Disputes Matter – Spring/Summer 2019


A Quantum Meruit: A remedy for risk takers?
A recent dispute between two firms in the financial services sector has brought the concept […]
A recent dispute between two firms in the financial services sector has brought the concept of quantum meruit to the court’s attention. The case also serves to highlight the importance of written agreements and the risks involved in providing goods or services without first documenting the terms.
What is quantum meruit?
The principle of quantum meruit may come into play in a variety of situations, but it most frequently arises when a contract fails to fix the price for goods or services supplied, or where there is no contract in place at all. Quantum meruit is a fundamental principle of natural justice which may allow a party to bring a claim where they would otherwise have no cause of action or remedy. Under this principle, the court may make an award to a party on the basis of what they deserve to be paid for what they have done or supplied, so it may not come as a surprise that a literal translation of the phrase is “the amount deserved”.
Why is this case of interest?
The recent case of Moorgate Capital (Corporate Finance) v H.I.G. European Capital Partners LLP [1] provides some much needed clarity as to when it will be possible for a claimant to rely on quantum meruit. However, the case also stands as a clear warning for businesses of the risks of providing goods or services, or undertaking works of any sort, without first formalising the arrangements in a written contract. Quantum meruit claims are by no means a guaranteed safety net, and the best advice remains ensure that agreements are recorded comprehensively, accurately and in writing wherever possible, and providing for clear payment provisions.
Agreements made over aperitifs are best avoided!
The claimant had been involved in the introduction to, and acquisition by the defendant (a private equity firm) of, a target company. The defendant had offered £80,000 to the claimant as a goodwill payment in return. The claimant rejected this, primarily claiming that there was an oral contract, agreed at a drinks party, that the claimant would receive a £1 million success fee for its services in relation to the acquisition. As an alternative (in case the court found that there was no contract), the claimant pursued a claim on the basis of quantum meruit.
The High Court found that there was no contract and also rejected the claimant’s quantum meruit claim. The court held that the claimant could easily have contracted with the defendant for the fees or declined to provide the services, but instead chose to press on without, and to provide the services hoping that they would nevertheless secure some sort of benefit. The court branded the claimant a “mere risk-taker” and considered that it would not be just to impose an obligation upon the defendant to pay any amount for the claimant’s services [2].
When might a claim of quantum meruit succeed?
The court emphasised that there is no general right to payment in the absence of a contract and it is not the role of this area of law to create contracts for the parties where they have failed to do so.
In order for a claim to be made out, the claimant must show that:
- The defendant has been enriched. This could be in terms of money, but can also be direct or indirect and includes benefits, saving from expense and discharging obligations.
- The enrichment was at the claimant’s expense. There must be a causal link between the claimant’s loss and the defendant’s gain.
- The enrichment was unjust. One or more of a number of reasons may be given, including mistake, duress or undue influence, failure to provide consideration for a conditional benefit, necessity or illegality.
- The possibility of any other legal remedies must have already been exhausted.
Overall, whether or not to make an award on the basis of quantum meruit falls within the court’s discretion. There are myriad factors which the court may take into account when exercising its discretion, but some relevant considerations may include:
- Whether the services were of a kind that would normally be provided freely.
- The nature of the benefit received by the defendant.
- The risks the claimant has incurred in agreeing to provide the services and whether the reasons for non-payment exceed the scope of those risks.
- Whether the defendant has behaved unconscionably in declining to pay. (This latter consideration is likely to be a strong indicator in favour of making a quantum meruit award.)
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[1] [2019] EWHC 1421
[2] As an interesting aside for corporate practitioners, the judgment also contains some interesting and helpful analysis as to the court’s approach to the assessment of market value of corporate advisory services on a buy-side acquisition.

Will an ‘Act of God’ offer a way out of a contract?
In times of economic decline or uncertainty, parties often seek to extricate themselves from contractual […]
In times of economic decline or uncertainty, parties often seek to extricate themselves from contractual commitments which, perhaps for reasons outside their control, are no longer commercially favourable. One strategy in such cases is to invoke the contract’s force majeure clause.
What is a force majeure clause?
