Victorian Court of Appeal clarifies stage completion, wrongful suspension, and quantum meruit in domestic building contracts

The Victorian Court of Appeal has delivered an important decision for the residential construction sector in Singh v Ozzie Homes Building & Construction Pty Ltd [2026] VSCA 25 (Singh), overturning a County Court judgment that had found in favour of a builder on both a contractual progress claim and, in the alternative, on quantum meruit.

The decision reinforces strict contractual interpretation in domestic building disputes and serves as a cautionary tale for builders tempted to invoice ahead of true stage completion, or to down tools without following contractual suspension procedures.

Factual background

In January 2021, Mr Singh and Ms Kaur (the Owners) engaged Ozzie Homes Building & Construction Pty Ltd (the Builder) under a standard-form Victorian New Homes Contract to construct a new dwelling at Craigieburn (the Contract). The contract divided the works into stages, with progress payments payable upon completion of each stage as defined in Schedule 3.[1]

The project fell into dispute over delay and workmanship. In February 2022 and May 2022, the Builder issued a tax invoice and progress payment claim for $169,750 on the basis that the lock-up stage had been achieved.[2] The Owners refused payment, pointing to missing and defective items, most conspicuously, a plywood sheet in place of the front entrance door and the absence of the main garage roller door.[3]

The Builder suspended works and, in August 2022, sent the Owners a notice of termination of contract, purporting to terminate the contract on the basis of the Owners' breach for non-payment.[4] The Owners subsequently engaged a replacement builder.[5] In the County Court, the Builder sued for the stage payment and, alternatively, pursued a claim based upon quantum meruit. The trial judge found for the Builder on both limbs and dismissed the Owners' counterclaim. The Owners appealed.[6]

Key issues

The Court of Appeal distilled the matter into four core questions:

• whether lock-up stage had in fact been reached on 1 May 2022
• whether either party had validly terminated the contract and, if not, what the contractual position was
• if the Builder was not entitled to a contractual payment, whether it could nevertheless recover on a quantum meruit, and
• whether the Owners were entitled to any damages on their counterclaim.

Decision

The Court (McLeish and Lyons JJA and Nichols AJA) held that:

• the Builder had not reached ‘lock-up’ stage because external doors required by the contract had not been installed. A fixed plywood barrier was not considered to constitute a door, even a temporary one[7]
• ‘substantial’ or ‘95%’ completion of a divisible stage is not sufficient to trigger a progress payment entitlement under a stage-based contract[8]
• the Builder’s suspension of works for non-payment was itself wrongful, placing the builder in substantial breach of the contract and disentitling it from terminating the Contract or being characterised as an innocent party,[9] and
• because the Builder was the defaulting party, its alternative claim in quantum meruit failed. This is because it was not unconscionable for the owners to retain the benefit of incomplete works for which no contractual payment had fallen due.[10]

The Court’s reasoning

1.    Was the lock-up stage complete?

Schedule 3 defined ‘lock-up’ as the stage at which the home's external wall cladding and roof covering are fixed, the flooring is laid, and external doors and external windows are fixed, ‘even if those doors or windows are only temporary’.

The trial judge had accepted that the stage was complete, treating defective works as irrelevant to completion and relying on an expert's view that the works were ‘95% complete’.[11]

The Court rejected that approach as ‘erroneous’.[12] While the Court of Appeal held that a stage can be reached notwithstanding minor defects, it was found that it cannot be reached where a required element is missing altogether or where deficiencies are so significant that the work cannot, objectively, be described as complete.[13]

On the facts, no door, whether temporary or permanent, had been installed at the garage opening or the front door. The trial judge's characterisation of plywood sheeting as a ‘door’ was found to be factually wrong. It held that a door is a movable barrier for closing and opening a passage, whereas fixed plywood is not.[14] The Builder had boarded up the opening rather than install a door within the ordinary meaning of the word and could not unilaterally substitute the contractual requirement with something it preferred as ‘more secure’ or ‘practicable’.[15]

Importantly, the Court held that a divisible, stage-based contract does not admit part performance as the trigger for payment, and a builder cannot be entitled to payment or to invoice for a stage on the grounds that stage achievement is ‘close enough’. The obligation attaching to each stage is entire.[16] It was held that the ‘95% complete’ reasoning was inconsistent with the structure of the Contract.

The Court also clarified the scope of the observation in Cardona v Brown (2012) 35 VR 538 that some failures may be ‘borne of impracticality’. However, it was held that this observation does not give builders licence to ignore contractual requirements. That is, the impracticality of installation cannot displace the contractual definition of the stage.[17]

In determining whether a contractual stage is complete, the Court discussed how an assessment of degree with regards to the contractual definition and specifications, and the state of the work, may be necessary to establish completion.[18] Based on this, the Court highlighted that despite defects being in the work, a construction stage may be regarded as complete, and the contract considers this will be remedied at a later date.[19]

2.    Termination and the status of the contract

The Court held that on the evidence, neither party had validly rescinded the Contract.[20]

By suspending works in April/May 2022 in response to non-payment of an invoice that was not yet payable, the Builder placed itself in substantial breach of the contract (cl 43.1). It had not engaged the contractual suspension mechanism in cl 35.[21] Clause 42.4 in turn precluded a party in substantial breach from terminating for the other party's breach, so the Builder's August 2022 termination notice was not legally effective.[22]

