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[1997] HCA 17
High Court of Australia
1997-05-13
Kirby JJ, Toohey JJ, Gummow JJ, Gibbs ACJ, Griffith CJ
Original judgment source is linked above.
High Court of Australia Dawson, Toohey, McHugh, Gummow and Kirby JJ Fitzgerald v FJ Leonhardt Pty Ltd (97/016) [1997] HCA 17
McHugh and Gummow JJ have set out the facts in this matter and there is no need for us to repeat them. Nor is there any need for us to examine in any detail the provisions of the Water Act 1992 NT (the Act), since we agree with McHugh and Gummow JJ, for the reasons which they give, that in prohibiting a person from causing, suffering or permitting a bore to be drilled unless authorised by or under the Act, s 56 of the Act is confined in its application to the owner, occupier or lessee of the property in question and imposes no obligation upon the driller to obtain a permit under s 57.
It is upon that construction of the Act that the defence of illegality to the driller's claim for moneys due under the contract must be considered. A convenient starting point is the observation by Gibbs ACJ in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1] :
There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits. 1. (1978) 139 CLR 410 at 413.
The first three instances identified by Gibbs ACJ clearly have no application here. In the first place, it is apparent that the Act did not forbid the drilling of a bore. Section 56 forbids an owner, occupier or lessee of land to cause, suffer or permit a bore to be drilled on the land without a permit under s 57 but that is something different. The obligation to obtain a permit was cast upon the owner, not the driller, and the drilling of a bore constituted no offence on the part of the driller provided he was licensed, as he was, under s 49 of the Act. Indeed, s 56 of the Act may be contrasted with s 48 which makes it an offence for a person to drill or construct a bore unless he or she is the holder of a relevant licence under s 49 or is acting under the supervision of the holder of such a licence.
Secondly, the drilling contract was not one which the statute expressly or impliedly prohibited. A permit was required if the drilling was not to constitute an offence on the part of the owner, but a contract for the drilling of bores was plainly envisaged by the Act.
Nor was the contract made in order to effect a purpose which the Act rendered unlawful. It was not made for the purpose of causing an offence to be committed under s 56. That is to say, it was not made for the purpose of causing, suffering or permitting the unauthorised drilling of a bore. Indeed, the rule of construction to be applied to the contract is that identified by Griffith CJ in Butt v M'Donald [2] :
It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract. The application of that rule in this case imposed a contractual obligation upon the owner to obtain the necessary permit under s 57, he being the only person who could do so. 1. (1896) 7 QLJ 68 at 70-71. See also Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607.
Thus, if the contract were to be affected by illegality it could only be because it was in the fourth category enumerated by Gibbs ACJ in Yango, namely, that although lawful according to its own terms, it might be performed in a manner which the Act prohibited. That category, however, does not stand for the proposition that a contract, which is itself legal, will be unenforceable if something illegal is done in the course of its performance. The cases provide no authority for such a proposition. As Devlin J pointed out in St John Shipping Corporation v Joseph Rank Ltd [3] :
When fully considered, it is plain that they do not proceed upon the basis that in the course of performing a legal contract an illegality was committed; but on the narrower basis that the way in which the contract was performed turned it into the sort of contract that was prohibited by the statute. In this case, the performance of the drilling contract resulted in the commission of an offence by the owner, but the manner of performance by the driller did not turn it into a contract which was forbidden by the Act. As we have seen, the Act contemplated drilling by a licensed driller. In other words, s 56 of the Act was intended to penalise conduct - in this case the conduct of the owner in failing to obtain a permit - and not to prohibit contracts. 1. [1957] 1 QB 267 at 284.
That is enough to take the contract in question outside the Act, but even if the performance of the contract by the driller were seen as involving a breach of the Act, that would not necessarily mean that the contract was illegal. It has sometimes been said that a contract is illegal if its performance involves breach of a statute passed for the protection of the public [4] but, stated in that way, the proposition is too broad. The purpose of the statute may be served by the imposition of a penalty, notwithstanding that it is for the protection of the public [5] . In this case it is apparent that the Act is intended to protect the public otherwise than by means of s 56, for wide powers are given by s 20 to the Controller of Water Resources to enter land and take measures for the investigation, use, control, protection or management of waters. Moreover, under s 105, proceedings for offences against the Act may not be commenced without the consent in writing of the Controller.
As we see it, the only question that remains is whether the principle which, in contract [6] , is expressed in the maxim ex turpi causa non oritur actio has any application. In our view, it does not. A plaintiff will not be denied relief under that principle unless he has to rely upon an unlawful or immoral transaction to establish his cause of action [7] . Here the driller is not required to rely upon any illegality in order to establish his cause of action for the recovery of the money due to him under the contract. The principle that a court will not assist an unlawful transaction is therefore not called into play and provides no reason why the driller should be denied relief.
It may also be noted that upon the evidence the driller had no intention of acting illegally in drilling the bores which he did. The evidence was that those administering the Act took the view that a permit was required only for the construction of a bore and that a bore was constructed only if drilling for a bore was successful. Upon this understanding - which involves a misconstruction of s 56 - the necessary permits were obtained. Thus there is no evidence that the driller had any intention of drilling in breach of the provisions of the Act or that he agreed to do so. The obligation to obtain a permit was cast upon the owner, not the driller. This case may usefully be contrasted with Knowles v Fuller [8] , a case in which both parties to a contract were guilty of illegality in its performance. In that case a cool room was constructed without the required approval of the council under the Local Government Act 1919 NSW. Jordan CJ observed [9] :
In the present case, there was nothing illegal in the contract to construct the cool room; and the contract was capable of being legally performed. If, however, it was performed in a way forbidden by statute, nothing can be recovered by the party who illegally performed it. Prima facie, therefore, if illegality had been pleaded as a defence, and it was proved that the plaintiff builder had neglected to obtain the approval of the Council before proceeding to construct the cool room, or to see that such consent had in fact been obtained, he could recover nothing in respect of its construction. It was just as much his responsibility as it was that of the building owner to see that the necessary consent had been obtained before he began operations. On the other hand, as Devlin J observed in St John Shipping Corporation v Joseph Rank Ltd [10] , whilst persons who deliberately set out to break the law cannot expect to be aided by a court, it is a different matter when the law is unwittingly broken. In this case, the illegality was on the part of the owner, not the driller, and the evidence does not disclose that the driller was implicated in that illegality [11] . 1. (1947) 48 SR (NSW) 243. 2. Knowles v Fuller (1947) 48 SR (NSW) 243 at 244-245. 3. [1957] 1 QB 267 at 288. 4. See Scott v Brown, Doering, McNab & Co; Slaughter & May v Brown, Doering, McNab & Co [1892] 2 QB 724.
Like McHugh and Gummow JJ, we see this as a plain case. The appeal must be dismissed.
The appellant (the owner), his family and their companies owned various parcels of land at Hingston Beach in the Northern Territory. The owner planned to subdivide some of this land and it was a requirement of any proposed subdivision that water be located there with a flow of at least 500 gallons per hour.
Mr F J Leonhardt was a director of the respondent company (the driller). He held a drilling licence issued under the provisions of Div 2 of Pt 6 of the Water Act 1992 NT (the Act). Part 6 is headed " Ground Water ". Division 2 is headed "Drilling Licences" and comprises ss 48-54. Section 48 prohibits a person from drilling or constructing a bore unless that person is the holder of a drilling licence issued under s 49 by the Controller of Water Resources (the Controller) or that person is acting under the supervision of the holder of such a licence.
a bore, hole, well, excavation or other opening in the ground, or a natural or artificially constructed or improved underground cavity, which is or could be used for the purpose of intercepting, collecting, obtaining or using ground water or for the purpose of disposing of water or waste below the surface of the ground, or which extends to an aquifer. "Ground water" is defined as meaning: water occurring or obtained from below the surface of the ground (other than water contained in works, not being a bore, for the distribution, reticulation, transportation, storage or treatment of water or waste) and includes water occurring in or obtained from a bore or aquifer.