A force majeure clause typically excuses one or both parties from performance of the contract in some way, following the occurrence of certain events. Its underlying principle is that, on the occurrence of certain events which are outside a party’s control, that party is excused from, or entitled to suspend performance of all or part of, its obligations. The term ‘force majeure’ has no recognised meaning in English law and should therefore be expressly defined in the contract. Commercial contracts typically define exceptional events such as ‘acts of God’, natural disasters, terrorism, strikes, government acts, building collapse, fire, and the like as force majeure events.
Why is Classic Maritime Inc v Limbungan Makmur of interest?
In this recent case [1], the Court of Appeal gave important guidance as to the nature and operation of force majeure clauses. In particular, the court highlighted that, regardless of the occurrence of a force majeure event, a party cannot rely on such a clause if it would not have been ready, willing and able to perform its contractual duties even if the exceptional event had not occurred.
What practical advice arises?
Parties should pay careful attention, both at the point of drafting and if/when a party seeks to renege on a deal, as to what is required before an exceptional event may excuse them from performance under any particular contract.
Parties should also note that the occurrence of an exceptional event will not be enough to excuse a party from its obligations if the party would have been unable to perform in any event.
The following practical tips therefore represent general good practice when it comes to anticipating, and attempting to cater for, an uncertain and ever-changing commercial marketplace.
- Parties should always seek to specify the kind of events that they consider to be within the scope of force majeure. They should be defined precisely so as to capture industry-specific risks [2].
- The English courts do not look favourably on reliance on force majeure clauses to escape contractual obligations that have simply become more expensive or difficult to perform. Parties can, however, negotiate and expressly provide for a clause of this kind.
- To offer flexibility, parties should consider including within the contract a specified time period after which the contract terminates automatically; or providing for the parties to have an option to terminate; or both.
- Parties should consider providing for the terminating party to have some form of redress, for example if goods or services have already been paid for at the time of the force majeure event.
- Parties should note that what appears, on the face of it, to be a force majeure clause, may in fact be an ‘exception’ (or an ‘exclusion’) clause; or it may be a clause which covers contractual ‘frustration’. Each of these types of provision has different legal and practical implications, and specialist advice will be needed.
- Finally, without a carefully drafted clause that expressly refers to Brexit, an English court is unlikely to regard Brexit as a force majeure event [3].
What happened in this case?
In Classic Maritime Inc v Limbungan Makmur, the appellant was a ship-owner under a long-term contract which provided for shipments of iron ore from Brazil to Malaysia. The respondent (the charterer) had an absolute obligation under the contract to perform, subject to a clause of general exceptions such as would typically be found in a force majeure clause.
A dam burst at the mine where the iron ore was being sourced, preventing any shipment from taking place. The ship-owner claimed for lost shipping revenue. When the charterer argued that it was protected from any liability for breach of the contract on the basis of force majeure, the ship-owner contended that, for the clause to apply, it was incumbent upon the charterer to demonstrate that but for the dam burst, it would have performed its contractual duties.
Much of the debate before the High Court comprised technical legal argument as to whether the clause was a ‘contractual frustration clause’ that automatically cancelled future contractual obligations; an ‘exception’/’exclusion’ clause that excluded or limited liability for breach; or a ‘force majeure clause’ per se. Each of those can have different legal and practical ramifications. The Court of Appeal decided that what mattered was “not the label but the content” of the clause.
On the facts of this case, the Court of Appeal found that the clause in question was not, in fact, a force majeure clause. Rather, it was an exception/exclusion clause which required the charterer, if it was to escape liability, to establish that its failure to fulfil the contract resulted directly from the dam burst. As the demand for iron ore in the Malaysian market had drastically decreased during the course of the contract, it could not be said that the dam burst had directly affected the charterer’s performance – the charterer would not have performed in any event.
The implications of the Court of Appeal’s decision were significant. On the question of damages, the compensatory principle required the court to place the ship-owner in the position it would have been in had the contract been performed. Because the obligation on the charterer was absolute, the value of that performance was what the ship-owner would have made from the cargo if it was supplied, less the ship-owner’s costs. The Court of Appeal awarded $19 million in damages.
Contrast that with what the position would have been if the charterer had been able to establish that, but for the dam burst, it would have performed… In the latter scenario damages would have been nominal only. The importance of drafting such a clause correctly is therefore abundantly clear.
