Sutton v Zullo Enterprises Pty Ltd

[1998] QCA 417

IN THE COURT OF APPEAL	[1998] QCA 417
SUPREME COURT OF QUEENSLAND

Appeal No. 8045 of 1998

Brisbane

[Zullo Enterprises P/L & Ors. v. Sutton]

BETWEEN:

ZULLO ENTERPRISES PTY LTD

ACN 056 536 264

(First Defendant) First Appellant

AND:

RAEFOLD PTY LTD.

ACN 010 475 180

(Second Defendant) Second Appellant

AND:

YAZD PTY LTD

ACN 058 108 857

(Third Defendant) Third Appellant

AND:

JOHN PATRICK SUTTON

(Plaintiff)	Respondent
McPherson J.A. Pincus J.A. Jones J.

Judgment delivered 15 December 1998

Separate reasons for judgment of each member of the Court, each concurring as to the orders made.

APPEAL ALLOWED WITH COSTS. THE ORDER OF THE LEARNED PRIMARY JUDGE MADE ON 4 AUGUST 1998 GRANTING LEAVE TO AMEND THE PLAINT SET ASIDE. THE PLAINTIFF’S ACTION IS DISMISSED WITH COSTS.

CATCHWORDS:	BUILDING AND CONSTRUCTION LAW - quantum meruit claim - unlicensed builder - statute provided builder was not entitled to any monetary or other consideration - whether builder could sue for price of work as quantum meruit claim.
Queensland Building Services Authority Act 1991 s. 42 Pavey & Matthews Proprietary Limited v. Paul (1987) 162 C.L.R. 221
Counsel:	Mr T Matthews for the appellants. Mr G I Thompson (solicitor) for the respondent.
Solicitors:	William R Wilson & Associates for the appellants. Barwicks Wisewoulds for the respondent.
HearingDate:	5October1998.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 8045 of 1998

Brisbane

Before McPherson J.A.
Pincus J.A.
Jones J.

[Zullo Enterprises P/L & Ors v. Sutton]

BETWEEN:

ZULLO ENTERPRISES PTY. LTD.
ACN 056 536 264

(First Defendant) First Appellant

AND:

RAEFOLD PTY. LTD.
ACN 010 475 180

(Second Defendant) Second Appellant

AND:

YAZD PTY. LTD. ACN 058 108 857

(Third Defendant) Third Appellant

AND:

JOHN PATRICK SUTTON

(Plaintiff) Respondent

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered 15 December 1998

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) 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) 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 licensed, 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 [1999] 1

Qd.R. 173. 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 1998). 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.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 8045 of 1998

Brisbane

Before McPherson J.A.
Pincus J.A.
Jones J.

[Zullo Enterprises P/L & Ors. v. Sutton]

BETWEEN:

ZULLO ENTERPRISES PTY LTD

ACN 056 536 264

(First Defendant) First Appellant

AND:

RAEFOLD PTY LTD.

ACN 010 475 180

(Second Defendant) Second Appellant

AND:

YAZD PTY LTD

ACN 058 108 857

(Third Defendant) Third Appellant

AND:

JOHN PATRICK SUTTON

(Plaintiff) Respondent

REASONS FOR JUDGMENT - PINCUS J.A.

Judgment delivered 15 December 1998

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) 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 [1999] 1 Qd.R. 173 at 177:

"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) 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) 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 a 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. 1987 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.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 8045 of 1998

Brisbane

Before McPherson J.A.
Pincus J.A.
Jones J.

[Zullo Enterprises P/L & Ors. v. Sutton]

BETWEEN:

ZULLO ENTERPRISES PTY LTD

ACN 056 536 264

(First Defendant) First Appellant

AND:

RAEFOLD PTY LTD.

ACN 010 475 180

(Second Defendant) Second Appellant

AND:

YAZD PTY LTD

ACN 058 108 857

(Third Defendant) Third Appellant

AND:

JOHN PATRICK SUTTON

(Plaintiff) Respondent

REASONS FOR JUDGMENT - JONES J.

Judgment delivered 15 December 1998

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.