Impacts of expanded Unfair Contract Terms Regime on construction industry and security of payment

In November 2023, significant reforms were introduced to the Unfair Contract Terms regime (UCT Regime) under the Australian Consumer Law (ACL). These changes made it illegal to include unfair terms in certain contracts, with substantial penalties now applying.

This expansion significantly increases the number of businesses in the construction industry that fall within the UCT regime. It will mean that many contractors, subcontractors, and suppliers may now have their contracts reviewed under the UCT Regime. This will allow them to challenge unreasonably onerous or one-sided terms more easily, meaning an increase in the volume and complexity of claims and disputes arising under construction contracts.

The expanded UCT Regime also has the potential to significantly impact the Security of Payment (SOP) arena. The reforms may lead to a new wave of claims that rely on the UCT Regime. Respondents may now also face a higher risk of adverse adjudication decisions, which cannot easily be challenged, even where claims relying on the UCT Regime are flawed. As a result, there may also be a return wave of urgent applications for injunctions aimed at preventing enforcement of adjudication decisions.

Background

For a detailed overview of the reforms to the ACL, see our earlier article here. To summarise: section 23 of the ACL provides that a term of a consumer contract or a small business contract is void if:

• the term is unfair; and
• the contract is a standard form contract.

Previously, a ‘small business contract’ applied to contracts involving the supply of goods or services (or a sale or grant of an interest in land) where at least one of the parties is a business with fewer than 20 employees, and a value threshold depending on duration (upfront contract price of less than $300,000 if less than 12 months, upfront contract price of less than $1,000,000 if more than 12 months).

As of 9 November 2023, the definition of ‘small business contract’ has been expanded to include contracts where:

• at least one party is a business with fewer than 100 employees; and/or
• the business had an annual turnover of less than $10 million in the previous income year.

Effect on the construction industry

Pursuant to section 24 of the ACL, a term will be unfair if it:

• causes a significant imbalance in the parties’ rights and obligations;
• is not reasonably necessary to protect legitimate interests, and
• would cause detriment (whether financial or otherwise) if relied upon.

‘Fairness’ is a difficult principle to define, and whether a provision is unfair will always depend on the specific circumstances and the contract viewed as a whole.

A number of provisions commonly found in construction contracts might be considered ‘unfair’. Examples include:

• termination for convenience provisions without compensation rights;
• unilateral variation powers;
• strict or impractical time bars;
• novation provisions without mutual consent;
• unrestricted access to security;
• broad exclusions of liability; and
• imposed design risks on parties with no control over the design.

If a particular contractual provision is unfair under the UCT Regime, the provision is treated as if it never formed part of the contract. This has significant consequences for contracting parties.

For example, consider a variation claim that is rejected solely due to a strict time-bar provision in the contract. If a court were to declare that the time-bar provision is unfair, and therefore void under the UCT Regime, presumably the variation claim would no longer be time-barred and would be treated as having been validly made.

Assuming that the ‘small business contract’ and ‘standard form contract’ thresholds of the UCT Regime have been met, it is easy to see why many contractors, subcontractors, and suppliers might pursue contractual claims that would otherwise be prevented by unfair contract terms. Where there is disagreement about whether a term is unfair, parties may turn to the courts for a definitive ruling.

Security of Payment implications

The implications of the UCT Regime in the SOP arena have yet to be examined by the courts. However, early indications are that the UCT Regime could have significant impacts.

Although it does not expressly endorse the UCT Regime, the Western Australian SOP Act provides adjudicators with express powers to declare notice-based time bars unfair.[1] As part of its recent reform agenda, Victoria appears to be heading in a similar direction and may even extend the concepts of unfairness beyond notice-based time bars.[2] Whether lawmakers in other jurisdictions will follow suit remains to be seen.

While we wait to see what happens in these jurisdictions, the question remains: Can claimants raise, and adjudicators consider, unfair contract term arguments without the express power in the SOP Acts to do so?

For the reasons provided below, the authors consider that the preferred view is yes. If this view is accepted, there are potentially wide-ranging implications for those involved in Security of Payment disputes.

