Thompson v Chapman

Background

1. In August 2012, the parties entered into a written contract for work to be done to Ms Thompson's house including works to the front verandah, an internal balustrade and a ceiling. The contract was a standard form Housing Industry Association "Small Building Works" contract. The works under that contract were carried out by Mr Chapman. After that contract was signed, Ms Thompson requested that Mr Chapman undertake additional works (the additional works). These works were not the subject of a separate written agreement and went far beyond the scope of the original contract.
2. The original contract included the following term which is relevant to the present considerations: (1)(h): That the provisional sum and prime cost item allowances do not include the Builder's margin of 20% which will be applied, once the actual price has been established, to the amount by which the actual price exceeds the allowance and both the difference and the amount of the builder's margin will be added to the contract price.
3. It also included terms that variations were only to be commenced after a written variation form had been signed and that "Any additional works are to be charged at $60/hr + GST per man".
4. Critically, because the variations were not in written form, and also because Mr Chapman failed to obtain Home Owners Insurance as required by s 92 of the Act, by the operation of ss 10 and 94 of the Act the contract was unenforceable by him.
5. Sections 10 and 94 relevantly provide: 10 Enforceability of contracts and other rights (1) A person who contracts to do any residential building work, or any specialist work, and who so contracts: … (b) under a contract to which the requirements of section 7 apply that is not in writing or that does not have sufficient description of the work to which it relates (not being a contract entered into in the circumstances described in section 6 (2)), or (c) in contravention of any other provision of this Act or the regulations that is prescribed for the purposes of this paragraph, is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person. … 94 Effect of failure to insure residential building work (1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the "uninsured work" ), the contractor who did the work: (a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and (b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit). (1A) Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis… Note: If a contract of insurance is in force in relation to part of the residential building work, this section applies only in relation to the part of the work that is not insured. …
6. Notwithstanding the terms of ss 10(1) and 94(1)(b), Ms Thompson, correctly, does not dispute that, in principle, it is just and equitable that Mr Chapman be compensated on a quantum meruit basis for the additional work: see Pavey & Matthews v Paul [1987] HCA 5; (1987) 162 CLR 221 at [10] per Mason CJ and Wilson J and [12]-[24] per Deane J.

The decision under appeal

1. In assessing the amount to be awarded on the quantum meruit, the Tribunal accepted evidence in the form of an expert report which valued the scope of works at $60 per hour then added an additional 20 per cent as a "builder's margin" or profit margin. This, it is argued by Ms Thompson, had the anomalous result that the builder's position was improved by the sum of $33,140 by the making of a quantum meruit claim rather than having an enforceable contract. The expert estimated the fair and reasonable cost of the work undertaken by Mr Chapman to be $209,586. That figure was slightly higher than the amount for which Mr Chapman had invoiced, namely $207,672.
2. In allowing the 20 per cent profit margin as part of the quantum meruit, the Tribunal relied on the decision of the Victorian Court of Appeal in Sopov v Kane [No 2] [2009] VSCA 141.
3. The Tribunal also applied general principles relating to quantum meruit and did not limit the sum awarded by reference to the original contract except in applying a cost of $60 per hour for labour.
4. Ms Thompson asserts that by taking this approach the Tribunal fell into error.

The 20 per cent profit margin point

1. In Sopov, the owner of a building repudiated a building contract and the builder opted to sue on a quantum meruit rather than on the contract. The trial judge held that, on a quantum meruit, the builder was not entitled to claim a profit margin but was limited to the actual cost of the work undertaken.
2. The Victorian Court of Appeal held that this was incorrect. It said (at [35]): The existence of the entitlement of 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 value of the cost of the works… 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.
3. It was on the basis of that authority that the Tribunal included the 20 per cent margin claimed by Mr Chapman. (see Reasons [114] to [121]).
4. The inclusion of a profit margin was also approved by the NSW Court of Appeal in Gray (Constructions) Pty Ltd v Hogan [2000] NSWCA 26 which, citing Renard Constructions (MT) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 276 and Brenner v First Artists Management Pty Ltd [1993] VR 221 at 262-263, said (at [10]), "the correct approach is to determine a reasonable remuneration for the builder, including remuneration which includes a reasonable profit element".

Does the contract limit or cap the amount the builder can recover?