Section 9 of the Act vests in the Territory the property in and the rights to the use, flow and control of all water, including ground water. The owner or occupier of land may take ground water from beneath the land for domestic purposes, for drinking water for grazing stock on the land and for certain garden irrigation (s 14). However, the Controller may give directions to control the use of bores causing pollution or deterioration, inequitable distribution, loss, wastage or undue depletion of water (s 70).
The owner contracted with the driller for the drilling of a minimum of three bores. Mr Leonhardt drilled seven bores, three of which were successful in producing water. A dispute arose as to how much was owed by the owner to the driller and the driller brought an action against the owner in the Local Court at Darwin. The driller claimed $24,540 as moneys due and owing under the contract for the drilling work. The proceeding was instituted by a statement of claim. By his defence the owner disputed the claim on various grounds, including a denial that the work had been done to the satisfaction of the owner because the three successful bores had not been constructed "as agreed" in accordance with permits issued pursuant to s 57 of the Act. None of the other grounds is of any present significance. It was only in oral submissions that a defence of illegality was raised under Div 3 (ss 55-58) of Pt 6 of the Act. Division 3 is headed "Construction Permits". It is this defence of illegality which has led to the present appeal.
The Local Court found (i) the contract was for the drilling of a minimum of three bores for a price of $1,750 each, for 35 m depth and then at $55 per metre thereafter; (ii) with the knowledge and approval of the owner, and pursuant to the contract, the driller drilled seven bores between 15 and 28 October 1992, but the construction thereof was authorised only in respect of the first, sixth and seventh bore; (iii) on 9 October 1992 the owner applied under s 57(1) of the Act for a bore construction permit; (iv) one permit for the "construction of a bore" was issued on 13 October; (v) two similar permits were issued on 27 October upon application by either the owner or the driller; (vi) no permits were issued for any bore to be "drilled"; and (vii) for the purposes of the statute, drilling was a different operation from construction. The factual findings (i)-(vi) have not been challenged. It will be unnecessary for the purposes of this appeal to determine the issue of statutory construction in (vii).
The Local Court held that, whilst there had been three permits for construction, none of the drilling work by the driller had been authorised under Div 3 of Pt 6 of the Act. The result was that the driller was seeking to recover under an illegal contract in respect of all the moneys claimed, save for $1,000 in respect of "mobilisation costs" and $720 in respect of construction work for the first bore. There was no "construction work" in respect of the other bores.
An appeal by the driller to the Supreme Court was successful and there was judgment for the driller in the further sum of $20,595. An appeal to the Northern Territory Court of Appeal was dismissed by majority (Martin CJ and Thomas J, Angel J, dissenting) [12] . From that decision the appeal is brought to this Court. The owner seeks to reinstate the favourable result achieved in the Local Court.
The first issue that arises is whether there was, in the events that happened, any relevant contravention of the Act. If there was not, there is an issue whether the contract nevertheless was sufficiently associated with or in furtherance of an illegal purpose to deny recovery to the driller.
The owner contends that, in performing the contract, the driller contravened the prohibition in s 56 of the Act upon unauthorised construction and drilling of bores. In our view, there was no such contravention by the driller in the performance of its contract. This is because s 56 is directed not to a party in the position of the driller. Rather, it is directed to an owner, occupier or lessee causing, suffering or permitting the work in question. In this case, Mr Leonhardt at all relevant times held a drilling licence issued under Div 2. The driller was his company. It was for the owner to obtain the necessary construction permit under Div 3.
The relevant portions of ss 56 and 57 are as follows:
(1) A person shall not, unless authorised by or under this Act, cause, suffer or permit -
(a) a bore to be drilled, constructed, altered, plugged, backfilled or sealed off;
For a second or subsequent offence - not less than $5,000 or more than $10,000.
(2) It is a defence to a prosecution for an offence against subsection (1) if it is proved that -
(a) the work by which it is alleged the offence was committed was urgently required to prevent pollution or deterioration of the water in a bore;
(b) in the circumstances it was not reasonably practicable to apply for a permit under section 57;
(c) as soon as practicable after the work was commenced the Controller was informed of the nature of the work; and
(d) the regulations, if any, relating to work carried out in those circumstances were complied with.
(1) Subject to this Act, the Controller may, of his or her own motion or on application in the prescribed manner and form, grant to a person a permit in the prescribed form to carry out an operation referred to in section 56(1).
(2) A permit may be granted under subsection (1) subject to such terms and conditions, if any, as are specified in the permit document.
(3) A permit shall be granted for such period, not exceeding 12 months, as is specified in the permit document.
Section 90 enumerates factors to be considered by the Controller in exercising powers under s 57 and uses the term "applicant". So far as relevant, s 90 states: 90. Factors to be Considered
(1) In deciding whether to grant, amend or modify a permit, licence or consent under section 36, 41, 45, 57, 60, 63, 65, 67 or 74, the Controller may take into account -
(a) the availability of water in the area in question;
(b) the existing and likely future demand for water for domestic purposes in the area in question;
(c) any adverse effects likely to be created as a result of activities under the permit, licence or consent on the supply of water to which any person other than the applicant is entitled under this Act;
(d) the quantity or quality of water to which the applicant is or may be entitled from other sources;
(2) In subsection (1)(c) and (d) "applicant" includes the person to whom the permit, licence or consent is or is to be granted where the Controller acts of his or her own motion, no application having been made. (Emphasis added.)
These provisions in s 90 appear to suggest that the applicant for the purposes of s 57 is the person to receive the supply of water from the carrying out of the licensed activity. That person is enjoined by s 56 from acting directly or otherwise causing or suffering or permitting a bore to be constructed or drilled without a permit. This impression is confirmed by further consideration of the relevant provisions. Section 57(1) requires the application to be in the prescribed manner and form. Section 108(2) empowers the Administrator to make regulations prescribing forms. The Water Regulations 1992 (NT) (the Regulations) were made under the Act by the Administrator and came into operation with the commencement of the Act on 30 June 1992. Regulation 7 states:
(1) An application under section 57(1) of the Act for a permit to carry out an operation referred to in section 56(1) ("Bore Construction Permit") shall be in accordance with Form 9 and shall be lodged with the Controller.
(2) A Bore Construction Permit shall be in accordance with Form 10.
Form 9, after requiring a statement of the name and other particulars of the applicant, continues: I am the *owner/*occupier/*lessee of the property. On the bottom of the form there appears: * delete as necessary. The bore construction permit provided for in Form 10 states the following under the heading "Terms and Conditions": 2. Work will only be carried out by persons holding a recognised............ drilling licence.
These provisions from the statute and the Regulations, taken together, point plainly to the conclusion that, in the present case, it was the owner not the driller who was placed under an obligation not to cause, suffer or permit a bore to be drilled or constructed unless authorised by a permit obtained from the Controller under s 57, on application made in the prescribed manner and form.
This is not a case where the statute contained an express prohibition against the making of the contract in question. The Act did prohibit the owner doing or suffering particular acts without the authority of a permit granted by the Controller under s 57(1). An agreement that the owner engage in such activity may have been treated as impliedly prohibited by the Act and as illegal [13] . However, that is not the owner's case.
The contract as framed did not call for the commission of any illegality. Nor did the statute prohibit some particular act that was essential for carrying out the contract. Performance of the work would have answered the requirements of the contract if the owner had obtained licences under s 57. In Archbolds (Freightage) Ltd v S Spanglett Ltd [14] , Devlin LJ said:
It is a familiar principle of law that if a contract can be performed in one of two ways, that is, legally or illegally, it is not an illegal contract, though it may be unenforceable at the suit of a party who chooses to perform it illegally. That statement of the law is meaningful if the contract is one which is by its terms open to two modes of performance; otherwise it is meaningless. In the present case, it was possible for the contract to be performed without contravening the Act. In so far as the contract was performed in contravention of the legislation, the contravention was the consequence of failure by the owner to observe requirements imposed upon him. There was no failure by the driller to observe requirements placed upon it by the Act. The driller satisfied the requirements for a drilling licence imposed by Div 2 of Pt 6 and it was for the owner to comply with the requirements of Div 3. 1. [1961] 1 QB 374 at 391.
