A Quantum Meruit: A remedy for risk takers?

1st August 2019

A recent dispute between two firms in the financial services sector has brought the concept of quantum meruit to the court’s attention.  The case also serves to highlight the importance of written agreements and the risks involved in providing goods or services without first documenting the terms.

What is quantum meruit?

The principle of quantum meruit may come into play in a variety of situations, but it most frequently arises when a contract fails to fix the price for goods or services supplied, or where there is no contract in place at all. Quantum meruit is a fundamental principle of natural justice which may allow a party to bring a claim where they would otherwise have no cause of action or remedy. Under this principle, the court may make an award to a party on the basis of what they deserve to be paid for what they have done or supplied, so it may not come as a surprise that a literal translation of the phrase is “the amount deserved”.

Why is this case of interest?

The recent case of Moorgate Capital (Corporate Finance) v H.I.G. European Capital Partners LLP [1] provides some much needed clarity as to when it will be possible for a claimant to rely on quantum meruit. However, the case also stands as a clear warning for businesses of the risks of providing goods or services, or undertaking works of any sort, without first formalising the arrangements in a written contract.  Quantum meruit claims are by no means a guaranteed safety net, and the best advice remains ensure that agreements are recorded comprehensively, accurately and in writing wherever possible, and providing for clear payment provisions.

Agreements made over aperitifs are best avoided!

The claimant had been involved in the introduction to, and acquisition by the defendant (a private equity firm) of, a target company. The defendant had offered £80,000 to the claimant as a goodwill payment in return. The claimant rejected this, primarily claiming that there was an oral contract, agreed at a drinks party, that the claimant would receive a £1 million success fee for its services in relation to the acquisition.  As an alternative (in case the court found that there was no contract), the claimant pursued a claim on the basis of quantum meruit.

The High Court found that there was no contract and also rejected the claimant’s quantum meruit claim. The court held that the claimant could easily have contracted with the defendant for the fees or declined to provide the services, but instead chose to press on without, and to provide the services hoping that they would nevertheless secure some sort of benefit. The court branded the claimant a “mere risk-taker” and considered that it would not be just to impose an obligation upon the defendant to pay any amount for the claimant’s services [2].

When might a claim of quantum meruit succeed?

The court emphasised that there is no general right to payment in the absence of a contract and it is not the role of this area of law to create contracts for the parties where they have failed to do so.

In order for a claim to be made out, the claimant must show that:

1. The defendant has been enriched. This could be in terms of money, but can also be direct or indirect and includes benefits, saving from expense and discharging obligations.
2. The enrichment was at the claimant’s expense. There must be a causal link between the claimant’s loss and the defendant’s gain.
3. The enrichment was unjust. One or more of a number of reasons may be given, including mistake, duress or undue influence, failure to provide consideration for a conditional benefit, necessity or illegality.
4. The possibility of any other legal remedies must have already been exhausted.

Overall, whether or not to make an award on the basis of quantum meruit falls within the court’s discretion. There are myriad factors which the court may take into account when exercising its discretion, but some relevant considerations may include:

• Whether the services were of a kind that would normally be provided freely.
• The nature of the benefit received by the defendant.
• The risks the claimant has incurred in agreeing to provide the services and whether the reasons for non-payment exceed the scope of those risks.
• Whether the defendant has behaved unconscionably in declining to pay. (This latter consideration is likely to be a strong indicator in favour of making a quantum meruit award.)

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[1] [2019] EWHC 1421
[2] As an interesting aside for corporate practitioners, the judgment also contains some interesting and helpful analysis as to the court’s approach to the assessment of market value of corporate advisory services on a buy-side acquisition.