H&P Advisory Limited v Barrick Gold (Holdings) Limited

The Claims

H&P’s claim (which was in large part first advanced in Wyoming, USA, in 2019 before being dismissed on jurisdictional grounds), was premised on two bases:

1. H&P’s primary case was that an oral fee agreement had been reached between Mr Ian Hannam and Randgold’s CFO in a meeting on 24 April 2018, pursuant to which H&P was appointed as Randgold’s financial advisor on the Merger. H&P’s position was that it was entitled to a minimum fee of US$10m under this agreement, with the potential for various upward adjustments, with the final quantum of the fee allegedly due calculated by H&P as US$18,121,148;
2. in the alternative, H&P claimed it was entitled to the same amount on a quantum meruit basis, by reference to the market value of the services actually rendered by H&P and from which it alleged Randgold had benefitted.

The Court’s findings – oral fee agreement

The Learned Judge held that there was no evidence of any oral fee agreement having been concluded between the parties, it being “entirely clear that the test [for formation of a contract] was not satisfied here” [170].

In considering the evidence before it, the Court referred to Blue v Ashley [2017] EWHC 1928, in which Leggatt LJ held that that where there is a conflict in witness testimony concerning an oral agreement, the correct approach is to examine the “electronic footprint” [18] that the relevant interaction has left. In this case, the Court noted the distinct lack of “documentary record” [14] of any negotiations between the parties or the agreement that H&P claimed to have been reached, creating what it referred to as a somewhat, “19th century feel to this action” [14]. In particular the most important “missing piece” of the “footprint” [161] was:

i. the absence of even a draft engagement letter having been prepared by H&P internally for the mandate, much less any such draft being sent to Randgold. In contrast, the Court noted that every other advisor who acted on the Merger had concluded an engagement letter; and

ii. the absence of any mention of the alleged agreement in correspondence passing between the parties following the meeting at which the oral contract was said to have been formed, including in the communications that were exchanged between the attendees of that meeting later that same day.

The Court also considered H&P’s subsequent lack of activity on the transaction following the alleged formation of the contract, observing that little to no substantive work had been carried out by H&P in the months after the 24 April 2018 meeting up to the announcement of the deal in September 2018. The Court consequently found that the parties’ conduct was not compatible with an alleged contract having been entered into.

When weighing the parties’ conflicting oral witness testimony, the Court asked itself whether there was evidence of an oral offer and unequivocal acceptance of that offer at the 24 April 2018 meeting, this being a question that must be determined objectively. Although the Court accepted that Mr Hannam had made an oral offer at the meeting with Randgold’s CFO, it found that a reasonable and objective observer would not have concluded from Randgold’s CFO’s words and conduct that he had any intention of contracting with Mr Hannam, thus the requisite acceptance was missing.

Finally, the Court noted that even if it had found that an oral agreement existed, H&P would nonetheless have no entitlement to the relief claimed on the basis of its pleaded case [172 - 173], which did not reflect the reality that H&P had, on any view, failed to perform its side of the alleged contract (by virtue of failing to provide any substantive services following the alleged formation of the contract).

The Court’s findings – quantum meruit

H&P’s alternative quantum meruit claim was premised on Randgold having been unjustly enriched at H&P’s expense by the services H&P allegedly provided in relation to the Merger. The Court set out the four elements of the quantum meruit test as follows [174]:

i. Has the defendant in fact been enriched?

ii. Was the enrichment at the claimant’s expense?

iii. Was the enrichment at the claimant’s expense unjust?

iv. Does the defendant have a defence?

The Court found that Randgold had received a benefit from at least some elements of H&P’s work, particularly H&P’s early work in generating discussion between the senior figures at Barrick and Randgold, and Randgold was therefore enriched in the circumstances. The Court was similarly satisfied that this enrichment was at H&P’s expense.

In relation to limb three of the test, the Court considered H&P’s arguments regarding both free acceptance and failure of basis as ‘unjust factors’ in light of the existing quantum meruit case law.

