On 6 November 2015 the Queensland Court of Appeal handed down their decision in Nichols v Earth Spirit Home Pty Ltd [2015] QCA 219 (Earth Spirit), whereby building contracts which are wholly oral are enforceable, despite it being an offence pursuant to the Queensland Building and Construction Commission Act 1991 (Qld) (the Act) for a builder to enter into an oral building contract.

Earth Spirit involved a family who initially contracted, in writing, Earth Spirit Home to construct 10 houses in south Brisbane. Following a dispute, the parties terminated the contract. The Applicant, Nichols, subsequently engaged Earth Spirit Home to complete the construction for a weekly management fee. As security for the works, Nichols deposited $250,000.00 to the Master Builders Association.

The second contract was never effectively reduced to writing and the parties fell into a dispute in relation to the payment of the weekly management fees. The dispute was heard in the Queensland Civil and Administrative Tribunal and again in its appeals division where the tribunal ruled that despite the fact that it is an offence for a registered builder to enter into an oral building contracts pursuant to section 67G of the Act, there Act does not contemplate the contract being unenforceable.

On appeal to the Queensland Court of Appeal Boddice J, with McMurdo P and Philippides JA agreeing, drew from Freedom Homes Pty Ltd v Botros[2000] 2 Qd R 377 which treated a similar provision to section 67G. That case held that “there is nothing in … the legislation that provides that a registered builder who contravenes its terms is disentitled from recovering payment for the work carried out”.

Boddice J further held that the conclusion that 67G does not impliedly render an oral building contract unenforceable is supported by other provisions in the Act, namely section 67E. Section 67E effectively provides that if by entering into a building contract a party commits an offence, that fact does not have the effect of making the contract void or voidable.

For builders, this judgment means that while a builder may be liable to a penalty for entering into an oral building contract, the penalty or the offence itself does not preclude the builder from being compensated for the work which was done.

In the case of Earth Spirit, the tribunal ordered that the $250,000.00 paid to the Master Builders Association by Nichols must be paid to Earth Spirit Home for the work it carried out under the oral building contract, which was upheld on appeal.

Notwithstanding this decision, his honour also dealt with a number of public policy considerations which arguably may have the effect of rendering the building contract unenforceable on the basis of the illegality of the contract. These considerations namely went to the severity of the illegality of the contract and whether it merits the Court refusing to enforce the contract.

While the enforceability of oral building contracts has been settled by the Queensland Court of appeal in its decision in Nichols v. Earth Spirit Home builders must still exercise caution if they have been engaged to carry out work under an oral agreement, namely as they remain liable to penalties under the Act.