JP Morgan Australia Ltd v Consolidated Minerals Ltd
 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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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