Fitzgerald v FJ Leonhardt Pty Ltd

Case details

Court
High Court of Australia

Judges
Dawson J
Toohey J
McHugh J
Gummow J
Kirby J

Appeal from
Supreme Court (Court of Appeal) Northern Territory

Judges
Martin CJ
Thomas J
Angel J (dissenting)

Appeal from
Supreme Court of the NT
Kearney J

Appeal from
Local Court (Darwin)
Mr D Trigg SM

Outcome
Appeal dismissed

Issues
Illegality

Full case
AustLII

Overview

The case involved a contract to drill bores. The driller claimed against the landlord for money due. The drilling occurred without a statutory permit.

Issues arose as to:

• who had the obligation to obtain the permit (landowner or driller)

• whether the contract - either as formed or as performed - was prohibited by statute

• whether the contract was contrary to public policy

In this case, the driller had a drilling licence, but the owner had failed to obtain the necessary permits to allow a bore to be drilled.

The Local Court held that the drilling work had not been authorised under the Act and that the driller was therefore seeking to recover money under an illegal contract.

The driller succeeded on appeal to the Supreme Court the driller succeeded.

A further appeal to the NT Court of Appeal was dismissed by majority.

The High Court dismissed the final appeal by the owner. The Court determined that the contract itself was not prohibited by the Act and that the unlawful performance was the fault of the owner (the respondent driller having been found to have acted in good faith). Public policy did not require that the court decline enforcement of the contract because of its association with the owner’s illegal performance. Indeed, to do so, where the legislation provided a sanction, would cause prejudice to an innocent party and would not further the objects of the legislation (per McHugh and Gummow JJ)

Facts

The Appellant (Fitzgerald) owned land in the NT. He wanted to subdivide land but to do so it was necessary that there be water located on the divided land.

Mr F J Leonhardt was director of the Respondent company (the driller) and held a drilling licence.

The Appellant contracted the Respondent to drill a minimum of three bores. Mr Leonhard drilled seven; three were successful in producing water. He then claimed payment under the drilling contract. There was some dispute as to payment and the Respondent sued to recover the claimed payment.

As part of his defence the Appellant argued illegality.

Section 56(1) of the Water Act 1992 provided

‘A person shall not, unless authorized … cause, suffer or permit a bore to be drilled …’

A penalty of $5,000 for the first contravention was set.

Legislation also required drillers to have have a drilling licence.

Although the respondents had complied with the requirement to have a drilling licence, the appellant had failed to obtain the necessary permit under s 56 of the Act.

Local Court (Darwin)

Illegal contract - driller’s claim denied.

Supreme Court of NT

Appeal by driller allowed.

Supreme Court of NT (Court of Appeal)

Appeal by owner dismissed.

High Court

Justices Dawson and Toohey

Agreed with Justices McHugh and Gummow that there was no obligation on the driller to btain the permit - that obligation rested with the owner or occupier.

Their Honours then referred to the following passage by ACJ Gibbs in Yango Pastoral, ➤ which they observed was a 'convenient starting point' for considering the defence of illegality:

[3] There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits.

In Yango Pastoral it was the first of these scenarios that was relevant. In this case it was the fourth scenario that was relevant. In particular:

• the Act did not forbit the drilling of the bore (only to do so without permit which the owner was obligted to obtain)

• The drilling contract was not expressly or impliedly prohibited

• The contract was not made to further an illegal purpose

Their Honours noted the rule of construction to be applied here was identified by Griffith CJ in Butt v M'Donald:

[(1896) 7 QLJ 68 at 70-71] It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.

Applying that rule it was the owner thatwas required to obtain the necessary permit.

