ON APPEAL FROM THE HIGH COURT OF JUSTICE
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIMER
LORD JUSTICE ETHERTON
| (1) ALESSANDRO BENEDETTI
(2) M FINANCE S.A.
(Not a party to the appeal)
|(1) NAGUIB ONSI NAGUIB SAWIRIS
(2) APRIL HOLDING
(3) OS HOLDING
(4) CYLO INVESTMENTS LIMITED
Mr Laurence Rabinowitz QC, Mr Richard Hill & Mr Gregory Denton-Cox (instructed by Kirkland & Ellis International LLP) for the First and Fourth Appellants/Respondents
Mr Adrian Beltrami QC (instructed by Simmons & Simmons) for the Second and Third Appellants/Respondents
Hearing dates : 15, 16, 19, 20 July 2010
Crown Copyright ©
Lady Justice Arden:
"I had two discussions with Naguib [Mr Sawiris] regarding your deal. I will tell you exactly his response.
First of all he very much appreciates all what you have done and he acknowledges that without you, there would be no deal. However, he feels he has been clear with you from the beginning that the deal was never meant to be this big and that when you two signed the agreement over one year ago, the deal has totally changed. But even then, he told you and the agreement says, that he will not pay commissions etc for a deal that merges or has OT [Orascom] as a party and rather the intent and spirit of the deal was that he would lend you your 1/3 of the Euro 50M target capital to be repaid with interest after exit so that you would not have to put in money yourself and that you would look to raise money for a deal that had his investment maximum at 200 to 300 million euro.
Today, Weather is no longer a passive investment for Naguib but rather a vehicle which he put in all his value that he owns (and a part of his family's wealth). He very much wants you involved in the BOD [board of directors] of the company and to be able to do other deals in the future. He sees the relationship between you two as strong and positive but he asks for you to be reasonable in what you ask. When I told him your request and the logic, he was quite upset as he did not expect you to ask for so much.
While of course he sees that the original agreement needs to change, he does not agree with your request. In addition, while many positive things happened to improve the deal, a few serious restrictions arose such as the need for Euro 500M cash (vs 200 to 300) and the limited financial partners and the somewhat restrictive IMI loan. The only reason he says this is to make the point that the deal today is totally different than the original and as such what he is prepared to offer you is 1% of Weather for free and he can pay it to you in shares or give you a put option to take it in cash. If you choose cash, he wants to agree with you a timetable so that he can plan his cash sourcing.
He would like you to come to Cairo to discuss this as he does not want any misunderstandings of bad feelings to cloud a very positive effort by everyone. If you can't come to Cairo, he can meet you when he comes next week."
This surprise me a lot.
As you know very well, this aren't commitions but just a small portion of the upside i have created from the binding offer we have done. In fact you know all so it is a waste of time repet all those points.
you told me many times that naguib was more than ready to recognize my job and to share the upside created. your idea 1% + 1% + 1% was already a bad surprise for me.
it is not a question to pay commitions it is a question to respect partnership, i have done all the necessary things to perform starting to get the bid bond, enel inside and so on!!
The merget with OTH has been chosed to alow Naguib to take the control of Wind with no money!!
the deal is changed only in his favour, honestly my proposal to you was, in my view a last cut to close the subject in a very honest and more than reasonable way.
This percentage is for somebody which indicate deal not make it fining the money and all the other things i have done"
I'm realy surprise. I tought the mail point that in our venture i was a partner not a shity middle man and i have act as a partner without asking protections or commitions "
"I talked to Naguib again. He wanted me to tell you that he feels 1% (which is Euro 75M today and may double if we succeed in Wind), is by far more than what you two had agreed to in the beginning when the deal was simple to lend you Euro 17M in cash to invest. As I mentioned before, he even crossed out all the sections related to OT [Orascom] and fees in the original deal because that was never his intention. He insists that he is being very generous with his offer and again wants to continue the relationship for a long time. He told me that if he really thought that you wanted hundreds of millions compensation, he would not even have done the deal at all.
Alessandro, please look at the initial deal and the current offer. We are talking about Euro 75M versus Euro loan plus interest. Think strategically, long term. I am telling you as a friend that Naguib truly believes this is a very generous offer and this is not an attempt to negotiate with you..."
"Anyway, Naguib told me that he had asked you for a letter saying that you have received the fees of the Euro 67M for concluding the deal. Given that the contract is with International Technologies Management Ltd and given the recent negative articles in the Italian press on this point, even though we and Enel have both responded, we will need to know the exact shareholders of ITM to avoid problems.
