Stewart Ross v John Ratcliff [1988] ACTSC 25 (10 May 1988)

SUPREME COURT OF THE ACT

STEWART ROSS v. JOHN RATCLIFF
S.C. No. 1 of 1987
Contract

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Contract - statutory illegality - appeal from Magistrate's decision that defendant (appellant) pay plaintiff (respondent) money due under contract - contract for plaintiff to sink bore on defendant's property - plaintiff drilled bore without requisite statutory licence.

Contract - statutory illegality - whether illegally performed contract enforceable - relevance of provision of statutory penalties for contravention - relevance of statutory intention.

Vita Food Products, Incorporated v. Unus Shipping Company Limited (in Liquidation) (1939) AC 277 at 293

The Law of Contract by Professor D.W. Greig and Mr. J.L.R. Davis (1987)

Anderson Ltd. v. Daniel (1924) 1 KB 138

Re Mahmoud and Ispahini (1921) 1 KB 716

John S. Chappel Pty. Ltd. v. D.K. Pett Pty. Ltd. (1971) 1 SASR 188 at 197

Cunningham v. Cannon (1983) 1 VR 641 at 646 per King J.

Yango Pastoral Company Pty. Limited and Others v. First Chicago Australia Limited and Others [1978] HCA 42; (1978) 139 CLR 410

HEARING

CANBERRA
10:5:1988

ORDER

The appeal be dismissed.

The judgment in favour of the respondent for $5,200 be confirmed.

The appellant defendant pay the respondent's costs.

DECISION

The defendant (the appellant) appeals from a decision of a Magistrate who found in favour of the plaintiff (the respondent) in a claim for money due under a contract to sink a bore on the defendant's land at Bungendore in New South Wales. The proper law of the contract appears to be the law of New South Wales but counsel for both parties agreed at the hearing before the Magistrate and on the appeal that nothing turned on any question of conflict of laws or of jurisdiction. A number of matters were raised in defence at the hearing but the only one in issue in the appeal is the plea of illegality. It was alleged on behalf of the defendant that it was an implied term of the contract that it be performed by the plaintiff in a lawful manner and that the contract was performed by the plaintiff in an unlawful manner, namely in that he drilled a bore in contravention of s. 112 of the Water Act 1912 of New South Wales. That section insofar as it is relevant provides as follows:

"Bores to be licensed

112.(1) The sinking of a bore shall not be commenced,
nor shall a bore be enlarged, deepened,
or altered unless -

(a) in pursuance of a licence issued under this
Part; . . . . . .

(2) If any person contravenes the provisions
of this section, the said person, and the owner
of the bore in respect of which the contravention
has occurred, shall be guilty of an offence . . . . "

2. The facts relevant to the plea of illegality were not stated by the learned Magistrate, or, if they were, they have not been transcribed. I will summarise the facts insofar as they appear from the transcript of evidence. The plaintiff was a professional driller and held a licence as a driller under s.118 of the Water Act. He heard that the defendant wanted a bore sunk on his property, went there, and came to an oral agreement with the plaintiff. This appears to have been some time in early December 1983. There were terms struck about the price of the work and the depth to which the bore was to be sunk and the Magistrate made findings on these terms. There were, however, no terms relating to the date upon which work should commence. Within a few days of the entering into the agreement the plaintiff brought men and plant on to the land and commenced to drill. The defendant was not present. Drilling continued until a flow of water was achieved. The Magistrate found, and it is not disputed, that the work was done in accordance with the contract.

3. The plaintiff knew that the work was unlawful unless a bore licence was obtained pursuant to s.112 of the Water Act 1912. The defendant, however, did not address his mind to any such question; in that sense he did not know that a licence was necessary for the work to be performed lawfully. The Magistrate expressly found that there was "no question of illegality". Counsel before me agreed that the Magistrate had earlier held that the defendant, as owner or occupier of the land, had the primary obligation to obtain the bore licence, and that, because it was the defendant's obligation to do so, the defendant was in contravention of the section himself and could not rely upon the plea of illegality.

4. I agree with the Magistrate's conclusion, although I would reach it for different reasons. The enforcement of illegally performed contracts is a notoriously difficult area, and it involves consideration among other things, of what are really matters of policy (see Vita Food Products, Incorporated v. Unus Shipping Company Limited (in Liquidation) (1939) AC 277 at 293). It is not necessary for me to consider whether the Magistrate fell into error in his reasons. This appeal is a rehearing on the evidence before a Magistrate.

