For example, they are common for:
- early-stage businesses that are looking for investors, and
- entities seeking commercial opportunities such as new customers/clients or premises
The advantages for the principal is that it provides them with a larger pool of potential opportunities than they may normally have access to as they effectively have access to make use of the introducer’s/finder’s ‘rolodex’. The principal also often does not have to pay for the intermediary’s services until their agreed objective has materialised.
The intermediary (ie, the introducer or finder) however runs the risk that they may not be remunerated for their efforts. We see situations where parties have been acting under poorly written agreements or under no agreements at all.
Accordingly, intermediaries should ensure that they have clear contractual terms setting out the basis on which they will act and what they will be paid.
What goes wrong? Salient lessons from recent cases; do not end up being a “disappointed risk-taker”
Is there a written agreement?
The most common issue which arises is that intermediaries have failed to ensure that they have a written agreement in place. The result of this invariably leads to a dispute where the intermediary says that they had an oral agreement in place which is refuted by the principal. It then becomes a case of ‘he said, she said’.
Typically intermediaries run arguments that the principal has been unjustifiably enriched through their efforts and that they should be compensated under the principle of quantum meruit (the amount s/he deserves). The courts however have typically declined such arguments in intermediary relationships on the basis that the intermediary knew they were acting at risk that they would not be paid for their services in the event no agreement was concluded.
So for example, in MSM Consulting v Tanzania (2009), MSM had been working for about two years attempting to secure new premises for the Tanzanian High Commission. In that time, MSM failed to obtain a written (or even oral) commitment from the Tanzanian High Commission that they would be compensated for their work. Whilst MSM had provided draft written agreements, they had failed to ensure they were signed. MSM tried to argue that the High Commission had accepted the terms on various occasions which the High Commission denied. MSM claimed it was due 1.5% of the £6m purchase price the High Commission paid for the property (ie, just over £100k). The court rejected MSM’s claim and said the High Commission had not agreed to MSM’s terms.
The court also rejected MSM’s quantum meruit claim on the basis that MSM had done work “in the hope that [it] would be awarded a contract which it might or might not receive”.
A similar issue arose in Moorgate Capital v HIG (2019). In that case Moorgate alleged HIG had promised at a drinks event to pay it £1m in the event that HIG acquired a target. The court rejected that an agreement had been concluded finding it difficult to believe that such an agreement for a significant amount would have been concluded at such an event especially where the principal could not remember talking to the intermediary. The court also rejected Moorgate’s quantum meruit claim finding that Moorgate “Having, without a contract, nevertheless provided services in the hope of payment or some other advantage, it was, in the circumstances of this case, merely a risk-taker. … That was a disappointment to Moorgate, which was therefore a disappointed risk-taker.”
Conversely, there are situations where courts have found that intermediaries are due compensation for the efforts they have extended. These are however largely fact dependent where the principal has clearly made some form of promise to the intermediary. In Premia Marketing v Regis Mutual Management (2021), Premia had introduced an insurer who engaged Regis. Whilst there was no written agreement, Regis had stated in emails that “Premia would receive some financial reward from Regis if … [their] introduction … bore fruit.” Accordingly, the court found that there was an implied agreement for the purposes of s15 Supply of Goods and Services Act 1982. Even if there had been no such agreement, the court determined that it would have found that Premia should be compensated for its efforts in quantum meruit (ie, unjust enrichment).
Is the ‘strike price’ defined?
Another issue which arises is where the parties have agreed that an introducer will only be paid if a particular price or result is achieved. In the rare instance of a case concerning an introducer agreement going to the Supreme Court, the parties in Barton v Morris (2023) had reached an oral agreement that an introducer would be paid £1.2m if they introduced a buyer to purchase a property for more than £6.5m. The introducer introduced a buyer who ultimately purchased the property for £6m after an issue concerning the construction of HS2 arose.