As indicated above, on this appeal, the oral submissions were presented on the footing that in accordance with its terms the contract could have been performed and the bores constructed and drilled with or without the existence of a permit granted under s 57. That may have insufficiently represented the true position. The better view would appear to have been that each party to the contract agreed to do all that was necessary on its part to enable the other party to have the benefit of performance of the contract [15] , so that there was an implied undertaking by the owner to procure the grant of any bore construction permits required under the Act for the construction and drilling of the bores by the driller [16] .
The action by the driller to recover moneys owing to it by the owner was not an action by a party to a contract who had chosen to perform it illegally. The penalty imposed by s 56(1) was directed at a party in the position of the owner rather than the driller. Further, it has not been suggested that the driller acted otherwise than in good faith or that the driller had aided and abetted the owner in any offence committed by him, within the meaning of the principles considered in Giorgianni v The Queen [17] and Yorke v Lucas [18] .
The question then becomes whether, as a matter of public policy, the court should decline to enforce the contract because of its association with the illegal activity of the owner in, if not causing, then at least suffering or permitting the construction and drilling of bores, within the meaning of s 56(1), without the grant to the owner of permits pursuant to s 57. The refusal of the courts in such a case to regard the contract as enforceable stems not from express or implied legislative prohibition but from the policy of the law, commonly called public policy [19] . Regard is to be had primarily to the scope and purpose of the statute to consider whether the legislative purpose will be fulfilled without regarding the contract as void and unenforceable [20] .
Section 56 prescribes a penalty. In such a case, the role of the common law in determining the legal consequences of commission of the offence may thereby be diminished because the purpose of the statute is sufficiently served by the penalty [21] . Here, the imposition of an additional sanction, namely inability of the driller to recover moneys otherwise owing by the owner, would be an inappropriate adjunct to the scheme for which the Act provides. The contrary decision would cause prejudice to an innocent party without furthering the objects of the legislation.
As we have outlined earlier in these reasons, the Act is so drawn as to vest in the Territory property in and rights to the use, flow and control of all water in the Territory, but this is subject to the right conferred by s 14 upon owners and occupiers to take ground water. That right in turn is qualified by empowering the Controller to give directions, including the closing down of bores or restriction of the amount of water taken from bores (s 70). Licensing systems operate in aid of this statutory scheme. Division 2 of Pt 6, dealing with drilling licences, is designed to establish that work is performed only by those with prescribed qualifications. Section 54 establishes a Drillers' Qualifications Advisory Committee and the Controller must be satisfied that an applicant has the prescribed qualifications before granting a drilling licence under s 49.
Division 3 of Pt 6 deals with the construction permits. In deciding under s 57 whether to grant a bore construction permit, the Controller may take into account various matters set out in s 90(1). These include the availability of water in the area in question (par (a)), the existing and future likely demand for water for domestic purposes in that area (par (b)), adverse effects on other parties (par (c)), and the quantity or quality of water to which the applicant is or may be entitled from other sources (par (d)).
Here, the driller had complied with licensing requirements imposed by Div 2 of Pt 6 for the conduct of its business. This is not the case of an unlicensed driller seeking to recover for work done in contravention of the prohibition imposed by s 48 upon drilling or constructing bores without the grant of a drilling licence. The claim which is made by the driller is insufficiently associated with breach of the requirements of Div 3 by the owner, the party resisting the claim. Put another way, the interest of the Territory in controlling, by the statutory licensing system, the right of owners to take water under s 14 may be maintained without imposing a sanction upon the party in the position of the driller which would deny it payment for the work performed and would leave the other party with the benefit of that work free of charge. The imposition of such a sanction upon the driller by failing to keep the owner to his bargain would be disproportionate to the seriousness of the breaches of s 56 and would be unnecessary to protect the objects or policies of the Act [22] .
In Nelson v Nelson [23] , McHugh J referred to the dictum of Lord Mansfield in Holman v Johnson [24] that no court would lend its aid to a plaintiff founding the cause of action upon an immoral or illegal act. In Holman v Johnson itself, the actual holding was that the contract in question was insufficiently associated with or in furtherance of the illegal purpose of the defendant in buying tea to be smuggled into England without payment of customs duties [25] . McHugh J identified [26] authorities subsequent to Holman v Johnson which were to be seen as providing four exceptions or qualifications whereby relief was granted despite the presence of illegality. Three of these, those concerned with ignorance or mistake on the part of the claimant; the character of the statutory scheme as one for the benefit of a class of which the claimant is a member; and fraud, oppression or undue influence by the defendant, have been treated as instances of a broader principle. This is said to be that, notwithstanding the illegality, relief may still be available to the plaintiff if the plaintiff not be in equal fault with the defendant, that is to say not in pari delicto [27] . However, in the light of the approach taken in Nelson v Nelson to comparable questions arising with respect to trusts, the issues of contract law in this case should not be approached by considering any general in pari delicto doctrine.
The preferable course, in cases of contract alike to those involving trusts, is as follows. A case may come within one of the accepted exceptions or qualifications to Holman v Johnson . As indicated above, these are set forth, with examples from authority, in the following passage from the judgment of McHugh J in Nelson v Nelson [28] :
First, the courts will not refuse relief where the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal [29] . Second, the courts will not refuse relief where the statutory scheme rendering a contract or arrangement illegal was enacted for the benefit of a class of which the claimant is a member [30] . Third, the courts will not refuse relief where an illegal agreement was induced by the defendant's fraud, oppression or undue influence [31] . Fourth, the courts will not refuse relief where the illegal purpose has not been carried into effect [32] . 1. (1995) 184 CLR 538 at 604-605. 2. Oom v Bruce (1810) 12 East 225 [104 ER 87]; Cowan v Milbourn (1867) LR 2 Ex 230; Branigan v Saba [1924] NZLR 481. 3. Kiriri Cotton Co Ltd v Dewani [1960] AC 192. 4. Clarke v Shee (1774) 1 Cowp 197 [98 ER 1041]; Smith v Cuff (1817) 6 M & S 160 [105 ER 1203]; Williams v Bayley (1866) LR 1 HL 200; Goodfriend v Goodfriend [1972] SCR 640; Weston v Beaufils [No 2] (1994) 50 FCR 476 at 499. 5. Payne v McDonald (1908) 6 CLR 208 at 211-212; Perpetual Executors & Trustees Association of Australia Ltd v Wright (1917) 23 CLR 185 at 193-194; Martin v Martin (1959) 110 CLR 297 at 305.
Even if the case does not come within one of those exceptions, the courts should not refuse to enforce contractual rights arising under a contract, merely because the contract is associated with or in furtherance of an illegal purpose, where the contract was not made in breach of a statutory prohibition upon its formation or upon the doing of a particular act essential to the performance of the contract or otherwise making unlawful the manner in which the contract is performed. Rather, the policy of the law should accord with the principles set out by McHugh J in Nelson v Nelson. His Honour said [33] :
Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies [34] . As we have indicated, if the present case be approached in that way, the result is that the defence of illegality correctly failed and there was no bar to the full recovery by the driller of the amount claimed. 1. Nelson v Nelson (1995) 184 CLR 538 at 613. 2. Elements (ii) and (iii) may often overlap.
