Sandtara Pty Ltd v Longreach Group Ltd [2008] NSWSC 373 | Case summary

Sandtara Pty Ltd v Longreach Group Ltd [2008] NSWSC 373 | Case summary | Zoe

[49]

I appreciate your and Andy's time in meeting with me on Friday night to discuss the introductory fee due to you if the proposed transaction between Allied and Longreach is completed successfully. As an initial point, I am very happy to confirm that the Boards of both companies are grateful to you for the introduction provided to each company - we believe there is real merit in pursuing this transaction, and we are presently working very hard to reach an outcome acceptable to both companies. However, as we discussed, we remain some distance apart on the appropriate quantum of the fee to be paid (as you know, based on metrics I am familiar with in the industry, a simple calculation would lead to a fee of the order of $25k, whereas I understand your view is that the fee is closer to $500k). Obviously, this is an area where there is little science and the size of the fee payable is fairly arbitrary and inevitably subject to a great deal of debate. We discussed some of the key parameters which we considered in reaching our conclusion as to the appropriate fee: (a) precedent from other transactions in which the various folk at Longreach and Allied have been involved; (b) subjective issues around 'effort' and 'value' (including the alternative transactions available to the company, such as those we briefly discussed, and therefore the implicit value of this proposal compared to those; and the prospect of each party independently identifying the other as a prospective target); and (c) perhaps most importantly for us - the simple metric of the overall size and capacity to pay of Allied and Longreach (both separately, and as a merged unit). With all this background, I confirmed that we recognised that the 'nominal' fee of the order of $25k was not an appropriate recognition of the value that your introduction may provide for us, and hence I proposed that we settle on a fee of $100k, payable on successful completion of the transaction. I understand that you are not comfortable with this proposal, and you advanced a very strong position in relation to the future value created by virtue of your introduction. I have therefore discussed with my colleagues from both companies a further fee component, which both maintains your interest in assisting us to reach and implement a successful transaction, and reflects a return based on the long term value created by that transaction. Our proposal then is: i. A cash payment of $100k, due and payable on successful completion of a merger or equivalent transaction between Longreach Group and Allied Technologies; and ii. At the same time, we will include in any merger arrangement a formal recommendation to shareholders that we issue you (or your nominee), at no cost, one million ATZ options with a 25c strike price, exercisable over a reasonable period following the transaction (eg three years). This proposal allows us to address the near term cash flow issues associated with what are, after all, relatively small companies; while still recognising and allowing you to capture a part of the value that is created as a consequence of the transaction. It also allows us to ensure that shareholders see that both you and we value the equity in the company, and recognise that rewards flow only from an increase in value. I do not intend to insult you by suggesting this as a basis for further negotiation on the fee - if your view is that this is not an acceptable arrangement we should immediately get together to try to identify some other mechanism by which we may resolve this impasse. At this stage, I cannot see any such alternative. I confirm that the Boards of both companies value your contribution by way of an introduction to this transaction, and we believe that our proposal is a reasonable and very effective way of recognising the value of that contribution. I look forward to your confirmation that this approach is acceptable to you. 36 On 31 May 2006, Mr Cawood wrote to Mr Farrar in the following terms:

[57]

I confess that, following our meeting, I had discussed the fee proposal with the respective Boards of Allied and Longreach, and - following those discussions - had intended to provide a revised proposal to you. I apologise for the time it has taken to get that response together. While I'm confident that you're not serious that you could "assume that we agreed with your fee" simply because we told you we didn't agree to it, and haven't added anything since then - I can clarify that now in any case: we do not agree with the fee you have proposed. That said, we believe that we have come up with a proposal that addresses the issues raised in our meeting and which will be acceptable to you. Although my primary focus at the moment is trying to ensure that the proposed transaction takes place, I will seek to prepare a formal response to you in the next few days. I look forward to discussing that proposal with you shortly. 40 In a series of emails between Mr Williams and Mr Wilks between 20 July 2006 and 8 August 2006, Mr Williams chased Mr Wilks for the promised proposal and Mr Wilks apologised for the delay and promised to put something to Mr Williams shortly. Finally on 8 August 2006 Mr Wilks advised: I can confirm that we have discussed an alternative proposal for you to consider in lieu of the suggested $100k: you be issued with around 1m ATZ options, with a strike price at the implied deal valued price (ie $0.20). Those options can be issued to you free of charge, once ATZ is in a position to do so - which will be following the transaction, after a further shareholder general meeting where it can clear its ability to issue further options. On the assumption that the deal we are implementing yields the sort of value uplift both you and we believe to be possible (for example, an increase in the ATZ share price from $0.20 to $0.40) the value of the options will significantly increase (in the example, realising a net $200,000) and, of course, increasing over the life of the options - say, three years.

