COAL AND ALLIED INDUSTRIES LTD vy CAPEL COURT CORPORATION LTD SUPREME COURT OF NEW SOUTH WALES COMMERCIAL DIVISION MAHONEY, CLARKE and HANDLEY JJA 23 November 1992, 11 December 1992 [1992] NSWCA 42 CONTRACT — TERMS — SUCCESS FEE — COURSE OF DEALING — CAUSATION — UNCERTAINTY Contract terms cause of dealing — success fee — whether respondents entitled to fee. — Contract — terms — whether factors relied on by trial judge sufficient to justify conclusion. Held: judge's reasons compelling. Causation — whether a nexus between the activities of the respondent and the outcome contemplated in the contract. Held: respondent had carried out all the services which, upon the contemplated outcome of the contract, entitled it to a success fee. Uncertainty — whether references to success fees were so vague as to be unenforceable. Held: no basis upon which a finding of uncertainty could be grounded. ORDERS The appeal is dismissed with costs. Mahoney JA I agree with the judgment of Clarke JA and the orders proposed. Clarke JA Capel Court Corporation Ltd (the respondent) sued Coal and Allied Industries Ltd (the appellant) to recover what was described in the pleadings as a success fee in respect of services rendered by it. The appellant resisted the claim upon the basis that in the events which had occurred the respondent did not become entitled to the fee. The case was heard by Brownie J who, in a detailed judgment in which he dealt comprehensively with the facts and the issues, found for the respondent. An appeal has now been brought from that decision which, in substance, raises three separate grounds of complaint. The respondent, in its summons, based its claim upon an agreement made on or about 4 August 1988. The appellant, for its part, admitted that there was an agreement between the parties whereby the respondent agreed to carry out advisory work and to provide services to the appellant but denied that the agreement was constituted by the documents which passed between the parties in July and August 1988. It contended that the letters of 29 July and 4 August 1988, on which the respondent based its claim, did no more than set a scale of fees. His Honour thought the better view: "... would be that prior to July 1988 the parties had entered into an agreement to the general effect that the plaintiff (respondent) provide such merchant banking services as the defendant (appellant) from time to time requested and the plaintiff agreed to perform, at fees which were periodically renegotiated and that the letters of 29 July and 4 August 1988 amounted to another renegotiation of the fees to be charged thereafter." His Honour did add the observation that he did not think that the distinction between the case sought to be made by the respondent and that sought to be made by the appellant was of any practical significance. 2 UNREPORTED JUDGMENTS I tend to agree with his observation but it is, I think, important in the context of that distinction to follow the course adopted by his Honour in his judgment and to set out the earlier relevant correspondence. The relationship between the parties was well established prior to 1984. In that year the appellant was considering a general re-financing of its borrowings and sought assistance from the respondent which was a well known merchant bank. Mr Watson, the appellant's General Manager, Finance, raised the matter of the respondent's fees in connection with this advice and in response the respondent wrote a letter on 9 August 1984 in these terms: "Re: Refinancing Programme Following our recent papers on the latest budget revision and the proposed funding strategy we were pleased to learn from Mr Watson that, subject to agreement on fees, Coal and Allied wishes to retain Capel Court to advise on the Refinancing Programme. Accordingly, we write to set out the basis of our fees for assisting you in this matter together with details of our staff who will undertake this important assignment. Clearly, a major refinancing of Coal and Allied's business will be both complex and time consuming and will involve us in both conceptual and executory activities. We believe that our fees should reflect the two aspects of the assignment and consider, therefore, that it is appropriate to divide our charges into two parts: . An hourly rate based on the number of hours which we devote to the project - to cover the detailed investigation of alternatives and implementation of the preferred solutions, and . A flat percentage rate on the total amount of the funding arranged and the value of assets disposed of - to reflect the successful completion of the exerclIse." [Out of pocket expenses were dealt with.] With regard to the quantum of the fees we propose two alternative structures for your consideration: (i) Hourly fees of: General Manager and above $175 per hour Senior Manager and below $125 per hour and a flat percentage of 0.2%. (ii) Hourly fees of: General Manager and above $87.5 per hour Senior Manager and below $62.5 per hour and a flat percentage of 0.3%. It would be our intention to bill fees monthly in arrears for the hourly charges and out-of-pocket expenses. The flat percentage fee would be payable on the signing of funding agreements or the entering into of binding commitments for asset sales. [There was a