Mann v Paterson Constructions Pty Ltd

• Jurisdiction: Australia Federal only
• Judge: Kiefel CJ,Bell,Keane JJ.,Gageler J.,Nettle,Gordon,Edelman JJ.
• Judgment Date: 09 October 2019
• Neutral Citation: [2019] HCA 32
• Docket Number: M197/2018
• Court: High Court
• Date: 09 October 2019

[2019] HCA 32

HIGH COURT OF AUSTRALIA

Kiefel CJ, Bell, Gageler, Keane, Nettle, Gordon and Edelman JJ

M197/2018

Peter Mann & Anor

Appellants

and

Paterson Constructions Pty Ltd

Respondent

Representation

T J Margetts QC with G F Hellyer and A C Roe for the appellants (instructed by Telford Story & Associates)

J P Moore QC with A J Laird and J A G McComish for the respondent (instructed by Kalus Kenny Intelex)

Domestic Building Contracts Act 1995 (Vic), ss 1, 3, 4, 16, 27, 38, 39, 53, 132.

Restitution — Unjust enrichment — Work and labour done — Where land owners and builder entered into contract to which Domestic Building Contracts Act 1995 (Vic) applied — Where contract provided for progress payments at completion of stages — Where owners requested, and builder carried out, variations to plans and specifications in contract without giving written notice as required by s 38 of Act — Where owners repudiated contract after builder raised invoice claiming for variations — Where contract terminated by builder's acceptance of owners' repudiation — Whether s 38 of Act applied to limit amount recoverable by builder for variations — Whether builder entitled to recover in restitution as alternative to claim in damages for breach of contract — Whether contract price operated as ceiling on amount recoverable by way of restitution.

Words and phrases — “accrued rights”, “alternative restitutionary remedy”, “common counts”, “completed stage”, “contract price ceiling”, “contractual incentives”, “domestic building contract”, “failure of basis”, “failure of consideration”, “limit on recovery”, “measure of restitution”, “notice”, “primary and secondary obligations”, “principle of legality”, “protective provisions”, “qualifying or vitiating factor”, “quantum meruit”, “quasi-contractual obligation”, “repudiation”, “restitution”, “subjective devaluation”, “unjust enrichment”, “variations”, “work and labour done”.

ORDER

• 1. Appeal allowed with costs.

• 2. Set aside orders 1 to 3 of the Court of Appeal of the Supreme Court of Victoria made on 12 September 2018 and, in their place, order that:

  • (a) the application for leave to appeal be granted;

  • (b) the appeal to the Court of Appeal of the Supreme Court of Victoria be allowed with costs; and

  • (c) orders 2 to 5 of the order made by Justice Cavanough of the Supreme Court of Victoria on 21 March 2018 be set aside and, in their place, it be ordered that:

    • (i) the appeal to the Supreme Court of Victoria be allowed with costs;

    • (ii) the orders of the Victorian Civil and Administrative Tribunal made on 12 December 2016 be set aside; and

    • (iii) the matter be remitted to the Victorian Civil and Administrative Tribunal for further determination according to law.

1 Kiefel CJ, Bell and Keane JJ. The appellants entered into a contract with the respondent for the construction by the respondent of two townhouses on land owned by the appellants. The parties fell into dispute in relation to the works. The respondent claimed that the appellants had repudiated the contract, and purported to terminate the contract by accepting that repudiation. The respondent then claimed that it was entitled to recover payment for its work, including variations, upon a quantum meruit. The respondent's claim was upheld by the Court of Appeal of the Supreme Court of Victoria 1.

2 Pursuant to a grant of special leave to appeal, the appellants now challenge the decision of the Court of Appeal on the following grounds:

• “[1] The Court of Appeal erred in holding that the respondent builder, having terminated a major domestic building contract upon the repudiation of the contract by the [appellants], was entitled to sue on a quantum meruit for the works carried out by it.

