Commercial Bulletin No. 100 - September 2013

COMMERCIAL

How to calculate a quantum meruit award

Benedetti v Sawiris & Another [2013] UKSC 50

A starting point for accessing a quantum meruit award is the open market value. It might be possible to reduce this where the services are of less value to the defendant, but rarely if ever to increase it.

The Court of Appeal decision was reported in Commercial Bulletin no. 71 from December 2010.

Benedetti provided financial advisory services to Sawiris who were looking to buy a subsidiary of a big energy company in Italy. The proposed agreement between them had fallen by the wayside, not least because the eventual deal was very different from that originally envisaged. The Supreme Court had to decide what sums were due to Benedetti by way of quantum meruit for services rendered.

Relevant numbers - the original contract sum was €75 million; Mr Benedetti had already been paid €67 million (for arguably other services); and, during negotiation, Sawiris offered €75.1 million, apparently on top of the €67 million, a sum which was rejected by Benedetti as being insufficient. The High Court found that the ordinary market value of the services was €36.3 million.

The High Court held that, although the ordinary market value of the services was €36.3 million, the appropriate fee was €75.1 million, on the basis of evidence that Sawiris regarded the value of the services as being at least that sum, based on the offer of that amount in negotiations. The Court of Appeal disagreed and held that the starting point should be ordinary market value. As Benedetti had provided 60% of the services for which he was claiming a quantum meruit (and had effectively been paid for those out of the €67 million), he was entitled to 40% of €36.3 million, i.e. €14.52 million extra.

The Supreme Court accepted the judge's finding that the objective market value of Beneditti's services was €36.3 million. But as he had already received more than that, no further sums were payable. The €75 million fee set out in the abandoned agreement was not relevant to the assessment of market value.

The question which arose was the extent to which that figure for ordinary market value could be decreased if the services were of less value to the particular defendant ("subjective devaluation") or increased if the services were worth more ("subjective revaluation"):

All the judges agreed that the starting point in valuing services was the ordinary market value, being the price that a reasonable person in the defendant's position would have had to pay for the services. The judges diverged on what happened if the services were in fact worth less to the defendant, Lord Clarke and two of the judges held that it was permissible for a defendant to prove that the services were worth less than market value. Lord Neuberger declined to express an opinion, thinking that cases where subjective devaluation could be argued would be extremely rare. Here, for instance, services were provided at the defendant's request, there was no agreement as to how the value of the services should be quantified and neither party had indicated the service should be provided at other than market value. Lord Reed said that the key was the "position of the defendant", so that position of the reasonable person would be adjusted according to the actual characteristics of the defendant (e.g. his credit rating). It was an argument open to someone who had not chosen to receive the services; it was not available to someone who had freely accepted the services. All the judges agreed that subjective revaluation was not possible, i.e. a defendant should never have to pay more than market value for services valued on a quantum meruit basis. [i.e. the High Court award of €75.1m was wrong] Comment. As Lord Neuberger acknowledged, legal academics have developed the law of unjust enrichment/quantum meruit considerably in the last fifty years, but the subject has not received much attention from the UK courts. There will be no doubt more cases to follow on the subject of subjective devaluation.

Beware of not making an offer "subject to contract"

Malcolm Newbury v Sun Microsystems [2013] EWHC 2180 (QB)

Where a settlement offer was made and accepted subject to recording the terms in "a suitably worded agreement", a binding agreement was made and it was not open for the offeror to introduce new terms into that agreement

Newbury was claiming sales commission from Sun Microsystems. A few days before the matter was due to come to trial, Sun's solicitors wrote to Newbury's solicitors saying that Sun "was willing to settle the entire proceedings by paying the Claimant within 14 days of accepting this offer, the sum of [ ]..... by way of damages by means of an electronic transfer..... in full and final settlement of the Claim and counterclaim,...... such settlement to be recorded in a suitably worded agreement." The offer was stated to be open until the end of the day. Newbury's solicitors responded the same day accepting the terms of the settlement in an email marked "Without prejudice save as to costs". They said that they would forward a draft agreement for approval the next day. A dispute then arose as to whether the terms of the settlement should be put onto the public record, with the result that no formal agreement was executed.

Newbury claimed that the exchange of letters constituted a binding agreement and that the execution of the "suitably worded agreement " was not a condition of the agreement coming into effect. Sun claimed that their original offer was not an offer capable of acceptance, but even if it were, a settlement had to be recorded in a separate agreement and the courts would look at conduct after the letter to determine the issue of whether there was a binding agreement.

The High Court (Mr Justice Lewis) found in favour of Newbury. He had little doubt that, viewed objectively, the correspondence did give rise to a legally binding contract between the parties. He reached that conclusion for the following reasons:

The letter from Sun was expressed in terms constituting an offer of settlement. The offer was stated to be available for acceptance by a specified time and that if accepted an acceptance payment would be made. Both factors were a clear indication that Sun's email was intended to be a binding offer capable of...

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