Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215
Contract; vitiating circumstances; illegal contracts; regulation of land use; effect of penalties and prohibition.
Facts: Fitzgerald employed Leonhardt to drill boreholes on Fitzgerald's land. The Water Act 1992 (NT) required landowners to acquire a permit in advance of drilling any borehole. Fitzgerald was supposed to obtain the permits before Leonhardt began drilling, but failed to do so. When Leonhardt had drilled seven holes, Fitzgerald refused to pay him, arguing that, in the absence of the required permits, the contract was performed illegally and was therefore unenforceable. Leonhardt brought an action to enforce payment for the seven holes that he had drilled.
Issue: Was the contract unenforceable against Fitzgerald because the necessary permits had not been obtained prior to the drilling?
Decision: The contract was enforceable despite the lack of permits because although the Water Act penalised such conduct it did not prohibit it.
Reason: When a statute penalises (punishes) conduct but does not expressly prohibit it, the courts will consider whether prohibition was impliedly intended by the legislature. If penalties are provided for a breach, good reason must exist before a court will find that prohibition of the offending conduct was also implied, and that associated contracts should be treated as unenforceable. Such reason may be found if, without prohibition, the objectives of the Act would be frustrated. However no such reason existed in the circumstances of this case, where the penalties alone appeared sufficient to achieve the purposes of the Act.