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David Winterton[1]* and Timothy Pilkington[1]†
The High Court’s decision in Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 267 CLR 560 raised several fundamental questions of legal principle regarding the relationship between the law of contract and the law of restitution in Australia. Many important propositions emerge from the case. Perhaps the most controversial is that where a contract for the performance of work is brought to a premature end following a repudiation by the party who contracted for that work, the (innocent) partial performer of work for which no unconditional right to payment has accrued is entitled to recover non-contractual quantum meruit in the alternative to claiming damages for the lost bargain. This article defends this holding as well as the usual imposition of a ‘contractual ceiling’ on the measure of non-contractual quantum meruit claims.
Contents
Following the formation of a contract where some or all of the promised work has been completed but the agreement is unenforceable, Australian courts generally recognise the availability of a claim to recover the reasonable value of the work performed (‘non-contractual quantum meruit’).[1] But what if the contract is brought to a premature end after a repudiation by the party who contracted for the work? If the innocent party[2] possesses an unconditionally accrued right to payment enforceable in debt, does this bar the availability of non-contractual quantum meruit? Additionally, in relation to work for which no unconditional right to payment has accrued, can the innocent party recover non-contractual quantum meruit as an alternative to damages designed to place it ‘in the same situation ... as if the contract had been performed’?[3] Finally, if non-contractual quantum meruit is available as an alternative to damages, what is the relevance of the parties’ contractually agreed price in assessing the sum awarded?
These are the questions that arose for determination by the High Court of Australia in Mann v Paterson Constructions Pty Ltd (‘Mann’).[4] While the Court unanimously held that non-contractual quantum meruit is not available when an innocent party has an unconditionally accrued right to payment for work performed prior to the contract’s termination, the Court divided on whether such a claim is available as an alternative to damages when the innocent party had no such right. By a bare majority, the availability of both claims in these circumstances was upheld.
But behind the majority view lay two different explanations for the doctrinal basis of non-contractual quantum meruit awards in the aforementioned circumstances. The explanation preferred by Nettle, Gordon and Edelman JJ (‘the plurality’) was that a contract’s termination for repudiation by the recipient of partially-performed work results in a (total) ‘failure of consideration’ or the failure of a ‘basis’ upon which the work was performed.[5] This conclusion extends the scope of ‘failure of consideration’ from its application to claims to recover money paid to claims to recover the value of partially performed work.[6] For Gageler J, by contrast, such an extension was both unnecessary and undesirable. His Honour instead resolved the appeal by reference to the more narrowly tailored doctrine enunciated by Jordan CJ in Segur v Franklin (‘Segur’)[7] and
Horton v Jones [No 2] (‘Horton [No 2]’):[8] that in the circumstances described above the law imposes an obligation to pay reasonable remuneration for the executed consideration ‘independently of any genuine agreement between
the parties’.[9]
Both of these approaches have merit. Recognising the difficulties inherent in placing too much explanatory stock in the (commonly misunderstood) concept of ‘failure of consideration’, Gageler J’s judicial minimalism in this context displays a certain wisdom, particularly because it simultaneously resolved the longstanding conundrum of whether non-contractual quantum meruit can ever exceed the contractually agreed price for the work. It is nevertheless argued that the plurality’s rationalisation of the claim is preferable because only this approach provides a defensible normative explanation for the availability of non-contractual quantum meruit as an alternative to damages, and because the underlying normative justification for non-contractual quantum meruit claims, exemplified by cases such as Mann, cannot be differentiated from that which justifies the availability of a restitutionary claim following a ‘failure of
consideration’ in relation to a monetary payment.[10]
As to whether non-contractual quantum meruit can ever exceed the contract price, Mann displays no clear majority view. Justice Gageler and the plurality agreed that in Mann itself the amount recoverable by the respondent, Paterson Constructions Pty Ltd (the ‘Builder’), could not exceed the amount to which it would have been contractually entitled upon completion of the work, and the plurality held that generally any claim ‘should be limited in accordance with the rates prescribed by the contract’.[11] But only Gageler J was prepared categorically to rule out the possibility of such an award ever exceeding this ‘contractual ceiling’.[12] While we agree that imposing a contractual ceiling is generally appropriate because it reflects the parties’ agreed valuation of the completed work, we argue that there are rare cases where imposing such a ceiling may be inappropriate because it does not reflect an agreed valuation of the completed work.
The appeal in Mann arose in the following way. The appellants, the Manns, entered into a standard-form contract (the ‘Contract’) with the Builder for the construction of two double-storey townhouses on the Manns’ land in Blackburn, Victoria at a fixed price of $971,000. The parties subsequently agreed orally to vary the scope of the works by adding certain items and altering others. Clause 25.7 of the Contract stated that it would ‘in all respects be governed by and construed in accordance with the laws that apply in the State of Victoria’.[13] Relevantly, s 38 of the Domestic Building Contracts Act 1995 (Vic) (‘DBC Act’) provides that a building owner who wishes to vary plans or specifications set out in a domestic building contract in which the contract price is more than $5,000 must give the builder ‘a notice’ outlining the variation the building owner wishes to make. As the Court unanimously held, the effect of s 38 of the DBC Act is to preclude any claim for non-contractual quantum meruit for
variations to the work contracted for in the absence of a notice in writing.[14]
At common law, a contractual obligation to perform building work is presumptively ‘entire’ in the sense that the builder will not earn an unconditional right[15] to payment until all of the promised work is either strictly or substantially performed.[16] This is generally the case even if progress payments are required,[17] unless on the contract’s proper construction the payments are made in consideration for the performance of divisible entire stages of the work. The contract between the Manns and the Builder was ‘divisible into several entire stages’[18] since cl 11.8 provided for the Manns to make progress payments in consideration for the completion of certain identifiable parts of the work. A contract is divisible into several entire stages where a promisor must only strictly or substantially perform a severable part of performance to earn an unconditional right to some identifiable part of the promised
counter-performance.[19]
The relationship between the Manns and the Builder broke down when the project was at an advanced stage of completion. After the Manns purported to terminate the Contract and exclude the Builder from the site, the Builder commenced proceedings in the Victorian Civil and Administrative Tribunal, arguing that the Manns’ conduct amounted to a repudiation, which it had accepted, and claiming for work done prior to termination in three distinct categories.[20] These categories were:
1 Work done by the Builder in respect of variations to the plans and specifications set out in the Contract that had been orally requested by the Manns;
2 Work done by the Builder in respect of the plans and specifications set out in the Contract for which the Builder had an unconditionally accrued right to payment upon termination; and
3 Work done by the Builder in respect of the plans and specifications set out in the Contract for which the Builder did not have an unconditionally accrued right to payment upon termination.
The Manns counterclaimed for damages for allegedly defective and incomplete work,[21] as well as liquidated damages for delay,[22] arguing that the Builder had in fact repudiated the Contract. The Tribunal preferred the Builder’s version of events and held that for both category (2) and category (3) work it was entitled to non-contractual quantum meruit for work performed prior to termination as an alternative to damages.[23] The Tribunal also held that the quantum of this award was not capped by the contractually agreed price that would have been recoverable upon completion of the entire stages of the work. On appeal to
Cavanough J, the Builder’s entitlement to non-contractual quantum meruit was confirmed,[24] and a further appeal by the Manns to the Victorian Court of
Appeal also failed.[25]
The Manns’ appeal to the High Court raised four main questions. One was whether s 38 of the DBC Act excluded the availability of common law ‘restitutionary’ relief for variations to the contractually agreed work implemented otherwise than in accordance with that section. All members of the Court agreed that s 38 did have this effect,[26] meaning the Builder’s only right to recover for category (1) work was under the relevant provisions of the Act.
A second question of broader significance was whether, in relation to category (2) work, the Builder could ‘elect’[27] between claiming non-contractual quantum meruit or the contractually agreed price in debt. All members of the Court held that no such choice was available,[28] so the Builder was confined to claiming in debt for such work.
A third question, also of broad significance, was whether, in relation to category (3) work, the Builder was entitled, in the alternative to pursuing damages, to claim non-contractual quantum meruit for the work performed. On this question, a bare majority of the Court held that the Builder was so entitled.[29]
This final holding raised a further question of general importance: whether the amount recoverable via this alternative claim is capped by the parties’ contractually agreed price. Of the four Justices who considered the possibility of such a cap, only Gageler J upheld its existence.[30] However, there was also no majority support for the view that non-contractual quantum meruit awards may sometimes exceed the parties’ contractually agreed price since Kiefel CJ, Bell and Keane JJ did not consider the issue.
As just explained, the Court unanimously held that s 38 of the DBC Act excluded the availability of ‘restitutionary’ relief for category (1) work and that, for category (2) work, the Builder could not claim non-contractual quantum meruit in the alternative to debt. The following summary of the Court’s reasons accordingly focuses upon the latter two (more controversial) questions of the four just identified, upon which the Court divided.
As regards these questions, the plurality held, in relation to category (3) work, that following termination for repudiation,[31] the innocent Builder was ‘entitled, at its option, to damages for breach of contract or restitution, but the amount of restitution should [normally] be limited in accordance with the rates prescribed by the contract’.[32] The meaning of this latter qualification on recovery is considered below, but it is first necessary to explain why their Honours concluded that, in respect of work for which no unconditional right to payment had accrued, the Builder could ‘elect’ between claiming non-contractual
quantum meruit and damages.
The availability of non-contractual quantum meruit to an innocent party following a contract’s termination for repudiation has been the subject of longstanding debate. Some history is required to appreciate the nature of the controversy. Implied contractual obligations to pay reasonable remuneration for goods (quantum valebant)[33] or services (quantum meruit) were originally enforceable under assumpsit (the general form of action for breach of a simple contract) but later came to be enforced by the writ of debt and, therefore, under the more convenient form of action for the recovery of a debt: indebitatus assumpsit.[34] This new form of recovery meant that ‘the common counts of indebitatus assumpsit for goods sold and delivered and for work and labour done supplanted, and absorbed the terminology of, the earlier contractual remedy’.[35]
The end result of these developments was that the quantum meruit label was ‘given to a form of action which fell into desuetude, superseded by counts in indebitatus assumpsit, even before the abolition of the forms of action’.[36] An important consequence of this is that pleading quantum meruit today does little to assist in identifying whether the action is one to enforce the contract, either by reference to an implied promise to pay the reasonable value of the work or via ‘a restitutionary remedy for breach of contract’,[37] or is an action ‘concerned with restitution in the category of unjust enrichment’.[38] However, as the plurality explained, the present litigation had ‘only ever been concerned’ with the
latter kind of claim.[39]
As their Honours recognised, there is considerable authority supporting the availability of non-contractual quantum meruit by the innocent party following a contract’s termination for repudiation. Notable examples are the Privy Council’s decision in Lodder v Slowey (‘Lodder’)[40] and the earlier English decisions in Planché v Colburn (‘Planché’)[41] and De Bernardy v Harding (‘De Bernardy’),[42] as well as various Australian intermediate appellate court decisions.[43] Much uncertainty nevertheless attends both the status of these authorities and the doctrinal basis for the claim. As to the latter issue, the plurality’s view was that the doctrinal basis for non-contractual quantum meruit awards made to the innocent party following a contract’s termination for repudiation is ‘total failure of consideration, or a total failure of a severable part of the consideration’ for which that party’s performance was provided.[44]
This explanation is relatively popular,[45] but not universally accepted.[46] Nevertheless, assuming that ‘failure of consideration’, or what the plurality preferred to label a ‘failure of basis’,[47] provides the best doctrinal explanation for those non-contractual quantum meruit awards that have historically been made following a contract’s termination for repudiation, their Honours suggested that the case against the availability of non-contractual quantum meruit in Mann could be reduced to two essential propositions. The first was that where the innocent party has partially completed[48] work under a contract terminated
after repudiation:
[T]he proper characterisation of the basis or condition on which the work was performed can only ever be the other party’s promise to perform the contract ... and, because the promise is enforceable by an action for damages, there is no failure of consideration.[49]
According to their Honours, this proposition is both inconsistent with authority[50] and incorrect in principle because it is based on the ‘misconception’ that the obligation to pay damages for breach of contract is one ‘imposed by the contract ... which survives termination like a debt due under the contract’.[51] Both of these responses are correct but the second in particular is contested, necessitating more detailed consideration below.
The second essential proposition the plurality identified in the Manns’ case was that, even if a condition upon which the work has been performed is indeed the other party’s counter-performance of their obligations[52] (rather than its promise to perform them), that party’s failure to perform its obligation(s)
yields a contractual remedy ... appropriate and adequate to put the innocent party in the position in which he or she would have been if the contract had been performed ... [thus obviating the] need or justification for the imposition of an alternative restitutionary remedy.[53]
This proposition isolates the central issue raised by Mann because it asserts that when a contract is terminated for repudiation, as opposed to when it is unenforceable, void or frustrated,[54] there is no need to provide the innocent party with an option to recover non-contractual quantum meruit as an alternative to claiming damages. In making the case for this proposition, an argument advanced by the Manns was that the status of earlier authorities supporting the availability of non-contractual quantum meruit is ‘tainted’[55] by their reliance on ‘the rescission fallacy’, which is the idea that upon termination for a serious breach or repudiation a contract is rescinded ab initio.[56] As the Court unanimously recognised, this mistaken notion was unambiguously expunged from Australian law by Dixon J in McDonald v Dennys Lascelles Ltd (‘McDonald’),[57] where his Honour explained that termination merely discharges each party from any future obligation to perform while leaving intact unconditionally
accrued rights.[58]
To explain the Manns’ argument further, recognition of the rescission fallacy is thought by some to undermine the status of earlier authorities establishing the availability of non-contractual quantum meruit. This is because the view that termination after an accepted repudiation rescinds the contract ab initio entails the further consequence that, following termination, the innocent party is not entitled to enforce the contract via an action for damages. That a claim for damages is indeed available, so the argument proceeds, removes the need (and possibly the justification) for the availability of non-contractual quantum meruit in this context.