reference to the staff members who would be handling the transactions. ] May I say how much we appreciate the trust placed in us by Coal and Allied and assure you of our total commitment to a satisfactory resolution of the Refinancing Programme. Finally, I will be pleased to discuss any aspect of this letter with you at your convenience." The appellant responded by letter dated 28 August 1984 in these terms: "REFINANCING PROGRAMME URAL AND ALLIED INDUSTRIES LTD v CAPEL COURT CORPORATION LTD (Clarke JAB Reference is made to your letter dated 9 August 1984 wherein you set out details of your fees for assisting Coal and Allied in its forthcoming refinancing programme. We now confirm our acceptance of your second alternative ie: Hourly fees of: General Manager and above $87.50/hour Senior Manager and below $62.50/hour plus a Flat percentage fee of 0.396 on the signing of funding agreement or on entering into binding commitments for the sale of assets." In the following year the appellant decided that it wished to buy all of the shares in R W Miller (Holdings) Pty Ltd ("Miller") and again the appellant sought the respondent's assistance. This occurred in April 1985 when Mr Watson spoke to the respondent's Manager, Advisory Services, Mr Secker. Mr Watson said: "We are looking to buy R W Miller. We want your opinion on what the business is worth. We'll make all the information you need available so that you can run numbers. The valuation will be vetted by the Chief Executive of C and A. If we think the valuation is reasonable, we' ll put it to the Finance Committee who would then recommend it to the full C and A Board. In conjunction with the valuation, you should also put to us recommended financing options - straight share issue, outright borrowings, leasing options, or any variation of those. Then, if the full Board feels the options look reasonable, we'd ask Capel Court to help us get those funds." (C and A was, obviously enough, the appellant.) Again the appellant responded in writing, this time in a letter dated 23 April 1985 which was in these terms: "R W MILLER LTD As discussed in our recent meeting regarding the above, this letter sets forth our proposed fee arrangements for the valuation, and other work, related to successfully completing the acquisition of R W Miller. Our letter of 9 August 1984 (agreed to by Coal and Allied by letter dated 28 August 1984), set forth proposed fee arrangements in relation to the then anticipated Refinancing Programme. Fees for all work performed by Capel Court since that date have been calculated on the basis of that letter. In view of the different nature of the work involved in preparing a valuation for both internal and public release, and in implementing this proposal, we believe it is appropriate that a fee structure, Programme, be adopted, in relation to this assignment. Capel Court's role would include: * preparing a valuation, initially for internal use, subsequently for public release; * assisting in raising finance (both debt and equity (if required)); * assisting in negotiations with Howard Smith, the Stock Exchange, your legal advisers, and other interested parties; * assisting in shareholder relations. * an hourly fee of $200 for each executive involved in preparing the valuation. * a use of name or responsibility fee of $15,000 upon the valuation being publicly released. * reimbursement of out of pocket expenses. 4 UNREPORTED JUDGMENTS We believe some combination of the valuation and Refinancing Programme fee structures is broadly appropriate in undertaking this assignment, and therefore propose the following fee basis for the work to be undertaken: * an hourly fee for executives involved, calculated as set out below: Executive Director and above $200 Associate Director and Senior Manager $150 Below Senior Manager $125 * use of name fee of $15,000 upon public release of the valuation of any report based on the valuation. * Reimbursement of out-of-pocket expenses. * Expenses greater than a total of $500, will not be incurred without prior consent from Coal and Allied. Additionally, a flat percentage of 0.2% on the total consideration paid to acquire Miller would be payable, should the proposed acquisition be completed. As you know, Capel Court previously constructed a computer model to value the coal mine assets of Miller. Provided the information available is suitable for use in the model, a considerable amount of time could be saved by using this model and this is our intention. Would you please confirm, in writing, that the above is acceptable to you. If you wish to discuss, please telephone me." According to his Honour the parties acted upon the basis of this letter. In October 1986 the respondent was still engaged on work relating to the appellant's proposed acquisition of Miller. At about this time Mr Sasson joined the respondent as Executive Director, Corporate Finance, and, having examined the previous correspondence relating to the fees payable to the respondent he prepared a discussion paper, although he did not then (that is in February 1987) show that document to any representative of the appellant. His Honour found, however, that it was probable that the discussion paper was given to the appellant in July 1988 together with a letter of 14 July. Accordingly, it is appropriate that I set out the discussion paper as part of the documentary material which is relevant to the question for decision. The paper read: "COAL and ALLIED CAPEL COURT'S ROLE - DISCUSSION 1. CCIB 'S Role * Evaluate all different types of financing options. * Prepare funding strategy. * Complete evaluation of R W Miller, including contingency payment. * Re-do evaluation for public information. * Assist in raising of funds. * Assist in re-negotiation of Head Loan Agreement. 