Davis v Gray[2017] QCAT 120

REASONS FOR DECISION

1. [1]
   In this application Vicki Davis claims a total of some $55,024.31 from John Gray in a commercial building dispute.  She limits her claim to $50,000 which is the Tribunal’s financial limit in such a dispute.^[1]
2. [2]
   The resolution of this claim turns on whether Mr Gray had any obligations to Mrs Davis.  There is some uncertainty as to whether it was he, or his company Qualitybuild Pty Ltd ACN 129 312 456,^[2] that contracted to provide building services to Mrs Davis.  Qualitybuild was clearly the party on the original contract.  But that contract was replaced by a contract where the party was unclear.  And some later events suggest it was possible that Mr Gray personally became the contracting party instead.  All work ceased in October 2014, and then Qualitybuild was deregistered on 5 July 2015.  So when Mrs Davis made the application to the Tribunal on 14 March 2016 she sued only Mr Gray.
3. [3]
   The claim is in two parts:-

a) A claim for $16,480 for defective work.

b) A claim for $38,544.31 being money paid to Mr Gray but which was an overpayment.

4. [4]
   Claim a) turns in the first instance on the question whether Mr Gray was a party to the contract with Mrs Davis.  If it was Qualitybuild and not Mr Gray who owed the duty to do the work properly, then this claim will not succeed against Mr Gray.
5. [5]
   Claim b) in theory could be good against Mr Gray even if he was not a party to the contract.  This could be, for example, if Mrs Davis entrusted him with her money as contractual payments but he misappropriated it.
6. [6]
   Whether a person is a contracting party should be determined in accordance with the objective theory of contract.  This means that the question to ask is who a reasonable person in the position of the known contracting party would think was the other contracting party.^[3]  Sometimes this question is closely allied to whether there was a contract at all, or whether the proposed other contracting party intended to create legal relations, both of which are also objective tests.^[4]   The objective test means that the subjective belief of Mrs Davis as to the person with whom she was contracting is irrelevant.
7. [7]
   In late 2012, Qualitybuild gave an undated quote to Mrs Davis for the sum of $299,960 plus GST for renovation work at the Beenleigh Pet Motel which was operated by her.  The work involved extensions and alterations to the main dwelling, with landscaping and drainage work and a driveway and car parking area.^[5] 
8. [8]
   On 20 December 2012 Qualitybuild’s contract on the Master Builders’ Commercial Building Contract form was signed by Mrs Davis.  This was for “alterations and upgrade to existing kennels” by reference to plans as identified in the contract.  When signed, it contained a contract sum of $350,000 with payment claims to be submitted fortnightly.^[6]  The contract showed an intention to finance the work with a loan of $350,000.  The contract sum was later altered by Mrs Davis on her copy to $285,000 and at the same time she also altered the loan amount to $285,000.^[7]   There is a difference between the parties about the motive for making this change or whether Mr Gray was aware of it, but this is not relevant to the issue I have to decide.
9. [9]
   The important thing about the contract is that the contracting parties were clearly Qualitybuild Pty Ltd and Mrs Davis.
10. [10]
    Over the next few months although there was some delay in starting the work, there was some progress towards it.  There was a compliance assessment from Logan City Council for landscaping works on 29 August 2013^[8] and the Master Builders’ insurance for the work to be done by Qualitybuild was put in place on 22 October 2013.  Qualitybuild did some work on site from December 2013 but started in earnest in January 2014. 
11. [11]
    The parties did not stick to the payment arrangements in the contract dated 20 December 2012.  Instead of invoicing fortnightly, Qualitybuild invoiced Mrs Davis weekly, showing labour and materials to date, and she paid these invoices.   She also paid Qualitybuild’s sub-contractors directly.^[9]  This arrangement was formalised when Mr Gray asked Mrs Davis to sign a Master Builders Commercial Cost Plus Contract form which he had prepared.  They both signed this on 10 February 2014.^[10]  In this document the payment obligations were stated to be:-

The owner and the contractor agree that the contractor is to be paid weekly upon invoice being given to owner.

