On 9 October 2019 the High Court handed down judgment in the case of Mann v Paterson Constructions Pty Ltd  HCA 32. The judgment is an important one for those entering into building contracts as it imposes limitations on the amount a builder may recover pursuant to the law of quantum meruit.
The case concerned residential building work in Victoria. The owners made oral requests for variations. The builder performed the variations. The builder claimed for the variations. The owners refused to pay for the variations. The builder suspended work. The owners considered this a repudiation of the contract and terminated the contract. The builder claimed for the work performed, including the variation work, pursuant to the law of quantam meruit.
What is quantum meruit?
It is a legal term which translates to “the amount the person deserves” or “the amount the work is worth”.
It is based upon the law of unjust enrichment. Unjust enrichment provides a builder with recovery rights where: (1) work has been performed for the owner from which the owner has derived a benefit, (2) the benefit was gained at the expense of the builder and, (3) it would be unreasonably harsh on the builder to allow the owner to retain the benefit at the builder’s expense.
Unjust enrichment, and quantum meruit, do not apply where there is an agreement in place. It applies when the work in dispute was not the subject of agreement.
One of the most common occurrences of work being done without an agreement relates to residential work under the Home Building Act 1989 (NSW) ("Act") . Where a builder preforms residential variation work without anything being recorded in writing this is a contravention of the Act and the builder is not entitled to claim for the work pursuant to the contract.
In handing down its judgment the High Court held that:
Where a builder is claiming for work performed and there is a contractual right to payment for the work (for example, completion of a milestone) the allocation of risk under the contract should be maintained and the claim made by the builder should be valued in accordance with the contractural rights. These are referred to as “accrued contractual rights”.
Where a builder claims for work performed and there is no accrued right to payment, the builder may recover pursuant to the law of quantum meruit however the amount recoverable is limited to what was agreed under the contract. The terminated contract reflects the allocation of risk and rights between the parties and should not be undermined by law of quantum meruit.
The practical effect of this judgment is to restrict the rights builder’s previously had to make claims in quantum meruit and, where a quantum meruit claim is available, this judgment limits the amount which may be recovered based upon the terms of the contract.
One benefit arising from this judgment is that, putting aside the question of which party is liable for the termination of the contract, one would expect it may now be easier to resolve disputes arising from a termination of the contract as valuation of the amount recoverable by the builder can now be assessed with greater certainty.
The factual matrix of this case was not unusual however there will likely be cases in the future which need to be considered differently due to type of contract used, or due to the special conditions of contract. One such example is where the contract provides that payment is “on account”. Although this may complicate matters slightly it does not override what is now clearly the approach which will be adopted going forward.
The information provided in this article is general information only and should not be relied upon as legal advice or be used as a substitute for obtaining legal advice. The specific circumstances relating to you impact upon your legal rights and obligations and personal legal advice based upon your circumstances should be obtained. This area of law changes frequently and the law may have changed after the time this article was prepared, up-to-date legal advice should be obtained. Please do not hesitate to contact Williamson Lawyers if we may be of assistance.