2. PRIOR FEE STRUCTURE 2.1 9 August 1984 (Refinancing) Hourly fees of General Manager and above $87.5/hour Senior Manager and below $62.5/hour + out of pocket expenses URAL AND ALLIED INDUSTRIES LTD v CAPEL COURT CORPORATION LTD (Clarke JAB + 0.3% of amount of funding and assets sold. 2.2 23 April 1985 (R W Miller Valuation) Executive Director and above Associate Director and Senior Manager Below Senior Manager + use of name fee of $15,000 upon public release of information + out of pocket expenses + 0.2% of consideration. 3. Proposed Fee Structure - April 1987 Executive Director and above Associate Director and Senior Manager Below Senior Manager + use of name fee of $15,000 upon public release of information + out of pocket expenses + 0.25% of consideration of R W Miller + 0.25% for funds raised/refinanced over and above amount required for R W Miller." A week after preparing that paper (that is on 27 February 1987) Mr Sasson said to Mr Watson: "[The plaintiff] is working on two major projects: The Refinancing Programme and the RWM Acquisition. Work associated with each of these two projects greatly overlap. I think we should be working under one fee structure. The Refinancing Programme was agreed as long ago as August 1984 and no success fee has yet been earned in relation to that. I think that the fees for the project are substantially too low and that they need to be brought up to something like the RWM fees. I propose that we agree to one fee structure." There was further discussion following which Mr Sasson said: "Why not a flat fee of 0.25%, which is the average of the two success fees, on both the acquisition and the refinancing programme? The hourly fees should also be averaged out, but increased due to inflation during the last 2-3 years." Mr Watson replied: "That's fair. I will recommend it to the Finance Committee." His Honour found, and the finding is not challenged, that work on the project (that is the proposed purchase of Miller) continued and although it looked for a time as though the objectives of the parties would be achieved circumstances changed and for a time work on these projects virtually halted. The respondent, however, rendered an account for its fees on an hourly basis and those fees were paid. $200/hour $150/hour $125/hour $175/hour $120/hour $100/hour 6 UNREPORTED JUDGMENTS Shortly before 14 July 1988 Mr Watson telephoned Mr Sasson and suggested that the level of the respondent's fees be reviewed again. Mr Sasson then prepared, but did not sign, a letter dated 14 July 1988 which was in these terms: " Re: Capel Court Advisory Fee Structure I very much appreciate you raising the need to review the fee structure in view of the fact that a major commitment of resources is required by Capel Court to assist and advise Coal and Allied in the forthcoming major strategic restructuring programme, particularly as it is something I have wanted to discuss for some time. I also believe it is appropriate to review the situation, not just because we appear to be entering a major effort, as I believe that we have gone through a number of such major efforts over the last four years, but also because: (a) The fee structure with Coal and Allied is significantly out of line with Capel Court's general fees, which are essentially $250 per executive hour and $100 per hour for computer work rebateable against a success fee of 1%-5% depending on the size of the deal, plus in many cases a non-rebateable un-front fee. (b) The current fee structure is a blend of the R W Miller valuation fee of April 1985 and the refinancing and project funding fee of August 1984 (copies attached). The hourly charge is there as a partial cost recovery exercise with the success fee covering the remaining cost recovery and profitability. Over the last four years we have certainly received significant hourly fees without, unfortunately, billing any success fee. (c) However, it appears to me that under the terms of our arrangements we are due success fees of at least $100,000 being 0.25% on: (i) The $40 million coal stock financing; (ii) The sale of West Wallsend No 2; (iii) The sale of certain assets in New Zealand; (iv) The sale and leaseback arrangement currently being contemplated. The reason we have not billed C and A for the coal stock financing is that it has not been clear to us whether this facility would be replaced by the major refinancing. I fully appreciate that there was no Capel Court input to the last three items. However, it has always been my understanding, and we have always worked that way (see Note of February 20, 1987), to provide an all encompassing advisory service and that the fee structure was designed that way eg John Secker's letter of 9 August 1984 indicates that 'The flat percentage fee would be payable on the signing of