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Pavey & Matthews Pty Ltd v Paul

(1987) 162 CLR 221, High Court of Australia

Overview

Pavey was a licenced builder and made an oral building contract with Mrs Paul to renovate a cottage; this was paid for in part ($36k was paid of $63k claimed to be due). Paul refused to pay the balance and, when Pavey demanded it, Paul claimed the contract was unenforceable. Paul relied on failure to comply with formalities (s 45 of the Builders Licensing Act required that, to be enforceable, a building contract must be in writing and signed). 

A question arose as to whether, even though the contract was unenforceable, a quantum meruit claim could be made independently of the contract.

The majority (Brennan J dissenting) found that a quantum meruit claim could be made and awarded the outstanding $27k claim. Justices Mason, Wilson and Deane held that the claim was not based on implied oral contract (which would be caught by the Act); in other words, it did not have its foundation in a promise to pay but rather Paul's acceptance of the work done by Pavey & Matthews.

Painter painting wall

 

Facts

Pavey was a licenced builder and made an oral building contract with Paul; this was paid for in part. However, Paul refused to pay the balance and when Pavey demanded it, Paul claimed the contract was unenforceable, relying on failure to comply with formalities (s 45 of the Builders Licensing Act required that, to be enforceable, a building contract must be in writing and signed). 

 

First instance

Pavey succeeded

 

Appeal (SC of NSW)

Paul succeeded on appeal

 

Judgment

Mason and Wilson JJ

On the issue of debt

An action for debt could not arise where the contract was not enforceable because of lack of compliance with formalities; this, they said, would constitute an action to enforce the contract.

Restitution

Their Honours agreed with Deane J, who held that an action for quantum meruit does not require proof of a contract, but is a claim to restitution arising as a result of (in this case) Paul accepting benefits from Pavey's performance. Such an action prevents Paul being unjustly enriched at Pavey's expense. Because the basis of the claim is ‘execution of work for which the unenforceable contract provided, and its acceptance by the defendant’, it does not involve enforcing the oral contract (although proof of such a contract might be relevant (eg, to prove the work was not intended as a gift)).

The purpose of the legislation in this case was to ‘protect the building owner against spurious claims by a builder by preventing the enforcement by him of nonconforming contracts.’ But, they held, this does not extend to cases where ‘the building owner requests and accepts the building work and declines to pay for it on the ground that the contract fails to comply with the statutory requirements.’ The consequences of such an interpretation would be ‘so draconian that it is difficult to suppose that they were intended. An interpretation that serves the statutory purpose yet avoids a harsh and unjust operation is to be preferred.’

Their Honours therefore provided relief based in restitution.

Brennan J

Discussed the ambiguity between the terms implied contract and quantum meruit.

[para 7] An understanding of the principles affecting the right to sue for the recovery of money due under a contract is impeded by an unhappy ambiguity in the use of the terms "implied contract" and "quantum meruit". Sometimes a contract is said to be implied when the contract is an actual, if tacit, agreement made by the parties; sometimes a contract is said to be implied when there is no actual agreement but the law imposes an obligation as though there were a contract between the parties. ... Correspondingly, quantum meruit is sometimes used to describe an action to recover a reasonable sum which is due under a contract and sometimes to describe an action to recover a reasonable sum when the obligation to pay it is imposed by law independently of actual contract. As we have seen, indebitatus assumpsit was first expanded to embrace an action of quantum meruit when a contract did not stipulate a fixed sum as the remuneration of the work to be done. Later it was expanded to embrace an action of quantum meruit in quasi-contract when an obligation to pay was imposed by law independently of contract. There is now as there was in the seventeenth century a manifest difference between implying in a contract a term to pay quantum meruit and imposing an obligation to pay quantum meruit independently of contract. The difference between an implied term (or, for that matter, an implied contract) and an imposed obligation is material, for the Statute of Frauds may affect an implied term or implied contract and bar a claim for relief based upon it but a quasi-contractual claim for relief is not affected by the Statute.

On obligations in quasi-contract his Honour stated:

[para 9] An obligation in quasi-contract, on the other hand, is imposed by law independently of contract and is founded ... "not in contract at all, but in restitution". A claim in quasi-contract is distinct from a claim for money due under a contract. The distinction between a debt arising out of contract - whether a fixed amount or a reasonable amount - and a quasi-contractual pecuniary obligation imposed by law independently of contract has not always been clearly drawn. ...

 

Justice Brennan would have dismissed the appeal:

[para 21] Apart from legal theory, the submission that a licence holder can sue for remuneration due under his contract with the building owner when s.45 declares that the contract is not enforceable against the building owner seems contrary to the plain words of the statute. If s.45 were held not to bar such an action to recover a debt due under the contract the section would have had little, if any, practical effect ... [the Act] precludes the arising of an enforceable debt. The contractual promise to pay is clearly unenforceable and there is no room, while the unenforceable contract is subsisting, for a quasi-contractual claim.

[para 22] [The Builders Licencing Act] precludes a licence holder from enforcing the obligations of a building owner under an unwritten contract between them to which that section applies whether or not the licence holder has executed the contract.

Deane J

Deane J allowed the appeal for substantially the same reasons as justices Mason and Wilson.

[para 13] ... The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.

[para 14] To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. ... That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case .... In a category of case where the law recognizes an obligation to pay a reasonable remuneration or compensation for a benefit actually or constructively accepted, the general concept of restitution or unjust enrichment is ... also relevant, in a more direct sense, to the identification of the proper basis upon which the quantum of remuneration or compensation should be ascertained in that particular category of case.

 

Dawson J

Allowed the appeal for different reasons.

[para 13] ... it will be apparent that I cannot, with respect, agree that an action upon a quantum meruit is an action upon an implied contract or, at all events, an implied contract which covers the same ground as an existing contract. Whether or not restitution, released from its abode in indebitatus assumpsit, would also support a claim in those circumstances is something which it was unnecessary to consider in order to decide that case as it is unnecessary in this case.

[para 14] It is for these reasons also that I have reached the conclusion that, were the plaintiff to succeed in its action in this case, the result would be, not the enforcement, directly or indirectly, of the contract, but the enforcement of an obligation which, whilst it arose from the performance of the contract, was separate and distinct from it. In reaching this conclusion I feel no need to regard the action in this case as one in quasi-contract nor do I think it should be so regarded. Otherwise, I am in agreement with the view of Mason and Wilson JJ. that s.45 of the Builders Licensing Act ought not to be construed as having any application and with the reasons which they give for that view. ...