Coulson J considered that a claim on a quantum meruit cannot arise if there is an existing
contract between the parties to pay an agreed sum and referred to The Olanda  2
KB 728 and Gilbert and Partners -v- Knight  (CA) 2 ALL ER 248.
In The Olanda Lord Dunedin stated the following which was referred to and applied by the
Court of Appeal in Gilbert and Partners -v- Knight using a theory of justification based
on implied contract, which no longer applies:
"As regards quantum meruit where there are two parties who are under a contract quantum
meruit must be a new contract, and in order to have a new contract you must get rid of the
Coulson J referred to the general principle stated by Mason P in Court of Appeal of New
South Wales in Trimis v- Mina (2000) 2TCLR 346 in relation to "Restitutionary Quantum
Meruit" which recognised that a claim in restitution does not depend on an "implied
contract" and cannot be sustained if a contract already governs the situation:
"no action can be brought for restitution while an inconsistent contractual promise subsists
between the parties in relation to the subject-matter of the claim. This is not a remnant of
the now discarded implied contract theory of restitution. The proposition is not based on
the inability to imply a contract, but on the fact that the benefit provided by the plaintiff to
the defendant was rendered in the performance of a valid legal duty. Restitution respects
the sanctity of the transaction, and the subsisting contractual regime chosen by the parties
as the framework for settling disputes. This ensures that the law does not countenance
two conflicting sets of legal obligations subsisting concurrently. if there is a valid and
enforceable agreement governing the Claimants right to payment, there is neither occasion
nor legal justification for the law to superimpose or impute an obligation or promise to pay
a reasonable remuneration"
In Mowlem plc v- Stena Line Ports Limited  EWHC 2206 (TCC) His Honour Judge
Richard Seymour QC expressly held that the above statement accurately stated the
relevant principle of English Law.
In S & W Process Engineering Ltd v Cauldron Foods Ltd  EWHC 153 (TCC) HH
Judge Peter Coulson QC held that S&W could not make a claim for quantum meruit in
respect of the items that were incorporated within the original Contract work scope. Prima
facie, any item of work within the original Contract work scope would be reimbursable at
(in this case) the Target Cost figure unless a potential overspend in respect of that item
had been identified and agreed in accordance with the Contract procedure.
3. Can a Letter of Intent or a Bare Agreement with No Agreed Price Create a
Many situations in which the claim for quantum meruit arises involve letters of intent or
limited exchanges between parties each followed by rapid commencement of the works.
The issue in those cases is whether or not there is a contract and if so the meaning of the
terms of payment. The claim in restitution is usually presented as an alternative claim if
indeed there is no contract.
To establish a contract not only requires agreement by the parties on all the terms they
consider essential, but also sufficient certainty in their dealings to satisfy the requirement
of completeness. An intention to create a legally binding relationship must also be present.
Letters of intent which state an intention to contract in the future frequently fail on both
requirements since they are usually incomplete statements preparatory to a formal
contract. In such cases a letter of intent is binding upon neither party Turiff Construction
Ltd - v - Regalia Knitting Mills Ltd (1971).
A contract may come into existence following a simple request to carry out work and may
take one of two forms. It may be an ordinary executory contract. It may otherwise be an 'if'
contract ie a contract under which A requests B to carry out a certain performance and
promises B that, if he does so, he will receive a certain performance in return British Steel
Corporation -v- Cleveland Bridge & Engineering Co Ltd (1983). Terms may then be
implied into that contract in accordance with normal principles.
In Clarke & Sons v ACT Construction  EWCA Civ 972 the judge at first instance
held that there was no contract between the parties. He held that the parties relationship
was not a contractual one, with the consequence that the value of the work carried out by
ACT could be recovered and paid for, but on the basis of a quantum meruit, a reasonable
sum, a restitutionary basis in fact.
The Court of Appeal disagreed and held that the proper conclusion was that there was "a
contractual quantum meruit". It was observed that in focusing on the essential ingredients
for "a building contract of some complexity" the judge may have lost sight of the fact that
even if there was no entire contract, and especially if there is no "formal" contract, there
may still be an agreement to carry out work, the entire scope of which was not yet agreed,
even if a price has not been agreed. It was held that provided there was an instruction to
do work and an acceptance of that instruction, then there was a contract and the law would
imply into it an obligation to pay a reasonable sum for that work. It was held that was the
situation in the instant case. It was observed that reversing the judge on this point did not
significantly advance either case.
