Summary

In the circumstances the claimant was entitled to a further fee on the sale of a business, calculated by reference to the increase in consideration between the purchaser's first offer and the sale.

Facts

The claimant (B) claimed fees said to be due on the disposal by the defendants (D) of their business.

B was a limited liability partnership that provided services to sellers and buyers of businesses. D owned the shares in a transport company. D engaged B to help them sell the shares together with property owned by the company and by their pension fund. A purchaser (P) made an offer to purchase the company and the property. Negotiations led to heads of agreement and then a share sale agreement. Under clause 4.1(v) of the engagement letter part of B's fee depended on whether there was an increase in consideration between the first offer from the potential buyer or investor and the final consideration and if so the extent of that increase. D had made a payment to B for its services. B claimed to be entitled to a further sum on the basis that there had been an increase in consideration between P's first offer and the final disposal. D's position was that although the disposal was more favourable to them than P's first offer in certain respects there was no actual increase in the consideration.

Held

(1) The offer letter contained an offer of £1.25 million in respect of the goodwill of the business, which consisted of a cash payment of £350,000 and contingent payments of £225,000 per annum for four years based on maintaining levels of turnover and profit. When assessing the consideration payable under P's first offer, the second element should be given its full value, as D submitted, and not a reduced value, as B submitted. The engagement letter contemplated a simple and prompt calculation, comparing the first offer and sale contract as at their effective dates and not taking account of after-acquired knowledge. That pointed to ascribing full value to contingent payments. (2) Paragraph 1(c) of the offer letter provided for a "performance sharing" payment of up to £35,000 per annum for four years. Contrary to D's contention, that did not constitute part of the consideration in relation to the first offer. Instead it was part of a proposal to employ the first defendant for a period of four years as part of the overall deal. Such remuneration for employment was not part of the consideration for the sale of the business. (3) Paragraph 3 of the offer letter stated that the property would be acquired "at valuation". That did constitute P's first offer for the property. In context "at valuation" meant "at a valuation to be agreed". (4) For the purposes of assessing the consideration in respect of the disposal the further deferred consideration should be taken to be the full sum that was potentially payable rather than the smaller sum actually paid, by parity of reasoning with the contingent element of the offer consideration. (5) A sum of £21,000 paid to reflect the delay in finalising the disposal should be included in the consideration. (6) B's argument that certain fees and pension payments fell within the definition of consideration in the engagement letter on the basis that P had assumed responsibility for them was rejected. It was clear that the company and/or D assumed responsibility for those payments and that P did not do so. (7) The result was that there had been an increase of £321,000 in the consideration between the offer and the disposal, on which B was entitled to an additional fee of £57,780 with interest.

Judgment for claimant