Zullo Enterprises P/L & Ors v Sutton [1998] QCA 417

Court of Appeal (Qld)|1998-12-15|Before: Zullo Enterprises P, Before McPherson J, Pincus J, Jones J, Pherson J

1 I have had the advantage of reading the reasons of Pincus J.A. in this matter, which it was agreed to treat as the hearing of the appeal. I agree with his conclusion that the appeal should be allowed with costs; that the order of 4 August 1998 granting leave to amend the plaint should be set aside; and that the action should be dismissed with costs.

2 There are two questions. One is the impact of s.42(1) of the Queensland Building Services Authority Act 1991 on the enforceability of a contract to carry out building work. The other is the effect of s.42(3) of the Act on the respondent's right, independently of contract, to recover restitution for such work.

3 Section 42(1) provides that a person must not carry out, or undertake to carry out, building work unless that person holds a contractor's licence of the appropriate class under the Act. The statutory provision embodies two separate and distinct prohibitions. One is that a person must not "undertake" to carry out building work unless appropriately licensed. The other is that such a person must not "carry out" building work. The first of these two prohibitions is directed at an element in the formation or making of a contract to do building work. One cannot (except perhaps in a case of a rare and most unusual kind) make a contract to do building work without at the same time "undertaking" to carry out that work. The second of the two prohibitions is directed not at the making or formation of the contract but at its performance. A person who is not appropriately licensed is prohibited from carrying out a contract to do building work. Indeed, the prohibition applies whether or not there is any contract at all to do the work. Carrying out such work is prohibited by s.42(1) irrespective of whether it is done gratuitously or without any binding obligation.

4 The next question concerns the consequence or effect of these statutory prohibitions. Turning to the first of them, it would be surprising if, having prohibited the making of such a contract, the legislative had not also intended that it should be unenforceable. This conclusion is not founded on the circumstance that, by s.42(7), a person contravening s.42 commits an offence, although it provides additional support for such a legislative intention. Even if it were not an offence for an unlicensed person to "undertake" to do building work, the result would in my opinion probably be the same. When Parliament prohibits the very process of formation of a contract, it scarcely lies with the courts to ignore that prohibition and enforce the contract despite the express legislative embargo on its being made at all. At least that is so where the party seeking to enforce it is the person who contravened the prohibition, which is so here. Whether the other party is also disabled from enforcing it is perhaps another matter. The decision in Re Mahmoud & Ispahani [1921] 2 K.B. 716, which has provoked the ire of some textwriters on the subject, is authority that even the other, and it may be innocent, party to the contract is also precluded from enforcing it; but it is a question that may in the end depend on the weight to be given to the fact that here the prohibition in s.42(1) is directed only to the person "undertaking" to carry out the building work. In this instance, however, it is not something that calls for decision now, and it may be left for future consideration.

5 I do not consider that the determination of the question is assisted by what was decided in Fitzgerald v. F.J. Leonhardt Pty. Ltd. [1997] HCA 17; (1997) 189 C.L.R. 215. The statutory provision considered by the High Court in that case was not, like that in s.42(1) of the subject Act, directed to or against the making of the contract itself. What was prohibited by s.56 of the Water Act 1992 (N.T.) was the doing of an act, namely the drilling of a bore, etc. which was also constituted an offence. The agreement in that case was to do an act which, if it had been absolutely prohibited, would have had the consequence that the parties had agreed to do something that was made a statutory offence. Being, as it is in Queensland, an indictable conspiracy under s.542 of the Criminal Code, an agreement to do such an act might in this State well be unenforceable; but in Fitzgerald v. F.J. Leonhardt Pty. Ltd. [1997] HCA 17; (1997) 189 C.L.R. 215, the prohibition in s.56 of the Water Act 1992 (N.T.) was not absolute, but was subject under s.57 of that Act to obtaining a licence to drill a bore. The High Court held that, on a proper interpretation of the Act, the obligation to obtain a permit rested with the landowner and not the driller, who was consequently entitled to recover the value of the drilling work done by him even without a licence. That the High Court did not mean to disturb the rule that a contract the formation of which is prohibited by statute is not enforceable is supported by a passage in the joint judgment of McHugh and Gummow JJ. Having first observed that the case was not one in which the statute contained an express prohibition against the making of the contract in question, their Honours went on to say that the court should not refuse to enforce contractual rights merely because the contact 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 ...".

