QUANTUM MERUIT SOME PITFALLS Ben Jacobs 8 November 2017
OVERVIEW CONTEXT A valid construction contract has been repudiated by one party, such repudiation having been validly accepted by the other party who terminates the contact, and one party subsequently claims an entitlement to quantum meruit.
OVERVIEW TWO ISSUES INTERRELATED 1. What is the relevance of the contract price? 2. What is the relevance of who repudiated the contract?
OVERVIEW PRINCIPLE What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or enrichment actually or constructively accepted. : Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 (Pavey & Matthews) per Deane J at 263.
OVERVIEW CONTRACTUAL BACKGROUND Every case where the contract is discharged for repudiation by the defendant, plaintiff is entitled to damages. But plaintiff is also entitled to reasonable remuneration for any non-monetary benefit conferred, at least where contract price not recoverable. By contrast, if the contract was discharged by the defendant for the plaintiff's repudiation, plaintiff is not entitled to damages or the contract price. In almost all cases, a claim for reasonable remuneration will also fail.
QUANTUM MERUIT KEY ELEMENTS Unjust enrichment is commonly accepted as consisting of four elements (See, eg Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 per French CJ, Crennan and Kiefel JJ at [30]): Enrichment/benefit; At the claimant s expense; The unjust factor; and No defence.
QUANTUM MERUIT ACCEPTANCE Acceptance of benefit is the orthodox basis for establishing an entitlement to reasonable remuneration: Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 (Lumbers v W Cook) at 656 and 662. It has been suggested that acceptance satisfies both benefit and injustice elements: Restitution law in Australia / Keith Mason, J W Carter and G J Tolhurst (3 rd ed) 2016 (Restitution law in Australia) at [1156].
QUANTUM MERUIT ACCEPTANCE However, acceptance has a differential operation in that acceptance is either irrelevant or deemed to occur, if performance of the contract was not completed due to breach by the defendant. Whereas, if the defendant elected to treat the contract as discharged, for the plaintiff s repudiation, acceptance must be proved independently of contractual receipt. See Restitution Law in Australia at [1157].
CLAIMS BY INNOCENT PARTY CLAIMS BY INNOCENT PARTY Geneses of why acceptance is deemed to occur against the defendant in these cases is that a defendant in breach is not permitted to deny that part performance of the contract is beneficial. Useful to consider this point in light of a modern case: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 (Renard Constructions).
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS FACTS Concerned two contracts, both were for the construction of pumping stations as part of a sewerage project in the Gosford/Wyong area. Failure by the principal to supply materials. Principal subsequently served a notice on the contractor to show cause why it should not take the remaining work out of the contractor s hands.
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS FACTS When exercising the power to take the work out of Renard s hands, the relevant person at the principal was not aware of either the: Bearing that the non-supply by the principal would have on the date for PC; or Steps taken to accelerate, i.e. increased work force, longer hours and new, highly experienced foreman. Renard treated the action as repudiation, terminated the contract and commenced arbitration.
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS HISTORY Arbitrator held that the principal was unreasonable in the exercise of its power amounting to repudiation and that Renard was entitled to recover on a quantum meruit calculated by reference to reasonable remuneration for the contractor. Principal appealed to Cole J on the grounds that: Arbitrator reached the wrong conclusion on repudiation; and Arbitrator applied the wrong method of calculation.
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS HISTORY Cole J upheld the appeal on the first ground only. Unnecessary to decide, but Cole J said he would be against the principal on the second ground for the reasons he had given in Jennings Construction Ltd v Q H and M Birt Ltd (Cole J, 16 December 1988, unreported). Appeal and cross-appeal to the Court of Appeal, Priestley JA, Meagher JA and Handley JA.
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS APPEAL Principal s cross-appeal raised to points: Contractual sum must form the upper limit of the total receivable by the contractor (ceiling point). Arbitrator should have found an amount representing the value to the principal of the work performed by the contractor, not a reasonable remuneration to the contractor (value to principal point).
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS DECISION Court of Appeal upheld Renard s appeal and reinstated arbitrator s decision, and dismissed the cross-appeal (Meagher JA, Priestley and Handley JJA agreeing).
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS VALUE TO THE PRINCIPAL Court of Appeal approved of what Cole J had said in Jennings Construction Ltd v Q H and M Birt Ltd (Cole J, 16 December 1988, unreported) applying the judgments of Mason J and Wilson J (jointly) and Deane J in Pavey & Matthews.
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS CEILING POINT Court of Appeal approved of what the New Zealand Court of Appeal in Slowey v Lodder (1901) 20 NZLR 321; approved by the Privy Council in Lodder v Slowey [1904] AC 442.
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS CONTINUED an innocent party who accepts the defaulting party's repudiation of a contract has the option of either suing for damages for breach of contract or suing on a quantum meruit for work done. An election presupposes a choice between different remedies, which presumably may lead to different results. The nature of these different remedies renders it highly likely that the results will be different. : Renard Constructions per Meagher JA at 277 [emphasis added].
