Garpace Pty Limited t/as Broadview Aluminium v De More Constructions Pty Limited

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DUNFORD J Monday, 28 AUGUST 2000 11929/00 - GARPACE PTY LIMITED T/AS BROADVIEW ALUMINIUM v DE MORE CONSTRUCTIONS PTY LTD JUDGMENT 1 HIS HONOUR: This appeal under Pt 5 of the Justices Act 1902 from the decision of Magistrate Swanson in the Local Court at Gosford raises the question whether a subcontractor who has performed residential building work for a principal builder can recover any moneys due to it under the subcontract when it does not hold a licence under Pt 3 of the Home Building Act 1989, formerly the Building Services Corporation Act 1989 ("the Act"). 2 The plaintiff is an aluminium window fabricator and installer and was not at the relevant time licenced under the Act. The defendant is a licenced builder who was retained by a number of third parties to construct residences at various addresses. The defendant retained the plaintiff to fabricate and install aluminium windows at such addresses. The plaintiff asserts that it was retained as a subcontractor and did the above mentioned work on behalf of the defendant. 3 The plaintiff brought proceedings in the Local Court seeking to enforce its contract with the defendant. Although not pleaded in the Grounds of Defence, the defendant by Notice of Motion sought to strike out the plaintiff's claim on the ground that it was not entitled to enforce its contract with the defendant because such recovery is expressly excluded by s 10 of the Act. 4 The Notice of Motion was heard by the Magistrate as a preliminary point of law and his Worship held that the plaintiff was required to hold a licence under the Act to contract with the plaintiff to do the work the subject of the claim, and that the plaintiff was not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by the defendant. Hence this appeal. 5 The defendant relies on s 10 (3), which is in Div 1 of Part 2 of the Act and is as follows: "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."

It also relies on the provisions of s 4, also in Div 1 of Part 2, and which reads: "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." 6 "Residential building work" and "contract price" are each defined in s 3 of the Act. 7 Section 4 exempts from its requirements a person who contracts to do residential building work "on behalf of (another)" who is the holder of a licence. 8 In the present case the defendant was bound by his contracts to build houses for the building owners. Building the houses necessarily involved installing windows in them and the defendant procured the plaintiff to do that for it so that it could fulfil its contractual obligations. In my opinion, the question of on whose behalf the plaintiff contracted to do the residential building work admits of only one answer, namely the defendant, who was the holder of a licence. 9 If the plaintiff had been an individual, installing windows for the defendant as its employee he would not have come within s 4 so it is difficult to see why a person, whether an individual or a company, should need to be licenced, merely because he or it, is engaged as a subcontractor. In either case the person is installing the windows "on behalf of" the builder who in turn is the person who has the contract obligations to the building owner or, to use the current buzz word, "the consumer". 10 This construction would appear to be in accordance with what I perceived to be the object of the Act, namely to protect building owners against incompetent, unreliable or dishonest building contractors. That such is the object of the Act can be seen from its terms providing for the licencing of builders and the provision of the insurance from which building owners can be compensated in respect of defective or incomplete building work. 11 It can be seen in particular from consideration of the other sections of Div 1 of Part 2. Sections 7 to 7D relate to contracts under which the holder of a licence undertakes to do in person "or by others" any residential building work: s 6(1), and so as the plaintiff was not licenced, the provisions do not apply. But the phrase "by others" would appear to co- relate to the phrase "on behalf of" in s 4 and would appear to cover a subcontractor installing windows in a building being built by a building contractor for a building owner, strongly suggesting that Div 1 is directed to what might be called head contracts or building contracts and not to subcontracts for particular work. 12 There are other indications in ss 7 to 7D that these sections relate to the contracts by the builders with the owners rather than to specialist subcontracts. For example s 7(2) refers to the "contract price" which, having regard to the definition of contract price in s 3, includes "the amount that the person is to receive under the contract for payment to any other person", that is to say, the contract with the principal builder is to specify any part of the price which the builder is to receive for payment to specified subcontractors, and it is difficult to see how this provision could be relevant to the subcontractors themselves. 13 Moreover, s 7C prohibits an arbitration clause in a contract to which the Division applies and s 7D provides that the holder of a licence to a contractor in whose favour a judgment has been made against another party to the contract has a caveatable interest for the purposes of the Real Property Act 1900 over the subject land. One can easily understand how a builder could be granted a caveatable interest over the land on which the building was being erected if he recovers a judgment against the building owner, but that provision could have no possible application to a claim by a subcontractor against a head contractor, the latter not having any property in the land on which the building is being, or has been, erected. Similarly, it is difficult to see why there would be any purpose served in excluding arbitration clauses in subcontracts. 14 The building owner is protected whether the subcontractor is licenced or not because, provided the building contractor is licenced, as he must be, and has insurance, as he must, the owner has his contractual rights against such a building contractor; and the subcontractor, like an employee, is under the direction and control of the licenced building contractor. 15 I was also referred to the second reading speech of the Minister in introducing the Building Services Corporation Legislation Amendment Bill 1996 which, inter alia, effected the change in the short title of the Act to its current title. The Minister said at 1996 Hansard p 5540: "The legislation before the House delivers a package of reform aimed at establishing the right conditions for fair trading between consumers and contractors in the home building industry... protecting consumers who are building or renovating a home from the pitfalls of dealing with a shoddy or bankrupt builder." 16 These considerations all satisfy me that the object of the Act is to protect building owners (consumers), and not to protect building contractors from legitimate claims by their subcontractors - see also the Interpretation Act 1987, s 33 and the paper by the Chief Justice delivering the Sir Ninian Stephen Lecture at the University of Newcastle on 23 March 1999 entitled "Statutory Interpretation - Identifying the Linguistic Register". 17 There is no public interest in holding the subcontract the subject of the present case unenforceable against the defendant by the operation of s 10, and to construe work done "on behalf of (another)" as including work done by a subcontractor is consistent with what I perceive to be the object of the legislation. 18 I also note that in the pleadings filed in the current action in the Local Court the defendant pleaded a Cross-Claim, para 15 of which was as follows: "On or about June 1997, the plaintiff and the defendant entered into the contract whereby the plaintiff would build (where necessary after designing), supply and install doors, windows and glass products and ancillary aluminium and other framing materials ("the glass works") on behalf of the defendant (my emphasis)."