funding agreements or the entering of binding commitments for asset sales'. As such we consider these items to be part and parcel of the overall effort and in the same category as Newco (1 and 2), convertible notes, eurodollar issues, private placements, coal stock financing etc. (d) Whilst we have a fee agreement for the acquisition of R W Miller, we do not have a formal arrangement for projects such as PWCS or Charlie. As outlined in our discussion note of February 20, 1987 we see our current financial advisory role as all encompassing covering advice and assisting in the negotiations on asset acquisitions and disposals, new funding with respect to both debt and equity, and re financings including the collapse of the Head Loan Agreement. In the current circumstances which now again contemplates a major commitment for the next five months for both Michael Cosgrove and me, I believe the following fee structure is warranted: (i) Hourly fees of URAL AND ALLIED INDUSTRIES LTD v CAPEL COURT CORPORATION LTD (Clarke JAY Executive Director and Above Associate Director and Senior Manager Below Senior Manager This represents a marginal increase over the rates agreed to for R W Miller in 1985. (ii) An up-front fee of $150,000 that is rebateable against the flat percentage success fees in (iii) and (iv) below. This is intended to cover the remaining costs and a small profit in the event that the contemplated restructuring does not proceed for reasons beyond Capel Court's control. (iii) A success fee of 0.3% on any asset bought or sold payable upon binding commitments. (iv) A success fee of 0.03% for any financing or refinancing over and above that required for R W Miller. In the event that the Westpac Coal Stock facility is not replaced as part of the overall refinancing programme, Capel Court will be due $100,000, offset by the rebateable fee in (ii) above. (v) All out-of-pocket expenses, which shall not be incurred without Coal and Allied's prior approval. (vi) A use of name fee of $20,000 upon public release of any Capel Court valuation or any report based on these valuations. (vii) Fees for non-advisory work such as equity and debt underwriting and placements to be provided by the Capel Court group of companies will be negotiated at the time and will relate to market conditions at the time. I believe that the above structure is fair and reasonable and we look forward to working with Coal and Allied towards a successful conclusion of the major strategic and financing restructuring which I am sure will enable Coal and Allied to meet the challenges of the 1990's. Could you please formally confirm that the above fee structure is acceptable to Coal and Allied." Mr Sasson delivered that draft letter, as he called it, to Mr Watson on 14 July. This document was the subject of a discussion between Messrs Watson and Sasson and, perhaps, others. Little was said, however, which was of relevance to the present issue except insofar as Mr Sasson conceded a lack of entitlement to the success fees mentioned in para(c). Following these discussions the respondent sent a letter dated 29 July 1988 to the appellant in these terms: "Re: Capel Court Advisory Fee Further to our discussions and agreement, the following is the revised Capel Court Advisory Fee Structure. 1. Hourly Fees The following hourly fees will apply as of August 1, 1988. Executive Director and above $225/hour Associate Director and Senior Manager $175/hour 2. Success Fees There will be an up-front $150,000 that will be rebateable against the following flat percentage success fees: 225/hour 175/hour 125/hour 8 UNREPORTED JUDGMENTS Flat Percentage Success Fee (i) Acquisition of R W Miller and other Howard 0.3% Smith Assets 5 (ii) Project Charlie 0.3% (ii) PWCS/KCL Acquisition/Restructuring 0.3% (iv) Nissho/Ube placement 0.3% (v) Any new equity placement, rights issue etc 0.3% (vi) Refinancing of CandA/HS/RWM Leases to the 0.15% 10 | extent that new lenders are introduced into the transaction and is applicable on the funds provided by the new lenders (vii) Refinancing of C and A's existing loan facilities to the extent that: 15 | (a) New lenders are introduced; (b) Existing lenders increase the size of their commitments; (c) That the facilities in (a) and (b) are for a period of | year or more. As was noted in our discussions the up-front flat percentage success fee is intended to cover remaining costs and a small profit in the event that the above projects do not proceed for reasons beyond Capel Court's control. To the extent that new projects are identified the applicable success fee will be considered in 25 the light of the effort and success fees earned up to that point. Clearly we will be flexible and will recognise the importance of our on-going relationship. 3. Out-of-Pocket Expenses Coal and Allied will reimburse Capel Court for all out-of-pocket expenses, which shall not be incurred without Coal and Allied's prior approval. 30 4. Use of Name Fee A use of name fee of $20,000 will be due upon public release of any Capel Court Valuation or any report based on these valuations. 