In order for the contract to be affected by illegality it must therefore fall within the fourth category - performance in a prohibited manner. In relation to this their Honours said [footnotes omitted; emphasis added]:

... That category, however, does not stand for the proposition that a contract, which is itself legal, will be unenforceable if something illegal is done in the course of its performance. The cases provide no authority for such a proposition. As Devlin J pointed out in St John Shipping Corporation v Joseph Rank Ltd [[1957] 1 QB 267 at 284]:

"When fully considered, it is plain that they do not proceed upon the basis that in the course of performing a legal contract an illegality was committed; but on the narrower basis that the way in which the contract was performed turned it into the sort of contract that was prohibited by the statute."

In this case, the performance of the drilling contract resulted in the commission of an offence by the owner, but the manner of performance by the driller did not turn it into a contract which was forbidden by the Act. ... the Act contemplated drilling by a licensed driller. ... s 56 of the Act was intended to penalise conduct - in this case the conduct of the owner in failing to obtain a permit - and not to prohibit contracts.

... even if the performance of the contract by the driller were seen as involving a breach of the Act, that would not necessarily mean that the contract was illegal. It has sometimes been said that a contract is illegal if its performance involves breach of a statute passed for the protection of the public but, stated in that way, the proposition is too broad. The purpose of the statute may be served by the imposition of a penalty, notwithstanding that it is for the protection of the public. In this case it is apparent that the Act is intended to protect the public otherwise than by means of s 56 ...

... the only question that remains is whether the principle which, in contract[6], is expressed in the maxim ex turpi causa non oritur actio [from a dishonourable cause an action does not arise] has any application. In our view, it does not. A plaintiff will not be denied relief under that principle unless he has to rely upon an unlawful or immoral transaction to establish his cause of action. Here the driller is not required to rely upon any illegality in order to establish his cause of action for the recovery of the money due to him under the contract. The principle that a court will not assist an unlawful transaction is therefore not called into play and provides no reason why the driller should be denied relief.

It may also be noted that upon the evidence the driller had no intention of acting illegally in drilling the bores which he did. The evidence was that those administering the Act took the view that a permit was required only for the construction of a bore and that a bore was constructed only if drilling for a bore was successful. Upon this understanding - which involves a misconstruction of s 56 - the necessary permits were obtained. Thus there is no evidence that the driller had any intention of drilling in breach of the provisions of the Act or that he agreed to do so. The obligation to obtain a permit was cast upon the owner, not the driller....

... whilst persons who deliberately set out to break the law cannot expect to be aided by a court, it is a different matter when the law is unwittingly broken. In this case, the illegality was on the part of the owner, not the driller, and the evidence does not disclose that the driller was implicated in that illegality.

...

Justices McHugh and Gummow JJ

Their Honours first set out the facts. They then determined that ther ewas no contravention of the Act by the driller in performing the contract, because the Act was directed to the owner, not the driller - it prohibited (inter alia) a person suffering or permitting a bore to be drilled.

On the question of illegality of contract [emphasis added; footnotes omitted]:

This is not a case where the statute contained an express prohibition against the making of the contract in question. The Act did prohibit the owner doing or suffering particular acts without the authority of a permit ... An agreement that the owner engage in such activity may have been treated as impliedly prohibited by the Act and as illegal. However, that is not the owner's case.

The contract as framed did not call for the commission of any illegality. Nor did the statute prohibit some particular act that was essential for carrying out the contract. Performance of the work would have answered the requirements of the contract if the owner had obtained licences under s 57. In Archbolds (Freightage) Ltd v S Spanglett Ltd, Devlin LJ said:

"It is a familiar principle of law that if a contract can be performed in one of two ways, that is, legally or illegally, it is not an illegal contract, though it may be unenforceable at the suit of a party who chooses to perform it illegally. That statement of the law is meaningful if the contract is one which is by its terms open to two modes of performance; otherwise it is meaningless."

In the present case, it was possible for the contract to be performed without contravening the Act. In so far as the contract was performed in contravention of the legislation, the contravention was the consequence of failure by the owner to observe requirements imposed upon him. There was no failure by the driller to observe requirements placed upon it by the Act. ...

