Stokolosa & Anor v Weeks Peacock Homes & Anor No. Scgrg-98-1310 Judgment No. S6956

STOKOLOSA & ANOR v WEEKS PEACOCK QUALITY HOMES PTY LTD; PINNINGTON, Third party
[1998] SASC 6956

Magistrates Appeal: Civil

OLSSON J. This is an appeal from the decision of a stipendiary magistrate sitting in the civil division of the Magistrates Court. That decision was, in effect, the outcome of a preliminary issue which the learned magistrate was asked to decide.
By their particulars of claim, in their finally amended form, the appellants, who were plaintiffs at first instance, claimed damages from the defendant for wrongfully repudiating a contract for the building of a house, said to have been entered into between the parties. In its defence the defendant denied ever having concluded a relevant contract with the plaintiffs.
Shortly prior to the listing of the action for trial the parties requested the court to determine, as a preliminary issue, a question as to whether the provisions of either the Building Work Contractors Act 1995 (SA) or the Builders Licensing Act 1986 (SA) operated, in the circumstances, to deny the existence of any relevant contract relied upon by the plaintiffs.
Having considered various facts agreed by the parties, the learned magistrate ultimately concluded that the relevant statutory provisions stipulated that, in the case of domestic building contracts, it was a requirement for their validity that they be in writing signed by both parties. As, on the pleadings in the action, this was not said to be the situation, then it was inevitable that the particulars of claim should be struck out as failing to disclose a cause of action.
This conclusion was the product of certain facts which were agreed by the parties for the purposes of the debate before the learned magistrate. Those facts and certain other facts pleaded may be summarised as under:-

·......... The third party, Pinnington, was an employee or commission agent of the defendant, a company engaged in the business of building residential homes. He met with the plaintiffs in early May 1996. They advised him that they were interested in building a two-story home. They discussed with him the general size and layout desired and other relevant details.

On or about 19 May 1996 Pinnington presented two documents to the plaintiffs, namely:-

.a form 13 notice pursuant to s23 of the Builders Licensing Act setting out certain information prescribed by the statute; and
.a form of building contract titled "HIA Building Contract" in respect of a building site described as Lot 93, Bonaparte Place, Greenwith for a total price of $115000. (I take it from the material before me that the contract accurately represented the work which the plaintiffs required to be executed.)

·......... The plaintiffs duly signed the building contract. They were informed by Pinnington that a deposit of $1500 would be required before any work could commence. Accordingly, on 20 May 1996, the male plaintiff attended at a display home established by the defendant and there paid him $500 towards the deposit. Pinnington thereupon issued a receipt for that sum, for and on behalf of the defendant. The male plaintiff further attended at the display home on 26 May 1996 and paid an additional $1000 to Pinnington. Once again, he issued a receipt for that amount, for and on behalf of the defendant.

Pinnington had no authority, himself, to sign the contract document on behalf of the defendant. It appears that he submitted it to the defendant’s building supervisor, who told him that the defendant could not build a house to the specifications required, within the price set out in the document. (I infer that Pinnington had, as a salesman, merely made his calculation of a proposed price for the building works and that his calculation was erroneous.)

·......... The contract document was, accordingly, never signed by or on behalf of the defendant.

That situation was not made known to the plaintiffs until, on or about 29 July 1996, the defendant, by solicitor, advised the plaintiffs by letter that the defendant did not regard itself as being bound by the contract document. It was said that the deposit would be refunded.

·......... In the meantime, on 3 June 1996, the defendant engaged a firm of consulting engineers to prepare preliminary engineering reports in respect of the proposed building site. Those reports, a surface soil report and a site works plan, were provided by the engineers to the defendant on 7 June 1996.

The deposit was in fact returned by the defendant to the plaintiffs on or about 7 August 1996.

·......... It is averred by the plaintiffs that, in reliance on the contract, the plaintiffs sold their existing house as of 28 June 1996 and moved into temporary rental accommodation.

In their particulars of claim the plaintiffs expressly pleaded that, on 19 May 1996, they entered into a contract with the defendant which was partly oral and partly in writing, the writing being the contract document signed by them.
It was the assertion of the defendant before the learned magistrate that, on the above state of facts, the particulars of claim did not disclose a cause of action enforceable against the defendant. The primary stance adopted by it was to the effect that, because the requirements of s23 of the Builders Licensing Act (“the Act”) had not been satisfied, no valid or enforceable contract came into existence between the parties.
Section 23, as in force at the relevant date, provided as follows:-
"(1) The following requirements must be complied with in relation to a domestic building work contract:
(a)     the contract must be in writing;
(b)    the contract must set out in full all the contractual terms;
(c)     the contract must set out the name in which the builder carries on business under the builder's licence, the builder’s licence number and the names and licence numbers of any          other persons with whom the builder carries on business as a builder in partnership;
(d)     the contract must comply with any requirements of the regulations as to the contents of domestic building work contracts;
(e)    the contract must be signed by the builder and the building owner personally or through an agent authorised to act on behalf of the builder or building owner;
(f)     the building owner must be given a copy of the signed contract as soon as reasonably practicable after it has been signed by both parties together with a notice in the prescribed form containing the prescribed information; and
(g)    the copy of the contract and the notice given to the building owner must (apart from signatures or initials) be readily legible.
(2)...."

