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Yongwoo Park v Betaland Pty Ltd QCAT 228
Yongwoo Park v Betaland Pty Ltd  QCAT 228
Betaland Pty Ltd
On the papers
Acting Deputy President Brown
5 July 2017
CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – PERFORMANCE OF WORK – REMEDIES FOR BREACH OF CONTRACT – DAMAGES – MEASURE OF – where builder performed unlicensed building work – where contract silent on entitlement to terminate – where finding of implied term that builder be licensed to perform building work – where implied term found to be an essential term – entitlement of homeowner to terminate contract for breach of essential term – entitlement of homeowner to recover, pursuant to s 42 of the Queensland Building and Construction Commission Act 1991 (Qld), monies paid to the builder
Queensland Building and Construction Commission Act 1991 (Qld), s 3, s 42, s 77(3)(h)
ACN 096 278 483 Pty Ltd v Vercorp Pty Ltd  QCA 189
Bellgrove v Eldridge (1954) 90 CLR 613;  HCA 36
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337;  HCA 24
Cook's Construction P/L v Stork Food Systems Australasia P/L  QCA 75
Douglas v Cicirello  WASCA 226
Marshall v Marshall  1 Qd R 173
Mertens v Home Freeholds Co  2 KB 526
Robinson v Harman (1848) 1 Ex 850
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359;  HCA 21
Shirlaw v Southern Foundries (1926) Ltd (1939) 2 KB 206
Sutton v Zullo Enterprises Pty Ltd  2 Qd R 196;  QCA 417
Thompson v Shen and Kao  QCAT 33
Tramways Advertising Pty Limited v Luna Park (NSW) Pty Limited (1938) 38 SR (NSW) 632
Williams v Stone Homes P/L & Anor  QDC 64
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act).
REASONS FOR DECISION
- Mr Park contracted with Betaland in respect of certain building work to be undertaken at Mr Park’s residence. Betaland was not licensed to undertake the building work. Mr Park says that the building work is defective. Mr Park has filed an application for a domestic building dispute. He seeks the recovery of damages.
- Betaland has failed to file a response to the application. In accordance with directions made by the Tribunal, Mr Park is entitled to a final decision in the proceeding. The issues for determination are:
- What are the consequences of Betaland performing unlicensed building work?
- Did Mr Park validly terminate the contract?
- What is Mr Park’s entitlement to damages?
The consequences of Betaland performing unlicensed building work
- The contract entered into between the parties required Betaland to lay a concrete driveway and pathway, undertake concreting work in the garden, remove a retaining wall and construct a new retaining wall, gate and passage cover. Mr Park agreed to pay to Betaland $12,000.00 with $6,000.00 to be paid upon commencement of the work and $6,000.00 to be paid upon completion of the work.
- I find that the building work performed by Betaland is associated work. Associated work is domestic building work. Domestic building work is reviewable domestic work. A domestic building dispute includes a claim or dispute arising between a building owner and a building contractor relating to the performance of reviewable domestic work or a claim or dispute in negligence related to the performance of reviewable domestic work. A domestic building dispute is a building dispute. The Tribunal may decide a building dispute. The Tribunal’s powers to resolve a building dispute include awarding damages and interest, ordering the rectification of defective work and awarding costs. I find that the Tribunal has jurisdiction to hear and determine Mr Park’s application for a domestic building dispute.
- A person must not carry out, or undertake to carry out, building work unless the person holds a contractor’s licence of the appropriate class under the Queensland Building and Construction Commission Act 1991 (Qld) (“QBCC Act”). The effect of s 42(1) of the QBCC Act is that an unlicensed person is prohibited from either entering into a contract to perform building work or actually performing building work. The consequence of this prohibition is that the contract is unenforceable by the builder.
- Whether a contract, entered into in contravention of s 42(1), is enforceable by the homeowner is central to the issue of Mr Park’s entitlement to damages.