... each party to the contract agreed to do all that was necessary on its part to enable the other party to have the benefit of performance of the contract, so that there was an implied undertaking by the owner to procure the grant of any bore construction permits required under the Act for the construction and drilling of the bores by the driller.

The action by the driller to recover moneys owing to it by the owner was not an action by a party to a contract who had chosen to perform it illegally. ... it has not been suggested that the driller acted otherwise than in good faith or that the driller had aided and abetted the owner in any offence committed by him, ...

The question then becomes whether, as a matter of public policy, the court should decline to enforce the contract because of its association with the illegal activity of the owner in, if not causing, then at least suffering or permitting the construction and drilling of bores, ... without the grant to the owner of permits .... The refusal of the courts in such a case to regard the contract as enforceable stems not from express or implied legislative prohibition but from the policy of the law, commonly called public policy. Regard is to be had primarily to the scope and purpose of the statute to consider whether the legislative purpose will be fulfilled without regarding the contract as void and unenforceable.

Section 56 prescribes a penalty. In such a case, the role of the common law in determining the legal consequences of commission of the offence may thereby be diminished because the purpose of the statute is sufficiently served by the penalty. Here, the imposition of an additional sanction, namely inability of the driller to recover moneys otherwise owing by the owner, would be an inappropriate adjunct to the scheme for which the Act provides. The contrary decision would cause prejudice to an innocent party without furthering the objects of the legislation.

...

Here, the driller had complied with licensing requirements ... This is not the case of an unlicensed driller seeking to recover ... The claim which is made by the driller is insufficiently associated with breach ... by the owner, the party resisting the claim. ... the interest of the Territory in controlling, by the statutory licensing system, the right of owners to take water ...may be maintained without imposing a sanction upon the party in the position of the driller ... The imposition of such a sanction upon the driller by failing to keep the owner to his bargain would be disproportionate to the seriousness of the breaches of s 56 and would be unnecessary to protect the objects or policies of the Act.

In Nelson v Nelson, ➤ McHugh J referred to the dictum of Lord Mansfield in Holman v Johnson that no court would lend its aid to a plaintiff founding the cause of action upon an immoral or illegal act. In Holman v Johnson itself, the actual holding was that the contract in question was insufficiently associated with or in furtherance of the illegal purpose of the defendant in buying tea to be smuggled into England without payment of customs duties. McHugh J identified authorities subsequent to Holman v Johnson which were to be seen as providing four exceptions or qualifications whereby relief was granted despite the presence of illegality. Three of these, those concerned with ignorance or mistake on the part of the claimant; the character of the statutory scheme as one for the benefit of a class of which the claimant is a member; and fraud, oppression or undue influence by the defendant, have been treated as instances of a broader principle. This is said to be that, notwithstanding the illegality, relief may still be available to the plaintiff if the plaintiff not be in equal fault with the defendant, that is to say not in pari delicto. However, in the light of the approach taken in Nelson v Nelson ➤ to comparable questions arising with respect to trusts, the issues of contract law in this case should not be approached by considering any general in pari delicto doctrine.

The preferable course ... is as follows. A case may come within one of the accepted exceptions or qualifications to Holman v Johnson. ... these are set forth, with examples from authority, in the following passage from the judgment of McHugh J in Nelson v Nelson: ➤

"First, the courts will not refuse relief where the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal. Second, the courts will not refuse relief where the statutory scheme rendering a contract or arrangement illegal was enacted for the benefit of a class of which the claimant is a member. Third, the courts will not refuse relief where an illegal agreement was induced by the defendant's fraud, oppression or undue influence. Fourth, the courts will not refuse relief where the illegal purpose has not been carried into effect."

