Perera v Bold Properties

Australian Consumer Law (Cth), s 3, s 18, s 23, s 24, s 25, s 27, s 60, s 61

Queensland Building and Construction Commission Act 1991 (Qld), s 108D, sch 1B, s 14

Uniform Civil Procedure Rules 1999 (Qld), r 476

AIBI Holdings Pty Ltd v Virtual Technology Services Pty Ltd [2022] FCA 696, considered

Antico v Heath Fielding Australia Pty Ltd [1997] HCA 35; (1997) 188 CLR 652, cited

Australian Breeders Co Operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488, cited

Australia Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436, cited

Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd [2015] FCA 1204; (2015) 239 FCR 33, followed

Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377, applied

Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224, cited

Equuscorp Pty Ltd v Glengallan investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471

Jetstar Airways Pty Ltd v Free (2008) 30 VAR 295; [2008] VSC 539, cited

Kabwand Pty Ltd v National Australia Bank Ltd [1989] FCA 131; (1989) ATPR 40-950, distinguished

Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622, cited

McFarlane v Daniell [1938] NSWStRp 20; (1938) 38 SR (NSW) 337, cited

Paciocco v Australia and New Zealand Banking Group Ltd (2014) 309 ALR 249, cited

Perpetual Nominees Ltd v Parist Holdings Pty Ltd [2005] NSWSC 1345, applied

Perpetual Trustee Company Ltd v Nikoloff [2020] WASC 389, distinguished

Thallon Mole Group Pty Ltd v Morton [2022] QDC 224, followed

[1] On 11 August 2022, the applicants, Mr and Mrs Perera, entered into a New Home Contract with the respondent, Bold Properties (QLD) Pty Ltd. Under this contract, the respondent would construct a new house for the applicants for a fixed sum of $645,370.[1] The parties had earlier entered into an agreement whereby the applicants paid a non-refundable deposit to secure this price.

[2] On 13 October 2022, the respondent sent the applicants a message in which, among other things, it said that the anticipated start date would not be met due to delays in achieving what it referred to as "Milestones". The respondent went on to say that, due to increased costs of building materials (among other things), it intended to increase the contract price by $51,342.

[3] The applicants did not agree to pay the extra amount, leading to the respondent failing to commence building. The applicants affirmed the contract and commenced this proceeding by originating application, seeking a declaration that the contract provision on which the respondent relies to increase the contract price is void, an order or declaration that the clause be or is severed from the contract, alternatively an order that the respondent be estopped from reliance on that clause, and an order for specific performance of the contract.

[4] The proceeding concerns principally whether the provisions of the contract, in particular special condition 7, permit the respondent to increase the contract price.

[5] For the following reasons, I find that special condition 7 is void and unenforceable. The respondent is not entitled to increase the contract price. The applicants having affirmed the contract, it remains on foot. However, at this stage I shall not make an order for specific performance.

[6] The contract provides that the "contract price" is a fixed price of $645,370.[2] Clause 1.2 provides -

The owner must pay the contract price, adjusted by any additions or deductions made under this contract, in the manner and at the times stated in this contract.[3]

[7] On the first page of the body of the contract, which was headed "Schedule 1 - Particulars of Contract," under the heading "Contract Price" and after the price was stated, the following relevant passage appears:

WARNING

The contract price is subject to change. The clauses that allow for changes to the contract price are clauses 9, 10, 11, 13, 15, 16, 19, 20, 21 and 23.

[8] On the tenth page of the contract are special conditions. Relevantly, special conditions 7 and 11 provide as follows:

7. In the event that commencement has not taken place by the anticipated start date (as noted in item 14) the builder reserves the right, at the builders sole discretion, to increase the contract price to the current base price of the house type, which is the subject of this contract and identified in the Contract Tender, to the builder's current base price for that house type.

11. The paragraph under the word "Warning" in Item 2 of Schedule 1 is amended to read "The contract price is subject to change. The clauses that allow for changes to the contract price are clauses 9, 10, 11, 13, 15, 16, 19, 20, 21, 23 the Special Conditions and the Tender Conditions attached to this contract.

[9] The anticipated start date is provided in item 14 of Schedule 1 as 120 days from when the contract was signed. The parties agree, for the purpose of this application, that it was therefore 9 December 2022.[4] Clause 2.1 outlined what the applicants and the respondent were required to do before commencement (that is, the commencement of building works) and provided that commencement would occur on the later of the anticipated start date or 20 working days from the day that all the subclauses had been fulfilled. The respondent is obliged, by clause 2.7, to ensure that commencement of the building works occurs as soon as is reasonably possible. In my view, the combination of clauses 2.1 and 2.7 means that, once all the prerequisites in clause 2.1 had occurred, the respondent was obliged to start as soon as reasonably possible but no later than 20 working days after the last of those occurrences.

Any provision in this contract which is illegal, void or unenforceable will be ineffective to the extent only of such illegality, voidness or unenforceability and will not invalidate any other provision of this contract.

[11] The parties agree that the last of the matters that the parties were required to do before commencement occurred on 23 November 2022, when the respondent received building approval from the Council. The result was that the respondent was obliged to commence work as soon as possible thereafter, but no later than 21 December 2022.[5]

[12] As I mentioned earlier, on 13 October 2022 the respondent sent the applicants a message in which it foreshadowed increasing the contract price by $51,342. In that message, it relevantly said:

As you may know, the Building and Construction Industry has been subject to significant cost increases over the last 12-18 months as a result of inflationary industry demand, Insurance Repair Work, shortages in various key building trades, the recent wet weather and disruptions to the industries supply chain as an unfortunate consequence of the COVID 19 pandemic.

