NUNKUWARRIN YUNTI v AL SEELEY CONSTRUCTIONS No. SCGRG-98-621 Judgment No. S6840.2 [1998] SASC 6840

2 In the course of the arbitration proceedings the owner's legal advisers sought to amend its defence to the builder's claims to allege that the owner was not liable to pay the builder any amount pursuant to the contracts between the parties because the builder was not licensed at the relevant times.

3 Section 39 of the Builders Licensing Act 1986 provides:

"An unlicensed person who performs building work in circumstances in which a licence is required under this Act shall not be entitled to recover any fee or other consideration in respect of the building work unless the Tribunal or any court hearing proceedings for recovery of the fee or consideration is satisfied that the person's failure to be licensed resulted from inadvertence only."

4 A judge of this Court has reserved for determination by the Full Court an application to determine as questions of law the following:

"Does Section 39 of the Builders Licensing Act preclude the builder from recovering moneys from the owner

5 It is not disputed that the respondent company was not the holder of a licence at the relevant times. It is contended by the company that one of its directors has held an unrestricted builder's licence since November 1983 and that that director was employed by the company to supervise and administer the building works the subject of the contracts. The other director of the company is the wife of the licensed builder. The builder contends that the present directors were advised by their accountant to acquire a company "for taxation reasons and to hold and distribute monies to its shareholders and directors, the licensed builder and his wife." It is also contended that the licensed builder did not know that even though he was the holder of an unrestricted builder's licence and would supervise and administer the contract works, the company as contracting party was required by law to be licensed.

6 Counsel for the respondent company invited the court to find that the contentions made on behalf of the company would establish that the company's failure to be licensed resulted from inadvertence only and that therefore this Court could and should determine that the company is not precluded from recovering monies from the owner pursuant to the terms of the contracts between the parties. Section 39 of the Builders Licensing Act does not refer to arbitration proceedings. Nonetheless, it was accepted by both parties to the proceedings in this court that the arbitrator could and should proceed to determine this question in the same way as any court hearing proceedings for recovery of monies in respect of the building work. That much can be accepted. However, it does not seem appropriate to rule upon the question whether the contentions advanced, if accepted, do establish "inadvertence only" in any event. Suffice it to say that should inadvertence only be made out there would plainly be no proper basis upon which the amended defence should succeed.

7 In my view, the only proper question that can now be considered for determination by this Court is whether the Tribunal and any court hearing proceedings for the recovery of monies in respect of the building work could order the recovery of monies from the owner in favour of the unlicensed builder on a quantum meruit should the builder's failure to be licensed be found not to have resulted from inadvertence only.

8 In Tea Tree Gully Builders v Martin[1], Bollen J held that s39 did not oust the availability of a quantum meruit claim at the suit of a unlicensed builder. Bollen J upheld a decision of a magistrate in which the magistrate spoke of the words "fee or other consideration" as words of contract, meaning quite simply entitlement of the builder for the builder's reward under the contract. The magistrate felt bound by the decision of the High Court in Pavey & Matthews Pty Ltd v Paul[2]. Bollen J respectfully applauded the dissenting reasons of Brennan J, who spoke of the relevant legislation in that case precluding the arising of an enforceable debt with "no room, while the unenforceable contract is subsisting, for a quasi contractual claim"[3]. Bollen J said that he and the magistrate were bound by Pavey & Matthews and dismissed the appeal.

9 Pavey & Matthews was a case where the builder was licensed. The principal issue related to the fact that in breach of a particular provision of the New South Wales legislation, the contract was not in writing. The contract was therefore not enforceable. Whilst the New South Wales legislation spoke of unenforceability, s39 speaks of recovering "no fee or other consideration". Neither the magistrate nor Bollen J could see any relevant difference or ground for distinguishing the reasoning of the majority in Pavey.