- In Marshall v Marshall McPherson JA held:
The Act obviously has a regulatory function of which the main object is to protect building owners or “consumers” from incompetent or dishonest builders.
- In Sutton v Zullo Enterprises Pty Ltd the Court of Appeal expressly left open the question of whether a contract entered into in contravention of s 42(1) was enforceable by the innocent party. In Sutton McPherson JA held:
Whether the other party is also disabled from enforcing it is perhaps another matter. The decision in Re Mahmoud & Ispahani  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.
- The enforceability of a contract, entered into in contravention of s 42(1) of the QBCC Act, by the innocent party was considered by Dorney QC DCJ in Williams v Stone Homes P/L & Anor where his Honour held:
By whatever route is taken, I conclude that the ability of the plaintiffs to sue the defendant for breaches of contract is not inhibited by any breach that might be found to have been committed by the defendant of the QBSA Act.
- Dorney QC DCJ considered two matters to be of importance in reaching this conclusion. Firstly, the contract was not for an illegal purpose. Secondly, there was nothing in the plaintiff’s claim that sought to recover ‘consideration’ pursuant to the contract between the parties. His Honour considered the decision of the Full Court of the Supreme Court of New South Wales in T P Rich Investments Pty Ltd v Calderon and found:
Guided by the discussion of illegality in TP Rich Investments P/L v Calderon  NSWR 709, I determine that the oral agreement between the defendant and third party was not made with the “intention” of either party to make use of the subject matter for an unlawful purpose. Therefore, it is not unenforceable.
- In Cook's Construction P/L v SFS 007.298.633 P/L (formerly trading as Stork Food Systems Australasia P/L), Keane JA traversed in some detail the legislative history of the amendments to s 42 of the (then) QBSA Act. Nothing in the extrinsic material referred to by his Honour indicates an intention by the legislature to deprive an owner of their contractual rights against a builder in circumstances where, for example, the builder fails to disclose their unlicensed status or where the builder fraudulently asserts that they are the holder of a licence.
- The objects of the QBCC Act include the regulation of the building industry to ensure the maintenance of proper standards and to ensure a reasonable balance between the interests of building contractors and consumers; and to provide remedies for defective building work. The QBCC Act has a regulatory function of which the main object is to protect building owners or ‘consumers’ from incompetent or dishonest builders.
- The Queensland Home Warranty Scheme established by the QBCC Act provides a level of protection to building owners for defective and incomplete residential building work. However, coverage for unlicensed building work under the Scheme only extends to work carried out under a contract with a person fraudulently claiming to hold the required license. Building owners, in respect of residential construction work, who cannot satisfy the requirements of s 69(2)(a)(iii) of the QBCC Act cannot claim under the Scheme for defective or incomplete building work performed by an unlicensed builder. Similarly, building owners who enter into a contract for the performance of non residential building work are not covered by the Scheme. The principles underpinning the Scheme were the subject of consideration in Marshall and it is useful to set out in some detail the judgement of McPherson JA:
A principal object of the legislation, both in its original and in its current form, is to prevent unlicensed builders from doing certain kinds of building work. Substandard workmanship and materials are, plainly enough, a principal target of the statutory prohibition: see s. 3(a)(i). Preventing incompetent and unlicensed builders from doing building work, and penalising them if they do so, is one method of achieving that object. On occasions, however, even competent builders make mistakes and, having done so, sometimes become insolvent or for other reasons are not worth suing for the loss sustained. One object of the legislation was, as I suggested in Gino D’Alessandro Constructions v. Powis  2 Qd.R. 40, 54–56, to establish and maintain the insurance scheme, which is now contained in Part 5 of the Act. It is funded by premiums paid by building contractors, from which claims by building owners or “consumers” can be satisfied: cf. Pavey & Matthews Pty Ltd v. Paul (1987) 162 C.L.R. 221, 229.
