Introduction
A recent decision of the NSW Court of Appeal[1] revisits the thorny question of the obligation to pay for work completed in the absence of an agreed contract.
This is an issue that frequently arises in building matters, either in the case of variations that have been performed without the required paperwork, or where a contract is never finally agreed before the work commences.
Background
In 2007, Progressive Pod Properties Pty Ltd (“Progressive”) and A & M Green Investments Pty Ltd (“Greens”) each owned land on opposites sides of Old Sydney Road. They each obtained consents to develop their properties subject to them each paying half the cost of the construction of a roundabout in between. The Council said it would design and construct the roundabout and the parties would then be required to reimburse the Council.
Greens wanted to get moving with their development and decided that the Council was going to take too long to build the roundabout. Greens approached Progressive and said as the council was going to “take ages … we’ll have to do it.” Progressive replied “You might be right.”
Subsequently, the parties discussed whether a four way intersection would be a more cost effective way of achieving the Council’s access requirements. Progressive’s engineers then wrote to Greens saying that “both of our clients might be $25,000 better off with a roundabout … will leave it to you to check further.”
On 8 March 2007, Greens sent a copy of the proposed roundabout plans to the Council. The Council approved Greens’ plans. On 13 March 2007 Progressive’s engineer emailed Greens’ engineer saying “the roundabout looks OK to us.” In April 2007, there were further communications between Greens and Progressive as to the design of the roundabout.
Greens decides to start work
In June 2007, without any further consultation, Greens engaged a builder to construct the roundabout.
In August 2007, Progressive asked Greens for a modification to the design of the roundabout. Greens replied that council approval would be required for any such modification.
The roundabout was constructed by Greens’ builders during August and September 2007. In September, Progressive informed Greens that it intended to sell its property and that “the half share of the cost of the roundabout will be factored into the sale. We are not going anywhere.”
On 21 September 2007 Progressive sold its property. When Greens asked for half of the cost of building the roundabout, Progressive refused to pay.
Greens goes to Court
Greens issued proceedings in the NSW Supreme Court claiming its half share of the cost of construction. Greens claimed in contract, unjust enrichment, misleading and deceptive conduct, estoppel and equitable contribution.
The claim in contract failed – no agreement was found to exist. The claims in misleading and deceptive conduct and in estoppel were not pressed at the trial and also failed. The decision to not press these claims was due to the absence of any evidence that Greens had carried out the works in reliance on Progressive paying half of the cost. The element of reliance is an essential ingredient to claims for misleading and deceptive conduct and also to a claim that a party is estopped (prevented) from saying that it is liable to fulfil a promise.
However, the Court found that Progressive was liable to pay half of the cost of the roundabout on the basis that Progressive had been unjustly enriched by the construction of the roundabout. The sale price of Progressive’s land had been increased by the development approval which had in turn been made unconditional by the construction of the roundabout.
The Court said it would be unjust for Progressive to retain that enrichment and that is was obliged to pay half of the cost. The Court said that the conversations and correspondence gave rise to an implication that Progressive had requested that Greens carry out the work. The Court said that if it was incorrect in finding an implied request, Progressive’s “acquiescence in the work and acceptance of the benefit of the work” justified its finding.
Progressive appealed to the Court of Appeal.
The Appeal
A long line of cases have dealt with the principles of restitution for unjust enrichment and the decision of the Court of Appeal does not markedly vary the law. However, it appears likely that the requirements for finding that work has been requested may have broadened.
The appeal examined carefully whether the Judge’s findings as to an implied request were justified.
This is an area of the law where factual shades of grey abound. The Court of Appeal found that Progressive had not expressly, or by implication, requested that Greens construct the roundabout. The Court said that the discussions as to the design of the roundabout were to be distinguished from a request that the work be performed.
The alternative basis for the Judge’s finding that Progressive’s acquiescence in the work made them liable, was also found to be erroneous. The Court did not express a view as to whether the often quoted remark that “a request will be generally implied where the defendant has notice of the payment being made for him, and does not dissent”[2] is correct. However it said that in this case, Progressive did not have “notice of the payment being made for it.” Rather, the Court said Greens had decided to build the roundabout for reasons of its own.
The absence of reliance by Greens on any conduct of Progressive was fatal to their alternative claims. This absence of reliance extended to support the Court’s view that no request should be implied.
Progressive’s appeal was granted and they were not obliged to pay for half of the cost of the roundabout.
Conclusion
The principles set out in this case apply to work performed by a builder for an owner. Where work is performed in the absence of a contract, or variations are performed in the absence of following the agreed contractual mechanism, it is not certain that the builder is entitled to be paid.
If a builder has performed work that is outside of the scope of the contract or there is no contract the builder can claim in quantum meruit on the basis of unjust enrichment. To succeed, the builder needs to establish that the owner requested the works and that the owner knew that the builder expected to be paid for the works.
In relation to variations under an existing contract, the builder needs to establish that the owner knew (or should have known) that the works were extra to the scope of the existing contract works.
To be certain as to entitlement to be paid and as to the quantum of the entitlement, a contract should be agreed prior to the performance of the works.
Contributor:
Tom Grace
