In the decision of J P Morgan Australia Ltd v Consolidated Minerals Pty Ltd [2011] NSWCA 3, the Court considered a case where a client appointed an investment banker to advise on takeovers and mergers.


The contract was formed by an engagement letter from the banker being accepted by the client. The engagement letter entitled the banker to various fees based on different events, offers and payments.


Following a “bidding war” the client became a wholly-owned subsidiary of a purchaser.


Following the transaction, the banker issued an invoice for $50m. The client objected to it and paid only $20m. The banker sued for remaining $30m, lost at first instance and appealed.


Critical was whether payment for a pre-bid stake in the client was “in connection with” the eventually accepted offer. If it was, then the banker was entitled to charge a higher fee than if it was not.


The Court found that matters “in connection with” an offer for the purposes of the particular engagement could only arise after the relevant request, and not before. As the payment for a pre-bid stake was before the suitable offer, this caused difficulty for the banker.


The Court took some support for its view from the doctrine of contra proferentem. The banker drafted the term, it gave rise to a large fee, and if it was ambiguous, then the banker had no claim to have those doubts resolved in its favour.


The banker’s appeal and the client were not required to pay the particular fee claimed.