• [2] Alternatively, if the respondent was entitled to sue on a quantum meruit, the Court of Appeal erred in finding that the price of the contract did not operate as a ceiling on the amount claimable under such a quantum meruit claim.

• [3] The Court of Appeal erred in allowing the respondent to recover on a quantum meruit basis for variations to the works carried out by the respondent, because it incorrectly found that s 38 of the Domestic Building Contracts Act 1995 (Vic) did not apply to a quantum meruit claim for variations to works under a domestic building contract.”

3 The relevant terms of the contract between the parties, the relevant legislative provisions bearing upon the third ground of appeal, the course of proceedings in the courts below, and the circumstances giving rise to the appeal to this Court, are comprehensively summarised in the reasons of Nettle, Gordon and Edelman JJ. We gratefully adopt their Honours' summary.

4 In our respectful opinion, the issue posed by the first ground of appeal should be resolved in the affirmative, in favour of the appellants. As a result, it is unnecessary to address the second ground of appeal. In relation to the issue raised by the third ground of appeal, we agree with the conclusion and reasons of Nettle, Gordon and Edelman JJ and have nothing useful to add.

The rescission fallacy

5 The appellants' first ground of appeal raises for consideration the correctness of the proposition that a claim for quantum meruit – that is, for the reasonable value of work performed – may be made at the election of the innocent party to a contract as an alternative to a claim for damages in the wake of the termination of the contract for repudiation or breach. That proposition was accepted by the Judicial Committee of the Privy Council in Lodder v Slowey 2. It has since been applied by the intermediate appellate courts of Victoria 3, New South Wales 4, Queensland 5, and South Australia 6.

6 In Lodder v Slowey, the Board upheld the decision of the Court of Appeal of New Zealand in Slowey v Lodder 7. On the basis of the theory that the relevant contract had been rescinded ab initio, the plaintiff was held entitled to recover a sum assessed as the reasonable value of the services rendered, even though the amount so assessed might substantially exceed the agreed price. In the Court of Appeal, Williams J said 8:

“As the defendant has abandoned the special contract, and as the plaintiff has accepted that abandonment, what would have happened if the special contract had continued in existence is entirely irrelevant. As by the consent of both parties the special contract has been set aside, neither

can the plaintiff claim for any profit he might have made under it nor can the defendant set up that if the plaintiff had been allowed to complete his performance of the contract he would have made no profit or would have suffered a loss.”

7 In the present case, the Court of Appeal followed 9 its previous decision in Sopov v Kane Constructions Pty Ltd [No 2] 10. In Sopov, Maxwell P, Kellam JA and Whelan A-JA held that a builder was entitled to advance a claim for quantum meruit in lieu of a claim for damages following its acceptance of the owner's repudiation and the consequent termination of the contract 11. Their Honours reached that conclusion in deference to the course of judicial authority beginning with Lodder v Slowey despite weighty academic criticism 12 and even though their Honours considered that Lodder v Slowey and the decisions that followed it “can be seen to have been founded” on what their Honours termed the “rescission fallacy” 13.

8 The reference in Sopov to the “rescission fallacy” was apposite. The theory that the contract between the parties becomes “entirely irrelevant” 14 upon discharge for repudiation or breach is indeed fallacious. As Mason CJ said in Baltic Shipping Co v Dillon 15: “It is now clear that … the discharge operates only prospectively, that is, it is not equivalent to rescission ab initio.”

9 The notion that the termination of a contract for repudiation or breach has the effect of rescinding the contract ab initio was unequivocally rejected by this Court in McDonald v Dennys Lascelles Ltd 16. In that case, Dixon J, with whom Rich and McTiernan JJ agreed, said 17:

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.”

10 In this classic statement of principle, Dixon J made two points. The first was that upon the innocent party electing to treat the contract as no longer binding upon it, both parties are discharged from the further performance of the contract, while those rights that have accrued in accordance with the terms of the contract remain enforceable. To say that the contract has come to an end “may in individual cases convey the truth with sufficient accuracy”, but “the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position” 18. Accordingly, in the case of a...