Simply carrying out work is not sufficient to create a contract, all the necessary ingredients
of contract must be present. In Mowlem plc v PHI Group Limited  HH Judge
Gilliland QC was required to decide an appeal from the decision of an arbitrator to reject a
claim based on contractual quantum meruit.
Mowlem argued that it was implicit as a matter of law that in PHIs request for Mowlem to
supply imported material there was a promise to pay a reasonable price. The arbitrator
decided that the circumstance must clearly show that the work was not to be done
gratuitously before inferring that there was a valid contract with an implied term that a
reasonable remuneration would be paid. He found that in the circumstances of the case
there was no necessity nor evidence of mutual understanding to support such a term. It
was held that the arbitrator had not fallen into error and his conclusions were correct in
law. It was held that all that happened was that Mowlem continued to supply material
knowing that liability for payment was not accepted.
For a contract to arise in the case of a letter of intent, the letter must contain all necessary
terms. Further, it must be plain that the unilateral contract is to govern the main contract
work in the event that no formal contract is concluded Monk Building and Civil
Engineering Ltd -v- Norwich Union Life Assurance Society (CA)(1993).
Although a letter of intent may not govern the main contract works, the letter may relate to
part or preparatory works and in that case may create a contract for those limited works, if
all the necessary ingredients of contract are present. In Turiff Construction Ltd - v Regalia Knitting Mills Ltd (1971) the employers letter of intent was a legally binding
agreement to reimburse the contractor his expenses for preliminary design work and
feasibility studies for a main contract which was not in the event concluded.
In ERDC Group Limited v Brunel University  (TCC) HH Humphrey Lloyd QC
considered five letters of intent issued over a period of time each increasing the total value
of the work carried out.
In December 2001 ERDC submitted a tender for the works on new sports facilities for
Brunel University which were to be carried out on the basis of the JCT Standard Form of
Contract With Contractors Design, 1998 Edition. Brunel decided to appoint ERDC but that
the formal execution of contract documents would be deferred until after the grant of full
planning permission. It was agreed that ERDC would progress with the design of the works
under the terms of a letter of appointment issued on 6 February 2002. In all, three letters
were issued and returned countersigned by ERDC. ERDC commenced on construction of
the works on 27 May 2002. Two further letters were issued but not countersigned. Each
letter offered a limited contract set by reference to value and covering a particular period.
The authority under the last letter expired on 1 September 2002.
Lloyd J held that there was a clear intention to create legal relations and the letters and
their acceptance by ERDC were contracts, possibly of the classic if or conditional variety.
He held that both their background and their terms demonstrated that Brunel was not going
to contract unconditionally for the whole of the works. Instead it decided to offer ERDC a
familiar limited contract which would readily ensure that, when it was able to conclude the
full contract that was contemplated, that contract would take effect retroactively with the
minimum of difficulties.
Lloyd J held that the work done pursuant to the letter contracts prior to the expiry of the
last contract on 1 September 2002 was to be treated and valued as if it had been carried
out under the contract contemplated by the last letter. It was not to be valued on a quantum
meruit basis. The valuation was to be made applying the relevant rates and prices. Where
the contract rates or prices were not be applicable, either party was free to contend for a
different and more appropriate rate or price or valuation by reference to cost, if reasonable.
4. Is there an Entitlement to Payment for Work Carried Out Beyond the Financial
Limit of the Letter of Intent?
If work is carried out beyond the financial limit of the letter of intent, then there will only be
an entitlement if the financial limit was not intended to prevent further payment. In AC
Controls Ltd v British Broadcasting Corporation  EWHC 3132 (TCC) it was held
that the spending cap was not intended to limit the amount that ACC could recover, but
was intended to operate as a trigger entitling the BBC to terminate the contract any time
after the cap was reached. ACC was required to carry on working and was entitled to
payment of a reasonable value for the work done.
Apart from the above particular circumstances, a contractor exceeding the financial limit
will have great difficulty in establishing an entitlement to payment absent a clear instruction
and acceptance that additional payment would be made. In Mowlem plc v Stena Line
Ports Limited  EWHC 2206 (TCC) Stena was the owner and operator of the port of
Holyhead in Anglesey and required the construction of a new ferry terminal called Terminal
5. Mowlem carried out the marine and offshore works under several letters of intent.
The first letter was issued on 17 October 2002. Stena committed to pay Mowlem a
maximum of 400,000 so that they could get on with the work. As work progressed further
letters of intent were required in order to increase the limit set by Stena, each superseding
the previous letter. The last letter was issued on 4 July 2004 and set the maximum at 10
million. Each letter after the first stated that it superseded its immediate predecessor. Stena
stated in the last letter that the commitment would allow Mowlem to proceed with the Works
in accordance with the programme until 18 July 2003. That date was significant because
it was the date shown on the programme for completion.
