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.