Statutory payment claims

Remembering the variation example outlined above, and provided that a claimant can establish that its claim is otherwise made in accordance with the remaining valid and enforceable provisions of the relevant construction contract, there is no obvious reason why it cannot also pursue that same claim under the relevant SOP Act.

This is because the claimant’s position is that its entitlement to the claimed amount arises under the provisions of the construction contract when the provisions are properly construed (i.e. disregarding any unfair terms). This issue conveniently brings us to the role of adjudicators and the steps that are necessary for them to discharge their statutory tasks.

Adjudicator’s statutory task

A key responsibility of an adjudicator when determining the amount of a progress payment under each of the SOP Acts is to ‘consider the provisions of the relevant construction contract’.^[3] The power to decide the correct interpretation of a contract is therefore central to an adjudicator’s statutory task.

The courts have paid considerable attention to what an adjudicator is permitted to decide when considering the provisions of the relevant construction contract.

In the New South Wales Supreme Court case of Multiplex Constructions Pty Ltd v Luikens and Anor,^[4] referring to the relevant provisions of the NSW SOP Act, Palmer J stated:

“What are the relevant or applicable contractual terms … might depend on the construction of the express terms of the contract, or upon whether a term is to be implied in order to give the contract business efficacy, or it might depend on whether a term has been waived or cannot be relied upon because of an estoppel. If determination of a disputed progress claim depends upon resolution of a question as to what are the relevant terms of a contract, it must necessarily be implicit in the jurisdiction conferred on the adjudicator by the Act that he or she have jurisdiction to decide that question.”

[underlining added]

Luikens makes clear that the exercise of deciding the relevant terms of a construction contract involves not only consideration of the terms themselves, but also whether they can be relied upon. Palmer J noted that it may be necessary to decide questions regarding the implication of terms. Palmer J also cited waiver and estoppel as potential reasons why express terms may not be enforceable.

Similar considerations were canvassed by the New South Wales Supreme Court of Appeal in Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd.^[5] In this case, Hodgson JA observed that:

“[the relevant provisions of the Act] require the adjudicator to consider the provisions of the Act and the provisions of the construction contract; and in my opinion, that entitles and indeed requires the adjudicator to take into account any considerations (other than considerations arising from facts and circumstances of the particular case not otherwise before him or her) that he or she thinks relevant to the construction of the Act, the construction of the contract, and the validity of terms of the contract having regard to provisions of the Act.”

[underlining added]

If it is uncontroversial that an adjudicator a) has jurisdiction to decide complex legal questions when considering the relevant terms of the construction contract, and b) may take into account any considerations that they think relevant to the construction of the contract, on what basis should an adjudicator not also be permitted to consider the UCT Regime? In fact, could it not be argued that an adjudicator risks failing to comply with their statutory task if they choose not to consider arguments in relation to the UCT Regime raised by claimants?

Relationship between ACL and SOP Acts recently considered

It is well established that adjudicators do not exercise judicial power in performing their role. Rather, they exercise executive power conferred on them by the SOP Acts. Their determinations are interim in nature and do not finally resolve the parties’ contractual rights, which remain open to challenge in subsequent legal proceedings.[6]

On 9 May 2025, the Victorian Supreme Court handed down its decision in 1559 High Street Pty Ltd v Camillo Builders Pty Ltd.[7] In this case, the court dealt with allegations of misleading and deceptive conduct (under the ACL) raised by the developer applicant, in an attempt to set aside a default judgment obtained by the builder respondent in relation to an amount awarded at adjudication.

In rejecting the developer’s application, Stynes J observed that there was no inconsistency between the Victorian SOP Act and the ACL (citations omitted):[8]

“The provisions of the SOP Act establish a statutory entitlement to progress payments that is separate from and in addition to any other entitlement of the parties to the construction contract, including those that may arise under the ACL.”

Stynes J continued:

The purpose of an adjudication determination is to determine the right of a claimant to immediate payment of its progress claim. The SOP Act prevents adjudicators making that determination from considering arguable claims under the ACL because those claims are not relevant to the administrative tasks they undertake. As Keane CJ observed, and identified as critical to his reasoning in Birdon, the existence and quantum of the new statutory right depends not on the true state of underlying facts, but on the assessment of the adjudicator who is not required or authorised to make any findings about those facts.”