Also, have you concluded the issue of the 1% of free shares in Weather? Let me advise you with something and I refer to what I told you months ago about Naguib. I have talked to him many times on this point and I have succeeded (in my opinion) to get you the 1% free shares even though Naguib has never in his life given free shares to anyone and certainly not an amount of Euro 75 M. He had offered this willingly to you because of what you have done and he has repeatedly thanked you for it. But I must tell you, he is quickly getting upset because he does not understand why you are not happy. The original deal was to loan you 1/3 of Euro 50M which was to be repaid. The original deal never included OTH (and in fact he crossed out the reference to paying a success fee on integrating OTH). The deal was to have other financial partners you know how that ended. In any case, never was the amount paid to you supposed to even get close to 75M. In addition, the fact that they are free and not a loan is a really big deal that you seem to be underestimating. I know Naguib and I am telling you that he will not increase the offer ever and the longer things drag on, the higher the probability that this ends badly. He wants to have a strong relationship with you in the future as he values you highly. However, he can not do anything that will put his family's interests at risk, either financially or otherwise.
I am telling you this as a friend and I hope you believe me, it is important to close this issue in a quick and nice way so we can all move "
The judge's approach to the claim for a quantum meruit
" But regard must also be had to any prior negotiations or agreement between the parties which indicate that they put a particular value on the services in question. This may be the best evidence of what constitutes a reasonable remuneration for the services rendered and, as a matter of principle, there is some judicial support for the view that the price agreed should be the ceiling for any award "
"534. But in a case where the evidence shows that the contract or agreement was abandoned as the basis of the parties' dealings then the reasoning in Way v Latilla ceases to apply. If the correct view is that the parties ceased to regard the original contract price as an appropriate value for the services then there is no justification for the court imposing it as a measure of value unless it can be justified by other evidence as the market value of the services at the time when they were performed. There is a clear difference between an ineffective agreement and one which the parties have effectively jettisoned."
" But that said, I cannot see why in principle the court cannot receive post-transaction evidence of the parties' dealings with each other if and so far as that evidence does show the value which the paying party (albeit with the benefit of hindsight) considered that the services were actually worth. The reason for the admission of the parties' pre-service agreements as set out in cases such as Way v Latilla is that they provide strong evidence of the value which they put upon the services. Subject to the safeguards I have mentioned, the post-acquisition dealings may do the same."
"570. The real issue is whether I should increase the fee payable to Mr Benedetti to take account of the 75 million which Mr Sawiris offered to pay under the October agreement. Although Mr Benedetti clearly believes that he is entitled to more, it is difficult to ignore the fact that Mr Sawiris was prepared to pay him considerably more for his efforts than a strict application of market rates would produce. Mr Sawiris says in his witness statement that he regarded the 75 million figure as generous but that is not inconsistent with it representing what he considered Mr Benedetti's services to be worth. These negotiations did not take place under the shadow of threatened litigation and can properly be considered in my view as a genuine attempt by Mr Sawiris to pay to Mr Benedetti a proper value for what he had achieved.
571. The best evidence of Mr Sawiris's thoughts on this matter is contained in the June and September emails from Mr Abdou quoted in paragraphs 187-189 above. They indicate both the importance which Mr Sawiris attached to Mr Benedetti's role and the reasons why his remuneration should be limited to the payment of a fee. I think that it would be wrong to ignore this evidence when considering the value to be attributed to Mr Benedetti's services. He is entitled, in my judgment, to the 75.1 million in addition to the brokerage fee which he has already received."
ANALYSIS OF THE ISSUES RAISED ON THESE APPEALS
Issue 1: Should the court use the Acquisition Agreement as a template for determining the award by way of quantum meruit?
"My Lords, this decision appears to me to ignore the real business position. Services of this kind are no doubt usually the subject of an express contract as to remuneration, which may take the form of a fee, but may also take the form of a commission share of profits, or share of proceeds calculated at a percentage, or on some other basis. In the present case, there was no question of fee between the parties from beginning to end. On the contrary, the parties had discussed remuneration on the footing of what may loosely be called a "participation," and nothing else. The reference is analogous to the well known distinction between salary and commission. There are many employments the remuneration of which is, by trade usage, invariably fixed on a commission basis. In such cases, if the amount of the commission has not been finally agreed, the quantum meruit would be fixed after taking into account what would be a reasonable commission, in the circumstances, and fixing a sum accordingly. This has been an everyday practice in the courts for years. But, if no trade usage assists the court as to the amount of the commission, it appears to me clear that the court may take into account the bargainings between the parties, not with a view to completing the bargain for them, but as evidence of the value which each of them puts upon the services. If the discussion had ranged between 3 per cent on the one side and 5 per cent on the other, all else being agreed, the court would not be likely to depart from somewhere about those figures, and would be wrong in ignoring them altogether and fixing remuneration on an entirely different basis, upon which, possibly, the services would never have been rendered at all. That, in fixing a salary basis, the court may pay regard to the previous conversation of the parties was decided by the Court of Exchequer in 1869, in Scarisbrick v Parkinson, where the terms of an agreement, invalid under the Statute of Frauds, were held to be admissible as evidence in a quantum meruit. This seems to me to be good law, and to give effect to a principle which has been adopted regularly by the courts not only in fixing remuneration for services but also in fixing prices, sums due for use and occupation, and, indeed, in all cases where the court has to determine what is a reasonable reward for the consideration given by the claimant. As I have said, the rule applied in fixing the amount of the remuneration necessarily applies to the basis on which the amount is to be fixed. I have therefore no hesitation in saying that the basis of remuneration by fee should, in this case, on the evidence of the parties themselves, be rejected, and that Mr Way is entitled to a sum to be calculated on the basis of some reasonable participation."