5. Non-Advisory Work Fees for non-advisory work such as equity and debt underwriting and placements to be provided by the Capel Court group of companies will be negotiated at the time and will relate to market conditions at the time. Could you please formally confirm that the above fee structure reflects our agreement. Finally, we look forward to working with Coal and Allied towards a successful conclusion of the major strategic and financing restructuring which I am sure will 40 enable Coal and Allied to meet the challenge of the 1990's." The appellant responded to this letter on 4 August 1988 advising its acceptance of the fee structures as set out in that letter. Following these events the respondent carried out a deal of advisory and other work for the appellant until the end of the year when there were management 45 changes in the appellant following which little call was made on the respondent's services. However, in about March 1989 the appellant did acquire Miller and this acquisition led to the claim which was heard by Brownie J. The appellant challenged the judgment on a number of different grounds which can conveniently be grouped under three headings. I should emphasise, however, 50 that the argument before Brownie J ranged far more widely than it did before this Court. URAL AND ALLIED INDUSTRIES LTD v CAPEL COURT CORPORATION LTD (Clarke JAD THE CONTRACT The appellant pointed out that there was no definition of 'success fees' in the letter of 29 July 1988 and that in order to determine the circumstances in which a flat percentage success fee would be payable to the respondent it was necessary to have regard to the surrounding circumstances including, of course, the earlier arrangements. I put it in that way because, although during the earlier hearing the appellant argued that that letter did no more than set a scale of fees, its counsel Mr Rares described the first issue arising on the appeal as the identification of the mandate in Item 2(i) of the 29 July 1988 letter. He submitted that the parties fully understood that the mere occurrence of the acquisition of Miller by the respondent would not give rise to an entitlement to the 0.3 per cent success fee. According to his argument, and leaving aside the question of any causal nexus between the services rendered by the respondent and the acquisition, the parties understood and intended that an entitlement to that fee would only arise if the appellant acquired the shares in Miller while at the same time retaining its own shareholding in Howard Smith Ltd ("Howard Smith'). A consideration of this submission requires further reference to the background facts. At the time of the relevant events Howard Smith effectively controlled the appellant holding directly or indirectly about 43 per cent of its shares. Furthermore, each of the companies, that is, Howard Smith and the appellant, had a board of six directors four of whom, including the Chairman, were common to both boards. At the same time the appellant held about 22 per cent of the shares in Howard Smith although this percentage varied from time to time. This shareholding came to be known as "the cross shareholding" and was regarded by all concerned in Howard Smith and the appellant as being a valuable protection against the possibility of a hostile takeover of either company. Howard Smith also owned all of the shares in Miller whose business included coal, shipping and other interests. From 1985 onwards the appellant managed Miller's coal interests for Howard Smith. Because its own coal reserves were depleting the appellant wished to acquire from Howard Smith all the shares in Miller and a number of efforts were made to achieve this objective. There were two hurdles which were proving difficult to overcome. The first was a difference between the two companies as to the value of those shares and the second concerned the appellant's lack of financial resources to pay for those shares. The second hurdle could have been overcome if the appellant sold its cross shareholding but this was regarded as unacceptable by both Howard Smith and the appellant. Likewise both companies rejected the notion that the appellant should simply issue more shares. The reason that they objected to this course was that Howard Smith could not readily pay for any more shares and if a new issue was carried out Howard Smith's shareholding in and control over the defendant would have been significantly diminished. According to Mr Rares the contractual arrangement between the parties required that the respondent assist the appellant to acquire the Miller shares upon a basis which did not require the sale of the cross shareholding. The achievement of that objective, according to the argument, required the application of creativity and the particular skills which competent merchant bankers could be expected to bring to such a task. Put more shortly, the respondent was entitled to the success fee only if it assisted the appellant to acquire the shares in Miller upon a basis which did not involve the sale of the cross shareholding. Because the acquisition 10 UNREPORTED JUDGMENTS came to fruition only because the appellant decided to sell its cross shareholding to pay for the shares in Miller no success fee was payable. This argument was also considered by the trial judge. In his view a number of factors led to its rejection. The first was that there was no express limitation upon the respondent's retainer to be found in either the written or oral