No Engagement Letter - No Fees?

• Published date: 07 March 2023
• Subject Matter: Finance and Banking, Insurance, Financial Services, Insurance Laws and Products
• Law Firm: Maples Group
• Author: Ms Elizabeth Bradley, Alma O'Sullivan and Vanessa Lawlor

In the recent case of Fenchurch Advisory Partners LLP v AA Limited [2023] EWHC 108 (Comm) the English High Court found that no binding contract was created where no engagement letter was ever signed, even though the terms of engagement were extensively negotiated, significant work completed and fee details agreed.

Speed Read

• This case revolves around the claim for fees brought by an investment banking and corporate finance advisory firm, Fenchurch Advisory Partners LLP ("Fenchurch") in respect of legal advisory work provided to its client AA Limited (the "AA"), an insurance business, in respect of selling part of the AA's business.
• The terms of engagement were heavily negotiated between the parties but no engagement letter was ever signed. In addition, the proposed transaction did not ultimately materialise.
• The English High Court found that due to the lack of a signed engagement letter no binding contract existed between the parties and no contract could be implied.
• However, the court applied the principles of recovery in restitution in favour of Fenchurch's cost to avoid the AA being unjustly enriched. Fenchurch was only able to recover a percentage of what it believed to be the true value of the work provided, which it estimated exceeded '4 million.

Key Facts

• In July 2018, the AA approached Fenchurch to assist it in a possible restructuring and refinancing of its business by selling off part of its insurance business. Despite no signed engagement letter being in place, Fenchurch assisted in preparing two potential sale transactions, both of which were ultimately put on hold.
• Concurrently, there were ongoing discussions around the fee terms for the work. The fee proposal included a success fee based on the value of the transaction and a nominal performance-related fee. The true monetary value in such agreements is the success fee as it entitles the advisor to a percentage of the transaction value upon successful completion.
• In addition, Fenchurch wanted to introduce an additional 'abort' fee or modify the success fee. The AA would have to pay the abort fee if the AA stopped the transaction process between initial expressions of interest and firm offers Alternatively, the modified success fee would be due where the transaction failed due to a public offer or rejection of the sale by the AA's shareholders.
• Both parties appeared to believe that they would ultimately agree a fee arrangement but at no point was a final engagement letter signed. The...