Australia: Unlicensed Builders Cannot Use Security Of Payment Legislation In Queensland

In a judgment which will interest all participants in the construction industry, a recent Queensland Court of Appeal decision held that unlicensed builders in Queensland cannot utilise the Building and Construction Industry Payments Act 2004 (Qld) (the Payments Act).

The Court of Appeal in Cant Contracting Pty Ltd v Casella [2006] QCA 538 overturned the Supreme Court judgment of Chief Justice de Jersey who had found that a claimant, despite being unlicensed and subject to the limitations placed on recovering sums under section 42 of the Queensland Building Services Authority Act 1999 (Qld) (QBSA Act), could recover monies claimed in a payment claim as a statutory debt under section 19(2) of the Payments Act. Importantly, the Court of Appeal decision means that the position in relation to unlicensed contractors and their ability to use the Payments Act in Queensland is different to that in New South Wales.

Under a contract entered into on 1 November 2004, Cant Contracting Pty Ltd (Cant) agreed to manufacture, supply and erect five poultry sheds for Casella. Work commenced but issues with payment arose and Cant served a payment claim upon Casella. Under the Payments Act, Casella was required to respond with a payment schedule within 10 business days of receiving the claim but failed to do so. Under section 19 of the Payments Act, an amount claimed in a payment claim ordinarily crystallises into a statutory debt where there is a failure to submit a schedule but this was opposed in this case on the basis that Cant did not, when it carried out the relevant work, hold the requisite building licence.

The crucial issue in this case was whether, Casella having failed to deliver a payment schedule, could resist Cant’s right to judgment for the claimed amount on the basis that the mechanisms established by the Payments Act were subject to the limitations on payment for unlicensed builders under section 42 of the QBSA Act.

Section 42 of the QBSA Act provides limitations to the monetary sums that can be recovered by unlicensed builders. Essentially, a builder is not ‘entitled to any monetary or other consideration’ save for the actual cost of materials and for labour done by persons other than the builder themselves.

Chief Justice de Jersey held that the right to recover money claimed in a payment claim was not subject to the limitations placed on the monetary sums that may be recovered by unlicensed builders by section 42 of the QBSA Act. This was on the following bases:

• If Casella wanted to rely on the absence of a licence in response to the payment claim, it should have raised the licensing issue under a payment schedule.
• The Payments Act only decides payment disputes on an interim basis and there was nothing to prevent Casella subsequently commencing proceedings to finally determine Cant’s proper entitlement. Even if Cant received summary judgment for the claimed amount, Chief Justice de Jersey found that Casella would always have the further opportunity to raise the absence of a licence in subsequent court proceedings.
• The Payments Act did refer to and import certain provisions of the QBSA Act but did not refer at all to section 42 of the QBSA Act. Additionally, there was no qualification to Cant’s ability to receive summary judgment under the Payments Act where there was a failure to issue a payment schedule.
• Reliance on New South Wales Supreme Court decisions Lucas Stuart Pty Ltd v Council of the City of Sydney [2005] NSWSC 840 and Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2004] NSWCA 394 which held that the statutory right to recover the debt prevailed over the absence of the requisite builder’s licence under legislation that was broadly comparable to the Queensland legislation.

Accordingly, at first instance in the Supreme Court, the builder was entitled to utilise the Payments Act and was successful in its application for summary judgment.

The Court of Appeal allowed the appeal by Casella and held that a builder’s ability to use the Payments Act is subject to the limitations placed on that amount that may be recovered under section 42 of the QBSA Act. Its key findings were:

• The sections of the Home Building Act (NSW) and section 42 of the QBSA Act were not comparable and the New South Wales decisions were of no assistance when considering the appeal.
• An unlicensed contractor who ‘is not entitled to any monetary or other consideration’ for doing work under the contract cannot be said to have an entitlement to progress payments under the Payments Act.
• The fact that the Payments Act did not specifically refer to section 42 of the QBSA Act but did to other provisions of the QBSA Act was rejected. The Court of Appeal held that Parliament could not have intended that under the Payments Act an unlicensed contractor could immediately recover the whole of the contract price for doing work in the face of a statutory prohibition in the QBSA Act on a such a contractor recovering any monetary consideration.
• An unlicensed builder is not entitled to enforce its contract and recover its contract price under the QBSA Act. If such a builder was given the right to use the Payments Act, it would then possess the ability to recover higher sums according to the terms of a contract that it cannot enforce. The Court of Appeal found that such overpayment would be unjust and the Payments Act should not benefit builders who cannot enforce the payment provisions of their contracts, especially when the making of such a contract involved an offence.

As a consequence, the Court of Appeal allowed the appeal and dismissed the application for summary judgment. More broadly than this, the Court found that the Payments Act is subject to section 42 of the QBSA Act and that the Payments Act is not an available avenue for such builders to seek payment.

The implications for principals (or indeed, main contractors under subcontracts) is relatively straightforward. With the pendulum swinging heavily towards subcontractors under the Payments Act, they can now avoid the fast track adjudication process where licensing issues manifest themselves. An unlicensed subcontractor will now be completely restricted to recovering the actual cost of supplying other labour and materials (not its own labour or profits) under section 42(4) of the QBSA Act through the courts. Adjudication is now not available. It goes without saying that the relevant building licence and category/ classification of work needs to be assessed prior to contracting but principals should revisit this issue upon receipt of payment claims if relevant.

The obvious implication for contractors is to ensure that their requisite licence is current and compatible with the work they carry out. Prudence dictates that builders should carefully assess the classification of work to be carried out with their category of licence. Given the multitude of categories in Queensland and restrictions relating to building height, it is not unusual for arguments about licensing to develop. Builders need to be aware that not only does the statutory prohibition in section 42 of the QBSA Act apply, there is now no recourse under the Payments Act to take advantage of the payment and adjudication process envisaged by the legislation.

The Supreme Court of Queensland in Gemini Nominees Pty Ltd v Queensland Property Partners Pty Ltd atf The Keith Batt Family Trust [2007] QSC 20 found on 13 February 2007 that a builder who had illegally entered into a ‘cost plus’ contract under section 55 of the Domestic Building Contracts Act 2000 (Qld) (DBC Act) was not able to use the Payments Act. Relying heavily on the decision in Cant Contracting, the Court found that the Payments Act does not apply to a claim from a builder where it is prohibited under the DBC Act from enforcing the contract and as a consequence cannot be entitled to a progress payment under the contract.

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