6 In this case, as I have said, s.42(1) is cast in a form which expressly prohibits the formation (by "undertaking" to carry out building work) of the contract itself. The result is, in my opinion, to make the contract entered into by the parties in this case unenforceable at least at the instance of the respondent, who is the person who was not appropriately licensed. In as much as s.42(1) also embodies a prohibition on the carrying out of building work by such a person, and imposes a penalty for doing so, performance of that work by the respondent must also be taken to be prohibited. In the passage referred to from the joint judgment in Fitzgerald v. F.J. Leonhardt Pty. Ltd., their Honours proceeded to except from the category of enforceable claims not only the case of breach of a statutory prohibition upon the formation of the contract, but also "upon the doing of a particular act essential to the performance of the contract ...". Here it is not merely the doing of an act essential to the performance of the contract that is prohibited by s.42(1) of the Act, but the very performance of it by carrying out the building work which it requires. It follows that a legislative intention sufficiently appears that the contract is not to be enforceable by the person not appropriately licenced, who in this instance is the respondent.

7 It is perhaps not necessary here to reach a final conclusion about the question. This is not an instance in which the legislation has left to implication the question whether the contract, if performed in breach of the statutory prohibition, is unenforceable by the person performing or carrying it out. Section 42(3) expressly provides:

"A person who carries out building work in contravention of this section is not entitled to any monetary or other consideration for doing so".

Quite plainly, the prohibition in s.42(3) prevents a person so carrying out the building work from recovering the contract price or any part of it. Considered either alone or in combination with s.42(1), I would regard it as also preventing such a person from recovering damages for breach of the contract. The only question here is whether, in addition, it precludes the party carrying out the work from recovering restitution, or what was formerly called a quantum meruit, for the work done.

8 As to that question, I continue to adhere to what I said in Marshall v. Marshall (Appeal No. 9365 of 1996, 28 October 1997). Perhaps no one will be surprised at that. However, for the reasons given on that occasion, I consider that what the respondent is seeking to recover in this action is "any monetary consideration" to which, because of his contravention of s.42(1), he is "not entitled". He is not entitled to it under the contract, and that is so whether his claim is laid in debt, or damages, or to recover the market value of his services under an agreement to pay him whatever his work was and is worth. Equally, however, and for the reasons given in more detail in Marshall v. Marshall, he is not entitled to recover it outside the contract as a restitutionary compensation for the work he has done. In whatever form the claim is framed, the amount in question is a "monetary consideration for" his doing or having done the work, and so falls within the exclusion in s.42(3) as being something to which a person carrying out building work in contravention of s.42(1) is "not entitled" in the sense of his having in law no right or title to it. Monetary "consideration" is what a person receives, or is entitled to receive, in return for his or her doing work in the expectation of being paid for it.

9 The relevant statutory provision is materially different from those in other States on which reliance was placed on this appeal, which include Lee Gleeson Pty. Ltd. v. Sterling Estates Pty. Ltd. (1991) 23 N.S.W.L.R. 571 and O'Connor v. Leaw Pty. Ltd. (1997) 42 N.S.W.L.R. 285. I respectfully agree with the strictures on Tea Tree Gully Builders Co. Pty. Ltd. v. Martin (1992) 59 S.A.S.R. 344 made by White J. in her reasons in Mostia Constructions Pty. Ltd. v. Cox [1994] 2 Qd.R. 55, 60-61, but not with her Honour's own decision in Riteway Constructions Pty. Ltd. v. Baulderstone Hornibrook Pty. Ltd. (Sup. Ct. no. 1987 of 1997, 28 August 1997). One of the difficulties in cases like this of adopting retention of benefits as the criterion of liability for restitution is that in practice the building owner rarely has the option of rejecting work and materials built into or on his or her land in the course of the carrying out the contract or works: cf. Sumpter v. Hedges [1898] 1 Q.B. 673. But, since the undertaking to do and the carrying out of the building work are both prohibited by s.42(1), it is difficult to see why the expression "monetary consideration for" doing the work should not receive a correspondingly wide meaning preventing recovery of restitutionary compensation for the prohibited work.

10 That the respondent expected to be paid for what he did in the way of building work is not in doubt. It plainly appears from his pleading in the action. He has, it appears, already been paid for part of what he did. He was, however, not appropriately licensed to do work of the kind agreed to be carried out by him. It follows from what has been said here that he is not entitled to the unpaid balance of what is claimed still to be owing to him. The result may elicit some sympathy for the plaintiff; but in this Court the legislation allows nothing more. Repeated instances of non-compliance with the Act, of which since its enactment several examples have come before the courts, can have the consequence only of diminishing the fund from which insurance is payable to disappointed building owners. No doubt it is also true that, by not paying the premiums or fees exigible under the Act, a builder who fails or refrains from doing so is able to assume a more competitive position in the building construction market than others who are more punctilious in complying with their statutory obligations. In the end, however, none of this affects the conclusion that, no matter how it is framed, the respondent plaintiff's action in the District Court to recover the value of his building work is bound to fail.