Under the statutory scheme, a building contractor must, before commencing residential construction work, pay to the Queensland Building Services Authority the appropriate insurance premium: s. 68(1). When an insurance premium is paid in respect of residential construction work, a certificate of insurance issues: s. 69(1). The insurance policy comes into force if a consumer (meaning a person for whom the building work is carried out) enters into a contract for the performance of residential construction work, in which event the contract is imprinted with a licensed contractor’s licence card endorsed to show that the licensee may lawfully enter into contracts to carry out residential construction work: see s. 69(2). It is true that s. 69(2) applies whether or not an insurance premium has been paid or an insurance certificate has issued: s. 69(3). It would nevertheless go far to diminish the funding available for the statutory insurance scheme if unlicensed builders were able to receive and retain money for doing residential construction work without complying with these provisions and with the licensing requirements of the Act. The insurance fund would be progressively depleted without receiving many of the premiums that were intended to form its source.
- There is an obvious rationale for the legislature restricting the entitlement of a building owner to claim under the Scheme for defective or incomplete unlicensed building work to those circumstances where the builder has fraudulently misrepresented their license status. The Scheme does not however provide complete coverage for building owners even if a home owner is able to establish fraud by an unlicensed builder. The Scheme provides cover for the rectification of defects in residential building work. Coverage for defective building work requires a claim to be lodged by a building owner within prescribed time limits and a finding by the QBCC as to a ‘defect’. The QBCC may decide that particular work is not defective in which case, and subject to the exercise by the home owner of any rights to review that decision, the home owner is not entitled to coverage under the Scheme. This does not however preclude a building owner from pursuing a common law claim against a builder for defective building work. Whether building work is, or is not, defective will be a matter for determination by a court or the Tribunal.
- The Scheme is therefore not comprehensive and a building owner has the right to pursue a claim against a builder for defective or incomplete building work or work otherwise not performed in conformity with the relevant contract.
- It might be argued that the Scheme provides adequate protection to home owners adversely affected by unlicensed building work and that this evidences an intention by the legislature that the Scheme be the only remedy available to such home owners. Clearly however the Scheme does not provide comprehensive cover for defective and incomplete building work. In my view, the availability of coverage under the Scheme does not support the conclusion that the consumer protections afforded by the Scheme is evidence of an intention by the legislature to prohibit the enforcement by a building owner of a contract for the performance of unlicensed building work.
- It would seem incongruous, and inconsistent with the objectives of the QBCC Act, for an owner to be deprived of the right to enforce a contract against an unlicensed builder in respect of defective or incomplete building work. This is particularly so when one considers the mischief toward which s 42 is directed.
- I consider it relevant that the contract between Mr Park and Betaland was not for an illegal purpose. Mr Park’s claim against Betaland is for breach of contract and not for the recovery of any consideration paid pursuant to the contract. There is no evidence to suggest that Mr Park was aware of Betaland’s unlicensed status at the time the contract was entered into. Finally the prohibition in s 42, and the consequences of the failure to comply with the section, are directed at the unlicensed builder and not the building owner. I agree with the conclusion reached by Dorney QC DCJ in Williams and find that the contract is enforceable by Mr Park.
- By s 42(3) of the QBCC Act, a builder is not entitled to any monetary or other consideration for undertaking building work in respect of which the builder does not hold a licence. In Cook's Construction P/L v SFS 007.298.633 P/L (formerly trading as Stork Food Systems Australasia P/L) the Court of Appeal explained the effect of s 42(3):
Section 42 of the Act exhibits a clear intention to render illegal both the making and the performance of a contract by an unlicensed builder insofar as building work is concerned. Section 42(3) makes it clear that the consequence of a contravention of s 42(1) by an unlicensed builder is that the builder is unable to recover payment for unlicensed building work. Those consequences include the recovery of payments made to the builder by the other party to a contract for unlicensed building work. (emphasis added)
- I find that Betaland was not licensed to perform building work. I find that Betaland entered into the contract with Mr Park and undertook the building work in contravention of s 42(1) of the QBCC Act.
