In the second half of 2013 the case of Daniel Stewart & Company Plc v Environmental Waste Control Plc [2013] EWHC 1763 (QB) raised points to consider when drafting abort fee provisions in engagement letters.


Environmental Waste Control Plc (the “Company”) engaged Daniel Stewart & Company Plc (“DS”) to be its nominated adviser in respect of its admission to AIM.

The engagement letter provided that the Company would pay DS an abort fee of £150,000 if the transaction was aborted “for reasons unconnected to the broker [DS] or its performance prior to completion of the marketing and book build process”. However no abort fee would be payable “if upon completion of the marketing and book build process both parties agree that the admission cannot or should not proceed”. DS advised the Company to proceed with admission at a lower valuation than the director and main shareholder’s estimated valuation. As a result, the Company aborted the transaction and DS sought payment of the abort fee.

Company’s arguments

The Company claimed that no abort fee was payable.

Firstly, it argued that a term should be implied into the engagement letter that DS had to act reasonably in agreeing that the transaction should not proceed and that DS had acted unreasonably in advising the Company to go ahead with the transaction at the lower valuation.

The High Court found that:

  1. implying a term of reasonableness would create uncertainty in the provision, and the wording of the clause was clear as drafted. 
  2. the wording of the clause was subject to the requirement for DS to act rationally and not arbitrarily or perversely, which in itself gave the Company protection. 
  3. if the parties had intended the clause to be qualified by the requirement to act reasonably, they should have stated so expressly in the clause.

The Court also commented that even if the parties had included a reasonableness qualification, the facts of the case were such that it would not be possible to identify some objective criteria of reasonableness and expert evidence would not assist.

Secondly, the Company contended that DS’ performance during the marketing and book build process had been inadequate, contributing to the Company’s decision to abort the transaction. The Company had, however, instructed DS to continue to contact potential investors for a short period of time after its decision to abort the transaction and the Company did not at any stage claim that DS was in breach of the terms of its engagement. The Court, striking down the Company’s secondary argument, found that DS had not failed to use its reasonable endeavours to procure placees.

Therefore, the Court held that the Company was liable to pay the abort fee.

Dorsey Comments

This case is a good reminder of why it is prudent to set out the terms of engagement clearly in engagement letters. Particular consideration should be given to the circumstances in which the engagement can be terminated, what fees and commissions are payable on termination, and whether the amount of fees payable varies depending upon what stage of the transaction termination occurs or which party (if any) causes the termination. 

Placing agreements and broker agreements typically contain detailed provisions on fees and commissions and the circumstance in which these are payable. In engagement letters such clauses are often less clearly drafted than in the placing agreement, which is why the placing agreement usually provides that, in the event of a conflict between the two, the terms of the placing agreement will prevail. However, as a placing agreement is signed during the latter stages of a transaction, it is prudent to ensure that the engagement letter also clearly sets out the parties’ intentions regarding fees, commission and abort fees.

In light of this case companies may start requesting that minimum valuations be included in broker engagement letters. This is likely to be resisted by brokers on the basis that it is for the market to determine the price per share and hence the valuation.