22 August 2019

Right to payment: Will quantum meruit apply if there is no contract?

The case of Moorgate Capital (Corporate Finance) Ltd v HIG European Capital Partners LLP [2019] EWHC 1421 is a valuable lesson for contractors and sub-contractors carrying out work before the contract has been finalised or (in some cases) on a letter of intent.

Whilst this case was more to do with the world of high finance than construction, it is relevant to construction professionals.

In this case there was no written contract and the court decided there was no oral agreement either. The fall-back in this situation therefore is that payment should be made on a quantum meruit basis i.e. a reasonable sum paid for the services provided. However, in this instance, the court refused payment of any sums to the claimant.

The key findings of the court are as followings:

  1. If there is no contract, then there is no general right to payment.
  2. However, the modern approach is to award payment of a reasonable sum for the services, particularly, if a tangible benefit has been received as a result of the services provided.
  3. The same applies where the services have been requested to be provided, the party requesting them knows they are not intended to be provided at no charge.
  4. However, the court will also consider whether the party providing the services took the risk that it would only be reimbursed if there was a concluded contract.

For construction professionals, the key issues typically are whether the party providing the services expected to be paid (or whether, in reality, it was doing work at risk in the hope of a future contract) and whether the party benefiting from the service expected to be charged for those services.

The difficulty that this creates is that once a dispute has arisen between the parties, very often the only reliable evidence is the written evidence created before the dispute arose and, in these situations, that evidence tends to be fairly sparse.

In addition, the courts are alive to the fact that evidence given by witnesses is often more wishful thinking, rather than what they actually thought at the time.

The key learning from this case is to ensure that there is something in writing. Obviously, an executed contract is the ideal. What contractors and sub-contractors must avoid is simply carrying out work without having had a discussion about fees, because in the absence of a contract, the court may interpret that failure to discuss (and document that discussion) as tantamount to an intention that no fees are to be charged.

Similarly for developers – if you want work to be carried out at no charge, discuss it with your contractor. Quite often they will be prepared to take the risk. If it is not discussed then the developer could find itself on the receiving end of a substantial claim.