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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Moorgate Capital (Corporate Finance) Ltd v H.I.G. European Capital Partners LLP [2019] EWHC 1421 (Comm) (11 June 2019) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2019/1421.html Cite as: [2019] EWHC 1421 (Comm) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (QBD)
Fetter Lane, London, EC2A 1NL |
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B e f o r e :
sitting as a Judge of the High Court
____________________
MOORGATE CAPITAL ( CORPORATE FINANCE) LIMITED |
Claimant |
|
| - and - |
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H.I.G. EUROPEAN CAPITAL PARTNERS LLP |
Defendant |
____________________
Christopher Bond (instructed by Hogan Lovells International LLP) for the Defendant
Hearing dates: 25, 26, 27, 28 March and 30 April 2019
Written submissions: 5 April 2019
____________________
Crown Copyright ©
JUDGE KEYSER QC:
Introduction
Moorgate
Capital
(
Corporate
Finance)
Ltd
("
Moorgate"),
carries on the business of providing
corporate
finance
and mergers and acquisitions advice. The defendant, H.I.G. European
Capital
Partners LLP ("HIG"), is a London-based private equity firm and the European affiliate of H.I.G.
Capital
LLC, a leading global private equity firm based in the United States.
Ltd
(I shall simply refer to those subsidiaries as "Bezier") in a debt and equity transaction.
Moorgate
claims that it is entitled to payment from HIG for valuable services that it provided to HIG in connection with the acquisition of Bezier ("the Bezier Acquisition"), including introducing Bezier as a potential acquisition. The claim is put on alternative grounds. First,
Moorgate
claims to be entitled to payment pursuant to an oral agreement ("the Fees Agreement") made on 30 March 2011 between Mr Nicholas Mockett for
Moorgate
and Mr Paul Canning for HIG, by which, in consideration of the services being provided by
Moorgate,
HIG promised to pay to
Moorgate
£1,000,000 in the event that HIG or a subsidiary or affiliate of HIG acquired Bezier. Second, in the alternative,
Moorgate
claims to be entitled to payment by way of quantum meruit, on the grounds of unjust enrichment, for the valuable services it says it provided to HIG in connection with the Bezier Acquisition.
Moorgate
and says that, even if anything regarding payment were discussed, it could not amount to an enforceable contract. HIG denies also that
Moorgate
provided any valuable services in connection with the acquisition of Bezier or anything for which payment was reasonably to be expected.
Moorgate,
and Mr Christopher Bond, counsel for HIG, for their helpful written and oral submissions.
Narrative
Moorgate
provides advice to both vendors and acquirers in respect of
corporate
mergers and acquisitions. Unlike investment banks, its services are purely advisory; it does not also provide
finance
for acquisitions.
Moorgate
itself was incorporated in May 2010 with a view to handling part of the business of a larger group ("the
Moorgate
Group"). Mr Mockett has at all material times been the sole director of
Moorgate
and, at least initially, was the sole shareholder.
Moorgate
Group in 2009 as head of packaging mergers and acquisitions. He had long experience in that field and had for several years specialised exclusively in the packaging and related industries, advising on a large number of major transactions in the sector and establishing an international reputation within it. Before joining the
Moorgate
Group, he had for nine years been Sector Leader for packaging, paper and printing at PricewaterhouseCoopers
Corporate
Finance
and then for five years a partner at Europa Partners, a boutique investment bank.
Corporate
Finance,
he got to know Mr Canning, who was then Investment Director at Gresham Private Equity and had experience of investments across a wide range of business sectors. In 2007 Mr Canning joined HIG as a managing director, partner and, with Mr Matthias Allgaier, co-head of private equity in the UK, positions he held until he left HIG in 2016. The head of HIG's London office was Mr Sami Mnaymneh and Mr Canning reported directly to him. Among the other people working for HIG in London, three may be mentioned: Mr Andrew Steel, a Principal who reported directly to Mr Canning; Mr Andrew Busby, a specialist in distressed debt; and Mr Alex Bayliss, a junior employee who assisted Mr Busby.
Moorgate
Group. Their relationship was at first purely a business one, but in time they began to socialise with each other and became friends, albeit not close friends.
"Effective from November 5th 2009 the bezier group is pleased to announce a management buy-in and the completion of a £6.5 million equity injection andfinancial
restructuring. David Mitchell will become chairman of bezier group, Europe's leading retail marketing agency.
…
On thefinancial
side, MidOcean Partners will be backing the new management with further investment in order to support the growth plans of the business. With additional support from RBS and Lloyds TSB the company benefits from a strong balance sheet that will support the ambitions and growth plans of the business. …"
financial
restructuring" was a consequence of what a later document produced by HIG calls "a period of operational underperformance in 2009", which, as the same document observes, was to "culminat[e] in the loss of the Asda contract (c.25% of revenues) in Jan-10". The banks were naturally concerned about their exposure and appointed Deloitte & Touche ("D&T"; later "Deloitte") to lead an Independent Business Review ("IBR"). In spring 2010 Bezier Group's management team was preparing a presentation for the purpose of that IBR. By email on 25 April 2010, headed "IBR Presentation", Mr Mitchell wrote to Mr Mockett:
"Good to see you the other day. Please find attached a PowerPoint I have started drafting for D&T. It will be good to get your help on this and I look forward to hanging out with you in a fortnight."
Financial
Officer, and at their request sent them by email "the standard NDA [non-disclosure agreement] for client-advisor exchanges". Mr Barfield used that standard form to create a non-disclosure agreement, which he sent to Mr Mockett for his signature and return on 28 April 2010. Presumably Mr Mockett did sign the non-disclosure agreement, because on 6 May 2010 he received from Bezier's management the master version of the IBR Presentation, and he subsequently arranged a meeting on 6 September 2010 to introduce an interested party (for convenience, "X Co") to the Bezier management. The use of the NDA is one of a number of matters that might tend to suggest that Mr Mockett was acting for the Bezier management. However, Mr Mockett explained that he had made use of a template for a client-advisor relationship for want of anything more appropriate, and he denied that he was retained by or acting for the Bezier management. Although it is clear to me that Mr Mockett was brought in by the management team to facilitate a sale, on balance I accept that there was never an expectation that he would be remunerated on a sell-side basis by Bezier or the management.
Ltd
("Showcard"). In his initial response dated 14 September 2010, Mr Mockett identified three companies as what he called Showcard's "chief competitors"; one of these was Bezier: "I know the management team very well and advised an under bidder to MidOcean—who (sic) I also know well." Mr Steel invited Mr Mockett to attend a conference call with Michel Vaissaire, Diam's chief executive officer, on 15 September 2010. Mr Steel wrote to Mr Mockett, "Michel will be very interested in your thoughts on Bezier too." Also on 15 September, HIG sent to Mr Mockett a non-disclosure agreement in respect of Showcard.
"Bezier is now handled from RBS London by Steve Morris. (Paul, do you know him?) I am arranging to meet in early course and will co-ordinate with Andy Busby.
Showcard—useful call yesterday with Nick Mockett, Loic Oury [of HIG's Paris office] and Michel Vaissaire (Diam CEO). Nick helped explain why he thinks Showcard's high profitability is likely sustainable. Michel is keen to press on. … Aim to submit formal written offer by end of this month, likely somewhere between 4–4.5x EBIT (£15.4m – 17.3m)."
Moorgate
could provide in respect of the proposed acquisition. The letter proposed that
Moorgate's
fees for advising on the transaction, in addition to expenses, would be a commitment fee of £50,000 and a success fee of £250,000 payable upon the completion of the transaction. On the following day Mr Steel replied by email. He said that he had been working with other advisers, who would do "all the
corporate
advisory work" comprising eight of the twelve items identified by Mr Mockett. He said that he was looking to
Moorgate
for advice only on a number of specific matters ("I appreciate that this is more like a consulting assignment than a
corporate
finance
advisory project") and that he was hoping to keep the fee to no more than £100,000, "given the small size of the deal." Mr Mockett replied politely and positively, though with evident disappointment: "I think the confusion here has arisen as when you first sought advice on this situation a year or so ago I had understood that if a deal were to go ahead I would be asked to advise in return for this input." Mr Steel in turn sent a conciliatory response: "Apologies for mis-communication, I have tended to think of this as a 'Nick Mockett' advisory role rather than a '
Moorgate
Capital'
role." It appears that no agreement was ever reached on fees.
Moorgate:
"We need to find you an excuse to pay you an enormous fee." However, if anything like that was said, I have no doubt that it was merely a light-hearted quip; it is not evidence that Mr Canning was looking for an opportunity to pay Mr Mockett fees that would not normally be paid.)
"David Mitchell, Chairman of B [Bezier] will be accompanying me to your office at 11:00.
I attach some background info (PLEASE DO NOT BRING THIS TO THE MEETING).
