Undocumented variations and repudiation: Domestic Building Contracts

Building construction is a time-consuming and costly process that can be difficult to manage for all parties.  Very often, changes to the scope of the works being undertaken are requested or necessitated by circumstance, resulting in each party’s rights being uncertain at best when those variations are not properly documented in accordance with the Domestic Building Contracts Act 1995 (Vic) (Act).

The waters become murkier still when disagreement arises once there have been changes to the scope of works and parties seek to terminate the building contract.

The Act provides the legal framework for domestic building works, and section 38 of the Act provides that a builder is not entitled to recover any sum from an owner in respect of variations unless the Act is strictly complied with (requiring written notices to be issued to an owner containing prescribed details and a revised contract price).  

However, in the case of Mann v Paterson Constructions Pty Ltd [2018] VSCA 231 (Paterson), the Victorian Supreme Court of Appeal has upheld a decision in VCAT that a builder is entitled to be remunerated for variations on a quantum meruit basis (which is a right to be repaid for the value of the work the builder had performed) even when the Act is not complied with.

In Paterson, the owners had requested multiple variations to the scope of works, which delayed completion of the works. Those variations were requested and agreed to verbally and the builder failed to issue the variation notices required by the Act. The completion date went by and the builder requested that payment be made in respect of the variations before it would complete the outstanding works.

The owners refused to pay for the undocumented variations and alleged that the builder had “repudiated” the contract (indicated an intent not to be bound by the contract terms) and the owners purported to accept that repudiation as bringing an end to the building contract.

The owners then refused to allow the builder on site and failed to pay for the completed variations as the price demanded by the builder exceeded the written contract price.  The owners relied on section 38 of the Act in that regard.

The builder subsequently claimed that the owners’ conduct constituted a repudiation of the contract and issued proceedings in VCAT to recover money for the variations they had performed on a quantum meruit basis.

VCAT agreed that the owners had repudiated the contract and ordered the owners to pay a sum to the builder representing a fair and reasonable amount for the benefit conferred and the work performed.  This was so even though the builder had not complied with section 38 of the Act because the owners’ repudiation of the contract had the effect of voiding the contract as if it had never existed. The repudiation and ending of the contract meant that the fact that the variations were outside the scope of the contract was irrelevant: there was no longer a contract on foot that was subject to the Act.

VCAT awarded over $660,000 in favour of the builder. The owners argued that the sum awarded was excessive given the stated contract price (pre variation) and actual costs incurred by the builder. However, on appeal the Court stated that when assessing on a quantum meruit basis, regard must be had to the actual benefit conferred. The costs incurred by the builder and the contract price were only evidentiary and were not determinative.

Obviously, it is always best to document any variations to building works in writing and in accordance with the Act. However, builders can take comfort in the fact that courts will recognise works performed outside the scope of a contract on a quantum meruit basis.

Finally, Paterson is a reminder that relying on repudiation can be a risky play and parties should seek legal advice at the early stages of any dispute to try and avoid costly and protracted legal proceedings. 

For more information related to building and construction law or for general commercial disputes advice, please contact:

Ben Broadhead
Special Counsel
T: 03 5226 8549
E: bbroadhead@ha.legal

or

Zac Griffiths
Associate
T: 5225 5229
E: zgriffiths@ha.legal