The High Court’s recent decision in Peter Mann & Anor v Paterson Constructions Pty Ltd HCA 32 has limited the circumstances in which a builder can bring a claim in quantum meruit.
A claim by a builder or other contractor in quantum meruit is a claim for the reasonable value of work done.
Prior to the decision in Mann v Paterson, if a builder chose to accept an owner’s repudiation and terminate a building contract, the builder could choose between the following alternative remedies:
- Either, pursue damages for breach of contract; or
- Sue on a quantum meruit for work done and materials supplied.
In many cases, a builder could benefit from a quantum meruit remedy by seeking an award of damages above the contract price. This was attractive where a builder was engaged on a loss-making contract.
Background of the dispute
Peter and Angela Mann contracted with Paterson Constructions Pty Ltd to build two townhouses under a major domestic building contract in Victoria. Before the completion of the second townhouse, a dispute arose and both parties alleged that the other had repudiated the contract. The Manns took steps to lockout the contractor from the site.
As a result, the contractor sought to recover on a quantum meruit basis, the value of work done up to the date of the alleged repudiation.
At the first instance the Victorian Civil and Administrative Tribunal ordered the Manns to pay the contractor a sum of $660,526.41 assessed on a quantum meruit basis. The Manns appealed unsuccessfully to the Supreme Court of Victoria and then to the Court of Appeal, before taking their appeal to the High Court.
Effect of the decision
The High Court was required to decide whether and in what circumstances a builder is entitled to sue on a quantum meruit basis. Ultimately, the High Court held that:
- Quantum meruit claims have, in the past, been wrongly pursued;
- A claim for quantum meruit is not available for work done before termination where the builder has already accrued a contractual right to payment (as a result of a progress payment due);
- Quantum meruit will only be available for work done before termination where the builder has not yet accrued a contractual right to payment as at the date of termination; and
- An award of damages in quantum meruit should not exceed the contract price.
As a result, claims in quantum meruit can no longer be brought as a tool to avoid a bad contract or penalise a defaulting party, and defaulting parties will be more protected from exposure to quantum meruit claims exceeding the original agreed contract price.