However, the best flavour of what they do can be gleaned from their highly impressive web site. I would suggest focussing on these pages: …"
The information provided by Mr Mockett was at a high level of generality. It contained summaries of Bezier's core and affiliated businesses, potted biographies of its management team, a list of its prominent clients and some copies of its promotional images. A page headed "History" provided in bullet-point form a brief narrative of Bezier's history since it was established in 1998. The single piece of
financial
information was "Sales £100m". The information assembled by Mr Mockett does not seem to me to have been, or to have been intended to be, much more than a convenient summary of what could be learned from Bezier's website, save perhaps for some of the points in the "History" section. I am satisfied that it did not contain any proprietary information or trade secrets. In his oral evidence, Mr Mockett suggested that the examples he had given of Bezier's clients constituted proprietary information. I reject that suggestion and note that Bezier's website devoted a page to giving examples of its clients. The fact that Mr Mockett mentioned some clients who were not named on the website does not indicate that the additional information was proprietary or that it was in any way hard to come by. The website also contained more precise
financial
information than was contained in Mr Mockett's summary: "£92m: our turnover in 2010. £105m: our turnover forecast for 2011." The very fact that Mr Mockett referred to the website for the "best flavour" of Bezier's activities illustrates the limited nature of the information he was able to provide.
"I just met David Mitchell, the Chairman of Bezier, at our offices following an introduction by Nick Mockett. Bezier will next week complete a restructuring, the result of which will be RBS converting a portion of their existing debt into the majority of the equity. David would not reveal the details at this stage, though he did say revenues were around £100m and all in the UK. Management will have a substantially increased equity stake and MidOcean will be diluted down to a stub equity stake.
…
Once the restructuring has been completed, David is interested in meeting Michel [Vaissaire] for an informal discussion on the potential synergies that might be created through merging Diam and Bezier. If such a meeting were to go well, then we could sign an NDA, accessfinancial
information and explore a possible offer for the business that would see the Bezier management holding equity and retaining their jobs in the merged entity."
M Oury responded agreeing that a meeting be arranged. Mr Steel forwarded the email chain to Mr Canning. Efforts began with a view to arranging a further meeting, although in the event progress was slow and several weeks passed before the meeting could take place.
"Thinking about the bigger picture here, it might make sense to look at buying the whole of 'S Co' and merging the web offset with Project Compass and their other main business which is in POP/POS with Diam. It is very similar to two targets we have been looking at with Diam and Andy Steel."
In the following week, Mr Busby was making efforts to arrange a meeting on Project Compass. On 6 March Mr Canning wrote to Mr Busby by email: "Would be useful to get Nick with us[;] is he otherwise engaged? Let's offer to pay him a day rate if need be e.g. 1000 per day."
"Looks as if the meeting with David Mitchell will have to be in May. Do you think he would be prepared to give us a look at his latest balance sheet and P&Ls [profit and loss] for last year and forecast for this? That would help us crack on with assessing whether or not there is logic to putting the two companies together."
Mr Mockett replied on 25 March: "Will ask him when I next seem him—probably within next couple of weeks." Mr Steel responded with an invitation for Mr Mockett and Mr Mitchell to meet him and M Vaissaire for dinner on 21 April; "Ideally, we would have a balance sheet to assess in advance."
Moorgate
would do in respect of the acquisitions of Bezier and St Ives plc. He proposed success fees of £1m in respect of Bezier and £2m in respect of St Ives plc, as well as monthly retainers. On 28 March Y Co replied, saying that it would get back to Mr Mockett as soon as possible. That is how matters stood with Y Co on 30 March, which is the date of the alleged Fees Agreement between Mr Mockett for
Moorgate
and Mr Canning for HIG. However, on 31 March 2011 Y Co provided a further response to Mr Mockett:
"We are very interested in the proposed deal but would suggest we meet the St Ives CEO and check this is something that we and he would want to progress before we agree a formal mandate. Having said that, I need to make it clear that we don't pay buy-side retainers."
In his oral evidence, Mr Mockett maintained that this reply implicitly accepted his proposed success fee of £2m. It plainly did nothing of the sort. Further, the email, which of course post-dated the alleged Fees Agreement, refers only to St Ives, not to Bezier; there is no documentation concerning Y Co's thoughts on Bezier.
Moorgate's
case that the Fees Agreement was made in the course of a conversation between Mr Mockett and Mr Canning at the event. Both men gave oral evidence in examination-in-chief and in cross-examination concerning what happened.
Moorgate
worked for HIG on those potential transactions, it would have to forego offers from other clients who were willing to pay a fee of £1m in respect of Bezier and a fee of £2m in respect of St Ives plc;
Moorgate
would therefore need Mr Canning's assurance that HIG would pay those fees. "[Mr Canning] stated that they would, reassuringly adding 'Don't worry about that, Nick'." Mr Canning then asked Mr Mockett to email to him details of the target companies. This was a "serious and considered" discussion and lasted for at least ten minutes.
"I talked Mr. Canning through the various options that were in contemplation to build up a platform within the printing and point of sale / point of purchase sector, and I outlined to him the attractions of Bezier, and I outlined to him the attractions of St Ives, and I also mentioned to him the way parts of St Ives could fit with another deal that we had been looking at, called Polestar … I would have explained to Paul at that meeting exactly what had happened since there had been a management team at Bezier, which had taken place roughly 12 months before."
(Mr Mockett said that he would have given that explanation fairly succinctly, "because Paul Canning had some of the background to it at this point.")
"I explained to Paul how David Mitchell's team had transformed Bezier, or were in the process of transforming Bezier, from being a sort of predominantly print commodity arguably print business into being a managed services provider, and that they built an incredibly impressive virtual reality room to demonstrate their skills to their customers, and how I felt it had a good future in that segment, because it was market leader in what it was doing. So, having explained that and the fit with St Ives, Paul said he was very interested and wanted to do the deals. And the intention would be to buy Bezier first, because it is easier to acquire a private company than a public company, and then to bolt on St Ives to that and, as I say, potentially carve off other bits of St Ives to other things we were looking at. So, Paul said he was very keen to do it, wanted to progress with it, wanted me to run at it as hard as possible with Andy Steel. And I said to Paul, 'If we are going to run with you—we have another client who is interested in the same opportunity; if we are going to run with you, I am going have to turn my back on them. They are prepared to pay us £1 million success fee for Bezier, and the £2 million success fee for St Ives. So, if we are going to drop them as a client and work with you, you have to agree to pay the same fees.' And Paul said to me that he was happy to do that, and he said, 'Do not worry about that, that will not be a problem.' So, as far as I was concerned, at that point, we had agreed what the fee was going to be for the services that were being provided."
Moorgate
such a fee.
Moorgate
fees of £1m for the Bezier Acquisition and £2m for the St Ives acquisition. Mr Mockett's email made no mention of the Fees Agreement.
Ltd.
The draft letter set out in nine points the work that
Moorgate
would do on the project. It provided for fees comprising a Retainer and a Success Fee. The Retainer would be £15,000 per month for six months or such longer period as the parties should agree. The Success Fee was to be calculated on a sliding percentage scale: £500,000 for gross consideration up to £50m; a further 1% of the gross consideration over £50m and up to £100m; and reducing percentages for each £50m thereafter. Accordingly, the Success Fee would be £1m if the gross consideration were £100m. Mr Kelly forwarded the draft engagement letter to Mr Canning for his information. He wrote: "I asked Nick if he had an angle and would be interested in looking at this with us. I think he was drunk when he sent this through." The email chain shows that Mr Kelly orally described the draft engagement letter to Mr Canning as "whacky". Mr Canning replied to Mr Kelly by email on 12 April: "Let's chat[.] I know the thinking behind this." In cross-examination, Mr Canning said that he simply could not remember the circumstances of the email and did not know what it meant. No other evidence casts light on the matter.
"Tomorrow morning, Loic and I are meeting David Mitchell at his offices to discuss the idea of combining Bezier and Diam. We will aim to find out the currentfinancial
state of Bezier and the exposure of RBS."
The best record of the meeting itself is in the email that Mr Steel sent on the evening of 24 May to Mr Mitchell, Mr Barfield and Trevor O'Reilly, Bezier's Chief Executive Officer, all of whom had attended:
"Please find attached a proposed NDA, as discussed. I will be happy to make any reasonable modifications you suggest.
Once we have agreed the NDA, it would be useful to see the P&L, balance sheet and cash flow statements for year to end April 2010 and your budget for the current year. This would give us a starting point for a follow up discussion on potential opportunities for collaboration between Bezier and H.I.G., potentially involving Diam."
Mr Barfield promised to review the non-disclosure agreement and to get back to Mr Steel on "the
financials"
once it was in place. The emails show, first, that Bezier had not by this point disclosed
financial
information to HIG and, second, that by late May 2011 HIG was not considering Bezier solely in terms of a merger with Diam, as had been the original intention.
financial
info so they can decide whether or not they're in or out." The following day, Mr Mockett sent an email to Mr Canning: "Can you come to Bezier next Wed at 4pm? Andy Steel is coming in and I think it would be good for HIG if you were able to join."
