The factors bearing upon the "just and equitable" assessment
50 The defendant in its defence refers to two principal reasons why it is not just and equitable for the plaintiff to recover the quantum meruit amount. Although they were not pressed in written submissions or during the hearing, both of these matters can be dealt with briefly. The defendant first argues that it is not just and equitable that the plaintiff should recover a quantum meruit because the failure of the plaintiff to obtain insurance in compliance with s.92 caused a delay of two years in the completion of the development. In answer to this, the plaintiff contends, among other things, that the delay was not caused by a failure to obtain insurance but by the defendant's subsequent wrongful termination of the builder's employment. Having regard to my conclusion on the questions concerning breach and termination of the contract, there is substance in what the plaintiff says.
51 The defendant's second contention in its defence is that it would not be just and equitable for the plaintiff to recover the quantum meruit sum because the defendant has a claim under clause 12.05.04 of the building contract against the plaintiff. As already discussed, I do not consider the defendant to have such a claim. This issue is, for that reason, irrelevant for present purposes.
52 Item 10 of the agreed statement of issues at paragraph 11 above sets out at (a) to (i) factors considered by the parties as bearing upon the "just and equitable" question. The first such factor is that the plaintiff breached the Act. I do not consider that to be a relevant consideration. Section 94 as a whole is, after all, predicated on the existence of a contravention by the builder. The contravention is the simple and clear-cut one of contracting to perform building work without the pre-condition as to insurance having been satisfied. The circumstances in which the insurance was not obtained and the pre-condition was not satisfied are relevant, but the objective fact of absence of insurance itself cannot be a consideration that s.94(1A) requires or permits the court to entertain.
53 The defendant in oral submissions argued that ignorance of a statutory requirement does not make it just and equitable for a party to recover on a quantum meruit basis after having failed to do what was required of it. This must be so. Ignorance alone would not justify the exercise of the court's discretion. In the same way, however, the fact of ignorance of the obligation would not preclude a finding that it is just and equitable to grant the relief sought. In general, contravention through ignorance will be more deserving of favourable assessment in the "just and equitable" inquiry than deliberate contravention will be.
54 The next matter to be considered is the fact that the Act prevents recovery of money, under the contract or otherwise, in respect of the work done. This is the effect of s.94(1). The defendant submitted that this is a relevant consideration. I disagree. Section 94(1A) empowers the court to award a remedy on a quantum meruit basis, despite the statutory directive that recovery may not be made. That, to my mind, means that the court is to approach its task without attaching any significance to the statutory denial of a right to recovery otherwise than through s.94(1A) itself.
55 The next matter raised - failure by the plaintiff to obtain the insurance at any time prior termination of the contract - is, however, of significance. Because the contravention was committed when the contract to perform building work was entered into in the absence of insurance and subsequent effecting of insurance would not cure the contravention, the plaintiff was never able, as a matter of strict statutory compliance, to rectify the matter. But that is not to say that subsequent action by the plaintiff to effect insurance would not have served to mitigate the position. This follows from the nature of the insurance which, as it emerges from s.99, is to protect the proprietor against the risk of loss through either the builder's failure to complete the work or the builder's inability, because of insolvency, death, disappearance or otherwise, to rectify a breach of the statutory warranty applying to the work or to meet a claim for compensation under the warranty. Against this, the plaintiff says that, because he was precluded from bringing any claim against the defendant by way of reward for doing the work (remembering that the relevant works were carried out at a time before the enactment of s.94(1A) made a quantum meruit claim available subject to the court's "just and equitable" assessment), it was not reasonable to expect it to obtain the insurance - being an expense it could never recoup from any profit from the project. The plaintiff also says that all reasonable steps were taken in an attempt to obtain the insurance. In evaluating these submissions, it is necessary to go to some matters of fact.
56 The evidence shows that a certificate of insurance was issued on 21 August 1998, that is, seventeen days after the contract was entered into. It provided coverage for the period between that date and 21 August 1999. But the terms of the insurance were such that cover was provided only in respect of work the subject of contracts made within the specified period, being work "anywhere in New South Wales". It was not until later that the parties became aware of this and of the consequence that, because the contract was made before the period of insurance began, the work undertaken pursuant to it was not insured. Christopher Tran, a director of the defendant, deposed that at a site meeting on 17 September 1998 he was present when the architect, Simon Chan, requested that the plaintiff obtain a letter of confirmation that the project and the proprietor's name were included in the certificate of insurance. That request is reflected in the minutes of the site meeting. It is not clear from the evidence what steps the plaintiff then took in relation to this. However, on the 19 October 1998 a new certificate of insurance was issued, this time specifically including the address of the development in the "location" description.
