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Focus: Unlicensed builders' right to payment in Queensland

7 May 2009

In brief: The Queensland Court of Appeal has confirmed that an unlicensed builder's entitlement to receive payment, or retain monies already paid, is limited by the requirements of the Queensland Building Services Authority Act 1991, even where this outcome might be seen as being unjust. Partner Ren Niemann (view CV) and Senior Associate Suzy Cairney report.

How does it affect you?

  • If a builder who is not licensed under the Queensland Building Services Authority Act 1991 (Qld) (the Act) contracts to carry out 'building works', the Act 'sterilises' the rights that the builder may otherwise have to claim payment under the contract and at common law (such as quantum meruit claims).
  • Section 42(4) of the Act, however, preserves some entitlement of the contractor to claim 'reasonable remuneration' at common law.
  • It is for the builder to prove (and not for a principal to disprove) its claim to 'reasonable remuneration' under s42(4). Failure of the builder to do so could mean the loss of the right to any payment, including the right to retain monies paid for work already performed. 

Background

In Cook's Construction Pty Ltd v SFS 007.298.633 Pty Ltd (formerly trading as Stork Food Systems Australasia Pty Ltd) [2009] QCA 75, the respondent, Stork, was a contractor engaged to build an ammonium nitrate plant at Moura in central Queensland. Stork engaged Cook's Construction Pty Ltd (CCPL) as its subcontractor to perform earthworks and concrete works for the project. 

Several progress payments were certified and paid to CCPL, but, in March 2001, CCPL commenced proceedings against Stork, claiming payment of unpaid monies for work done under the subcontract. Stork filed a counterclaim on the basis of s42(3) of the Act for repayment of sums it had already paid to CCPL, because CCPL (in breach of the subcontract and contrary to the Act) was not licensed.

CCPL's claim for payment rested upon s42(4) allowing the making of a claim by an unlicensed builder for 'reasonable remuneration'. At first instance, however, CCPL failed to provide satisfactory evidence to allow the court to assess 'reasonable remuneration'. The trial judge therefore found against CCPL and in favour of Stork.

As a result of the trial, Stork was found to be entitled to recover its counterclaim of nearly $10 million of the subcontract price, together with some $5 million as interest on that sum, without being required to give any credit for the value of the work CCPL had already performed under the subcontract. It is, perhaps, not surprising that CCPL appealed this decision.

The decision

CCPL's appeal failed on all counts. 

The court felt that the language of ss 42(3) and 42(4) was a clear statement of legislative intention that an unlicensed builder may recover payment for building work carried out in contravention of s42(1), but only to the extent that it proves a claim in conformity with s42(4).

Section 42(4) does not confer a right to payment in itself. Instead, it assumes the existence of a common law right to remuneration, which it preserves against the operation of s42(3), while imposing conditions upon the availability and extent of that right.

Importantly, the Court of Appeal agreed that the onus of proving a claim in conformity with s42(4) is on the unlicensed builder who claims the entitlement, and who, in practice, will have the information necessary to formulate that claim.

In the absence of a claim made in conformity with s42(4), the court held that the operation of s42(3) is, for practical purposes, unqualified as s42(3) is 'concerned to sterilise any claim which might otherwise be made under a contract or under the common law by an unregistered builder'. Since CCPL had failed to prove a claim in conformity with s42(4), its claim for payment failed.

The corollary of this was that Stork was entitled to recover monies that it had already paid to CCPL. This might have been seen as a 'windfall benefit' to Stork, but the Court of Appeal rejected this argument. 

CCPL separately argued that Stork's recovery of monies paid should only be allowed if mutual restoration of the parties to their pre-contractual position was possible. The court did not accept this, on the basis that it would, in effect, ignore the purpose and application of s42(3). Stork was therefore entitled to retain the benefit of the work that CCPL had performed for it.

Appeal Justice Keane said that the courts' concern to avoid an unjust outcome in a particular case should not distort the operation of a statute intended to encourage the licensing of builders by disadvantaging unlicensed builders and advantaging consumers of building services at their expense.

Consequences

This case could have significant implications for unlicensed builders and for those contracting with them. An unlicensed builder carrying out 'building work' in Queensland does not have an enforceable entitlement to payment. Unless it can establish a common law right to payment and make a claim in conformity with s42(4), it runs the risk that it will receive no payment whatever for the work performed.

The courts have shown clearly that they will give effect to the spirit and wording of the Act, even if the outcome in an individual case might seem to be unjust.

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