In Mann v Paterson Constructions Pty Ltd  HCA 32 (“Mann”), the High Court has clarified the remedies available to a builder when a building contract has been terminated by the builder as a consequence of a repudiation of that contract by the principal prior to the works required pursuant to the contract being completed.
In Mann, the High Court has provided much needed clarification as to the circumstances when a quantum meruit claim may be available to a builder. A quantum meruit claim is simply an equitable claim for recovery of the value of work performed prior to the termination of the contract.
In particular, the decision in Mann clarified the remedial options available to a builder in situations where the builder’s contractual performance obligations are divisible into several entire stages or separable portions and the contract is terminated as a consequence of the principal’s repudiation prior to completion of one or more of those separable portions.
Position before Mann
Prior to the decision in Mann, State appellate courts had held that a quantum meruit claim was available to a builder in the circumstances detailed in the above paragraph. In particular, the courts held that a builder was entitled to elect between a damages claim for loss of bargain and a quantum meruit claim for the recovery of the value of work done by the builder.
In the above circumstances, the courts held that a quantum meruit claim was available, at the builder’s election, to enable the builder to recover the value of any work on any stages of the contract that had:
- only been partially completed as at the termination date; and
- had been completed but where payment had not been received by the builder as at the termination date.
The courts also held that, when determining the value of a builder’s quantum meruit claim, the contract price payable under the contract did not impose a ceiling on the amount of that claim. This effectively allowed a builder to recover more on a quantum meruit claim than what the parties had agreed the builder was entitled to receive pursuant to the contract.
The availability of a quantum meruit claim in the circumstances referred to at (b) above was also controversial as such a claim is generally only available where there is no contract on foot between the parties.
Generally, when a builder has completed a separable stage of a contract but has not been paid for that work as at the termination date, the builder will have an accrued right under the contract to be paid for that work. In allowing a quantum meruit claim in those circumstances, the courts had adopted reasoning from an old line of authority pursuant to which it was held that when the contract was terminated as a consequence of the principal’s repudiation, the contract was effectively rescinded ab initio (as if the contract had never existed). Armed with such reasoning, the State courts were prepared to allow a quantum meruit claim in the circumstances referred to at (b) above as there was no contact on foot between the parties due to the rescission of the contract.
The decision in Mann
In Mann the High Court observed that the reasoning detailed in the above paragraph was inconsistent with previous High Court authority. The High Court noted that it had unequivocally rejected the theory that the termination of a contract led to that contract being rescinded ab initio. In those circumstances the High Court noted that upon the builder’s termination, the contract is not rescinded as from the beginning. Rather, both parties are discharged from further performance of the contract, while those rights that have accrued in accordance with the terms of the contract remain enforceable.
Based upon the above reasoning, the High Court held that a quantum meruit claim would not be available in the circumstances referred to at (b) above because the builder had an accrued contractual right to be paid for the completed stages.
The High Court’s findings are summarised as follows:
- Where the builder is not entitled to be paid for work performed under the contract until all of that work has been completed, and the builder terminates the Contract as a consequence of a repudiation by the principal before the builder has completed the contract, the builder will be entitled to elect between a claim for loss of bargain damages and a quantum meruit claim for the value of work performed by the builder to the date of termination;
- Where the builder’s obligations are separable and divisible into several entire stages, and the contract has been terminated by the builder as a consequence of the principal’s repudiation, the builder:
- will be entitled to elect between a claim for loss of bargain damages and a quantum meruit claim for the value of work performed by the builder to the date of termination with respect to any uncompleted separable stages; and
- will only be entitled to a claim for loss of bargain damages with respect to any separable stages that have been completed as at the date of the termination but where the builder has not been paid for that work; and
- The amount of any sum recoverable pursuant to a quantum meruit claim is to be capped at the amount of the contract price. In this regard, there were divergent views as to whether there may be exceptional circumstances where the amount of such a claim may exceed the contract price.
The law surrounding the remedies that are available to a builder that terminates a contract as a consequence of the principal’s repudiation are extremely complex. Parties involved in such disputes should seek legal advice as to the availability and quantum of such remedies.
Marino Law has extensive experience in acting for parties to commercial contracts. Our highly experienced lawyers regularly:
- draft and review commercial contracts;
- provide advice as to what is required to comply with contractual obligations; and
- act on behalf of parties involved in contractual disputes including the commencement and defence of breach of contract proceedings.
Should you require assistance in any of the above areas, please contact one of our highly experienced lawyers.