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Quantum meruit claims and wrongful termination of a building contract

Quantum meruit claims and wrongful termination of a building contract

A building contractor may make a quantum meruit claim seeking payment of a fair and reasonable sum for work carried out and materials supplied in circumstances where the amount is not set out in contract. These claims generally arise when a builder carries out variations to the original scope of works, or a building contract has been frustrated, void or terminated.

In Mann v Paterson Constructions Pty Ltd [2018] VSCA 231, the Victorian Court of Appeal confirmed that a claim for quantum meruit is available to a builder when a domestic building contract is wrongfully repudiated by an owner.

Further, s 38 of the Domestic Building Contracts Act 1995 (Vic) (the ‘Act’) does not apply to quantum meruit claims, which provision might otherwise have precluded or limited recovery by the builder.

Summary of facts

Peter and Angela Mann entered into a major domestic building contract with Paterson Constructions Pty Ltd (Paterson) for construction of two town houses with a completion date of 17 December 2014.

Disputes arose during construction, generally concerning delays, variations purportedly requested by the owners, and the payment of money. There were also issues concerning site access.

The first unit was constructed and handed over after the contract completion date. In April 2015, before the second unit was completed, the Manns terminated the contract on the basis that Paterson had wrongfully repudiated it.

Paterson argued that the Manns had wrongfully repudiated the contract, accepted the purported repudiation, and sought recovery on a quantum meruit basis through the Victorian Civil and Administrative Tribunal (VCAT).

The claim included amounts for several variations carried out by Paterson.

The tribunal found that the Manns had wrongfully repudiated the contract. They were ordered to pay Paterson $660,526.41 assessed by Paterson’s quantity surveyor, as the value of work performed less that already paid by the Manns and the cost of some rectification work.

The Manns appealed the decision, first in the Supreme Court of Victoria and, again, to the Victorian Court of Appeal.

Key Issues

Essentially, the issues to be determined were:

  1. whether assessment of the amount recoverable should be limited to the builder’s actual costs rather than its fair and reasonable value;
  2. whether a quantum meruit award is available to a builder who accepts an owner’s repudiation of a building contract;
  3. whether s 38 of the Act prevented a builder from recovering on a non-contractual quantum meruit basis.

The decision

The Manns were unsuccessful on all grounds and the Court upheld the decisions of VCAT and the Supreme Court.

Assessment of amount recoverable

Relying on several authorities, the Court confirmed that ‘a builder seeking a quantum meruit amount following acceptance of an owner’s repudiation of a building contract is entitled to recover the fair and reasonable value of the benefit conferred on the owner by the work that the builder performed’

A fair and reasonable value is not limited by the contract price, nor the actual costs incurred by the builder, particularly where the ultimate scope of works is significantly different to that set out in the original contract.

The assessment of a fair and reasonable value depends on the circumstances and the availability and reliability of the evidence. In this case, evidence provided by Paterson’s quantity surveyor was considered comprehensive and was not sufficiently challenged. There was no evidence produced by another quantity surveyor contesting the assessment. Conversely, the Manns’ evidence constituted an incomplete spreadsheet which did not cover all of the work performed by the builder.

Overall, the tribunal member found Paterson to be a ‘truthful witness’ whilst the Manns were considered unreliable. Although the Manns alleged that the variations were ‘suggested’ by Paterson and not ‘requested’ by them, the Tribunal did not accept this. It followed that, as the variations were requested by the Manns, they formed part of the quantum meruit claim.

Availability of quantum meruit claim

The Court confirmed that a quantum meruit claim (as opposed to damages in contract) was available in circumstances where a builder accepts the repudiation of a building contract by an owner.

Several cases have recognised this principle and, despite controversy over these decisions, and the Manns’ suggestion to revisit this precedent, the Court considered it was not in a position to do so, concluding that it was a matter for the High Court.

Application of s 38 of the Domestic Building Contracts Act 1995 (Vic)

Section 38 of the Act deals with variations requested by an owner under a major domestic building contract. Unless a variation is minor and will not significantly affect the contract price, a builder must provide notice stating:

  • the effect the variation will have on the work as a whole;
  • a reasonable estimate of the length of the delay due to the variations;
  • the cost of the variation and its effect on the contract price.

If a builder does not comply with this section, no money is recoverable in respect of the variation unless VCAT is satisfied there are exceptional circumstances, that the builder would suffer hardship, and it would not be unfair to the owner if the builder was to recover the money.

The Court provided a lengthy analysis of the provision which it considered was ‘not clearly drafted’. Overall, however, the Court held that s 38 applied to claims in contract only and therefore did not impede the builder’s claim on a quantum meruit basis.

The Court also noted that, s 38 was essentially enacted to protect consumers from builders who might engage in the unscrupulous practice of underquoting projects to secure a contract and then recover the difference through subsequent unrecorded variations. Consequently, there would be no loss of the consumer protection objective if
the provision did not extend to claims in quantum meruit whereby an owner has wrongfully repudiated a building contract and might otherwise unfairly benefit from the builder’s work.

Conclusion

The legal principle of a quantum meruit claim is based on restitution and unjust enrichment; a party should not unfairly benefit at the expense of another when it would be unjust to allow the profiting party to retain that benefit.

The case is important for builders in that it confirms that recovery on a quantum meruit basis, rather than a contractual basis, may be available following the wrongful repudiation of a domestic building contract by an owner. In such circumstances, and where the claim is substantiated by the expert evidence of a quantity surveyor, a significantly better outcome might be achieved for the builder.

Additionally, the case confirms that the notice requirements for variations under s 38 of the Act may not apply where a building contract has been wrongfully terminated by the owners and a claim made by a builder on a quantum meruit basis.

Building disputes and quantum meruit claims can be complex and each case must be considered in light of the applicable law and the circumstances

If you or someone you know wants more information or needs help or advice, please contact us on 03 8787 8900 or email law@davidnaidoo.com.au.