While the plurality acknowledged the argument that doctrinal developments in contract law ‘have so much ameliorated the injustice which spawned the quasi-contractual remedy of quantum meruit ... that a restitutionary remedy is no longer necessary’,[59] they concluded that maintenance of the remedy was nonetheless justified by its ‘considerable practical value’[60] and the existence of appropriate mechanisms, such as the doctrine of election between inconsistent remedies, to ensure the preservation of legal ‘coherence’ in this context.[61] For their Honours, these considerations all supported the conclusion that
where a doctrine of the common law has grown up over several centuries ... [and] remains principled and coherent, widely accepted and applied in kindred jurisdictions, it can hardly be regarded as a sufficient basis to discard it that some of the conceptions which historically informed its gestation have since changed or developed over time.[62]
The conclusion that, following a contract’s termination for repudiation, the availability of non-contractual quantum meruit should continue to exist as an alternative to the innocent party’s action for damages leads to the question of how any such claim should be quantified and, in particular, whether the contract price should limit the sum recoverable. The principal argument against imposing a contractual ceiling was, the plurality observed, succinctly put by Professor Williston, in saying that ‘[t]he defendant cannot refuse to abide by the contract and at the same time claim its protection’.[63] Justice of Appeal Meagher expressed a similar view in Renard Constructions (ME)
Pty Ltd v Minister for Public Works (NSW), stating that ‘it would be extremely anomalous if the defaulting party ... could invoke the contract which he has repudiated in order to impose a ceiling on amounts otherwise recoverable’.[64] The plurality’s response to such concerns was that
[there is] nothing about the termination of the contract as such that is inconsistent with the assessment of restitution by reference to the contract price for acts done prior to termination. The contract price reflects the parties’ agreed allocation of risk ... [and termination] provides no reason to disrespect that
allocation ...[65]
Given the different ways in which the words ‘allocation of risk’ may be understood, we suggest that these words could helpfully be replaced in the extracted quotation with ‘valuation of the completed work’. As to the proper approach to quantifying non-contractual quantum meruit in a case like Mann, their Honours’ view was accordingly that generally any claim ‘should be limited in accordance with the rates prescribed by the contract’.[66] However, with particular reference to the controversial American decision in Boomer v Muir (‘Boomer’),[67] their Honours also suggested that there may be cases ‘where, in accordance with principle, the circumstances will dictate that it would be
unconscionable to confine the plaintiff to the contractual measure’.[68]
For Kiefel CJ, Bell and Keane JJ, the existence of a damages claim following termination for repudiation had the effect of barring any otherwise available non-contractual quantum meruit claim.[69] Their Honours’ basis for so concluding relied upon two main observations. The first was that the older authorities supporting the availability of non-contractual quantum meruit as an alternative to damages following a contract’s termination for repudiation were decided before rejection of ‘the rescission fallacy’. According to their Honours, McDonald thus ‘removed the “reason” or “foundation” of the holding in Lodder’ and other older authorities supporting the Builder’s case.[70]
However, Kiefel CJ, Bell and Keane JJ also attempted to buttress this conclusion by reference to an argument of principle, which was that allowing the recovery of non-contractual quantum meruit in the alternative to damages would fail to respect the parties’ ‘contractual allocation of risk’ because part of what contracting parties bargain for is the right to damages that arises upon breach.[71] According to Kiefel CJ, Bell and Keane JJ, the present case ‘stand[s] in marked contrast’[72] with cases like Roxborough v Rothmans of Pall Mall Australia Ltd (‘Roxborough’), which involved a claim to recover money paid (rather than the value of goods or services provided) under a subsisting contract: the key difference being that in Roxborough ‘the compensatory principle ... was [not] engaged’[73] so there was no question of undermining the parties’ contractual
risk allocation.[74]
Chief Justice Kiefel, Bell and Keane JJ also emphasised that, in their view, to allow for the possibility of non-contractual quantum meruit following a contract’s termination for repudiation ‘would give rise to complex questions of proof and ... complicate litigation’.[75] Their Honours cited the present appeal as a case demonstrating
that proof of an entitlement to a quantum meruit may often involve more complex questions of evidence and evaluation than an assessment of damages for loss of profit ... involving an unprecedented level of uncertainty and complexity.[76]
Finally, their Honours averted to the practice among some builders of underbidding contracts with a view to taking advantage of any later repudiation by the principal in order ‘to elect for a more generous level of remuneration’.[77] For Kiefel CJ, Bell and Keane JJ, this all supported the conclusion that
considerations of coherence, certainty and commercial convenience provide ample reason to move on from adherence to the vestiges of what is now seen to be an unprincipled right to remuneration for work done, unconstrained by the terms of the contract.[78]
According to Gageler J, the availability of non-contractual quantum meruit as an alternative to damages following a contract’s termination for repudiation should persist, but the contract price imposes a ceiling on the amount recoverable for the former claim.[79] In contrast to Kiefel CJ, Bell and Keane JJ, his Honour held that the availability of non-contractual quantum meruit to the Builder did not ‘lie in the notion of the contracting parties having arrived at a contractual “allocation of risk”, which the common law of restitution will not disturb’ because, while the parties are of course ‘at liberty to determine ... the “secondary” obligations, which are to arise in the event of breach or termination of the “primary” obligations they have chosen to bind them’,[80] it would be
artificial as a matter of commercial practice and wrong as a matter of legal theory to conceive of contracting parties who have not addressed the consequences of termination in ... their contract as having contracted to limit themselves to the contractual remedy of damages in that event ... [since parties] contract against the background of the gamut of remedies that the legal system makes available to them.[81]
Noting that ‘[t]idiness has never been a feature of ... [the] common law’,[82] Gageler J said that the continued availability of a non-contractual quantum meruit in circumstances where the innocent party has a claim for damages was to be ‘informed by a weighing of the practical consequences of continuing to allow’ this alternative claim.[83] His Honour here emphasised the ‘significant procedural advantages ... [of an action in debt] over an action for damages for breach of contract under procedural rules in Australian courts ... [including] a capacity to obtain default judgment’[84] and that ‘proof of the value of services rendered is almost invariably more straightforward than proof of contractual loss’.[85] His Honour also observed that it remains open for the parties to oust the availability of this alternative response just as they can oust (or limit) the default damages remedy.[86] Significantly though, his Honour did acknowledge that the ‘practical considerations are not all one way’, placing particular emphasis on ‘the incentive to terminate’ created by ‘the potential to recover more from termination than from completion [of the contract]’ and the incentive for inefficient behaviour this creates.[87]
Probably the most noteworthy aspect of Gageler J’s judgment, however, was its discussion of the doctrinal basis of non-contractual quantum meruit claims. In contrast to the plurality, his Honour refrained from locating this in the concept of ‘failure of consideration’ or ‘failure of basis’. This was because ‘[u]seful as the concept ... can be, it is important not to surrender to [it] ... the hegemonic status steadfastly denied to ... unjust enrichment’.[88] For his Honour, that ‘[o]ne party has rendered services, from which the other has benefited, on a “basis” that “has failed to sustain itself” ... isolate[s] an important part of the story ... [but does not] tell the whole story’.[89] Justice Gageler therefore thought it important to distinguish Mann from claims to recover money paid,[90] or a case like Sumpter v Hedges (‘Sumpter’), where a repudiating claimant ‘seeks to recover the value of services rendered to the innocent party’.[91]
In identifying the doctrinal basis for non-contractual quantum meruit claims brought by the innocent party following a contract’s termination for repudiation in cases exemplified by Mann, his Honour instead focused on
‘two ... scholarly and concise judgments ... delivered shortly after [the High Court’s emphatic rejection of the rescission fallacy in] McDonald’[92] and ‘pivotal to the reasoning of Deane J in Pavey’.[93] As his Honour explained, in Segur[94] and
Horton v Jones,[95] Jordan CJ held that a non-contractual quantum meruit for
services rendered by an innocent party was best characterised as
‘an action of debt’ to enforce an obligation, imposed by law independently of any genuine agreement between the parties, to pay ‘reasonable remuneration for the executed consideration’.[96]
Significantly, Gageler J explained, this rationalisation for non-contractual quantum meruit also entailed that the contract price imposes a ceiling on the amount recoverable for such a claim.[97] Derivative support for this conclusion was found in the ‘policy’ need to address ‘the problem of distorted contractual incentives’.[98] Additionally, his Honour observed that this conclusion was consistent with Jordan CJ’s reasoning in Horton [No 2],[99] and supported by the
prevailing American approach.[100]
The High Court’s reasons in Mann raise a number of important doctrinal and theoretical issues that are now examined. The overarching ambition is to establish the following propositions: (1) the majority were correct to uphold the continued availability of non-contractual quantum meruit as an alternative to ‘loss of bargain’ damages; (2) the plurality’s doctrinal explanation for non-contractual quantum meruit in terms of ‘failure of basis’ provides the preferable rationalisation of the claim; (3) imposing a contractual ceiling is usually appropriate because the contract price provides compelling evidence of the parties’ valuation of the completed work; and (4) when the principal’s breach has additional adverse consequences for the builder, the latter’s non-contractual quantum meruit claim may be combined with one for ‘consequential loss’, subject to the usual restrictions that limit such awards and a prohibition on double recovery.
The central question Mann raised was whether, in relation to work done by a builder under a contract terminated after repudiation for which no unconditionally accrued contractual or statutory right to payment exists, the builder is entitled, in the alternative to damages, to recover non-contractual quantum meruit, which is synonymous with restitution of the ‘reasonable’ or ‘fair’ value of that work.[102] One view is that this question should be resolved simply by applying the relevant authorities. Justice Gageler’s starting point, for example, was that the power to choose between both claims is well-established in the United Kingdom, ‘repeatedly accepted in intermediate courts of appeal [in Australia] over the last three decades’ and ‘accords with the predominant approach of courts in the United States’.[103] The plurality similarly observed that the innocent party’s choice to pursue either claim is well-established by authority.[104]
But as already observed, all of the Justices in Mann recognised that the status of key authorities supporting the availability of non-contractual quantum meruit in the alternative to damages following a contract’s termination for repudiation, namely Planché, De Bernardy, and Lodder, is arguably ‘tainted’ by the (incorrect) view that termination of a contract via acceptance of a repudiation effects a rescission ab initio.[105] Acceptance of this apparent defect in the older authorities thus made possible the argument, accepted by Kiefel CJ, Bell and Keane JJ, that any authority decided before McDonald was open to being disregarded.[106] The central question in the appeal was therefore ultimately viewed, even by the majority Justices, as one that could only properly be resolved by reference to more fundamental considerations of principle.
