16 Aug 2012

No licence, no payment, Queensland Supreme Court warns contractors who do unlicensed building work

by Michelle Larin

Contractors or subcontractors need to carefully consider whether they in fact hold the licences that permit them to carry out the works they will be required to perform.

A contractor agrees to do work it is not licensed to perform. Does it have a right to be paid?

A recent decision of the Queensland Supreme Court highlights the need for Queensland contractors to be appropriately licensed to perform the building work they are contracted to undertake (Dart Holdings Pty Ltd v Total Concept Group Pty Ltd [2012] QSC 158). A contractor may lose their contractual right to payment where any part of the work agreed to is work the contractor is not licensed to carry out.

Background

Dart Holdings subcontracted Total Concept Group to undertake the supply and installation of certain items, largely made of glass, as part of the construction of a building in the Brisbane CBD. The contract was for a lump sum of $1.3 million.

During the project period, Total Concept Group served a payment claim on Dart Holdings under the Building and Construction Industry Payments Act 2004 (QLD) ("the BCIP Act"), which Dart Holdings resisted.

An adjudicator determined that Total Concept Group was entitled to payment. Total Concept Group obtained judgment under section 31 of the BCIP Act to enforce the payment. Dart Holdings in turn sought a declaration from the court that the adjudicator's decision was void.

Unlicensed building work

Under section 42(1) of the Queensland Building Services Authority Act 1991 ("the QBSA Act"), "a person must not carry out, or undertake to carry out, building work unless that person holds a contractor's licence of the appropriate class under this Act." If a contractor does perform unlicensed work, it won't be entitled to any monetary or other consideration, subject to subsection 4. Subsection 4 does allow it to recover some remuneration for unlicensed building work, subject to conditions.

Dart Holdings argued that the subcontract it had entered into with Total Concept Group was unenforceable by the subcontractor, as it called for the performance of work it was not licensed to perform under the QBSA Act.

Total Concept Group held two licences under the QBSA Act, one being a "Carpentry" licence, which it claimed covered the work performed. Dart Holdings contended that the work contracted for instead fell under the "Glass, Glazing and Aluminium" licence.

The ultimate question in issue in the proceedings was whether the subcontract called for the performance of work for which the Total Concept Group was not licensed. This required examining the work that was agreed to be performed, rather than that which was performed.

The scope of work

To determine whether the work performed by Total Concept Group exceeded the work permitted by its carpentry licence, the court compared each individual item of work set out in contract with the scope of work authorised by the carpentry licence. In particular, the carpentry licence permitted the contractor to "install windows and doors including framing". Most of the items of work fell within this description in the contract, with the exception of the items involving glazing to certain awnings.

The result – strict interpretation of the QBSA Act

Although Total Concept Group was licensed to perform the majority of the work agreed under the contract, the court strictly applied section 42(1), denying Total Concept Group entitlement to payment for any work under the contract. The court followed an earlier decision of Zullo Enterprises v Sutton [2000] 2 Qd R 196 where it was held that a contract made in contravention of section 42(1) is unenforceable, at least by the person not appropriately licensed.

As a result, Total Concept Group could not make a payment claim under the BCIP Act for any of the work the subject of the contract. The adjudicator's decision was declared void.

The court went on to note that even though the contractor lost its contractual entitlement to payment as a result of breaching section 42(1), it was still entitled to be remunerated upon a restitutionary basis for the work which it lawfully performed under its licences. It could also recover limited payment for the unlicensed work under subsection 4.

Severing the offending clause

Could the breaching terms be severed from the contract so that the remaining parts could be enforced?

No; the contract between the parties was an "entire contract", in that complete performance by one party was a condition precedent to payment or counter-performance by the other. The obligation requiring the unlicensed work could not be severed.

The court implied that the outcome may be different where the payment for a contract is apportioned according to the different parts of work to be carried out, and is not a lump sum contract as in this case.

Implications

This decision has strengthened the position of principals in disputing a payment claim.

Before entering into a contract for building works, parties, particularly contractors or subcontractors, need to carefully consider whether they in fact hold the licences that permit them to carry out the works they will be required to perform. If not, they may be denied the benefit of the contract and any entitlement to recover payment for the work performed (whether licensed or not) under the contract.

For work unlawfully performed, a contractor is limited to recovering some remuneration for the unlicensed works carried out. However, it will need to commence formal court proceedings to recover on a restitutionary basis payment for any of the work lawfully performed under its licences. Attempting to recover payment for work performed through the formal process of litigation is far more complex and expensive than recovery through the BCIP Act.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.