- In the section headed "Transaction opportunity" it was explained that the banks had facilitated a short-term "fix", which had resulted in a split of equity ownership as to 65% to the banks and 25% to management and 10% to MidOcean. However, the banks wished to limit further funding and were looking for an exit "via trade or
financial
sale". "Banks have encouraged management to seek alternative funding arrangements." The opportunity for HIG was said to involve, among other benefits, "Pre-emptive offer with minimal competition."
- For the first time, detailed
financial
information was produced.
- Two "
financial
scenarios" were put forward. Scenario 1, "Base Case", assumed "revenue / gross margin set to predictable run rate, with commensurate run rate cost base". For the
financial
year 2012 it showed revenues of £80m and an EBITDA of £5.2m. Scenario 2, "Current Case (Growth)", assumed "investment to grow new business and share of wallet"; the planned investment was set out in summary form. The summary forecast for Scenario 2 was: "Move to run rates over next 18 months: Revenues £100m; EBITDA £9.5m".
"Management will love it. Banks are unlikely to accept at face, but might be tempted to enter negotiations on the size of senior debt write-down (we lead that haggle) and on equity write-down (mgmt may be prepared to do a deal with banks…as they did in the last refi…keeping us at 67.5% and keeping mgmt highly motivated to help us close the deal)."
financial
information to Mr Steel and spoke to him by telephone. Mr Steel sent an email to Mr Canning: "Sounds to me as if a firm offer to [Mr Shah] tonight or tomorrow morning would be to our advantage." Mr Canning replied: "No that won't get us anywhere. Spoke to both Anup and Trevor [O'Reilly] today[;] think we are in for long haul but will circle back with Anup tmrw (he was seeing the banks this pm)."
"Just spoke with Trevor [O'Reilly]. He is keen to talk with you and a conference call might be a good idea.
May still be possible to usurp the process but we need to understand how your thoughts are developing."
The remark that it might "still be possible to usurp the process" rather points to the fact that it was now appearing likely that the original plan for an exclusive bilateral deal had itself been usurped by Deloitte's takeover of the process. Mr Mockett said in cross-examination that Deloitte did not take over the process but simply ran the process that was always envisaged. In my view, that is incorrect and was not how he saw things when he wrote this email. Mr Canning's evidence, which I accept, was that it was clear to him by this stage that it would not be possible to do a bilateral deal outside a competitive process, although he still thought that it would be advantageous to have the management team on-side.
"Reflecting on the call just now I had the following thoughts that I would try to convey to Mark Wood [of RBS Debt Recovery].
* You will remember when we met on x/y/2011 that you asked us to look for alternative funding solutions.
* We had previously been approached by DIAM and their shareholders HIG.
* They have indicated that they would provide immediate short term funding with a view to acquiring B[ezier] as soon as possible.
* We realise that this is a trade player backed by a PE house and we (the management) might ultimately be a synergy, but feel this party has the right attributes to pay a fair market price quickly.
* We continue to demonstrate our ongoing commitment to B e.g. by putting our own money in (even when you did not).
* We are keen to hear your thoughts on where we stand and how we move the business forward.
Hope this makes sense / helps."
Mr Mockett spoke to Mr O'Reilly after sending that email and then sent an email to Mr Mitchell: "it's inevitable in the process that leaks will occur (particularly from trade players) and this could stall or put in jeopardy two major contracts, and hence be value destructive."
"We have formed a good relationship with the new management of Bezier (whom [sic] we think are very credible) through the DIAM discussions. They are looking to carry out their own MBO from the banks. The catalyst to a potential transaction is an immediate £5m working cap requirement to normalise creditors. We are awaiting feedback from Deloitte (appointed by banks to review the business) on appetite from the banks to meet the short term funding requirement."
financial
buyers [to] switch off quickly", and that, as HIG was already involved, he wanted to arrange a meeting between HIG and management "ahead of the game". (It is clear that Deloitte was unaware of the contact between HIG and the Bezier management.) Later that day, Mr Steel informed Mr Canning and Mr Busby that Mr Mockett had been "chasing", "keen that HIG outline to management what the terms of any deal might be for them." "His line is that this team has worked on multiple previous PE deals and so will want to be given guidance on this early, before they fully commit to working with us." Mr Mockett's intervention is consistent with him simply wishing to ensure that HIG stood the best chance of closing the deal. It is also consistent with him acting primarily in the interests of the management team that was looking to be included in any deal that Deloitte and the banks approved.
financial
and property matters.
"▪ We have been in discussion with management for a number of months and are close to having them 'locked-up' to work with us on acquiring the business. We have been impressed with their performance to date and view their strategy for continued growth and value creation in the business to be highly credible.
▪ We [intend to make / have made] an offer for the company on the following terms:
▪ £20m EV if one or both of current banks rolls £15m of outstanding £45m senior debt = FY12B 5.0x EBITDA-maint capex. Otherwise, £15m for 100% of the company all cash = 3.8x FY12B
▪ Management invests alongside HIG for 10% of the equity
▪ Issue management options for additional 10% if they achieve £9.5m EBITDA in FY13 and then another 10% if they achieve £14m EBITDA in FY14.
▪ Business requires banking support for a £5m RCF to fund intra-month workingcapital
needs."
Page 5 of the document stated: "HIG regard management as key to winning this deal and driving continued turnaround of the company. We have built a strong relationship with them and believe that we are close to having management 'locked-up' to back us to acquire Bezier."
financial
adviser in relation to Project Matador", formally invited indicative offers for Bezier by 8 July. The letter said that Deloitte intended, on the basis of the offers received, to select a shortlist of parties to participate in the next stage of the process, which it aimed to complete by the end of July.
financial
projections provided to HIG by Bezier's management team "before we stopped talking". As regards the offer for the shares, Mr Canning proposed to tell Deloitte that HIG could achieve prompt completion "with or without mngmt". The email concluded:
"We intend to meet the lead partner at Deloitte tmrw handling this to reinforce our messaging i.e. that we think mngmt are playing games / we will acquire without them / we provide certainty will get this done this month / we are not pushing forward without exclusivity."
"▪ We have been in discussion with management for a number of months but remain uncertain as to whether they are the right team to drive the business forward.
▪ We intend to make an offer for the company on the following terms:
▪ £18m EV cash free / debt free = FY12B 4.4x EBITDA
▪ Business requires banking support for a £5m RCF to fund intra-month workingcapital
needs.
▪ IM suggests 2012 negative cashflow of -£2.5m, resulting from £4.1m EBITDA / (£2.0m) change in workingcapital
/ (£3.3m) capex / (£1.4m) exceptionals
▪ We believe these numbers are deliberately cautious as management has attempted to paint a gloomy picture to the banks, hoping to buy the company cheaply. Alternative set of mgmt. projections shown to HIG suggest EBITDA of £9.5m / (£0.8m) change in workingcapital
/ capex of (£1.9m)".
At page 10, the document identified "Loss of senior management" as a risk: "We may not be able to agree terms with incumbent CEO [Mr O'Reilly] and Chairman [Mr Mitchell]."
financial
matters and Kirkland & Ellis International LLP for legal matters.
"▪ We have been in discussion with management for a number of months. They may be the right team to drive the business forward, however we have not yet been able to agree terms with them.
▪ We have made two offers for the company of £18m EV and the debt £15m EV. …
▪ Business requires banking support for a £5m RCF to fund intra-month workingcapital
needs.
▪ IM suggests 2012 negative cashflow of -£2.5m, resulting from £4.1m EBITDA / (£2.0m) change in workingcapital
/ (£3.3m) capex / (£1.4m) exceptionals. Additionally, intra-month cash swings mean that there may also be need for an RCF facility of up to £5m to fund intra-month working
capital
needs.
▪ However, we believe these numbers are deliberately cautious as management has attempted to paint a gloomy picture to the banks, hoping to buy the company cheaply. Alternative set of mgmt. projections shown to HIG suggest EBITDA of £9.5m / (£0.8m) change in workingcapital
/ capex of (£1.9m)".
The document recorded that HIG understood itself to be competing against one other trade buyer and two or three
financial
institutions, and that Deloitte had indicated that it would recommend HIG's offer to the stakeholders and would afford HIG a five-day period of exclusivity to complete on the debt purchase by 15 July.
financial
position in more detail. Mr Mockett was not involved in those discussions. (On 19 July he sent an email to Mr Canning; it indicated that he had been unable to speak to Mr O'Reilly and ended, "Any news from your side?") Members of the HIG team had meetings with Bezier's management on 19 July. In an email to his colleagues on 20 July Mr Canning referred to the "need to be careful not to spook mngmt over the next few days as they seem to have reached the interim conclusion that they are surplus to requirements". Mr Canning's evidence, which I accept, was that HIG was concerned to have the full co-operation of Bezier's management in the due diligence process.