12. [12]
    The work described in the cost plus contract was described as “car park and shed, extension to residence and offices, sound limiting to dog kennels”.  Nothing turns on the difference in the description of the work here with that in the original contract.  Both sides agree that the same work was in the two contracts: it was just described differently.
13. [13]
    The parties to the cost plus contract were given on the first page in a section of the document headed “between”.  The names appeared in this way:-

Contractor: John Gray

Trading as: Qualitybuild Pty Ltd 

14. [14]
    The words “Contractor” and “Trading as” were already printed on the form, and Mr Gray had inserted his own name and the name of the company as above.  The question here is whether Mr Gray was the contracting party since his name appeared against the work “contractor”. 
15. [15]
    In reaching a conclusion on this, I need to take into account that it is often the case that directors of small companies will regard themselves as operating through the company, as Mr Gray told me he did.  Viewed in this way, Mr Gray’s entries on the form do not seem odd at all – he was doing the work but through his company (colloquially, “trading as” his company).  The answers are legalistically incorrect, but when considering how a reasonable person in the position of Mrs Davis would consider this, I think she would regard it the same way as Mr Gray, and would consider that she was contracting with Qualitybuild and not Mr Gray personally.
16. [16]
    This is particularly so I think, because the existing contract was clearly between Qualitybuild and Mrs Davis and the cost plus contract was merely to change the arrangements for payment, not the nature or extent of the work which was to be done.  For the parties to the contract to change therefore, would have required some discussion and agreement about the change of party, which did not happen.
17. [17]
    In the circumstances I have no doubt that the parties to the costs plus contract were Mrs Davis and Qualitybuild and that Mr Gray was not a party to it.
18. [18]
    Work continued under the costs plus contract, and invoices were paid in the way that had been agreed.
19. [19]
    The parties then altered the arrangement slightly.  Instead of Mrs Davis paying the sub-contractors directly, it was agreed that Mr Gray would generally pay the sub-contractors himself or from his company.  Mrs Davis would then reimburse him for his outlay.  The reason for this change was that some sub-contractors were loading their bills for Mrs Davis which Mr Gray was anxious to stop happening.
20. [20]
    This change happened in about the middle of June 2014 and it was about the same time that Mr Gray informed Mrs Davis that he was “getting rid of Qualitybuild”.  Unknown to Mrs Davis at that time, he had decided not to renew Qualitybuild’s QBCC licence beyond 30 June 2014 and it expired on that date.  However, he continued to hold a builder licence in his own right. He told me that after the expiry of Qualitybuild’s licence the company could continue the work relying on his personal licence.^[11] 
21. [21]
    There are a substantial number of invoices given to Mrs Davis for payments under the contract over the course of the work.  It may be significant whether those invoices were given by Qualitybuild or by Mr Gray.  They were only given by Qualitybuild in the early stages.  From 22 February 2014 they were given by Mr Gray, with no mention of Qualitybuild.  However, Mrs Davis was aware that Qualitybuild was still involved in engaging sub-contractors and purchasing materials right up to the cessation of work in October 2014.
22. [22]
    As for the destination of payments made by Mrs Davis, some payments were made directly into Qualitybuild’s account by direct debit, right up to the very last payment on 6 October 2014.^[12]  A number of payments were made to Mr Gray personally when he requested this, mostly by cheque but there were also two direct debits into his personal bank account.  
23. [23]
    As the manner in which the payments were recorded in Mrs Davis’s accounting system, they were all shown as Qualitybuild.  There is no ledger entry showing a payment to Mr Gray.
24. [24]
    There was another document which may be important – this was a Master Builders “Confirmation of Variation/Instruction” document dated 5 August 2014 which purported to increase the contract sum by $45,000.^[13]   In this document Mr Gray was named as the “contractor”.  It was signed both by Mrs Davis and Mr Gray.  From what the parties told me, I do not think this document was intended by them to act as a contractual variation.  Both sides agree that the document did not affect the extent of the work which was to be done (there is no description of work on the document), and there was no contract sum which it could vary.  I accept Mr Gray’s evidence that it was produced so that Mrs Davis could obtain more funds from the bank.
25. [25]
    Despite the running down of Qualitybuild, Mr Gray kept open Qualitybuild’s bank account, continued to use its headed paper from time to time, and permitted subcontractors to bill Qualitybuild.  He continued to use Qualitybuild’s suppliers’ accounts, which provided a discount on purchases.  At the time, Qualitybuild had no other work which it was completing.
26. [26]
    That Mr Gray regarded the contract as continuing is shown by the fact that he terminated the contract on 7 October 2014.^[14]  After that, he prepared a final account and presented this to Mrs Davis, together with a bundle of bills.  This document was on Qualitybuild’s headed paper.^[15]
27. [27]
    I have already decided that after the costs plus contract was signed on 10 February 2014 the contracting parties were Qualitybuild and Mrs Davis.  I have to decide whether this changed over the next eight months up to the time when Mr Gray terminated the contract on 7 October 2014.
28. [28]
    Apart from contractual provisions permitting a change of party, in law there are two ways in which the parties to a contract can change: by assignment or novation.
29. [29]
    There was no assignment here.  The costs plus contract of 10 February 2014 required the written consent of Mrs Davis to an assignment by Qualitybuild of its rights and obligations to Mr Gray,^[16] and this did not happen.
30. [30]
    A novation would require an agreement supported by consideration whereby the existing contract was wholly or partially discharged and replaced with another contract.^[17]
31. [31]
    There was certainly no express agreement here that Qualitybuild’s rights and obligations under the contract should be taken over by Mr Gray.
32. [32]
    I do not think any such agreement can be implied either.  Mrs Davis was unaware that Qualitybuild’s QBCC licence had expired at the end of June 2014.  Mr Gray relied on his own personal builder licence as permitting the company to continue the contract.  Even if he was wrong about this, the contract with Qualitybuild could continue (it was not voided by the ending of licence).  As I have found, the “variation” document of 5 August 2014 was not for the purpose of varying the contract between Qualitybuild and Mrs Davis and certainly not to change the parties to that contract.  A reasonable person in the position of Mrs Davis would assume that Mr Gray had inserted his own name as contractor on that document either by mistake or for the sake of brevity or informality. 
33. [33]
    As for the requests by Mr Gray for personal payment to him on several occasions, a reasonable person would suppose that he was taking director’s drawings from the company, as often happens with small companies.
34. [34]
    In any case, any possibility of an agreement being implied from these events is negated by the fact that Mrs Davis continued to make payments directly into the Qualitybuild account, was aware that Qualitybuild continued to engage sub-contractors for work on her site, and was aware that Qualitybuild continued to purchase materials for use on her site.  In addition to this, the final account of 21 November 2014 was on Qualitybuild’s headed paper.
35. [35]
    Any significance in the billing by Mr Gray instead of Qualitybuild is diminished by the fact that it had continued since February 2014, and therefore spanned a period over which there was no question that Qualitybuild was the contracting party.  Clearly this was done by Mr Gray to reduce formality or for the sake of brevity.
36. [36]
    I conclude therefore, there was no legal mechanism which operated to change the parties to the contract after the signing of the costs plus contract of 10 February 2014 and the parties to the contract remained Mrs Davis and Qualitybuild.
37. [37]
    The claim under a) relates to defective work on the path and to the step outside the kennels.  In the light of my findings above, this claim can only be against Qualitybuild and cannot be against Mr Gray personally since he did not have any contractual responsibility to construct these things.  It must follow that the claim under a) fails.
38. [38]
    Turning to the claim under b), it is calculated as follows:-

