Frost v Wormwell

Case •

[2010] QCAT 179

•

14 April 2010

No judgment structure available for this case.
CITATION: Frost v Wormwell [2010] QCAT 179
PARTIES: Mr Jeremy Frost
v
Mr Samuel Wormwell
APPLICATION NUMBER:   BD232-09     
MATTER TYPE: Building matters
HEARING DATE:     29 January 2010
HEARD AT:  BRISBANE
DECISION OF: Dr Bridget Cullen Mandikos
DELIVERED ON: 14 April 2010
DELIVERED AT:      BRISBANE

ORDERS MADE:

1.   The Respondent, Samuel Wormwell, to pay the Applicant, Jeremy Frost, the sum of $27,000.00, together with interest at the rate of 9% per annum from 13 March 2008, no later than 4.00 pm on 28 May 2010. 

2.   The parties to file any submissions relating to costs no later than 4.00 pm on 28 May 2010.
CATCHWORDS :  Sections 7 and 8, Domestic Building Contracts Act 2000 (Qld); identity of contracting parties; representations by builder’s nominated representative; return of deposit upon cancellation following owner’s inability to obtain finance.

APPEARANCES and REPRESENTATION (if any):

APPLICANT: 

Mr Jeremy Frost represented by Mr David Maunsell of Maunsell Pennington Solicitors  
RESPONDENT:  Mr Samuel Wormwell represented by Mr Chris Johnstone of Counsel instructed by Mr Andy Anderssen of Anderssen & Company

REASONS FOR DECISION

Overview

  1. The applicant Jeremy Frost (“Frost”), is a working man from Cloncurry. He entered into a written contract with the respondent, Samuel W Wormwell (“Wormwell”), as nominee for Redstar Pty Ltd (“Redstar”) to supply and fix in place two transportable houses upon his block of land.  One of the houses was to be a home for Frost and his young family, and the second was to be rented.

  2. Ultimately, he had to abandon these plans because he was unable to obtain finance to proceed with the contract. He then, as he was entitled to do under the contract, lawfully terminated the contract, and requested the return of the deposit of $27,000.00 he had paid to Wormwell.  He did not, however, receive his $27,000.00 back, and Frost was instead caught in a Teflon-coated, tangled web of transactions whereby Wormwell, as the licensed builder, sought to avoid all responsibility for the matter.
  1. Frost now applies for a return of the $27,000.00 from Wormwell on the basis that as the contracting builder he is liable under the contract for its return. Frost argues that Wormwell must return the $27,000.00, as it represents a deposit made pursuant to the building contract.

Facts not in dispute

  1. The following facts are not in dispute:
    1. During November 2007 – Frost requested quote from Redstar Modular Systems Pty Ltd (“Redstar”), through its representative Robert Johnston (“Johnston”), to build two transportable houses on his site in Cloncurry. 
    1. 6 November 2007 – Redstar provides quotation to Frost for total amount of $420,300.00 inclusive of GST.
    1. 17 January 2008 - Frost met with Johnston at the “Oasis” hotel in Cloncurry, and was presented with a Masterbuilder’s Residential Building Contract. The contract was for $420,300.00 and was between Frost, as owner, and Wormwell as nominee for Redstar.  The contract had been signed by Wormwell at the time it was presented by Johnston.  Frost signed the contract.
    1. On 11 March 2008, Redstar’s Director, Mr Samuel Anderssen (“Anderssen”) issued an invoice to Frost, dated 10 March 2008.[1]  The invoice was issued via email, the text of which reads:

      2. [1] Exhibit JF-9 to Frost’s 22 July 2009 Statement.

“As per the email received from your bank we have drawn up an invoice to bring us up to date on costs already outlaid by Redstar until you are able to sort out the rest of the finance issues.”

    1. The invoice itself, #000110, was for the sum of $29,991.50, and comprised as follows:
Town Planning $820.00
Council Development Applications $900.00
Meetings with Town Planner and Cloncurry Shire Council $425.00
Site Leveling $1,000.00
Soil Tests $770.00
Drafting $1,200.00
Materials/Steel for Chassis $21,600.00
Travel Expences [sic] $550.00
    1. On 13 March 2008, Frost paid the sum of $27,000.00 to “Redstar Modular” by Commonwealth Bank of Australia (“CBA”) bank cheque. 
    1. Ultimately, on 12 May 2009, Frost terminated the contract, which was subject to finance, on the basis that he was unable to obtain loan approval from the CBA.  Frost’s entitlement to terminate is not in issue. 
    1. Neither Redstar, nor Johnston, nor Anderssen, were licensed builders. 
    1. Wormwell is a licensed builder, possessing Queensland Building Services Authority license 1077873.

