The cost of doing (building) business? How to value a quantum meruit claim

March 28, 2018

The recent decision of the Supreme Court of Victoria in Mann v Paterson Constructions Pty Ltd [2017] VSC 119 provides some useful guidance on the relevance of contract price as a measure of value for a quantum meruit claim, and on the question of whether such a claim is limited to ‘costs actually incurred’.

 

The Court considered and applied the ‘prevailing authority’ of Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510, in which the Victorian Court of Appeal confirmed that a builder is entitled to sue on a quantum meruit following the owner's repudiation of a contract, rather than suing for damages under the contract.

 

The Manns (the Employer) purported to terminate a building contract that they had entered into with Paterson Constructions Pty Ltd (the Builder), and to exclude them from the site. The Builder commenced proceedings in the Building and Property List of the Victorian Civil and Administrative Tribunal (VCAT). The Senior Member found that the Employer had wrongfully repudiated the contract, and that in those circumstances the Builder was entitled to recover payment for the works on a quantum meruit basis. The Senior Member accepted expert evidence as to the value of the building works given by a quantity surveyor and registered builder, and ordered the Employer to pay the Builder the net sum of $660.526.41, being a sum that was in excess of the costs actually incurred.

 

The Employer sought leave to appeal on the basis that the Senior Member had ‘misunderstood or misapplied the test or the principles that should be applied to work out the value of a quantum meruit claim’.

 

In upholding the decision of the Senior Member, Cavanough J found that:

 

  • the relevant question is whether the amount is ‘fair and reasonable’;

  • it is not necessarily, or even usually, wrong for a decision-maker to take the contract price into account, whereas it would always, or at least usually, be wrong for the decision maker to treat the contract price as determinative or as a ceiling on the amount recoverable;

  • ‘actual costs’ are not a mandatory consideration in every quantum meruit claim regardless of the facts of the case; and

  • it is entirely possible that the value of a quantum meruit claim can exceed what would have been payable had the contract been performed.

 

This decision provides some practical guidance on the valuation of quantum meruit claims. The case confirms that the proper course of action for a party arguing a quantum meruit claim is to demonstrate that a valuation is ‘fair and reasonable’ in the circumstances, which may involve reference to the contract price as well as costs actually incurred.

 

The full decision can be found here.

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