| Date | 14 June 2006 |
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| Judgment | ERDC Group Limited v Brunel University, TCC 29 March 2006 |
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| The Issue | The effect of defects upon a quantum meruit valuation. |
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| Implication |
Whilst defects might abate the valuation, the cost of their rectification does not give rise to a “counterclaim”. |
printIn my article last month (Contract Journal, 10 May 2006) I considered the case of ERDC Group Limited v Brunel University where it was found that the contractor (ERDC) was entitled to a quantum meruit valuation in respect of works executed for the university during a period when there was no contract. The entitlement to a quantum meruit valuation arises under the law of restitution in circumstances where one party requests works to be undertaken and the other party complies with that request, but when no contract comes into existence. Quantum meruit means (literally) ìthe amount he deservesî or ìwhat the job is worthî and on the facts of this particular case the judge held that it was appropriate to have regard to rates and prices that had been tendered by the contractor and which had been used by the parties during a period when there was a contract between them. This was because it could be seen that these rates and prices represented a fair commercial price, and had actually continued to be used by the parties during the period when there was no contract. This approach was subject to two important qualifications. The first was in relation to any additional delay or disruption costs which the contractor may have incurred and which were not due to its own failure to properly progress the works. Clearly, any rates within the contractorís tender would not contain an allowance in respect of risks which a contract would have allocated to the employer and so any quantum meruit valuation based upon those rates would require adjustment to the extent that the contractorís costs were actually increased as a consequence of those risks materialising. The second (and more interesting) qualification concerned what the university termed its ìcounterclaimî. This related to a range of issues where the university alleged that there were defects in the works when the contractor left the site at the end of March 2003. Of course, as everyone recognised, this could not be a true counterclaim as there was no contract (hence the need for a quantum meruit valuation) and so there could be no breach of contract. In such circumstances, how was a court to approach such matters? The first problem arose in relation to the ìcounterclaimî was that if there is no contract, what are the standards against which any work undertaken is to be gauged in order to determine whether it is defective? If there are no contractual standards, does it means that the contractor is free to do as it wishes and still expect to be paid? The court answered this question by observing that, in this case, the request to undertake work followed a period when the contractor was working in accordance with agreed contractual standards, and this was therefore the context in which the universityís request to undertake further work was made. Accordingly, the standard of design, workmanship and the like to be expected of the contractor during the period when there was no contract was that applicable to the preceding period when a contract existed. Even if there had not been detailed standards in existence, there would have been the usual implied requirements to provide work of a reasonably good quality. Having set the standards against which the quantum meruit valuation should be made, the second problem that had to be addressed was how the valuation would be affected by any failure of the contractor to comply with those standards. Obviously, if the valuation is to reflect ìwhat the job is worthî, then a job which does not meet the standards required of it is worth less than one which does. One way of answering this question would be to take a traditional value based approach and abate the value of the works executed to reflect the fact that they did not achieve the required standard. Where (as in this case) the quantum meruit valuation was based on rates then the relevant rates might be reduced (possibly to zero) to reflect the degree of non-compliance. If the quantum meruit valuation was based on cost, then some or all of the cost might be disallowed as the employer has not received the full (or possibly any) benefit from it. However, in their defence the university decided to take a more adventurous approach and in certain circumstances sought to reduce the quantum meruit valuation by the costs it said it had (or sometimes would) incur in bringing the works executed up to the required standard. This approach was much closer to a conventional ìcounterclaimî for defective works than the abatement approach outlined previously. If taken to its logical conclusion, could result in a situation where, if the universityís costs exceeded the quantum meruit valuation, the contractor actually owed money to the university. In deciding between these two approaches, and after a detailed consideration of the various authorities, the Judge favoured the valuation based approach, whereby the quantum meruit valuation was abated, rather than allowing the ìcounterclaimî based approach put forward by the university. After applying this approach to the evidence before him the reduction made in respect of such ìdefectsî was closer to £22,000, than the £150,000 sought by the university.
CJ-0623
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