Benedetti and another v Sawiris and Others

Hearing dates: 15, 16, 19, 20 July 2010

Lady Justice Arden:

1. This judgment deals with three appeals against the order of Patten LJ (sitting as a judge of the High Court) dated 21 July 2009 awarding Mr Benedetti the sum of €75.1m on a quantum meruit for his services as a facilitator in connection with the acquisition of an investment in an Italian telecommunications company, Wind Telecommunicazioni SpA (“Wind”) by the respondents. The respondents are Mr Naguib Sawiris (whom I shall call Mr Sawiris), Mr Sawiris’ company, Cylo Investments Ltd (“Cylo”) and two family trust companies set up by Mr Sawiris’ brother and father respectively, April Holding (“April”) and OS Holding (“OS”) (referred to collectively as “AH/OS”). Mr Benedetti contends that the amount awarded was determined on the wrong basis and should have been a greater sum, while Mr Sawiris and Cylo contend that the amount awarded was too much. AH/OS contend that whatever sum was awarded should not have been awarded against them, and in the alternative adopt Mr Sawiris’ case on the amount of the award.

2. The law of restitution provides remedies in particular situations where there has been some unjust enrichment of a party but there is no liability in contract or tort or for breach of trust (see generally Westdeutsche Landesbank Girozentrale v Islington London Borough Council[1996] AC 669 and Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349). One such remedy is the award by way of quantum meruit (which literally translated means “as much as he deserves”). A quantum meruit may be awarded where services have been rendered but there is no contract establishing the price to be paid for those services. If it is awarded, the court has to place a value on the services that have been provided.

3. This is a case where the parties had an agreement for other services, but no agreement for the services in issue. Their agreement was for the provision for services in connection with the acquisition of Wind by a different route from that ultimately adopted. This is not, therefore, a case where there was an agreement for services subject to the remuneration for the services being fixed later. The principal point of law raised by this appeal is the approach to be adopted in valuing services in the former set of circumstances. The contractual relationship between the parties had simply run out. Specifically, we are asked to decide whether the court should apply the (in this case, more generous) approach to remuneration in the earlier agreement to the exclusion of what the judge found to be the market value of such services. Furthermore, the appeals raise the question of what weight, if any, the court should give in its determination to an offer to pay an amount made by way of compromise by the one contracting party to the other after the delivery of services, which offer was not accepted.

4. Another major issue arises in relation to AH/OS, which participated in the acquisition at Mr Sawiris’ invitation. There is an issue as to whether AH/OS were enriched by Mr Benedetti's services and whether they freely accepted them. They made no request for Mr Benedetti's services. It would, at first sight at least, seem objectionable in principle if a person were liable to pay for services that he had no opportunity of refusing. Pollock CB famously once said: “One cleans another's shoes. What can the other do but put them on?” ( Taylor v Laird (1865) 25 LJ Ex 329 at 332). On this part of the case, the court has to determine whether in these circumstances AH/OS were nonetheless unjustly enriched, and if so, in what amount.

5. Before describing the judge's approach to these issues, I must set out the essential background.

Background

6. Mr Benedetti is an experienced entrepreneur with an eye for a good business opportunity. He is knowledgeable about the telecommunications field, but he is not a banker or professional adviser. Mr Sawiris is a wealthy and successful investor from Egypt. He set up a company called Orascom Telecom Holding SAE (“Orascom”) which has substantial investments in telecommunications businesses. He was a very busy man and he delegated to his employee, Mr Abdou, the day-to-day handling of negotiations on his behalf in connection with the acquisition of Wind.

7. The judgment dated 15 June 2009 of Patten J (as he then was) occupies 576 paragraphs and takes us through the transaction with meticulous care, but many matters that were in issue at the trial are now no longer relevant. The parties had made an agreement in writing (“the Acquisition Agreement”) dated 31 January 2004 for the acquisition of Wind by what the judge held to be a different route. Mr Benedetti now accepts that there was no agreement between him and Mr Sawiris or any other person for the provision of the actual services for which the judge awarded him a quantum meruit. But Mr Benedetti contends that the Acquisition Agreement is still relevant to his claim in quantum meruit on the grounds that the methodology for fixing remuneration in it should be used as a template for determining the amount of his award. I will, therefore, need to describe the factual matrix and provisions of the Acquisition Agreement. That Agreement is the launch pad for the submissions on these appeals.

8. The background to the Acquisition Agreement was as follows. In 2002, Mr Benedetti became aware that Enel Spa (“Enel”), the largest energy company in Italy, might be willing to sell its wholly-owned subsidiary, Wind. The Acquisition Agreement described Wind as “the second largest operator in the Italian fixed line market, the third largest operator in the Italian mobile GSM market as well as a UMTS licence holder for 3 ^rd Generation telecoms”. Mr Benedetti started to put together a consortium of investors, including Mr Sawiris, who was introduced to him for this purpose.

9. After various meetings, Mr Benedetti and Mr Sawiris signed the Acquisition Agreement. As one might expect, this was not simply an agreement for the payment of fees to Mr Benedetti: it was an agreement for co-operation in the acquisition of a controlling stake in Wind. The vehicle for the acquisition was to be Rain Investments SpA (“Rain”), and the Acquisition Agreement dealt with the control and capitalisation of Rain. In particular, Mr Benedetti and Mr Sawiris were each to form a company. In the event, the Acquisition Agreement was amended in manuscript to provide that the references to Mr Sawiris’ company were to Mr Sawiris personally. Mr Sawiris’ was to subscribe for two-thirds of the share capital of Rain, and Mr Benedetti's company would subscribe for the remaining one-third with a loan made by Mr Sawiris. Under clause 5, the two classes of shares would participate rateably in distributions but have an equal number of voting rights, further issues of shares were to be made “at values to be agreed” and were not to dilute their rights save on a pari passu basis. In my judgment, this meant pari passu as between Mr Benedetti and Mr Sawiris so that neither of them was diluted to a greater extent than the other. Contrary to the submissions made on behalf of Mr Benedetti, this clause did not in my judgment give Mr Benedetti the right to block any issue of new shares or provide protection against dilution to an ineffective level, only a right to object to a share issue which had a discriminatory effect as between him and Mr Sawiris. As Mr Rabinowitz submits, the Acquisition Agreement contemplated that Mr Benedetti would be diluted by further investments by Mr Sawiris. The judge indicated that Mr Benedetti did not obtain a stranglehold over the issue of new shares because they were to be “at values to be agreed”, since there must be an implicit obligation in clause 5 to agree a fair and reasonable value and so the court could in the last resort break any deadlock on the agreement of the value (see Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444). We were not taken to this authority; the point made on behalf of Mr Benedetti was that he was always to receive, and have, a one-third stake in Rain, but this point was rejected by the judge.

10. Each of their companies so formed was to have the right to appoint two directors and resolutions at board meetings were to require the positive vote of three directors. Mr Benedetti was to handle the negotiation of the acquisition of the controlling stake in Wind, subject to the support and advice of Mr Sawiris. He was to apply 60% of his time for this purpose and to be paid a monthly fee of €5,000 for his services. In addition, the board of Rain could not effect certain corporate transactions without the consent of Mr Sawiris and Mr Benedetti's company. Those acts included the...