57 On 19 February 1999 Mr Tran received a letter from the plaintiff's insurance brokers providing somewhat ambiguous information. It was not until 4 March 1999 that Mr Tran telephoned FAI Insurance direct and was told that the policy did not cover the work in question. This was confirmed in a letter to Mr Tran from FAI dated the 12 March 1999. Mr Tran expressed concern about this at a site meeting on the 17 March 1999 at which time Mr Eddy Lau said that he would get his broker to fix the problem. The evidence does not disclose what the plaintiff did after this meeting. On 22 March 1999, Payment Certificate 5A was purportedly issued under the contract in respect of a sum of "$0.00" for work completed. Three days later, on 25 March 1999, the defendant issued the "Notice of Intention to Determine Pursuant to Clause 12.02 Dated 25th March 1999" to which reference has already been made. On 7 April 1999, a site meeting was scheduled but the plaintiff did not attend. A document purporting to be minutes was nevertheless prepared. It notes that the insurance had still not been obtained. On 23 April 1999, the defendant issued the "Notice of Determination of Contract Pursuant to Clause 12.03".
58 The plaintiff could have done more to ensure that insurance was in effect in relation to the works. At the same time, however, he did not sit idly by in the face of the protestations of the plaintiff and the architect. A new certificate of insurance was obtained, specifically referring to the site as requested - although this did not cure the defect arising from the period of cover. The problem concerning the period of cover was not pointed out to the plaintiff until 17 March 1999. I do not accept that this problem was consciously created by the plaintiff. It seems to have been a simple mistake. But the plaintiff's failure to do more in the period of one month after being put on notice of the defect does count against it. Counsel for the plaintiff submitted, however, that this must be seen in light of the fact that both the purported Payment Certificate 5A and the notice of intention to determine the contract were issued within eight days of the plaintiff becoming aware of the defect in the insurance policy. That is a matter to which some weight should be attached. Even though the plaintiff was precluded by the Act from bringing any claim against the defendant for payment for work done, that cannot have operated as any form of justification for obtaining the insurance, especially in light of the nature of the protection the insurance would have provided, as described in s.99. It was reasonable for the defendant to want the works insured and to expect the plaintiff to provide the insurance. This failure by the plaintiff counts against it in the assessment of whether it is just and equitable that quantum meruit recovery should be allowed, although the fact that the defendant acted promptly after disclosure of the defect in an attempt to remove the plaintiff and to avoid paying it any more money tends to count in favour of the plaintiff.
59 I refer next to the circumstance that the defendant wrongfully repudiated the contract. The defendant, for its part, submitted that the notice to terminate was issued in a bona fide belief the defendant was entitled to terminate, so that the fact that the termination was eventually found to be unjustified should be afforded little weight. Although the defendant may have proceeded in the belief that it was entitled to do as it did, the fact remains that its actions have been found to be wrongful, in the sense of amounting to a breach of contract. That is something that must count against the defendant in the "just and equitable" assessment.
60 The failure of the defendant to seek to enter into a new contract with the plaintiff however does not, as the plaintiff contends, favour recovery. Given the bona fide belief by the defendant that it was entitled to terminate the employment and the factual circumstances regarding the plaintiff's failure to insure the works, it was reasonable for the defendant to consider other contractors for the remainder of the project.
61 The defendant submitted that the increased cost it had to incur to complete the works is another factor that is relevant to the "just and equitable" inquiry. As I have already said, the increased costs flowed from the defendant's wrongful termination of the plaintiff's employment. It would not be appropriate for the plaintiff to be denied recovery of money because of the defendant's mistake. This factor can only be relevant to the quantum of recovery, if at all. That is a matter that should have been, and indeed was, put to the referee in her determination of the value of the quantum meruit claim: see pp 88-97 of the referee's report.
