Quantum meruit means “as much as one has deserved”. It is a claim for a reasonable sum for the services supplied, where the services supplied was not compensated. 

In a construction contract, the main beneficiary of the services of the contractors and sub-contractors is usually the employer/owner of the project. 

Can a nominated sub-contractor who has not been paid by the main contractor for work done, sue the employer on a quantum meruit basis, even though there is no contract between the employer and the sub-contractor? After all, the employer would have benefited from the sub-contractor’s work.

The High Court case of Bauer (Malaysia) Sdn Bhd v Hundred Vision Construction Sdn Bhd & Anor [2020] MLJU 543 explored this in detail.

Brief facts

  • The Plaintiff, Bauer (Malaysia) Sdn Bhd, is the nominated sub-contractor (“NSC”) appointed by the 1st Defendant, Hundred Vision Construction Sdn Bhd (“Main Contractor”) for substructure works in a high-end services suites called Tribeca. 
  • The Main Contractor was appointed by the 2nd Defendant, Bakti Dinamik Sdn Bhd (“Employer”).
  • The NSC was not paid by the Main Contractor for its Interim Certificates 16 and 17 amounting to a total sum of RM4.2 million. The NSC commenced adjudication against the Main Contractor for the sum which it won. 
  • After receiving an adjudication decision in its favour, the NSC later found out that the Main Contractor was struck out by the Companies Commission of Malaysia. 
  • The NSC then commenced a claim against the Main Contractor and Employer to claim for the sum of RM4.2 million. 
  • A judgment in default was entered against the Main Contractor. The live issue remained as to whether the NSC’s claim against the Employer should be allowed.

Decision of the High Court

  • There were a few issues before the High Court but the focus of this article is on whether the NSC can claim against the Employer on a quantum meruit basis.
  • In support of its claim of quantum meruit, the NSC relied on Section 71 of the Contracts Act 1950 which provides for the obligation of a person enjoying the benefit of a non-gratuitous act to make compensation. 
  • The High Court was guided by Federal Court in Usima Sdn Bhd v Lee Hor Fong (trading under the name and style of Pembinaan LH Fong) [2017] 5 MLJ 273 which referred to the Privy Council decision in Siow Wong Fatt v Susur Rotan Mining Ltd & Anor [1967] 2 MLJ 117 where 4 conditions were listed to claim under Section 71 of the Contracts Act 1950. Basically, the act done or thing delivered:
    • must be lawful;
    • must be done for another person;
    • must not be intended to be done gratuitously; and
    • must be such that the other person enjoys the benefit of the act or the delivery. 
  • The High Court in applying the 4 conditions above to the facts of the present case found that contractually the NSC was to bill the Main Contractor for the work done where the Main Contractor will then bill the Employer for the work by the NSC. The Employer will then pay the Main Contractor which will pay the NSC for the work done. 
  • While the Employer ultimately benefitted from the work by the NSC, the parties have structured their relationship where there is no privity of contract between the NSC and Employer. 
  • The NSC cannot claim against the Employer under quantum meruit as parties have contractually arranged for such relationship. The NSC should still sue the Main Contractor, notwithstanding that it has been struck out from the Register of the Companies Commission of Malaysia. 
  • The High Court found support in the Australian High Court judgment of Lumbers & Anor v W Cook Builders Pty Ltd (In Liq) [2008] HCA 27 where it was held that to consider a claim under quantum meruit, it is important to ascertain how the claim fits into the contract that parties have entered into. It would be a radical alteration of the contract if the employer has been imposed with an obligation to pay the sub-contractor. 
  • The High Court distinguished against the Court of Appeal case of Tanjung Teras Sdn Bhd v Kerajaan Malaysia [2015] MLJU 2161 where the sub-contractor’s claim for quantum meruit against the employer was allowed:
  • There, the Court of Appeal held that Section 71 of the Contracts Act 1950 was wide enough to allow the sub-contractor to claim against employer as that Section is premised on the equitable principle of restitution, good conscience and prevention of unjust enrichment. 
  • The case of Tanjung Teras differed from the present case as the employer in Tanjung Teras had not paid anything to the main contractor regarding the sub-contractor works. Here, the Employer had made the full payment for the NSC’s work to the Main Contractor. 
  • Therefore, the Employer was not unjustly enriched but the Main Contractor. 
  • The NSC’s quantum meruit claim under Section 71 of the Contracts Act failed. 

Key Takeaways

Whether a sub-contractor can succeed in a claim under quantum meruit against the employer, depends on whether the main contractor has been paid by the employer for work by the sub-contractor. Courts will prioritize the contractual relationship that has been agreed to by the parties, and it may be an uphill task for a sub-contractor to claim quantum meruit against an employer. Its recourse would primarily lie against the main contractor with whom they have a contract with, although some exceptions could apply (eg: a claim for direct payment from the principal under the Construction Industry Payment and Adjudication Act 2012).

***

This article was written by Sean Ferdinand Ng (Associate) from Donovan & Ho’s dispute resolution practice. 

Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.

 

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