[77]

I am unavailable Wednesday and Friday of this week so hopefully it can be resolved with a meeting tomorrow or Thursday. I look forward to your urgent reply. 51 On 28 November 2006, Mr Wilks wrote to Mr Cawood by email advising him that at the Board meeting of the merged company, the "introduction fee payable" to the plaintiff was discussed. That email continued: At that meeting we also discussed the possibility of raising the fee to $150k (from the previously stated position of $100k). I am now able to confirm that, provided that it settles the matter once and for all, the Board has agreed that it will pay a once off fee of $150k to you in consideration of your introducing [the companies] to each other. We raised the issue of your requested higher fee level, and the Board is unanimous in its view that no further fee is due and payable, and we can see no reason to engage in any further review on the matter. Clearly, we would all like to see this matter settled now - can you please confirm that you are agreeable to a final fee of $150k and I will arrange to have a cheque drawn (can you also please advise how you would like that cheque to be directed). 52 On 29 November 2006, Mr Cawood responded expressing his disappointment that the parties were such a long way apart and advising as follows: We see absolutely no justification for reducing the fee but in an effort to resolve this matter would be prepared to structure it as follows: 1. An initial payment forthwith of $250,000. 2. The balance of $250,000 payable (without interest) twelve months from the date of the initial payment. 3. In relation to the second payment we reserve the right to take that payment in the form of shares in Allied based on a share price of twelve cents. I see this as a fair compromise as it leaves the company with extra liquidity over the next twelve months. I look forward to your early response. Proceedings commenced 53 The parties failed to reach agreement on the fee and the plaintiff commenced these proceedings on 23 March 2007. When asked to explain why the plaintiff claimed $1.5 million when the most that the plaintiff had claimed from the defendant was $500,000, Mr Cawood said that the claim for $1.5 million was based in part on his own knowledge of the "outside upper reasonable fee that could have been charged in this type of situation" (tr 16-17). 54 The matter was heard on 17 and 18 March 2008 when Mr R Dubler SC appeared for the plaintiff and Mr BW Collins QC leading Ms K Williams of Counsel appeared for the defendant.

[79]

Consideration 56 It is agreed between the parties that during the Introduction meeting in March 2006, the plaintiff requested a fee for the Introduction. The plaintiff claimed that the request was made at the beginning of the meeting and the defendant claimed that it was made at the end of the meeting. The defendant relies upon the timing of the request to claim that there was no consideration because the Introduction had already occurred. It was submitted that the Introduction was past consideration, that there was no other consideration moving from the plaintiff for the payment of a "reasonable" fee, and that the conversation did not give rise to a binding contract. In support of this submission the defendant relied upon Roscorla v Thomas (1842) 3 QB 234 and Pao On v Lau Yiu Long [1980] AC 614 at 629. 57 Roscorla v Thomas was a case in which the plaintiff, at the request of the defendant, had purchased the defendant's horse, and in consideration of that purchase the defendant promised that the horse was sound and free from vice. Lord Denman CJ said at 236-237. It may be taken as a general rule, subject to exceptions not applicable to this case, that the promise must be co-extensive with the consideration. In the present case, the only promise that would result from the consideration, as stated, and be coextensive with it, would be to deliver the horse upon request. The precedent sale, without a warranty, though at the request of the defendant, imposes no other duty or obligation upon him. It is clear, therefore, that the consideration stated would not raise an implied promise by the defendant that the horse was sound or free from vice. But the promise in the present case must be taken to be, as in fact it was, express: and the question is, whether the fact will warrant the extension of the promise beyond that which would be implied by law; and whether the consideration, though insufficient to raise an implied promise, will nevertheless support an express one. 58 In Pao On v Lau Yiu Long one question that was raised for determination was whether a written guarantee stated a consideration sufficient in law to support the defendants' promise of indemnity against a fall in the value of certain shares. In dealing with circumstances in which an act done before the giving of a promise may be consideration for the promise, Lord Scarman said at 629: An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors' request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of some other benefit, must have been legally enforceable had it been promised in advance. 59 In the present case Mr Addison was very clear in his evidence that in the conversation that was prior to the plaintiff organising the meeting at which the Introduction occurred, he informed Mr Williams that any introduction would be "recognised" (tr 126). At the Introduction meeting Longreach agreed to pay a reasonable fee for the Introduction and Allied confirmed its promise that the Introduction would be recognised by agreeing with Longreach's statement that a "reasonable" fee would be paid.