Conclusion on the "just and equitable" question
62 The policy behind s.94(1A) is, clearly enough, that the statutory disentitlement under s.94(1) to sue for damages under or otherwise to enforce the contract made in contravention of s.92(1) may be offset by the court's allowing recovery on a quantum meruit basis, provided that it is satisfied, according to the "just and equitable" criteria, that the builder is deserving of such recovery.
63 Having regard to the whole of the considerations I have mentioned as relevant to that question in this particular case, I consider the most telling factor to be that, if the plaintiff is not granted relief under s.94(1A), the defendant will have the benefit of the work without having to pay for it. In the absence of conduct of the plaintiff (over and above the default that gave rise to the contravention of s.92) operating in a relevant way to the detriment of the defendant, the plaintiff should not be denied the quantum meruit recovery. The only additional criticism levelled at the plaintiff is that it did not act with sufficient diligence in attempting to remedy the insurance default. I do not consider that criticism to be sufficient to deny recovery upon the quantum meruit. I would add that there is no apparent reason why the defendant, if it was as concerned as it professed to be about obtaining the relevant insurance protection, should not have made attempts of its own, in consultation with the plaintiff and at the plaintiff's cost, to negotiate an appropriate contract with an insurer. It seems that the defendant was more interested in bringing the contract to an end than it was in working with the plaintiff to address the insurance deficiency.
64 I am satisfied that the conduct of the plaintiff, viewed in the whole of the surrounding circumstances, did not exhibit blameworthiness such as to make it inappropriate to provide a reasonable reward for work actually done by it and that it is therefore just and equitable for the plaintiff to recover a quantum meruit sum for that work under s.94(1A).
Do the terms of the contract set a limit on quantum meruit recovery?
65 Item 11 of the agreed statement of issues is the first item concerning an aspect of the referee's report, namely, determination of the quantum meruit sum (that being the first of the referred questions). The principles extracted from Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (see paragraph 16 above) are therefore relevant.
66 Item 11 poses the question whether, if it is just and equitable to allow the plaintiff's claim, the terms of the contract set a limit on the amount that may be recovered. Given that what s.94(1A) allows to be recovered is "money in respect of that work on a quantum meruit basis", the question raised by item 11 is really whether the parties' contract sets a limit on quantum meruit recovery.
67 That specific question must be addressed in the light of the general nature of a quantum meruit award for work done. The general principle is stated as follows by Keith Mason and J W Carter at p.569 of "Restitution Law in Australia" (1995):
"The basis for valuing a restitutionary claim for reasonable remuneration is not usually the actual increase in the defendant's wealth. Generally, the plaintiff is entitled to recover the market value of the services themselves, rather than the amount by which the defendant's assets have in fact been increased. Restitution is more concerned with the cost of rendering performance than the amount by which the defendant is in fact better off by reason of the work done. What is valued is the work done or the service rendered. It follows that where a claim for reasonable remuneration succeeds on the ground of acceptance of a requested benefit, the defendant may be held liable to pay for work, such as preparatory work, which the defendant would not have had to pay for as such if an anticipated contract had come into existence. Generally, where the services are rendered by a professional, they will be valued by reference to the commercial rate applicable to work of the type done by a person of the plaintiff's standing. However, account may be taken of custom, for example to justify an award on a commission basis."
68 The particular matter of the relevance of a terminated contract was referred to by Deane J in Pavey & Matthews Ltd v Paul (above). At p.257 his Honour said:
"The fact that the action which can be brought on a common indebitatus count consistently with the Statute of Frauds is founded on an obligation arising independently of the unenforceable contract does not mean that the existence or terms of that contract are necessarily irrelevant. In such an action, it will ordinarily be permissible for the plaintiff to refer to the unenforceable contract as evidence, but as evidence only, on the question whether what was done was done gratuitously. In many cases, such as where the claim is for money lent or paid, the obligation to make restitution will plainly involve the obligation to pay the precise amount advanced or paid. In those cases where a claim for a reasonable remuneration or price is involved, the unenforceable agreement may, as Jordan CJ pointed out in Horton v Jones (No 1) (see above), be referred to as evidence, but again as evidence only, on the question of the appropriate amount of compensation. If the unenforceable contract has not been rescinded by the plaintiff or otherwise terminated, the defendant will be free to rely on it as a defence to the claim for compensation in a case where he is ready and willing to perform his obligations under it (see Thomas v Brown (1876) 1 QBD 714). The defendant will also be entitled to rely on the unenforceable contract, if it has been executed but not rescinded, to limit the amount recoverable by the plaintiff to the contractual amount in a case where that amount is less than what would constitute fair and reasonable remuneration."
