Riteway v Baulderstone

[1998] QSC 167

THE SUPREME COURT

OF QUEENSLAND

No. 1987  of 1997
Brisbane

Before             White J

[Riteway v Baulderstone & Anor.]

BETWEEN:

RITEWAY CONSTRUCTIONS PTY LTD

(ACN 067 537 6510)

Plaintiff
AND:

BAULDERSTONE HORNIBROOK PTY LTD

(ACN 002 625 130)

First Defendant
AND:

THE CROWN IN RIGHT OF THE STATE OF

QUEENSLAND TO THE DIRECTOR-GENERAL,

ADMINISTRATIVE SERVICES DEPARTMENT

Second Defendant
AND:

MONARCH FRAME & ROOF PTY LTD    

(ACN 071 296 725)

Third Party

CATCHWORDS:     Monies owing - written sub-contract agreement - unlicensed company - unjust enrichment.

Attorney-General (NSW) v The Brewery Employees Union of NSW (1908) 6 CLR 469.
Deputy Federal Commissioner of Land Tax v Hindmarsh (1912) 14 CLR 334.
Baker v The Queen (1983) 153 CLR 338.
Fablo Pty Ltd v Bloor (1983) 1 Qd R 107.
R v Braithwaite [1983] 1 WLR 385.
J.C. Scott Constructions v Mermaid Waters Tavern Pty Ltd. [1984] 2 Qd R 413.
Pavey & Matthews Pty Ltd v Paul (1986) 169 CLR 221.

Gino D’Alessandro Constructions Pty Ltd v Powis [1987] 2 Qd R 40.
Frendo v Secretary, Department of Social Security (1987) 77 ALR 682.
Carborundum Realty Pty Ltd v RAIA Archicentre Pty Ltd (1993) 25 ATR 192.
Pohlmann v Harrison [1995] 2 Qd. R. 59.

Marshall v Marshall CA No. 9365 of 1996.

Queensland Building Services Authority Act 1991 ss.3, 5, 42, 101.

Queensland Building Services Authority Regulation 1992, s.3A.

Counsel:Mr B O’Donnell QC for the plaintiff

Mr R Douglas for the first defendant

Solicitors:McCullough Robertson for the plaintiff

Minter Ellison for the first defendant

Hearing Date:              18 August, 1998

REASONS FOR JUDGMENT - WHITE J

Judgment delivered 28 August 1998

By order of Derrington J made 6 July 1998 certain issues were set down for determination prior to trial in respect of this action. They concern the proper construction of s.42(3) of the Queensland Building Services Authority Act 1991. Mr O’Donnell QC for the plaintiff (“Riteway”) at the commencement of the hearing proposed amending the questions for determination as set out in that order. He tendered a proposed amended statement of claim in which any claim to monies due and owing pursuant to a certain sub-contract was recognised as precluded by s.42 and based the claim upon unjust enrichment. In the light of the amended pleading Mr R Douglas for the first defendant (“Baulderstone”), the applicant in this proceeding, did not oppose the reformulation of the question.

The Question
The following is the question of law to be determined:

“Does s.42(3) of the Queensland Building Services Authority Act 1991 (as amended) have the effect of precluding a sub-contractor who has carried out building work without holding a contractor’s licence of the appropriate class from recovering from the head contractor reasonable remuneration for the work carried out on the basis of unjust enrichment, in circumstances where the head contractor has accepted the benefit of that work?”

Background

Although expressed objectively it may put the question in context to state briefly the relationship between the parties.  Baulderstone contracted with the second defendant to build a new hospital at Hervey Bay.  Baulderstone entered into a sub-contract with Riteway on 8 January 1996 to install partitions and ceilings in the building for a lump sum price of approximately $1.9M.  Certain work additional to the contract was carried out at an agreed cost and other additional work, the price for which was not agreed, has also been carried out.  Riteway has completed the work under its sub-contract with Baulderstone although there is an outstanding dispute over rectification work.  The hospital has been operating since April 1997.