Perhaps the most important subsidiary question posed by Mann was what the doctrinal basis for non-contractual quantum meruit following a contract’s termination for repudiation actually is. This issue is taken up below. But if one assumes the availability of non-contractual quantum meruit for work done under an unenforceable contract,[107] the central question in Mann may be reframed as whether an enforceable right to damages following a repudiation provides good reason to bar an otherwise available common law claim. It is highly doubtful that it should. As Wilmot-Smith has observed, ‘[i]t is incoherent for the law to permit a claim where the contract is unenforceable but deny it where the claim can be enforced: the law should not provide extra rewards to those whose instruments are unenforceable.’[108]
Chief Justice Kiefel, Bell and Keane JJ held that non-contractual quantum meruit was indeed barred in these circumstances because allowing it in the alternative to damages disrespects the parties’ ‘contractual allocation of risk’.[109] As their Honours acknowledged, this conclusion assumes that the right to damages for non-performance of the relevant ‘primary’ obligations is part of what parties bargain for upon contract formation.[110] But their Honours’ analysis relies upon substituting one fallacy, that termination effects a rescission ab initio, for another: that the content of the right created by contract formation is to performance or damages in substitution thereof,[111] so that the parties’ agreement covers all of the common law’s available remedial ground. This latter fallacy, famously (but probably incorrectly)[112] attributed to Oliver Wendell Holmes Jr,[113] was recently rejected by the High Court in Tabcorp
Holdings Ltd v Bowen Investments Pty Ltd[114] and has also been thoroughly discredited by academic commentators.[115] The essential problem with this view is, as Wilmot-Smith has elsewhere explained, that
the right to damages for breach of a contract is not just as much a part of the contract as the right to performance. The right to damages does depend upon the contract’s existence and the content of the particular duty ... but the distinctive legal content is supplied by a more general rule of law, one which is found in all areas of the law of obligations.[116]
The emphasised reference in italics is to a famous statement made by Lord Diplock in Moschi v Lep Air Services Ltd (‘Moschi’) that the obligation to pay damages for breach of a contract is ‘just as much an obligation arising from the contract as are the primary obligations that it replaces’.[117] However, as the plurality observed, earlier in Moschi, Lord Diplock also said that an obligation to compensate in monetary terms ‘is substituted by operation of law’ for the primary obligations.[118] Any apparent inconsistency between these two statements is resolved by Wilmot-Smith’s aforementioned observations, as indeed Gageler J made clear when stating that, where the parties have not determined the consequences of a breach of their contract, it would be ‘artificial’ and ‘wrong as a matter of legal theory’ to conceive of contracting parties as restricting themselves to the contractual remedy of damages.[119]
That the existence of a claim for ‘loss of bargain’ damages does not bar the availability of non-contractual quantum meruit squarely raises the question of what the doctrinal basis for the latter claim actually is under Australian law, at least when the claim is one for the value of work performed under a valid, but not fully performed, contract following termination for the other contracting party’s repudiation. On this issue, the majority was split. For the plurality, the doctrinal basis for the claim was the existence of a (total) failure of the ‘consideration’ or a ‘basis’ upon which the work was provided.[120] By contrast,
Gageler J eschewed this explanation in favour of the view that in the aforementioned circumstances the law imposes an obligation to pay reasonable remuneration for the executed consideration ‘independently of any genuine agreement between the parties’.[121]
In Commentaries on the Laws of England, William Blackstone identified five forms of assumpsit corresponding to what modern lawyers would generally classify as claims for restitution.[122] Relevant for present purposes was an assumpsit on a quantum meruit and an action for money had and received. As to the former, Blackstone wrote that ‘if I employ a person to transact any business for me, or perform any work, the law implies that I undertook or assumed to pay him so much as his labour deserved’.[123] As to money had and received, citing Lord Mansfield’s judgment in Moses v Macferlan (‘Moses’),[124] Blackstone wrote that the action
lies for money paid by mistake, or on a consideration which happens to fail, or through imposition, extortion or oppression, or where undue advantage is taken of the plaintiff’s situation.[125]
Certain commentators have argued that in Moses Lord Mansfield was importing into English law an equivalent of the Roman condictio causa data causa non secuta (‘condictio’).[126] That proposition has been doubted on the basis that the English doctrine has always been of broader application.[127] But irrespective of the degree to which ‘failure of consideration’ accords with condictio, the 19th century authorities demonstrate that a ‘failure of consideration’, although most commonly applied in the context of failures to receive any part of the agreed contractual counter-performance for payment, was not so confined. For example, claims for money had and received succeeded following, amongst other events, a failure of contingent condition[128] and payments of money pursuant to unenforceable[129] or void contracts.[130] The meaning of ‘failure of consideration’ in these different contexts generally corresponds to the failure of an agreed[131] ‘basis’ or condition upon which a payment was made.[132]
In Chandler v Webster (‘Chandler’), however, it was notoriously held that ‘failure of consideration’ could only apply where the contract had been avoided ab initio.[133] That conclusion rested upon the misconception that if there was consideration sufficient to form a contract it could not subsequently be argued that there was a ‘failure of consideration’. The House of Lords overruled Chandler in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd
(‘Fibrosa’).[134] As Viscount Simon LC there explained, generally in claims for money had and received following a ‘failure of consideration’ the consideration is ‘not the promise ... but the performance of the promise.’[135] Following Fibrosa, ‘failure of consideration’ was commonly equated with a right to recover money paid upon a failure to receive the agreed return for payment. For example, in Rover International Ltd v Cannon Film Sales Ltd, Kerr LJ said:
The question whether there has been a total failure of consideration is not answered by considering whether there was any consideration sufficient to support a contract or purported contract. The test is whether or not the party claiming total failure of consideration has in fact received any part of the benefit bargained for under the contract or purported contract.[136]
In An Introduction to the Law of Restitution, Birks argued that ‘failure of consideration’ extended beyond a failure to receive the agreed return for the performance of a payment obligation, and that restitutionary liability for a ‘failure of consideration’ extended to performances of services.[137] According to Birks, certain non-contractual quantum meruit awards were indistinguishable from claims for money had and received upon a consideration that failed because, like the payment of money, performing services may involve providing a ‘benefit’ to another party on ‘a basis’ that may fail.[138] ‘Basis’, he explained, was synonymous with the ‘purpose’ of, or ‘reason’ or ‘condition’ for, a ‘transfer
of value’.[139]
Despite academic support for the application of ‘failure of consideration’ to the performance of work,[140] recognition of that idea by Anglo-Australian appellate courts was until recently almost entirely lacking. Then, in
Cobbe v Yeoman’s Row Management Ltd, Lord Scott held that ‘a restitutionary remedy’ is available where ‘an individual provides money and services in return for a legal but unenforceable promise which the promisor, after the money has been paid and the services provided, refuses to carry out’.[141] This view was subsequently endorsed in Barnes v Eastenders Cash & Carry plc, with Lord
Toulson JSC stating that ‘Professor Birks’ reference to failure of the consideration for “a payment” would apply equally to failure of the consideration for the provision of services’.[142]
In Australia, an interpretation of ‘failure of consideration’ as consistent with a failure of a condition upon which a benefit was conferred received some support in Roxborough.[143] Justice Gummow there defined ‘failure of consideration’ as ‘the failure to sustain itself of the state of affairs contemplated as a basis for the payments the appellants seek to recover’,[144] while Gleeson CJ, Gaudron and Hayne JJ explained the doctrine as justifying restitution where there is a ‘payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared’.[145] However, in Roxborough the Court understandably stopped short of saying that ‘failure of consideration’ embraced the performance of work on a condition that failed to materialise or sustain itself, confining itself to considering money claims in accordance with the case before it. Indeed, prior to Mann no High Court decision recognised ‘failure of consideration’ as applicable to claims for work performed. The plurality’s extension of the doctrine to encompass partially-performed work is accordingly highly significant.
If one accepts that ‘failure of basis’ extends to services, as held by the plurality and argued for below, the law’s recognition of a right to restitution following a ‘failure of basis’ clearly recognises that ‘transfers of value’[146] may be conditional. Acceptance of this extension of the doctrine also entails that when a condition that the transfer was subject to fails the transfer should generally be regarded as defective such that restitution may be appropriate. As Lord Wright reasoned in Fibrosa, in the context of a claim to recover money paid:
The payment was originally conditional. The condition of retaining it is eventual performance. Accordingly, when that condition fails, the right to retain the money must simultaneously fail.[147]
It follows that, in cases exemplified by Mann, what the statement that there is a ‘failure of consideration’ or a ‘failure of basis’ can be reduced to is that work contracted for was performed on a condition that has failed to materialise or sustain itself. As the preceding discussion explains, the parties may have agreed to make performance of the work subject to more than one condition.[148] For this reason, although Nettle, Gordon and Edelman JJ spoke of there being a ‘failure of basis’, the content of the doctrine to which they referred is probably more accurately captured by the label ‘failure of condition’, which makes clear that the reason for awarding restitution is that one or more agreed conditions attaching to the claimant’s performance has not materialised or
sustained itself.[149]
Assuming that the correct doctrinal analysis of the Builder’s claim was that there was a failure of a condition upon which its work was provided, the question arises as to what that condition was. A further, related, question is whether this condition can be interpreted so that Mann is consistent with the longstanding authority of Sumpter. In Sumpter, a builder undertook an entire obligation to build two houses and stables on the defendant’s land, but only did part of the work before repudiating the contract. The builder’s non-contractual quantum meruit claim failed. The only material factual difference between Sumpter and Mann[150] is that in Sumpter the builder repudiated the contract whereas in Mann the builder accepted the landowner’s repudiation.
The most plausible way of distinguishing Sumpter from Mann is that generally a contractual performance should be regarded as being undertaken on a condition that the recipient of the work does not deprive the performing party of an opportunity to complete the work and thereby unconditionally earn the promised counter-performance.[151] Thus, on a ‘failure of basis’ analysis, the relevant failure grounding the Builder’s restitutionary claim in Mann was not the Manns’ failure to provide the agreed counter-performance, but rather that the Manns deprived the Builder of an opportunity to unconditionally earn payment in respect of certain divisible entire parts of the work by excluding it from the site.[152] It is possible that the plurality were adopting the same characterisation of the condition that failed when they said that
[b]y contrast, if the obligation to perform work and labour is ‘entire’, so that nothing is due until all of the work has been completed by the contractor, then, upon termination of the contract by the contractor’s acceptance of the other party’s repudiation of it, there will be a total failure of consideration. Upon acceptance that the contract is repudiated ... the contractor’s right to complete the performance and earn the price will have failed, and thus nothing will be due under the contract for such part of the work as has been completed. In that event, the ‘consideration’ — in the sense of the condition or the ‘basis’ for the performance by the contractor — will have failed ...[153]
There is, however, a danger that by focusing on the second half of this statement their Honours’ words may be taken out of context and the condition that failed in Mann wrongly understood to be that it became impossible for the Builder to earn an unconditionally accrued contractual right to payment for the work following its acceptance of the Manns’ repudiation. But this characterisation of the condition that failed is inconsistent with Sumpter since, following the innocent owner’s acceptance of the builder’s repudiation in that case, it also became impossible for the builder to complete the promised work and earn the
agreed price.[154]
Our preferred characterisation of the condition that failed has a further implication, which does not arise on the alternative characterisation just considered. This implication is that there will only be a ‘failure of basis’ justifying restitution following a promisor’s repudiation when the repudiation must be accepted by the promisee.[155] Consequently, where the promisee can elect to affirm the contract and earn the agreed counter-performance following the promisor’s repudiation because the promisor’s co-operation is not required for the promisee to complete its performance as in, for example, White and Carter
(Councils) Ltd v McGregor,[156] the alternative restitutionary claim would not be available. In these circumstances, if the promisee chooses to accept the repudiation, it can only claim damages.[157]
‘Failure of consideration’ is a label for an event. Historically, as we have explained, that event was a transfer of money on an agreed condition that failed to materialise or sustain itself. Birks was concerned with whether the principle that like cases be treated alike requires that ‘failure of consideration’ be extended to cover non-monetary transfers of value, maintaining that monetary transfers were not special but, like services, simply a species of the genus ‘enrichments’.[158] This view has been highly influential and provides the source of the logic underpinning the plurality’s holding in Mann that ‘failure of consideration’ should be extended to cover claims for the value of partially performed services by an innocent party.
This view has great appeal.[159] As argued in the next Part, the preferable normative justification for claims to recover money paid following the failure of an agreed condition applies equally to claims to recover the value of partially performed work on an agreed condition that fails. Given this normative (or justificatory) symmetry, the absence of a corresponding doctrinal symmetry calls for justification. Mere adherence to authority may suffice for courts lower in the judicial hierarchy, but for an ultimate appellate court it will not do.[160] In the present context, no compelling justification for this doctrinal divergence has yet been articulated, nor, we claim, is it likely ever to be.
So to recognise is not to deny that certain difficulties arise in valuing services that do not arise when a claim is brought to recover money paid. The most important difference between these two claims is that monetary transfers of value can be transferred back in (exactly) the same form as they were originally transferred, while services cannot be. This difference has generated the legitimate concern that requiring someone to make restitution of the value of services received effectively requires them to purchase something when they never agreed to do so.[161] It is nevertheless difficult to see how this difference justifies a complete doctrinal separation of the two claims. At most, it may sometimes justify a different interpretation of the parties’ agreed condition(s) for such
a transfer.[162]
For Gageler J, however, avoiding ‘the pitfalls of overgeneralisation’ and appreciating ‘considerations that are practically important but theoretically inconvenient’ necessitated caution before generalising from claims to recover money paid to claims for the value of work provided following the failure of an agreed condition upon which either that money or work was provided.[163] Perhaps his Honour’s major reason for not following the plurality in its doctrinal assimilation of these claims was his view that their approach was contrary to the ‘common law method’.[164] According to his Honour:
[G]eneral principles of the common law are ... ‘built up’ from the ‘collation of decided cases’. They are monitored by reference to how well they fit within the wider body of the law and how well they work in practice; where problems are revealed, they can be revised or even abandoned at the appropriate level within the judicial hierarchy.[165]
This more minimalist approach undoubtedly displays a certain wisdom, particularly given the tensions that exist in the wider case law[166] and the forceful recent academic criticism of the four-stage ‘unjust enrichment’ formula[167] as a framework for analysis of restitutionary liability.[168] The development of rational and coherent legal principles to govern this area of law is nevertheless better served by an attempt to articulate a doctrine that recognises the claim’s normative basis rather than one that defers identification of this basis.[169] For a practical example of why this is so, we note that Gageler J’s analysis provides no direct guidance as to whether a restitutionary claim is available in a case like Sumpter where the repudiating party claims for non-contractual quantum meruit.[170]
That the proper scope of various aspects of the law of ‘unjust enrichment’ is still being worked out does not mean that a clearly defined extension of a particular doctrine falling within that category of law is impermissible if such an extension is rationally defensible. While it is true that the common law method does not embrace grand theorising, it does embrace the logical extension (or limitation) of legal doctrine by reference to the proper use of appropriate analogies, particularly by ultimate appellate courts charged with the task of developing legal principles coherently.[171] It is submitted that this is what the plurality have (largely successfully) attempted. This is not to deny that much about the doctrine of ‘failure of basis’ (or ‘failure of condition’) remains uncertain.[172] If any criticism of the plurality’s reasoning is appropriate, it may be that it provides insufficient guidance to lower courts charged with the task of applying this doctrine in the various scenarios that will inevitably arise before them.
In further defence of the position advanced above, this Part provides a theoretical explanation, consistent with ‘failure of basis’, for the availability of restitutionary money awards for work done or money paid on a condition that fails in the alternative to damages assessed on a Robinson v Harman basis. This explanation is equally applicable to both monetary transfers and the provision
of services.
Contracts are legally binding agreements[173] constituting a bilateral, voluntary undertaking of obligations,[174] which create reciprocal rights to performance of the promises assumed.[175] It is also generally true that in an executory bilateral contract the parties’ promises are viewed as ‘mutually dependent’ in the sense that A’s entitlement to B’s performance of Y is dependent upon A’s performance of X, and B’s entitlement to A’s performance of X is dependent upon B’s performance of Y.[176] A’s performance of obligation X is, in this sense, conditional upon B’s performance of obligation Y and vice versa.