On the former, the Court concluded that, consistent with the reasoning of Lord Burrows in Barton v Morris [2023] UKSC 3¹, free acceptance is not itself a freestanding unjust factor in the English law of restitution, but requires something more before a legal obligation can arise. Consequently, the mere fact that Randgold had freely accepted services provided by H&P did not, of itself, give rise to any entitlement for remuneration on H&P’s part. Instead, the Court found that free acceptance was an ingredient of failure of basis, which in this case was established on the factual evidence when a joint understanding was formed between H&P and Randgold that H&P was “on the ticket” [96] [258] [260] for the Merger.

The Court held that whilst no oral agreement as to H&P’s appointment had been formed at the 24 April 2018 meeting, Randgold’s “silence” [262] - i.e. the fact that Randgold had not expressly disavowed H&P of its belief that it was (or was soon to be) appointed as Randgold’s financial advisor on the transaction - was enough to constitute an “indication” to H&P that “in effect encouraged them to continue to provide free services” [261] and engendered a “legitimate expectation of…retrospective remuneration” [262]. The Court did not consider that H&P was simply a ‘disappointed risk taker’ so as to disentitle it from quantum meruit relief. It held that a ‘risk-taking’ party, who continues to provide work freely in the absence of a formal contract, can be recompensed if a basis is subsequently established, i.e. by an indication to the advisor from the client that it is on the deal in some capacity.

Set it in the context of the investment banking industry, and in line with its common practices, the Court found that this basis of understanding did not only relate to future services to be performed after the 24 April 2018 meeting but extended to all of the services that would have been remunerated in the event that H&P had ultimately been appointed as Randgold’s advisor (i.e. had the basis not failed). It therefore gave rise to an entitlement to remuneration for those of H&P’s prior activities from which Randgold had derived a benefit.

As to the Court’s valuation of the quantum meruit payment due to H&P, it found that the “best basis available” [340] upon which to assess the value of H&P’s involvement was Randgold’s own contemporaneous valuation, which was objectively manifested in Randgold’s offer to H&P of a US$2m discretionary payment following the announcement of the Merger to the market.

Commentary

The Court’s findings on H&P’s oral contract claim reaffirm the evidentiary threshold for claims premised on alleged oral agreements, including the difficulties that the claimant may face where there are deficiencies in the “electronic footprint” [165] of key interactions on the documentary record.

The Court also provided commentary on the nature of advisory appointments in the investment banking services industry, particularly regarding the manner in which work is routinely undertaken for free by investments banks in order to “stay close” [94] to their clients in the hope of securing valuable mandates, and the circumstances in which the reasonable expectation of payment for such work may arise.

The Court noted that early work carried out as part of a marketing effort cannot guarantee that a bank will subsequently be appointed and remunerated, but equally the fact that such work has been undertaken prior to any formal appointment does not in all cases preclude an entitlement to payment. The Court further acknowledged that the process of formally appointing investment banks is typically left to a later stage in transactions as a matter of industry practice, and it is therefore a common expectation within the sector that, provided a basis of understanding that a bank is “on the ticket” is established at some point, it will “be to the effect that the investment bank’s remuneration will embrace work done prior to the establishment of the basis as well as thereafter” [255]. As a result, work that was not premised on any mutual understanding at the time it was undertaken will usually be swept up in the remuneration agreed in a later engagement letter or, as in this case, can nonetheless give rise to a restitutionary obligation for “retrospective remuneration” [262] where no formal engagement is ever concluded.

The Court acknowledged the potential “chilling effect” [263] these findings could have on the provision of professional services generally. In particular, the Court recognised the argument that since professionals seeking business frequently seek to show off their capabilities by the provision of a certain amount of free advice, the Court’s decision could give rise to companies unexpectedly finding themselves presented with bills for work for which they never held any reasonable expectation to have to pay. However, the Court considered that this scenario could be easily avoided and emphasised the importance of clear communications between clients and prospective advisors when work is being undertaken on potential mandates in the absence of formal engagement terms. Where a company does not intend to provide payment for services that are ostensibly being provided for free and has no intention of formally retaining that party, those intentions (or lack of) must be made clear to preclude a subsequent claim for restitutionary remuneration.

• For further information about this case, please contact: Louise Nelson, Head of PR – Europe, Middle East and Asia louise.nelson@nortonrosefulbright.com.
• Barrick Gold Holdings Limited was represented by George Spalton KC (4 New Square) and Josh Folkard (20 Essex) and Norton Rose Fulbright LLP (Amy Armitage, Sarah Gosling and Madeline Hallwright).