- An unlicensed builder may claim reasonable remuneration for performing building work. The onus is upon the builder, in this case Betaland, to prove a claim pursuant to s 42(4) of the QBCC Act. No such claim has been made by Betaland. In fact, Betaland has taken no part in the proceeding and has failed to comply with all Tribunal directions. Betaland is not entitled to any remuneration for the building work it carried out.
- The entitlement of a homeowner to recover monies paid to an unlicensed builder is the reciprocal of the builder’s disentitlement to receive the payment. Mr Park is entitled to recover from Betaland, pursuant to s 42(3) of the QBCC Act, the sum of $6,000.00 paid under the contract.
Was Mr Park entitled to terminate the contract?
- Betaland ceased work before the building work had been completed. Mr Park says that the contract was terminated on 28 November 2015 on the basis that the work performed by Betaland was defective. Mr Park says that Betaland agreed to ‘withdraw’ their work as they ‘faced difficulty in completing the work due to their lack of expertise’. He says that Betaland ‘withdrew their resources and completed works… on 30 November and 1 December 2015’. Mr Park sent a letter to Betaland on 17 December 2015 in which he demanded repayment of the $6,000.00. The letter refers to the allegations of defective building work and to Betaland performing the work ‘with no valid licence’.
- As I have observed, Mr Park says that he terminated the contract on the basis of what he says was defective work performed by Betaland. Perhaps unsurprisingly, the contract between the parties contains no termination clause. There is no evidence to suggest that Mr Park gave Betaland an opportunity to remedy the defective work. Given Betaland’s unlicensed status, it could not in any event have undertaken rectification work.
- I have found that the building contract is enforceable by Mr Park. Mr Park was entitled to terminate the contract if he had a right to do so as at the date of the purported termination, even though he may have failed to nominate a sufficient ground at the time.
- Breach of an essential term of a contract will entitle the innocent party to terminate. An essential term is one that is a condition of the contract. A condition is a promise of such importance that the promisee would not have entered the contract without an assurance of strict or substantial performance of the promise.
- A term of a building contract that the builder be appropriately licensed to perform the work is, in my view, an essential term. The contract between the parties contained no express term to this effect. An essential term may however be implied. A term may be implied into a contract in order to give business efficacy to a contract, or it may result from a course of dealings, or it may arise as a result of custom or trade usage. In order for a term to be implied it must be reasonable and equitable; it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; it must be so obvious that 'it goes without saying'; it must be capable of clear expression; it must not contradict any express term of the contract.
- The requirement for Betaland to be licensed was necessary in order to give business efficacy to the contract. Such a term is capable of clear expression, is reasonable and is one that goes without saying.
- I find that it was an implied term of the contract that Betaland was licensed to perform the building work. It was an essential term of the contract. I find that had Mr Park known that Betaland was not licensed to perform the building work, he would not have entered into the contract.
- I find that Mr Park was, at the time he purported to terminate the contract, entitled to terminate the contract for breach by Betaland of the essential term of the contract that it was licensed to perform the building work. I find that Mr Park validly terminated the contract.
- Mr Park says that after the contract was terminated and Betaland left the site, he arranged to have contractors undertake rectification and completion work.
- Mr Park complained about the work performed by Betaland to the Queensland Building and Construction Commission (“QBCC”). A representative of the QBCC conducted an inspection of the building works on 11 March 2016 and a report was prepared. Betaland did not attend the inspection. The report refers to 3 complaint items:
Rain on the day that concrete was laid undermined the strength of the concrete; no wire mesh was installed; irregular thickness of concrete; concrete splashed onto adjacent pavers.
The work is identified as having been performed near the backyard of the resident where the laundry hanger is located. The inspection found that the concrete infill slab had been poorly finished and not in a tradesman like manner. The slab appeared to otherwise performing its function.
The thickness of the concrete driveway was irregular and the ins and outs of the surface wire mesh were not suitable for the driveway.
