New Zealand Law Society - Electrix Ltd reaffirms NZ quantum meruit position for contractors

Electrix Ltd reaffirms NZ quantum meruit position for contractors

By Derya Siva

In the recent case of Electrix Ltd v The Fletcher Construction Company Ltd [2020] NZHC 918 Justice Palmer reaffirmed the New Zealand position regarding quantum meruit with respect to contractors seeking compensation for goods and services provided in the absence of a concluded contract (at [80]).

Quantum meruit generally

Quantum meruit is a common law (restitutionary) remedy which allows a party to recover the reasonable value of services provided, when there is no enforceable contractual obligation to pay for the services. This can arise where the parties failed to conclude a contract or their contract lacks a workable payment mechanism. The phrase ‘quantum meruit’ means ‘as much as he deserves’.

Generally, a contractor’s quantum meruit claim will succeed if it can show that it provided work or services to the principal in circumstances where the contractor is entitled to be compensated by the principal by way of receipt of a reasonable price of remuneration (Nichoas Dennys and Robert Clay Hudson, Building and Engineering Contracts, 14th ed, Sweet & Maxwell, London, 2019, at [1-089]). In the context of additional work, Julian Bailey states in Construction Law (3rd ed, London Publishing Partnership, London 2020, at [6.46]):

“A person who performs work for another, in circumstances where (a) an applicable contract does not exist between the parties; (b) the other person has requested that the work be performed (c) the work confers a benefit on the person who requested it; and (d) the work was not performed on a gratuitous basis, is entitled, in law, to be paid a reasonable remuneration for performing that work.”

Quantum meruit is an important remedy for contractors as it can provide protection if there is no contract or there are deficiencies within the contract, and gives contractors an avenue to claim a reasonable sum for work that has been completed.

Quantum meruit in New Zealand

Courts in most common law jurisdictions have adopted the idea that quantum meruit and other aspects of restitution law are founded on the concept of unjust enrichment. Although New Zealand has considered these theories, it has not accepted unjust enrichment as a unifying doctrinal foundation for quantum meruit. Instead, New Zealand has identified the precise elements of quantum meruit, which are discussed below.

In Electrix Ltd Palmer J noted at [80] that the leading decision in New Zealand on quantum meruit is Morning Star (St Lukes Garden Apartments) Ltd v Canam Construction Ltd CA90/05, 8 August 2006, [2006] NZCA 443. In Morning Star the Court stated that:

  1. quantum meruit is a restitutionary claim (if quantum meruit was based on unjust enrichment, the requirement of a benefit to the defendant was logical. But if its true purpose was to compensate the plaintiff, the nature and extent of the benefit may have little or no relevance) ([2006] NZCA 443 at [44]); and
  2. that the purpose of quantum meruit is to fairly compensate the plaintiff for services provided, based on the law of promissory obligations (at [43] citing Ross B Grantham and Charles E F Rickett Enrichment & Restitution in New Zealand, Hart Publishing, 2000).

The Court of Appeal set out the elements required to prove quantum meruit (at [50]):

“It is sufficient to say that there is general agreement that a plaintiff will be able to establish a quantum meruit claim where the defendant asks the plaintiff to provide certain services, or freely accepts services provided by the plaintiff, in circumstances where the defendant knows (or ought to know) that the plaintiff expects to be reimbursed for those services, irrespective of whether there is an actual benefit to the defendant.”

If the contractor/plaintiff meets this test, it must still show that the additional work was outside the scope of the contract. If the additional work was within the contract (including within the variation clause), the claim will be analysed on the terms of the contract.

In Cassels v Body Corporate 86975 [2007] BCL 678, Justice Miller observed a further possible basis for a quantum meruit claim. In fact, a lack of enrichment has not prevented the courts from awarding quantum meruit and suggested at [41]:

“A person is entitled to reasonable reward for time and effort expended on another’s behalf, at the behest or with the acquiescence of that other, the time and effort not being intended nor appearing to be gratuitous.”

Justice Miller considered that the better view was that unjust enrichment cannot fully account for quantum meruit and that a defendant who accepts services knowing the plaintiff wants payment is liable to pay a reasonable price for them, whether or not the defendant was enriched (at [41]). Justice Miller held (at [43]):

“The elements of a quantum meruit claim are threefold: the plaintiff provided services for the defendant; the plaintiff wanted payment and made that reasonably apparent to the defendant; and the defendant freely accepted the services or at least acquiesced in their provision.”

Further, in the more recent judgment in Northlake Investments Ltd v Wanaka Medical Centre Ltd [2019] NZHC 3443, Justice Osborne observed that rendering services without a defendant obtaining a benefit does not bar a claim, on the authority of Morning Star (at [235]). Justice Osborne had regard to factors including:

  1. the extent of risk undertaken by the plaintiff;
  2. whether the services would normally be provided free of charge;
  3. whether the plaintiff accelerated work at the request of the defendant; and
  4. why a project did not materialise.

What amount is deserved?

To date, New Zealand case law has not considered the principles governing the calculation of an amount ‘deserved’ in any great detail. Where claims for non-contractual quantum meruit have been successful, the court has generally referred to the plaintiff’s ability to recover the reasonable cost of the services (Electrix Ltd v The Fletcher Construction Company Ltd [2020] NZHC 918 at [93]) .

In making an assessment of ‘what amount is deserved’, courts in New Zealand consider the following:

  1. the market price of the services;
  2. any agreed price;
  3. the benefit to the defendant; and
  4. any subjective valuation (Miller J in Cassels [2007] BCL 678 at [51] to [54]).

In Electrix, Justice Palmer considered the decisions on quantum meruit and at [97] he clarified 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…”

In conclusion, the Electrix judgment has reaffirmed the position regarding quantum meruit in New Zealand – to prove quantum meruit, proof of a benefit to the defendant is not always necessary and while information regarding the market value of the services is relevant, just as relevant is the actual cost to the plaintiff of providing the services in the circumstances at the time.

Derya Siva is an associate in the Construction and Major Projects Team at Dentons Kensington Swan.

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