[underlining added]

Noting that the UCT Regime was not raised in the case, the authors submit that Stynes J’s underlined comments reflect the well-established principle that adjudicators perform an administrative (i.e. executive) function under the SOP Act, not a judicial one. The authors also suggest that Stynes J’s comments should not be understood as preventing adjudicators from considering arguments under the UCT Regime where those arguments relate to the proper interpretation of the contract, because such matters appear to fall squarely within the scope of an adjudicator’s administrative role under the SOP Acts.

Curiously, Stynes J’s decision also raises the further question of what, if anything, state and territory legislatures can do to limit the potential implications of the UCT Regime in the SOP arena. In fact, it may even be argued that any attempt by state and territory legislatures to limit the effect of the UCT Regime in the SOP arena risks introducing inconsistency with the ACL.

Practical consequences

If it is correct to conclude that adjudicators may consider the UCT Regime when interpreting construction contracts, a number of implications follow:

1. Firstly, the floodgates may now open to a new wave of statutory payment claims and adjudications where the UCT Regime is a live issue.
2. Secondly, it seems entirely possible that arguments in relation to the UCT Regime might be raised by claimants for the first time in their adjudication application submissions.
3. Thirdly, respondents will carry an increased exposure for having to make interim payments to claimants and/or seek urgent injunctive relief from the courts, particularly in circumstances where an adjudicator incorrectly decides questions that relate to the UCT Regime.

Floodgates

An obvious implication of the UCT Regime being ‘fair game’ in the SOP arena is that it will empower claimants to pursue statutory payment claims and adjudications. Naturally, claimants may also agitate ambit claims (i.e. claims that are speculative, inflated or unrealistic) made in reliance upon the UCT Regime, particularly because it appears that there is no requirement for adjudicators to correctly decide whether the UCT Regime applies (discussed below).

Respondents, therefore, need to be aware of the increasing risk of statutory payment claims being submitted by claimants in reliance upon the UCT Regime.

Timing of UCT Regime arguments

A less obvious implication of the UCT Regime being relevant to the determination of the statutory entitlements of claimants is that claimants may elect to raise UCT Regime arguments for the first time in their adjudication application submissions.

The decision in Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd[9] confirms that adjudicators may take into account any considerations about the construction and validity of contract provisions even if they arise for the first time during adjudication, provided they are relevant and properly brought to the adjudicator’s attention.[10]

Incorrect determinations: The dilemma of error of law vs jurisdictional error

Another significant implication of the UCT Regime falling within the scope of matters that adjudicators can consider when interpreting construction contracts and deciding adjudicated amounts is that respondents may find themselves having to seek judicial intervention far more frequently, especially if an adjudicator gets it wrong. This is because the misapplication of the UCT Regime by an adjudicator when interpreting the contract is likely to represent an error of law, and not jurisdictional error.

The distinction between error of law and jurisdictional error is not one widely understood by most participants in the construction industry. In simple terms, an ‘error of law’ arises when a decision maker misinterprets or misapplies the law. A ‘jurisdictional error’, on the other hand, arises when an adjudicator acts beyond the powers assigned to them, or fails to comply with an essential condition or limit on the proper exercise of their powers under the SOP Act.

What it means for an adjudicator to act within ‘jurisdiction’ is that adjudicators must perform the task the SOP Act assigns to them. In determining an adjudication application, adjudicators must (among complying with other procedural requirements) consider the SOP Act, the provisions of the construction contract, the payment claim, the payment schedule (if any) and the submissions properly before them.[11] Adjudicators must not consider issues outside the scope of what the Act allows, such as awarding damages or resolving general contractual disputes not tied to the payment claim.

In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd,^[12] the High Court held that an error of law alone is not sufficient to invalidate an adjudicator’s determination. Rather, to set aside an adjudication determination (or parts of it), a party must establish a jurisdictional error (that is, an error that affects the adjudicator’s authority to make the decision).