11 For these reasons, I agree with the orders proposed by Pincus J.A.

1 The question in this case is whether a builder may recover a fair price for work done by him in contravention of s. 42(1) of the Queensland Building Services Authority Act 1991 ("the 1991 Act"). Under that subsection the builder (the respondent) was prohibited from carrying out the work in question for lack of the appropriate licence and prohibited from undertaking to carry it out. Under s. 42(3) of the Act he was "not entitled to any monetary or other consideration" for carrying out the work. But in reliance on the decision of the High Court in Pavey & Matthews Proprietary Limited v. Paul [1987] HCA 5; (1987) 162 C.L.R. 221, it has been ordered in the District Court that the builder have leave to deliver a plaint suing for the price of the work as a quantum meruit claim; that order is attacked in this appeal.

2 On the face of it one might think the builder would have difficulty enlisting the aid of the Court to recover for work illegally carried out, when the statute disentitles him to any consideration for doing so. The District Court, however, held in effect that the word "consideration" and the expression "any monetary or other consideration" in s. 42(3) of the Act should be read as meaning the agreed price under a contract; so that any action other than for such an agreed price may, consistently with the statute, be brought - for example, an action for damages for breach of contract.

3 One question is whether s. 42(1) itself, which makes it unlawful to carry out or undertake to carry out such work as is in question, operates to prevent any action to recover the price or value of the work. A second is whether s. 42(3), which disentitles the person carrying out work in contravention of s. 42(1) "to any monetary or other consideration for doing so", prevents an action on a quantum meruit. The two questions are interrelated, because the fact that Parliament has made express provision defining the civil consequences of breach of s. 42(1) is a reason, but not necessarily a conclusive reason, for holding that the maxim ex turpi causa non oritur actio does not apply to breaches of s. 42(1). Under s. 42(7) it is an offence to contravene the section. Examples of cases in which it has been held that, having regard to the fact that the legislature has defined the civil consequences of breach, entering into a contract prohibited by statute does not absolutely prevent action on the contract by the party in breach are Batu Pahat Bank Limited v. Official Assignee [1933] A.C. 691 (Privy Council) and the decision of the Full Court of the Supreme Court of Western Australia in Singh v. Crafter (1992) 10 A.C.L.C. 1365. In the latter case, breach of a provision designed to prevent insider trading in company shares was argued to make the relevant contract absolutely void. The Court said, however, that the fact that the statute gave a right to compensation to people damaged by such a breach "would tend to support the view" that the contract was not void. The conclusion reached was that the contract was nonetheless unenforceable by the party in breach, because there was a "statutory fiduciary relationship" created.

4 In the present case, the presence of s. 42(3) provides reason to doubt whether Parliament could have intended a breach of s. 42(1) to have civil consequences, in addition to those set out in s. 42(3); if under s. 42(1) the party in breach may not bring an action based on having done the work, then s. 42(3) would seem to be superfluous. But on the construction given by the primary judge to s. 42(3) this argument is weakened by the circumstance that the builder is free, if the decision attacked is right, to bring any action based on having done the work except one: an action for the consideration under the building contract. Not only, under the construction adopted by his Honour, may the builder sue for damages for having been prevented from doing the work which the law forbids; presumably the builder could even sue for an injunction to restrain dismissal from the site.

5 As McPherson J.A. pointed out in Marshall v. Marshall (Appeal No. 9365 of 1996, 28 October 1997): "Section 42 is . . . the third attempt by the legislature to make its meaning clear". The two previous attempts were in s. 53(2)(d) of the Builders' Registration and Home-owners' Protection Act 1979, in the form that provision had before, and the form it had after, the decision of the High Court in Pavey & Matthews. That the legislature should, after the decision of Pavey & Matthews, have intended not only to accept the position that an unlicensed builder may recover for a quantum meruit for the work done, but to add to that a right to bring certain actions on the contract itself, strains credulity.

6 One is encouraged, then, towards a broad construction of s. 42(3) and in particular the word "consideration" contained in it, by the history of this provision, by the strangeness of the result which is achieved by a narrow construction and by the circumstance that the legislature has chosen, as it did not in the provisions under consideration in Pavey & Matthews, to prohibit the doing of the relevant work. It is principally that prohibition which suggests that the result of Pavey & Matthews should not necessarily govern the construction of s. 42(3) of the Act. In that case, a central point of the judicial discussion was the relationship between an action upon a quantum meruit and a contractual action; but one member of the majority, Deane J, gave consideration in some detail to a broader question. His Honour said:

"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 [(1948) [1948] HCA 46; 77 C.L.R. 544 at 565]. 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. . . . Plainly enough, the survival of the ordinary common law right of the builder to recover, in an action founded on restitution or unjust enrichment, reasonable remuneration for work done and accepted under a contract which is unenforceable by him does not frustrate the purpose of the section to provide protection for a building owner. The building owner remains entitled to enforce the contract. He cannot, however, be forced either to comply with its terms or to permit the builder to carry it to completion". (262-263)

7 Deane J. was able to say that the agreement was not illegal, because there was no provision making it so; his Honour was able to say that the building owner could not be forced to comply with the terms of the contract, or to permit the builder to carry it to completion, because the statute made the contract unenforceable by the builder. In contrast, here, both the doing of the work and the promise to do it are prohibited and, if the construction adopted by the primary judge be right, the contract is made unenforceable only to the extent that a suit to recover the price agreed is prevented.