Due to the instability of the market and continual price increase that the industry is seeing, it is not viable for builders to hold their prices for an extended period of time.

As a result, Bold will need to share the burden of the additional costs that have been and will continue to be incurred as a result of not meeting the anticipated start date in your Contract.

As mentioned, an in-depth review of your File has taken place, and Callum has agreed to offer you an adjusted base price of $519,195.00 which is an increase of $51,342.00.[6]

[13] On 22 November 2022, the applicants received a message from the respondent in which the respondent said that it anticipated commencing site preparations in January and the slab pour in February. It continued:

We understand this exceeds the anticipated start date outlined in your contract and in accordance with special condition 7 of your contract, a review at the discretion of management is applicable.

[14] Following receipt of the message of 13 October 2022, the applicants' solicitors wrote to the respondent asking questions about the basis on which the respondent contended that it was entitled to increase the contract price and how the increase was calculated. The respondent's solicitors responded by letter of 1 December 2022. Relevantly, they said:

We are further instructed that the ASD date of 30 December 2022 is unable to be complied. This is due to the normal processing times required by our client to prepare a new house ready for construction and the current residential construction industry tradesman shortages.

In line with clause 7 of the special conditions of the contract our client will require that the base price of this contract be increased by $51,342.00.

We are further instructed in relation to price rises as follows:

1. The base price in the Contract between the parties is $467,853.00.
2. The current base price for same house as contained in the Contract between the parties is now $550,536.00, this is a matter of public records.
3. The difference between the two is $82,683.00, however as noted above our client is prepared to accept a lesser amount.[7]

[15] Further correspondence was exchanged but need not be referred to here. It suffices to say that the respondent offered to terminate the contract by agreement but the applicants have demonstrated that they wish to continue with it.

[16] The applicants allege that special condition 7 is void and unenforceable at law for a number of reasons. First, they contend that it is void for uncertainty. Secondly, they allege that the contract fails to provide a sufficient price escalation warning concerning special condition 7, as required by schedule 1 of the QBBC Act, and the result is that it is void under that Act. Thirdly, they allege that it is an unfair contract provision, contrary to s 25(f) of the Australian Consumer Law (ACL) and is therefore void under that Act. Alternatively, they contend that the respondent did not properly invoke the condition and can no longer rely on it, even if it is valid.

[17] As I have said, in the originating application they also sought an order for specific performance of the contract. However, they did not pursue that claim at the hearing, essentially because whether that is necessary or desirable may only be determined after the court determines whether special condition 7 is valid and may involve contested issues of fact. For similar reasons, they did not pursue the claim in the application for an order to the effect that the respondent is estopped from relying on the special condition.

[18] The respondent contends, first, that this matter was inappropriate to start as an originating application, as it raises more than one issue of law and contested issues of fact to be determined. It submits that the proceeding should continue as if commenced by claim. However, while there may have been some matters of fact to be determined if the applicants had proceeded with their claims for estoppel and specific performance, once these claims had been abandoned (at least for the present), the issues in contention appeared to me at that stage to be sufficiently narrowed to questions of contractual and statutory construction and whether the special condition is void. After hearing the applicant's submissions on those issues, I adjourned the matter to allow the respondent to file further submissions addressing these points.

[19] In his supplementary written outline and in oral submissions on the adjourned date, counsel for the respondent continued to press the court not to determine now whether the special condition is void. He submits that there may be issues relating to the negotiation and drafting of the contract, there are various bases on which the applicants seek a declaration that special condition 7 is void which merit pleading so that the respondent can know clearly the basis of the applicants' claims and the respondent wishes to contend that it considered the condition to be an essential term of the contract without which it would not have entered into it, all of which should be pleaded and may require findings of fact on contested factual issues. For example, he referred to the following statement by Perram J:[8]

In assessing the relative bargaining power of the parties, it is appropriate to take into account the legal position in which they found themselves. It is also relevant to consider the actual course the negotiations took.

[20] I reject the respondent's submissions that the real issue - that of the validity or otherwise of special condition 7 - cannot now be determined appropriately and fairly to the parties. As I have said above, it involves a matter of construction of the contract and the application of the relevant statutes. The respondent's intention or belief in entering into the contract is irrelevant:

The respondents each having executed [an] agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. ... Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified. The respondents attempted neither.[9]

[21] There is no suggestion, on the evidence before me, that the parties negotiated the terms of the contract in any material respect. The situation here is very different to the facts in the case before Perram J in which his Honour made the statement set out above.

[22] The applicants are no longer pursuing their estoppel or specific performance claims (which may well have engendered contested evidence). The facts are sufficiently clear from the parties' affidavits and the documents exhibited to them. Thus I shall now proceed to determine whether special condition 7 is void and, if so, the consequences for the contract.

[23] As to that issue, the respondent submits that special condition 7 is valid and it was entitled to increase the price under that condition, essentially for the reasons set out in its message of 13 October 2022.[10] It contends that it was not obliged to commence works by that date because the last of the applicant's pre-commencement obligations was not fulfilled until shortly before the anticipated start date, so the actual commencement was not required until after that date: therefore the condition was enlivened and it became entitled to charge the additional sum. It contends that special condition 7 is an essential provision of the contract, such that the respondent would not have proceeded with the contract if the provision was excluded, and that the applicants are bound by the condition as a term of a contract willingly agreed between the parties. It contends that the condition is not unclear or uncertain. It submits that the price escalation warning was sufficient and complied with the QBCC Act. Finally, it contends that the provision is not unfair, as it allows any increased costs resulting from delay to be shared by the parties.