When a claimant provides a contractual performance on a condition that fails due to a defendant’s repudiation, there are two distinct ways in which the law might respect the parties’ conditional agreement via a monetary award. The first is to enforce the right (or rights) to performance indirectly via a damages award. This approach is forward-looking with the purpose of any such award being to respect the parties’ autonomously chosen decision to undertake certain legal obligations by, so far as money can do it, putting the claimant in the next-best position to the defendant having performed as promised.[177]
The second way of respecting the conditional nature of the parties’ ‘agreement’ is to transfer back to the claimant, to the greatest extent possible,[178] the (conditional) performance that this party has provided. This approach is backward-looking and the purpose of any such award is, so far as money can do it, to place the claimant in the position it was in prior to undertaking the performance that was subject to the (now failed) condition. By doing this, the law respects the parties’ autonomously chosen decision that the defendant’s entitlement to the claimant’s performance was subject to an agreed condition materialising or sustaining itself.
While the first option focuses on the bargained-for outcome of the parties’ conditional agreement, the second option focuses on the (agreed) conditional aspect of that agreement. The second response may sometimes be preferable to the first when a performance is undertaken upon a conditional basis because, as Williston observed, damages often constitute an imperfect substitute
for performance.[179]
Given that the law generally has no principled way for determining whether, following a contract’s termination for the promisor’s repudiatory breach, an award of damages or restitution of the value of the relevant partial performance better respects the parties’ conditional agreement it appropriately leaves the choice to the claimant. As Gageler J explained, this choice may also have significant practical utility to a claimant since proving the value of the performance may be more straightforward than proof of the ‘loss’ necessary to recover substantial damages, thereby allowing ‘the innocent party to choose to adopt the course of quickly and cheaply obtaining judgment for an easily quantifiable liquidated amount’.[180] It should also be reiterated that, on the preferable understanding of the condition that fails in such a case, this choice will only be available where the repudiation must be accepted because the guilty party’s cooperation is required for the other party to complete its side of the bargain.[181]
The logic of the preceding analysis applies equally to contractually promised services and monetary payments. To deny this proposition requires demonstrating that performing services on a condition that fails is relevantly different from transferring money on a failed condition. But no such difference exists. That the form of value transferred differs in each case may justify some differences in the rules governing the valuation of claims or the construction of the condition(s) upon which such transfers are made, but it does not provide a sufficient reason for an entirely distinct doctrinal treatment in circumstances where the normative justification for the law’s remedial response is the same.
Completeness of analysis requires that an additional important holding in Mann be noted: namely that, for work performed by the Builder for which it had an unconditionally accrued right to payment, it could not claim non-contractual quantum meruit as an alternative to debt. With the exception of
Gageler J,[182] all of the Justices held that the doctrinal basis for this conclusion was that there was no ‘failure of basis’ in respect of this category of work.[183] Determining whether this analysis is correct requires identifying upon what agreed condition(s) the Builder’s performance of the work was provided.
On the orthodox view,[184] and as the plurality held,[185] the Builder’s work was provided not merely on the condition of the Mann’s contractual promise of payment upon completion of the work, but also for payment itself. But to conclude that there is no ‘failure of basis’ where there is an unconditional right to a payment that has not (yet) been made might suggest that what is bargained for is not performance but the promise of performance. There are (at least) three possible solutions to this puzzle.
One possibility is that there cannot be a ‘failure of basis’ until fulfilment of the condition upon which performance was undertaken becomes impossible. Accordingly, if there is an unconditionally accrued right to payment enforceable via an action in debt, there can be no ‘failure of basis’. The difficulty this argument confronts is that the better view is that an action for debt does not always strictly enforce the promise to pay because the time for performance of the promise may have passed,[186] so that when a debt is not paid by the promised time fulfillment of the condition is in fact impossible.[187] When a contractual performance is undertaken on a condition that some state of affairs will materialise there is always a temporal component to the condition for that performance.[188] Put another way, the condition for the performance is the materialisation of some state of affairs within a given time.
A second possibility is that there was a ‘failure of basis’ but that it is acceptable for the law to deny non-contractual quantum meruit in such circumstances. This may be either because the existence of such a claim would be wholly redundant if valued by reference to the contract[189] — or, if valued independently of the contract, incoherent in the sense that term is used in Sullivan v Moody because the service provider would have two inconsistent debt claims for the same work.[190] But the difficulty with this analysis is that it is inconsistent with the conclusion of six Justices in Mann that there is not a ‘failure of basis’ if a service provider has an (enforceable) unconditional right to payment even if payment has not been made. Such an explanation would also place the law in the theoretically dissatisfying position of denying restitution despite the failure of a condition upon which the services were provided.
A third possibility, which we prefer for reasons of legal ‘coherence’, is that the Builder bargained for the opportunity to earn an unconditional right to payment for its work from the Manns. Upon unconditionally earning a right to performance of the Manns’ payment obligation, the condition upon which its performance of the services was provided was satisfied. Justice Gageler seemed receptive to this analysis when his Honour said that the Builder contracted for ‘the enforceable contractual obligation to pay for the work’.[191] A possible concern with this analysis raised by Wilmot-Smith is that the
centrality of enforceability does not sit comfortably with the general rule, that: ‘when one is considering ... failure of consideration ... it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise’.[192]
In response to this concern, it may be observed that Fibrosa can only have limited significance in determining the meaning of ‘consideration’ in this context because English law has only recently recognised that ‘failure of consideration’ may provide the doctrinal basis for a restitutionary claim for services.[193] Although we argue that restitution for a ‘failure of basis’ is possible for both money and services, differences between money and services may mean that the conditions attaching to their transfer or performance are appropriately construed differently in certain circumstances. Relevantly, while it is plausible that services are normally undertaken on the agreed condition that the principal will not deny the service provider the opportunity to earn payment (for the work), no such condition can plausibly attach to money transfers.[194]
Amongst the Justices who held that non-contractual quantum meruit was available as an alternative to damages, there was disagreement concerning whether the contract price should impose a ceiling on the amount recoverable. According to the plurality:
[T]he amount of restitution recoverable as upon a quantum meruit by the plaintiff for work performed as part of the entire obligation (or as part of the entire divisible stage of the contract) should prima facie not exceed a fair value calculated in accordance with the contract price or appropriate part of the contract price ... [though there may be cases where it] would be unconscionable to confine the plaintiff to the contractual measure.[195]
By contrast, Gageler J held that the measure of the value of the services rendered by an innocent party should be limited ‘by reference to the contractually agreed remuneration for those services’.[196] It is unclear precisely what the words ‘by reference to’ mean in this context. But it is at least clear that non-contractual quantum meruit cannot exceed the contractually agreed price for complete performance of that work. In reaching this conclusion, Gageler J emphasised that allowing a service provider to recover more following termination when work has only been partially performed than following completion would create an incentive to terminate and to ‘search out and seize upon conduct able to be characterised as a repudiation’ thereby inverting that party’s normal interest
in performance.[197]
In concluding that it may occasionally be ‘unconscionable’ for non-contractual quantum meruit to be limited to the contractual sum recoverable for complete performance, the plurality tentatively suggested as one example the famous American case of Boomer.[198] But an appreciation of the true relationship between claims for restitution and damages casts some doubt on whether Boomer actually was such a case.[199] This follows from recognition that non-contractual quantum meruit and damages for consequential[200] loss are concurrent rather than alternative remedies and are only mutually exclusive to the
extent that awarding both would involve making good the same ‘loss’ twice.[201]
In Boomer, RC Storrie & Company (‘Storrie’), a co-partnership composed of Robert Muir and Robert Storrie, contracted with the Feather River Power Company to undertake a construction project. Storrie subsequently entered into a sub-contract with HH Boomer for the construction of a dam, whereby Storrie undertook to deliver certain materials to the site. This contract entitled Boomer to receive progress payments for performance of the work based on a schedule. In return for $300,000 Boomer promised to furnish all other materials, labour and equipment. Soon after contract formation a dispute arose. Boomer later terminated. Storrie had persistently prevented Boomer’s performance, which caused Boomer to incur significant delays and increased performance costs. Upon termination, Storrie had paid Boomer all but $20,000 of the $300,000. Boomer nonetheless claimed quantum meruit ‘for the reasonable value of the work done less the payments received’ prior to termination.[202]
At trial, the jury awarded Boomer $258,000 as ‘quantum meruit’. This award included the additional costs Boomer had reasonably incurred in performing its side of the bargain due to Storrie’s continuing breaches, an award for what would now typically be described as ‘consequential loss’ for breach of contract. That this award included such additional costs has been well appreciated in the United States. As Feldman writes:
[T]he trial court granted Boomer a judgment in rescission and restitution for an additional $258,000 for the market value of his extra labor and materials, which was the difference between Boomer’s costs attributable to Storrie’s delays and other interferences and what Storrie had already paid this subcontractor.[203]
An explanation for why the award was expressed as being for ‘quantum meruit’ despite exceeding the objective value of the work performed appears to be that the Court assumed the necessity of an election between damages and quantum meruit, stating that:
It is well settled in California that a contractor ... prevented from performing [their] contract by the failure of the other party to furnish materials has a choice of three remedies: [They] may treat the contract as rescinded and recover upon a quantum meruit so far as [they have] performed; [they] may keep the contract alive, offering complete performance, and sue for damages for delay and expense incurred; or [they] may treat the repudiation as putting an end to the contract ... and sue for the profits [they] would have realized.[204]
In Australia and England, a claimant has routinely been described as being faced with an ‘election’ between damages and non-contractual quantum meruit. This is misleading. In reality, the claimant is entitled to bring concurrent claims to recover non-contractual quantum meruit and damages for certain consequential losses caused by the breach(es), subject to the rule against double recovery. Thus, suppose that in Mann, due to the Manns’ breaches leading up to the contract’s eventual termination, the Builder had reasonably incurred additional costs in attempting to perform its side of the bargain. That following termination the Builder claims non-contractual quantum meruit, rather than damages designed to substitute for the lost performance,[205] does not preclude it from recovering such costs via a damages claim(s) for the Manns’ breach(es) of contract,[206] provided that the recovery of such loss was not precluded by some other limiting doctrine.[207]
More significantly, it may also be possible for the builder to recover certain consequential losses flowing from the contract’s termination, rather than simply from breaches preceding termination, in addition to recovering non-contractual quantum meruit, provided double recovery is prohibited. Examples of such consequential loss are damage to the builder’s reputation or market share due to the contract’s termination, provided this loss was not too remote.[208] Properly restoring the builder to the position it was in prior to the parties’ conditional agreement would require compensating such loss, as would putting the builder in the position it would have been in ‘but for’ the breach.[209] Recognition that damages and non-contractual quantum meruit are remedies that may both successfully be claimed in the same action provided double recovery is excluded[210] substantially removes the possibility that imposing a contractual ceiling will produce injustice.
In response to the argument just made, one might point to cases where the builder has made a ‘bad bargain’. This situation may arise (at least) when: (1) the builder deliberately (or negligently) underprices the work; or (2) the market value of the services provided has increased since the contract was made.[211] Like Gageler J, we are generally unsympathetic to the builder in the first scenario, particularly where the builder is concerned to provoke the principal’s later repudiation. However, one undoubtedly rare (but theoretically significant) situation where imposing a contractual ceiling is arguably unjustifiable is where a builder clearly establishes that the contract price does not reflect the parties’ agreed valuation of the completed work.[212] An example of this situation is where, with the principal’s knowledge, the builder undertakes to complete the work for substantially less than its market worth because it has some legitimate reason for doing so, such as using the completed work to generate
future business.[213]
It is also arguable that in the second scenario the ‘fair’ value of the work performed by the builder should be determined by reference to its market value at termination rather than the contract price. But the imposition of a ‘contractual ceiling’ is preferable here provided that a concurrent claim for any additional, recoverable ‘consequential loss’ is available. For Gageler J, a ‘contractual ceiling’ on recovery here is logically entailed by his preferred doctrinal analysis of the claim.[214] But this result can again be otherwise justified because the contract price normally reflects the parties’ agreed valuation of the work.[215] This explanation for imposing a ‘contractual ceiling’ also justifies normally imposing such a ceiling on non-contractual quantum meruit for work done under an unenforceable contract, as in Pavey.[216] It is unclear whether Gageler J’s rationalisation of the claim justifies this result.
As Gageler J observed, a further (and probably the most difficult) scenario where there is a possibility of a party recovering more as non-contractual quantum meruit in consequence of termination than would have been due had the contract been performed ‘is where the contract has been structured to allocate a higher proportion of the overall contract price to work performed at earlier stages for which the party has already accrued a contractual right to payment’.[217] In at least some such cases the service provider’s right to payment will not have accrued unconditionally because retention will be conditional upon further work being done.[218] But where, on the contract’s proper construction, the right to payment has unconditionally accrued, Gageler J’s concern is valid. His Honour’s suggested solution to the problem of the potential to recover more from termination than from completion was, as noted above, to ‘cap’ the amount awarded ‘by reference to the contractually agreed remuneration for those services’.[219] Yet it is not entirely clear whether his Honour saw this solution as applying where a higher proportion of the overall contract price is allocated to work performed at earlier stages[220] and, if it does, how it would apply.[221] The correct approach in a case of this kind is one important unresolved issue arising from Mann.
Consider the following example: C contracts to build D a house. C must complete the work before payment is due. C completes half of the work before D repudiates. C accepts D’s repudiation and claims non-contractual quantum meruit without incurring any additional expenses in consequence of
D’s repudiation.