8 The critical step in the reasoning below which the appellant challenges is the meaning attributed to the word "consideration". Reliance was placed, for the respondent, on decisions in which what has been described as the technical meaning has been attributed to the word. In Braithwaite [1983] 1 W.L.R. 385 at 391, the court said that "the meaning of the word `consideration' must be the legal meaning of it and not any common or garden meaning". It is clear, however, that apart from the usual meaning there are other possible legal meanings; this is discussed in P. Birks Introduction to the Law of Restitution, Clarendon Press, 1985 at p. 223 and in A. Burrows The Law of Restitution, Butterworths, 1993 at p. 252. An action, of a restitutionary kind, which is based on failure of consideration may succeed when there is no contract; George v. Roach [1942] HCA 22; (1942) 67 C.L.R. 253 at 258, 261 is an example and Rover International Ltd. v. Cannon Film Sales Ltd. [1989] 1 W.L.R. 912, another. A use in a statutory context which, with respect, must surely have been intended to have other than the narrow meaning was discussed in Frendo v. Secretary, Department of Social Security (1987) 77 A.L.R. 682; in that case application of the narrow meaning appears to have reached a result which could hardly have been intended by the legislature. But the principal reason for thinking, as I do, that the legislature did not intend, by use of the word "consideration" here, to preserve to the unlicensed builder the right to recover a fair price is simply the improbability of that intention. What rational policy could underlie an intention to leave the prohibited contract perfectly enforceable except in one respect, namely recovery of the agreed price, leaving it open to the unlicensed builder to recover, in the ordinary case, a similar sum by another means?

9 To return to Pavey & Matthews, the most important point of distinction between the legal situation there considered and that which is before the Court now is that here the restitutionary suit is to be one to recover a price for work the performance of which was prohibited by statute, done under a promise the making of which was prohibited by statute. We have not been referred to any appellate decision in which such a suit was held to be permissible on the basis of unjust enrichment. Pavey & Matthews was an action of a fairly familiar kind, where, suit on a contract not being available for want of formality, it was held that a restitutionary claim was nonetheless open: see for other examples A. Burrows The Law of Restitution at p. 299 et seq. The extension of Pavey & Matthews which we are invited to make here is into new territory, using a quantum meruit suit to recover for work the performance of which was prohibited by statute. According to Restitution Law in Australia, Butterworths, 1995, by K. Mason Q.C., S.-G. (as his Honour then was) and Professor J. W. Carter, where a transaction is both void and illegal "claims for reasonable remuneration are almost invariably refused . . ." (349), and the authors, with reference to a case of the present kind, say:

". . . where a contract is illegal for failure to obtain a licence for building work, a quantum meruit claim, to recover reasonable remuneration has routinely been denied . . . we must even today be sceptical of the restitutionary claim which is based on a request to do work expressed in an illegal contract, where acceptance of benefit takes place under the contract and the only reason for claiming in restitution is the illegality". (887)

The authors do not refer to, nor have I found, any reported instance in which such a claim has succeeded.

10 In summary, then, it is my opinion that for the reasons I have given, the word "consideration" in s. 42(3) of the Act should be given a construction covering a price recovered in a quantum meruit claim; further, I do not accept that the principle, of which the leading example is Pavey & Matthews, permitting such a claim to be made where a contract is unenforceable for want of formality should be extended to include also instances in which a statute prohibits both the contract and the doing of the work.

11 We were referred to authority in which the point at issue has been discussed in this State and in particular the reasons of McPherson J.A. referred to above, as well as those of White J. in Riteway Constructions Pty Ltd v. Baulderstone Hornibrook Pty Ltd (No. 187 of 1997, 28 August 1998). As will appear from what I have written, I am of the respectful opinion that the conclusion of the former judgment is to be preferred to that of the latter.

12 I would therefore allow the appeal with costs, set aside the order of the learned primary judge made on 4 August 1998 granting leave to amend the plaint and dismiss the plaintiff's action with costs.

1 I have had the advantage of reading the separate reasons of McPherson and Pincus JJ.A. I agree with what each of their Honours has said and with the orders proposed by Pincus J.A.

Building Services Authority Act 1991

At a glance

Court

Decision date

Before

Source

Judgment (29 paragraphs)

Parties

Legislation Cited (1)