evidence. The second requires some explanation. At the same time as the respondent was assisting the appellant in relation to its proposed acquisition of the Miller shares Bankers' Trust Australia Ltd ("BT") was advising Howard Smith. During 1988 BT devised a scheme for the acquisition of those shares which was described as "The Hunter Valley Coal Proposal". In the middle of the year this scheme was under serious consideration. On 22 September 1988 Mr Watson spoke to Mr Cosgrove of the respondent inviting him to come up with a better idea than the Hunter Valley Coal Proposal. On 10 October 1988 the respondent wrote a letter, in response to the invitation, in which the following appeared: "We have been asked to provide our views on the most appropriate form of restructuring the coal interests of Coal and Allied ('CandA') and Howard Smith CHSL'). In so doing, we have focused our attention on developing the 'best' restructuring strategy for CandA whilst at the same time attempting to meet all of the stated objectives of HSL. Despite the clear views and requirements of HSL, in the context of their position as the largest shareholder of CandA, we have been encouraged to approach this task with no particular confining guidelines, although we are certainly cognisant of the stated overriding objectives of both companies. With this in mind we respond constructively and in an open manner, although certainly from the viewpoint of developing the most appropriate restructuring from the CandA perspective... the simplest way, of course, would be to dispose of CandA's existing 22 per cent shareholding in HSL." This theme is repeated several times in the letter and there are also set out "three possible ways of disposing of some or all of CandA's HSL shares which would meet the overriding share register concerns of HSL". The fact that the description of the respondent's retainer contained in the first paragraph went unremarked and unchallenged when coupled with the payment by the appellant of the memorandum of fees rendered by the respondent for October constituted the second reason for his Honour's conclusion. The third was his Honour's perception that there was an inconsistency between the claim that the work done in October, which certainly did not proceed upon the basis that the cross shareholding must be retained, was within the retainer for the purposes of a claim for an hourly fee but not in respect of the entitlement to a success fee. Mr Rares has submitted that these factors were insufficient to lead his Honour to his conclusion. He also pointed out that in the letter of 10 October itself the respondent "acknowledged that the Capel Court approach does not meet the primary objective and driving force of the HSL proposal which is for CandA to retain its shareholding in HSL, and that CandA's board remain firmly in support of this investment". There could, in his submission, be no clearer expression of the objectives which both the appellant and Howard Smith sought to achieve, that is, the acquisition by the appellant of the Miller's shares upon a basis which did not involve the disposition of its cross shareholding. Mr Hely QC, senior counsel for the respondent, pointed out that there was nothing in any writing which supported the existence of the condition for which the appellant argued. Nor was there any oral arrangement limiting the \QROAL AND ALLIED INDUSTRIES LTD v CAPEL COURT CORPORATION LTD (Clarke JA)I respondent's entitlement to a success fee to the appellant's successful acquisition of the Miller's shares upon a basis which did not involve its own disposition of the cross shareholding. For these reasons the appellant's argument could only be sustained if such a condition was implied by law or resulted from the course of dealing between the parties. At the trial the appellant did submit that the condition which it sought to impose upon the respondent's entitlement to a success fee was implied by law. His Honour rejected the submission upon the basis that the term contended for by the appellant could not be described as being necessary and referred to the judgment of Hope JA in Castlemaine Tooheys Ltd and Anor v Carlton and United Breweries Ltd and Anor (1987) 10 NSWLR 468, at 486 and 490. The appellant has not repeated the submission in this court and it is therefore unnecessary to consider it further. The appellant does however rely on the course of dealing. Mr Rares submitted that all the discussions between the parties concerning the appellant's acquisition of the Miller shares, at least until 10 October 1988, proceeded upon the fundamental assumption that the appellant would continue to retain the cross shareholding and, as a matter of common sense, there was therefore imported into the agreement the term for which the appellant argued. In my opinion, however, the reasons given by his Honour provide a compelling answer to the submission. Furthermore, an examination of the evidence both written and oral does not support the appellant's case on this issue. The evidence does demonstrate that during the discussions both the appellant and Howard Smith regarded the retention by the appellant of the cross shareholding as a matter of considerable significance, at least until December 1988. But situations change as the