High Court of Australia handed down its decision in Mann v Paterson Constructions Pty Ltd [2019] HCA 32 (Mann v Paterson).
Introduction
On 9 October 2019, the High Court of Australia handed down its decision in Mann v Paterson Constructions Pty Ltd [2019] HCA 32 (Mann v Paterson). In Mann v Paterson, the High Court decided to limit a contractor’s ability to seek the restitutionary relief of a quantum meruit, in instances where a contract is terminated by a contractor following a principal’s repudiation of the construction contract.
The case is significant for several reasons (detailed below), and it clarifies the role and function of the doctrine of quantum meruit in Australia. In our view, the decision will likely reduce the number of contractors who may engineer and/or accept the repudiation of a construction contract by the principal and then sue on a quantum meruit basis to recover a windfall (or to avoid a bad contractual bargain), rather than commencing a claim for damages arising from breach of contract.
What is quantum meruit?
Quantum meruit is a Latin term that literally means ‘as much as he deserved’. In building and construction disputes, the expression is a term that refers to a form of restitutionary relief where a party claims a fair and reasonable sum of money for services rendered and/or work done (typically for work outside of a contract such as variations or in circumstances where the contract has been repudiated, terminated or otherwise set aside).
What is the ‘fair and reasonable’ compensation paid for services and/or work done is a question of fact. Legally, there has been debate about matters such as whether:
- a party can claim amounts greater than provided for in the construction contract; and
- the construction contract’s provisions regarding pricing(such as lump sum amounts or milestone amounts for set stages) place an upper ceiling on or otherwise limit the amount that can be claimed on a quantum meruit basis.
Facts
- Peter and Angela Mann (Appellants) entered into a contract with Paterson Constructions Pty Ltd (Respondent) for the construction of two double-storey townhouses (Units) on the Appellants’ land and for a fixed price pursuant to a Master Builders Association HC-6 (Edition 1 – 2007) major domestic building contract (Contract).
- The parties fell into dispute regarding the works for reasons that included:
(a) The Appellants orally requested 42 variations – 11 to the front Unit (Unit One) and 31 to the back Unit (Unit Two)– without giving written notice in accordance with clause12.1 of the Contract or in accordance with section 38 of the Domestic Building Contracts Act 1995 (Vic) (Act).
(b) The Respondent carried out the variations and did not give written notice to the Appellants in accordance with clause 12.4 of the Contract or section 38 of the Act.
(c) On or around 17 March 2015, the Respondent sent an invoice to the Appellants claiming variations and/or additional payments in the amount of $48,844.92.
(d) On 16 February 2015, the Respondent allegedly advised the Appellants that it would no longer be carrying out any further work until the invoice was paid.
(e) The Appellants claimed that the Respondent was in breach of clause 12 and 13 of the Contract and section 37and 38 of the Act, and therefore had repudiated the Contract. The Appellants purported to accept this repudiation to determine or end the Contract.
(f) On 28 April 2015, the Respondent alleged that the Appellants’ purported determination of the Contract was itself repudiatory; the Respondent accepted their repudiation of the Contract.
3. The Respondent claimed it was entitled to recover payment for its work, including variations, on a quantum meruit basis.
VCAT decision
1. On 25 June 2015, the Respondent commenced proceedings in VCAT seeking relief on a quantum meruit basis – or, alternatively damages for breach of contract.
2. VCAT relied upon the decision of the Court of Appeal of the Supreme Court of Victoria in Sopov v Kane Constructions Pty Ltd [No 2] (2009) 24 VR 510, which confirmed Australia’s prevailing common law position on the doctrine of quantum meruit: namely, that ‘the right of a builder to sue on a quantum meruit [basis] following a repudiation of the contract has been part of the common law of Australia for more than a century.’[1]
3. VCAT found that the Respondent’s claim for recovery on a quantum meruit basis succeeded, and ordered that the Appellants pay the Respondent the sum of $660,526.41. This decision meant that the Respondent recovered an amount considerably higher than it otherwise would have been able to claim, had it been awarded damages or been limited to the terms and pricing set out in the Contract.
