High Court decision limits scope for builders’ quantum meruit claims
The High Court of Australia, in its recent decision in Mann v Paterson Constructions Pty Ltd  HCA 32, has substantially restricted the circumstances in which a builder can claim on a quantum meruit basis following acceptance of a principal’s repudiation of a building contract.
The main implication of this decision is that builders must ensure that they comply with the specified contractual and applicable statutory regimes in respect of entitlements to payments in order to ensure payment.
In 2014, Peter and Angela Mann (owners) engaged Paterson Constructions Pty Ltd (builder) to construct two residential units. The contract provided for staged payments.
By March 2015, the parties were in dispute as to amounts due in respect of variations. Ultimately, the owners contended that the builder had repudiated the contract and sought to terminate. The builder replied that the owners’ purported termination of the contract was of itself repudiatory and the repudiation was accepted.
The builder commenced proceedings in the Victorian Civil and Administrative Tribunal (VCAT) seeking damages, including claims for variations and prime cost adjustments or, in the alternative, balance for moneys for work and labour done and materials provided up to the date of termination.
There were three elements to the builder’s claim, being for domestic building work performed:
- in respect of variations to the plans and specifications as set out in the Contract which were asked for by the owners;
- as set out in the contract, for which it had accrued a contractual right to payment (stage payments);
- as set out in the contract, for which it had not yet accrued a right to payment (stage not completed).
As the dispute concerned domestic building work, the Domestic Building Contracts Act 1995 (Vic) (the Act) applied.
VCAT found that the owners had wrongfully repudiated the building contract and, as such, the builder was entitled to recover payment for the works on a quantum meruit basis.
Damages were not assessed with reference to the contract price. It was observed that:
by succeeding in a claim for a quantum meruit, the Builder has recovered more than it might have recovered had the claim been confined to the Contract.
Following unsuccessful appeals to both the Supreme Court of Victoria and the Court of Appeal, the owners obtained special leave to appeal to the High Court on the following grounds:
- Where the relevant building works are governed by a contract that is not frustrated, avoidable or unenforceable, the builder should be confined to a claim in contractual damages and no quantum meruit should be available;
- If a quantum meruit claim is allowed, it should be subject to a contract price ceiling; and
- Section 38 of the Act should be read as a code, covering the field with respect to all variations relating to domestic building work. Section 38 relevantly provides that a builder is not entitled to recover any money in respect of a variation unless the builder has complied with certain notice requirements; that there are exceptional circumstances or that the builder would suffer significant or exceptional hardship; and that it would not be unfair to the building owner for the builder to recover the money.
The High Court, sitting as a bench of seven, and across three separate judgments, unanimously allowed the appeal, holding that:
- Section 38 of the Act applies in respect of variations to contracts and covers the field to the extent that quantum meruit is not available to a builder as a restitutionary remedy. The terms of section 38 of the Act prohibit the recovery of any money for owner-initiated variations, other than in the circumstances prescribed by the Act.
- If an entitlement to a stage payment had accrued at the time of termination, the builder was only entitled to recover the amount due under the contract and any damages for contractual breach
- If a stage had not been completed, any work performed under that stage entitled the builder to claim damages for breach of contract.
The majority further held that the builder was entitled to seek quantum meruit as an alternative to a claim for breach of contract in the latter scenario; albeit that any such amount was to be calculated in accordance with the contract rates.
The High Court remitted the matter back to VCAT to determine the following:
- whether it is necessary to exercise its discretion under the Act in respect of the variations performed;
- the amount of damages to which the builder is entitled in respect of any completed stages of the contract for which it has not received remuneration, the damages for which are to be calculated in accordance with breach of contract principles; and
- the value of any quantum meruit owed to the builder in respect of any work performed on a stage of the contract which was not completed.
- Builders must be aware of and comply with the applicable statutory regimes in respect of variations to building contracts and entitlement to payment;
- A builder’s right to claim damages on a quantum meruit basis is limited to circumstances where services were rendered in part performance of a contract, but a contractual entitlement to be paid has not accrued;
- In respect of a contract that is not divisible and contains no severable parts a claim for quantum meruit may be available, but, if so, is likely to be assessed with reference to the contract price; and
- The parties’ risk allocation under a contract remains a paramount consideration when assessing any restitutionary remedy.