Wormwell’s defence

  1. Wormwell’s defence can be summarized as follows: (1) he did not receive Frost’s payment; (2) he did not issue or authorise the invoice that triggered Frost’s $27,000.00 payment; (3) the $27,000.00 payment was not a “deposit” made pursuant to the contract; and (4) though he executed the contract “as nominee for Redstar Builders,” he only did so because he was, at the time, intending to use this as a trading name. 

Wormwell and Anderssen’s evidence

  1. At the hearing, Wormwell gave evidence that he did not cause Redstar to issue the invoice in question to Frost.  I do not accept this evidence.  Nor do I accept Anderssen’s evidence that Wormwell did not authorise the issuing of the invoice in issue.  Wormwell gave evidence that he had a longstanding relationship, dating back to 1992, with Anderssen.  Wormwell and Anderssen both gave evidence that they had “in principle” discussions about the formation of a business relationship around the time that Frost had entered into the Masterbuilder’s Residential Building Contract. 
  1. Having read the evidence, and observed both under cross-examination, I have come to the conclusion that, Wormwell and Anderssen having been friends since 1992, constructed their evidence so as to avoid saying anything of relevance to the issues in dispute at all.At best, their evidence demonstrated incredibly loose business practices, which were so diffuse that even they did not know what they agreed to do between themselves. 
  1. I was unimpressed with Wormwell’s evidence in so far as it lacked detail about the business arrangements he had made with Anderssen, and with regard to the contractual arrangements he had entered into with Frost.  I found it implausible that Wormwell knew so little of his business arrangements with his long-time friend, Anderssen, as one could reasonably expect that he would have knowledge about these matters.  He was unimpressive as a witness and whilst was giving his evidence, he was evasive, not prepared to confront the Tribunal face-on by turning to his side and he exhibited a nervousness by jostling his leg, resulting in a presentation that was unconvincing.
  1. Anderssen’s testimony was also stark, and particularly bereft of any detail setting out what was actually done by Redstar, in return for Frost’s $27,000.00 payment.  This is of particular note in circumstances where it was alleged that the payment represented work performed by Redstar.  Considering the absence of concrete detail about matters of which both Wormwell and Anderssen should have had knowledge, I was left with the distinct impression that their mutual lack of knowledge about the terms of their business arrangements was for the purpose of avoiding the provision of any information which might substantiate Frost’s case. 

Frost’s evidence

  1. Frost was cross-examined at length by Wormwell’s counsel, Mr Johnstone.  Frost presented as an honest man, although exhibiting embarrassment, and during much of his evidence, he looked down, seemingly in shame, that he did not appreciate all the legal implications of the contract, and complexities of the circumstances in which he has found himself.  Frost gave evidence to the effect that he paid the $27,000.00 invoice thinking he should have, based upon Johnston’s representations and his bank manager’s advice, at a time when he thought he may still obtain financing approval to build the homes intended to house and provide for his young family. 

The contract is regulated by the Domestic Building Contracts Act 2000

  1. This is a contract to which the Domestic Building Contracts Act 2000 (“DBC Act”) applies, in that the contract was for purposes of carrying out domestic building work[2], and the work falls within the meaning of domestic building work.[3]

[2] Section 7 DBC Act.

[3] Section 8 DBC Act.

The parties to the contract are Frost and Wormwell

  1. There is no dispute that Frost was a party to the contract, and there is no dispute that Wormwell signed the contract.  It is of some interest that Wormwell nominated Johnston as his building representative in the contract, as Johnston was also “authorised to act on behalf of Redstar in respect of the arrangement with Mr Frost.”[4]  This was no doubt, in part, for the reason that neither Redstar, nor Johnston, nor Anderssen, were builders.  As such, the only party that could lawfully have entered into a regulated domestic building contract with Frost was Wormwell.[5]

[4] Paragraph 5, Samuel Anderssen’s 19 August 2009 Statement. 

[5] Paragraph 4, Samuel Anderssen’s 19 August 2009 Statement. 