Amount paid: $232,219.82

Amount invoiced: $189,331.94

Difference: $  42,887.88

Less cheque received: $              4,343.57

 $              38,544.31

39. [39]
    The cheque received is an amount which was paid by Mr Gray to Mrs Davis when he did his own reconciliation, after terminating the contract.^[18]  He accepted that there was an amount which had been paid which exceeded the invoices but he had reached a figure of $4,343.57.
40. [40]
    This claim turns on whether there is some way that Mr Gray can be personally liable to return any overpayment, bearing in mind that he was not the other contracting party.
41. [41]
    Both parties agree that all work done by the builder was governed by the 10 February 2014 contract.  Since all payments were made with the intention of paying for such work, it follows that all payments were made under the 10 February 2014 contract.  This means that any overpayment which may have occurred would be a payment made to Qualitybuild.  In so far as those payments were made to Mr Gray personally, he would have been acting as agent for Qualitybuild when receiving those payments.  There is no scope here for saying that he received this money from Mrs Davis in his personal capacity.  This is because all the payments were made under, and because of, the 10 February 2014 contract.  He may well have kept the money to himself, but if this did happen it would have been received by him in his personal capacity as directors fees.  Therefore no money could be recovered back from him by Mrs Davis if she managed to show that she had overpaid Qualitybuild.
42. [42]
    Mrs Davis also points to some corrections which ought to be made to the final account, which arise from the invoices and receipts which Mr Gray handed to Mrs Davis at the time he gave her his reconciliation.  Again for the reasons given for claim b) these are matters between Mrs Davis and Qualitybuild and not between Mrs Davis and Mr Gray.
43. [43]
    It follows that claim b) fails as well and so I must dismiss the application.