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS CONTINUED The most one can say is that the amount contractually agreed is evidence of the reasonableness of the remuneration claimed on a quantum meruit; strong evidence perhaps, but certainly not conclusive evidence. : per Meagher JA at 278 [emphasis added].
CLAIMS BY INNOCENT PARTY RENARD CONSTRUCTIONS CONTINUED On the other hand, it would be extremely anomalous if the defaulting party when sued on a quantum meruit could invoke the contract which he has repudiated in order to impose a ceiling on amounts otherwise recoverable. : per Meagher JA at 278 [emphasis added]. [It is trite to observe that a plaintiff wrongdoer claiming quatum meruit, even if can establish claim, should not be permitted to put themselves into a better position than they would have been had they not repudiated the contract.]
CLAIMS BY WRONGDOER SUMPTER V HEDGES Plaintiff sued on a quantum meruit for value of work done and materials supplied. Progress payments were made, but plaintiff ran out of money and abandoned the works. Where the plaintiff's repudiation led to termination, the general rule is that reasonable remuneration is not available to recover the value of part performance: Sumpter v Hedges [1898] 1 QB 673 (Sumpter v Hedges).
CLAIMS BY WRONGDOER SUMPTER V HEDGES CONTINUED Sumpter v Hedges was decided on implied contract, overtaken by Pavey & Matthews and restitution or unjust enrichment analysis. However, still authority for the proposition that an independent liability, i.e. completely independent of the contract, must be established. Interesting point is that the claim for work done failed, however the claim for materials supplied but not incorporated was upheld.
CLAIMS BY WRONGDOER ACCEPTANCE Where work is done by one party under a special contract, but not according to its terms, the other may refuse to accept it; but if he does accept it and takes the benefit of it, he may be sued for the value on this [common indebitatus] count [for work done]. : Steele v Tardiani (1946) 72 CLR 386 (Steele v Tardiani) per Latham CJ at 393 (adopting the rule as stated in Bullen and Leake).
CLAIMS BY WRONGDOER STEELE V TARDIANI FACTS Italian war internees were released on the condition that they work for the defendant cutting firewood on his land. Found that the contract specified certain dimensions for the firewood and that the plaintiffs had breached the contract for failure to comply with those terms.
CLAIMS BY WRONGDOER STEELE V TARDIANI DECISION Plaintiffs were entitled to recover on a quantum meruit, since although contract was part-performed, a new contract could be implied from the circumstances under which defendant allowed the plaintiffs without any objections to split the wood to widths greater than six inches and subsequently disposed of the wood. Implied contract is no longer the basis (Pavey & Matthews), however acceptance is a foundation for independent liability.
CLAIMS BY WRONGDOER STEELE V TARDIANI CONTINUED In Steele v Tardiani, in the context of work done, Dixon J (at 402) referred to 'taking the benefit of the work', and said that this assumes the exercise of some choice actually open to the defendant. Evidence of a verbal request made by the defendant to the plaintiffs to continue cutting the wood/promise to pay, notwithstanding non-compliance Steele v Tardiani is very rarely applied (see Valleyarm Digital Ltd v Peake [2016] VSC 98 for a recent attempt)
CONCLUSIONS SUMMARY The preferential treatment of a restitutionary claim by a plaintiff who elected to terminate the contract for the defendant's breach or repudiation stems from the fact that a defendant in breach is not permitted to deny that part performance is beneficial (contractual receipt is sufficient). Where the plaintiff was the wrongdoer, an independent basis for liability must be proven and acceptance as previously explained is an appropriate concept.
CONCLUSIONS LUMBERS V W COOK Useful example of difficulties faced where the plaintiff is not entitled to deemed acceptance by the defendant (although not a repudiation case). W Cook Sons entered into a contract with Lumbers to construct a house on its land. In reality, W Cook Builders (an associated company) performed most of the work required by the contract, which included the engagement of building sub-contractors and supervision of their work.
CONCLUSIONS LUMBERS V W COOK Lumbers were not shown to have received a benefit at Builders expense which they accepted, and which it would be unconscionable for them to retain without payment: Lumbers v W Cook per Gummow, Hayne, Crennan and Kiefel JJ at 662. In reaching the same conclusion, Gleeson CJ discussed: Steele v Tardiani need to establish acceptance; and Sumpter v Hedges the dilemma of the landowner on whose land work is done but not accepted. C.f. materials claim.
CONCLUSIONS TAKE AWAY POINTS What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or enrichment actually or constructively accepted : Pavey & Matthews per Deane J at 263 [emphasis added].
CONCLUSIONS TAKE AWAY POINTS CONTINUED Contract price: Is evidence of the reasonableness of the remuneration claimed, possibly strong evidence, but is not determinative; In the case where the defendant repudiated the contract, cannot impose a ceiling on amounts otherwise recoverable; and In cases where the plaintiff repudiated the contract, ought to restrict recovery (in unlikely event successful)
CONCLUSIONS TAKE AWAY POINTS CONTINUED Acceptance: Is irrelevant or deemed to occur, if performance of the contract was not completed due to breach by the defendant; and Must be proved independently of contractual receipt, if the defendant elected to treat the contract as discharged.