De More v Garpace [2001] NSWCA 350 | Case summary

JUDGMENT 1 STEIN JA: I agree with Fitzgerald AJA. 2 ROLFE AJA: I agree with Fitzgerald AJA. 3 FITZGERALD AJA: The appellant (the "builder") contracted to perform residential building work within the meaning of the Home Building Act 1989 (the "Act"). Between mid-1998 and April 1999, it subcontracted part of that work to the respondent (the "subcontractor"). It is common ground that the work which was subcontracted, namely the supply and installation of aluminium windows, was also residential building work. The builder was licensed under the Act to contract to do residential building work, but the subcontractor was not. The builder has not paid the subcontractor, which sued the builder in the Local Court at Gosford. The subcontractor's claims include money which it alleges is due to it under the subcontract and damages for breach of the subcontract. 4 On an application by the builder, the Local Court held that the subcontractor is not entitled to enforce the subcontract by virtue of s10(3) of the Act. 5 The subcontractor appealed. A judge of the Common Law Division set aside the magistrate's ruling and remitted the proceedings to the Local Court for hearing and determination. Earlier, another judge of the Court had expressed a contrary (obiter) opinion in Australian Concrete Services v Multiplex Constructions [1999] NSWSC 1140 para [34]. The builder appealed to this Court by leave. It is unnecessary to comment further on the procedure which has been followed. If the subcontractor was prohibited from making the subcontract, it is common ground that the appeal should be allowed, with costs, the judgment below set aside and an order made that the subcontractor's claims based on the subcontract be struck out of the Local Court proceeding. Otherwise the appeal must be dismissed, with costs. 6 Although the builder also relied on s5 of the Act, its case was principally based on ss4 and 10(3). Those sections, which are in Division 1 of Part 2 "Contracting for Work", provide: "4 Unlicensed contracting A person must not contract to do: (a) any residential building work, or (b) any specialist work, except as or on behalf of an individual, partnership or corporation that is the holder of a licence authorising its holder to contract to do that work. Maximum penalty: 100 penalty units. … 10 Enforceability of contracts and other rights … (3) A person who contracts to do work in contravention of this Division or who contracts to do work under a contract that does not comply with this Division: (a) is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, but (b) is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person." 7 Another Division of Part 2, Division 2, contains "Restrictions on who may do certain work". So far as presently material, ss12, 13 and 16 (which are in Division 2 of Part 2) provide: 12 Unlicensed work An individual must not do any residential building work … except: … (a) as, or as a member of a partnership or an officer of a corporation that is, the holder of a licence authorising its holder to contract to do that work, or … (c) as an employee of the holder of such a licence … Maximum penalty: 100 penalty units. 13 Unqualified residential building work (1) An individual must not do any residential building work, except: … (b) under the supervision, and subject to the direction, of the holder of an endorsed licence or supervisor certificate authorising its holder to supervise that work. Maximum penalty: 100 penalty units. (2) If the same facts establish an offence under this section and an offence under another provision of this Act or under any other Act or law, an individual is not liable to be convicted of both offences. … 16 Obligations of licensees The holder of a licence must ensure that, when residential building work … for which the licence authorises the holder to contract is being done by or on behalf of the holder, the work is done: … (b) under the supervision, and subject to the direction, of the holder of such an endorsed licence or supervisor certificate, but only if the work is done so as not to contravene a requirement made by or under this or any other Act. Maximum penalty: 100 penalty units." 8 The superficial simplicity of those provisions disguises difficulties in the legislative scheme. For example, despite its heading "Unlicensed work", s12 is not concerned with a licence to do residential building work but a licence to contract to do such work. The Act does not provide directly for a licence to do work. Further, some of the prohibitions are imposed on all persons while others are imposed only on individuals. Both "person" and "individual" are defined in s21 of the Interpretation Act 1987, which confines "individual" to "natural person". 9 Section 3 of the Act defines "licence" as "a contractor licence in force under … [the] Act." Part 3 of the Act provides for "Licences and Certificates", and Division 1 of Part 3 is headed "Contractor licences". A contractor licence is a licence authorising its holder, whether an individual, a partnership or a corporation, to contract to do one or more specified things, including residential building work: ss19(1)(a), 20(1)(a) and 21(1). Broadly stated, the underlying premise is that any person may be authorised to contract to do work (see also ss4 and 19), but only a natural person may be authorised to do or supervise the work. However, that distinction is not clearly maintained. A licence authorising a person who is not an individual, eg a corporation, to contract to do work plainly contains authority to perform the contract and, in that sense, to do the work for which the contract provides although physically the work must be carried out by natural persons. 10 The other licence for which the Act provides is an "endorsed licence", which by s3 means "a licence endorsed under … [the] Act to show that it is the equivalent of a supervisor certificate", which in turn, by s3, means "a qualified supervisor certificate in force under … [the] Act." Division 2 of Part 3 relates to "Supervision and registration certificates." A supervision certificate for residential building work authorises an individual "to do (and to supervise)" such work: ss24(1)(a), 25(1)(a) and 27(1). If an individual with a licence to contract is qualified to hold a supervisor certificate, his or her licence may instead be endorsed to show that it is equivalent to such a certificate (s26), and the endorsed licence "authorises its holder to do (and to supervise) the same residential building work … as it authorises its holder to contract to do": s28(1). 