Even if the case does not come within one of those exceptions, the courts should not refuse to enforce contractual rights arising under a contract, merely because the contract is associated with or in furtherance of an illegal purpose, where the contract was not made in breach of a statutory prohibition upon its formation or upon the doing of a particular act essential to the performance of the contract or otherwise making unlawful the manner in which the contract is performed. Rather, the policy of the law should accord with the principles set out by McHugh J in Nelson v Nelson. His Honour said:

"Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless:

(a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or

(b)

(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct;

(ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and

(iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies."

As we have indicated, if the present case be approached in that way, the result is that the defence of illegality correctly failed and there was no bar to the full recovery by the driller of the amount claimed.

It may be observed that Pavey & Matthews Pty Ltd v Paul was decided consistently with these principles. This Court held that s 45 of the Builders Licensing Act 1971 (NSW), whilst it provided that certain building contracts were not enforceable by the builder against the customer, did not prevent the bringing by the builder of an action for the value of the work done and materials supplied. ...

...

The appeal should be dismissed with costs.

Justice Kirby

Justice Kirby noted the frequency with which illegality of contract had arisen, including in the High Court, and continued [emphasis added; footnotes omitted]:

... Illegality, and the associated problems of statutory construction and public policy, have been described as a "shadowy" and "notoriously difficult" area of the law where there are "many pitfalls". Many of the authorities on the point are difficult to reconcile. Commentators claim that some of them are marked by "obscurities, supposed distinctions and questionable techniques of decision". They suggest that this is an area of the law which is "intensely controversial and confused". ... Special concern has been expressed about the danger that illegality, in some way connected with a contract, will (unless tightly controlled) let loose the "unruly horse" of public policy to a "blind gallop through the doctrinal forests of [the law]". Various other equine metaphors are invoked to express the suggested dangers of uncertainty and the potentially harsh and unjust outcomes that would follow enlargement of court discretions to decline relief on the ground that a contract is somehow touched by illegality.

... The obscurities of legal authority afford ample scope for differing judicial responses to the problem.

...

[His Honour then set out the matters that were and were not in issue before the High Court and then discussed the provisions of the Act before going on to discuss principles of construction]

The construction point - applicable principles

The following principles may be derived from past authority to assist in the resolution of the application of the Act to the contract in question here and its performance:

1. The first task of a court is to ascertain the meaning and application of the law which is said to give rise to the illegality affecting the contract. The law in question may be a rule of the common law but nowadays it is much more likely to be a provision of legislation. The substantial growth of legislative provisions affecting all aspects of the society in which contracts are made presents a legal environment quite different from that in which the doctrine of illegality was originally expressed. Courts, in this area, are faced with a dilemma. They do not wish to deprive a person of property rights, eg under a contract, least of all at the behest of another person who was also involved in a breach of the applicable law. On the other hand, they do not wish to "condone or assist a breach of statute, nor must they help to frustrate the operation of a statute". That is why the first function of the court, where a breach of a legislative provision is alleged, is to examine the legislation so as to derive from it a conclusion as to whether a relevant breach is established and, if so, what consequences flow either from the express provisions of the legislation or from implications that may be imputed to the legislators ...

2. Occasionally, the legislation in question will expressly provide for the consequence of illegality upon contracts made or performed in breach of its terms. In such a case the entire contract may, depending on the terms of the statute, be void and its performance unlawful as contrary to the express will of Parliament. The duty of a court in such a case is clear. No question of the good faith of the parties or their knowledge or intention is involved. Public policy is not, as such, raised, ... What is presented is a pure question of the interpretation and enforcement of the legislation. This is a familiar task performed by courts with the usual tools of statutory construction.