"One aspect of the facts to be considered is found in the communings of the parties while the business was going on. Evidence of this nature is admissible to show what the parties had in mind, however indeterminately, with regard to the basis of remuneration. On those facts, the court may be able to infer, or attribute to the parties, an intention that a certain basis of payment should apply. This evidence seems to me to show quite clearly that the appellant was employed on the basis of receiving a remuneration depending on results. If he had been unsuccessful, he would have been entitled to no more than his expenses, but the respondent had led him to believe that, if the concessions he obtained were valuable, his remuneration would be on the basis of some proportion of their value."
"An analogy might be drawn with the case of a locked cabinet that is believed to contain valuable treasures but to which there is no key. The cabinet has a high intrinsic value and its owner is unwilling to destroy it in order to ascertain its contents. Instead, a locksmith agrees to try to fashion a key. He does so successfully and the cabinet is unlocked. As had been hoped, it is found to contain valuable treasures. The locksmith had hoped to be awarded a share of their value but no agreement to that effect had been concluded and the owner proposes to reward him with no more than sincere gratitude. The owner has been enriched by his work and, many would think, unjustly enriched. For why should a craftsman work for nothing? However, surely the extent of the enrichment is no more than the value of the locksmith's services in fashioning the key. Everything else the owner of the cabinet already owned."
Conclusions on issue 1
Issue 2: Should the judge have taken Mr Sawiris' offer of 75.1m into account in placing a value on Mr Benedetti's services?
" The position of both parties at the start of the trial was that evidence of the post-acquisition negotiations was not admissible on the question of the value to be attributed to Mr Benedetti's services. That remains the Defendants' position. There are, of course, obvious dangers in looking at negotiations between parties to a dispute particularly once the threat of litigation has been made. The would-be Defendant may choose to make a much more generous offer to the Claimant in order to settle the dispute than he would have agreed to pay when the services were actually performed. But that said, I cannot see why in principle the court cannot receive post-transaction evidence of the parties' dealings with each other if and so far as that evidence does show the value which the paying party (albeit with the benefit of hindsight) considered that the services were actually worth. The reason for the admission of the parties' pre-service agreements as set out in cases such as Way v Latilla is that they provide strong evidence of the value which they put upon the services. Subject to the safeguards I have mentioned, the post-acquisition dealings may do the same."
Issue 3: Miscellaneous issues about the amount of the award by way of quantum meruit
(a) Should any award have been made given the payment of the 67m brokerage fee?
(b) Should Mr Benedetti have been awarded a 20% interest in Weather II?
(c) Should the judge have taken into account the offer to waive pre-emption rights over Enel's 26% interest in Weather Italy?
Issue 4: Should AH/OS be liable on the award by way of quantum meruit for the services of Mr Benedetti?
"..[T]here are four essential ingredients to a claim in restitution: (i) a benefit must have been gained by the defendant; (ii) the benefit must have been obtained at the claimant's expense; (iii) it must be legally unjust, that is to say there must exist a factor (referred to as an unjust factor) rendering it unjust, for the defendant to retain the benefit; (iv) there must be no defence available to extinguish or reduce the defendant's liability to make restitution."
"Q. I will ask you this question: you understood when you signed this agreement, did you not, that April Holding was a person associated directly or indirectly with you and that remained the position until May 2005?
A. Okay, I will your worship, I will make it easier for counsel. He is asking whether this would fall if April was the buyer of WIND, would they be in violation of that clause? The answer is yes.
Q. The same applies if OS Holding was the buyer of WIND?
A. Yes, if both of them, if they were buying the company behind Mr Benedetti's back and without his consent and without his knowledge, they would really be in breach of that clause, yes."
Issue 5: should the liability of the respondents be joint and several or only several in proportion to the size of their shareholdings in Weather II?
Issue 6: Costs and interest
"would not have accepted the 75.1 million at any time up to judgment had the offer been repeated. The delay in receiving that money is entirely of his own making."
