Builders beware: High Court rethinks quantum meruit in context of repudiated contract

The High Court's decision in Mann v Paterson Constructions Pty Ltd [2019] HCA 32, marks an important development in Australian law on the question of whether a builder is entitled to bring a quantum meruit claim for the fair and reasonable value of the work performed (as an alternative to damages for breach of contract) following the builder's acceptance of the principal's repudiation. 

The High Court decision disrupts the status quo (which allowed the builder recourse to a quantum meruit remedy, often resulting in the builder's entitlements far exceeding the contract sum).  The majority (consisting of Justices Gageler, Nettle, Gordon and Edelman) held that in the case of work for which a builder has accrued a contractual right to payment at the time of termination, a quantum meruit claim is not available. However, a builder may elect to bring a quantum meruit claim in the case of work done for which a contractual right to payment has not yet accrued (subject to qualifications about the amount recoverable).

The issue has long been the subject of judicial and academic controversy, so the High Court's decision is a welcome development. However, while the Court was unanimous in allowing the appeal, three separate judgments were delivered. The different conceptual routes taken in each of the judgments reflect the complexity and controversy attending this area of law.

Stay tuned for our more detailed coverage of this decision and its implications for construction contracts.

Are you ready for NSW SOP Reforms? The final countdown

Important reforms to the NSW security of payment regime come into effect on 21 October 2019. Many of the reforms contained in the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) stem from recommendations made by John Murray AM in his final report on the national Review of Security of Payment Laws. See our earlier Insights article for key changes.

The amendments will apply to construction contracts in NSW entered into from 21 October 2019. Parties in the construction industry need review their internal processes given:

  • the reintroduction of the requirement for endorsement of payment claims
  • tighter timeframes for head contractors to pay subcontractors
  • new offences and penalties for directors and managers (including in relation to supporting statements).

Draft NSW Design and Building Practitioners Bill 2019

The NSW Government invited interested organisations and individuals earlier this month to provide feedback on the recent draft Design and Building Practitioners Bill 2019. The Draft Bill will affect certain categories of regulated designs and multi-unit and multi-storey residential apartment buildings.  It aims to improve the quality and compliance of design documentation and strengthen accountability across the construction industry. See our Alert for further details on the key proposed reforms here.

No superintendent, no problem? Queensland Court of Appeal says "not quite"

Where a contract requires the appointment of a Superintendent and that is not done, the principal will likely be in substantial breach of contract and permit the contractor to suspend or even terminate.  A failure to nominate does not necessarily mean that:

  • the principal is appointing itself as superintendent; nor
  • that there is an implied term in the contract that the principal must perform the superintendent's obligations.

The situation in SHA Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd [2019] QCA 201 arose in the context of a progress payment claim made by Niclin during the construction of some petrol stations. The core issue was whether that payment claim was valid. The contract (an amended form of AS 4902-2000), required the principal to ensure that at all times there was a superintendent, and stipulated that the superintendent was the appointed person to receive payment claims and provide payment schedules. The problem for Niclin was that the validity of its payment claim hinged on SHA Premier Constructions being superintendent. Unfortunately for Niclin, it was conceded that SHA Premier Constructions had never appointed a superintendent (although the Court questioned the validity of that concession).

In order to sustain the validity of its payment claim, Niclin argued that where SHA Premier Constructions did not nominate a separate entity as superintendent, it was thereby appointing itself as the superintendent. The Court rejected this argument, highlighting the various provisions that drew a distinction between the principal and the superintendent. The Court also noted other provisions that required the superintendent to act as a form of adjudicator between the contractor and the principal. In the Court's view, it would be "fanciful" to suppose that two commercial parties intended for the principal to act as the superintendent in circumstances where the superintendent would be deciding issues where the interests of the contractor and principal may conflict (for instance, assessing extensions of time).

The Court also considered whether in the absence of nomination of a superintendent by the principal, there is an implied term that the superintendent role must be performed by the principal. However, the Court gave short shrift to the implied term argument.  There was no basis for implying such a term for reasons of business efficacy. If there were no superintendent, Niclin would be entitled to damages for breach of contract for failing to ensure there was a superintendent, and would have a potential entitlement to suspend work or terminate. Thus, the contractual framework contemplated and allowed for the existing scenario.

As the Court's reasoning applies not only to AS 4902-2000, but also to most of the other leading standard form contracts, the case makes clear the importance of ensuring that there is a validly appointed Superintendent under the relevant contract. 

Victorian Government pursues builders

The Victorian Government has moved forward on its plans to introduce a building levy and clawback rectification costs, with it announcing the new Building Amendment (Cladding Rectification) Bill 2019 which is intended to allow the State Government to chase builders for the cost of cladding rectification. It will also introduce the building levy previously announced in July, which will be used to help fund the rectification program.

The Minister for Planning Richard Wynne stated “We’re saving owners the time, hassle and expense of chasing dodgy builders through the courts.” We'll give a fuller analysis of the Bill in future Insights.

Modern Slavery how to

The Department of Home Affairs has now released its final, detailed Guidance to assist businesses and organisations in complying with their obligations under the Modern Slavery Act 2018 (Cth). This follows the release earlier in the year of a draft guidance and a period of consultation. First and foremost, the Guidance is designed to clarify what the reporting requirement under the Act entails. Noteworthy are the concluded definitions of key terms, in particular:

  • whereas the draft guidance defined "Operations" to mean "any activity or business relationship undertaken by the entity to pursue its business objectives", that has now been replaced in the final Guidance with an "activity undertaken by the entity to pursue its business objectives and strategy in Australia or overseas", with relevant activities identified by reference to an inclusive list covering:
    • direct employment of workers
    • processing and production
    • provision and delivery of products or services
    • construction
    • financial lending
    • financial investments (including investments in non-managed/operated joint ventures)
    • managed/operated joint ventures
    • leasing of property, products and/or services
    • research and development
    • charitable activities
    • distribution, purchasing, marketing and sales
    • religious activities
  • the definition of “Supply Chains” has been expanded to clarify that it includes:
    • products provided to the entity by suppliers
    • services provided by suppliers
    • products and services used by indirect suppliers in the entity’s supply chains

The Guidance also provides clarification in terms of when reporting entities need to first submit modern slavery statements, according to the entity’s reporting period. For entities with a reporting period 1 July – 30 June (Australian Financial Year), the first relevant reporting period under the Act is 1 July 2019 – 30 June 2020, meaning those entities will need to submit their modern slavery statements no later than 31 December 2020.