The contractor (Betaland) had returned and removed the driveway. Another contractor had been engaged to install the driveway. No further action was recommended as the QBCC had not inspected the driveway prior to its removal.
Decomposed wooden structure was required to be removed prior to the construction of the retaining wall beside the driveway, however the new wall was constructed by placing materials on to the existing wall.
Existing retaining wall timbers had not been removed. New timbers were installed only where old timbers could be easily removed. Sections of the wall observed to be leaning outwardly and had been poorly installed and not in a tradesman like manner.
- The QBCC issued a Direction to Rectify in respect of complaint items 1 and 3. Betaland did not comply with the Direction.
- Mr Park says that the building work carried out by Betaland included concreting work in the rear garden of the property, the construction of the retaining wall and the partial construction of the concrete driveway. He says that ‘roughly 50% of what was originally contracted’ was performed by Betaland. Mr Park says that the work performed by Betaland was ‘with significant defect (sic) that requires removal and restoration for my property to retain its original value’.
- In support of his claim for damages, Mr Park relies upon a quote from Karls Construction. The quote is for $6,050.00 and relates to the cost of rectifying defects 1 and 3 identified in the Direction to Rectify. Mr Park also relies upon two (2) quotes totalling $10,959.30 from McGinn Concrete relating to the construction of the driveway.
- I accept that the building work performed by Betaland identified in items 1 and 3 of the QBCC Direction to Rectify was defective. I accept that it was necessary for Mr Park to engage another building contractor to rectify the defective work. I accept that the cost of rectifying the defective work is $6,050.00 as set out in the Karls Construction quote.
- The alleged defective construction of the driveway is more problematic. The QBCC report states that the driveway had been removed before it could be inspected. Mr Park says that his property was ‘on the brink of great compromise by heavy rainfall’ and that he was left with no choice other than to employ another contractor to rectify the driveway. The quotes by McGinn Concrete make no mention of prior defective work. There is no evidence that the construction of the driveway by Betaland was in any way defective and I decline to make such a finding.
- I accept however that the construction of the driveway remained incomplete at the time Betaland left the site. I accept that approximately one third of the driveway had been concreted and reinforcing mesh had been laid over one third of the remaining length of the driveway. I accept that it was necessary for Mr Park to engage an alternative contractor to complete the construction of the driveway given Betaland’s unlicensed status.
Mr Park’s entitlement to damages
- I have found that Betaland was in breach of an essential term of the contract and that Mr Park was entitled to terminate the contract.
- The principals in relation to the assessment of damages in building disputes are clearly set out in Bellgrove v Eldridge:
In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract.
But the work necessary to remedy defects in a building and so produce conformity with the plans and specifications may, and frequently will, require the removal or demolition of some part of the structure. And it is obvious that the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. Indeed - and such was held to be the position in the present case - there may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place. In none of these cases is anything more done than that work which is required to achieve conformity and the cost of the work, whether it be necessary to replace only a small part, or a substantial part, or, indeed, the whole of the building is, subject to the qualification which we have already mentioned and to which we shall refer, together with any appropriate consequential damages, the extent of the building owner's loss.
- The work carried out, or to be carried out, necessary to achieve the conformity with the plans and specifications, must be must be a reasonable course to adopt.
- Mr Park was entitled to have the building work performed by Betaland in accordance with the terms of the contract. He is entitled to be awarded damages which, so far as possible, would place him in the same position as if the contract had been performed. Mr Park’s loss is quantified by ascertaining the amount required to rectify the defective work and complete the incomplete work in order to give Mr Park the equivalent of the building works which are substantially in accordance with the contract.
- I accept that the cost of the rectification work in respect of defect items 1 and 3 contained in the QBCC Direction to Rectify is $6,050.00. I accept that the cost of the completion of the driveway is $10,959.30. This is a total figure of $17,009.30. Mr Park has expended this amount to rectify and complete the building works Betaland was contractually obliged to perform. I am satisfied that the work required to be carried out and the cost of the work is reasonable. Mr Park is entitled to recover from Betaland damages for breach of contract in the amount of $17,009.30.