[80]

60 As to the first pre-requisite identified by Lord Scarman in Pao On v Lau Yiu Long: there is no doubt that the Introduction was at the request of both Allied and Longreach. 61 As to the second pre-requisite: Allied understood that a fee was to be paid well prior to the Introduction meeting when Mr Addison informed Mr Williams that the Introduction would be recognised. Mr Farrer's evidence in cross-examination included an agreement that he was concerned that Startronics may make a call on Longreach and that if Longreach did not find an investor or merger partner it may lose some or a substantial part of its $10 million investment. Mr Farrar agreed that he informed Mr Cawood and Mr Williams that Longreach needed to find a merger partner with cash but claimed that this was largely to fund the network's business (tr 63). I am of the view that Mr Farrar was very concerned about the prospect of a call being made on Longreach by Startronics and that there was a sense of urgency in seeking the plaintiff's assistance. Mr Farrar suggested that because the fee had been requested at the Introduction meeting, he felt it should be paid (tr 70). However I have no doubt that at the time the various meetings took place prior to the Introduction meeting, Mr Farrar would not have believed that the plaintiff would provide its services for free. I am satisfied that prior to the meeting at which the Introduction was made, Mr Farrar, a most experienced businessman, understood that Longreach would have to pay a fee to the plaintiff for the Introduction. 62 As to the third pre-requisite: the plaintiff is entitled to enforce the promise having regard to its entitlement to payment of an amount on a quantum meruit basis. 63 I am satisfied that if the request was made at the end of the meeting, the circumstances of this case satisfy the three pre-requisites identified by Lord Scarman in Pao On v Lau Yiu Long. However compliance with these three pre-requisites does not mean that it will automatically follow that the relevant act done before the promise was made will amount to consideration for the promise. It will depend on the particular circumstances of the case. I am satisfied that there was a promise made by Allied to the plaintiff for recognition for the Introduction well before the meeting at which the Introduction occurred. On the assumption that Longreach's promise was not made until after the Introduction, I am satisfied that the earlier promise of recognition by Allied combined with the abovementioned circumstances that comply with or satisfy Lord Scarman's three pre-requisites make this a suitable case in which the Introduction should be treated as consideration for the promises by the two companies at the meeting. Accordingly I do not accept the defendant's submission that there was no consideration. In these circumstances it is unnecessary to decide between the competing versions as to when the request was made at the Introduction meeting. Void for uncertainty 64 In support of its submission that there was a binding agreement notwithstanding the absence of a specified amount to be paid to it, the plaintiff relied upon Hall v Busst (1960) 104 CLR 206. In that case, the majority of the High Court (Dixon CJ, Fullagar & Menzies JJ) allowed an appeal from the Full Court of the Supreme Court of Queensland dismissing an appeal from Jeffriess J, who held that pursuant to an indenture between the appellant and the respondent, the appellant was obliged to give to the respondent first option to purchase the land the subject of the indenture prior to offering it for sale to others. Clause 5 of the indenture provided as follows:

[94]

