In the recent case of Edmond de Rothschild Securities (UK) Ltd v Exillon Energy Plc in the Queen’s Bench Division (Commercial Court) [2014] EWHC 2165 (Comm) the court had to deal with the interpretation (construction) of contract language for the purpose of deciding when a “success fee” was due.

The court held in this case that the correct construction of a contract for the provision of corporate advisory and strategy services meant that the service provider’s right to a success fee was not dependent upon the service provider being an effective cause of the “success” as defined in the contract. As long as the “success” was achieved, the service provider was entitled to the success fee. The crucial clause read as follows:

 “In consideration for the services set out herein, the Company agrees to pay to [Rothschild] a fee payable as follows:
a) a retainer of $50,000 per month…
b) a success fee of $500,000, net of the retainers paid under (a) if a resolution to the issues posed by Worldview’s requisition has been achieved, such achievement being assessed because one or more of the following has occurred:
    i. Worldview has indicated a willingness to cease hostilities;
    ii. the prospect of future Worldview action is agreed between the Board and [Rothschild] to be remote;
    iii. Worldview has reduced its shareholding in the Company to below 5%;
    iv. a strategy has been developed that will be/can be implemented such that the negative impact of future Worldview action is agreed between the Board and [Rothschild] to be negligible; and
    v. The Company has been able to successfully launch its proposed bond issue; …”

The court decided that the above did not mean that the claimant had to be the effective cause of the listed events. This interpretation was supported by two main considerations. Firstly, it would have been very difficult, if not impossible, for the claimant to prove that its work was an effective cause of the sale of shares. Secondly, the reason for the sale did not matter to the other party: all that mattered was that the shares had been sold. The above was not regarded by the court as forming a contract of agency. In any event, the general principle that an agent’s right to commission is dependent on its being an effective cause of the success is subject to any special terms or other indications in the contract.

The above construction, it was held, did not provide the claimant with an unfair “windfall” and it was not contrary to business common sense. Nor was there anything contrary to business common sense in entitling the claimant to a success fee in the circumstances. Thus, the court leaves open the door for such arguments preventing such a construction of the contract in other circumstances.

The lesson to be learnt: make it expressly clear. If you wish to provide for (additional) success fees ensure that the condition precedent is clearly defined in any agreement so as to make it clear whether the respective party must demonstrably cause that “success” event.