The term Quantum Meruit broadly means a reasonable remuneration for work done or goods supplied where there is no agreement as to price or where a contract never becomes binding or is later discovered to be void.
Where a Defendant Employer has been unjustly enriched by receiving a benefit in a case where there is no contractual agreement between the parties or where a contract has been frustrated, avoided or it has become unenforceable, the claim to be brought by the Contractor is one of Restitutionary Quantum Meruit.
In the Australian decision of Pavey and Matthews Proprietary Limited -v- Paul [1987] 61 A.L.J.R 151 the court ruled that for a Restitutionary Quantum Meruit claim to succeed there must be no contract in existence, the work must have been performed so that a benefit has been received by the other party which was not intended as a gift, and the benefit has been accepted by the other party at the expense of the Claimant Contractor.
The Pavey decision established that the party receiving the benefit should not be unjustly enriched at the expense of the other. The principle is that claims for Restitutionary Quantum Meruit in the construction industry can be made where the contract is void, repudiated, frustrated, unenforceable or is varied and it is to be valued.
There is a difference between a claim for Contractual Quantum Meruit and a claim for Restitutionary Quantum Meruit. A Contractual Quantum Meruit claim is one in which pursuit of payment is made under a contract which does not state how much will be paid to the Contractor. This is where the parties have not stipulated a rate for payment, where for example a variation for extra work is required at a reasonable price for the work done and the contract does not say anything about payment for variations.
Quantum Meruit will be relevant if it is found that the parties have:
(i) not agreed a contract or not agreed all the terms, including the price of the work, for example where a variation is required and is to be valued on the basis of a reasonable sum for the extra work to be carried out;
(ii) made an agreement to pay a reasonable sum for the work done; or
(iii) agreed a scope of work under the original contract and the work falls outside that scope and the parties did not have or did not use a variation procedure in the contract,
Keating on Building Contracts 9th Edition at paragraph 4-020 at pages 117, 118 and 119 describes the circumstances where there may be an entitlement to a reasonable sum as follows :-
(i) There is an express agreement to pay a reasonable sum,
(ii) There is no fixed price, namely where work is done under a contract express or implied and no price is fixed by the contract, there is an entitlement to be paid a reasonable sum for labour and materials supplied pursuant to an implied term. In this respect the Claimants rely upon Section 15 of the Supply of Goods and Services Act 1982.
(iii) There is a quasi contract, which may occur where there is failed negotiation, whereby work is carried out while negotiations as to the terms of the contract are proceeding but agreement is never reached upon essential terms,
In British Steel v Cleveland Bridge [1984] 1 All ER 504, at 509 to 511 it was decided that:
(i) while parties are negotiating a contract under which they will, if the contract is concluded, enter into reciprocal obligations binding each other as to future performance, it is highly unlikely that by conduct they will have established the terms on which a Contractor will be paid while the contractual terms are still being negotiated.
(ii) It is more likely that they will have entered into what Robert Goff J referred to as an “if” contract, that is a contract, that is a contract under which if one party supplies, the other agrees to pay a reasonable remuneration.
(iii) even an “if” contract will not have been entered into if important terms such as those relating to standard of performance, are still under negotiation, and in such cases the proper answer is that no contract has been concluded, but a restitutionary claim for payment will be available to the Contractor because the Employer has been unjustly enriched by having had the work done.
In Bendetti -v- Sawaris [2010] EWCA Civ 1427 the Court of Appeal confirmed that when compensating the Claimant for the value of the benefit received by the paying party, the court should look to the “market value” of that benefit. The court ruled that there was no distinction between an abandoned agreement and one that simply failed for some technical reason to become binding on the parties. In the absence of any prior agreement on price in the context of other communications between the parties, the court should rely on expert evidence on market value. Mr Benedetti claimed damages by way of restitution for the unjust enrichment of the value of the work. Overall what mattered was the market value (or range of values) and not simply what was “reasonable”, although reasonableness might come into the exercise of the discretion as to where in the range of market values the quantum meruit should be fixed.
Restitutionary claim
For the Contractor it is important to be aware that even though a contract has not come into existence or the contract between the parties is or becomes unenforceable, the obligation to pay for the work done or goods supplied will be by way of restitution, not for breach of contact. In the case of services where the benefit takes the form of the end product of the services that end product must be valued. Where the benefit takes the form of the services themselves then it is the value of the services that must be valued, on the basis of the reasonable value of the services at the time at which they were rendered.
In Kleinwort Benson Ltd -v- Lincoln CC [1992] 2 AC 349 it was decided that it is necessary to establish that the Defendant has been unjustly enriched, including where the benefit has been transferred at his own request or that the Defendant may have been enriched as a result of his own wrongdoing. The burden of proof of causation in claims for restitution is lower than in the claims for damages in that if the Claimant’s own carelessness contributed to the enrichment this will not mean that the enrichment is unjust (Gibb -v- Maidstone Tunbridge Wells NHS Trust [2010] EWCA Civ 678).
Claimants can pursue a claim for Quantum Meruit in the event that the court concludes that negotiations have failed and work was carried out whilst negotiations as to the terms were ongoing but agreement was reached upon the key terms in accordance with the principles contained in British Steel -v- Cleveland Bridge [1984] 1 AER 504. In these circumstances the contractor is entitled to be paid a reasonable sum for the work outside the contract.
Repudiation by the Employer
It is worth Contractors noting that if the work is only partly finished and there has been a repudiatory breach by the Employer, the Contractor can decide not to sue for damages but to instead make a Quantum Meruit claim. Repudiatory breaches of the Employer include an absolute refusal to carry out its part of the Contract, rendering completion of the works by the Contractor impossible, failure of the Employer to give the Contractor possession of the site or ejecting the Contractor from the site.
If the Claimant Contractor is unable to complete his duties under a contract, except at a loss, he may treat the contract as discharged by the repudiatory breach by the Employer and sue on a Restitutionary Quantum Meruit basis for the entire or partial cost of the work done. Where the contractor's rates are highly profitable it is obviously advantageous to claim damages for work done and loss of profit, but if the contract rates are low or uneconomic it may well be that a reasonable price for work done will be more advantageous, especially if a substantial amount of work has been done prior to the employer's repudiation. In another Australian decision of Sopov -v- Kane Constructions Property Limited (No 2) VSCA 141 (CA(Vic)) the court found that the contract had been terminated upon the Employer’s acceptance of the repudiation and that the Contractor was entitled to claim Quantum Meruit.
However, in order to take this course of action the Contractor must make his mind up early to accept the Employer’s repudiation of the contract and to make a claim for Quantum Meruit while the works have not been fully completed. In Morrison-Knudsen Company Incorporated v. B.C. Hydro and Power Authority [1978] 85 D.L.R (3d) 186 pp 224-235 the court decided that if the Contractor waits until after he has completed the works he will lose his right claim Quantum Meruit because the courts will find that he has affirmed the contract. Even if the Contractor does not become aware of the Employer’s repudiatory breach until after the works are completed then the Contractor loses the right to claim Quantum Meruit and he can only claim damages for the Contractor’s repudiatory breach of contract.
For the Employer the message is clear, if he does not agree the price for the works with the Contractor and he does not pay a reasonable sum for the works carried out by the Contractor he may end up counting the cost of this failure.
Anthony Philpott
11 August 2016
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