The High Court has released its reasons for decision in the highly anticipated matter of Mann v Paterson Constructions Pty Ltd  HCA 32.
The expression Quantum Meruit means “the amount he deserves” or “what the job is worth”. Essentially, quantum meruit is an action for payment of the reasonable value of work done.
A “Quantum Meruit” is a restitutionary claim that permits a builder to recover the fair and reasonable value for the work it has performed and materials supplied if that builder has terminated a building contract in response to a principal’s repudiatory conduct. The sum payable on a quantum meruit claim is generally be the costs incurred by the builder plus a reasonable profit margin. This recovery may exceed that available under contractual principles.
Such a quantum meruit claim has been a feature of the common law in Australia for more than a century: Lodder v Slowey  AC 442. Special Leave to appeal to the High Court has been refused on two previous occasions: Renard Constructions (ME) Pty Ltd v. Minister for Public Works (1992) NSWLR 234 and Sopov v Kane Constructions Pty Ltd [No 2] (2009) 24 VR 510.
For a Quantum Meruit a builder must establish:
- Work has been performed by the builder at the request of the principal;
- That work was performed despite there never having been, or no longer is, a contract between the parties;
- There was an agreement for the owner to pay the builder for the work performed (implied or quasi contract); and
- The benefit of the work has been accepted by the owner at the expense of the builder.
The controversy emerges where a builder making a quantum meruit claim seeks to recover more than it would have received if the contract had remained on foot. This may emerge if, for example, as in the Mann Case, statutory requirements for the undertaking of variations by the builder are not met, or the value of work simply exceeds the contract price agreed.
Arguably, an entitlement to claim a quantum meruit would reward a builder intentionally provoking the owner to take steps which amount to repudiation. The builder may then terminate the contract and claim a quantum meruit, rather than being restricted to damages constrained by the terms of the contract (and any intervening statutory limitations).
In the Mann Case the principal and builder entered into a domestic building contract for the construction of two townhouses. The works were not completed by the date contracted for. The principal purported to terminate the contract for delay. The builder, in turn, asserted that the principal’s termination was repudiatory and itself terminated. Thereafter the builder claimed payment on a quantum meruit for the work completed.
The Victorian Civil and Administrative Tribunal (VCAT) held that the builder was not responsible for any delay and that the termination by the principal was repudiatory conduct which the builder was entitled to accept. In relation to quantum meruit, VCAT accepted the evidence of the builder’s quantity surveyor, that the value of the work performed exceeded the price agreed under contract.
Mann sought leave to appeal to the Victorian Court of Appeal refused leave and affirmed the its decision the Sopov Case. The Court of Appeal acknowledged that it was bound by an authority it could see good grounds to review, but that would be a matter for the High Court.
The High Court has now determined that to allow a restitutionary remedy by way of a claim for the reasonable value of work performed unconstrained by the terms of the applicable contract would undermine the parties’ bargain as to the allocation of risks and quantification of liabilities, and so undermine the abiding values of individual autonomy and freedom of contract.
This outcome represents a major change to existing law. It seems likely that principals will be emboldened to assert contractual rights where they consider the builder is in breach of contract. Previously a wrongful assertion of rights might effectively give the builder a chance to effectively increase the price for which it was prepared to perform works under the contract.
Conversely, builders seeking to recover after repudiation by a principal will likely pursue claims for loss of profit in respect of the unperformed work. Pre-contract, builders will need to focus more precisely on the scope of works and specify clearly the recovery available under the contract for each stage of work. There will be a greater focus on the formal requirements, statutory or contractual, for the undertaking of variations. Builders are likely to find their principal is not as compliant as perhaps they once were. Principals will be more willing to assert their contractual entitlements.
Case note by Andrew Musgrave