WM comment
Relying on a purported force majeure or similar clause is not an easy, nor by any means a guaranteed, ‘get out’ for contracting parties when times get tough. By far the better advice is to try to anticipate, at the point of drafting, the types of circumstances in which the parties may wish to extricate themselves entirely from the arrangements and/or to avoid or limit liability for any breach or non-performance; and then to cater for that correctly in the contract.
Following on from that, this case highlights that there are subtle differences between a force majeure, frustration and an exemption clause and those differences will be determined by the specific wording used in each clause, regardless of the label attributed to it by the parties.
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[1] [2019] EWCA Civ 1102
[2] For example, a clause stating that the “usual ‘force majeure’ clauses shall apply” has been held to be void for uncertainty (British Electrical and Associated Industries (Cardiff) Ltd v Patley Pressings Ltd [1953] 1 WLR. 280).
[3] although recent case law suggests that, depending on the circumstances, Brexit may be regarded as an event which gives rise to termination of a contract by ‘frustration’. (See Walker Morris’ earlier briefing.)

Pre-contractual communications and contractual interpretation: Court of Appeal confirms a fine, but hard, line
Why is Merthyr (South Wales) Ltd v Merthyr Tydfil County Borough Council of interest to […]
Why is Merthyr (South Wales) Ltd v Merthyr Tydfil County Borough Council of interest to commercial contracting parties and practitioners?
When disputes as to the meaning of contractual provisions arise, parties often wish to rely on communications made during pre-contractual negotiations to evidence their intentions and understanding of the contract, so as to support their own interpretation. However, whether evidence of pre-contractual communications is admissible is a nuanced legal question which can have very significant practical and commercial implications.
In the recent Merthyr Tydfil case [1], the Court of Appeal has confirmed that there is a fine, but hard, line as to when evidence of pre-contractual communications will, and will not, be allowed.
What are the key takeaways?
In this case the parties had entered a contract to create a fund for land restoration following mining operations. The mining company made no payments and the council applied to court to compel payment. A dispute as to the meaning of the relevant contractual provisions arose. The mining company sought to rely on pre-contractual communications to argue that no enforceable payment obligation had arisen. The Court of Appeal rejected the mining company’s approach; focused on the wording and commercial purpose of the contract; and determined that outstanding sums in the £several millions were due immediately. The following key takeaways arise:
- The Court of Appeal has confirmed that pre-contractual communications may be admissible to explain how a contract came about and/or its commercial aims…
- …but that such communications may not be adduced to aid the interpretation of particular contractual provisions.
- This rule applies not only to communications which reflect a party’s intentions or aspirations in relation to a contract…
- …but also to communications which are capable of showing that the parties reached a consensus on a particular point or words used in an agreed sense.
- Whilst the rule may seem harsh and unhelpful in one sense, in fact significant practical difficulties, uncertainty and a lack of predictability as to contractual interpretation would inevitably arise without it.
Practical advice
Commercial contracting parties and practitioners should note the following practical advice:
- Contracting parties should ensure, from the outset, that the contract is drafted to clearly and accurately reflect both parties’ intentions and understanding. Where any underlying pre-contractual assumptions, intentions or other information might assist with the proper understanding of a contract, these should be included within the contract’s ‘recitals’. All of this should minimise the scope for an interpretation dispute arising in the first place.
- If a dispute does arise, the starting point must be the wording of the contract itself. If there is real ambiguity, then commercial common sense can be taken into account and may assist with the interpretation exercise. In accordance with the Merthyr Tydfil case, pre-contractual communications may be adduced to demonstrate the genesis and aim of a contract (and an understanding of that may help a court to correctly construe a contract).
- If the wording in the contract is clear, but still it does not reflect a party’s understanding, there may have been a mistake in the drafting of the contract and there may be the potential to pursue a claim for rectification and/or professional negligence. Alternatively, if the provision was entered into in reliance on any misrepresentations, there may be some potential to have the contract set aside and financial compensation could be payable. In any of these scenarios, specialist advice will be required.
- It is rare for any contractual interpretation dispute to be clear cut, so it is always worth considering whether there is any scope for settlement. Interpretation disputes often arise by virtue of the fact that there is an ongoing contractual relationship between the parties, plus the litigation risk which is inherent in such cases can often be exploited in negotiations to encourage a commercial compromise. It is therefore usually in the interests of all concerned for the parties to an interpretation dispute to behave in a reasonable and commercially sensible manner.