The Supreme Court found that there was no contractual entitlement for the introducer to be paid as the ‘strike price’ had not been achieved. Further where the parties had agreed that the introducer would only be remunerated if the agreed strike price was agreed, the introducer was not entitled to be a reasonable sum for the services they did perform under s15 Supply of Goods and Services Act 1982 or under the doctrine of unjust enrichment. Lady Rose determined that:
“When parties stipulate in their contract the circumstances that must occur in order to impose a legal obligation on one party to pay, they necessarily exclude any obligation to pay in the absence of those circumstances; both any obligation to pay under the contract and any obligation to pay to avoid an enrichment they have received from the counterparty from being unjust.”
Has the agreement expired or does it determine the ‘long tail’?
The recent case of Kinled Investments v Zopa Group (2022) also demonstrates not only the need for intermediaries to carefully consider the terms under which they are operating but also what they are being asked to do and when. In that case, Kinled had acted as an introducer to Zopa. Kinled had introduced an investor to purchase shares in Zopa as part of its investment for which Zopa paid Kinled 3% of the amount invested.
However, Kinled wanted to be paid for a subsequent investment round which resulted in further investments. Kinled argued that whilst their initial engagement letter had expired, the terms of that had been orally extended during a breakfast meeting to a later date to cover the further investment round in the event that it introduced an investor.
The court found that on the facts of the case, there was no agreement extending the terms of the initial engagement letter or that it would cover the period for which Kinled was now claiming. Further, the court rejected Kinled’s quantum meruit argument on the basis that Kinled’s activities in the second round were speculative and it knew it ran the risk of not being rewarded for its activities.
Is the principal authorised to enter into an agreement?
Another issue which arises is whether a principal actually has authority to enter into an introducer agreement. In MSN for example, the intermediary had failed to appreciate that Tanzanian law relating to the procurement by public offices of goods and services required the High Commission to go through a tendering process with possible suppliers of services such as an estate agent.
Are the intermediaries’ activities regulated?
More concerning for intermediaries is that they need to consider whether their activities are subject to regulatory requirements. In Kinled, the court found that the intermediary’s activities constituted regulated activities for the purposes of the Financial Services and Markets Act 2000 (FSMA). Whilst the judge rejected the principal’s argument that it should be repaid the amount it paid the intermediary in respect of the initial investment as a result of that, it does provide a salient reminder to intermediaries to make sure their activities do not fall foul of regulatory requirements. This may be especially relevant where the intermediary may be trying to raise investment, where their activities may fall within various of the activities regulated by the FCA.
Are you protected? How to avoid being a “disappointed risk-taker”
If you are acting as an intermediary, you should make sure that you have a signed written agreement which clearly sets out on what basis you are acting. Clear written agreements also protects the principal as well.
You should ensure your agreement provides for matters such as:
- what you will be paid
- what has to happen for you to be paid
- what you are being asked to do such as:
- whether the principal and/or you have to disclose your contacts to each other
- whether the services are limited to a particular territory
- whether you are authorised to negotiate on the principal’s behalf or bind the principal
- what the duration of the agreement is
- what the long tail is – ie, if you introduce an investor, by when do they have to complete their investment for you to be paid
- what happens if the principal does not close the round, or the round does not complete because another investor pulls out
- whether the introducer will only be paid if a certain event / result is obtained (such as a specified price) and what will happen if that event does not occur (ie, can the introducer be remunerated for their services even though the event / result does not occur
- what the principal has to disclose to you – i.e. if an investor decides to invest
- whether the principal warrants that they have the authority to enter into the agreement; and
- what happens if an investor makes a repeat investment
Further, you should ensure that your activities do not fall foul of regulatory requirements such as FSMA. Whether an activity constitutes an activity which is regulated are largely fact dependent. You should therefore seek legal or compliance advice. Caution should be taken from the judge’s comments in Kinled that:
“I have decided that the services Kinled provided are regulated activities, so that, if this decision is publicised, service providers … will be more aware of the possibility that they require authorisation and will be less able to rely on [on the defences set out under] s.28 of FSMA.”
A small investment up front in seeking the advice to ensure you are protected may prevent an intermediary running the risk of receiving no return on its investment and efforts at all. It may help avoid protracted and expensive disputes later on.
For more information about introducer, intermediary and finder fee agreements and activities, please contact the authors of this article.