[24] The applicants claim that special condition 7 is not sufficiently certain and is therefore void and severable. They submit that the provision gives the respondent the right to charge more than the fixed price in the circumstances for which it provided. However, the provision does not state what any increase might be, nor how it would be calculated. Any increase is solely within the respondent's power and discretion. For that reason it is uncertain.

[25] In determining whether a contract or term of a contract is void for uncertainty, three relevant principles have been identified:

The first is that if parties to a contract do not agree on a fundamental term there will be no contract at all. The second is that there is no contract if its effect is that one party is left to choose whether or not it will perform it, since the obligation is illusory. The third is that there can be no concluded bargain if a vital matter has been left to the determination of one of the parties.[11]

[26] It is the third principle which is relevant here. In relation to that principle, it has been noted that:

[The] cases establish that while a determination of a price or payment under a contract may be left to the party entitled to receive the price or payment, that will only be so where there are criteria - either express, or such implied criteria as "fair and reasonable" ...[12]

[27] Special condition 7 provides the respondent the sole discretion to determine whether or not to increase the contract price where commencement has not occurred by the anticipated start day. It does provide some form of criterion by which such an increase may be measured - the cost of the "builder's current base price" for the relevant house type. However, the manner in which the "current base price" is determined is not set out or referred to in the condition, nor anywhere else in the contract or related documents.

[28] The respondent has pointed to the contractual tender document dated 3 August 2022, noting that it details the scope of works and the cost of items included in the tender for the particular house type that the respondent agreed to build for the applicants. The tender was incorporated into the contract.[13] The tender provides that the total tender amount includes the "base house price as per Bold Living Contemporary Living Home Inclusions," "Additional Inclusions," "Promotion" and "Credits."[14] It shows a total "base price," but it only itemises the costs of "Additional Inclusions." It does not show how the base price is determined by the respondent. It merely outlines the scope of works that will be undertaken and states at the end "Sorrento 412 as per Bold Living Standard Inclusions."[15] It does not give any indication as to how the base price stated in the tender was arrived at by the respondent, nor how one might determine whether any of the amounts going to make up the base price (or the cost to the respondent of supplying those items) have changed at any stage.

[29] This leaves the respondent without any real constraint or reference criteria by which a price increase may be determined (and may be checked by the applicants). Rather, the respondent may fix whatever price it determines as its "current base price" for the house type, including a price that has no correlation to the price that it agreed to charge the applicants, nor its expected profit margin from that price. Indeed, that is demonstrated by an affidavit of the respondent's director, in which he purports to show the respondent's costs for the house type as at February 2022 (when the tender was created) and its costs for that house type as at December 2022 or May 2023[16] and compares those costs with the price for that house type in February 2022 and December 2022 or May 2023. Comparing the costs and price at each time shows a price above costs (presumably net profit) of about 3% in February 2022 and 6.6% in December 2022 or May 2023. Thus the respondent has, after the contract was signed, purported to fix a price more favourable to it than under the original contract.

[30] This ability of the respondent to change its price without any express criteria distinguishes this case from, for example, interest rate increase clauses such as those considered in Kabwand and Nikoloff. The relevant clauses in those cases provided one party with a right to vary interest on a loan. This discretion, however, was constrained to the rates of interest applied to all customers under the same contract types and not just the loan in question. As such, the relevant clauses required the interest rates charged to "conform to the general rates of interest charged to customers ... that is to say there is an objective market standard to be applied at all times."[17] In those cases, borrowers were able to challenge increases in the rate of interest on the basis that "it had been fixed otherwise that in conformity with the general movements referred to."[18]

[31] While special condition 7 notes that any price increase would be to the new base price of the house type in the contract and there may be other customers of the respondent with the same house type and price, this does not establish the objective market standard noted in those cases. Furthermore, the price of the contract is clearly more fundamental to the contract - particularly as it is shown as being a fixed price contract - than an interest rate under a loan agreement that expressly provided for a variable rate. Additionally, that the clause states that the right is at the respondent's "sole discretion" adds additional uncertainty into the provision, as it would allow the builder to determine arbitrarily whether or not it would rely on the provision.[19]

[32] It is also relevant to note that Mr Bolton's evidence was that, upon the contract being signed, he commenced rechecking the cost of material that had been quoted by the respondent's suppliers. When he completed that process he realised that the cost of materials had increased substantially. One might have expected him to undertake that process before fixing on a contract price. Also, special condition 7 only allowed for an increase in price if there had been delay in commencement of the works, which implies that any increase in the base price, if allowed, would be only on the basis of costs increases since the contract was made.

[33] Special condition 7, in purporting to allow the respondent to increase the price based on unstated objective criteria, effectively purported to enable the respondent to change an essential term - the price -without any reference to any such criteria. That makes the clause and its potential effect uncertain. It is therefore unenforceable.

[34] Notwithstanding that conclusion, it is necessary to consider the applicants' other bases for their contention that the condition is void.

[35] Section 14 of schedule 1B of the QBCC Act relevantly requires domestic building contracts valued over $20,000 to contain the following:

(3) The contract must contain all of the following:

(e) the contract price or the method for calculating it, including the building contractor's reasonable estimate;

(6) If the contract price may be changed under a provision of the contract, the contract must also contain -

(a) a warning to that effect; and

(b) a brief explanation of the effect of the provision allowing change to the contract price.

(7) The warning and explanation mentioned in subsection (6) must be in a prominent position on the first page of the contract schedule.

[36] Schedule 2 defines the "contract price" for a building contract as:

[T]he amount payable under the contract for carrying out the building work the subject of the contract, including, if the contract has been the subject of a variation, the contract as varied.

[37] Section 108D of the QBCC Act prohibits contracting out of the provisions of the Act, relevantly providing that:

(2) A domestic building contract is void to the extent to which it--

(a) is contrary to this Act; or

(b) purports to annul, exclude or change a provision of this Act.