  1. As contended by Frost, this supports a finding that the contract was between Frost and Wormwell. If the waters were muddied concerning the roles of Wormwell and Redstar, where Frost was concerned, this was due to the representations of Johnston, the mutual agent of Wormwell and Redstar. As a licensed builder, it was Wormwell’s responsibility to ensure that he understood his obligations pursuant to the contract and proceeded in compliance with the DBC Act.
  1. With respect, I do not share the views expressed by Wormwell’s Counsel that anything particularly turns on the fact that Frost and Wormwell did not have any discussions about the matters in question.  Wormwell was operating behind the scenes, and there is no dispute that it is his signature on the contract.  He was prepared to let Johnston make representations on his behalf that he was the licensed builder responsible for the work to be undertaken pursuant to the Queensland Building Services Authority Act (“QBSA Act”). Therefore, Frost is entitled to enforce his rights under the contract against Wormwell, as the licensed builder, even though it was not necessary for Frost to deal with Wormwell under the contract, as Wormwell elected to nominate Johnston as his “Builder’s Representative” in the contract.
  1. Wormwell’s assertions, contained in his post-hearing submissions, that he did not maintain any entitlement under the contract are not relevant to the issues in dispute here, which is whether Frost can enforce the contract against Wormwell, and whether the $27,000.00 can be characterised as a deposit paid pursuant to that contract.  As I have determined that the contracting parties were Frost and Wormwell, it is not necessary to consider the agency arguments raised by Frost. 

Right to refund of deposit following termination of contract

  1. The parties do not dispute that the contract was validly terminated pursuant to Item 11, after Frost had been unable to obtain finance. 
  1. Clause 11.15 of the General Conditions of the contract provides that:

Right to cancel Contract if loan approval rejected

If, within three (3) Days after the loan approval date, the Owner gives the Builder written notice that the Owner has not obtained the loan approval, together with evidence satisfactory to the Builder that the lender has assessed and rejected the loan approval, this Contract is at an end and the Builder must refund the Deposit less any expenses incurred by the Builder in performing the Works.

  1. “Deposit” as defined in the definitional section of the General Conditions of contract means “the amount to be paid by the Owner to the Builder pursuant to Clause 11.15 of this Contract and as stated in Item 7 of the Schedule”.  There is no figure written into Item 7 of the contract here, however, that Item 7 does indicate that the deposit is “Not to exceed 5% if the Contract Price is $20,000.00”.  The section of the contract entitled “Part D Progress Payments” nominated a deposit representing 5% of the contract price, of $21,015.00. 
  1. In view of Clause 11.15, if the $27,000.00 was a deposit payment made pursuant to the contract, it must be returned to Frost, less any expenses incurred by the builder in performing the works.

The $27,000.00 payment was a deposit made pursuant to the contract

  1. That Wormwell did not directly receive the $27,000.00 payment is not the issue, rather, it is whether that payment was made pursuant to the contract in question. 
  1. Wormwell’s Counsel has placed some emphasis on Frost’s statement in the witness box that at the time he made payment on the invoice in question, he believed it was for services performed by Redstar.  With respect, I think this emphasis is misplaced, in consideration of the fact that Frost also gave evidence that he believed that this was a deposit on the contract.  He had been told by Robert Johnston, nominated under the contract as the “Builder’s Representative,” that the $27,000.00 payment was a “deposit” made pursuant to the contract.   
  1. Wormwell also argues that Frost gave evidence at the hearing, having been shown Anderssen’s 7 March 2008 email outlining Redstar’s expenses[6], that it was clear that Redstar believed he had not paid the deposit.  On re-examination, however, Frost indicated that at the time, he believed that this was a deposit, as “this was how Johnston told me it would happen”. 

    2. [6] Exhibit JF-7 to Frost’s 9 July 2009 Statement.

Testimony of Darran Jones, Bank Manager

  1. During the hearing, the following evidence was given by Frost’s bank manager, Darran Jones (“Jones”), with regard to the payment of the $27,000.00, following cross-examination by Wormwell’s Counsel, Mr Johnstone:

“MR JOHNSTONE:  I will ask the question again, you assumed that that work had been done because the amount had been paid, yes?

DARRAN JONES:  Yes.

MR JOHNSTONE:  That tax invoice makes no mention of a deposit, does it?        

DARRAN JONES:  It does not indicate deposit, no.

MR JOHNSTONE:  And in fact there’s a separate invoice which had already been issued, invoice number 106 which sought the payment of a deposit?

DARRAN JONES:  Correct.

MR JOHNSTONE:  And subsequent to the payment of this $27,000.00 you say you had further conversations about the payment of a deposit.           

DARRAN JONES:  I had the payments with Rob Johnston.

MR JOHNSTONE:  Exactly, but you took it upon yourself in your email of 22nd April 2008 to class the payment of this invoice as a deposit, didn’t you?

DARRAN JONES:  I was advised that it was the deposit required… no I did not take it upon myself that it was the deposit because the discussions being occurred with the company in question in relation to the initial deposit being paid.

