In refusing special leave to appeal the decision of Sopov, albeit constrained by the manner in which the parties in that case had pleaded the matter before the Supreme Court, the High Court in effect confirmed the common law position.

Now, in the case of Mann v Paterson Constructions Pty Ltd, the Supreme Court has echoed its observations in Sopov, citing that the passage of time had not lessened their force. The case affirms the entitlement of a builder to make a claim for the fair and reasonable value of the work (quantum meruit) under a contract after terminating for repudiation, but it serves as a potential avenue for appeal to the High Court for reconsideration of the common law position.

Peter and Angela Mann (owners) and Paterson Constructions Pty Ltd (builder) entered into a contract to build two double-storey town houses on the owners' property for $971,000.

The owners purported to terminate the contract during construction based on the builder's alleged delay in carrying out works and purported suspension and refused the builder access to return to the property. The builder, in turn, asserted that the owners' purported termination and refusal to allow the builder onto site amounted to a repudiation and accepted that repudiation.

The builder brought a claim at the Victorian Civil and Administration Tribunal (VCAT) against the owners seeking relief and was awarded damages of $660,526.41 on the basis of that this was an amount representing the fair and reasonable value of the work, rather than the contract amount.

The owners appealed the decision to the Supreme Court which at first instance dismissed the appeal save for correction of a minor mathematical error in quantum. The owners further appealed that decision to the Supreme Court of Appeal on a number of grounds.

Three key questions to be determined by the Court of Appeal were

• can a builder seek damages on the basis of the fair and reasonable value of the work after terminating a contract following an owner's repudiation?
• did the contract price limit the builder's claim for the fair and reasonable value of the work?
• did section 38 of the Domestic Building Contracts Act 1995 (Act) prevent the builder from claiming damages for variations on the basis of the fair and reasonable value of the work?

Decision

In a joint judgment, Kyrou, McLeish and Hargrave JJA held in favour of the builder and dismissed the appeal. The builder was able to recover the amount assessed by VCAT as fair and reasonable value for the work outside of the contractual framework.

Builder's entitlement to make a claim for the 'fair and reasonable value' of work

The owners relied on the court's observations in Sopov regarding the proposition that a builder can claim the fair and reasonable value of the work when a contract is terminated for repudiation. The owners contended that the court, in this case, was presented with 'a particularly good opportunity for the controversy as to the appropriateness of the availability of quantum meruit upon the termination [of a building contract to be further considered judicially'.

The court held that it was bound by the prevailing authority however, in coming to this decision, the court reiterated its earlier comments regarding criticism of this approach and deferring the position at law as a matter for the High Court to determine.

We understand that that the owners may be considering whether to appeal the decision.

Contract price does not cap the 'fair and reasonable value'

It was held that the contract price has little impact on the assessment of the fair and reasonable value of the work. In coming to this decision, the court noted that in some instances the contract price is of little assistance in assessing the value of the work, as the work that is actually carried out by a builder can vary substantially from the work under the contract. It was also emphasised that the assessment of the value of the works does not necessarily reflect the costs incurred in carrying out the works, but is based on the benefit conferred to the owner.

Claiming 'fair and reasonable value' of variations

The court held that section 38 of the Act does not impede the builder's ability to claim for the fair and reasonable value of variations to the contract that are carried out. Section 38 of the Act prevents a builder from claiming 'any money' for variations unless the parties agree on a price, or the builder complies with the notice requirements in that section.

The court narrowly interpreted section 38 to apply to claims in contract only. It was held that the section did not prevent a builder from recovering an amount representing the fair and reasonable value of that variation. In coming to this decision, the court had regard to the phrasing of a number of other sections as well as the history and purpose of the Act.