Article

Your Contractual Questions Answered What Is A Quantum Meruit Claim?

By The Entrusty Group

Entrusty Group, a multi-displinary group of companies, of which, one of their specialisation is in project, commercial and contractual management, has been running a regular contractual questions and answers section for Master Builders members in the Master Builders Journal.

In this instalment of this series, Entrusty Group will provide the answer to another frequently asked question above.

his is a topic where contracting been agreed or quantified, and cases, the payment terms parties have an agreement or usually a claim being assessed of a reasonable remuneration or Twhen one party has performed in a ‘reasonable sum’, ‘reasonable sum will be implied by common services and/or works but there has remuneration’, ‘fair market rates’, . For example, additional been no agreement on the price ‘fair commercial rates’ or on similar expenses by the Contractor due or payment terms. Such situations terms. to a significant change in the frequently occur in the construction quantity of the work which was industry where the Contractor often An entitlement for quantum meruit supposed to be carried out and commences the works on the basis claim is not applicable if there is paid, accordingly. of a letter in intent or verbal or even an agreement between the parties written instruction issued by the in the existing contract to pay for 2. Where the contract contains Employer or S.O./Architect/Engineer/ the work done. However, there may an express agreement to pay Project Director (depending on the be quantum meruit claims under reasonable sum or on similar forms of construction contract used). the contract. This usually arises in terms. For example, variation In some cases, the Contractor is two circumstances, namely: rules of variation work of similar required by the Employer or S.O./ character but not similar conditions Architect/Engineer/Project Director 1. When the contract is silent to be valued as far as may be to carry out additional works on an on how work done is to be reasonable with a fair adjustment/ existing contract as a variation to remunerated or paid. In such allowance for the difference in the contract, however the existing contract prices/rates do not cater for the said variation works. Thus, the Contractor will have to claim on a fair and/or reasonable basis, commonly known as quantum meruit.

What is Quantum Meruit?

Before we discuss further on this topic let us define what is a claim on quantum meruit basis and under what circumstance it is applicable. The expression quantum meruit basically means ‘the amount he deserves’ or ‘what the job is worth’. It is a claim for a payment for the work executed where no price has Bridge

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conditions or where the works is Standard Forms Of Contract bound to make compensation to the dissimilar in character and conditions And Malaysia Act former in respect of, or to restore, the to be valued as a fair market rate or 1950 thing so done or delivered. price or a fair valuation. Many standard construction contract Case Law Claim for quantum meruit in forms in Malaysia allow for the above is usually presented as an alternative quantum meruit circumstances to The following case shed some claim if indeed there is no contract. be claimed by the Contractor which light to this question as to what It is a quasi-contractual claim under utilise the principle of ‘reasonableness’ circumstances a quantum meruit which the claimant merely seeks with fair adjustment/allowance, fair claim is applicable. to be compensated for an amount market rate or fair valuation. Whilst representing the reasonable sum if the Employer is in default, the (a) Where the contract is of the work which he has already Contractor can choose to claim silent on how work done is completed. This may arise under the under loss and/or expense clauses remunerated or to be paid following circumstances: 1 in the contract or bring legal action In the case of Parkinson vs to recover his expenses and losses Commissioners of Works (1949) 2 ● Where the parties proceed on the under the principle of quantum K.B. 632, the Contractor had agreed mistaken basis that there is an meruit. Table 1 below indicates the under a contract to carry out enforceable contract, but there relevant clauses of the standard certain work on a cost-plus-profit is no contract; forms of construction contract, where basis subject to the total profit ● One party requested for services quantum meruit may be applicable, recoverable limit. The Commissioners from the other party which are when monetary claims arise. were entitled under the contract not governed by any contract; to instruct work up to £5m, but ● Where the contract has been It is pertinent to note that under instructed work actually totalled discharged by the operation of Section 71 of the Contracts Act 1950 up to £6.6m, thus exceeding the the doctrine of frustration; provides for the following:- contract value. The Court of Appeal ● Where the contract has been found that the additional work was repudiated by the Employer and Where a person lawfully does anything outside the contract and thus the the Contractor choose to claim for for another person, or delivers Contractor was allowed to be paid damages for or anything to him, not intending to do on a quantum meruit basis, which is quantum meruit in restitution for so gratuitously, and such other person beyond the total fixed profit under the work performed. enjoys the benefit thereof, the latter is the contract.

