Can I get paid if there’s no contract?

By - , Build 179

While a contract should be in place for all work carried out, sometimes this is not the case. Fortunately, under the law, all is not lost.

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ANCIENT ROME’S LEGAL SYSTEM has had a strong influence on the legal system of most western countries. Today, certain Latin concepts still continue such as habeas corpus, res judicata and quantum meruit.

Quatum meruit provides some comfort

Quatum meruit allows a contractor to recover the reasonable value of services provided when there is no enforceable contractual obligation to pay for the services. The phrase ‘quantum meruit’ means ‘as much as he deserves’.

It is rarely used as, in most instances, a contract has a workable payment process – for example, NZS 3910:2013 Conditions of contract for building and civil engineering construction section 12 – or a contract was formed even if it wasn’t signed. The courts will also assist the parties to find a workable contract where possible.

What you need to show

But what happens if you find no contract was in place or you have performed additional work for which your contract does not provide a way for you to be paid?

Generally, a contractor’s quantum meruit claim will succeed if they can show that:

  • an applicable contract or payment process does not exist between the parties
  • the other person has requested that the work be performed
  • the work confers a benefit on the person who requested it
  • the work was not performed on a gratuitous basis.

In those circumstances, the contractor is entitled, in law, to be paid a reasonable remuneration for performing that work.

Decisions in New Zealand

The leading decision on quantum meruit in New Zealand is Morning Star (St Lukes Garden Apartments) v Canam Construction. The Court stated that the purpose of quantum meruit is to fairly compensate the plaintiff for services provided.

The Court set out the elements required to prove quantum meruit. To succeed in a claim for quantum meruit, a contractor must prove that:

  • the principal (or its agent, the engineer/employer’s representative) requested it to provide certain services or freely accepted services provided by the contractor
  • the principal knew (or ought to have known) that the contractor expected to be reimbursed for performing those services.

Scope of work and variations

If the contractor meets this test, they must still show that the additional work was outside the scope of the contract.

A contractor should not be confused with additional work for a contract that contains a variation clause. In such a case, any claim for additional work will be analysed on the terms of the particular contract, for example NZS 3910:2013, clause 9.

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Principal gets no benefit from services

The more recent case of Northlake Investments v Wanaka Medical Centre gave further clarity. The Court stated that, on the authority of Morning Star, if a contractor renders services but the principal does not obtain a benefit from those services, it does not bar a contractor’s claim.

Northlake involved a project where preparatory works were performed under acceleration, but the project did not eventuate. Justice Osborne had regard to factors including:

  • the extent of risk undertaken by the contractor
  • whether the services would normally be provided free of charge
  • whether the contractor accelerated work at the request of the defendant
  • why a project did not materialise.

What amount is deserved?

To date, New Zealand courts have not considered the principles governing the calculation of an amount deserved by contractors in any great detail. In making an assessment of what amount is deserved, courts in New Zealand consider:

  • the market price of the services
  • any agreed price
  • the benefit to the defendant
  • any subjective valuation.

Benefit to the principal is not always necessary in New Zealand. Information about the market value is relevant to assess the reasonable cost of the services provided. However, just as relevant is the cost to the contractor of providing the services in the circumstances of the work at the time. In certain circumstances, that may be different to the market value of the work completed.

Justice Palmer, in the Electrix v The Fletcher Construction Company judgment released in April 2020, brought all these principles together. His Honour reconfirmed that the benefit to the principal may not always fairly compensate the contractor, given the particular circumstances. Where work was performed at the request of the principal under urgency – acceleration – or involved working in conditions not originally envisaged when the tender price was submitted, then valuation methods listed apply.

All is not lost

It should be a fundamental aspect of business to ensure a written and signed contract is in place for all work you agree to perform, preferably before you start that work. However, should you find that a contract was not concluded or the payment process within your contract does not provide for an aspect of the work performed, all is not lost. Quantum meruit may save the day.

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Note

For specific advice on this or any other construction legal queries, contact your legal advisor or Dentons Kensington Swan on (09) 379 4196.

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Articles are correct at the time of publication but may have since become outdated.

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