In this episode of Talking Legal, Principal Construction Lawyer, Len Watt discusses Mann V Paterson Constructions Pty Ltd. The matter involves a residential building dispute in Victoria which ended up in the High Court. The matter is very relevant to the building industry, not only in Victoria, but in the whole of Australia.
1.What does Mann V Paterson Constructions Pty Ltd involve?
The Mann’s entered into a contract with Paterson Constructions for the construction of two townhouses on their own land and on the basis of a fixed price masters builders’ contract for major domestic building works.
The parties fell into a dispute over an unpaid invoice that covered both stage payments and variations requested verbally by the Mann’s. The invoice was for approximately $49,000.
As Paterson Constructions undertook these variations without a written confirmation, both parties were at fault by the contract and by section 38 of the Domestic Building Contracts Act of Victoria.
Paterson Constructions advised the Mann’s that they could do no further work until that invoice was paid. The Mann’s claimed that the builders were in breach of clauses 12 and 13 of their contract and sections 37 and 38 of the Domestic Building Contracts Act of Victoria. They claimed that Paterson repudiated the contract (meaning they were not ready, willing or able to undertake their obligations of the contract).
The builders argued that this was an inappropriate claim of repudiation, terminated the contract and explored their entitlement to recover payments in VCAT (the Victorian Civil and Administrative Tribunal). Paterson then looked into a Quantum Meruit claim.
2. What is a Quantum Meruit claim?
“Quantum Meruit” is a Latin term which broadly means “as much as he deserves.” A Quantum Meruit claim is a claim for payment outside of the contractual entitlement.
Now determined by the High Court, the claim covers work that has been completed when a contract is terminated in between two milestone payments (i.e. the builder has completed a portion of the project but not yet reached the next milestone payment upon termination).
Generally, the builder will claim what they deem to be a fair and reasonable sum of money for the services rendered and work completed.
3. How does the Quantum Meruit claim work in relation to this matter?
When this matter went to VCAT, the tribunal awarded approximately $660,000 to Paterson Constructions, which is significantly more than the original contract sum.
The matter progressed to the Supreme Court, the Court of Appeal in Victoria, and finally, the High Court. Each court was following the existing law and the Court of Appeal said that if there is to be a change in the law, the decision must be made by the High Court.
The issue with this is that Paterson Constructions had reached a payment milestone and therefore, had an accrued right under the contract for a payment. This should have precluded the builder from a Quantum Meruit claim, who, instead, should have made a debt recovery claim.
Also, the work should have been capped at the amount of the original contract price. The court stated that builders cannot be paid significantly more than what was agreed when entering into the contract.
4. Are there any lessons for Victorian builders from this decision and how does it affect the rest of Australia?
The Quantum Meruit part of the decision can now be applied to these types of residential building disputes across Australia.
A builder cannot utilise a Quantum Meruit if he or she has an accrued right under the contract (i.e. if a milestone payment has been reached). He or she can only seek to recover a milestone payment under common law.
If a dispute does fall in between two milestone payments, the builder can claim from the last payment up until the work that has been completed.
The variations part of this decision is only relevant to Victorian builders at the moment, although it will be interesting to see if it will be applied to other states with similar residential building disputes.
The decision deals with section 38 of the Domestic Building Contracts Act of Victoria, which prevents a builder from recovering variations using a Quantum Meruit claim. If the builder believes the variations will delay the project or if the value of them is more than 2% of the original contract sum, the variations must be requested and approved in writing.
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