78 In the present case it is quite clear that the plaintiff and Allied/Longreach agreed that the plaintiff would be paid a "reasonable" fee in recognition of the Introduction of Allied/Longreach if a successful merger was achieved. The defendant submitted that there was no express agreement to negotiate the amount of the fee and that no such agreement should be inferred from the brief discussion about the fee. The defendant submitted that the lack of any mention of the fee prior to the Introduction would be good reason for not inferring such an agreement. That latter submission fails to take into account Mr Addison's conversation with Mr Williams that Allied would "recognise" the Introduction. It is true that the word "fee" was not mentioned at that time, however I am satisfied that this latter submission should not be accepted having regard to this earlier mention of recognition of the plaintiff's services. 79 In respect of its submission that there was no express agreement to negotiate a fee, the plaintiff relied by comparison upon Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1. In that case heads of agreement in respect of a joint venture for a coal mine recorded that the parties would "proceed in good faith to consult together upon the formulation of a more comprehensive and detailed joint venture capital agreement". Kirby P, with whom Waddell A-JA agreed, said at 20-21: 2. The promise of consultation is, it is true, directed to another agreement, viz, the joint venture agreement. But this is described as a " more comprehensive and detailed" agreement. That suggests that the present heads of agreement were seen as adequately "comprehensive and detailed" to evidence that agreement which had to that stage been reached. 80 The defendant submitted that in the present case there was no comprehensive or detailed agreement, merely a statement that the defendants would pay the plaintiff a reasonable fee. The defendant also submitted that any agreement to negotiate the "reasonable" fee would be too vague and illusory to be enforceable. In any event it was submitted that the parties did not agree upon any procedures whereby the amount of the "reasonable fee" could be settled if they were unable to negotiate a fee. In support of these submissions the defendant relied upon the following passage from Coal Cliff Collieries in which Kirby P, Waddell A-JA agreeing, said at 26-27: From the foregoing it will, I hope, be clear that I do not share the opinion of the English Court of Appeal that no promise to negotiate in good faith would ever be enforced by a court. I reject the notion that such a contract is unknown to the law, whatever its term. I agree with Lord Wright's speech in Hillas that, provided there was consideration for the promise, in some circumstance a promise to negotiate in good faith will be enforceable, depending upon its precise terms. Likewise I agree with Pain J in Donwin that, so long as the promise is clear and part of an undoubted agreement between the parties, the courts will not adopt a general principle that relief for the breach of such promise must be withheld. It follows that in this regard I agree with the conclusion of Clarke J on the principle presented by the first issue before him - and now before this Court. Nevertheless, alike with Goff LJ in Mallozzi and the substantial body of United States authority which has been cited in this case, I believe that the proper approach to be taken in each case depends upon the construction of the particular contract: see Australia & New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695; see note (1991) 65 ALJ 59. In many contracts it will be plain that the promise to negotiate is intended to be a binding legal obligation to which the parties should then be held. The clearest illustration of this class will be cases where an identified third party has been given the power to settle ambiguities and uncertainties: see Foster v Wheeler (1888) LR 38 Ch D 130; Axelsen v O'Brien (1949) 80 CLR 219 and Biotechnology (at 136). But even in such cases, the court may regard the failure to reach agreement on a particular term as such that the agreement should be classed as illusory or unacceptably uncertain: Godecke v Kirwan (at 646f) and Whitlock v Brew (1968) 118 CLR 445 at 456. In that event, the court will not enforce the arrangement. In a small number of cases, by reference to a readily ascertainable external standard, the court may be able to add flesh to a provision which is otherwise unacceptably vague or uncertain or apparently illusory: see, eg, Powell v Jones [1968] SASR 394 at 399; Sweet and Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699; cf Meehan v Jones (1982) 149 CLR 571 at 589; Jillcy Film Enterprises (at 521); Ridgeway Coal Co (at 408). Finally, in many cases, the promise to negotiate in good faith will occur in the context of an "arrangement" (to use a neutral term) which by its nature, purpose, context, other provisions or otherwise makes it clear that "the promise is too illusory or too vague and uncertain to be enforceable": see McHugh JA in Biotechnology (at 156) and Adaras Development Ltd v Marcona Corporation [1975] 1 NZLR 324 at 331. 81 Whitlock v Brew (1968) 118 CLR 445 was a case in which a clause in a contract of sale provided that upon taking possession of the subject land the purchaser would grant a lease of a portion of the land to Shell Co of Australia Limited. In the passage above from Coal Cliff Collieries when dealing with agreements in which, notwithstanding the parties having given power to a third party to settle ambiguities, the Courts have classed the agreements as illusory or unacceptably uncertain, Kirby J referred to the following passage from Kitto J's judgment at 456-7 as follows: I am prepared to assume that the vendor is right in saying, as he does, that this description is sufficient to enable the portion to be identified. As regards the term of the lease, it sufficiently appears, I think, that the commencing date is to be the date when the purchaser obtains possession. But upon no other topic does the document indicate what the provisions of the lease are to be. It does say that the lease is to be granted "upon such reasonable terms as commonly govern such a lease", and that would have been enough if evidence had established that for such a lease an ascertainable set of reasonable terms are in common use. But this has not been established, and the result is that the document does not record a consensus ad idem as to the duration of the term, the rent, or anything else except the commencing date and the premises intended to be let. Provision is indeed made for arbitration in the event of any dispute between the parties "as to the interpretation or operation of this clause", and I should have understood this as extending to any dispute as to what terms are reasonable and commonly govern such a lease, if in fact any such terms had existed. But it clearly would not authorize an arbitrator to force upon the purchaser such terms as he (the arbitrator) might think are reasonable and ought commonly to govern such a lease, for to do so would be to alter the contract. 82 The defendant submitted that all the parties did was "merely" agree to negotiate or agree upon a reasonable fee in the future and submitted that an agreement to negotiate or agree was not enforceable: Booker Industries Pty Ltd v Wilson Parking (QLD) Pty Ltd (1982) 149 CLR 600. The evidence establishes that the parties had a number of meetings at which they discussed the amount of the fee, notwithstanding the defendant's submission that the plaintiff did not really negotiate because it refused to shift from its original position that $250,000 from each company was reasonable.