The section goes on to provide that, if any of the above requirements are not complied with, the builder alone is guilty of an offence.
The learned magistrate accepted the defendant's submission that, because the alleged contract was not entirely in writing; the contract document was never signed by the defendant; and a copy of it signed by both parties was not given to the plaintiffs, the net legal effect was either that there was no contract at all or, alternatively, the contract entered into was unenforceable, because it was prohibited by s23. He appears to have accepted the argument that the statute prescribed the fundamental requirements for consummation of a binding contract; and that, because these were not met, no contract ever came into existence. It mattered not whether either party did, or did not, intend to break the law. He rejected the plaintiff's argument that the statute was primarily intended for the protection of building owners and that, in any event, there had been part performance by acceptance of the deposit and the arranging, on behalf of the defendant, for engineers to undertake preliminary soil tests on the site.
So it was that the learned magistrate specifically ruled that s23 of the Builders Licensing Act required domestic building contracts to be in writing and signed by both parties, as a prerequisite to it being enforceable by either party.
The sole issue raised by the notice of appeal is as to whether it can be said that the learned magistrate erred in law in finding that, in the absence of any assertion and evidence that the contract document had been executed by the defendant, the plaintiffs could not succeed in their action.
On the appeal the plaintiffs contended that, on a fair reading of the legislation, it could not be said that s23 was intended to have the effect that a contract which was partly oral and partly in writing, consummated in the circumstances above recited, was to be void. It was said that it was necessary to consider the intention of the legislation. (Yango Pastoral Company Pty Ltd & Ors v First Chicago Australia Ltd & Ors (1978) 139 CLR 410; Nelson & Anor v Nelson & Ors (1995) 184 CLR 538).
As I understood the submissions on behalf of the plaintiffs they were to the effect that the primary purpose of the legislation was to protect consumers - not to work to their disadvantage. It was argued, for example, that it could not have been the intention of the legislature that a home owner would be unable to bring legal proceedings in contract against a builder who failed to properly complete building work pursuant to the terms of an unsigned contract. It was further put that the effect of an acceptance of the defendant's contention would be that an unscrupulous builder could obtain an owner's signature to a completed contract form and then leave it unsigned, unless and until that builder desired to bring legal proceedings itself. It was said that, in such a case, even where a house had been partly constructed, the building owner would be unable to compel completion in accordance with plans and specifications, enforce any statutory warranties, or recover damages in the event of default or malperformance on the part of the builder.
Reliance was also placed upon the reasoning in Nunkuwarrin Yunti v A L Seeley Constructions (Full Court, 11 September 1998, unreported) for the proposition that non compliance with at least certain provisions of the Act does not necessarily make a building contract illegal. That case focused upon the provisions of s39, which operated to bar the recovery by an unlicensed person of any fee or other consideration in respect of building work. The Full Court held that this provision did not preclude a builder from recovering monies on a quantum meruit. In the course of his judgment in that case Prior J expressed the view that the Act did not make contracts illegal, where entered into by an unlicensed person. It simply prevented unlicensed builders from directly recovering contract monies. It was submitted on behalf of the plaintiffs that, similarly, non compliance with s23 did not render a contract between a building owner and a builder void. It did no more than render a builder liable to prosecution for an offence.
It must be borne in mind that s23 does not state that any contract which is consummated otherwise than in accordance with it is void. It is specifically pitched at the builder, who is solely liable to prosecution in the event of non compliance. There is no sanction against the building owner. It is typical consumer protection legislation and ought to be viewed in that light.
Moreover, if the respondent’s contentions are correct, the various potential anomalies identified by counsel for the plaintiffs, all of which would be seriously adverse to a building owner, would necessarily arise. The consequence would be that, far from being protected by consumer legislation, building owners could well find themselves at the mercy of an unscrupulous builder. Such a situation could never, it was argued, have been in the contemplation of the legislature.
There can be no doubt that the judgments in Yango Pastoral Company Pty Ltd & Ors v First Chicago Australia Ltd & Ors (supra) render it clear that the mere fact that non compliance with a statutory provisions renders one party liable to penal consequences does not, of itself, necessarily give rise to a conclusion that any relevant contract is automatically vitiated. As Gibbs ACJ said, the question whether a statute was passed for the protection of the public is but one factor to be taken into account. However, the fundamental test to be applied is whether, read in context, the relevant statutory provision is intended to prohibit the contract. In reviewing that issue the statute is to be construed in the ordinary way, having regard to all relevant considerations.
In this case, as in Yango (supra), a fundamentally important consideration is that the statutory provision in question was intended to protect consumers and not prejudice them. To adopt the language of Mason J (as he then was), to place the defendant’s interpretation on s23 would be to confer an extraordinary advantage on a builder, as a wrongdoer. It would, potentially, place a building owner in impossible and unfair situations of the types illustrated by counsel for the appellants.
Whilst I have carefully considered the submissions of Mr Meyer, of counsel for the defendant, that the prohibition of the section must be construed as implicitly vitiating any contract entered into otherwise than in accordance with the section, I do not think that they can prevail.
I am unable to read the section as forbidding any relevant contract. It could have said that, but it did not. What it merely does is to penalise a defaulting builder for not discharging its consumer protection obligations. A court ought to be very slow to hold that a statute intends to interfere with the ordinary law of contract where a prohibition is obviously aimed at one party, for the purpose of assuring protection to another. In my opinion s23 does not intend to strike at the formation of a contract, as such. Rather, it sets out to proscribe what might otherwise be seen as undesirable practices on the part of builders; and to compel them to act in a manner which assures, as best possible, fair dealing with potential building owners.
With respect, I am unable to accept the conclusion arrived at by the learned magistrate. I consider that he has fallen into error in his interpretation of the statute.
The appeal must be allowed and the decision appealed against set aside. In lieu, I would declare that s23 does not operate so as to vitiate any contract found to have been entered into by the parties, or otherwise constitute a bar to the appellant’s claim.

[1998] SASC 6956

17 November 1998