29 Jun 2016

Claims for the fair value (quantum meruit) of a construction contractor’s works are sometimes available when there is no right to be paid under a construction contract.

Where the contractual payment regime fails part-way through the works, the contractor’s fair value claim is not always equal to the percentage of works completed times the total contract price.

Objectors say this violates the sanctity of the bargain between principal and contractor by substituting the courts’ valuation of the contractors’ works for the value that the parties themselves agreed to give to the works by their own contract.

However, properly understood, it is precisely out of a concern not to interfere with the bargain between contractor and principal that courts will not apportion the contract price for work that is incomplete.

To take the total contract price for the works and award the contractor a percentage of that agreed price based on how much of the works were completed would require courts to make a judgment call about how the contract price should be apportioned.  The court’s judgment would then be substituted in a way that the contract does not contemplate, for what the parties actually agreed: that is, that an entire scope of work would be delivered for an agreed lump sum price.

That is why the courts treat the entire contract as having failed when the contract comes to an end before the works are practically completed and why the courts award payment in such cases on a basis that is independent of the contract price.  It is the same reason why a liquidated damages clause will be treated as having failed altogether, and no LDs will be awarded at all for delays, where even a small part of the delay was caused by the principal.

Again, to award only part of the LDs that the contract says are payable for a period of delay would require the court to substitute its own judgment as to the fair apportionment of LDs for the agreement that the parties actually made which is simply that LDs will be awarded at a prescribed rate per day of delay.  The courts cannot substitute their own judgment for the parties’ agreement in this way without violating the sanctity of the bargain.  So the courts treat the entire LDs regime (like the entire payment regime in the earlier example) as having failed and damages are assessed independently of the LDs clause.

In extreme cases, the courts will not even make fair value awards where to do so would be contrary to the purpose of a statute.  For example, it is currently the law in WA that an unregistered builder cannot be paid anything, even on a fair value basis, for construction work.

The cases that say this include:

  • Heathersage Nominees Pty Ltd\ v Pineview Holdings Pty Ltd (Unreported WASC (Wallwork J); Library No 8478; 14 December 1990) 
  • Steelhomes (1985) Pty Ltd v Hutts (1993) 9 SR (WA) 143, at 144 – 145; Great City Pty Ltd [97]
  • Ardon Enterprises Pty Ltd v Mizen [1999] WADC 83
  • Myrine Pty Ltd v Mesti [2006] WADC 106, [111] – [112].

Again, in these cases, the courts have refused to substitute their own notions of what is fair or just for the intention of the WA legislature to make sure that people who do construction work without being registered as builders are not rewarded for acting illegally.                              

This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.

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