[38] The contract did contain a warning on the first page of the contract schedule.[20] This warning states that the contract does contain clauses which allow for changes to the price of the contract and lists a series of clauses. This list does not include special condition 7.

[39] Special condition 11 attempts to amend this by stating that the warning paragraph should be amended to include the Special Conditions and Tender Conditions. The respondents submit that this amendment to the warning is effective, because clause 13.6 provides that the special conditions are first in the order of precedence of the documents making up the contract. Therefore, the applicants' attention is drawn first to the special conditions, including conditions 7 and 11. The applicants submit that this is inconsistent with the requirement that the warning be stated prominently on the first page of the contact. Furthermore, the warning as amended by special condition 11 does not actually identify special condition 7. As a result, the applicants contend that s 108D(2)(a) applies to make special condition 7 void.

[40] The applicants also submit that, even if I find that the warning was validly amended by special condition 11 to include special condition 7 (by referring to the special conditions), the warning does not provide an explanation of the effect of the provision, other than saying it (and the others referred to) allows for a change in the contract price. As such, it falls short of the requirement in s 14(6)(b).

[41] The respondent submits that the warning complies with the QBCC Act. First, it is not necessary for a warning to refer the reader to the particular provision or provisions that may lead to a change in the contract price. Secondly, in any event, as amended by special condition 11, the warning refers to special condition 7. It also states that the contract price is subject to change and the clauses referred to in the warning "allow for changes to the contract price."[21] The respondent submits that I should give the words "effect" and "brief explanation" their plain, ordinary meaning: the warning itself was a "brief explanation" of the effect of the clauses, in that it was short, and it need only explain the effect, being that the provisions allowed for the contract price to change.

[42] Section 14 of sch 1B was inserted into the QBCC Act by the Queensland Building and Construction Commission and Other Legislation Amendment Bill 2014. The observations of Judge Muir, as her Honour then was, in Thallon Mole Group Pty Ltd v Morton, although dealing with a different section of the schedule, are relevant to understanding the requirements in s 14:[22]

[407] Section 3 of the QBCC Act outlines the objects of the Act which include amongst other things; to regulate the building industry, to ensure the maintenance of proper standards in the industry and to achieve a reasonable balance between the interests of building contractors and consumers.

[408] Section 40 of the QBCC Act was inserted into the Act as part of the Queensland Building and Construction Commission and Other Legislation Amendment Bill 2014. Relevantly, the Amendment Bill also included legislative amendments aimed at improving the commission's effectiveness at balancing the interests of consumers and the building industry.

[409] In applying this legislative background to s 40, it is clear that the purpose of requiring contract variations to be in writing was to enforce minimum standards in the building industry to create certainty and to better balance the interests of consumers within the building industry. While the Act is more generally focused on balancing interests between consumers and builders, this particular section is arguably more focused on consumer protection.

[43] Section 14 of sch 1B is likewise arguably more focused on consumer protection. As beneficial legislation, the provision should be construed beneficially and so as to give the fullest relief which the fair meaning of its language will allow.[23] Such a construction should promote the purposes of the Act. Those purposes or objects include, most relevantly, to regulate domestic building contracts to achieve a reasonable balance between the interests of building contractors and building owners.[24]

[44] To construe the requirements set out in subsection 14(6) as being fulfilled merely by indirectly mentioning the provisions in the relevant contract and noting that they may allow for changes in price does not seem to me to facilitate the purpose of that section. It is clearly intended to constitute a form of protection of consumers by warning them clearly of the circumstances in which the contract price (even in a "fixed price" contract) may change. At the very least, the respondent would need to indicate in the warning that special condition 7 allowed for changes, not just the special provisions generally.

[45] Similarly, to construe the requirement, that the warning be displayed prominently on the first page of the contract schedule, as being fulfilled through an amendment to the warning purportedly made in another provision within the body of the contract, does not seem to further the purpose of consumer protection. This is even more so where the warning on that first page does explicitly refer to other provisions which, at least arguably, allow for changes in the contract price and which on its face purports to be a list of all such provisions. In fact, such an approach could effectively disadvantage consumers through drawing attention away from other provisions which allow for the price of the contract to be altered.

[46] In my view, the attempt to amend the warning by special condition 11 is ineffective. The QBCC Act unequivocally requires that a warning be on the first page of the contract schedule. The warning must be entirely on that page. Any attempt to amend the warning by a clause that is not on that page cannot succeed. It would make a mockery of the requirement that a warning be on that page and contain the necessary requirements of such a warning.

[47] The respondent's submission that the legislation should be construed so that the warning need only be a "brief explanation" and that that explanation is only required to outline the "effect" of the clause (in this case, the "effect" of possibly changing the contract price) results in an unsatisfactory fragmentation of what the section requires. Furthermore, the respondent's submission that the warning is adequate because it is in the form of the standard Housing Industry Association contract has no substance: how an industry body construes the statutory requirements is irrelevant to the proper construction.

[48] The legislation requires both a warning that the contract price may be changed under a provision of the contract and an explanation of the effect of the relevant provisions. These are different requirements. The explanation that the relevant clauses allow for "changes to the contract price" fails to describe properly the effect of those clauses - it does not warn a consumer that the price may be increased, nor does it explain how each clause may lead to a change in the contract price.

[49] In my view, it is not sufficient for a warning simply to list the relevant provisions and to state that they allow for changes to the contract price. The "warning" that is required is that the contract price may change. The "brief explanation of the effect of the provision" is a separate and additional requirement to that warning. For example, the warning in this contract might have stated:[25]

The contract price is subject to change, either increasing or decreasing. The clauses that allow for changes and their effect are the following:

Clause 20: where a written variation is made to the works or to the manner of carrying out the works (see definition of "variation" in clause 38.1) the contract price may increase or decrease.

