Victorian Court of Appeal upholds the availability of a quantum meruit following termination of a contract

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.

The VCAT decision

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) (“the Act”) 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 ordered that the Owners pay the Builder $660,526.41 on a quantum meruit.

The appeal to a single judge

The Owners sought leave to appeal to the Supreme Court from the decision of VCAT.  At the hearing of the application, the Owners argued that:

• VCAT had misapplied the principles for valuing the Builder’s quantum meruit claim;
• VCAT incorrectly proceeded on the basis that s 38 of the Act, which limited the ability of the Builder to recover any money for variations if the Builder did not comply with that section of the Act, did not apply to a quantum meruit claim; and
• the Court of Appeal decision of Sopov v Kane Constructions Pty Ltd (No. 2) (2009) 24 VR 510 which confirmed a builder’s entitlement to a quantum meruit following the repudiation of the contract by an owner, was wrongly decided (this was a formal submission as the Owners conceded that the single judge was bound by the Court of Appeal decision in Sopov).

The judge granted the application for leave to appeal, but, after making an adjustment as a consequence of a mathematical error, dismissed the appeal: [2018] VSC 119.  The Owners appealed to the Court of Appeal.

The appeal to the Court of Appeal

In the Court of Appeal, the Owners raised the following grounds of appeal:

• the trial judge erred in holding that VCAT had correctly applied the legal principles for assessing the value of a quantum meruit claim;
• the trial judge erred in holding that s 38 of the Act did not apply to a restitutionary quantum meruit claim; and
• the trial judge erred in holding that VCAT was entitled in law to hold that the Builder was entitled to sue on a quantum meruit following the termination of the contract after a repudiation of the contract by the Owners.

The Court of Appeal dismissed the Owners’ appeal.  On the issue of the legal principles for assessing the value of a quantum meruit, the Court found that, whilst the contract price and the actual costs incurred by the builder are relevant to the assessment of a quantum meruit, they are not determinative and VCAT was entitled to assess the value of the quantum meruit based on the evidence of a quantity surveyor.

The Court of Appeal found that the restrictions in s 38 of the Act on the ability of a builder to recover money for a variation if the builder has not complied with that section do not apply to a restitutionary claim for a quantum meruit.

The Court of Appeal rejected the submission by the Owners concerning the availability of the restitutionary claim for a quantum meruit following the termination of a contract after a party’s repudiation of that contract.  The Court endorsed the observations of the Court of Appeal in Sopov in which that Court noted that the right of a builder to sue on a quantum meruit following a repudiation of the contract has been part of the common law of Australia for more than a century and if that remedy is now to be declared to be unavailable as a matter of law, that is a step which the High Court alone can take.

The Owners have sought leave to appeal to the High Court.