69 Reference should also be made to Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, a case where, as here, a principal had purported to exclude a builder pursuant to a power in that behalf in the building contract but no proper occasion for doing so had arisen and the principal was, as here, held to have repudiated the contract which was then terminated. It was held that the builder was entitled to recover upon a quantum meruit for the work done. A question arose as to the relevance, to the quantum meruit calculation, of the terms of the contract. It is relevant to quote from the judgment of Meagher JA (with whom Priestley and Handley JJA agreed on the matter) at pp.276-278:
"The second point is that the amount of the arbitrator's award (particularly when aggregated with payments already made under the contract whilst it was on foot) exceeds the amount payable to the contractor under the contract, which latter amount must provide a 'ceiling' on any quantum meruit claim. This point should also, in my view, be rejected. In the first place, it is contrary to what authority exists on the question. The Court of Appeal in New Zealand, in Slowey v Lodder (1901) 20 NZLR 321, held that an innocent party who terminates a contract by acceptance of the defaulting p arty's repudiation may sue on a quantum meruit for the value of work done before repudiation, and that the fact that a judgment on this basis exceeds the amount which would have been payable under the contract is irrelevant. That decision was affirmed on appeal to the Privy Council: see Lodder v Slowey [1904] AC 442. In the United States, there is abundant authority to the same effect: see, eg, Boomer v Muir 24 P 2d 570 (1933), United States v Zara Contracting Co 146 F 2d 606 (1944), Re Montgomery's Estate 6 NE (2d) 40 (1936) and Williston on Contracts (3rd ed) (1970) vol 12 s 1485 at 304. Certainly those United States authorities are tainted by the view that acceptance of a repudiation effects a rescission ab initio, a view regarded in Australian as heretical since McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 and now recognised as such by the House of Lords in Johnson v Agnew [1980] AC 367; but this reasoning on this point still remains unimpaired. Of these cases, Boomer v Muir is the most spectacular, because in that case a sub-contractor on a construction project was awarded the sum of $258,000 as the fair value of the work he had performed for the defendant, even though only $20,000 remained as an outstanding debt due by the defendant under the contract. In so far as it is relevant, the decision of the Court of Appeal in England in Rover International Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912; [1989] 3 All ER 423 - which has attracted the attention of Professor Birks in (1990) 2 Journal of Contract Law 227, Mr Beatson in (1989) 105 LQR 179 and Dr Carter in Finn (ed) Essays on Restitution (1991) at 206 - is to the like effect. I say "in so far as it is relevant" because it is a case dealing with a contract which was void ab initio, not a case of a contract terminated by the acceptance of a repudiation.
The cases to which I refer have been received with somewhat lukewarm enthusiasm by certain academic writers (see Goff and Jones The Law of Restitution , 2nd ed (1978), at 379-380, Greig and Davis The Law of Contract , 1st ed (1987), at 1286-1287) on the apparent ground that they are 'anomalous'. But to my mind this criticism of them is superficial. They are right in principle as well as justified by authority. The law is clear enough that an innocent party who accepts the defaulting party's repudiation of a contract has the option of either suing for damages for breach of contract or
suing on a quantum meruit for work done. An election presupposes a choice between different remedies, which presumably may lead to different results. The nature of these different remedies renders it highly likely that the results will be different. If the former remedy is chosen the innocent party is entitled to damages amounting to the loss of profit which he would have made if the contract had been performed rather than repudiated; it has nothing to do with reasonableness. If the latter remedy is chosen, he is entitled to a verdict representing the reasonable cost of the work he has done and the money he has expended; the profit he might have made does not enter into that
exercise. 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. Nor can one say that as a matter of observable fact there is any such rule. The most one can say is that the amount contractually agreed is evidence of the reasonableness of the remuneration claimed on a quantum meruit; strong evidence perhaps, but certainly not conclusive evidence. On the other hand, it would be extremely anomalous if the defaulting party when sued on a quantum meruit could invoke the contract which he has repudiated in order to impose a ceiling on amounts otherwise recoverable."