The approach to the exercise of the discretion to award interest implicit in the judge's holding on this point was followed by Teare J in Sawiris v Marwan  EWHC 89 (Comm).
(1) The court should normally award interest pursuant to s 35A of the Senior Courts Act 1981 to a successful claimant as from the date on which his cause of action arose in order to compensate him for having been kept out of his money (see per May LJ in The Popi M  2 Lloyd's Rep 555 at 561, which is set out by Etherton LJ at paragraph  below). This is the core principle. The defendant will have had the benefit of the use of the money in the meantime. The court does not have to enquire whether the defendant actually used the money for any commercial purpose: it may assume that he did.
(2) The jurisdiction to award interest should not be used to penalise the party for his conduct of proceedings: the discretion in relation to costs is available for that purpose. As Rimer LJ points out in paragraph 176 below, the same would apply in relation to the conduct of negotiations.
(3) The court has a discretion not to award interest pursuant to s 35A of the Senior Courts Act 1981 where a party has delayed in issuing proceedings (see, for example, per Robert Goff J in BP v Hunt  1 WLR 783 at page 848, and per Langley J in Kuwait Airways Coporation v Kuwait Insurance Company SAK  Lloyd's Rep IR 678, cited by Etherton LJ in paragraph  below).
(4) In my judgment, the discretion to withhold interest is also exercisable where a party has refused to accept an offer of not less than the amount which he has succeeded in recovering in the proceedings. It is the same principle as that of delay in issuing proceedings. The award of interest does not then compensate him for loss caused by the defendant but potentially gives him a windfall. I have not found authority for this proposition, apart from the decision of Teare J cited above, which followed that of the judge on this point. For the reasons given, I consider that it follows in principle. Although not on all fours, it may be observed that, at common law, in an action on a promissory note carrying interest, interest was not recoverable once an offer of payment was made: see Dent v Dunn (1812) 3 Campbell 296 170 ER 1388 where Lord Ellenborough held:
"I think interest ought to stop from the offer to pay. Interest, properly speaking, is a compensation agreed to be paid for the use of money forborne by the lender at the borrower's request. It is more frequently recovered in the shape of damages for money improperly retained by the debtor contrary to the request of the creditor. But in neither of these ways can interest continue to run after an offer to pay the principal, upon a reasonable condition, which the party to receive it refuses, or is not in a situation to fulfil."
(5) If the court considers that there has been a delay or refusal of this kind, it may consider that the justice of the case is sufficiently met by withholding interest for part only of the period: this might in some cases be appropriate if the offer in question was available for part only of the period.
(6) In respectful disagreement with Rimer LJ, I do not consider that the successful claimant's refusal of an offer which meets his claim should be disregarded simply because the claimant wished to pursue another claim which did not succeed. For this purpose, it does not seem to me that the court needs to consider whether he was acting properly or in good faith or not. If he was erroneous in proceeding with the other claim, he should not be treated as entitled to do so on the basis that he will nonetheless not be subject to the withholding of interest from the defendant on the claim which does succeed. Although the defendant has had the use of that money, in principle, where there is acceptable offer, it is the claimant who should bear the risk and cost of failure. He has taken a deliberate decision not to accept an offer which would satisfy the claim which he can establish in law.
Issue 1: the Acquisition Agreement does not provide any useful guidance in the determination of the award by way of quantum meruit in favour of Mr Benedetti.
Issue 2: the offer of 75.1m made by Mr Sawiris in respect of those services is not evidence of the market value of those services and should not be given weight in determining the amount of the award by way of quantum meruit.
Issue 3: The judge was correct to deduct only a proportion of the 67m brokerage fee paid to Mr Benedetti when determining that award. Mr Benedetti has failed to show that he should be remunerated as a promoter or that Mr Sawiris' offer to waive his pre-emption rights over the Enel shareholding ought to have been taken into account.
Issue 4: AH/OS are not liable on the quantum meruit.
Issue 5: Mr Benedetti's challenge to the judge's order as to costs fails.
Issue 6: The judge was entitled to award interest under s 35A of the Senior Courts Act 1981 only from the date of his judgment determining the amount of the award by way of quantum meruit.
Lord Justice Etherton (delivering the second judgment at the invitation of Lord Justice Rimer):
"There is no question but that the award of interest is a matter of discretion. However, the fundamental basis for exercising that discretion is to compensate a party for being kept out of the money which the Court has adjudged he should have been paid: the award or refusal to award interest should not be used as a means of penalising a party, for instance for the way in which negotiations or litigation have been conducted on his behalf."
Lord Justice Rimer:
'The costs of the litigation were wholly avoidable and Mr Benedetti's conduct prior to the action is a factor which I am required to take into account in determining what costs order to make.'