3. Ordinarily, legislation does not expressly deal with the consequences of conduct in breach of its terms upon a contract which has been fulfilled in some way in breach of a provision of the law. In such a case, where the law in question is (as it typically is) a statutory provision, it is necessary to ask whether the legislation impliedly prohibits such conduct and renders it illegal. Some judges have suggested that courts today are less willing than in the past to derive an implication of illegality from a legislative provision where Parliament has held back from expressly enacting it. Certainly, there are plenty of judicial dicta to suggest that courts will be slow to imply, where the applicable legislation is silent, a prohibition which interferes with the rights and remedies given to parties by the ordinary law of contract. This reluctance probably grows out of a recognition of the multitude of legislative provisions, important and unimportant, which may nowadays indirectly impinge upon the contractual relations of parties and, if enforced with full rigour, cause harsh and unwarranted deprivation of rights. In part, this reluctance may be no more than a species of the general rule of statutory construction that legislation will not be interpreted to deprive parties of basic rights at common law without a clear expression of the legislative will to do so. ... The duty of courts remains, where legislation is involved, to give meaning to the imputed purpose of Parliament as found in the words used. It would be artificial to expel implications from the task of legislative construction where they remain an established feature of the interpretation and application of legislation generally.

4. One principle, however, which tends to reinforce the reluctance of courts to imply a prohibition on a contract, the formation or performance of which involves some breach of the law, is the conclusion which will often be derived from the express terms of the legislation itself. Thus, if the legislation provides in a detailed way for sanctions and remedies for breach of its terms, courts will require good reason to add to those express provisions additional civil penalties, such as the deprivation of contractual rights, which Parliament has not chosen to enact. Were it otherwise, the parties would be subject to the penalties (in the present case criminal) expressly provided by the legislation and still more (civil) by the deprivation of their property (contractual) rights. In a given case, such lost rights might be enormous, supplementing in a wholly arbitrary way, the defined penalties for which the legislature has expressly provided.

5. A distinction may be drawn between cases where there is nothing illegal in the formation of the contract or necessarily illegal in its performance and those cases where (as here) the performance has in fact involved a breach of the law. The case of a contract which, although lawful according to its own terms, may be performed in a manner which the statute prohibits, was one of the four categories suggested by Gibbs ACJ in Yango Pastoral ... to illustrate the ways in which the enforceability of a contract may be affected by a statutory provision rendering particular conduct unlawful. .... In such a case, it is not the contract as formed which is illegal. But the performance of the contract may be illegal if it is clear that the law in question prescribes that the contract must be performed in one way and one way only and that requirement has been breached. To ascertain whether such a breach has occurred it has been said that the illegality must affect the very core or essence of the contract. The fact that a statute was passed for the protection of the public is one test of whether it was intended to avoid a contract formed, or to be performed, in breach of its provisions. However, that is not the only test because the effect of the legislation is to be derived from its language in the ordinary way.

The construction point - conclusions

...

The appellant contended that the core or essence of the contract in this case was the performance of the drilling of bores for ground water. Here, so it was argued, the essence of the statutory provision was drilling without a permit. That was precisely what had occurred. Accordingly, so it was submitted for the appellant, the contract as performed was illegal ....

I do not read the Act as having that operation. There is no express provision in it relating to contracts. The Act, in terms, imposes a range of penalties for breaches of its provisions. .... But those penalties, and the scheme of the Act, appear to exhaust the legislative purpose to uphold the requirements of obtaining pre-drilling authority. The necessity to add a sanction depriving parties of their contractual rights otherwise existing by law is not at all clear. This is not a case where it is essential to imply such a consequence into the Act in order to avoid frustration of its operation or the appearance of a court's condonation or assistance to a party in achieving a breach of statute. Here, as the facts found show, both parties were innocent of any deliberate breach of the Act. The duty to secure the requisite permits lay upon the appellant. ...

In these circumstances the proper classification of the illegality in question was that it was incidentally committed in the course of the performance.... It was neither the express purpose of the legislature nor the implied effect of the Act that such an incidental violation as occurred here should deprive the respondent of all remedies under its contract with the appellant. ... The additional sanction urged by the appellant ought not to be implied into the Act. The appellant therefore fails on the construction point.