11 A person, including a partnership or a corporation, may hold a licence to contract to do residential building work but only an individual may hold an endorsed licence or supervision certificate "to do (and to supervise)" such work. Sections 4 and 10(3) are directed to contracts to do work, while ss12 and 13 are directed to physical performance of the work. 12 The builder's primary case is founded on s4, which, so far as presently material, prohibits any person, other than those exempted from that prohibition, from contracting to do any residential building work. The words introduced by the word "except" exempt from the general prohibition on contracting to do residential building work those persons who contract "as or on behalf of an individual, partnership or corporation that is the holder of a licence authorising its holder to contract to do that work." 13 However, when s4 of the Act is read in isolation from its context, the exemption which it provides from the prohibition it imposes is technically ambiguous. The subcontractor's argument, which found favour in the Common Law Division, is that the exemption to the prohibition in s4 is not concerned with whether a person who contracts to do residential building work contracts "as and on behalf of an individual, partnership or corporation that is the holder of a licence authorising its holder to contract to do that work" but with whether a person who contracts to do residential building work contracts to do that work "as and on behalf of an individual, partnership or corporation that is the holder of a licence authorising its holder to contract to do that work." According to the subcontractor, a contract with a holder of a licence to contract to do work on its behalf, and in particular a subcontract with a builder who is licensed to contract to do part of the builder's work "on its behalf", is within the exemption. 14 As the subcontractor submitted, an employee of the holder of a licence to contract does not need to be licensed to make a lawful contract "on behalf of" his licensed employer or, subject to s13, to do such work. It does not follow that a subcontractor does not require a licence to contract to do residential building work in order to contract with the holder of such a licence to do the work on behalf of the licence-holder. On the contrary, Parliament has deliberately distinguished between employees and subcontractors in Division 2 of Part 2. In addition to the requirements imposed by s13(1), an individual who is a subcontractor or an employee of a subcontractor may not do residential building work unless the individual or his or her employer has a licence to contract to do such work: see s12(1). 15 The subcontractor submitted that ss7-7D of the Act include provisions which are inappropriate to a subcontract between a builder and a subcontractor, and that, "if the Act is interpreted in the way contended by the [builder] … then all people, including those not possessing any complex skills, who are sub-contracted on residential jobs will require licences which, in all likelihood, they will not be able to get." If, as I will assume but not decide, there is substance in those points, the consequences referred to by the subcontractor are not so extreme that the Court would be justified in attributing to the Act a different meaning from that established by its language and structure. Further, the Act provides a mechanism by which such difficulties can at least be minimised. The definition of "residential building work" in s3 permits work to be excluded from the definition by regulation, and such exclusions are to be found in clause 7 of the Home Building Regulation 1997. In addition, s140(2)(k) of the Act authorises exemptions from requirements of the Act by regulation and such an exemption has been made in respect of ss7-7D of the Act: see clause 13(a). 16 Although the subcontractor's detailed submissions in support of its construction of s4 were superficially more complex, its argument (apart from the matters already referred to) was substantially based on its perception of the legislative policy. According to the subcontractor, "[t]he Act is directed to consumer protection", i.e., to the protection of property-owners for whom building work is done, not other persons in the building industry, and that statutory purpose is achieved by ensuring that a person who contracts with a consumer is licensed to contract. "[T]here is no policy difference between 'residential building work' being done 'as an employee' or 'as a subcontractor'." 17 While the Act is undoubtedly intended to protect property-owners, it does not follow that its sole purpose or that Parliament's object can be ascertained other than by reference to the language and structure of the Act. In any event, a requirement that subcontractors must be licensed to contract to do residential building work is certainly not contrary to the interests of property-owners. It is also obvious from the provisions already referred to and Part 4 "Dispute resolution and disciplinary provisions" that the legislation aims to protect consumers by considerably more than a requirement that a person who contracts with a consumer be licensed. 18 The subcontractor's construction of s4 fails to give sufficient attention to the structure of the Act, and, in particular, to the critical significance of the distinction between Division 1 of Part 2 "Contracting for work" and Division 2 of Part 2 "Restrictions on who may do certain work". Division 2 supplements Division 1. Division 1 of Part 2, especially s4, is directed to restricting those who may contract to do residential building work. Even when a contract has lawfully been made for the performance of such work, Division 2 restricts those who may lawfully do the work. 19 Section 5 of the Act also supports the argument advanced by the builder. For example, s5(1) prohibits "an individual, a member of a partnership, an officer of a corporation or a corporation" which does not hold a licence to contract to do residential building work from representing that the unlicensed person is prepared to do such work. It would be capricious to prohibit such a representation by an unlicensed subcontractor if it was not prohibited from contracting to do the work. 20 In summary, both the language and structure of the Act support the builder's argument, however commercially unmeritorious its attitude might be in this instance. 21 I propose the following orders:

De More v Garpace

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