Quantum meruit and its scope

Quantum meruit and its scope

The basic principle under English law for claims under quantum meruit is that the employer will have a duty to pay the fair value of or, reasonable remuneration for, the work performed. ADAM WEBSTER* compares the provision with the UAE Civil Code.

Quantum meruit entitlements arise most commonly in construction cases where there is no contract but work is undertaken in circumstances where it is clearly not being done for free.

In Latin, the phrase means “what the job is worth” and in essence, it allows a person to recover the value of work done or services performed in circumstances where he has conferred a benefit on someone else which justice requires should be repaid.

A typical quantum meruit claim might arise where work starts whilst the parties are negotiating contract terms but ultimately the parties have not agreed on the applicable rate that is to be paid to the contractor or fail to agree any contract at all.

Alternatively, where the work that has been carried out by a contractor with the employer’s consent or upon his instruction is so different from the scope of work envisaged in the original contract that a new contract has effectively been formed, the contractor may be entitled to claim a quantum meruit for the additional work done.

The law will not deny the contractor an entitlement to payment, and the basic principle in English law is that the employer will have a duty to pay the fair value of or, reasonable remuneration for, the work performed. Issues will inevitably arise, however, as to the appropriate basis for valuation.

It is often thought that quantum meruit valuations are highly advantageous to contractors and that invariably they will open the door to “cost plus” entitlement, that is the net cost of labour and materials used plus a sum for overheads and profit. In truth, there is a great deal of case law on quantum meruit with a range of different approaches having been taken. As HHJ Hicks held in Serck Controls v Drake & Scull Engineering Limited (2000) 73 ConLR 100:

“A quantum meruit claim may …arise… across a spectrum which ranges at one end from an express contract to do work at an unquantified price, which expressly or by implication must be a reasonable one, to work (at the other extreme) done by an uninvited intruder which nevertheless confers on the recipient a benefit which, for some reason, such as estoppel or acquiescence, it is unjust for him to retain without making some restitution to the provider … At the first end of the spectrum … the measure should clearly be the reasonable remuneration of the claimant; at the other, it should be the value to the defendant. In between there is a borderline, the position of which may be debateable.”

Clearly, this is an area of the law where judges in English courts have some discretion and results are by no means predictable. Indeed, the recent case of ERDC Group Limited v Brunel University (2006) 109 ConLR 114 usefully highlights the inherent uncertainties and risks which abound when contractors are entitled to be paid on a quantum meruit basis.

In short, ERDC successfully tendered for the design and construction of a new sports facility at Brunel University’s Uxbridge campus, but a delay in obtaining planning permission meant that Brunel had to instruct ERDC to commence work under a letter of intent.

This letter of intent was relatively lengthy and detailed and Brunel agreed to pay for any work that was done on the basis of certain valuation rules (which were to apply to the contract when signed). The letter authorised work to proceed for a stipulated period of time within which a formal contract was to be executed. Three more letters were to follow, each one extending further this deadline. During this period, ERDC had applied for payment on the basis of its tender rates and prices and applying JCT principles. After the expiry of the last letter of intent, no formal contract was in place, but ERDC continued to work.

In this case, the judge was satisfied that all the usual requirements for a contract were present until the expiry of the last letter (that is September 1, 2002) and so, as there had been a contract until then, ERDC was entitled to be paid in accordance with rates and prices determined under the valuation rules that had been incorporated into that contract.

From September 1, 2002 onwards, however, the contract was found not to apply, and so ERDC was entitled to be paid reasonable remuneration for the benefit that the university had received.

In assessing what would be a fair and reasonable sum, the judge agreed with a comment made by Brunel’s quantum expert that “a price or rate that was reasonable before September 1, in my opinion, does not become unreasonable after September 1 simply because the authority in the letter of appointment expires”.

The fact that ERDC’s tender was shown to have been commercial and close to others supported the conclusion that continuing to use ERDC’s rates and prices, in many instances, were fair. For certain other items, however, where works had been prolonged beyond the period contemplated by the rates and additional costs had been incurred by ERDC as a result, or if it were appropriate to do so under the valuation rules, the Judge held that “cost plus” should be the appropriate valuation method.

As this case illustrates, under English law the position is far from being clear cut and cost plus entitlement should certainly not be assumed as a given by the contractor. By comparison, therefore, the question presents itself whether the UAE law contains, within its codified civil system, any provisions that address the notion of quantum meruit in a more straightforward manner.

Article 888 of the UAE Civil Code (“the Code”) applies where the parties have not agreed remuneration and the issue of a contractor’s entitlement to a reasonable remuneration arises. In this regard, Article 888 provides that, if the consideration for the work is not specified in a contract, the contractor is entitled to ‘fair compensation’, together with the value of the labour and materials he has provided (that is a cost plus approach).

Article 887 of the Code provides that a contractor may not demand any increase over a contractually agreed lump sum. Although the contractor assumes the risk in such a case for any cost overrun in carrying out the agreed lump sum works, it should not necessarily preclude a contractor from claiming payment on a cost plus basis for authorised works which fall outside the original scope of lump sum works.

However, Article 887 then goes on to provide that if any variation or addition is made to the scope of works with the consent of the employer, the existing agreement with the contractor must continue to be observed.

Under UAE law, therefore, an entitlement to an increase price for lump sum contracts is generally denied, subject only to variations or additions, the pricing of which should be assessed in the context of the overall work carried out. In the event that the employer instructs work that is out of scope and there are no applicable rates and prices under the contract, the contractor would be entitled to claim compensation by way of Article 888 and claim ‘fair compensation’, presumably on a cost plus basis.

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Written by OQSC Journal

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