JP Morgan's claim for the balance of a success fee in relation to their acting on a defence mandate for Consolidated Minerals, highlights the potential problems of success fee arrangements. JP Morgan had been retained by Consolidated Minerals on a defence mandate. Subsequently, two companies made bids, with the second bidder succeeding on a subsequent offer. Not only did the court reject that a fee higher than the $20 million paid was due, but Justice Hammerschlag found there was no defence of the bids required. Clearly, there was a disconnect between what the two parties thought was success, and that in itself guarantees a dispute.
What's the lesson? Defining success needs careful thought and scoping of possible outcomes. Here, JP Morgan argued the calculation was based on the difference in amount between bid one (from Palmery) and the final bid (from a different company). The court found that the calculation should have been between the first and final bids of the successful bidder. The NSW Court of Appeal upheld the primary judge.
For lawyers, defining success can also be problematic. If acting in litigation, what happens if an offer is made which the lawyer recommends, but the client does not want to accept? What if an unanticipated cross claim is brought, or the other (losing) party appeals? Any arrangement which includes a "success" fee payment requires consideration of worst case and unanticipated scenarios. Something JP Morgan may do in future.