Editor’s Note
In Mann v Paterson Constructions Pty Ltd [2018] VSC 119 (19 March 2018), the Victorian Supreme Court (Cavanough J) was considering, among other things, complaints as to how VCAT had assessed a quantum meruit claim (arising where there had been a wrongful termination). His Honour said:
12 As to the ‘first underlying issue’, Senior Counsel said that the Senior Member had misunderstood or misapplied the test or the principles that should be applied to work out the value of a quantum meruit claim; that the proper test was to assess a value that was ‘fair and reasonable’; that this required the assessor to take into account a range of specified matters; that VCAT had not taken all of those matters into account in this case; that, instead, VCAT had simply accepted the evidence of the quantity surveyor, Mr Pitney, as to the proper value; and that this was impermissible. Senior Counsel went on to say that the origin and explanation of VCAT’s alleged error in this regard was a misreading of Sopov v Kane (No 2),[10] in that VCAT – wrongly, according to Senior Counsel – had treated that case as establishing that a construction contract became ‘void ab initio’ where the contract had been wrongfully repudiated by the owner and the builder had accepted the repudiation and elected to claim in restitution. Senior Counsel described as a ‘fiction’ the proposition that a building contract became ‘void ab initio’ in such circumstances; and he said that Sopov v Kane (No 2) itself pointed out this ‘fiction’. Alternatively, he submitted (as a formal submission only) that Sopov v Kane (No 2) was wrongly decided in this respect.[11]
13 In developing his case under this ‘first underlying issue’, Senior Counsel submitted that VCAT was required to apply a list of principles referred to by Vickery J in Vasco Investments Ltd v Morgan Stanley Australia Ltd,[12] and that, as a result, VCAT ought to have taken into account 12 particular matters that were specified by Senior Counsel, but that VCAT did not do so. A recurring theme was that, in accepting the quantity surveyor’s evidence, VCAT had wrongly made allowances in favour of the builder for items that, admittedly, did not reflect the actual costs incurred by the builder.
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19 In the case of a building contract where the owner has wrongfully repudiated the contract and the builder has accepted the wrongful repudiation and has elected to claim in restitution, Sopov v Kane (No 2) is, according to the High Court, the ‘prevailing authority’[17] for working out the amount which the builder is able to claim in restitution (as an alternative to a claim for breach of contract).
20 The Senior Member expressly directed himself that the payment was to be assessed ‘on the principles discussed by the Court of Appeal in [Sopov v Kane (No 2)]’.[18] He then referred to Sopov v Kane (No 2) in the following terms:[19]
[509] In that case, the Court of Appeal said (at paragraph 12):
“12 The right of a builder to sue on a quantum meruit following a repudiation of the contract has been part of the common law of Australia for more than a century. It is supported by decisions of intermediate courts of appeal in three States, all of which postdate McDonald and two of which postdate Pavey & Matthews. If that remedy is now to be declared to be unavailable as a matter of law, that is a step which the High Court alone can take.”
[510] As to the manner in which the claim should be assessed, Mr Laird referred me to paragraphs 25 and 26 of the judgement, where the Court said:
“25 The proper approach to assessment of a quantum meruit claim is, as the trial judge said, to ascertain the fair and reasonable value of the work performed. Axiomatically, the measure of the restitutionary remedy is the value of the benefit conferred on the party which received it. Once it is accepted that the quantum meruit claim is available independently of the contract, then it follows – as Meagher JA said in Renard - that it would be ‘extremely anomalous’ if the defaulting party could invoke the contract which it has repudiated to impose a ceiling on the amounts recoverable. [emphasis added]
26 Nor is the contract price ‘the best evidence’ of the value of the benefit conferred. As counsel for Kane pointed out, the contract price is struck prospectively, based on the parties’ expectations of the future course of events. The quantum meruit, on the other hand, is assessed with the benefit of hindsight, on the basis of the events which actually happened.”
and also to paragraph 35, where the Court said:
“35 The existence of the entitlement to a profit margin seems entirely consistent with the restitutionary objective of measuring the value of the benefit conferred. The inclusion of a margin for profit and overhead means that the calculation approximates the replacement cost of the works. As we have said, it is an appropriate index of value to ascertain what it would have cost the Principal to have had these works carried out by another builder in comparable circumstances. The answer to that question must necessarily include that other builder’s margin.” [emphasis added]
The paragraphs quoted by the Senior Member were the critically relevant paragraphs for present purposes; and he was correct to emphasise the words which he underlined.
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27 Turning to the complaints to the effect that there was a great discrepancy in relation to the contract price, in my view, the Senior Member was not required, as a matter of law, to ask himself the postulated question or questions. Senior Counsel did not cite any authority to the effect that the law stipulates or requires that the contract price be taken into account and weighed up in every case. In my view it would not necessarily, or even usually, be wrong for a decision-maker to take the contract price into account, whereas it would always, or at least usually, be wrong for the decision-maker to treat the contract price as determinative or as a ceiling on the amount recoverable.[21] In the language of administrative law, the contract price will often be a relevant consideration in the sense of a permissible consideration, but it will not always be – indeed, perhaps it may never be – something the decision-maker is bound to take into account.[22] In other words, the contract price is not, or at least will not always be, a mandatory relevant consideration.