Mowlem did not complete by 18 July 2003. Stena was pressing Mowlem to complete the
work because of a mistaken assumption that somehow there was a contract which required
Mowlem to do just that. Mowlem continued working and indeed received instructions from
Stenas consultants in the usual way. The work was eventually completed.
Mowlem considered that the cost of the work had exceeded the limit of 10 million although
Stena contested this. Mowlem submitted that the letter of intent only applied to work up to
18 July 2003, so they were entitled to payment for work done after that date irrespective
of the limit. Mowlem also submitted that since it had carried out work in excess of the limit
it was in any event entitled to be paid for it. The limit only applied until the limit was reached
His Honour Judge Seymour held that from 4 July 2003 the relationship between Mowlem
and Stena was governed by the letter of 4 July 2003 and the obligation to make payment
continued until the letter was rescinded or a contract was executed. It made no commercial
sense, he held, to have a financial limit on Stenas obligation to make payment which could
be avoided by simply carrying on to work after the date of 18 July 2003. The letter of intent
was not limited to work before 18 July 2003. It was bizarre commercially if the limit could
be avoided by simply exceeding it.
Mowlem also raised a number of common arguments in such cases. Stena had acted in
such a way that led Mowlem to believe that Stena would not insist on the limit, Mowlem
said. This was rejected on the facts. It was argued that there was a common assumption
of Mowlem and Stena that Mowlem would be paid a reasonable sum. It was held that the
evidence was against any such assumption.
5. Is There an Entitlement to Payment for Work "Outside the Contract"?
In order to establish an entitlement to payment for work outside the contract the necessary
ingredients of either a collateral contract or restitution must be present. This may be difficult
if the reason for the extra work not falling within the existing contract is the lack of a request
for the work to be carried out or agreement to payment for the work.
In Parkinson -v- Commissioners of Works (1949) 2 KB 632 the contractor agreed under
a varied contract to carry out certain work to be ordered by the Commissioners on a cost
plus profit basis subject to a limitation as to the total amount of profit. The Commissioners
ordered work to a total value of 6,600,000 but it was held that on its true construction the
varied contract only gave the Commissioners authority to order work to the value of
5,000,000. It was held that the work that had been executed by the contractors included
more than was covered, on its true construction, by the variation deed, and that the cost
of the uncovenanted addition had therefore to be paid for by a quantum meruit.
In Costain Civil Engineering Ltd v Zanen Dredging & Contracting Co  85 BLR
77 the instructions purported to be given under the sub-contract did not constitute
authorized variations of the subcontract works because the instructions required work to
be done outside the scope of the subcontractors obligations under the sub-contract. The
sub-contractor was therefore entitled to payment on a quantum meruit. In measuring a fair
remuneration an allowance was to be made for profit and consideration had to be given to
the relationship of the parties and the competitive edge that the subcontractor had by the
significant advantage of having already mobilized his equipment.
In S & W Process Engineering Ltd v Cauldron Foods Ltd  EWHC 153 (TCC) HH
Judge Peter Coulson QC considered that where there is a contract for specified work but
the contractor does work outside the contract at the employers request, the contractor may
be entitled to be paid a reasonable sum for the work outside the contract: Thorne -vLondon Corp (1876) 1 Ap. Cas. 120 and Parkinson and Co -v- Commissioners of
Works  2 KB 632. He observed that this will always turn on what is meant in any
particular instance by "outside the Contract".
Coulson J held in the particular case before him that prima facie S&W would not be able
to make an alternative claim for a quantum meruit in respect of an item of allegedly varied
or additional work if they had already failed to demonstrate, under the Contract, that that
item of varied or additional work had been instructed and/or requested and/or authorised
by Cauldron. If the claim under the Contract for that item of allegedly varied or additional
work failed because the necessary instruction or request or authorisation could not be
proved, then, at least prima facie, such an omission would also be fatal to any alternative
claim for a quantum meruit.
