JP Morgan Case Down-Under Is Set To Shine The Spotlight On Investment Banking Fees…But Not So Fast
By: Ainsley Brown
The stage was for a very interesting court battle in Australia pitting advisor against former client; at stake the fees that the advisor could charge. While the case remains interesting the deep probing spotlight that it promised on investment banking fees alas may not materialize.
JP Morgan Chase, the investment bank is suing its former client Consolidated Minerals (ConMin), an Australian manganese miner, in Australian court for the balance of its advisory fees. The case is being followed very closely in investment banking circles because its risks exposing the normally highly confidential fee structure of one of the industry’s leaders. The case also comes as investment banks have come under greater scrutiny, namely because of what some claim are excessive fees.
It is not that disputes about the fees investment bank’s charge never happen or infrequent – on the contrary, I am sure they arise from time to time – it’s just that they are never this public. In fact the choice of the courts as the forum for dispute resolution is rare indeed, negotiations over the board room being the normal venue. What this tells me is that there has been a total break down in trust, trust being an essential if not the essential ingredient in an adviser-client relationship. When it breaks down, as is the case here, more than bitter feelings might ensue.
The case centers around JP Morgan seeking A$30.8 million representing the balance of it’s A$50 million fee it charged Consolidated Minerals when ConMin was up for sale in 2006. After a 14 month bidding war Palmary Enterprises, led by Ukrainian billionaire Gennadly Bogolyubov came out on top with a A$1.3 billion share cash offer. In 2008 after the new owners took control of ConMin, to their apparent astonishment, received a bill from JP Morgan in the amount of A$50.8 million for services rendered. At issue here wasn’t the bill itself – it was expected – but what was unexpected was its size especially since ConMin was operating under the notion that JP Morgan had agreed to cap its fees at A$7 million after an alleged phone conversation that took place in 2006. Although this was its understanding ConMin went ahead and paid JP Morgan A$20 million dollars in what it believed was full and final settlement for the latter’s services.
This brings us to the current situation, where JP Morgan is seeking to recoup the remaining A$30 million owning to it. In an unsurprising move, given the break down of trust, ConMin counter claimed by accusing JP Morgan of failure to deliver, being misleading and deceptive, reneging on the agreement to cap its fees and double and some times even triple charging for the same services.
Now as it turns out ConMin has now dropped its counterclaim after the lawyers for JP Morgan wrapped up its case. What is more, ConMin has now decided not to call any witness or submit any documents to aid its defense – yes you read correct no witnesses and no documents. This is either a case of arrogance or capitulation.
How so, could it not be the case that ComMin’s lawyers are just confident that JP Morgan’s lawyers have not proven their case?
If that were the case, then why not call for the case to be dismissed and move for summary judgment or have it dismissed as being frivolous and vexatious? Now I am not versed on the Civil Procedure Code of New South Wales but I am sure that they have such provisions in their code. Therefore, I will repeat this is either a bout of arrogance or capitulation.
Now all that remains is for both sides to prepare and submit their final submissions to the judge. What an anti-climax to a case that had the promise of so much.
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