Quantum Meruit Claims in Construction Contracts
The expression quantum meruit means "the amount he deserves" or "what the job is worth".
Generally a quantum meruit claim cannot be made if there is an existing contract on foot between the parties that stipulates or allows for the calculation of a payment sum.
Quantum Meruit in Construction
A quantum meruit claim in the construction industry is mostly invoked under the following circumstances:
1. Work done under a contract that does not include a price
The contract will outline the scope of work but there is no fixed price or method for calculating costs.
2. Work outside of the contract
More commonly referred to as ‘variations’, this is where there is a contract for specific work but the contractor does work outside the scope of that specific work at the principal’s request.
3. Work under a void, unenforceable or terminated contract
Where there is a contract but it is void, rendered unenforceable by operation of statute or where the contract has been repudiated by the principal, the contractor may be entitled to claim quantum meruit for the work or services performed.
4. Work under a heads of agreement, but cannot claim payment
The contractor may have signed a heads of agreement which sets out key terms to negotiate before signing a final contract. The heads of agreement may not be legally binding or is subject to the final contract. During the negotiation period, the contractor may have done initial works, such as excavating the construction site. However, the contract is never finalised, and the heads of agreement does not include a scope of work and a method of calculating the cost.
The most common ground claimed: repudiation
In practice, repudiation is the most common ground claimed by contractors in the construction industry. However, contractors sometimes wrongly assume that a quantum meruit claim automatically follows when a principal has repudiated the contract.
Repudiation of the contract by the principal does not, in itself, bring a contract to an end. If the principal indicates that he is no longer ready, willing and able to perform the contract in accordance with its terms, the contractor must first elect to terminate the contract; that is to say, choose between continuing the performance of his contractual obligations or accepting the principal’s repudiation and bringing the contract to an end.
Only if the contractor chooses the latter may he then sue and, if the suit is successful, he must further elect between damages assessed on a quantum meruit or contractual basis.
What is the Legal Basis?
The legal basis for making a quantum meruit claim is for there to have been unjust enrichment of the principal. In showing unjust enrichment, three things must be established:
- The principal must have been enriched by the receipt of a “benefit”; any construction work completed that benefits the principal will be sufficient to satisfy this requirement.
- That benefit must have been gained “at the contractor’s expense”.
- It would be “unjust” in the circumstances to allow the principal to retain the benefit. Needless to say, there is a good deal of law involved in these elements and it is always advised to seek professional legal help when determining these issues.
Quantum Meruit in the High Court
The High Court of Australia has recently handed down a decision in the case of Peter Mann & Anor v Paterson Constructions Pty Ltd [2019] HCA 32 regarding quantum meruit claims. Previously, the rule was that the builder could receive “reasonable value” of the works performed, which could exceed the total contract price.
In this recent decision, the High Court held that a builder’s right to recovery will become dependent on the stage of works, and will no longer be able to claim in excess of the contract sum.
The High Court considered and decided as follows in three scenarios:
- Where the builder has completed a stage of the contract when the termination occurs, the amount of recovery is limited to the amount due under the contract for that stage of works. In this case the claim lies in contractual damages and not in quantum meruit;
- Where there are uncompleted stages of work at the time of termination, the builder is entitled to make a quantum meruit claim but the amount recoverable cannot exceed a “fair value” and must be calculated with reference to the total contract price; and
- Where the builder has completed variations under a major domestic building contract, section 38 of the Domestic Building Contracts Act (Vic) prevents a builder from making a quantum meruit claim and builders must comply with the relevant provisions of the Act to recover variation sums.
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