He also held that leaving aside the difficulty created by the existence of the contract itself,
S & Ws alternative claim would have to demonstrate that, in some way, Cauldron freely
accepted services in circumstances where they should have known that S & W would
expect to be paid for them. He considered that might be difficult where the item of extra
work in dispute was not clearly requested or instructed or authorised.
Coulson J did however recognise the possibility for a quantum meruit claim in the situation
where S&W could show that an increase in the scope of supply had been authorised by
Cauldron as a matter of principle (because, for instance, there was a clear minute to that
effect), but where the amount of expenditure had never been agreed or expressly
authorised by Cauldron. He considered that in those circumstances, it would depend on
the facts as to whether a claim was allowable under the Contract, given that a situation
where work was done before the expenditure was known or agreed would, prima facie,
comprise a breach by S & W of the contract procedure identified. Judge Coulson observed
that there may be circumstances in which such a claim might be sustained, although, that
would depend each time on the facts and the potential arguments put forward by S&W.
6. Is There an Entitlement to Reimbursement for Requested Work Carried Out
Without a Contract?
A claim for quantum meruit in restitution may arise in the following situations:
1. Where the parties proceed on the mistaken basis that there is an enforceable
contract, but there is no contract.
2. One party requests services from the other which are not governed by a contract.
3. Where the contract is frustrated.
4. Where before completion the contractor accepts a repudiation by the employer as
terminating the contract. The contractor can elect to sue for damages for breach of
contract or quantum meruit in restitution for the work performed.
In Banque Financiere de la Cite v Parc (Battersea) Ltd  1 AC 221 Lord Steyn
identified four questions which arose in relation to any claim in restitution:
Had the defendant benefited or been enriched?
Was the enrichment at the expense of the claimant?
Was the enrichment unjust?
Were there any defences?
All the circumstances need to be considered. In Mowlem plc v PHI Group Limited 
HH Judge Gilliland QC considered on appeal from an arbitrator an alternative claim for
payment on restitutionary principles. The arbitrator found that the parties had acted
together for their mutual benefit. It was held that if the supply of material benefited Mowlem
because it meant it would not be at risk of being in breach of its own contract, that was a
material factor to take into account when concluding that no entitlement to restitutionary
benefit arose in the circumstances.
If there has been a total failure of consideration in a contract the injured part can then make
a claim in restitution. So, for instance, if the subcontractor has not performed at all, the
contractor can claim for the return of monies paid. If the subcontractor has been overpaid
and has failed to complete, the contractor can recover the overpayment even if it has
managed to have the work completed without, in fact, incurring any loss despite the
Estoppel by convention can operate to prevent a claim to restitution of payment by mistake.
If the money is spent in good faith, in reliance on the representation that there was an
entitlement to it, then the order for repayment will create the detriment sufficient to found
7. Are There Any Situations Where Speculative Work Can Be Reimbursed?
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 that was accepted.
In Easat Antennas Ltd v Racal Defence Electronics Ltd  (ChD) 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 Racals bid would fail, it was not
prepared to run the risk that, if Racals bid succeeded, as it did, that it would not be
rewarded. It was held that 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  CLC 324 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
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  EWHC 1867 (TCC)
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
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.
8. What is the Measure 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  (TCC).
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
In Clarke & Sons v ACT Construction  EWCA Civ 972 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.
ACTs 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 Clarkes expert but that that 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% (Clarkes 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
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
The Court of Appeal held that there was nothing to support the judges 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 Clarkes 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)  CSIH89 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 commence 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 AmeyMiller 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
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.
9. What is the Measure of Reimbursement for Quantum Meruit When the Work is
Not Part of a Contract?
The practical issue is usually whether the measure of reimbursement is on the basis of
cost incurred with contribution for profit and overheads, or whether it is to be based on
market value. Where there is a contract with prices but which does not apply or an
unconcluded contract with prices, this may be taken into account in considering the
reimbursement. In some cases there will be little difference in the measure between cost
and market value. It might be thought that a measure based on rates would always be
higher than one based on costs. This may not always be the case where the rates are
based on an unconcluded contract, since there are many commercial reasons for a
contractor to bid low for a contract.
In the case of an express contract to do work at an unquantified price, the measure is the
reasonable remuneration of the contractor. In the case of a benefit which it is unjust to
retain the measure is the value to the employer normally the market value, namely the sum
that would have been agreed including profit. In between there is a borderline, the position
of which is debatable Serck Controls Ltd. v. Drake & Scull Engineering Ltd. (2000).
