The High Court majority decision in Mann v Paterson Constructions Pty Ltd  HCA 32 (Mann v Paterson) handed down last year has effectively removed the tool of quantum meruit from the contractor’s tool belt (or at least significantly blunted it).
A claim for quantum meruit (Latin for “the amount deserved”) is a restitutionary claim for the reasonable value of work performed. It is usually deployed in the alternative to a claim made under the contract, often in an attempt to bypass the confines of the contract sum.
A quantum meruit claim was typically made by a contractor in response to a principal evincing an intention to no longer be bound by the terms of a building contract (which conduct is commonly known as “repudiation”). It was until recently an effective tool, i.e. to elect to accept the principal’s repudiation and then make a claim for quantum meruit.
The practical consequence of that was that contractors could effectively extract themselves from the confines of any rate set or payment entitlement accrued under the contract and instead claim a “more generous level of remuneration” (in some instances far exceeding the contract sum) reflecting the contractor’s view of value of the work actually performed.
Leading up to the High Court’s decision, a contractor’s entitlement to make such claims had been the subject of much judicial and academic criticism. For that reason the majority decision comes as a relief to principals because it (arguably) restores commercial certainty, promotes honesty and otherwise rids the industry of any incentive for contractors to rely on repudiation to escape a bad bargain or obtain a windfall.
The principles that emerge from the judgment in Mann v Paterson are:
- that quantum meruit is not available where a contract provides an accrued right to payment at the date of repudiation;
- (by majority) subject to (c), that quantum meruit remains available where a contract provides no accrued right to payment at the date of repudiation, for example:
- a contract for lump sum payment upon completion of the works; or
- a contract containing separable portions where, at the time of termination, a right to payment has not arisen under the contract for one of the separable portions; and
- (by majority and most importantly) that a claim for quantum meruit is capped at the contract sum.
Five practical tips for contractors that can be drawn from the judgment
Firstly, take care in arriving at the contract sum:
If you are one of the (likely few) builders that Kiefel CJ, and Bell and Keane JJ considered may exist who “actually set the prices at which they bid for work on the expectation that they will be astute to take advantage of an opportunity to elect for a more generous level of remuneration in due course” – don’t. Rather, be mindful that the contract sum will act as a ceiling to any claim you may have.
Secondly, ensure that the type of contract suits the type of job:
For example, where there is a lack of clarity regarding the scope of works a schedule of rates or cost plus arrangement may be more suitable than a lump sum arrangement which might unjustly limits your ability to claim for work performed.
Thirdly, administer the contract properly:
Mann v Paterson is also a reminder to contractors to ensure compliance with the contract and all relevant legislative provisions (specifically, in this case, s 38 of the Domestic Building Contracts Act) when carrying out a variation to the scope of works. A failure to do so may limit the contractor’s entitlement to payment for those variations.
Fourthly, consider what you want to happen upon termination:
Although likely to be resisted by a principal, it may even be possible to negotiate a contractual right equivalent to a quantum meruit in the contract in circumstances where the contract is terminated in a repudiation type situation.
Lastly, take care in making allegations of repudiation (and accepting a potential principal’s repudiation):
This is not new advice but is particularly germane following the decision. Given that a builder’s right to recovery in respect of any stage of the contract completed by the time of termination is now limited to the amount due under the contract, due thought should be given to the benefit (if any) of alleging repudiation (remembering that an incorrect allegation of repudiation, can, in itself, be repudiatory conduct giving rise to a claim in damages against the builder).
This article was written by David Ulbrick, Partner, Kate Morrow, Special Counsel and Michael Harris, Associate.