Can Speculative Work Be Reimbursed under Quantum Meruit?

Can Speculative Work Be Reimbursed under Quantum Meruit?

If the parties enter upon a speculative venture then it will be difficult to succeed in a claim in restitution for reimbursement of the expense incurred if the venture fails, absent express agreement to payment. The reasons for the failure are highly relevant as is the nature of the risk that was accepted.

In Easat Antennas Ltd v Racal Defence Electronics Ltd [2000] Racal succeeded in a bid in which Easat agreed to and carried out considerable work, but did not award Easat the subcontract.

HH Mr. Justice Hart held that the work undertaken in order to obtain a contract does not give rise to a restitutionary remedy. The party providing the services is taken to have run the risk that the contract will not eventuate and he will not therefore be paid.

In this case there was no dispute that Racal had received a benefit as a result of the services. It was argued that Easat could have no restitutionary claim unless it could show that, had their agreement with Racal been enforceable, it would have been awarded the sub-contract or entitled to claim damages for breach. Justice Hart accepted that the Easat only had an expectation of being rewarded for its work in the event of the bid succeeding and the conditions for placing the subcontract then being satisfied.

However while Easat was prepared to take the risk that Racal’s bid would fail, it was not prepared to run the risk that, if Racal’s bid succeeded, as it did, that it would not be rewarded. It was held that was the whole purpose and underlying assumption of the agreement. On that basis the claim by Easat was held to be a good one.

In Countrywide Communications Ltd v ICL Pathway Ltd [2000] a consortium assembled to make a bid involved the members in considerable work. When the bid was successful the consortium excluded one of the members.

Mr. Nicholas Strauss QC considered whether the excluded member had a claim in restitution. He held that appropriate weight was to be given to a number of considerations:

  1. Whether the services were of a kind which would normally be given free of charge.
  2. The terms in which the request to perform the services was made may be important in establishing the extent of any risk (if any) which the plaintiffs may fairly be said to have taken that such service would in the end be uncompensated. It may be important whether the parties are simply negotiating, expressly or impliedly “subject to contract”, or whether one party has given some kind of assurance or indication that he will not withdraw, or that he will not withdraw except in certain circumstances.
  3. The nature of the benefit which has resulted to the defendant and in particular whether such benefit is real (either “realised” or “realisable”) or a fiction. There was more inclination to impose an obligation to pay for a real benefit, since otherwise the abortive negotiations would leave the defendant with a windfall and the plaintiff out-of-pocket. The performance of services requested may of itself amount to a benefit or enrichment.
  4. The circumstances in which the anticipated contract does not materialise and in particular whether they can be said to involve “fault” on the part of the defendant, or to be outside the scope of the risk undertaken by the plaintiff at the outset may be decisive.

Mr Nicholas Strauss QC held that justice required that Countrywide should be appropriately recompensed. Countrywide had been induced to provide its services free of charge by an assurance that Pathway would negotiate a sub-contract with Countrywide if the bid succeeded. Countrywide’s services had provided Pathway with a benefit. Countrywide had accepted the risk that its services would not be accepted for submission with the bid or that the bid might fail or that negotiations might fail. It had not accepted the risk that it would be dismissed after the final bid had been submitted because Pathway changed personnel. The measure for repayment was time spent with associated costs.

In Stephen Donald Architects Limited v Christopher King [2003] the parties were friends and King did not have the means to pay fees for redevelopment of the property until completion of the project.

HH Judge Seymour QC held that the parties never entered into a legally binding agreement and then examined an alternative claim for quantum meruit.

Seymour J observed that the claim for quantum meruit was conceptually a claim in restitution. He considered that the nature and extent of the risk assumed by the party claiming payment on a quantum meruit basis in relation to the abortive transaction was a material consideration in determining whether an enrichment has been unjust. There was nothing unjust about being visited with the consequences of a risk which one has consciously run.

He held that there was probably a benefit to King from the activities of the Architects even though the redevelopment in accordance with the designs did not proceed. The benefit was obtained at the expense of the Architects. The profit was expected to be payment upon successful completion of the project in cash or in kind of compensation for the architectural work. The venture failed for want of finance for the design prepared. It was held that the venture having failed for that reason there was nothing unjust in King retaining the modest benefit without paying compensation in addition to the amount already paid. The Architects took on the risk that King might decide not to proceed, either for insufficient funds or on terms perceived by King to be unsatisfactory. That was the risk that eventuated.