High Court re-states quantum meruit

Quantum meruit is a much abused, but rarely fully litigated, claim for payment for work done, without the structure or discipline of a contract.  The concept is based in the legal principles of restitution and unjust enrichment.

In the case of Electrix Ltd v The Fletcher Construction Company Ltd [2020] NZHC 918, issued earlier today, Justice Palmer considered the requirements for quantum meruit and found that Electrix was entitled to be paid the full amount claimed for the work it had undertaken on the basis of a reasonable price for the work done, notwithstanding the lack of a contract.

Fletcher ran a request for proposals for the electrical installation at the Justice Precinct in Christchurch; a project which was already in some difficulty.  No design was finalised, no price was agreed and there was a general failure to agree on any of the essential terms for the contract.  Fletcher engaged Electrix to carry out the electrical installation on what appears to have been an ad hoc basis under a series of letters of intent.  Much of the work was done out of sequence, and considerable elements of the installation were redone.  

It is not surprising that the parties fell into disagreement over Electrix's entitlement to payment.  The original budget was $14 million for the installation; Fletcher paid over $21 million; Electrix sued for a further $7 million; and Fletcher counterclaimed for the repayment of $7 million.

Justice Palmer reviewed the seminal cases of Fletcher Challenge Energy v Electricity Corporation  and Transpower v Meridian Energy  in relation to heads of agreement, letters of intent and the requirements for formation of contract, and held that no contract had been formed between Electrix and Fletcher.  The primary ground for this finding was that too many essential terms were not agreed for a contract to be in place - there was no agreed contract value (or presumably mechanism for establishing one, eg on a cost plus basis); the specification for the work was "cursory at best"; and the detailed design had been rejected by the Ministry of Justice (under the head contract; and it was unclear what the terms of the subcontract were.

The letters of intent contained a clear expression that Fletcher did not consider itself to be bound.  They simply provided authority to carry out specific activities with Fletcher's approval.  They did nothing more than to provide comfort to Electrix that it would be paid for design work, pre-ordering and ultimately, installation, in lieu of a contract.

In relation to quantum meruit, His Honour canvassed the doctrinal dispute over whether the claim is in unjust enrichment, accepting that the underlying justification was "evolving", or in restitution.  

The difficulty, as outlined by Professor Watts QC, was whether the relevant considerations were to restore the parties to the original positions, reimburse the claimant for he enrichment enjoyed by the respondent, or payment on some value assessment.  Where a contractor carries out work or provides services in the expectation of being paid for them, compensation assessed on the basis of value of enrichment to the recipient could result in some very strange results.  In the technology field, it would not be at all uncommon for services and even work to be undertaken at considerable cost, but incomplete have no value at all to the defendant.

In this case, there was no contract; Fletcher knew Electrix expected to be reimbursed; and therefore it was liable to Electrix for "the amount deserved" in quantum meruit.  On the question of valuing the amount deserved, His Honour had this to say:

[96]  While unjust enrichment may well be a useful conceptual foundation for some aspects of the law of restitution, it has limitations that do not make it a satisfactory unifying conceptual foundation.  As seen above, that is recognised by academic commentary in relation to restitution generally and in relation to quantum meruit in particular ... The normative objectives of the New Zealand law of restitution in relation to non-contractual quantum meruit are not confined only to dispossessing those unjustly enriched but can extend to providing redress for those who may have been unjustly impoverished.

[97]  This has nuanced consequences for the assessment of relief.  It makes sense that the English understanding that unjust enrichment underlies quantum meruit leads to a focus on the benefit to the defendant.  Starting with the market value of the services and adjusting for the value of the services in the hands of the defendant is a logical corollary of that.  But, in New Zealand law, benefit to the defendant is not always necessary.  Information about the market value of the services is still relevant to assessing the reasonable cost of the services provided.  But just as relevant is the cost to the plaintiff of providing the services in the circumstances of the work at the time.  That may be different from the market value of the work done...  

After assessing Electrix's work on this basis, the court found that Electrix was entitled to the additional $7 million claimed, and interest.

The case is interesting, not simply because it is topical, but also for the fact that the High Court took the time to clarify the basis for assessing the amount deserved under quantum meruit, and for treading a path between the doctrinal principles of unjust enrichment, with its potentially odd results, and the similarly unattractive approach of restoring the parties to their original positions.

A copy of the case is available here.