Australian Consumer Law Protections Impacting SME’s in Construction
The recent Federal Court decision of Lobux Pty Ltd v Willshaun Pty Ltd [2022] FCA 204 considered the standard supply terms of a vacuum tank manufacturer (Lobux) finding several of the clauses constituted unfair contract terms for the purposes of s24(1) of the Australian Consumer Law (ACL), rendering them void and unenforceable.
The purchaser (Willshaun) took possession of the tank without making the final payment (on the promise of returning it after minor modification work was complete). When the tank was not returned as promised, the manufacturer in turn registered its security interests on the PPSA and commenced the proceeding seeking orders for return of the tank and related relief.
The purchaser cross-claimed for defective work and claimed clauses of the manufacturer’s supply terms were unfair contract terms voidable under s250 of the ACL, including the general security clause.
There was no dispute that the supply terms constituted a standard contract for the purposes of the ACL. The Court was also satisfied the terms constituted a small business contract for the purposes of s23(4) ACL as the upfront price payable was less than $300,000 and the purchaser employed fewer than 20 employees.
The manufacturer’s security clause charged all present and future property of the purchaser in respect of any money owing by the purchaser (although expressed in a somewhat unusual way, it was a standard AllPAAP clause).
The Court considered that together with other protections in the supply terms (such as preservation of ownership and rights of repossession where the price remained unpaid), the security clause was excessive and created a substantial imbalance of rights.
The manufacturer failed to satisfy the Court the clause was reasonably necessary in order to protect its legitimate commercial interests. Accordingly, the clause was declared void and unenforceable.
Ultimately the purchaser’s other cross-claims failed and the tank was ordered to be returned to the manufacturer.
Manufacturers and suppliers (those who are or deal with SME’s) must be careful to ensure their standard terms are clearly expressed and do not overextend their rights, otherwise they risk being struck down.
Troy Legal provides expert contract advice to assist.
