A claim for a reasonable sum (literally ‘the amount he deserves‘) is available either under an incomplete contract or on the principle of restitution or unjust enrichment in equity.
Claims in contract
Where there is a contract, quantum meruit applies where:
- no sum is agreed for the scope set out in the contract, or there are variations and no process for working out what should be paid for them – the law implies a term saying that the provider will be paid a reasonable sum
- the contract includes an express term for payment on the basis of quantum meruit – such as the fall-back clause common in a letter of intent.
Note: the absence of a price might be sufficient to create enough uncertainty to prevent the formation of a contract.
Claims in equity
Where there is no contract, quantum meruit applies where:
- works are provided for the benefit of another and at their request – this tends to be the result when there is a letter of intent which fails to meet the five requirements for a contract
- works are provided in anticipation of a contract (and with the expectation of payment, not merely speculatively at risk)
- works are instructed but go beyond the type of changes permitted by that contract and are therefore not under the original contract
- the contract was void or unenforceable (except if due to illegality).
An Australian case has recently held that where a contract has been terminated for serious or fundamental breach, the contractor is not entitled to recover its unpaid costs on a quantum meruit basis. Termination only brings future obligations to an end. Existing obligations ie the duty to pay for works carried out before termination remain. So the contractor’s costs are payable and ascertained under the existing contract processes.
Anything else might encourage a contractor facing a huge loss on a project to provoke the client to terminate and get a better costs recovery on a quantum meruit basis.
What sum is reasonable?
The Supreme Court in Benedetti said that any payment due under quantum meruit has to be reasonable in all the circumstances, determined by focusing on the objective intention of the parties (and not on the benefit to the recipient).
Generally, the calculation of a reasonable sum:
- is based on an objective market value of the goods, works or services provided
- takes into account: the buying and bargaining power of the recipient; prior negotiations and discussions (a tendered price may act as an upper level); defects, inefficient working and other elements which reduce the value of the goods, works or services
- may be start by looking at reasonable costs reasonable incurred plus reasonable profit.
What should you do?
Make sure you agree (and record) prices for all initial and varied works, as although the provider will get paid, it takes a judge to decide how much, which isn’t a great place to be!