| Date | 14 August 2002 |
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| Judgment | ACT Construction Limited -v- E Clarke & Sons (Coaches) Limited, Court of Appeal 16 July 2002 |
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| The Issue | Establishing a contractual quantum meruit. |
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| Implication |
The courts will normally seek to find a contract arising out of parties' dealings and in the absence of express terms, imply into that contract an obligation to pay a reasonable sum. |
printDespite the sterling efforts of many in the construction industry, the procurement and contractual arrangements even for large construction projects are often extremely haphazard. A typical example is described in the Court of Appeal decision in the case of ACT Construction v E Clarke & Sons (Coaches). Clark conducted a successful coach operating business from a depot in south east London. By the late 1980's it was operating about 20 coaches from that depot, but by the end of the decade the fleet had doubled and it was becoming difficult to manage properly the maintenance, servicing and cleaning of these coaches from the depot which was becoming too small for its operations. In September 1990 Clarke became aware that the nearby site of a disused cold store was available for purchase. Planning permission would be needed for the refurbishment work and change of use. Moreover, the site itself was at different levels and considerable structural demolition and reconstruction work would be required. Nevertheless, Clarke agreed to buy the site, subject to planning permission, for approximately £840,000. Clarke then entered into discussions with representatives of ACT, with the intention that ACT would embark upon the necessary work to obtain planning permission, undertake design and carry out the redevelopment. By this stage, the job had become quite extensive. It involved the demolition of the cold store and other buildings, and the construction of a workshop, a spray booth and preparation area, a double inspection pit and a covered parking area. The overall job would require a great deal of demolition and drilling out of concrete and excavations, the construction of structural steel framing, cladding, extensive roofing and paving, the installation of equipment purchased by Clarke and the partial demolition, rebuilding and refurbishment of the office accommodation. Works commenced on a piecemeal basis with ACT submitting interim applications for payment during the course of the works. The works continued over a period of nearly two years, by which point ACT had been paid approximately £1.3 million. At this point the parties seem to have drifted apart. It was not until three years later that ACT submitted to Clarke a "reconciliation statement" for its work. This showed that the value of the work calculated by ACT was of the order of £1.5 million. This led to a dispute and ACT commenced proceedings for the recovery of a claimed balance of approximately £200,000. The court was initially asked to answer certain preliminary questions. Was there a contract, and if so, what were its terms as to payment, the scope of the work and the contract period? Judge Thornton QC faced an uphill struggle to make sense of the parties' relationships. Clarke argued that there was an agreement between the parties that ACT would construct the job, including the supply and installation of the necessary workshop equipment, for a cost which was to be not more than £815,000. Since the works had not been completed, Clarke was looking for a rebate upon the sum. ACT on the other hand argued that the contract was one for time and materials, with various mark-ups to be applied based on previous dealings between the parties. Judge Thornton noted that drawings and specifications of the work had not been agreed, nor was there agreement as to the extent to which equipment being ordered and paid for directly by Clarke would be included within the scope of the work or its price. In conclusion he held that no contract had come into being between Clarke and ACT and that, in consequence, ACT became entitled to be paid on a quantum meruit basis. The quantum meruit was to be a reasonable price, calculated on a daywork basis for the time and materials employed by ACT subject to a mark-up of 15% to be applied to the last two outstanding invoices submitted by ACT. Curiously, Judge Thornton concluded that all earlier invoices for which mark-ups of up to 25% had been applied were not open for review, since Clarke had not previously challenged these. At the end of that analysis judge Thornton gave judgment for ACT for some £186,000. That sum became the subject of an appeal. Lord Justice Ward, sitting in the Court of Appeal, was clearly irritated at having to deal with such matters. He ordered the barristers for both sides "to make a serious effort to achieve what might be unique in this case, mainly a measure of agreement about anything". He disagreed with Judge Thornton that there had been no contract, instead holding that the proper conclusion was to find that there was "a contractual quantum meruit". He explained this to the effect that, provided there is an instruction to do work, and an acceptance of that instruction, then there is a contract and the law will imply into it an obligation to pay a reasonable sum for that work. This made absolutely no difference however to Clarke, because the contractual quantum meruit contained no term limiting payment to £815,000 or any other figure. Lord Justice Ward did, however, reverse Judge Thornton's decision concerning the earlier payment applications. These, he held, were merely interim applications for payment and the mark-ups which had been applied by ACT in respect of all earlier applications for payment were open to review. This exercise was to be referred back to the Technology and Construction Court if the parties should not agree the correct figure. Showing his disdain for the whole matter, Lord Justice Ward said, "the prospect of re-opening the amount upon which the 15% uplift is to be attributed is too ghastly to contemplate". That statement speaks volumes for the folly of construction people who end up in the Court of Appeal.
CJ-0231
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