In 1999, Kane Constructions (Kane) entered into a building contract with developers for the development of a mixed residential and commercial property known as the Boilerhouse Project.

In November 20071, the Victorian Court of Appeal upheld the trial judge’s finding that Kane was entitled to, and did, terminate the building contract at common law as a result of the developers’ repudiation. The repudiatory conduct was constituted by, amongst other things, persisting in an incorrect interpretation of the contract, failing to pay the full amount of progress certificates, deducting liquidated damages from payments due and having recourse to a bank guarantee without any entitlement to do so.

On 15 June 2009, the Court of Appeal handed down its reasons for judgment in respect of both parties’ quantum appeals2. In doing so, the unanimous court, comprising President Maxwell and Justices Whelan and Kellam, upheld the long established principle that a builder is entitled to elect to recover upon a quantum meruit following its acceptance of a repudiation of the contract.

The court additionally confirmed the principles set out in Renard Constructions (ME) Pty Ltd v Minister for Public Works3 holding that the contract price:

  • cannot act as a ceiling on a builder’s quantum meruit entitlement; and
  • does not represent the “best evidence” of the value of the benefit conferred.

In this respect, the Court accepted Kane’s submission that 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.”

Kane also successfully appealed the trial judge’s findings that deductions from the fair and reasonable costs incurred in performing the works should be made for:

  • variations disallowed under the contract; and
  • delay costs for which no contractual extensions of time were granted.

As the Court found, “It is because the quantum meruit remedy rests on the fiction of the contract’s [sic] having ceased to exist ab initio that the contract can have no ‘continuing influence’ when the value of work is being assessed on a quantum meruit”.

An application for special leave to appeal to the High Court has been lodged by the developers. It is not expected that the application will be heard this year. The result of the application will be advised in a future edition of Critical Path.