facts in this case demonstrate and there is nothing in the discussions and correspondence relating to the fees payable to the respondent which suggests that a condition of the nature suggested by the appellant was imported into the agreement. Initially in April 1985 the primary task allotted to the respondent in connection with the proposed purchase of the Miller shares was the preparation of a valuation and recommended financing options. Both the discussions and the letter of 23 April 1985 contained no mention of the proposed term. The letter, however, spells out in somewhat more detail the role to be filled by the respondent on behalf of the appellant. That included the preparation of a valuation, assisting in raising finance, assisting in negotiations with Howard Smith and others and assisting in shareholder relations. Later in the 1987 discussion paper Sasson referred to a complete evaluation of Miller but there is no reference to the suggested condition. Nor does the letter of 29 July 1988 take the matter any further. There is simply no mention of the suggested term in the correspondence. The respondent's role, as I see it, was to prepare a valuation of the Miller shares, to update it from time to time, to advise on possible means of acquisition of the Miller shares, to negotiate on behalf of the appellant or assist the appellant in the negotiations and to carry out such tasks as the appellant indicated from time to time. It was also important that the respondent should give to the appellant advice which was independent and which was perceived to be independent. This was regarded by the parties as of considerable significance in the light of the common directorships of the two companies and the need for the appellant to act, and to be seen to act, in the best interests of its own shareholders. The role that the respondent was to play as the independent adviser was not 12 UNREPORTED JUDGMENTS unimportant in this contest. In all these circumstances I find no basis for reading into the contractual arrangements, for that is in effect what the appellant urges on the court, a limitation upon the respondent's mandate the consequence of which would be that it would be paid no fees if there was a change of heart in the appellant's camp about the need to retain the cross shareholding. CAUSATION The appellant's next argument was that the respondent would become entitled to payment of the success fee only if it established a causal connection between the respondent's activities and the successful acquisition of the Miller shares by the appellant. The argument was developed in a number of ways and support was sought in a line of cases dealing with claims for real estate commissions (see for instance LJ Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52, at 58-9) which lay down a broad rule that an agent is entitled to commission if it is the effective cause of the relevant sale. I do not find any assistance in that line of cases. Whether the respondent was entitled to commission depended upon whether, according to the contract between the parties, the events had occurred which gave rise to that entitlement. The appellant submitted that that entitlement would only have arisen under the contract if the acquisition took place and the respondent had provided services which caused or materially contributed to the conclusion or successful negotiation of that acquisition. The question which arises is whether his Honour was in error in rejecting the appellant's submission and in concluding that the events had occurred which entitled the respondent to the success fee. There is no doubt that the respondent provided services, and extensive services, to the appellant in connection with the purchase of the Miller shares. It acted as an independent adviser (the importance of that has already been emphasised), it prepared a valuation and updated it when requested, it advised the appellant in negotiations which took place between the appellant and Howard Smith and it actively participated in negotiations, particularly on the aspect of value. In addition it advised, as late as October 1988, that the most advantageous way in which the appellant could proceed would be by disposing of the cross shareholding. Mr Rares concedes that the respondent performed all those services but submits that in reality nothing which the respondent did contributed to the successful outcome of their acquisition proposal. In his submission Howard Smith was, until December 1988 implacably opposed to the disposition by the appellant of the cross shareholding and that all the respondent's efforts prior to that time came to nothing. What, in his submission, led to the successful outcome was a change of heart by the Howard Smith directors and the preparation of a scheme by Howard Smith and its advisers in early 1989 whereby the appellant offered to sell the cross shareholding pro rata to the share holders of Howard Smith and to use the moneys received for the purchase of the shares in Miller. It is unnecessary to detail all the terms of the arrangement as it finally developed but in the end Miller was acquired upon that broad basis and it is clear that the respondent did not give any advice to the appellant during 1989 in relation to the transaction which ultimately