High Court Considers Whether Success Fee Payable To Advisory Firm In Respect Of "Equivalent Transaction" In De-SPAC Merger

The High Court has ruled that an advisory firm was owed a success fee in respect of a de-SPAC merger, even though the ultimate transaction was carried out without the advisory firm's assistance. This was on the basis that the firm's engagement letter provided for payment of an advisory fee plus shares if an "Equivalent Transaction" completed within a specified period: Strand Hanson Ltd v Conduit Pharmaceuticals Ltd [2025] EWHC 3287 (Ch).

As a reminder a SPAC is a "special purpose acquisition company". It is essentially a cash shell company with no commercial operations or trading history, set up with the sole purpose of raising money through an initial public offering (IPO) and, eventually, to acquire another (unlisted) company. A "de-SPAC" is when the SPAC and the target combine to become an ordinary listed operating company, and investors receive shares in the newly combined entity. For more information, see our article considering the regulatory and litigation risks for SPACs in the UK (first published in the October 2021 edition of Butterworths Journal of International Banking and Financial Law).

The dispute centred on the contractual interpretation of protections afforded to the advisory firm, in a clause providing for remuneration where an "Equivalent Transaction" to that envisaged by the engagement letter took place. The High Court applied the well-established principles of contractual interpretation, requiring an iterative process in which rival interpretations should be tested against the provisions of the contract and its commercial consequences. The court specifically referred to the Court of Appeal's judgment in Cantor Fitzgerald & Co v Yes Bank [2024] EWCA Civ 695 (see our banking litigation blog post), another recent decision considering the contractual interpretation of a success fee clause. In the present case, the High Court did not consider there to be any real uncertainty in the relevant provision, holding that the firm was entitled to a US $2m advisory fee plus damages.

While disputes of this nature will always turn on the precise contractual wording, the judgment will be of wider interest to financial institutions entering into advisory services agreements with success fee provisions. In particular, the court's analysis of the commercial background is noteworthy. It recognised that the "Equivalent Transaction" provision operated as an anti‑avoidance mechanism, reflecting the obvious risk that the client might delay completion, change strategy, or engage alternative advisers. Although the clause was described as having been drafted "rather clumsily", in the court's view, the clause was designed to address those risks. The decision therefore underlines the importance of ensuring that success fee and tail provisions clearly capture the commercial aims intended.

The decision is also of interest for its approach to calculating loss, in circumstances where it was not possible to assess damages (which were payable in addition to the advisory fee) with reference to the value of the shares in the public market, as the shares were thinly traded. Following One-Step (Support) Ltd v Morris-Garner [2019] AC 649, the court said that where there are evidential difficulties in assessing damages, but it is clear the claimant has suffered substantial loss, the court must assess damages as best it can on the available evidence.

We consider the decision in more detail below.

Background

The proceedings arose out of a dispute concerning success‑fee provisions contained within an engagement letter dated 14 July 2022 and attached terms and conditions (the Engagement Contract) between the claimant, Strand Hanson Limited, a UK‑based financial advisory firm, and the defendant, Conduit Pharmaceuticals Limited, a Cayman Islands biopharmaceutical company, for a 12‑month period (ie expiring 14 July 2023).

Strand Hanson was engaged to advise Conduit on a de‑SPAC merger involving Galmed Pharmaceuticals. The terms of the Engagement Contract included protections for "Equivalent Transactions" completed within a 12‑month tail period (the Tail Period). The Galmed Pharmaceuticals transaction did not take place and Conduit pursued an alternative route with Murphy Canyon Acquisition Corporation (MURF), assisted by US advisers. Conduit entered into a merger agreement with MURF on 8 November 2022 and the MURF transaction completed in September 2023.

Strand Hanson commenced proceedings against Conduit alleging that even though the Galmed Pharmaceuticals transaction had not proceeded, as per the terms, Conduit was obliged to remunerate it as the MURF transaction was an Equivalent Transaction. Strand Hanson claimed that it should have been paid a US $2m cash advisory fee, plus 10% of the shares issued by MURF on completion of the de-SPAC merger.