It may be observed that Pavey & Matthews Pty Ltd v Paul [35] was decided consistently with these principles. This Court held that s 45 of the Builders Licensing Act 1971 NSW, whilst it provided that certain building contracts were not enforceable by the builder against the customer, did not prevent the bringing by the builder of an action for the value of the work done and materials supplied. Deane J said [36] :
There is no apparent reason in justice why a builder who is precluded from enforcing an agreement should also be deprived of the ordinary common law right to bring proceedings on a common indebitatus count to recover fair and reasonable remuneration for work which he has actually done and which has been accepted by the building owner: cf Johnsons Tyne Foundry Pty Ltd v Maffra Corporation [37] . Nor, upon a consideration of the words of s 45 in their context in the Act, am I able to identify any legislative intent to deprive the builder of that ordinary common law right. The section does not make an agreement to which it applies illegal or void. Nor do its words disclose any legislative intent to penalise the builder beyond making the agreement itself unenforceable by him against the other party. 1. (1987) 162 CLR 221. 2. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 262. 3. (1948) 77 CLR 544 at 565.
Special considerations may arise in a case where, for example, the objects or policies of the statute indicate that the association between the plaintiff's contractual or other legal rights and the statutory illegality requires that denial of relief be partial rather than entire. Where the plaintiff seeks equitable relief, whether in aid of a legal or equitable right, equity may impose terms. For example, a borrower coming to equity seeking such equitable relief as orders for cancellation and delivery up of a written contract declared void by statutes against usury, would be put on terms that the defendant be paid what was really bona fide due after deduction of the excessive interest [38] . If the lender already had recovered judgment for the full amount, the borrower may have an equity to restrain enforcement of the judgment in respect of the amount representing excessive interest.
However, the flexibility attending the administration of equitable relief is not so readily available where what is claimed is a legal remedy in aid of a legal right and there is no equity to qualify or displace, wholly or partially, enforcement of that legal right. Nevertheless, as was pointed out in Hurst v Vestcorp Ltd [39] , what may now be classified as restitutionary remedies may be available to assist in the striking of a balance. For example, it was held long ago that where a borrower had paid interest in excess of the rate permitted by statute, whilst the debtor could not recover the whole back, an action would lie to recover the surplus [40] . The use of the quantum meruit in Pavey & Matthews Pty Ltd v Paul may be seen as another example. Set-off may also have a role to play in adjusting the respective final positions of the parties. However, it is unnecessary to consider further any such questions, the present being a plain case.
This appeal concerns the effect of illegality on a contract. This is not a new problem for this Court. It was first presented in Hutchinson v Scott [41] , shortly after the Court's establishment. The issue has frequently arisen in the intervening years [42] .
Illegality, and the associated problems of statutory construction and public policy, have been described as a "shadowy" [43] and "notoriously difficult" [44] area of the law where there are "many pitfalls" [45] . Many of the authorities on the point are difficult to reconcile [46] . Commentators claim that some of them are marked by "obscurities, supposed distinctions and questionable techniques of decision" [47] . They suggest that this is an area of the law which is "intensely controversial and confused" [48] . The House of Lords has recently proposed that it is ripe for thorough re-examination by the Law Commission so that it may be subjected to legislative reform [49] . Special concern has been expressed about the danger that illegality, in some way connected with a contract, will (unless tightly controlled) let loose the "unruly horse" [50] of public policy to a "blind gallop through the doctrinal forests of [the law]" [51] . Various other equine metaphors are invoked to express the suggested dangers of uncertainty and the potentially harsh and unjust [52] outcomes that would follow enlargement of court discretions to decline relief on the ground that a contract is somehow touched by illegality [53] .
On this occasion, the problem is presented in an appeal from the Court of Appeal of the Northern Territory [54] . That Court, by majority [55] , affirmed the decision at first instance [56] . This, in turn, had reversed the primary decision of a magistrate [57] . In this area of the law it is not unusual to have such differences of view. The obscurities of legal authority afford ample scope for differing judicial responses to the problem [58] .
Mr Colin Fitzgerald (the appellant) contracted with F J Leonhardt Pty Ltd (the respondent) to drill a number of water bores [59] on land owned by him at Hingston Beach in the Northern Territory. The appellant intended to subdivide the land. For that purpose, he needed a source of supply of water on the proposed blocks. The respondent was the holder of a drilling licence under s 49 of the Water Act 1992 NT (the Act). By s 48(1)(a) of the Act any person not so licensed, or not supervised by a person so licensed, who drills or constructs a bore commits an offence attracting criminal punishment [60] .
There was a dispute at the trial as to the precise terms of the agreement between the parties. However, it was found that it was constituted by a simple written document concluded on 9 October 1992. This relevantly contemplated:
Drilling: minimum 3 bores at $1750.00 each for 35 metres Depth then $55.00 metre thereafter.
On the same day as this written agreement was made, the appellant applied under s 57(1) of the Act for the issue of three "bore construction permits". One such permit was issued by the Northern Territory Controller of Water Resources [61] (the Controller) on 13 October 1992. The respondent proceeded to drill seven bores on the appellant's land, the last on 28 October 1992. It provided casing and capping to the three bores which were successful in striking water (number 1 on 15 October; number 4 on 18-19 October and number 5 on 21-23 October). On 27 October, after the three successful bores had been drilled, but before two unsuccessful bore drilling operations were commenced, the two further permits for the construction of bores were issued pursuant to an oral request addressed by the appellant to the Controller. However, when a dispute arose between the parties concerning the position and number of the bores and the cost of the operation, the respondent withdrew from the appellant's land. It presented its account for the seven bores drilled by it. The sum claimed was $24,540. The appellant contested the claim.
The dispute was heard in the Local Court at Darwin by Mr D Trigg SM. He dismissed various factual defences raised by the appellant. He held that, but for the defence of illegality relied upon, he would have found for the respondent in the sum of $22,315 calculated in accordance with the written contract. Nevertheless, he upheld the defence of illegality. He concluded that a drilling, as well as a construction, permit was required for the drilling of each of the bores completed by the respondent. Furthermore, contrary to the evidence as to the practice of the Controller, he held that the Act required a separate permit for each bore drilled or constructed. Moreover, this was to be secured in advance of the drilling. It was required whether or not the drilling was successful. Upon the basis of this construction of the Act, the magistrate found that there was no permit to authorise the drilling of any of the bores. The only bore which was covered by a prior authorised permit was number 1 and that was limited to construction. The want of prior permits rendered the contract to do the work "illegal as formed" so that neither party could sue on the contract. Any work done outside of the work expressly authorised by the three permits obtained was illegal and "to the extent that the contract relates to this work it is illegal" [62] . The appellant was ordered to pay the respondent $1,720. This was for $1,000 "mobilisation", agreed in the written contract, together with $720 as that part of the respondent's claim attributed to the construction cost of the first bore, authorised in advance by the construction permit obtained by the appellant under the Act.
The respondent appealed for error of law to the Supreme Court of the Northern Territory. It challenged the magistrate's construction of the Act whereby he had found that the Act rendered the contract, and the claim under it, illegal. Alternatively, it asserted an entitlement to recover reasonable remuneration under the "principles of unjust enrichment and of restitution".
The appeal was heard by Kearney J, who upheld it on the argument of illegality. Having done so, his Honour concluded that it was unnecessary to deal with the grounds of appeal based on unjust enrichment and restitution [63] .
Kearney J accepted as "broadly correct" [64] the magistrate's construction of the Act. Notwithstanding the apparent practice of the Controller and the previous assumptions of the parties, the Act required the issue of permits prior to drilling and differentiated between permits for drilling and construction. However, Kearney J rejected the magistrate's conclusion that the contract was "illegal as formed". His Honour dismissed an argument that this was a slip for "illegal as performed". Nevertheless, he examined the question of the consequences if the contract as performed was in breach of the Act. In reaching his conclusion upon this point he was greatly influenced by the decision of Miles CJ in Ross v Ratcliff [65] . He rejected submissions that he should consider public policy [66] . He regarded the issue before him as one solely involving statutory construction: Did the Act render the contract as formed or performed illegal? Kearney J held that nothing in the Act, either expressly or impliedly, rendered the contract void or unenforceable. Upon this footing the respondent, like the plaintiff in Ross v Ratcliff , was entitled to sue on the contract and to recover. No separate consideration was given to the question whether, upon public policy grounds, the Court should refuse to lend its aid to the respondent in its attempt to enforce its contract despite the breaches of the Act found.
