Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner
“What we've got here is a failure to communicate”
The court considers the circumstances under which quantum meruit can be claimed.
In the absence of a legally enforceable agreement a party can claim a quantum meruit, which is Latin for “what one has earned”, but the circumstances in which this might be claimed may well be limited.
In Moorgate Capital v H.I.G. European Capital Partners  EWHC 1421 (Comm), Moorgate carried on the business of providing corporate finance and mergers and acquisitions advice and sought to recover £1,000,000 for services rendered to the defendant, HIG, a London-based private equity firm, in relation to HIG’s acquisition of a third company, Bezier. It alleged that its entitlement arose out of a discussion that took place between Mr Nicholas Mockett for Moorgate and Mr Paul Canning for HIG on 30 March 2011 at an evening drinks reception which was being hosted by Mr Canning at the Wallace Collection, Hertford House in London. Mr Mockett’s evidence was that on this evening, he and Mr Canning discussed the targets that HIG could pursue, including Bezier, but advised that if it were to work for HIG on those transactions it would have to forgo fees of £1,000,000 which Mr Canning assured him that HIG would pay (the “Fee Agreement”). The extent of this conversation was denied by Mr Canning, particularly in so far as any fees were discussed.
Moorgate also put forward the argument that if the court was not convinced that a legally enforceable contract existed, then it was entitled to payment by way of quantum meruit, on the grounds of unjust enrichment.
Was there a verbal contract in place?
Having considered witness and expert evidence, Judge Keyser QC decided that there was no Fee Agreement, or any form of contractual agreement, between the parties; either written or verbal. He found that the witness evidence given on behalf of HIG was clear to the effect that Mr Canning of HIG, who was alleged to have entered into the oral agreement with Mr Mockett of Moorgate on 30 March 2011 at the Wallace Collection, did not enter into an agreement in the circumstances alleged.
While Judge Keyser QC acknowledged that witness evidence is not always conclusive, he nevertheless observed that it was an important starting point, before reflecting on a number of background facts which in his mind, made it highly unlikely that the parties had agreed to the contractual terms contended for by Moorgate. For example, there was no contemporary, or near-contemporary, documentary evidence of the alleged Fee Agreement which one would reasonably have expected to exist. Judge Keyser QC suggested that it was a simple matter of common business sense for there to be some trace of the parties’ discussion in subsequent emails, but in this instance there was not. The judge also found it highly unlikely that an in-depth conversation had taken place between Mr Canning and Mr Mockett on 30 March 2011 when Mr Canning was hosting the event and, therefore, had social responsibilities which would have precluded him from negotiating a retainer. Furthermore, Mr Canning did not have the authority to make any offers, or agree to any terms, as he did not have day-to-day control of the proposed acquisition; this was dealt by his colleague, so Mr Canning would have required the approval of his colleagues before committing to any agreement.
The judge also thought it was unusual that Mr Canning would have simply agreed to Mr Mockett’s proposed terms without attempting to negotiate the terms further, and importantly without further enquiry into the services that Mr Mockett might provide, particularly at a time where HIG did not have enough financial information on Bezier to be in a position to make a sensible estimation of the target company’s estimated value. This information only came to light in June. Lastly, Judge Keyser QC found Moorgate’s conduct after the acquisition of Bezier was unusual. Not only did Moorgate fail to raise an invoice for its services, but when HIG offered to pay it £80,000 for its assistance it did not respond by sending any email or letter which referred to the alleged Fees Agreement. Instead, Moorgate failed to pursue the matter for almost six years with no reasonable explanation for the delay.
All of these reasons in turn gave Judge Keyser QC sufficient assurance that on 30 March 2011 the parties had, at most, only discussed Moorgate’s proposed remuneration but that their discussions had not matured from mere negotiations into a legally enforceable contract.
In respect of Moorgate’s entitlement to a quantum meruit, the claim was advanced as a restitutionary claim for unjust enrichment. Moorgate submitted that HIG had been enriched by Moorgate’s work in respect of the Bezier acquisition and that such enrichment was at the expense of Moorgate as it had bound itself exclusively to advise HIG and exclude itself from other potential clients within the market, arguing that it would be unjust not to be paid for its services.
As set out in Benedetti v Sawiris  UKSC 50,  AC 938, at , the four part test for unjust enrichment is:
- Has the defendant been enriched?
- Was the enrichment at the claimant’s expense?
- Was the enrichment unjust?
- Are there any defences available to the defendant?
In this instance, the parties agreed that there was no relevant defence to the claim for quantum meruit and as such, Accordingly, Judge Keyser QC held that there were only three areas of dispute in respect of the quantum meruit claim that he needed to consider, namely:
- The existence of enrichment;
- The existence of an "unjust factor"; and
- The valuation of any enrichment.
Considering first whether there was an existence of an “unjust factor”, the High Court held that the Moorgate’s Particulars of Claim were not clear in this regard, and it could not identify which factor they sought to rely on; only in its Reply to the Defence did it say that HIG sought and accepted Moorgate’s services for advice although, again, it did not specify how these services were sought.
Judge Keyser QC stated that whilst there are circumstances in which, in the absence of a contract, payment for services can be recovered on the basis of unjust enrichment, previous case law had not established an automatic right to payment. While older authorities use the language of implied contract, the modern approach is to consider the circumstances in the case and whether, as a matter of justice, the law should impose an obligation upon of the defendant for an amount the claimant deserves to be paid. Judge Keyser QC commented that where the defendant receives an incontrovertible benefit as a result of the claimant’s services, the court is more likely to impose an obligation to pay. However, the court may not regard it as just to impose such an obligation if the claimant has taken a risk that they might only be paid if and when the contract is concluded. That being said, if the defendant has behaved unconscionably in declining to pay the court may step in.
In this particular instance, Judge Keyser QC was not persuaded that the circumstances were such to render the services of Moorgate without payment as unjust. He found that there was no reason to support or suggest that the parties had acted in the mistaken belief that there was a contract for fees, and that there was a lack of understanding between the parties as to whether Mr Mockett’s work would attract a fee in the absence of an agreement. While Mr Mockett may have hoped that if things had progressed favourably HIG would have formalised the nature of their relationship, things never progressed in this manner and an entitlement to payment, whether absolute or conditional, will only accrue when an agreement is made. The courts should not, as a default position, presume that parties intend to be paid when they have the power to enter into contracts with one another but have failed to do so. It was thought significant that Moorgate had kept its options open in respect of other potential clients, despite purporting to be “exclusively advising” HIG. Moreover, the services provided by Moorgate were modest and slight, and of limited nature.
In reaching his decision, Judge Keyser QC speculated whether in the event that a contract had been formalised between HIG and Moorgate it would have contained an implied term that Moorgate was only entitled to a fee if it were the effective cause of the transaction. He considered that such an implied term would not mean that a quantum meruit was precluded but it was a relevant factor to consider which might sway against an award of such. On the evidence presented, Judge Keyser QC was satisfied that Moorgate was not the effective cause of the acquisition of Bezier and that the eventual transaction was radically different from what had originally been envisaged by the parties. The judge was therefore unconvinced that there had been any unjust enrichment.
This case highlights the importance of documenting any remuneration terms before undertaking any work. If it is not possible to crystallise any agreement in a formal document parties should, at the very least, evidence an oral agreement by setting out their basic understanding of their respective responsibilities in writing. Thereafter, all efforts should be made to finalise the terms of the agreement because it may be difficult to otherwise claim remuneration for work done.
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