12
Nov

Quantum meruit claims demolished



Quantum Meruit Claims Demolished: What the High Court’s Decision Means for Contractors

Until recently, where a contractor performed construction work and the principal repudiated the contract, the contractor could potentially pursue several alternative remedies:

  • Sue for a debt arising under the contract;
  • Claim damages for breach of contract; or
  • Make a quantum meruit claim for the reasonable value of the work performed.

Contractors frequently pleaded these remedies in the alternative in legal proceedings.

Historically, a quantum meruit claim could be particularly attractive because the reasonable value of the work performed might exceed the amount recoverable under the contract. In some circumstances, this allowed contractors to recover more than the contractual price attributable to the work.

The High Court’s decision in Mann v Paterson Constructions

In Mann v Paterson Constructions Pty Ltd [2019] HCA 32, the High Court of Australia significantly clarified the circumstances in which a contractor may recover payment on a quantum meruit basis following termination of a construction contract for repudiation.

The Court distinguished between work for which a contractual right to payment had already accrued and work performed for which no such entitlement had yet arisen.

When is a quantum meruit claim unavailable?

Where a contractor has completed work and an enforceable contractual right to payment has accrued before termination, the contractor cannot disregard that entitlement and instead recover the reasonable value of the same work through a quantum meruit claim merely because the contract was subsequently terminated for repudiation.

For example, this may arise where:

  1. The contractor completes a stage of work under a milestone payment regime;
  2. An entitlement to payment for that stage accrues under the contract;
  3. The principal subsequently repudiates the contract; and
  4. The contractor accepts the repudiation and terminates the contract.

In those circumstances, the contractor’s entitlement to payment for the completed stage is ordinarily determined by the contract rather than an independent assessment of the reasonable value of the work.

When can a contractor still claim quantum meruit?

The High Court recognised that a quantum meruit claim may remain available for work performed before termination where no contractual entitlement to payment had accrued.

For example, a contractor may have commenced but not completed a stage of construction work when the principal repudiates the contract and the contractor accepts that repudiation.

However, the High Court rejected the proposition that a contractor could necessarily recover an amount exceeding the contractual allocation of value for that work.

The contract price remains an important limitation on the amount recoverable. In the circumstances considered in Mann v Paterson Constructions, recovery on a quantum meruit basis could not exceed the portion of the contract price attributable to the relevant work.

What does this mean for contractors?

The decision has significant implications for contractors considering termination following a principal’s repudiation of a construction contract.

The key considerations include:

  1. Accrued payment rights: Where a contractual entitlement to payment has already accrued, the contractor generally cannot substitute a quantum meruit claim for that entitlement following termination for repudiation.
  2. Incomplete stages of work: A quantum meruit claim may remain available for work performed where no contractual entitlement to payment has accrued.
  3. Contractual price limitations: Contractors should not assume that a quantum meruit claim will allow recovery exceeding the price allocated to the relevant work under the contract.
  4. Termination strategy: Before accepting a principal’s repudiation and terminating the contract, contractors should carefully consider their accrued payment rights, the value of incomplete work and the remedies available.

How Dark Legal can assist

Disputes concerning repudiation, termination and payment entitlements can have significant financial consequences for contractors and principals.

At Dark Legal, we advise and represent clients in building and construction disputes, including claims concerning unpaid construction work, breach of contract, repudiation, termination and quantum meruit.

Whether you are considering terminating a construction contract or seeking to recover payment for work performed, contact Dark Legal to discuss your contractual rights, available remedies and the most appropriate strategy.