Special condition 7: if commencement begins after the anticipated start date, the builder may increase the base price component of the contract price to the builder's then current base price for the same house type and increase the contract price by the same amount.

[50] There was no warning on the first page of the contract schedule concerning special condition 7, let alone an explanation of its effect. Even if it were lawful to amend that warning by special condition 11 (which it is not), the warning in respect of special condition 7 is insufficient for the purposes of the QBCC Act: again, it does not refer to that condition but to all the special conditions, and it does not explain the effect of the condition.

[51] The warning, at least insofar as it concerns special condition 7, is therefore contrary to the QBCC Act and, under s 108D(2)(a), is void to the extent of that insufficiency. Does that mean that special condition 7 is itself void as being contrary to the Act? In my view, that is the effect of the invalidity of the warning insofar as it concerns that condition. The condition, if effective at common law, provides for a change to the contract price but no warning is given about the existence or effect of the condition. The effect of the legislation must be that the special condition itself is void, because otherwise the absence of a necessary warning and explanation would have no effect on the parties' rights, but it would simply be an offence against the Act for the respondent to commence work before the contract complied with the requirement of schedule 1B, s 14.[26]

[52] Therefore, special condition 7 is wholly void. Under clause 38.7 of the contract, it is effectively severed from the contract and it does not invalidate any other provision of the contract.[27] Nor does the elimination of that condition change the kind of contract between the parties,[28] nor, in other words, affect the "heart of the transaction." The condition is not, in substance, so connected with the other terms of the contract that they form an indivisible whole which cannot be taken to pieces without altering its nature.[29]

[53] However, it is necessary to consider a submission of the respondent that the inadequacy of the warning affects the validity of the entire contract.

[54] The respondent submitted that, if I were to find that the warning was insufficient in relation to special condition 7 because it does not include an explanation of its effect, then the warning would be ineffective in relation to all the clauses in the contract which allow for a variation in the price of the contract, and each clause would need to be severed. The effect of severing all such clauses would be to alter the nature of the contract in such a way so as to render the entire contract void. The respondent asserts that to hold otherwise would destroy its contractual rights, which were agreed to be essential terms of the contract and constituted part of the "heart of the transaction."

[55] It is worth noting that this application is only in respect of special condition 7 and that I have held that the warning was insufficient in relation to special condition 7 for two reasons. First, the failure to expressly include the provision in the warning means that the warning, as insufficient as it is, is particularly ineffective in relation to special condition 7. As special condition 7 is not even referred to in the warning, that condition is void.

[56] Secondly, I have found that the warning itself has fallen short of the requirement in the QBCC Act to give a brief explanation of the provisions allowing for a change to the contract price. The respondent submits that, in that case, the entire contract is tainted with illegality and should be declared void and unenforceable.

[57] Section 108D of the Act provides that a contract is only void "to the extent to which it ... is contrary to this Act." Section 44 of schedule 1B provides that, unless the contrary intention appears in the Act, a building contractor's failure to comply with a requirement under the Act in relation to a domestic building contract does not make the contract illegal, void or unenforceable. I have also set out above[30] clause 38.7 of the contract, which is to similar effect.

[58] In fact, many of the provisions referred to in the warning do not actually allow for changes in the contract price. Many provisions submitted by the respondent to provide for changes to the contract price in fact provide for additional fees, interest, debt collection costs, or damages to be charged. These items are not part of the contract price, either as defined in the contract or as defined in schedule 2 of the QBCC Act. Other provisions submitted by the respondent do not change the contract price, but either allow for a variation to the contract or deem that a variation has been requested in certain circumstances. These provisions do not change the contract price. Nor do I consider them to be essential conditions, or the "heart" of the contract.[31] The various provisions are not inter-dependent. The remainder of the contract can survive and the parties' respective rights and obligations that do form the "heart" of the contract - to build the house and to pay the contract price for that building, respectively - can remain on foot without those clauses having any effect.

[59] Clause 20, which is the variation clause, does allow for a variation which may result in a changed contract price. However, unlike special condition 7, clause 20 is explicitly mentioned in the warning. While I have found the warning to be inadequate for the purposes of the Act, this at least goes some way to meeting the obligations imposed by s 14.

[60] Additionally, the effect of finding the warning insufficient would only be to render the contract void to the extent that it is contrary to the Act. When applied to clause 20, this would mean that that clause is void only to the extent that it allows for a variation to the contract price. That invalidity does not go so far as to taint the heart of the transaction with illegality. The contract can remain on foot otherwise, although changes to the contract price for variations may not be permitted.

[61] However, it is unnecessary for me to make a concluded finding about clause 20 or any of the other clauses that are mentioned in the warning, as the applicants do not contend that any of them is void. In that circumstance, it is not open to the respondent to contend that the whole contract is void (in order to avoid its own obligations) as a result of its own breaches of the Act.

[62] Therefore, notwithstanding the invalidity of special condition 7 and the insufficiency of the warning about it, the contract remains on foot and enforceable, without that condition.

[63] The applicants also contend that special condition 7 is an unfair term and therefore void under the ACL.[32] They submit that there are several grounds on which it is open for me to find that the term was unfair.

[64] The applicants submit that it is not transparent as it does not provide any criteria by which a price escalation would be calculated. It simply allows the respondent to increase its price and binds the applicants to that new price. They also contend that it lacks transparency as it is inconsistent with the applicants having been earlier asked to pay a deposit to secure a fixed base-price.