Table 1 - Relevant provisions where quantum meruit claims may be applicable under the various Standards Forms of Construction C Construction Contracts in Malaysia Contract Clauses Brief of Description of Relevent Contract Clauses PAM PAM JKR IEM CIDB 2006 1998 203A 1989 2000 1 Variation 11.0 11.0 25.0 24.0 29.0 2 Additional expenses or loss and/or expense caused by Variation 11.7 11.6 5(d) 5(d) & 31.1(h) 24(e) 3 Loss and expense 24.0 24.0 44 44 31 4 Suspention of work for non payment 24.3(m) 42.10

5 Termination/Determination by Contractor 26.0 26.0 52 45

6 Contractor to recover additional expenses or loss and/or damage 27.13 27.2(vi) from Nominated Sub-Contractor 7 Fluctuation of Price 53 54

8 Arbitration 34.0 34.0 54 55 47 9 Governing Law 38.0 56 49

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(b) Where the contract contains an express agreement to pay reasonable sum or in similar terms In Laserbore Ltd vs Morrison Biggs Wall Ltd (1993) CILL 896, the learned Judge in deciding the meaning of the term ‘Fair and reasonable payments for all works executed’, considered that costs plus basis was wrong in principle even though it may sometimes produce the right result. The learned Judge held that in assessing quantum meruit claim the appropriate approach was to adopt general market rates or fair commercial rates.

(c) Where the parties proceeded Highway on the mistaken basis that there is an enforceable contract, but The decision in BSC was approved not constitute a binding contract there is no contract in Herman Suerken Gmbh & Co KG at law but was only a record terms In the case of British Steel Corporation v Selco (Shipyard) Pte Ltd (1991) 3 agreed by the parties as basis for vs Cleveland Bridge & Engineering Co CLJ 2289 which the learned Judge a contract negotiation. Ltd (1981) 24 BLR 94, where the Court summarised that the implication held that two types of contract of a letter of intent ‘would be to As for the question of compensation could arise following a letter of enable the Defendants to recover for work done prior to the dispute, intent, first, an ‘executory’ contract on a quantum meruit for work done the learned Judge held that a and secondly an ‘if’ contract. There pursuant to the direction.’3 claim on a quantum meruit basis was no ‘executory’ contract (where for the preliminary works carried each party has reciprocal obligations) In a Malaysian case, Ayer Itam Tin out on the site was successful but since material terms remained in a Dredging Malaysia Berhad vs YC was subject to a maximum limit of state of negotiation. There was also Chin Enterprise Sdn Bhd (1994) 2 RM300,000. 3 no ’if’ contract (where the letter of AMR 32:1631, the learned Judge intent constituted a standing offer in deciding whether there was a (d) One party requests for which would result in a contract if concluded contract between the services from the other party acted upon) since work was being parties, dealt with both the nature where these were governed by done pending a contract whose of letters of intent and quantum a contract terms were still being negotiated. meruit. In case of Constain Civil Engineering Of particular importance was the Ltd vs Zanen Dredging & Contracting lack of agreement as to British He held that arrangement made Co (1997) 85 BLR 77, the instructions Steel Corporation’s (BSC) liability ‘subject to contract’ or ‘subject given did not constitute authorized for consequential loss and delay. to the preparation and approval variations of the subcontract works BSC had commenced work in order of a formal contract’, or in similar because they required work to to expedite performance under terms, would mean that the parties be done outside the scope of the anticipated contract. Because were still negotiating and did not the subcontract entitling the the work was not referable to any intend to be bound until a formal Subcontractor to payment on a contractual terms, Cleveland was contract was made. ‘Subject to quantum meruit basis. obliged to pay a reasonable sum contract clause’ terms would not for the work done. There was no prevent the formation of a contract (e) Where the contract has been contract and could therefore be no in exceptional circumstances. In discharged by the operation of contractual obligation to complete the learned Judge’s view, with the doctrine of frustration the work within a reasonable time, the several essential matters still In case of BP Exploration Co (Libya) meaning Cleveland’s counterclaim remaining to be settled between vs Hunt (No 2) (1982) 1 All ER 125, for late delivery cannot succeed. 2 the parties, the letter of intent did where the Plaintiff was engaged

