KINLED INVESTMENTS LIMITED v ZOPA GROUP LIMITED

An introducer’s fee is payable only within the contractual scope agreed. An alleged extension of a tail period must be objectively established, and a variation requires consideration. Services constitute consideration only if requested as the price of the promise. A quantum meruit for services supplied while a contract is anticipated arises only where justice requires payment. Work undertaken speculatively, or on the footing that payment depends on an existing contract, normally leaves the risk of non-payment with the intermediary. Under the Financial Services and Markets Act 2000, making arrangements with a view to an investor subscribing for shares may be a regulated activity. An agreement made at the outset of such activity can be unenforceable. Money paid may nevertheless be retained where that is just and equitable.

Kinled claimed £4.2 million from Zopa as a 3% intermediary’s fee following Silverstripe’s £140 million second investment in Zopa. Kinled relied on an alleged variation of the engagement letter and, alternatively, a restitutionary quantum meruit. Zopa counterclaimed for repayment of the £345,000 fee paid for Kinled’s initial introduction of Silverstripe, alleging that Kinled had carried on regulated activities in breach of the general prohibition under the Financial Services and Markets Act 2000. The central issues were whether the engagement letter had been varied, whether Kinled’s later services justified restitutionary payment, whether the engagement letter was unenforceable under section 26, and whether Kinled should retain the money under section 28.

Disposition. The claim and counterclaim were both dismissed.

1. Variation and consideration. Objectively construed, the agreement to a longer tail did not establish agreement to the proposed 24-month period. The parties’ later conduct was inconsistent with that conclusion. The judge found instead that the precondition for payment under the existing 12-month extended tail had probably been waived for Silverstripe. In any event, a 24-month variation would not have been binding because no requested quid pro quo or other consideration was established.
2. Quantum meruit. The approach in MSM Consulting Ltd. v. United Republic of Tanzania [2009] EWHC 121 (QB) was applied. The relevant considerations included whether the services were normally supplied free, the terms of any request, the risk undertaken, the reality of the defendant’s benefit, and the circumstances in which the anticipated contract failed. The principle in British Steel Corpn. v. Cleveland Bridge and Engineering Co. Ltd. [1984] 1 All ER 504 did not assist Kinled because the parties did not confidently expect a new contract to eventuate. Kinled provided the services believing that payment depended on the existing engagement letter and therefore took the risk that the investment would fall outside its tail period.
3. Regulated activity. Applying the distinction explained in FCA v. Avacade Ltd. [2021] EWCA Civ 1206, article 25(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 uses broad words. It is enough that the arrangements have the relevant investment as part of their purpose or create an opportunity for it. Kinled’s activities amounted to making arrangements with a view to Silverstripe and Lida acquiring shares. Under section 26(3) of the Financial Services and Markets Act 2000, the engagement letter could be made in the course of regulated activity even though it preceded the services. It was therefore unenforceable.
4. Retention of the fee. Kinled had not shown a reasonable belief that it was not contravening the general prohibition, which weighed heavily against relief. However, section 28 required the statutory just-and-equitable question to be assessed in all the circumstances. Zopa was highly sophisticated, had suffered no identified detriment from the introduction, had benefited from the investment, and could not show how authorisation would have improved its position. In the unusual facts, Kinled was permitted to retain the £345,000.