KNOWLEDGE CENTRE

What are the Legal Implications of the Coronavirus Impacting the Supply of Materials in the Construction Industry?

If the Coronavirus is Causing Disruption to your Construction Project Supply-Chain, are you Legally Protected?

Coronavirus or 'COVID-19' continues to spread across the globe, with the World Health Organisation (WHO) referring to the epidemic as a “public health emergency”.

With Australia’s reliance on China for providing goods and materials for the construction sector higher than ever before, many of Enterprise Legal’s construction clients have started raising concerns about how the outbreak could affect their projects, big and small – and when it inevitably does, what will their rights and potential liabilities be? 

Risks to Developers and Other Principals

Most Developers/Principals of construction projects care about three main things when it comes to their project delivery, that is - will the project be:

  • on time;
  • delivered within budget; and
  • of a quality standard and within scope upon practical completion.

The recent shortage of materials from China as a result of factory closure and import limitations could see Developers and Principals alike exposed on all three of the above criteria.

Some key factors for Developers/Principals who have current projects or projects that are at the ‘sign-up’ phase to consider include:

  • what materials and/or goods are at risk of not being supplied on time;
  • delay damages – is the delay a compensable cause under the Contract which could see the Developer/Principal having to pay delay damages to the Contractor;
  • extensions of time – does the Principal have an obligation to grant an extension of time under the Contract for the delays, in which case the project completion date could be significantly pushed out:
    • without giving the Principal the right to enforce liquidated damages; and
    • exposing the Principal to potential claims from future tenants, purchasers or alike;
  • does the Developer/Principal have ‘good faith’ obligations under the Contract and how would those obligations apply in the current circumstances; and
  • what practical steps can (and must) the Developer/Principal take to mitigate its own losses in respect of the project. 

Risks to Contractors

Conversely, the risk to Contractors are in the reverse. For example:

  • could the Contractor be exposed to delaying the project without any entitlement to extensions of time, consequently exposing the Contractor to liquidated damages payable to the Principal/Developer;
  • does the Contract’s ‘force majeure’ clause adequately protect the Contractor where the extension of time clause otherwise may not;
  • what obligations do the Contractor have to its subcontractors, and what liabilities could it be exposed to in that regard; and
  • what steps does the Contractor have to take from the outset to best protect itself from unnecessary exposure. 

What Should You Do?

Enterprise Legal’s advice is ‘be alert, but not alarmed’. Make sure that you arm yourself with the knowledge that you’re legally protected and the best way to do this is to see an expert construction lawyer to get guidance and advice on what the best way forward is for your specific project, so as to mitigate any liability or other exposure under the Contract or otherwise.

Most importantly, by arming yourself with the relevant information and taking practical steps without delay, you will maximise the chance of successfully delivering the project, which is a win-win for both Developer/Principal and Contractors alike.

If you are currently a party to a construction project or planning to sign an agreement in the near future, contact Enterprise Legal’s Construction Law Team for advice today! Ask to speak to our firm director and dedicated building and construction specialist, Sharné Lategan.

Always remember, prevention is better than cure – and being proactive is the best next step you can take!

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When is a Deposit Truly ‘Non-Refundable’?

The term, ‘non-refundable deposit’ is often used by business owners, but just because a deposit is referred to as ‘non-refundable’ does not mean that it actually is. Conversely, as a business owner, a deposit can be non-refundable if certain criteria are met.  

Meeting the Non-Refundable Criteria

Business owners need to be careful in how they charge a non-refundable deposit to ensure that it meets the relevant criteria. Non-refundable deposits are intended to protect a business in circumstances of sudden cancellation and to compensate the business for the time, effort and money expended up to that point. Therefore, it is crucial for a business to ensure that the non-refundable deposit that they charge in these circumstances is reasonable and proportionate with reference to protecting their legitimate business interests and is not excessive or used as a ‘penalty’ against a customer or client. What will be considered reasonable and proportionate will depend on the specific circumstances and will be different on a case-by-case basis.   

Documenting the Deposit Correctly

Not only does a business need to ensure that a non-refundable deposit is reasonable and proportionate in the circumstances, but they must also ensure they disclose all relevant information regarding the non-refundable deposit to their customers or clients. It is crucial for a business to disclose the terms of the non-refundable deposit in the correct way otherwise they may be seen to be engaging in misleading or deceptive conduct, which is against the law. 

At a minimum, the business must disclose the terms of a non-refundable deposit in a Terms and Conditions document (or similar) which is provided to the customer or client at the time of, or prior to, engaging them. 

Even better, the business should also seek to obtain an acknowledgement from the client or customer that the non-refundable deposit is reasonable and proportionate in protecting the business’ legitimate business interests. Again, this can be incorporated into the Terms and Conditions document being used by the business. You can also reiterate this to the client or customer when you request the payment of the deposit from them. Transparency is key!

