Australia – Can A Contractor Sue On A Quantum Meruit Basis After Terminating A Contract For Repudiation?

17 June 2020
 

In the recent case of Peter Mann v Paterson Constructions Pty Ltd [2019] HCA 32,  the High Court of Australia had to consider whether remuneration for work and labour done by the Respondent for the Appellants under a domestic building contract, before the contract was terminated by the Respondent’s acceptance of the Appellant’s repudiation, was recoverable by the Respondent under the contract, or alternatively, as restitution for unjust enrichment (on a quantum meruit basis) and, if the latter, whether the contract limited the amount that could be awarded.      
 

Background
 

The Appellants had engaged the Respondent to build two townhouses under a Master Builders Association Form HC-6 (Edition 1-2007) Contract for a fixed price of AU$971,000 (the Contract). A dispute arose between the parties in relation to the works. The Respondent claimed that the Appellants had repudiated the Contract and purported to accept that repudiation by terminating it. The Respondent then claimed that it was entitled to recover payment for work done, including variations, on a quantum meruit basis i.e. entitled to the reasonable value of work performed. The Respondent succeeded in its claim before the Victorian Civil and Administrative Tribunal, Supreme Court of Victoria and Court of Appeal and the Appellants now appealed to the High Court of Australia.
 

Issues before the High Court
 

The issues before the Court were:
 

(1)    Was the Respondent entitled to sue on a quantum meruit basis after having terminated the Contract for repudiation?
 

(2)   If so, did the Contract price operate as a ceiling on the amount claimable on a quantum meruit basis?
 

Court’s Decision
 

The Court held that insofar as the work and labour was done in response to a requested variation within the meaning of the Domestic Building Contracts Act 1995 (Vic) (DBC Act) any amount of remuneration had to be determined in accordance with the DBC Act.
 

To the extent that the work and labour done, not being variations, comprised completed stages of the Contract as defined in the Contract, the amount of remuneration payable was essentially prescribed by the Contract for those stages and, any damages for breach of contract were  to be calculated accordingly. The Court said that serious difficulties would arise if the law sought to expand the law of restitution to redistribute risks for which provision had been made under the applicable contract. In the present case, there was no good reason to consider that damages for breach of contract would fail to meet the justice of the case such that a restitutionary claim for quantum meruit should be available.     
 

However, the Court said that insofar as any of the work and labour done, not being variations, comprised part of a stage of the Contract that had not been completed at the time of termination, the Respondent was entitled, at its option, to damages for breach of contract or restitution, but if the latter, the amount should be limited in accordance with the rates prescribed by the Contract i.e. could not exceed the portion of the overall price set by the Contract that was attributable to the work.
 

Comment
 

There is no equivalent of the DBC Act in Hong Kong. The ruling of the Australian Court on the basis of recovery of the price of variations in the judgment is therefore irrelevant. What is interesting is the Respondent’s claim for value of work done on a quantum meruit basis after having terminated the Contract.
 

Quantum meruit is applied to enable a contractor to recover reasonable remuneration for work done. A typical example is that no binding contract was formed by reason of the employer failing to confirm the contract after issuing the letter of intent but the contractor nevertheless completing the works. It is generally believed that the contractor’s recovery is not limited to his contract price in such case. The facts of the above judgment are distinguishable from the case when no contract had ever come into existence. Having reviewed various authorities carefully, the Australian Court decided that termination of the contract provides no reason to disregard the contract price which reflects the parties agreed allocation of risk since the discharge of a contract by repudiation operates only prospectively and it is not equivalent to rescission ab initio