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[1] 2019] EWCA Civ 526

Duty of care to protect customers?
A violent attack on hotel guests in London highlights concerns for any business inviting customers […]
A violent attack on hotel guests in London highlights concerns for any business inviting customers or guests into their premises. Walker Morris’ Commercial Dispute Resolution team, considers the potential practical implications arising from this recent, shocking case.
Reports of violence on the high street are on the rise. Unfortunately, even the briefest of internet research reveals a worrying number of incidences of violence in our shops, businesses and streets. Within just the last year alone there have been: a stabbing in Waitrose; a lethal knife attack on Harlesden High Street; separate killings, knife attacks, boiling water and acid attacks in Colchester town centre; violence, gun crime, drugs and prostitution forcing shops, pubs and other businesses to close in Swansea High Street; and armed robbery and a stabbing with scissors at Co-op stores in Greater Manchester, to mention but a few.
The importance of the Cumberland Hotel case
It is clear that vital work is needed to protect retailers’ employees and premises. However, the recent case of Al Najar & Ors v The Cumberland Hotel (London) [1] (the shocking case in which three sisters were brutally attacked at the former Cumberland Hotel) gives rise to additional concerns for any business inviting customers or guests into its premises, because it considers the extent to which such businesses owe a duty of care to protect their customers.
What can businesses do?
As explained in more detail below, the High Court concluded in this case that a business owes a duty to invited guests/customers to take reasonable care to protect against injury caused by the criminal acts of third parties.
The increasing incidences of violence on the high street, and the attention that this issue is attracting within the media and at industry and Government level [2], mean that it is likely, were the question to arise in the context of any business inviting people onto its premises, that a court would find the risk of violence to staff and/or customers to be reasonably foreseeable.
The key for responsible businesses will therefore be to ensure that they take sufficient steps to safeguard not only their staff, but also their customers. Such measures as are appropriate will differ from business to business, and potentially even from site to site, but they could (non-exhaustively) include:
- undertaking detailed and regular security/risk assessments
- implementing such, policies/procedures and security measures as are necessary to address any risks identified
- keeping such policies/procedures and measures under review and up-to-date and ensuring that they are followed at all times (perhaps by undertaking random spot-checks)
- ensuring that security staff are properly trained or qualified as appropriate, and that all training and qualifications are kept up-to-date and under review
- ensuring that security equipment is up-to-date and in full working order at all times
- ensuring that all other staff are trained so as to be alive to the risks of violence to staff and customers, and that they are aware of security measures and procedures to be followed in the event of any incident
- implementing, and ensuring that all staff are aware of and use, a reporting system for incidences of violence or related matters.
Cumberland Hotel case: Cause for concern
In this case the attacker accessed the hotel room of three sisters and carried out a theft and violent hammer attack, inflicting critical and permanent injuries on all three sisters. The sisters took legal action alleging that the hotel’s security had been insufficient. The High Court considered whether a business owes a duty to invited guests (or, by analogy, to any customers) to take reasonable care to protect against injury caused by the criminal acts of third parties; and concluded that it did.
The High Court undertook an up-to-date review of the circumstances in which English law may impose liability arising from omissions (such as, here, an omission to take steps to prevent the danger of a theft and violent attack). The court decided that the correct approach was to apply the ‘omissions principle’ identified by the Supreme Court in the 2018 case of Robinson v Chief Constable of West Yorkshire [3], namely: “In the tort of negligence, a person A is not under a duty to take care to prevent harm occurring to person B through a source of danger not created by A unless (i) A has assumed a responsibility to protect B from that danger, (ii) A has done something which prevents another from protecting B from that danger, (iii) A has a special level of control over that source of danger, or (iv) A’s status creates an obligation to protect B from that danger.” It concluded that, by inviting guests to stay, a hotel assumes a responsibility to protect guests from danger as per (i) above.
A duty of care can, therefore, arise. Again by analogy, a duty of care could potentially also arise on the part of retailers, banks, bars, restaurants, cinemas, theatres, arenas, local authorities or indeed any business which invites guests or customers into its premises.
