Quantum Meruit’ may sound like the stage name of an American B-movie actor but is, in fact, an important legal doctrine. The Latin term quantum meruit translates as ‘what one has earned’. In English law a party may claim payment on a quantum meruit basis where they have undertaken work for which they consider they are entitled to payment but where there is no binding contract between the party performing the services and the party who obtains the benefit of the services.
The usual position under English law is that until a binding contract is formed, a party has no obligation to make payment to a service provider. A claim for a payment on a quantum meruit basis is an exception to the normal position and falls within a species of claim designed to prevent unjust enrichment.
The recent case of Moorgate Capital (Corporate Finance) Limited v H.I.G. European Capital Partners LLP included a claim by a corporate M&A advisor, Moorgate, to a payment by way of quantum meruit from a London based private equity firm, HIG. Moorgate asserted that, to the extent there was no binding agreement in place with HIG (which the court found to be the case), it was entitled to a payment for the services it had provided to HIG, principally introducing HIG to a target company (which it later acquired) and facilitating discussions between HIG and the management of the target company.
The judgment in Moorgate provides a useful overview of the law on when a party will be entitled to a payment by way of quantum meruit. There are three essential elements that must be satisfied in order to establish a prima facie claim to a payment for services in the absence of a binding contact:
- a party must have been enriched as a consequence of the work done or the services provided;
- the enrichment must be at the expense of the party who provided the services; and
- the retention of the enrichment must be unjust unless the beneficiary of the work makes payment for it.
The classic example of a situation when a quantum meruit payment will be justified is where a party provides services in confident anticipation of concluding a contract for which they will be remunerated but that contract is never concluded. So, for example, if a builder commences work on an extension to a house while discussions on price, scope of work and terms are ongoing, and if the home owner terminates negotiations when an extension work is well underway but before a contract has been agreed, the court is likely to order the homeowner to make a payment to the builder. The homeowner has undoubtedly been enriched and that enrichment is at the expense of the builder, who may have incurred costs in completing the work or, even if they have not incurred direct costs (ie because the homeowner has provided the raw materials), they have provided their labour to the home owner when they could, in the alternative, have provided their labour to another client.
Crucially, and central to most quantum meruit claims, one would not normally expect a builder to construct a significant extension free of charge. A distinction must be drawn between the provision of services freely by a party in the hope of winning a contract, and work that has been requested, and then provided, in the reasonable expectation that the parties will be entering into a formal contractual arrangement (or under the mistaken impression that a contract already exists).
The most difficult issue in a quantum meruit claim is often whether the retention of the benefit by the enriched party would be unjust. If you, reader, were to call me out of the blue on my direct dial (and you are very welcome to do so within normal office hours) and if I were to furnish you on that call with ad hoc, top class legal advice, you would undoubtedly have been enriched. That enrichment will be at my expense (I could have spent my time enlightening someone else). Would it be unjust for you retain the benefit of my wisdom? Reader, much to my regret, in the absence of a pre-existing contractual relationship between us, a court is extremely unlikely to find that you had been unjustly enriched. By furnishing you with the benefit of my years of accumulated wisdom, but without first putting in place a retainer, I was either naive or, possibly, I was attempting to demonstrate my capabilities in the hope that you would engage me on the matter in the future. As His Honour Judge Keyser made clear in Moorgate, “The solicitor who enters a ‘beauty contest’ in the course of which he expresses some preliminary views about the client’s prospects cannot, ordinarily expect to charge for them”.
Moorgate’s claim for a payment by way of quantum meruit was hopeless and failed. The court found that the services Moorgate provided to HIG were modest and that, at the relevant time, neither party had expected that Moorgate would be paid a fee unless they entered into an agreement at a later date. Moorgate provided modest services in order to impress HIG and in the hope that they might win a retainer at a later date or at least generate some goodwill. Moorgate was no more than a “disappointed risk-taker” AND there was no unjust factor that meant that it would be unlawful for HIG to retain the (limited) benefit of Moorgate’s services without making a payment.
In his judgment in Moorgate, His Honour Judge Keyser Q.C. said that “the courts ought not to be quick to suppose that commercial parties who are well able to make contracts with each other expect payment to be made in the absence of a contract”. The Judge accepted that, “There may be such cases….but they are not the default position”. Service providers regularly offer their skills and expertise gratuitously. Usually, they do so with no expectation that they will be paid for those services unless the parties agree to enter into a contractual relationship. For the court to impose a payment obligation on a beneficiary of services where there is no binding contract, there must be a special unfair factor that takes the matter outside the ordinary course of business dealings. There is no clear dividing line and advising a client on whether they have a claim to payment by way of quantum meruit can be a complicated analysis. What is certain is that providing services in the absence of an agreement, or accepting significant services without agreeing the terms on which those services are being provided, is risky and the provides no certainty for either party.
  EWHC 1421