Riteway has received payment under the sub-contract in  the sum of approximately $1.8M and claims $240,823.89 by way of a quantum meruit and $221,740.26 as damages for breach of contract (relating to interference and damage by other trades causing loss in Riteway carrying out its sub-contract) and interest.

Unknown to Baulderstone until February 1998 after the commencement of these proceedings, Riteway did not hold a relevant licence under the Queensland Building Services Authority Act 1991 (“the Act”) at the time the sub-contract was entered into and during the carrying out of the works the subject of the sub-contract. Such a licence was not obtained until 11 September 1997. Mr Peter Hawley, a director of Riteway and its administration officer, explained that it was not until 20 May 1997 that it was brought to his attention that Riteway was required to hold a licence under the Act. It was apparently raised with his brother, also a director of Riteway and who has himself held an appropriate licence or registration since 1981 by the Building Services Authority when the fee for his licence was lodged with the Authority. Mr Hawley deposes that it was his understanding that commercial builders did not require a licence pursuant to the Act because of the practice of requiring retentions during the contract and until the end of the defects liability period. Riteway was issued with a general building and house building licence on 11 September 1997. Riteway has carried on the supply and installation of internal ceilings and partitions since the late 1970s.

The Act

The Queensland Building Services Authority Act 1991 brought about wide ranging changes to the previous regime contained in the Builders’ Registration and Home-owners’ Protection Act 1979. Its objects are to regulate the building industry and thereby to ensure the maintenance of proper standards; to achieve a reasonable balance between the interests of building contractors and consumers; to provide remedies for defective building work; to provide for the efficient resolution of disputes; and to provide for education and advice for both builders and consumers, s.3. To those ends the Act establishes the Queensland Building Services Authority which consists of the Queensland Building Services Board, the Registrar/General Manager and the Home Building Advisory Service, s.5. The Board has a supervisory function over the other two entities comprising the Authority and is required to advance the interests of the building industry consistently with the objects of the Act. An important innovation was the establishment of the Queensland Building Tribunal to adjudicate domestic building disputes and institute disciplinary proceedings.

The system of registration previously in existence was replaced with various classes of licences authorising the holder to carry out (a contractor’s licence) or to supervise (a supervisor’s licence) or to carry out and supervise various classes of building work, s.30. The classes of licences and educational and experience requirements are set out in Schedule 2 to the Queensland Building Services Authority Regulations 1992.  An applicant must conform to financial requirements set out in the Building Services Board’s policies.  A person may hold more than one licence.  Licences include a general building licence (which does not permit building work for which a house building licence is required), a house building licence and numerous particular licences, for example, a bricklaying licence.  The applicant must be a fit and proper person to hold the relevant licence having regard to the applicant’s standard of honesty and integrity demonstrated in commercial and other dealings as well as compliance with commercial or statutory obligations.  A company is entitled to a contractor’s licence if, inter alia, the directors are fit and proper and the company’s nominated supervisor holds a licence authorising the supervision of building work of the class or classes for which the licence is sought by the company and the company otherwise satisfies the financial requirements, s.31(2). A person is prohibited from undertaking or carrying out building work unless that person holds a contractor’s licence for the appropriate class, s.42(1).

Part 4 of the Act deals with certain domestic building contracts regulating what such contracts must contain, such as, price and escalation clauses. Part 5 continues the statutory insurance scheme commenced in earlier legislation in respect of residential construction work with provisions similar in effect to compulsory third party motor vehicle insurance. Part 6 relates to rectification of building work which might be ordered by the Authority. Part 7 establishes the Building Tribunal.

Section 42

The determination of the question turns upon the proper construction of s.42(3) of the Act. That sub-section must be construed in the context of the section as a whole. Section 42 (its present form is essentially unchanged since 1996 when the contract to perform the works was entered into) provides:

“42(1)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 this Act.