In this scenario, how does one determine the amount recoverable by C? The following possibilities (at least) arise:
1 The market value of C’s work;
2 The market value of the work subject to the contract price as a ceiling on recovery;
3 The reasonable amount C expended in doing the work (including C’s labour);
4 The difference in the value of D’s land before and after the work;
5 Half of the contract price;
6 The subjective value of C’s work to D;
7 The market value of C’s work unless D subjectively values the work at a lower value.
The plurality in Mann began their examination of the assessment of the Builder’s non-contractual quantum meruit claim by observing that, until the beginning of the 20th century, ‘the measure of restitutionary relief for work and labour done by an innocent party under an entire obligation in a contract terminated for repudiation was ... generally a pro rata proportion of the contract price’.[222] But following Lodder the sum recoverable came to be understood as ‘the objective value of the work and labour done, usually measured by reference to the reasonable cost of performing it’.[223] If the reference to ‘cost’ here is taken to include the value of the Builder’s labour, it is easy to see how the objective value of the work and labour done is identical to the reasonable cost of performing the work, since the difference between the price charged by the Builder for his work and any non-labour costs incurred equals the Builder’s profits, which is equivalent to the cost (or market value) of the Builder’s labour.
In the plurality’s view, ‘where a contract is enforceable, but terminated for repudiation, there are no reasons of practicality and few in principle to eschew the contract price’.[224] Their Honours also said that there is
nothing about the termination of the contract as such that is inconsistent with the assessment of restitution by reference to the contract price for acts done prior to termination. The contract price reflects the parties’ agreed allocation of risk.[225]
While this reasoning does support the imposition of a contractual ceiling on non-contractual quantum meruit claims for partially-performed work, it does not explain precisely how to value such work. It cannot simply be that completing x% of the work always (or even generally) entitles the builder to x% of the contractually agreed price. If, as the plurality held, the purpose of non-contractual quantum meruit is to award the claimant the ‘fair’ or ‘reasonable’ value of the work done,[226] this approach would be problematic because the parties never bargained for a partial performance of their contract and the contract price is almost invariably influenced by the extent of the work contracted for.[227] Put another way, assessing a non-contractual quantum meruit by reference to the contract price on a pro rata basis will usually be a poor guide to the objective (or ‘fair’) value of the work. As the plurality explained, in Australia the objective value of something has generally been understood as equivalent to the price a ‘hypothetical willing but not anxious purchaser’ would be prepared to pay for it.[228] A similar approach has been taken in England where the objective value of services has recently been described as ‘the price which a reasonable person in the defendant’s position would have had to pay for the services’.[229]
A difficulty presented by partial contractual performances in this context is that there is generally no market for them. That being said, if one accepts that non-contractual quantum meruit aims to award the claimant the ‘reasonable value’ of the work done and such a method of quantification is equated with what a ‘hypothetical willing but not anxious purchaser of like services’ would have been prepared to pay, it will usually make sense to calculate that sum by reference to the sum the claimant, acting reasonably, has been saved by the incomplete performance,[230] at least in circumstances where completion of the work is feasible. If one posed the question to a reasonable ‘willing but not anxious purchaser’ of building work for an entire house what they would be prepared to pay for half of the work required to complete the house, generally they would conduct that assessment by reference to the expense saved on obtaining the completed house.[231]
In the final analysis two clear propositions emerge from Mann. One is that, for work performed by an innocent party for which it has an (enforceable) unconditionally accrued right to payment, that party cannot claim non-contractual quantum meruit as an alternative to debt. The other is that, in respect of work for which the innocent party has no unconditionally accrued right to payment in the alternative to claiming damages, that party is entitled to recover non-contractual quantum meruit.
As to the preferable doctrinal analysis for non-contractual quantum meruit in the second of these situations, the plurality’s approach was endorsed because only it provides a plausible normative explanation for the claim’s existence. The appeal of Gageler J’s more minimalist doctrinal analysis was nevertheless recognised. It was further argued that respect for party autonomy demands a contractual ceiling upon the law’s valuation of work forming the subject-matter of non-contractual quantum meruit claims in all but certain exceptional cases. Recognition that such claims may be combined with a claim for damages for additional, recoverable consequential losses was suggested substantially to remove the possibility of this creating injustice in cases like Boomer.[232]
One issue not thoroughly examined here is what Mann reveals about the relationship between the law of contract and ‘unjust enrichment’ in Australia. The answer to this is not straightforward and different interpretations of this relationship arguably emerge from the judgments. But the Court’s unanimous rejection of non-contractual quantum meruit claims as an alternative to debt and the holding of both the plurality and Gageler J that the sum recoverable as non-contractual quantum meruit may be affected by the contract price probably lends support to the idea that rights recognised by the law of ‘unjust enrichment’ are in some sense ‘subsidiary’ to contractual rights.[233] Properly understood, however, the relationship between contractual rights and rights to restitution might not be susceptible to a singular characterisation, particularly due to the possibility of different claims within the category of ‘unjust enrichment’ having different normative foundations.[234]
* Senior Lecturer, Sydney Law School, The University of Sydney.
† DPhil candidate, Faculty of Law, University of Oxford. The authors are grateful for the insightful comments they received on earlier drafts of this article from Professor Kit Barker, Lord Burrows, Professor William Gummow, Dr Fred Wilmot-Smith, Jack Pembroke-Birss and Jeff Goldberger. All errors remain ours.
[1] Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 (‘Pavey’). A similar position applies in Canada: see Deglman v Guaranty Trust Co of Canada and Constantineau [1954] SCR 725.
[2] We use the term ‘innocent party’ by convention but note that, in some of these cases, the party who terminates the contract may have committed certain minor breaches or have acted in a manner that comes close to constituting a repudiation of the contract.
[3] Robinson v Harman [1848] EngR 135; (1848) 1 Ex 850; 154 ER 363, 365 (Parke B).
[4] [2019] HCA 32; (2019) 267 CLR 560 (‘Mann’).
[5] Ibid 630–1 [175]–[176].
[6] This extension accords with the position now taken in England: see, eg, Barnes v Eastenders Cash & Carry plc [2014] UKSC 26; [2015] AC 1, 42 [107]–[108] (Lord Toulson JSC) (‘Barnes’).
[7] [1934] NSWStRp 7; (1934) 34 SR (NSW) 67, 72 (‘Segur’), discussed in Mann (n 4) 594–6 [70]–[74].
[8] [1939] NSWStRp 35; (1939) 39 SR (NSW) 305, 317, 319 (‘Horton [No 2]’), discussed in Mann (n 4) 595–6 [71]–[74]. See also Horton v Jones [1934] NSWStRp 32; (1934) 34 SR (NSW) 359 (‘Horton v Jones’).
[10] Another question arising in this context is whether all non-contractual quantum meruit awards following a ‘failure of basis’ fall within the category of ‘unjust enrichment’. The claims advanced here do not depend on the adoption of a particular answer to this question since our focus is principally upon which of the judgments in Mann (n 4) provides the best explanation of the non-contractual quantum meruit award in that case and how the contract price may affect that award. But it is doubtful that non-contractual quantum meruit awards following a ‘failure of basis’ differ in nature since all such awards probably derive in some way from the normative value of legally recognised, though not necessarily contractual, agreements: see Robert Stevens, ‘The Unjust Enrichment Disaster’ (2018) 134 (October) Law Quarterly Review 574, 585. In Australia, ‘unjust enrichment’ remains principally, and, perhaps exclusively, a ‘unifying’ taxonomical concept that refers to various specified instances in which the common law recognises a right to restitution: see, eg, Pavey (n 1) 256–7 (Deane J), cited in Mann (n 4) 596 [74] (Gageler J); Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516, 543 [70] (Gummow J) (‘Roxborough’). Whether ‘unjust enrichment’ only serves a taxonomical function in Australia is discussed (and doubted) in Kit Barker, ‘Unjust Enrichment in Australia: What Is(n’t) It? Implications for Legal Reasoning and Practice’ [2020] MelbULawRw 12; (2020) 43(3) Melbourne University Law Review 903. A possible practical implication of this more limited function for ‘unjust enrichment’ is that when non-contractual quantum meruit is sought in Australia it is doubtful that the claimant must independently establish that the defendant has been ‘enriched at the claimant’s expense’: see, eg, Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; (2014) 253 CLR 560, 594–6 [73]–[76], 596–7 [78] (Hayne, Crennan, Kiefel, Bell and Keane JJ).
Cf Samsoondar v Capital Insurance Ltd [2020] UKPC 33 [18]–[19] (Lord Burrows). If the justification for non-contractual quantum meruit for a ‘failure of basis’ relates principally to the parties’ (contractual or non-contractual) agreement that the claimant’s performance was conditional, if that condition fails, it is not clear why a claimant should also have to demonstrate that the defendant was ‘enriched at its expense’ to obtain non-contractual quantum meruit.
[12] Cf Eli Ball, ‘The Contraction of Restitution in the Twenty-First Century’ in John Eldridge and Timothy Pilkington (eds), Australian Contract Law in the 21st Century (Federation Press, 2021) 95–96.
[13] Mann (n 4) 608 [112] (Nettle, Gordon and Edelman JJ).
[14] Ibid 619–23 [151]–[160] (Nettle, Gordon and Edelman JJ, Kiefel CJ, Bell and Keane JJ agreeing at 573 [4], Gageler J agreeing at 591 [58]–[59]).
[15] A party to a contract will have an unconditional right to payment if the conditions upon which its entitlement to the payor’s payment depend have been satisfied. Not every accrued right to payment under a contract is unconditional. If, for example, A agrees to pay B $50,000 in advance in consideration for B building it a boat, at the time A’s payment obligation falls due but before B has built the boat, B will only have a conditionally accrued right to the sum. The reason is that a condition for B’s entitlement to the payment, building A a boat, is yet to have materialised.
[16] See, eg, Sumpter v Hedges [1898] UKLawRpKQB 53; [1898] 1 QB 673 (‘Sumpter’); Bolton v Mahadeva [1972] EWCA Civ 5; [1972] 1 WLR 1009. This is not to deny that in practice the great majority of building contracts are drafted such that they are ‘divisible into several entire stages’: Mann (n 4) 629 [174] (Nettle, Gordon and Edelman JJ) (emphasis omitted). Less commonly, building contracts may be drafted such that they are ‘infinitely divisible’: Steele v Tardiani [1946] HCA 21; (1946) 72 CLR 386, 401 (Dixon J), quoted in Mann (n 4) 628 [172].
[17] See, eg, Re The Continental C & G Rubber Co Pty Ltd [1919] HCA 62; (1919) 27 CLR 194, 202–3 (Isaacs and Rich JJ); Nguyen v Luxury Design Homes Pty Ltd [2004] NSWCA 178, [40] (McColl JA).
[18] Mann (n 4) 629–30 [174] (emphasis omitted).
[19] See, eg, Newfoundland v The Newfoundland Railway Co [1888] UKLawRpAC 7; (1888) 13 App Cas 199.
[20] Paterson Constructions Pty Ltd v Mann (Building and Property) [2016] VCAT 2100, [2]–[4] (Senior Member Walker) (‘Mann VCAT’).
[21] Strictly speaking, every ‘defective’ contractual performance is also ‘incomplete’ as some part of the promised performance has not been undertaken in the time promised.
[22] Parts of the Manns’ counterclaim succeeded: see Mann VCAT (n 20) [519], [528].
[23] Ibid [469]–[518]. See especially at [508]–[511], applying Sopov v Kane Constructions Pty Ltd [No 2] (2009) 24 VR 510 (‘Sopov’).
[24] Mann v Paterson Constructions Pty Ltd [2018] VSC 119, [87] (‘Mann Supreme Court’).
[25] Mann v Paterson Constructions Pty Ltd [2018] VSCA 231, [150] (Kyrou, McLeish and
Hargrave JJA) (‘Mann Court of Appeal’). Of particular significance in that decision was the Court’s conclusion that departure from the holding in Sopov (n 23) that the contract price does not operate as a ceiling on the sum recoverable was a matter for the High Court: Mann Court of Appeal (n 25) [92], [95]–[97]. It appears that in the Supreme Court and the Court of Appeal it was not argued that the Builder’s unconditionally accrued right to payment in respect of category (2) work barred any claim by the Builder for non-contractual quantum meruit in respect of this work.
[26] Mann (n 4) 619–23 [151]–[160] (Nettle, Gordon and Edelman JJ, Kiefel CJ, Bell and Keane JJ agreeing at 573 [4], Gageler J agreeing at 591 [58]–[59]).
[27] The term ‘elect’ is not entirely apt to describe the choice a claimant has in such a case. The reason for this is explained further below.
[28] Mann (n 4) 590 [53] (Kiefel CJ, Bell and Keane JJ), 592 [62]–[63] (Gageler J), 630–1 [176]–[177] (Nettle, Gordon and Edelman JJ).
[29] Ibid 606 [105] (Gageler J); 630–1 [176]–[177] (Nettle, Gordon and Edelman JJ).
[30] Ibid 605 [102].
[31] Although we use the more conventional terminology of ‘termination for repudiation’, we note that it is probably more accurate to refer to ‘termination after repudiation’ for the reasons identified in Frederick Wilmot-Smith ‘Termination after Breach’ (2018) 134(2) Law Quarterly Review 307.
[32] Mann (n 4) 607 [110] (emphasis added).
[33] See Read v Rann [1830] EngR 311; (1830) 10 B & C 439; 109 ER 513, where Parke J said ‘where a special contract has been made for goods, and goods sent, not according to the contract, are retained by the party, there a claim for the value on a quantum valebant may be supported’: at 514.
[35] Ibid.
[36] Ibid 619 [150].
[37] Ibid (emphasis added). For further consideration of this sort of claim, see Andrew Kull, ‘Restitution as a Remedy for Breach of Contract’ (1994) 67(6) Southern California Law Review 1465.
[39] Ibid.
[40] [1904] UKLawRpAC 38; [1904] AC 442 (‘Lodder’).
[41] [1831] EngR 722; (1831) 5 Car & P 58; 172 ER 876 (‘Planché’).
