12
Nov

Quantum meruit claims demolished

Until recently if a contractor had performed work and the principal repudiated the contract
(by indicating that they would not pay for the works), the contractor could:

  • sue for the debt;
  • claim damages for breach of contract, or
  • make a quantum meruit claim for payment of the fair value of the work done.

Generally, most contractors pursued all of these options as alternatives in the same legal proceedings.
A claim for quantum meruit is often more attractive for contractors given that, if the reasonable value
of the works was greater that the contact price, the contractor stood to obtain payment greater than:

  • a successful claim for debt or damages; or
  • the profit they would have enjoyed had the parties complied with the contract.

Recently, the High Court significantly affected contractors’ rights to make quantum meruit claims.
In Mann v Paterson Constructions Pty Ltd [2019] HCA 32, it was determined that the contractor
cannot claim quantum meruit if:

  • the contractor has performed work and an entitlement to payment has arisen or accrued
    (for example, completion of a stage under a milestone payment regime);
  • the principal repudiates and the contractor subsequently terminates the contract; and
  • the contractor is entitled to claim for debt or damages.

Effectively, the High Court held that the Respondent had no right to claim on the grounds of quantum
meruit because a right to payment had already accrued under the contract.
Importantly, the Court clarified that if an entitlement to payment has not yet arisen where a contractor
has performed work and the contract is terminated for repudiation, the contractor may make a quantum meriut
claim. The High Court rejected, however, the longstanding position that quantum meriut ought to be calculated
pursuant to the reasonable value of the work performed, rather, the High Court held that the amount awarded cannot
be in excess of the contract price for that portion of the works.

Key takeaways for our clients are:

  • contractors are no longer able to make a quantum meruit claim following termination for repudiation if work has been
    completed and rights to payment have accrued;
  • before terminating a contract for repudiation, contractors need to be conscious of whether a payment right has accrued;and
  • the amount of a quantum meruit claim is now constrained such that contractors cannot recover amounts in excess of the contract price.