(2) For the purposes of this section -

(a)a person carries out building work whether that person carries it out personally, or directly or indirectly causes it to be carried out; and

(b)a person is taken to carry out building work if that person provides advisory services, administration services, management services or supervisory services in relation to the building work; and

(c)a person undertakes to carry out building work if that person enters into a contract to carry it out or submits a tender or makes an offer to carry it out.

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

...

(7)A person who contravenes this section commits an offence.

Maximum penalty -

(a)for an individual - 80 penalty units for a first offence, 120 penalty units for a second offence and 160 penalty units for a third or subsequent offence; and

(b)for a company - 160 penalty units for a first offence, 240 penalty units for a second offence and 320 penalty units for a third or subsequent offence.”

The work performed by Riteway was “building work” within the meaning of the Act and did not come within any of the exclusions set out in s.3A of the Queensland Building Services Authority Regulation 1992.

Mr Douglas for Baulderstone contends that the expression “any monetary or other consideration” should be construed liberally and not be confined by any legal or technical definition of  “consideration”.  He adopts what he submits is the reasoning of McPherson JA in Marshall v Marshall CA No.9365 of 1996 (97/382) (judgment delivered 28 October 1997) as to the construction of s.42(3). This, he submits, excludes any restitutionary claim.

Mr O’Donnell contends that that is not the effect of his Honour’s reasoning and if it is such reasoning is obiter dicta, and ought not be followed. He submits that on the proper construction of the section, on a consideration of predecessor provisions, and of the policy of the Act, there is no evident intention to exclude a claim based on restitutionary principles.

The Queensland legislature has sought to regulate aspects of the building industry in the past by various means, including making unenforceable certain building contracts not in writing and precluding recovery under a contract by an unregistered builder.  Those legislative devices were not successful in excluding recovery in all circumstances, if, indeed, that was the legislative intent, and a series of judgments, particularly by McPherson J (as his Honour then was), settled the strict parameters of the successive provisions, Fablo Pty Ltd v Bloor [1983] 1 Qd R 107 (a contract not in writing, by statute unenforceable, did not preclude a claim framed in debt or indebitatus assumpsit); J.C. Scott Constructions v Mermaid Waters Tavern Pty Ltd [1984] 2 Qd R 413 (prohibition on an unregistered builder recovering a fee or charge under a contract did not preclude a claim for damages for a repudiatory breach of a contract); Gino D’Alessandro Constructions Pty Ltd v Powis [1987] 2 Qd R 40 (a contract not in writing which was unenforceable did not preclude a claim on a quantum meruit where the oral contract was repudiated after the work was done).

After the decision in Gino D’Alessandro and of the High Court in Pavey & Matthews Pty Ltd v Paul (1986) 162 CLR 221 the legislation was amended to preclude recovery by an unregistered builder of “any fee, charge, damages or other reward of whatever nature”. The Court of Appeal in Pohlmann v Harrison [1995] 2 Qd R59 held that neither the language nor apparent purpose of the Act suggested that it was the legislative intention that a person whose house was built by a registered builder should be excused from paying for the work where the contract was not in writing, at p. 62.

The present provision makes it unlawful to carry out building work or undertake to carry out such work if unlicensed in the relevant class.  The consequences of so doing are visited only upon the unlicensed person.  That person (in this case Riteway) “is not entitled to any monetary or other consideration for doing so”.  Mr Douglas submits that the word should be given a “liberal” construction.  By that I take him to mean a non-technical construction.  I agree,  with respect, with Woodward J’s observation in Frendo v Secretary, Department of Social Security (1987) 77 ALR 682 at pp. 684-5 that it is doubtful if it can be said that “consideration” has a non-technical meaning when used to mean a reward or compensation when it appears in a modern statute and even more so when the subject matter of this section has received so much attention both from the legislature and from judicial interpretation. The example which his Honour cites from the Shorter Oxford Dictionary: “They hoped that I would give them some consideration to be carried in a chaire to the tope” does, indeed, have an archaic ring to it. Where the word is used, as it is here, in the sense of a return or quid pro quo for carrying out work, it is not immediately apparent that the drafter proposed that it should be understood in anything other than its technical legal sense.  O’Connor J in Attorney-General (NSW) v The Brewery Employees Union of NSW (1908) 6 CLR 469 observed at p. 531:

“Where words have been used which have acquired a legal meaning it will be taken prima facie, that the legislature has intended to use them with that meaning unless a contrary intention clearly appears from the context.  To use the words of Denman J in R v Slator ((1881) 8 QBD 267 at 272): - ‘But it always requires the strong compulsion of other words in an Act to induce the Court to alter the ordinary meaning of a well known legal term.’ ”

See also Deputy Federal Commissioner of Land Tax v Hindmarsh (1912) 14 CLR 334 per Barton J at 337-8 and Isaacs J at pp. 339, 340; and Barker v The Queen (1983) 153 CLR 338 per Mason J at p. 341 and Brennan and Deane JJ at pp. 355-6.

There have been numerous attempts to define the common law concept of consideration.  In R v Braithwaite [1983] 1 WLR 385 the Court of Appeal was concerned to construe the expression “any money, gift or other consideration” in the Prevention of Corruption Act 1906 (U.K.).  Lord Lane giving the judgment of the Court said that the word must be given its legal meaning.  At p. 391 his Lordship said:

“In our judgment the word “consideration” connotes the existence of something in the shape of a contract or a bargain between the parties ... consideration deals with the situation where there is a contract or a bargain and something moving the other way.”

See also Carborundum Realty Pty Ltd v RAIA Archicentre  Pty Ltd (1993) 25 ATR 192 where Harper J considered the expression “money or other consideration” as it appeared in respect of capital gains tax in the Income Tax Assessment Act 1936 (Cth). His Honour observed at p. 198 that “the concept of consideration is closely linked in legal theory to the concept of agreement”. He added at p. 199:

“...  the linkage between consideration and the enforceability of an agreement not made under seal have been more or less consistently maintained since the development of the modern law of contract.  In 1881, Oliver Wendell Holmes wrote in The Common Law (U.K. edition 1968, p. 230): “[T]he essence of a consideration [is] that, by the terms of the agreement, it is given and accepted as the motive or inducement of the promise.  Conversely, the promise must be made and accepted as the conventional motive or inducement for furnishing the consideration.  The root of the whole matter is the relation of reciprocal conventional inducement, each for the other, between consideration and promise.

... Generally speaking, consideration is something given, by agreement, in return for something else.”

Accepting that “consideration” is an expression grounded in contract law, to express it positively, as something done by the promisee in return for the promise, is the consequence that only an entitlement based on contract is precluded by the section if the person who carries out the work is unlicensed in the appropriate class?  I think that must be so otherwise why does the drafter employ a word which is obviously one with a well understood technical legal meaning.  Observations such as that quoted above from Attorney-General (NSW) v The Brewery Employees Union of NSW must be presumed to be known to the drafter of the Act.

Deane J pointed out in Pavey at p. 263 that “the concept of monetary restitution involves the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or “enrichment” actually or constructively accepted”.  The obligation arises not from the (unenforceable) contract but is imposed or imputed by law to give compensation for a benefit accepted, ibid, p.255. 

