Chapter 20 Quantum meruit
Quantum meruit literally means ‘what the job is worth’. Where an owner has received a benefit from the contractor in unfair circumstances, or in other words has been unjustly enriched, equity in the form of quantum meruit, will intervene so that a contractor can claim a fair and reasonable sum for work performed and materials supplied.
When can a claim on a quantum meruit arise?
A quantum meruit claim may arise in various circumstances, including where:
- work has been performed on the basis that a contract will be agreed, but where no contract is entered into;
- a contract to perform work exists between parties, but a contract price is not specified;
- a contractor performs work outside the scope of a contract, at the owner’s request and where the work is not captured by the contractual right to order variations;
- a contractor performs work under a mistake and the owner knowingly accepts the work;
- a contractor performs work under a contract that is void, unenforceable or terminated, including where a contract is terminated due to repudiation by an owner; and
- Termination due to an owner’s repudiation.
Where a contract is terminated due to an owner’s repudiation, both parties are discharged from further performance of the contract. This is problematic for a contractor if a contractual right to payment has not yet accrued for works performed by the contractor before and up until termination. This is known as a total failure of consideration, and is the basis for a contractor’s claim in quantum meruit.
This can occur in the following scenarios:
- Entire Contract – Where a contract consists of one whole obligation to perform works, a contractual right to payment will only arise upon completion of all of the works. If termination occurs before completion, there will be a total failure of consideration of the entire contract.
- Divisible Contract – Where a contract comprises of divisible obligations, a contractor’s right to payment will arise upon completion of each of the divisible portions. Where repudiation occurs before completion of a divisible portion, there will be a total failure of a severable part of the consideration, given that this will result in incomplete works, in respect of that divisible portion.
In both of the above circumstances, the failure of consideration results in the contractor not being able to receive payment for the value of the works performed. This is because, upon termination, further obligations (including the obligation to pay) under the contract are discharged before the contractor’s right to payment for the work performed arises. Practically speaking, the owner receives value without being required to attend to payment in return, and is ‘unjustly enriched’. Accordingly, restitution in the form of quantum meruit is available for the contractor to claim.
Where a contract is terminated due to an owner’s repudiation, rights and obligations which have accrued under the contract up until the date of termination are unaffected. Where works are completed before termination (either wholly under an entire contract or in respect of a divisible portion under a divisible contract) a contractual right to payment will have accrued before termination given that it would have been triggered on completion. In these circumstances, quantum meruit is not available. A contractor’s remedy following termination is restricted to a claim in debt for the amount due that has accrued, or damages for breach of contract
What is a reasonable sum?
The courts take several factors into account in order to calculate the quantum of a fair and reasonable sum. These may include:
- the commercial rate for the work;
- site conditions;
- whether the contract refers to certain prices or formulas (having regard to the overall contract price);
- conduct of parties; and
- quality of work.
Given that quantum meruit is underpinned by unjust enrichment, the overall amount awarded will often depend on what is just in the circumstances. This may mean that the contractor may be awarded the full value of the work, only their costs, or in some circumstances, nothing at all.
The quantum awarded cannot exceed the overall contract price, unless circumstances dictate that it would be unconscionable to confine the contractor’s claim in this manner.
Mann v Paterson Constructions Pty Ltd  HCA 32
- The Mann’s (owner) entered into a domestic contract with Paterson Constructions Pty Ltd (builder) to construct two townhouses.
- The contract provided that the owner would make progress payments as the work progressed until final payment on completion.
- Before completion of the second townhouse, a dispute arose between the parties, resulting in the owner asserting that the builder had repudiated the contract, and purporting to terminate the contract. The builder asserted that the owner’s termination amounted to repudiation, which the builder chose to accept.
- In the lower courts, the owner was found to have repudiated the contract, and was ordered to pay the builder a significant sum of money which exceeded the contract price, on the basis of quantum meruit.
- The High Court of Australia was asked to consider whether quantum meruit was available if a claim in damages for breach of contract was available for work carried out, and if so, whether it was limited by the contract price. The court also considered whether quantum meruit was available for variations directed by the owner, where the procedure to obtain payment as required by the Domestic Building Contracts Act 1995 (Vic) had not been complied with.
- Quantum meruit can only be claimed where there has been a total failure of consideration.
- Where a contractual right to payment arises upon completion of the whole of the works under an entire contract, or completion of a divisible portion of the works under a divisible contract, termination before completion of these works will result in a total failure of consideration. Quantum meruit will be available given that contractual right to payment will not yet have arisen at the date of termination.
- Where works have been competed (either wholly or in respect of the divisible portion) before termination, quantum meruit is not available given that the builder’s right to payment will have already accrued. The builder’s remedy is limited to a debt for the amount due under the contract or damages for breach of contract.
- A claim for quantum meruit is only available for work done before termination, where the builder has not yet accrued a contractual right for payment.
- The contract price will act as the cap to the value of the quantum awarded, unless circumstances dictate that it would be unconscionable.
- A builder cannot claim quantum meruit for work done in respect of variations where the statutory requirements of section 38 of the Domestic Building Contracts Act 1995 apply, and which the contractor had not adhered to.