Quantum meruit or damages?

VCAT has ordered the owners to pay a builder $660,526.41 by way of a quantum meruit following the termination of a building contract; a sum which was “considerably more” than the builder might have recovered in a damages claim under the contract.

Paterson Constructions Pty Ltd v Mann [2016] VCAT 2100

Background

Paterson Constructions Pty Ltd (Builder) constructed two residential units on land owned by Peter Mann and Angela Mann (Owners) pursuant to a domestic building contract. The contract price was $971,000.00.

As the construction was nearing completion, the Owners purported to terminate the contract, claiming that the Builder had committed multiple breaches of the contract amounting to a repudiation. The Owners claimed, inter alia, that the Builder delayed the work, prematurely issued a final claim, wrongfully suspended the works, wrongfully claimed variations and carried out work which was defective.

The Builder rejected the Owners’ claims and issued a counterclaim, alleging that the Owners had repudiated the contract. The Builder sought a quantum meruit, or alternatively, damages.

Judgment

In its judgment, the Tribunal rejected the Owners’ claim that the Builder repudiated the contract. The Tribunal found that the Owners requested extra work, as a result of which the Builder could not have completed the work in the time provided for in the contract. The Tribunal found that, although the Builder issued the final claim prematurely, it did not amount to repudiatory conduct. Further, neither the failure by the Builder to comply with the procedure outlined in the Domestic Building Contracts Act 1995 (Vic) for claiming variations nor the existence of some defective work constituted repudiatory conduct. The Tribunal found that the Owners, by purporting to terminate the contract and refusing the Builder access, repudiated the contract, which the Builder accepted.

The Tribunal applied the Court of Appeal decision of Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510 in determining that: (a) a quantum meruit is available to a builder following repudiation of a contract by an owner; and (b) the quantum meruit is to be assessed by valuing the benefit conferred on the party which received it.
In the present case, the Tribunal found that the value was represented by the quantity surveyor’s assessment of the value of the works ($1,722,611.00), not what it cost the Builder to perform the work.

The Tribunal deducted from the quantity surveyor’s assessment the cost of rectifying defective work ($116,297.59) and the amount paid by the Owners under the contract ($945,787.00), leaving an amount payable by the Owners to the Builder of $660,526.41.

Conclusion

In Sopov, the Court of Appeal observed that the right of a builder to sue on a quantum meruit following a repudiation of the contract by the owner has been part of the common law of Australia for more than a century. The Court added, however, that there have been “powerful” criticisms of the availability of that remedy and that, unconstrained by authority, the Court of Appeal might well have upheld the principal’s argument that Kane’s only remedy was to sue on the contract.
The Owners in Paterson have sought leave to appeal to the Supreme Court from the VCAT decision.