The public policy point - applicable principles

This leaves the separate question of whether, as a matter of public policy, a court should refuse a person in the position of the respondent the aid of its process so as to enforce a contract in circumstances where, as performed, illegality has been demonstrated. The rule permitting a court to refuse its assistance to enforce a contract where to do so would be contrary to public policy is an ancient one. It was given expression by Lord Mansfield in Holman v Johnson in these terms:

"The principle of public policy is this ... No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act."

... behind the notion is something quite different from the foundation upon which the statutory construction objection rests. There, a court is simply giving effect to the expressed or imputed will of Parliament. When it comes to public policy, the court may inform itself by reference to what Parliament has declared to be illegal. However the fundamental rationale for withholding relief is one essentially of the court's self-regard. It will not (unless required to) lend its authority and assistance to a party seeking to invoke its process in connection with illegal or otherwise seriously reprehensible conduct. ... in Yango ... Mason J explained the question thus:

"The question therefore remains whether the court will allow the plaintiff to enforce the contract. The suggestion is that the court will not do so and that its refusal so to do is dictated by the principle ex turpi causa non oritur actio or by the more specific rule that the court will not enforce the contract at the suit of a party who has entered into a contract with the object of committing an illegal act.

...

In saying this I am mindful that there could be a case where the facts disclose that the plaintiff stands to gain by enforcement of rights gained through an illegal activity far more than the prescribed penalty. This circumstance might provide a sufficient foundation for attributing a different intention to the legislature. 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. On this basis the common law principle of ex turpi causa can be given an operation consistent with, though subordinate to, the statutory intention, denying relief in those cases where a plaintiff may otherwise evade the real consequences of a breach of a statutory prohibition."

Even more explicitly, Jacobs J, drawing upon earlier authority asked:

"[W]hether, if the contract was neither expressly or impliedly forbidden, nevertheless on grounds of public policy the courts would not enforce it if it could only be performed in contravention of a statute or was intended to be performed illegally or for an illegal purpose."

Now, it was said long ago, and has been repeated often since, that public policy "is a very unruly horse". Whereas it affords a measure of discretion to the courts to lend, or deny, their authority according to notions of the propriety, or otherwise, of enforcing a contract said to be affected by illegality or reprehensibility, the principle is scarcely conducive to certainty and consistency. Clearly, these are desirable objectives so far as the law of contract is concerned. Although some older authority suggests the classification of cases of public policy in closed categories to which courts will always deny relief, more recent decisions support a principle of greater flexibility. Thus, it has been said that public policy is not to be viewed as a "blunt, inflexible instrument". Nor is the concept static. ...

Clearly it should not be so. It would be absurd if a trivial breach of a statutory provision constituting illegality, connected in some way with a contract or contracting parties, could be held to justify the total withdrawal of the facilities of the courts. It would be doubly absurd if the courts closed their doors to a party seeking to enforce its contractual rights without having regard to the degree of that party's transgression, the deliberateness or otherwise of its breach of the law and its state of mind generally relevant to the illegality. Similarly, it would be absurd if a court were permitted, or required, to consider the refusal of relief without careful regard to the relationship between the prohibited conduct and the impugned contract. Thus, different considerations may exist where the contractual rights being enforced arise directly from the illegality, as distinct from those which arise only incidentally or peripherally. It is one thing for courts to respond with understandable disfavour and reluctance to attempts to involve them and their processes in an inappropriate and unseemly way effectively in the advancement of illegality and wrong-doing. It is another to invoke a broad rule of so-called "public policy" which slams the doors of the court in the face of a person whose illegality may be minor, technical, innocent, lacking in seriousness and wholly incidental or peripheral to a contract which that person is seeking to enforce.

Considerations such as these led McHugh J in Nelson v Nelson to explore the ways in which a broad judicial discretion to withhold relief, the grant of which would affront "the public conscience", could be given greater certainty of content. His Honour suggested that such a sanction would have to be proportionate to the seriousness of the illegality involved and not disproportionate to the seriousness of the breach. It would have to further the purpose of the statute and not impose a sanction for unlawful conduct beyond that which Parliament has expressly condoned. McHugh J proposed the following general propositions:

[His Honour set out the quote noted in the judgment of McHugh and Gummow JJ]

...

