A recent case underlined the need for clear drafting of tail fee provisions, with the High Court ruling that an adviser was entitled to a fee – and the Court of Appeal ruling that it wasn’t. The case hinged on the meaning of the word “consummated”.

Tail fees are a common feature of engagement letters between fundraising companies and their financial advisers. The commercial intention is that, if the transaction completes within a specified period after termination of the engagement, the financial adviser is paid a fee regardless of termination.

African Minerals Ltd (AML) owned, through subsidiary companies, rights to develop and exploit mineral assets in Sierra Leone, including in particular a very large iron ore deposit at Tonkolili. An engagement letter was entered into between AML and Renaissance in 2008 whereby Renaissance was appointed as exclusive financial adviser to AML.

The term of the engagement letter expired on 7 February 2009, at which point no capital raising transaction had been agreed. A further agreement was made which amended the engagement letter to state that, if any sale was “consummated” within one year of any termination of the agreement, Renaissance would be entitled to receive a fee. The agreement was terminated in September 2010.

In July 2011 AML signed an agreement with a company in relation to the sale of the iron ore company. Thepurchaser had not been introduced to AML by Renaissance. Completion of the sale did not take place until March 2012. Renaissance brought a claim for fees in respect of the sale.

The High Court determined that the sale was “consummated” when the agreement for sale was made in July 2011, which fell within one year of termination of the agreement. Renaissance was therefore held to be entitled to payment. AML appealed.

The Court of Appeal* held that the natural meaning of the words “if any sale is consummated” is “if any sale is completed”. Renaissance was therefore not entitled to a fee in respect of the sale, since it was not consummated within the period of one year from the termination of the agreement.

This case illustrates the need for parties to reach a mutual understanding on the circumstances in which a tail fee will be payable, and to encapsulate that intention by way of clear drafting. If there is any doubt as to the meaning of a key term, consideration should be given to expressly defining it or replacing it with an unambiguous term.

*Renaissance Capital Ltd v African Minerals Ltd [2015] EWCA Civ 448