HG Alert: Be Licensed or Lose It All - Apr 2009

The matter of Cook’s Construction Pty Ltd v SFS Pty Ltd (formerly trading as Stork Food Systems Australasia Pty Ltd) was recently handed down by the Queensland Supreme Court’s appeals division. The practical implications of the result in this matter are significant in relation to the operative effect of s 42 of the Queensland Building Services Authority Act 1991. This section relates to the implications of an unlicensed builder illegally carrying out building works.

Cook’s Construction Pty Ltd (CCPL) had carried out earthworks and concrete works for SFS Pty Ltd (Stork) under a subcontract made in June 1998. These works were building works as defined by the Act. Between July 1998 and April 2000, CCPL made claims for progress payments for work done which were paid by Stork, totalling $15.5 million. In 2001, CCPL commenced proceedings to recover moneys unpaid for work done under the subcontract. Stork resisted the CCPL claim, and made a counterclaim under s 42(3) of the Act, asserting that CCPL was not in fact entitled to any monetary or other consideration for the building work carried out under the subcontract, as it was not licensed under the Act.

CCPL claimed that it was entitled to payment for the building work in accordance with s 42(4), which allows a reasonable remuneration for carrying out building work as an exception to the operation of s 42(3).

In August 2008, the trial judge gave judgment in favour of CCPL on a partial amount of its contractual claims and in favour of Stork on its counterclaim for restitution for its payments to CCPL of $9.9 million. In a separate judgment in September 2008, the trial judge awarded some $5 million as interest in favour of Stork and consolidated the claim and counterclaim. The net result being that judgment was given in favour of Stork in the sum of $15.2 million.

This decision was upheld unanimously on appeal. The judgment provides a detailed assessment of the purpose, construction and effect of s 42 of the Act.

Section 42(3) provides that an unlicensed person who carries out building work is not entitled to any monetary or other consideration. Since amendments to the Act in 1999 s 42(4) now provides a qualification to s 42(3) and allows reasonable remuneration subject to some conditions. Section 42(4) amongst other things does not allow the unlicensed contractor to claim certain items such as the supply of the contractor’s own labour, profit and costs not reasonably incurred.

In this case, it was held that s 42(3) is only affected to the extent that a claim for reasonable remuneration by the contractor is made out in conformity with s 42(4), and the onus of proof must lie with the unlicensed contractor. In other words, if an unlicensed contractor performs work and seeks to claim the cost expended for the work, it must prove those costs. Their Honours asserted that this was consistent with a proper construction of the legislation and the public policy considerations underpinning it.

The result of this appeal has the effect of reinforcing that s 42 of the Act will prevent an unlicensed contractor from recovering moneys owed for the performance of building work. If moneys are paid to an unlicensed contractor for performing building work which requires a licence the moneys cannot be retained. Although s 42(4) will allow for the recovery of moneys actually expended for the supply of materials and labour, the unlicensed contractor will not be able to recover items such as profit or the contractor’s own labour. Furthermore, the unlicensed contractor will have committed an offence under s 42(9) and may be penalised.

HopgoodGanim recommendation

In this particular case, CCPL did not prove its costs of carrying out building work, and the result was that they had to pay Stork a sum in excess of $15 million. The Court has illustrated that it requires strict compliance with the Act and contractors must be licensed for the building work they perform.

This matter demonstrates the importance of having a valid licence to perform building work. Contractors should ensure that licence is current and that it encompasses the works which they intend to perform. This will avoid the situation where a significant amount of work has been performed and no recourse for payment is available.

For further information regarding construction licensing, please contact HopgoodGanim’s Construction, Infrastructure and Major Project specialists.