Ltd
was placed into administration and on 19 August 2011 the joint administrators sold the shares in the trading subsidiaries to HIG Europe – Magenta II
Ltd,
a newly incorporated special purpose vehicle and affiliate of HIG. The consideration for the shares was £240,000 in cash and the assumption of debts of £15,760,000 owed by Bezier Acquisitions
Ltd
to Grace Bay. The debt then became an intra-group loan between Magenta and Grace Bay. The overall effect was that the cost of the Bezier Acquisition was £16m. In accordance with HIG's insistence, Mr Mitchell was removed as chairman of Bezier, though the rest of the management team remained in place.
Moorgate
Capital
on the deal". That information had been provided by Mr Mockett. When he read that article, Mr Canning sent an email to Mr Mockett: "Just to re-iterate we still haven't put anything out on this … but it seems you don't need our help!" Mr Mockett explained in response that he had been responding to enquiries from trade press but offered to ask for the removal of the comment if it was unhelpful. Mr Canning replied: "Nick no worries its (sic) all good." HIG's own press release was issued the following day; it listed the "Equity" advisers as "
Moorgate
Capital,
Nicholas Mockett (
Corporate
finance);
Kirkland & Ellis, Partha Kar (Legal)". Mr Canning's evidence was that Mr Mockett was named on his instructions.
Moorgate's
fee arose shortly afterwards. An internal HIG document headed "Bezier fee schedule" includes £80,000 plus VAT for
Moorgate
for "Introducer success fee". Mr Canning's evidence was that this entry resulted from his discussions with Mr Steel and reflected the fact that, although HIG did not consider either that it was legally obliged to pay
Moorgate
anything and thought that Mr Mockett had contributed very limited value before the Deloitte process began and none at all thereafter, an ex gratia payment would serve the purpose of maintaining a good commercial relationship with
Moorgate.
At all events, when Mr Canning and Mr Mockett met for coffee on 8 September 2011, Mr Canning offered a fee of £80,000 for
Moorgate
and Mr Mockett rejected the offer out of hand and said that he wanted a fee of £1m. Mr Mockett's evidence was that Mr Canning said he would go away and think about it. By contrast, Mr Canning's evidence is that he reacted by withdrawing the offer of £80,000 and terminating the meeting. On 21 September Mr Canning sent a text message, asking for dates when they could meet. Mr Mockett sent some dates, but Mr Canning did not respond further and Mr Mockett took no steps to chase the matter up or even submit an invoice. When in October 2011 Bezier raised some queries concerning the transaction fees, Mr Canning replied: "re
Moorgate
plse take out of the short term cashflows[:] this fee is on hold indefinitely".
The issues
(1a) Was there a contract between HIG andMoorgate
for payment of a fee of £1m to
Moorgate?
(1b) If there was such a contract, have the conditions for payment been satisfied?
(2a) If there was not such a contract, isMoorgate
entitled to payment from HIG of a quantum meruit on the ground of unjust enrichment?
(2b) IfMoorgate
is so entitled, what is the amount of the payment due from HIG?
Expert evidence
corporate
finance
advice and services in private equity buyout transactions (including the custom and practice in relation to the fees of the providers of such advice); (2) the value of such advice and services. Evidence for
Moorgate
was given by Mr Charles Martin, formerly an in-house specialist adviser at 3i plc, a private equity firm. Evidence for HIG was given by Mr Jeremy Miller, formerly Chief Operating Officer of the London office of Centreview Partners, a
corporate
finance
advisory firm. Both men had relevant expertise, gave their evidence clearly and in a focused manner, and did their best to assist the court regardless of party considerations. I was assisted by their evidence.
corporate
finance
advice and services in private equity buy-out transactions. Among those matters, useful to be mentioned here, are the following (I take them, with some paraphrasing, from the joint memorandum dated 17 January 2019).
- It is not entirely uncommon for a
corporate
![]()
finance
adviser to be involved at an early stage via an oral agreement, which may make provision for a contingent fee, particularly if the
corporate
![]()
finance
adviser and the private equity provider have an ongoing relationship. However, in those circumstances, and in the absence of a formal letter of engagement, it would be expected that there would be at least an email confirmation between the
corporate
![]()
finance
adviser and the private equity provider.
- No later than completion of the transaction, any engagement would be formally documented by means of an engagement letter.
- Custom and practice would be that an invoice for
corporate
![]()
finance
advice/services would be submitted to the private equity provider no later than completion of the transaction.
Corporate
![]()
finance
advisers carry out a significant amount of work for private equity clients on potential deals, many of which do not result in completion and for which the
corporate
![]()
finance
advisers do not expect or receive a fee.
- Once a transaction is in progress and the
corporate
![]()
finance
adviser has been retained by a private equity provider, the adviser will work exclusively for that private equity provider. It is possible, however, though very unusual, for the adviser to work for more than one potential purchaser on a given transaction with the consent of all involved.
- Where a fee is payable, all or most of it will be paid on successful completion of the transaction. A regular retainer is sometimes agreed in addition, but this will be modest by comparison with the success fee. A fee would rarely be paid to a
corporate
![]()
finance
adviser on the basis of hours worked.
- The fee will usually be determined by two factors: the anticipated Enterprise Value ("EV"), which is the aggregate value of the consideration paid for the debt and equity of a business; and the range of services to be provided. The anticipated EV would be used to determine the maximum amount of the fee. The actual fee would then depend on the range of services that the
corporate
![]()
finance
adviser was obliged to provide.
- The range of services that a
corporate
![]()
finance
adviser might offer and the order of importance that the services would commonly have in determining the fee were set out helpfully in a table in para 3.1 of the joint memorandum dated 17 January 2019. In brief, the services were: (a) Find; (b) Origination; (c) Proprietary; (d) Initial Valuation; (e) Management Presentations; (f) Facilitation; (g) Due Diligence; (h) Review Valuation, in light of due diligence; (i) Debt; (j) Reviewing due diligence support; (k) Monitoring press comments. I need only explain the first two of these, which the experts agreed were the most important. "Find" is where the adviser introduces the private equity house to a target not previously known to it. "Origination" is where the adviser identifies an opportunity concerning a particular target and introduces the private equity house to the opportunity, albeit that the target itself may have been known to the private equity house.
Moorgate.
No issue at all arose as to how a contractually agreed fee, otherwise due and payable to
Moorgate,
might be reduced. Mr Smith seemed to think that the evidence was relevant to the valuation exercise under the alternative claim to a quantum meruit, but in my judgment it is entirely irrelevant to that issue for the simple reason that the alternative claim operates in the absence of a contract.
The claim in contract
Moorgate's
primary case rests on the contention that there was a contract (the Fees Agreement) between it and HIG, made orally between Mr Mockett for
Moorgate
and Mr Canning for HIG on 30 March 2011 at the Wallace Collection. I reject that contention and find that there was no such contract. Therefore, the primary case fails.
Moorgate's
primary case only if I were to find that Mr Mockett's evidence about events at the Wallace Collection was dishonestly given. I do not agree. I think it less likely that Mr Mockett was being deliberately untruthful than that he has come to persuade himself, and thus to believe, that he had a legal right to remuneration that he desired and felt he deserved. It is not uncommon in the experience of the courts for witnesses to deceive themselves in what are essentially honest but nonetheless false recollections. In determining where the truth lies it is more helpful to focus on objective indicia, both in the documents and in the inherent probabilities, than to rely on evidence as to a witness's memory, especially when the events in question took place a considerable time ago. (Like many other judges, I find helpful the remarks of Leggatt J in Gestmin SPGS SA v Credit Suisse Securities (Europe)
Ltd
[2013] EWHC 3560 (Comm) at [15]-[22] and in Blue v Ashley [2017] EWHC 1928 (Comm) at [65]-[69].)
Moorgate's
primary case. However, like the rest of the evidence it is not in itself determinative. It may be noted that the payment methods described by Mr Canning are contrary to what the experts agreed was normal in the
corporate
finance
world: they said that the Lehman Formula was rarely used nowadays and that, unlike other professionals,
corporate
finance
advisers were rarely paid on a time and materials basis. On the other hand, the email of 6 March 2011 (paragraph 22 above) is an example of Mr Canning proposing to pay on the basis of a daily rate, and Mr Mockett complained in evidence that HIG did not observe market practice in respect of fees.
corporate
finance
advisers and private equity houses do not defy common sense but record their fee agreements in writing. The disclosed documentation shows several instances of
Moorgate
making written fee proposals, but there was no such written proposal in the present case. Further, it would have been all the more important for Mr Mockett to have some written record of the Fees Agreement, because he had recently been disappointed by HIG's attitude in respect of Showcard.
corporate
finance
is no different from what one would anyway expect.
financial
information on Bezier and was not in a position to make a sensible estimation of the business's likely EV. A fee of £1m might very well have been appropriate if the anticipated EV were approaching £100m, but it would be very much less appropriate if the anticipated EV were of the order of £16m (as the actual EV turned out to be). HIG did not have the figures to enable it to make a reasoned judgement on this until 1 June. Mr Mockett's own evidence was that the detailed
financial
information was a "moving feast" and that the proposed fee of £1m was based on a turnover of £100m, which "could well" indicate that the business was worth £100m. It is inherently unlikely that a fee agreement such as is alleged by
Moorgate
was made at a time when its basis, the
financial
information, was a "moving feast". Further, the critical matters for assessing EV are profitability and EBITDA, not turnover per se. Mr Martin's evidence was that, although it was interesting to know the turnover of a business, turnover was not closely related to valuation. Mr Martin also accepted, in the course of his oral evidence, that an agreement as to the amount of any success fee would be made at a stage when the private equity house had sufficient information to know with reasonable accuracy what the EV of the target company would be. The estimate might, of course, prove to be subject to a relatively small margin of error. But it is not to be expected that a private equity house would agree a success fee at a time when its state of knowledge was so lamentably bad that it estimated the EV to be £100m but the eventual EV was only £16m. (I should say that an exception to this might be if a variant of the Lehman formula were used, because in such circumstances the fee would turn on the actual EV. However, that is not
Moorgate's
case.)