Decision

The court held that Conduit was liable to pay the remuneration as set out in the Engagement Contract plus damages.

Proper construction of the Engagement Letter

The key issue in dispute involved the interpretation of clause 5.6 of the terms (set out below) and in particular the trigger for remuneration where an Equivalent Transaction was completed:

The parties were agreed that the legal principles governing contractual interpretation were as set out in Cantor Fitzgerald, ie the court is required to consider the ordinary meaning of the words used in the context of the contract as a whole and the relevant factual and commercial background, which will exclude prior negotiations. The test is an objective one.

The court held that the wording of clause 5.6 of the terms was clear: remuneration was payable where an agreement leading to an Equivalent Transaction was entered into during the term of the Engagement Contract, even if the Equivalent Transaction completed only after expiry of the term. On this basis, the merger agreement entered into with MURF on 8 November 2022 fell squarely within the scope of clause 5.6 of the terms and the resulting MURF transaction constituted an Equivalent Transaction.

Conduit argued that the Equivalent Transaction provision was only ever intended to apply when there was early termination of the Engagement Contract during its 12‑month term, and did not bite where (as was common ground between the parties) the Engagement Contract was not terminated early and simply expired due to the passage of time. Absent early termination, and given that the Galmed Pharmaceuticals transaction was not completed by 14 July 2023, Conduit argued that Strand Hanson was not due any remuneration.

The court held that early termination was not a prerequisite to liability for an Equivalent Transaction. In the court's view, when the operative language of clause 5.6 of the terms was isolated, the structure made clear that liability arose in two distinct scenarios: (i) where there was early termination with no agreement antecedent to an eventual completion, followed by completion of an Equivalent Transaction within the Tail Period; and (ii) where an agreement was entered into either during the term of the Engagement Contract or during the Tail Period if the Engagement Contract was cut short, which subsequently resulted in an Equivalent Transaction. The use of the word 'or' between the limbs indicated that they operated disjunctively and described separate routes to remuneration.

The court also considered the clause in the context of the Engagement Contract as a whole and highlighted its anti-avoidance purpose. It accepted that the Engagement Contract's structure was to incentivise Strand Hanson to achieve completion of the transaction within the 12-month term, but also acknowledged the commercial risks faced by the adviser if the client delayed completion, changed strategy, or sought to engage alternative advisers. The court concluded that clause 5.6 of the terms was designed to address those risks, although commenting that the clause did so "rather clumsily in an over-long first sentence with rather inelegant syntax". However, in the court's view there was no real ambiguity in the clause.

Damages

Having established liability, there was no issue between the parties as to payment of the US $2m cash advisory fee. The court therefore turned to assess Strand Hanson's claim for 10% of the shares issued by MURF on completion of the de-SPAC merger. Strand Hanson claimed they should have been provided with 6.5m shares, on the basis that 65 million shares were issued - these were referred to as the "Carry Shares" and so Strand Hanson sought damages for failure to deliver the Carry Shares.

In the court's view, the exercise of quantification involved making an assessment of the value of the shares. In a ready market, the innocent party could mitigate its loss by buying replacement shares and claiming any difference in price as damages. However, in the present case the new entity's shares were thinly traded and it was not possible to assess damages with reference to the value of the shares in the public market.

The court observed that, as set out in Chitty on Contracts (32^nd Ed (2015)) and cited with approval in One-Step v Morris-Garner, in situations where there are evidential difficulties in assessing damages, but it is clear the claimant has suffered substantial loss, the court must assess damages as best it can on the available evidence. In this case, the court awarded damages of US $5 million which was slightly below the midpoint of the potential ranges posited by each of the party's experts in their respective scenarios.

Accordingly, the court held that Conduit was liable to pay Strand Hanson the US $2 million advisory fee plus damages amounting to US $5 million in respect of the shares in the new entity.

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