Quantum Meruit: Valuation Issues Franco Corsaro SC, Ben Jacobs & Declan Byrne

Test for Unjust Enrichment / Restitution OVERVIEW Test for Unjust Enrichment / Restitution Before we get to Quantum Meruit, must first establish: The defendant must receive a benefit At the expense of the plaintiff It would be unconscionable for the defendant to retain the benefit BUT - how do you value that benefit?

Today Meaning of quantum meruit OVERVIEW Today Meaning of quantum meruit Where there is no contract between the parties, what circumstances do the cases indicate are relevant to the valuation of a quantum meruit? What evidence do you need to lead

Part I – What does Quantum Meruit mean? OVERVIEW Part I – What does Quantum Meruit mean?

What does Quantum Meruit mean? OVERVIEW What does Quantum Meruit mean?

What does Quantum Meruit mean? OVERVIEW What does Quantum Meruit mean?

What does Quantum Meruit mean? OVERVIEW What does Quantum Meruit mean? “Quantum meruit is viewed as the route to the ‘pot of gold’ releasing the contractor the contract price allowing virtual cost-plus recovery. The trick for the contractor is to catch the leprechaun to lead to the pot of gold.” -Doug Jones & Rosslyn Varghese, ‘Quantum Meruit in Australia – How the rules calculate value for done are changing’ (1992) BCL 101

What does Quantum Meruit mean? OVERVIEW What does Quantum Meruit mean? “It has been said that the restitutionary quantum meruit is the ‘Siamese twin’ of the developing doctrine of estoppel, both providing a remedy for a claimant where the contractual analysis fails to provide a fair and just solution’ -Paul Finn in ‘Commerce, the Common Law & Morality’ (1989) 17 MULR 87 quoted in Doug Jones & Rosslyn Varghese, ‘Quantum Meruit in Australia – How the rules calculate value for done are changing’ (1992) BCL 101

What does Quantum Meruit mean? OVERVIEW What does Quantum Meruit mean?

Part II – Circumstances relevant to valuation (where no contract) OVERVIEW Part II – Circumstances relevant to valuation (where no contract)

How do you assess the value? OVERVIEW How do you assess the value? There are different ways to assess the value of the work performed For instance: From the plaintiff contractor’s perspective: cost + margin From the defendant principal’s perspective: increase in value of the property as a result of the work Which one is correct?

How do you assess the value? OVERVIEW How do you assess the value? ‘…What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or ‘enrichment’ actually or constructively accepted. Ordinarily that will correspond to the fair value of the benefit provided (eg, remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied)” -Deane J in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 22 at 263

How do you assess the value? OVERVIEW How do you assess the value? Deane J in Pavey: ordinarily the fair value of the work (eg, remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied) BUT what does that actually mean?

How do you assess the value? OVERVIEW How do you assess the value? Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221 at 262 per Byrne J “…the fundamental yardstick is what is a fair and reasonable remuneration or compensation for the benefit accepted actually or constructively by [the defendant]. …Where the services have been performed at the request of a defendant or under an ineffective contract, the fair value of the work of the party will ordinarily be the remuneration calculated at a reasonable rate for the work actually done, for the defendant having obtained the benefit of a plaintiff's work ought not be permitted to enjoy this work without having paid for it… The assessment, then, must have regard to what the defendant would have had to pay had the benefits been conferred under a normal commercial arrangement. The enquiry is not primarily directed to the cost to the plaintiff of performing the work since the law is not compensating that party for loss suffered… …But this is not to ignore these costs for the reasonable remuneration for work must have some regard to the cost of its performance…”

How do you assess the value? OVERVIEW How do you assess the value? Key issues distilled from Brenner: The aim is to assess a fair / reasonable remuneration for the benefit accepted (and not to compensate a person performing the work) regardless of whether this produced an "enormous profit" or none at all Given the focus is on the benefit accepted, this exercise must be undertaken from the position of the defendant (ie. the principal / homeowner) Where there’s no contract, ordinarily that assessment is simply a reasonable rate for the work actually done

How do you assess the value? OVERVIEW How do you assess the value? Key issues distilled from Brenner (cont’d): 3. Regard must also be had to what the defendant owner would have had to pay had the benefits been conferred under a normal commercial arrangement 4. Cost incurred by the plaintiff builder is not determinative of what is fair / reasonable although it is evidence.