MR JOHNSTONE:  That’s right and the initial deposit was not paid because on the 22nd of April you write an email which says I’ve been advised, “Received call from Jeremy to advice that construction work has been stopped until funds $210,150 noted in invoice 106 are paid.”  So you knew that the deposit, that none of the deposits sought by Red Star had been paid as at 22 April 2008.

DARRAN JONES:  Well, correct I knew it had not been paid as a deposit in respect to that invoice.

MR JOHNSTONE:  But you took it upon yourself to class the $27,000.00 paid on the 13th March 2008 as a deposit because you said that in the fourth line of your email.

DARRAN JONES:  Well, we’re getting back to assumptions. Yes, I assume that the $27,000.00 was a deposit.

MR JOHNSTONE:  But earlier you told us you assumed that the $27,000.00 was for work done by Red Star requested by Mr Frost.

DARRAN JONES:  Once I received the invoice from Red Star after the deposit was paid it indicated what it was actually paid for, but again, most companies have to do this work so they generally accept the deposit as payment for that work.

MR JOHNSTONE:  So you assumed at the time that the $27,000.00 was paid that it was a deposit, then when you got the invoice you realized it wasn’t a deposit and then you had a further conversation on the 22nd of April when you realized that none of the deposit had been paid, is that your evidence?

DARRAN JONES:  Prior to the deposit being paid I spoke to Mr Rob Johnston in relation to the funding of this loan and in that conversation it was discussed a $27,000.00 deposit and it was discussed that the bank would not advance any further funds until the buildings were erected and affixed to the land with an issue of a certificate of occupancy from the council.

MR JOHNSTONE:  Yes, we’ve read your emails.

DARRAN JONES:  Very good.

MR JOHNSTONE:  And you then formed the view sometime after that and you’ve attached what looks like an extract from an email saying that you’ve given some advice to Mr Frost about something called ‘Grounds of receipt of deposit by way of deception’.

DARRAN JONES:  That was the opinion I put forward that they accepted the deposit knowing full well that they had no intentions to complete the dwelling.

MR JOHNSTONE:  But you just told the court you knew it wasn’t a deposit because you’d assumed it was for work performed by Red Star pursuant to a different invoice which doesn’t have the words deposit on it.

DARRAN JONES:  My assumptions were that it was paid for a deposit and it was the intentions of Red Star to complete the dwelling to construct the properties on the lot, have the council certificate of occupancy issued, and then they would draw or request the bank to pay the remaining funds.

MR JOHNSTONE:  You see the reality is that you don’t know if that $27,000.00 was paid for work done or was a deposit or otherwise, do you?

DARRAN JONES:  No, I don’t.”

  1. Following this exchange, Jones was re-examined by Frost’s solicitor, Mr Maunsell:

“MR MAUNSELL:    Ok you mentioned that you received some plans and an elevation in an email, do you know one way or another whether they were approved plans or not?  Or just pro forma plans?

DARRAN JONES:  They weren’t approved plans that I received, I never actually seen any plans approved by the Cloncurry Council 

MR MAUNSELL:      Now as I understood an answer you gave to your question about the deposit, the reason why you.. I’m sorry I’ll withdraw that.. the reason.. as I understand what you said in an answer to your question about the payment of $27,000.00 you understood that payment to be a deposit because that’s what Robert Johnston told you.  Have I got that correct?

DARRAN JONES:  I believe in the conversation that I had with Robert Johnston in respect to that, it was discussed there was a deposit to commence works.

MR MAUNSELL:     I understand, ok that’s fine and you knew Robert Johnston, did you know him to be a representative of Red Star?

MR JOHNSTONE:  Well I object to that, don’t..

DARRAN JONES:  I knew Robert Johnston as the builder who was constructing the property.

MR MAUNSELL:     The builder?

DARRAN JONES:  Correct.

MR MAUNSELL:     That is.. ok?

DARRAN JONES:  That’s my understanding of Robert Johnston was a builder associated with Red Star and invoices I received from a Sam which turned out to be Samuel.. but I never actually spoke to anyone but Robert Johnston.

MR MAUNSELL:     Ok so you said there, Robert Johnston is a builder associated with Red Star, you understood him to be associated with Red Star, is that correct?

DARRAN JONES:  Correct.”         