[42] [1853] EngR 648; (1853) 8 Ex 822; 155 ER 1586 (‘De Bernardy’).
[43] See especially Renard Constructions (ME) Pty Ltd v Minister for Public Works (NSW) (1992) 26 NSWLR 234 (‘Renard Constructions’); Iezzi Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd [1994] QCA 49; [1995] 2 Qd R 350; Sopov (n 23).
[44] Mann (n 4) 627 [168]. Their Honours also stated that ‘it is now recognised that restitutionary obligations are imposed by operation of law in response to circumstances including the retention of a benefit received on a basis which has totally failed to materialise’: at 635 [188].
[45] See, eg, Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] 1 WLR 1752, 1774 [43] (Lord Scott) (‘Cobbe’); Barnes (n 6) 41–4 [103]–[115] (Lord Toulson JSC); Peter Birks, An Introduction to the Law of Restitution (Clarendon Press, rev ed, 1989) 226–34 (‘Introduction’); Andrew Burrows, The Law of Restitution (Oxford University Press, 3rd ed, 2011) 346–50.
[46] See, eg, Mann (n 4) 597–8 [77]–[79] (Gageler J); Peter Jaffey, The Nature and Scope of Restitution: Vitiated Transfers, Imputed Contracts and Disgorgement (Hart Publishing, 2000) 42–58; Ian Jackman, The Varieties of Restitution (Federation Press, 2nd ed, 2017) ch 6.
[47] Mann (n 4) 630 [175]. As the plurality recognised, and, as discuss below, part of the problem here is the confusing terminology used in this area of the law.
[48] When a contract is divisible into several entire stages, work may be understood as being ‘partially completed’ whenever it is insufficiently complete to earn an unconditionally accrued right to the agreed counter-performance for that entire stage of the work.
[49] Mann (n 4) 637 [192] (emphasis added).
[50] Ibid 638 [193], citing Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4; [1943] AC 32, 48–9 (Viscount Simon LC), 72 (Lord Wright), 53 (Lord Atkin), 56 (Lord Russell), 82 (Lord Porter) (‘Fibrosa’); David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353, 382 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ) (‘David Securities’); Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344, 350–1 (Mason CJ, Brennan J agreeing at 367,
Toohey J agreeing at 383), 376 (Deane and Dawson JJ), 389 (McHugh J) (‘Baltic Shipping’).
[52] As we explain below, if ‘failure of basis’ provides the best doctrinal explanation for the Builder’s right to restitution, the condition that failed is better understood as the failure to permit the Builder an opportunity to earn payment under the contract, rather than the Manns’ failure to counter-perform their dependent obligation: see below Part V(B)(1).
[53] Mann (n 4) 637–8 [192] (emphasis added).
[54] Grouping these other kinds of cases together is certainly not to suggest that they should be treated identically. As Gageler J noted, each of these situations raises its own difficulties: ibid 598–9 [81].
[55] See Jackman (n 46) 118, discussing Renard Constructions (n 43) 277 (Meagher JA).
[56] Mann (n 4) 575–6 [8]–[9] (Kiefel CJ, Bell and Keane JJ).
[57] [1933] HCA 25; (1933) 48 CLR 457 (‘McDonald’), cited with approval in Johnson v Agnew [1980] AC 367, 396 (Lord Wilberforce).
[59] Mann (n 4), referring to ‘the implied contractual obligation of cooperation and the doctrine of anticipatory breach’: at 641 [198].
[60] Ibid.
[61] Ibid 641–2 [198].
[62] Ibid 642–3 [199]. There, their Honours also said:
Whatever doubts might remain about the theoretical underpinnings of the doctrine by reason of the problematic nature of its origins or subsequent developments in the law of contract, it is too late now for this Court unilaterally to abrogate the coherent rule simply in order to bring about what is said to be a greater sense of theoretical order to the range of common law remedies.
[63] Ibid 646 [205], quoting Richard A Lord, Thomson West, Williston on Contracts (online at November 2020) §68:42.
[64] Renard Constructions (n 43) 278, quoted in Mann (n 4) 585 [35] (Kiefel CJ, Bell and Keane JJ).
[66] Ibid 607 [110]. After recognising that this approach may generate difficulties regarding ‘apportionment’ or ‘identifying’ the contract price, their Honours went on to consider the leading English authority on valuing services in a restitutionary context, Benedetti v Sawiris [2013] UKSC 50; [2014] AC 938 (‘Benedetti’): Mann (n 4) 646 [205], 647–8 [208]–[210]. Their Honours noted that Benedetti ‘accepted’ that the amount recoverable in a restitutionary claim for services may be limited by the subjective value of those services to the particular defendant: Mann (n 4) 647 [208]. The plurality nevertheless recognised that Benedetti (n 66) did not go so far as to impose a contractual ceiling on a restitutionary claim, though it was ‘supportive of the conclusion that the amount [recoverable] ... should not ordinarily exceed the contract price’: Mann (n 4) 650–1 [215].
[67] 24 P 2d 570 (Cal Ct App, 1933) (‘Boomer’). The significance of this case is considered further below in Part V(E).
[68] Mann (n 4) 651 [216] (emphasis added).
[69] Ibid 590 [53].
[70] Ibid 589 [51].
[71] Ibid 578–80 [14]–[21].
[72] Ibid 581 [23].
[73] Ibid.
[74] Note, however, that the risk in Roxborough (n 10) that the wholesalers would not in fact have to pay the tax that the parties’ contract contemplated would become due could reasonably be viewed as one that was simply left unallocated by the parties and, on that basis, the benefit obtained by the wholesalers in not having to pay this tax was left where it lay. In other words, it may be that the parties did in fact (implicitly) allocate the risk that the tax would not become payable by failing to make an express provision for it in their contract, as indeed Kirby J held in dissent: see Roxborough (n 10) 577 [165]. See also Roxborough v Rothmans of Pall Mall Australia Ltd [1999] FCA 107; (1999) 161 ALR 253, 263–4 [47]–[52] (Emmett J); Ralph Cunnington, ‘Failure of Basis’ [2004] Lloyd’s Maritime and Commercial Law Quarterly 234, 251–3. This aspect of
Kiefel CJ, Bell and Keane JJ’s reasoning also probably contradicts the decision in Giles v Edwards [1797] EngR 392; (1797) 7 T R 181; 101 ER 920. We thank Fred Wilmot-Smith for this observation.
[76] Ibid 584 [31] (emphasis added). As explained below, Gageler J appeared to hold the opposite view: at 601 [87]. See below n 85 and accompanying text.
[77] Ibid 590–1 [52].
[78] Ibid 584 [32].
[79] Ibid 602 [91].
[80] Ibid 599–600 [83].
[81] Ibid. Thus, Gageler J joined Nettle, Gordon and Edelman JJ in holding that the obligation to pay damages arises by operation of law rather than from the parties’ agreement, meaning this view received majority endorsement: at 638–9 [195] (Nettle, Gordon and Edelman JJ).
[82] Ibid 600 [84].
[83] Ibid 600 [85].
[84] Ibid 600 [86].
[85] Ibid 601 [87]. Note again that this is the opposite of what Kiefel CJ, Bell and Keane JJ held: at
584 [31]. At least part of the disagreement here may be attributable to the different approaches to the assessment of contractual ‘loss’ displayed by Bell and Keane JJ on the one hand, and
Gageler J on the other, in Clark v Macourt [2013] HCA 56; (2013) 253 CLR 1, 11–12 [27]–[28] (Crennan and Bell JJ), 20 [67] (Gageler J), 30–32 [106]–[110] (Keane J) (‘Clark’).
[87] Ibid 601–2 [88]–[89], citing Kull (n 37) 1472.
[88] Ibid 598 [79].
[89] Ibid 597–8 [78].
[90] Ibid 578–9 [81], citing Fibrosa (n 50) as an example.
[91] Mann (n 4) 599 [81]. As is explained below in Part V(B), we agree that these cases must be distinguished, but we argue that it is possible to do this within a ‘failure of basis’ analysis.
[92] Ibid 594–5 [70].
[93] Ibid 596 [73].
[95] Horton v Jones (n 8) 367.
[96] Mann (n 4) 596 [73], quoting Horton v Jones (n 8) 367. The basis for the restitutionary debt therefore appears to be something akin to a term implied in law that the parties may exclude: Mann (n 4) 599–600 [83].
[98] Ibid 602 [90].
[99] Ibid 604 [96].
[100] Ibid 602–4 [93]–[95], 606–7 [107], citing Cardozo CJ’s reasoning in Buccini v Paterno Const Co, 253 NY 256, 258 (NY Ct App, 1930) and noting that this is the position taken in the American Law Institution, Restatement (Third) of Restitution and Unjust Enrichment (2011) §38(2)(b). According to Gageler J, the contrary holding in Boomer (n 67) could be explained by the ‘adherence in at least some of the leading cases to the theory of repudiation rejected in McDonald’: Mann (n 4) 606 [106]. Gageler J also noted that his preferred approach appears to have been accepted as correct ‘in principle’ by Conolly J in the New Zealand Court of Appeal decision of Slowey v Lodder (1901) 20 NZLR 321: Mann (n 4) 605 [99].
[101] See Robinson v Harman (n 3) where Parke B said that, when assessing damages for breach of contract, the aim is to place the innocent party ‘in the same situation ... as if the contract had been performed’: at 855.
[102] As the plurality observed, the literal translation of ‘quantum meruit’ is ‘as much as [they] deserved’: Mann (n 4) 618–9 [150].
[103] Ibid 593 [67] (citations omitted).
[104] Ibid 636 [190].
[105] See PM Nienabar, ‘The Effect of Anticipatory Repudiation: Principle and Policy’ (1962) 20(2) Cambridge Law Journal 213; Jackman (n 46) 118.
[106] In our view, it is not possible to say with certainty whether all of these earlier decisions were ‘tainted’ by the rescission fallacy.
[108] Frederick Wilmot-Smith, ‘Contract and Unjust Enrichment in the High Court of Australia’ (2020) 136 (April) Law Quarterly Review 196, 197–8 (‘Contract and Unjust Enrichment’). Wilmot-Smith’s central point here can alternatively be expressed as an observation that the minority’s conclusion in Mann (n 4) is actually ‘inconsistent with Pavey ... [since] the builder in that case did have a contractual claim, albeit one that no court would enforce’: Wilmot-Smith, ‘Contract and Unjust Enrichment’ (n 108) 197. Thus, says Wilmot-Smith, the ‘logic of the minority should have led them ... to the view that contractors are always limited to contractual claims, regardless of enforceability’: at 198 (emphasis added), with the consequence that Pavey (n 1) was wrongly decided.
[110] Ibid 578–80 [14]–[20].
[111] As Gageler J (implicitly) observed, another difficulty with this view is that it fails to explain why the background right to damages for breach is part of what the parties bargained for, but the (assumed) background right to non-contractual quantum meruit is not: ibid 599–600 [83].
[112] See, eg, Lionel Smith, ‘Understanding Specific Performance’ in Nili Cohen and Ewan McKendrick (eds), Comparative Remedies for Breach of Contract (Hart Publishing, 2005) 221, who argues that Holmes’ famous statement should be read as a claim about the nature of law rather than about the nature of contractual rights: at 222. See also Joseph M Perillo, ‘Misreading Oliver Wendell Holmes on Efficient Breach and Tortious Interference’ (2000) 68(4) Fordham Law Review 1085; Mark DeWolfe Howe (ed), Holmes–Pollock Letters: The Correspondence of Mr Justice Holmes and Sir Frederick Pollock 1874–1932 (Harvard University Press, 1942)
vol 1, where Holmes wrote ‘I stick to my paradox as to what a contract was at common law: not a promise to pay damages or, etc., but an act imposing a liability to damages nisi’: at 177 (emphasis in original).
[113] See Oliver W Holmes Jr, The Common Law (Lawbook Exchange, 2005) 301.
[114] (2009) 236 CLR 272, 285–6 [13] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). See also Clark (n 85).
[115] See, eg, Robert Stevens, ‘Rights Restricting Remedies’ in Andrew Robertson and Michael Tilbury (eds), Divergences in Private Law (Hart Publishing, 2016) 159, 165; Smith (n 112).
[116] Wilmot-Smith, ‘Termination after Breach’ (n 31) 321–2 (emphasis in original).
[117] [1973] AC 331, 350.
[118] Ibid quoted in Mann (n 4) 640 [197] (emphasis added).
[119] Ibid 599–600 [83]. See also Kit Barker, ‘Unjust Enrichment: Containing the Beast’ (1995) 15(3) Oxford Journal of Legal Studies 457, 459–60.
[120] Mann (n 4) 627 [168]–[169].
[121] Ibid 596 [73], citing Jordan CJ’s analysis in Segur (n 7), Horton [No 2] (n 8) and Horton v Jones (n 8).
[122] William Blackstone, Commentaries on the Laws of England: Book III, ed Thomas P Gallanis (Oxford University Press, 2016) 159–63. See also Jackman (n 46) ch 2.
[124] [1760] EngR 713; (1760) 2 Burr 1005; 97 ER 676 (‘Moses’).
[125] Blackstone (n 122) 109 (citation omitted).
[126] See, eg, Peter BH Birks, ‘English and Roman Learning in Moses v Macferlan’ (1984) 37(1) Current Legal Problems 1, 18. Mitchell suggests that although Moses (n 124) ‘gave the action for money had and received a system and structure that it had previously lacked’ the doctrine ‘had been articulated as a ground of recovery by the late seventeenth century’: Paul Mitchell, ‘Artificiality in Failure of Consideration’ [2010] UQLawJl 13; (2010) 29(2) University of Queensland Law Journal 191, 197.
[128] See, eg, Martin v Andrews [1856] EngR 945; (1856) 7 El & Bl 3; 119 ER 1149.
