Trigger Happy? Not So Fast… Success Fee Not Payable
Success fees are sometimes relied on in business, as well as to fund litigation. But it’s important to ensure contractual obligations around success fees in a business context are clear and unambiguous, otherwise they may not be enforceable - as one business recently found to its cost.
A success fee is a sum of money (or proportion or percentage of an as yet unknown amount) one party agrees to pay to the other contingent on winning a claim (in litigation), or in business - as financial reward provided an event occurs.
What happened in this case?
The background is fairly complex, but the key issue was straightforward. Essentially RB, as CEO for a company (Contra), provided consultancy services to the defendant (MB) in relation to a potential sale of JCB Group. The contract provided that:
· MB would pay RB a £2.6m success fee for RB’s services up to and including a settlement reached between MB and his brother.
· MB was to keep RB updated on the settlement, as well as steps to prepare the JCB Group for sale
· A further success fee (defined as 2% of a shareholding in JCB) would be due to reflect additional services by RB as commercial advisor for the sale on completion of it.
The sale of JCB Group never happened. The initial success fee was duly paid – but not the further success fee. Contra brought a claim for breach of contract. The question was: had the obligation to pay the success fee arisen?
No trigger
The appeal court agreed with the trial judge that the event requiring an additional success fee had not happened, therefore the obligation to pay it had not been triggered. Both MB and RB knew that a sale of JCB was not the only possible exit strategy. Even so, they decided to choose only the sale as the trigger for payment of that success fee.
The court rejected Contra’s argument that there was an implied term that the additional success fee was also payable on any other restructuring of the group – or at least, for services rendered after the settlement date. It was clear that such implied terms were inconsistent with the express (and complete) terms of agreement reached by the parties.
Once again, the court have upheld the long-standing principles of contractual interpretation: implied terms will only be implied into the contract if necessary for business efficacy or coherence.
The ruling is yet another reminder to ensure that when negotiating new business contracts, always consider possible outcomes and that your interests are protected if the unanticipated were to happen.
1Contra Holdings Limited v Mark Bamford [2023] EWCA Civ
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