Claims under statute

The relationship between participants in the construction industry is not only governed by the contract between them. Various legislation is also relevant to the relationship which has an impact on the rights and obligations between the two parties. 

Parties cannot always agree to exclude the operation of these pieces of legislation. Accordingly, if a contract is inconsistent with a provision, the legislation will prevail. Where a person is entitled to make a claim for breach of a statutory duty, the calculation of damages for breach will be calculated in accordance with that statute.

Some examples include:

• Australian Consumer Law – The Competition and Consumer Act 2010 (Cth) was previously known as the Trade Practices Act 1974 (Cth). The provisions are now uniform throughout Australia.
• Residential building and industry regulation – See chapter 14 which outlines the relevant statutory protections provided for by legislation across the states and territories.
• Security of payment legislation – See chapter 15 which summarises how the legislation across the states and territories secures payment for construction work.
• The Design and Building Practitioners Act  (NSW) – this Act commenced on 10 June 2020 and requires that a person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects.

Australian Consumer Law (ACL)

Misleading and deceptive conduct

The ACL prohibits persons from engaging in conduct that is misleading or deceptive, or likely to mislead and deceive, which may include the following scenarios in the construction industry:

• pre-contractual representations which induced entry into the contract;
• representation by a party, such as an engineer or contractor, about their qualifications and experience;
• representations as to the content or effect of a report relied on by another party.

Where one party has engaged in such conduct and the other party has relied on the conduct, the other party will be entitled to recover any loss it suffered as a result of relying on that representation. For representations as to things that are to occur in the future, it is not enough for the party alleging the misrepresentation to show that the things are not true. The party will need to show that the representing party did not have a reasonable basis for making those representations.

Unfair contracts

The provisions under the ACL apply to ‘standard form contracts’ which are typically prepared by one party and offered to another on a ‘take it or leave it’ basis, or where a party was not given an opportunity to negotiate the agreement.

Up until 10 November 2023, in the construction industry, a party will be protected if their agreement falls in the definition of a ‘small business contract’, which is for the supply of goods or services, where one party to the contract is a business that employs less than 20 people, where the price does not exceed $300,000 or $1,000,000 if the contract period is over 12 months.

A term will be considered unfair, and therefore void, if it creates imbalance between the parties, is not reasonably necessary, and causes financial or other detriment.

From 10 November 2023, the scope of the unfair contract term regime increased:

• businesses will breach the unfair contract terms regime if they propose to either include or rely on unfair contract terms in standard form contracts:
• ‘standard form contracts’ include circumstances where there has been an opportunity for a party to negotiate changes to some of the terms of a contract; and
• ‘small business contract’ includes businesses that employ less than 100 people or have a turnover of less than $10 million for the previous income year.

Other claims

Other claims can be brought under the ACL for conduct that is unconscionable or other types of anti-competitive actions (price fixing, collusion, etc). These types of claims may be limited to particular types of contracts, for example contracts for a value below a certain level or only contracts with consumers.

From 10 November 2022, the maximum penalties for companies breaching the Australian Consumer Law increased to the greater of $50 million, three times the value derived from the relevant breach or 30 per cent of the company’s turnover during the period it engaged in the relevant conduct.

The Design and Building Practitioners Act

In NSW the Design and Building Practitioners Act 2020 commenced on 10 June 2020 and requires that a person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects:

• in or related to a building for which the work is done; and
• arising from the construction work.

Under the Act, the duty of care regime applies to building work, which is defined as including residential buildings. The decision Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 extended the duty of care to other buildings such as boarding room. See Duty of care applies to any ‘building’ in NSW    – Construction Law Made Easy.  Amendments in 2023 to the Design and Building Practitioners Act 2020 have confirmed that the Act applies to new buildings containing a class 3 (boarding houses, hostels, hotels, guesthouses) or 9c (aged care and assisted living buildings) part.

The duty of care is owed to each owner of the land in relation to which construction work is carried out, including all subsequent owners. Where the duty has been breached, owners can claim damages as if it were a common law duty, irrespective of whether the owner was a party to the contract for the construction work.

The duty is owed by any person who carries out construction work, including head contractors, subcontractors, manufacturers, suppliers and consultants. Parties cannot contract out of the duty.

The duty applies to existing buildings and construction work, as buildings less than 10 years old (from 10 June 2020) are covered by the duty of care. The duty is in addition to the rights and obligations under the Home Building Act, other legislation and common law.