took place. According to Mr Rares there was no nexus between any activities on the part of the respondent and the ultimate acquisition. The argument seems to me to fail to recognise the contractual requirements that the respondent provide services for the appellant in connection with the proposed acquisition of the shares and also the actual services which were rendered over many years. URAL AND ALLIED INDUSTRIES LTD v CAPEL COURT CORPORATION LTD (Clarke JAB The project first came to light in about April 1985 and it appears clear to me that the respondent continued to provide advice and assistance as requested by the appellant from that time until some time after February 1987 when the project was temporarily shelved. However, it was revived in July 1988 and in the following few months the respondent rendered considerable advice and prepared another valuation of the Miller shares. This valuation bore considerable importance in relation to the ultimate transaction for it valued the shares at about $30,000,000 less than BT had valued them when carrying out a valuation on behalf of Howard Smith. Further, the respondent was successful in ultimately persuading the personnel of BT that they had overstated an asset (tax losses) by in excess of $20,000,000. As a result the parties settled on a valuation at a much lower figure than the BT valuation, albeit slightly higher than the respondent's valuation. For my part I am unable to understand how it could be said that the respondent's services in providing this valuation and in negotiating with BT, successfully, could not be regarded as an important contribution to the ultimate acquisition. If one compares what was done by the respondent against the specification of its role in the letter of 23 April 1985, or even the discussion paper of February 1987, it will be seen that the respondent performed all the services which it was called upon to carry out towards the successful acquisition. In addition in October the respondent put forward the proposal that the acquisition proceed upon the basis that the cross shareholding was disposed of and it seems clear that this advice came to the knowledge of the interested parties. In these circumstances I am quite satisfied that the respondent established that it had carried out the services which, upon the successful acquisition of the Miller shares, entitled it to a success fee. Although it is unnecessary to deal with a further submission by the appellant it is preferable that I advert to it. Mr Rares pointed out that if the letter of 29 July 1988 was read literally then the respondent would be entitled to the success fee for the performance of services in 1988 and the previous years even if the acquisition did not take place for many years afterwards. For this reason, he submitted, that there must be some limitation implied into the contract and that that was to be found in the effective cause concept for which he argued. In my view it is both unnecessary and undesirable to consider the hypothetical position which he has discussed. The decision in this case falls to be decided, as I have pointed out, upon the contract between the parties and the particular facts in the case. In my opinion upon the facts of this case the respondent established its entitlement to the success fee. I agree with Brownie J. UNCERTAINTY Mr Rares submitted that upon the basis that the whole of the contract between the parties was to be found in the letters of 29 July and 4 August 1988 the contract was void for uncertainty because: (a) There was no criterion against which one could measure the performance of the respondent in order to ascertain whether or not it should be paid; (b) A construction whereby the respondent became entitled to very substantial fees even if it did no work at all on the project, which eventually succeeded, is manifestly absurd and commercially unreal (see Council for the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, at 436-7). 14 UNREPORTED JUDGMENTS Although that was the argument as expressed in the written submissions I do not think that Mr Rares was seeking to convey that the whole contract was void for uncertainty because it is clear that the respondent performed work for the appellant and was paid in accordance with the various agreements for the work which it performed. Rather I understood Mr Rares to be arguing that the particular references to success fees were so vague as to be unenforceable. Brownie J thought there was no substance in this argument and I agree with him. The agreement between the parties was relatively simple. The respondent was to perform particular services for the appellant when called upon to do so and was to be paid fees at an hourly rate. In addition, if certain events occurred, it was to be paid a success fee. Leaving to one side the disinclination of the courts to find that agreements are void for uncertainty I can find no basis upon which such a determination could be made in this case. The appeal should be dismissed with costs. Handley JA I agree with Clarke JA. The appeal is dismissed with costs. Counsel for the appellant: S Rares Solicitors for the appellant: Mallesons Stephen Jaques Counsel for the respondent: PG Hely QC and RG Forster Solicitors for the respondent: Abbott Tout Russell Kennedy