[65] Finally, the applicants submit that special condition 7 gives rise to an imbalance of power between the parties, as it gives the respondent a unilateral right to change an essential term of the contract (as to the price) without providing the applicants a right to terminate. This imbalance is further exacerbated, according to the applicants, as the provision appears to allow the builder to rely on any reason for delay in commencement, including its own.

[66] The respondent contends that the provision is necessary to protect its interests. It submits that, due to instability and continual price increases in the market, it is not viable for builders to hold a price for an extended period. Special condition 7 ensures that the respondent can adjust its price in the case of increases in costs in the period between the contract date and any delayed commencement of the works, to avoid it incurring a loss. Also, it is a valid method of balancing the interests of owners or consumers and builders, which is an object of the QBCC Act that is relevant to the fairness of the contract terms.

[67] Section 23 of the ACL provides that a term of a consumer contract is void where that term is unfair and the contract is a standard form contract.

[68] Section 24 provides that a contract is unfair if:

(a) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

[69] In determining whether a term is unfair, s 24(2) provides that a court may take into account such matters as it considers relevant but must take into account the extent to which the term is transparent and the contract as a whole. Justice Leeming of the Federal Court of Australia has explained that open-ended statutes (which I take to include specific statutory provisions such as this and the general concept of what is unfair), which turn on broadly expressed concepts "naturally and indeed necessarily attract a more purposive and less minutely textual mode of construction."[33] Justice Edelman has said that "the legislative concept of 'unfairness' in s 24, with elaboration through the three elements of unfairness, might be described as a guided form of open-ended legislation."[34]

[70] Section 24(4) also provides a presumption that a term is not necessary to protect the legitimate interests of the advantaged party unless that party can prove otherwise.

[71] It was accepted by both parties that the contract is a consumer contract, as defined in s 23(3), being one for the supply of goods or services to an individual wholly or predominantly for personal, household or domestic use. Section 27 provides for a presumption that a contract is a standard form contract, and the respondent has not sought to rebut this presumption. In any event, it is clear on the face of the contract that it is a standard form contract produced by the Housing Industry Association.

[72] Under the statutory regime, the applicants must show that the provision would cause a significant imbalance in the rights and obligations of the parties and would cause them a detriment if relied on. The respondent needs to demonstrate that the provision is reasonably necessary to protect its legitimate interests.

[73] Under s 24(3), a term is transparent if it is:

(a) expressed in reasonably plain language; and

(b) legible; and

(c) presented clearly; and

(d) readily available to any party affected by the term.

[74] In assessing whether special condition 7 is transparent, it is relevant that it was not included in the warning at the start of the contract, along with other clauses said to allow for a change in the contract price. Rather, both special condition 7 and the purported amendment to the warning (by special condition 11) were placed well within the contract. Whether a clause is readily accessible and presented clearly to a consumer must, in my view, be assessed having regard to the type of contract concerned and any legislative requirements for such a contract. Here, of course, the contract is governed by the QBCC Act, including the requirement to provide a warning, on the first page of the contract schedule, about any clauses that may change the contract price. Having regard to those requirements, the terms of the actual warning and the location of the special conditions that purport to change the warning and to allow for a change to the contract price, in my view special condition 7 is not presented clearly, nor in a manner which is readily available to the applicants.[35]

[75] The transparency of special condition 7 is further reduced as it fails to identify how any increase in price was to be calculated. It states that the builder has the sole discretion to increase the contract price to the 'builder's current base price for that house type'. While the respondent denies allegations that the increase in price is arbitrary and does not reflect the real cost of construction,[36] it has failed to provide any explanation or formula to justify the increase.

[76] In Chrisco, Justice Edelman considered a contractual term, which allowed Chrisco to debit amounts from customer accounts but did not identify what those amounts were or how they were to be determined, was not transparent.[37] Here, special condition 7 also fails to give the applicants any guidance on how a higher base price might be determined. Nor is there any indication in the rest of the contract, nor the other documents provided to the applicants, of how the base price and any increases are calculated.

[77] Lack of transparency does not of itself give rise to the conclusion that a term is unfair.[38] The applicants must show that this lack of transparency contributed to a significant imbalance in the parties' rights and obligations and would cause a detriment if relied on.

Does special condition 7 cause a significant imbalance in the parties' rights and obligations?

[78] In determining whether a term causes a significant imbalance in the rights and obligations of the parties, Gilmour J has made the following observations:

(a) the underlying policy of unfair contract terms legislation respects true freedom of contract and seeks to prevent the abuse of standard form consumer contracts which, by definition, will not have been individually negotiated;

(b) the requirement of a 'significant imbalance' directs attention to the substantive unfairness of the contract;

(c) it is useful to assess the impact of an impugned term on the parties' rights and obligations by comparing the effect of the contract with the term and the effect it would have without it;

(d) the 'significant imbalance' requirement is met if a term is so weighted in favour of the supplier as to tilt the parties' rights and obligations under the contract significantly in its favour - this may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty;

(e) significant in this context means 'significant in magnitude', or 'sufficiently large to be important', 'being a meaning not too distant from substantial';

(f) the legislation proceeds on the assumption that some terms in consumer contracts, especially in standard form contracts, may be inherently unfair, regardless of how comprehensively they might be drawn to the consumer's attention; and

(g) in considering 'the contract as a whole', not each and every term of the contract is equally relevant, or necessarily relevant at all. The main requirement is to consider the terms that might reasonably be seen as tending to counterbalance the term in question. [39]

[79] Section 25 of the ACL also provides a list of examples of clauses which may be unfair. Of particular relevance is s 25(f):

A term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract.

