Contractors and those who use them sometimes wish to avoid getting into a contract at all. At one end of the spectrum, immense care is taken to formulate detailed letters of intent that strenuously deny the existence of a contract, at least for the time being. Time goes by and the mind wanders on to other things, such as doing the job. The contract never does get drawn up and signed.
At the other extreme, work starts after a chat in the pub, and for a month or two the contractor sends in his invoices for work done. It's only when they add up to rather more than was expected that anyone starts wondering about contracts.
Adjudication cannot help when there is no contract. The courts have been enthusiastic about enforcing adjudicator's decisions, but if there is any doubt at all about whether there was a contract, the decision will be worthless. That was established in one of the earliest cases to come before the Technology and Construction Court – The Project Consultancy Group vs The Trustees of the Gray Trust.
One of the best known "no contract" arguments in recent years involved the Beaufort Homes development in Cardiff Bay. The argument about whether there was or was not a contract went to a court hearing in early 1999, the Court of Appeal later that year, and back to the TCC in June 2000, when it was finally confirmed that there had been no contract. A six-figure sum was spent getting that far, and still the dispute rages on to establish how much the contractor is due.
The "how much?" question is the big problem when there is no contract. When lawyers don't know the answer to a question, we usually start talking in Latin. This is a prime example. The answer to the "how much?" question is "quantum meruit".
When lawyers don’t know the answer to a question, we start talking in Latin. Quantum meruit is a prime example
It is hardly surprising that the person who is doing the paying thinks that the quantum meruit (translation: what it's worth) should be a rather lower figure than that put forward by the receiver. The lawyers and quantity surveyors can usually find a way of arguing both cases, and the judge makes up his mind somewhere in the middle.
This was Judge Thornton's task in ACT Construction Ltd vs E Clarke and Sons (Coaches) Ltd. ACT had started off doing some minor bits and pieces in the coach depot on a dayworks basis. When Clarke decided to build a new coach station, ACT was the obvious company to do it. Clarke wanted a splendid new structure. The ACT managing director said that the cost would be about the same as the price that Clarke was paying for the site. There was a shaking of hands and a trip to the pub to celebrate.
Halfway through the job, the parties fell out about the sums being charged. Was there a contract or wasn't there? The judge found that there was no certainty about the scope of the work or the price. Moreover, as the hand-shaking had happened before Clarke acquired the site, it was unlikely that there had been any real intention to enter into a binding contract at the time.
If there was no contract, how much should ACT be paid? It had been invoicing on a time and materials basis, with an uplift that averaged 20%. Clarke said that it should be 8%. Judge Thornton decided that 15% was an appropriate uplift, but that there should be no downward adjustment to the daywork accounts already invoiced and paid.
It would be very dangerous to assume on the basis of this one case that quantum meruit means cost plus 15%. In fact, it is very dangerous to make any assumptions about quantum meruit on the basis of any case. The facts and circumstances of the next case are always sufficiently different to the last one for the lawyers and quantity surveyors to argue for a different calculation.
John Redmond is head of construction at solicitor Osborne Clarke in Bristol.