Builder without complying Building Contract may recover the value of building work – Quantum Meruit Claim

03/01/2018

More often than one would expect we find that Builders and Owners who enter into Agreements for the construction of renovations or new homes do not have agreements which are enforceable particularly by the Builder against the Owner.

This causes great difficulties for not only the Builder but also often for the Owner.

Builders and Owners often have disputes over the cost of building work. These disputes may lead to builders bringing court proceedings to recover the value of work they say is payable under a building contract.

Where a Builder and an Owner enter into a building contract, the Builder and Owner generally agree that the builder will carry out an agreed Scope of Work for an agreed rate.  If the builder performs its side of the bargain by carrying out the building work, it is entitled to be paid pursuant to the terms of the contract.  If the Owner defaults on payment, the Builder ought to be put into the position it would have been in if the Owner had performed the contract.

However in some cases, the Builder cannot rely on its building contract because the law says the contract is unenforceable by the Builder.  For example, the Home Building Act provides that if various formalities have not been complied with relating to the building contract, then the Builder cannot bring proceedings to recover damages for breach of the contract. The purpose of these provisions is said to protect Owners as consumers and ensure that they are aware of their contractual and regulatory rights.

The result is that where a contract is unenforceable, the Builder cannot make a claim to recover for breach of that contract.

However, the Builder can still recover from the Owner the value of the building work that the Builder has carried out. The basis of this claim is one in quantum meruit. The courts say that it is unfair that an Owner has the benefit of work done by the Builder and has not paid the Builder for the value of that work.  And so the court says that the Owner ought to compensate the Builder for the fair and reasonable value to the Owner of that work. The courts call this type of claim is one arising from ‘unjust enrichment’.

When a Builder has done building work at the request of an Owner but cannot recover under a building contract, the Builder may seek to claim in a court for the reasonable value of that work in quantum meruit.  The court in conducting such cases calculates based on the evidence, what is the value of the work carried out and then makes an order that the Owner pays that amount (less any amount paid) to the Builder.

In such a dispute the first issue that will arise is whether the written Contract is one that is unenforceable.  This often is a complicated issue which must be determined by the Court or Tribunal.  If the Contract is enforceable then the case including the determination of the amount payable will be based upon the terms of the Contract.  If the Court determines that the Contract is not enforceable the amount payable is based on a claim in accordance with the principles of the quantum meruit basis.

Usually a Court or Tribunal will not separate the hearing of the issues in the case to determine whether the Contract is enforceable or not.  In those circumstances serious consideration must be given to preparation of the case on the alternative basis.  Experienced solicitors such as Watson & Watson are needed to properly consider and advise the appropriate preparation required and the conduct of the hearing.

Similarly if there is no written Contract the terms of the Contract will have to be determined by way of evidence of the oral discussions.  This invariably leads to many conflicts and is therefore expensive to prepare and present the case with the best evidence available.

Each separate issue in a case will have a significant cost consequence and increases the cost of preparing the case.

The Lawyers at Watson & Watson are experienced in considering all aspects of the cases and advising you so that you can make a decision as to which approach (and the risk associated with it) you can take in presenting your case.

If you are faced with a project in particular a home building project which has issues as to the form of the Contract, the enforceability of the Contract and the quantum of the claims please contact Richard Watson or his Personal Assistant Shereen Da Gloria to discuss any concerns or queries you may have.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

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