Do you do business on a handshake?
No Contract, No Fee – Risk-Takers Beware!
It is so easy to get caught out. You see a great business opportunity when you meet someone at a networking event who seems very keen in do business with you. You spend a considerable amount of time discussing their requirements. Perhaps because time-scales are tight and you are so certain that you have a deal, you incur significant costs in carrying out considerable preparatory work relating to the project. But a contract is never signed things turn sour and the other side now denies it has any liability to reimburse you in respect of the work already done. In such circumstances, the service provider may be able to claim for the value of the services (quantum meruit) based on the principle of unjust enrichment. However as a recent case shows this is far from being a safety net .
In Moorgate Capital v HIG European Capital, Moorgate provided advisory services in connection with company mergers and acquisitions. It claimed a £1m success fee from HIG, a private equity firm, in relation to the acquisition of a target company. Moorgate’s primary case was that an oral contract had been made when the parties’ representatives met at a marketing drinks event. Alternatively, it claimed the same sum on the basis of a quantum meruit. HIG denied it owed Moorgate anything.
When Moorgate sued HIG in the High Court, the Judge rejected the claim. So far as the contractual claim was concerned, in his view it was not plausible that such a high-value contract would have been formed orally at a social event, such as at a drinks party.
Turning to the quantum meruit claim, the basis of such claim is that the defendant has been unfairly enriched by the services performed by the claimant. In considering the issue of unjust enrichment, the Court will look at all the relevant circumstances including whether services were of a kind that were normally provided freely, the nature of the benefit received by the defendant, the risks incurred by the claimant in agreeing to provide the services and whether the reasons for non-payment fell beyond the scope of those risks. The Judge concluded that Moorgate had failed to make out its case. It could have contracted with HIG for the fees but failed to do so. Moorgate then proceeded, without a contract, to provide services in the hope of payment or securing some other advantage. It was therefore merely a risk-taker and had effectively run the risk of not being paid.
In many ways, this was an extreme case and the result is hardly surprising. To an extent, the two arguments Moorgate put forward were contradictory. It was trying to say to HIG ‘We had a contract but, if we didn’t, you’re liable to us for the fee in any case’! Many business people will be relieved to learn that the courts will not be too ready to find that a person has entered an agreement involving onerous legal obligations over the canapes and chardonnay.