The appellant appealed to the Court of Appeal of the Northern Territory. Both Martin CJ and Thomas J, in the majority, approached the matter as Kearney J had. They regarded the dispute as presenting no more than the ascertainment of the imputed intention of Parliament, ie as to the consequences of the established breaches of the Act upon the enforcement of the contract by the respondent [67] . Martin CJ rejected the suggestion that the Act, by implication, forbade enforcement of the contract. He did so on the footing that the illegality did not go to the "core or essence of the method of performance of the contract" [68] . After a review of the terms of the Act and of the means of enforcing its public purposes, Martin CJ concluded that it would be unjust for the appellant to accept the benefit of the respondent's work without paying for it. There was, in his opinion, no justification to be found in the Act for depriving the respondent of its contract price and affording the appellant such a windfall gain [69] .
Thomas J reached a like conclusion and upon the same basis. Her Honour considered that Ross v Ratcliff [70] was correctly decided. In an allusion to the refusal of relief on public policy grounds, Thomas J read the remarks of Kearney J, challenged in the appeal, addressed to the administrative practice of the Controller, as pertinent to a conclusion that there was no fraudulent or immoral purpose [71] in the contract. The Court of Appeal therefore dismissed the appeal.
Angel J, in dissent, approached the matter upon the basis that it involved the unlawful performance of a contract which was lawful at the time it was entered into [72] . His Honour perceived a dichotomy in the "more recent authorities" [73] between the statutory interpretation question ("whether a contract is expressly or impliedly prohibited by statute as a matter of statutory interpretation irrespective of its mode of performance, lawful or unlawful") and a "public policy" question ("[i]f the performance is unlawful, and the contract as made is not prohibited whether as a matter of public policy the contract should nevertheless be enforced"). He concluded that, whichever approach was adopted, the answer in the present case would be the same. The Act expressly prohibited drilling without a permit. Therefore, performance of the contract was expressly prohibited by the statute. The relevant "public policy" would be to uphold the prohibition which the legislation had enacted [74] . The illegality found was not minor, given the high public purposes of water conservation which the Act protected. As a licensed driller, the respondent ought to have known and conformed to its responsibilities under the Act. Its failure to do so disentitled it to recovery. Ross v Ratcliff was incorrectly decided, as was suggested by a comment noticed by Angel J in Halsbury's Laws of Australia [75] . The order of the Local Court should be restored.
Matters in issue: Special leave was granted to the appellant to permit it to argue two legal points raised by the foregoing facts:
Matters not in issue: It is helpful to clear away some of the controversies debated in the courts below which may be ignored in this Court as it addresses the foregoing issues:
It was conceded for the appellant that there was no defect of illegality in the formation of the contract between the parties, as found. In the absence of proof that the parties intended a contract, capable of being performed in either a legal or an illegal manner, to be performed in some way in breach of the law, it will be presumed that the parties intended that their agreement should be carried out without breaking the law. The subject contract could have been so performed had only the requisite permits been obtained, as they might easily have been [76] . Thus, in this case, the contract did not require the respondent, as driller, to do anything contrary to the Act.
As a licensed driller, the respondent was under no legal inhibitions, as such, which prevented it from entering into a contract to drill and construct bores. In this respect, the present case is to be distinguished from those many cases in which an unlicensed person purports to enter into a contract the performance of which is reserved by law to persons having a particular licence or authority [77] .
No argument was raised over the finding, accepted below, that a distinction existed between permits respectively for drilling and constructing bores. It appears at least arguable that the authority to "construct" might include the authority to "drill". That argument was not expressly dealt with in the Supreme Court. The differentiation found by the magistrate on this point has persisted through the appeals. Without deciding the point, and despite hesitation, I shall assume that the magistrate was correct [78] .
It was also common ground that the statutory obligation to apply for the necessary permits was the responsibility of the appellant [79] . In fact, it was the appellant who did so. It was conceded that neither party intended to commit any illegal act, in contravention of the Act. Each party followed administrative practices which had, until that time, been observed by the relevant authorities in the Northern Territory. These practices were described in the evidence to the Local Court of the senior officer of the Water Resources Division. That evidence was accepted by the magistrate [80] . For the purposes of the appeal, the construction of the Act adopted by the magistrate concerning the need for application for permits prior to, and not after, the drilling and construction of bores has also been accepted as correct.
Similarly, it was conceded that both the appellant and the respondent were in breach of s 56(1) of the Act and that neither of them had a defence under s 56(2) of the Act. Before this Court, there was some discussion as to whether, by its language and position in the Act, s 56(1) was addressed to the conduct of a driller, such as the respondent. The proceedings have been conducted until now upon that footing. I do not consider that the issue should be reopened. Obviously, the parties are not in equal default, given that the obligation to secure the requisite permits rested on the appellant and the respondent assumed that everything necessary had been done in that regard.
It was not suggested that the requirements of s 56(1) of the Act were merely "directory" or exhortatory. In this regard, the case is somewhat different from that which came under consideration in Australian Broadcasting Corporation v Redmore Pty Ltd [81] . Here each of the sections invoked by the appellant constituted a criminal offence. As the punishment provided by the Act indicates, the obligations were to be regarded as serious. Nor was this a case where the criminal offence could be considered as lacking a relevant connection with the contract. The consideration relied upon by the respondent was its actions, which the appellant argued were rendered unlawful by its failure to conform to s 56(1) of the Act [82] .
This Court has not been concerned about the claim of unjust enrichment or restitution. According to Angel J, this was "[s]omewhat curiously" not pursued before the Court of Appeal [83] . Nor has the Court had to consider the law of estoppel, assuming it to be applicable [84] . Various other possible avenues of redress were mentioned in passing during the course of the earlier decisions as possible means of repairing the apparent injustice to the respondent were it to be deprived of recovery under the contract [85] . I mention such possibilities only because it should not be assumed that the apparently inflexible operation of the law as to illegality always leaves the party affected without other remedies in a proper case.
The linchpin of the appellant's arguments, both on the construction point and the public policy point, is to be found in a clear understanding of the provision of the Act for the conservation of water and the other high public purposes which the Act is designed to secure.
The long title of the Act describes it as one "to provide for the investigation, use, control, protection, management and administration of water resources, and for related purposes". Water resources are defined to include "ground water", meaning water "occurring or obtained from below the surface of the ground" (ss 4(1), 9(1)(b)). Subject to the Act, property in and rights to the use, flow and control of all water in the Territory is vested in the Territory. Those rights are exercisable by the Minister in the name, and on behalf, of the Territory (s 9(2)). Strict control is imposed on the taking of water for domestic purposes, irrigation or stock use (ss 10, 11, 13, 14, 70, 99). So far as "ground water" is concerned, subject to ss 70 and 99 of the Act, it is provided that the owner or occupier of land may take ground water for domestic purposes and stock use (s 14(a), (b)). Use for irrigating a garden is limited to a garden of specified size (s 14(c)).
The Act contains provisions prohibiting pollution of water, including ground water (s 16). The administration and enforcement of the Act is assigned to the Minister and the Controller (s 18). The latter is given large powers, including of entry onto land, to ensure that the purposes of the Act are carried out (s 20). Provisions are made for the establishment of a Water Advisory Committee (s 23) and a Water Resources Review Panel (s 24), the latter to review the decisions of the Controller s 30(1)) and to advise the Minister (s 30(4)). Provision is made for the continuous assessment of water resources of the Territory (s 34). Unauthorised work affecting surface water is prohibited (s 40). Such work is controlled (s 41), as is the taking or use of surface water (s 44). Ground water is regulated by Pt 6 of the Act. Division 2 of that Part contains provisions prohibiting, relevantly, the drilling or construction of a bore by an unlicensed driller (s 48(1)(a)) and providing for the grant of licences by the Controller to persons having the prescribed qualifications (s 49). Division 3 deals with "Construction Permits". It is in this Division that the key provisions appear:
(1) A person shall not, unless authorised by or under this Act, cause, suffer or permit -
(a) a bore to be drilled, constructed, altered, plugged, backfilled or sealed off;
(b) the casing, lining or screen of a bore to be removed, replaced, altered, slotted or repaired;
(c) a bore (whether in the course of construction or not) to be deepened; or
For a second or subsequent offence - not less than $5,000 or more than $10,000.