Moorgate's
retainer without so much as a word with Mr Steel. It is also unlikely that he would have been comfortable with agreeing the retainer in such circumstances, given his limited involvement to that date, and I can see no reason why he should have felt the need to do so. These points are illustrated graphically by Mr Mockett's email to Mr Canning on 4 April 2011 (paragraph 30 above): some five days after Mr Canning is supposed to have made a contract to pay
Moorgate
£1m if the Bezier Acquisition went ahead, Mr Mockett was giving Mr Canning fairly basic information about the proposed transaction.
corporate
financial
adviser to act on its behalf in respect of a possible offer for a listed company, both firms "should have initiated immediate internal and regulatory processes". The experts commented that they had seen no evidence that either HIG or
Moorgate
had undertaken any such processes; I was not referred to any such evidence. This tends to indicate that no agreement regarding a retainer in respect of St Ives plc was made at the Wallace Collection. That in turn tends to undermine Mr Mockett's evidence on the point.
Moorgate
the fees now being sought from HIG—is false: a request for those fees had been made but no agreement had been obtained.
Moorgate's
conduct after the Bezier Acquisition was completed. No invoice was raised, either initially or at any stage thereafter. When HIG offered to pay
Moorgate
£80,000, Mr Mockett did not respond by sending any email or letter referring to the Fees Agreement. (Mr Canning says that Mr Mockett did not seek to rely orally on any such agreement either, and I accept that evidence.) The matter was not pursued at all for almost six years. I did not find Mr Mockett's attempts to explain this to be very persuasive. In my view, if Mr Mockett had believed that there was a contract between
Moorgate
and HIG, he would have pursued the matter at the outset.
Moorgate,
the primary case fails.
Moorgate
had made an agreement intended by them to create legal relations, I should have taken some persuading that the agreement was insufficiently certain to constitute a valid contract; though again, of course, that would turn on the precise findings of fact—findings that I have not made. Further, I should not have been impressed by the argument that the Fees Agreement described by Mr Mockett created no binding obligation on HIG because the fees would be paid by the SPVs used for the eventual acquisition. Whatever the likely practicalities of payment, there was no agreement with the SPVs and, absent novation, any enforceable liability would have rested with HIG. The discrete argument that any payment obligation would have been subject to a condition precedent that was not fulfilled will be considered, indirectly, in connection with
Moorgate's
alternative claim to a quantum meruit, to which I now turn.
The claim in unjust enrichment: quantum meruit
"8. Alternatively, if contrary toMoorgate's
case it is not entitled to payment in accordance with the [Fees] Agreement,
Moorgate
is entitled to be paid for its work on the Bezier transaction on a quantum meruit basis.
Moorgate
will say that the value of its work was £1 million or alternatively such sum as the Court shall think fit.
9. In the event that the Court findsMoorgate's
alternative basis of claim set out in paragraph 8 above to be made out,
Moorgate
is entitled to be paid for its work on the customary basis adopted in the market between the parties in such transactions, namely an unum quid fee negotiated ex ante between the parties payable only on successful conclusion of the envisaged transaction, and not based on hours spent, extent of ancillary services provided or not provided, or any other ex post factors."
Moorgate's
reply put flesh on those bones:
"[T]he claimant's entitlement to a payment on a quantum meruit basis arises as follows:
a. The claimant offered the defendant a service for which payment is customarily expected and made, namely origination of and advice on the defendant's acquisition of Bezier;
b. The defendant sought and accepted the said service;
c. The customary basis for payment for such service, and consequently the most accurate gauge of objective market value, is an unum quid success fee negotiated ex ante between the parties, calculated by proportionate reference to the value of the envisaged transaction and payable only on successful conclusion of the envisaged transaction, and not based on hours spent, extent of ancillary services provided or not provided, or any other ex post factors;
d. This customary basis of payment incorporates the practice of advisers such as the claimant carrying out considerable volumes of work for which no fee is ever payable;
e. In the instant case, the claimant was bound to act only for the defendant in the proposed transaction, and as such was kept out of the market for other buy-side instructions;
f. Additionally, the relationships which Mr Mockett held with Bezier's management team were instrumental in the defendant:
i) having advantageous early access to Bezier's management before and during the sale process,
ii) being presented as a credible purchaser of Bezier;"
g. The claimant will say that the value of its service on this basis was £1 million or alternatively such objectively measured market value sum as the Court shall think fit."
1) HIG was enriched by the work done byMoorgate
in respect of the Bezier Acquisition;
2) That enrichment was atMoorgate's
expense, because it resulted from
Moorgate's
work and because
Moorgate
regarded itself as bound exclusively to advise HIG and thus excluded itself from access to other potential clients in the market;
3) The enrichment was unjust, in the sense that it was the product of services requested by HIG and its retention is unjust unless payment is made for it;
4) There are no relevant defences to the claim for payment.
Moorgate
contends that it is entitled to be paid the objective market value of the services at the date when they began to be provided; this, it says, is £1m.
Moorgate's
work, that enrichment was "at the expense of"
Moorgate.
This follows simply from the fact that we are solely concerned with benefits, or "enrichment", caused or constituted by services provided by
Moorgate.
It is also common ground that there are no relevant defences (such as change of position) to the claim for quantum meruit. The three areas of dispute in respect of the quantum meruit claim are, accordingly, (1) the existence of enrichment, (2) the existence of an "unjust factor" and (3) the valuation of any enrichment. At the price of departing from the logical order of the analysis, it is convenient to begin by considering the second of these matters (the "unjust factor") before turning to the existence and valuation of any enrichment.
Was any enrichment of HIG "unjust"?
Moorgate
in support of its alternative claim for a quantum meruit. Paragraph 8 of the particulars of claim does not identify any particular factor, unless it be "the [Fees] Agreement" as grounding a non-contractual right to payment. Paragraph 14(1) of the defence complained that the particulars of claim had "failed to identify the ground (or grounds) on which such an entitlement [viz. to payment on a quantum meruit basis] is said to arise." Paragraph 9 (b) of the reply shows that what is relied on is that HIG "sought and accepted"
Moorgate's
services, namely origination and advice, though it does not specify when or how the services were "sought".
Moorgate
puts its case on the basis that HIG requested and received services in circumstances where, objectively, it would be expected to pay for such services (cf. paragraph 9 (a) – (c) of the reply). Yet, as Mr Smith made clear (written submissions, paragraph 45): "Neither party contends for a position of there being a contract that is silent on the fee payable …" It is common for a valid contract for services to be silent as to payment; in such cases, the courts imply a term for payment of reasonable remuneration; cf. Energy Venture Partners
Ltd
v Malabu Oil and Gas
Ltd
[2013] EWHC 2118 (Comm) at [281] per Gloster LJ. That, however, is not this case. Although there is an analytical distinction between payment obligations in contract (reasonable price) and unjust enrichment (disgorgement of benefit), proper justification is required for conferring an entitlement to payment on a party who has not contracted to receive payment. It is not the role of the law of unjust enrichment to create for the parties contracts that they never made.
Ltd
[1936] 2 KB 403. Another such case, possibly resting on the same ultimate justification (cf. the dictum of Barry J in William Lacey (Hounslow)
Ltd
v Davis [1957] 1 WLR 932, 939), is where services have been provided in the parties' confident anticipation of concluding a contract under which the provider will be remunerated: for example, British Steel Corp v Cleveland Bridge and Engineering Co
Ltd
[1984] 1 All ER 504. In the British Steel Corp case, negotiations over the terms of a contract were progressing but had not been completed when, in order to keep the project to schedule, the plaintiff carried out some of the works at the defendant's request. Goff J found that there was no contract but held that the plaintiff was entitled to payment, for reasons stated at 511:
"In my judgment, the true analysis of the situation is simply this. Both parties confidently expected a formal contract to eventuate. In these circumstances, to expedite performance under that anticipated contract, one requested the other to commence the contract work, and the other complied with that request. If thereafter, as anticipated, a contract was entered into, the work done as requested will be treated as having been performed under that contract; if, contrary to their expectation, no contract was entered into, then the performance of the work is not referable to any contract the terms of which can be ascertained, and the law simply imposes an obligation on the party who made the request to pay a reasonable sum for such work as has been done pursuant to that request, such an obligation sounding in quasi contract or, as we now say, in restitution."