1. Ms Thompson accepts that in a quantum meruit the builder is entitled to claim a profit margin. She contends, however, that in the circumstances of this case the Tribunal erred by not limiting the amount which the builder was able to recover to the "ceiling" imposed by the contract, namely $60 per hour (plus GST). In support she refers to the following extract from the decision of Deane J in Pavey & Matthews (at [15]): 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 C.J. 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. (emphasis added)
2. Ms Thomson contends that the Tribunal both misconstrued Mr Chapman's claim and failed to reconcile its understanding of the decision of Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273 with Pavey & Matthews. In support of that proposition she points to following passage from the Reasons: 61 The owner states that she is entitled to rely upon the contract providing a cap on the quantum meruit entitlement insofar as the builder is limited by the contract to charging $60.00 per hour plus GST 'per man'. 62 I accept the owner's submissions in this regard, relying as they do on Mason & Carter's Restitution Law in Australia Second Edition, at para [1452]. However I note that this position was not accepted by Barrett J. in Eddy Lau. In any event I note that the builder's quantum meruit claim does not claim an hourly rate in excess of $60.00. On that basis I will not spend time considering the difference of opinions held by the learned authors of Restitution Law in Australia and his Honour Barrett J. on this issue.
3. In Eddy Lau after analysing Pavey & Matthews and Renard Constructions (ME) Pty Ltd v Minister for Public Works, Barrett J stated (at [70]): It is thus clear that, in a case such as the present, the price or rate provided for in the terminated and no longer operative contract does not limit the quantum meruit sum but forms part of the evidentiary base to which regard may properly be had in fixing or arriving at that sum…
4. While Ms Chapman accepts that, in general terms, the contract price is to be disregarded in the calculation of the quantum meruit, she contends that does not and cannot apply where, as in this case, one of the parties to the contract is entitled to rely on the contract and enforce the contract price. She contends that there is nothing in Eddy Lau which would allow a builder who is unable to enforce a contract by the operation of ss 10 and 94 of the Act, to recover under quantum meruit more than they would been able to recover under the contract.

Consideration

1. The principles enunciated and explained by Barrett J in Eddy Lau are of general application. Once the Tribunal has crossed the threshold of finding that it is "just and equitable" to award a quantum meruit where a residential building contract is unenforceable due to statute, there is not a special set of rules applied that distinguish such cases from any other types of quantum meruit cases.
2. This is because the fundamental principle of a quantum meruit, as the High Court made clear in Pavey & Matthews, "rests, not on implied contract, but on a claim to restitution or one based on unjust enrichment, arising from the [owner's] acceptance of the benefits accruing to the [owner] from the [builder's] performance of the unenforceable oral contract": [1987] HCA 5 at [10] per Mason CJ and Wilson J.
3. Whether the claim on a quantum meruit arises from repudiation of a contract or from unenforceability of a contract it seems to us to make no difference in relation to the method of assessing that "just and reasonable" amount.
4. Once this is established, it can be seen that the contention that the original contract places an upper threshold on the sum that may be awarded on a quantum meruit is fundamentally misconceived. In Renard Constructions (ME) Pty Ltd v Minister for Public Works (another case that followed repudiation of a contract), the Court of Appeal held that the fact that an arbitrator's award on a quantum meruit exceeded the amount that would have been payable under the contract was irrelevant. This is because damages for breach of contract and recovery on a quantum meruit are different remedies. As Meagher JA put it (at 278): 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.
5. It is also clear from the authorities that the price or rate provided in an unenforceable or terminated contract does not place a limit on the sum that may be award on a quantum meruit, either upwards or downwards. The contract rate(s) are part of the evidentiary basis for the assessment but are no more than that: Eddy Lau Constructions at [70]; Renard Constructions (ME) Pty Ltd v Minister for Public Works at 278.
6. In Sopov (at [21]) the Victorian Court of Appeal explained why the contract does not govern or limit a quantum meruit assessment: It is because the quantum meruit remedy rests on the fiction of the contract's having ceased to exist ab initio that the contract can have no 'continuing influence' when the value of the work is being assessed on a quantum meruit. It is because the alternative remedy does ignore the bargain that the parties struck, and does ignore the rights accrued under the contract up to the date of termination, that the availability of quantum meruit in the alternative is now seen as anomalous. But… these incongruities are as entrenched as the remedy itself. It is true that the contract price is relevant on a quantum meruit, but not because of any 'continuing influence' of the contract. The 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.
7. The Victorian Court of Appeal was notably sympathetic to the argument that Ms Thompson now advances but considered itself bound by lengthy precedent: see Sopov at [11]. As are we.
8. But even if accepted that the "contact fee" operated to limit the amount that Mr Chapman was able to recover, we cannot agree with the proposition that the expert's estimate accepted by the Tribunal as "fair and reasonable compensation for the work performed" exceeded the "contract fee" or, as asserted by Ms Thompson, resulted in Mr Chapman being rewarded for failing to comply with his obligations under the Act.
9. Here the parties did not agree on a fixed price for the additional work. That work was undertaken on a "do and charge" basis, whereby Mr Chapman rendered invoices intermittently for hours worked and material supplied. As noted, the total amount charged by Mr Chapman was $209,586. The expert, on the other hand, arrived at a slightly lower figure, namely $206,599. Different methodology was used to calculate the two figures. The amount charged by Mr Chapman was based on his claim of actual hours worked and the actual cost of material supplied. In contrast, the expert made an independent assessment of the reasonable time to complete the work and the reasonable cost of the materials.
10. In our view, the argument cannot be accepted that because in respect of one of the component costs of the work, namely the unit cost of labour, the expert relied on a figure higher that had been agreed to by the parties, Mr Chapman was better off under the quantum meruit than he would have been had he been allowed to enforce the contract. As he points out, the total sum allowed by way of quantum meruit (including the margin) is in fact less, even though by a small amount, than the amount he would have been entitled to receive had he been able to enforce the contract.
11. For these reasons we conclude that the Tribunal did not err in its approach to the assessment of the quantum meruit. The appeal is dismissed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 October 2015