The unconcluded contract may be good evidence of the appropriate measure.
In the measure of a fair remuneration and allowance for profit, consideration had to be
given to the relationship of the parties and the competitive edge that the subcontractor had
by the significant advantage of having already mobilized his equipment Costain Civil
Engineering Ltd v Zanen Dredging & Contracting Co  85 BLR 77.
In Sanjay Lachhani v Destination Canada (UK) Ltd. (1997) Mr Recorder Colin Reese
QC considered that the contractors offer in the unconcluded contract should act as an
upper limit to the measure of the quantum meruit, even though that might lead the
contractor to sustain a loss:
"A building contractor should not be better off as a result of the failure to conclude a
contract than he would have been if his offer had been accepted, i.e., in practical terms, in
a case such as this, the price which the building contractor thought he was to get for the
works (because he thought his offer had been accepted) must be the upper limit of the
remuneration to which he could reasonably claim to be entitled, even if at that level of
pricing the building contractor would inevitably have ended up showing an overall loss."
In ERDC Group Limited v Brunel University  (TCC) Brunel issued five letters of
intent and the authority under the last letter expired on 1 September 2002. At that date
40% by value of the work remained to be done. The majority of the works were finished by
the end of November 2002.
On being sent contract documents for signature ERDC stated in a letter of 3 December
2002, that it declined to sign and claimed (for the first time) that it would only continue work
on the basis that all work carried out by it would be valued on a quantum meruit basis
rather than in accordance with the Valuation Rules under the JCT Standard Form. Prior to
December 2002 ERDC had submitted eight Applications for Payment based on the
Contract Sum Analysis of the proposed conditions of contract and following the JCT
HH Humphrey Lloyd QC considered the valuation of work carried out after 1 September
2002, when the authority of the letters had expired. He held that there were no hard and
fast rules for the assessment of a quantum meruit. All the factors had to be considered.
It was recognised that the circumstances in the instant case were unusual in that there
was a move from contractual to a non-contractual basis. He held that it was not right to
switch from an assessment based on ERDCs rates to one based entirely on ERDCs costs.
The move was not marked at the time and ERDC only made its position clear at a much
later stage by which time all the main elements of work were either substantially complete
or heading for completion. A price or rate that was reasonable before 1 September did not
become unreasonable after 1 September simply because the authority in the letter of
Lloyd J held that for variations, the use of the rates in ERDCs March Tender Estimate
breakdown, was sensible. Such a contractual basis was in principle fair for the purposes
of a quantum meruit, especially where ERDCs tender was not abnormally low but was
close to others and the rates and prices shown in the March Tender Breakdown compared
with the 2002 Spons Price Books and were objectively reasonable.
Lloyd J held that in assessing a quantum meruit by reference to rates and prices (whether
contractual or conventional, such as those in Spon) it would ordinarily be right to see that
something was included for the costs incurred should the execution of the works be
prolonged beyond the period contemplated by the rates (taking into account the risks for
which the rates must be taken to have covered for otherwise there may be duplication) and
a fair allowance for time-related costs would not otherwise be achieved. Assessment by
reference to actual cost would not require such an exercise.
Lloyd J held that in a cost plus valuation the overhead percentage to be used was that in
the audited accounts for the year in which the work was carried out which in this case was
12.66%. For the valuation of variations a figure of 20% was to be used comprising 10% for
overheads, 55% for site preliminaries and 5% for site design which was not the actual
figure but the figure that would have been adopted if a contract for the whole work had
As to profit, Lloyd J held that the actual return that the contractor would have made needed
to be adopted and not by reference to the profit of others, in this case 0.7%. This applied
for valuing all work assessed on a quantum meruit The figure was contemplated by ERDC
for the project and near enough that used by it during the work. ERDC competed for the
work and Brunel should not pay more than the amount which ERDC contemplated that it
would receive. The figure appeared low but it was originally the margin for risk and profit.
On a costs plus basis there was no risk; the amount was now only profit so it was higher
than ERDC might have received had there been a contract for the whole work.
10. If Work is not Part of a Contract Can Delays and Defects be taken into Account
in the Measure of Reimbursement for 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 contractors performance there is no benefit
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) 73 Con LR 100 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 firms 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  (TCC) 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
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 crossclaim 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
"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."