This month, with the letter Q, we look at the concept of “quantum meruit”. The phrase is a Latin phrase meaning “the amount deserved”. A claim for quantum meruit is made where there is no valid contract, or valid contractual mechanism, in place under which work carried out can be valued.
On construction projects, a claim for quantum meruit is often made when the contractor has started work based on a letter of intent but the actual construction contract is ultimately not entered into because negotiations fail. If the employer has asked the contractor to start work without defining a scope and price for the work in the letter of intent, the contractor can bring a claim for compensation using quantum meruit principles.
Of course, the employer must have received some benefit from the contractor’s work; merely preparatory works by the contractor in anticipation of being awarded the contract would not lead to a successful claim.
Even where there is a valid contract, a claim for quantum meruit is sometimes made in relation to variation works. This happens where there is a mechanism for instructing changes but no method of valuing them. It is rare, but it happens. The less rare situation is where the instruction to carry out work does not amount to a valid variation; in those circumstances, if the contractor has carried out work, and the employer has taken the benefit of the work, the contractor’s claim will be made and compensated based either on quantum meruit principles or on the basis of a separate contract (if it can be shown that a separate contract came into force for that work).
However, the most common quantum meruit claims arise in situations where parties have proceeded to execute work on the belief that there is a valid contract in place, but the contract is subsequently held to be void or unenforceable, or is wrongfully terminated by the employer. In such circumstances, the underlying contract cannot be used to value the work done, and quantum meruit principles must be used to compensate the contractor.
The legal doctrine underpinning recovery a quantum meruit claim is that of restitution. This principle says that no one should be unjustly enriched. Therefore, if the employer receives the benefit of work from a contractor, or a contractor receives the benefit of work from a subcontractor, the receiving party must provide compensation to the party providing that benefit. This can sometimes leads to an interesting outcome: while a claim for compensation for work done under a contract must be valued in accordance with the principles set out in the contract, in a claim for restitution, the claim may be valued in accordance with the benefit received by the employer. Theoretically, therefore, a quantum meruit claim may result in a significantly higher recovery for the contractor than a claim valued in accordance with a contract.
In a quantum meruit claim, the court or arbitrator seeks to arrive at a “reasonable sum” as compensation to the contractor for his claim. This is not always a straightforward exercise. For example, if there is a contract in place but it is subsequently determined to be void, should the reasonable sum nevertheless be arrived at by using the principles of valuation set out in the contract?
After all, the parties had agreed to those principles at some point in time. Yet, the contrary argument is that if the contract is void, it was always void, and therefore it cannot be said that parties had actually agreed to anything at all. These kinds of arguments are often exchanged in a quantum meruit claim. However, there are also cases where the reasonable sum reflects more closely the value obtained by the employer rather than the cost plus overheads and profit for the contractor – and this is why contractors often try to argue quantum meruit to get out of a bad bargain in the contract.
Like the concept of “time at large” where a contractor is in delay, “quantum meruit” is often the last recourse of a contractor who finds himself in a bad commercial bargain on rates or a lump sum price. But arguments that a contract is not valid, or that there is no contractually valid way to assess the value of works, succeed in the rarest of cases.
While the principle of quantum meruit allows a contractor to take heart that if he has actually carried out work, he will get paid, it should not encourage a sense that a contractor can easily escape a tough contract by arguing for compensation on a quantum meruit basis.
Shourav Lahiri is the principal at Lahiri LLC, a Singapore-based law firm specialising in construction and engineering law and arbitration. He can be reached at shourav.