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to develop an oil field on the ”benefited” from the services/works preferably in writing, the essential Defendant’s land and was to executed. terms such as the scope of works, be paid by oil from the wells. payment, time period, contractual The learned Judge gave BP a In view of the above, it is obligations and other pertinent sum of US$35m representing as adviseable that the party who terms. This is to avoid any costly the compensation or ‘benefit’ requires the services/works to be and lengthy disputes between received by the Defendant prior executed by another party on an the parties concern when it is to the wells, which were already urgent basis should at least ensure referred to arbitration/litigation commissioned but before BP that both parties have agreed subsequently. could have received all the oil as payment, were nationalised by the Government of Libya. REFERENCES

(f) Where the contract has 1. Atkinson, Daniel, Quantum Meruit, Atkinson Law Articles, May 12, been repudiated by the 2006. Employer and the Contractor 2. Speechly Bircham, Construction Contracts and Payment in the Absence choose to claim for damages of Formal Agreement, In-House Lawyer Magazine 2003, April. for breach of contract or 3. B Marican, Pawancheek, Letter of Intent: Intending the Unintended?, quantum meruit in restitution CLJ Articles, 1994. for the work performed 4. Keenan, Denis, Smith & Keenan’s English Law, 12th Edition, Financial In case of Renard Construction Ltd Times, Pitman Publishing, 1998. vs Minister of Public Works (1992) 5. May, Anthony, Williamson, Adrian, Uff, John, Keating on Building 26 NSWLR 234, the Court held th that a claim in quantum meruit Contracts, 6 Edition, London Sweet & Maxwell, 1995. following a wrongful termination 6. Ong, H.T., Practical Construction Claims in Malaysia – One Day Intensive should be quantified on reasonable Seminar/Workshop organised by Entrusty Management Sdn Bhd and remuneration basis, not value of BK Burns & Ong Sdn Bhd, November 2, 2004. the work basis. 7. Wallacc, I.N. Duncan, Hudson’s Building and Engineering Contracts, 11th Edition, London Sweet & Maxwell, 1995, Vol. 1. CONCLUSION

Whether a quantum meruit claim is derived under the contract or In the next issue of the MBAM journal the article will answer the restitution or letter of intent, the question on ‘Can A Letter Of Intent Be Construed As An Enforceable precise wording in the agreement Contract?’ or the specified obligations of the parties are pertinent. If one party acted on it in speculation The Entrusty Group includes Entrusty that they are entitled for the Consultancy Sdn Bhd (formerly known payment of the services/works as J.D. Kingsfield (M) Sdn Bhd), BK executed in the absent express Burns & Ong Sdn Bhd (a member of the Asia wide group BK Asia Pacific), agreement to payment and the Pro-Value Management, Proforce Management Services Sdn Bhd / Agensi other party had benefited from Pekerjaan Proforce Sdn Bhd and International Master Trainers Sdn Bhd. it, then the principle of quantum providing project, commercial and contractual management services, risk, meruit which entitled the injured resources, quality and value management, recruitment consultancy services party to a claim for payment on a and corporate training programmes to various industries, particularly in reasonable sum for services/works construction and petrochemical, both locally and internationally. executed shall apply as per Section 71 of the Contracts Act 1950. Entrusty Group provide 30 minutes of free consultancy (with prior However, there are some pitfalls appointment) to MBAM members on their contractual questions. The and uncertainties should the Group also provides both in-house and public seminars/workshops in its matter be brought to the court, various areas of expertise. For further details, please visit website: www. as it will need to consider whether entrusty.com. or contact HT Ong or Wing Ho at 22-1& 2 Jalan 2/109E, Desa the services/works executed are Business Park, Taman Desa, 58100 Kuala Lumpur, Malaysia. Tel: 6(03)-7982 not gratuitous or one party has 2123 Fax: 6(03)-7982 3122 Email: [email protected].

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