28 Thus, in Sopov v Kane (No 2), the Court of Appeal said that the contract price ‘is merely a piece of evidence, showing what value the parties attributed – at a particular time – to the work which the builder was agreeing to perform’.[23] The Court further said that the contract price does not impose a ceiling though it ‘may’ produce a guide to the reasonableness of the remuneration claimed.[24] And the Court of Appeal seemed to accept the submission put to it by Kane to the effect that, in that case, ‘the contract price provided very little guidance because the actual course of events in the carrying out of the works was “radically different” from what had been anticipated when the contract was entered into’.[25] Counsel for PCPL makes much the same submission in the present case. He is well justified in doing so. The Senior Member accepted the evidence of Mr Paterson and his witnesses that the owners made many requests for additional work and that Mr Paterson attended to them.[26] There were 11 variations claimed in regard to unit one and 31 variations claimed in regard to unit two, all requested by the Manns. [27] The Senior Member found that the total cost of the variations was ‘very large indeed’.[28]
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31 In connection with these two matters the Manns insist that, by law, a quantum meruit claim can only be advanced and accepted by reference to evidence of ‘costs actually incurred’. That phrase appears in paragraph 30 of Sopov v Kane (No 2).[29] The Manns point out that paragraph 30 was not quoted by the Senior Member. They also point out that the Senior Member did not quote or refer to the following sentence in paragraph 26 of Sopov v Kane (No 2): ‘The quantum meruit, on the other hand, is assessed with the benefit of hindsight, on the basis of the events which actually happened’.[30] They emphasise the words ‘the events which actually happened’. Further or alternatively, the Manns submit that VCAT should at least have had regard to the builder’s actual costs, but did not do so. In this respect, they cite the following passage from the list of principles stated by Vickery J in Vasco:[31]
The enquiry is not primarily directed to the cost to the plaintiff of performing the work, since the law is not compensating that party for loss suffered’; however, the actual cost should not be ignored.[32]
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33 What the Court of Appeal relevantly said in paragraphs 29 and 30 of its judgment in Sopov v Kane (No 2) was that the value of work done can be proved by evidence of costs actually incurred, not that it must be proved in that way. In Sopov v Kane (No 2) it happened that the builder had sought to prove the value of the work in that way, but that was a choice it made as a litigant. As PCPL points out,[34] Kane was a substantial building company with staff and resources. By contrast, PCPL (in effect, Mr Paterson) was a small, hands on builder attempting to juggle everything under very trying circumstances (which, as VCAT apparently accepted, explained the absence of some records). In any event, as PCPL submits, it is clear from Sopov v Kane (No 2)[35] that using costs actually incurred is not the only available method to prove a quantum meruit claim.
34 There is nothing to the contrary in Vasco. Quite the reverse. Vickery J said:[36]
It is well-established that the value of the services or work done can be proved by evidence of costs actually and fairly and reasonably incurred. But proof of the appropriate quantum is not confined to such evidence.
35 It is true that Vickery J had also said that ‘the actual cost should not be ignored’.[37] For that particular proposition, Vickery J cited the judgment of Byrne J in Brenner.[38] It seems that Vickery J intended to cite what Byrne J had said at page 263. On that page Byrne J observed that ‘the enquiry is not primarily directed to the cost to the plaintiff of performing the work since the law is not compensating that party for loss suffered’.[39] Byrne J continued: ‘But this is not to ignore these costs for the reasonable remuneration for work must have some regard to the cost of its performance’.[40]
36 In my view, none of this means that actual costs are a mandatory relevant consideration in every case regardless of the facts. Byrne J himself emphasised that the case before him related to a claim arising out of services performed.[41] His Honour continued:[42]
If different principles apply to different restitution claims such as those for the recovery of money paid or the value of good delivered, I am not concerned with them. Furthermore, it may be that even within that class of restitution claims which are for recompense for services performed, different principles will apply, or principles will apply differently, to different types of case.
In any event, Brenner preceded Sopov v Kane (No 2). I am bound by judgment of the Court of Appeal in that case.
…….. PCLP quotes, appropriately, the following passage from the judgment of Meagher JA of the New South Wales Court of Appeal in Renard:[48]
There is nothing anomalous in the notion that two different remedies, proceeding on entirely different principles, might yield different results. Nor is there anything anomalous in the fact that either remedy may yield a higher monetary figure than the other. Nor is there anything anomalous in the prospect that a figure arrived at on a quantum meruit might exceed, or even far exceed, the profit which would have been made if the contract had been fully performed. Such a result would only be anomalous if there were some rule of law that the remuneration arrived at contractually was the greatest possible remuneration available, or that it was a reasonable remuneration for all work requiring to be performed. There is no such rule of law.
39 Renard was, of course, followed and applied in Sopov v Kane (No 2).[49] That it is well open to an assessor to depart from ‘actual costs’ was specifically affirmed by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd,[50] a case decided in 2004 (between the time of Renard and the time of Sopov v Kane (No 2)). Barrett J was required to deal with how a building case referee, in assessing a builder’s statutory claim to a quantum meruit, might deal with the fact that, on some items of cost, the builder actually incurred less than the assessed reasonable cost.