Quantum meruit

Nick Lane looks at quantum meruit and an important new case on valuation

Quantum meruit, one of a select bunch of Latin tags which do survive Woolf, is very much a live issue for contractors and employers. What does it mean? Put plainly, it means "how much he deserved" or "what the thing is worth". It's as simple as that. Or is it?

What is the legal basis of quantum meruit?

Most lawyers agree that the basis of quantum meruit is restitutionary. It provides compensation for work done outside the ordinary contractual framework. However, where there is a contract which provides no satisfactory valuation mechanism or which expressly provides for a contractor to be paid a reasonable sum certain commentators argue for the existence of a contractual form of quantum meruit.

In summary, there are two recognisable species of quantum meruit:

• "Contractual" which compensates contractors for work done under a contract with no adequate means of valuation or with no price fixed for the work. This includes situations where the contract makes express provision simply for payment of "a reasonable sum". Some lawyers and academics do not think this class of claims should be called quantum meruit because they are not grounded in restitution but in contract.
• "Restitutionary" which compensates contractors for work done where there is no contract. This includes work done in conjunction with a contract but not included within it, work done under a void contract and work done where contractual negotiations have failed.

What can you take into account in determining a reasonable amount?

There are no hard and fast rules about what you can or cannot take into account in determining a reasonable amount. However, the courts have provided some guidance:

Where a contract under which work has been performed is found to be void, can a court take into account the terms of a void contract?
No, as a matter of principle - Rover International v Cannon Film (1989). This is perhaps harsh as there is no reason in principle why a court should not have some regard to the price in a contract that is void where it is void for reasons unconnected with the pricing provisions.

Can a court take into account other evidence?
Where appropriate the court may take into account a variety of different materials in determining a reasonable amount including:

• Abortive contractual negotiations as to price - Way v Latilla (1937).
• Prices for similar work in a related contract - Banque Paribas v Venaglass Ltd (1994).
• Expert evidence as to the value of work performed may be taken into account, although it is not necessary and such evidence need not be given by an independent expert. So, for example, a contractor may put forward opinion evidence as to the value of the work through one of his own surveyors - Lusty v Finsbury Securities Ltd (1991) - although a court may not give the same weight to such evidence.

Can a court have regard to the contractor's performance?
What employers want to know when faced with a quantum meruit claim is whether they can reduce the price of the work done if the contractor's performance gives rise to claims by other contractors or third parties, e.g. by delaying other contractors on site.

In Crown House Engineering Ltd v Amec Projects Ltd (1989) the Court of Appeal took a slantwise look at this point. Slade LJ formulated the "crucial question of law" as follows:

"On the assessment of a claim for services rendered based on a quantum meruit, may it in some circumstances (and, if so, what circumstances) be open to the defendant to assert that the value of such services falls to be reduced because of their tardy performance, or because the unsatisfactory manner of their performance has exposed him to extra expense or claims by third parties?"

Having identified the problem, the Court of Appeal neatly side-stepped it because it was only necessary for them to decide whether the first instance judge's orders under the old RSC Order 14 in favour of Crown were correct. The Court of Appeal allowed Amec's appeals. Slade LJ did say obiter that whether the contractor's performance should be taken into account is uncertain and "may depend on the facts of the particular cases", but he doubted the first instance judge's view that such matters cannot be taken into account. Bingham LJ professed himself "agnostic" on the point.

Although the answer is uncertain, where a contractor has interfered with other contractors' works who have in turn claimed against the employer, it would be open to the employer to argue that to avoid injustice the value of the contractor's quantum meruit should be reduced to reflect this.

Recent developments
In the recent case of Serck Controls Ltd v Drake & Scull Engineering Ltd (2000) the court was asked to consider the valuation of the design and installation works by Serck for a control system for Drake & Scull, the mechanical and electrical contractor on a project for British Nuclear Fuels Ltd.

The June 1994 letter of intent under which the work was carried out provided that if no contract was agreed Drake & Scull would "... reimburse [Serck] with all reasonable costs incurred ...". Since it was agreed by the parties that Serck were entitled to a quantum meruit, at the trial Judge Hicks QC was concerned purely with the assessment of a reasonable sum.

The basis of assessment
Drake & Scull argued unsuccessfully that Serck's entitlement should be assessed by reference to the value of the work to Drake & Scull. Judge Hicks referred to the rather strange use of the word "costs" in the letter of intent, but he held that the assessment should be made by reference to what would be reasonable remuneration for executing the work.

Relevant materials
Drake & Scull also argued that the tender price should be taken as the starting point for valuing the work. Judge Hicks, whilst acknowledging that the tender price may be of some evidential value, did not agree that it should form the starting point for assessment "first because that would be to treat it as contractual, which it is not, and secondly because there is no accessible specification, programme, terms and conditions to which it applied and from which departures can be priced".

Contractor performance
Drake & Scull made allegations against Serck of inefficient working and ineffective supervision. This tantalisingly promised to produce an answer to the Crown House conundrum. However, Judge Hicks, after reviewing the authorities, distinguished Crown House. He said: Crown House

• If the valuation is done on a cost plus basis, deductions should be made for time spent on defective works and inefficient working. If the valuation is done on a quantities basis, quantities attributable to the contractor were irrelevant to the basic valuation. "If such a claimant makes a claim based on extra time or expense which was in truth his own fault he should fail, but that is simply an issue of fact."
• "A second distinction is that between defects made good during the course of the work, ... , and those remaining at completion. There should clearly be a deduction for the latter, if pleaded and proved, whatever the mode of valuation, simply because the work as handed over is thereby worth less, ..."
• "The third distinction is between what I have called the 'basic valuation' which is the subject of the last two paragraphs, and matters which, even if expressed in terms of a 'reduction' or 'diminution' of the valuation, are in essence 'cross-claims' ... . They are in essence cross-claims because what the defendant seeks is in truth compensation for loss and expense suffered or liabilities incurred by reason of the claimant's conduct. ... "If that is the nature of such claims they must depend upon breach of some duty by the claimant, so the first question is as to the nature and extent of the duties owed, in the absence of express terms, when carrying out such work, and in particular duties as to progress and co-operation with other trades, for no breach of any other duty seems to be at all relevant here. There is clearly no duty to adhere to any particular contractual programme, for there is no contract, ..."

Judge Hicks did not think that Drake & Scull's allegations amounted to "cross-claims" in the Crown House sense and therefore he did not need to resolve the Crown House point.

Although Judge Hicks found that there was no duty on Serck to work in accordance with the contract programme, he was not persuaded that "a firm working on a quantum meruit basis on a complex construction site can wholly ignore the desirability of co-operation with others at work there." He continued:

"There must at least be a duty not unreasonably to interfere with the carrying out of other works, and I believe that, more positively, there is an obligation to be aware of the progress of other trades and, so far as consistent with the firm's own legitimate commercial interests, to co-operate in efficient working practices. There may also be more specific duties, for example in relation to compliance with health and safety legislation and the directions of persons having powers under it, ..."

Conclusion

Clearly, it is important that employers and contractors agree a valuation mechanism in advance of commencing work on site. Where this does not happen, Serck adds to the useful corpus of judicial guidance on the assessment of a reasonable amount. Although the fundamental question left open in Crown House remains unanswered, defective work and inefficient working by the contractor should be reflected in quantum meruit valuations. Contractors would also do well to take note of Judge Hicks's comments on their obligations whilst working on a quantum meruit basis.

For further information, please contact Nick Lane on [email protected] or on +44 (0)20 7367 3573.