(1) Subject to this Act, the Controller may, of his or her own motion or on application in the prescribed manner and form, grant to a person a permit in the prescribed form to carry out an operation referred to in section 56(1).
(2) A permit may be granted under subsection (1) subject to such terms and conditions, if any, as are specified in the permit document.
Division 4 contains detailed provisions regulating the extraction of ground water. Division 5 controls and regulates waste disposal. In Div 7, general provisions appear, obliging the occupier or owner of land on which a bore is situated, where it is no longer in use, to cause it to be properly plugged, sealed off or back-filled (s 69(1)(a)). It is in this Division that s 70 appears empowering the Controller "where satisfied that an act or omission by a person in relation to a bore may result, directly or indirectly, in the pollution or deterioration, inequitable distribution, loss, wastage or undue depletion of water", by notice served on the owner or occupier to direct that person to close or shut off the supply of ground water; to restrict or limit the amount taken; to install a meter to record the amount taken; to use the water only for purposes specified and so forth. It is a criminal offence to contravene or fail to comply with such a notice (s 71).
In Pt 8 of the Act, dealing with Water Resource Development, there appear provisions governing the exercise by the Controller of the power to grant, relevantly, a permit under s 57 of the Act (s 90). Amongst the factors which the controller "may take into account" are:
(a) the availability of water in the area in question;
(b) the existing and likely future demand for water for domestic purposes in the area in question;
(c) any adverse effects likely to be created as a result of activities under the permit on the supply of water to which any person other than the applicant is entitled under this Act;
(d) the quantity or quality of water to which the applicant is or may be entitled from other sources;
Several other considerations are then mentioned. However, the foregoing gives the gist of it. It would be well known to judicial officers in the Northern Territory, and this Court should take notice of the fact, that water, in some parts of the Northern Territory, is a precious and particularly scarce resource. Ground water is a finite resource. Its conservation and protection are extremely important responsibilities of government in the Northern Territory. The importance attached by the law to these objects can be discerned by contrasting the Act with the preceding Ordinances and Acts, dating back to the Water Conservation Amendment Act 1889 SA, in its application to the Northern Territory. These include the Control of Waters Ordinance 1938 NT and subsequent Ordinances. Although provision was formerly made for the registration of drillers [86] , the plain purpose of the present Act was to introduce a much more detailed scheme, relevantly, to control, limit and supervise the drilling of bores to tap ground water. The Minister introducing the Bill which became the Act made this clear [87] : [A]s development accelerates, there is a growing need to provide a better framework to encourage and facilitate exploration while, at the same time, ensuring water resources are responsibly conserved.
Indeed, the Territory already is experiencing problems of competition for limited resources and of having to plan to protect both surface and groundwaters from serious, long-term contamination. Water is a resource which is critical to sustainable development of all types, but it is uniquely sensitive to deliberate or careless misuse.
[R]ecent years have brought a much clearer understanding of the vital role of water management in shaping and sustaining a country's future. A clear and comprehensive legislative basis for water management is necessary for government in supervising the rational and equitable distribution of water and in ensuring that its quality is preserved.
The administration of the Act departed (as has been found) from the Act's requirements. However, the purpose of the Northern Territory legislature was clear enough. Henceforth, access to water, including ground water, was to be more strictly controlled for the protection of the public interest implied in the Act and identified, in general terms, in the Minister's speech. The appellant's case was that the Act, so understood and properly construed, rendered the performance of the respondent's drilling unlawful. It did so either by the express terms of the Act or by necessary implication. Alternatively, to uphold the important public policies identified in the Act, the courts should not lend their aid to the enforcement of a contract performed in breach of the Act's requirements.
The following principles may be derived from past authority to assist in the resolution of the application of the Act to the contract in question here and its performance:
The first task of a court is to ascertain the meaning and application of the law which is said to give rise to the illegality affecting the contract. The law in question may be a rule of the common law but nowadays it is much more likely to be a provision of legislation. The substantial growth of legislative provisions affecting all aspects of the society in which contracts are made presents a legal environment quite different from that in which the doctrine of illegality was originally expressed [88] . Courts, in this area, are faced with a dilemma. They do not wish to deprive a person of property rights, eg under a contract, least of all at the behest of another person who was also involved in a breach of the applicable law. On the other hand, they do not wish to "condone or assist a breach of statute, nor must they help to frustrate the operation of a statute" [89] . That is why the first function of the court, where a breach of a legislative provision is alleged, is to examine the legislation so as to derive from it a conclusion as to whether a relevant breach is established and, if so, what consequences flow either from the express provisions of the legislation or from implications that may be imputed to the legislators [90] . Little, if any, assistance will be derived for the ultimate task of a court from examination of the terms of other statutes or judicial classifications of them or by reference to their meaning as found [91] .
Occasionally, the legislation in question will expressly provide for the consequence of illegality upon contracts made or performed in breach of its terms. In such a case the entire contract may, depending on the terms of the statute, be void and its performance unlawful as contrary to the express will of Parliament [92] . The duty of a court in such a case is clear. No question of the good faith of the parties or their knowledge or intention is involved [93] . Public policy is not, as such, raised, unless it be the general public policy that the courts should uphold the law of the land [94] . What is presented is a pure question of the interpretation and enforcement of the legislation. This is a familiar task performed by courts with the usual tools of statutory construction.
Ordinarily, legislation does not expressly deal with the consequences of conduct in breach of its terms upon a contract which has been fulfilled in some way in breach of a provision of the law. In such a case, where the law in question is (as it typically is) a statutory provision, it is necessary to ask whether the legislation impliedly prohibits such conduct and renders it illegal. Some judges have suggested that courts today are less willing than in the past to derive an implication of illegality from a legislative provision where Parliament has held back from expressly enacting it [95] . Certainly, there are plenty of judicial dicta to suggest that courts will be slow to imply, where the applicable legislation is silent, a prohibition which interferes with the rights and remedies given to parties by the ordinary law of contract [96] This reluctance probably grows out of a recognition of the multitude of legislative provisions, important and unimportant, which may nowadays indirectly impinge upon the contractual relations of parties and, if enforced with full rigour, cause harsh and unwarranted deprivation of rights [97] . In part, this reluctance may be no more than a species of the general rule of statutory construction that legislation will not be interpreted to deprive parties of basic rights at common law without a clear expression of the legislative will to do so [98] . Some academic commentators have discerned in earlier cases a "misplaced judicial zeal" in deriving from the sparse language of legislation a purpose to strike at private contractual arrangements [99] . They criticise the reliance on fictions of "legislative intention" where the legislation in question makes no express provision with respect to contracts [100] . They suggest that implied illegality of contracts should be abandoned, obliging Parliament (if that be its purpose) to make express provision in that regard. But this approach would be contrary to long-established doctrine and to the commonplace that legislation, typically expressed in brief language, may contain implications which are to be derived from its express terms. The duty of courts remains, where legislation is involved, to give meaning to the imputed purpose of Parliament as found in the words used [101] . It would be artificial to expel implications from the task of legislative construction where they remain an established feature of the interpretation and application of legislation generally.