Supreme Court of Victoria
The Appellants appealed to the Supreme Court of Victoria. The Supreme Court affirmed the decision of VCAT at first instance, determining that VCAT had made no error in its interpretation of Sopov v Kane or in its application of the doctrine of quantum meruit, and only allowed the appeal to correct a minor mathematical error made in VCAT’s orders.[2]
Court of Appeal decision
4. The Appellants appealed to the Court of Appeal. The Court of Appeal found no error in VCAT’s method of assessment of a reasonable remuneration. However, the Court of Appeal highlighted that only the High Court could in fact determine if Sopov v Kane was wrongly decided.[3]
5. The Court of Appeal held that VCAT’s decision to not rely on the contract price was justified when assessing the quantum meruit claim.[4]
High Court of Australia decision
1. The Appellants were granted special leave to appeal to the High Court and did so on three grounds:
(a) The Court of Appeal erred in holding that the Respondent was entitled to a claim of quantum meruit rather than being confined to a claim in damages for breach of contract.
(b) Alternatively, if the Respondent was entitled to a claim of quantum meruit, then the Court of Appeal erred in failing to consider the Contract price as a ceiling on the amount potentially recoverable by the Respondent, thus failing to restrict the amount recoverable to the Contract price.
(c) The Court of Appeal erred in determining that section 38 of the Act did not apply to a claim of quantum meruit in respect of variations.[5]
2. The High Court unanimously upheld the Appellants’ appeal and remitted the matter to VCAT for further determination.
3. In summary:
(a)
The High Court decided that the Respondent was not entitled to a claim on a quantum meruit basis because the Respondent had accrued a right to payment under the Contract.
(b)
Therefore, if a contractor has accrued a right to payment under a construction contract, then it is entitled to relief by enforcing that accrued contractual right in a common law action in debt.[6]
(c)
Justices Nettle, Gordon and Edelman JJ found that the restitutionary relief of quantum meruit is available to a contractor where the right to payment under the contract had not accrued prior to termination.[7] (For example, this might occur if the relevant milestone has not been achieved under a contract at the time of termination or repudiation of the building contract.) Accordingly, if a contractor elected to recover under the doctrine of quantum meruit, the majority of the justices held that such a claim would be capped against the contract price.[8] As Nettle, Gordon and Edelman JJ said: ‘The contract price reflects the parties’ agreed allocation of risk. Termination of the contract provides no reason to disrespect that allocation.’[9]
(d)
This new legal position rejects the previous decisions found in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Iezzi Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd [1994] QCA 49 and Sopov v Kane Constructions Pty Ltd [No 2] (2009) 24 VR 510, where contractors were allowed to recover under quantum meruit sums in excess of the contract price. These previous cases are now considered to have been wrongly decided.[10] Perhaps underpinning the High Court’s decision was a desire to deter contractors from being incentivised to enter into disputes with principals in order to claim breach or repudiation of the construction contract and then claim damages via the doctrine of quantum meruit of a higher magnitude to what they would have been paid under the contract.
(e)
The High Court unanimously held that section 38 of the Act prevents a contractor from recovering the restitutionary relief of quantum meruit for variations. This position overturned the Court of Appeal’s decision, whereby it held that section 38 of the Act only applied to claims made within (or based upon) a construction contract and not for restitution. Therefore, as the Respondent did not satisfy the requirements of section 38of the Act, the Respondent could not recover an amount for variations through the restitutionary relief of a quantum meruit. (This aspect of the decision is unique to the Victorian jurisdiction, but equivalent consumer protection provisions in respect of claiming variations for domestic works exist in several other jurisdictions in Australia.)
[1] See paragraph 138 per Nettle, Gordon and Edelman JJ
[2] See paragraph 144 per Nettle, Gordon and Edelman JJ
[3] See paragraph 146 per Nettle, Gordon and Edelman JJ. The Supreme Court of Victoria, Court of Appeal also noted that the High Court had previously refused to grant special leave to appeal in, inter alia, Sopov v Kane – and that this decision had been followed by the Court of Appeal in Queensland, in Iezzi Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd [1994]QCA 49; [1995] 2 Qd R 350
[4] See paragraph 146 per Nettle, Gordon and Edelman JJ
[5] See paragraph 149 per Nettle, Gordon and Edelman JJ
[6] See paragraph 62 per Gageler J
[7] See paragraph 176 per Nettle, Gordon and Edelman JJ
[8] See paragraph 102 per Gageler J and paragraph 205 per Nettle, Gordon and Edelman JJ.
[9] See paragraph 205 per Nettle, Gordon and Edelman JJ
[10] See paragraph 103 per Gageler J and paragraph 180 per Nettle, Gordon and Edelman JJ
Queries
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Disclaimer
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.