[95]

83 The plaintiff provided a commercial service to Allied/Longreach, the Introduction. Many hundreds of introductions occur in the real estate environment every week, pursuant to which real estate agents introduce prospective purchasers to vendors. However real estate agents provide more than a mere introduction. There is the marketing and promotion of the property, negotiating the sale and/or the auctioning of the property. The commission that real estate agents receive for their services is the subject of well-settled written terms. The sale of a property by a real estate agent in an environment that is governed by statutes is a very different situation to that of the spotter or introducer in the so-called heady commercial environment of mergers and acquisitions. 84 Fees for introductions, or "spotter's fees", are not subject to the same type of regulation that exists in the sale of real property. The parties seeking to identify a commercial opportunity with the assistance of a head-hunter or a spotter, create their own contractual terms to suit the particular "deal" that is being pursued. Commercial entities with commercial nous usually ensure that the detail of their entitlement to fees, quite often in the hundreds of thousands or millions of dollars, is clearly agreed and documented before the service is provided. That did not happen in this case. So many questions were left unanswered. So many important aspects of what was to happen were not addressed. 85 What did the parties intend and understand was to happen when Mr Farrar, with Mr Addison's agreement, said that the plaintiff would be paid something "reasonable"? Did they intend that the reasonableness of any fee was to be decided by the merged entity, the defendant? Did they intend that Allied and Longreach would set the fee when it was known that the merger was to go ahead, but just prior to going ahead; or did they intend that the plaintiff would have a say in what was "reasonable"? Did they intend that the plaintiff and Allied/Longreach would negotiate the fee and if so, when and on what basis were such negotiations to proceed? What was to happen if the parties could not agree on the reasonableness of the fee? Many of the cases upon which the plaintiff relied were decided prior to the development of a sophisticated and successful alternative dispute resolution environment. In the present environment it is not simply a matter of the court being able to decide what is "reasonable" if the parties are unable to agree upon a figure. The question must be asked whether the parties would have intended a commercial mediator to assist them to reach such a figure prior to going to court.

[96]

86 Against what criteria was the reasonableness of any fee to be measured? Was the fee to be wholly cash or partly cash and partly shares or options, or wholly shares or options? Did the parties intend that the fee would be paid immediately after the Introduction, or some time after the Introduction but prior to the merger, or after the merger had been completed? Certainly Mr Addison regarded the plaintiff's actions in demanding $250,000 from each of the companies immediately after the Introduction as "abnormal" because his experience was that such fees were not paid until after the successful merger had occurred. Was it really a "success" fee as opposed to a fee for the Introduction? In the subsequent correspondence between the plaintiff and Allied/Longreach it appears that the parties may have intended that the fee was not merely for the Introduction but was to be paid only if a merger or some other combination of the two companies occurred. The evidence does not establish an answer to any of these important questions. In my view these are not simply mechanical matters or matters of machinery, but rather essential aspects to a contract alleged to have been reached for the payment of half a million dollars. 87 Judicial statements to the effect that the Courts should not be seen as contract wreckers and that implications of what is just and reasonable are able to be ascertained by the Court as a matter of machinery where the contractual intention is clear but silent on some detail are not controversial. In my view they are not applicable in this case. The cases relied upon by the plaintiff are all cases involving tangible objects such as real or personal property, stock, shares or businesses that are able to be valued at a particular time in accordance with well-trodden valuation principles and, depending upon the particular item to be valued, taking into account such factors referred to by Walsh J in Wenning v Robinson (at 619): see also Moonlighting International Pty Ltd v International Lighting Pty Ltd [2000] FCA 41 at par 19.

