The importance of due diligence & written contracts has again been emphasised in a recent NCATAP case featuring a somewhat messy situation between the Owners, Head Contractor, and Subcontractor.


The Case: Bao Long Guo t/as GD Brother Projects v GB Electrical Services Pty Ltd [2020] NSWCATAP 131

Appeal Panel: NSW Civil and Administrative Tribunal Appeal Panel (NCATAP)

The Act: Home Building Act 1989 (NSW)


Background

Bao Long Guo t/as GD Brother Projects (Builder) was engaged under a lump sum home building contract (Head Contract) by the homeowner. The Builder subcontracted GB Electrical Services Pty Ltd (Subcontractor) to undertake the electrical works contained in a written quote from the Subcontractor (Subcontract).

The Subcontractor completed the Subcontract works on the direction of the Builder, however, in addition to those works, the Subcontractor also completed works on the instruction of the homeowner directly. Those additional works were not advised to the Builder, and the Builder did not claim payment for them from the homeowner.

The Subcontractor invoiced the Builder for those additional works. The Builder denied liability to pay and the Subcontractor commenced proceedings in the NSW Civil and Administrative Tribunal claiming payment for the variation works on a quantum meruit basis. The Subcontractor was successful.

The Builder appealed.

Issues on Appeal

On appeal, the Appeal Panel considered two issues needed to be determined:

  • Was the Builder unjustly enriched by not paying the Subcontractor, meaning, did the Builder obtain the benefit from the additional works undertaken by the Subcontractor without paying the Subcontractor; and
  • Whether the Subcontractor was subsequently entitled to payment on the basis of quantum meruit.

Quantum Meruit

When assessing a claim for works on a quantum meruit basis, the Appeal Panel succinctly identified that:

[66] ‘In order to establish a claim in quantum meruit against [the Builder], GB Electrical must prove, on the balance of probabilities, that [the Builder]has obtained or accepted the benefit of work performed by GB Electrical so that the law recognises an obligation on the part of [the Builder] to make fair and just restitution to GB Electrical for that benefit.

The Appeal Panel found that as the Head Contract was lump sum and that it had not been varied to reflect the additional works, the Builder had not received the benefit of work performed by the Subcontractor (because they were not paid for those works by the homeowner) and the Subcontractor was thus not entitled to a claim in quantum meruit.

Accordingly, the Subcontractor’s claim in quantum meruit was unsuccessful and the appeal was allowed.

Takeaways

This case reiterates the importance of contractual due diligence for both head contractors and subcontractors.

For head contractors, it is important to have clear terms and conditions in contracts, and critically to have a subcontract with Subcontractors rather than simply relying upon quotes and invoices. In the current circumstances, a clause to the effect of ‘the subcontractor is only entitled to payment for works they are expressly instructed to undertake by the Builder’ in the subcontract could have prevented the Builder from being in this situation in the first place. Having a concise builder subcontract resolves most disputes on site.

For subcontractors, it is important to ensure that directions provided by homeowners are confirmed with the builder in writing, or alternatively, to have an agreement with the homeowner directly that entitles payment for their works.

Unsure of how your contract holds up in a situation like this? Get in touch with us at Morrissey Law for a contract review or proactive advice for your next project – Click Here.

 


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