Limitations to Claim based on Quantum Meruit following recent High Court Case

17/03/2020

The recent case of Mann V Paterson Construction Pty Ltd [2019] HCA 32 has the effect of changing the law that applies to claims in Quantum Meruit in certain circumstances. 

Peter and Angela Mann (“the Owners”) were the Owners of Land in Victoria and had entered into a Contract with Paterson Construction Pty Ltd (“Paterson”) to build two Townhouses on the Owners property for a fixed Contract Sum. 

In Victoria the Domestic Building Contracts Act 1995 (VIC) applied to the Contract.  Originally the proceedings were before the Victorian Civil and Administrative Tribunal (VCAT) and eventually after all Appeals were heard, were decided by the High Court of Australia.

In New South Wales the Home Building Act 1989 (“Home Building Act”) applies and jurisdiction was given to the Civil and Administrative Tribunal (NCAT) to determine various issues in relation to those matters. 

The Home Building Act sets out requirements in relation to a Contract which are required for Residential Building work. For example Sections 7AAA, 7E and 10 of the Home Building Act are special requirements for the Contract to be enforceable. 

Often in Contracts for Building Works there are variations to the Scope of Works and as a consequence there are possible adjustments to the Contract Sum payable. Sections 7, 7AAA and 7E of the Home Building Act are relied upon in considering the scope of its regime in writing in relation to obtaining and payment of a Variation to a Scope of Work pursuant to a Residential Building Agreement. 

Accordingly the decision of the High Court of Australia in the case of Mann V Paterson is critical and in many circumstances applies.  Prior to Mann’s case, most often where the Builder was unable to be paid pursuant to the terms of the Contract for one reason or another, the Builder would claim under the Principles of Quantum Meruit.  The Sum payable based on Quantum Meruit would be a fair and reasonable value of the works performed.

In Mann’s case after a substantial amount of the Building work had been carried out the Owners claimed the Contract had being repudiated by the Builder.  The claim of repudiation is essentially a claim by the Owners that based on the factual matters the Builder was not acting as if the Builder was bound by the Contract.  In effect the Builder notwithstanding the terms of the Contract by conduct indicated that the Builder acted as if not bound by the Contract.  This in itself, is a difficult area and care needs to be taken in relation to any assertions of a repudiation by one party or the other and the steps that should be taken if such a claim is made. If there is repudiation of the Contract for example, by the Builder the Owner has certain rights and may elect to terminate the Contract.  Extreme care is required in this regard. 

The effects of taking the wrong steps can be devastating. 

Prior to the decision in the Mann case,  if the Owner had repudiated the Contract, and the Builder had accepted that repudiation and terminated the Contract, the Builder had a right to elect whether to recover damages for the wrongful repudiation of the Contract, or alternatively, to recover on a Quantum Meruit.

However, the decision in the Mann case changes that. It was there held that the Builder could sue based on its accrued Contractual rights, which existed prior to Contractual termination. Those accrued rights to sue for completed stages of the works gave the Builder enforceable accrued rights to payment – as a debt. They were the only rights the Builder could enforce following termination of the Contract - the Builder was not able to sue on a Quantum Meruit at all where the Contract made provision for accrued rights to payment. The High Court held that to allow a Quantum Meruit claim in circumstances where rights had accrued would be to subvert the Contractual allocation of risk.

Following the decision in the Mann case, it is likely that the Owner’s risk is reduced if the Owner asserts that the Builder has repudiated the Contract. A Builder will only be entitled to claim on a Quantum Meruit in respect of work conducted by the Builder in respect of which there are no accrued rights under the Contract at the time of termination. 

Another issue determined in the Mann case was that the sum payable in accordance with the Contract from the Owner to the Builder operates as a cap or limit on the sum claimable by the Builder on a Quantum Meruit, in those cases where one is available. Prior to this clarification, some Builders were claiming in excess of the Contract sum. This creates one less risk to the Owner wrongfully asserting the Builder has repudiated the Contract. 

As in most Building Matters, the outcome will depend on the circumstances of the case, including the terms of any Contract and any statutory laws, and the Expert Evidence called to support such a claim.

The significance of the provisions of the Contract relating to how one determines the costs adjustment for a Variation are that following the decision of the High Court in Mann and Paterson on 9 October 2019 the existence of a claim in Quantum Meruit (where it is in fact available)  is to be determined in accordance with the costs allocation and risk in the terminated Contract, not independently on the basis of some “at large” calculation determined by what is reasonable value or cost.

For the purpose of determining the amount recoverable assuming agreement as to cost, there was be no real difference in the methodology of calculation under a Quantum Meruit and the Contract.  This is important because the Tribunal would need to consider the cost procedure as set out in the Contract, rather than the reasonable costs of doing such work. 

If you are involved in building and construction proceedings or have any concerns regarding a Quantum Meruit claim or proposed or claimed repudiation of a Contract or how the recent decision of the High Court will impact your case, please contact Richard Watson or his Personal Assistant Shereen Da Gloria to obtain advice in relation to your matter at the earliest possible time. 

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.