[99]

90 The defendant submitted that the plaintiff did not need to undertake any work to determine that Allied would be interested in being introduced to Longreach and vice versa. It placed emphasis on the short time of the initial meeting (only 30 to 45 minutes) and submitted that the Introduction did not involve any special skill or effort on the part of the plaintiff. In the correspondence between the plaintiff and Allied/Longreach in which various offers were made to the plaintiff, it was suggested that Allied/Longreach wanted the plaintiff to maintain its "interest" in assisting them to reach and implement a successful transaction. It was also suggested that one of the offers would allow the plaintiff to "capture a part of the value that is created as a consequence of the transaction". I do not accept that the plaintiff did not have to undertake any work to determine that Allied would be interested in the Introduction to Longreach and vice versa. It had to either know or find out if the companies had the attributes that were being sought by the respective companies. True it is that there was material in the public arena that may have enabled Longreach to be aware of the cash position of Allied by reason of its recent sale of an aspect of one of its businesses, however Longreach appears not to have known that. The plaintiff had also to identify a company that would have the desired "synergies", to use that rather unfortunately popular term, for the proposed merger. 91 It was submitted that the plaintiff took the risk that Allied and/or Longreach might decline to pay a fee. It was also submitted that the plaintiff took the risk (which came to fruition) that the parties would fail to agree on a fee. It was also submitted that the failure of that agreement was no fault of the defendants because the plaintiff did not engage in the negotiation in any meaningful way. It was further submitted that the plaintiff's assumption of the risk that the amount of the fee might not be agreed means that the plaintiff is not entitled to any award on a quantum meruit basis. In support of this submission the defendant relied upon Vivian Fraser & Associates Pty Ltd v Shipton [1999] FCA 60. In that case Lindgren J referred (at par 340) to the assumption of risk that there may not be a contract, or alternatively that the parties would not reach agreement on the terms of the retainer. Lindgren J said (at par 338):

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95 Mr Addison has experience in spotters' fees and introduction fees. One matter that he would look to in terms of ascertaining a reasonable fee for the plaintiff would be the Grant Thornton valuations. He gave evidence that this is the way such an estimate would be made "in normal circumstances". In this instance he regarded the plaintiff's request for payment prior to the conclusion of the transaction as "abnormal". He said (tr 128): The plaintiff sent a letter dated 17 March 2006 requesting the payment of the fee prior to conclusion of the transaction, so I would suggest that that's abnormal because most fees of an introductory nature, or of an introductory nature or of a contributory nature, are submitted following successful conclusion of the transaction. 96 Mr Addison agreed that the merged entity, the defendant, made an offer of $150,000 to the plaintiff, in which he was involved and with which he concurred (tr 128). 97 The plaintiff relied upon the evidence of Grant Terrence Kirby, a partner in the Corporate Finance (Merger and Acquisition Advisory) section of Deloittes. Mr Kirby's qualifications include a Bachelor of Agricultural Science from Adelaide University, a Masters in Forest Science (Economics) from the University of Melbourne and a graduate diploma in Applied Finance & Investment. Mr Kirby claims an industry specialisation in forestry, building products, chemicals and automotive and described his expertise as a speciality in "negotiating and creating innovative deal structures to achieve exceptional results from divestments, acquisitions and mergers". Mr Kirby's report was rejected and leave was granted to the plaintiff to call oral evidence from him. 98 Mr Kirby gave evidence that an "introduction fee" or "spotter's fee" can be either a stand-alone fee for a simple introduction, or a fee for a full advisory role. Mr Kirby described a full advisory role as a level four role and a simple introductory role as a level one role and said he regarded the introduction in this case as a level one role. Mr Kirby regularly seeks to negotiate a fee for the full advisory role but on most occasions has been "pushed back" in negotiations with the client to considering merely a spotter's fee. He said that in some cases he is happy to take a spotter's fee because the fee is quite large for the amount of work that is done but there is less certainty of the deal actually being completed. In the eleven years that he has been working in the particular field he has probably been asked to consider taking a spotter's fee instead of a full advisory role on about ten occasions. His evidence in chief included the following (tr 110): Q. Of those, are they fees of quantum actually mentioned in all, some, or most, or what is the position? A. Certainly in some of them, if not most. And they would be in the order of 1% of enterprise value, depending on the size of the deal. Some of them are expressed in dollar terms, in terms of - obviously, the client starts off with something low like 50,000 as a way of seeing if you will take it. You usually negotiate it up to a minimum of $100,000, because we don't do this sort of work for less than $100,000 because these deals take a while to generate. They have a high probability of not actually coming off. So when one actually comes off, you expect to be rewarded for the ones that haven't come off. So that's it. 99 In cross examination Mr Kirby agreed (tr 112-113):