10 The submission put to this Court on behalf of the owner was that a claim based on quantum meruit, though not based on an implied contract, was nonetheless a claim for reasonable remuneration so that the prohibition against the recovery of any fee was capable of applying to both a quantum meruit claim for reasonable remuneration and the agreed fee or consideration stipulated by the contract. Against that, it was contended for the builder that the decision in Tea Tree Gully was a correct application of Pavey & Matthews. I agree with that. The restitutionary claim recognised in Pavey & Matthews is not an action to enforce a contract or to recover a contractual sum. True it is that s39 makes no specific reference to contracts at all. It denies entitlements which arise in respect of building work. Those entitlements are entitlements "to recover any fee or other consideration in respect of the building work". That language is referable to contractual sums alone.

11 The Act does not make contracts illegal. It forbids unlicensed people from carrying on a business as a builder and requires companies to have licensed building work supervisors supervise the carrying out of the company's building work[4]. In Lee Gleeson P/L v Stirling Estates P/L[5], it was held that the acceptance by the owner of the benefit of a builder's work resulted in the owner being obliged to pay for that work notwithstanding the absence of any right on the builder's part to damages under the building contract or any other remedy in respect of any breach of that contract because the builder was unlicensed under the Builders Licensing Act 1971. A right against the owner to a quantum meruit was acknowledged and Pavey & Matthews cited in support. Within the judgment there is a quote from an unreported judgment of Gleeson CJ in the Court of Appeal in which His Honour said:

"... As the decision of the High Court in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 demonstrates, contravention of the Act produces only the specific and limited consequence referred to in the relevant provisions. The builder may still sue on a quantum meruit. He may retain any instalments paid on account of the purchase price. And, of course, the contract may be enforced by the proprietor. If the builder fails to perform his contractual obligations in some respect there seems to be no reason in principle or logic why the proprietor's damages should be measured on the basis of the hypothesis that the proprietor was entitled to have the work performed, under the contract, but at no cost to himself. The considerations as to unjust enrichment underlying the High Court's decision in Pavey & Matthews Pty Ltd v Paul point in the same direction'."[6]

The judgment of Brownie J in Lee Gleeson was considered and applied by Rolfe J in O'Connell v Lew[7]. As His Honour succinctly put it, "the result is, albeit after much litigation, that an unlicensed builder can recover on a quantum meruit". I see no proper basis upon which s39 or any other provision in the Builders Licensing Act calls for a different result in this State.

12 I would answer the questions reserved by saying that s39 of the Builders Licensing Act does not preclude the unlicensed builder from recovering monies from the owner on a quantum meruit should recovery of monies from the owner pursuant to the terms of the contract fail because the builder's failure to be licensed resulted from more than inadvertence only.

13 I agree with the answer proposed by Prior J and his reasons for that response. During the course of submissions Mr Kourakis QC, of senior counsel for the building owner, sought to argue that the word "considerations" employed in s39 of the Builders Licensing Act 1986 simply meant something in the nature of a payment or recompense and was not, as he put it, "Used in the strict legal contractual sense". I do not consider that this argument is sustainable on a fair reading of the section, having regard to its obvious intent. I agree with Prior J that the section plainly addresses "any fee or other consideration" stipulated for by contract. It is not apt to deny an entitlement to recover on the basis of quantum meruit.

JUDGMENT CITATIONS LISTED IN ORDER OF APPEARANCE IN JUDMENT

1. (1992) 59 SASR 344

2. [1987] HCA 5; (1987) 162 CLR 221

3. (1992) 59 SASR 344 at 354 and 355

5. (1991) 23 NSWLR 571

6. see (1991) 23 NSWLR 571 at 586

[1] (1992) 59 SASR 344

[2] [1987] HCA 5; (1987) 162 CLR 221

[3] (1992) 59 SASR 344 at 354 and 355

[5] (1991) 23 NSWLR 571

[6] see (1991) 23 NSWLR 571 at 586

[7] (1997) 42 NSWLR 285 at 294