- The contract price was $12,000.00. Mr Park had only paid 50% of the contract amount when he terminated the contract. A balance of $6,000.00 remained unpaid under the contract. Should the amount of $6,000.00 be deducted from the cost of rectification and completion?
- Generally, the assessment of damages for breach of a building contract requires any amount that would have been due and payable to the builder by the homeowner, had the builder completed the building works in accordance with the terms of the contract, to be deducted.
- Here, Betaland was not entitled to any payment under the contract and was expressly prohibited by s 42 of the QBCC Act from seeking or retaining any such payment. Accordingly the principle in Mertens does not apply.
- As the Court of Appeal has observed, to the extent that s 42(4) of the QBCC Act ameliorates the position of a builder in respect of, for example, a claim for restitution, it is an exhaustive statement of that amelioration. I therefore make no reduction in the assessment of damages for the $6,000.00 payable by Betaland to Mr Park being the monies paid by Mr Park under the contract. This outcome achieves the appropriate balance between ensuring homeowners are protected from incompetent or dishonest builders and the clear intent of the legislature to penalise builders by requiring them to disgorge monies paid for the performance of unlicensed building work.
- Accordingly, there will be judgement for Mr Park in the amount of $23,009.30.
- Other than as provided under the QCAT Act or an enabling Act, each party to a proceeding in the Tribunal must bear the party’s own costs. The QBCC Act is an enabling Act. In deciding a building dispute, the Tribunal may award costs. It is appropriate that Mr Park recovers the cost of filing the application for domestic building dispute.
- The final orders are:
- Betaland Pty Ltd must pay to Yongwoo Park the amount of $23,009.30 within twenty eight (28) days of the date of this decision.
- Betaland Pty Ltd must pay to Yongwoo Park costs in the amount of $305.00 within twenty eight (28) days of the date of this decision.
Contract dated 24 November 2015.
QBCC Act, s 42(1).
Sutton v Zullo Enterprises Pty Ltd  2 Qd R 196.
 1 Qd R 173.
 2 Qd R 196.
 QDC 64, .
 NSWR 709.
 QDC 64, .
 QCA 75.
QBCC Act, s 3(a)(i).
Ibid, s 3(a)(ii).
Ibid, s 3(b).
Marshall v Marshall  1 Qd R 173.
QBCC Act, Part 5.
QBCC Act, s 69(2)(a)(iii).
QBCC Act, s 42(3).
 QCA 75, .
QBCC search for licensee.
QBCC Act, s 42(4).
See Thompson v Shen and Kao  QCAT 33.
Marshall v Marshall  1 Qd R 173, 176.
Statement of Yongwoo Park dated 28 February 2017.
Letter Applicant to Respondent dated 17 December 2015.
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359; ACN 096 278 483 Pty Ltd v Vercorp Pty Ltd  QCA 189.
Tramways Advertising Pty Limited v Luna Park (NSW) Pty Limited (1938) 38 SR (NSW) 632.
Douglas v Cicirello  WASCA 226.
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.
Shirlaw v Southern Foundries (1926) Ltd (1939) 2 KB 206.
QBCC Resolution Services Initial Inspection Report dated 11 March 2016.
Direction to Rectify no. 0100240 dated 15 March 2016.
Statement of Yongwoo Park dated 25 January 2017.
(1954) 90 CLR 613.
Robinson v Harman (1848) 1 Ex 850.
Mertens v Home Freeholds Co.  2 KB 526, 535.
Cook's Construction P/L v Stork Food Systems Australasia P/L  QCA 075.
QCAT Act, s 100.
QBCC Act, s 77(3)(h).
- Published Case Name:
Yongwoo Park v Betaland Pty Ltd
- Shortened Case Name:
Yongwoo Park v Betaland Pty Ltd
 QCAT 228
A/Deputy President Brown
05 Jul 2017