Engagement letters – a sting in the tail
The Court of Appeal has reversed an earlier court decision relating to liability to pay fees to a financial adviser in respect of the sale of a subsidiary.
African Minerals Ltd appointed Renaissance Capital Ltd as its financial adviser in relation to the sale of one of its subsidiaries. The engagement letter provided that a success fee was payable to Renaissance Capital "if any Sale is consummated" within one year of termination of the engagement.
Agreement was reached on the sale of a 25% stake in the subsidiary in July 2011. It was agreed that this was a "Sale" for the purposes of the engagement letter, but the parties disagreed about whether the sale had been "consummated" within one year of termination of the engagement (the tail period).
Although the sale agreement was entered into within the tail period, it was conditional on various government and regulatory approvals. These took longer than anticipated to sort out, and the sale eventually completed in April 2012. This was outside the tail period.
The High Court decided Renaissance Capital was entitled to its success fee, taking the view that "consummation" occurred when agreement was reached on the sale, whether or not the sale agreement was conditional. The judge noted that the word "completion" was used elsewhere in the engagement letter and "consummation" must therefore have been intended to mean something different.
However, the Court of Appeal disagreed. Its view was that "consummation" is an ordinary word meaning to bring to completion, and to say that a sale was consummated when an agreement for a sale was made was inconsistent with the contractual language. Renaissance Capital was therefore not entitled to a success fee, as the sale of the subsidiary completed outside the tail period.
The case demonstrates the need for clear drafting in engagement letters avoiding, for example, the use of different terms to mean the same thing. Although African Minerals is no doubt content with the result, a little more care would have saved the cost and inconvenience of a visit to the Court of Appeal. For Renaissance Capital, a fee provision relating to sales agreed (whether subject to conditions or not) within the tail period would have enabled it to claim its success fee.