Builder’s Beware! Get Variations In Writing To Recover Payment!
The recent High Court decision in Mann v Paterson Constructions Pty Ltd [2019] HCA 32 highlights the importance of complying with section 38 of Domestic Building Contracts Act 1995 (Vic) (Act) in order to recover payment for a variation to the works.
Facts
In March 2014, Mr and Mrs Mann (the Owners) entered into a Master Builders Association Form HC-6 (Edition 1-2007) major domestic building contract with Paterson Constructions Pty Ltd (the Builder) for the construction of two double-storey townhouses for a fixed contract price of $971,000.00 (Incl. GST) (the Contract).
Throughout the build, the Owners requested 42 variations which were carried out by the Builder. Both parties failed to give written notice of the variations in accordance with Clause 12 of the Contract and section 38 of the Act.
In March 2015, a certificate of occupancy was issued for one of the townhouses and the Owners paid the final payment to the Builder for this townhouse. After handover of the completed townhouse, the Builder issued an invoice for $48,844.92 for 11 variations. The Owners refused to pay the Builder for the variations and alleged that the Builder had repudiated the Contract by failing to complete the remaining works until payment for the variations was made. In response, the Builder alleged that the Owners had repudiated the Contract.
The Builder commenced proceedings at VCAT, which ordered the Owners to pay restitution of $660,526.41 on a quantum meruit basis. VCAT made this determination by looking at the value of the benefit conferred upon the Owners, namely $1,606,313.41 less the net amount already paid of $945,787.00.
High Court
The Owners appealed to the Supreme Court of Victoria and to the Court of Appeal of the Supreme Court of Victoria, where both appeals were dismissed. However, the Owners were granted special leave to appeal to the High Court in relation to the following issues:
With respect to the variations, whether the Builder’s non-compliance with the notice requirements under section 38 of the Act prevented it from claiming restitution on a quantum meruit basis (meaning: a reasonable sum of money to be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract).
With respect to work and labour done under the Contract, whether the Builder was entitled to claim on a quantum meruit basis rather than for amounts due under the Contract or damages for breach of contract?
Whether the fixed price agreed under the Contract should limit the amount recoverable by the Builder on a quantum meruit basis?
The High Court held on a unanimous basis that the Builder should not be awarded restitution on a quantum meruit basis for the variations carried out which did not comply with section 38 of the Act.
The High Court also held, on a unanimous basis, with respect to the stages completed at the time of termination, that the Builder was only entitled to recover the amount due under the Contract for each completed stage and damages for breach of contract. The Builder was not entitled to recover on a quantum meruit basis with respect to each completed stage. Similarly, with respect to the incomplete stages, the Builder was entitled to claim for damages for breach of Contract and was not entitled to recover on a quantum meruit basis.
Finally, the High Court held, on a majority basis, that the Builder was entitled to recover in restitution for work and labour done and materials supplied for the incomplete stages. However, this could not exceed a ‘fair value’ which would be calculated by reference to the contract price or the appropriate part of the contract price and not based on market rates.
Impact on Builders
The High Court’s decision confirms the importance complying with section 38 of the Act. Failure to do so may result in a builder failing to recover payment for non-compliant variations, which is a potentially costly consequence. Further, recovery on a quantum meruit basis following termination of a Contract by a builder will be limited to a ‘fair value’ calculated in accordance with the contract price and not based on market rates.
If you require assistance with a construction related matter, please contact Urban Lawyers today.