In this particular case, however, the hotel escaped liability overall, as the High Court decided that security was taken seriously at the hotel and that the hotel did take reasonable care to protect its guests. The hotel was not, therefore, in breach of its duty.
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[1] [2019] EWHC 1593 (QB)
[2] A group of major retailers and industry bodies has signed an open letter urging the UK Government to do more to tackle rising levels of violence. The letter has been published as the Government closes its recent call for evidence into violence and abuse towards shop staff.
[3] [2018] UKSC 4, see para. 34. See also our recent article, published in the Commercial Litigation Journal, which looks at the Robinson case and the extent to which it challenges received wisdom about the implication of duties of care in tort.

Proportionality in litigation costs: a practical update
In this latest in our series of articles on this topic [1], Claire Acklam reviews […]
In this latest in our series of articles on this topic [1], Claire Acklam reviews a recent case which sheds some light on the courts’ practical application of the notoriously elusive concept of ‘proportionality’ in the assessment and recovery of litigation costs.
Why is this case of interest?
Malmsten v Bohinc [2] is the first High Court case to consider the proportionality test set out in the Civil Procedure Rules (CPR) and it confirms a number of important elements of the assessment. In particular, whilst the assessment of any reduction in recoverable litigation costs made on grounds of proportionality will be highly dependent upon the facts of any individual case, this decision offers some useful practical insight as to how and when the courts ought to apply the proportionality test.
What is the Proportionality Test?
Under the CPR [3], costs incurred in the course of litigation are considered proportionate if they bear a reasonable relationship to:
- (a) the sums in dispute in the proceedings
- (b) the value of any non-monetary relief in dispute in the proceedings
- (c) the complexity of the litigation
- (d) any additional work generated by the conduct of the paying party
- (e) any wider factors involved in the proceedings, such as reputation or public importance.
What happened in this case?
The appellant in Malmsten v Bohinc was ordered to pay the respondent’s costs following a relatively brief dispute. (The parties were the sole shareholders in a small jewellery company and did not see eye-to-eye on the future of the business. The litigation lasted only 3 weeks and was concluded at a 30 minute hearing.)
Despite the swift resolution of this matter, the respondent claimed in excess of £60,000 in costs, which were reduced to £47,500 by the Master in the first instance. On appeal, the High Court criticised the Master’s approach to proportionality, setting out some key practical points in the process. The High Court then ultimately slashed the bill even further to the significantly lower (and more ‘proportionate’) amount of £15,000.
How should the test be applied?
The judge noted the following points, which should help any party involved in litigation to better assess the likelihood and level of any costs recovery:
- Proportionality should be considered right at the end of the assessment process. It is a separate test and is distinct from the question of reasonableness and necessity.
- The correct approach is for the court, having made an assessment of reasonable costs, to take a step back and consider whether the total figure is proportionate by reference to the CPR 44.3(5) factors listed above. If not, a suitable reduction should be made.
- A sensible approach to a proportionality assessment would be to consider what a reasonable client (of adequate but not extravagant means) would be prepared to pay in all of the circumstances…
- …However, the court should not take too much of a ‘client-centric’ approach and must balance this against the due weight of the costs figures as assessed, particularly where agreed budgets are in place.
- VAT and the costs of preparing the bill of costs itself are not relevant when considering proportionality and would serve only to distort the figures if included.
- Where the court is influenced under ground (d) of CPR 44.3(5) not to make a proportionality reduction, it should expressly identify how the conduct of the paying party has generated extra work.
WM Comment
This latest case evidences an attempt, on the part of the High Court, to inch ever-closer to a reliable and conclusive approach by which parties, practitioners and the courts can attempt to accurately assess proportionality and therefore the level of likely costs recovery.
In any event, whilst every case will turn on its own facts, parties should note that reductions made on proportionality grounds can often be significant indeed. To protect themselves as much as possible, parties should take specialist advice as to settlement and/or alternative dispute resolution tactics which might be able to offer pre-emptive costs protection; and they should manage their cases efficiently and effectively at all times so that, when it comes to costs assessment and recovery, their conduct cannot be used against them.
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[1] Our previous articles on this topic are available here.
[2] [2019] EWHC 1386 (Ch)
[3] CPR 44.3(5)