No contract - no payment! Risk proceeding without a contract at your peril

The High Court has clarified the position regarding quantum meruit claims in the recent case of Moorgate Capital v H.I.G. European Capital Partners LLP  [2019] EWHC 1421 (Comm). In the absence of a contract there is no automatic right to payment for services, even for requested services. A party will not automatically be granted payment on a quantum meruit basis (i.e. a reasonable sum) for the work carried out, and is unlikely to succeed in such a case if it is found to have taken the risk of not being paid in pursuit of its own advantage.

Facts of the case

Moorgate Capital (“Moorgate”), a corporate finance advisory firm, claimed £1m success fee from H.I.G. European Capital Partners LLP (“H.I.G.”), a private equity firm, allegedly due for the valuable services Moorgate had provided to H.I.G in relation to the acquisition of a target company Bezier Acquisitions Ltd (“Bezier”). Moorgate maintained that the fee agreement between the parties was made orally at an evening reception event at an art gallery organised by H.I.G. Moorgate’s primary case was therefore for breach of contract relying on the alleged oral agreement, or alternatively, Moorgate sought a quantum meruit award for the same amount on the grounds of unjust enrichment for the valuable services it said it provided to H.I.G. in connection with the Bezier acquisition.

H.I.G. denied the existence of the alleged oral agreement, and argued that, even if anything relating to payment had been discussed between the parties, it could not amount to an enforceable contract. H.I.G. further denied that services provided by Moorgate were valuable or that payment was expected in return.

The court’s decision

HHJ Keyser QC (sitting as a Judge of the High Court) rejected Moorgate’s primary case in contract on the basis that a contract for such a high amount of fees could not have possibly been formed orally at a social event, such as drinks reception, with no follow up contemporaneous documentary evidence in support. The judge further stated that this was not the type of event where deals could be expected to be struck or contracts made. Even if an oral agreement was found to have been reached (which it was not), there would be a lack of intention to create legal relations in the circumstances. 

The judge then considered the principles applicable to a quantum meruit claim. It was clear that H.I.G.’s enrichment by Moorgate’s work was at Moorgate’s expense, and that no defence applied in this case. The judge therefore addressed the issues remaining in dispute, namely - whether enrichment existed; whether there was an ‘unjust factor’; and the valuation of any enrichment.

The judge made a distinction between an obligation in contract to pay a reasonable price and unjust enrichment. He emphasized that whilst there may be special circumstances in which payment can be recovered absent a contract on the basis of unjust enrichment (e.g. where the parties acted pursuant to a contract without being aware that it was void or invalid or where negotiations between the parties over the terms of the contract are in progress but not finalised and some of the works are carried out in the meantime by the claimant at the defendant's request), there is no authority establishing a general right to payment for requested services in the absence of a contract.

He further noted that creating a contract between the parties where none was made in the first place is not the role of the law of unjust enrichment. Proper justification is required to confer entitlement to payment on a party who had not contracted to receive the same.

The judge outlined a number of considerations from case law which the court will take into account when deciding whether to impose a payment obligation (and if so, its extent):

• whether the circumstances were such that it would be fair and just to impose an obligation to make payment upon the defendant (e.g. if the defendant has behaved unconscionably by refusing to pay for the services), or where it would be unconscionable for the claimant not to be compensated;
• whether the services were of a kind which would normally be provided free of charge;
• the risks undertaken by the claimant in agreeing to perform the services, and the terms in which the request to perform the same was made in order to assist in establishing these risks;
• the nature of the benefit received by the defendant; 
• whether the reasons for the absence of payment fall outside the scope of the risk undertaken by the claimant.

By applying the above tests, and given that there was no contract and only limited services were provided by Moorgate, the judge dismissed Moorgate’s claim entirely. He held that in the absence of a binding contract there was no unjust factor entitling Moorgate to succeed in restitution. Moorgate essentially chose to run the risk of not getting paid by proceeding to provide its services to H.I.G. without having a proper contract in place.
The judge also provided some useful commentary on the possibility of witnesses falling into self-deception and self-persuasion of essentially honest but nonetheless false recollections.

Practical implications 

This case highlights the importance of having proper contractual arrangements in place regarding the provision of services and fees/payment. These should preferably be reduced to writing before commencing work to avoid any issues and controversy in proving the existence of an oral agreement and trying to persuade the court that a contract does in fact exist. 

Service providers should not assume automatic entitlement to payment on a quantum meruit basis, especially where they have chosen to take the risk of not getting paid by continuing to provide services without a contract in place in the hope of gaining payment or some other advantage. Parties proceeding without a contract therefore run the risk of not getting paid anything at all, even where services have been provided.