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(e) there are really no rules about these fees and it is all about negotiation with every case being different according to a multitude of different circumstances. 100 Mr Kirby described the process of introduction as looking at the financials to determine the profitability and the impact of putting the two companies together. He also said that consideration would be given to the "operational synergies" which are the benefits of merging the two operations for the shareholders and what value that might create from the deal. Mr Kirby was cross examined about the types of fees that may be offered and/or negotiated. He gave the following evidence (at tr 119-120): Q. Yes. Now, I was asking you about some of the lump sums. There have been cases amongst those that you have told her Honour about in which you have asked for, without any embroidery, a particular stated lump sum fee, let us suppose $100,000, correct? A. True. Q. And without any word or another thing, the client has either accepted or rejected that $100,000 fee? A. Without any word? Q. Yes? A. I don't fully understand. Q. Well several said, "okay I will pay it"? A. They usually don't just accept to pay a fee like that without a review. Q. They might put another fee to you. They might say, "How about 75"? A. True. Q. You would say, "What about 95?"? A. Exactly. Q. And you might settle on 95? A. True. Q. And sometimes the person with whom you are having this enlivening discussion may have a very deep purse and on other occasions not so deep a purse, correct?" A. True. Q. On some occasions it may be a very large public company? A. Could be, yes. Q. With whom you have had a long-standing arrangement as professional adviser and client? A. I can't recall of an instance of that but that is possible. Q. And so it varies one way or the other, correct? A. Yes, the fees are never defined precisely in the market until the negotiation is completed. 101 The defendant made an offer to pay the plaintiff $150,000 for the Introduction and such an offer can be used as a "floor" from which the Court may decide on an amount to be paid to the plaintiff for the services provided to the defendant/Allied/Longreach: MMAL Rentals Pty Limited v Bruning [2004] NSWCA 451 at pars 93 and 97. In any event, during final submissions Mr Dubler indicated that what the plaintiff was seeking by way of a fee on a quantum meruit basis was $165,000, with an undertaking that $15,000 would be accounted for as GST, plus interest from November 2006. Although Mr Collins QC made submissions that such an award would have serious implications in respect of any costs order, there was not any serious submission against such an award, subject to the earlier submissions of the defendant to which I have referred. I am not satisfied that those earlier submissions should be accepted. All parties agreed that a reasonable fee should be paid to the plaintiff for the Introduction. True it is that there was a risk that the parties would not agree, however having regard to the previous history between them it does not seem to me that it would have been perceived as a serious risk. 102 I am satisfied that the amount now sought by the plaintiff is an appropriate figure to award the plaintiff for the services it provided. Notwithstanding the many variables that Mr Kirby agreed would impact on the circumstances of each case, the defendant's officers and Board and the Boards of Allied and Longreach had considered the figure and the offer of $150,000 was made. The plaintiff now seeks an award that is very similar to that offer although taking into account an amount for GST. I am satisfied in those circumstances that the award sought by the plaintiff in final address should be made. Conclusion 103 The plaintiff's claim in contract is dismissed. The plaintiff is entitled to judgment in its favour for $165,000, subject to an undertaking that $15,000 will be accounted for as GST should such payment be required. If the parties are unable to agree on interest and/or costs I will hear submissions when this matter is listed for that purpose by arrangement with my Associate. The parties are to contact my Associate to make such arrangement by no later than 20 May 2008.

Sandtara Pty Ltd v Longreach Group Ltd

At a glance

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Decision date

Before

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Judgment (109 paragraphs)

Parties

Cases Cited (12)

Cited By (2)