Ltd
v United Republic of Tanzania [2009] EWHC 121 (QB), 123 ConLR 154, Christopher Clarke J, having found that services had not been provided under a contract, went on to consider the law relating to recovery of a quantum meruit when services had been provided in anticipation of a contract that did not materialise. The following passage is relevant:
"170. In Countrywide Communications Limited v ICL PathwayLtd
[1996] C No 2446 Mr Nicholas Strauss QC considered the authorities bearing on the question of whether or not a claim can successfully be made for work done in anticipation of a contract which does not materialise. Having considered William Lacey (Hounslow)
Ltd
v Davis [1957] 1 WLR 932; a number of academic writings; Jenning and Chapman
Ltd
v Woodman Matthews & Co [1952] 2 TLR 406; Brewer Street Investments
Ltd
v Barclay Wool & Co
Ltd
[1954] 1 QB 428; British Steel
Corporation
v Cleveland Bridge and Engineering [1984] 1 AER 504; Regalian Plc v London Docklands Development
Corporation
[1995] Ch 212; Marston Construction C
Ltd
v Kigass
Ltd
[1989] 15 Con L..116, he concluded:
'I have found it impossible to formulate a clear general principle which satisfactorily governs the different factual situations which have arisen, let alone those which could easily arise in other cases. Perhaps, in the absence of any recognition in English law of a general duty of good faith in contractual negotiations, this is not surprising. Much of the difficulty is caused by attempting to categorise as an unjust enrichment of the defendant, for which an action in restitution is available, what is really a loss unfairly sustained by the plaintiff. There is a lot to be said for a broad principle enabling either to be recompensed, but no such principle is clearly established in English law. Undoubtedly the court may impose an obligation to pay for benefits resulting from services performed in the course of a contract which is expected to, but does not, come into existence. This is so, even though, in all cases, the defendant is ex hypothesi free to withdraw from the proposed contract, whether the negotiations were expressly made "subject to contract" or not. Undoubtedly, such an obligation will be imposed only if justice requires it or, which comes to much the same thing, if it would be unconscionable for the plaintiff not to be recompensed.
Beyond that, I do not think that it is possible to go further than to say that, in deciding whether to impose an obligation and if so its extent, the court will take into account and give appropriate weight to a number of considerations which can be identified in the authorities. The first is whether the services were of a kind which would normally be given free of charge. Secondly, the terms in which the request to perform the services was made may be important in establishing the extent of the risk (if any) which the plaintiffs may fairly be said to have taken that such services would in the end be unrecompensed. What may be important here is whether the parties are simply negotiating, expressly or impliedly "subject to contract", or whether one party has given some kind of assurance or indication that he will not withdraw, or that he will not withdraw except in certain circumstances. Thirdly, the nature of the benefit which has resulted to the defendants is important, and in particular whether such benefit is real (either "realised" or "realisable") or a fiction, in the sense of Traynor CJ's dictum. Plainly, a court will at least be more inclined to impose an obligation to pay for a real benefit, since otherwise the abortive negotiations will leave the defendant with a windfall and the plaintiff out of pocket. However, the judgment of Denning LJ in the Brewer Street case suggests that the performance of services requested may of itself suffice amount to a benefit or enrichment. Fourthly what may often be decisive are the circumstances in which the anticipated contract does not materialise and in particular whether they can be said to involve "fault" on the part of the defendant, or (perhaps of more relevance) to be outside the scope of the risk undertaken by the plaintiff at the outset. I agree with the view of Rattee J that the law should be flexible in this area, and the weight to be given to each of the factors may vary from case to case.'
171 I regard this as a helpful analysis of the authorities from which I also derive the following propositions:
(a) Although the older authorities use the language of implied contract the modern approach is to determine whether or not the circumstances are such that the law should, as a matter of justice, impose upon the defendant an obligation to make payment of an amount which the claimant deserved to be paid (quantum meruit): see William Lacey (Hounslow)Ltd
v Davis …
(b) Generally speaking a person who seeks to enter into a contract with another cannot claim to be paid the cost of estimating what it will cost him, or of deciding on a price, or bidding for the contract. Nor can he claim the cost of showing the other party his capability or skills even though, if there was a contract or retainer, he would be paid for them. 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. If another firm is retained, he runs the risk of being unrewarded if unsuccessful in his pitch.
(c) The court is likely to impose such an obligation where the defendant has received an incontrovertible benefit (e.g. an immediatefinancial
gain or saving of expense) as a result of the claimant's services; or where the defendant has requested the claimant to provide services or accepted them (having the ability to refuse them) when offered, in the knowledge that the services were not intended to be given freely.
(d) But the court may not regard it as just to impose an obligation to make payment if the claimant took the risk that he or she would only be reimbursed for his expenditure if there was a concluded contract; or if the court concludes that, in all the circumstances the risk should fall on the claimant: see the Jennings and Chapman case.
(e) The court may well regard it as just to impose such an obligation if the defendant who has received the benefit has behaved unconscionably in declining to pay for it."
Moorgate,
Mr Smith submitted that the present case fell within principle (c) in Christopher Clarke J's judgment at [171]: "the defendant … requested the claimant to provide services or accepted them (having the ability to refuse them) when offered, in the knowledge that the services were not intended to be given freely." He relied on the remarks of Thomas J in Becerra v Close Brothers
Corporate
Finance
Ltd
(25 June 1999, unreported) as showing the correct approach:
"It was common ground that, if the plaintiffs provided services to Close Brothers in circumstances where Close Brothers had requested those services or were to be taken to have requested them, and if there were no circumstances from which it could be inferred that the services would be rendered gratuitously, then the plaintiffs were entitled to a quantum meruit for those services."
Mr Smith's submissions were not entirely clear as to which particular requests on the part of HIG he relied on; paragraph 20 of his skeleton argument, taken with paragraph 31, was perhaps the fullest statement of the case, though it does not make the position very clear. Presumably, the first communication relied on regarding Bezier is Mr Steel's request for thoughts on Bezier in mid-September 2010: see paragraph 14 above.
Moorgate
was a disappointed risk-taker. This was not a case where there was a contract found to be ineffective, nor did the parties act in anticipation of a contract that failed to materialise; there was a simple absence of contract. As a sophisticated commercial party,
Moorgate
had the ability and opportunity to seek an agreement for its services and yet, in a market where gratuitous services were not uncommonly provided, it did not do so. Why, asked Mr Bond, should
Moorgate
later be able to claim the payment for which it had omitted to contract? He relied on two further dicta of Thomas J in the Becerra case, the first in the context of requested services and the second in the context of free acceptance of unrequested services:
"If such a request [scil. for services] had been made out, I would then have had to consider whether there were special circumstances showing that it was intended that the services should be gratuitous … This would have been a difficult question and I will not express a concluded view. I would have been concerned to hold that in thefinancial
markets where the parties normally make agreements and certainly agree fees for the making of an introduction, it is to be assumed that the plaintiffs intended to be paid. There are all kinds of reasons why a person in the City might make an introduction in the absence of an agreement that he is to act for payment; on most occasions such introductions are made quite gratuitously, possibly on some occasions for long term or short term self-interest of the person effecting the introduction."
"… I see great force, in the context of dealings in thefinancial
markets and the City, in the argument that a person who acts without being requested takes the risk he will not be paid. In a market place where relationships are complex and actions may be motivated by more than one consideration, it is difficult to see why it is unjust that a person who has not made an agreement (though he is quite capable of making one) and not been requested to act should not be left with the risk of not being paid."
In this context, I note that, just before the second of those passages, Thomas J had cited with apparent approval the following text from Birks, An Introduction to the Law of Restitution (revised edition, 1989), p. 282:
"It is not enough that the plaintiff had a non-gratuitous intent. The defendant must also have known of that intent. Otherwise nothing calls the defendant to ask himself whether he should take steps to reject the benefit; for, as everyone knows, people do accept as gifts some benefits which they would certainly reject if they thought they were expected to pay."
(That passage, though directed to the concept of "free acceptance" and mentioned in that context by Thomas J, is also relevant to the case of requested services, because such a claim for restitution of unjust enrichment depends on the mutual understanding that the benefits were not intended to be gratuitous.)
Moorgate
conferred enrichment on HIG by the provision of services in respect of Bezier, the circumstances are not such as to render the receipt of those services, without payment, unjust. The reasons for this conclusion are set out in the following paragraphs.