[80] The respondent submits that whether there was a significant imbalance of power can only be determined after a trial and it would be necessary to review the history of the negotiations between the parties, which would, or at least may, affect the answer to that question. However, it has been said on at least several occasions that individual negotiation (or the absence of such negotiation) of a term or a contract between an entity and its customers is not relevant to whether a term causes a significant imbalance in the parties' rights and obligations arising under the contract.[40] I agree. Here, it is unnecessary to determine facts about any pre-contract negotiations. In order to see if special condition 7 gives rise to an imbalance of power, I shall turn to the provision itself, in the context of the contract as a whole.

[81] Special condition 7 is drafted in such a way as to provide the respondent with a seemingly unconstrained right to adjust the contract price by an arbitrary amount in the case of delay, irrespective of whether that delay was caused by the applicant, the respondent or factors outside either party's control. While I appreciate, as the respondent submits, that the price increase proposed by it was calculated to reflect the legitimate increase in the cost of providing the services, the provision as drafted goes beyond what is necessary and without any objective criteria for changing the price. (The criterion of the current base price for the same type of house is not objective, as that base price itself is set at the entire discretion of the respondent.)

[82] In AIBI,[41] Perram J stated, in relation to an unfair term:

For one party to reserve to itself the unfettered right to change the price for its services does not seem to serve any legitimate commercial interest. If it were drawn more modestly and provided for increases of a particular character or upon the happening of certain events there might not be a problem. For example, if the clause only permitted increases where some fixed cost borne by VTS was itself increased this would not be unfair. Nor would it be unfair to permit VTS to increase fees in line with inflation. As I understood it, the way in which cl 11.9 had been utilised in practice was only to effect increases in line with CPI. That, however, does not affect the meaning of the clause.

[83] Special condition 7 does not refer to any increase in costs, nor any specified basis for an increase in the contract price other than a price for similar contracts that it may set in its discretion without regard to any specified criteria. Furthermore, the contract does not provide any countervailing right to the applicants to terminate following a price increase. They are essentially locked into the new price unless they wish to repudiate the contract and open themselves to a claim for damages.

[84] Special condition 7, as it is drafted, results in a significant imbalance of power between the parties. It provides the respondent with a unilateral right to vary the upfront price of the contract, which has purportedly been locked in by a separate agreement between the parties for which consideration was provided, without providing any right to the applicants to terminate or otherwise to negotiate the increase. On that basis, the applicants have satisfied s 24(1)(a).

Would special condition 7 cause a detriment to the applicants?

[85] Section 24(1)(c) requires the applicants to show that the term would result in a detriment, whether financial or otherwise. Here, were the respondent entitled to rely on special condition 7 to increase the contract price, the applicants would have to choose between repudiating the contract and opening themselves up to damages or paying the higher price, notwithstanding that, on its face, the contract purports to be a fixed price contract. Special condition 7 therefore would result in a detriment to the applicants.

Is special condition 7 reasonably necessary to protect the respondent's legitimate interests?

[86] The respondent submits that special condition 7 is reasonably necessary to protect its legitimate interests in not being bound to a low price where delays in construction result in an increase in the cost of undertaking the project or, in other words, to protect its ability to make a profit on this contract. The respondent submits that such increases would ultimately result in it incurring a loss on the project and it has a legitimate interest in preventing that result.

[87] While I do agree that the respondent would have a legitimate interest in being able to vary the price if delays caused either by the applicants or external factors resulted in the costs to the respondent increasing, the provision goes beyond what is reasonably necessary. As drafted, it allows the respondent to rely on any delay whatsoever, including its own. As noted by the applicants in their submissions, such a broadly drafted clause would allow the respondent to enter into numerous contracts at once, then do nothing to commence works under some or all of the contracts and then to increase the price under the contracts once buyers have been locked in. Had the provision been drafted in a more careful and limited manner, such as by providing that the builder could only rely on delays if it is not at fault or has not contributed towards that delay and that the increase can only be determined by reference to cost increases that have occurred between the contract date and commencement, it might be more likely that the provision protected the respondent's legitimate interests.

[88] Here, the respondent's director has given evidence of what he says were the increased costs. However, as the applicants' counsel pointed out, many of the costs relied on were known to the respondent before it entered into the contract - some even before it provided the tender to the applicants - and some appear to have increased after the date by when it was obliged to commence the works. Furthermore, if any such costs increased due to provisions in ongoing supply or labour contracts that the respondent had made before this contract was made, it had sufficient opportunity to take expected or potential cost increases into account in determining the price for which it offered to build the applicants' home.

[89] When considering the contract as a whole, the claim that special condition 7 is reasonably necessary to protect the respondent's interests becomes more tenuous. There are other terms in the contract which allow for the respondent to deal with delays. Where commencement is delayed beyond the anticipated start date by a cause other than the respondent, cl 16 of the contract allows the respondent to claim delay damages from the applicant. Clause 17 also provides a process for the respondent to seek an extension of time to conduct the works where a cause of delay arises which is outside the respondent's control.

[90] The applicants' counsel submits that the respondent could have protected itself against some cost increases at least, by providing for provisional sum items on some of the costs of the standard house type.[42] I am not satisfied that that is so, as most, if not all, of the items included as standard items for the house type appear not to be of the character of provisional sum items.

[91] I find that the respondent has failed to show that special condition 7 was reasonably necessary to protect its legitimate interests.

[92] Subsection 23(2) of the ACL provides that a contract continues to bind the parties if it is capable of operating without the unfair term. As I have said above, the heart of this contract is that the builder will build the house for the applicants and the applicants will pay the builder the contract price. Those obligations and the balance of the contract can operate without special condition 7. The condition is void, but the balance of the contract remains on foot.