I should now turn to Marshall which was subjected to close scrutiny by counsel. An unlicensed builder carried out building work on the plaintiff’s land and was paid $51,000 pursuant to the contract between them for doing so. The true value of the work done was assessed at trial at $16,672. The plaintiff in the action sought recovery only of the balance on the basis that she had paid over the $51,000 in the mistaken belief that the builder was legally entitled to be paid. At trial and on appeal the plaintiff was prepared to allow the builder the value of the work done accepting that the builder was entitled to be paid for the value of the work which he had performed. In order to reach the conclusion that the plaintiff was entitled to recover the balance of the money paid under a mistake of law the Court considered the effect of s.42(3). Pincus JA and de Jersey J (as his Honour the Chief Justice then was) in their joint judgment couched their reasons by reference to a contractual obligation, for example, at p.2:

“On any reasonable construction of s.42(3), because the first appellant [builder] was not appropriately licenced, the respondent [plaintiff] was not obliged to pay him in accordance with her apparent contractual obligation.”

Their Honours applied the decision in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 and did not consider it necessary to embark on any further consideration of the precise scope of s.42(3):

“That is so because the respondent’s mistake, as to her obligation to pay, was relevant on any reasonable interpretation of sub-s.(3), which plainly excused her from any obligation to pay under the contract in these circumstances.”

McPherson JA concluded that the plaintiff needed to go further than simply showing that the money was paid under a mistaken belief that she was obliged to do so. He said that she also needed to show that the statutory prohibition in s.42(1) did not preclude her from recovering what she had paid. His Honour said at p.7 of his reasons:

“If the defendant [the builder] was not entitled to any monetary consideration for carrying out building work in contravention of s.42, then, as I would interpret s.42(3), he is not entitled to retain the payment made to him for doing it. Because the prohibition in s.42 was enacted for the benefit of a class of persons of whom the plaintiff is one, she is entitled to recover the payment she made to the defendants.”

It was this further step which his Honour said, at p.6, was the difference between his approach and that of Pincus JA and de Jersey J on this question.  Throughout both judgments the language of prohibition is referable to the contract, which is hardly surprising, since the money sought to be recovered was money paid under a contract.  With respect, there does not appear to be anything in Marshall to preclude a construction of s.42(3) that only claims sourced in contract are prohibited.

Does the policy of the Act operate against such a construction? The Act, as mentioned, seeks to maintain proper standards in the industry and to achieve a reasonable balance between the interests of the consumer and of building contractors. McPherson JA’s reference to the pool of insurance monies being diminished if unregistered builders are permitted to recover is referable only to residential construction work. By excluding an entitlement to bring a claim based on the contract a contravening builder is substantially disadvantaged. If the builder is a sub-contractor the builder has no access to the scheme of sub-contractor’s charges and neither does the builder have any entitlement to progress payments. The other party, it would seem, remains entitled to enforce the contract, per Deane J in Pavey at p.263, whilst free to disregard its terms and could refuse to permit the builder to carry the work to completion, ibid.  Deane J, with whom Mason and Wilson JJ generally agreed, could ascertain “no apparent reason in justice” nor any conflict with the policy of an analogous New South Wales Act for depriving a builder of a common law right to bring proceedings to recover fair and reasonable remuneration for work done and which had been accepted, p.262.  To do so, and particularly where there has been inadvertence, would lead to a harsh result and will support wholly unmeritorious refusals to pay for what has been accepted (as was attempted in Pohlman).  The sub-section should only be construed as precluding all compensation, recovery of outlays and other expenses by a builder who has performed building work at the request of another who retains the benefit of it when the words used admit of no other sensible meaning, per Mason and Wilson JJ in Pavey, p.229.   There is nothing in the Second Reading speech to support such a construction, Hansard, Legislative Assembly, 21 November 1991, p.3324. I note that Wensley QC ADCJ came to a similar conclusion in Sutton v Zullo Enterprises Pty Ltd & Ors (Plaint No. 2156 of 1998; judgment delivered 4 August 1998).

The answer to the question is: s.42(3) of the Queensland Building Services Authority Act 1991 (as amended) does not have the effect of precluding a sub-contractor who has carried out building work without holding a contractor’s licence of the appropriate class from recovering from the head contractor reasonable remuneration for the work carried out on the basis of unjust enrichment, in circumstances where the head contractor has accepted the benefit of that work.

I will hear submissions as to costs.