One principle, however, which tends to reinforce the reluctance of courts to imply a prohibition on a contract, the formation or performance of which involves some breach of the law, is the conclusion which will often be derived from the express terms of the legislation itself. Thus, if the legislation provides in a detailed way for sanctions and remedies for breach of its terms, courts will require good reason to add to those express provisions additional civil penalties, such as the deprivation of contractual rights, which Parliament has not chosen to enact. Were it otherwise, the parties would be subject to the penalties (in the present case criminal) expressly provided by the legislation and still more (civil) by the deprivation of their property (contractual) rights [102] . In a given case, such lost rights might be enormous, supplementing in a wholly arbitrary way, the defined penalties for which the legislature has expressly provided.
A distinction may be drawn between cases where there is nothing illegal in the formation of the contract or necessarily illegal in its performance and those cases where (as here) the performance has in fact involved a breach of the law. The case of a contract which, although lawful according to its own terms, may be performed in a manner which the statute prohibits, was one of the four categories suggested by Gibbs A-CJ in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd to illustrate the ways in which the enforceability of a contract may be affected by a statutory provision rendering particular conduct unlawful [103] . The distinction of illegality in performance was also recognised in the opinions of Mason J [104] and Jacobs J [105] in the same case. It is a distinction well established in legal doctrine [106] . In such a case, it is not the contract as formed which is illegal. But the performance of the contract may be illegal if it is clear that the law in question prescribes that the contract must be performed in one way and one way only and that requirement has been breached. To ascertain whether such a breach has occurred it has been said that the illegality must affect the very core or essence of the contract [107] . The fact that a statute was passed for the protection of the public is one test of whether it was intended to avoid a contract formed, or to be performed, in breach of its provisions. However, that is not the only test because the effect of the legislation is to be derived from its language in the ordinary way [108] .
Angel J was correct to identify a secondary question of public policy, affecting the enforcement by a court of the contract in question here. In this respect, as I shall develop, I agree with his Honour's approach in proceeding to the issue of public policy which the other members of the Supreme Court appear to have viewed as involved, in some way, in the ascertainment of the meaning of the Act. Nevertheless, Angel J erred, with respect, in considering that the issue of public policy arose for determination in deciding whether the Act prohibited the contract as performed [109] . It is important to keep the interpretation and public policy questions separate. Logically, the interpretation question arises first. This is because if, as a matter of interpretation, the contract is illegal as formed, or as performed, it is void as to those parts affected by the illegality. The secondary question of unenforceability for public policy reasons does not then arise. The contract is unenforceable but that is because it is void in law.
The questions therefore to be asked are whether the Act invoked to taint the contract with illegality expressly prohibits the contract as formed or because of the way it was performed? If not, the subordinate question is whether the Act, by necessary inference, prohibits the contract as formed or because of the way it was performed? These are the construction questions. Only if the answers to those questions are in the negative does the further question arise whether, as a matter of public policy, the Court will allow the plaintiff to invoke its process to enforce the contract [110] . Even if, as here, it is accepted that there was nothing illegal in the contract as formed, it remains for a court to consider whether, as performed, the contract is so in breach of a legislative provision as, by implication, to attract the operation of the Act, rendering the contract as performed to that extent unlawful and therefore void. Obviously, the issues posed by this question overlap with those relevant to the resolution of the question whether the contract is unenforceable on public policy grounds. But the two questions are not the same. Part of the confusion which has attended many of the authorities in these cases derives from a failure to make clear the distinction between the two issues.
The appellant contended that the core or essence of the contract in this case was the performance of the drilling of bores for ground water. Here, so it was argued, the essence of the statutory provision was drilling without a permit. That was precisely what had occurred. Accordingly, so it was submitted for the appellant, the contract as performed was illegal, being in breach of s 56(1) of the Act. To that extent the case was distinguishable from the circumstances in Yango [111] where the statutory prohibition had been directed at the carrying on of banking business, not specifically the taking of mortgages or guarantees.
I do not read the Act as having that operation. There is no express provision in it relating to contracts. The Act, in terms, imposes a range of penalties for breaches of its provisions. Specific criminal penalties are imposed for breach of s 56(1). But those penalties, and the scheme of the Act, appear to exhaust the legislative purpose to uphold the requirements of obtaining pre-drilling authority. The necessity to add a sanction depriving parties of their contractual rights otherwise existing by law is not at all clear. This is not a case where it is essential to imply such a consequence into the Act in order to avoid frustration of its operation or the appearance of a court's condonation or assistance to a party in achieving a breach of statute [112] . Here, as the facts found show, both parties were innocent of any deliberate breach of the Act. The duty to secure the requisite permits lay upon the appellant. The permits obtained conformed to the then (erroneous) understanding of the requirements of the Act. This was that only bore construction permits were required, that they could be issued retrospectively and that they were necessary only for successful bores drilled, not for "duds".
In these circumstances the proper classification of the illegality in question was that it was incidentally committed in the course of the performance of the contract [113] . It was neither the express purpose of the legislature nor the implied effect of the Act that such an incidental violation as occurred here should deprive the respondent of all remedies under its contract with the appellant. If, as has been decided, there was a breach of s 56(1) by the respondent, it was one sounding in a penalty under that provision, and possibly action upon its drilling licence (eg, ss 50, 51). The additional sanction urged by the appellant ought not to be implied into the Act. The appellant therefore fails on the construction point.
This leaves the separate question of whether, as a matter of public policy, a court should refuse a person in the position of the respondent the aid of its process so as to enforce a contract in circumstances where, as performed, illegality has been demonstrated. The rule permitting a court to refuse its assistance to enforce a contract where to do so would be contrary to public policy is an ancient one. It was given expression by Lord Mansfield in Holman v Johnson [114] in these terms:
The principle of public policy is this No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. Sometimes the principle is expressed as involving the refusal of a court to enforce a contract where the party seeking such enforcement is obliged to disclose an unlawful consideration in making out the claim [115] . Sometimes it is expressed in the language that courts will not enforce "rights directly resulting to the person asserting them from the crime of that person" [116] . But behind the notion is something quite different from the foundation upon which the statutory construction objection rests. There, a court is simply giving effect to the expressed or imputed will of Parliament. When it comes to public policy, the court may inform itself by reference to what Parliament has declared to be illegal. However the fundamental rationale for withholding relief is one essentially of the court's self-regard. It will not (unless required to) lend its authority and assistance to a party seeking to invoke its process in connection with illegal or otherwise seriously reprehensible conduct. This was the "question" which remained in Yango, after the statutory construction point in that case was disposed of favourably to the enforcement of the contract [117] . Mason J explained the question thus [118] : The question therefore remains whether the court will allow the plaintiff to enforce the contract. The suggestion is that the court will not do so and that its refusal so to do is dictated by the principle ex turpi causa non oritur actio or by the more specific rule that the court will not enforce the contract at the suit of a party who has entered into a contract with the object of committing an illegal act.
In saying this I am mindful that there could be a case where the facts disclose that the plaintiff stands to gain by enforcement of rights gained through an illegal activity far more than the prescribed penalty. This circumstance might provide a sufficient foundation for attributing a different intention to the legislature. It may be that the true basis of the principle is that the court will refuse to enforce a transaction with a fraudulent or immoral purpose [119] . On this basis the common law principle of ex turpi causa can be given an operation consistent with, though subordinate to, the statutory intention, denying relief in those cases where a plaintiff may otherwise evade the real consequences of a breach of a statutory prohibition.
Now, it was said long ago, and has been repeated often since, that public policy "is a very unruly horse" [122] . Whereas it affords a measure of discretion to the courts to lend, or deny, their authority according to notions of the propriety, or otherwise, of enforcing a contract said to be affected by illegality or reprehensibility, the principle is scarcely conducive to certainty and consistency. Clearly, these are desirable objectives so far as the law of contract is concerned. Although some older authority suggests the classification of cases of public policy in closed categories to which courts will always deny relief, more recent decisions support a principle of greater flexibility. Thus, it has been said that public policy is not to be viewed as a "blunt, inflexible instrument" [123] . Nor is the concept static [124] . The decision of this Court in Yango rejects the proposition that any prohibited conduct, involved directly or indirectly in the performance of a contract sued upon, denies to the parties the facility of the process of the courts [125] . Whatever may be the position in England following the decision of the House of Lords in Tinsley v Milligan [126] , in Australia it must be accepted, from decisions of this Court [127] , that the rule against enforcement is not inflexible.