[129] See, eg, Casson v Roberts [1862] EngR 1009; (1862) 31 Beav 613; 54 ER 1277. Cf Thomas v Brown [1876] UKLawRpKQB 74; (1876) 1 QBD 714, 722–3 (Mellor J), 723 (Quain J), where restitution was denied to the claimant because the defendant remained ready, willing and able to perform his side of the bargain, despite the contract being unenforceable.
[130] See, eg, Hicks v Hicks [1833] EngR 581; (1833) 9 Bing 748; 131 ER 795. It is arguable that the condition that fails where a payment of money is made pursuant to a void contract should be classified as a contingent condition.
[131] A condition for a ‘transfer of value’ does not have to be contractually agreed before it can constitute a condition for that transfer: see Roxborough (n 10) 525 [16] (Gleeson CJ, Gaudron and Hayne JJ). The idea that a condition for a ‘transfer of value’ does not have to be contractually agreed before it may create a right to restitution in the context of an enforceable contract is discussed in Timothy Pilkington, ‘Failure of Condition or Implied Term?’ (2021) 84(2) Modern Law Review 371. Precisely what must occur before a state of affairs can constitute a condition upon which performance is undertaken is not completely clear. The different views are collected in Frederick Wilmot-Smith, ‘Failure of Condition’ (DPhil Thesis, University of Oxford, 2013) 18–22.
[132] Birks, Introduction (n 45) 223.
[133] [1904] UKLawRpKQB 26; [1904] 1 KB 493.
[135] Ibid 48. Similarly, Lord Wright said ‘[t]he payment was originally conditional. The condition of retaining it is eventual performance [by the payee]. Accordingly, when that condition fails, the right to retain the money must simultaneously fail’: at 65 (emphasis added).
[136] [1989] 1 WLR 912, 923 (‘Rover’). This statement was made by Kerr LJ in the context of a claim to recover a series of pre-payments making doubtful that his Lordship intended to provide an exclusive definition of ‘failure of consideration’. See also David Securities (n 50) 382 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ).
[137] Birks, Introduction (n 45) 223–5. See also Peter Birks, ‘No Consideration: Restitution after Void Contracts’ (1993) 23(2) Western Australian Law Review 195, 208–14. Part of Birks’ motivation for this was that following the rejection of quasi-contract as an explanation for non-contractual quantum meruit it became necessary to provide a new explanation for such awards: at 224.
[138] Birks, Introduction (n 45) 226–7 (emphasis added). Birks goes on to say at 227:
Thus, if I pay money for a car which I never get, I can recover that money as paid for a consideration which has failed. If, vice versa, I transfer a car for money which I do not get, I must in principle be able to recover the value of the car on the same ground, since otherwise different law would apply without there being any sufficient reason for the difference. For on the second hypothesis nothing changes except the nature of the benefit: (emphasis added)
That there may be ‘sufficient reason for the difference’ is suggested below.
[139] Ibid 223–6.
[140] See, eg, Burrows, The Law of Restitution (n 45) 346.
[141] Cobbe (n 45) 1774 [43] (emphasis added), holding that ‘[i]n such a case the money paid, with interest thereon, could be recovered, together ... with a fee for the services’.
[143] See also ibid 42–5 [104]–[113].
[144] Roxborough (n 10) 557 [104], citing David Securities (n 50) 382 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ); Baltic Shipping (n 50) 389 (McHugh J); Goss v Chilcott [1996] AC 788, 797 (Lord Goff for the Court) (‘Goss’).
[145] Roxborough (n 10) 525 [16], citing Birks, Introduction (n 45) 223.
[146] We note that there is some debate over whether there is always a ‘transfer’ in the cases under consideration: see James Penner, ‘Value, Property, and Unjust Enrichment: Trusts of Traceable Proceeds’ in Robert Chambers, Charles Mitchell and James Penner (eds), Philosophical Foundations of the Law of Unjust Enrichment (Oxford University Press, 2009) 306, 311–12. That debate does not affect any claim put forward here and the word ‘transfer’ can readily be replaced with ‘conferral of a performance or benefit’.
[147] Fibrosa (n 50) 65. See also Watson & Co v Shankland (1871) 10 M 142, 152 (Lord Inglis P).
[148] See, eg, Rowland v Divall [1923] 2 KB 500; Guinness Mahon & Co Ltd v Kensington and Chelsea Royal London Borough Council [1999] QB 215; Benzline Auto Pte Ltd v Supercars Lorinser Pte Ltd [2018] 1 SLR 239, 262 [52] (Judith Prakash JA); Frederick Wilmot-Smith, ‘Reconsidering “Total” Failure’ (2013) 72(2) Cambridge Law Journal 414, 432–4.
[149] This terminology also now seems to be preferred by Burrows: see Andrew Burrows, ‘Conditional Intention as an Unjust Factor’ in Elise Bant, Kit Barker and Simone Degeling (eds), Research Handbook on Unjust Enrichment and Restitution (Edward Elgar, 2020) 345, 346. We are, however, sceptical of Burrows’ explanation of ‘failure of condition’ since, without further elaboration, it is not obvious to us why a transferee who is merely ‘aware or reasonably ought to be aware’ that the transferor intended a transfer to be conditional should be obligated to make restitution if that condition fails: at 347. As noted above, in our view, a more plausible explanation of ‘failure of condition’ is that the doctrine derives in some way from the normative value of legally recognised, though not necessarily contractual, agreements: see above n 10 and accompanying text.
[150] At least in respect of category (3) work: see above Part II.
[151] For a similar characterisation of the relevant condition, see Ben McFarlane and Robert Stevens, ‘In Defence of Sumpter v. Hedges’ (2002) 118 (October) Law Quarterly Review 569, who characterise the agreed condition as that ‘work is done in the expectation that it will be paid for when complete’: at 577 (emphasis in original). For a similar, but not identical, defence of Sumpter (n 16): see Timothy Pilkington, ‘Restitution for Partial Contractual Performances’ in John Eldridge and Timothy Pilkington (eds), Australian Contract Law in the 21st Century (Federation Press, 2021) 109–113.
[152] See Mann Supreme Court (n 24) [2] (Cavanough J).
[153] Mann (n 4) 629 [173] (citations omitted).
[154] It is possible that recovery in a case like Sumpter (n 16) might still be denied for other reasons. That this is unlikely to be how the plurality intended to characterise the condition that failed in Mann (n 4) is supported by the fact that this characterisation is in tension with the extra-judicial views expressed in James Edelman and Elise Bant Unjust Enrichment (Hart Publishing, 2nd ed, 2016) 268–70. In discussing Sumpter (n 16), Edelman and Bant say that ‘[b]ecause the builder did not render entire performance, and because the defendant did not prevent the builder from completing, the basis upon which the builder performed the work could not be said to have failed’: at Edelman and Bant (n 154) 268. This statement appears in the context of the authors considering the requirement that any ‘failure of consideration’ must be ‘total’ in order to ground a right to restitution. The explanation for this may be that, because the innocent owner did not deny the builder an opportunity to unconditionally earn the price in Sumpter (n 16), a condition upon which the builder’s performance was undertaken was satisfied so that any ‘failure of consideration’ here was not ‘total’.
[155] This is also consistent with Jordan CJ’s statement in Segur (n 7) 72 that
[w]here a wrongful repudiation has the effect of preventing the other party from becoming entitled to receive remuneration for services already rendered, which remuneration, according to the terms of the contract, he is entitled to receive only if the contract is wholly carried into effect, the innocent party, who has elected to treat the contract as at an end may, instead of suing for damages, maintain an action to recover a quantum meruit for the services which he has rendered under the contract before it came to an end.
This suggests that Gageler J’s analysis also supports this limit on quantum meruit claims, so that it can (arguably) be said to have received majority support: see Mann (n 4) 594–5 [70].
[156] [1961] UKHL 5; [1962] AC 413.
[157] Given that some uncertainty attends when a ‘legitimate interest’ will be found to exist, this further implication may place the innocent promisee in the unenviable position of not knowing whether they are entitled to recover non-contractual quantum meruit following a ‘failure of basis’. We suggest that if such borderline cases arise, the promisee should receive the benefit of any doubt. Alternatively, the condition that fails in these circumstances might be characterised as that the recipient of the work would not act in a manner that would entitle the performing party to discharge itself from the contract, which would remove the need to distinguish between cases where the performing party must accept the recipient's repudiation from cases in which acceptance of the repudiation is not mandatory.
[158] See Birks, Introduction (n 45) 229. Precisely what this genus encompasses has caused unjust enrichment lawyers considerable difficulty.
[159] This appeal might (arguably) be expressed in terms of ‘coherence’, but cf Mann (n 4) 598–9 [81] (Gageler J); Sullivan v Moody (2001) 207 CLR 562, 579–80 [50] (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ) (‘Sullivan’).
[160] The historical development of the present law is obviously the principal explanation for its current state. While we do not claim that the historical explanation for how current legal doctrine came to be can be ignored, we do claim that part of the role of ultimate appellate courts is to interrogate whether the present doctrinal position can now be rationally justified and, within reasonable limits, to alter these doctrinal positions when such rational justification is not possible.
[161] See, eg, Edelman and Bant (n 154) 267. See Kull (n 37) 1472.
[162] For example, when there is an entire payment obligation it may be reasonable to construe every payment (except a deposit) made in the performance of that obligation as being performed on a condition that, if it becomes impossible for the agreed return to be unconditionally earned by the payor, the money will not be retained by the payee. This explains why, in cases such as McDonald (n 57) where there is a partial performance of an entire payment obligation the repudiating purchaser is, provided the payments cannot be construed as a deposit, generally entitled to restitution for a ‘failure of basis’. In contrast, when there is an entire obligation to provide services, a partial performance of that obligation probably cannot reasonably be construed as performed on a condition that it becomes impossible for the service provider to unconditionally earn the agreed return for the performance of the services. This is principally because if a partial performance of an entire service obligation were provided upon this condition, any meaningful practical difference between entire and divisible service obligations would be eroded.
[164] Ibid 598 [79].
[165] Ibid, citing Sir Fredrick Jordan, Appreciations (Ure Smith, 1950) 58–9. To similar effect, see Roxborough (n 10) 543 [70] (Gummow J).
[166] We refer here in particular to the fact that while a repudiating party can generally recover for money paid on a condition that fails (see, eg, McDonald (n 57)), the same is not true for a repudiating party who provides services on a condition that fails (see, eg, Sumpter (n 16)).
[167] (1) Is the defendant enriched? (2) Is the enrichment at the expense of the claimant? (3) Is the enrichment unjust? (4) Is there a defence?: See, eg, Banque Financière de la Cité v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221, 227 (Lord Steyn); Investment Trust Companies v Revenue and Customs Comrs [2017] UKSC 29; [2018] AC 275, 290–1 [24], 294–6 [39]-[45] (Lord Reed); Samsoondar (n 10) [18]–[19] (Lord Burrows).
[168] See, eg, Peter G Watts ‘“Unjust Enrichment”: The Potion that Induces Well-Meaning Sloppiness of Thought’ (2016) 69(1) Current Legal Problems 289; Stevens, ‘The Unjust Enrichment Disaster’ (n 10) 576–7; Lionel Smith, ‘Restitution: A New Start’ in Peter Devonshire and Rohan Havelock (eds), The Impact of Equity and Restitution in Commerce (Hart Publishing, 2019) 91.
[169] Thus, despite the appeal of Gageler J’s analysis, particularly in providing a principled basis for the imposition of a contractual ceiling, it does not explain why the law imposes an obligation to pay ‘reasonable remuneration for the executed consideration’ that arose in the circumstances: Mann (n 4) 596 [73], quoting Horton v Jones (n 8) 367 (Jordan CJ). Unless an agreement to pay can be implied, the answer must be that not to do so would fail to remedy an injustice of some kind. Articulating the precise nature of this injustice is surely what the plurality’s ‘failure of basis’ explanation attempts to do.
[170] Indirect guidance as to what his Honour’s views are likely to be can be garnered from his wider reasoning that the ‘policy of the common law demands that the problem of distorted contractual incentives be addressed’: Mann (n 4) 602 [90]. Thus, it seems likely that his Honour would agree that Sumpter (n 16) was correctly decided.
[171] While the meaning of ‘coherence’ within Australian law is contested, our use of the term here is consistent with the main competing conceptions. For further discussion, see generally Andrew Fell, ‘The Concept of Coherence in Australian Private Law’ [2018] MelbULawRw 6; (2018) 41(3) Melbourne University Law Review 1160.
[172] See, eg, Samuel Stoljar, ‘The Doctrine of Failure of Consideration’ (1959) 75 (January) Law Quarterly Review 53; Edelman and Bant (n 154) 261–78; Charles Mitchell, Paul Mitchell and Stephen Watterson (eds), Goff & Jones: The Law of Unjust Enrichment (Sweet & Maxwell,
9th ed, 2016) ch 13.
[173] Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701, 728 (Lord Wright); Mackender v Feldia AG [1967] 2 QB 590, 601 (Diplock LJ); Kleinwort Benson Ltd v Glasgow City Council [1996] QB 678, 698 (Millet LJ).
[174] James Penner, ‘Promises, Agreements, and Contracts’ in Gregory Klass, George Letsas and Prince Saprai (eds), Philosophical Foundations of Contract Law (Oxford University Press, 2014) 116, 117.
[175] See, eg, George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1982] EWCA Civ 5; [1983] 1 QB 284, 304
(Oliver LJ); Cehave NV v Bremer Handelsgesellschaft mbH [1976] 1 QB 44, 71 (Roskill LJ). See also Daniel Friedmann, ‘The Performance Interest in Contract Damages’ (1995) 111 (October) Law Quarterly Review 628; Robert Stevens, ‘Damages and the Right to Performance: A Golden Victory or Not’ in Jason W Neyers, Richard Bronaugh and Stephen GA Pitel (eds), Exploring Contract Law (Hart Publishing, 2009) 171 (‘Damages and the Right to Performance’).