How do you assess the value? OVERVIEW How do you assess the value? Can you take into account subjective valuation? Subjective devaluation – that is, if the benefit to the defendant is less than the fair market rate Subjective revaluation – that is, if the benefit to the defendant is more than the fair market rate For that, we need to turn to a recent English decision

How do you assess the value? OVERVIEW How do you assess the value? Benedetti v Sawiris [2013] UKSC 50 LORD CLARKE (with whom Lord Kerr and Lord Wilson agree): “[18] The question then arises whether it is permissible to reduce the objective market value in order to reflect the subjective value of the services to the defendant. In my opinion, it is. … A defendant, in my view, is entitled to prove that he valued the relevant services (or goods) provided by the claimant at less than the market value. That principle is widely accepted by academic commentators and is based on the fundamental need to protect a defendant's autonomy. …”

How do you assess the value? OVERVIEW How do you assess the value? Benedetti v Sawiris [2013] UKSC 50 LORD CLARKE (with whom Lord Kerr and Lord Wilson agree): “[18] …The editors of Goff and Jones put it thus at para 4-06: People have different means and spending priorities, and they value benefits differently according to their personal tastes. Consequently, as Lord Nicholls said in Sempra, 'a benefit is not always worth its market value to a particular defendant', and 'when it is not it may be unjust to treat the defendant as having received a benefit possessing the value it has to others'. The common law 'places a premium on how to spend one's money' [see Peel v Ontario [1992] 3 SCR 762 at para 25, per McLachlin J], and this right might be unfairly compromised if a defendant were forced to make restitution of the market value of a benefit which he would not have bought at all. To avoid this, the court may therefore assess the value of the benefit by reference to the defendant's personal value system rather than the market." “[21] After the claimant has adduced evidence of the objective value of the benefit which the defendant received, the burden of proof falls upon the defendant to prove that he did not subjectively value the benefit at all, or that he valued it at less than the market price…”

How do you assess the value? OVERVIEW How do you assess the value? Benedetti v Sawiris [2013] UKSC 50 (cont’d) “[34] In summary, in my opinion, in a case of this kind, (i) the starting point for identifying whether a benefit has been conferred on a defendant, and for valuing that benefit, is the market price of the services; (ii) the defendant is entitled to adduce evidence in order subjectively to devalue the benefit, thereby proving either that he in fact received no benefit at all, or that he valued the benefit at less than the market price; but (iii) save perhaps in exceptional circumstances, the principle of subjective revaluation should not be recognised, either for the purpose of identifying a benefit, or for valuing a benefit received.”

How do you assess the value? OVERVIEW How do you assess the value? Deductions – Defective Work If the work is defective, a deduction may be appropriate Such a deduction is to be an amount equal to the reasonable cost of bringing the works to the required condition Ensures that the owner only pays for the actual benefit received Conceptually speaking, it is: Not a set-off / cross-claim But rather a limit on the reasonable value of the work This means that a deduction can result in the value of the work being reduced to nil but never result in a payment owed by the principal to the contractor

How do you assess the value? OVERVIEW How do you assess the value? Deductions – Late Completion If the work is completed to an acceptable standard but later than required, a deduction may be appropriate HOWEVER, a deduction can only be made where the claimed value of work includes time-based costs This is to ensure that the owner is paying for the reasonable value of the work rather than for any inefficiencies in how the contractor performed that work If there are no time based costs, a deduction CANNOT be made NB – Although a cross-claim may be available for damages incurred by reason of the delay

OVERVIEW Part III – Proof

Evidence needed to prove QM OVERVIEW Evidence needed to prove QM Applying Brenner, in preparing evidence, a claimant should: obtain evidence of the builder’s costs + margin ensure that the resulting amount is reasonable in all the circumstances, including by : making deductions on account of any defective works; and if the assessment includes time-based costs, making deductions for any inefficiencies AND verifying that the values generated by that exercise are consistent with market rates and would be payable by the principal under normal commercial arrangements.

Evidence needed to prove QM OVERVIEW Evidence needed to prove QM Applying Benedetti , it would then be for the defendant principal to Obtain evidence seeking to subjectively devalue the work (that is, that the work conferred a lesser or no benefit)