Back
2024 MarsdenLR 2922
HIGH COURT MALAYA PULAU PINANG
KENNETH ST JAMES, JC
DELOITTE CORPORATE ADVISORY SERVICES SDN BHD – Appellant
Versus
LIM THAM CHENG & ORS – Respondent
[Civil Suit No: PA-22NCVC-230-11/2019]
The Success Fee clause in a consultancy agreement remains enforceable despite pauses in negotiation, affirming the Plaintiff's entitlement to payment based on the contract terms.
Headnote:(A) Engagement Letter - Consultancy Agreement - Success Fee Clause - The Plaintiff engaged to assist Defendants in selling shares in their company; Defendants completed the sale but refused to pay the success fee. Court found the Engagement Letter valid and enforceable, affirming the obligation to pay the Minimum Success Fee of RM2.915 million. (Paras 1-2, 12, 128)
(B) Contractual Obligations - The court ruled that the Success Fee clause remained enforceable despite negotiations being paused and later resumed, emphasizing the validity of the clause as it was not contingent on continued involvement post-termination. (Paras 66, 82, 128)
Facts of the case:
The Plaintiff entered into a consultancy agreement with the Defendants to assist in selling shares. After the sale was completed, the Defendants disputed the success fee, leading to litigation. (Paras 1-4)
Findings of Court:
The court found that the Plaintiff's work directly contributed to the successful sale and upheld the enforceability of the Success Fee clause. (Paras 70, 128)
Issues: The main questions were whether the sale was a result of the Plaintiff's efforts and whether the Success Fee was payable despite the Defendants' claims of contract lapsing. (Paras 17, 99)
Ratio Decidendi: The court concluded that the Success Fee clause was valid and enforceable, and the Plaintiff was entitled to the fee based on the contractual terms. (Paras 82, 128)
Result: Plaintiff's claim allowed; Defendants ordered to pay RM2.915 million plus interest and costs. (Paras 128)
Key Points: - (!) - (!) - (!) - (!) - (!) - (!)
What is the enforceability of a Success Fee clause in a consultancy engagement after negotiations pause or termination?
What is the Court's finding regarding whether the Engagement Letter lapsed or was terminated and its effect on the Success Fee?
What is the outcome regarding the obligation to pay the Minimum Success Fee, the Difference, and related costs and interest?
(Post-Trial)
Prelusion
[1] The Plaintiff (P) entered into a type of consultancy or advisory agreement with the Defendants (Ds). The contract was for P to assist and advise Ds to sell their shares in the company they owned.
[2] The contract contained a success fee clause. It is a term to pay P a contingency fee, if Ds get to sell their shares.
[3] P assisted and advised Ds. P worked on getting Ds' shares sold.
[4] Ds eventually completed the transaction to sell their shares to an ultimate buyer. But when P demanded for their success fee, Ds refused to pay. P filed this suit. When the suit was filed, only the 1st Defendant paid up. The other Defendants defended against the claim.
[5] Should P's claim against the other Defendants for the success fee be allowed?
Preliminaries
[6] The trial was conducted over nine days of evidence-gathering and submissions.
Plaintiff's Claim
[7] Ds were the majority shareholders in their company: Alpha Precision Turning And Engineering Sdn Bhd (Alpha). They wanted to sell their majority stake in Alpha (Transaction). They engaged P to advise them and to find them a buyer. They engaged P in June 2015 to work on the Transaction.
[8] The contract between P and Ds is the Engagement Letter dated 22 June 2015 (Engagement Letter). In consideration of P's work and services, P was to be paid milestone fees (which did not depend on the completion of the Transaction) and a Success Fee (which is dependent on the completion of the Transaction).
[9] In August 2016, P approached Platinum Equity International Advisors Pte Ltd (PE) to buy Ds' shares.
[10] From August 2016 until December 2018, P worked on and provided services to complete the Transaction.
[11] The negotiations with PE were terminated twice — once in November 2017 and then again in March 2018. But in both instances, negotiations were revived and continued further. The negotiations culminated in a further revised final Term Sheet that P worked on, and which was forwarded to PE to respond to. Up until May 2018, P was, on Ds' behalf, forwarding updated financial information on Alpha to PE, to complete the Transaction.
[12] Then a year later in May 2019, P discovered that the Transaction was completed. Ds sold their majority shareholding in Alpha to Compart: the investor that PE, P and Ds intended (and knew) would be the ultimate buyer.
[13] P then proceeded to claim for the Success Fee as contracted for in the Engagement Letter.
[14] The 1st Defendant (D1/Lim) settled with P and recorded a Consent Judgment to pay his portion of P's claim. He paid RM517,704.00 to P under the Consent Judgment.
[15] P's prayers (claims) include:
(1) the 2nd to 5th Defendants (D2-D5) are to jointly and severally pay P RM2.915 million (which is the agreed Minimum Success Fee + 6% service tax of RM165K;
(2) the difference, if any, between the Success Fee calculated using the Success Fee Formula, and the RM2.915 million (Difference);
(3) less the RM517,740.00 that D1/Lim already paid;
(4) damages;
(5) the Difference and damages, if the Court decides so, are to be assessed by the Registrar under O 37 of the Rules Of Court 2012 (ROC), and if this assessment of damages prayer is allowed, then D2-D5 must deliver up to P all the documents relevant to the Success Fee, within 14 days from Judgment date; and the parties are to appear before the Registrar within 21 days to take directions for the Assessment Of Damages under O 34 of the ROC;
(6) D2-D5 are to jointly and severally pay interest at 5% per annum on the amount of damages ordered to be paid from the date of the Writ to the date of full payment;
(7) costs;
(8) interest on costs at 5% per annum;
(9) any other relief that this Court deems fit and just.
D2-D5's Defence
[16] D2-D5's defences, gleaned from D2-D5's Summary Of Case are as follows:
(1) The Engagement Letter had "lapsed", and the Minimum Success Fee clause is "irrelevant", since the Success Fee is contingent on the completion of the Transaction.
(2) The Success Fee F
