In Nichols v Earth Spirit Homes Pty Ltd  QCA 219 (Nichols), the Queensland Court of Appeal held that a contract for 'building work'1 which did not comply with section 67G of the QBCC Act was, nonetheless, enforceable.
Generally we do not start these e-alerts with a disclaimer, but, on this occasion, it is necessary to make it clear that we are not suggesting that oral contracts for 'domestic building work'2 are enforceable. That is clearly not the case3.
In 2007, Mr Nichols entered into a contract with Earth Spirit Homes Pty Ltd (Earth Spirit) for the construction of 10 houses. However, the parties terminated that contract in 2012. Subsequently, Mr Nichols and Earth Spirit entered into an oral agreement. It was a term of that agreement that Mr Nichols would pay Earth Spirit a weekly 'management fee' to complete the project. A dispute arose as to the payment of the management fee. At first instance (before the Queensland Civil and Administrative Tribunal (QCAT)) Mr Nichols was found liable to pay the management fee. That decision was confirmed by the QCAT Appeal Tribunal. Mr Nichols then appealed to the Queensland Court of Appeal.
The Queensland Court Appeal
Before the Queensland Court of Appeal, Mr Nichols advanced two arguments:
- Section 67G of the QBCC Act rendered the contract with Earth Spirit unenforceable because the contract was not in writing; and
- On public policy grounds, the Court should not enforce a contract entered into in breach of section 67G of the QBCC Act.
The Court rejected both arguments.
Section 67G of the QBCC Act relevantly provided that:
67G Building contracts to be in writing
1. A building contractor commits an offence if—
(b) the building contract is not put into writing—
Maximum penalty—80 penalty units
As to the first point of Mr Nichols' argument, the Court held that, although a breach section 67G was an offence:
The Court found support for this view in section 67E(1) of the QBCC Act which:
and section 67E(2) of the QBCC Act which:
As to the second point of Mr Nichols' argument, the Court held that the contract was entered into in circumstances where previous contractual arrangements had been terminated and where the wholly oral building contract was entered into at the express request of Mr Nichols (or his agent) and there was no deliberate attempt by Earth Spirit to circumvent the Act.
Take home points
Frankly, Nichols confirmed what the building industry already thought was the case. That said, it does bring some issues into focus:
- First, whilst it would appear that Mr Nichols' first argument was soundly rejected, it is difficult to say what impact Mr Nichols' conscious request to enter into an oral contract played in the rejection of his second argument by the Court. Whilst we think it is the better view that an oral contract of the type dealt within in this case is enforceable (regardless of the background circumstances), it remains arguable (though, perhaps, not strongly arguable) that an oral contract entered into in different circumstances could be successfully challenged on public policy grounds;
- Second, by entering into the oral contract, Earth Spirit breached section 67G of the QBCC Act. Although the contract was enforceable, Earth Spirit did expose itself to a fine and (potentially more seriously) suspension or cancellation of its licence by the Queensland Building and Construction Commission4;
- Third, although the Court accepted that the oral contract was (in this case enforceable), we cannot overemphasise the fact that having a written between the parties makes sense from both a legal and a practical point of view. From a legal standpoint, enforcing a well drafted written contract is generally a much simpler (and cost effective) exercise, when attempting to enforce an oral agreement. From a practical point of view, having a written contract also allows the parties to clearly understand their rights and obligations and to obtain legal advice where necessary, which (hopefully) will lead to fewer disputes;
- Fourth, even if the Court had accepted that the contract was
unenforceable, a builder such as Earth Spirit may have had other
rights of recovery, for example5:
- A claim in restitution based on unjust enrichment6; and
- To the extent that such a claim remains distinct from a claim of the type dealt with in Pavey & Matthews, a claim in debt.
As such, principals should remember that having a construction contract declared unenforceable may not completely disentitle a contractor to payment.
1 Defined in Schedule 2 to the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act)
2 Defined in section 4 of Schedule 1B to the QBCC Act
3 See sections 13(5) and 14(2) of Schedule 1B to the QBCC Act
4 See section 48(f) of the QBCC Act
5 Cf section 42(3) of the QBCC Act; see Sutton v Zullo Enterprises Pty Ltd  2 Qd R 196
6Based on Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 (Pavey & Matthews), this issue was argued but not dealt with in the Judgment as the Court accepted that the contract was enforceable
7 The proper name for the claim is a claim for indebitatus assumpsit ; Gino D'Alessandro Constructions Pty Ltd v Powis  2 Qd R 40
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