The decision of the High Court in Mann v Paterson  HCA 32 came out today. It makes depressing reading for anybody interested in fair play in the construction industry in Australia.
The basic point can be explained fairly simply. If, during the course of a building contract, an owner is in severe breach of the terms of the contract, then the builder is entitled to terminate the contract at common law. The builder does not have to terminate, of course, but has an election; he can either leave the contract in place, or he can accept the owner’s conduct as repudiatory such that the contract is then at an end.
Then, according to the law as it has existed in common law jurisdictions for well over a hundred years, the builder has another choice. He can either elect to recover the amount of the contract price that he has earned up to the time of the termination, and also recover damages for breach of contract. Or, if he wants, he can instead take the much simpler course of claiming a quantum meruit for the whole of the work that he has done on the contract which has been repudiated.
The effect of this latest decision is to remove this second election, at any rate in large measure. The builder cannot now recover a quantum meruit for the whole of the work that he has done. In large measure (I get back to this in a moment) he has to be satisfied with whatever the contract permitted by way of recovery for the work done prior to the determination.
The effect of the decision is that the courts have shown common cause with owners who are in serious breach of their contracts, and the decision will cause further pain for innocent builders.
For the benefit of readers of this Continue reading