Where Works Do Not Form Part of a Contract Can Delays and Defects be Allowed for and Reimbursed Under Quantum Meruit?

Where Works Do Not Form Part of a Contract Can Delays and Defects be Allowed for and Reimbursed Under Quantum Meruit?

Some allowance must be made for work which is defective or work carried out inefficiently. The issue then is the standard to be adopted to establish the defect or inefficiency and the duty owed by the contractor for performance (if any in the absence of a contract). Since restitution is not based on implied contract theory there is no scope for reducing the measure by something like a set-off or cross-claim equal to the costs of putting the work right, except perhaps where as a result of the contractor’s performance there is no benefit or value.

In Sanjay Lachhani v Destination Canada (UK) Ltd. [1997] Mr Recorder Colin Reese QC recognized that a ‘fair value’ should include a reasonable or normal profit margin over and above the costs reasonably and necessarily incurred in properly carrying out the works and likely to have been incurred by a reasonably efficient contractor. He stated that there must be adjustment for inefficiency and defective work at completion:

If the building contractor works inefficiently and/or if the building contractor leaves defective work then, quite obviously, the actual costs incurred by the building contract must be appropriately adjusted and/or abated to ensure that the owner will not be required to pay more than the goods and services provided are truly (objectively) worth.

In Serck Controls Ltd. v Drake & Scull Engineering Ltd. [2000] Judge Hicks QC considered that the performance of the contractor in terms of inefficiency and defects at completion, was a factor to be considered in the measure of quantum meruit.

The site conditions and other circumstances in which the work was carried out, including the conduct of the other party, are relevant to the assessment of reasonable remuneration. The conduct of the party carrying out the work may be relevant. If the value is being assessed on a ‘costs plus’ basis then deduction should be made for time spent in repairing or repeating defective work or for inefficient working. If the value is being assessed by reference to quantities, such matters are irrelevant to the basic valuation. A deduction should be made on either basis for defects remaining at completion because the work handed over at completion is thereby worth less.

Hicks J considered that there was no duty to adhere to any particular contractual programme, for there was no contract. In the instant case it was precisely the inability to agree upon a programme which was one of the reasons for failure to enter into a contract.

Nonetheless, Hicks J held that a firm working on a quantum meruit basis on a complex construction site could not wholly ignore the desirability of cooperation with others at work on the site. There was a duty at least not to unreasonably interfere with the carrying out of other works and more positively an obligation to be aware of the progress of other trades and, so far as consistent with the firm’s own legitimate commercial interests, to cooperate in efficient working practices. It was held that there was no breach by Serck of the qualified duty of cooperation to disentitle Serck from having its work valued on the basis of the circumstances in which they were carried out.

In ERDC Group Limited v Brunel University [2006] Lloyd J held that whether the assessment is made by reference to cost or to rates and prices, the party paying for the benefit was not to be required to pay for delay or inefficiency. Accordingly in arriving at the total payable by reference to rates and prices it is necessary to look at what the contractor should have recovered by the use of those rates and prices.

He held that Brunel could not maintain a claim for breach of the contract since the defects were in the work after the expiry of authority of the last letter of intent There was no contract at that stage. There could therefore be no counterclaim in the classic sense.

Lloyd J then addressed the standard to be adopted in defining defective work. If the remedy being granted was restitutionary then the standard would be that attaching to the request. By complying with the request there was accession to that standard. If the remedy was contractual then the standard would be that set by the agreement. He considered that in practical terms there was no material difference between the two approaches and none at all on the facts of the instant case where the standards were the contractual standards that had applied prior to 1 September 2002 and which continued to be applied thereafter. In the case of additional work the standard was set by the instruction or request. In the absence of a specification the usual standards would apply – the design and work would have to be a reasonably good quality and, in the case of work designed by ERDC, reasonably fit for its purpose.

Lloyd J then dealt with the measure of work that was defective dismissed a downward adjustment based on cost of rectification:

In my judgment it would be strange if a defendant had to pay more than the true value of the benefit realised or realisable. …. In assessing what is an appropriate quantum meruit for the whole or any part of the work done after 1 September 2002, Brunel cannot in my view reduce what ERDC might otherwise have received by something like a set-off or cross-claim equal to the costs of putting the work right, except perhaps where as a result of what ERDC did or did not do, there is no benefit or value. Hence professional fees, e.g. on the cost of the work, could never be taken into account. Even so, in such circumstances, there can be no negative result. ERDC cannot have to pay Brunel or forego what it would otherwise have received. However since the benefit has to be assessed overall, if, for example, work which was otherwise up to standard cannot be used because other work was not done or was not up to standard then the value must reflect that result.

Lloyd J dismissed the concept of mitigation as relevant to the valuation of a restitutionary claim:

The net benefit to Brunel cannot be affected by whether ERDC was not or was given chance of putting the work right or an investigation as to whether it was willing to do so.