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Protecting clients down under

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Legal matters

In the laissez-faire world of English contract law, if I agree to sell you a palace for a peppercorn, so be it. The court will enforce the contract. However, over time, the legislature has recognised the need to intervene in certain circumstances, with the result that contract terms are implied by statute. Familiar examples are those relating to the quality of goods sold, and the duty of skill and care when services are supplied. Such terms are added into contracts and the parties' rights are governed by them as though they had been expressly written in.

The New Construction Act is a recent and pertinent example of contractual arrangements being modified by legislation. In addition to adjudication, it introduced a variety of payment provisions out of which the parties cannot contract. These include periodic payment to contractors, a right for the contractor to suspend work for non-payment and the barring of 'pay-when-paid' clauses.

The state - 'nanny' or 'white knight' depending on your point of view - tends to impose such requirements as a result either of public pressure or informed research. In the case of the Construction Act, Latham's review of the construction industry was the spur. However interventionist the new act may seem, it is as nothing compared with recent developments in Australia.

There, legislation on domestic construction has been introduced because standard forms were seen to favour the contractor unduly and because of general anti-contractor public opinion. In Victoria, pressure brought to bear by the aptly named 'Victims of Builders Society', resulted in the 1995 Domestic Building Contracts and Tribunal Act. The provisions, designed primarily to protect the house-owner, are far-reaching and enforced by fines.

The Victorian scheme is underpinned by the requirement that all builders carrying out domestic work be insured, otherwise they cannot obtain a building permit. For this provision to be introduced, the co-operation of the insurance industry was sought which, in turn, imposed its own requirements for contractors to satisfy in order to obtain insurance.

As to contractual provisions, the builder must provide a copy of the contract to the employer. For works of a value greater than A$5000 (about £1800) the employer has five days after receipt to withdraw from the agreement. Various implied warranties are binding on the contractor, for example that the work will comply with all statutory requirements, including building regulations. Furthermore, the benefits of these warranties automatically pass to subsequent owners when the building is sold.

The act permits 'cost escalation' clauses related to, for example, delay, provided that the clause was brought to the employer's attention and signed by him. If the contract price is less than A$500,000 the clause must be in a form approved by the Office of Fair Trading. If greater than A$5000 there must be a warning next to the contract price advising that it is subject to change and identifying the relevant clauses. In the absence of such a note the price can only go down. Other than as allowed by these provisions, the contractor is unable to demand or recover any sum in excess of the contract price.

uk observers may view such protectionist legislation as a kind of Defective Premises Act gone crazy, and consider the chances of similar legislation being introduced here as remote. It should be borne in mind, however, that common-law jurisdictions tend to watch each other's progress; it was Australia's rejection of local authorities' duties to building owners defined in Anns v Merton which provided the foundation for the House of Lord's reasoning in Murphy v Brentwood. If we fail to keep our house building in order we may find the Australian model adopted here.

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