Standard form building contracts play an important role in many construction and engineering projects. There are various advantages to using standard form contracts (as further detailed below), with a wide array of standard forms available to suit the particular types of parties, works and procurement routes involved in virtually all construction and engineering projects.Read More
Given the highly technical and complex nature of the activities in the construction industry, to provide familiarity and certainty, and to save time and (legal and administrative) costs, standard form contracts are widely in use. Arbitration agreements are contained in most standard form contracts for similar reasons.
Traditionally, parties to construction disputes rely on their own financial resources to pay for legal representation in arbitration. This may soon undergo substantial changes as third party funders become much more active in this area.
Many jurisdictions such as the United Kingdom, and more recently Singapore, already permit third party funding for arbitration.
The Hong Kong Government is in the process of introducing similar legislation in Hong Kong, along with various safeguards to ensure ethical standards are maintained and to prevent abuse. The law relating to maintenance and champerty, which is still punishable as a criminal offence, will no longer be applicable to Hong Kong arbitration.
The unfair contract term prohibitions in the Competition and Consumer Act 2010 (Cth) were recently extended to cover standard form contracts with small businesses.
The new law provides for unfair contract terms to be declared void and unenforceable. The relevant contract will then only continue to bind the parties insofar as it can operate without the unfair terms.
These changes may have significant impacts on the building and construction industry as terms typically found in construction contracts are likely to be subject to the prohibitions. We recommend that principals and contractors identify and review any standard form contracts they may have with small business counterparties that may be impacted by this new regime.
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