A takeover adviser's success fee depended on the
timing of the target board's recommendation.
A corporate adviser failed to get a contractual success fee for
a recommended takeover, because "success" depended upon
the timing of the target board's recommendation.
The NSW Court of Appeal held that, under the contract, the fee
was only payable if the board recommended the bid
before the bidder got to 50%; a recommendation
after the bidder had already got to 50% did not
meet the requirements of the contract.
Aztec contracted to pay a corporate adviser a
"success" fee. The contract defined "success"
as: "a bidder acquires 50% or more of the shares in Aztec ...
where the acquisition was recommended by a majority of the Aztec
Mount Gibson launched a bid for Aztec. The Aztec board
recommended against acceptance. Nevertheless, the acceptances
rolled in and Mount Gibson got to 50.52%. Six days later,
Aztec's board ran up the white flag and recommended the
The adviser sent in its invoice for the success fee. The Aztec
board refused to pay, and the adviser took it to court.
There were two issues for the Court.
The first question was whether "success" in the
the Aztec board recommended the bid and a bidder
subsequently got to 50%+ (Aztec's argument);
the Aztec board recommended the bid at some point
before or after the bidder had acquired 50%+ (the
The second issue depended on the answer to this question. The
adviser argued that, if the contract meant what Aztec claimed (ie.
that the fee was only payable if the bidder got to 50% after a
target board recommendation), then that was not what the parties
had intended. In that case, the contract should be rewritten to
make it clear that the fee was payable even if the board
recommendation followed the bidder's getting to 50%.
Recommendation before or after control had already
The NSW Court of Appeal held that the idea that a success fee
should be payable when shareholders rejected their board's
recommendation and accepted the bid was "lacking in commercial
Among other things, it ignored an important fact: the contract
stated that the success payable was payable where "a bidder
acquires 50% or more of the shares in Aztec ... where the
acquisition was recommended by a majority of the Aztec
board" [emphasis added]. In the Court's view,
that "acquisition ... recommended by a majority of the Aztec
board" was the acquisition of 50%. In this case, the bidder
had acquired 50% of Aztec before the board had recommended that
Did the parties mean something else?
As noted above, the adviser argued that, if the wording of the
contract had the meaning argued by Aztec, the contract was wrong,
because it did not reflect what the parties had actually agreed.
Accordingly, argued the advisers, the contract should be
"rectified" (ie. rewritten by the Court to reflect what
the parties had really meant to say).
This argument was rejected for two reasons.
The first was that there was nothing obviously wrong with the
idea that the success fee should only be paid if the change of
control occurred after Aztec's board had recommended the bid.
That interpretation could only be displaced if there were
sufficient evidence to show that the parties had intended
After examining evidence about the negotiation of the contract,
the Court concluded that there was insufficient evidence to show
that the contract did not reflect the parties' intentions.
One does not have to be a fan of Bob Dylan ("there's no
success like failure/And ... failure's no success at all")
to know that "success" is not a term with only one
It is fair to point out that the negotiation of the contract in
this case was a drawn-out and complicated process, involving more
than one adviser. It is, therefore, possible that, at some point,
the adviser and the company unconsciously parted ways on what they
were trying to achieve.
That said, the Court thought that the wording of the contract -
and, crucially, the contract's definition of
"success" – was fairly unequivocal. The lesson for
both potential takeover targets and their advisers is to ensure
that there is near to absolute clarity about the central clauses of
their contract, particularly if those clauses involve terms, such
as "success", which, in popular parlance, can have a
variety of meanings.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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