Construction Litigation

So let’s say you’ve done work on a contract that you haven’t been paid for yet. The principal then tells you they have no intention of honouring the contract (a “repudiation”) and you’re forced to sue them to recover payment. How could you do it?

Well, until recently you could choose to:

  1. claim damages for breach of contract;
  2. sue for the debt; or
  3. make a claim for payment for the fair value of the work done – called a “quantum meruit”.

Under these circumstances, the contractor could simply just pick whichever remedy allowed it to recover the most. Now your options are more limited, according to the High Court.

In Mann v Paterson, it was the quantum meruit approach which resulted in the greatest recovery for the contractor. Not surprisingly the contractor sought to recover payment on that basis, even though it far exceeded the contract price that would have otherwise been payable if the contract had gone ahead on its terms.

The High Court shut down that option though, for reasons we’ll discuss below.

Let’s look into this some more and how quantum meruit was applied, then and now.

Quantum Meruit then

What is Repudiation?

Wrongful repudiation is when a party to a contract demonstrates an intention not to be bound by its terms. In response, the innocent party can “accept” the repudiation and terminate the contract, or “reject” the repudiation and affirm the contract.

Quantum meruit is essentially just Latin for “what it is worth”. Despite most Latin gradually departing legal circles (thankfully!) this phrase hangs around.

An innocent party to a repudiated contract could choose to make one of these ‘what it is worth’ claims to recover compensation calculated as the fair and reasonable value of the work performed.

This could, of course, result in contractors being awarded amounts which exceeded the value of the contract price. This is because Courts have held previously that the contract price does not impose a ceiling on what is “fair and reasonable”. In a competitive tendering environment, of course, contract values are often squeezed quite low and so having this option in a dispute was a handy avenue to pursue.

These claims also avoided the procedural hurdles associated with a traditional claim in damages (causation, remoteness, mitigation etc) that arose if the case had any technical difficulties.

Generally, of course, most contractors pursued all the options they could as alternatives.

Quantum Meruit now

Basically the High Court has just said that a contractor cannot claim as a quantum meruit on a repudiated contract if it is entitled to a claim for debt or damages.

Further, the High Court has said that even if a quantum meruit is available, in considering it, the Court is going to have regard to what the contract says when it comes to determining what “fair or reasonable value” is for the work.

Generally speaking, a contractor will often be entitled to a claim for debt or damages in this scenario, although very occasionally that might not be the case. However, that might the case if, for example, a repudiation occurs and the contract is terminated before the first stage in a contract has been reached, but after work has commenced.

Some Peculiar Features of This Case

It’s important not to over-reach the impact of this case, as it contained some specific relevant matters.

First, this was a repudiation situation, not a termination after breach. Whether or not these principles will be applied to a breach scenario remains to be seen, but it’s entirely possible that they won’t be.

Next, although this decision likely has national impact, the relevant issues here were governed by specific Victorian legislation.

Finally, this was a major domestic building contract. A significant part of the decision was around whether, in this contract, payments were “on account” as they are expressed to be in many commercial contracts. If they had been found to be on account in this contract, there is every possibility that the Court might have accepted that a quantum meruit was still available to the builder (this is for technical reasons that we don’t need to go into here). Here, however, the Court found that there was no such intention in the contract and, therefore, that where the builder had received payments already, they were earned and final, and not subject to the completion of the contract.

The key takeaways

The key takeaways from the Mann v Patterson decision are that:

  • Depending on your contract terms, if you are a contractor who has performed work and an entitlement to payment has arisen or accrued, and the principal subsequently repudiates the contract, which you then terminate, you are entitled to sue for a debt or claim for damages but possibly NOT quantum meruit.
  • If you are a contractor who has performed work but an entitlement to payment has NOT yet arisen or accrued, and the principal subsequently repudiates the contract, which you then terminate, you are likely going to be entitled to choose between damages or quantum meruit for the value of the work performed, however any quantum meruit claimed will quite possibly be confined to the contract price.

If you need further clarification as to how this recent High Court decision could affect your business or your claim entitlements, do not hesitate to get in touch and we’d be happy to talk it through with you.

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