Johnston represented the $27,000.00 payment was a contractual deposit

  1. Jones gave evidence that prior to payment of the invoice, he spoke to Johnston, who advised him that it was a deposit to “commence works”.  I found Jones, who has no interest in the outcome of this matter, to be a frank and honest witness, and I accept that he was told by Johnston, nominated as Wormwell’s representative under the contract, that the payment was a deposit pursuant to the contract. 
  1. The evidence of words spoken by Wormwell’s nominated building representative, Johnston, to Frost’s bank manager, Jones, must be considered alongside the evidence that the invoice for the $27,000.00 did not actually contain the words “deposit”.  Having accepted Jones’ evidence as being straightforward, I believe that he was led to believe by Johnston that the $27,000.00 was, in fact, a deposit made pursuant to the contract.  It is the case that $27,000.00 is more than the deposit nominated in Part D of the contract, $21,015.00.  However, it remains the case that Jones had been led by Johnston to believe that the $27,000.00 was the contractual deposit. 
  1. Wormwell is bound by the conduct of Johnston, who was his nominated “Builder’s Representative” in the contract.  In such circumstances, it would be unjust to allow Wormwell to avoid responsibility for the representations of Johnston to Jones (and Frost for that matter) relating to the building contract and the characterisation of the $27,000.00 as a deposit payment made pursuant to that.  I find that, on balance, the evidence establishes that the $27,000.00 payment was a deposit made pursuant to the contract in question.  As such, Frost is entitled to the return of it, having lawfully terminated the contract, less any expenses incurred by the builder in performing the works.

Were any expenses incurred by Wormwell?

  1. Wormwell would be entitled to retain any sums that he incurred in good faith, prior to Frost’s termination: Kevin Blake Builders Pty Ltd v Summerfield, Locker & Associates Pty Ltd t/a H & H Glass and Aluminium [2007] QCCTB 148.
  1. With regard to invoice #000110, Anderssen gave evidence that he could not state with certainty that the work had been carried out, as he was relying upon the instructions of Johnston.  Johnston did not give evidence at the hearing, nor did he provide a statement to the Tribunal. 
  1. Although it has been replicated above, for convenience, I again set out here the contents of invoice #000110:
Town Planning $820.00
Council Development Applications $900.00
Meetings with Town Planner and Cloncurry Shire Council $425.00
Site Leveling $1,000.00
Soil Tests $770.00
Drafting $1,200.00
Materials/Steel for Chassis $21,600.00
Travel Expences [sic] $550.00
  1. The evidence established that the primary component of the invoice, the $21,600.00 of steel, had never been seen by, nor delivered to Frost, but was left by Anderssen to sit in the yard it had allegedly been ordered from.  Frost testified that he never received any materials, let alone any documentation or information in relation to the work invoiced by Redstar.  Anderssen, in an email to Robert Johnston dated 7 March 2008, which was in turn forwarded to Frost[7], indicates that the steel had been ordered, paid for, and was sitting in the supplier’s yard.  There is no other supporting evidence in relation to the steel, for example, documentation indicating that the order had been placed, or a copy of the invoice that presumably would have been received following the order. 

    2. [7] Exhibit JF-7 to Frost’s 23 July 2009 Statement.

  1. Anderssen indicated that he believed he had, at some stage, seen the soil test listed on the invoice.  There is some dispute about whether the site levelling appearing in the invoice, at a cost of $1,000.00, was actually performed by Redstar.  Frost says that he directly engaged Trevor Lawler to do this work, sometime in October of 2008.  Wormwell’s evidence is bereft of any detail, beyond the invoice, indicating that this work was performed. 
  1. Frost acknowledged, in correspondence with his Bank Manager, Jones, that “council has approved my application to build”.[8]  Yet, Frost also gave evidence that he had never seen the building approval.  Jones gave evidence that he had seen some plans and elevations, but not Council approved versions.  Wormwell has not provided the Tribunal with copies of any plans, elevations or building approvals.  Nor has Wormwell actually made a claim for any builder’s expenses, following termination of the contract by Frost, by way of counterclaim.  Presumably, this is because Wormwell has maintained that the $27,000.00 payment had nothing to do with him.  Regardless, it would have been open to Wormwell to plead a counterclaim in the alternative, and he has not elected to do so. 

    2. [8] Exhibit DJ-1 to Darran Jones 21 July 2009 Statement.

  1. The end result is that the Tribunal is left with very little information about the work that was the subject of the invoice.  In view of this, and in view of Wormwell’s electing not to make a claim for any builder’s expenses reasonably incurred prior to termination, I am unable to make any award in Wormwell’s favour.

Orders

  1. The Respondent, Samuel Wormwell, to pay the Applicant, Jeremy Frost, the sum of $27,000.00, together with interest at the rate of 9% per annum from 13 March 2008, no later than 4.00 pm on 28 May 2010. 
  1. The parties to file any submissions relating to costs no later than 4.00 pm on 28 May 2010.

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