Moorgate
nor HIG understood that Mr Mockett's work in respect of Bezier would attract a fee, at least unless an agreement were made. Mr Mockett may well have hoped that, if things progressed favourably, HIG would engage him under a contract; in that case, a fee would have been payable. In those circumstances, an agreement would be made and some record of it would in all likelihood be made; see the agreed matters in the expert evidence. But matters never progressed like that. Mr Miller said in cross-examination that cases might arise where, for example, in order to steal a march on rivals in a managed bidding process where the requisite information to agree a fee was not at hand, the parties might agree that work would start and the fee would be agreed later. That is essentially the British Steel Corp case, but it is not this case. I am satisfied that the parties did not assume that a contract would eventuate and that
Moorgate
would be paid under it.
Moorgate
contends, in effect, that an analysis of this sort makes no sense, because the result is that the
corporate
finance
adviser provides a valuable opening (in the circumstances of the present case, what is conveniently called an "angle") to the private equity house and has no assurance that the private equity house will not simply take advantage of the angle and cut him out of the picture. (That is how the matter was put to Mr Canning in cross-examination.) I disagree. There is a market in which the advisers are entitled to seek agreements or arrangements to their best advantage. That does not mean that the receipt of an angle by a private equity house gives rise to a contingent liability to make a payment. That would in effect be to posit a unilateral contract at the outset. The true position is that, as Mr Canning observed, it is likely to be in the interests of the adviser to start the conversation by providing the angle in the hope that the private equity house's interest will mature into a contract with the adviser. In the normal course, the entitlement (absolute or conditional) to payment will accrue only when an agreement is made, though as already mentioned it may sometimes arise earlier. Contrary to
Moorgate's
contention, this is not an unsatisfactory position, because any private equity house that developed a reputation for not entering into contracts with
corporate
finance
advisers in circumstances where other houses would do so would thereby render itself unattractive as a recipient of further angles in the future. In other words, the nature of the case is inherently speculative from the point of view of the adviser and is regulated by freedom of contract and enlightened self-interest on the part of both parties.
Moorgate
was keeping its options open with other potential clients. Both in the statements of case and in submissions,
Moorgate
has relied on the contention that it regarded itself as bound exclusively to advise HIG and thus excluded itself from access to other potential clients in the market. That contention is clearly false. For one thing, in the absence of a contract there was no obligation of exclusivity. For another thing, and more importantly,
Moorgate
did not regard itself as bound exclusively to HIG: quite the contrary. The initial mention of Bezier was in September 2010. However, in late March 2011 Mr Mockett was seeking to agree a retainer in respect of Bezier with a third party (paragraph 24 above)—something he never did with HIG. And on 12 April 2011 he was attending a meeting with the Bezier management on behalf of yet another potential purchaser (paragraph 32 above). It is difficult to see why, when it was keeping its options open and not committing itself to any of the potential clients,
Moorgate
should subsequently turn around and complain that it is unjust that it has not been paid by one of them.
Moorgate
in respect of Bezier were modest. There is no reason to assume that the parties must have expected that they would be paid for regardless of whether a contract eventuated.
1) HIG had in-house specialist knowledge and an existing presence in the sector through Diam, and it already knew about Bezier.
2) Mr Mockett did not initially mention Bezier as a potential target; he mentioned it as one of the three chief competitors of the actual target, Showcard. It was HIG that, in the context of the project concerning Showcard, expressed an interest in knowing Mr Mockett's views on Bezier. In cross-examination, Mr Mockett said that too much should not be read into the word "competitors" and that he had probably already had a telephone conversation with Mr Steel in which he had mentioned Bezier as a potential target. I consider that evidence, which is not supported by other evidence, to be unreliable and an attempt to interpret events in a manner favourable toMoorgate's
claim. What probably happened was that, after Mr Mockett had mentioned Bezier as a competitor, M Vaissaire or Mr Steel raised the possibility that it might be an alternative or additional target and Mr Mockett said that he thought it might be "unlockable", to use a word he used in cross-examination.
3) Mr Mockett did indeed make an introduction between HIG and the Bezier management team. His involvement with the management team constituted an "angle". However, given Bezier's actual circumstances, this seems to me to have been of more advantage to the management team than to HIG. At the outset, Mr Steel was aware that the important party as regards Bezier was less the management team than RBS as main creditor, and it appears that he made direct contact with the person at RBS who was responsible for Bezier's account.
4) The information provided by Mr Mockett was slight. I have already commented (paragraph 20 above) on the limited nature of the information provided in advance of the meeting on 10 February 2011. Further, although Mr Mockett claimed in cross-examination that he had provided that information pursuant to a request from Mr Steel, no such request is documented or mentioned elsewhere in the evidence; I think it more likely that Mr Mockett took it upon himself to provide the information. Again, as appears clearly from the narrative, Mr Mockett neither provided nor was in a position to provide any detailedfinancial
information before the management team provided it on 1 June 2011; and by then the involvement of the banks rendered the management team of little importance and Mr Mockett largely irrelevant.
Moorgate,
one particular matter, on which I do not principally rely but which has some relevance, concerns the causative efficacy of Mr Mockett's evidence vis-à-vis the transaction that eventuated. HIG relied on MSM Consulting
Ltd
v United Republic of Tanzania for the proposition that in a buy-side transaction there was to be implied into the adviser's contract a term that it would be entitled to payment only if it were the "effective cause" of the transaction. In this regard, I make the following observations.
1) It is both unnecessary and unhelpful to attempt to reach a definitive conclusion on the question whether any contract betweenMoorgate
and HIG would have contained the implied term. Whether it would be proper to imply a term into a contract must depend ultimately on the findings as to the express terms of the contract. I have found that there was no contract at all.
2) Nevertheless, it seems to me likely that any contract betweenMoorgate
and HIG would have contained the implied term that
Moorgate
would be entitled to a fee only if it were the effective cause of the transaction. See in particular MSM Consulting
Ltd
v United Republic of Tanzania, per Christopher Clarke J at [142], and Bowstead and Reynolds on Agency (21st edition, 2018), Article 57 and commentary. There is nothing in the facts of the present case that leads me to consider that the implication of the term would be inappropriate. Indeed, the very notion that payment would be of a "success fee" invites the conclusion that a direct causal link is required between the services and the transaction.
3) Christopher Clarke J considered, obiter, that the fact that a contract would have contained the implied term did not itself mean that a quantum meruit was precluded where the services were not the effective cause of the transaction, though it was a factor tending against the award of a quantum meruit: see MSM ConsultingLtd
v United Republic of Tanzania at [176]. It seems to me that it must at least tend strongly against the making of such an award. I would go further and would think that, even where a contract would not have contained the implied term, the court was entitled to regard the fact that services were not the effective cause of the transaction as a relevant matter when deciding whether it was just to impose a non-contractual payment obligation.
4) In my judgment, Mr Bond was clearly correct to submit thatMoorgate
was not the effective cause of the Bezier Acquisition. I shall say more about
Moorgate's
role later in this judgment. For the moment, it suffices to note that Mr Mockett's involvement concerned a potential bilateral transaction involving the merger of Diam and Bezier. However, from the beginning of June 2011 the direct intervention of Deloitte, independent of any prior communication with Bezier's management, meant that HIG was involved in an accelerated debt/equity auction in which
Moorgate
had no role. Mr Bond submitted that the eventual transaction was "radically different" from what had originally been envisaged and was properly to be regarded as a "substitute transaction that broke the chain of causation" between
Moorgate's
work and the Bezier Acquisition. I agree and regard this as an additional factor militating against an award in unjust enrichment.
Moorgate's
primary case was that it had a contract that entitled it to payment for its services. That case has failed. Why should it nevertheless be entitled to payment in the absence of a contract? With HIG's consent, it could have contracted for payment. Without HIG's consent to a contract, it could have declined to provide services. Having, without a contract, nevertheless provided services in the hope of payment or some other advantage, it was, in the circumstances of this case, merely a risk-taker. The risk paid some initial dividends, in terms of some goodwill vis-à-vis HIG and an ex gratia offer of £80,000, but it did not result in the offer of a contract. That was a disappointment to
Moorgate,
which was therefore a disappointed risk-taker. In my judgment, Mr Bond was right to submit that
Moorgate
had shown no "unjust factor" that would entitle it to payment absent a contract.
Enrichment: existence and valuation
Moorgate
was entitled to payment of a quantum meruit for services provided to HIG, I would have valued those services at £25,600. The reasons for this conclusion are set out in the following paragraphs.
