High Court considers whether "success fee" is payable by client to investment bank in respect of capital raise

The High Court has ruled that an investment bank was not owed a success fee in respect of capital raised by its client, in circumstances where the contract was ambiguous and the fee would be contrary to commercial sense: Kigen (UK) Ltd v NOR Capital Ltd [2024] EWHC 3164 (Ch).

The dispute centred on whether the investment bank, as the company's financial adviser for securing offers from potential investors, was entitled to a success fee after failing to secure suitable external investment and where the company's parent affiliates ultimately provided the necessary capital. The court acknowledged that there was an obvious tension in the relevant clause, as it said there would be "no charge" for funding provided by management or the existing majority shareholder, but later in the clause said there would be a "minimum success fee of GBP 500,000 regardless of the source of the funding".

The case provides a reminder that contractual interpretation is a unitary exercise, in which the court must strike a balance between considering the words used and the commercial implications (per Wood v Capita Insurance Services Ltd [2017] UKSC 24, see our blog post). It highlights that where there is contractual ambiguity, the court will take into account the wider factual context and commercial sense, including in this case the services that the investment bank was engaged to provide and the fact that it would make little commercial sense for the company to be obliged to pay a success fee when "the actual outcome was precisely the one which it was the commercial purpose of the Agreement to avoid".

For more information see this post on our Banking Litigation Notes blog.