The High Court of Australia's milestone judgement on Mann v. Paterson Constructions clarifies contractor rights to quantum meruit claims in cases of contract repudiation.
On October 9, 2019 the High Court of Australia delivered its judgement in Mann v. Paterson Constructions, a case regarding Paterson's quantum meruit claim in the wake of a repudiated contract.
Quantum meruit is a claim made by contractors, as an alternative to damages, for the reasonable value of work performed prior to the termination of a contract. Traditionally, this has allowed contractors to receive a sum based on 'fair value' and not the contract price.
In this case, Paterson was contracted for the construction of two townhouses on the owner's land. The contract was a fixed price contract. Under section 38 of the Victorian legislation Domestic Building Contracts Act 1995, any requests for change the owners may make for work already undertaken must be made to the builder in writing. The requirement was ignored, with the owners making 42 requests verbally. When the builders made these changes and invoiced for it, the owners repudiated the contract.
Paterson's claim for quantum meruit was upheld by the Victorian Civil and Administrative Tribunal and the Victorian Supreme Court of Appeal. The owners subsequently appealed to the High Court, which determined that the builder's right to recover depends upon how much work has been completed and at what stage the project is at. The following clarifications have therefore been made:
- If builders have completed a stage of the contract or rights have been accrued at the point where the contract is terminated, the right to recovery is for the amount due for that work stipulated by the contract and any damages for the breach. As such, the right to recovery does not lie in quantum meruit.
- The builder is entitled to claim damages or quantum meruit for uncompleted stages of work provided the amount does not exceed a fair value determined by the contract price.
- With respect to claims regarding the owner's requested variations, section 38 of the Act must be complied with to enable recovery and excludes the option of quantum meruit.
"The judgment will bring certainty to the building and construction industry around the important area of the basis on which damages can be sought following the termination of a contract," says Kalus Kenny Intelex Partner Jonathan Kenny, who acted for Paterson Constructions.
Image: 123RF's Dmitry Petrov-Korsukov, © 123RF.com