Quantum meruit: remuneration where there is no contract

A well drafted contract can facilitate and contribute to a successful construction project. Ideally, contracts should be finalised and signed before any work is carried out on site. In practice, this does not always occur and is not always possible. This can have unfortunate consequences, particularly from the litigation perspective. It is not uncommon to encounter situations where work starts before the execution of a formal contract, and the anticipated contract never materialises. If the work performed by a contractor is not referable to any contract, how will the contractor be remunerated for its services?

The law of quantum meruit (non-contractual)

The law in this situation imposes an obligation on the principal to pay a reasonable remuneration for any work done pursuant to the principal's request. This obligation to pay a reasonable price is known as quantum meruit (non-contractual), which is founded upon the principle of restitution. The absence of a contract will not deprive the contractor from a reasonable remuneration for the work performed. British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 is a leading authority for this proposition.

Generally, the New Zealand Courts have taken a similar approach to British Steel Corp.[1] However, contrary to the English position where the concept of unjust enrichment is embraced as a doctrinal foundation of quantum meruit, the New Zealand law of non-contractual quantum meruit is not exclusively tethered to unjust enrichment.[2] The Court of Appeal in Morning Star (St Lukes Garden Apartments) Ltd v Canam Construction Ltd[3] acknowledged that the purpose of quantum meruit is not to force the defendant to disgorge some wrongfully obtained benefit on the basis of unjust enrichment, but to fairly compensate the plaintiff for the services provided. Miller J in Cassels v Body Corporate 86975 viewed that unjust enrichment could not fully account for quantum meruit and the defendant who accepts services knowing that the plaintiff expects to be remunerated is liable to pay a reasonable price whether or not the defendant was enriched (although the proof of enrichment or benefit obtained by the defendant may affect quantum).[4] Thus, in our jurisdiction, albeit the doctrinal basis of quantum meruit still remains unsettled, quantum meruit is not confined only to dispossessing those unjustly enriched but can also extend to providing redress for those who have been unjustly impoverished.

The recent High Court decision of Electrix Ltd v Fletcher Construction Co Ltd (No 2) provides a good overview of the basis of quantum meruit claims in New Zealand. In this case, Fletcher (as principal) engaged Electrix as its preferred electrical sub-contractor for the Christchurch Justice and Emergency Services Precinct project. The parties undertook and paid for electrical works on the project without agreement on contractual terms. There was an expectation that they would be able to reach agreement on the contract, but this never happened. Fletcher argued that there was a partly written and oral contract. It claimed that the contract incorporated standard terms and conditions of Fletcher's subcontractor agreement, and that Electrix accepted those terms during the meeting held on 13 April 2015.

The High Court concluded that there was no evidence to establish that Fletcher and Electrix intended their interactions at the 13 April meeting to be immediately binding upon them. Crucially, the essential terms remained inchoate.

Palmer J noted that there was no agreed contract value and the specification of the scope of works was merely “cursory at best”.[5] Accordingly, given Fletcher requested the services from Electrix, freely accepted those services and knew that the contractor expected to be reimbursed, Electrix was entitled to receive the amount deserved under non-contractual quantum meruit.[6]

It should be noted that the obligation to pay a reasonable sum for work done will not arise in all situations where the contract fails to materialise. Work done by a party for the purpose of putting itself in a better position to obtain and then perform an anticipated contract was not claimable in Regalian Properties plc v London Dockland Development Corp [1995] 1 All ER 1005.

How do you quantify a reasonable price?

In calculating the amount deserved under quantum meruit, the High Court in Electrix Ltd started from working out the costs of the services (or work) actually provided.[7] It is also relevant to consider the market value of the particular inputs used in the provision of the services at the relevant time and circumstances, as well as a market related profit margin. If the defendant can show that the actual costs incurred were more than what was reasonable in the market conditions at the time for the work undertaken, then the amount of quantum meruit will be reduced accordingly.[8]

It is worthwhile to note that the calculation method adopted in Electrix Ltd deviates from the approach taken in Cassels v Body Corporate 86975 (to some extent) and in the United Kingdom. In Cassels, Miller J viewed that the starting point was the market price of the services provided. Likewise, in the United Kingdom, the understanding that unjust enrichment underlies quantum meruit generally leads to a focus on the benefit conferred to the defendant. As a result, there is tendency to start with the market value of the services and adjust for the value of the services in the hands of the defendant.

On the outset, there seems to be no difference between the market value of the services and the actual costs of the services. However, the quantum calculated under each approach can vary significantly. For example, if certain work needed to be done several times (i.e. electrical wiring had to be rewired on multiple occasions), the costs of the services actually provided would be greater than the market value of the work done (once).[9]

Footnotes

[1]MacKenzie v Thompson [2005] 3 NZLR 285 at [11] and [12] per Rodney Hansen J

[2]Electrix Ltd v Fletcher Construction Co Ltd(No.2) [2020] NZHC 918 at [85].

[3] CA90/05, 8 August 2006 at [43].

[4]Cassels v Body Corporate 86975 (2007) 8 NZCPR 740 (HC) at [41].

[5]Electrix Ltd v Fletcher Construction Co Ltd(No.2), above n 2, at [57].

[6] At [86].

[7] At [97] and [98].

[8] At [98].

[9] At [97].

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