JP Morgan Australia Ltd v Consolidated Minerals Ltd [2010] NSWSC 100
In March this year the Supreme Court of NSW endorsed the refusal of Consolidated Minerals Limited (CML) to pay fees to JP Morgan and as a result JP Morgan earned fees of approximately $30 million less than was claimed. This decision demonstrates the court's interpretation of the fee provisions in mandate letters and shows that mandate letters must be carefully prepared.
In September 2006 JP Morgan were engaged by CML to advise on its response to any takeover or merger offers. The terms of the engagement provided for fees to be paid to JP Morgan in the event that an offer was completed or, if the offer was rejected by a majority of the board, successfully defended. At the close of bidding in January 2008 JP Morgan invoiced CML for fees under the mandate letter of approximately $50 million.
CML disputed the invoiced amount and sent a cheque to JP Morgan for $20 million in "full and final settlement" of the services provided and such letter concluded with the statement "we trust that this brings this issue to a close". JP Morgan banked the cheque and sent a letter in response indicating that they "did not accept the cheque in full and final settlement of this matter".
JP Morgan sued CML for the remainder of $30 million in fees owing. The disputed fee had a base fee component and incentive fee component and JP Morgan and CML had differing opinions on the interpretation of the mandate letter when calculating the fee.
The court's decision turned on its interpretation of the fees outlined in the mandate letter. The court was faced with a very difficult exercise in contractual interpretation, with multiple alternative interpretations of the fee provisions available to it. Hammerschlag J calculated the fees owing to JP Morgan to be approximately $20 million. Accordingly, CML's cheque for this sum fully discharged its liability to JP Morgan.
His Honour dismissed CML's submission that the letter enclosing the cheque for $20 million amounted to an offer, which JP Morgan accepted by banking the cheque. Despite the stipulation that the sum was in "full and final settlement" of the dispute, CML's letter did not stipulate that banking the cheque would end the matter. Instead, it was held that the letter left the matter open, concluding with a statement of "trust" that the payment would bring the matter to a close. Hammerschlag J held that this did not amount to an offer when viewed objectively.
In any event it was held that JP Morgan did not accept the offer because at the same time as banking the cheque they sent a letter to CML indicating that they did not accept the sum in full and final settlement. Hammerschlag J indicated that if JP Morgan was entitled to more than the $20 million paid, the acceptance of the cheque would amount to part payment and JP Morgan would be entitled to pursue its rights.
The lessons in this case are two fold:
- fee arrangements in advisory mandate letters must be as clear as possible, to avoid the risk of multiple interpretations being available, and <./li>
- letters enclosing cheques in "full and final settlement" should be clear and not open to ambiguity, particularly, if a lower sum than originally discussed is being offered. If you receive a cheque for a lower value than the sum due, write to your counter-party before you cash it in stating that you are accepting the cheque in part payment of the sum due and that any offer to settle the entire account is not accepted.
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