Court upholds “tail-gunner” clause

Background

“Tail-gunner” clauses are often used by corporate finance advisers in their terms of engagement so that if a transaction completes within a certain period after the termination of their engagement, a success fee is payable to the adviser despite the fact that they are no longer engaged at the date of completion.  The clause is so-called as it refers to the parting shot of a bomber finishing his sortie.  A recent case has upheld the use of such a clause.

Facts of the case

Grandtop International Holdings Limited (Grandtop) engaged Seymour Pierce Limited (Seymour Pierce) in June 2007 to advise on its acquisition of Birmingham City Football Club (club). It was initially envisaged that the transaction would proceed by way of a recommended takeover. The terms of engagement provided for a £2.2 million success fee and stated:

“In the event the engagement pursuant to this letter of engagement is terminated by the Company and an Offer for the Target is declared or becomes wholly unconditional as the result of any offer made by or in association with the Company within a period of 12 months after the effective date of termination the Company shall pay to Seymour Pierce the Success Fee in full.”

The transaction did not proceed in the manner which had been envisaged and Seymour Pierce’s involvement declined, resulting in their engagement being formally terminated in May 2009. Grandtop eventually completed (with input from another corporate finance adviser) its acquisition of the club in September 2009, 4 months into the “tail-gunner” period. Seymour Pierce sued for the success fee.

Decision

Grandtop argued that Seymour Pierce had not been the effective cause, or even one of the effective causes, of the final transaction and did not deserve the success fee. However, the court held that the terms of engagement clearly stated that the success fee was payable irrespective of whether Seymour Pierce had been responsible for completion of the transaction in its final form.

Comment

The case turned on the wording used in Seymour Pierce’s terms of engagement and therefore highlights the importance of careful drafting. In hindsight, Seymour Pierce’s terms seemed uncommercial and unreasonable as they resulted in Grandtop having to pay the fees of two sets of corporate finance advisers. Nonetheless, the court found in favour of Seymour Pierce. This is good news for corporate finance advisers but not for their clients who should, despite such a clause often being non-negotiable, try at least to limit its duration.

Seymour Pierce Limited v Grandtop International Holdings Limited [2010] EWHC 676 (QB)