This article was written by Nancy Wang Principal Solicitor at W & G Lawyers.
You order a custom kitchen, a caravan, a boat or a piece of made-to-order furniture. You pay a series of instalments while it is being built, and you will not receive it until you have paid the last one. Some months later your circumstances change and you decide you no longer want it.
Most people assume that because the goods were never delivered, the money paid should come back. The consumer law does give you a right to cancel in that situation, and it does require the supplier to refund what you have paid. It also allows the supplier to keep a cancellation fee, and a recent Queensland District Court decision shows that the fee can be a very substantial sum even where the buyer has done nothing wrong. This article explains in general terms how these arrangements work, where the money goes if you cancel, and what to look for in the contract before you sign.
When paying by instalments becomes a “lay-by agreement”
The phrase “lay-by” tends to bring to mind a department store counter and a Christmas toy. Under the Australian Consumer Law the concept is considerably wider than that, and it can apply to transactions worth hundreds of thousands of dollars.
Broadly, an agreement may be treated as a lay-by agreement where you are buying goods, the price is payable in three or more instalments, and the goods are not delivered to you until the price has been paid. Nothing turns on the label the parties use. A contract headed “Purchase Agreement” or “Build Contract” may still be a lay-by agreement in substance, and the special rules that go with that description may apply whether or not either party realised it at the time.
This matters because a good deal of consumer manufacturing works this way. Boats, caravans, horse floats, custom joinery, machinery and high-end furniture are often paid for progressively during a long build, with the goods handed over at the end. In the Queensland case mentioned above, the contract was for a motor yacht priced at just over $4.1 million, payable in four instalments, with delivery expected roughly two years after signing. Both sides accepted that it was a lay-by agreement.
The rules discussed here apply to goods. Contracts for land, and contracts that are wholly or mainly for services, are governed by different rules, and a contract that mixes goods and services may need to be looked at closely.
Your right to cancel before you take delivery
The consumer law gives you a right to cancel a lay-by agreement at any time before the goods are delivered to you. You do not need a reason. You do not need the supplier to have done anything wrong, and you do not need the supplier’s agreement.
That is a genuinely useful protection, particularly on a long build where your finances, your health or your plans may change between signing and delivery. It is worth appreciating what the right does and does not do. It allows you to bring the agreement to an end. It does not guarantee that you will get every dollar back.
What has to be refunded
Once a lay-by agreement is cancelled, the supplier is generally required to refund all the amounts you have paid, other than a termination charge that is payable under the agreement. The supplier is also generally prevented from pursuing you for damages or other remedies arising out of the cancellation, which means you are usually not exposed to a claim for the supplier’s lost profit on the sale.
The critical words are “payable under the agreement”. The consumer law does not itself create a right for a supplier to charge you for cancelling. What it does is regulate a charge that the contract has already provided for. If the contract you signed says nothing about a cancellation charge, then on the face of it there may be nothing for the supplier to retain, and you may be entitled to a full refund. If the contract does provide for a charge, the consumer law then places two limits on it.
The first limit is that a supplier may only impose a termination charge where the agreement was cancelled by you and the supplier has not breached the agreement. A supplier who has defaulted, for example by failing to build the goods within the agreed time, is generally not entitled to charge you for walking away.
The second limit is that the charge must not be more than the supplier’s reasonable costs in relation to the agreement. A cancellation fee is meant to cover what the supplier has actually and reasonably spent or lost as a result of dealing with your order, rather than to punish you for cancelling or to preserve the profit the supplier hoped to make.
Where it can go wrong — clauses that do not say “cancel”
The Queensland decision is a cautionary example of how these principles can combine.
The buyer paid three instalments totalling around $1.5 million, then lawfully cancelled about two months before the yacht was due to be delivered. Nobody suggested the buyer had breached the contract, and the supplier accepted that the cancellation was valid. The supplier refunded most of the money and kept just over $414,000, being ten per cent of the price, relying on a clause in the contract.
The clause did not use the word “cancel” at all. It said that if the purchaser breached any term of the agreement “or otherwise repudiates” it, the vendor could elect to do a number of things, one of which was to keep up to ten per cent of the price.
