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Quantum Meruit: Does your building contract still matter?

Posted by Mario Rashid-Ring on 16 Mar 2020

A builder’s entitlement to recover on a quantum meruit basis is essentially an entitlement to a fair and reasonable sum for works completed and goods provided. This is often used by builders to try to recover monies for out of scope works that were provided but not set out in the original contract.

A claim for quantum meruit may arise if:

  • there is no specified sum to be paid under a contract;
  • there is an express agreement to pay a reasonable sum;
  • work is completed outside the scope of the contract, at the request of the principal/homeowner; and/or,
  • the contract is found to be void or unenforceable.

How does it work?

A typical scenario that leads to a claim for quantum meruit is as follows:

HK Building carries out work required under a contract. The principal/homeowner, perhaps dissatisfied by the quality of the works, says to HK Building that it wants to end the contract, despite it not having a contractual or legal right to do so. This can be described as a repudiation of the contract by the homeowner.

HK Building elects to accept this ‘repudiation’ and the contract comes to an end.

However, HK Building may not have been paid for the work that it has already performed, and the principal/homeowner may be unwilling to pay for the completed work.

Prior to the High Court decision in Mann v Patterson, in the above scenario, HK Building could elect between alternative remedies:

  1. pursuing a claim for damages for breach of contract; or
     
  2. pursuing a claim on a Quantum Meruit basis (usually at market rate) for works performed and materials supplied.

In making its decision, a builder would traditionally pursue the option that would give them the highest entitlement. For example, if HK Building was only entitled to $150,000 in damages pursuing option 1 (i.e. the contractual claim) but had actually carried out works worth $350,000 (assessed at a fair market rate), then HK Building would likely pursue option 2.  

Mann v Patterson

However, the High Court has substantially narrowed the scope for a quantum meruit claim where a contract is terminated by a builder’s acceptance of an owner’s repudiation following its decision in Mann v Paterson Constructions Pty Ltd [2019] HCA 32.

The Facts

The appeal before the High Court arose out of the following facts:

  • a dispute arose involving the construction of two townhouses;
  • the written contract was divided into five stages with each stage having a fixed cost;
  • during the build, the owners requested some variations which were carried out by the builder;
  • the builder submitted its claims for variations towards the end of the project, but the formal process under the contract or and the requirements imposed by the Victorian equivalent of the Home Building Act 1989 (NSW) were not followed; and,
  • the owners were dissatisfied and ultimately each party alleged that the other had repudiated the contract.

The Decision

The High Court held that:

  • A claim for quantum meruit is not available for work done before termination for which the builder has accrued a contractual right to payment as at the date of termination.
  • A claim for quantum meruit is only available for work done before termination, for which the builder has not yet accrued a contractual right to payment as at the date of termination.

This means that where a contract apportioned the contract price in stages, with payment due upon completion of each stage, quantum meruit was unavailable for the completed stages in respect of which the builder had a right to recover a progress payment under the contract. This placed a limit on the builders’ ability to recover on the basis of a quantum meruit claim.

On the other hand, where a stage of work had been performed but remained incomplete at the date of termination, the majority held that in circumstances where a right to payment under the contract had not yet accrued, the builder could recover in quantum meruit as an alternative to damages for breach of contract only in respect of that stage.

Further, where a claim for quantum meruit is available, the amount recoverable in this claim is unlikely to exceed the contract price. So, in the situation outlined above, HK Building may not be able to recover the $350,000 if the contract value was limited to $150,000.

Key Takeaways

  • Quantum meruit is no longer available as a “pick and choose” remedy, which previously allowed a builder to recover a higher amount than it would have been entitled to under the contract;
  • Quantum meruit is a “restitutionary remedy” (i.e. meant to place the builder back in a position where it should have been) and designed to fill gaps in any contractual claims;
  • Whilst the meaning of quantum meruit is ‘as much as he deserved’, a claim for quantum meruit is unlikely to exceed the contract price or ‘ceiling’ given the commentary by the High Court; and,
  • The High Court has provided clarity in relation to contracts with fixed milestone payments, however, the position is unclear in the context of contracts with “on account” progress payments, which is consistent with the Security of Payment Act 1999 (NSW).

Parties must ensure that any variations to the contract are done in writing and that they are aware of and comply with the requirements of their contracts. Parties should ensure they comply with the requirements of any legislative provisions (for example the Home Building Act 1989).

Great care needs to be taken when asserting that another party has repudiated a contract, as making a premature assertion can itself constitute repudiation.

If you need further assistance in understanding your contract or are currently in a contractual dispute relating to a property or building contract, please do not hesitate to contact a member of Coleman Greig's Building and Construction team who would be more than happy to assist.

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