5. There is a long line, or several lines, of cases both in this country and elsewhere which bear on the question of when a court will refuse to enforce a contract because of some illegality involved in its performance. Some of the cases were cited by counsel; most if not all of them, I expect, receive a mention in The Law of Contract by Professor D.W. Greig and Mr. J.L.R. Davis (1987) who conclude at p 1123 that "the difficulty is that the judges have provided no clear exposition of the basis for their decisions". I do not wish to contribute to that difficulty. It may be sufficient to say that the tendency appears to be that, whereas the courts, particularly in England used to be ready to hold that a contract, or its performance, was impliedly forbidden by statute (see for example Anderson Ltd. v. Daniel (1924) 1 KB 138 and Re Mahmoud and Ispahini (1921) 2 KB 716), there is now a reluctance to find a contract illegal and unenforceable by reason of a statutory provision which makes the particular acts which constitute the performance of the contract the subject of a penalty. As Sangster J. noted in John S. Chappel Pty. Ltd. v. D.K. Pett Pty. Ltd. (1971) 1 SASR 188 at 197:

"In considering implied prohibitions a court
ought to be very slow to hold that a statute
intends to interfere with the rights and remedies
given by the ordinary law of contract."

This is particularly so when the effect of declaring the contract unenforceable would be to the detriment of someone who belongs to a group of persons for whose benefit the provisions was made: Cunningham v. Cannon (1983) 1 VR 641 at 646 per King J. In Yango Pastoral Company Pty. Limited and Others v. First Chicago Australia Limited & Others [1978] HCA 42; (1978) 139 CLR 410, Mason J., as he then was, said at p 429-430:

"There is much to be said for the view that once
a statutory penalty has been provided for an
offence the rule of the common law in determining
the legal consequences of commission of the
offence is thereby diminished . . . . ."

"It may be that the true basis of the principle
is that the court will refuse to enforce a transaction
with a fraudulent or immoral purpose
(Beresford v. Royal Insurance Co. Ltd. (1937) 2
KB 197 at p 220 per Lord Wright MR). On this
basis the common law principle of ex turpi causa
can be given an operation consistent with,
thoughsubordinate to, the statutory intention,
denying relief in those cases where a plaintiff
may otherwise evade the real consequences of
a breach of statutory prohibition."

6. In the present case the defendant is not a person who is one of a group for whose protection the provisions of the Water Act 1912 is intended. On the other hand the case is not one in which the plaintiff and defendant have put their heads together in order to try to evade the consequences of legislative attempts to conserve a natural resource. If that were so, the Court might take the attitude that their behaviour was, from a moral and social stand point, so unworthy that the Court would not assist either party to see that the other honoured the bargain.

7. Nor is this a case where the plaintiff has misled the defendant into believing that a bore licence was unnecessary or that one had already been obtained or that one would be obtained. The defendant was ignorant of the need for a bore licence. He acknowledged that he was "in the throes and processes of finding out all that sort of information" at the time the work was in progress pursuant to the contract. However, there was no evidence of what steps he took to inform himself. The purpose of sinking the bore was for the defendant to gain access to and consume sub-surface water. The purpose of licensing bores is presumably to regulate and thus conserve the use and consumption of sub-surface water. I can see no excuse for the defendant's failure to know that it was unlawful to sink a bore on his property without a licence granted for that purpose, nor for his failure to realise that he himself was guilty of an offence if a bore was sunk on his property without such a licence. I do not see why the defendant's unjustifiable ignorance should enable him to resist the plaintiff's claim. The fact that the plaintiff on the other hand was aware of the requirement for a bore licence does not, in my view, disentitle him from recovery of the price set by the contract for the work done pursuant to the contract. There was no fraudulent or immmoral purpose on his part within the terms of the Yango Pastoral case. The effect of s.112(1) of the Water Act 1912 is that the plaintiff, like the defendant, is subject to a penalty, but it does not render the contract between them unenforceable.

8. The appeal should be dismissed and the judgment in favour of the plaintiff for $5,200 confirmed. Unless the parties wish to be heard I propose to order that the appellant defendant pay the respondent's costs.