19 Whether this allegation in the pleadings prevents the defendant taking the present point was not argued before me, but it at least indicates that to say a subcontractor such as the plaintiff does work "on behalf of" the defendant, is a natural and ordinary meaning of the phrase. 20 On behalf of the defendant I was referred to Div 2 of Pt 2 dealing with who may do the work and in particular s 12 which, so far as is relevant, makes it an offence for an individual to do any residential building work except 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 ... as an employee of the holder of such a licence or permit. It was submitted that the express reference to employees as an exception excludes a subcontractor as an exception, and therefore it must, be illegal for a subcontractor to carry out work such as the present without being licenced, and so such a subcontractor must be licenced in order to contract to do the work pursuant to s 4. 21 The argument is initially attractive, but seems to create even more problems because of the use of different terminology, namely "on behalf of" in s 16 which is also in Div 2, thus suggesting that subject to the conditions imposed by that section, the phrase "on behalf of" can include a subcontractor (the same phrase as that used in s 4). 22 In any event s 10 only applies to contracts in breach of Div 1 and s 12 is in Div 2 which contains no similar or corresponding provision, and the difference can not be ignored. Division 2 merely creates a number of offences whereas Div 1 not only creates a number of offences, but also denies civil remedies. Even if Div 2 applies to subcontractors so that any subcontractor who performs residential building work, unless he comes within one of the specified exceptions, is guilty of an offence (a matter I find it unnecessary to decide for the purposes of this case), I am satisfied that Div 1 does not apply to them and, although contracts between owners and unlicenced builders are rendered unenforceable, those between licenced builders and their unlicenced subcontractors are not. 23 I was also referred to the recent decision in Australasian Concrete Services v Multiplex Constructions [1999] NSWSC 1140. In that case it was held that a subcontractor was not required by Part 6 of the Act to take out insurance when there was already insurance under that Part effected by the head contractor. Hunter J relied in particular on s 98 which reads in part: "Nothing in this Part: (a) requires a person who carries out work for a person required by this Part to obtain insurance in respect of that work to obtain insurance ..."

24 His Honour rejected a submission that the phrase "work for" was limited to employees and the like, and said it was wide enough to embrace a subcontractor for work in respect of which the head contractor was required to obtain insurance and he saw no distinction between the phrases "work for" and "on behalf of" describing them as "(m)erely an alternative use of terminology to denote contractual relationships in relation to residential building work without seeking to draw any nicer distinctions within the relationships". 25 His Honour did refer to s 4 and accepted (at para [34]), apparently without argument, that that section would extend to a subcontractor, but that view of s 4 was not material to the ratio in that case, and for the reasons already given I disagree with it. 26 The issue in that case concerned a provision in s 96 similar to s 10 rendering unenforceable contracts entered into in contravention of the requirements for insurance. The head contractor, who was a licenced builder and had taken out the relevant insurance, sought to rely on the provision to avoid liability to its subcontractor, who had not also taken out insurance. His Honour said at para [11]: "There is no public interest consideration in holding the subcontract unenforceable against (the head contractor) by reason of the operation of s 96 of the Act and, if it is open to the Court to do so, the Act should be construed to preserve the enforceability of the subcontract against (the head contractor)."

In my opinion similar considerations apply in the present case. 27 For these reasons I am satisfied that the object of s 10 is to provide a sanction to ensure that the contractor with whom the building owner deals is licenced, and not to enable the licenced contractor to avoid its obligations to a subcontractor. It follows that the Magistrate was in error, and that the plaintiff is not precluded by s 10 of the Act from enforcing its contract with the defendant. 28 Accordingly the appeal is upheld. The Magistrate's ruling is set aside. The proceedings are remitted to the Local Court to be dealt with in accordance with these reasons. 29 I order the defendant to pay the plaintiff's costs of the appeal but to have a certificate under the Suitors Fund Act 1951 if qualified in terms of s 6 ss 7 of that Act. oOo

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