The fact that a builder commits an offence by entering into a building contract which is not in writing will not render a wholly oral contract between a builder and client unenforceable.
On 6 November 2015 the Queensland Court of Appeal delivered a decision in the matter of Nichols v Earth Spirit Home Pty Ltd.
This case involved a builder who had entered into a building contract which was not in writing, in breach of the Queensland Building Services Authority Act 1991 (Qld), now known as the Queensland Building and Construction Commission Act 1991 (Qld) (the Act).
The question for the Court of Appeal was whether an oral building contract would still be enforceable, notwithstanding the apparent illegality of the contract under the Act.
Ultimately, the Court of Appeal held that even though the builder committed an offence against the Act by failing to put the contract in writing, the builder was still entitled to enforce the oral contract and get paid for the works performed.
George Nichols (the applicant) and his family undertook a development project involving the construction of ten houses in the suburb of Wakerley, south of Brisbane. After the applicant’s relationship with his first builder soured, the applicant engaged Earth Spirit Home Pty Ltd (the respondent) to complete the project.
The applicant and the respondent entered into an oral agreement in which it was agreed that the applicant and others would pay the respondent a management fee of $12,000 per week to complete the project. In order to secure the payment, $250,000 was paid to, and held by, the Master Builders Association.
A dispute arose between the applicant and respondent about payment of the weekly management fee which was heard in the Queensland Civil & Administrative Tribunal (QCAT). The QCAT Member ordered that the applicant was liable to pay the respondent the sum of $254,612.04 (plus costs and interest), and that the sum of $254,612.04 be satisfied in part, by any monies held by the Master Builders Association.
Appeal Tribunal Proceedings
The applicant appealed the decision of the QCAT Member on a number of grounds, including most notably that the QCAT Member had made a mistake by failing to consider the enforceability of the oral contract, in light of a breach of section 67AAA and the offence provisions of s 67G of the Act. The applicant averred that the QCAT Member failed to consider and apply the decisions in Gemini Nominees Pty Ltd v Queensland Property Partners Pty Ltd, Cant Contracting Pty Ltd v Casella & Anor and Sutton v Zullo Enterprises Pty Ltd in reaching a decision.
Section 67G of the Act provides:
“67G Building contracts to be in writing
(1) A building contractor commits an offence if –
(a) the building contractor enters into a building contract, whether as the contracting party or the contracted party for the contract; and
(b) the building contract is not put into writing –
- if the reasonable cost of the building work the subject of the contract is more than $10000 – before carrying out the building work is started; or
- if the reasonable cost of the building work the subject of the contract is $10000 or less – before carrying out the building work is finished.
Maximum penalty – 80 penalty units.”
It was not disputed on appeal before the Honourable Justice Thomas, QCAT President, and QCAT Member Roney (the Appeal Tribunal) that the respondent was in breach of s 67G(1) because it had entered into a building contract for building work valued in excess of $10,000 and the contract was not put in writing.
The issue for the Appeal Tribunal was whether the effect of section 67G of the Act rendered the oral contract void.
The Appeal Tribunal distinguished the case authorities advanced by the applicant, noting that while a breach section 67G of the Act constitutes an offence, there is no aspect of section 67G which suggests a consequence of breach, other than, or in addition to, the fact that the building contractor commits an offence.
The Appeal Tribunal was also called to consider the effect of section 67E of the Act, which provides inter alia:
“67E Operation of pt 4A
(1) …this part [which includes section 67G] does not have effect to make void or voidable a building contract, or a provision of the building contract, even if:
(a) in entering into the building contract, or the building contract containing the provision, a party to the building contract commits an offence against this part.
(2) However, if a building contract, or a provision of a building contract, is inconsistent with a provision of this part applying to the building contract, the building contract, or the provision (the Act provision) of the building contract, has effect only to the extent it is not inconsistent with the Act provision.”
In determining the effect of section 67E of the Act, the Appeal Tribunal resolved that the statutory provision was ambiguous or obscure, and in the interpretation of the provision took into account extrinsic material by virtue of the power conferred under section 14B of the Acts Interpretation Act 1954 (Qld), namely:
- The explanatory notes to the Queensland Building Services Authority Amendment Bill 1999 (Qld), being the instrument that relevantly introduced Part 4A to the Act; and
- The words of the Honourable Judy Spence, in the second reading speech for the Bill, delivered on 21 July 1999.
Having regard to that extrinsic material, the Appeal Tribunal found that:
- The wording used in s 67E(2) is be possibly confusing and ambiguous;
- Section 67E(1) makes it clear that the contract will not be void or voidable in the event that the contract is inconsistent with the legislation; and
- Section 67E(2) should not be read so as to defeat that operation of s 67E(1) which is clear in its effect.
The Court of Appeal
The applicant sought leave to appeal the decision of the Appeal Tribunal to the Court of Appeal on the following grounds:
- The Appeal Tribunal was mistaken in its interpretation of the Act when it found that a wholly oral building contract was not void or unenforceable; and
- The Appeal Tribunal also make a mistake in failing to consider whether, as a matter of public policy, a wholly oral building contract was enforceable at the suit of a builder who committed an offence by entering into such a contract where Courts, as a matter of principle, should not enforce a contract at the suit of a party who has entered into the contract with the object of committing an illegal act.
The applicant sought a finding from the Court that the respondent’s conduct was expressly contrary to the legislative scheme and any obligation created in the wholly oral contract, in breach thereof, ought properly not be enforced by the Courts.
The respondent maintained its arguments about the operation of section 67G of the Act and the interpretation of section 67E and further argued that to render the contract unenforceable on public policy grounds would result in a substantial detriment to the respondent and a windfall gain to the applicant.
The respondent raised alternative arguments about quantum meruit and unjust enrichment, but it was not necessary for the Court of Appeal to consider those arguments.
Ultimately, the Honourable Justice Boddice, with whom President McMurdo and Justice of Appeal Philippides agreed, ruled that:
“The Appellate Tribunal correctly found that the fact that the respondent had committed an offence, by entering into a building contract which was not reduced to writing, did not render the wholly oral contract between the respondent and the applicant unenforceable. The Appeal Tribunal also correctly found that nothing in section 67E(2) of the Act required a finding that the wholly oral building contract was unenforceable. There are also no good reasons of public policy to support a conclusion that the wholly oral building contract was unenforceable.” .
The applicant’s appeal was dismissed.
The Importance of the Decision
This decision of the Court of Appeal is important because it clarifies the relationship between the provisions of the Act, insofar as they require building contracts to be in writing, and a builder’s entitlement to enforce a contract.
The decision makes it clear that a breach of the Act for failing to have a building contract in writing will not preclude the builder from enforcing their contract.
Although this decision is favourable to builders, it is important to note that builders remain liable under the Act for significant penalties for failing to have the contract in writing.
It is always best-practice to have all contracts for building and construction work in writing to mitigate the likelihood of confusion and to avoid likely penalties being imposed by the Queensland Building and Construction Commission.