Moorgate's
approach to the question of enrichment. This is set out in paragraph 9 of its particulars of claim and paragraph 9 of its reply (see paragraphs 81 and 82 above). Mr Smith relied on principles drawn from the judgment of Lord Clarke in Benedetti v Sawiris: that "the enrichment is to be valued at the time when it was received" (at [14]); that "the court should apply an objective test to the issue of market value" (at [16]); and that "the test is 'the price which a reasonable person in the defendant's position would have had to pay for the services'" (at [17], citing the judgment of Etherton LJ in the Court of Appeal). Mr Smith submitted that it followed from these principles that the amount payable as a quantum meruit ought to be ascertained by reference to the time when the services were first rendered, entirely regardless of any consideration of either the extent of the services that were subsequently rendered or the price that was actually paid for Bezier. This appears clearly from his written submissions:
"56. [T]he sum that the 'reasonable person in the defendant's position would have had to pay for the services' falls to be judged at the time of the defendant first availing itself of the claimant's service, which on the evidence is 15th September 2010. … A more precise formulation of the test that the claimant contends for would be to determine when the services that would have been paid for in the event of success began, and the claimant submits this date was September 2010.
57. The services that comprisecorporate
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finance
advice are not priced individually and are not available on such basis in a situation such as the instant case. It is still less the practice of the market to assess fees retrospectively, particularly seeking to examine the actual work done by the adviser, as this would go against the market practice of the ex ante success fee procedure. In addition, the claimant submits that the fact that a 'full service' … could not be provided for reasons outside the claimant's control should not count against the claimant on this issue.
…
61. In the event that the Court does not find the contract claim made out, the claimant invites the Court to find that the appropriate restitutionary award of quantum meruit is £1m on the basis that this is the objective market value of the service provided by the claimant at the time this amount falls to be assessed."
Moorgate's
analysis of the unjust enrichment. This may be the result of abstracting Lord Clarke's remarks from their proper context, which is the valuation of enrichment, not the pretence of a non-existent contract. The entire exercise is premised on the absence of any contract, yet
Moorgate's
analysis proceeds on the basis of the terms that would have been agreed in a hypothetical contract for services (that is, the full range of services) that were not provided in respect of a transaction (that is, an acquisition for an EV of £100m) that did not take place. There was no contract for a fee to be paid on the basis of an EV of £100m and there is no proper reason to value
Moorgate's
services on the basis that would have been applicable to such a contract. Similarly, there was never a contract for the provision of a full range of services; therefore, to begin from the success fee that would have been provided for under such a contract and to suppose that the services actually provided are to be given that value, on the basis that it is not the claimant's fault that it was not asked to provide all those services, is to get things back to front. (This is even more obviously the case, as a retained
corporate
finance
adviser acts solely for his client, whereas Mr Mockett's services, such as they were, were not provided exclusively.) The relevant exercise is to ascertain the objective market value of the services actually provided, which were limited services in respect of a transaction with an EV of £16m.
Ltd
v United Republic of Tanzania, that any services provided by
Moorgate
must be regarded as having no value, because
Moorgate
was not the effective cause of the Bezier Acquisition. For reasons already explained, Christopher Clarke J's approach in that case does not support the conclusion sought to be drawn by Mr Bond, although it does suggest that any enrichment might not be thought "unjust". For the present, I am assuming (contrary to my conclusion) that there is a measure of unjust enrichment. On that assumption, the valuation exercise must be informed by the expert evidence.
corporate
finance
adviser.
Moorgate
as having been a reasonable forecast at an early stage) and it was not £32m (a figure that represents a miscalculation arising in the course of the proceedings but not featuring in 2010 or 2011).
Moorgate's
argument that the relevant figure is £100m is based on Mr Martin's opinion that the market practice is to fix the success fee by reference to an anticipated EV, not to work retrospectively from the actual EV. Even accepting that fees are agreed prospectively and not retrospectively, the argument is wrong. First, of course, there was no contract. Second, there is no reason to act on the supposition that the parties would have agreed a fee on the basis of an EV of £100m: only if the parties had tried to fix a fee at a time when they lacked sufficient information to form a sensible estimate of the EV could they have come up with such a wildly inaccurate figure; and the figure rests on Mr Mockett's evidence that Bezier's turnover of £100m meant that it "may well" have had a value of £100m. On its face, that evidence shows no proper basis for supposing that anyone would in fact have agreed a success fee on the basis of such an EV, and Mr Martin's evidence was that turnover was of little relevance for valuation, the important matters being profitability and EBITDA. Third, even if, for whatever unimaginable reason, one were to assume that if the parties had made a contract that they did not make they would have done so on a grossly mistaken basis, that provides no reason for valuing HIG's enrichment on the basis of this hypothetical and mistaken valuation. In short, the actual EV was £16m and there is no reason to suppose that an agreement for a success fee would ever have been premised on any other figure or that the value of any resultant benefit ought to be assessed on any other basis.
corporate
advisory services; second, to adjust the figure, if necessary, to take account of any limitation on the services provided or to be provided. (That is a different matter from saying that the market price of services would be fixed on a time and materials basis, which the experts are agreed would be inappropriate.)
corporate
advisory services on a buy-side acquisition, where the expected EV was £16m and the full range of
corporate
advisory services was to be provided, would have been a maximum of £256,000, representing 1.6% of the EV. In general, I prefer Mr Miller's evidence to Mr Martin's on the question of the appropriate percentage. Mr Martin had, I think, a tendency to try to pitch his figures at a level that would approximate as closely as possible to the supposed Fees Agreement. (This is seen, among other places, in his inclusion in the second joint memorandum of the suggestion that, on an EV of £32m, a fee of £1m on the basis of a percentage of 3.125% "could be justifiable on the basis of substantial unpaid previous work and marketing undertaken by
Moorgate
as claimed by Mr Mockett.") This tendency may have resulted in part from Mr Martin's prior knowledge of Mr Mockett, though I did consider that the evidence was given in good faith. As for Mr Miller's evidence, I prefer the higher end of his proposed range, because a lower EV will tend to attract a slightly higher percentage.
corporate
advisory services. However, I accept Mr Miller's opinion that the services actually provided by
Moorgate
were by no means at the level that would attract that maximum figure.
1) It is plainly wrong to assess the value of the services actually provided on the basis of a notional contract for a range of services that were not provided and not even requested. One must look at what services were actually provided.
2) I accept Mr Miller's evidence that the greatest value lies in the "origination" services of acorporate
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finance
adviser; of particular value is "a find", which is the identification of a company not previously known to the private equity house and the making of an introduction (first joint memorandum, paragraph 3.1). There was no "find" in the present case. Through its own specialist knowledge in the sector HIG was already aware of Bezier, and the possibility that Bezier might be a target was raised by HIG, not by
Moorgate,
in the course of a consideration of Showcard. HIG also had a degree of personal connection with Royal Bank of Scotland (Bezier's major creditor) and with MidOcean (the private equity house that was its major shareholder).
3) Mr Mockett was able to forge an introduction to the Bezier management team. However, that was not an exclusive opportunity, as is shown by his similar introduction of at least two other parties.Moorgate
accepts, and has made much of, the fact that a
corporate
![]()
finance
adviser acting under contract to a private equity house has an exclusive relationship. Until there is an agreement, the
corporate
adviser is free to seek to do business with the private equity house that provides it with the greatest potential for advantage (cf. Mr Miller's evidence, day 4, p. 532).
4) Further, the introduction to management was of very limited practical use, for at least two reasons: first, HIG was unable to reach an agreement with management (see the narrative in respect of 18 June 2011); second, Deloitte approached HIG directly, and HIG's involvement in the bidding that resulted in the eventual deal did not come about through Bezier's management.
5) The extent of the information provided by Mr Mockett was very limited. The Bezier management team did provide significantfinancial
information. However, full disclosure of information was provided in the bidding exercise run by Deloitte. The highest that the case can be put for
Moorgate
is that the earlier provision of information by the management team gave HIG the luxury of being able to consider the potential acquisition in a more leisurely fashion; cf. Mr Miller's evidence, transcript, day 4, page 527.
6) Mr Mockett was not involved in any meaningful way in the period leading up to HIG's offer in July 2011. It is for that reason that (as was Mr Canning's evidence, which I accept) Mr Mockett did not give any useful input to the terms or substance of the offer. Mr Mockett did not have any role in the post-offer stages leading up to completion of the transaction.
corporate adviser's services could be contracted for on an à la carte basis and obtained Mr Miller's agreement that in a buy-side transaction of the kind in the present case the adviser would not be able to perform services unless he were involved at all stages: see transcript, day 4, pages 517 – 519. However, Mr Smith did not attempt to explore with Mr Miller how, if at all, this accorded or conflicted with the experts' agreed position that the fee would depend in part on the range or scope of services to be provided (see the first joint memorandum, section 2.3). Further, of course, there was no contract and only limited services were provided. Unless it were to be argued that the provision of any services outside a contract entitled the provider to receive remuneration to the full extent of the fee in a non-existent contract for much more extensive services—which is plainly absurd—this point goes nowhere. I have considered whether some higher percentage than 10% might be more appropriate. However, I have concluded that I have no proper basis for rejecting Mr Miller's unchallenged figure. Therefore, if (contrary to the conclusions already expressed) I had been minded to award a quantum meruit, I would have awarded £25,600.
Conclusion