This principle was also reinforced in Caltex Refineries (Qld) Pty Ltd & Anor v Allstate Access (Australia) Pty Ltd & Ors,[13] where Justice McMurdo stated:

“An adjudicator must identify the terms of the relevant contract and interpret them. Therefore, ordinarily an error in the interpretation of a contract is not a jurisdictional error for which an adjudicator’s decisions can be challenged.”

[underlining and emphasis added].

The implications of Probuild and Caltex are profound if claimants can raise, and adjudicators are authorised to consider, the UCT Regime. They confirm that an adjudicator’s decision will not be reviewable on the basis of an incorrect conclusion of law.

In practical terms, those cases mean that an adjudicator is not required to correctly conclude legal matters such as whether a term is unfair or not. Rather, what matters is that an adjudicator exercises their powers in accordance with the SOP Acts and avoids jurisdictional error by acting outside their authority (e.g. by considering matters which have not been contended by a party or failing to consider a matter properly contended by a party).

It is therefore entirely possible that a claimant may succeed with a claim that relies upon the UCT Regime at adjudication and be awarded adjudicated amounts even where the UCT Regime does not apply. In such cases, a rightly dissatisfied respondent cannot challenge the adjudication decision unless it is also affected by jurisdictional error.

The consequences of the above conclusions are significant. They mean that respondents face:

• an increased exposure to unchallengeable adverse adjudication decisions (including in relation to ambit claims made in reliance upon the UCT Regime); and
• the prospect of having to more frequently seek injunctions to relieve them of the burden of interim payments otherwise due and owing to claimants in accordance with the SOP Acts.

Final observations

The expanded UCT Regime adds another layer of complexity to the negotiation and administration of construction contracts. Contract provisions that were once seen as ‘ordinary’ or ‘routine’ may now be unenforceable if they are found to be unfair. Both principals and contractors need to understand when the UCT Regime applies and what types of provisions might be affected.

It also seems possible that the expanded UCT Regime has the capacity to bring with it a new wave of statutory payment claims and adjudications in the SOP arena (including ambit claims), none of which will be welcomed by respondents, or for that matter – the courts. Spare a thought too for adjudicators, who will have to pioneer this new frontier.

Finally, it will be interesting to see what steps, if any, state and territory governments take in response to the expanded UCT Regime, given the interplay between the ACL and the SOP Acts. It might be that intervention at a commonwealth level is required to remedy any unintended consequences.

Macpherson Kelley’s Infrastructure, Construction & Energy team has extensive experience drafting and interpreting construction contracts and dealing with construction disputes and adjudications. If you are in doubt about whether a provision of a contract could be considered unfair, or if you would like to discuss these matters further, our team is available to help.

Authored by Michael Sheehan, Karl Ebert, Annie O’Neill

DISCLAIMER – The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.

[1] Section 16(3)(a) of the Building and Construction Industry (Security of Payment) Act 2021 (WA).

[2] Victorian Government, Government Response to the Parliamentary Inquiry into employers and contractors who refuse to pay their subcontractors for completed works (Report, 2024), 4-5.

[3] Section 88(2)(b) of Building Industry Fairness (Security of Payment) Act 2017 (QLD); Section 22(b) of Building and Construction Industry Security of Payment Act 1999 No 46 (NSW) and Section 23(2)(b) of Building and Construction Industry Security of Payment Act 2002 (VIC).

[4] [2003] NSWSC 1140.

[5] [2005] NSWCA 142 at [35].

[6] 1559 High Street Pty Ltd v Camillo Builders Pty Ltd [2025] VSC 244; State of Queensland v Epoca Constructions Pty Ltd & Anor [2006] QSC 324 at [31].

[7] [2025] VSC 244.

[8] Ibid at [95].

[9] [2005] NSWCA 142 at [35].

[10] Ibid at [35].

[11] See for example section 88(2) of the Building Industry Fairness (Security of Payment) Act 2017 (Qld); Section 22(2) of the Building and Construction Industry Security of Payment Act 1999 (NSW); Section 23(2) of the Building and Construction Industry Security of Payment Act 2002 (Vic).

[12] (2018) 351 ALR 225.

[13] [2014] QSC 223 at [36].

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.