The buyer argued that this clause simply did not apply. He had not breached anything. He had exercised a right the law expressly gave him, and a lawful cancellation is not the same thing as repudiating a contract.
The Court disagreed. Because the clause referred to a breach “or otherwise” repudiating, the word “repudiates” had to mean something beyond a breach, and by cancelling the contract the buyer had made clear he was unwilling to complete the purchase. Read in its commercial context, a contract for an expensive item built to order over a long period, the Court considered the parties could sensibly be taken to have intended that the vendor would recover something if the purchaser pulled out. The supplier was entitled to keep the ten per cent.
There are two practical lessons in that outcome.
The first is that a cancellation clause may not look like one. Words such as “repudiate”, “default”, “fails to complete” or “does not proceed” may be enough to trigger a forfeiture, even though you have complied with the contract and exercised a right the law gave you. When you are reading a long contract, the clause that matters may be the one that never mentions cancelling.
The second is that the buyer in that case did not argue that the amount retained was more than the supplier’s reasonable costs, and the Court decided the case on that footing. On a contract of that size, ten per cent is a very large figure, and whether it genuinely reflected reasonable costs was simply never tested. That question remains open in another case, which is why the point is worth raising early if you find yourself in this position.
What “reasonable costs” may cover
There is no fixed formula. Broadly, a supplier’s reasonable costs may include materials already bought or ordered for your item, work already performed, sums committed to subcontractors, storage, administration and the cost of finding another buyer or of selling a part-finished item at a loss.
Two points follow. Costs usually grow as the build progresses, so cancelling early in a two-year build is likely to be far less expensive than cancelling a month before delivery. And where the goods are standard items that the supplier can readily sell to somebody else, the reasonable costs may be modest, because there may be little real loss. Where the item is unusual, personalised or built to your specification, the position may be very different.
If a supplier proposes to keep a percentage of the price, you may ask for a breakdown of how that figure is made up. A fee that appears to bear no relationship to anything the supplier has actually spent or lost may be open to challenge, although whether a challenge is worth making will depend on the amount involved and the cost of pursuing it.
Before you sign
The time to deal with all of this is before the contract is signed, when you still have bargaining power.
Ask what happens if you cancel, and look for the answer in the contract rather than accepting an assurance over the phone. Read the default, breach and termination clauses together, and treat any forfeiture percentage as a real number by working out what it would be in dollars. Ask whether a forfeiture clause can be replaced with a fee tied to the supplier’s actual costs, or capped at a lower figure, or stepped so that the amount increases as the build progresses. Check what happens to any trade-in, because contracts of this kind sometimes allow the supplier to keep a trade-in item as well as a percentage of the price. Check also what happens if the supplier is late, since a long-delayed delivery may give you rights of your own.
Before you cancel
If you are already in the contract and thinking about pulling out, it is worth getting advice before you send anything in writing.
How and when you cancel may affect what you can recover. A cancellation given for the wrong reason, or a notice that accuses the supplier of a breach that cannot be made out, may leave you worse off than a straightforward exercise of your right to cancel. It is also worth checking whether the supplier is in fact running late or otherwise in default, because that may remove the supplier’s entitlement to charge you at all. If you are proposing to cancel late in a build, obtaining an indication of the supplier’s costs before you commit may help you decide whether cancelling, deferring or selling the completed item is the better course.
How W & G Lawyers can help
Contracts for boats, caravans, custom joinery and other made-to-order goods are often signed quickly and read carefully only when something changes. If you would like a contract reviewed before you sign, advice on cancelling an agreement you are part way through, or help responding to a supplier who is holding on to your money, our team would be pleased to assist.
References
- Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law), Part 3-2, Division 3 (lay-by agreements)
- Gripske v Maritimo Sales Australia Pty Ltd [2025] QDC 133
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Disclaimer
This article is general information only and does not constitute legal advice under Australian law. For advice specific to your situation, please contact W & G Lawyers. For further details, please click here to view our disclaimer.