But how does it work in real life?

By way of an example – let’s say you are a photographer who charges $300 for a photo shoot, with a non-refundable deposit of $100 payable prior to confirming the booking. Your Terms and Conditions (which your client signed and returned prior to engaging you) stats that the deposit is non-refundable and outlines that it is calculated with reference to the actual costs that your business incurs. Your client cancels the booking two days before the shoot. They allege that your business cannot retain the non-refundable deposit. In these circumstances, whether you can retain the deposit would depend on (as a minimum):

  1. Whether your Terms and Conditions properly explain that the deposit is non-refundable;
  2. Whether you have properly engaged your client/customer (by providing them the Terms and Conditions and making sure they have read and acknowledged them);
  3. Whether the amount of the non-refundable deposit is reasonable, with reference to the actual costs that your business has incurred (including things like time involved in making the booking, the loss of profit if you are unable to re-book the session, any others costs that you have incurred etc.); and
  4. Whether the non-refundable deposit is proportionate to the overall cost of the product or service that you are providing.

Without knowing any further information, on the above facts alone, it would appear that the deposit would be non-refundable, as the document requirements appear to have been met and $100 may likely be considered to be a reasonable and proportionate amount. 

 Enterprise Legal - Non Refundable Deposits: The Do's & Don'ts

The Consequences 

What happens if a business fails to disclose the terms of the non-refundable deposit or doesn’t take the time to ensure they are charging a reasonable and proportionate amount? The customer or client may be entitled to get that deposit back and the business will not be entitled to be compensated for the loss they have suffered for the time, effort and costs incurred up until that point in time.  

What Every Business Should Do

If you are a business owner who wants to charge non-refundable deposits, then you should obtain advice from a specialist business lawyer regarding the drafting of your Terms and Conditions and an assessment of the reasonableness of the amount that you want to charge. Unfortunately, this is another circumstance where you cannot use terms that you have sourced from Google, as they are not customised to your business, which will affect the likelihood of the enforceability of the provisions. 

 

Are you looking to charge non-refundable deposits for your business’s services?

Don’t rely on dodgy downloaded templates - Speak to a specialist business lawyer from Enterprise Legal today!

We’ve helped hundreds of businesses of all sizes from all across Australia to draft watertight Terms and Conditions for their unique circumstances.

Get it done right from the start, at fixed-fee rates with NO hidden surprises – contact EL today for an obligation-free consult: 

☎️ | (07) 4646 2621
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Queensland Law Firms – step up your pro bono game!

Law firms across Australia are taking up pro bono work at unprecedented levels – but is it enough?

The 2018 National Law Firm Pro Bono Survey found an 18% overall rise in pro bono staff and a growing trend towards commitment and investment in pro bono legal work. We looked into one major factor causing this phenomenal rise.

The Queensland Government has created strong incentives for law firms to go above and beyond their current commitments to pro bono work1. It recently mandated that it will only outsource legal work from law firms that meet their annual National Pro Bono Aspirational Target through the Australian Pro Bono Centre2.

This has already had a huge impact on the State’s legal industry, with $30 million being spent by the Government on outsourced legal work every year3.

Law firms currently outsourced by the Government (the Panel) not only have to meet the Target, they might be suspended from the Panel and have their contracts terminated if they do not meet or exceed the conditions of the Target. A number of top tier law firms have failed to do so, risking valuable work and their relationships with Government departments.

Lawyers Weekly interviewed CEO of Australian Pro Bono Centre, Gabriela Christian-Hare, who said the Centre has been pushing for this across the board.

“The Target has had very good take-up [172 firms are signatories as of the time of speaking with Lawyers Weekly]. But, to help cement its place as a key lever in the legal services market, we have been encouraging major purchasers of legal services, including governments and corporations, to insist that panel firms sign up to the Target and use their best efforts to achieve it.”

This could mean that corporations engaging law firms are likely to follow suit and demand their lawyers to step up their pro bono commitments. Changes like this highlight how important it is for law firms to align their values with governments and with the corporate sector, both of which increasingly value ethical governance and social responsibility.

Pro bono performance of the Panel is measured by KPIs. This year’s application round has now closed, but law firms responding to a future tender should put their best foot forward by committing to the Target in order to be seriously considered.

The Target has had an important influence on the level of contribution of pro bono legal work among firms not only in Queensland but among other state Panels participating in external legal services.

At this rate, the future of the legal industry will see more lawyers doing community service work, sitting on boards or social enterprise panels, and offering substantially reduced fees for charitable organisations and public interest clients.

1 Australian Pro Bono Centre Annual Report
2 Will any firms lose their QLD government contracts for not meeting pro bono targets?
3 Department of Justice and Attorney-General - Whole-of-government legal services panel