Sunday, 11 December 2011

A Contract Does Not (Necessarily) Preclude a Quantum Meruit / Unjust Enrichment Claim

It has been a busy several weeks and there are a few interesting cases to report on.

In what may be a small boon to plaintiffs in commercial cases, in Noh v. Plaza 88 Developments Ltd, 2011 BCCA 461, the Court of Appeal confirmed that existence of a contract between parties does not necessarily preclude a quantum meruit claim anchored in unjust enrichment: as long as the services for which compensation is sought fall outside of the particular agreement.

In Noh, P engaged N under a "fee agreement" to find investors and financing for a real estate  project.  Although N did finally find financing, it was of a different type than contemplated in the fee agreement and P refused to pay N's fee.  N sued for breach of contract and, in the alternative, for quantum meruit compensation.  The trial judge dismissed the breach of contract claim - finding that the financing obtained was outside of the scope of the fee agreement, but allowed the quantum meruit plea - finding that P was unjustly enriched and N was entitled to reasonable compensation for the work performed.

On Appeal, albeit for somewhat different reasons, the court upheld the dismissal of the breach of contract claim, finding that the financing procured by N was "was fundamentally different from that contemplated by the fee agreement" and thus did not require P to pay his fee under the agreement.  This left P's argument that "a claim for quantum meruit cannot succeed where there is a binding contract that governs the relationship between the parties and covers the services for which payment is claimed".  In particular, P relied on the following authority:
[64] In Kosaka v. Chan, 2009 BCCA 467 (CanLII), 2009 BCCA 467, 1 B.C.L.R. (5th) 1, this Court held at para. 17:
[17] Counsel was not aware of any authority in which unjust enrichment had been found where a valid and enforceable contract provided the reason for the conferring of the benefit on the defendant and the deprivation of the plaintiff. If a court were to allow recovery in these circumstances, the negotiation of contracts between arm’s-length parties would be an undertaking fraught with risk and the security of concluded agreements would be threatened. As Maddaugh and McCamus write in the Law of Restitution:
Where the enrichment results from the performance of a valid contractual obligation, the general policy favouring the security of transactions weighs against the intervention of restitutionary claims. Only if the transactions can be found to be unenforceable for a reason recognized either at law or in equity can the possibility of a restitutionary claim for the value of benefits conferred be entertained.                [Emphasis in original.]
See also: Lyons v. Speton (1993), [1994] 89 B.C.L.R. (2d) 268 at para. 8 (C.A.); Rillford Investments Ltd. v. Gravure International Capital Corp. (1997), 118 Man. R. (2d) 13 at paras. 26-30 (C.A.); Keachie, Jr. v. St. John (1958), 12 D.L.R. (2d) 21 at 22 (Ont. C.A.).
In effect, P argued that because the services performed by N - finding financing - were the services he was engaged for under the fee agreement, the fee agreement provided a juristic reason for the deprivation.  It further argued that the fact that there would be no compensation because the result of the services provided was different than required under the fee agreement could not ground a quantum meruit claim.  

The court rejected this argument, finding that the services and the result had to be considered together, and if the result wasn't covered by the fee agreement, than neither were the services necessary to achieve it:
[70] As Mr. Noh submits, Plaza’s argument at trial was that Woori was not an Investor as defined by the fee agreement. The trial judge accepted that submission. For different reasons, I have also concluded that Woori was not an Investor as defined by the agreement. In that case, as Mr. Noh argues on appeal, the contract contained no relevant obligation to perform the services for which Mr. Noh now seeks compensation. In other words, the work that Mr. Noh undoubtedly performed for the benefit of Plaza, fell outside the terms of the contract and satisfies the requirement of the absence of juristic reason for the enrichment.
* * *
[73] There can be no doubt that Plaza was the beneficiary of Mr. Noh’s services. Due perhaps to unfortunate drafting of the amended agreement, Mr. Noh was deprived of his fee under the contract. But it cannot be reasonably said that he provided his services gratuitously to an unwilling party. As the trial judge found, Mr. Noh expected to be paid and Plaza expected to pay him.
[74] I thus consider that the trial judge did not err in concluding that the contract between the parties did not constitute a juristic reason for Plaza’s enrichment.
On a side note, it may be useful to note that quantum meruit in itself is not a cause of action, but merely a type of compensation - "value received" or "fee-for-services" - for unjust enrichment.  As Cromwell J. extensively explained in Kerr v. Baranow, 2011 SCC 10, quantum meruit is certainly not the only type of compensation for available unjust enrichment.  Keeping this in mind may add clarity to pleadings.