Mann v Paterson Constructions Pty Ltd [2019] HCA 32
A builder that terminated a domestic building contract on accepting the owners' repudiation could not claim a quantum meruit for completed stages, for which its right to payment had accrued. By four to three, it could claim restitution for work done towards an uncompleted stage, as an alternative to damages. The majority limited that amount by reference to the contract price or the part of it attributable to the work, as an absolute cap for Gageler J and a prima facie one for Nettle, Gordon and Edelman JJ. Any amount for variations the owners requested had to be determined in accordance with sections 38 and 39 of the Domestic Building Contracts Act 1995 (Vic).
What the court decided
In 2014 the appellant owners engaged the respondent builder to build two double-storey townhouses in Blackburn for a fixed price of $971,000 (including GST) [111]. The contract provided for stages, with a progress payment payable on completion of each stage [177]. The owners orally requested 42 variations, and neither side gave written notice [120]. The Victorian Civil and Administrative Tribunal found that the builder accepted the owners' wrongful repudiation on 28 April 2015 [137]. The Tribunal extracted a passage from Sopov v Kane Constructions Pty Ltd (No 2) and, as Nettle, Gordon and Edelman JJ inferred, on that basis assessed the reasonable value of the work without deciding whether section 38 applied [138].
In the Supreme Court of Victoria, Cavanough J dismissed the owners' appeal, save to correct a minor mathematical error [141], [144]. The Court of Appeal dismissed a further appeal, observing in effect that only the High Court could hold Sopov v Kane wrongly decided [146]. The High Court allowed the appeal and remitted the matter to the Tribunal for further determination according to law [54], [108], [222].
On variations, Kiefel CJ, Bell and Keane JJ agreed with the conclusion and reasons of Nettle, Gordon and Edelman JJ [4], and Gageler J with their construction of section 38 and the substance of their reasons [58]. Compliance required a written notice from the owner and, unless section 38(2) applied, one from the builder [155]. Without it, the builder could recover nothing under contract or in restitution, except under section 38(6)(b) for the amounts prescribed by section 38(7) [159], [160]. That required the Tribunal to be satisfied of exceptional circumstances or significant or exceptional hardship, and that recovery would not be unfair to the owner [156]. The Tribunal had not undertaken that exercise [161].
Every member of the Court held that, where a stage had been completed and payment had accrued, the builder had no claim to a quantum meruit for that work [27], [63], [179].
Four Justices held that restitution lay, as an alternative to damages, for work done towards an uncompleted stage [61], [174], [177]. Kiefel CJ, Bell and Keane JJ, in the minority on that question, would have held that Lodder v Slowey should no longer be applied [50]. Gageler J reached the majority's conclusion by a narrower path [61]. He rejected the argument that the contractual allocation of risk excluded restitution, and addressed the incentive to terminate by limiting the measure of restitution rather than denying the action [83], [89], [91]. Nettle, Gordon and Edelman JJ held that, where the price is apportioned to stages by progress payments payable on completion of each, there will be a total failure of consideration for the stages not completed, because the builder's right to complete the performance and earn the price will have failed [174], [176]. Which stages had been completed was left to the Tribunal [178], [179].
On the measure, Gageler J held that the amount recoverable cannot exceed the portion of the contract price attributable to the work, leaving apportionment to be addressed case by case [102], [105]. Nettle, Gordon and Edelman JJ held that restitution should prima facie not exceed a fair value calculated in accordance with the contract price or the appropriate part of it [215]. They left room for an exception where confining the builder to the contractual measure would be unconscionable [216], but none was suggested here, so the Tribunal erred in assessing restitution otherwise than at the contract rates [217]. Kiefel CJ, Bell and Keane JJ did not reach the measure [4]. Gageler J considered Sopov v Kane wrongly decided to the extent that it allowed recovery in excess of the contract price [103].
Why it matters
The rulings on restitution and its measure were stated as common law rules, not confined to domestic building [102], [166], [215]. The ruling on variations turned on section 38 of the Victorian Act, which Nettle, Gordon and Edelman JJ, reading it with section 37, held to cover the field of remuneration for requested variations under major domestic building contracts [153], [158]. The Court construed section 38 in the form set out at [132], and readers should check its current text.
In my view, a builder should price a restitutionary claim for an uncompleted stage at no more than the part of the contract price attributable to that work. Gageler J would allow no more than that part of the contract price [102]. Kiefel CJ, Bell and Keane JJ would have allowed no restitutionary claim for that work [50], [53]. Only Nettle, Gordon and Edelman JJ left open that exception for unconscionable cases [216]. Builders and owners should also follow the written notice steps in section 38 before a requested variation is carried out.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.