The public policy point - conclusions

For the appellant, the application of public policy to the circumstances of this case was as simple as determining the implications of the true construction of the Act. Indeed, one was but the mirror image of the other. The Act established a regime for prior authorisation for the drilling of bores for ground water. It did so for a vital purpose protective of the public interest. In doing so it made illegal the drilling of bores without a prior requisite permit. Unless the courts were effectively to ignore the prohibition on unauthorised drilling (or to confine the sanction solely to the criminal one expressly provided) the public policy was sufficiently declared in the Act. The only way to uphold it effectively was to deny recovery under a contract to a person in the position of the respondent. This could be done conscientiously because the respondent was deemed to know the law. As a licensed driller it had more reason to do so than most. The purpose of Parliament was important, and recognised as such. Upholding it, with this added sanction, would further the attainment of that purpose. It would more effectively sanction the circumvention of the Act than the remote prospect of an occasional criminal prosecution. That was most unlikely in this case because of the mistaken understanding of the Act by the relevant public authority upon which the parties had relied. Even if, on its proper construction, the Act did not render illegal the contract as performed, the appellant urged that the Court retained a residual power to withhold enforcement. It should do so in this case because to afford enforcement would involve courts in the upholding of rights which rested upon a clear breach of the Act.

I trust that putting the matter in this way, I have demonstrated that the arguments of the appellant are not without some force. ...

For a number of reasons I have concluded that this is not a case where it would be appropriate to treat the contract between the parties as unenforceable on public policy grounds.

... the Act did not disclose an intention that the respondent's rights should be unenforceable in all circumstances. To refuse to enforce those rights would be disproportionate to the seriousness of the unlawful conduct in question. This is, in part, because the duty to obtain the necessary permit rested on the appellant. According to the then administration of the Act, both the appellant and the respondent (and the authorities) thought they had done all that was required. It would be disproportionate to the respondent's unlawful conduct to deprive it almost entirely of recovery under the contract, although there was nothing illegal in the contract itself and the performance by the respondent would have been lawful if the appellant had secured the requisite permits. Against the background of the mistaken understanding about the meaning and operation of the Act, the imposition of such a sanction is not necessary to protect the objects or policies of the Act. Other sanctions exist to uphold those ends. The Act being silent on contracts, it is a preferable construction of its terms that, at least in circumstances such as the present, the parties should be able to enforce their legal rights in courts of law and should not be deprived of those rights under the rubric of unenforceability for public policy reasons any more than on the basis of the application to the contract of the suggested construction of the Act.

The position would be quite different if what had been involved had been a specific agreement between the parties deliberately to breach the Act ... or to perform the contract in a way clearly damaging to the scarce resource of ground water in the Territory. In such a case, even if the Act did not expressly or impliedly render the contract illegal and void, whether as formed or performed, there would be a strong argument to support the proposition that, on public policy grounds, the Court might refuse relief. To grant relief, in such circumstances, could affront the "public conscience". In such a case, to involve a court in the enforcement of the rights of the parties could be to involve it in upholding a seriously anti-social act which was illegal or at least gravely reprehensible.

But that is not this case. On the contrary, were the Court to withhold relief to the respondent, it would result in a windfall gain to the appellant which was unmerited and itself would be an affront to the public conscience. ... The appellant therefore fails on the public policy point.

Orders

Although for reasons different from those given by the majority of the Court of Appeal, that Court rightly upheld the orders of Kearney J. The appeal from the orders of the Court of Appeal should therefore be dismissed with costs.

Commentary

Jay Forder, ‘Taming the unruly horse! Contractual illegality and public policy: Fitzgerald v F J Leonhardt Pty Ltd’ [1997] High Court Review 12 ➤