The Court further rejected the finding that the Owners' 2 August 2022 email was repudiatory. Read in context and against the background of a layperson attempting to negotiate a resolution, it did not evince an unequivocal intention no longer to be bound.[23] Although the Owners later engaged a replacement builder, they had not proven that their election to treat the Contract at an end had been communicated to the Builder, and so therefore had not effectively terminated the Contract at common law.[24]

With no valid termination by either party, the Court inferred from the parties' conduct that they had mutually abandoned the Contract, as neither intended further performance.[25] We note however that the Court declined to imply any new agreement that the Owners would pay a reasonable sum for the work done as the Owners' consistent refusal to pay the disputed invoice made such an inference untenable.[26]

3. The quantum meruit claim

The Builder's fall-back claim in restitution also failed, as the Court reiterated that restitution requires more than the conferral of a benefit.  Moreover, the retention of that benefit by the defendant must in fact be unjust or unconscionable.[27]

The Court characterised the Builder, not the Owners, as the defaulting party. This was because the Builder had wrongfully suspended works, had failed to reach the lock-up milestone, and had purported to terminate the Contract on invalid grounds. The Owners had not prevented the Builder from completing but the Builder had stopped of its own accord. In such circumstances, the Court held it was not unjust for the Owners to retain the benefit of incomplete work for which no contractual payment had yet fallen due.[28]

The Court left open the possibility, in obiter, that contractual abandonment might in some circumstances ground an unjust enrichment claim, but not where the claimant is itself the defaulting party.[29]

4. The Owners' counterclaim

The counterclaim succeeded in part. The Owners recovered damages under clause 40 of the Contract for delay between the contractual completion date (15 November 2021) and the date of abandonment (9 August 2022), calculated at $250 per week, a total of $9,500.[30]  

Key Implications for builders

• Where a contract defines a stage by reference to specified works, the stage is not reached until those works are in place. An expert’s opinion that the works are ‘95%’ done is not a substitute for compliance with a stage requirement. Builders who invoice before every contractually specified element is physically present at the property therefore do so at the risk of being found to have rendered a wrongful invoice, with all of the downstream consequences that follow.
• Further, suspension must be exercised strictly in accordance with the contract. A builder who suspends work on the footing of non-payment of an invoice that is not in fact payable will itself be found to be in breach. That breach will ordinarily preclude the builder from terminating for the owner's failure to pay the invoice and will expose the builder to a damages claim.
• While the Court’s findings confirms that it will be necessary to ensure that all the elements of the relevant stage have been achieved by the builder, it is important to note that the Court accepted that a construction stage may be complete, even if there are defects in the work.[31] An assessment of degree, having regard to the contract and specifications, and the state of work completed, will be required when determining if the stage is complete.[32] In this context, the relevant stage may be complete notwithstanding that there are defects in the work, in circumstances where the relevant contract provides for defects to be addressed at a later time.[33] The decision is in this respect positive for builders but overall the Court adopted a strict approach to the assessment of stage completion, and expert advice that the stage was ‘95% complete’ was not sufficient.[34]
• The decision also reaffirms the limit on quantum meruit recognised in Mann v Paterson, namely that restitution is not a route around contractual allocation of risk where the claimant is the party whose default has prevented the contractual payment accruing. Owners who are left with partially built, defective works caused by the builder's own default are not, on that basis alone, unjustly enriched.
• Finally, where it is held that neither party validly terminates but both cease performance of obligations pursuant to the Contract, the Court will readily infer mutual abandonment, but a Court will not infer an agreement that the owner would pay a reasonable sum for the work completed in circumstances where the builder is found to be in breach. Whether there is any entitlement to payment for works completed within the relevant stage will be a separate question that depends heavily on the conduct of the parties to the dispute. Owners who have clearly, consistently and on reasonable grounds refused to pay an invoice will generally defeat any inference that there was an agreement to pay for work completed, as was the case here.

[1] Singh v Ozzie Homes Building & Construction Pty Ltd [2026] VSCA 25 at [1], [27] (Singh).

[2] Ibid at [48].

[3] Ibid at [1], [26], [41].

[4] Ibid at [62].

[5] Ibid at [63].

[6] Ibid at [3].

[7] Ibid at [6].

[8] Ibid.

[9] Ibid at [7]

[10] Ibid at [7].

[11] Ibid at [75]–[76], citing the trial judgment.

[12] Ibid at [90].

[13] Ibid at [91].

[14] Ibid at [95].

[15] Ibid at [95], [99].

[16] Ibid at [100]–[102], citing Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560 (Mann v Paterson).

[17] Ibid at [89], [95].

[18] Ibid at [101].

[19] Ibid.

[20] Ibid at [138].

[21] Ibid at [118]–[120].

[22] Ibid at [121], [124].

[23] Ibid at [129]–[133].

[24] Ibid at [137].

[25] Ibid at [138]–[139].

[26] Ibid at [140].

[27] Ibid at [144]–[146], applying Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 and Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635.

[28] Ibid at [152]–[153].

[29] Ibid at [153].

[30] Ibid at [167].

[31] Ibid at [101].

[32] Ibid.

[33] Ibid.

[34] Ibid [6].