Court reviews quantum meruit claims

22 June 2009 Topics: Litigation and dispute resolution

In the recent decision of Sopov & Anor -v- Kane Constructions Pty Ltd (No. 2) [2009] VSCA 141 (15 June 2009) the Victorian Court of Appeal considered the entitlement of a builder to make a claim outside of a contract for the reasonable value of construction works (known as a “quantum meruit” claim).

The works in question had been performed under a contract which was brought to an end as a result of the owner’s conduct after the works had been substantially completed by the builder.

Basis of claim relevant to amount that can be recovered

Recovering the reasonable value of works on a quantum meruit basis, as opposed to suing for contract damages, is relevant to the amount that can be recovered.

For a contract damages claim, the task is to put the innocent party in the same position it would have been in had it completed the whole job under the contract. For a quantum meruit claim, the approach is to assess the fair and reasonable value of the work performed. This involves a determination of the value of the benefit conferred on the receiving party.

This means the amount recoverable on a quantum meruit claim may potentially exceed the amount that would have been recovered if the contract had been fully performed.

Owner’s arguments in the case

The owner raised a number of arguments to attack the builder’s quantum meruit claim. The owner argued:

  • The builder’s only remedy was contractual damages. The builder was not entitled to elect to claim on a quantum meruit basis.
  • If the builder was entitled to elect to claim on a quantum meruit, the amount recoverable was limited to the contract price.
  • If the amount recoverable was not limited by the contract price, the contract price was nevertheless the best evidence before the court of the value of the benefit received by the owner.

Court of Appeal’s decision

The Victorian Court of Appeal reviewed the availability of the quantum meruit remedy on a contract repudiation relating to work done and the principles that apply in assessing a quantum meruit claim.

The following is a summary of some of the comments made by the court.

  • The entitlement to sue for work done on a quantum meruit rather than for contract damages “is supported by high authority of longstanding”. This position is supported by decisions of courts of appeal in three states. The Victorian Court of Appeal said that if the quantum meruit 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 High Court’s decision in Lumbers -v- W Cook Builders Pty Ltd (In Liquidation) [2008] HCA 27 did not support the owner’s position.
    • The restitution claim considered in the High Court case was a novel claim, made by a party which had no contractual relationship with the party against whom it made its claim.
    • The High Court rejected what it characterised as an attempt to extend or develop “the long-established and well recognised category of cases constituted by claims for work and labour done or money paid at the request of another”.
    • The High Court case did not review the availability of a quantum meruit claim as between the parties to a contract.
  • It is immaterial that a judgment on a quantum meruit basis might exceed the amount which would have been payable under the contract. A quantum meruit remedy rests on the fiction that the contract ceased to exist from the beginning. As a result where the claim is made on a quantum meruit basis, the contract price does not impose a ceiling on the amount recoverable.
  • The contract price may provide a guide to the reasonableness of the remuneration claimed, but is not “the best evidence” of the value of the benefit conferred. A contract price is struck prospectively, based on the parties’ expectation of the future course of events. A quantum meruit is assessed with the benefit of hindsight, on the basis of the events which actually happened.
  • In establishing a quantum meruit claim, the claimant must prove the total costs incurred and payments made by it in carrying out the works. The claimant must also establish that the amounts in question were fair and reasonable in the circumstances.
  • The value of the work done can be proved by evidence of the actual costs incurred.
  • It is appropriate to ascertain what it would have cost to have the works carried out by another builder in comparable circumstances. This includes the entitlement to a profit margin. The inclusion of a margin for profit and overhead means that the calculation approximates the replacement cost of the works, the benefit conferred on the owner.

Summary

The Victorian Court of Appeal decision reaffirms the availability of a quantum meruit claim for work done in cases where a contract has been brought to an end as a result of the other side’s conduct.

The Victorian Court of Appeal also confirmed that the contract price does not act as a ceiling on the quantum meruit claim.

In practical terms, this means an election to claim in quantum meruit may enable the claimant to obtain a more attractive outcome greater than the original contract value of the completed work.

Although the Victorian Court of Appeal decision involved a building claim, a quantum meruit claim is also available in other cases involving work done or services rendered.

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