A dismissal of a corporate advisor’s claim for a success fee in the Queensland Supreme Court has raised important considerations for professionals in the field. In this blog, we delve into the Findex case (Findex Corporate Finance (Aust) Pty Ltd v Don Kyatt Spare Parts (Qld) Pty Ltd & Ors [2022] QSC 100), where Findex attempted to secure a success fee for a business sale outside the agreed period.

The claim made by a corporate advisor (Findex) to receive a success fee upon the completion of a client’s business sale has been dismissed by the Queensland Supreme Court.

Summary

Findex had entered an engagement letter with its client (DKSP) to assist in selling its business.

DKSP’s business was sold, but it occurred outside the agreed period for which the success fee would be paid. Despite this, Findex argued that it was the “effective cause” of the sale and attempted to claim the success fee.

Additionally, Findex alleged that DKSP had breached implied terms of cooperation and good faith in their business relationship.

Findex was unsuccessful.

This ruling emphasises the importance of carefully considering the standard terms of engagement. It also highlights the challenges associated with relying on an implied terms – such as implying an “effective cause” term – in corporate advisory agreements.

The Facts

Findex entered into an engagement letter with DKSP, a supplier of aftermarket truck and bus parts in 2016.

The letter outlined specific terms, including a 6-month exclusivity period, a success fee to be paid upon completion of a sale within that period, and an acknowledgment that the success fee would still be payable if DKSP completed a deal with any party discussed during the process within 12 months after the exclusivity period ended.

Findex provided a list of potential buyers and facilitated negotiations for the sale, but no deal materialised despite multiple rounds of discussions. Findex ceased its involvement in the sale of DKSP from July 2018 onwards.

In July 2018, DKSP resumed discussions with one of the potential buyers introduced by Findex, Bapcor, without involving Findex.

Bapcor agreed to purchase the business in November 2018 and the transaction was completed in December 2018. This was about 19 months after Findex’s exclusivity period had ended.

Upon learning of the sale, Findex sent DKSP an invoice for a success fee of $1.4 million. However, DKSP refused to pay the invoice.

The Claim

Findex claimed a success fee of $1.4 million from DKSP, asserting that it was owed either as a contractual obligation or as damages for breach of contract. Findex’s claim was based on the following arguments:

  • Implied Terms: Findex contended that the contract included implied terms requiring DKSP to pay a success fee.
  • Effective Cause of Sale: Despite the sale to Bapcor outside the agreed period stated in the engagement letter, Findex argued that the deal resulted from its efforts (for example, for due diligence with Bapcor, DKSP created a copy of the data room prepared by Findex during the term of its engagement). Findex was the effective cause of the sale.
  • Breach of Good Faith and Cooperation: Findex alternatively alleged that DKSP breached implied good faith and cooperation duties outlined in the engagement agreement. Findex argued that, had the contract not been terminated, it would have facilitated and brought about the sale.
  • Findex agreement terminated to avoid success fee: Findex claimed that DKSP terminated their engagement to avoid paying the success fee when negotiations with Bapcor resumed.

The Decision

Justice Cooper ruled against Findex’s claim, finding that no sale had been completed within the six-month exclusivity period or within 12 months after the end of that period.

In relation to Findex’s claim that DKSP had avoided the success fee by terminating the engagement, the Court determined that DKSP was already aware of the potential new deal with Bapcor in July 2018. By this time, Findex’s engagement was already non-exclusive.

Regarding Findex’s argument that it was the “effective cause” of the sale, the Court rejected this claim for the following reasons:

  • An implied term of being the “effective cause” could not function independently of the explicit terms stated in the engagement letter.
  • It was not a standard or market practice to imply an “effective cause” term in this type of contract.
  • Such a term was unnecessary for the engagement to be valid and was contradictory to its express terms.
  • Even if this term were to be implied, Findex needed to demonstrate ongoing influence in Bapcor’s decision-making process or direct involvement in the final sale. Additionally, there was no obligation on DKSP to inform Findex about the resumption of negotiations or provide an opportunity for Findex to facilitate the sale.

Take Aways

When it comes to contracts, Courts often find an implied duty to cooperate, although the finding in this instance sheds light on an important aspect: that duty is limited by the express term of the contract. There’s no legal obligation to ensure everyone gets their anticipated benefits if the terms of the contract contradict that.

This decision serves as a wake-up call for corporate advisors to examine the fine print in standard engagement terms carefully. You can’t rely solely on the vague notion of being the “effective cause” to secure your success fee.

Ultimately as you’d assume, it’s all about what’s written in black and white, not a sliding scale of implication. It’s time to put on your reading glasses and dive into those engagement letters with a keen eye. Because, in the end, a clear and well-defined contract is worth its weight in gold.