Clearly it should not be so. It would be absurd if a trivial breach of a statutory provision constituting illegality, connected in some way with a contract or contracting parties, could be held to justify the total withdrawal of the facilities of the courts [128] . It would be doubly absurd if the courts closed their doors to a party seeking to enforce its contractual rights without having regard to the degree of that party's transgression, the deliberateness or otherwise of its breach of the law and its state of mind generally relevant to the illegality. Similarly, it would be absurd if a court were permitted, or required, to consider the refusal of relief without careful regard to the relationship between the prohibited conduct and the impugned contract. Thus, different considerations may exist where the contractual rights being enforced arise directly from the illegality, as distinct from those which arise only incidentally or peripherally [129] . It is one thing for courts to respond with understandable disfavour and reluctance to attempts to involve them and their processes in an inappropriate and unseemly way effectively in the advancement of illegality and wrong-doing. It is another to invoke a broad rule of so-called "public policy" which slams the doors of the court in the face of a person whose illegality may be minor, technical, innocent, lacking in seriousness and wholly incidental or peripheral to a contract which that person is seeking to enforce.
Considerations such as these led McHugh J in Nelson v Nelson [130] to explore the ways in which a broad judicial discretion to withhold relief, the grant of which would affront "the public conscience", could be given greater certainty of content. His Honour suggested that such a sanction would have to be proportionate to the seriousness of the illegality involved and not disproportionate to the seriousness of the breach [131] . It would have to further the purpose of the statute and not impose a sanction for unlawful conduct beyond that which Parliament has expressly condoned [132] . McHugh J proposed the following general propositions [133] :
[C]ourts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies. Although these remarks may have been obiter, they resonate with similar suggestions in the opinion of Toohey J [134] who recognised that [135] : Although the public policy in discouraging unlawful acts and refusing them judicial approval is important, it is not the only relevant policy consideration. There is also the consideration of preventing injustice and the enrichment of one party at the expense of the other. 1. (1995) 184 CLR 538. 2. Nelson v Nelson (1995) 184 CLR 538 at 612-613. 3. Nelson v Nelson (1995) 184 CLR 538 at 613. 4. Nelson v Nelson (1995) 184 CLR 538 at 613. 5. Nelson v Nelson (1995) 184 CLR 538 at 596-597. 6. Nelson v Nelson (1995) 184 CLR 538 at 597, referring to St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 at 288-289, per Devlin J.
For the appellant, the application of public policy to the circumstances of this case was as simple as determining the implications of the true construction of the Act. Indeed, one was but the mirror image of the other. The Act established a regime for prior authorisation for the drilling of bores for ground water. It did so for a vital purpose protective of the public interest. In doing so it made illegal the drilling of bores without a prior requisite permit. Unless the courts were effectively to ignore the prohibition on unauthorised drilling (or to confine the sanction solely to the criminal one expressly provided) the public policy was sufficiently declared in the Act. The only way to uphold it effectively was to deny recovery under a contract to a person in the position of the respondent. This could be done conscientiously because the respondent was deemed to know the law. As a licensed driller it had more reason to do so than most. The purpose of Parliament was important, and recognised as such. Upholding it, with this added sanction, would further the attainment of that purpose. It would more effectively sanction the circumvention of the Act than the remote prospect of an occasional criminal prosecution. That was most unlikely in this case because of the mistaken understanding of the Act by the relevant public authority upon which the parties had relied. Even if, on its proper construction, the Act did not render illegal the contract as performed, the appellant urged that the Court retained a residual power to withhold enforcement. It should do so in this case because to afford enforcement would involve courts in the upholding of rights which rested upon a clear breach of the Act.
I trust that putting the matter in this way, I have demonstrated that the arguments of the appellant are not without some force. It is necessary to appreciate fully the importance of the objects of the Act to realise the strength of the appellant's argument that the courts should not, either directly or indirectly, condone conduct performed in breach of the Act's provisions lest by doing so they become involved in, and tainted by, the illegality.
For a number of reasons I have concluded that this is not a case where it would be appropriate to treat the contract between the parties as unenforceable on public policy grounds.
If the criteria mentioned by McHugh J in Nelson [136] are applied, it has already been held that the Act did not disclose an intention that the respondent's rights should be unenforceable in all circumstances. To refuse to enforce those rights would be disproportionate to the seriousness of the unlawful conduct in question. This is, in part, because the duty to obtain the necessary permit rested on the appellant. According to the then administration of the Act, both the appellant and the respondent (and the authorities) thought they had done all that was required. It would be disproportionate to the respondent's unlawful conduct to deprive it almost entirely of recovery under the contract, although there was nothing illegal in the contract itself and the performance by the respondent would have been lawful if the appellant had secured the requisite permits. Against the background of the mistaken understanding about the meaning and operation of the Act, the imposition of such a sanction is not necessary to protect the objects or policies of the Act. Other sanctions exist to uphold those ends. The Act being silent on contracts, it is a preferable construction of its terms that, at least in circumstances such as the present, the parties should be able to enforce their legal rights in courts of law and should not be deprived of those rights under the rubric of unenforceability for public policy reasons any more than on the basis of the application to the contract of the suggested construction of the Act.
The position would be quite different if what had been involved had been a specific agreement between the parties deliberately to breach the Act (eg by the use of unlicensed and neglectful drillers or the deliberate refusal to obtain any permit) or to perform the contract in a way clearly damaging to the scarce resource of ground water in the Territory. In such a case, even if the Act did not expressly or impliedly render the contract illegal and void, whether as formed or performed, there would be a strong argument to support the proposition that, on public policy grounds, the Court might refuse relief. To grant relief, in such circumstances, could affront the "public conscience" [137] . In such a case, to involve a court in the enforcement of the rights of the parties could be to involve it in upholding a seriously anti-social act which was illegal or at least gravely reprehensible.
But that is not this case. On the contrary, were the Court to withhold relief to the respondent, it would result in a windfall gain to the appellant which was unmerited and itself would be an affront to the public conscience. The appellant, a property developer, would have gained three successful water bores for a pittance. The respondent would have been denied recovery precisely on the basis of the failure of the appellant (whose duty it was) to obtain in advance the requisite permits. I do not accept that the rule of public policy, invoked by the appellant, is as inflexible and harsh as to produce such an offensive result [138] . The appellant therefore fails on the public policy point.
Although for reasons different from those given by the majority of the Court of Appeal, that Court rightly upheld the orders of Kearney J. The appeal from the orders of the Court of Appeal should therefore be dismissed with costs.
Fitzgerald
FJ Leonhardt Pty Ltd
(1978) 139 CLR 410
(1979) 144 CLR 596
(1970) 119 CLR 397
(1988) 166 CLR 18
(1995) 5 NTLR 76
(1995) 184 CLR 538
(1985) 156 CLR 473
(1985) 158 CLR 661
(1994) 50 FCR 476
(1908) 6 CLR 208
(1917) 23 CLR 185
(1959) 110 CLR 297
(1987) 162 CLR 221
(1948) 77 CLR 544
(1988) 12 NSWLR 394
(1905) 3 CLR 359
(1929) 43 CLR 91
(1940) 63 CLR 524
(1962) 108 CLR 391
(1988) 91 FLR 66
(1987) 11 NSWLR 621
(1989) 166 CLR 454
(1982) 59 FLR 56
(1908) 7 CLR 277
(1990) 171 CLR 1
(1994) 179 CLR 427
(1987) 162 CLR 514
(1995) 185 CLR 410