What is Quantum Meruit?
Quite literally translating to “the amount he deserves”, quantum meruit is a form of restitutionary remedy where works have been performed in the absence of a contract or, where a contract is in place but the contract is silent on price. It is a concept which often said to straddle the boundaries between contract and restitution.
When does Quantum Meruit apply?
A good starting point is the Supreme Court decision in Benedetti v Sawiris [2013] UKSC 50 at 178 which asks:
- Has one party been enriched?
- Was that enrichment at the other party’s expense?
- Was that enrichment unjust?
- Can the enriched party rely on any defences?
Can you give me an example?
Party A asks Party B to build a house on its land. Party B agrees and proceeds to build a house. There is no contract between the parties. At completion, Party A now has a house which Party B has delivered at its own expense and in the absence of an express term for payment. Since the work carried out and material is now the property of Party A, which is fixed to its land, payment is the only practical solution to restore equity. Party B is said to be entitled to a reasonable sum for its labour and materials because it would be unjust to allow Party A to enjoy the benefit of a new house in return for no consideration.
The same can be said where work has been performed and completed during a period of negotiations that have ultimately failed to prevail. Referred to as an “if” contract by Lord Goff in British Steel v Cleveland Bridge[1], the party who has carried out the work is said to be entitled to a reasonable sum for the work it has carried out.
In the context of construction contracts, the contractor should be paid at a fair commercial rate for the work done.
You mention “reasonable sum” but how do I determine what is reasonable?
There are no finite rules in respect of assessing a reasonable sum. Inevitably, each case will turn on its own facts but there are some guidelines. The enrichment should be valued at the time it was received and the starting point is often to consider the objective market value of the services. If we apply this to our example above, we ask:
- What would a reasonable person, in the shoes of Party A, have paid to receive the services elsewhere?
- What would Party B have charged someone else, who is in the same shoes as Party A, for his services?
[1] [1984] 1 All E.R. 504
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So where do I get this information?
Negotiations
During negotiations, which despite genuine intentions did not materialise into any binding contract, a price may have been agreed. This can be compelling evidence of the relevant market value. Even more so where that price has been paid. In Ipswich Town Football Club v Suffolk Constabulary[1] the Court said that: – “[T]he price actually paid for services under the contracts in dispute reflects the best and most compelling evidence of market value……. The starting point must be that the price set at the time and reflected in the contract was a fair one”
Even pre-contractual negotiations can be used as evidence of market value or a reasonable price “if no trade usage assists the court as to the amount of the commission, it appears to me clear that the court may take into account the bargainings between the parties, not with a view to completing the bargain for them, but as evidence of the value which each of them puts upon the services”[2]
Estimates and quotes
These are not archetypal instruments for creating formal contractual relationships and can be interpreted widely by court, but they can be useful tools nonetheless. In Lachhani v Destination Canada (UK) Ltd[3] for example, the court considered that the price which a building contractor had estimated must be the upper limit of the price which he could reasonably claim to be entitled, even if at that price he would have ended up at an overall loss. The rationale behind that was that a contractor should not be better off as a result of a failure to conclude the contract. The estimate must have been illustrative of what the contractor held to be fair remuneration for his work and thus, indicative of the market value he would have charged elsewhere.
If an estimate uses intentional language like “approximate material” or “approximate labour”, the court may take the view that the ambiguity is purposeful, and the estimate or quote should only be used as an aide memoir. So, in Sykes v Packham (t/a Bathroom Specialist)[4], the court disregarded the estimate instead relying on the costs actually incurred by the contractor as the basis on which the reasonable price should be assessed.
Letters of Intent
Although a letter of intent ordinarily expresses an intention (not a liability) to enter into a contract in the future, they often indicate the commercial position of the parties and, can be valuable evidence of market value where no formal contract succeeds. In ERDC Group Ltd v Brunel University[5], the contractor tried to argue that a letter of intent was not a binding contract, that in any event the letter of intent had expired and along with it the price and valuation method, and that it should be paid the cost it had incurred. The court considered that there was no justification for a shift from the valuation rules in the letter of intent (which were the JCT rules) to one based on the contractor’s costs merely as a result of the letter of intent ceasing to exist. If such a price was reasonable before expiration, it does not simply become unreasonable after expiration. This was considered fair for the purposes of a quantum meruit assessment.
What if the other party valued my services at more than market value?
This is known as “subject revaluation” and is generally not accepted by the courts except in very exceptional circumstances. It is like a buyer who offers more than asking price on a house. The buyer’s desire for the house does not form a basis of assessing the market value of the house.
Any other factors I should consider?
In the context of construction contracts, there are other factors which are relevant to the assessment of reasonable price, for example, site conditions, additions for prolongation of the works, deductions for defective works and the conduct of the party carrying out the works. Of note, interest will be a matter of judicial discretion, be it the date from which interest will run or the applicability of statutory interest at all. Each case will turn upon its own facts.
What should I do to prepare my claim?
Whilst by no means an exhaustive list, we have outlined some helpful points to consider:
- there is no rule of law requiring expert evidence, but it is more often desirable to obtain an expert report than not, more so where there are delays, defects and disruption elements at play
- evidence in respect to unsuccessful negotiations on price will be useful, particularly for a market valuation assessment
- prices in related contracts can also be used to illustrate market value, provided of course that these are of similar size and scope
- calculations based on the net cost of labour and materials and assessment of overheads and profit will assist an adjudicator or court in determining a reasonable price
- measurements of work and material, alongside an expert opinion from a quantity surveyor, will also be valuable
Quantum meruit claims can be significantly complicated, requiring careful preparation and evidence before launching into adjudication and court proceedings. As specialists in construction law, we are equipped to guide our clients through the process, providing clear and detailed advice from inception through to litigation.
If you require any advice on the issues raised here, please do get in touch. We’re here to help.
[1] [2017] EWHC 375 (QB), [2] Way v Latilla [1937] 3 All ER 759 at [764], [3] (1997) 13 Const. L.J. 279, [4] [2011] EWCA 608, [5] [2006] EWHC 687 (TCC)
