The king (quantum meruit) is dead, long live the king!
In Mann v Paterson Constructions Pty Ltd  HCA 32, the respondent builder claimed against the owner an entitlement to recover payments for its work, including variations, upon a quantum meruit (literally, a reasonable sum of money to be paid for services rendered). The respondent’s claim was upheld at first instance and on appeal. The appellant challenged the decision in the High Court and the High Court allowed the appeal.
What is quantum meruit?
This principle had the effect that an innocent party who rendered services under a contract could, on repudiation by the other party, sue for the reasonable value of work performed as an alternative to damages for breach of the contract. This principle meant that, for example, if a builder did work under a contract that entitled the builder to (say) $50,000, but the contract was wrongfully terminated by the owner, then the builder could sue (at the builder’s election) for the actual value of the work performed instead of damages under the contract. The actual value of the work might instead be, for example (say) $100,000. This meant in effect that the builder could obtain an award in excess of contract damages.
In Mann v Paterson, the High Court determined that, for the most part, in circumstances where a contract is repudiated (for example, by a building owner), the amount recoverable by the injured party (for example, a builder) is limited to that which has accrued under the contract. However, if part of the works done by the builder comprised works (not being variations) undertaken toward a stage of the works that had not yet been completed at the time of termination (so that no entitlement has crystallised under the contract), then the builder is entitled to damages for breach of contract, or a quantum meruit, but the amount payable will ordinarily be limited to the amount payable under the contract.
That is to say, quantum meruit, as an alternative remedy to damages calculated by reference to the terms of the contract on termination is, essentially, no longer ordinarily available. In this sense quantum meruit is dead. However, while the minority of the High Court took a pragmatic approach and was prepared to, for the most part, confine quantum meruit (in these circumstances) to the ash heap of history, the majority took a more principled approach so that quantum meruit is still available, albeit its reach and importance is now significantly reduced.
The High Court has now clarified, and limited, quantum meruit. The plurality said at :
“For the reasons which follow, insofar as the work and labour done was work and labour done in response to a requested variation within the meaning of s 38 of the Domestic Building Contracts Act 1995 (Vic) (“the DBC Act”), any amount of remuneration must be determined in accordance with ss 38 and 39 of the DBC Act. Insofar as the work and labour done, not being variations, comprised completed stages of the contract as defined in the contract, the amount of remuneration payable is essentially that which is prescribed by the contract for those stages, and any damages for breach of contract are to be calculated accordingly. Insofar, however, as any of the work and labour done, not being variations, comprised part of a stage of the contract that had not been completed at the time of termination, the respondent is entitled, at its option, to damages for breach of contract or restitution, but the amount of restitution should be limited in accordance with the rates prescribed by the contract.”
What the decision means is that quantum meruit for work done under a contract is now ordinarily available only in circumstances where work has been completed under the contract, (not being work for variations, which would be valued in accordance with the contract), but an entitlement to payment for that work has not yet crystallised under the contract at the time of termination. Only in those circumstances will recovery on a quantum meruit basis be available. And furthermore, ordinarily, recovery on a quantum meruit basis will be calculated on the basis of the contract in any event.
This decision is not unexpected and brings this area of the law into line with the usual position that, on termination, accrued rights remain enforceable, while the parties are absolved from future performance; except that the party in breach will be liable to pay the other party damages for its loss of the bargain. Quantum meruit will, post Mann v Paterson, only have work to do where the wronged party has undertaken work under the contract but that party’s right to damages has not yet accrued. Apart from those circumstances, the wronged party’s remedy will be limited to damages for breach of contract.