[93] If I am wrong in concluding that special condition 7 is void and unenforceable, then there is a very real possibility that the respondent validly sought to increase the contract price. Under cl 2.1 of the contract, the respondent was to commence on the later of the anticipated start day or 20 days from when the applicants fulfilled each requirement set out in the clause. The applicants did so on 23 November 2022. Therefore, the respondent had until 21 December 2022 to commence under cl 2.1.

[94] Clause 2.8, however, provides that the respondent must ensure commencement occurs as soon as reasonably possible. It may well have been possible for the respondent to commence before the anticipated start date. It was obliged to commence by 21 December 2022 (subject to its entitlement to take into account rostered days off and the like). It seems likely that, by not commencing at least at some time in December 2022, it breached the contract. The court cannot determine that question now, nor is it being asked to do so. But in any event the applicants have affirmed the contract notwithstanding any breach by the respondent. The contract remains on foot.

[95] I shall declare that special condition 7 of the contract is void.

[96] There is no need for a declaration that the condition is severed from the contract. Being void, it is of no effect and I have found that the balance of the contract remains on foot. There is no need, in my view, to make a declaration to that effect.

[97] In the originating application, the applicants seek an order that the respondent pay their costs of the application on the indemnity basis, or alternatively on the standard basis. As presently informed I do not see why any costs should be ordered on the indemnity basis, but I see no reason why the respondent should not pay the appellants' costs of the application on the standard basis. I shall make an order to that effect, subject to either party filing submissions seeking an alternative order.

[1] It is not disputed that the contract is a "domestic building contract," a "regulated contract" and a "level 2 regulated contract," as those terms are defined in Schedule 1B to the Queensland Building and Construction Commission Act 1991 (the QBCC Act).

[2] That is set out in Schedule 1, item 2. The contract also defines the term "contract price" as "the amount stated in item 2:" clause 38.1.

[3] This and other quotes from the contract and from correspondence between the parties includes all typographical and grammatical errors as they appear in the documents.

[4] Although, in its messages to the applicants, the respondent asserted that it was 30 December 2022.

[5] Assuming that the only "non-working days" (as defined in the contract) between those dates were the weekend days and that there was no basis for the respondent to claim an extension of time. (It has not made any such claim.)

[6] Affidavit of C J Perera file don 5 May 2023, exhibit CJP-19, p 159.

[8] AIBI Holdings Pty Ltd v Virtual Technology Services Pty Ltd [2022] FCA 696 (AIBA), [86].

[9] Equuscorp Pty Ltd v Glengallan investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471, [33].

[10] See [12] above.

[11] Perpetual Nominees Ltd v Parist Holdings Pty Ltd [2005] NSWSC 1345 (Perpetual), [30] (citations omitted); citing Kabwand Pty Ltd v National Australia Bank Ltd [1989] FCA 131; (1989) ATPR 40-950 (Kabwand).

[12] Perpetual, [32]. See also Perpetual Trustee Company Ltd v Nikoloff [2020] WASC 389 (Nikoloff), [49]-[61].

[16] Affidavit of B N Boulton filed filed on 25 May 2023, [7], BNB-02. The dates of costs and prices are not clear. The schedule to Mr Boulton's affidavit refers to base price at February and December 2022, but costs at February 2022 and May 2023, while at the end of the May or December column, costs are said to be at December 2022. The body of his affidavit does not clarify the position. He refers to the former costs as those at the time the contract was signed, but that was in August 2022, not February 2022.

[20] Set out at [7] above.

[22] Thallon Mole Group Pty Ltd v Morton [2022] QDC 224.

[23] Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622, 638; Antico v Heath Fielding Australia Pty Ltd [1997] HCA 35; (1997) 188 CLR 652, 659-660, 675.

[25] In drawing this example, I do not intend to infer that special condition 7 is nevertheless valid. I have also not included other provisions listed in the warning that, in my view, do not result in a change to the contract price: see [57].

[27] A result that is consistent with widely adopted principles of contract law: see McFarlane v Daniell [1938] NSWStRp 20; (1938) 38 SR (NSW) 337 (McFarlane), 345.2; Australian Breeders Co Operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488 (ABCOS), 539-540.

[30] At [10].

[31] The respondent submitted that these terms are part of the "heart" of the transaction between the parties and, from the builder's perspective, the heart, or the essence, of the contract was that it build the house at a profit. I do not agree. Nothing in the contract provided that the builder would necessarily make a profit.

[32] Schedule 2 of the Competition and Consumer Act 2010 (Cth), Part 2-3.

[33] M Leeming, "Equity: Ageless in the 'Age of Statutes'" (2015) 9 Journal of Equity 108, 116, as cited by Edelman J in Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd [2015] FCA 1204; (2015) 239 FCR 33, [40] (Chrisco).

[35] Akin to the clause considered in Australia Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436, [147]; Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224, [2017] ATPR 42-558, [60].

[38] See, e.g. Chrisco (n 12) [43](5), referring to the Explanatory Memorandum to the Trade Practices Amendment (Australian consumer Law) Bill (No 2) 2010 (Cth).

[39] Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377, [54], citations omitted. These comments were made in relation to an identical provision in the Australian Securities and Investments Commission Act 2001.

[40] Chrisco, [50], applying the reasons of Cavanough J in Jetstar Airways Pty Ltd v Free [2008] VSC 539, (2008) 30 VAR 295, [112]. See also Paciocco v Australia and New Zealand Banking Group Ltd (2014) 309 ALR 249, [331]. It may, of course, be relevant to whether a contract is a standard form contract: see s 27(2)(c), (d) and (e).

[41] AIBI (above n 8), [114]. His Honour's reasons on this issue were in obiter dicta, but are, in my respectful view, correct.

[42] Clause 21 and schedule 3 of the contract.