High Court Restricts Availability of Quantum Meruit

The recent decision of the High Court of Mann v Paterson Constructions Pty Ltd [2019] HCA 32 considered whether a builder is entitled to sue on a quantum meruit basis for the value of works carried out prior to termination of a contract for repudiation.

Peter and Angela Mann (the Owners) contracted with Paterson Constructions Pty Ltd (the Builder) to build two residential units. A dispute arose and the Owners repudiated the contract. The Builder accepted the Owners’ repudiation and terminated the contract. The Builder brought a restitutionary claim on a quantum meruit basis, seeking a fair and reasonable amount for the work, which exceeded the contract price.

Under the terms of the contract the Builder was entitled to progress payments upon completion of stages of the work. The Builder sought restitution in respect of:

•   completed stages of work for which the Builder was entitled to payment under the contract (Category 2), which comprised the majority of the Builder’s claim; and
•   incomplete stages of work where the Builder was not entitled to payment under contract (Category 3).

At first instance the Victorian Civil and Administrative Tribunal (VCAT) held that the Builder could recover, on a quantum meruit basis, an amount which was both greater than the contract price and more than the cost to the Builder of undertaking the work. VCAT’s decision was upheld on appeal by the Supreme Court of Victoria and subsequently the Court of Appeal. We provided updates in relation to these decisions which can be found here and here.

The Owners appealed to the High Court on a number of grounds, including that:

•   the Builder was not entitled to sue on a quantum meruit basis for any of the works that had been carried out prior to termination; or
•   alternatively, if the Builder was entitled to sue on a quantum meruit basis, the amount recoverable was capped at the contract price.

The High Court unanimously held that quantum meruit was not available to the Builder for Category 2 works, on the basis that termination following repudiation of a contract is not equivalent to rescission ab initio. That is, the contract was not extinguished by termination. Rather, the Builder’s rights which accrued under the contract before termination remained enforceable after, and the Builder could enforce these rights by an action in debt.

With respect to Category 3 works, a majority of the High Court held that recovery on a quantum meruit basis was available to the Builder, but that the amount recoverable was capped at the contract price attributable to that part of the work. While Gageler J held that the cap was strict, Nettle, Gordon and Edelman JJ considered that an exception may exist where it would be “unconscionable” to confine the plaintiff’s recovery to the contract sum. However, the circumstances in this case did not justify such an exception.

The minority consisting of Kiefel CJ, Bell and Keane JJ held that a claim for breach of contract or an action in debt provided a sufficient remedy to the Builder, and that quantum meruit was not available following termination of a contract for breach or repudiation in any circumstances.

The High Court justices all considered that a builder should not receive a windfall by bringing a claim on a quantum meruit basis if the contract is terminated following repudiation.

The decision signifies a departure from the common law position in Australia on the right to sue on a quantum meruit basis. Parties to construction contracts should be aware that recovery on a quantum meruit basis has been restricted and a builder will not be able to recover amounts greater than the contract price.

The full decision can be found here.