The recent decision of Ratcliffe v Horizon Glass & Aluminium Pty Ltd [2023] NSWSC 196 highlights the strict approach Courts take when ascertaining parties to contracts, regardless of which party performed the contract, save for payment. This case reminds contractors who enter construction contracts, that if they do not contract with the correct party, there is a significant risk they may lose the right to pursue a payment claim, making clear, that the basic contractual element of privity underpins a party’s rights to make claims under the security of payments regime, despite any work that has been completed.
What happened?
Background
Brendan Ratcliffe was a shop fitter and glazier who operated as a sole trader from 2005 to 2016 under the business name “Starfire Windows” using a personal ABN. He later incorporated a company named Starfire Windows Pty Ltd (the Company) in 2017, providing the same service.
In 2018, Mr Ratcliffe met Farren Doyle, the director of Horizon Glass and Aluminium Pty Ltd (Horizon) at a project where Mr Doyle was providing labour.
The Contract
In October 2020, the Company was engaged by Greater Sydney Facades and Glazing Pty Ltd to install windows on a 17-storey apartment building at Liverpool (the Project). Mr Ratcliffe (site manager for the Company) reached out to a number of subcontractors including Mr Doyle from Horizon for the provision of labour for the Project.
Albeit an informal engagement, Mr Ratcliffe (on behalf of the Company) contracted with Horizon to provide labour for the Project. Evidence was presented in the case showing Mr Ratcliffe leaving a message on Mr Doyle’s phone stating “Hi Farren, it’s Brendan.… Need a few boys for next … week” and Mr Doyle calling Mr Ratcliffe back stating that his “boys” could start right away.
Text messages were exchanged between Mr Ratcliffe and Mr Doyle at the end of the performance of services regarding payment, by which Mr Ratcliffe referenced ‘Company name: Starfire Windows Pty Ltd (the Company)‘ as the company to be invoiced.
Dispute, the Company’s Liquidation & Adjudication
There were several outstanding invoices to be paid to Horizon. The outstanding invoices totalled $72,720.38. After performing a company search, Mr Doyle rendered a statement of outstanding invoices to “Starfire Windows”, and cited Mr Ratcliffe’s personal ABN.
As no payment was received, on 24 January 2022, Horizon sent a notice under section 17(2) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (adjudication application) to Mr Ratcliffe, again citing his personal ABN. At approximately the same time, the Company went into voluntary liquidation.
In light of the above, the adjudication determination was made and accepted that there was an oral contract between Horizon and Mr Ratcliffe, in a personal capacity. Therefore, it was determined that Mr Ratcliffe owed Horizon $72,720.38.
Supreme Court of Appeal Proceeding
Mr Ratcliffe appealed the adjudication determination to the Supreme Court of Appeal on the basis that there was no contract between himself and Horizon, rather, the contract in question was between the Company (now in liquidation) and Horizon.
Parties to a construction contract
Justice Rees considered the most prominent issue to be the construction of the contract, and the parties who were privy to the contract. To understand this, Rees J considered the conduct of the parties in the formulation of the contract. Rees J poignantly noted that in formulating the contract, Mr Doyle and Mr Ratcliffe had exchanged several text messages referencing the Company, and consequently, on the balance of probabilities, Mr Ratcliffe made plain who Horizon would be contracting with for the Project, being the Company.
Further, despite some post-contractual conduct that suggested Mr Doyle genuinely believed that Horizon was contracting with Mr Ratcliffe personally, it was found that such belief was likely referable to the company search that was performed as part of the submission of the adjudication application, rather than the relevant conduct related to the actual construction contract.
Rees J also considered the possibility of this being a case of unilateral mistake as to identity, which normally arises because of fraudulent misrepresentation by a party which results in a voidable contract. This was not considered to be the case, as it was found that Mr Ratcliffe did not know or ought to have known Mr Doyle was labouring under a mistake of identity, or that Mr Ratcliffe contributed to such a mistake.
Security of payment act & policy considerations
Rees J accordingly set aside the decision of the adjudicator for jurisdictional error, as the essential prerequisite of a construction contract between the parties did not exist. Rees J deemed the debt owed to Horizon as payable by the Company.
In her judgment, Rees J cited Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4, where Edelman J explained at [101]:
The policy of the Security of Payment Act would be a powerful consideration in favour of the discretionary refusal of certiorari in many cases, including where the error is trivial or where the same result would occur without the error. These discretionary grounds for refusal of certiorari have “been in existence for centuries”. To those well-known grounds could be added the circumstance where there is no real injustice likely to arise from an error of law due to an imminent determination of final rights with no substantial prejudice to the payer in the interim, and no likelihood of insolvency of the recipient of the payment.
This is an important rationale for contractors to take note of, as it highlights that Courts are not reluctant to use their discretion to refuse the payment of a non-compliant payment claim made under the security of payment regime.
Ultimately, this case acts as a warning and reminder to contractors who enter construction contracts to ensure they understand who they are contracting with and who they will be making claims against.
This article was written by Alan Chiang, Partner, Fin Neaves, Associate, and Ariadne Paras, Solicitor.
