What is the basis of Reimbursement for Quantum Meruit Under Contract?

What is the basis of Reimbursement for Quantum Meruit Under Contract?

In the situation where there is a contract, then the issue in a Contractual Quantum Meruit claim is either the measure of the “reasonable sum” or the interpretation of similarly wide express terms. The issue is whether the measure is on the basis of cost or market price. There appears to be no hard and fast rule.

In the case of an express contract to do work at an unquantified price, the measure is the reasonable remuneration of the contractor Serck Controls Ltd. v Drake & Scull Engineering Ltd. [2000].

In the case where there was a contract, the assessment of a quantum meruit was usually based on actual cost which would include on and off site overheads provided that it was reasonable and was reasonably and not unnecessarily incurred, plus an appropriate addition for profit ERDC Group Limited v Brunel University [2006].

Judge Bowsher QC in Laserbore Ltd v Morrison Biggs Wall Ltd [1992] had to decide the meaning of the term “Fair and reasonable payments for all works executed”. He considered that the costs plus basis was wrong in principle even though in some instances it may produce the right result. The appropriate approach was to adopt general market rates.

In Clarke & Sons v ACT Construction [2002] ACT was engaged to carry out an extensive redevelopment of a former cold store in Kangley Bridge Road, Sydenham, SE26, so as to convert it into a 24-hour coach depot for Clarke.

ACT’s commenced proceedings for the recovery of the sum of £208,608.28 being the difference between the cost of the work calculated by ACT to be £1,485,312.88 and £1,276,704.60 paid by Clarke. Clarke counterclaimed monies said to have been overpaid and claimed damages both for the failure to complete the work within a reasonable time and for defective work.

ACT asserted that an express or implied term of that contract was that the price to be paid for the work was to be calculated on “a time and materials” basis, i.e. at the cost of labour, plant and materials, subcontractors, professional fees, etc., with the markups ranging from 25% to 10% on those elements of the cost.

The Court of Appeal agreed with the judge at first instance that the previous work carried out by ACT for Clarke did not show a course of dealing which led to the implication of a time and materials basis for payment. Each of the jobs was carried out under very different bases of working and pricing.

The issue then was the assessment of the reasonable remuneration. The judge at first instance decided that it was cost-plus 15%. The judge found that it was “slightly higher” than the bracket of 5%-12% advanced by Clarke’s expert but that the bracket was based on defined building contracts whereas dayworks were being charged for with higher uplifts in 1992/1994. He also took account of the higher percentages charged out and paid for pursuant to the earlier invoices.

The Court of Appeal held that there was no reason why the prices actually paid should not be factors to take into account in the instant case. Averaged out the uplift was about 20%. That was a fact of the case. Although an increase from 8% (Clarke’s figure) to nearly double that at 15% could hardly be described as being “slightly higher” or a “modest uplift”, it was held that there was enough material before the judge to enable him to settle on 15%. The Court of Appeal stated that it should be very slow indeed to interfere with a judgment on such an issue made by an experienced judge in a specialist tribunal and upheld his finding that the uplift was 15%.

The next issue was whether the uplift was to be applied only to the last two applications for payment, as the judge held, or to all applications submitted for work done in and after April 1992.

The judge at first instance concluded that it was not appropriate to re-open the “settled and not previously challenged” invoices. He held that payments were being made overall by reference to the invoices and that each payment was in the nature of a compromise or agreed settlement on analysis of the work carried out in the preceding period to which it related.

The Court of Appeal held that there was nothing to support the judge’s view that the accounts were settled or agreed. They were called “interim” applications. They were capable of being treated as interim payments on account. ACT seemed to have treated them in that way themselves. The Court of Appeal held that the earlier applications for payment represented about the best estimate of the value of the work being done at that time, that ACT reserved the right and exercised the right to review the whole operation of the account at the conclusion of the work. It was held that the judge was wrong to limit Clarke’s case in that way. All costs from April 1992 were subject to a 15% uplift on the finding of the judge that that was the reasonable markup. It was 15% whether ACT charged 25% or 20% or 10%. The Court of Appeal therefore allowed the appeal in this respect and remitted that matter back to the court below for the calculations to be made in default of agreement.

In Robertson Group (Construction) Limited v Amey-Miller (Edingburgh) Joint Venture) [2005] the Inner House of the Court of Session considered the meaning of the critical phrase “all direct costs and directly incurred losses shall be underwritten and reimbursed” in a letter of intent.

In July 2001 Robertson submitted a tender to the joint venture Amey-Miller for works at the Royal High School, Edinburgh. It was intended that that contract would be for a specific lump sum and be subject to amended JCT 1998 conditions. By the necessary start date of mid-October 2001 the formal contract had not been entered into because of financing delays between Amey-Miller and its employer (Edinburgh Schools Partnership).

Amey-Miller issued a letter dated 12 October 2001 to allow work to begin on site. Robertson accepted the terms of the letter and commenced work. In the event no formal contract was ever entered into. The letter referred to the terms of the intended contract and a spending limit of £500,000. That limit was subsequently increased on a number of occasions, the last authorisation, contained in a letter of 12 September 2002 from Amey-Miller to Robertson, specifying a limit of £5m. As the work proceeded interim payments were made to Robertson by Amey-Miller. By October 2002 it became apparent that the parties would be unable to reach agreement on the terms of a formal contract. By that time the spending limit of £5m had been reached. Towards the end of October 2002 work on site ceased.

It was observed that a building contract based on the standard JCT form would be expected to include a condition entitling the contractor in certain circumstances to payment from the employer of “direct loss and/or expense”. That phrase was familiar and had been the subject of judicial interpretation and application in the cases cited. In particular the adjective “direct” in that context has been interpreted as being concerned with remoteness of damage. Loss of profit and head office overheads could, in appropriate circumstances, be recovered under such a condition; recovery would not be restricted to outlays.

It was held that parties prospectively entering into a contract subject to JCT conditions could be expected to be familiar with the traditional loss and expense clause and the interpretation judicially placed on it. The phraseology used in the instant arrangement was different but similar. The adjective “direct” qualified the word “costs” and the phrase “directly incurred” the word “losses”. In the event (which occurred) of a formal contract not being entered into, Amey-Miller undertook that “all direct costs and directly incurred losses” would be “underwritten and reimbursed”. It was held that the first of the two verbs used (“underwritten”) was, in its familiar sense of “guaranteed”, clearly wide enough to embrace elements beyond actual outlays. It was held that while the second verb (“reimbursed”) might tend to suggest the making good of something expended, the phrase read as a whole did not have that restricted sense.

It was held in addition that the critical phrase had to be read in the wider context of the whole letter of instruction, including the provisions which related to the setting of a spending limit but clearly envisage that Amey-Miller would, subject to that limit, meet “any losses incurred”, such losses expressly including “loss of profit”.

It was held that once Robertson had commenced work on the basis of the letter, it was contractually obliged to proceed with the works, subject to the spending limit in force from time to time. If the critical phrase did not entitle it to recover for any loss of profit, Robertson would be obliged to carry out the works in return only for the reimbursement of its outlays, unless Amey-Miller elected to enter into a formal contract with it. It was held that a construction of the critical phrase which had that consequence would hardly make commercial sense, and could not have been intended.