout for breaches.
If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email [email protected].