[176] We accept that this may be a stronger expression of the idea of ‘dependency between promises’ than is typical. If B’s duty to perform a contractual obligation is not conditional upon A first strictly or substantially performing one of its contractual obligations, B’s obligation is sometimes described as an ‘independent promise’. However, although two promises may be ‘independent’ in this sense, an ‘independent promise’ will sometimes be performed upon a promissory condition that may entitle the promisor to restitution if that condition fails. In these circumstances, it is apt to describe there being a relationship of ‘dependency’ between the ‘independent promise’ and the relevant promissory condition.
[177] There are different views on what precisely this entails, which need not detain us here. For further discussion, see David Winterton, Money Awards in Contract Law (Hart Publishing, 2015) ch 5; D Winterton, ‘Two Conceptions of the Performance Interest in Contract Damages’ D Campbell and R Halson, eds, Research Handbook on Remedies (Edward Elgar 2019) 130.
[178] That the performance cannot be returned in the same form it was provided in is why the situation is different from a simple payment of money. Given this practical limitation, the law acts as it generally does when such situations arise and does the ‘next-best’ thing. Precisely what response this calls for is something upon which legal scholars disagree, but the preferable view is that, perhaps subject to any relevant defences, what should be transferred back to the performer is the objective (market) value of the work provided.
[179] See Samuel Williston, ‘Rescission for Breach of Warranty’ (1903) 16(7) Harvard Law Review 465, stating that: ‘when a buyer buys a horse, warranted sound, the real thing [they are] after is a sound horse ... [they do] not want an unsound horse, worth half the money, and the difference in damages’: at 472.
[180] Mann (n 4) 601 [87]. Cf the opposing view of Kiefel CJ, Bell and Keane JJ: at 584 [31]. This disagreement about which claim is easier to prove actually supports the basic point here that the choice is best left to the claimant. It may be that which claim is easier to prove varies from case to case.
[181] See above n 155 and accompanying text.
[182] Mann (n 4) 592–3 [63]–[64].
[183] Ibid 582 [25]–[27] (Kiefel CJ, Bell and Keane JJ), 630–1 [176] (Nettle, Gordon and Edelman JJ).
[184] Fibrosa (n 50) 48 (Viscount Simon LC), 65 (Lord Wright); Baltic Shipping (n 50) 350–1
(Mason CJ), 389 (McHugh J); Goss (n 144) 797 (Lord Goff); Carbone v Metricon Homes Pty Ltd [2018] NSWCA 296, [10]–[13] (Meagher JA).
[185] Mann (n 4) 637–8 [192]–[193].
[186] For an examination of the controversy, see generally HK Lucke, ‘Specific Performance at Common Law: History and Present Nature of the Action for Money Due upon Simple Contract’ [1965] UTasLawRw 2; (1965) 2(2) University of Tasmania Law Review 125.
[187] As Edelman has observed, ‘[t]he order [to pay a debt] does not direct [the defendant] to do what [they] promised because the time for payment has passed’: James Edelman, ‘Money Awards of the Cost of Performance’ (2010) 4(2) Journal of Equity 122, 131.
[188] A similar point is made in Robert Stevens, ‘Private Law and the Form of Reasons’ in Andrew Robertson and James Goudkamp (eds), Form and Substance in the Law of Obligations (Hart Publishing, 2019) 119, 141–2.
[189] For reasons we outline elsewhere in this article, we claim that this is how the restitutionary claim should normally be valued: see below Part V(F).
[190] See Sullivan (n 159) 579–80 [50] (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ). Thus, as Gageler J explained, ‘[t]he continuing existence of a contractual right to payment, enforceable by an action in debt, leaves no room to recover payment by another action in debt on a non-contractual quantum meruit’: Mann (n 4) 592 [63].
[192] See Wilmot-Smith, ‘Contract and Unjust Enrichment’ (n 108) 197, quoting Fibrosa (n 50) 48 (Viscount Simon LC).
[194] At the risk of stating the obvious, this is because the service provider does not have the power to prevent the principal from ‘earning’ the services in the way that the principal has the power to prevent the service provider from earning (an unconditionally accrued right to) payment.
[195] Mann (n 4) 650–1 [215]–[216] (emphasis added).
[196] Ibid 602 [91].
[197] Ibid 601–2 [89].
[198] Ibid 651 [216].
[199] Given that the relationship between claims for damages and claims for restitution remains somewhat under-examined in Australian law, this may be at least part of what their Honours meant to make provision for by stipulating an ‘unconscionability’ qualification to the prima facie approach: ibid.
[200] Compare a claim for full ‘loss of bargain damages’, which cannot be combined with a claim for non-contractual quantum meruit, as is explained further in the text below.
[201] The point here is that the claimant cannot recover both the value of the partial performance received as non-contractual quantum meruit and the value of the lost performance via an award of damages because this would be to simultaneously place the claimant into the position occupied prior to contract formation and the position that would have been occupied had the contract been performed: see below n 210.
[202] Boomer (n 67) 572 (Dooling J).
[203] Steven W Feldman, ‘Rescission, Restitution, and the Principle of Fair Redress: A Response to Professors Brooks and Stremitzer’ (2013) 47(2) Valparaiso University Law Review 399, 449. See also Mark P Gergen, ‘Restitution as a Bridge over Troubled Contractual Waters’ (2002) 71(3) Fordham Law Review 709, 711.
[205] For the distinction between damages that substitute for performance and damages that make good ‘consequential loss’, see Winterton (n 177) ch 4; Stevens, ‘Damages and the Right to Performance’ (n 175) 171–2.
[206] For further consideration of this issue, see Baltic Shipping (n 50) 355, where Mason CJ quoted with approval the statement in GH Treitel The Law of Contract (Sweet & Maxwell, 8th ed, 1991) 834 that ‘[t]he true principle is not that there is any logical objection to combining the various types of claim, but that the plaintiff cannot combine them so as to recover more than once for the same loss’.
[207] For example, the ‘remoteness’ restriction or the ‘avoidable loss rule’ of mitigation.
[208] See, eg, Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145, 151 (Alderson B); Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653.
[209] This is what Adam Kramer describes as the ‘non-breach position’: Adam Kramer, The Law of Contract Damages (Hart Publishing, 2014) 14; Adam Kramer, ‘Contract Damages’ in William Day and Sarah Worthington (eds) Challenging Private Law: Lord Sumption on the Supreme Court (Hart Publishing, 2020) 73–4.
[210] The facts in Baltic Shipping (n 50) provide a neat illustration of this principle: see Baltic Shipping (n 50) 346–7 (Mason CJ). If a claim for restitution of the fare had actually been available on the facts, Dillon could not have recovered this and damages representing the value of the performance she was promised but not provided with. However, she could have combined either of these claims with one to recover damages for certain adverse consequences she suffered due to the breach. To similar effect, see Kit Barker, ‘Restitution of Passenger Fare’ [1993] (3) Lloyd’s Maritime and Commercial Law Quarterly 291, 295–6.
[211] Particular difficulty may arise if both of these scenarios arise on the same set of facts.
[212] We suggest that there should be a rebuttable presumption in the principal’s favour that the contract price does reflect the parties’ agreed valuation of the completed work, which can only be displaced by clear evidence to the contrary.
[213] We note that the recovery of damages for the loss of such future business profits as ‘consequential loss’ would generally be unlikely due both to the difficulty in proving such losses with sufficient certainty and because such losses would normally be too remote.
[214] If this motivated his Honour’s doctrinal rationalisation of the claim, a possible objection to such reasoning would be that it ‘puts the cart before the horse’. One’s view on this will depend on how one conceives of the relationship between rights and remedies in private law. Such an analysis would, for example, be inconsistent with the views in Ernest J Weinrib, ‘Two Conceptions of Remedies’ in Charles EF Rickett (ed), Justifying Private Law Remedies (Hart Publishing, 2008) 3.
[215] It might be objected that because the parties did not reach an agreed price for C’s partial performance that a restitutionary award exceeding the contract price is not inconsistent with any agreed valuation. But the fact that the contract price was $10,000 provides compelling prima facie evidence that the parties' agreed valuation of the work was also $10,000. This, however, is not to preclude the possibility that evidence may be adduced to show that the contract price was less than the parties agreed valuation of the work because, for example, part of what the builder bargained for was the entitlement to complete the work and obtain certain consequential, unpromised and possibly contingent benefits that may result from the work's completion such as, say, future business or reputational advantages. At least in the absence of evidence to the contrary, the parties’ prior agreement that the work was to be performed for $10,000 provides compelling evidence that the parties’ agreed valuation of the work was $10,000 and the contract’s termination does not negate this.
[216] Whether a contractual ceiling can be justified on non-contractual quantum meruit awards for work done under a void contract arguably depends upon why the contract is void. If, for example, the contract is void on the basis of non est factum so that the agreement is a nullity, a contractual ceiling seems unjustifiable. But if, by contrast, the contract is void because of a failure to comply with some statutory formality, subject to what has already been said, it should remain open for the court to conclude that the contract price agreed upon by the parties should provide a ceiling on any quantum meruit claim.
[218] If the service provider’s unconditional right to the price is conditional upon all of the work being completed, the obligation is ‘entire’. If the service provider’s unconditional right to part of the price is conditional upon some part of the work being done, the obligation to perform the work is divisible into entire stages. Again, it is important to emphasise that although a right to payment may have accrued, it does not immediately follow that that right is unconditional in the sense of not being conditional upon, for example, further work being done.
[219] Mann (n 4) 602 [91] (emphasis added).
[220] Note his Honour’s suggestion that capping the amount recoverable by reference to the contract price only ‘substantially’ eliminates the distorted incentives: ibid.
[221] Consider this example: C and D enter into a contract for the construction of ten townhouses by C at a price of $10,000,000. The contract states that D must pay $2,000,000 upon completion of the first townhouse and $2,000,000 upon completion of the second, with $750,000 to be payable upon completion of each townhouse thereafter. The contract expressly states that C shall have an unconditional right to each of the payments upon completion of each townhouse. Suppose that if C were to fully perform the contract it would earn a profit of $1,000,000. However, if C were to build only the first two townhouses and then half of the third, before accepting D’s repudiation, it would earn a profit of $1,200,000 plus non-contractual quantum meruit for the work on the third house. In such circumstances, it is not obvious how one would ‘cap’ the amount recoverable as non-contractual quantum meruit by reference to the contractually agreed price for those services in such a way that would remove the distorted incentives.
[222] This was described by their Honours as ‘truly quantum meruit — the amount earned’: Mann (n 4) 643 [201].
[223] Ibid 644 [202].
[224] Ibid 646 [205].
[225] Ibid. As noted in Part IV(A)(2), given the different ways in which the words ‘allocation of risk’ have been used, we suggest that these words could be helpfully replaced with ‘valuation of the completed work’.
[226] See, eg, Mann (n 4) 636 [190], 645 [204], 560–1 [215].
[227] See George E Palmer, ‘The Contract Price as a Limit on Restitution for Defendant’s Breach’ (1959) 20(2) Ohio State Law Journal 264, 276. Admittedly, the plurality do acknowledge this problem: Mann (n 4) 59 [205].
[228] Mann (n 4) 644 [202], citing Spencer v Commonwealth (1907) 5 CLR 418, 441 (Isaacs J); Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413, 436 [49]–[50] (McHugh J); Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5; (2008) 233 CLR 259,
275–7 [48]–[51] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ).
[229] Benedetti (n 66) 957 [17] (Lord Clarke JSC), quoting Benedetti v Sawiris [2010] EWCA Civ 1427, [140] (Etherton LJ). See also Benedetti (n 66) 982–3 [100] (Lord Reed JSC). In practice, the calculation of this sum has often been done by reference to the cost to the claimant of the work plus a reasonable profit margin: Cobbe (n 45) 1774 [42] (Lord Scott); AVM Lodder, Enrichment in the Law of Unjust Enrichment and Restitution (Hart Publishing, 2012) 81.
[230] This argument resembles one advanced in Burrows, The Law of Restitution (n 45) 52–3. However, Burrows’ argument is there addressed to the extent to which a defendant has been ‘enriched’ rather than to the sum recoverable as restitution for (the transfer of) a partial contractual performance.
[231] Given the inconvenience involved in finding and forming a contract with another builder to finish the work, the hypothetical reasonable purchaser, if asked at the time of contract formation, would probably only be prepared to pay less than the expense saved. However, the appropriate time to ask this question is at the time the condition the services were provided upon failed. In any event, we propose this approach to valuation as a basis for imposing a ceiling on what should be recoverable for non-contractual quantum meruit. This amount might conceivably be slightly reduced to reflect the wasted time and inconvenience involved in contracting with another builder. We also note that, to the extent one is concerned to compensate for these losses, the preferable way to do so is via a claim for additional, recoverable consequential loss caused by the builder’s breach.
[232] This understanding of the law might also explain certain other controversial authorities discussed by the Court in Mann (n 4): see, eg, Renard Constructions (n 43); Lodder (n 40).
[233] For a further discussion, see generally Ross Grantham and Charles Rickett, ‘On the Subsidiarity of Unjust Enrichment’ (2001) 117 (April) Law Quarterly Review 273. Cf Mat Campbell, ‘Doubting the Subsidiarity of Unjust Enrichment’ [2021] Lloyd’s Maritime and Commercial Law Quarterly (forthcoming).
[234] See Stevens, ‘The Unjust Enrichment Disaster’ (n 10).
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